<PAGE> 1
UNITED STATES
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
--------------
October 30, 1997
(Date of Report)
TYLER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-10485 75-2303920
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation or No.)
organization)
2121 San Jacinto Street
Suite 3200, Dallas, Texas 75201
(Address of principal executive offices)
(214)754-7800
(Registrant's telephone number,
including area code)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
Effective October 15, 1997, Tyler Corporation ("Tyler") sold all of the capital
stock of its subsidiary, Institutional Financing Services, Inc. ("IFS"), to
I.F.S. Acquisition Corporation for approximately $8,000,000. Proceeds consisted
of $5,900,000 cash paid at closing, and approximately $2,100,000 payable on
January 31, 1998. In conjunction with the transaction, Tyler recognized an
estimated net loss of $2,500,000 on the sale of IFS. The timing of the receipt
of the $2,100,000 noted above is subject to a subordination agreement between
Tyler and IFS's lender, and could be adversely affected should IFS not achieve
certain financial performance parameters. Management does not currently
anticipate any such delay in payments. IFS is a national educational
fund-raising services company.
<PAGE> 3
Item 7(b) Financial Information.
The following unaudited pro forma condensed consolidated financial
statements of Tyler have been prepared to illustrate the estimated effects of
the sale of the stock of IFS (the "Transaction") and related transaction
expenses. The pro forma information assumes that the transactions for which pro
forma effects are shown occurred on the first day of 1996 for the unaudited pro
forma condensed consolidated statements of operations and on June 30, 1997, for
the unaudited pro forma condensed consolidated balance sheet.
The pro forma information is not necessarily indicative of the results
that would have actually been obtained by Tyler had the Transaction been
consummated on June 30, 1997.
<PAGE> 4
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro
Tyler Elimination Forma
Historical of IFS (1) Tyler
--------------------------------------
<S> <C> <C> <C>
Net sales ........................................... $128,373 $ 43,299 $ 85,074
Costs and expenses:
Cost of sales ..................................... 61,359 12,084 49,275
Selling, general, and administrative expenses .... 79,536 35,905 43,631
Goodwill and other intangibles impairment charge .. 52,105 37,316 14,789
Interest income, net .............................. (290) (13) (277)
--------------------------------------
192,710 85,292 107,418
Loss from continuing operations
before income tax benefit ......................... (64,337) (41,993) (22,344)
Income tax benefit .................................. (4,307) (1,270) (3,037)
--------------------------------------
Loss from continuing operations ..................... ($ 60,030) ($ 40,723) ($ 19,307)
======================================
Loss per common share
from continuing operations ........................ ($ 3.02) ($ 0.97)
======== =========
Average shares outstanding during the period ........ 19,876 19,876
</TABLE>
See accompanying notes.
<PAGE> 5
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro
Tyler Elimination Forma
Historical of IFS (1) Tyler
------------------------------------
<S> <C> <C> <C>
Net sales ....................................... $ 49,530 $ 11,562 $ 37,968
Costs and expenses:
Cost of sales ................................. 24,550 3,022 21,528
Selling, general and administrative expenses .. 26,871 10,884 15,987
Interest income, net .......................... (393) (9) (384)
------------------------------------
51,028 13,897 37,131
Income (loss) from continuing operations
before income tax (benefit) ................... (1,498) (2,335) 837
Income tax (benefit) ............................ (539) (842) 303
------------------------------------
Income (loss) from continuing operations ........ ($ 959) ($ 1,493) $ 534
====================================
Income (loss) per common share
from continuing operations .................... ($ 0.05) **** $ 0.03
======== ========
Average shares outstanding during the period .... 19,918 **** 19,918
</TABLE>
See accompanying notes.
