SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 15, 1999 Date of earliest event reported:
March 31, 1999
Dycom Industries, Inc.
(Exact name of Registrant as specified in its charter)
Florida 0-5423 59-1277135
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
4440 PGA Boulevard, Suite 500, Palm Beach Gardens, Florida 33410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 627-7171
Exhibit Index on Page 3
1
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Item 2. Acquisition and Disposition of Assets.
On March 31, 1999, Dycom Industries, Inc., a Florida
corporation (the "Company"), acquired Ervin Cable Construction, Inc., a Kentucky
corporation ("Ervin"), and Apex Digital TV, Inc., a Kentucky corporation
("Apex"). The acquisition of Ervin was consummated pursuant to a Stock Purchase
Agreement, dated March 12, 1999 (the "Stock Purchase Agreement"), between the
Company and the stockholders of Ervin and the acquisition of Apex was
consummated pursuant to an Agreement and Plan of Merger, dated March 12, 1999
(the "Merger Agreement"), among the Company, Apex, Dycom Acquisition Corporation
III, a Kentucky corporation, and the stockholders of Apex. Copies of the Stock
Purchase Agreement and the Merger Agreement are included herewith as Exhibits
2(i) and 2(ii), respectively.
Pursuant to the Stock Purchase Agreement, the Company
purchased all of the issued and outstanding shares of common stock, no par value
per share, of Ervin. The stockholders of Ervin received an aggregate of 258,066
shares of common stock, par value $0.331/3 per share, of the Company ("Common
Stock") and $21,750,000 in cash. For each share of common stock, no par value
per share, of Ervin, the stockholders received 860.22 shares of Common Stock and
$72,500 in cash. The Company funded the cash portion of the consideration with
borrowings under its credit facility.
Pursuant to the Merger Agreement and the Articles of Merger
(as defined below), dated April 1, 1999, at the Effective Time (as defined in
the Merger Agreement) Dycom Acquisition Corporation III, a wholly-owned
subsidiary of the Company, was merged with and into Apex with Apex as the
surviving corporation (the "Merger"). As a result of the Merger, the separate
corporate existence of Merger Sub ceased and the shareholders of Apex became
shareholders of the Company. The Articles of Merger for Apex (the "Articles of
Merger") are included herewith as Exhibit 99(i) and are incorporated herein by
reference. Pursuant to the Merger Agreement, the Company issued an aggregate of
516,128 shares of Common Stock to the stockholders of Apex. The stockholders of
Apex received 1,376.34 shares of Common Stock for each share of Apex common
stock, no par value per share, issued and outstanding immediately prior to the
Effective Time.
In connection with the acquisitions, the Company entered into
a Registration Rights Agreement, dated March 31, 1999 (the "Registration Rights
Agreement"), with the stockholders of Ervin and Apex. The Registration Rights
Agreement grants such stockholders certain rights to have their shares of Common
Stock issued in connection with the acquisitions registered under the Securities
Act of 1933, as amended.
The foregoing description of the Stock Purchase Agreement, the
Merger Agreement, the Registration Rights Agreement and the Articles of Merger
does not purport to be complete and is qualified in its entirety by reference to
such documents, attached hereto as
2
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Exhibits 2(i), 2(ii), 4(i) and 99(i) respectively, and incorporated by reference
herein. The terms of the acquisitions are set forth in the Stock Purchase
Agreement and the Merger Agreement and were established through arm's length
negotiations between the parties to such agreements.
Prior to the acquisitions, the three stockholders of Ervin
held 80% of the outstanding shares of common stock of Apex. Ervin, a Sturgis,
Kentucky based firm, builds and installs new cable TV systems and provides
repair and expansion services to existing cable TV systems in several states.
Apex, a Sturgis, Kentucky based firm, installs direct broadcast satellite
systems and provides cable sales and repair services in several states. Ervin
and Apex will conduct business as wholly-owned subsidiaries of the Company. The
Company intends to use the assets acquired pursuant to the acquisitions in the
business in which the assets were used prior to the acquisitions, subject to
such changes as the Company may deem appropriate in the future.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
See Exhibit 7(a).
(b) Pro forma financial information.
See Exhibit 7(b).
(c) Exhibits.
2(i) Stock Purchase Agreement, dated as of March 12,
1999, between Dycom Industries, Inc. and Gary E.
Ervin, Timothy W. Ervin and Robert W. Ervin.
2(ii) Agreement and Plan of Merger, dated as of March
12, 1999, among Apex Digital TV, Inc., Dycom
Acquisition Corporation III, Dycom Industries, Inc.
and Gary E. Ervin, Timothy W. Ervin, Robert W.
Ervin, Keith E. Walker, Robert J. Chastain, Charles
T. McElroy and Penny J. Ward.
4(i) Registration Rights Agreement, dated as of March
31, 1999, among Dycom Industries, Inc., Gary E.
Ervin, Timothy W. Ervin, Robert W. Ervin, Keith
E. Walker, Robert J. Chastain, Charles T. McElroy
and Penny J. Ward.
23(i) Consent of York, Neel & Co. - Owensboro, LLP.
99(i) Articles of Merger, dated April 1, 1999, for Apex
Digital TV, Inc.
3
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99(ii) Press release issued March 31, 1999.
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYCOM INDUSTRIES, INC.
Date: April 15, 1999 By: /s/ Steven Nielsen
-----------------------------------------
Name: Steven Nielsen
Title: President and
Chief Executive Officer
By: /s/ Douglas J. Betlach
-----------------------------------------
Name: Douglas J. Betlach
Title: Vice President, Chief Financial
Officer and Treasurer
5
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Exhibit 7(a)
ERVIN CABLE CONSTRUCTION, INC.
---------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended December 31, 1998
<PAGE>
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Income Statement 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Supplemental Information:
Schedule of General and Operating Expenses 11
<PAGE>
[Letterhead of York, Neel & Co.,-Owensboro, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ervin Cable Construction, Inc.
Sturgis, Kentucky
We have audited the accompanying balance sheet of Ervin Cable Construction, Inc.
(a Subchapter S Corporation) as of December 31, 1998, and the related statements
of income, changes in stockholders' equity 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 financial statements referred above present fairly, in all
material respects, the financial position of Ervin Cable Construction, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule on page 12 is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ York, Neel & Co.-Owensboro, LLP
March 8, 1999
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 1,830,236
Trade receivables, net of allowance for doubtful
accounts of $226,786 7,212,280
Accounts receivable, employees 89,457
Due from related parties 114,771
Other receivables 290,868
Costs and estimated earnings in excess of
billings on uncompleted projects 1,416,664
Prepaid expenses 27,465
-----------
Total current assets 10,981,741
-----------
Property and equipment:
Buildings and leasehold improvements 163,282
Machinery and equipment 1,997,313
Vehicles and airplanes 3,741,060
Furniture and fixtures 400,831
-----------
6,302,486
Less accumulated depreciation 2,082,132
-----------
Total property and equipment 4,220,354
-----------
Total assets $15,202,095
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 2,889,452
Current portion of long-term debt 30,933
Accounts payable 1,415,437
Accrued salaries and payroll taxes 188,190
Accrued profit sharing and 401(k) contribution 68,924
Billings in excess of costs and estimated
earnings on uncompleted projects 571,191
Due to related party 178,504
Accrued insurance payable 90,389
Accrued health insurance 91,100
Other accrued liabilities 76,116
-----------
Total current liabilities 5,600,236
-----------
Long-term debt, net of current portion 42,755
Commitments and contingencies -
-----------
Stockholders' equity:
Common stock, no par value:
Authorized shares, 1,000
Issued and outstanding shares, 300 48,532
Paid-in capital 2,217,000
Retained earnings 7,293,572
-----------
Total stockholders' equity 9,559,104
-----------
Total liabilities and stockholders' equity $15,202,095
===========
The accompanying notes are an integral part
of these financial statements.
2
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ERVIN CABLE CONSTRUCTION, INC.
INCOME STATEMENT
for the year ended December 31, 1998
Construction and installation revenues earned $30,670,747
Other revenues earned 87,468
-----------
Total revenues earned 30,758,215
Cost of revenues earned 23,677,031
-----------
Gross profit 7,081,184
-----------
General and operating expenses 2,887,113
-----------
Income from operations 4,194,071
-----------
Other income (expense):
Interest expense (221,762)
Interest income 313,068
Loss on disposal of assets (25,158)
Other income 1,133
-----------
67,281
-----------
Net income $ 4,261,352
===========
The accompanying notes are an integral
part of these financial statements.
3
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ERVIN CABLE CONSTRUCTION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the year ended December 31, 1998
Common Paid-in Retained
Stock Capital Earnings Total
-------- ----------- ----------- -----------
Balance,
December 31, 1997 $ 48,532 $ 2,217,000 $ 6,262,647 $ 8,528,179
Net income -- -- 4,261,352 4,261,352
Dividends paid -- -- (3,230,427) (3,230,427)
-------- ----------- ----------- -----------
Balance,
December 31, 1998 $ 48,532 $ 2,217,000 $ 7,293,572 $ 9,559,104
======== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1998
Cash flows from operating activities:
Net income $ 4,261,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 889,013
Loss on disposal of assets 25,158
Allowance for doubtful accounts 226,786
Changes in operating assets and liabilities:
Increase in trade receivables (859,919)
Increase in accounts receivable, employees (22,312)
Increase in other receivables (290,868)
Increase in costs and estimated earnings in
excess of billings on uncompleted projects (763,447)
Decrease in due from related parties 829,414
Decrease in other assets 3,210
Increase in accounts payable 385,844
Increase in accrued liabilities 105,301
Increase in billings in excess of costs
and estimated earnings on uncompleted projects 451,683
Increase in due to related party 178,504
------------
Net cash provided by operating activities 5,419,719
------------
Cash flows from investing activities:
Purchases of property and equipment (3,023,736)
Proceeds from disposal of equipment 151,303
Loan advances to related parties (3,957,183)
Repayments of loan advances to related parties 6,081,383
------------
Net cash used by investing activities (748,233)
------------
Cash flows from financing activities:
Advances on short-term debt 21,907,382
Principal payments on long-term debt (28,753)
Principal payments on short-term debt (22,096,337)
Loan advances from related parties 15,552,433
Repayments of loan advances from related parties (16,152,916)
Dividends paid (3,230,427)
------------
Net cash used by financing activities (4,048,618)
------------
Net increase in cash and cash equivalents 622,868
Cash and cash equivalents, beginning of year 1,207,368
------------
Cash and cash equivalents, end of year $ 1,830,236
============
Supplemental Disclosures
Cash payments of interest in 1998 were $207,427.
During 1998 the Company traded assets with a net book value of $93,712 for
similar assets.
During 1998 the Company acquired equipment in the amount of $102,440 with direct
financing from the vendor.
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The more significant accounting policies of the Company are as follows:
a. Company's Activities and Operating Cycle
The Company installs new cable TV systems and provides repair and
expansion to existing cable TV systems. Installations of new systems
are performed primarily under per foot, fixed-price contracts.
The length of the Company's projects vary but are typically about one
year. Therefore, assets and liabilities are classified as current and
noncurrent because the project-related items in the balance sheet have
realization and liquidation periods within one year.
b. Revenue and Cost Recognition
Revenues from fixed-price and modified fixed-price projects are
recognized on the percentage-of-completion method. This method is used
because management considers completed installation to be the best
available measure of progress. Agreements generally provide for fixed
prices per foot of above ground and underground plant installation.
Percentage of completion and revenue earned are determined based on
actual completed cable installation and the related per foot price for
such installation.
Construction costs include all direct material and labor costs and
those indirect costs related to performance. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted projects are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from
penalty provisions, and final settlements may result in revisions to
costs and income and are recognized in the period in which the
revisions are determined. An amount equal to costs attributable to
claims is included in revenues when realization is probable and the
amount can be reliably estimated.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted projects," represents revenues recognized in excess of
amounts billed. The liability, "Billings in excess of costs and
estimated earnings on uncompleted projects," represents billings in
excess of revenues recognized.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
The Company holds a certificate of deposit at December 31, 1998, in the
amount of $5,484, to be held for security against payment of any
Company checks cashed by employees or subcontractors at a bank in an
area where the Company has a project.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on
the basis of the estimated useful lives of each depreciable asset and
computed primarily on the declining balance method. When assets are
Continued
6
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ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
d. Property and Equipment
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and
betterments are capitalized. Reductions are made for retirements
resulting from renewals or betterments. Depreciation expense was
$889,013 for the year ended December 31, 1998.
e. Income Taxes
Income taxes have not been provided because the Company has elected,
with the consent of its shareholders, to be treated as a small business
corporation for income tax purposes as provided in Section 1362(a) of
the Internal Revenue Code. As such, the Company's income or loss and
credits are passed to the shareholders and combined with their other
personal income and deductions to determine taxable income on their
individual tax returns. Therefore, stockholder distributions are
typically made subsequent to year end to satisfy income tax liabilities
for the preceding year.
f. Accounting 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.
Material estimates that are particularly susceptible to significant
change relate to the estimate of the extent of progress towards
completion of projects. Management utilizes its latest information in
computing its estimates. Future revisions may be necessary due to
changes in price or unanticipated circumstances. Because of these
factors, it is reasonably possible that estimated amounts may change
materially in the near term.
2. Trade Receivables
At December 31, 1998, the Company's trade receivables consist of the
following:
Billed:
Completed phases $ 1,199,788
Phases in progress 5,943,300
Retainage 295,978
-----------
7,439,066
Less allowance for doubtful accounts 226,786
-----------
$ 7,212,280
===========
Continued
7
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
3. Costs and Estimated Earnings on Uncompleted Projects
Costs and estimated earnings on uncompleted projects at December 31, 1998
consists of the following:
Costs and estimated earnings on uncompleted
projects $19,872,787
Less billings to date 19,027,314
-----------
$ 845,473
===========
Included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted projects $ 1,416,664
Billings in excess of costs and estimated
earnings on uncompleted projects (571,191)
-----------
$ 845,473
===========
4. Short-Term Debt
Short-term debt at December 31, 1998 consists of the following:
Revolving line of credit, payable on demand,
maximum principal advance of $8,000,000,
interest payable quarterly at a variable rate
(currently 8.75%); guaranteed by the
Company's stockholders; the line is secured
by all of the Company's property and
equipment with a net book value of $4,220,354
and inventory, accounts and notes receivable,
general intangibles and assignment of life
insurance proceeds. $2,889,452
Redi-credit line at financial institution for
overdraft protection in the amount of $50,000. -
-----------
$ 2,889,452
===========
5. Long-Term Debt
Long-term debt at December 31, 1998 consists of the following:
8% note payable for equipment due in monthly
installments of $3,211 through February 1, 2001;
secured by equipment with a net book value of
approximately $80,500. $ 73,688
===========
Future maturities of long-term debt at December 31, 1998 are as follows:
1999 $ 30,933
2000 36,426
2001 6,329
-----------
73,688
Less amounts due within one year 30,933
-----------
$ 42,755
===========
Continued
8
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
6. Accounts Payable
Accounts payable include amounts due to subcontractors, totaling $835,646,
which have been retained pending completion and customer acceptance of
jobs. All retainages are expected to be paid within one year.
7. Related Party Transactions
During the course of operations, the Company loans money to and borrows
money from affiliated entities. Interest thereon is paid based on rates
charged on the Company's established credit lines. The Board of Directors
has authorized borrowing and lending limits with certain of the entities.
In January 1996, the Company loaned $2,855,700 to GTR, Inc., an S
Corporation owned 100% by the stockholders of Ervin Cable, to be utilized
in the purchase of a cable T.V. system. The balance was paid in full as of
December 31, 1998. Ervin Cable Construction had held a second mortgage lien
on GTR, Inc. in connection with this loan. Interest income related to this
note was $73,917 for the year ended December 31, 1998.
During 1997, the Company advanced operating funds to Country Corner Oil,
Inc., a corporation owned 50% by the stockholders of Ervin Cable. The
balance was paid in full as of December 31, 1998. Interest income related
to this note was $16,425 for the year ended December 31, 1998.
During 1997 and 1998 the Company borrowed funds from Ervin Cable T.V.
Partnership, a partnership owned by the Company stockholders. The balance
was paid in full as of December 31, 1998. Interest expense related to this
loan was $56,830 for the year ended December 31, 1998. The arrangement with
Ervin Cable TV was evidenced by a demand promissory note.
During 1997, the Company began construction of a fiber optic cable network
in Texas for Communication Systems Development, Inc. (CSD) a company
controlled by the stockholders of Ervin. As of December 31, 1997 $1,583,298
had been completed and $806,508 was owing from CSD. During 1998, ECC
completed the network and billed CSD $1,866,038 in additional costs, which
were paid during 1998.
During 1998, ECC participated in CSD's construction of a fiber optic
network by supplying material, subcontractors and labor in the amount of
$6,131,390. ECC recorded $32,186 in revenue for its coordination and
administrative services related to this project.
The Company has issued a variable rate (currently 8.5%) unsecured revolving
line of credit up to $10,000,000 to CSD evidenced by a demand promissory
note. There were no outstanding advances on the line as of December 31,
1998. Interest income earned on this revolving line was approximately
$175,000 for the year ended December 31, 1998.
8. Concentration of Credit Risk
Substantially all of the Company's revenues are derived from installation
of cable systems in Kentucky, Alabama, Illinois, Iowa, Indiana, Tennessee,
Missouri, South Carolina, and Georgia.
Management believes that its contract acceptance and billing and collection
policies are adequate to minimize potential credit risk.
Continued
9
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
8. Concentration of Credit Risk, Continued
The Company held a cash deposit balance as of December 31, 1998 in a local
financial institution in the amount of $1,799,694. This balance is in
excess of the federally insured limit of $100,000.
9. Leasing Arrangements
The Company leases warehouse and storage buildings under short-term leases.
The Company had a five-year lease agreement which expired May 31, 1998,
with Riverchase Trade Center for office space and a month-to-month lease
for warehouse space. The lease for office space continued month-to-month
until March 1999, when a new 2 year lease, effective April 1, 1999, was
signed for $3,000 per month. Riverchase Trade Center is a partnership 2/3
owned by the stockholders of Ervin Cable Construction, Inc.
The Company began leasing office space in 1998 from Apex Digital TV, Inc.,
under a month-to-month arrangement. Apex Digital is a corporation that is
80% owned by the stockholders of Ervin Cable Construction, Inc.
The following is a schedule of future minimum rental payments required
under leases with initial terms in excess of one year as of December 31,
1998:
Year Ending
December 31, Amount
1999 $ 61,800
2000 5,000
---- --------
$ 66,800
========
Rental expense under operating leases amounted to $246,194 in 1998. Lease
payments to Riverchase Trade Center totaled $33,600 in 1998. Lease payments
to Apex Digital totaled $35,982 in 1998.
10. Profit Sharing Plan
The Company maintains a profit sharing plan for employees who have attained
the age of twenty-one years and completed one year of service. The Company
may make discretionary contributions to the Plan. For the year ended
December 31, 1998, the Board of Directors elected to contribute 3% of
eligible employees' compensation, approximately $69,000, to the Plan.
Effective January 1, 1997, the Plan was amended to allow for employee
401(k) contributions. The Company shall match 25% of each participant's
elective deferral contributions up to 4% of the participant's compensation.
Matching contributions during 1998 totaled $18,842.
11. Self-Insurance
The Company maintains a self-insured health insurance program for its
employees' health care costs. The Company is responsible for claims up to
$25,000 per year per employee ($5,000 through July 31, 1998), and an
aggregate amount of approximately $302,000 for 1998 based on the plan in
place as of December 31, 1998. A stop-loss insurance policy covers claims
in excess of the amounts stated above.
Continued
10
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
12. Commitments and Contingencies
The Company has pledged all of its property and equipment with a net book
value of $4,220,354 and inventory, accounts and notes receivable, general
intangibles and assignment of life insurance proceeds on a line of credit
for Apex Digital TV, Inc., a related company. There was no outstanding
amount on this line at December 31, 1998.
The Company has pledged all its accounts receivable, equipment,
intangibles, and work-in-process on a line of credit for Communications
Systems Development, Inc., (CSD) a related party. The outstanding amount on
this line was $3,000,000 at December 31, 1998. The Company, its
shareholders and their spouses guarantee an additional line of credit for
CSD. The outstanding amount on this line was $2,000,005 at December 31,
1998.
The Company has guaranteed payments to a major supplier of CSD and a major
supplier of Apex. At December 31, 1998 outstanding payables to these
vendors totaled approximately $331,600.
The Company is involved in legal actions arising in the ordinary course of
business. In the opinion of management, the Company has adequate legal
defenses or insurance coverage with respect to each of these actions and
does not believe that they will materially affect the Company's results of
operations or financial position.
13. Subsequent Events
The shareholders signed a stock purchase agreement on March 12, 1999 with
Dycom Industries, Inc. for sale of the 300 shares of issued and outstanding
stock. The stock purchase agreement is expected to close by the end of
March 1999. In exchange for their shares, the shareholders will receive
cash and newly issued shares of stock in Dycom Industries, Inc.
14. Accounting for Contractors
The American Institute of Certified Public Accountants issued Statement of
Position 98-5 effective for years beginning after December 15, 1998. This
statement requires precontract costs to be expensed as incurred. Management
has elected not to implement this statement early; therefore, the affect on
the financial statements has not been determined.
11
<PAGE>
ERVIN CABLE CONSTRUCTION, INC.
SCHEDULE OF GENERAL AND OPERATING EXPENSES
for the year ended December 31, 1998
Advertising $ 91,183
Airplane expense 65,063
Bad debts 261,063
Depreciation 153,834
Dues and subscriptions 3,941
Profit sharing contribution and plan expenses 91,247
Insurance 302,370
Legal and accounting 35,904
Licenses 106,969
Office expense 297,036
Rent 246,194
Salaries - Officers 87,366
Salaries - office 577,289
Taxes 120,422
Telephone 298,132
Training 13,449
Travel 44,179
Utilities 43,905
Other expenses 47,567
----------
Total general and operating
expenses $2,887,113
==========
12
<PAGE>
APEX DIGITAL TV, INC.
---------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements:
Balance Sheet 2
Income Statement 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
[Letterhead of York, Neel & Co.,-Owensboro, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Apex Digital TV, Inc.
Sturgis, Kentucky
We have audited the accompanying balance sheet of Apex Digital TV, Inc.(a
Subchapter S Corporation) as of December 31, 1998 and 1997, and the related
statements of income, changes in stockholders' equity and cash flows for the
year ended December 31, 1998 and the 101 day period from September 22, 1997
(inception) to December 31, 1997. 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 Apex Digital TV, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the periods then ended in conformity with generally accepted accounting
principles.
/s/ York, Neel & Co.-Owensboro, LLP
March 10, 1999
<PAGE>
APEX DIGITAL TV, INC.
BALANCE SHEET
December 31, 1998 and 1997
ASSETS
1998 1997
Current assets:
Cash and cash equivalents $1,291,078 $ 102,680
Accounts receivable, net of allowance for
doubtful accounts of $300,000 in 1998 1,991,935 2,937,474
Inventory 237,665 200,827
Other current assets 58,608 81,890
---------- ----------
Total current assets 3,579,286 3,322,871
---------- ----------
Property and equipment:
Building and improvements 340,794 262,862
Equipment and furnishings 285,188 156,089
Vehicles 634,229 588,094
Construction in progress 111,094 -
---------- ----------
1,371,305 1,007,045
Less accumulated depreciation (282,683) (34,676)
---------- ----------
Total property and equipment 1,088,622 972,369
---------- ----------
Other assets:
Loan costs, net - 16,097
---------- ----------
Total assets $4,667,908 $4,311,337
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 433,591 $ 346,411
Current maturities of long-term debt - 682,566
Accounts payable 556,582 1,166,067
Accrued insurance 1,837 93,901
Accrued salaries 723,534 423,794
Accrued payroll taxes and withholdings 159,294 178,398
Due to related parties 78,062 26,215
Other current liabilities 53,625 6,161
---------- ----------
Total current liabilities 2,006,525 2,923,513
---------- ----------
Commitments and contingencies - -
---------- ----------
Stockholders' equity:
Common stock, no par value:
Authorized shares, 1,000
Issued and outstanding shares,
375 in 1998 and 300 in 1997 375 300
Paid-in capital 14,700 14,700
Retained earnings 2,646,308 1,372,824
---------- ----------
Total stockholders' equity 2,661,383 1,387,824
---------- ----------
Total liabilities and stockholders'
equity $4,667,908 $4,311,337
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
APEX DIGITAL TV, INC.
INCOME STATEMENT
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
1998 1997
----------- ----------
Revenue:
Installation revenue $23,701,030 $5,791,854
Service revenue 2,846,883 445,752
Commission revenue 328,899 -
Other revenue 189,740 -
----------- ----------
Total revenue 27,066,552 6,237,606
Cost of revenue earned 18,029,163 4,142,516
----------- ----------
Gross profit 9,037,389 2,095,090
General and administrative expenses 4,617,490 695,534
----------- ----------
Net income from operations 4,419,899 1,399,556
----------- ----------
Other income (expense):
Gain on sale of assets 259 -
Interest income 115,295 8,123
Interest expense (137,373) (33,392)
Amortization of loan costs (16,097) (1,463)
----------- ----------
(37,916) (26,732)
Net income $ 4,381,983 $1,372,824
=========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
APEX DIGITAL TV, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
<TABLE>
<CAPTION>
Common Paid-in Retained
Shares Stock Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, September 22, 1997 - $ - $ - $ - $ -
Issuance of common stock 300 300 14,700 - 15,000
Net income - - - 1,372,824 1,372,824
------ ------- ---------- ----------- -----------
Balance, December 31, 1997 300 300 14,700 1,372,824 1,387,824
Issuance of common stock 75 75 - - 75
Dividends - - - (3,108,499) (3,108,499)
Net income - - - 4,381,983 4,381,983
------ ------- ---------- ----------- -----------
Balance, December 31, 1998 375 $ 375 $ 14,700 $ 2,646,308 $ 2,661,383
====== ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
APEX DIGITAL TV, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1998 and
for the 101 day period from
September 22, 1997 (inception) to December 31, 1997
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 4,381,983 $ 1,372,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 248,971 34,676
Amortization 16,097 1,463
Allowance for doubtful accounts 300,000 -
Gain on sale of assets (259) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 645,539 (2,937,474)
Increase in inventory (36,838) (200,827)
(Increase) decrease in other current assets 23,282 (81,890)
Increase (decrease) in accounts payable (609,485) 1,166,067
Increase in due to related party 51,847 26,215
Increase in current liabilities 236,036 702,254
----------- -----------
Net cash provided by operating
activities 5,257,173 83,308
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (368,965) (1,007,045)
Proceeds from sale of property and
equipment 4,000 -
----------- -----------
Net cash used by investing
activities (364,965) (1,007,045)
----------- -----------
Cash flows from financing activities:
Advances on short-term and long-term debt 110,000 1,355,000
Principal payments on debt (705,386) (326,023)
Advances to related party (12,725,000) -
Repayments from related party 12,725,000 -
Payment of dividends (3,108,499) -
Loan costs - (17,560)
Issuance of common stock 75 300
Proceeds from paid-in capital - 14,700
----------- -----------
Net cash provided (used) by
financing activities (3,703,810) 1,026,417
----------- -----------
Net increase in cash and cash equivalents 1,188,398 102,680
Cash and cash equivalents, beginning
of period 102,680 -
----------- -----------
Cash and cash equivalents, end of period $ 1,291,078 $ 102,680
=========== ===========
Supplemental Disclosure
Cash payments of interest in 1998 and 1997 were
$137,373 and $33,392, respectively.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The more significant accounting policies of the Company are as follows:
The Company was incorporated in Kentucky on September 22, 1997, and began
operations shortly thereafter.
a. Company's Activities and Operating Cycle
The Company installs PRIMESTAR Satellite TV television systems and
provides repair and maintenance to existing PRIMESTAR systems in specified
areas. Installations of new systems are performed primarily under fixed
fee arrangements. Repair and maintenance services are provided to
PRIMESTAR subscribers for a fee based on the number of monthly subscribers
in the Company's assigned area. The Company also markets the programming
services and equipment within its assigned area. Additionally, the Company
provides other related services directly to subscribers.
b. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
c. Inventory
The Company maintains an inventory of supplies and material commonly used
on installation and service calls. Inventory is recorded at the lower of
cost or market, using the first-in, first-out basis of accounting.
d. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
basis of the estimated useful lives of each depreciable asset and computed
primarily on the declining balance method. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is charged to
expense as incurred; significant renewals and betterments are capitalized.
Reductions are made for retirements resulting from renewals or
betterments.
e. Income Taxes
Income taxes have not been provided because the Company has elected, with
the consent of its shareholders, to be treated as a small business
corporation for income tax purposes as provided in Section 1362(a) of the
Internal Revenue Code. As such, the Company's income or loss and credits
are passed to the shareholders and combined with their other personal
income and deductions to determine taxable income on their individual tax
returns. Therefore, stockholder distributions subsequent to year end are
typically required to satisfy stockholder income tax liabilities.
Continued
6
<PAGE>
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued
f. Accounting 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.
2. Loan Costs
The Company incurred loan costs of $17,560 during 1997 which were being
amortized over the life of the loan. Unamortized costs were written off when
the loan was repaid during 1998.
3. Short-Term Debt
Short-term debt at December 31, 1998 and 1997 consists of the following:
9% note payable due on demand or if no demand 1998 1997
---------- ----------
is made, in monthly installments of $4,458
through October 2007; guaranteed by certain
Company stockholders; collateralized by
building and land with a net book
value of approximately $331,500. $ 323,591 $ 346,411
Variable rate (currently 8.0%) $1,500,000
revolving line of credit; interest payable
monthly, unpaid principal and interest due
September 14, 1999. The line is secured by all
the Company's cash, intangibles, inventory and
property and equipment with a net book value of
$1,088,622. The line is also secured by all
property and equipment, notes and accounts
receivable, inventory; general intangibles and
assignment of life insurance proceeds of Ervin
Cable Construction,
Inc., a related company. - -
Variable rate (currently 8.5%) straight line of
credit payable to bank on May 13, 1999,
including accrued interest; guaranteed by
certain Company stockholders, collateralized
by building and land with a net book
value of approximately $331,500. 110,000 -
The Company has a line of credit for $25,000
with a depository bank. This line represents
overdraft coverage for funds on deposit. - -
10% unsecured revolving lines of credit up to
$500,000 each with three stockholders. - -
---------- ----------
$ 433,591 $ 346,411
========== ==========
Continued
7
<PAGE>
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
4. Accounts Payable
Accounts payable include amounts due to subcontractors, totaling
approximately $47,000, which have been retained pending completion and
customer acceptance of jobs. All retainages are expected to be paid within
one year.
5. Related Party Transactions
During the period of operation the Company has advanced funds and borrowed
funds on a short-term basis from the Company's shareholders and other
entities controlled by the Company's shareholders. Interest was paid or
received on outstanding balances during the period. Interest income totaled
$101,312 and $8,113 and interest expense totaled $85,409 and $10,849 for the
year ended 1998 and the period ended 1997, respectively.
The Company began leasing unused office space in its corporate office to an
affiliated company in 1998. Leasing income derived from this totaled $35,982
in 1998.
6. Concentration of Credit Risk
During the year ended December 31, 1998 and the period ended December 31,
1997, the majority of the Company's installation and service revenues and
accounts receivable were from one customer. The Company's revenues are
derived from installation and service of PRIMESTAR systems in Kentucky,
Florida, Ohio, Mississippi, Alabama, Illinois, Iowa, Indiana, Tennessee,
Missouri, North Carolina, Virginia, Georgia and Louisiana.
The Company held a cash deposit balance as of December 31, 1998 in a local
financial institution in the amount of $619,612. This balance is in excess of
the $100,000 federally insured limit.
7. Leasing Arrangements
During 1998 and 1997, the Company leased office and storage facilities under
various month-to-month and short-term leases.
The Company also leases office, warehouse and storage facilities under two
and three year lease agreements expiring in 1999 and 2000. Certain of the
leases contain renewal options for periods equivalent to the initial lease
terms.
The following is a schedule of future minimum rental payments required under
leases with initial terms in excess of one year as of December 31, 1998:
Year Ending
December 31, Amount
1999 $ 45,365
2000 11,655
--------
$ 57,020
========
Rental expense under operating leases amounted to approximately $312,700 and
$66,300 in 1998 and 1997, respectively.
Continued
8
<PAGE>
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
8. Profit Sharing Plan
The Company maintains a profit sharing plan with related companies for
employees who have attained the age of twenty-one years and completed one
year of service. The Company may make discretionary contributions to the
Plan. The Plan allows employee 401(k) contributions. The Company matches
25% of each participant's elective deferral contributions up to 4% of the
participant's compensation. The Company contributed $6,920 and $50 in
contributions during 1998 and 1997, respectively.
9. Self-Insurance
The Company participates in a self-insured health insurance program with
related companies for its employees' health care costs. The Company is
responsible for claims up to $25,000 per year per employee ($5,000 per
year through July 31, 1998), and an aggregate amount of approximately
$302,000 per year. A stop-loss insurance policy covers claims in excess of
the amounts stated above. At December 31, 1998 and 1997, $55,852 and
$25,515, respectively, was due to a related company for payment of
premiums and claims on behalf of Apex.
10. Commitments and Contingencies
On September 29, 1997, the Company executed a nonexclusive agreement to
perform installment and service work with respect to direct broadcast
satellite systems in designated areas. The agreement is for a three year
period and may be terminated by either party with no less than 180 days
written notice.
The Company has also entered into a nonexclusive sales agent agreement
with its customer to market and sell the customer's programming services
and equipment to potential subscribers in specified zip code areas. The
agreement is for three years beginning October 30, 1997, and may be
terminated by either party with no less than 180 days written notice.
The Company has pledged all of its cash, accounts receivable, intangibles,
inventory, and equipment and vehicles on a line of credit for
Communications Systems Development, Inc., a related company. The
outstanding balance on this line was $3,000,000 at December 31, 1998.
On November 14, 1998, the Company entered into a revolving line of credit
agreement with Communication Systems Development, Inc. (CSD) whereby Apex
will advance funds to CSD up to $4,000,000. Advances are payable on demand
and bear interest commensurate with Apex's bank loan. Outstanding advances
at December 31, 1998 were $0.
The Company has been named as a defendant in a wrongful death suit pending
in Circuit Court of Johnson County, Missouri. The suit relates to a
traffic accident on February 16, 1998, involving one of its employees
operating his personal vehicle while performing duties on behalf of the
Company. Another defendant was the driver of a vehicle which struck the
decedent's vehicle in the rear propelling it into the employee's lane of
traffic. The plaintiff is seeking unspecified damages from all three
defendants. The Company has liability coverage in the amount of 1 million
dollars. The State of Missouri operates as a joint and several liability
state. At this point in the proceedings, the outcome of this litigation is
uncertain. Therefore, no liability has been recorded as a result of this
claim, as the amount of the loss in excess of insurance coverage, if any,
can not be reasonably estimated.
Continued
9
<PAGE>
APEX DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
10. Commitments and Contingencies, Continued
The Company is involved in other legal actions arising in the ordinary
course of business. In the opinion of management, the Company has adequate
legal defenses or insurance coverage with respect to each of these actions
and does not believe that they will materially affect the Company's
results of operations or financial position.
11. Subsequent Events
The Company and its stockholders signed an agreement and plan of merger
with Dycom Acquisition Corporation III, a wholly owned subsidiary of Dycom
Industries, Inc. on March 12, 1999. Upon the effective date of the
agreement, currently expected to be March 30, 1999, and simultaneously
with the consummation of a related party agreement and plan of merger (The
Ervin Stock Purchase Agreement), Dycom Acquisition Corporation III will
merge with and into Apex Digital TV, Inc. and Apex's shareholders will
receive shares of Dycom Industries, Inc.
12. Accounting for Contractors
The American Institute of Certified Public Accountants issued Statement of
Position 98-5 effective for years beginning after December 15, 1998. This
statement requires precontract costs to be expensed as incurred.
Management has elected not to implement this statement early; therefore,
the effect on the financial statements has not been determined.
10
<PAGE>
Exhibit 7(b)
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS INCLUDING
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 31, 1999, pursuant to a stock purchase agreement Dycom Industries, Inc.
("Dycom" or the "Company") purchased all of the issued and outstanding shares of
common stock of Ervin Cable Construction, Inc. ("Ervin") for $21,750,000 in cash
and 258,066 shares of Dycom common stock. On April 1, 1999, pursuant to a merger
agreement Dycom issued an aggregate of 516,128 shares of Dycom common stock to
the shareholders of Apex Digital TV, Inc. ("Apex") in exchange for all the
issued and outstanding common stock of Apex. Prior to the acquisitions three
stockholders of Ervin held 80% of the outstanding shares of common stock of
Apex.
The accompanying unaudited pro forma condensed consolidated financial statements
are based on the historical financial presentation of the consolidated financial
statements of Dycom and its subsidiaries, Ervin, Apex and Locating, Inc., a
Washington corporation acquired by Dycom for $10 million in February 1999. Due
to the size of Locating, Inc., historical financial statements are not required
to be presented. The unaudited pro forma condensed consolidated financial
statements and related notes give effect to these acquisitions under the
purchase method of accounting.
The unaudited pro forma condensed consolidated balance sheet presents the
financial position of the Company as if the acquisitions had been completed on
January 31, 1999. The unaudited pro forma condensed consolidated statement of
operations for the six month period ended January 31, 1999 and for the fiscal
year ended July 31, 1998 assume that the acquisitions occurred as of the
beginning of periods presented. The unaudited pro forma condensed consolidated
financial statements are presented for illustrative purposes only. They do not
purport to be indicative of the financial position or results of operations of
the Company, that would have actually been presented, or which may be obtained
in the future. The unaudited pro forma condensed consolidated financial
statements do not include any likely cost savings or any synergies that are
likely to occur from the acquisitions and there can be no assurances that any
such cost savings or synergies will occur. The pro forma adjustments are
described in the accompanying notes and are based upon available information and
certain assumptions that the Company believes are reasonable.
A preliminary allocation of the purchase price has been made to major categories
of assets and liabilities in the accompanying unaudited pro forma condensed
consolidated financial statements based on available information. The actual
allocation of the purchase price and the resulting effect on income from
operations may differ significantly from the pro forma amounts included herein.
These pro forma adjustments represent the Company's preliminary determination of
purchase accounting adjustments and are based upon available information and
certain assumptions that the Company believes to be reasonable. As such, the
amounts reflected in the unaudited pro forma condensed consolidated financial
statements are subject to change, and final amounts may differ significantly.
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended January 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Contract revenues earned 205,340,440 13,215,565 13,358,208 6,839,613 238,753,826
Other, net 1,416,362 104,126 223,943 71,601 1,816,032
----------- ----------- ---------- ---------- ---------- -----------
Total 206,756,802 13,319,691 13,582,151 6,911,214 - 240,569,858
----------- ----------- ---------- ---------- ---------- -----------
EXPENSES:
Costs of earned revenue
excluding depreciation 154,648,923 9,881,697 8,687,630 5,912,326 179,130,576
General and administrative 20,214,381 1,729,394 2,327,713 564,893 1,006,377 (9) 25,842,758
Depreciation and amortization 8,116,827 520,207 133,224 142,066 1,170,358 (4) 10,082,682
----------- ----------- ---------- ---------- ---------- -----------
Total 182,980,131 12,131,298 11,148,567 6,619,285 2,176,735 215,056,016
----------- ----------- ---------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 23,776,671 1,188,393 2,433,584 291,929 (2,176,735) 25,513,842
PROVISION FOR INCOME TAXES 9,632,378 - - - 1,733,676 (3)
(673,498)(10) 10,692,556
----------- ----------- ---------- ---------- ---------- -----------
NET INCOME 14,144,293 1,188,393 2,433,584 291,929 (3,236,913) 14,821,286
=========== =========== ========== ========== ========== ===========
EARNINGS PER COMMON SHARE
Basic 0.64 0.65
=========== ===========
Diluted 0.63 0.64
=========== ===========
SHARES USED IN COMPUTING
EARNINGS PER COMMON SHARE:
Basic 22,144,794 774,194 (8) 22,918,988
=========== ========== ===========
Diluted 22,525,818 774,194 (8) 23,300,012
=========== ========== ===========
</TABLE>
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended July 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Contract revenues earned 368,713,563 31,015,498 21,347,759 15,334,387 436,411,207
Other, net 2,649,229 716,519 98,160 65,608 3,529,516
----------- ----------- ---------- ---------- ----------- -----------
Total 371,362,792 31,732,017 21,445,919 15,399,995 - 439,940,723
----------- ----------- ---------- ---------- ----------- -----------
EXPENSES:
Costs of earned revenue
excluding depreciation 285,038,220 23,825,295 14,532,370 11,415,364 334,811,249
General and administrative 36,746,614 2,956,042 3,072,553 3,217,210 1,880,044 (9) 47,872,463
Depreciation and amortization 13,496,694 781,985 184,228 267,799 2,688,734 (4) 17,419,440
----------- ----------- ---------- ---------- ----------- -----------
Total 335,281,528 27,563,322 17,789,151 14,900,373 4,568,778 400,103,152
----------- ----------- ---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 36,081,264 4,168,695 3,656,768 499,622 (4,568,778) 39,837,571
PROVISION FOR INCOME TAXES 13,045,644 - - - 3,264,499 (3)
(1,431,100)(10) 14,879,043
----------- ----------- ---------- ---------- ----------- -----------
NET INCOME 23,035,620 4,168,695 3,656,768 499,622 (6,402,177) 24,958,528
=========== =========== ========== ========== =========== ===========
EARNINGS PER COMMON SHARE
Basic 1.09 1.14
=========== ===========
Diluted 1.07 1.12
=========== ===========
SHARES USED IN COMPUTING
EARNINGS PER COMMON SHARE:
Basic 21,172,025 774,194 (8) 21,946,219
=========== =========== ===========
Diluted 21,482,634 774,194 (8) 22,256,828
=========== =========== ===========
</TABLE>
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Dycom Ervin Apex Other Adjustments Combined
----------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents 33,985,787 523,178 225,063 1,075,586 35,809,614
Accounts receivable, net 50,242,669 5,614,249 3,114,968 1,742,545 (14,377)(5)
326 (7) 60,700,380
Costs and estimated earnings
in excess of billings 19,377,664 1,428,127 20,805,791
Deferred income taxes, net 2,668,146 124,200 (4) 2,792,346
Other current assets 7,253,689 320,505 253,306 158,836 24,828 (5)
(85,985)(7) 7,925,179
----------- ----------- ---------- ---------- ---------- -----------
Total current assets 113,527,955 7,886,059 3,593,337 2,976,967 48,992 128,033,310
----------- ----------- ---------- ---------- ---------- -----------
PROPERTY AND EQUIPMENT, net 58,126,177 4,138,923 1,119,035 484,760 1,239,433 (4)
(1,378,999)(6) 63,729,329
OTHER ASSETS:
Intangible assets, net 4,507,489 54,492,776 (4)
(51,382)(5) 58,948,883
Deferred tax assets, net 53,066 20,553 (4) 73,619
Other 4,524,833 143,865 499,413 (24,828)(5) 5,143,283
----------- ----------- ---------- ---------- ---------- -----------
Total other assets 9,085,388 143,865 -- 499,413 54,437,119 64,165,785
----------- ----------- ---------- ---------- ---------- -----------
TOTAL 180,739,520 12,168,847 4,712,372 3,961,140 54,346,545 255,928,424
=========== =========== ========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable 13,523,311 1,142,888 420,785 151,852 15,238,836
Notes payable 4,743,624 297,800 7,937,500 (4) 12,978,924
Billings in excess of costs
and estimated earnings 495,105 495,105
Accrued self-insured claims 2,729,208 2,729,208
Income taxes payable 618,362 618,362
Other accrued liabilities 13,764,652 652,819 863,017 1,390,993 681,457 (2)
143,928 (4)
906,269 (5)
127,034 (5)
3,702,584 (6)
(85,659)(7) 22,147,094
----------- ----------- ---------- ---------- ---------- -----------
Total current liabilities 35,379,157 2,588,612 1,283,802 1,542,845 13,413,113 54,207,529
NOTES PAYABLE 11,181,614 70,968 431,643 31,750,000 (4)
(7,937,500)(4) 35,496,725
ACCRUED SELF-INSURED CLAIMS 8,403,196 8,403,196
OTHER LIABILITIES 11,043,894 (127,034)(5) 10,916,860
DEFERRED TAX LIABILITY, NET 14,372 (4) 14,372
----------- ----------- ---------- ---------- ---------- -----------
Total liabilities 66,007,861 2,659,580 1,715,445 1,542,845 37,112,951 109,038,682
----------- ----------- ---------- ---------- ---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock --
Common stock 7,413,466 48,532 375 100 209,058 (4) 7,671,531
Additional paid-in capital 62,198,781 2,217,000 14,700 3,000 29,665,318 (4) 94,098,799
Retained (deficit) earnings 45,119,412 7,243,735 2,981,852 2,415,195 (12,640,782)(4) 45,119,412
----------- ----------- ---------- ---------- ---------- -----------
Total shareholders' equity 114,731,659 9,509,267 2,996,927 2,418,295 17,233,594 146,889,742
----------- ----------- ---------- ---------- ---------- -----------
TOTAL 180,739,520 12,168,847 4,712,372 3,961,140 54,346,545 255,928,424
=========== =========== ========== ========== ========== ===========
</TABLE>
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Periods
Prior to the acquisitions, Ervin and Apex had used a calendar year end
and as a result of the merger have adopted Dycom's fiscal year end of
July 31. All periods presented reflect the adoption of such fiscal
year end as of the beginning of the period. The Dycom consolidated
balance sheet as of January 31, 1999 has been combined with Ervin's
and Apex's balance sheet as of the same date. The Dycom consolidated
statements of operations for the six months ended January 31, 1999 and
for the fiscal year ended July 31, 1998 have been combined with
Ervin's and Apex's results of operations for the same periods.
2. Merger Costs
Dycom, Ervin and Apex estimate they will incur direct transaction
costs of approximately $475,000 associated with the acquisition,
consisting of fees for filing with regulatory agencies, legal,
accounting and other related costs. These costs, together with
approximately $206,000 of estimated transaction costs related to the
acquisition of Locating, Inc., have been accrued. These nonrecurring
costs are included in goodwill.
3. Provision for Income Taxes
Prior to the acquisition, Ervin and Apex elected under Subchapter S of
the Internal Revenue Code to have the stockholders recognize their
proportionate share of Ervin's and Apex's taxable income on their
personal income tax returns in lieu of paying corporate income tax.
The unaudited pro forma financial information reflects a provision for
current and deferred income taxes for all periods presented as if the
corporations were included in Dycom's federal and state income tax
returns. The balance sheet reflects deferred taxes in accordance with
the requirements of Financial Accounting Standards Board of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
4. Purchase Accounting Adjustments
The estimated purchase price and preliminary adjustments to the
historical book values of Ervin, Apex, and the other acquired company
are as follows:
Ervin
-----
Estimated value of common stock issued $10,719,416
Cash portion of purchase price 21,750,000
Estimated fair value of net assets acquired (5,279,385)
-----------
Purchase price in excess of fair value of net
assets acquired--goodwill $27,190,031
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to
estimated fair market value $ 218,662
Book value of net assets acquired 5,060,723
-----------
Total $ 5,279,385
===========
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. Purchase Accounting Adjustments (Continued)
Apex
----
Estimated fair value of common stock issued $21,438,667
Estimated fair value of net assets acquired (3,021,339)
-----------
Purchase price in excess of fair value of net
assets acquired--goodwill $18,417,328
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to
estimated fair market value $ 802,773
Increase in deferred tax asset 124,200
Increase in deferred tax liability (14,372)
Book value of net assets acquired 2,108,738
-----------
Total $ 3,021,339
===========
Other
-----
Cash portion of purchase price $10,000,000
Estimated fair value of net assets acquired (1,114,583)
-----------
Purchase price in excess of fair value of net
assets acquired--goodwill $ 8,885,417
===========
Fair value of net assets acquired:
Increase in property, plant, and equipment to
estimated fair market value $ 217,998
Increase in deferred tax asset 20,553
Increase in accrued taxes (145,236)
Book value of net assets acquired 1,021,268
-----------
Total $ 1,114,583
===========
The cash portion of the purchases was funded using borrowings of
$31,750,000 from Dycom's credit facility. The amount of these
borrowings expected to be repaid within the next twelve months is
$7,937,500 and reclassified to current liabilities - Notes Payable.
In accordance with the purchase method of accounting, the purchased
equity balances of the companies acquired have been eliminated.
Depreciation expense computed utilizing the straight line method has
been adjusted as if the acquired property, plant, and equipment were
recorded at fair market value on the first day of the period presented
and the following estimated useful lives were adopted: buildings--
30 years; leasehold improvements--the term of the respective lease or
the estimated useful life of the improvements, whichever is shorter;
vehicles--2-7 years; equipment and machinery--1-10 years; and furniture
and fixtures--1 to 10 years.
Goodwill recognized as a result of the transactions above is being
amortized over a period of twenty years. Pro forma amortization expense
was $1,362,319 and $2,724,639 for the six months ended January 31, 1999
and the year ended July 31, 1998, respectively.
<PAGE>
DYCOM INDUSTRIES, INC. AND SUBSIDIARIES,
ERVIN CABLE CONSTRUCTION, INC. AND APEX DIGITAL TV, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. Modified Cash to Accrual Basis
Prior to its acquisition, Locating, Inc. maintained its financial
statements on a modified cash basis; therefore, the following pro forma
adjustments are necessary:
Increase in allowance for doubtful accounts $ 14,377
Increase in accumulated amortization 51,382
Increase in accrued liabilities 906,269
Additionally, certain long-term assets and liabilities, expected to be
realized within the next twelve months, have been reclassified as
current.
6. Stockholder Distributions
The consolidated balance sheet as of January 31, 1999 reflects a pro
forma adjustment of approximately $5,080,000 for stockholder
distributions subsequent to the balance sheet date. Approximately
$3,700,000 of these distributions will be made in April 1999 for
payment of the 1998 tax liability associated with Ervin's and Apex's
taxable income recognized on the stockholders' personal income tax
returns for periods prior to the acquisitions. Additionally, personal
use property was distributed to the shareholders of Ervin in the
amount of $1,378,999 prior to the acquisition of Ervin.
7. Elimination of Intercompany Balances
Prior to the acquisitions, three stockholders of Ervin held 80% of the
outstanding shares of common stock of Apex. All intercompany balances
and transactions between Ervin and Apex have been eliminated.
8. Pro Forma Net Income Per Share
The unaudited pro forma and combined net income per common share,
basic and diluted, are based upon the weighted average common shares
and dilutive common stock options outstanding for each period
presented adjusted for the 258,066 and 516,128 shares of Dycom common
stock issued to the Ervin and Apex shareholders, respectively.
9. Interest Expense
Interest expense has been recognized as if the borrowings made to
finance the cash portion of the acquisitions of Ervin and Locating,
Inc. were incurred on the first day of the period presented. These
borrowings bear interest at rates ranging from LIBOR + 1.5% to LIBOR +
1.75% (6.50% to 6.81%, as of the dates of acquisition).
10. Reflects income tax effect of the pro-forma adjustments for interest
expense, depreciation expense and goodwill amortization for the six
month period ended January 31, 1999 and for the fiscal year ended July
31, 1998.
================================================================================
------------------------
STOCK PURCHASE AGREEMENT
------------------------
Between
THE STOCKHOLDERS OF ERVIN CABLE CONSTRUCTION, INC.
and
DYCOM INDUSTRIES, INC.
Dated as of March 12, 1999
================================================================================
<PAGE>
DISCLOSURE SCHEDULE
The Disclosure Schedule shall include the following Sections:
3.01 Organization and Qualification of the Company
3.03 Capitalization
3.05 No Conflict
3.06 Government Consents and Approvals
3.07 Reference Balance Sheet
3.08 No Undisclosed Liabilities
3.09 Receivables
3.11 Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions
3.12 Litigation
3.13 Certain Interests
3.14 Compliance with Laws
3.15 Environmental Matters
3.16 Material Contracts
3.18 Real Property
3.18(a) for Owned Real Property
3.18(b) for Leased Real Property
3.19 Tangible Personal Property
3.20 Assets
3.21 Customers
3.22 Employee Benefit Matters
3.23 Labor Matters
3.24 Key Employees
3.25 Taxes
3.26 Insurance
4.02 Ownership
6.01 Conduct of Business Prior to the Closing
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms...................................................1
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale of the Shares........................................10
2.02. Purchase Price.........................................................10
2.03. Closing................................................................10
2.04. Closing Deliveries by the Sellers......................................10
2.05. Closing Deliveries by the Purchaser....................................10
2.06. Escrow ................................................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
3.01. Organization and Qualification; Absence of Subsidiaries................12
3.02. Certificate of Incorporation and By-Laws...............................12
3.03. Capitalization.........................................................13
3.04. Corporate Books and Records............................................13
3.05. No Conflict............................................................13
3.06. Governmental Consents and Approvals....................................14
3.07. Financial Information, Books and Records...............................14
3.08. No Undisclosed Liabilities.............................................14
3.09. Receivables............................................................15
3.10. Inventories............................................................15
3.11. Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions...............................................15
3.12. Litigation.............................................................18
3.13. Certain Interests......................................................18
3.14. Compliance with Laws...................................................19
3.15. Environmental Matters..................................................19
3.16. Material Contracts.....................................................20
3.17. Intellectual Property..................................................22
3.18. Real Property..........................................................22
3.19. Tangible Personal Property.............................................25
-i-
<PAGE>
3.20. Assets ................................................................26
3.21. Customers..............................................................26
3.22. Employee Benefit Matters...............................................27
3.23. Labor Matters..........................................................29
3.24. Key Employees..........................................................30
3.25. Taxes ................................................................30
3.26. Insurance..............................................................31
3.27. Full Disclosure........................................................32
3.28. Brokers................................................................33
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
4.01. Authority of the Sellers...............................................33
4.02. Ownership..............................................................33
4.03. Private Placement......................................................34
4.04. Full Disclosure........................................................34
4.05. Brokers................................................................34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.01. Organization and Authority of the Purchaser............................35
5.02. No Conflict............................................................35
5.03. Governmental Consents and Approvals....................................35
5.04. Investment Purpose.....................................................36
5.05. Litigation.............................................................36
5.06. Capitalization.........................................................36
5.07. SEC Filings; Financial Statements......................................36
5.08. Brokers................................................................37
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Conduct of Business Prior to the Closing...............................37
6.02. Access to Information..................................................38
6.03. Confidentiality........................................................38
6.04. Regulatory and Other Authorizations; Notices and Consents..............40
6.05. No Solicitation or Negotiation.........................................41
6.06. Notification of Certain Matters........................................42
6.07. Non-Competition........................................................42
-ii-
<PAGE>
6.08. Public Announcements...................................................43
6.09. Resale Restrictions....................................................43
6.10. Release of Indemnity Obligations.......................................44
6.11. Further Action.........................................................44
6.12. Stock Splits...........................................................44
6.13. Disclosure Schedule....................................................44
ARTICLE VII
TAX MATTERS
7.01. Indemnity..............................................................45
7.02. Returns and Payments...................................................45
7.03. Refunds................................................................46
7.04. Contests...............................................................46
7.05. Time of Payment........................................................47
7.06. Cooperation and Exchange of Information................................48
7.07. Section 338(h)(10) Election............................................48
7.08. Miscellaneous..........................................................49
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to the Obligations of Each Party............................50
8.02. Conditions to Obligations of the Sellers...............................50
8.03. Conditions to Obligations of the Purchaser.............................51
ARTICLE IX
INDEMNIFICATION
9.01. Survival of Representations and Warranties.............................53
9.02. Indemnification........................................................54
9.03. Tax Matters............................................................56
9.04. Limits on Indemnification..............................................56
9.05. Exclusive Remedy.......................................................56
ARTICLE X
TERMINATION AND WAIVER
10.01. Termination...........................................................56
10.02. Effect of Termination.................................................57
-iii-
<PAGE>
10.03. Waiver................................................................58
ARTICLE XI
GENERAL PROVISIONS
11.01. Expenses..............................................................58
11.02. Notices...............................................................58
11.03. Headings..............................................................59
11.04. Severability..........................................................59
11.05. Entire Agreement......................................................59
11.06. Assignment............................................................60
11.07. No Third Party Beneficiaries..........................................60
11.08. Amendment.............................................................60
11.09. Miscellaneous.........................................................60
11.10. Governing Law.........................................................61
11.11. Jurisdiction and Service of Process...................................61
11.12. Counterparts..........................................................61
11.13. Specific Performance..................................................61
11.14. Waiver of Jury Trial..................................................61
-iv-
<PAGE>
SCHEDULES
Disclosure Schedule
EXHIBITS
Exhibit 2.06 Form of Escrow Agreement
Exhibit 7.07(b) Form of 338 Election Allocation
Exhibit 8.02(e) Form of Registration Rights Agreement
Exhibit 8.02(f) Form of Opinion of Purchaser's Counsel
Exhibit 8.03(c)(i) Form of Opinion White and Williams LLP
Exhibit 8.03(c)(ii) Form of Opinion of the Sellers' Kentucky
Counsel
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of March 12, 1999 by and
among Gary E. Ervin, Timothy W. Ervin and Robert W. Ervin (collectively, the
"Sellers", and each, a "Seller"), and Dycom Industries, Inc., a Florida
corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Sellers collectively own all of the 300 issued
and outstanding shares (the "Shares") of common stock, no par value per share
(the "Common Stock"), of Ervin Cable Construction, Inc., a Kentucky corporation
(the "Company"); and
WHEREAS, the Sellers wish to sell to the Purchaser, and the
Purchaser wishes to purchase from the Sellers, the Shares, upon the terms and
subject to the conditions set forth herein;
WHEREAS, each of the Sellers and certain other individuals are
concurrently entering into a merger agreement dated as of the date hereof (the
"Apex Merger Agreement") providing for the merger of Dycom Acquisition
Corporation III, a Kentucky corporation and a wholly owned subsidiary of the
Purchaser, with and into Apex Digital TV, Inc., a Kentucky corporation ("Apex").
NOW, THEREFORE, in consideration of the promises and the
mutual agreements and covenants hereinafter set forth, the Purchaser and each of
the Sellers, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Acquisition Documents" has the meaning specified in Section
9.01.
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, (a)
any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such specified Person or (b) any other Person that owns, directly or indirectly,
5% or more of such specified Person's voting stock or any executive officer or
director of any such specified Person or other Person or, with respect to any
natural Person, any
<PAGE>
2
Person having a relationship with such Person by blood, marriage or adoption not
more remote than first cousin.
"Agreement" or "this Agreement" means this Stock Purchase
Agreement, dated as of March 12, 1999, among the Sellers and the Purchaser
(including the Exhibits and the Disclosure Schedule) and all amendments hereto
made in accordance with the provisions of Section 11.08 hereto.
"Allocation" has the meaning specified in Section 7.07(b).
"Apex" has the meaning set forth in the recitals to this
Agreement.
"Apex Merger Agreement" has the meaning set forth in the
recitals to this Agreement.
"Assets" has the meaning specified in Section 3.20.
"Business" means the business of building and installing new
telecommunications systems and providing repair and expansion services to
existing telecommunications systems and all other business conducted by the
Company as of the date hereof.
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
the City of New York.
"Closing" has the meaning specified in Section 2.03.
"Closing Date" means the later of the Initial Closing Date and
the Final Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
"Common Stock" has the meaning specified in the recitals to
this Agreement.
"Company" has the meaning specified in the recitals to this
Agreement.
"Company's Accountants" means York, Neel & Co.-Owensboro, LLP.
"Company Intellectual Property" has the meaning specified in
Section 3.17.
"Confidentiality Agreement" means the Confidentiality
Agreement, dated as of March 1, 1999, among the Company, the Sellers, Apex and
the Purchaser.
<PAGE>
3
"control" (including the terms "controlled by" and "under
common control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Disclosure Schedule" means the Disclosure Schedule delivered
to the Purchaser by the Sellers pursuant to Section 6.13.
"due inquiry" means due inquiry among the officers, executives
and state and regional managers of the Company.
"Election" has the meaning specified in Section 7.07(a).
"Encumbrance" means any security interest, pledge, mortgage,
lien (including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"Environment" means surface waters, ground waters, surface
water sediment, soil, subsurface strata and ambient air.
"Environmental Claims" means any and all actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or violation,
notices of liability or potential liability, investigations, proceedings,
consent orders or consent agreements relating in any way to any Environmental
Law, any Environmental Permit or any Hazardous Material or arising from any
alleged injury or threat of injury to health, safety or the Environment.
"Environmental Law" means any Law, now or hereafter in effect
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to pollution or protection of the Environment, health or safety or to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required to operate the
Business or the Real Property under any applicable Environmental Law.
"ERISA" has the meaning specified in Section 3.22(a).
<PAGE>
4
"Escrow Agent" means Wilmington Trust Company.
"Escrow Agreement" has the meaning specified in Section 2.06.
"Escrow Shares" means the shares of Purchaser Common Stock
delivered to the Escrow Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Closing Date" has the meaning set forth in Section
2.03.
"Financial Statements" has the meaning specified in Section
3.07(a).
"GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"GBCL" means the General Business and Corporation Law of the
State of Kentucky.
"Governmental Authority" means any United States federal,
state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Materials" means (a) petroleum and petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls, and (b) any other
chemicals, materials or substances regulated as toxic or hazardous or as a
pollutant, contaminant or waste under any applicable Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with GAAP,
<PAGE>
5
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance on
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Initial Closing Date" has the meaning set forth in Section
2.03.
"Intellectual Property" means (a) trademarks, service marks,
trade dress, logos, trade names and corporate names, including all common law
rights, and registrations and applications for registration thereof, and all
rights therein provided by international treaties or conventions, (b) copyrights
(registered or otherwise) and registrations and applications for registration
thereof, and all rights therein provided by international treaties or
conventions, (c) computer software, including, without limitation, source code,
operating systems and specifications, data, data bases, files, documentation and
other materials related thereto, (d) trade secrets and confidential, technical
and business information (including ideas, formulas, compositions, inventions,
and conceptions of inventions whether patentable or unpatentable and whether or
not reduced to practice), (e) whether or not confidential, technology (including
know-how), research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial, marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, (f) copies and tangible embodiments of all
the foregoing, in whatever form or medium, (g) issued patents and patent
applications, (h) all rights to obtain and rights to apply for patents and to
register trademarks and copyrights, (i) licenses or sublicenses in connection
with any of the foregoing, and (j) all rights to sue and recover and retain
damages and costs and attorneys' fees for present and past infringement of any
of the foregoing.
<PAGE>
6
"Inventories" means all inventory, merchandise, goods, raw
materials, packaging, supplies and other personal property related to the
Business maintained, held or stored by or for the Company before the Closing
Date and any prepaid deposits for any of the same.
"IRS" means the Internal Revenue Service of the United States.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Leased Real Property" means the real property leased by the
Company as tenant, together with, to the extent leased by the Company, all
buildings and other structures, facilities or improvements currently located
thereon, all fixtures, systems, equipment and items of personal property of the
Company attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Liabilities" means any and all Indebtedness, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Loss" has the meaning specified in Section 9.02(a).
"Material Adverse Effect" means any circumstance, change in,
or effect on the Business or the Company that, individually or in the aggregate
with any other circumstances, changes in, or effects on, the Business or the
Company: (a) is, or would reasonably be expected to be, materially adverse to
the business, operations, assets or Liabilities, employee relationships,
customer or supplier relationships, results of operations or the financial
condition of the Company or (b) would be reasonably expected to adversely affect
the ability of the Purchaser or the Company to operate or conduct the Business
in the manner in which it is currently operated or conducted by the Company.
"Material Contracts" has the meaning specified in Section
3.16(a).
"Maximum Amount" means $11,000,000.
"Maximum Share Value" means $42.625.
"Minimum Amount" means $9,000,000.
"Minimum Share Value" means $34.875.
<PAGE>
7
"Multiemployer Plan" has the meaning specified in Section
3.22(b).
"Multiple Employer Plan" has the meaning specified in Section
3.22(b).
"Owned Real Property" means the real property owned by the
Company, together with all buildings and other structures, facilities or
improvements currently located thereon, all fixtures, systems, equipment and
items of personal property of the Company attached or appurtenant thereto and
all easements, licenses, rights and appurtenances relating to the foregoing.
"Payment Shares" has the meaning specified in Section 2.02.
"Permits" means any health and safety and other permits,
licenses, authorizations, certificates, exemptions and approvals of Governmental
Authorities.
"Permitted Encumbrances" means such of the following as to
which no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) liens for taxes, assessments and governmental
charges or levies not yet due and payable which are not in excess of the amount
accrued therefor on the Reference Balance Sheet; (b) Encumbrances imposed by
law, such as materialmen's, mechanics', carriers', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of business
securing obligations that (i) are not overdue for a period of more than 30 days
and (ii) are not in excess of $25,000 in the case of a single property or
$100,000 in the aggregate at any time; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or to secure
public or statutory obligations; and (d) survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (i)
were not incurred in connection with any Indebtedness, (ii) do not render title
to the property encumbered thereby unmarketable and (iii) do not, individually
or in the aggregate, materially adversely affect the value or use of such
property for its current and anticipated purposes.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
"Plans" has the meaning specified in Section 3.22(a).
"Purchase Price" has the meaning specified in Section 2.02.
"Purchase Price Bank Account" means a bank account in the
United States to be designated by the Sellers' Representative in a written
notice at least five Business Days before closing.
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8
"Purchaser" has the meaning specified in the preamble to this
Agreement.
"Purchaser Common Stock" means the voting common stock, par
value $0.33 1/3 per share, of the Purchaser.
"Purchaser Preferred Stock" has the meaning specified in
Section 5.06.
"Purchaser Termination Revocation Date" has the meaning
specified in Section 10.01(e).
"Purchaser's Business" has the meaning specified in Section
6.07(a).
"Real Property" means the Leased Real Property and the Owned
Real Property.
"Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Company from third parties, including, without
limitation, customers, arising from the conduct of the Business or otherwise
before the Closing Date, whether or not in the ordinary course, together with
all unpaid financing charges accrued thereon.
"Reference Balance Sheet" means the unaudited balance sheet
(including the related notes and schedules thereto) of the Company, dated as of
December 31, 1998, a copy of which is set forth in Section 3.07(a) of the
Disclosure Schedule.
"Reference Balance Sheet Date" means December 31, 1998.
"Registration Rights Agreement" has the meaning set forth in
Section 8.02(e).
"Regulations" means the Treasury Regulations (including
Temporary Regulations) promulgated by the United States Department of Treasury
with respect to the Code or other federal tax statutes.
"Release" means disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like into or upon any land or water or air or otherwise entering into the
Environment.
"Remedial Action" means any investigation, assessment,
monitoring, treatment, excavation, removal, remediation or cleanup of Hazardous
Materials in the Environment.
"Returns" has the meaning specified in Section 7.02(a).
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
9
"SEC" means the United States Securities and Exchange
Commission.
"SEC Reports" has the meaning specified in Section 5.07(a).
"S Election" has the meaning specified in Section 3.25(l).
"Seller" or "Sellers" has the meaning specified in the
preamble to this Agreement.
"Seller Termination Revocation Date" has the meaning specified
in Section 10.01(d).
"Sellers' Representative" has the meaning specified in Section
11.09.
"Share Value Amount" means the closing price of Purchaser
Common Stock on the trading day which occurs two days before the Closing Date.
"Shares" has the meaning specified in the recitals.
"Sophisticated Person" means a person who has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investments in the shares of Purchaser
Common Stock and is capable of bearing the economic risk of such investment.
"Subsidiaries" means any and all corporations, partnerships,
joint ventures, associations and other entities controlled by the Company
directly or indirectly through one or more intermediaries.
"Tangible Personal Property" has the meaning specified in
Section 3.19(a).
"Tax" or "Taxes" has the meaning set forth in Section 3.25.
"Third Party Claims" has the meaning specified in Section
9.02(c).
"Threshold Amount" has the meaning specified in Section 9.04.
"Waiting Period" has the meaning specified in Section 10.01(d)
ARTICLE II
PURCHASE AND SALE
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10
SECTION 2.01. Purchase and Sale of the Shares. Upon the terms
and subject to the conditions of this Agreement, at the Closing, the Sellers
shall sell to the Purchaser, and the Purchaser shall purchase from the Sellers,
the Shares.
SECTION 2.02. Purchase Price. Subject to the adjustments set
forth in Section 2.05, the aggregate purchase price (the "Purchase Price") for
the Shares shall be $31,750,000, of which $21,750,000 is payable by the
Purchaser in cash, and of which $10,000,000 is payable by the Purchaser in
shares of newly issued Purchaser Common Stock in accordance with Section 2.05.
The shares of Purchaser Common Stock paid as consideration for the Shares in
accordance with Section 2.05 are referred to herein as the "Payment Shares". In
lieu of issuing a fraction of a Payment Share, the Purchaser shall round the
number of shares to be delivered to the Sellers pursuant to Section 2.05 to the
nearest whole number.
SECTION 2.03. Closing. Upon the terms and subject to the
conditions of this Agreement, the sale and purchase of the Shares contemplated
by this Agreement shall take place at a closing (the "Closing") to be held at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York at
10:00 A.M. New York time on the fifth Business Day (the "Initial Closing Date")
following the later to occur of (i) the expiration or the receipt of written
notification of the termination of all applicable waiting periods under the HSR
Act and (ii) satisfaction or waiver of all other conditions to the obligations
of the parties set forth in Article VIII, or at such other place or at such
other time or on such other date as the Sellers and the Purchaser may mutually
agree upon in writing; provided that if either the Sellers' Representative or
the Purchaser delivers a written notice of termination pursuant to Section
10.01(d) or Section 10.01(e), as the case may be, the Closing shall be held or
deemed to be held on the day (the "Final Closing Date") following the Seller
Termination Revocation Date or the Purchaser Termination Revocation Date, if
applicable.
SECTION 2.04. Closing Deliveries by the Sellers. At the
Closing, the Sellers shall deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, in form
satisfactory to the Purchaser and with all required stock transfer tax
stamps affixed;
(b) the certificates, legal opinions and other documents
required to be delivered pursuant to Section 8.03; and
(c) a receipt for the Purchase Price (executed by the Sellers'
Representative).
SECTION 2.05. Closing Deliveries by the Purchaser. (a) If the
Share Value Amount is less than or equal to the Maximum Share Value but not less
than the Minimum Share Value, at the Closing, the Purchaser shall:
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11
(i) pay to Gary E. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing 86,022 Payment Shares;
(ii) pay to Timothy W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing 86,022 Payment Shares; and
(iii) pay to Robert W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing 86,022 Payment Shares;
(b) If the Share Value Amount exceeds the Maximum Share Value,
at the Closing, the Purchaser shall:
(i) pay to Gary E. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Maximum Amount divided by the Share Value Amount;
(ii) pay to Timothy W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Maximum Amount divided by the Share Value Amount;
and
(iii) pay to Robert W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Maximum Amount divided by the Share Value Amount;
(c) If the Share Value Amount is less than the Minimum Share
Value, at the Closing, the Purchaser shall:
(i) pay to Gary E. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Minimum Amount divided by the Share Value Amount;
(ii) pay to Timothy W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Minimum Amount divided by the Share Value Amount;
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12
(iii) pay to Robert W. Ervin $7,250,000 by wire transfer in
immediately available funds to the Purchase Price Bank Account and
deliver stock certificates evidencing the number of Payment Shares
equal to 1/3 of the Minimum Amount divided by the Share Value Amount;
and
(d) At the Closing, the Purchaser shall deliver to the
Sellers' Representative the certificates, legal opinion and other documents
required to be delivered pursuant to Section 8.02.
SECTION 2.06. Escrow. Prior to the Closing, the Sellers and
the Purchaser shall enter into an Escrow Agreement with the Escrow Agent
substantially in the form of Exhibit 2.06 (the "Escrow Agreement").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Purchaser to enter into this
Agreement, the Sellers hereby, jointly and severally, represent and warrant to
the Purchaser as follows:
SECTION 3.01. Organization and Qualification; Absence of
Subsidiaries. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kentucky and has the requisite
power and authority to own, lease and operate the properties and assets now
owned, leased and operated by it and to carry on the Business as it is currently
being conducted. The Company is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the operation
of the Business makes such qualification or licensing necessary or desirable and
all such jurisdictions are set forth in Section 3.01 of the Disclosure Schedule.
The Company does not have, nor at any time has had, any Subsidiaries or any
direct or indirect ownership or equity interest in any partnership or joint
venture or other similar interest in any other entity. For purposes of
clarification of the immediately preceding sentence, direct ownership by any of
the Sellers shall not be deemed to be "indirect ownership" by the Company.
SECTION 3.02. Certificate of Incorporation and By-Laws. The
Sellers have heretofore delivered to the Purchaser a true and correct copy of
the Certificate of Incorporation and the By-Laws of the Company, each as in
effect on the date hereof. Such Certificate of Incorporation and By-Laws are in
full force and effect. All corporate actions taken by the Company have been duly
authorized, and the Company has not taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Certificate of Incorporation or By-Laws.
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13
SECTION 3.03. Capitalization. (a) The authorized capital stock
of the Company consists of 1,000 shares of Common Stock. As of the date of this
Agreement, (i) 300 shares of Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, and (ii) no shares of
Common Stock are held in the treasury of the Company. None of the issued and
outstanding shares of Common Stock was issued in violation of any preemptive
rights. There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of, or any other interest in, the Company or
obligating any of the Sellers or the Company to issue or sell any shares of
capital stock of, or other interest in, the Company. The Company is not a party
to any agreement granting registration rights to any Person with respect to any
securities of the Company. There are no outstanding contractual obligations of
the Company to repurchase, redeem or otherwise acquire any shares of Common
Stock. The Company does not directly or indirectly own, and has not agreed to
purchase or otherwise acquire, any of the capital stock of, or any interest
convertible into or exchangeable or exercisable for the capital stock of, any
corporation, partnership, joint venture or other business association or entity.
Except as set forth in Section 3.03(a) of the Disclosure Schedule, there are no
outstanding contractual obligations of the Company to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any Person.
(b) The stock register of the Company accurately records: (i)
the name and address of each Person owning shares of capital stock of the
Company and (ii) the certificate number of each certificate evidencing shares of
capital stock issued by the Company, the number of shares evidenced by each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
SECTION 3.04. Corporate Books and Records. The minute books of
the Company contain accurate records of all meetings and accurately reflect all
other actions taken by the shareholders, the Board of Directors and all
committees of the Board of Directors of the Company. Complete and accurate
copies of all such minute books and of the stock register of the Company have
been provided by the Sellers to the Purchaser.
SECTION 3.05. No Conflict. Assuming that all consents,
approvals and other actions described in Section 3.06 of the Disclosure Schedule
have been obtained and all filings and notifications listed in Section 3.06 of
the Disclosure Schedule have been made, the execution, delivery and performance
of this Agreement and the Escrow Agreement by the Sellers do not and will not
(a) violate, conflict with or result in the breach of any provision of the
Certificate of Incorporation or By-Laws of the Company, (b) conflict with or
violate (or cause an event which could have a Material Adverse Effect as a
result of) any Law or Governmental Order applicable to any Seller, the Shares,
the Company or any of the Company's assets, properties or businesses, including,
without limitation, the Business, or (c) except as set forth in Section 3.05(c)
of the Disclosure Schedule or where such conflict, breach or default would not
reasonably be expected to have a Material Adverse Effect, conflict with, result
in any breach of,
<PAGE>
14
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Shares or on any of the assets or properties of any Seller or the
Company pursuant to, any note, bond, mortgage or indenture, contract, agreement,
lease, sublease, license, permit, franchise or other instrument or arrangement
to which any Seller or the Company is a party or by which any of the Shares or
any of the Company's assets or properties is bound or affected.
SECTION 3.06. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement by the Sellers do not and
will not require any consent, approval, authorization or other order of, action
by, filing with or notification to any Governmental Authority, except (a) as
described in Section 3.06 of the Disclosure Schedule and (b) the notification
requirements of the HSR Act.
SECTION 3.07. Financial Information, Books and Records. (a)
True and complete copies of (i) the audited balance sheet of the Company for
each of the three fiscal years ended as of December 31, 1997, December 31, 1996,
and December 31, 1995, and the related audited statements of income,
stockholders' equity and cash flow of the Company, together with all related
notes thereto, accompanied by the reports thereon of the Company's Accountants
(collectively, the "Financial Statements") and (ii) the unaudited balance sheet
of the Company as of December 31, 1998 (the Reference Balance Sheet, a copy of
which is set forth in Section 3.07(a) of the Disclosure Schedule), and the
related statements of income, stockholders' equity and cash flow of the Company,
together with all related notes, have been delivered by the Sellers to the
Purchaser. The Financial Statements and the Reference Balance Sheet (i) were
prepared in accordance with the books of account and other financial records of
the Company, (ii) present fairly the financial condition and results of
operations of the Company as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with GAAP applied on a basis
consistent with the past practices of the Company and (iv) include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the financial condition of the Company and the
results of the operations of the Company as of the dates thereof or for the
periods covered thereby.
(b) The books of account and other financial records of the
Company: (i) reflect all items of income and expense and all assets and
Liabilities required to be reflected therein in accordance with GAAP applied on
a basis consistent with the past practices of the Company, (ii) are in all
material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices.
SECTION 3.08. No Undisclosed Liabilities. There are no
Liabilities of the Company, other than Liabilities (i) reflected or reserved
against on the Reference Balance Sheet,
<PAGE>
15
(ii) disclosed in Section 3.08 of the Disclosure Schedule or (iii) incurred
since the date of the Reference Balance Sheet in the ordinary course of
business, consistent with past practice, of the Company and which do not and
would not reasonably be expected to have a Material Adverse Effect. Reserves are
reflected on the Reference Balance Sheet against all Liabilities of the Company
in amounts that have been established on a basis consistent with the past
practices of the Company and in accordance with GAAP.
SECTION 3.09. Receivables. Section 3.09 of the Disclosure
Schedule sets forth an aged list of the Receivables of the Company as of the
Reference Balance Sheet Date showing separately those Receivables that as of
such date had been outstanding (i) 29 days or less, (ii) 30 to 59 days, (iii) 60
to 89 days, (iv) 90 to 119 days and (v) more than 119 days. Except as disclosed
in Section 3.09 of the Disclosure Schedule and except to the extent, if any,
reserved for on the Reference Balance Sheet, all Receivables reflected on the
Reference Balance Sheet arose from, and the Receivables existing on the Closing
Date will have arisen from, the sale of services to Persons not affiliated with
any Seller or the Company and in the ordinary course of the Business consistent
with past practice and, except as reserved against on the Reference Balance
Sheet, constitute or will constitute, as the case may be, only valid, undisputed
claims of the Company not subject to valid claims of set-off or other defenses
or counterclaims other than normal cash discounts accrued in the ordinary course
of the Business consistent with past practice.
SECTION 3.10. Inventories. As of the date of the Reference
Balance Sheet, the Company had no Inventory required to be recorded in
accordance with GAAP on the Reference Balance Sheet.
SECTION 3.11. Conduct in the Ordinary Course; Absence of
Certain Changes, Events and Conditions. Since the Reference Balance Sheet Date,
except as disclosed in Section 3.11 of the Disclosure Schedule, the business of
the Company has been conducted in the ordinary course and consistent with past
practice. As amplification and not limitation of the foregoing, except as
disclosed in Section 3.11 of the Disclosure Schedule, since the Reference
Balance Sheet Date, the Company has not:
(i) amended, restated or otherwise changed the Certificate of
Incorporation or By-Laws (or other organizational documents) of the
Company;
(ii) issued, sold or pledged, or authorized the issuance, sale
or pledge of, any shares of its capital stock or any notes, bonds or
other securities, or any option, warrant or other right to acquire the
same, of, or any other interest in, the Company;
(iii) declared, set aside, made or paid any dividend or other
distribution (whether in cash, securities, property or otherwise) with
respect to any of its capital stock or otherwise;
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16
(iv) reclassified, combined, split, subdivided or redeemed,
purchased or otherwise acquired, directly or indirectly, any of its
capital stock;
(v) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Company to be subjected to any
Encumbrance, other than Permitted Encumbrances and Encumbrances that
will be released at or prior to the Closing;
(vi) merged with, entered into a consolidation with or
acquired (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any Person or any
assets or any business of any Person or any division or of business
thereof, or otherwise acquired any material assets, other than in the
ordinary course of business consistent with past practice;
(vii) failed to pay any creditor any amount owed to such
creditor when due;
(viii) made any capital expenditure or commitment for any
capital expenditure in excess of $50,000 individually or $100,000 in
the aggregate;
(ix) agreed to make any purchases involving exchanges in value
in excess of $50,000 individually or $100,000 in the aggregate;
(x) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible
assets), other than the sale of Inventories in the ordinary course of
business consistent with past practice;
(xi) amended, terminated, canceled or compromised any material
claim of the Company or waived any other rights of substantial value to
the Company;
(xii) entered into any contract or agreement material to its
business, results of operations or financial condition other than in
the ordinary course of business, consistent with past practice;
(xiii) failed to maintain the Assets in accordance with good
business practice and in good operating condition and repair;
(xiv) allowed any Permit or Environmental Permit that was
issued or relates to the Company or otherwise relates to any Asset to
lapse or terminate or failed to renew any such Permit or Environmental
Permit or any insurance policy that is scheduled to terminate or expire
within 45 calendar days of the Closing Date;
<PAGE>
17
(xv) incurred any Indebtedness that will not be repaid prior
to Closing, in excess of $50,000 individually or $100,000 in the
aggregate;
(xvi) (A) granted any increase, or announced any increase, in
the wages, salaries, compensation, bonuses, incentives, pension or
other benefits payable by the Company to any of its employees,
including, without limitation, any increase or change pursuant to any
Plan or (B) established or increased or promised to increase any
benefits under any Plan, in either case except as required by Law or
any collective bargaining agreement or involving ordinary increases
consistent with the past practices of the Company;
(xvii) taken any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts
payable and collection of accounts receivable);
(xviii) made any express or deemed tax election or settled or
compromised any liability, with respect to Taxes of the Company;
(xix) except in the ordinary course of business consistent
with past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Reference Balance Sheet and
current liabilities incurred in the ordinary course of business
consistent with past practice since the Reference Balance Sheet Date;
(xx) made any loan to, guaranteed any Indebtedness or
otherwise incurred any Indebtedness on behalf of any Person;
(xxi) amended, modified or consented to the termination of any
Material Contract or the Company's rights thereunder;
(xxii) suffered any casualty loss or damage with respect to
any of the Assets which in the aggregate have a replacement cost of
more than $25,000, whether or not such loss or damage shall have been
covered by insurance;
(xxiii) disclosed any trade secrets or confidential, technical
or business information or permitted to lapse or go abandoned any
Intellectual Property of the Company;
(xxiv) made any material changes in the customary methods of
operations of the Company, including, without limitation, practices and
policies relating to manufacturing, purchasing, Inventories, marketing,
selling and pricing;
<PAGE>
18
(xxv) entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or with
any relative, beneficiary, spouse or Affiliate of such Person);
(xxvi) suffered any Material Adverse Effect;
(xxvii) written down or written up (or failed to write down or
write up in accordance with GAAP consistent with past practice) the
value of any Inventories or receivables or revalued any assets of the
Company other than in the ordinary course of business consistent with
past practice and in accordance with GAAP;
(xxviii) terminated, discontinued, closed or disposed of any
facility or business operation, or laid off any employees (other than
layoffs of less than 25 employees in any six-month period in the
ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the Regulations or announced or planned any such action or program for
the future;
(xxix) made any charitable contribution; or
(xxx) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.11 or grant any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 3.11, except as expressly contemplated by
this Agreement.