<PAGE> 6
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Pro
Tyler Elimination Forma
Historical of IFS (2) Tyler
------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .............................. $ 21,596 $ 1,713 $ 23,309
Accounts receivable, net .......... 785 (616) 169
Inventories ....................... 19,498 (2,233) 17,265
Income tax receivable ............. 953 289 1,242
Prepaid expense ................... 802 (594) 208
Deferred tax benefit .............. 3,438 (1,634) 1,804
------------------------------------
Total current assets ............ 47,072 (3,075) 43,997
Property, plant and equipment, net .. 7,656 (2,180) 5,476
Sundry .............................. 2,029 0 2,029
------------------------------------
$ 56,757 ($ 5,255) $ 51,502
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................... $ 5,132 ($ 454) $ 4,678
Accrued wages and commissions ....... 2,620 (1,304) 1,316
Accrued liabilities ................. 7,968 (569) 7,399
------------------------------------
Total current liabilities ......... 15,720 (2,327) 13,393
Deferred income tax ................. 5,707 (428) 5,279
Other liabilities ................... 4,043 0 4,043
Shareholders' equity ................ 31,287 (2,500) 28,787
------------------------------------
$ 56,757 ($ 5,255) $ 51,502
</TABLE>
See accompanying notes.
<PAGE> 7
Item 7(b). Financial Information (cont).
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
(1) To eliminate amounts related to IFS.
(2) To record the sale of IFS and the receipt of proceeds of approximately
$8,000,000. The proceeds include outstanding net advances due to Tyler on the
closing date, October 15, 1997, the majority of which occurred subsequent to
June 30, 1997. The sale is expected to result in a net loss of approximately
$2,500,000. No current tax benefit has been provided due to the character of
the loss. Estimated amounts included in the loss on the transaction are subject
to change based on final calculation of the October 15, 1997 closing balance
sheet.
Item 7(c). Exhibits.
Exhibit
Number Exhibit
10.25 Stock Purchase Agreement between and among
I.F.S. Acquisition Corporation, Tyler
Corporation and Institutional Financing
Services, Inc., dated October 9, 1997.
10.26 Subordination Agreement between PNC Bank,
National Association as agent for Senior
Lenders and Tyler Corporation, dated
October 15, 1997.
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
TYLER CORPORATION
By: /s/ David P. Tusa
-------------------------------------
David P. Tusa, Senior Vice
President and Chief Financial Officer
(principal financial officer and an
authorized signatory)
By: /s/ Scott R. Creasman
-------------------------------------
Scott R. Creasman, Vice President
and Controller (principal accounting
officer)
Date: October 30, 1997
<PAGE> 9
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.25 Stock Purchase Agreement between and among I.F.S.
Acquisition Corporation, Tyler Corporation and Institutional
Financing Services, Inc., dated October 9, 1997.
10.26 Subordination Agreement between PNC Bank, National
Association as agent for Senior Lenders and Tyler
Corporation, dated October 15, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE AGREEMENT
Dated as of October 9, 1997
among
I.F.S. ACQUISITION CORP.,
TYLER CORPORATION
and
INSTITUTIONAL FINANCING SERVICES, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of October 9, 1997 (the
"Agreement") by and among I.F.S. ACQUISITION CORP., a New Jersey corporation,
having its principal office at 330 South Street, Morristown, New Jersey
07962-1975 ("Buyer"), TYLER CORPORATION, a Delaware corporation ("Seller"), and
INSTITUTIONAL FINANCING SERVICES, INC., a California corporation, having its
principal office at 5100 Park Road, Benicia, California, 94510 (the "Company").
RECITALS:
A. Seller owns beneficially and of record all of the issued and
outstanding shares of capital stock of the Company (the "Company Shares"),
which is engaged in the business of fund raising for elementary, middle and
high schools through the sale of products provided by the Company (the
"Business").
B. Buyer desires to purchase, and Seller desires to sell to
Buyer, the Company Shares, upon the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. (a) As used in this Agreement, the terms
defined in the Preamble and the Recitals hereto shall have the respective
meanings ascribed thereto, and the following terms shall have the meanings set
forth below (such definitions to be applicable equally to the singular and
plural forms thereof):
"Acquisition Proposal": as defined in Section 5.2(k).
"Advance Adjustment Amount" means the result of subtracting the amount
paid pursuant to Section 2.2(a)(ii) from the amount paid to Seller by Buyer
pursuant to Section 2.2(a)(iii) hereto.
"Advances" shall mean cash advances made to the Company by Seller
after July 26,1997 through and including the Closing Date. Advances are
limited to those funds which pursuant to
<PAGE> 3
past practices of Seller and the Company do not represent funds provided to the
Company by Seller as part of advances treated as an increase of the principal
amount of the Debenture. The Company's practice has been to pay down to Seller
and receive advances from Seller under the Debenture to the extent that the
principal amount of the Debenture would not exceed $48,000,000. If funds
advanced to the Company were not made under the Debenture because the Company's
drawings under the Debenture caused the principal amount thereof to reach
$48,000,000, the funds would be treated by the Company as an intercompany
advance rather than an adjustment of the principal amount of the Debenture. It
is these inter-company advances which are referred to herein as "Advances."
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate": with respect to any Person means (i) any other Person of
which such Person is an officer, director or partner or is directly or
indirectly the beneficial owner of ten (10%) percent or more of any class of
equity securities or other financial interest; (ii) any trust or other estate
in which such Person serves as a trustee or in any similar fiduciary capacity;
(iii) any relative or spouse of such Person, or any relative of such spouse who
has the same home as such Person; (iv) any director or officer of such Person;
or (v) any Person who directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) (or any similar group defined under a similar provision of
state, local or foreign law).
"Annual Statements": as defined in Section 3.8.
"Balance Sheet" means the consolidated balance sheet of the Company
and its Subsidiaries prepared in accordance with GAAP.
"Capital Shortfall" as defined in Section 2.3 (f).
"Claim": a claim pursuant to Article IX that a party is entitled, or
may become entitled, to indemnification under this Agreement.
"Closing": as defined in Section 8.1.
"Closing Date": as defined in Section 8.1.
"Closing Documents": collectively, this Agreement and all other
documents and instruments to be executed and delivered by Seller or the Company
pursuant hereto, including the Loan Arrangement.
- 2 -
<PAGE> 4
"Code": the Internal Revenue Code of 1986, as amended.
"Controlled Group" means a group of trades or businesses of which the
Company is a member under in Code Section 1563, or Code Section 414(b), (c),
(m) or (o).
"Debenture" shall mean the 10% Debenture due January 7, 2004 dated
January 7, 1994 of the Company in favor of Seller in the original principal
amount of $48,000,000.
"Deferred Intercompany Transaction" has the meaning set forth in
Treas. Reg. Section 1.1502-13.
"Employee Benefit Plans": shall include all pension, retirement,
disability, medical, dental or other health insurance plans, life insurance or
other death benefit plans, profit sharing, deferred compensation, stock option,
bonus or other incentive plans, vacation benefit plans, severance plans or
other employee benefit plans or arrangements, including, without limitation,
any pension plan as defined in Section 3(2) of ERISA and any welfare plan as
defined in Section 3(1) of ERISA, whether or not funded, to which the Company
is a party or bound or makes or has made any contribution or by which the
Company may have any liability to any Subject Employee or any employee of any
business entity that is a Member of the same Controlled Group as
Seller(including any such plan formerly maintained by or in connection with
which the Company may have any liability to any Subject Employee, and any such
plan which is a multiemployer plan as defined in Section 3(37)(A) of ERISA).
(For purposes of this Agreement, Controlled Group is defined in accordance
with Sections 414(b), (c), (m), or (o) of the Code)
"Environmental Claims": as defined in Section 3.15(e).
"Environmental Laws": means any federal, state or local law,
regulation, ordinance or order pertaining to the protection of natural
resources, the environment and the health and safety of the public, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants
or chemicals, or industrial, toxic or hazardous substances or wastes,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 et seq., the
Resource Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. Sections
6901 et seq., the Hazardous Material Transportation Act, as amended, 49 U.S.C.
Sections 1801 et seq., the Occupational Safety and Health Act, as amended, 29
U.S.C. Sections 651 et seq., California Health and Safety Code Sections 19015
and Sections 25300 et seq, California Civil Code Sections 1102 et seq., and
Section 2079, California Civil Procedure Code Section 726 and California
Business and Professional Code Section 7180 et seq.
"Environmental Permits": as defined in Section 3.15(c).
- 3 -
<PAGE> 5
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent": PNC Bank, National Association or its successor as
escrow agent pursuant to the terms of the Escrow Agreement.
"Escrow Agreement": the Escrow Agreement among Buyer, Seller and PNC
Bank, National Association, as escrow agent dated October 15, 1997.