SECTION 3.12. Litigation. Except as set forth in Section 3.12
of the Disclosure Schedule (which, with respect to each Action disclosed
therein, sets forth: the parties, nature of the proceeding, date and method
commenced, amount of damages or other relief sought and, if applicable, paid or
granted), there are no Actions by or against the Company (or by or against any
of the Sellers or any Affiliate thereof and relating to the Business or the
Company), or affecting any of the Assets, pending before any Governmental
Authority (or, to the best knowledge of the Sellers after due inquiry,
threatened to be brought by or before any Governmental Authority). None of the
matters disclosed in Section 3.12 of the Disclosure Schedule has or has had a
Material Adverse Effect or would reasonably be expected to affect the legality,
validity or enforceability of this Agreement or the Escrow Agreement or the
consummation of the transactions contemplated hereby or thereby. Except as set
forth in Section 3.12 of the Disclosure Schedule, none of the Company, the
Assets and the Sellers is subject to any Governmental Order (nor, to the best
knowledge of the Sellers after due inquiry, are there any such Governmental
Orders threatened to be imposed by any Governmental Authority) which has had or
would reasonably be expected to have a Material Adverse Effect.
<PAGE>
19
SECTION 3.13. Certain Interests. (a) Except as disclosed in
Section 3.13(a) of the Disclosure Schedule, no Seller and no officer or director
of the Company and no relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any Seller or officer or director (i) has
outstanding any Indebtedness to or from the Company, (ii) has any direct or
indirect financial interest in any competitor, supplier or customer of the
Company, provided, however, that the ownership of securities, representing no
more than one percent of the outstanding voting power of any competitor,
supplier or customer, and which are listed on any national securities exchange
or traded in the over-the-counter market, shall not be deemed to be a "financial
interest" so long as the Person owning such securities has no other connection
or relationship with such competitor, supplier or customer or (iii) owns,
directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property which the Company uses or has used in the
conduct of the Business or otherwise.
(b) Except as disclosed in Section 3.13(b) of the Disclosure
Schedule, the Company has no Liability or any other obligation of any nature
whatsoever to any officer, director or shareholder of the Company or to any
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer, director or shareholder.
SECTION 3.14. Compliance with Laws. (a) Except as set forth in
Section 3.14(a) of the Disclosure Schedule, the Company has conducted and
continues to conduct the Business in accordance with all Laws and Governmental
Orders applicable to the Company or any of the Assets or the Business, including
all Environmental Laws, and the Company is not in violation of any such Law or
Governmental Order except for such failure to comply or violations that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(b) Section 3.14(b) of the Disclosure Schedule sets forth a
brief description of each Governmental Order directed to or, to the best
knowledge of the Sellers after due inquiry, applicable to the Company or any of
the Assets or the Business, and no such Governmental Order has or has had or
would reasonably be expected to have a Material Adverse Effect.
SECTION 3.15. Environmental Matters. (a) Except as disclosed
in Section 3.15(a) of the Disclosure Schedule and as would not reasonably be
expected to have a Material Adverse Effect:
(i) There are no underground or aboveground storage tanks or
any surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or have been treated, stored or disposed
on any of the Owned Real Property or, to the best knowledge of the
Sellers after due inquiry, any of the Leased Real Property during the
Company's ownership or occupation of such property or any property
formerly owned, leased or occupied by the Company.
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20
(ii) The Company has not, and, to the best knowledge of the
Sellers after due inquiry, no other Person has, Released Hazardous
Materials on any of the Real Property or on any property formerly
owned, leased or occupied by the Company.
(iii) To the best knowledge of the Sellers after due inquiry,
there is no asbestos or asbestos-containing material on any of the Real
Property.
(iv) To the best knowledge of the Sellers after due inquiry,
none of the Real Property adjoins any property that is listed or
proposed for listing on the National Priorities List under the federal
Comprehensive Environmental Response, Compensation, and Liability Act.
(b) The Company has provided the Purchaser with copies of (i)
all environmental assessment or audit reports and other similar studies or
analyses conducted by or on behalf of the Company or otherwise in the possession
of the Company relating to the Real Property or the operations of the Company
and (ii) all insurance policies issued at any time that may provide coverage to
the Company for environmental matters.
(c) To the best knowledge of the Sellers after due inquiry,
except as disclosed in Section 3.15(c) of the Disclosure Schedule, neither the
execution of this Agreement nor the consummation of the transactions
contemplated in this Agreement will require any Remedial Action or notice to or
consent of Governmental Authorities or any third party pursuant to any
applicable Environmental Law or Environmental Permit.
SECTION 3.16. Material Contracts. (a) Section 3.16(a) of the
Disclosure Schedule lists each of the following contracts and agreements of the
Company (such contracts and agreements, together with all contracts, agreements,
leases and subleases concerning the management or operation of any Real Property
(including, without limitation, brokerage contracts) listed or otherwise
disclosed in Section 3.16(a) or 3.16(b) of the Disclosure Schedule to which the
Company is a party and all agreements relating to Intellectual Property set
forth in Section 3.17 of the Disclosure Schedule, being "Material Contracts"):
(i) each contract and agreement (other than agreements with
subcontractors entered into in the ordinary course of business) under
the terms of which the Company: (A) is reasonably expected to pay or
otherwise give consideration of more than $50,000 in the aggregate
during the calendar year ending December 31, 1999, (B) is likely to pay
or otherwise give consideration of more than $100,000 in the aggregate
over the remaining term of the contract or (C) cannot be canceled by
the Company without penalty or further payment and without more than 30
days' notice;
(ii) each contract and agreement for the furnishing of
services by the Company which: (A) is reasonably expected to involve
consideration of more than $250,000 during
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21
the calendar year ending December 31, 1999, (B) is reasonably expected
to involve consideration of more than $500,000 in the aggregate over
the remaining term of the contract or (C) cannot be canceled by the
Company without penalty or further payment and without more than 30
days' notice;
(iii) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the
Company is a party and which are not cancellable without penalty or
further payment and without more than 30 days' notice;
(iv) all broker, distributor, dealer, franchise, agency, sales
promotion, market research, marketing consulting and advertising
contracts and agreements to which the Company is a party;
(v) all contracts and agreements relating to Indebtedness of
the Company;
(vi) all contracts and agreements with any Governmental
Authority to which the Company is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or
with any Person or in any geographic area or during any period of time;
(viii) all contracts and agreements between or among the
Company and any Seller or any Affiliate of any Seller currently in
effect and in effect within the years ended December 31, 1998, 1997 and
1996, setting forth the amount of revenue recorded on the Company's
financial statements pursuant to such contract or agreement;
(ix) all contracts and agreements providing for benefits under
any Plan; and
(x) all other contracts and agreements, whether or not made in
the ordinary course of business, which are material to the Company or
the conduct of the Business or the absence of which would have a
Material Adverse Effect.
For purposes of this Section 3.16 and Sections 3.18, 3.19 and
3.20, the term "lease" shall include any and all leases, subleases,
sale/leaseback agreements or similar arrangements.
(b) Except as disclosed in Section 3.16(b) of the Disclosure
Schedule, each Material Contract: (i) is valid and binding on the respective
parties thereto and is in full force and effect and (ii) upon consummation of
the transactions contemplated by this Agreement and the Escrow Agreement, except
to the extent that any consents set forth in Section 3.06 of the Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or
<PAGE>
22
other adverse consequence. The Company is not in breach of, or default under,
any Material Contract.
(c) Except as disclosed in Section 3.16(c) of the Disclosure
Schedule, to the best knowledge of the Sellers after due inquiry, no other party
to any Material Contract is in breach thereof or default thereunder.
(d) Except as disclosed in Section 3.16(d) of the Disclosure
Schedule, there is no contract, agreement or other arrangement granting any
Person any preferential right to purchase, other than in the ordinary course of
business consistent with past practice, any of the properties or assets of the
Company.
SECTION 3.17. Intellectual Property. There are no items of
Intellectual Property that are material to the Company or the Business except
the Company's trade name, "Ervin Cable Construction, Inc." (the "Company
Intellectual Property"). To the best knowledge of the Sellers after due inquiry,
the rights of the Company in or to the Company Intellectual Property do not
conflict with or infringe on the rights of any other Person and none of the
Sellers or the Company has received any claim or written notice from any Person,
to such effect.
SECTION 3.18. Real Property. (a) Section 3.18(a) of the
Disclosure Schedule lists: (i) the street address of each parcel of Owned Real
Property, (ii) the date on which each parcel of Owned Real Property was
acquired, (iii) the current owner of each such parcel of Owned Real Property,
(iv) information relating to the recordation of the deed pursuant to which each
such parcel of Owned Real Property was acquired and (v) the current use of each
such parcel of Owned Real Property.
(b) Section 3.18(b) of the Disclosure Schedule lists: (i) the
street address of each parcel of Leased Real Property, (ii) the identity of the
lessor, lessee and current occupant (if different from lessee) of each such
parcel of Leased Real Property, (iii) the term (referencing applicable renewal
periods) and rental payment terms of the leases (and any subleases) pertaining
to each such parcel of Leased Real Property and (iv) the current use of each
such parcel of Leased Real Property.
(c) Except as described in Section 3.18(c) or 3.14(a) of the
Disclosure Schedule, there is no violation of any Law (including, without
limitation, any building, planning or zoning law) relating to any of the Real
Property that would reasonably be expected to have a Material Adverse Effect.
The Sellers have made available to the Purchaser true and complete copies of
each deed for each parcel of Owned Real Property and, to the extent the Sellers
or the Company have the following documents within their possession, for each
parcel of Leased Real Property and all the title insurance policies, title
reports, surveys, certificates of occupancy, environmental reports and audits,
appraisals, Permits, other title documents and other documents relating to or
otherwise affecting the Real Property, the operations of the Company thereon or
<PAGE>
23
any other uses thereof. The Company is in peaceful and undisturbed possession of
each parcel of Real Property and there are no contractual or legal restrictions
that preclude or restrict the ability to use the premises for the purposes for
which they are currently being used. All existing water, sewer, steam, gas,
electricity, telephone or other utilities required for the construction, use,
occupancy, operation and maintenance of the Real Property are adequate for the
conduct of the Business as is currently conducted. Except as set forth in
Section 3.18(c) of the Disclosure Schedule, the Company has not leased or
subleased any parcel or any portion of any parcel of Real Property to any other
Person, nor has the Company assigned its interest under any lease or sublease
listed in Section 3.18(b) of the Disclosure Schedule to any third party.
(d) The Sellers have, or have caused to be, delivered to the
Purchaser true and complete copies of all leases and subleases listed in Section
3.18(b) of the Disclosure Schedule and any and all ancillary documents
pertaining thereto (including, but not limited to, all amendments, consents for
alterations and documents recording variations and evidence of commencement
dates and expiration dates). With respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary
documents delivered pursuant to the first sentence of this Section
3.18(d), is legal, valid, binding, enforceable and in full force and
effect and represents the entire agreement between the respective
landlord and tenant with respect to such property;
(ii) except as otherwise set forth in Section 3.18(d) of the
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding, enforceable and in full force and effect on terms
identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement
constitute a breach or default under such lease or sublease or
otherwise give the landlord a right to terminate such lease or
sublease;
(iii) except as otherwise disclosed in Section 3.18(d) of the
Disclosure Schedule, with respect to each such lease or sublease: (A)
none of the Sellers and the Company has received any notice of
cancellation or termination under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except upon a breach or default by the Company thereunder, (B)
none of the Sellers and the Company has received any notice of a breach
or default under such lease or sublease, which breach or default has
not been cured, and (C) none of the Sellers or the Company has granted
to any other Person any rights, adverse or otherwise, under such lease
or sublease; and
(iv) neither the Company nor (to the best knowledge of the
Sellers after due inquiry) any other party to such lease or sublease is
in breach or default in any material respect, and, to the best
knowledge of the Sellers after due inquiry, no event has occurred
<PAGE>
24
that, with notice or lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration under such
lease or sublease.
(e) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of the Sellers after
due inquiry, threatened against the Real Property.
(f) All the Real Property is occupied under a valid and
current certificate of occupancy or similar permit, the transactions
contemplated by this Agreement will not require the issuance of any new or
amended certificate of occupancy and, to the best knowledge of the Sellers after
due inquiry, there are no facts that would prevent the Real Property from being
occupied by the Company at any time within 90 days after the Closing in the same
manner as occupied by the Company immediately prior to the Closing.
(g) All improvements on the Real Property constructed by or on
behalf of the Company or, to the best knowledge of the Sellers after due
inquiry, constructed by or on behalf of any other Person were constructed in
compliance with all applicable Laws (including, but not limited to, any
building, planning or zoning Laws) affecting such Real Property.
(h) No improvements on the Owned Real Property and none of the
current uses and conditions thereof violate any applicable deed restrictions or
other applicable covenants, restrictions, agreements, existing site plan
approvals, zoning or subdivision regulations or urban redevelopment plans as
modified by duly issued variances, and no permits, licenses or certificates
pertaining to the ownership or operation of all improvements on the Owned Real
Property, other than those which are transferable with the Owned Real Property,
are required by any Governmental Authority having jurisdiction over the Owned
Real Property.
(i) All improvements on any Owned Real Property are wholly
within the lot limits of such Owned Real Property and do not encroach on any
adjoining premises, and there are no encroachments on any Owned Real Property by
any improvements located on any adjoining premises.
(j) The rental set forth in each lease or sublease of the
Leased Real Property is the actual rental being paid, and there are no separate
agreements or understandings with respect to the same.
(k) The Company has the full right to exercise any renewal
options contained in the leases and subleases pertaining to the Leased Real
Property on the terms and conditions contained therein and upon due exercise
would be entitled to enjoy the use of each Leased Real Property for the full
term of such renewal options.
<PAGE>
25
SECTION 3.19. Tangible Personal Property. (a) Section 3.19(a)
of the Disclosure Schedule lists each item or distinct group of machinery,
equipment, tools, supplies, furniture, fixtures, personalty, vehicles, aircraft,
rolling stock and other tangible personal property (the "Tangible Personal
Property") used in the Business or owned or leased by the Company.
(b) The Sellers have, or have caused to be, delivered to the
Purchaser true and complete copies of all leases and subleases for Tangible
Personal Property and any and all material ancillary documents pertaining
thereto (including, but not limited to, all amendments, consents and evidence of
commencement dates and expiration dates). With respect to each of such leases
and subleases:
(i) such lease or sublease, together with all ancillary
documents delivered pursuant to the first sentence of this Section
3.19(b), is legal, valid, binding, enforceable and in full force and
effect and represents the entire agreement between the respective
lessor and lessee with respect to such property;
(ii) except as set forth in Section 3.19(b) of the Disclosure
Schedule, such lease or sublease will not cease to be legal, valid,
binding, enforceable and in full force and effect on terms identical to
those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation
of the transactions contemplated by this Agreement constitute a breach
or default under such lease or sublease or otherwise give the lessor a
right to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 3.19(b) of the
Disclosure Schedule, with respect to each such lease or sublease: (A)
none of the Sellers and the Company has received any notice of
cancellation or termination under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except upon a breach or default by the Company thereunder, (B)
none of the Sellers or the Company has received any notice of a breach
or default under such lease or sublease, which breach or default has
not been cured, and (C) none of the Sellers or the Company has granted
to any other Person any rights, adverse or otherwise, under such lease
or sublease; and
(iv) neither the Company nor (to the best knowledge of the
Sellers after due inquiry) any other party to such lease or sublease is
in breach or default in any material respect, and, to the best
knowledge of the Sellers after due inquiry, no event has occurred that,
with notice or lapse of time would constitute such a breach or default
or permit termination, modification or acceleration under such lease or
sublease.
(c) The Company has the full right to exercise any renewal
options contained in the leases and subleases pertaining to the Tangible
Personal Property on the terms and
<PAGE>
26
conditions contained therein and upon due exercise would be entitled to enjoy
the use of each item of leased Tangible Personal Property for the full term of
such renewal options.
SECTION 3.20. Assets. (a) Except as disclosed in Section
3.20(a) of the Disclosure Schedule, the Company owns, leases or has the legal
right to use all the properties and assets, including, without limitation, the
Company Intellectual Property, the Real Property and the Tangible Personal
Property, used or intended to be used in the conduct of the Business or
otherwise owned, leased or used by the Company and, with respect to contract
rights, is a party to and enjoys the right to the benefits of all contracts,
agreements and other arrangements used or intended to be used by the Company or
in or relating to the conduct of the Business (all such properties, assets and
contract rights being the "Assets"). The Company has good and marketable title
to, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in, all the Assets, free and clear of all Encumbrances,
except (i) as disclosed in Section 3.18(a), 3.18(b), 3.18(c), 3.18(d), 3.19(a),
3.19(b) or 3.20(a) of the Disclosure Schedule and (ii) Permitted Encumbrances.
(b) The Assets constitute all the properties, assets and
rights forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the Business.
At all times since the Reference Balance Sheet Date, the Company has caused the
Assets to be maintained in accordance with good business practice, and all the
Assets are in good operating condition and repair and are suitable for the
purposes for which they are used and intended.
(c) Following the consummation of the transactions
contemplated by this Agreement, the Company will continue to own, pursuant to
good and marketable title, or lease, under valid and subsisting leases, or
otherwise retain its respective interest in the Assets without incurring any
material penalty or other material adverse consequence, including, without
limitation, any increase in rentals, royalties, or licenses or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement. Immediately following the Closing, the Company
shall own and possess all documents, books, records, agreements and financial
data used by the Company in the conduct of the Business.
SECTION 3.21. Customers. Listed in Section 3.21 of the
Disclosure Schedule are the names and addresses of the ten most significant
customers (by revenue) of the Company for the twelve month period ended on the
Reference Balance Sheet Date and the amount for which each such customer was
invoiced during such period. Except as disclosed in Section 3.21 of the
Disclosure Schedule, none of the Sellers or the Company has received any notice
that any significant customer of the Company has ceased, or will cease, to use
the products, equipment, goods or services of the Company, or has substantially
reduced, or will substantially reduce, the use of such products, equipment,
goods or services at any time.
<PAGE>
27
SECTION 3.22. Employee Benefit Matters. (a) Plans and Material
Documents. Section 3.22(a) of the Disclosure Schedule lists (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements, whether legally enforceable or not, to which the
Company is a party, with respect to which the Company has any obligation or
which are maintained, contributed to or sponsored by the Company for the benefit
of any current or former employee, officer or director of the Company (other
than offer of employment letters relating to employment at-will relationships),
(ii) each employee benefit plan for which the Company could incur liability
under Section 4069 of ERISA in the event such plan has been or were to be
terminated, (iii) any plan in respect of which the Company could incur liability
under Section 4212(c) of ERISA and (iv) any contracts, arrangements or
understandings (other than offer of employment letters relating to
employment-at-will relationships) between any Seller and any employee of the
Company, including, without limitation, any contracts, arrangements or
understandings relating to the sale of the Company (collectively, the "Plans").
Except as set forth in Section 3.22(a) of the Disclosure Schedule, each Plan is
in writing and the Sellers have furnished the Purchaser with a complete and
accurate copy of each Plan and a complete and accurate copy of each material
document prepared in connection with each such Plan including, without
limitation, (i) a copy of each trust or other funding arrangement, (ii) each
summary plan description and summary of material modifications, (iii) the most
recently filed IRS Form 5500, (iv) the most recently received IRS determination
letter for each such Plan, and (v) the most recently prepared actuarial report
and financial statement in connection with each such Plan. Except as disclosed
on Section 3.22(a) of the Disclosure Schedule, there are no other employee
benefit plans, programs, arrangements or agreements, whether formal or informal,
whether in writing or not, to which the Company is a party, with respect to
which the Company has any obligation or which are maintained, contributed to or
sponsored by the Company for the benefit of any current or former employee,
officer or director of the Company. The Company does not have any express or
implied commitment, whether legally enforceable or not, (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a "Multiemployer Plan") or a single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) for which the Company could incur liability
under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). None of the
Plans provides for the payment of separation, severance, termination or
similar-type benefits to any Person or obligates the Company to pay separation,
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this
<PAGE>
28
Agreement or as a result of a "change in control", within the meaning of such
term under Section 280G of the Code. None of the Plans provides for or promises
retiree medical, disability or life insurance benefits to any current or former
employee, officer or director of the Company. Each of the Plans is subject only
to the laws of the United States or a political subdivision thereof.
(c) Compliance with Applicable Law. Each Plan is now and
always has been operated in all respects in accordance with the requirements of
all applicable Laws, including, without limitation, ERISA and the Code, and, to
the best knowledge of the Sellers after due inquiry, all persons who participate
in the operation of such Plans and all Plan "fiduciaries" (within the meaning of
Section 3(21) of ERISA) have always acted in accordance with the provisions of
all applicable Law, including, without limitation, ERISA and the Code, except
where the failure to comply or act has not had, individually or in the
aggregate, a Material Adverse Effect. The Company has performed all obligations
required to be performed by it under, is not in any respect in default under or
in violation of, and has no knowledge of any default or violation by any party
to, any Plan. No legal action, suit or claim is pending or, to the best
knowledge of the Sellers after due inquiry, threatened with respect to any Plan
(other than claims for benefits in the ordinary course) and, to the best
knowledge of the Sellers after due inquiry, no fact or event exists that could
give rise to any such action, suit or claim.
(d) Qualification of Certain Plans. Except as set forth in
Section 3.22(d) of the Disclosure Schedule, each Plan which is intended to be
qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and to the
best knowledge of the Sellers after due inquiry, no fact or event has occurred
since the date of such determination letter from the IRS to adversely affect the
qualified status of any such Plan or the exempt status of any such trust. Except
as set forth in Section 3.22(d) of the Disclosure Schedule, each trust
maintained or contributed to by the Company which is intended to be qualified as
a voluntary employees' beneficiary association and which is intended to be
exempt from federal income taxation under Section 501(c)(9) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and so exempt, and, to the best knowledge of the Sellers after due inquiry, no
fact or event has occurred since the date of such determination by the IRS to
adversely affect such qualified or exempt status.
(e) Absence of Certain Liabilities and Events. There has been
no prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. The Company has not incurred any
liability for any penalty or tax arising under Section 4971, 4972, 4980, 4980B
or 6652 of the Code or any liability under Section 502 of ERISA, and, to the
best knowledge of the Sellers after due inquiry, no fact or event exists which
could give rise to any such liability. The Company has not incurred any
liability under, arising
<PAGE>
29
out of or by operation of Title IV of ERISA (other than liability for premiums
to the Pension Benefit Guaranty Corporation arising in the ordinary course),
including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer
Plan, and no fact or event exists which could give rise to any such liability.
No complete or partial termination has occurred within the five years preceding
the date hereof with respect to any Plan. No reportable event (within the
meaning of Section 4043 of ERISA) has occurred or is reasonably expected to
occur with respect to any Plan subject to Title IV of ERISA. No Plan had an
accumulated funding deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived, as of the most recently ended
plan year of such Plan. None of the assets of the Company is the subject of any
lien arising under Section 302(f) of ERISA or Section 412(n) of the Code; the
Company has not been required to post any security under Section 307 of ERISA or
Section 401(a)(29) of the Code; and, to the best knowledge of the Sellers after
due inquiry, no fact or event exists which could give rise to any such lien or
requirement to post any such security.
(f) Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Plan have been made
on or before their due dates. All such contributions have been fully deducted
for income tax purposes and no such deduction has been challenged or disallowed
by any government entity and no fact or event exists which could give rise to
any such challenge or disallowance. As of the Closing Date, no Plan which is
subject to Title IV of ERISA will have an "unfunded benefit liability" (within
the meaning of Section 4001(a)(18) of ERISA).
(g) Certain Employee-Benefits Assets. There are no guaranteed
investment contracts and other funding contracts with any insurance company that
is held by any of the Plans or any annuity contracts purchased by (i) any of the
Plans or (ii) any pension benefit plans (as defined in Section 3(2) of ERISA)
that provided benefits to any current or former employees of the Company.
SECTION 3.23. Labor Matters. Except as set forth in Section
3.23 of the Disclosure Schedule, (a) the Company is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, and currently, to the best knowledge of the
Sellers after due inquiry, there are no organizational campaigns, petitions or
other unionization activities seeking recognition of a collective bargaining
unit which could affect the Company; (b) there are no controversies, strikes,
slowdowns or work stoppages pending or, to the best knowledge of the Sellers
after due inquiry, threatened between the Company and any of its employees, and
the Company has not experienced any such controversy, strike, slowdown or work
stoppage within the past three years; (c) the Company has not breached or
otherwise failed to comply with the provisions of any collective bargaining or
union contract and, to the best knowledge of the Sellers after due inquiry,
there are no grievances outstanding against the Company under any such agreement
or contract which could have a Material Adverse
<PAGE>
30
Effect; (d) there are no unfair labor practice complaints pending against the
Company before the National Labor Relations Board or any other Governmental
Authority involving employees of the Company which could have a Material Adverse
Effect; (e) the Company is currently in compliance with all applicable Laws
relating to the employment of labor, including those related to wages, hours,
collective bargaining and the payment and withholding of taxes and other sums as
required by the appropriate Governmental Authority except for such failures to
be in compliance which, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect and has withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (f) the Company has paid
in full to all its employees or adequately accrued for in accordance with GAAP
all wages, salaries, commissions, bonuses, benefits and other compensation due
to or on behalf of such employees; (g) there is no claim with respect to payment
of wages, salary or overtime pay that has been asserted or is now pending or, to
the best knowledge of the Sellers after due inquiry, threatened before any
Governmental Authority with respect to any Persons currently or formerly
employed by the Company; (h) the Company is not a party to, or otherwise bound
by, any consent decree with, or citation by, any Governmental Authority relating
to employees or employment practices; (i) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or, to the best knowledge of the Sellers after
due inquiry, threatened with respect to the Company; and (j) there is no charge
of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or, to the best
knowledge of the Sellers after due inquiry, threatened before the United States
Equal Employment Opportunity Commission, or any other Governmental Authority in
any jurisdiction in which the Company has employed or currently employs any
Person.
SECTION 3.24. Key Employees. Section 3.24 of the Disclosure
Schedule lists the name, place of employment, the current annual salary rates,
bonuses, deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits paid or payable (in cash or otherwise) in
1998 and 1997, or payable under a contract, agreement or Plan in any year
subsequent to 1998, the date of employment and a description of position and job
function of each current salaried employee, officer, director, consultant or
agent of the Company.
SECTION 3.25. Taxes. Except as disclosed in Section 3.25 of
the Disclosure Schedule, (a) all returns and reports in respect of Taxes
required to be filed with respect to the Company have been timely filed; (b) all
Taxes required to be shown on such returns and reports or otherwise due from the
Company have been timely paid; (c) all such returns and reports (insofar as they
relate to the activities or income of the Company) are true, correct and
complete in all material respects; (d) no material adjustment relating to such
returns has been proposed formally or informally by any Tax authority (insofar
as either relates to the activities or income of
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31
the Company or could result in liability of the Company on the basis of joint
and/or several liability) and, to the best knowledge of the Sellers after due
inquiry, no basis exists for any such material adjustment; (e) there are no
pending or, to the best knowledge of the Sellers after due inquiry, threatened
actions or proceedings for the assessment or collection of Taxes against the
Company; (f) no consent under Section 341(f) of the Code has been filed with
respect to the Company; (g) there are no Tax liens on any assets of the Company;
(h), on the Reference Balance Sheet, reserves and allowances have been provided
which are adequate to satisfy all material Liabilities for Taxes payable by the
Company for periods through the Closing Date; (i) the Company is not doing
business in or engaged in a trade or business in any jurisdiction in which it
has not filed any applicable income or franchise tax return; (j) there are no
proposed reassessments of any property owned by the Company or other proposals
that are reasonably expected to materially increase the amount of property tax
to which the Company would be subject; (k) the Company has not been a member of
any affiliated group with any company and has not filed a Tax return on a
consolidated, combined or unitary basis with any company; (l) at all times since
January 1, 1990, the Company has had in effect (i) a valid election under
Section 1362(a) of the Code (or a comparable election under any successor
provision) to be taxed as an S Corporation for federal income tax purposes (an
"S Election") (or comparable election under state or local law), (ii) a
comparable state law election in each state in which it conducts business, and
(iii) a comparable local law election in each locality in which it both conducts
business and is subject to a local income tax; (m) the Company has not received
and is not aware of any proposal from the IRS or any state or local tax
authority to disallow such S Election (or comparable state or local law
election) for any taxable year; and (n) the Company has not been and is not
subject to Taxes imposed by (i) Section 1371 of the Code, (ii) Section 1375 of
the Code, or (iii) Section 1374 of the Code. For purposes of this Agreement,
"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amount imposed with respect thereto) imposed by
any government or taxing authority on the Company, including, without
limitation: taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added or gains taxes; license,
registration and documentation fees; and customs duties, tariffs and similar
charges.
SECTION 3.26. Insurance. (a) Section 3.26(a) of the Disclosure
Schedule sets forth the following information with respect to each insurance
policy (including policies providing property, casualty, liability, workers'
compensation and bond and surety arrangements) under which the Company has been
an insured, a named insured or otherwise the principal beneficiary of coverage
at any time within the past three years:
(i) the name, address and telephone number of the agent or
broker;
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32
(ii) the name of the insurer and the names of the principal
insured and each named insured;
(iii) the policy number and the period of coverage; and
(iv) the type, scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount
(including a description of how deductibles, retentions and aggregates
are calculated and operate) of coverage.
(b) With respect to each such insurance policy: (i) the policy
is legal, valid, binding and enforceable in accordance with its terms and,
except for policies that have expired under their terms in the ordinary course,
is in full force and effect; (ii) the Company is not in breach or default
(including any breach or default with respect to the payment of premiums or the
giving of notice), and, to the best knowledge of the Sellers after due inquiry,
no event has occurred which, with notice or the lapse of time, would constitute
such a breach or default or permit termination or modification, under the
policy; and (iii) no party to the policy has repudiated, or given notice of an
intent to repudiate, any provision thereof.
(c) Section 3.26(c) of the Disclosure Schedule sets forth all
risks against which the Company is self-insured or which are covered under any
risk retention program in which the Company participates, together with details
for the last five years of the Company's loss experience with respect to such
risks.
(d) At no time subsequent to December 31, 1995 has the Company
(i) been denied any insurance or indemnity bond coverage which it has requested,
(ii) made any material reduction in the scope or amount of its insurance
coverage, or, except as set forth in Section 3.26(d) of the Disclosure Schedule,
received notice from any of its insurance carriers that any insurance premiums
will be subject to increase in an amount materially disproportionate to the
amount of the increases with respect thereto (or with respect to similar
insurance) in prior years or that any insurance coverage listed in Section
3.26(a) of the Disclosure Schedule will not be available in the future
substantially on the same terms as are now in effect or (iii) suffered any
extraordinary increase in premium for renewed coverage. To the best knowledge of
the Sellers after due inquiry, since December 31, 1995, no insurance carrier has
canceled, failed to renew or materially reduced any insurance coverage for the
Company or given any notice or other indication of its intention to cancel, not
renew or reduce any such coverage.
(e) At the time of the Closing, all insurance policies
currently in effect will be outstanding and duly in force.
(f) No insurance policy listed in Section 3.26(a) of the
Disclosure Schedule will cease to be legal, valid, binding, enforceable in
accordance with its terms and in full force
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33
and effect on terms identical to those in effect as of the date hereof as a
result of the consummation of the transactions contemplated by this Agreement.
SECTION 3.27. Full Disclosure. No representation or warranty
of any of the Sellers in this Agreement, nor any statement or certificate
furnished or to be furnished to the Purchaser by the Company or any Seller or
any of their representatives pursuant to this Agreement, or in connection with
the transactions contemplated by this Agreement or the Escrow Agreement,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading.
SECTION 3.28. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of any Seller.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As an inducement to the Purchaser to enter into this
Agreement, each Seller, as to themselves and not to the other Sellers, hereby
represents and warrants to the Purchaser as follows:
SECTION 4.01. Authority of the Sellers. Each Seller is an
individual and has all requisite right, power and authority and full legal
capacity to execute and deliver this Agreement, the Escrow Agreement and the
closing documents contemplated by Section 2.04, to perform his or her
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and upon execution the
Escrow Agreement will be, duly and validly executed and delivered by such
Seller, and this Agreement constitutes, and upon its execution the Escrow
Agreement will constitute, a legal, valid and binding obligation of each such
Seller enforceable against such Seller in accordance with its terms. The failure
of the spouse of any Seller to be a party or signatory to this Agreement or the
Escrow Agreement shall not (i) prevent any such Seller from performing his or
her obligations and from consummating the transactions contemplated hereunder
and thereunder or (ii) prevent this Agreement from constituting the legal, valid
and binding obligation of any such Seller enforceable against any such Seller in
accordance with its terms. No spouse of any Seller has any rights whatsoever in
respect of the Shares.
SECTION 4.02. Ownership. Each of the Sellers owns the number
of Shares set forth next to such Seller's name in Section 4.02 of the Disclosure
Schedule, and, except as set
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34
forth in Section 4.02 of the Disclosure Schedule, (i) such Seller has good and
marketable title to such Shares, free and clear of any Encumbrance of any kind,
and (ii) except for the Shares set forth next to each Seller's name in Schedule
4.02 of the Disclosure Schedule, each such Seller does not own any other shares
of capital stock of the Company. All the Shares set forth next to each Seller's
name in Schedule 4.02 of the Disclosure Schedule have been duly authorized,
validly issued, and are fully paid and nonassessable and have been accorded full
voting rights. Upon consummation of the transactions contemplated by this
Agreement and registration of the Shares in the name of the Purchaser in the
stock records of the Company, the Purchaser, assuming it shall have purchased
the Shares for value in good faith and without notice of any adverse claim, will
own all the issued and outstanding capital stock of the Company free and clear
of all Encumbrances and the Shares will be fully paid and nonassessable. There
are no voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
Shares.
SECTION 4.03. Private Placement. (a) Each of the Sellers
understands that (i) the offering and sale of the shares of Purchaser Common
Stock are intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act and (ii) there can be no
assurance that such Sellers will be able to sell or dispose of such shares
purchased by them pursuant to this Agreement. Each of the Sellers represents
that any Purchaser Common Stock acquired by such Seller pursuant to this
Agreement shall be acquired by such Seller for such Seller's own account and not
as nominee or agent for any other person and not with a view to, or for offer or
sale in connection with any distribution thereof within the meaning of the
Securities Act that would violate the securities laws of the United States of
America or any state thereof.
(b) Each of the Sellers is (i) a natural person whose
individual net worth, or joint net worth with such Seller's spouse, if any, on
the Closing Date exceeds $1,000,000 or (ii) a natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with such Seller's spouse, if any, in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same income level
in the current year.
(c) Each Seller is a Sophisticated Person.
(d) Each Seller has consulted with and has received advice
from its legal counsel in connection with the entering into of this Agreement,
including regarding the transfer restrictions on the shares of Purchaser Common
Stock to be issued in connection with the transaction contemplated by this
Agreement.
SECTION 4.04. Full Disclosure. No representation or warranty
of any of the Sellers in this Agreement, nor any statement or certificate
furnished or to be furnished to the Purchaser by the Company or any Seller or
any of their representatives pursuant to this
<PAGE>
35
Agreement, or in connection with the transactions contemplated by this Agreement
or the Escrow Agreement, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
SECTION 4.05. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of any Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Sellers to enter into this Agreement,
the Purchaser hereby represents and warrants to the Sellers as follows:
SECTION 5.01. Organization and Authority of the Purchaser. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and has all necessary corporate power and
authority to enter into this Agreement and the Escrow Agreement, to carry out
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Escrow Agreement by the Purchaser, the performance by the Purchaser of
its obligations hereunder and thereunder and the consummation by the Purchaser
of the transactions contemplated hereby and thereby have been duly authorized by
all requisite action on the part of the Purchaser. This Agreement has been, and
upon its execution, the Escrow Agreement will be, duly executed and delivered by
the Purchaser, and (assuming due authorization, execution and delivery by the
Sellers) this Agreement constitutes, and upon its execution the Escrow Agreement
will constitute, a valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms.
SECTION 5.02. No Conflict. Assuming compliance with the
notification requirements of the HSR Act and the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 5.03, except as may result from any facts or
circumstances relating solely to any of the Sellers, the execution, delivery and
performance of this Agreement and the Escrow Agreement by the Purchaser do not
and will not (a) violate, conflict with or result in the breach of any provision
of the Certificate of Incorporation or By-laws of the Purchaser, (b) conflict
with or violate any Law or Governmental Order applicable to the Purchaser or (c)
conflict with, or result in any breach of, constitute a default (or event which
with the giving of notice or lapse or time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation, or cancellation of, or result
in the creation of any
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36
Encumbrance on any of the assets or properties of the Purchaser pursuant to, any
note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which the
Purchaser is a party or by which any of such assets or properties are bound or
affected which would have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement and by
the Escrow Agreement.
SECTION 5.03. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and the Escrow Agreement
by the Purchaser do not and will not require any consent, approval,
authorization or other order of, action by, filing with, or notification to, any
Governmental Authority, which the failure to obtain would prevent or delay
consummation of the transactions contemplated by this Agreement, or otherwise
prevent the Purchaser from performing its respective obligations under this
Agreement, except for the notification requirements of the HSR Act.
SECTION 5.04. Investment Purpose. The Purchaser is acquiring
the Shares solely for the purpose of investment and not with a view to, or for
offer or sale in connection with, any distribution thereof.
SECTION 5.05. Litigation. Except as disclosed in a writing
given to the Sellers by the Purchaser on the date of this Agreement, no claim,
action, proceeding or investigation is pending or, to the best knowledge of the
Purchaser after due inquiry, threatened, which seeks to delay or prevent the
consummation of, or which would be reasonably likely to materially adversely
affect (i) the Purchaser's ability to consummate, the transactions contemplated
by this Agreement or (ii) the business of the Purchaser and its subsidiaries,
taken as a whole.
SECTION 5.06. Capitalization. The authorized capital stock of
the Purchaser consists of (a) 50,000,000 shares of Purchaser Common Stock and
(b) 1,000,000 shares of preferred stock, par value $1.00 per share ("Purchaser
Preferred Stock"). As of March 1, 1999, (i) 22,250,472 shares of Purchaser
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable and (ii) no shares of Purchaser Common Stock are
held in the treasury of the Purchaser. As of the date of this Agreement, no
shares of Purchaser Preferred Stock were issued and outstanding. Except for (i)
stock purchase rights issued pursuant to the Stockholder Rights Plan dated June
1, 1992 between Purchaser and First Union National Bank of North Carolina, as
agent, and (ii) the stock option plans of the Purchaser and its subsidiaries,
there are no warrants or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock of Purchaser
or any of its subsidiaries or obligating Purchaser or any of its subsidiaries to
issue or sell any shares of capital stock of, or other equity interests in,
Purchaser or any of its subsidiaries. The Purchaser Common Stock, when issued
pursuant to this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable. Other than pursuant to the Registration Rights Agreement and
the Agreement and Plan of Merger, dated as of July 7, 1997, among the Purchaser,
Dycom
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37
Acquisitions, Inc., Communications Construction Group, Inc., George Tamasi and
Thomas Polis, no person has demand or other rights to cause the Company to file
any registration statement under the Securities Act relating to any securities
of the Company or any right to participate in any such registration.