"Excess Loss Account" has the meaning set forth in Treas. Reg. Section
1.1502-19.
"GAAP": generally accepted United States accounting principles.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof, any regulatory agency or body and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Materials": any (i) "hazardous substance," "pollutants" or
"contaminant" (as defined in Sections 101(14) and (33) of the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.) or the regulations issued pursuant to Section 102 of
CERCLA and found at 40 C.F.R. Section 302), including any element, compound,
mixture, solution or substance that is designated pursuant to Section 102 of
CERCLA; (ii) substance that is designated pursuant to Section 311(b)(2)(A) of
the Federal Water Pollution Control Act, as amended (33 U.S.C. Sections 1251,
1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the characteristics
identified under or listed pursuant to Section 3001 of the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, 6921)
("RCRA"); (iv) toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is listed under Section 112 of the
Clear Air Act, as amended (42 U.S.C. Sections 7401, 7412); (v) immediately
hazardous chemical substance or mixture with respect to which action has been
or may be taken pursuant to Section 7 of the Toxic Substances Control Act, as
amended (15 U.S.C. Sections 2601, 2606); (vi) asbestos, asbestos-containing
material, or urea formaldehyde or material that contains it; (vii) waste oil
and other petroleum products; and (viii) any other toxic materials,
contaminants or hazardous substances or wastes pursuant to any Environmental
Law.
"Intellectual Property": as defined in Section 3.21.
"Interim Statement": as defined in Section 3.8(b).
"Inventory": as defined in Section 2.3.
"Laws": all federal, state, local and foreign laws, ordinances,
orders, rules and regulations (including, without limitation, those relating to
discrimination in employment, occupational safety and health, trade practices,
competition and pricing, product warranties, zoning, building and sanitation,
toxic and chemical substances, employment, retirement and labor relations,
product advertising and pollution, discharge, disposal and emission of wastes,
materials and gases into the environment which are applicable to the Business).
- 4 -
<PAGE> 6
"Lease": the Sale and Leaseback Agreement, dated December 21, 1996,
between the Company and Belle Haven Realty Co., relating to the Real Property.
"Litigation Matter": the matter of IFS vs. J&S Financial Services,
Inc.
"Loan Arrangement": as defined in Section 2.2(b).
"Loss": any loss, damage or expense (including, without limitation,
diminution in value, lost profits, attorneys' fees and costs of investigation
and litigation) entitled to indemnification pursuant to Article IX.
"Merger" shall be the merger of the Company into Buyer.
"Net Advances" shall mean the Advances reduced by amounts due the
Company from Seller as a result of the sweep of the Company's cash accounts
into Seller's cash accounts after July 26, 1997 through and including the
Closing Date.
"Net Asset Value" means total stockholder's equity of the Company as
reflected on the Preliminary Pro Forma Balance Sheet.
"Note" as defined in Section 2.2(a)(v).
"PBGC": the Pension Benefit Guaranty Corporation.
"Permitted Liens": (i) liens for Taxes not yet due or which are being
contested in good faith by appropriate proceedings; (ii) materialmen's,
mechanics', carriers', workman's and other like liens arising in the ordinary
course of business, and deposits to obtain the release of such liens; (iii)
liens incurred, or pledges or deposits made, to secure obligations under
workman's compensation laws, unemployment laws and similar legislation; (iv)
non-material deposits or pledges to secure statutory obligations or appeals,
releases of attachment, stays of execution or injunction, performance of
contracts (other than for borrowings) or for like purposes arising in the
ordinary course of business; and (v) other minor irregularities of title which
do not materially affect the value or use of the Company's property.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Preliminary Pro Forma Balance Sheet" shall mean the consolidated
balance sheet of the Company and its Subsidiaries September 27, 1997 attached
hereto as Exhibit A and reflecting the adjustments provided for therein.
"Pro Forma Closing Date Balance Sheet" as defined in Section 2.3.
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<PAGE> 7
"Purchase Price" as defined in Section 2.2.
"Real Property": the office building and warehouse and associated
real property located at 5100 Park Road, Benicia, California.
"Release": any spilling, leaking, emitting, discharging, depositing,
escaping, dumping or other releasing into the environment of Hazardous
Materials, whether intentional or unintentional.
"Securities Act": the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder and any successor federal statute,
rules or regulations.
"Shortfall": as defined in Section 2.3.
"Shortfall Balance": as defined in Section 2.3.
"Subject Employee": any current or former officer, director, employee
or consultant who is or was employed or otherwise compensated by the Company or
otherwise in connection with the Business.
"Subordination Agreement": the Subordination Agreement dated October
15, 1997 between Seller and PNC Bank, National Association and acknowledged by
the Company.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax, charge, assessment or fee of any kind
whatsoever imposed by any governmental authority, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes required to be filed or
delivered to another Person by any governmental authority, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Suit": a suit or proceeding by a third party with
respect to which a claim is made against an Indemnified Party.
(b) KNOWLEDGE. To the extent that any representation, warranty or
other provision in the Agreement is, by its terms, based upon or limited by the
"knowledge" of Seller or the
- 6 -
<PAGE> 8
Company, that term signifies that no information has come to the attention of
Seller or any of the president, executive vice president, senior vice president
or vice president of the Company that would give such party actual knowledge or
actual notice that such representation or warranty or the subject matter of
such provision is not true, accurate or complete.
ARTICLE II
SALE AND PURCHASE OF SHARES
SECTION 2.1. SALE AND PURCHASE OF COMPANY SHARES. Seller hereby
agrees to sell, convey, transfer and deliver to Buyer, and Buyer hereby agrees
to purchase and accept from Seller, the Company Shares upon the terms,
conditions, representations, warranties, covenants and agreements set forth
herein.
SECTION 2.2. PURCHASE PRICE; PRELIMINARY PRO FORMA BALANCE SHEET.
(a) The purchase price for the Company Shares is $2,358,400 plus the Note plus
the Net Advances outstanding on the Closing Date less $750,000 reduced (i) by
the Shortfall, (ii) the executive severance payment set forth below and (iii)
the Capital Shortfall (the result of which is referred to as the "Purchase
Price"), paid as follows:
(i) $2,358,400, payable by Buyer by a demand note of
Buyer in favor of Seller in the form set forth in Exhibit E hereto (the "Demand
Note") delivered to the Escrow Agent to be held in escrow pursuant to the terms
of the Escrow Agreement;
(ii) an amount equal to $3,600,000 being one-half of the
estimated Net Advances outstanding on the Closing Date reduced by an executive
severance payment of $111,000 payable by the Company by a borrowing from PNC
Bank, National Association pursuant to the terms of the Loan Arrangement on the
Closing Date and such funds remitted by the Company by wire transfer of
immediately available funds to Seller;
(iii) subject to the Subordination Agreement an amount
equal to one-half of the Net Advances reflected in the Pro Forma Closing
Date Balance Sheet reduced by the sum of the amount of the Capital Shortfall
and the amount of the Note payable by Buyer by wire transfer on January 31,
1998; provided, however that Net Advances may not exceed at $7,200,000 plus the
amount of checks drawn by the Company which clear the Company's banking
accounts on the banking day prior to the Closing Date which cause Advances to
exceed $7,200,000, which checks are funded by Advances from Seller to the
Company;
(iv) subject to the Subordination Agreement if the Advance
Adjustment Amount is a positive number, then Buyer shall pay Seller the Advance
Adjustment Amount by wire transfer on January 31, 1998 or if the Advance
Adjustment Amount is a negative number, then Seller shall pay Buyer the Advance
Adjustment Amount by wire transfer on January 31, 1998; and
- 7 -
<PAGE> 9
(v) a Note of the Company in the amount of $750,000
payable December 31, 1998 (the "Note") in the form attached as Exhibit B to be
delivered to Seller by Buyer on December 31, 1997.
(b) Upon the consummation of the Merger in accordance with
applicable law, the Advance of $2,358,400 to Buyer pursuant to the terms of the
Revolving Credit, Term Loan and Security Agreement among the Company and PNC
Bank, National Association, as agent for itself and others dated as of October
15, 1997 and the letter of direction from Buyer to PNC Bank, National
Association, as agent (the "Loan Arrangement"), and the receipt of opinions
addressed to Buyer from Brobeck, Phleger & Harrison, counsel to the Company and
Crummy, Del Deo, Dolan, Griffinger & Vecchione, counsel to Buyer, each in form
and substance satisfactory to Buyer regarding the Merger, Buyer will pay the
Demand Note by wire transfer of immediately available funds in the amount of
$2,358,400 plus interest in accordance with the terms of the Demand Note.