SECTION 5.07. SEC Filings; Financial Statements. (a) The
Purchaser has filed all forms, reports and documents required to be filed by it
with the SEC since December 31, 1997 through the date of this Agreement
(collectively, the "SEC Reports"). The SEC Reports (i) at the time they were
filed, complied as to form in all material respects, with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No subsidiary of the Purchaser is required to
file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with GAAP (except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the consolidated financial position
of the Purchaser and its consolidated subsidiaries as at the respective dates
thereof and for the respective periods indicated therein except as otherwise
named therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments).
(c) To the knowledge of the Purchaser, no event has occurred
within the 15 days immediately prior to the date hereof which is required to be
reported on Form 8-K under the Securities Act.
SECTION 5.08. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Conduct of Business Prior to the Closing. (a)
The Sellers covenant and agree that, except as described in Section 6.01(a) of
the Disclosure Schedule, between the date hereof and the time of the Closing,
the Sellers shall cause the Company not to conduct its business other than in
the ordinary course and consistent with the Company's prior practice. Without
limiting the generality of the foregoing, except as described in Section 6.01(a)
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38
of the Disclosure Schedule, the Sellers shall cause the Company to (i) continue
its pricing and purchasing policies, in accordance with past practice; (ii) not
shorten or lengthen the customary payment cycles for any of its payables or
receivables; (iii) use its best efforts to (A) preserve intact its business
organization, (B) keep available to the Purchaser the services of the employees
of the Company, (C) continue in full force and effect without material
modification all existing policies or binders of insurance currently maintained
in respect of the Company and the Business and (D) preserve its current
relationships with its customers, suppliers and other persons with which it has
significant business relationships; (iv) exercise, but only after notice to the
Purchaser and receipt of the Purchaser's prior written approval, any rights of
renewal pursuant to the terms of any of the leases or subleases set forth in
Section 3.18(b) of the Disclosure Schedule which by their terms would otherwise
expire; and (v) not engage in any practice, take any action, fail to take any
action or enter into any transaction which could cause any representation or
warranty of any of the Sellers to be untrue or result in a breach of any
covenant made by the Sellers in this Agreement.
(b) Except as described in Section 6.01(b) of the Disclosure
Schedule, the Sellers covenant and agree that, prior to the Closing, without the
prior written consent of the Purchaser, none of the Sellers will cause the
Company to do any of the things enumerated in the second sentence of Section
3.11 (including, without limitation, clauses (i) through (xxx) thereof).
SECTION 6.02. Access to Information. (a) From the date hereof
until the Closing, upon reasonable notice and during normal business hours, the
Sellers shall cause the Company and each of the Company's officers, directors,
employees, agents, representatives, accountants and counsel to afford the
Purchaser and its representatives reasonable access to the offices, properties,
other facilities, books and records of the Company and to those officers,
directors, employees, agents, accountants and counsel of the Company who have
any knowledge relating to the Company or the Business and furnish to the
Purchaser and its representatives such additional financial and operating data
and other information regarding the assets, properties and goodwill of the
Company and the Business (or legible copies thereof) as the Purchaser or its
representatives may from time to time reasonably request.
(b) In order to facilitate the resolution of any claims made
against or incurred by the Sellers prior to the Closing, for a period of seven
years after the Closing, the Purchaser shall (i) retain the books and records of
the Company relating to periods prior to the Closing and (ii) during such
seven-year period, upon reasonable notice, afford the officers, employees and
authorized agents and representatives of the Sellers reasonable access
(including the right to make, at the Sellers' expense, photocopies), during
normal business hours, to such books and records.
(c) In order to facilitate the resolution of any claims made
by or against or incurred by the Purchaser or the Company after the Closing or
for any other reasonable purpose, for a period of seven years following the
Closing, each of the Sellers shall (i) retain the books
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39
and records which relate to the Company and its operations for periods prior to
the Closing and which shall not otherwise have been delivered to the Purchaser
or the Company and (ii) during such seven-year period, upon reasonable notice,
afford the officers, employees and authorized agents and representatives of the
Purchaser or the Company reasonable access (including the right to make
photocopies, at the expense of the Purchaser or the Company), during normal
business hours, to such books and records.
SECTION 6.03. Confidentiality. (a) Each of the Sellers agrees
to, and shall cause its agents, representatives and Affiliates and the Company's
agents, representatives, Affiliates, employees, officers and directors to: (i)
treat and hold as confidential (and not disclose or provide access to any Person
to) all information relating to trade secrets, processes, product development,
price, customer and supplier lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business or the Company, (ii) in the event that any Seller or any such agent,
representative, Affiliate, employee, officer or director becomes legally
compelled to disclose any such information, provide the Purchaser with prompt
written notice of such requirement so that the Purchaser or the Company may seek
a protective order or other remedy or waive compliance with this Section 6.03,
(iii) in the event that such protective order or other remedy is not obtained,
or the Purchaser waives compliance with this Section 6.03, furnish only that
portion of such confidential information which is legally required to be
provided and exercise its best efforts, at the Purchaser's expense, to obtain
assurances that confidential treatment will be accorded such information, (iv)
promptly furnish (prior to, at, or as soon as practicable following, the
Closing) to the Company or the Purchaser any and all copies (in whatever form or
medium) of all such confidential information then in the possession of such
Seller or any of his agent, representative, Affiliate, employee, officer and
director and, except as otherwise required by Section 6.02(c), destroy any and
all additional copies then in the possession of such Seller or any such agent,
representative, Affiliate, employee, officer and director of such information
and of any analyses, compilations, studies or other documents prepared, in whole
or in part, on the basis thereof; provided, however, that this sentence shall
not apply to any information that (x) is or becomes generally available to the
public other than as a result of a disclosure by any of the Sellers or their
representatives not permitted by this Agreement, (y) was available to the
Sellers on a nonconfidential basis prior to its disclosure by the Purchaser or
its representatives or (z) becomes available to the Sellers on a nonconfidential
basis from a person other than the Purchaser or its representatives who is not
otherwise bound by a confidentiality agreement with the Purchaser or any of its
representatives, or is not otherwise under an obligation to the Purchaser or any
of its representatives not to transmit the information to the Sellers. Each of
the Sellers agree and acknowledge that remedies at law for any breach of its
obligations under this Section 6.03(a) are inadequate and that in addition
thereto the Purchaser shall be entitled to seek equitable relief, including
injunction and specific performance, in the event of any such breach.
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40
(b) The Purchaser agrees to, and shall cause its agents,
representatives and Affiliates to: (i) treat and hold as confidential (and not
disclose or provide access to any Person to) all information relating to trade
secrets, processes, product development, price, customer and supplier lists,
pricing and marketing plans, policies and strategies, details of client and
consultant contracts, operations methods, product development techniques,
business acquisition plans, new personnel acquisition plans and all other
confidential information with respect to the Sellers, (ii) in the event that the
Purchaser or any such agent, representative, Affiliate, employee, officer or
director becomes legally compelled to disclose any such information, provide the
Sellers with prompt written notice of such requirement so that the Sellers may
seek a protective order or other remedy or waive compliance with this Section
6.03, (iii) in the event that such protective order or other remedy is not
obtained, or the Sellers waives compliance with this Section 6.03, furnish only
that portion of such confidential information which is legally required to be
provided and exercise its best efforts, at the Sellers' expense, to obtain
assurances that confidential treatment will be accorded such information, (iv)
promptly furnish (prior to, at, or as soon as practicable following the Closing)
to the Sellers any and all copies (in whatever form or medium) of all such
confidential information then in the possession of the Purchaser or any such
agent, representative, Affiliate, employee, officer and director and, except as
otherwise required by Section 6.02(c), destroy any and all additional copies
then in the possession of the Purchaser or any such agent, representative,
Affiliate, employee, officer and director of such information and of any
analyses, compilations, studies or other documents prepared, in whole or in
part, on the basis thereof; provided, however, that this sentence shall not
apply to any information that (x) is or becomes generally available to the
public other than as a result of a disclosure by the Purchaser or its
representatives not permitted by this Agreement, (y) was available to the
Purchaser on a nonconfidential basis prior to its disclosure by the Purchaser or
its representatives or (z) becomes available to the Purchaser on a
nonconfidential basis from a person other than the Sellers or their
representatives who is not otherwise bound by a confidentiality agreement with
the Sellers or any of their representatives, or is not otherwise under an
obligation to the Sellers or any of their representatives not to transmit the
information to the Purchaser. The Purchaser agrees and acknowledges that
remedies at law for any breach of its obligations under this Section 6.03(b) are
inadequate and that in addition thereto the Sellers shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach.
(c) In the event of any inconsistency between the terms of
this Agreement and the terms of the Confidentiality Agreement, the terms of this
Agreement shall control. Upon termination of this Agreement pursuant to Section
10.01, the obligations of the parties with respect to confidential information
shall be governed by the Confidentiality Agreement.
SECTION 6.04. Regulatory and Other Authorizations; Notices and
Consents. (a) The Sellers shall use their best efforts to obtain (or cause the
Company to obtain) all authorizations, consents, orders and approvals of all
Governmental Authorities and officials that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement and the Escrow Agreement and will cooperate fully with
<PAGE>
41
the Purchaser in promptly seeking to obtain all such authorizations, consents,
orders and approvals. Each party hereto agrees to make an appropriate filing, if
necessary, pursuant to the HSR Act with respect to the transactions contemplated
by this Agreement within five Business Days of the date hereof and to supply as
promptly as practicable to the appropriate Governmental Authorities any
additional information and documentary material that may be requested pursuant
to the HSR Act.
(b) The Sellers shall or shall cause the Company to give
promptly such notices to third parties and use its or their best efforts to
obtain such third party consents and estoppel certificates as the Purchaser may
in its sole and absolute discretion deem necessary or desirable in connection
with the transactions contemplated by this Agreement.
(c) The Purchaser shall cooperate and use all reasonable
efforts to assist the Sellers in giving such notices and obtaining such consents
and estoppel certificates; provided, however, that the Purchaser shall have no
obligation to give any guarantee or other consideration of any nature in
connection with any such notice, consent or estoppel certificate or to consent
to any change in the terms of any agreement or arrangement which the Purchaser
in its sole and absolute discretion may deem adverse to the interests of the
Purchaser, the Company or the Business.
(d) None of the Sellers knows of any reason why all the
consents, approvals and authorizations necessary for the consummation of the
transactions contemplated hereby will not be received.
(e) Each of the Sellers and the Purchaser agree that, in the
event any consent, approval or authorization necessary or desirable to preserve
for the Business or the Company any right or benefit under any lease, license,
contract, commitment or other agreement or arrangement to which any such Seller
or the Company is a party is not obtained prior to the Closing, such Seller
will, subsequent to the Closing, cooperate with the Purchaser and the Company in
attempting to obtain such consent, approval or authorization as promptly
thereafter as practicable. If such consent, approval or authorization cannot be
obtained, such Seller shall use its best efforts to provide the Company, at the
Company's sole expense, with the rights and benefits of the affected lease,
license, contract, commitment or other agreement or arrangement for the term of
such lease, license, contract or other agreement or arrangement, and, if such
Seller provides such rights and benefits, the Company shall assume the
obligations and burdens thereunder.
SECTION 6.05. No Solicitation or Negotiation. Each of the
Sellers agrees that between the date of this Agreement and the earlier of (i)
the Closing and (ii) the termination of this Agreement, none of the Sellers, the
Company or any of their respective Affiliates, officers, directors,
representatives or agents will (a) solicit, initiate, consider, encourage or
accept any other proposals or offers from any Person (i) relating to any
acquisition or purchase of all or any
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42
portion of the capital stock of the Company or assets of the Company, (ii) to
enter into any business combination with the Company or (iii) to enter into any
other extraordinary business transaction involving or otherwise relating to the
Company, or (b) participate in any discussions, conversations, negotiations and
other communications regarding, or furnish to any other Person any information
with respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any other Person to seek to do
any of the foregoing. The Sellers immediately shall cease and cause to be
terminated all existing discussions, conversations, negotiations and other
communications with any Persons conducted heretofore with respect to any of the
foregoing. The Sellers shall notify the Purchaser promptly if any such proposal
or offer, with any Person with respect thereto, is made and shall, in any such
notice to the Purchaser, indicate in reasonable detail the identity of the
Person making such proposal or offer and the terms and conditions of such
proposal or offer. Each of the Sellers agrees not to, and to cause the Company
not to, without the prior written consent of the Purchaser, release any Person
from, or waive any provision of, any confidentiality or standstill agreement to
which the Company is a party.
SECTION 6.06. Notification of Certain Matters. Prior to the
Closing, the Sellers shall promptly notify the Purchaser in writing of (i) all
events, circumstances, facts and occurrences arising subsequent to the date of
this Agreement which would reasonably be expected to result in any breach of a
representation or warranty or covenant of any of the Sellers in this Agreement
or which would be reasonably likely to have the effect of making any
representation or warranty of any Seller in this Agreement untrue or incorrect
in any respect and (ii) all other material developments affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations or employee relations of the Company or the
Business; provided, however, that the delivery of any notice pursuant to this
Section 6.06 shall not be deemed to be an amendment of this Agreement or the
Disclosure Schedule and shall not cure any breach of any representation or
warranty requiring disclosure of such matter prior to the date of this
Agreement. No delivery of any notice pursuant to this Section 6.06 shall limit
or affect the remedies available hereunder to the party receiving such notice,
including the rights of the Purchaser under Section 9.02(a), in the event that a
representation or warranty made by the Company or the Purchaser herein shall not
be true and correct as of the date hereof and as of the Closing Date.
SECTION 6.07. Non-Competition. (a) For a period of three (3)
years after the Closing, none of the Sellers shall directly or indirectly engage
in the business of providing telecommunications or electrical services in the
nature of engineering, construction, installation, upgrading, maintenance,
mapping, locating or technical activities for utility companies, cable
television systems or telephone companies (the "Purchaser's Business"), whether
as a proprietor, partner, joint venturer, employer, agent, employee, consultant,
officer or beneficial or record owner of more than four percent of the stock of
any corporation or association of any nature which is competitive to the
Purchaser's Business in the contiguous lower 48 states of the United States of
America. Within that geographical area and during that non-compete period, none
of
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43
the Sellers shall solicit or do business competitive to the Purchaser's Business
with any customers, partners or associates of the Purchaser or any of its
subsidiaries. Provided, however, that nothing in this Section or this Agreement
shall prevent any Seller from participation in the management of or ownership of
an equity interest in any company, corporation or association of any nature,
that owns or has constructed for its own account, alone or with co-owners or
joint venturers, fiber optic or other telecommunications or electrical systems
or facilities.
(b) Each of the Sellers agrees that the breach by such Seller
of the covenant contained in Section 6.07(a) is likely to result in immediate
and irreparable harm, directly or indirectly, to the Purchaser. Each of the
Sellers, therefore, consents and agrees that if such Seller violates any of such
covenants, the Purchaser shall be entitled, among and in addition to any other
rights or remedies available under this Agreement or at law or in equity, to
temporary and permanent injunctive relief to prevent such Seller from committing
or continuing a breach of such covenants.
(c) It is the desire, intent and agreement of each of the
Sellers and the Purchaser that the restrictions placed on each of the Sellers by
Section 6.07(a) be enforced to the fullest extent permissible under the law and
public policy applied by any jurisdiction in which enforcement is sought.
Accordingly, if and to the extent that any portion of this Section 6.07 shall be
adjudicated to be unenforceable, such portion shall be deemed amended to delete
therefrom, or to reform the portion thus adjudicated to be invalid or
unenforceable, such deletion or reformation to apply only with respect to the
operation of such portion in the particular jurisdiction in which such
adjudication is made.
SECTION 6.08. Public Announcements. Prior to the Closing, the
Purchaser, the Sellers and the Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the transactions contemplated thereby, including by
providing a draft of any proposed press release or public statement with respect
to the initial announcement of this Agreement and the transactions contemplated
thereby to the other party prior to such issuance, and shall not issue any such
press release or make any such public statement prior to such consultation.
SECTION 6.09. Resale Restrictions. (a) Each of the Sellers
acknowledges and agrees that the shares of Purchaser Common Stock issued
pursuant to this Agreement have not been registered under the Securities Act or
any state securities Law, and that such shares to be received by them are being
acquired solely for their own account, for investment and not with a view to the
sale or distribution thereof. Each of the Sellers hereby agrees not to offer,
sell, hypothecate, pledge or otherwise transfer, pledge or hypothecate such
shares unless and until registered under the Securities Act and any applicable
state securities Law or unless such offer, sale, transfer, pledge or
hypothecation is exempt from registration or is otherwise in compliance with the
Securities Act and such Laws. Each of the Sellers acknowledges that, except as
provided in the Registration Rights Agreement, such Seller has no right to
require the Purchaser
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44
to register shares of Purchaser Common Stock. Each of the Sellers understands
and agrees that each certificate representing shares of Purchaser Common Stock
received hereunder shall bear the following legends:
THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY AN AGREEMENT
ON FILE AT THE OFFICES OF THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
and such Seller agrees to transfer shares of Purchaser Common Stock only in
accordance with the provisions of such legends. In addition, each of the Sellers
agrees that the Purchaser shall instruct the transfer agent to only transfer the
Purchaser Common Stock pursuant to these provisions.
(b) In the event the shares of Purchaser Common Stock received
by any Seller hereunder cease to be restricted for purposes of the Securities
Act, upon request of such Seller and surrender of the certificate bearing such
legends, the Purchaser or its designated agent will promptly reissue such
certificates to such Seller without such legends.
SECTION 6.10. Release of Indemnity Obligations. Each of the
Sellers covenants and agrees, on or prior to the Closing, to execute and deliver
to the Company, for the benefit of the Company, a general release and discharge,
in form and substance satisfactory to the Purchasers releasing and discharging
the Company from any and all obligations to indemnify such Seller or otherwise
hold it harmless pursuant to any agreement or other arrangement entered into
prior to the Closing except for the obligation to indemnify such Seller as an
officer or director of the Company pursuant to the bylaws of the Company in
effect on the date hereof or as otherwise provided under the GBCL.
SECTION 6.11. Further Action. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
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45
SECTION 6.12. Stock Splits. Prior to the Closing, the
Purchaser shall not subdivide into a smaller number, reclassify or otherwise
materially change its issued and outstanding common stock.
SECTION 6.13. Disclosure Schedule. Prior to the Closing and
within 21 days of the date of this Agreement, the Sellers shall provide the
Purchaser with a copy of the Disclosure Schedule.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Indemnity. (a) The Sellers agree, jointly and
severally, to indemnify and hold harmless the Purchaser and the Company against
the following Taxes and, except as otherwise provided in Section 7.04, against
any loss, damage, liability or expense, including reasonable fees for attorneys
and other outside consultants, incurred in contesting or otherwise in connection
with any such Taxes: (i) Taxes imposed on the Company with respect to taxable
periods or the portion of any taxable period ending on or before the Closing
Date resulting from a determination by a tax authority that such Taxes are due
because of (x) a finding of fraud and/or (y) the disallowance of any deduction
taken by the Company and determined to be a personal expense of a Seller and
(ii) Taxes resulting from an election described in Section 338(h)(10) of the
Code. The Purchaser shall be responsible for Taxes and associated expenses not
allocated to the Seller pursuant to the first sentence hereof.
(b) In the case of Taxes that are payable with respect to a
taxable period that begins before the Closing Date and ends after the Closing
Date, the portion of any such Tax that is allocable to the portion of the period
ending on the Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible) (other than conveyances pursuant to this
Agreement, as provided under Section 7.07), deemed equal to the amount
which would be payable if the taxable year ended with the Closing Date;
and
(ii) in the case of Taxes imposed on a periodic basis with
respect to the assets of the Company or otherwise measured by the level
of any item, deemed to be the amount of such Taxes for the entire
period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediately preceding period),
multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire
period.
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46
SECTION 7.02. Returns and Payments. (a) From the date of this
Agreement through and after the Closing Date, the Sellers shall prepare and file
or otherwise furnish in proper form to the appropriate Governmental Authority
(or cause to be prepared and filed or so furnished) in a timely manner all Tax
returns, reports and forms ("Returns") relating to the Company that are due on
or before or relate to any taxable period ending on or before the Closing Date
(and the Purchaser shall do the same with respect to any taxable period ending
after the Closing Date). Returns of the Company not yet filed for any taxable
period that begins before the Closing Date shall be prepared in a manner
consistent with past practices employed with respect to the Company (except to
the extent counsel for the Sellers or the Company renders a legal opinion that
there is no reasonable basis in law therefor or determines that a Return cannot
be so prepared and filed without being subject to penalties). With respect to
any Return required to be filed by the Purchaser with respect to the Company and
as to which an amount of Tax is allocable to the Sellers under Section 7.01, the
Purchaser shall provide the Sellers and their authorized representatives with a
copy of such completed Return and a statement certifying the amount of Tax shown
on such Return that is allocable to the Sellers pursuant to Section 7.01,
together with appropriate supporting information and schedules at least 20
Business Days prior to the due date (including any extension thereof) for the
filing of such Return, and the Sellers and their authorized representatives
shall have the right to review and comment on such Return and statement prior to
the filing of such Return. With respect to any Return required to be filed by
any Seller with respect to the Company, the Sellers shall provide the Purchaser
and its authorized representatives with a copy of such completed Return,
together with appropriate supporting information and schedules at least 20
Business Days prior to the due date (including any extension thereof) for the
filing of such Return, and the Purchaser and its authorized representatives
shall have the right to review and comment on such Return and statement prior to
the filing of such Return.
(b) The Sellers shall pay or cause to be paid when due and
payable all Taxes with respect to the Company for any taxable period ending on
or before the Closing Date to the extent such Taxes exceed the amount, if any,
accrued for such Taxes as current Taxes payable on the Closing Date, and the
Purchaser shall so pay or cause to be paid Taxes for any taxable period after
the Closing Date (subject to its right of indemnification from the Sellers by
the date set forth in Section 7.05 for Taxes attributable to the portion of any
Tax period that includes the Closing Date pursuant to Section 7.01).
SECTION 7.03. Refunds. Any Tax refund (including any interest
with respect thereto) relating to the Company for any taxable period prior to
the Closing Date shall be the property of the Purchaser, and if received by the
Sellers or the Company shall be paid over promptly to the Purchaser. In
addition, any Tax refund (or equivalent benefit to any Seller through a
reduction in Tax liability) for a period before the Closing Date arising out of
the carryback of a loss or credit incurred by the Company in a taxable year
ending after the Closing Date shall be the property of the Purchaser and, if
received by such Seller, shall be paid over promptly to the Purchaser.
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47
SECTION 7.04. Contests. (a) After the Closing, the Purchaser
shall promptly notify the Sellers in writing of any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding of the
Purchaser or of the Company which, if determined adversely to the taxpayer,
would be grounds for indemnification under this Article VII; provided, however,
that a failure to give such notice will not affect the Purchaser's right to
indemnification under this Article VII except to the extent, if any, that, but
for such failure, the Sellers could have avoided all or a portion of the Tax
liability in question.
(b) In the case of an audit or administrative or judicial
proceeding that relates to periods ending on or before the Closing Date and
provided that the Sellers acknowledge in writing their liability under this
Agreement to hold the Purchaser and the Company harmless against the full amount
of any adjustment which may be made as a result of such audit or proceeding that
relates to periods ending on or before the Closing Date (or, in the case of any
taxable year that includes the Closing Date, against an adjustment allocable
under Section 7.01(b) to the portion of such year ending on or before the
Closing Date) and is subject to indemnification under Section 7.01(a), the
Sellers shall have the right at their expense to participate in and control the
conduct of such audit or proceeding but only to the extent that such audit or
proceeding relates solely to a potential adjustment for which the Sellers have
acknowledged their liability; the Purchaser also may participate in any such
audit or proceeding and, if the Sellers do not assume the defense of any such
audit or proceeding, the Purchaser may defend the same in such manner as it may
deem appropriate, including, but not limited to, settling such audit or
proceeding after giving five days' prior written notice to the Sellers setting
forth the terms and conditions of settlement. In the event that issues relating
to a potential adjustment for which the Sellers have acknowledged their
liability are required to be dealt with in the same proceeding as separate
issues relating to a potential adjustment for which the Purchaser would be
liable, the Purchaser shall have the right, at its expense, to control the audit
or proceeding with respect to the latter issues.
(c) With respect to issues relating to a potential adjustment
for which both the Sellers (as evidenced by its acknowledgment under this
Section 7.04) and the Purchaser or the Company could be liable, (i) each party
may participate in the audit or proceeding, and (ii) the audit or proceeding
shall be controlled by that party which would bear the burden of the greater
portion of the sum of the adjustment and any corresponding adjustments that may
reasonably be anticipated for future Tax periods. The principle set forth in the
immediately preceding sentence shall govern also for purposes of deciding any
issue that must be decided jointly (including, without limitation, choice of
judicial forum) in situations in which separate issues are otherwise controlled
under this Article VII by the Purchaser and the Sellers.
(d) Neither the Purchaser nor any Seller shall enter into any
compromise or agree to settle any claim pursuant to any Tax audit or proceeding
which would adversely affect the other party for such year or a subsequent year
without the written consent of the other party, which consent may not be
unreasonably withheld. The Purchaser and the Sellers agree to
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48
cooperate, and the Purchaser agrees to cause the Company to cooperate, in the
defense against or compromise of any claim in any audit or proceeding.
SECTION 7.05. Time of Payment. Payment by the Sellers of any
amounts due under this Article VII in respect of Taxes shall be made (i) at
least three Business Days before the due date of the applicable estimated or
final Return required to be filed by the Purchaser on which is required to be
reported income for a period ending after the Closing Date for which any Seller
is responsible under Sections 7.01(a) and 7.01(b) without regard to whether the
Return shows overall net income or loss for such period, and (ii) within three
Business Days following an agreement between the Sellers and the Purchaser that
an indemnity amount is payable, an assessment of a Tax by a taxing authority, or
a "determination" as defined in Section 1313(a) of the Code. If liability under
this Article VII is in respect of costs or expenses other than Taxes, payment by
any Seller of any amounts due under this Article VII shall be made within five
Business Days after the date on which the Sellers have been notified by the
Purchaser that the Sellers have a liability for a determinable amount under this
Article VII and is provided with calculations or other materials supporting such
liability.
SECTION 7.06. Cooperation and Exchange of Information. Upon
the terms set forth in Section 6.02 of this Agreement, the Sellers and the
Purchaser will provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes, participating in or conducting any audit or other proceeding in
respect of Taxes or making representations to or furnishing information to
parties subsequently desiring to purchase any of the Company or any part of the
Business from the Purchaser. Such cooperation and information shall include
providing copies of relevant Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
other determinations by Tax authorities. The Sellers shall make their employees
available on a basis mutually convenient to both parties to provide explanations
of any documents or information provided hereunder. Each of the Sellers and the
Purchaser shall retain all Returns, schedules and work papers, records and other
documents in its possession relating to Tax matters of the Company for each
taxable period first ending after the Closing Date and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations of
the taxable periods to which such Returns and other documents relate, without
regard to extensions except to the extent notified by the other party in writing
of such extensions for the respective Tax periods, or (ii) six years following
the due date (without extension) for such Returns. Any information obtained
under this Section 7.06 shall be kept confidential in accordance with Section
6.03 except as may be otherwise necessary in connection with the filing of
Returns or claims for refund or in conducting an audit or other proceeding.
SECTION 7.07. Section 338(h)(10) Election. (a) At the
Purchaser's request, the Sellers agree to make an election under Section
338(h)(10) of the Code (the "Election") with respect to the purchase of the
Shares, and to cooperate with the Purchaser in the preparation of
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49
the Election, jointly file such Election with the Purchaser on a timely basis
and comply with the rules and regulations applicable to such Election. These
principles also shall apply to any similar election as may be available under
applicable state or local laws and specified by the Purchaser.
(b) For purposes of making such Election, the Purchaser shall
propose a valuation of the tangible and intangible assets of the Company and
shall provide the Sellers on or prior to the Closing Date with a proposed
allocation of the Purchaser's "adjusted grossed-up basis" in the Shares (within
the meaning of the Regulations under Section 338 of the Code) to such assets
(the "Allocation") substantially in the form of Exhibit 7.07(b). Upon agreement
among the parties, the Allocation shall be binding upon the Purchaser and the
Sellers for purposes of allocating the "deemed selling price" (within the
meaning of the Regulations) among the assets of the Company. The Sellers and the
Purchaser agree to file all federal, state, local and foreign tax returns in a
manner consistent with the Allocation. The Sellers agree that they will be
solely responsible for, and shall timely pay, any and all Taxes which arise as a
result of the filing of the Election and any similar state or local election
(except sales taxes).
SECTION 7.08. Miscellaneous. (a) The Sellers and the Purchaser
agree to treat all payments made by either of them to or for the benefit of the
other (including any payments to the Company) under this Article VII, under
other indemnity provisions of this Agreement and for any misrepresentations or
breaches of warranties or covenants as adjustments to the Purchase Price or as
capital contributions for Tax purposes and that such treatment shall govern for
purposes hereof except to the extent that the Laws of a particular jurisdiction
provide otherwise, in which case such payments shall be made in an amount
sufficient to indemnify the relevant party on an after-Tax basis.
(b) Notwithstanding any provision in this Agreement to the
contrary, the obligations of the Sellers to indemnify and hold harmless the
Purchaser and the Company pursuant to this Article VII shall terminate at the
close of business on the 120th day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question (giving
effect to any waiver, mitigation or extension thereof).
(c) From and after the date of this Agreement, no Seller shall
without the prior written consent of the Purchaser (which may, in its sole and
absolute discretion, withhold such consent) make, or cause or permit to be made,
any material Tax election that would affect the Company.
(d) For purposes of this Article VII, "the Purchaser" and
"each Seller", respectively, shall include each member of the affiliated group
of corporations of which it is or becomes a member (other than the Company,
except to the extent expressly referenced).
(e) The Purchaser or the Sellers shall be entitled to recover
professional fees and related costs that they may reasonably incur to enforce
the provisions of this Article VII.
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(f) This Article VII (and not Article IX) shall be the sole
provision for indemnification against breach of representations, warranties,
covenants and agreements regarding Taxes.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to the Obligations of Each Party. The
obligations of each party to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
(a) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Shares contemplated
hereby shall have expired or been terminated;
(b) No Order. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Governmental Order
which is then in effect and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise prohibiting its
consummation; and
(c) Apex Merger. The Apex Merger Agreement shall be in full
force and effect and all conditions precedent to the consummation of
the transactions contemplated thereunder shall have been satisfied or
waived by the parties thereto, and the merger contemplated thereby
shall be consummated simultaneously with the Closing.
SECTION 8.02. Conditions to Obligations of the Sellers. The
obligations of the Sellers to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Purchaser contained in this
Agreement shall have been true and correct when made and shall be true
and correct in all material respects as of the Closing, with the same
force and effect as if made as of the Closing Date, other than such
representations and warranties as are made as of another date, which
shall be true and correct as of such date (provided, however, that if
any portion of any representation or warranty is already qualified by
materiality, for purposes of determining whether this Section 8.02(a)
has been satisfied with respect to such portion of such representation
or warranty, such portion of such representation or warranty as so
qualified must be true and correct in all respects), and the covenants
and agreements contained in this Agreement to be complied with by the
Purchaser on or before the Closing shall have been complied
<PAGE>
51
with in all material respects, and the Sellers shall have received a
certificate from the Purchaser to such effect signed by a duly
authorized officer thereof;
(b) No Proceeding or Litigation. No Action shall have been
commenced by or before any Governmental Authority against any of the
Sellers or the Purchaser, seeking to restrain or materially and
adversely alter the transactions contemplated by this Agreement which,
in the reasonable, good faith determination of the Sellers, is likely
to render it impossible or unlawful to consummate such transactions;
provided, however, that the provisions of this Section 8.02(b) shall
not apply if any of the Sellers has directly or indirectly solicited
or encouraged any such Action;
(c) Resolutions. The Sellers shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of
the Purchaser, of the resolutions duly and validly adopted by the Board
of Directors of the Purchaser evidencing its authorization of the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby;
(d) Incumbency Certificate. The Sellers shall have received a
certificate of the Secretary or an Assistant Secretary of the Purchaser
certifying the names and signatures of the officers of the Purchaser
authorized to sign this Agreement and the other documents to be
delivered hereunder;
(e) Registration Rights Agreement. The Registration Rights
Agreement, in substantially the form attached hereto as Exhibit
8.02(e), shall have been executed and delivered by the Purchaser; and
(f) Legal Opinion. The Sellers shall have received a legal
opinion, addressed to the Sellers and dated the Closing Date
substantially in the form of Exhibit 8.02(f).
SECTION 8.03. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Sellers contained in this
Agreement shall have been true and correct when made and shall be true
and correct in all material respects as of the Closing with the same
force and effect as if made as of the Closing, other than such
representations and warranties as are made as of another date, which
shall be true and correct as of such date (provided, however, that if
any portion of any representation or warranty is already qualified by
materiality, for purposes of determining whether this Section 8.03(a)
has been satisfied with respect to such portion of such representation
or warranty, such portion of such representation or warranty as so
qualified must be true and correct in all
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52
respects), and the covenants and agreements contained in this
Agreement to be complied with in all material respects by the Sellers
on or before the Closing shall have been complied with, and the
Purchaser shall have received a certificate of each of the Sellers to
such effect;
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against
any Seller or the Purchaser, seeking to restrain or materially and
adversely alter the transactions contemplated by this Agreement which
the Purchaser believes, in its reasonable, good faith determination, is
likely to render it impossible or unlawful to consummate the
transactions contemplated by this Agreement or which could have a
Material Adverse Effect or otherwise render inadvisable, in the sole
and absolute discretion of the Purchaser, the consummation of the
transactions contemplated by this Agreement; provided, however, that
the provisions of this Section 8.03(b) shall not apply if the Purchaser
has solicited or encouraged any such Action;
(c) Legal Opinion. The Purchaser shall have received legal
opinions each addressed to the Purchaser and dated the Closing Date,
substantially in the form of Exhibits 8.03(c)(i) and 8.03(c)(ii);
(d) Consents and Approvals. The Purchaser and the Sellers
shall have received, each in form and substance satisfactory to the
Purchaser in its sole and absolute discretion, all authorizations,
consents, orders and approvals of all Governmental Authorities and
officials and all third party consents and estoppel certificates which
the Purchaser in its sole and absolute discretion deems necessary or
desirable for the consummation of the transactions contemplated by this
Agreement;
(e) Resignations of the Company's Directors and Officers. The
Purchaser shall have received the resignations, effective as of the
Closing, of all the directors and officers of the Company, except for
such persons as shall have been designated in writing prior to the
Closing by the Purchaser to the Sellers;
(f) Organizational Documents. The Purchaser shall have
received a copy of (i) the Certificates of Incorporation, as amended,
of the Company, certified by the secretary of state of Kentucky, as of
a date not earlier than five Business Days prior to the Closing Date
and accompanied by a certificate of the Secretary or Assistant
Secretary of the Company, dated as of the Closing Date, stating that no
amendments have been made to such Certificate of Incorporation (or
similar organizational documents) since such date, and (ii) the By-laws
(or similar organizational documents) of the Company, certified by the
Secretary or Assistant Secretary of the Company;
<PAGE>
53
(g) Minute Books. The Purchaser shall have received a copy of
the minute books and stock register of the Company, certified by the
Secretary or Assistant Secretary as of the Closing Date;
(h) Good Standing; Qualification to Do Business. The Purchaser
shall have received good standing certificates for the Company from the
secretary of state of the jurisdiction in which each such entity is
incorporated or organized and from the secretary of state in each other
jurisdiction in which the properties owned or leased by any of the
Company, or the operation of its business in such jurisdiction,
requires the Company to qualify to do business as a foreign
corporation, in each case dated as of a date not earlier than five
Business Days prior to the Closing Date and accompanied by bring-down
telegrams dated the Closing Date;
(i) Release of Indemnity Obligations. The Purchaser shall have
received the general release and discharge from each of the Sellers
referred to in Section 6.10 in form and substance satisfactory to the
Purchaser in its sole and absolute discretion;
(j) Due Diligence. The Purchaser shall have completed all its
business, legal, accounting and environmental due diligence with
respect to the Company and shall, in its reasonable discretion, be
satisfied with the results thereof;
(k) No Material Adverse Effect. No event or events shall have
occurred, or be reasonably likely to occur, which, individually or in
the aggregate, have, or could have, a Material Adverse Effect;
(l) Escrow Agreement. Each of the Sellers shall have executed
the Escrow Agreement in substantially the form attached hereto as
Exhibit 2.06.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties. The
representations and warranties of the Sellers contained in this Agreement, and
all statements contained in this Agreement, the Exhibits to this Agreement, the
Disclosure Schedule and any certificate, Financial Statement or report or other
document delivered pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement (collectively, the "Acquisition
Documents"), shall survive the Closing until October 1, 2000; provided, however,
that (a) the representations and warranties dealing with Tax matters shall
survive as provided in Section 7.08(b), (b) insofar as any claim is made by the
Purchaser for the breach of any representation or warranty of any of the Sellers
contained herein, which claim arises out of
<PAGE>
54
allegations of personal injury or property damage suffered by any third party on
or prior to the Closing Date, or activities or omissions that occur, on or prior
to the Closing Date, such representations and warranties shall, for purposes of
such claim by the Purchaser, survive until thirty calendar days after the
expiration of the applicable statute of limitations governing such claims and
(c) insofar as any claim is made by the Purchaser for the breach of any
representation or warranty of any of the Sellers contained herein relating to
environmental matters, such representation and warranty shall, for purposes of
such claims by the Purchaser, survive the Closing Date until the fifth
anniversary of the Closing Date. Neither the period of survival nor the
liability of the Sellers with respect to the Sellers' representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of the Purchaser. If written notice of a claim has been given prior to
the expiration of the applicable representations and warranties by a party to
another party, then the relevant representations and warranties shall survive as
to such claim, until such claim has been finally resolved.
SECTION 9.02. Indemnification. (a) The Purchaser, its
Affiliates and their successors and assigns, and the officers, directors,
employees and agents of the Purchaser, its Affiliates (including without
limitation, the Company) and their successors and assigns shall be indemnified
and held harmless by the Sellers, jointly and severally, for any and all
Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable attorneys'
and consultants' fees and expenses) actually suffered or incurred by them
(including, without limitation, any Action brought or otherwise initiated by any
of them) (hereinafter a "Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by any
Seller contained in the Acquisition Documents; or
(ii) the breach of any covenant or agreement by any Seller
contained in the Acquisition Documents; or
(iii) Liabilities of the Company not reflected on the
Reference Balance Sheet, whether arising before or after the Closing
Date, arising from or relating to the ownership or actions or inactions
of the Company or the conduct of their respective businesses prior to
the Closing; or
(iv) any and all Losses suffered or incurred by the Purchaser,
any of its Affiliates or the Company by reason of or in connection with
any claim or cause of action of any third party to the extent arising
out of any action, inaction, event, condition, liability or obligation
of any of the Sellers occurring or existing prior to the Closing; or
(v) (A) any and all Remedial Actions performed at any time
relating to any Release of Hazardous Materials into the Environment or
on or about the Real Property prior to the Closing to the extent any
such Remedial Action is required under any Environmental Law or by any
Governmental Authority or is necessary to prevent or abate
<PAGE>
55
a significant risk to human health or the environment; (B) any and all
Environmental Claims arising before the fifth anniversary of the
Closing Date that relate to the business or the operation of the
Company prior to the Closing; or (C) any and all noncompliances with or
violations of any applicable Environmental Law or Environmental Permit
by the Company prior to the Closing;
provided, however, with respect to each Seller, such Seller shall have no
obligation under this Section 9.02 for breaches of another Seller's
representations and warranty contained in Article IV.
(b) Each of the Sellers, their successors and assigns and
agents of the Sellers and their successors and assigns shall be indemnified and
held harmless by the Purchaser for any and all Losses arising from any claim or
cause of action of any third party to the extent arising out of the Purchaser's
use of the Assets or conduct of the Business following the Closing.
(c) An indemnified party shall give the indemnifying party
notice of any matter which an indemnified party has determined has given or
could give rise to a right of indemnification under this Agreement, within 60
days of such determination, stating the amount of the Loss, if known, and method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of the indemnifying party under this
Article IX with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article IX ("Third Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an indemnified party shall receive notice of any Third Party
Claim, the indemnified party shall give the indemnifying party notice of such
Third Party Claim within 30 days of the receipt by the indemnified party of such
notice; provided, however, that the failure to provide such notice shall not
release the indemnifying party from any of its obligations under this Article IX
except to the extent the indemnifying party is materially prejudiced by such
failure. If the indemnifying party acknowledges in writing its obligation to
indemnify the indemnified party hereunder against any Losses that may result
from such Third Party Claim, then the indemnifying party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the indemnified party within ten days of the receipt of such notice from the
indemnified party; provided, however, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the indemnified party, in its sole and absolute discretion, for the
same counsel to represent both the indemnified party and the indemnifying party,
then the indemnified party shall be entitled to retain its own counsel, in each
jurisdiction for which the indemnified party determines counsel is required, at
the expense of the indemnifying party. In the event the indemnifying party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the indemnified party shall cooperate with the
indemnifying party in such defense and make available to the indemnifying party,
at the indemnifying party's expense, all witnesses, pertinent records, materials
and information in the indemnified party's possession or under the indemnified
party's control
<PAGE>
56
relating thereto as is reasonably required by the indemnifying party. Similarly,
in the event the indemnified party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the indemnifying party shall
cooperate with the indemnified party in such defense and make available to the
indemnified party, at the indemnifying party's expense, all such witnesses,
records, materials and information in the indemnifying party's possession or
under the indemnifying party's control relating thereto as is reasonably
required by the indemnified party. No such Third Party Claim may be settled by
any indemnifying party without the prior written consent of the indemnified
party.
SECTION 9.03. Tax Matters. Article VII (and not this Article
IX) shall be the sole provision for indemnification against breach of
representations, warranties, covenants and agreements regarding Tax matters,
including the survival of representations and warranties contained in Section
3.25 of this Agreement and any other representations and warranties relating to
Taxes contained in any of the Acquisition Documents.
SECTION 9.04. Limits on Indemnification. The indemnification
obligations of the Sellers pursuant to Section 9.02(a) shall not be effective
until the aggregate dollar amount of all Losses which would otherwise be
indemnifiable pursuant to Section 9.02(a) exceeds $317,500 (the "Threshold
Amount"), provided, however, that if the Threshold Amount is exceeded, the
Sellers shall be liable for all Losses, including the Threshold Amount.
Notwithstanding anything to the contrary contained in this Agreement, the
maximum amount of indemnifiable Losses which may be recovered from the Sellers
arising out of or resulting from the causes enumerated in Section 9.02(a) of
this Agreement shall be an amount equal to $3,175,000 in the aggregate. In
addition, the indemnification obligations of the Sellers shall be satisfied
first from the Escrow Shares, in accordance with the Escrow Agreement.
SECTION 9.05. Exclusive Remedy. Except for claims related to a
wilful or intentional breach of any provision of this Agreement or fraud by any
of the parties hereto, the rights of indemnified parties to indemnification
under this Article IX shall constitute the sole and exclusive remedies of the
indemnified parties from and after the Closing Date with respect to the matters
in respect of which indemnification may be provided for hereunder; provided,
however, nothing in this Article IX shall be deemed to preclude an indemnified
party from seeking equitable relief for any failure of any party hereto to
perform any covenant or agreement required to be performed by any party hereto.
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated
at any time prior to the Closing:
<PAGE>
57
(a) by the Purchaser if, between the date hereof and the time
scheduled for the Closing: (i) an event or condition occurs that has
resulted in or that may be reasonably expected to result in a Material
Adverse Effect, (ii) any representation or warranty of any of the
Sellers contained in this Agreement shall not have been true and
correct in all material respects when made, (iii) any of the Sellers
shall not have complied with any covenant or agreement to be complied
with by it and contained in this Agreement in all material respects;
or (iv) any of the Sellers or the Company makes a general assignment
for the benefit of creditors, or any proceeding shall be instituted by
or against any such Seller or the Company seeking to adjudicate any of
them a bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; or
(b) by the Sellers or the Purchaser if the Closing shall not
have occurred by April 30, 1999; provided, however, that the right to
terminate this Agreement under this Section 10.01(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing to occur on or prior to such date; or
(c) by either the Purchaser or the Sellers in the event that
any Governmental Authority shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable; or
(d) by the Sellers upon written notice to the Purchaser, if
the closing price of Purchaser Common Stock on the trading day prior to
the Initial Closing Date is less than the Minimum Share Value provided
that such termination right shall only be effective if the closing
price of Purchaser Common Stock is less than the Minimum Share Value on
each of the five Business Days beginning with and including the Initial
Closing Date (such five-day period, the "Waiting Period"), provided
further that such notice of termination shall be deemed revoked by the
Sellers on the first day (the "Seller Termination Revocation Date")
during the Waiting Period that the closing price of Purchaser Common
Stock is equal to or greater than the Minimum Share Value; or
(e) by the Purchaser upon written notice to the Sellers, if
the closing price of Purchaser Common Stock on the trading day prior to
the Initial Closing Date is greater than the Maximum Share Value
provided that such termination right shall only be effective if the
closing price of Purchaser Common Stock is greater than the Maximum
Share Value on each of the five Business Days during the Waiting
Period, provided further that such notice of termination shall be
deemed revoked by the Purchaser on the first day (the "Purchaser
Termination Revocation Date") during the Waiting Period that
<PAGE>
58
the closing price of Purchaser Common Stock is less than or equal to
the Maximum Share Value; or
(f) by the mutual written consent of the Sellers and the
Purchaser.
SECTION 10.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 10.01, this Agreement shall
forthwith become void and there shall be no liability on the part of either
party hereto except (i) as set forth in Section 11.01 and (ii) that nothing
herein shall relieve any party from liability for any breach of this Agreement.
SECTION 10.03. Waiver. Either of the Purchaser, on one hand,
and the Sellers, on the other hand, may (a) extend the time for the performance
of any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered by the other party pursuant hereto or (c)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby. Any waiver
of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such rights.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. All costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 11.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by cable, by telecopy, by telegram, by
telex or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 11.02):
if to the Sellers, to the Sellers' Representative:
Ervin Cable Construction, Inc.
P.O. Box 10
450 Pryor Boulevard
<PAGE>
59
Sturgis, Kentucky 42459
Telecopy: (502) 333-3300
Attention: Mr. Gary Ervin
with a copy to:
White and Williams LLP
1800 One Liberty Place
Philadelphia, Pennsylvania 19103
Telecopy: (215) 864-7123
Attention: M. Melvin Shralow, Esquire
if to the Purchaser:
Dycom Industries, Inc.
First Union Center,
Suite 600
4440 PGA Boulevard
Palm Beach Gardens, Florida 33410-6542
Telecopier: (561) 627-7709
Attention: Mr. Steven Nielsen
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Richard B. Vilsoet, Esq.
SECTION 11.03. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 11.04. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
<PAGE>
60
SECTION 11.05. Entire Agreement. This Agreement, the Escrow
Agreement, the Registration Rights Agreement and the Confidentiality Agreement,
the Sellers and the Purchaser, constitute the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, between the Sellers and the
Purchaser with respect to the subject matter hereof and thereof.
SECTION 11.06. Assignment. This Agreement may not be assigned
by operation of law or otherwise without the express written consent of the
Sellers and the Purchaser (which consent may be granted or withheld in the sole
discretion of the Sellers or the Purchaser).
SECTION 11.07. No Third Party Beneficiaries. Except for the
provisions of Article IX relating to indemnified parties, this Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 11.08. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
Sellers and the Purchaser or (b) by a waiver in accordance with Section 10.03.
SECTION 11.09. Miscellaneous. (a) Each of the Sellers hereby
(i) appoints and authorizes Gary E. Ervin to act as, and Gary E. Ervin by his
signature on the designated signature page of this Agreement agrees to act as,
the agent for purposes of Article II and Article VIII of this Agreement and (ii)
appoints and authorizes Gary E. Ervin to act as, and Gary E. Ervin by his
signature on the designated signature page of this Agreement agrees to act as,
the agent for all other matters hereunder and under the other Acquisition
Documents for the benefit of all the Sellers for the receipt and for the giving
of any notice specified in this Agreement or any other Acquisition Document to
be given or received, as the case may be, by the Sellers' Representative (in
such capacity, the "Sellers' Representative"). The Purchaser and the Escrow
Agent may each conclusively rely on the authority of the Sellers' Representative
to act as agent for each of the Sellers for the receipt or giving of any notice
specified in this Agreement or any other Acquisition Document to be given or
received, as the case may be, by the Sellers' Representative, until such time as
the Purchaser or the Escrow Agent, as the case may be, shall have received
written notice from the Sellers' Representative of his, her or its resignation
and the appointment of a substitute agent. Each Seller agrees that, should the
Sellers' Representative resign or be unable to serve, it shall immediately
select jointly with the other Sellers a single substitute agent for the giving
and receiving of notices, whose appointment shall be effective on the date of
the prior agent's resignation.
(b) The Sellers' Representative accepts his or her appointment
and, notwithstanding any provision to the contrary contained in any Acquisition
Document, it is agreed that the Sellers' Representative shall not have any
duties or responsibilities to the Purchaser, except those expressly set forth
herein and therein, nor shall the Sellers'
<PAGE>
61
Representative have or be deemed to have any fiduciary relationship with any
Seller as a result of his or her appointment as Sellers' Representative, and no
implied covenants, functions, responsibilities, duties, obligation or
liabilities shall be read into any Acquisition Document or otherwise exist
against the Sellers' Representative.
SECTION 11.10. Governing Law. This Agreement shall be governed
by the laws of the State of New York.
SECTION 11.11. Jurisdiction and Service of Process. Any legal
action or proceeding with respect to this Agreement shall be brought in the
courts of the State of Delaware located in Wilmington, or in the United States
District Court for the District of Delaware. By execution and delivery of this
Agreement, each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the parties hereto irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by certified mail, postage prepaid, to the party
at its address set forth in Section 11.02 hereof.
SECTION 11.12. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 11.13. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 11.14. Waiver of Jury Trial. THE PURCHASER AND EACH OF
THE SELLERS HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE PURCHASER AND
THE SELLERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
THEREOF.
<PAGE>
IN WITNESS WHEREOF, each of the Sellers and the Purchaser (by
its officers thereunto duly authorized) have caused this Agreement to be
executed as of the date first written above.
/s/ GARY E. ERVIN
-----------------------------
GARY E. ERVIN,
in his individual capacity
/s/ TIMOTHY W. ERVIN
-----------------------------
TIMOTHY W. ERVIN,
in his individual capacity
/s/ ROBERT W. ERVIN
-----------------------------
ROBERT W. ERVIN,
in his individual capacity
DYCOM INDUSTRIES, INC.
By: /s/ Thomas R. Pledger
---------------------------------
Name: Thomas R. Pledger
Title: Executive Chairman
================================================================================
----------------------------
AGREEMENT AND PLAN OF MERGER
----------------------------
Among
APEX DIGITAL TV, INC.,
THE STOCKHOLDERS OF APEX DIGITAL TV, INC.,
DYCOM ACQUISITION CORPORATION III
and
DYCOM INDUSTRIES, INC.
Dated as of March 12, 1999
================================================================================
<PAGE>
DISCLOSURE SCHEDULE
The Disclosure Schedule shall include the following Sections:
4.02 Organization and Qualification of the Company
4.04 Ownership of Shares
4.06 No Conflict
4.07 Governmental Consents and Approvals
4.08 Reference Balance Sheet
4.09 No Undisclosed Liabilities
4.10 Receivables
4.11 Inventories
4.12 Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions
4.13 Litigation
4.14 Certain Interests
4.15 Compliance with Laws
4.16 Environmental Matters
4.17 Material Contracts
4.18 Intellectual Property
4.19 Real Property
4.19(a) for Owned Real Property
4.19(b) for Leased Real Property
4.20 Tangible Personal Property
4.21 Assets
4.22 Customers
4.23 Employee Benefit Matters
4.24 Labor Matters
4.25 Key Employees
4.26 Taxes
4.27 Insurance
5.02 Ownership
7.01 Conduct of Business by the Company Pending the Merger
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms...................................................1
ARTICLE II
THE MERGER
2.01. The Merger.............................................................10
2.02. Effective Time; Closing................................................10
2.03. Effect of the Merger...................................................10
2.04. Certificate of Incorporation; By-Laws..................................11
2.05. Directors and Officers.................................................11
2.06. Delivery of Escrow Shares by the Stockholders..........................11
2.07. Escrow Agreement.......................................................11
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
3.01. Conversion of Securities...............................................11
3.02. Exchange of Certificates...............................................12
3.03. Stock Transfer Books...................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
4.01. Authority Relative to this Agreement...................................13
4.02. Organization and Qualification; Absence of Subsidiaries................13
4.03. Certificate of Incorporation and By-Laws...............................13
4.04. Capitalization; Ownership of Shares....................................14
4.05. Corporate Books and Records............................................14
4.06. No Conflict............................................................14
4.07. Governmental Consents and Approvals....................................15
4.08. Financial Information, Books and Records...............................15
4.09. No Undisclosed Liabilities.............................................16
-i-
<PAGE>
4.10. Receivables............................................................16
4.11. Inventories............................................................16
4.12. Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions...............................................16
4.13. Litigation.............................................................19
4.14. Certain Interests......................................................20
4.15. Compliance with Laws...................................................20
4.16. Environmental Matters..................................................21
4.17. Material Contracts.....................................................22
4.18. Intellectual Property..................................................23
4.19. Real Property..........................................................23
4.20. Tangible Personal Property.............................................26
4.21. Assets.................................................................27
4.22. Customers..............................................................28
4.23. Employee Benefit Matters...............................................28
4.24. Labor Matters..........................................................31
4.25. Key Employees..........................................................32
4.26. Taxes..................................................................32
4.27. Insurance..............................................................33
4.28. Full Disclosure........................................................34
4.29. Brokers................................................................34
4.30. Vote Required..........................................................34
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
5.01. Authority of the Stockholders..........................................35
5.02. Ownership..............................................................35
5.03. Private Placement......................................................36
5.04. Full Disclosure........................................................36
5.05. Brokers................................................................36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
6.01. Organization and Authority.............................................37
6.02. No Conflict............................................................37
6.03. Governmental Consents and Approvals....................................37
6.04. Litigation.............................................................38
6.05. Capitalization.........................................................38
6.06. SEC Filings; Financial Statements......................................38
6.07. Brokers................................................................39
-ii-
<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01. Conduct of Business by the Company Pending the Merger..................39
7.02. Access to Information..................................................40
7.03. Confidentiality........................................................40
7.04. Regulatory and Other Authorizations; Notices and Consents..............42
7.05. No Solicitation or Negotiation.........................................43
7.06. Notification of Certain Matters........................................44
7.07. Non-Competition........................................................44
7.08. Public Announcements...................................................45
7.09. Resale Restrictions....................................................45
7.10. Release of Indemnity Obligations.......................................46
7.11. Plan of Reorganization.................................................46
7.12. Stockholder Vote.......................................................46
7.13. Further Action.........................................................46
7.14. Stock Splits...........................................................47
7.15. Disclosure Schedule....................................................47
ARTICLE VIII
TAX MATTERS
8.01. Indemnity..............................................................47
8.02. Returns and Payments...................................................48
8.03. Refunds................................................................48
8.04. Contests...............................................................49
8.05. Time of Payment........................................................50
8.06. Cooperation and Exchange of Information................................50
8.07. Miscellaneous..........................................................51
ARTICLE IX
CONDITIONS TO THE MERGER
9.01. Conditions to the Obligations of Each Party............................51
9.02. Conditions to Obligations of the Company...............................52
9.03. Conditions to Obligations of Parent and Merger Sub.....................53
-iii-
<PAGE>
ARTICLE X
INDEMNIFICATION
10.01. Survival of Representations and Warranties............................55
10.02. Indemnification.......................................................56
10.03. Tax Matters...........................................................58
10.04. Limits on Indemnification.............................................58
10.05. Exclusive Remedy......................................................58
ARTICLE XI
TERMINATION AND WAIVER
11.01. Termination...........................................................58
11.02. Effect of Termination.................................................60
11.03. Waiver................................................................60
ARTICLE XII
GENERAL PROVISIONS
12.01. Expenses..............................................................60
12.02. Notices...............................................................60
12.03. Headings..............................................................61
12.04. Severability..........................................................61
12.05. Entire Agreement......................................................62
12.06. Assignment............................................................62
12.07. No Third Party Beneficiaries..........................................62
12.08. Amendment.............................................................62
12.09. Miscellaneous.........................................................62
12.10. Governing Law.........................................................63
12.11. Jurisdiction and Service of Process...................................63
12.12. Counterparts..........................................................63
12.13. Specific Performance..................................................63
12.14. Waiver of Jury Trial..................................................63
-iv-
<PAGE>
SCHEDULES
Disclosure Schedule
EXHIBITS
Exhibit 2.07 Form of Escrow Agreement
Exhibit 9.02(e) Form of Registration Rights Agreement
Exhibit 9.02(f) Form of Opinion of Parent's Counsel
Exhibit 9.03(c)(i) Form of Opinion of White and Williams LLP
Exhibit 9.03(c)(ii) Form of Opinion of Kentucky Counsel of the Company and
the Stockholders
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<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of March 12, 1999 (this
"Agreement") among DYCOM INDUSTRIES, INC., a Florida corporation ("Parent"),
DYCOM ACQUISITION CORPORATION III, a Kentucky corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), APEX DIGITAL TV, INC., a Kentucky
corporation (the "Company"), and Gary E. Ervin, Timothy W. Ervin, Robert W.
Ervin, Keith E. Walker, Robert J. Chastain, Charles T. McElroy and Penny J. Ward
(collectively, the "Stockholders").
WITNESSETH:
WHEREAS, Merger Sub, upon the terms and subject to the
conditions of this Agreement and in accordance with the GBCL (as defined
herein), will merge with and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company (i) has
determined that the Merger is in the best interests of the Company and the
Stockholders and approved and adopted this Agreement and the Merger and (ii) has
recommended approval and adoption of this Agreement and approval of the Merger
by the Stockholders;
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a tax free reorganization under the provisions of
Section 368(a) of the Code (as defined below); and
WHEREAS, certain of the Stockholders are concurrently entering
into a stock purchase agreement dated as of the date hereof (the "Ervin Stock
Purchase Agreement") providing for the purchase of the outstanding shares of
Ervin Cable Construction, Inc. ("ECC") by Parent.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, (a)
any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under
<PAGE>
2
common control with, such specified Person or (b) any other Person that owns,
directly or indirectly, 5% or more of such specified Person's voting stock or
any executive officer or director of any such specified Person or other Person
or, with respect to any natural Person, any Person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin.
"Agreement" or "this Agreement" means this Agreement and Plan
of Merger, dated as of March 12, 1999, among Parent, Merger Sub, the Company and
the Stockholders (including the Exhibits and the Disclosure Schedule) and all
amendments hereto made in accordance with the provisions of Section 12.08
hereto.
"Articles of Merger" has the meaning set forth in Section
2.02.
"Assets" has the meaning specified in Section 4.21.
"Business" means direct broadcast satellite installations
consisting of placement of satellite dish, premise wiring of coaxial and
telephone cables and activation of satellite receiver, service and trouble
repair, direct and telemarketing sales and CATV installation of primary cable
service, set top converters, programming filters and residential service lines.
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
the City of New York.
"Certificates" has the meaning set forth in Section 3.02(a).
"Closing" has the meaning set forth in Section 2.02.
"Closing Date" means the later of the Initial Closing Date and
the Final Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
"Company" has the meaning specified in the preamble to this
Agreement.
"Company Common Stock" means the common stock, no par value
per share of the Company.
"Company Intellectual Property" has the meaning set forth in
Section 4.18.
"Confidentiality Agreement" means the Confidentiality
Agreement, dated as of March 1, 1999, among the Company, the Stockholders, ECC
and Parent.
<PAGE>
3
"control" (including the terms "controlled by" and "under
common control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Conversion Ratio" has the meaning set forth in Section
3.01(a).
"Disclosure Schedule" means the Disclosure Schedule delivered
to Parent by the Company and the Stockholders pursuant to Section 7.15.
"due inquiry" means due inquiry among the officers, executives
and state and regional managers of the Company.
"ECC" has the meaning set forth in the recitals to this
Agreement.
"Effective Time" means the date and time of the filing of the
Articles of Merger with the Secretary of the State of Kentucky (or such later
time as may be agreed in writing by each of the parties hereto and specified in
the Articles of Merger).
"Encumbrance" means any security interest, pledge, mortgage,
lien (including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"Environment" means surface waters, ground waters, surface
water sediment, soil, subsurface strata and ambient air.
"Environmental Claims" means any and all actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or violation,
notices of liability or potential liability, investigations, proceedings,
consent orders or consent agreements relating in any way to any Environmental
Law, any Environmental Permit or any Hazardous Material or arising from any
alleged injury or threat of injury to health, safety or the Environment.
"Environmental Law" means any Law, now or hereafter in effect
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to pollution or protection of the Environment, health or safety or to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
<PAGE>
4
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required to operate the
Business or the Real Property under any applicable Environmental Law.
"ERISA" has the meaning specified in Section 4.23(a).
"Ervin Stock Purchase Agreement " has the meaning specified in
the recitals to this Agreement.
"Escrow Agent" means Wilmington Trust Company.
"Escrow Agreement" has the meaning specified in Section 2.07.
"Escrow Shares" has the meaning specified in Section 2.06.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Closing Date" has the meaning specified in Section
2.02.
"Financial Statements" has the meaning specified in Section
4.08(a).
"GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"GBCL" means the General Business and Corporation Law of the
State of Kentucky.
"Governmental Authority" means any United States federal,
state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Materials" means (a) petroleum and petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls, and (b) any other
chemicals, materials or substances regulated as toxic or hazardous or as a
pollutant, contaminant or waste under any applicable Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
<PAGE>
5
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance on
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Initial Closing Date" has the meaning specified in Section
2.02.
"Intellectual Property" means (a) trademarks, service marks,
trade dress, logos, trade names and corporate names, including all common law
rights, and registrations and applications for registration thereof, and all
rights therein provided by international treaties or conventions, (b) copyrights
(registered or otherwise) and registrations and applications for registration
thereof, and all rights therein provided by international treaties or
conventions, (c) computer software, including, without limitation, source code,
operating systems and specifications, data, data bases, files, documentation and
other materials related thereto, (d) trade secrets and confidential, technical
and business information (including ideas, formulas, compositions, inventions,
and conceptions of inventions whether patentable or unpatentable and whether or
not reduced to practice), (e) whether or not confidential, technology (including
know-how), research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial, marketing and business
data, pricing and cost information,
<PAGE>
6
business and marketing plans and customer and supplier lists and information,
(f) copies and tangible embodiments of all the foregoing, in whatever form or
medium, (g) issued patents and patent applications, (h) all rights to obtain and
rights to apply for patents and to register trademarks and copyrights, (i)
licenses or sublicenses in connection with any of the foregoing, and (j) all
rights to sue and recover and retain damages and costs and attorneys' fees for
present and past infringement of any of the foregoing.
"Inventories" means all inventory, merchandise, goods, raw
materials, packaging, supplies and other personal property related to the
Business maintained, held or stored by or for the Company before the Effective
Time and any prepaid deposits for any of the same.
"IRS" means the Internal Revenue Service of the United States.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Leased Real Property" means the real property leased by the
Company as tenant, together with, to the extent leased by the Company, all
buildings and other structures, facilities or improvements currently located
thereon, all fixtures, systems, equipment and items of personal property of the
Company attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Liabilities" means any and all Indebtedness, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order, and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Licensed Intellectual Property" means all Intellectual
Property licensed or sublicensed to the Company from a third party.
"Loss" has the meaning specified in Section 10.02(a).
"Material Adverse Effect" means any circumstance, change in,
or effect on the Business or the Company that, individually or in the aggregate
with any other circumstances, changes in, or effects on, the Business or the
Company: (a) is, or would reasonably be expected to be, materially adverse to
the business, operations, Assets or Liabilities, employee relationships,
customer or supplier relationships, results of operations or the financial
condition of the Company or (b) would be reasonably expected to adversely affect
the ability of Parent or the Company to operate or conduct the Business in the
manner in which it is currently operated or conducted by the Company.
NYDOCS01/581714 12
<PAGE>
7
"Material Contracts" has the meaning specified in Section
4.17(a).
"Maximum Amount" means $58,666.67.
"Maximum Share Value" means $42.625.
"Merger" has the meaning set forth in the recitals to this
Agreement.
"Merger Documents" has the meaning specified in Section 10.01.
"Merger Sub" has the meaning set forth in the preamble to this
Agreement.
"Merger Sub Common Stock" means the common stock, par value
$.01 per share, of Merger Sub.
"Minimum Amount" means $48,000.00.
"Minimum Share Value" means $34.875.
"Multiemployer Plan" has the meaning specified in Section
4.23(b).
"Multiple Employer Plan" has the meaning specified in Section
4.23(b).
"NYSE" means the New York Stock Exchange.
"Owned Intellectual Property" means all Intellectual Property
in and to which the Company holds, or has the right to hold, right, title and
interest.
"Owned Real Property" means the real property owned by the
Company, together with all buildings and other structures, facilities or
improvements currently located thereon, all fixtures, systems, equipment and
items of personal property of the Company attached or appurtenant thereto and
all easements, licenses, rights and appurtenances relating to the foregoing.
"Parent" has the meaning set forth in the preamble to this
Agreement.
"Parent Business" has the meaning specified in Section 7.07.
"Parent Common Stock" means the voting common stock, $.331/3
par value per share, of Parent.
"Parent Preferred Stock" has the meaning specified in Section
6.05.
<PAGE>
8
"Parent Termination Revocation Date" has the meaning specified
in Section 11.01(e).
"Permits" means any health and safety and other permits,
licenses, authorizations, certificates, exemptions and approvals of Governmental
Authorities.
"Permitted Encumbrances" means such of the following as to
which no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) liens for taxes, assessments and governmental
charges or levies not yet due and payable which are not in excess of the amount
accrued therefor on the Reference Balance Sheet; (b) Encumbrances imposed by
law, such as materialmen's, mechanics', carriers', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of business
securing obligations that (i) are not overdue for a period of more than 30 days
and (ii) are not in excess of $25,000 in the case of a single property or
$100,000 in the aggregate at any time; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or to secure
public or statutory obligations; and (d) survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (i)
were not incurred in connection with any Indebtedness, (ii) do not render title
to the property encumbered thereby unmarketable and (iii) do not, individually
or in the aggregate, materially adversely affect the value or use of such
property for its current and anticipated purposes.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
"Plans" has the meaning specified in Section 4.23(a).
"Real Property" means the Leased Real Property and the Owned
Real Property.
"Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Company from third parties, including, without
limitation, customers, arising from the conduct of the Business or otherwise
before the Effective Time, whether or not in the ordinary course, together with
all unpaid financing charges accrued thereon.
"Reference Balance Sheet" means the unaudited balance sheet
(including the related notes and schedules thereto) of the Company, dated as of
December 31, 1998, a copy of which is set forth in Section 4.08(a) of the
Disclosure Schedule.
"Reference Balance Sheet Date" means December 31, 1998.
"Registration Rights Agreement" has the meaning set forth in
Section 9.02(e).
<PAGE>
9
"Regulations" means the Treasury Regulations (including
Temporary Regulations) promulgated by the United States Department of Treasury
with respect to the Code or other federal tax statutes.
"Release" means disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like into or upon any land or water or air or otherwise entering into the
Environment.
"Remedial Action" means any investigation, assessment,
monitoring, treatment, excavation, removal, remediation or cleanup of Hazardous
Materials in the Environment.
"Returns" has the meaning specified in Section 8.02(a).
"S Election" has the meaning specified in Section 4.26(l).
"SEC" means the United States Securities and Exchange
Commission.
"SEC Reports" has the meaning specified in Section 6.06(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Share Value Amount" means the closing price of Parent Common
Stock on the trading day which occurs two days before the Closing Date.
"Shares" means, collectively, all issued and outstanding
shares of Company Common Stock.
"Stockholders" has the meaning set forth in the preamble to
this Agreement.
"Stockholders' Representative" has the meaning specified in
Section 12.09(a).
"Stockholders' Termination Revocation Date" has the meaning
specified in Section 11.01(d).
"Subsidiaries" means any and all corporations, partnerships,
joint ventures, associations and other entities controlled by the Company
directly or indirectly through one or more intermediaries.
"Surviving Corporation" has the meaning specified in Section
2.01.
"Tangible Personal Property" has the meaning specified in
Section 4.20(a).
<PAGE>
10
"Tax" or "Taxes" has the meaning set forth in Section 4.26.
"Termination Revocation Date" has the meaning specified in
Section 11.01(d).
"Third Party Claims" has the meaning specified in Section
10.02(c).
"Threshold Amount" has the meaning specified in Section 10.04.
"Waiting Period" has the meaning specified in Section
11.01(d).
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article IX, and in accordance with the GBCL, at the
Effective Time, Merger Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Merger Sub shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as
practicable and in no event later than the fifth Business Day (the "Initial
Closing Date") following the satisfaction or waiver of the conditions set forth
in Article IX (or such other date as may be agreed in writing by each of the
parties hereto), the parties hereto shall cause the Merger to be consummated by
filing Articles of Merger (the "Articles of Merger") with the Secretary of State
of the State of Kentucky in such form as is required by, and executed in
accordance with, the relevant provisions of the GBCL. Immediately prior to the
filing of the Articles of Merger, a closing (the "Closing") will be held at the
offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022
(or such other place as the parties may agree); provided that if either the
Stockholders' Representative or Parent delivers a written notice of termination
pursuant to Section 11.01(d) or Section 11.01(e), as the case may be, the
Closing shall be held or deemed to be held on the day (the "Final Closing Date")
following the Stockholders' Termination Revocation Date or the Parent
Termination Revocation Date, if applicable.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of the
GBCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
<PAGE>
11
SECTION 2.04. Certificate of Incorporation; By-Laws. (a) At
the Effective Time, the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Law and such Certificate of Incorporation.
(b) At the Effective Time the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
SECTION 2.05. Directors and Officers. The directors of Merger
Sub immediately prior to the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 2.06. Delivery of Escrow Shares by the Stockholders.
At the Closing, the Stockholders shall deliver to the Escrow Agent, in
accordance with the Escrow Agreement, stock certificates evidencing the number
of shares of Parent Common Stock equal to $5,175,000, divided by the Share Value
Amount (the "Escrow Shares").
SECTION 2.07. Escrow Agreement. Prior to the Effective Time,
the Stockholders and Parent shall enter into an Escrow Agreement with the Escrow
Agent substantially in the form of Exhibit 2.07 (the "Escrow Agreement").
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Sub, the
Company or the Stockholders:
(a) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Shares to be
canceled pursuant to Section 3.01(b)) shall be converted into the right
to receive the number of shares (the "Conversion Ratio") of Parent
Common Stock determined as follows;
(i) if the Share Value Amount is less than or equal
to the Maximum Share Value but not less than the Minimum Share
Value, then the Conversion Ratio shall be equal to 1,376.3441;
<PAGE>
12
(ii) if the Share Value Amount exceeds the Maximum
Share Value, then the Conversion Ratio shall be equal to the
Maximum Amount divided by the Share Value Amount; and
(iii) if the Share Value Amount is less than the
Minimum Share Value, then the Conversion Ratio shall be equal
to the Minimum Amount divided by the Share Value Amount.
(b) each Share held in the treasury of the Company immediately
prior to the Effective Time shall be canceled and extinguished without
any conversion thereof and no payment shall be made with respect
thereto; and
(c) each share of Merger Sub Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted
into one validly issued fully paid and nonassessable share of common
stock of the Surviving Corporation.
SECTION 3.02. Exchange of Certificates. (a) Upon the Effective
Time, each Stockholder shall cause all certificates held by such Stockholder
that immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") to be surrendered to the Parent or an agent designated by it.
Upon such surrender of a Certificate, the Stockholder shall receive in exchange
therefor a certificate representing that number of whole shares of Parent Common
Stock that such Stockholder has the right to receive pursuant to Section 3.01
(less such Stockholder's pro rata portion of the shares of Parent Common Stock
held by the Parent pursuant to the Escrow Agreement) in respect of the Shares
formerly represented by such Certificate (after taking into account all Shares
then held by such Stockholder) and the Certificate so surrendered shall
forthwith be cancelled.
(b) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates and no cash shall be paid in lieu of such fractional shares.
(c) All shares of Parent Common Stock issued upon conversion
of the Shares in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Shares other than
the registration rights under the Registration Rights Agreement.
(d) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, Parent or its
agent shall issue in exchange for such lost, stolen or destroyed Certificate the
shares of Parent Common Stock.
<PAGE>
13
SECTION 3.03. Stock Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. From and after the Effective Time, the holders of certificates
representing Shares outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares except as otherwise
provided herein or by Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
The Company and the Stockholders hereby, jointly and
severally, represent and warrant to Parent and Merger Sub as follows:
SECTION 4.01. Authority Relative to this Agreement. The
Company has all necessary corporate power and authority to execute and deliver
this Agreement and the Escrow Agreement and its obligations hereunder and
thereunder, and the execution and delivery of this Agreement by the Company and
the consummation by the Company of the Merger have been duly authorized by all
necessary action on the part of the Company and no other proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
Merger (other than the approval and adoption of this Agreement by the holders of
a majority of the then outstanding shares of Company Common Stock if and to the
extent required by applicable Law, and the filing and recordation of appropriate
merger documents as required by the GBCL).
SECTION 4.02. Organization and Qualification; Absence of
Subsidiaries. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Kentucky and has the requisite
power and authority to own, lease and operate the properties and assets now
owned, leased and operated by it and to carry on the Business as it is currently
being conducted. The Company is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the operation
of the Business makes such qualification or licensing necessary or desirable and
all such jurisdictions are set forth in Section 4.02 of the Disclosure Schedule.
The Company does not have, nor at any time has had, any Subsidiaries or any
direct or indirect ownership or equity interest in any partnership or joint
venture or other similar interest in any other entity. For purposes of
clarification of the immediately preceding sentence, direct ownership by any of
the Stockholders shall not be deemed to be "indirect ownership" by the Company.
SECTION 4.03. Certificate of Incorporation and By-Laws. The
Stockholders have heretofore delivered to Parent a true and correct copy of the
Certificate of Incorporation and
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14
the By-Laws of the Company, each as in effect on the date hereof. Such
Certificate of Incorporation and By-Laws are in full force and effect. All
corporate actions taken by the Company have been duly authorized, and the
Company has not taken any action that in any respect conflicts with, constitutes
a default under or results in a violation of any provision of its Certificate of
Incorporation or By-Laws.
SECTION 4.04. Capitalization; Ownership of Shares. (a) The
authorized capital stock of the Company consists of 1,000 shares of Company
Common Stock. As of the date of this Agreement, (i) 375 shares of Company Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, and (ii) no shares of Company Common Stock are held in the
treasury of the Company. None of the issued and outstanding shares of Company
Common Stock was issued in violation of any preemptive rights. There are no
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of, or any other interest in, the Company or obligating any of the
Stockholders or the Company to issue or sell any shares of capital stock of, or
other interest in, the Company. The Company is not a party to any agreement
granting registration rights to any Person with respect to any securities of the
Company. There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of Company Common Stock. The
Company does not directly or indirectly own, and has not agreed to purchase or
otherwise acquire, any of the capital stock of, or any interest convertible into
or exchangeable or exercisable for the capital stock of, any corporation,
partnership, joint venture or other business association or entity. Except as
set forth in Section 4.04(a) of the Disclosure Schedule, there are no
outstanding contractual obligations of the Company to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any Person.
(b) The stock register of the Company accurately records: (i)
the name and address of each Person owning shares of capital stock of the
Company and (ii) the certificate number of each certificate evidencing shares of
capital stock issued by the Company, the number of shares evidenced by each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
SECTION 4.05. Corporate Books and Records. The minute books of
the Company contain accurate records of all meetings and accurately reflect all
other actions taken by the shareholders, the Board of Directors and all
committees of the Board of Directors of the Company. Complete and accurate
copies of all such minute books and of the stock register of the Company have
been provided by the Company to Parent.
SECTION 4.06. No Conflict. The execution, delivery and
performance of this Agreement and the Escrow Agreement by each of the Company
and the Stockholders do not and will not (a) violate, conflict with or result in
the breach of any provision of the Certificate of Incorporation or By-Laws of
the Company, (b) conflict with or violate (or cause an event which
NYDOCS01/581714 12
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15
could have a Material Adverse Effect as a result of) any Law or Governmental
Order applicable to any Stockholder, the Shares, the Company or any of the
Company's assets, properties or businesses, including, without limitation, the
Business, or (c) except as set forth in Section 4.06(c) of the Disclosure
Schedule or where such conflict, breach or default would not reasonably be
expected to have a Material Adverse Effect, conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Shares or on any of the assets or properties of any Stockholder or
the Company pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which any Stockholder or the Company is a party or by which any
of the Shares or any of the Company's Assets or properties is bound or affected.
SECTION 4.07. Governmental Consents and Approvals. Except as
set forth in Section 4.07 of the Disclosure Schedule, the execution, delivery
and performance of this Agreement by the Company and each of the Stockholders do
not and will not require any consent, approval, authorization or other order of,
action by, filing with or notification to any Governmental Authority, except (a)
as described in Section 4.07 of the Disclosure Schedule, (b) the notification
requirements of the HSR Act and (c) the filing and recordation of appropriate
merger documents as required by the GBCL.
SECTION 4.08. Financial Information, Books and Records. (a)
True and complete copies of (i) the audited balance sheet of the Company for
each of the three fiscal years ended as of December 31, 1997, December 31, 1996,
and December 31, 1995, and the related audited statements of income,
stockholders' equity and cash flow of the Company, together with all related
notes thereto, accompanied by the reports thereon of the Company's Accountants
(collectively, the "Financial Statements") and (ii) the unaudited balance sheet
of the Company as of December 31, 1998 (the Reference Balance Sheet, a copy of
which is set forth in Section 4.08(a) of the Disclosure Schedule), and the
related statements of income, stockholders' equity and cash flow of the Company,
together with all related notes thereto, have been delivered by the Company to
Parent. The Financial Statements and the Reference Balance Sheet (i) were
prepared in accordance with the books of account and other financial records of
the Company, (ii) present fairly the financial condition and results of
operations of the Company as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with GAAP applied on a basis
consistent with the past practices of the Company and (iv) include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the financial condition of the Company and the
results of the operations of the Company as of the dates thereof or for the
periods covered thereby.
(b) The books of account and other financial records of the
Company: (i) reflect all items of income and expense and all assets and
Liabilities required to be reflected
<PAGE>
16
therein in accordance with GAAP applied on a basis consistent with the past
practices of the Company, (ii) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.
SECTION 4.09. No Undisclosed Liabilities. There are no
Liabilities of the Company, other than Liabilities (i) reflected or reserved
against on the Reference Balance Sheet, (ii) disclosed in Section 4.09 of the
Disclosure Schedule or (iii) incurred since the date of the Reference Balance
Sheet in the ordinary course of business, consistent with past practice, of the
Company and which do not and would not reasonably be expected to have a Material
Adverse Effect. Reserves are reflected on the Reference Balance Sheet against
all Liabilities of the Company in amounts that have been established on a basis
consistent with the past practices of the Company and in accordance with GAAP.
SECTION 4.10. Receivables. Section 4.10 of the Disclosure
Schedule sets forth an aged list of the Receivables of the Company as of the
Reference Balance Sheet Date showing separately those Receivables that as of
such date had been outstanding (i) 29 days or less, (ii) 30 to 59 days, (iii) 60
to 89 days, (iv) 90 to 119 days and (v) more than 119 days. Except as disclosed
in Section 4.10 of the Disclosure Schedule and except to the extent, if any,
reserved for on the Reference Balance Sheet, all Receivables reflected on the
Reference Balance Sheet arose from, and the Receivables existing on the
Effective Time will have arisen from, the sale of services to Persons not
affiliated with any Stockholder or the Company and in the ordinary course of the
Business consistent with past practice and, except as reserved against on the
Reference Balance Sheet, constitute or will constitute, as the case may be, only
valid, undisputed claims of the Company not subject to valid claims of set-off
or other defenses or counterclaims other than normal cash discounts accrued in
the ordinary course of the Business consistent with past practice.
SECTION 4.11. Inventories. Subject to amounts reserved
therefor on the Reference Balance Sheet, the values at which all Inventories are
carried on the Reference Balance Sheet reflect the historical inventory
valuation policy of the Company of stating such Inventories at the lower of cost
or market value. Except as set forth in Section 4.11 of the Disclosure Schedule,
the Company has good and marketable title to the Inventories free and clear of
all Encumbrances. The Inventories do not consist of, in any material amount,
items that are obsolete, damaged or slow-moving and do not consist of any items
held on consignment. The Company is not under any obligation or liability with
respect to accepting returns of items of Inventory or merchandise in the
possession of their customers other than in the ordinary course of business
consistent with past practice. No clearance or extraordinary sale of the
Inventories has been conducted since the Reference Balance Sheet Date.