SECTION 2.3. POST-CLOSING ADJUSTMENTS.
(a) Within 30 days after the Closing Date, Buyer will
prepare and deliver to the Seller a pro forma consolidated balance sheet of the
Company and its Subsidiaries at the Closing Date reflecting the following
adjustments (i) the adjustments made in the Preliminary Pro Forma Balance
Sheet, (ii) profits or losses from September 27, 1997 through the Closing
Date, and (iii) Net Advances made from September 28, 1997 through the Closing
Date (the "Pro Forma Closing Date Balance Sheet"). Buyer will prepare the Pro
Forma Closing Date Balance Sheet in accordance with GAAP applied on a basis
consistent with the preparation of the Annual Statements; provided, however,
that assets, liabilities, gains, losses, revenues, and expenses in interim
periods or as of dates other than year-end (which normally are determined
through the application of so-called interim accounting conventions or
procedures) will be determined, for purposes of the Pro Forma Closing Date
Balance Sheet, through full application of the procedures used in preparing the
most recent audited balance sheet included within the Annual Statements and
provided further that the pro forma adjustments in the Preliminary Pro Forma
Closing Date Balance Sheet and the adjustments referred to above will be made.
(b) If Seller has any objections to the Pro Forma Closing
Date Balance Sheet, it will deliver a detailed statement describing its
objections to Buyer within 10 days after receiving the Pro Forma Closing Date
Balance Sheet. Buyer and Seller will use reasonable efforts to resolve any
such objections themselves. If a final resolution is not reached within 30
days after Buyer has received the statement of objections, however, Buyer and
Seller will select an accounting firm mutually acceptable to them to resolve
any remaining objections. If Buyer and Seller are unable to agree on the
choice of an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular outside
accounting firms). The determination of any accounting firm so selected will
be set forth in writing and will be conclusive and binding upon Buyer and
Seller. Buyer will revise the Pro Forma Closing Date Balance Sheet as
appropriate to reflect the resolution of any objections thereto pursuant to
this section. The "Pro Forma Closing Date Balance Sheet" shall mean the Pro
Forma Closing Date Balance Sheet together with any revisions thereto pursuant
to this section.
- 8 -
<PAGE> 10
(c) In the event Buyer and Seller submit any unresolved
objections to an accounting firm for resolution as provided in Section 2.3(b)
above, Buyer and Seller will share responsibility for the fees and expenses of
the accounting firm as follows:
(A) if the accounting firm resolves all the
remaining objections in favor of Buyer, Seller will
be responsible for all of the fees and expenses of
the accounting firm;
(B) if the accounting firm resolves all of the
remaining objections in favor of Seller, Buyer will
be responsible for all of the fees and expenses of
the accounting firm; and
(C) if the accounting firm resolves some of the
remaining objections in favor of Buyer and the rest
of the remaining objections in favor of Seller,
Seller and Buyer will share fees and expenses of the
accounting firm equally.
(d) Buyer will make the work papers and back-up materials
used in preparing the Pro Forma Closing Date Balance Sheet and the books,
records, and financial staff of the Company and its Subsidiaries available to
Seller and their accountants and other representatives at reasonable times and
upon reasonable notice at any time during (A) the preparation by Buyer of the
Pro Forma Closing Date Balance Sheet, (B) the review by Seller of the Pro Forma
Closing Date Balance Sheet, and (C) the resolution by the parties hereto of any
objections thereto.