SECTION 4.12. Conduct in the Ordinary Course; Absence of
Certain Changes, Events and Conditions. Since the Reference Balance Sheet Date,
except as disclosed in
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17
Section 4.12 of the Disclosure Schedule, the business of the Company has been
conducted in the ordinary course and consistent with past practice. As
amplification and not limitation of the foregoing, except as disclosed in
Section 4.12 of the Disclosure Schedule, since the Reference Balance Sheet Date,
the Company has not:
(i) amended, restated or otherwise changed the Certificate of
Incorporation or By-Laws (or other organizational documents) of the
Company;
(ii) issued, sold or pledged, or authorized the issuance, sale
or pledge of, any shares of its capital stock or any notes, bonds or
other securities, or any option, warrant or other right to acquire the
same, of, or any other interest in, the Company;
(iii) declared, set aside, made or paid any dividend or other
distribution (whether in cash, securities, property or otherwise) with
respect to any of its capital stock or otherwise;
(iv) reclassified, combined, split, subdivided or redeemed,
purchased or otherwise acquired, directly or indirectly, any of its
capital stock;
(v) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Company to be subjected to any
Encumbrance, other than Permitted Encumbrances and Encumbrances that
will be released at or prior to the Closing;
(vi) merged with, entered into a consolidation with or
acquired (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any Person or any
assets or any business of any Person or any division or of business
thereof, or otherwise acquired any material assets, other than in the
ordinary course of business consistent with past practice;
(vii) failed to pay any creditor any amount owed to such
creditor when due;
(viii) made any capital expenditure or commitment for any
capital expenditure in excess of $50,000 individually or $100,000 in
the aggregate;
(ix) agreed to make any purchases involving exchanges in value
in excess of $50,000 individually or $100,000 in the aggregate;
(x) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible
assets), other than the sale of Inventories in the ordinary course of
business consistent with past practice;
<PAGE>
18
(xi) amended, terminated, canceled or compromised any material
claim of the Company or waived any other rights of substantial value to
the Company;
(xii) entered into any contract or agreement material to its
business, results of operations or financial condition other than in
the ordinary course of business, consistent with past practice;
(xiii) failed to maintain the Assets in accordance with good
business practice and in good operating condition and repair;
(xiv) allowed any Permit or Environmental Permit that was
issued or relates to the Company or otherwise relates to any Asset to
lapse or terminate or failed to renew any such Permit or Environmental
Permit or any insurance policy that is scheduled to terminate or expire
within 45 calendar days of the Effective Time;
(xv) incurred any Indebtedness that will not be repaid prior
to the Closing, in excess of $50,000 individually or $100,000 in the
aggregate;
(xvi) (A) granted any increase, promised any increase or
announced any increase, in the wages, salaries, compensation, bonuses,
incentives, pension or other benefits payable by the Company to any of
its employees, including, without limitation, any increase or change
pursuant to any Plan or (B) established or increased or promised to
increase any benefits under any Plan, in either case except as required
by Law or any collective bargaining agreement and involving ordinary
increases consistent with the past practices of the Company;
(xvii) taken any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts
payable and collection of accounts receivable);
(xviii) made any express or deemed tax election or settled or
compromised any liability, with respect to Taxes of the Company;
(xix) except in the ordinary course of business consistent
with past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Reference Balance Sheet and
current liabilities incurred in the ordinary course of business
consistent with past practice since the Reference Balance Sheet Date;
(xx) made any loan to, guaranteed any Indebtedness or
otherwise incurred any Indebtedness on behalf of any Person;
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19
(xxi) amended, modified or consented to the termination of any
Material Contract or the Company's rights thereunder;
(xxii) suffered any casualty loss or damage with respect to
any of the Assets which in the aggregate have a replacement cost of
more than $25,000, whether or not such loss or damage shall have been
covered by insurance;
(xxiii) disclosed any trade secrets or confidential, technical
or business information or permitted to lapse or go abandoned any
Intellectual Property of the Company;
(xxiv) made any material changes in the customary methods of
operations of the Company, including, without limitation, practices and
policies relating to manufacturing, purchasing, Inventories, marketing,
selling and pricing;
(xxv) entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or with
any relative, beneficiary, spouse or Affiliate of such Person);
(xxvi) suffered any Material Adverse Effect;
(xxvii) written down or written up (or failed to write down or
write up in accordance with GAAP consistent with past practice) the
value of any Inventories or receivables or revalued any assets of the
Company other than in the ordinary course of business consistent with
past practice and in accordance with GAAP;
(xxviii) terminated, discontinued, closed or disposed of any
facility or business operation, or laid off any employees (other than
layoffs of less than 25 employees in any six-month period in the
ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the Regulations or announced or planned any such action or program for
the future;
(xxix) made any charitable contribution; or
(xxx) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 4.12 or grant any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 4.12, except as expressly contemplated by
this Agreement.
<PAGE>
20
SECTION 4.13. Litigation. Except as set forth in Section 4.13
of the Disclosure Schedule (which, with respect to each Action disclosed
therein, sets forth: the parties, nature of the proceeding, date and method
commenced, amount of damages or other relief sought and, if applicable, paid or
granted), there are no Actions by or against the Company (or by or against any
of the Stockholders or any Affiliate thereof and relating to the Business or the
Company), or affecting any of the Assets, pending before any Governmental
Authority (or, to the best knowledge of the Company and the Stockholders after
due inquiry, threatened to be brought by or before any Governmental Authority).
None of the matters disclosed in Section 4.13 of the Disclosure Schedule has or
has had a Material Adverse Effect or would reasonably be expected to affect the
legality, validity or enforceability of this Agreement or the Escrow Agreement
or the consummation of the transactions contemplated hereby or thereby. Except
as set forth in Section 4.13 of the Disclosure Schedule, none of the Company,
the Assets nor the Stockholders is subject to any Governmental Order (nor, to
the best knowledge of the Company and the Stockholders after due inquiry, are
there any such Governmental Orders threatened to be imposed by any Governmental
Authority) which has, had or would reasonably be expected to have a Material
Adverse Effect.
SECTION 4.14. Certain Interests. (a) Except as disclosed in
Section 4.14(a) of the Disclosure Schedule, no Stockholder and no officer or
director of the Company and no relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any Stockholder or officer or director
(i) has outstanding any Indebtedness to or from the Company, (ii) has any direct
or indirect financial interest in any competitor, supplier or customer of the
Company, provided, however, that the ownership of securities, representing no
more than one percent of the outstanding voting power of any competitor,
supplier or customer, and which are listed on any national securities exchange
or traded in the over-the-counter market, shall not be deemed to be a "financial
interest" so long as the Person owning such securities has no other connection
or relationship with such competitor, supplier or customer or (iii) owns,
directly or indirectly, in whole or in part, or has any other interest in any
tangible or intangible property which the Company uses or has used in the
conduct of the Business or otherwise.
(b) Except as disclosed in Section 4.14(b) of the Disclosure
Schedule, the Company has no Liability or any other obligation of any nature
whatsoever to any officer, director or shareholder of the Company or to any
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer, director or shareholder.
SECTION 4.15. Compliance with Laws. (a) Except as set forth in
Section 4.15(a) of the Disclosure Schedule, the Company has conducted and
continues to conduct the Business in accordance with all Laws and Governmental
Orders applicable to the Company or any of the Assets or the Business, including
all Environmental Laws, and the Company is not in violation of any such Law or
Governmental Order except for such failure to comply or violations that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
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21
(b) Section 4.15(b) of the Disclosure Schedule sets forth a
brief description of each Governmental Order directed to, or to the best
knowledge of the Company and the Stockholders after due inquiry, applicable to
the Company or any of the Assets or the Business, and no such Governmental Order
has or has had or would reasonably be expected to have a Material Adverse
Effect.
SECTION 4.16. Environmental Matters. (a) Except as disclosed
in Section 4.16(a) of the Disclosure Schedule and as would not reasonably be
expected to have a Material Adverse Effect:
(i) There are no underground or aboveground storage tanks or
any surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or have been treated, stored or disposed
on any of the Owned Real Property or, to the best knowledge of the
Company and the Stockholders after due inquiry, any of the Leased Real
Property during the Company's ownership or occupation of such property
or any property formerly owned, leased or occupied by the Company.
(ii) The Company has not and, to the best knowledge of the
Company and the Stockholders after due inquiry, no other Person has,
Released Hazardous Materials on any of the Real Property or on any
property formerly owned, leased or occupied by the Company.
(iii) To the best knowledge of the Company and the
Stockholders after due inquiry, there is no asbestos or
asbestos-containing material on any of the Real Property.
(iv) To the best knowledge of the Company and the Stockholders
after due inquiry, none of the Real Property adjoins any property that
is listed or proposed for listing on the National Priorities List under
the federal Comprehensive Environmental Response, Compensation, and
Liability Act.
(b) The Company has provided Parent with copies of (i) all
environmental assessment or audit reports and other similar studies or analyses
conducted by or on behalf of the Company or otherwise in the possession of the
Company relating to the Real Property or the operations of the Company and (ii)
all insurance policies issued at any time that may provide coverage to the
Company for environmental matters.
(c) To the best knowledge of the Company and the Stockholders
after due inquiry, except as disclosed in Section 4.16(c) of the Disclosure
Schedule, neither the execution of this Agreement nor the consummation of the
transactions contemplated in this Agreement will require any Remedial Action or
notice to or consent of Governmental Authorities or any third party pursuant to
any applicable Environmental Law or Environmental Permit.
<PAGE>
22
SECTION 4.17. Material Contracts. (a) Section 4.17(a) of the
Disclosure Schedule lists each of the following contracts and agreements of the
Company (such contracts and agreements, together with all contracts, agreements,
leases and subleases concerning the management or operation of any Real Property
(including, without limitation, brokerage contracts) listed or otherwise
disclosed in Section 4.17(a) or 4.17(b) of the Disclosure Schedule to which the
Company is a party and all agreements relating to Intellectual Property set
forth in Section 4.18 of the Disclosure Schedule, being "Material Contracts"):
(i) each contract and agreement (other than agreements with
subcontractors entered into in the ordinary course of business) under
the terms of which the Company: (A) is reasonably expected to pay or
otherwise give consideration of more than $50,000 in the aggregate
during the calendar year ending December 31, 1999, (B) is likely to pay
or otherwise give consideration of more than $100,000 in the aggregate
over the remaining term of the contract or (C) cannot be canceled by
the Company without penalty or further payment and without more than 30
days' notice;
(ii) each contract and agreement for the furnishing of
services by the Company which: (A) is reasonably expected to involve
consideration of more than $250,000 during the calendar year ending
December 31, 1999, (B) is reasonably expected to involve consideration
of more than $500,000 in the aggregate over the remaining term of the
contract or (C) cannot be canceled by the Company without penalty or
further payment and without more than 30 days' notice;
(iii) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the
Company is a party and which are not cancellable without penalty or
further payment and without more than 30 days' notice;
(iv) all broker, distributor, dealer, franchise, agency, sales
promotion, market research, marketing consulting and advertising
contracts and agreements to which the Company is a party;
(v) all contracts and agreements relating to Indebtedness of
the Company;
(vi) all contracts and agreements with any Governmental
Authority to which the Company is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or
with any Person or in any geographic area or during any period of time;
(viii) all contracts and agreements between or among the
Company and any Stockholder or any Affiliate of any Stockholder
currently in effect and in effect within the
<PAGE>
23
years ended December 31, 1998, 1997 and 1996, setting forth the amount
of revenue recorded on the Company's financial statements pursuant to
such contract or agreement;
(ix) all contracts and agreements providing for benefits under
any Plan; and
(x) all other contracts and agreements, whether or not made in
the ordinary course of business, which are material to the Company or
the conduct of the Business or the absence of which would have a
Material Adverse Effect.
For purposes of this Section 4.17 and Sections 4.19, 4.20 and
4.21, the term "lease" shall include any and all leases, subleases,
sale/leaseback agreements or similar arrangements.
(b) Except as disclosed in Section 4.17(b) of the Disclosure
Schedule, each Material Contract: (i) is valid and binding on the respective
parties thereto and is in full force and effect and (ii) upon consummation of
the transactions contemplated by this Agreement and the Escrow Agreement, except
to the extent that any consents set forth in Section 4.07 of the Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or other adverse consequence. The Company is not in breach of, or
default under, any Material Contract.
(c) Except as disclosed in Section 4.17(c) of the Disclosure
Schedule, to the best knowledge of the Company and the Stockholders after due
inquiry, no other party to any Material Contract is in breach thereof or default
thereunder.
(d) Except as disclosed in Section 4.17(d) of the Disclosure
Schedule, there is no contract, agreement or other arrangement granting any
Person any preferential right to purchase, other than in the ordinary course of
business consistent with past practice, any of the properties or assets of the
Company.
SECTION 4.18. Intellectual Property. Except as set forth in
Section 4.18 of the Disclosure Schedule, there are no items of Intellectual
Property that are material to the Company or the Business except the Company's
trade name, Apex Digital TV, Inc. (the "Company Intellectual Property"). To the
best knowledge of the Company and the Stockholders after due inquiry, the rights
of the Company in or to the Company Intellectual Property do not conflict with
or infringe on the rights of any other Person and none of the Stockholders or
the Company has received any claim or written notice from any Person, to such
effect.
SECTION 4.19. Real Property. (a) Section 4.19(a) of the
Disclosure Schedule lists: (i) the street address of each parcel of Owned Real
Property, (ii) the date on which each parcel of Owned Real Property was
acquired, (iii) the current owner of each such parcel of Owned Real Property,
(iv) information relating to the recordation of the deed pursuant to which
<PAGE>
24
each such parcel of Owned Real Property was acquired and (v) the current use of
each such parcel of Owned Real Property.
(b) Section 4.19(b) of the Disclosure Schedule lists: (i) the
street address of each parcel of Leased Real Property, (ii) the identity of the
lessor, lessee and current occupant (if different from lessee) of each such
parcel of Leased Real Property, (iii) the term (referencing applicable renewal
periods) and rental payment terms of the leases (and any subleases) pertaining
to each such parcel of Leased Real Property and (iv) the current use of each
such parcel of Leased Real Property.
(c) Except as described in Section 4.19(c) or 4.15(a) of the
Disclosure Schedule, there is no violation of any Law (including, without
limitation, any building, planning or zoning law) relating to any of the Real
Property that would reasonably be expected to have a Material Adverse Effect.
The Company and the Stockholders have made available to Parent true and complete
copies of each deed for each parcel of Owned Real Property and, to the extent
the Company or the Stockholders have the following documents within their
possession, for each parcel of Leased Real Property and all the title insurance
policies, title reports, surveys, certificates of occupancy, environmental
reports and audits, appraisals, Permits, other title documents and other
documents relating to or otherwise affecting the Real Property, the operations
of the Company thereon or any other uses thereof. The Company is in peaceful and
undisturbed possession of each parcel of Real Property and there are no
contractual or legal restrictions that preclude or restrict the ability to use
the premises for the purposes for which they are currently being used. All
existing water, sewer, steam, gas, electricity, telephone or other utilities
required for the construction, use, occupancy, operation and maintenance of the
Real Property are adequate for the conduct of the Business as is currently
conducted. Except as set forth in Section 4.19(c) of the Disclosure Schedule,
the Company has not leased or subleased any parcel or any portion of any parcel
of Real Property to any other Person, nor has the Company assigned its interest
under any lease or sublease listed in Section 4.19(b) of the Disclosure Schedule
to any third party.
(d) The Company has delivered to Parent true and complete
copies of all leases and subleases listed in Section 4.19(b) of the Disclosure
Schedule and any and all ancillary documents pertaining thereto (including, but
not limited to, all amendments, consents for alterations and documents recording
variations and evidence of commencement dates and expiration dates). With
respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary
documents delivered pursuant to the first sentence of this Section
4.19(d), is legal, valid, binding, enforceable and in full force and
effect and represents the entire agreement between the respective
landlord and tenant with respect to such property;
<PAGE>
25
(ii) except as otherwise set forth in Section 4.19(d) of the
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding, enforceable and in full force and effect on terms
identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement
constitute a breach or default under such lease or sublease or
otherwise give the landlord a right to terminate such lease or
sublease;
(iii) except as otherwise disclosed in Section 4.19(d) of the
Disclosure Schedule, with respect to each such lease or sublease: (A)
none of the Stockholders and the Company has received any notice of
cancellation or termination under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except upon a breach or default by the Company thereunder, (B)
none of the Stockholders and the Company has received any notice of a
breach or default under such lease or sublease, which breach or default
has not been cured, and (C) none of the Stockholders or the Company has
granted to any other Person any rights, adverse or otherwise, under
such lease or sublease; and
(iv) neither the Company nor (to the best knowledge of the
Company and the Stockholders after due inquiry) any other party to such
lease or sublease is in breach or default in any material respect, and,
to the best knowledge of the Company and the Stockholders after due
inquiry, no event has occurred that, with notice or lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under such lease or sublease.
(e) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of the Company and the
Stockholders after due inquiry, threatened against the Real Property.
(f) All the Real Property is occupied under a valid and
current certificate of occupancy or similar permit, the transactions
contemplated by this Agreement will not require the issuance of any new or
amended certificate of occupancy and, to the best knowledge of the Company and
the Stockholders after due inquiry, there are no facts that would prevent the
Real Property from being occupied by the Company at any time within 90 days
after the Effective Time in the same manner as occupied by the Company
immediately prior to the Effective Time.
(g) All improvements on the Real Property constructed by or on
behalf of the Company or, to the best knowledge of the Company and the
Stockholders after due inquiry, constructed by or on behalf of any other Person
were constructed in compliance with all applicable Laws (including, but not
limited to, any building, planning or zoning Laws) affecting such Real Property.
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26
(h) No improvements on the Owned Real Property and none of the
current uses and conditions thereof violate any applicable deed restrictions or
other applicable covenants, restrictions, agreements, existing site plan
approvals, zoning or subdivision regulations or urban redevelopment plans as
modified by duly issued variances, and no permits, licenses or certificates
pertaining to the ownership or operation of all improvements on the Owned Real
Property, other than those which are transferable with the Owned Real Property,
are required by any Governmental Authority having jurisdiction over the Owned
Real Property.
(i) All improvements on any Owned Real Property are wholly
within the lot limits of such Owned Real Property and do not encroach on any
adjoining premises, and there are no encroachments on any Owned Real Property by
any improvements located on any adjoining premises.
(j) The rental set forth in each lease or sublease of the
Leased Real Property is the actual rental being paid, and there are no separate
agreements or understandings with respect to the same.
(k) The Company has the full right to exercise any renewal
options contained in the leases and subleases pertaining to the Leased Real
Property on the terms and conditions contained therein and upon due exercise
would be entitled to enjoy the use of each Leased Real Property for the full
term of such renewal options.
SECTION 4.20. Tangible Personal Property. (a) Section 4.20(a)
of the Disclosure Schedule lists each item or distinct group of machinery,
equipment, tools, supplies, furniture, fixtures, personalty, vehicles, aircraft,
rolling stock and other tangible personal property (the "Tangible Personal
Property") used in the Business or owned or leased by the Company.
(b) The Company has delivered to Parent true and complete
copies of all leases and subleases for Tangible Personal Property and any and
all material ancillary documents pertaining thereto (including, but not limited
to, all amendments, consents and evidence of commencement dates and expiration
dates). With respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary
documents delivered pursuant to the first sentence of this Section
4.20(b), is legal, valid, binding, enforceable and in full force and
effect and represents the entire agreement between the respective
lessor and lessee with respect to such property;
(ii) except as set forth in Section 4.20(b) of the Disclosure
Schedule, such lease or sublease will not cease to be legal, valid,
binding, enforceable and in full force and effect on terms identical to
those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation
of the
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27
transactions contemplated by this Agreement constitute a breach or
default under such lease or sublease or otherwise give the lessor a
right to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 4.19(b) of the
Disclosure Schedule, with respect to each such lease or sublease: (A)
none of the Stockholders and the Company has received any notice of
cancellation or termination under such lease or sublease and no lessor
has any right of termination or cancellation under such lease or
sublease except upon a breach or default by the Company thereunder, (B)
none of the Stockholders or the Company has received any notice of a
breach or default under such lease or sublease, which breach or default
has not been cured, and (C) none of the Stockholders or the Company has
granted to any other Person any rights, adverse or otherwise, under
such lease or sublease; and
(iv) neither the Company nor (to the best knowledge of the
Company and the Stockholders after due inquiry) any other party to such
lease or sublease is in breach or default in any material respect, and,
to the best knowledge of the Company and the Stockholders after due
inquiry, no event has occurred that, with notice or lapse of time would
constitute such a breach or default or permit termination, modification
or acceleration under such lease or sublease.
(c) The Company has the full right to exercise any renewal
options contained in the leases and subleases pertaining to the Tangible
Personal Property on the terms and conditions contained therein and upon due
exercise would be entitled to enjoy the use of each item of leased Tangible
Personal Property for the full term of such renewal options.
SECTION 4.21. Assets. (a) Except as disclosed in Section
4.21(a) of the Disclosure Schedule, the Company owns, leases or has the legal
right to use all the properties and assets, including, without limitation, the
Company Intellectual Property, Owned Intellectual Property, the Licensed
Intellectual Property, the Real Property and the Tangible Personal Property,
used or intended to be used in the conduct of the Business or otherwise owned,
leased or used by the Company and, with respect to contract rights, is a party
to and enjoys the right to the benefits of all contracts, agreements and other
arrangements used or intended to be used by the Company or in or relating to the
conduct of the Business (all such properties, assets and contract rights being
the "Assets"). The Company has good and marketable title to, or, in the case of
leased or subleased Assets, valid and subsisting leasehold interests in, all the
Assets, free and clear of all Encumbrances, except (i) as disclosed in Section
4.18, 4.19(a), 4.19(b), 4.19(c), 4.19(d), 4.20(a), 4.20(b) or 4.21(a) of the
Disclosure Schedule and (ii) Permitted Encumbrances.
(b) The Assets constitute all the properties, assets and
rights forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the Business.
At all times since the Reference Balance Sheet Date, the Company has caused the
Assets to be maintained in accordance with good business practice, and all the
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28
Assets are in good operating condition and repair and are suitable for the
purposes for which they are used and intended.
(c) Following the consummation of the transactions
contemplated by this Agreement, the Company will continue to own, pursuant to
good and marketable title, or lease, under valid and subsisting leases, or
otherwise retain its respective interest in the Assets without incurring any
material penalty or other material adverse consequence, including, without
limitation, any increase in rentals, royalties, or licenses or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement. Immediately following the Effective Time, the
Company shall own and possess all documents, books, records, agreements and
financial data used by the Company in the conduct of the Business.
SECTION 4.22. Customers. Listed in Section 4.22 of the
Disclosure Schedule are the names and addresses of the ten most significant
customers (by revenue) of the Company for the twelve month period ended on the
Reference Balance Sheet Date and the amount for which each such customer was
invoiced during such period. Except as disclosed in Section 4.22 of the
Disclosure Schedule, none of the Stockholders or the Company has received any
notice that any significant customer of the Company has ceased, or will cease,
to use the products, equipment, goods or services of the Company, or has
substantially reduced, or will substantially reduce, the use of such products,
equipment, goods or services at any time.
SECTION 4.23. Employee Benefit Matters. (a) Plans and Material
Documents. Section 4.23(a) of the Disclosure Schedule lists (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements, whether legally enforceable or not, to which the
Company is a party, with respect to which the Company has any obligation or
which are maintained, contributed to or sponsored by the Company for the benefit
of any current or former employee, officer or director of the Company (other
than offer of employment letters relating to employment-at-will relationships),
(ii) each employee benefit plan for which the Company could incur liability
under Section 4069 of ERISA in the event such plan has been or were to be
terminated, (iii) any plan in respect of which the Company could incur liability
under Section 4212(c) of ERISA and (iv) any contracts, arrangements or
understandings (other than offer of employment letters relating to
employment-at-will relationships) between any Stockholder and any employee of
the Company, including, without limitation, any contracts, arrangements or
understandings relating to the sale of the Company (collectively, the "Plans").
Except as set forth in Section 4.23(a) of the Disclosure Schedule, each Plan is
in writing and the Company has furnished Parent with a complete and accurate
copy of each Plan and a complete and accurate copy of each material document
prepared in connection with each such Plan including, without limitation, (i) a
copy of each trust or other
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29
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed Internal Revenue Service ("IRS")
Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan. Except as disclosed on Section
4.23(a) of the Disclosure Schedule, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which the Company is a party, with respect to which the
Company has any obligation or which are maintained, contributed to or sponsored
by the Company for the benefit of any current or former employee, officer or
director of the Company. The Company does not have any express or implied
commitment, whether legally enforceable or not, (i) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a "Multiemployer Plan") or a single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) for which the Company could incur liability
under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). None of the
Plans provides for the payment of separation, severance, termination or
similar-type benefits to any Person or obligates the Company to pay separation,
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or as a result of a "change in
control", within the meaning of such term under Section 280G of the Code. None
of the Plans provides for or promises retiree medical, disability or life
insurance benefits to any current or former employee, officer or director of the
Company. Each of the Plans is subject only to the laws of the United States or a
political subdivision thereof.
(c) Compliance with Applicable Law. Each Plan is now and
always has been operated in all respects in accordance with the requirements of
all applicable Law, including, without limitation, ERISA and the Code, and to
the best knowledge of the Company and the Stockholders after due inquiry, all
persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted
in accordance with the provisions of all applicable Law, including, without
limitation, ERISA and the Code, except where the failure to comply or act has
not had, individually or in the aggregate, a Material Adverse Effect. The
Company has performed all obligations required to be performed by it under, is
not in any respect in default under or in violation of, and has no knowledge of
any default or violation by any party to, any Plan. No legal action, suit or
claim is pending or, to the best knowledge of the Company and the Stockholders
after due inquiry, threatened with respect to any Plan (other than claims for
benefits in the ordinary course) and, to the best knowledge of the Company and
the Stockholders after due inquiry, no fact or event exists that could give rise
to any such action, suit or claim.
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30
(d) Qualification of Certain Plans. Except as set forth in
Section 4.23(d) of the Disclosure Schedule, each Plan which is intended to be
qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and to the
best knowledge of the Company and the Stockholders after due inquiry, no fact or
event has occurred since the date of such determination letter from the IRS to
adversely affect the qualified status of any such Plan or the exempt status of
any such trust. Except as set forth in Section 4.23(d) of the Disclosure
Schedule, each trust maintained or contributed to by the Company which is
intended to be qualified as a voluntary employees' beneficiary association and
which is intended to be exempt from federal income taxation under Section
501(c)(9) of the Code has received a favorable determination letter from the IRS
that it is so qualified and so exempt, and to the best knowledge of the Company
and the Stockholders after due inquiry, no fact or event has occurred since the
date of such determination by the IRS to adversely affect such qualified or
exempt status.
(e) Absence of Certain Liabilities and Events. There has been
no prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. The Company has not incurred any
liability for any penalty or tax arising under Section 4971, 4972, 4980, 4980B
or 6652 of the Code or any liability under Section 502 of ERISA, and to the best
knowledge of the Company and the Stockholders after due inquiry, no fact or
event exists which could give rise to any such liability. The Company has not
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course), including, without limitation, any
liability in connection with (i) the termination or reorganization of any
employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from
any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists
which could give rise to any such liability. No complete or partial termination
has occurred within the five years preceding the date hereof with respect to any
Plan. No reportable event (within the meaning of Section 4043 of ERISA) has
occurred or is reasonably expected to occur with respect to any Plan subject to
Title IV of ERISA. No Plan had an accumulated funding deficiency (within the
meaning of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, as of the most recently ended plan year of such Plan. None of the assets
of the Company is the subject of any lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code; the Company has not been required to post any
security under Section 307 of ERISA or Section 401(a)(29) of the Code; and to
the best knowledge of the Company and the Stockholders after due inquiry, no
fact or event exists which could give rise to any such lien or requirement to
post any such security.
(f) Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Plan have been made
on or before their due dates. All such contributions have been fully deducted
for income tax purposes and no such deduction has been challenged or disallowed
by any government entity and no fact or event exists which could
<PAGE>
31
give rise to any such challenge or disallowance. As of the Effective Time, no
Plan which is subject to Title IV of ERISA will have an "unfunded benefit
liability" (within the meaning of Section 4001(a)(18) of ERISA).
(g) Certain Employee-Benefits Assets. There are no guaranteed
investment contracts and other funding contracts with any insurance company that
is held by any of the Plans and any annuity contracts purchased by (i) any of
the Plans or (ii) any pension benefit plans (as defined in Section 3(2) of
ERISA) that provided benefits to any current or former employees of the Company.
SECTION 4.24. Labor Matters. Except as set forth in Section
4.24 of the Disclosure Schedule, (a) the Company is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, and currently, to the best knowledge of the
Company and the Stockholders after due inquiry, there are no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit which could affect the Company; (b) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the best
knowledge of the Company and the Stockholders after due inquiry, threatened
between the Company and any of its employees, and the Company has not
experienced any such controversy, strike, slowdown or work stoppage within the
past three years; (c) the Company has not breached or otherwise failed to comply
with the provisions of any collective bargaining or union contract and, to the
best knowledge of the Company and the Stockholders after due inquiry, there are
no grievances outstanding against the Company under any such agreement or
contract which could have a Material Adverse Effect; (d) there are no unfair
labor practice complaints pending against the Company before the National Labor
Relations Board or any other Governmental Authority involving employees of the
Company which could have a Material Adverse Effect; (e) the Company is currently
in compliance with all applicable Laws relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by the appropriate
Governmental Authority except for such failures to be in compliance which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect and has withheld and paid to the appropriate
Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (f) the Company has paid
in full to all its employees or adequately accrued for in accordance with GAAP
all wages, salaries, commissions, bonuses, benefits and other compensation due
to or on behalf of such employees; (g) there is no claim with respect to payment
of wages, salary or overtime pay that has been asserted or is now pending or, to
the best knowledge of the Company and the Stockholders after due inquiry,
threatened before any Governmental Authority with respect to any Persons
currently or formerly employed by the Company; (h) the Company is not a party
to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment practices; (i) there
is no charge or proceeding with respect
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32
to a violation of any occupational safety or health standards that has been
asserted or is now pending or, to the best knowledge of the Company and the
Stockholders after due inquiry, threatened with respect to the Company; and (j)
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or, to the
best knowledge of the Company and the Stockholders after due inquiry, threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Authority in any jurisdiction in which the Company has employed or
currently employs any Person.
SECTION 4.25. Key Employees. Section 4.25 of the Disclosure
Schedule lists the name, place of employment, the current annual salary rates,
bonuses, deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits paid or payable (in cash or otherwise) in
1998 and 1997, or payable under a contract, agreement or Plan in any year
subsequent to 1998, the date of employment and a description of position and job
function of each current salaried employee, officer, director, consultant or
agent of the Company.
SECTION 4.26. Taxes. Except as disclosed in Section 4.26 of
the Disclosure Schedule, (a) all returns and reports in respect of Taxes
required to be filed with respect to the Company have been timely filed; (b) all
Taxes required to be shown on such returns and reports or otherwise due from the
Company have been timely paid; (c) all such returns and reports (insofar as they
relate to the activities or income of the Company) are true, correct and
complete in all material respects; (d) no material adjustment relating to such
returns has been proposed formally or informally by any Tax authority (insofar
as either relates to the activities or income of the Company or could result in
liability of the Company on the basis of joint and/or several liability) and, to
the best knowledge of the Company and the Stockholders after due inquiry, no
basis exists for any such material adjustment; (e) there are no pending or, to
the best knowledge of the Company and the Stockholders after due inquiry,
threatened actions or proceedings for the assessment or collection of Taxes
against the Company; (f) no consent under Section 341(f) of the Code has been
filed with respect to the Company; (g) there are no Tax liens on any assets of
the Company; (h) on the Reference Balance Sheet, reserves and allowances have
been provided which are adequate to satisfy all material Liabilities for Taxes
payable by the Company for periods through the Closing Date; (i) the Company is
not doing business in or engaged in a trade or business in any jurisdiction in
which it has not filed any applicable income or franchise tax return; (j) there
are no proposed reassessments of any property owned by the Company or other
proposals that are reasonably expected to materially increase the amount of
property tax to which the Company would be subject; (k) the Company has not been
a member of any affiliated group with any company and has not filed a Tax return
on a consolidated, combined or unitary basis with any company; (l) at all times
since September 26, 1997, the Company has had in effect (i) a valid election
under Section 1362(a) of the Code (or a comparable election under any successor
provision) to be taxed as an S Corporation for federal income tax purposes (an
"S Election") (or comparable election under state or local law), (ii) a
comparable state law election in each state in
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33
which it conducts business, and (iii) a comparable local law election in each
locality in which it both conducts business and is subject to a local income
tax; (m) the Company has not received and is not aware of any proposal from the
IRS or any state or local tax authority to disallow such S Election (or
comparable state or local law election) for any taxable year; and (n) the
Company has not been and is not subject to Taxes imposed by (i) Section 1371 of
the Code, (ii) Section 1375 of the Code, or (iii) Section 1374 of the Code. For
purposes of this Agreement, "Tax" or "Taxes" means any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional amount imposed
with respect thereto) imposed by any government or taxing authority on the
Company, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added or gains taxes; license, registration and documentation fees; and customs
duties, tariffs and similar charges.
SECTION 4.27. Insurance. (a) Section 4.27(a) of the Disclosure
Schedule sets forth the following information with respect to each insurance
policy (including policies providing property, casualty, liability, workers'
compensation and bond and surety arrangements) under which the Company has been
an insured, a named insured or otherwise the principal beneficiary of coverage
at any time within the past three years:
(i) the name, address and telephone number of the agent or
broker;
(ii) the name of the insurer and the names of the principal
insured and each named insured;
(iii) the policy number and the period of coverage; and
(iv) the type, scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount
(including a description of how deductibles, retentions and aggregates
are calculated and operate) of coverage.
(b) With respect to each such insurance policy: (i) the policy
is legal, valid, binding and enforceable in accordance with its terms and,
except for policies that have expired under their terms in the ordinary course,
is in full force and effect; (ii) the Company is not in breach or default
(including any breach or default with respect to the payment of premiums or the
giving of notice), and, to the best knowledge of the Company and the
Stockholders after due inquiry, no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or permit termination
or modification, under the policy; and (iii) no party to the policy has
repudiated, or given notice of an intent to repudiate, any provision thereof.
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(c) Section 4.27(c) of the Disclosure Schedule sets forth all
risks against which the Company is self-insured or which are covered under any
risk retention program in which the Company participates, together with details
for the last five years of the Company's loss experience with respect to such
risks.
(d) At no time subsequent to December 31, 1995 has the Company
(i) been denied any insurance or indemnity bond coverage which it has requested,
(ii) made any material reduction in the scope or amount of its insurance
coverage, or, except as set forth in Section 4.27(d) of the Disclosure Schedule,
received notice from any of its insurance carriers that any insurance premiums
will be subject to increase in an amount materially disproportionate to the
amount of the increases with respect thereto (or with respect to similar
insurance) in prior years or that any insurance coverage listed in Section
4.27(a) of the Disclosure Schedule will not be available in the future
substantially on the same terms as are now in effect or (iii) suffered any
extraordinary increase in premium for renewed coverage. To the best knowledge of
the Company and the Stockholders after due inquiry, since December 31, 1995, no
insurance carrier has canceled, failed to renew or materially reduced any
insurance coverage for the Company or given any notice or other indication of
its intention to cancel, not renew or reduce any such coverage.
(e) At the Effective Time, all insurance policies currently in
effect will be outstanding and duly in force.
(f) No insurance policy listed in Section 4.27(a) of the
Disclosure Schedule will cease to be legal, valid, binding, enforceable in
accordance with its terms and in full force and effect on terms identical to
those in effect as of the date hereof as a result of the consummation of the
Merger.
SECTION 4.28. Full Disclosure. No representation or warranty
of any of the Stockholders in this Agreement, nor any statement or certificate
furnished or to be furnished to Parent by the Company or any Stockholder or any
of their representatives pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement or the Escrow Agreement, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
SECTION 4.29. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of any Stockholder.
SECTION 4.30. Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of the Company Common Stock is
the only vote of the holders of any
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35
class or series of the Company's capital stock necessary to approve the Merger.
The Board of Directors of the Company has unanimously approved this Agreement.
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
As an inducement to Parent and Merger Sub to enter into this
Agreement, each of the Stockholders, as to themselves and not to the other
Stockholders, hereby represents and warrants to Parent as follows:
SECTION 5.01. Authority of the Stockholders. Each Stockholder
is an individual and has all requisite right, power and authority and full legal
capacity to execute and deliver this Agreement, the Escrow Agreement and the
closing documents contemplated by Section 9.03, to perform his or her
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and upon execution the
Escrow Agreement will be, duly and validly executed and delivered by such
Stockholder, and this Agreement constitutes, and upon its execution the Escrow
Agreement will constitute, a legal, valid and binding obligation of each such
Stockholder enforceable against each Stockholder in accordance with its terms.
The failure of the spouse of any Stockholder to be a party or signatory to this
Agreement or the Escrow Agreement shall not (i) prevent any such Stockholder
from performing his or her obligations and from consummating the transactions
contemplated hereunder and thereunder or (ii) prevent this Agreement from
constituting the legal, valid and binding obligation of any such Stockholder
enforceable against any such Stockholder in accordance with its terms. No spouse
of any Stockholder has any rights whatsoever in respect of the Shares.
SECTION 5.02. Ownership. Each of the Stockholders owns the
number of Shares set forth next to such Stockholder's name in Section 5.02 of
the Disclosure Schedule, and, except as set forth in Section 5.02 of the
Disclosure Schedule, (i) such Stockholder has good and marketable title to such
Shares, free and clear of any Encumbrance of any kind, and (ii) except for the
Shares set forth next to each Stockholder's name in Schedule 5.02 of the
Disclosure Schedule, each such Stockholder does not own any other shares of
capital stock of the Company. All the Shares set forth next to each
Stockholder's name in Schedule 5.02 of the Disclosure Schedule have been duly
authorized, validly issued, and are fully paid and nonassessable and have been
accorded full voting rights. Upon consummation of the transactions contemplated
by this Agreement and registration of the Shares in the name of Parent in the
stock records of the Company, Parent, assuming it shall have purchased the
Shares for value in good faith and without notice of any adverse claim, will own
all the issued and outstanding capital stock of the Company free and clear of
all Encumbrances and the Shares will be fully paid and nonassessable.
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36
Except as disclosed in Section 5.02 of the Disclosure Schedule, there are no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
Shares.
SECTION 5.03. Private Placement. (a) Each of the Stockholders
understands that (i) the offering and sale of the shares of Parent Common Stock
are intended to be exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act and (ii) there can be no assurance that such
Stockholders will be able to sell or dispose of such shares purchased by them
pursuant to this Agreement. Each of the Stockholders represents that any Parent
Common Stock acquired by such Stockholder pursuant to this Agreement shall be
acquired by such Stockholder for such Stockholder's own account and not as
nominee or agent for any other person and not with a view to, or for offer or
sale in connection with any distribution thereof within the meaning of the
Securities Act of 1933, as amended, that would violate the securities laws of
the United States of America or any state thereof.
(b) Each Stockholder has consulted with and has received
advice from its legal counsel in connection with the entering into of this
Agreement, including regarding the transfer restrictions on the shares of Parent
Common Stock to be issued in connection with the transaction contemplated by
this Agreement.
(c) Each Stockholder has sufficient knowledge and experience
in financial and business matters so as to be capable of evaluating the merits
and risks of its investment in the shares of Parent Common Stock, or has been
advised by a representative with such knowledge and experience, and each
Stockholder is capable of bearing the economic risks of such investment.
(d) Each Stockholder, or its representative, has been
furnished with and has carefully read a copy of this Agreement and the exhibits
and schedules to this Agreement and has been given the opportunity to ask
questions of, and receive answers from, Parent concerning Parent and its
subsidiaries, the terms and conditions of the shares of Parent Common Stock and
other related matters.
SECTION 5.04. Full Disclosure. No representation or warranty
of any of the Stockholders in this Agreement, nor any statement or certificate
furnished or to be furnished to Parent by the Company or any Stockholder or any
of their representatives pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement or the Escrow Agreement, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
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37
SECTION 5.05. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of any Stockholder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent
and warrant to the Company and the Stockholders as follows:
SECTION 6.01. Organization and Authority. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary corporate power and authority to enter into this Agreement and the
Escrow Agreement, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Escrow Agreement by Parent and Merger Sub,
the performance by Parent and Merger Sub of its obligations hereunder and
thereunder and the consummation by Parent and Merger Sub of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of Parent. This Agreement has been, and upon its execution,
the Escrow Agreement will be, duly executed and delivered by Parent, and
(assuming due authorization, execution and delivery by the Stockholders) this
Agreement constitutes, and upon its execution the Escrow Agreement will
constitute, a valid and binding obligation of Parent enforceable against Parent
in accordance with its terms.
SECTION 6.02. No Conflict. Assuming compliance with the
notification requirements of the HSR Act and the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 6.03, except as may result from any facts or
circumstances relating solely to any of the Stockholders, the execution,
delivery and performance of this Agreement and the Escrow Agreement by Parent
and Merger Sub do not and will not (a) violate, conflict with or result in the
breach of any provision of the Certificate of Incorporation or By-laws of Parent
or Merger Sub, (b) conflict with or violate any Law or Governmental Order
applicable to Parent or Merger Sub, or (c) conflict with, or result in any
breach of, constitute a default (or event which with the giving of notice or
lapse or time, or both, would become a default) under, require any consent
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation, or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of Parent or Merger Sub pursuant
to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which Parent or
Merger Sub is a party or by which any of such assets or properties are bound or
affected which would have a material adverse
<PAGE>
38
effect on the ability of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement and by the Escrow Agreement.
SECTION 6.03. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and the Escrow Agreement
by Parent and Merger Sub do not and will not require any consent, approval,
authorization or other order of, action by, filing with, or notification to, any
Governmental Authority, which the failure to obtain would prevent or delay
consummation of the transactions contemplated by this Agreement, or otherwise
prevent Parent or Merger Sub from performing their respective obligations under
this Agreement, except for the notification requirements of the HSR Act and
filing and recordation of appropriate merger documents as required by the GBCL.
SECTION 6.04. Litigation. Except as disclosed in a writing
given to the Company and the Stockholders by Parent on the date of this
Agreement, no claim, action, proceeding or investigation is pending or, to the
best knowledge of Parent and Merger Sub after due inquiry, threatened, which
seeks to delay or prevent the consummation of, or which would be reasonably
likely to materially adversely affect (i) Parent's or Merger Sub's ability to
consummate, the transactions contemplated by this Agreement or (ii) the business
of Parent and its subsidiaries, taken as a whole.
SECTION 6.05. Capitalization. The authorized capital stock of
Parent consists of (a) 50,000,000 shares of Parent Common Stock and (b)
1,000,000 shares of preferred stock, par value $1.00 per share ("Parent
Preferred Stock"). As of March 1, 1999, (i) 22,250,472 shares of Parent Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable and (ii) no shares of Parent Common Stock are held in the
treasury of Parent. As of the date of this Agreement, no shares of Parent
Preferred Stock were issued and outstanding. Except for (i) stock purchase
rights issued pursuant to the Stockholder Rights Plan dated June 1, 1992 between
Parent and First Union National Bank of North Carolina, as agent, and (ii) the
stock option plans of Parent and its subsidiaries, there are no warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, Parent or any of its
subsidiaries. The Parent Common Stock, when issued pursuant to this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable. Other
than pursuant to the Registration Rights Agreement and the Agreement and Plan of
Merger, dated as of July 7, 1997, among Parent, Dycom Acquisitions, Inc.,
Communications Construction Group, Inc., George Tamasi and Thomas Polis, no
person has demand or other rights to cause the Company to file any registration
statement under the Securities Act relating to any securities of the Company or
any right to participate in any such registration.
SECTION 6.06. SEC Filings; Financial Statements. (a) Parent
has filed all forms, reports and documents required to be filed by it with the
SEC since December 31, 1997
<PAGE>
39
through the date of this Agreement (collectively, the "SEC Reports"). The SEC
Reports (i) at the time they were filed, complied as to form in all material
respects, with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
subsidiary of Parent is required to file any form, report or other document with
the SEC.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with GAAP (except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the consolidated financial position
of Parent and its consolidated subsidiaries as at the respective dates thereof
and for the respective periods indicated therein except as otherwise named
therein (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments).
(c) To the knowledge of Parent, no event has occurred within
the 15 days immediately prior to the date hereof which is required to be
reported on Form 8-K under the Securities Act.
SECTION 6.07. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Conduct of Business by the Company Pending the
Merger. (a) The Company and the Stockholders covenant and agree that, except as
described in Section 7.01(a) of the Disclosure Schedule, between the date hereof
and the Effective Time, the business of the Company shall be conducted only in
the ordinary course and consistent with the Company's prior practice. Without
limiting the generality of the foregoing, except as described in Section 7.01(a)
of the Disclosure Schedule, the Company shall (i) continue its pricing and
purchasing policies, in accordance with past practice; (ii) not shorten or
lengthen the customary payment cycles for any of its payables or receivables;
(iii) use its best efforts to (A) preserve intact its business organization, (B)
keep available to Parent the services of the employees of the Company, (C)
continue in full force and effect without material modification all existing
policies or binders of insurance currently maintained in respect of the Company
and the Business and (D) preserve its current relationships with its customers,
suppliers and other persons with which it has significant business
relationships; (iv) exercise, but only after notice to Parent and receipt of
Parent's prior written approval, any rights of renewal pursuant to the terms of
any of the leases
<PAGE>
40
or subleases set forth in Section 4.19(b) of the Disclosure Schedule which by
their terms would otherwise expire; and (v) not engage in any practice, take any
action, fail to take any action or enter into any transaction which could cause
any representation or warranty of the Company or any of the Stockholders to be
untrue or result in a breach of any covenant made by the Company or any
Stockholders in this Agreement.
(b) By way of amplification and not limitation, the Company
will not, between the date of this Agreement and the Effective Time, directly or
indirectly do, or propose to do, without the prior written consent, which
consent shall not be unreasonably withheld, of Parent, any of the things
enumerated in the second sentence of Section 4.12 (including, without
limitation, clauses (i) through (xxx) thereof).
SECTION 7.02. Access to Information. (a) From the date hereof
until the Effective Time, upon reasonable notice and during normal business
hours, the Company and each of the Company's officers, directors, employees,
agents, representatives, accountants and counsel shall afford Parent and its
representatives reasonable access to the offices, properties, other facilities,
books and records of the Company and to those officers, directors, employees,
agents, accountants and counsel of the Company who have any knowledge relating
to the Company or the Business and furnish to Parent and its representatives
such additional financial and operating data and other information regarding the
assets, properties and goodwill of the Company and the Business (or legible
copies thereof) as Parent or its representatives may from time to time
reasonably request.
(b) In order to facilitate the resolution of any claims made
against or incurred by the Stockholders prior to the Effective Time, for a
period of seven years after the Effective Time, Parent shall (i) retain the
books and records of the Company relating to periods prior to the Effective Time
and (ii) during such seven-year period, upon reasonable notice, afford the
officers, employees and authorized agents and representatives of the
Stockholders reasonable access (including the right to make, at the
Stockholders' expense, photocopies), during normal business hours, to such books
and records.
(c) In order to facilitate the resolution of any claims made
by or against or incurred by Parent or the Company after the Effective Time or
for any other reasonable purpose, for a period of seven years following the
Effective Time, each of the Stockholders shall (i) retain the books and records
which relate to the Company and its operations for periods prior to the
Effective Time and which shall not otherwise have been delivered to Parent or
the Company and (ii) during such seven-year period, upon reasonable notice,
afford the officers, employees and authorized agents and representatives of
Parent or the Company reasonable access (including the right to make
photocopies, at the expense of Parent or the Company), during normal business
hours, to such books and records.
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41
SECTION 7.03. Confidentiality. (a) The Company and each of the
Stockholders agrees to, and shall cause its agents, representatives and
Affiliates and the Company's agents, representatives, Affiliates, employees,
officers and directors to: (i) treat and hold as confidential (and not disclose
or provide access to any Person to) all information relating to trade secrets,
processes, product development, price, customer and supplier lists, pricing and
marketing plans, policies and strategies, details of client and consultant
contracts, operations methods, product development techniques, business
acquisition plans, new personnel acquisition plans and all other confidential
information with respect to the Business or the Company, (ii) in the event that
any Stockholder or any such agent, representative, Affiliate, employee, officer
or director becomes legally compelled to disclose any such information, provide
Parent with prompt written notice of such requirement so that Parent or the
Company may seek a protective order or other remedy or waive compliance with
this Section 7.03, (iii) in the event that such protective order or other remedy
is not obtained, or Parent waives compliance with this Section 7.03, furnish
only that portion of such confidential information which is legally required to
be provided and exercise its best efforts, at Parent's expense, to obtain
assurances that confidential treatment will be accorded such information, (iv)
promptly furnish (prior to, at, or as soon as practicable following, the
Effective Time) to the Company or Parent any and all copies (in whatever form or
medium) of all such confidential information then in the possession of such
Stockholder or any of his agent, representative, Affiliate, employee, officer
and director and, except as otherwise required by Section 7.02(c), destroy any
and all additional copies then in the possession of such Stockholder or any such
agent, representative, Affiliate, employee, officer and director of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that (x) is or becomes
generally available to the public other than as a result of a disclosure by any
of the Stockholders or their representatives not permitted by this Agreement,
(y) was available to the Stockholders on a nonconfidential basis prior to its
disclosure by Parent or its representatives or (z) becomes available to the
Stockholders on a nonconfidential basis from a person other than Parent or its
representatives who is not otherwise bound by a confidentiality agreement with
Parent or any of its representatives, or is not otherwise under an obligation to
Parent or any of its representatives not to transmit the information to the
Stockholders. The Company and each of the Stockholders agree and acknowledge
that remedies at law for any breach of its obligations under this Section
7.03(a) are inadequate and that in addition thereto Parent shall be entitled to
seek equitable relief, including injunction and specific performance, in the
event of any such breach.
(b) Parent agrees to, and shall cause its agents,
representatives and Affiliates to: (i) treat and hold as confidential (and not
disclose or provide access to any Person to) all information relating to trade
secrets, processes, product development, price, customer and supplier lists,
pricing and marketing plans, policies and strategies, details of client and
consultant contracts, operations methods, product development techniques,
business acquisition plans, new personnel acquisition plans and all other
confidential information with respect to the Stockholders, (ii) in the event
that Parent or any such agent, representative, Affiliate, employee,
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42
officer or director becomes legally compelled to disclose any such information,
provide the Stockholders with prompt written notice of such requirement so that
the Stockholders may seek a protective order or other remedy or waive compliance
with this Section 7.03, (iii) in the event that such protective order or other
remedy is not obtained, or the Stockholders waive compliance with this Section
7.03, furnish only that portion of such confidential information which is
legally required to be provided and exercise its best efforts, at the
Stockholders' expense, to obtain assurances that confidential treatment will be
accorded such information, (iv) promptly furnish (prior to, at, or as soon as
practicable following the Closing) to the Stockholders any and all copies (in
whatever form or medium) of all such confidential information then in the
possession of Parent or any such agent, representative, Affiliate, employee,
officer and director and, except as otherwise required by Section 7.02(c),
destroy any and all additional copies then in the possession of Parent or any
such agent, representative, Affiliate, employee, officer and director of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that (x) is or becomes
generally available to the public other than as a result of a disclosure by
Parent or its representatives not permitted by this Agreement, (y) was available
to Parent on a nonconfidential basis prior to its disclosure by Parent or its
representatives or (z) becomes available to Parent on a nonconfidential basis
from a person other than the Stockholders or their representatives who is not
otherwise bound by a confidentiality agreement with the Stockholders or any of
their representatives, or is not otherwise under an obligation to the
Stockholders or any of their representatives not to transmit the information to
Parent. Parent agrees and acknowledges that remedies at law for any breach of
its obligations under this Section 7.03(b) are inadequate and that in addition
thereto the Stockholders shall be entitled to seek equitable relief, including
injunction and specific performance, in the event of any such breach.
(c) In the event of any inconsistency between the terms of
this Agreement and the terms of the Confidentiality Agreement, the terms of this
Agreement shall control. Upon termination of this Agreement pursuant to Section
11.01, the obligations of the parties with respect to confidential information
shall be governed by the Confidentiality Agreement.
SECTION 7.04. Regulatory and Other Authorizations; Notices and
Consents. (a) The Company and the Stockholders shall use their best efforts to
obtain all authorizations, consents, orders and approvals of all Governmental
Authorities and officials that may be or become necessary for its execution and
delivery of, and the performance of its obligations pursuant to, this Agreement
and the Escrow Agreement and will cooperate fully with Parent in promptly
seeking to obtain all such authorizations, consents, orders and approvals. Each
party hereto agrees to make an appropriate filing, if necessary, pursuant to the
HSR Act with respect to the transactions contemplated by this Agreement within
five Business Days of the date hereof and to supply as promptly as practicable
to the appropriate Governmental Authorities any additional information and
documentary material that may be requested pursuant to the HSR Act.
<PAGE>
43
(b) The Company shall give promptly such notices to third
parties and use its or their best efforts to obtain such third party consents
and estoppel certificates as Parent may in its sole and absolute discretion deem
necessary or desirable in connection with the transactions contemplated by this
Agreement.
(c) Parent shall cooperate and use all reasonable efforts to
assist the Company in giving such notices and obtaining such consents and
estoppel certificates; provided, however, that Parent shall have no obligation
to give any guarantee or other consideration of any nature in connection with
any such notice, consent or estoppel certificate or to consent to any change in
the terms of any agreement or arrangement which Parent in its sole and absolute
discretion may deem adverse to the interests of Parent, the Company or the
Business.
(d) None of the Stockholders nor the Company know of any
reason why all the consents, approvals and authorizations necessary for the
consummation of the transactions contemplated hereby will not be received.
(e) Each of the Stockholders agree that, in the event any
consent, approval or authorization necessary or desirable to preserve for the
Business or the Company any right or benefit under any lease, license, contract,
commitment or other agreement or arrangement to which any such Stockholder or
the Company is a party is not obtained prior to the Effective Time, such
Stockholder will, subsequent to the Effective Time, cooperate with Parent and
the Surviving Corporation in attempting to obtain such consent, approval or
authorization as promptly thereafter as practicable. If such consent, approval
or authorization cannot be obtained, such Stockholder shall use its best efforts
to provide the Surviving Corporation, at the Surviving Corporation's sole
expense, with the rights and benefits of the affected lease, license, contract,
commitment or other agreement or arrangement for the term of such lease,
license, contract or other agreement or arrangement, and, if such Stockholder
provides such rights and benefits, the Company shall assume the obligations and
burdens thereunder.
SECTION 7.05. No Solicitation or Negotiation. The Company and
each of the Stockholders agree that between the date of this Agreement and the
earlier of (i) the Closing and (ii) the termination of this Agreement, none of
the Stockholders, the Company or any of their respective Affiliates, officers,
directors, representatives or agents will (a) solicit, initiate, consider,
encourage or accept any other proposals or offers from any Person (i) relating
to any acquisition or purchase of all or any portion of the capital stock of the
Company or assets of the Company, (ii) to enter into any business combination
with the Company or (iii) to enter into any other extraordinary business
transaction involving or otherwise relating to the Company, or (b) participate
in any discussions, conversations, negotiations and other communications
regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any other Person to seek to do any of the
foregoing. The Company and the Stockholders immediately shall cease and cause to
be terminated all existing discussions, conversations, negotiations and other
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44
communications with any Persons conducted heretofore with respect to any of the
foregoing. The Company and the Stockholders shall notify Parent promptly if any
such proposal or offer, with any Person with respect thereto, is made and shall,
in any such notice to Parent, indicate in reasonable detail the identity of the
Person making such proposal or offer and the terms and conditions of such
proposal or offer. Each of the Company and the Stockholders agree not to and
without the prior written consent of Parent, release any Person from, or waive
any provision of, any confidentiality or standstill agreement to which the
Company is a party.
SECTION 7.06. Notification of Certain Matters. Prior to the
Effective Time, the Company and each of the Stockholders shall promptly notify
Parent in writing of (i) all events, circumstances, facts and occurrences
arising subsequent to the date of this Agreement which would reasonably be
expected to result in any breach of a representation or warranty or covenant of
the Company or any of the Stockholders in this Agreement or which would be
reasonably likely to have the effect of making any representation or warranty of
the Company or any Stockholder in this Agreement untrue or incorrect in any
respect and (ii) all other material developments affecting the Assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations or employee relations of the Company or the
Business; provided, however, that the delivery of any notice pursuant to this
Section 7.06 shall not be deemed to be an amendment of this Agreement or the
Disclosure Schedule and shall not cure any breach of any representation or
warranty requiring disclosure of such matter prior to the date of this
Agreement. No delivery of any notice pursuant to this Section 7.06 shall limit
or affect the remedies available hereunder to the party receiving such notice,
including the rights of Parent under Section 10.02(a), in the event that a
representation or warranty made by the Company or Parent herein shall not be
true and correct as of the date hereof and as of the Effective Time.
SECTION 7.07. Non-Competition. (a) For a period of three (3)
years after the Closing, none of the Stockholders shall directly or indirectly
engage in the business of providing telecommunications or electrical services in
the nature of engineering, construction, installation, upgrading, maintenance,
mapping, locating or technical activities for utility companies, cable
television systems or telephone companies (the "Parent's Business"), whether as
a proprietor, partner, joint venturer, employer, agent, employee, consultant,
officer or beneficial or record owner of more than four percent of the stock of
any corporation or association of any nature which is competitive to the
Parent's Business in the contiguous lower 48 states of the United States of
America. Within that geographical area and during that non-compete period, none
of the Stockholders shall solicit or do business competitive to the Parent's
Business with any customers, partners or associates of the Parent or any of its
subsidiaries. Provided, however, that nothing in this Section or this Agreement
shall prevent any Stockholder from participation in the management of or
ownership of an equity interest in any company, corporation or association of
any nature, that owns or has constructed for its own account, alone or with
co-owners or joint venturers, fiber optic or other telecommunications or
electrical systems or facilities.
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45
(b) Each of the Stockholders agrees that the breach by such
Stockholder of the covenant contained in Section 7.07(a) is likely to result in
immediate and irreparable harm, directly or indirectly, to Parent. Each of the
Stockholders, therefore, consents and agrees that if such Stockholder violates
any of such covenants, Parent shall be entitled, among and in addition to any
other rights or remedies available under this Agreement or at law or in equity,
to temporary and permanent injunctive relief to prevent such Stockholder from
committing or continuing a breach of such covenants.
(c) It is the desire, intent and agreement of each of the
Stockholders and Parent that the restrictions placed on each of the Stockholders
by Section 7.07(a) be enforced to the fullest extent permissible under the law
and public policy applied by any jurisdiction in which enforcement is sought.
Accordingly, if and to the extent that any portion of this Section 7.07 shall be
adjudicated to be unenforceable, such portion shall be deemed amended to delete
therefrom, or to reform the portion thus adjudicated to be invalid or
unenforceable, such deletion or reformation to apply only with respect to the
operation of such portion in the particular jurisdiction in which such
adjudication is made.
SECTION 7.08. Public Announcements. Prior to the Closing,
Parent, the Stockholders and the Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement or the transactions contemplated thereby, including by
providing a draft of any proposed press release or public statement with respect
to the initial announcement of this Agreement and the transactions contemplated
hereby to the other party prior to such issuance, and shall not issue any such
press release or make any such public statement prior to such consultation.
SECTION 7.09. Resale Restrictions. (a) Each of the
Stockholders acknowledges and agrees that the shares of Parent Common Stock
issued pursuant to this Agreement have not been registered under the Securities
Act or any state securities Law, and that such shares to be received by them are
being acquired solely for their own account, for investment and not with a view
to the sale or distribution thereof. Each of the Stockholders hereby agrees not
to offer, sell, hypothecate, pledge or otherwise transfer, pledge or hypothecate
such shares unless and until registered under the Securities Act and any
applicable state securities Law or unless such offer, sale, transfer, pledge or
hypothecation is exempt from registration or is otherwise in compliance with the
Securities Act and such Laws. Each of the Stockholders acknowledges that, except
as provided in the Registration Rights Agreement, such Stockholder has no right
to require Parent to register shares of Parent Common Stock. Each of the
Stockholders understands and agrees that each certificate representing shares of
Parent Common Stock received hereunder shall bear the following legends:
THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY AN AGREEMENT
ON FILE AT THE OFFICES OF THE CORPORATION.
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46
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR
SUCH LAWS.
and such Stockholder agrees to transfer shares of Parent Common Stock only in
accordance with the provisions of such legends. In addition, each of the
Stockholders agrees that Parent shall instruct the transfer agent to only
transfer Parent Common Stock pursuant to these provisions.
(b) In the event the shares of Parent Common Stock received by
any Stockholder hereunder cease to be restricted for purposes of the Securities
Act, upon request of such Stockholder and surrender of the certificate bearing
such legends, Parent or its designated agent will promptly reissue such
certificates to such Stockholder without such legends.
SECTION 7.10. Release of Indemnity Obligations. Each of the
Stockholders covenants and agrees, on or prior to the Closing, to execute and
deliver to the Company, for the benefit of the Company, a general release and
discharge, in form and substance satisfactory to Parent releasing and
discharging the Company from any and all obligations to indemnify such
Stockholder or otherwise hold it harmless pursuant to any agreement or other
arrangement entered into prior to the Closing except for the obligation to
indemnify such Stockholder as an officer or director of the Company pursuant to
the bylaws of the Company in effect on the date hereof or as otherwise provided
under the GBCL.
SECTION 7.11. Plan of Reorganization. The Agreement is
intended to constitute a tax free "plan of reorganization" within the meaning of
Section 1.368-2(g) of the income tax regulations promulgated under the Code.
From and after the date hereof and until the Effective Time, each party hereto
shall use its reasonable best efforts to cause the Merger to qualify, and will
not knowingly take any actions or cause any actions to be taken which could
prevent the Merger from qualifying, as a reorganization under the provisions of
Section 368(a) of the Code. Following the Effective Time, neither the Surviving
Corporation, Parent nor any of their Affiliates shall knowingly take any action
or knowingly cause any action to be taken which would cause the Merger to fail
to qualify as a reorganization under Section 368(a) of the Code.
SECTION 7.12. Stockholder Vote. Prior to the Effective Time,
the Company shall call and hold a meeting of the Board of Directors of the
Company and of the Stockholders, if required to do so, or otherwise solicit the
adoption of this Agreement by both the Board of Directors of the Company and the
Stockholders. Each Stockholder holding shares of Company
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47
Common Stock shall vote all of the Shares held by such Stockholder in favor of
adoption of this Agreement.
SECTION 7.13. Further Action. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable Law, and execute and deliver such documents and other papers as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
SECTION 7.14. Stock Splits. Prior to the Closing, Parent shall
not subdivide into a smaller number, reclassify or otherwise materially change
its issued and outstanding common stock.
SECTION 7.15. Disclosure Schedule. Prior to the Closing and
within 21 days of the date of this Agreement, the Company and the Stockholders
shall provide Parent with a copy of the Disclosure Schedule.
ARTICLE VIII
TAX MATTERS
SECTION 8.01. Indemnity. (a) The Stockholders agree, jointly
and severally, to indemnify and hold harmless Parent and the Company against the
following Taxes and, except as otherwise provided in Section 8.04, against any
loss, damage, liability or expense, including reasonable fees for attorneys and
other outside consultants, incurred in contesting or otherwise in connection
with any such Taxes: Taxes imposed on the Company with respect to taxable
periods or the portion of any taxable period of such Person ending on or before
the Effective Time resulting from a determination by a tax authority that such
Taxes are due because of (x) a finding of fraud and/or (y) the disallowance of a
deduction taken by the Company and determined to be a personal expense of a
Stockholder. Parent shall be responsible for Taxes and associated expenses not
allocated to the Stockholder pursuant to the first sentence hereof.
(b) In the case of Taxes that are payable with respect to a
taxable period that begins before the Final Closing Date and ends after the
Final Closing Date, the portion of any such Tax that is allocable to the portion
of the period ending on the Final Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any
sale or other transfer or assignment of property (real or person,
tangible or intangible) (other than conveyances pursuant to this
Agreement, as provided under Section 8.07), deemed equal to the amount
which would be payable if the taxable year ended with the Final Closing
Date; and
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48
(ii) in the case of Taxes imposed on a periodic basis with
respect to the assets of the Company or otherwise measured by the level
of any item, deemed to be the amount of such Taxes for the entire
period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediately preceding period),
multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on the Final Closing Date and the
denominator of which is the number of calendar days in the entire
period.
SECTION 8.02. Returns and Payments. (a) From the date of this
Agreement through and after the Closing, the Stockholders shall prepare and file
or otherwise furnish in proper form to the appropriate Governmental Authority
(or cause to be prepared and filed or so furnished) in a timely manner all Tax
returns, reports and forms ("Returns") relating to the Company that are due on
or before or relate to any taxable period ending on or before the Closing (and
Parent shall do the same with respect to any taxable period ending after the
Closing). Returns of the Company not yet filed for any taxable period that
begins before the Closing shall be prepared in a manner consistent with past
practices employed with respect to the Company (except to the extent counsel for
the Stockholders or the Company renders a legal opinion that there is no
reasonable basis in law therefor or determines that a Return cannot be so
prepared and filed without being subject to penalties). With respect to any
Return required to be filed by Parent with respect to the Company and as to
which an amount of Tax is allocable to the Stockholders under Section 8.01,
Parent shall provide the Stockholders and their authorized representatives with
a copy of such completed Return and a statement certifying the amount of Tax
shown on such Return that is allocable to the Stockholders pursuant to Section
8.01, together with appropriate supporting information and schedules at least 20
Business Days prior to the due date (including any extension thereof) for the
filing of such Return, and the Stockholders and their authorized representatives
shall have the right to review and comment on such Return and statement prior to
the filing of such Return. With respect to any Return required to be filed by
any Stockholder with respect to the Company, the Stockholders shall provide
Parent and its authorized representatives with a copy of such completed Return,
together with appropriate supporting information and schedules at least 20
Business Days prior to the due date (including any extension thereof) for the
filing of such Return and Parent and its authorized representatives shall have
the right to review and comment on such Return and statement prior to the filing
of such Return.
(b) The Stockholders shall pay or cause to be paid when due
and payable all Taxes with respect to the Company for any taxable period ending
on or before the Closing to the extent such Taxes exceed the amount, if any,
accrued for such Taxes as current Taxes payable on the Closing, and Parent shall
so pay or cause to be paid Taxes for any taxable period after the Closing
(subject to its right of indemnification from the Stockholders by the date set
forth in Section 8.05 for Taxes attributable to the portion of any Tax period
that includes the Closing pursuant to Section 8.01).
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49
SECTION 8.03. Refunds. Any Tax refund (including any interest
with respect thereto) relating to the Company for any taxable period prior to
the Closing shall be the property of Parent, and if received by the Stockholders
shall be paid over promptly to Parent. In addition, any Tax refund (or
equivalent benefit to any Stockholder through a reduction in Tax liability) for
a period before the Closing arising out of the carryback of a loss or credit
incurred by the Company in a taxable year ending after the Closing shall be the
property of Parent and, if received by such Stockholder, shall be paid over
promptly to Parent.
SECTION 8.04. Contests. (a) After the Closing, Parent shall
promptly notify the Stockholders in writing of any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding of
Parent or of the Company which, if determined adversely to the taxpayer, would
be grounds for indemnification under this Article VIII; provided, however, that
a failure to give such notice will not affect Parent's right to indemnification
under this Article VIII except to the extent, if any, that, but for such
failure, the Stockholders could have avoided all or a portion of the Tax
liability in question.
(b) In the case of an audit or administrative or judicial
proceeding that relates to periods ending on or before the Closing and provided
that the Stockholders acknowledge in writing their liability under this
Agreement to hold Parent and the Company harmless against the full amount of any
adjustment which may be made as a result of such audit or proceeding that
relates to periods ending on or before the Closing (or, in the case of any
taxable year that includes the Closing, against an adjustment allocable under
Section 8.01 to the portion of such year ending on or before the Closing Date)
and is subject to indemnification under Section 7.01, the Stockholders shall
have the right at their expense to participate in and control the conduct of
such audit or proceeding but only to the extent that such audit or proceeding
relates solely to a potential adjustment for which the Stockholders have
acknowledged their liability; Parent also may participate in any such audit or
proceeding and, if the Stockholders do not assume the defense of any such audit
or proceeding, Parent may defend the same in such manner as it may deem
appropriate, including, but not limited to, settling such audit or proceeding
after giving five days' prior written notice to the Stockholders setting forth
the terms and conditions of settlement. In the event that issues relating to a
potential adjustment for which the Stockholders have acknowledged their
liability are required to be dealt with in the same proceeding as separate
issues relating to a potential adjustment for which Parent would be liable,
Parent shall have the right, at its expense, to control the audit or proceeding
with respect to the latter issues.
(c) With respect to issues relating to a potential adjustment
for which both the Stockholders (as evidenced by its acknowledgment under this
Section 8.04) and Parent or the Company could be liable, (i) each party may
participate in the audit or proceeding, and (ii) the audit or proceeding shall
be controlled by that party which would bear the burden of the greater portion
of the sum of the adjustment and any corresponding adjustments that may
reasonably be anticipated for future Tax periods. The principle set forth in the
immediately preceding sentence shall govern also for purposes of deciding any
issue that must be decided jointly (including,
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50
without limitation, choice of judicial forum) in situations in which separate
issues are otherwise controlled under this Article VIII by Parent and the
Stockholders.
(d) Neither Parent nor any Stockholder shall enter into any
compromise or agree to settle any claim pursuant to any Tax audit or proceeding
which would adversely affectthe other party for such year or a subsequent year
without the written consent of the other party, which consent may not be
unreasonably withheld. Parent and the Stockholders agree to cooperate, and
Parent agrees to cause the Company to cooperate, in the defense against or
compromise of any claim in any audit or proceeding.
SECTION 8.05. Time of Payment. Payment by the Stockholders of
any amounts due under this Article VIII in respect of Taxes shall be made (i) at
least three Business Days before the due date of the applicable estimated or
final Return required to be filed by Parent on which is required to be reported
income for a period ending after the Closing for which any Stockholder is
responsible under Section 8.01 without regard to whether the Return shows
overall net income or loss for such period, and (ii) within three Business Days
following an agreement between the Stockholders and Parent that an indemnity
amount is payable, an assessment of a Tax by a taxing authority, or a
"determination" as defined in Section 1313(a) of the Code. If liability under
this Article VIII is in respect of costs or expenses other than Taxes, payment
by any Stockholder of any amounts due under this Article VIII shall be made
within five Business Days after the date on which the Stockholders have been
notified by Parent that the Stockholders have a liability for a determinable
amount under this Article VIII and is provided with calculations or other
materials supporting such liability.
SECTION 8.06. Cooperation and Exchange of Information. Upon
the terms set forth in Section 7.02 of this Agreement, the Stockholders and
Parent will provide each other with such cooperation and information as either
of them reasonably may request of the other in filing any Return, amended Return
or claim for refund, determining a liability for Taxes or a right to a refund of
Taxes, participating in or conducting any audit or other proceeding in respect
of Taxes or making representations to or furnishing information to parties
subsequently desiring to purchase any of the Company or any part of the Business
from Parent. Such cooperation and information shall include providing copies of
relevant Returns or portions thereof, together with accompanying schedules,
related work papers and documents relating to rulings or other determinations by
Tax authorities. The Stockholders shall make their employees available on a
basis mutually convenient to both parties to provide explanations of any
documents or information provided hereunder. Each of the Stockholders and Parent
shall retain all Returns, schedules and work papers, records and other documents
in its possession relating to Tax matters of the Company for each taxable period
first ending after the Closing Date and for all prior taxable periods until the
later of (i) the expiration of the statute of limitations of the taxable periods
to which such Returns and other documents relate, without regard to extensions
except to the extent notified by the other party in writing of such extensions
for the respective Tax periods, or (ii) six years following the due date
(without extension) for such Returns. Any information
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51
obtained under this Section 8.06 shall be kept confidential in accordance with
Section 7.03 except as may be otherwise necessary in connection with the filing
of Returns or claims for refund or in conducting an audit or other proceeding.
SECTION 8.07. Miscellaneous. (a) The Stockholders and Parent
agree to treat all payments made by either of them to or for the benefit of the
other (including any payments to the Company) under this Article VIII, under
other indemnity provisions of this Agreement and for any misrepresentations or
breaches of warranties or covenants as adjustments to the merger consideration
or as capital contributions for Tax purposes and that such treatment shall
govern for purposes, hereof except to the extent that the Laws of a particular
jurisdiction provide otherwise, in which case such payments shall be made in an
amount sufficient to indemnify the relevant party on an after-Tax basis.
(b) Notwithstanding any provision in this Agreement to the
contrary, the obligations of the Stockholders to indemnify and hold harmless
Parent and the Company pursuant to this Article VIII shall terminate at the
close of business on the 120th day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question (giving
effect to any waiver, mitigation or extension thereof).
(c) From and after the date of this Agreement, no Stockholder
shall without the prior written consent of Parent (which may, in its sole and
absolute discretion, withhold such consent) make, or cause or permit to be made,
any material Tax election that would affect the Company.
(d) For purposes of this Article VIII, "Parent" and "each
Stockholder", respectively, shall include each member of the affiliated group of
corporations of which it is or becomes a member (other than the Company, except
to the extent expressly referenced).
(e) Parent or the Stockholders shall be entitled to recover
professional fees and related costs that they may reasonably incur to enforce
the provisions of this Article VIII.
(f) This Article VIII (and not Article X) shall be the sole
provision for indemnification against breach of representations, warranties,
covenants and agreements regarding Taxes.
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52
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of each party to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
(a) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Shares contemplated
hereby shall have expired or been terminated; and
(b) No Order. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Governmental Order
which is then in effect and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise prohibiting its
consummation; and
(c) Ervin Stock Purchase Agreement. The Ervin Stock Purchase
Agreement shall be in full force and effect and all conditions
precedent to the consummation of the transactions contemplated
thereunder shall have been satisfied or waived by the parties thereto,
and the merger contemplated thereby shall be consummated simultaneously
with the Closing.
SECTION 9.02. Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions the Merger shall be
subject to the fulfillment of the following further conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Parent and Merger Sub contained
in this Agreement shall have been true and correct when made and shall
be true and correct in all material respects as of the Effective Time,
with the same force and effect as if made as of the Effective Time,
other than such representations and warranties as are made as of
another date, which shall be true and correct as of such date
(provided, however, that if any portion of any representation or
warranty is already qualified by materiality, for purposes of
determining whether this Section 9.02(a) has been satisfied with
respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified must be true
and correct in all respects), and the covenants and agreements
contained in this Agreement to be complied with by the Parent and
Merger Sub on or before the Effective Time shall have been complied
with in all material respects, and the Company shall have received a
certificate from the Parent and Merger Sub to such effect signed by a
duly authorized officer thereof;
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53
(b) No Proceeding or Litigation. No Action shall have been
commenced by or before any Governmental Authority against any of the
parties hereto, seeking to restrain or materially and adversely alter
the Merger which, in the reasonable, good faith determination of the
Company, is likely to render it impossible or unlawful to consummate
such transactions; provided, however, that the provisions of this
Section 9.02(b) shall not apply if the Company or any of the
Stockholders has directly or indirectly solicited or encouraged any
such Action;
(c) Resolutions. The Company shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of
Parent, of the resolutions duly and validly adopted by the Board of
Directors of Parent evidencing its authorization of the execution and
delivery of this Agreement and the consummation of the Merger;
(d) Incumbency Certificate. The Company shall have received a
certificate of the Secretary or an Assistant Secretary of each of the
Parent and Merger Sub certifying the names and signatures of the
officers of the Parent and Merger Sub authorized to sign this Agreement
and the other documents to be delivered hereunder; and
(e) Registration Rights Agreement. The Registration Rights
Agreement, in substantially the form attached hereto as Exhibit
9.02(e), shall have been executed and delivered by Parent.
(f) Legal Opinion. The Company and the Stockholders shall have
received a legal opinion, addressed to the Stockholders and dated the
Effective Time, substantially in the form of Exhibit 9.02(f).
SECTION 9.03. Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the Closing,
of each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company and the Stockholders
contained in this Agreement and the Escrow Agreement shall have been
true and correct when made and shall be true and correct in all
material respects as of the Closing with the same force and effect as
if made as of the Closing, other than such representations and
warranties as are made as of another date, which shall be true and
correct as of such date (provided, however, that if any portion of any
representation or warranty is already qualified by materiality, for
purposes of determining whether this Section 9.03(a) has been satisfied
with respect to such portion of such representation or warranty, such
portion of such representation or warranty as so qualified must be true
and correct in all respects), and the covenants and agreements
contained in this Agreement to be complied with in all material
respects by the Company and the Stockholders on or before the Closing
shall have been complied
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54
with, and Parent shall have received a certificate of the Company and
each of the Stockholders to such effect;
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against
any of the parties hereto, seeking to restrain or materially and
adversely alter the transactions contemplated by this Agreement and the
Escrow Agreement which Parent believes, in its reasonable, good faith
determination, is likely to render it impossible or unlawful to
consummate the transactions contemplated by this Agreement or which
could have a Material Adverse Effect or otherwise render inadvisable,
in the sole and absolute discretion of Parent, the consummation of the
transactions contemplated by this Agreement; provided, however, that
the provisions of this Section 9.03(b) shall not apply if Parent has
solicited or encouraged any such Action;
(c) Legal Opinion. Parent shall have received legal opinions
from the counsel to each of the Company and the Stockholders, each
addressed to Parent and dated the Effective Time, substantially in the
form of Exhibits 9.03(c)(i) and 9.03(c)(ii), respectively;
(d) Consents and Approvals. Parent, the Stockholders and the
Company shall have received, each in form and substance satisfactory to
Parent in its sole and absolute discretion, all authorizations,
consents, orders and approvals of all Governmental Authorities and
officials and all third party consents and estoppel certificates which
Parent in its sole and absolute discretion deems necessary or desirable
for the consummation of the transactions contemplated by this
Agreement;
(e) Resignations of the Company's Directors and Officers.
Parent shall have received the resignations, effective as of the
Closing, of all the directors and officers of the Company, except for
such persons as shall have been designated in writing prior to the
Closing by Parent to the Stockholders;
(f) Organizational Documents. Parent shall have received a
copy of (i) the Certificates of Incorporation, as amended, of the
Company, certified by the secretary of state of Kentucky, as of a date
not earlier than five Business Days prior to the Effective Time and
accompanied by a certificate of the Secretary or Assistant Secretary of
the Company, dated as of the Effective Time, stating that no amendments
have been made to such Certificate of Incorporation (or similar
organizational documents) since such date, and (ii) the By-laws (or
similar organizational documents) of the Company, certified by the
Secretary or Assistant Secretary of the Company;
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55
(g) Minute Books. Parent shall have received a copy of the
minute books and stock register of the Company, certified by the
Secretary or Assistant Secretary as of the Effective Time;
(h) Good Standing; Qualification to Do Business. Parent shall
have received good standing certificates for the Company from the
secretary of state of the jurisdiction in which each such entity is
incorporated or organized and from the secretary of state in each other
jurisdiction in which the properties owned or leased by any of the
Company, or the operation of its business in such jurisdiction,
requires the Company to qualify to do business as a foreign
corporation, in each case dated as of a date not earlier than five
Business Days prior to the Effective Time and accompanied by bring-down
telegrams dated the Effective Time;
(i) Release of Indemnity Obligations. Parent shall have
received the general release and discharge from each of the
Stockholders referred to in Section 7.10 in form and substance
satisfactory to Parent in its sole and absolute discretion;
(j) Due Diligence. Parent shall have completed all its
business, legal, accounting and environmental due diligence with
respect to the Company and shall, in its reasonable discretion, be
satisfied with the results thereof;
(k) No Material Adverse Effect. No event or events shall have
occurred, or be reasonably likely to occur, which, individually or in
the aggregate, have, or could have, a Material Adverse Effect; and
(l) Escrow Agreement. Each of the Stockholders shall have
executed the Escrow Agreement in substantially the form attached hereto
as Exhibit 2.07.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Survival of Representations and Warranties. The
representations and warranties of the Company and the Stockholders contained in
this Agreement, and all statements contained in this Agreement, the Exhibits to
this Agreement, the Disclosure Schedule, the Escrow Agreement and any
certificate, Financial Statement or report or other document delivered pursuant
to this Agreement or in connection with the transactions contemplated by this
Agreement (collectively, the "Merger Documents"), shall survive the Effective
Time until October 1, 2000; provided, however, that (a) the representations and
warranties dealing with Tax matters shall survive as provided in Section
8.07(b), (b) insofar as any claim is made by Parent for the breach of any
representation or warranty of any of the
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56
Stockholders contained herein, which claim arises out of allegations of personal
injury or property damage suffered by any third party on or prior to the
Effective Time, or activities or omissions that occur, on or prior to the
Effective Time, such representations and warranties shall, for purposes of such
claim by Parent, survive until thirty calendar days after the expiration of the
applicable statute of limitations governing such claims and (c) insofar as any
claim is made by Parent for the breach of any representation or warranty of any
of the Stockholders contained herein relating to environmental matters, such
representation and warranty shall, for purposes of such claims by Parent,
survive the Effective Time until the fifth anniversary of the Effective Time.
Neither the period of survival nor the liability of the Stockholders with
respect to the Stockholders' representations and warranties shall be reduced by
any investigation made at any time by or on behalf of Parent. If written notice
of a claim has been given prior to the expiration of the applicable
representations and warranties by a party to another party, then the relevant
representations and warranties shall survive as to such claim, until such claim
has been finally resolved.
SECTION 10.02. Indemnification. (a) Parent, its Affiliates and
their successors and assigns, and the officers, directors, employees and agents
of Parent, its Affiliates (including without limitation, the Company) and their
successors and assigns shall be indemnified and held harmless by the
Stockholders, jointly and severally, for any and all Liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' and consultants' fees and
expenses) actually suffered or incurred by them (including, without limitation,
any Action brought or otherwise initiated by any of them) (hereinafter a
"Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Company or any Stockholder contained in the Merger Documents; or
(ii) the breach of any covenant or agreement by the Company or
any Stockholder contained in the Merger Documents; or
(iii) Liabilities of the Company not reflected on the
Reference Balance Sheet, whether arising before or after the Effective
Time, arising from or relating to the ownership or actions or inactions
of the Company or the conduct of their respective businesses prior to
the Effective Time; or
(iv) any and all Losses suffered or incurred by Parent, any of
its Affiliates or the Company by reason of or in connection with any
claim or cause of action of any third party to the extent arising out
of any action, inaction, event, condition, liability or obligation of
any of the Stockholders or the Company occurring or existing prior to
the Effective Time; or
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(v) (A) any and all Remedial Actions performed at any time
relating to any Release of Hazardous Materials into the Environment or
on or about the Real Property prior to the Effective Time to the extent
any such Remedial Action is required under any Environmental Law or by
any Governmental Authority or is necessary to prevent or abate a
significant risk to human health or the environment; (B) any and all
Environmental Claims arising before the fifth anniversary of the
Closing Date that relate to the business or the operation of the
Company prior to the Effective Time; or (C) any and all noncompliances
with or violations of any applicable Environmental Law or Environmental
Permit by the Company prior to the Effective Time;
provided, however, with respect to each Stockholder, such Stockholder shall have
no obligation under this Section 10.02 for breaches of another Stockholder's
representations and warranty contained in Article V.
(b) Each of the Stockholders, their successors and assigns and
agents of the Stockholders and their successors and assigns shall be indemnified
and held harmless by the Parent for any and all Losses arising from any claim or
cause of action of any third party to the extent arising out of the Parent's use
of the Assets or conduct of the Business following the Closing.
(c) An indemnified party shall give the indemnifying party
notice of any matter which an indemnified party has determined has given or
could give rise to a right of indemnification under this Agreement, within 60
days of such determination, stating the amount of the Loss, if known, and method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of the indemnifying party under this
Article X with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article X ("Third Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an indemnified party shall receive notice of any Third Party
Claim, the indemnified party shall give the indemnifying party notice of such
Third Party Claim within 30 days of the receipt by the indemnified party of such
notice; provided, however, that the failure to provide such notice shall not
release the indemnifying party from any of its obligations under this Article X
except to the extent the indemnifying party is materially prejudiced by such
failure. If the indemnifying party acknowledges in writing its obligation to
indemnify the indemnified party hereunder against any Losses that may result
from such Third Party Claim, then the indemnifying party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the indemnified party within ten days of the receipt of such notice from the
indemnified party; provided, however, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the indemnified party, in its sole and absolute discretion, for the
same counsel to represent both the indemnified party and the indemnifying party,
then the indemnified party shall be entitled to retain its own counsel, in each
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jurisdiction for which the indemnified party determines counsel is required, at
the expense of the indemnifying party. In the event the indemnifying party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the indemnified party shall cooperate with the
indemnifying party in such defense and make available to the indemnifying party,
at the indemnifying party's expense, all witnesses, pertinent records, materials
and information in the indemnified party's possession or under the indemnified
party's control relating thereto as is reasonably required by the indemnifying
party. Similarly, in the event the indemnified party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the indemnifying
party shall cooperate with the indemnified party in such defense and make
available to the indemnified party, at the indemnifying party's expense, all
such witnesses, records, materials and information in the indemnifying party's
possession or under the indemnifying party's control relating thereto as is
reasonably required by the indemnified party. No such Third Party Claim may be
settled by any indemnifying party without the prior written consent of the
indemnified party.
SECTION 10.03. Tax Matters. Article VIII (and not this Article
X) shall be the sole provision for indemnification against breach of
representations, warranties, covenants and agreements regarding Tax matters,
including the survival of representations and warranties contained in Section
4.26 of this Agreement and any other representations and warranties relating to
Taxes contained in any of the Merger Documents.
SECTION 10.04. Limits on Indemnification. The indemnification
obligations of the Stockholders pursuant to Section 10.02(a) shall not be
effective until the aggregate dollar amount of all Losses which would otherwise
be indemnifiable pursuant to Section 10.02(a) exceeds $200,000 (the "Threshold
Amount"), provided, however, that if the Threshold Amount is exceeded, the
Stockholders shall be liable for all Losses, including the Threshold Amount.
Notwithstanding anything to the contrary contained in this Agreement, the
maximum amount of indemnifiable Losses which may be recovered from the
Stockholders arising out of or resulting from the causes enumerated in Section
10.02(a) of this Agreement shall be an amount equal to $2,000,000 in the
aggregate. In addition, the indemnification obligations of the Stockholders
shall be satisfied first from the Escrow Shares, in accordance with the Escrow
Agreement.
SECTION 10.05. Exclusive Remedy. Except for claims related to
a wilful or intentional breach of any provision of this Agreement or fraud by
any of the parties hereto, the rights of indemnified parties to indemnification
under this Article X shall constitute the sole and exclusive remedies of the
indemnified parties from and after the Effective Time with respect to the
matters in respect of which indemnification may be provided for hereunder;
provided, however, nothing in this Article X shall be deemed to preclude an
indemnified party from seeking equitable relief for any failure of any party
hereto to perform any covenant or agreement required to be performed by any
party hereto.
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ARTICLE XI
TERMINATION AND WAIVER
SECTION 11.01. Termination. This Agreement may be terminated
at any time prior to the Effective Time:
(a) by Parent if (i) an event or condition occurs that has
resulted in or that may be reasonably expected to result in a Material
Adverse Effect, (ii) any representation or warranty of the Company or
any of the Stockholders contained in this Agreement shall not have
been true and correct in all material respects when made, (iii) the
Company or any of the Stockholders shall not have complied with any
covenant or agreement to be complied with by it and contained in this
Agreement in all material respects; or (iv) any of the Stockholders or
the Company makes a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against any such
Stockholder or the Company seeking to adjudicate any of them a
bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; or
(b) by the Company and the Stockholders, on the one hand, or
Parent and Merger Sub, on the other hand, if the Effective Time shall
not have occurred by April 30, 1999; provided, however, that the right
to terminate this Agreement under this Section 11.01(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Effective Time to occur on or prior to such date; or
(c) by either the Company and the Stockholders, on the one
hand, or Parent and Merger Sub, on the other hand, in the event that
any Governmental Authority shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable;
(d) by the Stockholders upon written notice to Parent, if the
closing price of Parent Common Stock on the trading day prior to the
Initial Closing Date is less than the Minimum Share Value provided that
such termination right shall only be effective if the closing price of
Parent Common Stock is less than the Minimum Share Value on each of the
five Business Days beginning with and including the Initial Closing
Date (such five-day period, the "Waiting Period"), provided further
that such notice of termination shall be deemed revoked by the
Stockholders on the first day (the "Stockholders' Termination
Revocation Date") during the Waiting Period that the closing price of
Parent Common Stock is equal to or greater than the Minimum Share
Value; or
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60
(e) by Parent upon written notice to the Stockholders, if the
closing price of Parent Common Stock on the trading day prior to the
Initial Closing Date is greater than the Maximum Share Value provided
that such termination right shall only be effective if the closing
price of Parent Common Stock is greater than the Maximum Share Value on
each of the five Business Days during the Waiting Period, provided
further that such notice of termination shall be deemed revoked by
Parent on the first day (the "Parent Termination Revocation Date")
during the Waiting Period that the closing price of Parent Common Stock
is less than or equal to the Maximum Share Value; or
(f) by the mutual written consent of the Company and the
Stockholders, on the one hand, or Parent and Merger Sub, on the other
hand.
SECTION 11.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 11.01, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except (i) as set forth in Section 12.01 and (ii) that nothing herein
shall relieve any party from liability for any breach of this Agreement.
SECTION 11.03. Waiver. Either Parent and Merger Sub, on one
hand, and the Company and the Stockholders, on the other hand, may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01. Expenses. All costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Effective Time shall have occurred.
SECTION 12.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by cable,
<PAGE>
61
by telecopy, by telegram, by telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 12.02):
if to the Stockholders or to the Company:
Apex Digital TV, Inc.
P.O. Box 10
450 Pryor Boulevard
Sturgis, Kentucky 42459
Telecopier: (502) 333-3300
Attention: Mr. Gary Ervin
with a copy to:
White and Williams LLP
1800 One Liberty Place
Philadelphia, Pennsylvania 19103
Telecopier: (215) 864-7123
Attention: Mr. Melvin Shralow, Esquire
if to Parent or Merger Sub:
Dycom Industries, Inc.
First Union Center,
Suite 600
4440 PGA Boulevard
Palm Beach Gardens, Florida 33410-6542
Telecopier: (561) 627-7709
Attention: Mr. Steven Nielsen
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Richard B. Vilsoet, Esq.
SECTION 12.03. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
<PAGE>
62
SECTION 12.04. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 12.05. Entire Agreement. This Agreement, the Escrow
Agreement, the Registration Rights Agreement and the Confidentiality Agreement
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, between the parties hereto with respect to the subject matter
hereof and thereof.
SECTION 12.06. Assignment. This Agreement may not be assigned
by operation of law or otherwise without the express written consent of the
Stockholders and Parent (which consent may be granted or withheld in the sole
discretion of the Stockholders or Parent).
SECTION 12.07. No Third Party Beneficiaries. Except for the
provisions of Article X relating to indemnified parties, this Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 12.08. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
parties hereto or (b) by a waiver in accordance with Section 11.03.
SECTION 12.09. Miscellaneous. (a) Each of the Stockholders
hereby (i) appoints and authorizes Gary E. Ervin to act as, and Gary E. Ervin by
his signature on the designated signature page of this Agreement agrees to act
as, the agent for purposes of Article II, Article VIII and Article X of this
Agreement and (ii) appoints and authorizes Gary E. Ervin to act as, and Gary E.
Ervin by his signature on the designated signature page of this Agreement agrees
to act as, the agent for all other matters hereunder and under the other Merger
Documents for the benefit of all the Stockholders for the receipt and for the
giving of any notice specified in this Agreement or any other Merger Document to
be given or received, as the case may be, by the Stockholders' Representative
(in such capacity, the "Stockholders' Representative"). Parent and the Escrow
Agent may each conclusively rely on the authority of the Stockholders'
Representative to act as agent for each of the Stockholders for the receipt or
giving of any notice specified in this Agreement or any other Merger Document to
be given or received, as the case
<PAGE>
63
may be, by the Stockholders' Representative, until such time as Parent or the
Escrow Agent, as the case may be, shall have received written notice from the
Stockholders' Representative of his, her or its resignation and the appointment
of a substitute agent. Each Stockholder agrees that, should the Stockholders'
Representative resign or be unable to serve, it shall immediately select jointly
with the other Stockholders a single substitute agent for the giving and
receiving of notices, whose appointment shall be effective on the date of the
prior agent's resignation.
(b) The Stockholders' Representative accepts his or her
appointment and, notwithstanding any provision to the contrary contained in any
Merger Document, it is agreed that the Stockholders' Representative shall not
have any duties or responsibilities to Parent, except those expressly set forth
herein and therein, nor shall the Stockholders' Representative have or be deemed
to have any fiduciary relationship with any Stockholder as a result of his or
her appointment as Stockholders' Representative, and no implied covenants,
functions, responsibilities, duties, obligation or liabilities shall be read
into any Merger Document or otherwise exist against the Stockholders'
Representative.
SECTION 12.10. Governing Law. This Agreement shall be governed
by the laws of the State of New York.
SECTION 12.11. Jurisdiction and Service of Process. Any legal
action or proceeding with respect to this Agreement shall be brought in the
courts of the State of Delaware located in Wilmington, or in the United States
District Court for the District of Delaware. By execution and delivery of this
Agreement, each of the parties hereto accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the parties hereto irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by certified mail, postage prepaid, to the party
at its address set forth in Section 12.02 hereof.
SECTION 12.12. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 12.13. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 12.14. Waiver of Jury Trial. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
<PAGE>
64
ACTIONS OF ANY OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT THEREOF.
<PAGE>
IN WITNESS WHEREOF, each of the Company, the Stockholders,
Merger Sub and Parent (by its officers thereunto duly authorized) have caused
this Agreement to be executed as of the date first written above.
APEX DIGITAL TV, INC.
By: /s/ GARY ERVIN
------------------------------
Name: GARY ERVIN
Title: President
/s/ GARY E. ERVIN
------------------------
GARY E. ERVIN,
in his individual capacity
/s/ TIMOTHY W. ERVIN
------------------------
TIMOTHY W. ERVIN,
in his individual capacity
/s/ ROBERT W. ERVIN
------------------------
ROBERT W. ERVIN,
in his individual capacity
/s/ KEITH E. WALKER
------------------------
KEITH E. WALKER,
in his individual capacity
/s/ ROBERT J. CHASTAIN
------------------------
ROBERT J. CHASTAIN,
in his individual capacity
/s/ CHARLES T. MCELROY
------------------------
CHARLES T. MCELROY,
in his individual capacity
/s/ PENNY J. WARD
------------------------
PENNY J. WARD,
in her individual capacity
<PAGE>
DYCOM INDUSTRIES, INC.
By: /s/ Thomas R. Pledger
------------------------------
Name: Thomas R. Pledger
Title: Executive Chairman
DYCOM ACQUISITION CORPORATION III
By: /s/ Steven Nielsen
------------------------------
Name: Steven Nielsen
Title: President
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of March 31, 1999 (this
"Agreement") among DYCOM INDUSTRIES, INC., a Florida corporation (the
"Company"), and the parties listed on the signature pages hereto (each a
"Purchaser" and, collectively, the "Purchasers").
WHEREAS, Dycom Acquisition Corporation III, a Kentucky
corporation and wholly owned subsidiary of the Company ("Merger Sub") will be
merged with and into Apex Digital TV, Inc., a Kentucky corporation ("Apex"),
pursuant to an Agreement and Plan of Merger dated as of March 12, 1999 among the
Company, Merger Sub, Apex and the Purchasers (the "Merger Agreement");
WHEREAS, the Company and several of the Purchasers have
entered into a Stock Purchase Agreement dated as of March 12, 1999 (the "Stock
Purchase Agreement") providing for the purchase of all of the outstanding common
stock of Ervin Cable Construction, Inc. ("Ervin") by the Company;
WHEREAS, the Purchasers will receive Common Stock pursuant to
the Merger Agreement and the Stock Purchase Agreement; and
WHEREAS, it is a condition to the obligations of the parties
to each of the Merger Agreement and the Stock Purchase Agreement that this
Agreement be entered into by the parties hereto concurrently with the closing
thereunder.
NOW, THEREFORE, in consideration of the foregoing and the
mutual convenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
1. Certain Definitions. The following terms, as used herein,
have the following meanings:
"Affiliate" of a Holder means a Person who controls, is
controlled by or is under common control with such Holder or the
spouse or children (or a trust exclusively for the benefit of a
spouse and/or children) of such Holder or, in the case of a
Holder that is a partnership, its partners.
<PAGE>
2
"Agreement" has the meaning set forth in the preamble to
this agreement.
"Apex" has the meaning set forth in the recitals to this
Agreement.
"Common Stock" means the common stock, par value $0.33 1/4
per share, of the Company.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Ervin" has the meaning set forth in the recitals to this
Agreement.
"Escrow Shares" means those shares of the Common Stock held
in escrow pursuant to the Agreement and Plan of Merger, dated as
of March 12, 1999, among the Purchasers, the Company, Apex
Digital TV, Inc. and Dycom Acquisition Corporation III, a wholly
owned subsidiary of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, as the same shall be in
effect at the time.
"Holder" means the Purchaser or any assignee thereof to whom
the rights under this Agreement are assigned in accordance with
the provisions of Section 15.
"Initiating Holders" has the meaning set forth in Section
3(a).
"Maximum Amount" has the meaning set forth in Section 3(a).
"Merger Agreement" has the meaning set forth in the recitals
to this Agreement.
"Merger Sub" has the meaning set forth in the preamble to
this Agreement.
"Minimum Demand Amount" means the amount of shares equal to
$5,000,000 divided by the Proposed Maximum Offering Price Per
Share.
"Person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government,
political subdivision, agency or instrumentality of a government.
"PORTAL" has the meaning set forth in Section 10(b).
<PAGE>
3
"Proposed Maximum Offering Price Per Share" means the price
per share of Common Stock calculated in accordance with Rule
457(c).
"Purchaser" has the meaning set forth in the preamble to
this Agreement.
"register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities
Act and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Stock" means (a) the Common Stock issued to the
Purchasers pursuant to the Merger Agreement or the Stock Purchase
Agreement, (b) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right, option or other
convertible security which is issued) a dividend or other
distribution with respect to, or in exchange for, or in
replacement of, the Common Stock issued to the Purchasers
pursuant to the Merger Agreement or the Stock Purchase Agreement,
and (c) any Common Stock issued by way of a stock split of the
Common Stock referred to in clause (a) or (b) above. For purposes
of this Agreement, any Registrable Stock shall cease to be
Registrable Stock when (1) a registration statement covering such
Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such effective
registration statement, (2) such Registrable Stock is sold by a
Person in a transaction in which the rights under the provisions
of this Agreement are not assigned pursuant to the terms hereof
or (3) such Registrable Stock is sold pursuant to Rule 144(k) (or
any similar provision then in force under the Securities Act)
without registration under the Securities Act.
"Registration Demand" has the meaning set forth in Section
3(a).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, as the same shall be in
effect at the time.
"Stock Purchase Agreement" has the meaning set forth in the
preamble to this Agreement.
2. Notice of Proposed Transfer; Transfer Restrictions on
Escrow Shares.
(a) Prior to any proposed transfer of any Registrable Stock
(other than under the circumstances described in Section 3 or 4),
the holder thereof shall have given written notice to the Company
of its intention to effect such transfer. Each such notice
<PAGE>
4
shall describe the manner of the proposed transfer and, if
requested by the Company, shall be accompanied by an opinion of
counsel, which opinion is in form and substance satisfactory to
the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act, whereupon
the holder of such stock shall be entitled to transfer such stock
in accordance with the terms of its notice. Each certificate for
Registrable Stock transferred as provided above shall bear the
legend required pursuant to Section 7.09 of the Merger Agreement
or 6.09 of the Stock Purchase Agreement, as applicable, except
that such certificate shall not bear such legend if (i) such
transfer is in accordance with the provisions of Rule 144 (or any
other rule permitting public sale without registration under the
Securities Act) or (ii) the opinion of counsel referred to above
is to the further effect that the transferee and any subsequent
transferee (other than an Affiliate of the Company) would be
entitled to transfer such securities in a public sale without
registration under the Securities Act.
(b) Notwithstanding the provisions of Section 2(a) of this
Agreement, the Purchasers shall not transfer, sell, pledge, gift
or bequeath any Escrow Shares without the written consent of the
Company, which consent shall not be unreasonably withheld.
3. Demand for Registration.
(a) On and after the date that is six (6) months from the
date of this Agreement, the Holders of at least 331/3% of the
Registrable Stock (the "Initiating Holders") may demand in a
written notice (the "Registration Demand") that the Company file
a registration statement under the Securities Act (or a similar
document pursuant to any other statute then in effect
corresponding to the Securities Act) covering the registration of
any or all Registrable Stock held by such Initiating Holders in
the manner specified in such notice, provided that the aggregate
amount of Registrable Stock to be included in such registration
shall be equal to at least the Minimum Demand Amount, but not
more than 50% (the "Maximum Demand Amount"), of the total
Registrable Stock held by such Holder. Following receipt of any
notice under this Section 3 the Company shall (x) within twenty
(20) days notify all other Holders of such request in writing and
(y) use its reasonable efforts to cause to be registered under
the Securities Act, subject to the proviso of the immediately
preceding sentence, all Registrable Stock that the Initiating
Holders and such other Holders have demanded, within forty (40)
days after the Company has received the Registration Demand, be
registered in accordance with the manner of disposition specified
in such notice by the Initiating Holders.
(b) Notwithstanding any provision of this Agreement to the
contrary:
<PAGE>
5
(i) the Company shall not be required to effect a
registration pursuant to this Section 3 during the
period starting with the date of filing by the Company
of, and ending on a date one hundred twenty (120) days
following the effective date of, a registration
statement pertaining to a public offering of securities
for the account of the Company or on behalf of the
selling stockholders under any other registration
rights agreement which the Holders have been entitled
to join pursuant to Section 4; provided that the
Company shall actively employ in good faith all
reasonable efforts to cause such registration
statement to become effective as soon as possible; and
(ii) if the Company shall determine in good faith that such
registration would interfere with any material
transaction then being pursued by the Company, the
Company's obligation to use its reasonable efforts to
file a registration statement shall be deferred for a
period not to exceed ninety (90) days.
(c) The Company shall not be obligated to effect and pay for
more than one (1) registration pursuant to this Section 3;
provided, that a registration demanded pursuant to this Section 3
shall not be deemed to have been effected for purposes of this
Section 3(d) unless (i) it has been declared effective by the
SEC, (ii) it has remained effective for the period set forth in
Section 5(a) and (iii) the offering of Registrable Stock pursuant
to such registration is not subject to any stop order, injunction
or other order or requirement of the SEC (other than any such
stop order, injunction, or other requirement of the SEC prompted
by any act or omission of Holders of Registrable Stock).
4. Participatory Registration. Subject to Sections 7 and 9, if
at any time the Company determines that it shall file a registration statement
under the Securities Act (other than a registration statement on a Form S-4 or
S-8 or filed in connection with an exchange offer or an offering of securities
solely to the Company's existing stockholders) on any form that would also
permit the registration of the Registrable Stock and such filing is to be on its
behalf and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, the Company shall each
such time promptly give each Holder written notice of such determination setting
forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than fifteen (15) days from the date
of such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than ten (10) days after the date of receipt of the
Company's notice, the Company shall use its reasonable efforts to cause to be
registered under the Securities Act all
<PAGE>
6
of the Registrable Stock that each such Holder has so requested to be
registered; provided that the amount of Registrable Stock included in such
registration shall be equal to at least the Minimum Amount but not more than the
Maximum Amount. If, in the opinion of the managing underwriter (or, in the case
of a non-underwritten offering, in the opinion of the Company), the total amount
of such securities to be so registered, including such Registrable Stock, will
exceed the maximum amount of the Company's securities which can be marketed (a)
at a price reasonably related to the then current market value of such
securities, or (b) without otherwise materially and adversely affecting the
entire offering, then the Company shall be entitled to reduce the number of
shares of Registrable Stock to be registered in such offering. Any reduction
made pursuant to the immediately preceding sentence shall be made pro rata among
any such Holders and any other security holders of the Company registering
securities in such registration.
5. Obligations of the Company. Whenever required under Section
3 to use its reasonable efforts to effect the registration of any Registrable
Stock, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
signed, pursuant to Section 6(a) of the Securities Act, by the
officers and directors of the Company with respect to such
Registrable Stock and use its reasonable efforts to cause such
registration statement to become and remain effective for the
period of the distribution contemplated thereby determined as
hereinafter provided;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement signed, pursuant to
Section 6(a) of the Securities Act, by the officers and directors
of the Company and the prospectus used in connection therewith as
may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Stock
covered by such registration statement;
(c) furnish to the Holders such numbers of copies of the
registration statement and the prospectus included therein
(including each preliminary prospectus and any amendments or
supplements thereto in conformity with the requirements of the
Securities Act) and such other documents and information as they
may reasonably request;
(d) use its reasonable efforts to register or qualify the
Registrable Stock covered by such registration statement under
such other securities or blue sky laws of such jurisdiction
within the United States and Puerto Rico as shall be reasonably
appropriate for the distribution of the Registrable Stock covered
by the registration statement; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to do business in or to file a
general
<PAGE>
7
consent to service of process in any jurisdiction wherein it
would not but for the requirements of this paragraph (d) be
obligated to do so; and provided, further, that the Company shall
not be required to qualify such Registrable Stock in any
jurisdiction in which the securities regulatory authority
requires that any Holder submit any shares of its Registrable
Stock to the terms, provisions and restrictions of any escrow,
lockup or similar agreement(s) for consent to sell Registrable
Stock in such jurisdiction unless such Holder agrees to do so;
(e) promptly notify each Holder for whom such Registrable
Stock is covered by such registration statement, at any time when
a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and at the
request of any such Holder promptly prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were
made;
(f) furnish, at the request of any Holder demanding
registration of Registrable Stock pursuant to Section 3, if the
method of distribution is by means of an underwriting, on the
date that the shares of Registrable Stock are delivered to the
underwriters for sale pursuant to such registration, or if such
Registrable Stock is not being sold through underwriters, on the
date that the registration statement with respect to such shares
of Registrable Stock becomes effective, (i) a signed opinion,
dated such date, of the independent legal counsel representing
the Company for the purpose of such registration, addressed to
the underwriters, if any, and if such Registrable Stock is not
being sold through underwriters, then to the Holders making such
request, as to such matters as such underwriters or the Holders
holding a majority of the Registrable Stock included in such
registration, as the case may be, may reasonably request and as
would be customary in such a transaction; and (ii) letters dated
such date and the date the offering is priced from the
independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable
Stock is not being sold through underwriters, then to the Holders
making such request and, if such accountants refuse to deliver
such letters to such Holders, then to the Company (A) stating
that they are independent certified public accountants within the
meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements and other financial data of
the Company included in the registration statement or the
<PAGE>
8
prospectus, or any amendment or supplement thereto, comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act and (B) covering such other
financial matters (including information as to the period ending
not more than five (5) business days prior to the date of such
letters) with respect to the registration in respect of which
such letter is being given as such underwriters or the Holders
holding a majority of the Registrable Stock included in such
registration, as the case may be, may reasonably request and as
would be customary in such a transaction;
(g) enter into customary agreements (including if the method
of distribution is by means of an underwriting, an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the
disposition of the Registrable Stock to be so included in the
registration statement;
(h) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, but
not later than eighteen (18) months after the effective date of
the registration statement, an earnings statement covering the
period of at least twelve (12) months beginning with the first
full month after the effective date of such registration
statement, which earnings statements shall satisfy the provisions
of Section 11(a) of the Securities Act;
(i) use its reasonable efforts to list the Registrable Stock
covered by such registration statement with any securities
exchange on which the Common Stock is then listed; and
(j) shall use its reasonable efforts to cause such
Registration Statement (i) to become effective as soon as
possible after the filing thereof and (ii) to remain effective,
with a prospectus at all times meeting the requirements of the
Securities Act for so long as a prospectus may be required to be
delivered pursuant to the Securities Act.
For purposes of Sections 5(a) and 5(b), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Registrable Stock covered thereby and six (6) months after the
effective date thereof.
6. Suspension of Registration Statement. The Company may
suspend the availability of any registration statement filed by the Company
referred to in Section 3 and the use of the prospectus included therein if such
suspension is effected in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, the filing of public reports with the SEC
and during the
<PAGE>
9
pendency of material corporate developments. Upon such suspension of a
registration statement by the Company, the Holders shall suspend offers and
sales of Registrable Stock until the Company notifies the Holders that (i)
offers and sales may recommence or (ii) the Company has filed a supplement to
the prospectus or an amendment to such registration statement to update the
disclosure contained therein.
7. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the Holders shall furnish to the Company such information regarding
themselves, the Registrable Stock held by them, and the intended method of
disposition of such securities as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company.
8. Expenses of Registration. All expenses incurred in
connection with each registration pursuant to Section 3 and Section 4 of this
Agreement, excluding underwriters' discounts and commissions and the fees and
expenses of counsel for the selling Holders, but including without limitation
all registration, filing and qualification fees, word processing, duplicating,
printers' and accounting fees (including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance), fees of the New York Stock Exchange or listing fees, messenger and
delivery expenses, all fees and expenses of complying with state securities or
blue sky laws, fees and disbursements of counsel for the Company and the fees
and disbursements, in an amount not to exceed $5,000, of one counsel for the
selling Holders (which counsel shall be selected by the Holders holding a
majority in interest of the Registrable Stock being registered), shall be paid
by the Company. The Holders shall bear and pay the underwriting commissions and
discounts applicable to securities offered for their account in connection with
any registrations, filings and qualifications made pursuant to this Agreement.
9. Underwriting Requirements. In connection with any
underwritten offering, the Company shall not be required under Section 4 to
include shares of Registrable Stock in such underwritten offering unless the
Holders of such shares of Registrable Stock accept the terms of the underwriting
of such offering that have been agreed upon between the Company and the
underwriters selected by the Company.
10. Rule 144 Information. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Registrable Stock to the public without registration, (a)
at all times after ninety (90) days after any registration statement covering a
public offering of securities of the Company under the Securities Act shall have
become effective, the Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities
Act;
<PAGE>
10
(ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iii) furnish to each Holder of Registrable Stock forthwith
upon request a written statement by the Company as to its
compliance with the reporting requirements of such Rule 144 and
of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any rule or regulation
of the SEC allowing such Holder to sell any Registrable Stock
without registration; and
(b) at all times during which the Company is neither subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, it
will provide, upon the written request of any Holder of Registrable Stock in
written form (as promptly as practicable and in any event within 15 business
days), to any prospective buyer of such stock designated by such Holder, all
information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the SEC under the Securities Act. Upon written request of the
Holder, the Company will cooperate with and assist any Holder of Registrable
Stock or any member of the National Association of Securities Dealers, Inc.
system for Private Offerings Resales and Trading through Automated Linkage
("PORTAL") in applying to designate and thereafter maintain the eligibility of
the Registrable Stock for trading through PORTAL.
11. Indemnification. In the event any Registrable Stock is
included in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each
Holder, such Holder's directors and officers and each Person, if
any, who controls such Holder within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which they may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or proceedings in respect
thereof) arise out of or are based on any untrue or alleged
untrue statement of any material fact contained in such
registration statement on the effective date thereof (including
any prospectus filed under Rule 424 under the Securities Act or
any amendments or supplements thereto) or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse each
such Holder, such Holder's directors and officers or controlling
person for any legal or other expenses reasonably incurred by
them (but not in excess of expenses incurred in respect of one
counsel for all of them unless, in the reasonable judgement of an
indemnified party there is a conflict of interest with another
indemnified party, in which case the
<PAGE>
11
indemnified parties may be represented by separate counsel) in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 10(a) shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be
unreasonably withheld); provided, further, that the Company shall
not be liable to any Holder, such Holder's directors and officers
or controlling Person in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of
or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus
or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by any such Holder, such
Holder's directors and officers or controlling Person. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such Holder, such
Holder's directors and officers or controlling Person, and shall
survive the transfer of such securities by such Holder. The
indemnification as provided in this Section 10(a) shall be
separate from, and in addition to, the indemnification provided
in the Merger Agreement or the Stock Purchase Agreement.
(b) The Holders demanding or joining in a registration
severally and not jointly shall indemnify and hold harmless the
Company, each of its directors and officers, each Person, if any,
who controls the Company within the meaning of the Securities
Act, and each agent and any underwriter for the Company (within
the meaning of the Securities Act) against any losses, claims,
damages or liabilities, joint or several, to which the Company or
any such director, officer, controlling Person, agent or
underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or proceedings in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement on the
effective date thereof (including any prospectus filed under Rule
424 under the Securities Act or any amendments or supplements
thereto) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with
written information furnished by or on behalf of such Holder
expressly for use in connection with such registration; and each
such Holder shall reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer,
controlling Person, agent or underwriter (but not in excess of
expenses incurred in
<PAGE>
12
respect of one counsel for all of them unless, in the reasonable
judgement of an indemnified party, there is a conflict of
interest with another indemnified party, in which case the
indemnified parties may be represented by separate counsel) in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 10(b) shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of such Holder (which consent shall not be
unreasonably withheld), and provided, further, that the liability
of each Holder hereunder shall be limited to the proportion of
any such loss, claim, damage, liability or expense which is equal
to the proportion that the net proceeds from the sale of the
shares sold by such Holder under such registration statement
bears to the total net proceeds from the sale of all securities
sold thereunder, but not in any event to exceed the net proceeds
received by such Holder from the sale of Registrable Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party under
this Section 10(c) of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to
be made against any indemnifying party under this Section, notify
the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in and
assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified
party; provided, however, that an indemnified party shall have
the right to retain its own counsel, with all fees and expenses
thereof to be paid by such indemnified party (except as provided
in paragraph (a) and (b) above), and to be apprised of all
progress in any proceeding the defense of which has been assumed
by the indemnifying party. The failure to notify an indemnifying
party promptly of the commencement of any such action shall only
release the indemnifying party from any of its obligations under
this Section 11 if, and only to the extent that, such
indemnifying party is materially prejudiced by such failure, but
the omission to so notify the indemnifying party will not relieve
it of any liability that it may have to any indemnified party
otherwise than under this Section.
(d) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion
as is appropriate to reflect the relative fault of the
indemnifying party and indemnified party in connection with the
actions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among
other things, whether any action in question, including any
untrue or alleged untrue
<PAGE>
13
statement of material fact or omission or alleged omission to
state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed
to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 11(d) was
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
12. Limitation on Registration Rights. Notwithstanding any
other provisions of this Agreement to the contrary, the Company shall not be
required to register any Registrable Stock under this Agreement with respect to
any demand or demands made by any Holder after fifteen months after the date of
this Agreement.
13. No Inconsistent Agreements. The Company agrees that it
will not during the term of this Agreement enter into any agreement with respect
to its securities which is inconsistent with the rights granted to the Holders
under this Agreement.
14. Lockup. Each Holder shall, in connection with any
registration of the Company's securities, upon the request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
agree in writing not to effect any sale, disposition or distribution of any
Registrable Stock (other than that included in the registration) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time not to exceed one hundred eighty (180) days from the
effective date of such registration as the Company or the underwriters may
specify; provided, however, that all executive officers and directors of the
Company shall also have agreed not to effect any sale, disposition or
distribution of any Registrable Stock under the circumstances and pursuant to
the terms set forth in this Section 14.
15. Assignment of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registrable Stock may be
assigned to an Affiliate of such Holder; provided, however, that (a) the
assigning Holder shall give the Company written notice at or prior to the time
of such assignment stating the name and address of the assignee and identifying
the securities with respect to which the rights under this Agreement are being
<PAGE>
14
assigned; (b) such assignee shall agree in writing, in form and substance
reasonably satisfactory to the Company, to be bound as a Holder by the
provisions of this Agreement; and (c) immediately following such assignment the
further disposition of such securities by such assignee is restricted under the
Securities Act. No assignment of the registration rights of any Holder with
respect to any Registrable Stock in accordance with this Section 15 shall cause
such Registrable Stock to lose such status.
16. Binding Effect; Benefit. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any Person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
17. Governing Law; Jurisdiction and Service of Process. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts executed in and to be performed in
that State. Any legal action or proceeding with respect to this Agreement shall
be brought in the courts of the State of Delaware located in Wilmington or in
the United States District Court for the District of Delaware. By execution and
delivery of this Agreement, each of the parties hereto accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each of the parties hereto irrevocably consents to the service
of process of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by certified mail, postage prepaid, to the
party at its address set forth in Section 20.
18. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
19. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
20. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy upon written confirmation of receipt by the recipient, telegram or
telex or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 20):
<PAGE>
15
if to the Company:
Dycom Industries, Inc.
First Union Center,
Suite 600
4440 PGA Boulevard
Palm Beach Gardens, Florida 33410-6542
Telecopier: (561) 627-7709
Attention: Mr. Steven Nielsen
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Richard B. Vilsoet, Esq.
In the case of a notice given to any of the Purchasers, such notice shall be
delivered or sent to the address set forth below such Purchaser's name on the
signature pages hereto and, in each case, with a copy of such notice to White
and Williams, L.L.P., 1800 Liberty Place, Philadelphia, PA 19103, Telecopier:
(215) 864-7123, Attention M. Melvin Shralow.
21. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
22. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions set forth in this Agreement is not affected in any
manner materially adverse to any party hereto. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions set forth in this Agreement be
consummated as originally contemplated to the fullest extent possible.
<PAGE>
16
23. Entire Agreement. This Agreement (including the schedule
hereto) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect thereto.
24. Attorneys' Fees. In the event that any party hereto shall
file suit to enforce any of the terms of this Agreement or to recover damages
for a breach of this Agreement, the prevailing party shall be entitled to
recover attorneys' fees and costs incurred in such proceeding.
25. Waiver of Jury Trial. EACH OF THE COMPANY AND THE HOLDERS
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE COMPANY AND THE HOLDERS IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
DYCOM INDUSTRIES, INC.
By /s/ Steven Nielsen
------------------------------------------
Name: Steven Nielsen
Title: President and Chief Executive Officer
GARY E. ERVIN,
in his individual capacity
/s/ GARY E. ERVIN
---------------------------------------------
TIMOTHY W. ERVIN,
in his individual capacity
/s/ TIMOTHY W. ERVIN
---------------------------------------------
ROBERT W. ERVIN,
in his individual capacity
/s/ ROBERT W. ERVIN
---------------------------------------------
KEITH E. WALKER,
in his individual capacity
/s/ KEITH E. WALKER
---------------------------------------------
ROBERT J. CHASTAIN,
in his individual capacity
/s/ ROBERT J. CHASTAIN
---------------------------------------------
<PAGE>
CHARLES T. MCELROY,
in his individual capacity
/s/ CHARLES T. MCELROY
---------------------------------------------
PENNY J. WARD,
in her individual capacity
/s/ PENNY J. WARD
---------------------------------------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-72931 on Form S-8 and Registration Statement Number 33-46506 on Form S-8 of
(i) our report dated March 8, 1999, with respect to the balance sheet of Ervin
Cable Construction, Inc. as of December 31, 1998, and the related statements of
income, changes in stockholders' equity and cash flows for the year then ended
and (ii) our report dated March 10, 1999 with respect to the balance sheet of
Apex Digital TV, Inc. as of December 31, 1998 and 1997, and the related
statements of income, changes in stockholders' equity and cash flows for the
year ended December 31, 1998 and the 101 day period from September 22, 1997
(inception) to December 31, 1997, which reports appear in the Form 8-K of Dycom
Industries, Inc. dated April 15, 1999.
YORK, NEEL & CO.-OWENSBORO, LLP
Certified Public Accountants
Owensboro, Kentucky
April 15, 1999
ARTICLES OF MERGER
among
APEX DIGITAL TV, INC.,
THE STOCKHOLDERS OF APEX DIGITAL TV, INC.,
DYCOM ACQUISITION CORPORATION III
and
DYCOM INDUSTRIES, INC.
Pursuant to the provisions of the Kentucky Business Corporation Act,
the undersigned corporations adopt the following articles of merger:
1. The plan of merger is as follows: (please see attached agreement and
plan of merger).
2. Shareholder approval was required.
3. Corporation requiring shareholder approval: Apex Digital TV, Inc.
Designation: Common Stock
Number of outstanding shares: 375
Number of votes entitled to be cast by each voting group entitled to
vote separately on the plan: 375
4. All 375 votes were cast in favor of the agreement and plan of merger.
5. The name of the surviving corporation is Apex Digital TV, Inc.
Date: April 1st, 1999
APEX DIGITAL TV, INC.
/s/ Gary Ervin
---------------------------------
Name: Gary Ervin
Title: President
DYCOM ACQUISITION CORPORATION III
/s/ Steven Nielsen
---------------------------------
Name: Steven Nielsen
Title: President
DYCOM INDUSTRIES, INC.
/s/ Steven Nielsen
---------------------------------
Name: Steven Nielsen
Title: President and Chief Executive Officer
Dycom Industries, Inc. Completes The
Acquisitions Of Ervin Cable
Construction, Inc. And Apex Digital TV,
Inc.
March 31, 1999
PALM BEACH GARDENS, Fla., March 31 -- Dycom Industries, Inc. (NYSE: DY)
announced today that it has completed the acquisitions of Ervin Cable
Construction, Inc. and Apex Digital TV, Inc. Ervin, a Sturgis, Kentucky-based
company, provides construction services to cable television multiple system
operators. Apex, also a Sturgis, Kentucky-based company, provides installation
and maintenance services to direct broadcast satellite providers. Upon
consummation of the transactions, the stockholders of Ervin and Apex received
258,066 and 516,128 shares of common stock of Dycom, respectively. Additionally,
the stockholders of Ervin received $21,750,000 in cash. The consideration
received by the stockholders of Ervin and Apex is subject to post-closing
adjustments for indemnification, if any.
On April 1, 1999, Joseph M. Schell, former Director of Investment Banking and a
member of the Executive Committee at NationsBanc Montgomery Securities, will
become a director of Dycom. Mr. Schell was responsible for the investment
banking division at NationsBanc Montgomery Securities.
Dycom is a leading provider of engineering, construction, and maintenance
services to telecommunications providers throughout the United States.
Additionally, the Company provides similar services related to the installation
of integrated voice, data, and video local and wide area networks within office
buildings and similar structures. Dycom also provides underground utility
locating and electric utility contracting services.
A Tele-Conference call will be hosted at 10:00 a.m., EST, April 1, 1999. Call
1-800-230-1085 and request "Dycom Acquisitions."