(e) On or before March 31, 1998, Buyer will deliver to
Seller a reconciliation showing the liquidation of the inventory of the Company
on hand at the Closing Date as set forth in the Pro Forma Closing Date Balance
Sheet (the "Inventory") for the period from the Closing Date until February 28,
1998, on a first in first out basis, where the Inventory disposed of is deemed
sold at its value as reflected on the Pro Forma Closing Date Balance Sheet of
the Company or the sale price thereof if less than such value. If the proceeds
from the sale of the Inventory are less than the book value of the Inventory as
reflected on the Pro Forma Closing Date Balance Sheet (the "Shortfall"), then
Seller shall pay Buyer the amount of the Shortfall, which in no event shall
exceed $750,000. No more than one-half (1/2) of the $750,000 shall be payable
by Seller to Buyer as of March 31, 1998, and the balance of the Shortfall (the
"Shortfall Balance"), if any, shall be payable within thirty (30) days of
receipt by Seller of the financial statements of the Company for the six month
period ended June 30, 1998 which reflect remaining unsold Inventory on the same
basis as above. Inventory which is sold between February 28, 1998 and June 30,
1998 using the first in first out method of accounting and valuation of the
Inventory as provided above shall be applied to reduce the Shortfall Balance.
(f) If 80% of the amount of stockholder's equity on the
Pro Forma Closing Date Balance Sheet is less than $2,358,400, then Seller shall
pay the amount of the difference between 80% of the amount of such
stockholder's equity on the Pro Forma Closing Date Balance
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<PAGE> 11
Sheet and $2,358,400 (the "Capital Shortfall") by wire transfer to Buyer on
the date the Pro Forma Closing Date Balance Sheet is accepted by Seller as
provided in Section 2.3.
SECTION 2.4. TRANSFER OF CERTIFICATES. On the Closing Date, Seller
shall transfer and deliver to the Escrow Agent for the account of Buyer,
against payment of the Purchase Price in accordance with Section 2.2,
certificates representing the Company Shares, duly endorsed in blank by Seller
or accompanied by stock powers duly executed in blank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Company represent and warrant to Buyer as follows:
SECTION 3.1. OWNERSHIP OF STOCK. (a) Seller is the record and
beneficial owner and holder of the Company Shares free and clear of all liens,
encumbrances, charges and assessments of every nature. The Company Shares are
not subject to any restrictions with respect to transferability. Seller has
full power and authority to assign and transfer the Company Shares to Buyer in
accordance with the terms of this Agreement without obtaining the consent or
approval of any other Person or Governmental Authority (other than the consents
set forth in Schedule 3.7), and the delivery of the Company Shares to Buyer
pursuant to this Agreement will transfer valid title thereto, free of all
liens, encumbrances, charges and assessments of any kind.
(b) Except as contemplated by this Agreement, there are
no outstanding options, contracts, calls, commitments, agreements or demands of
any character relating to the Company Shares or stock of the Company generally,
and there are no outstanding securities or other instruments convertible into
or exchangeable for shares of capital stock of the Company, and there are no
commitments to issue such securities or instruments.
SECTION 3.2. CAPITALIZATION OF COMPANY; SUBSIDIARIES. The authorized
capital stock of the Company consists of 150,000 shares of preferred stock, of
which no shares are outstanding, 100,000 shares of common stock, no par value,
of which 21,667 shares are issued and currently outstanding and constitute the
Company Shares. The Company has no treasury stock. All of the Company Shares
are fully paid and nonassessable. Schedule 3.2 sets forth the authorized
capitalization, outstanding capital and jurisdiction of formation of each
Subsidiary. All of the outstanding capital stock of each Subsidiary is owned
of record and beneficially by the Company.
SECTION 3.3. ORGANIZATION; CORPORATE NAME. The Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of California in the case of the Company
and in the case of such Subsidiaries as set forth in Schedule 3.2 after the
name of such Subsidiary. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Except
as set forth in Schedule 3.3, neither the Company nor any Subsidiary has been
known by any other corporate
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name in the past five years nor sells inventory under any other name nor has
the Company or any Subsidiary been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during the preceding five years.
SECTION 3.4. CORPORATE POWER. The Company has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on the Business as now being conducted.
SECTION 3.5. QUALIFICATION. The Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
the jurisdictions listed after its name in Schedule 3.5, which are the only
jurisdictions in which the ownership or leasing of properties or the nature of
the activities conducted by it require such qualification.
SECTION 3.6. AUTHORITY. No further corporate act or proceeding on
the part of the Company or Seller is necessary to authorize this Agreement or
the other Closing Documents or the consummation of the transactions
contemplated hereby and thereby. This Agreement constitutes and, when executed
and delivered, the other Closing Documents will constitute, valid and binding
agreements of Seller and the Company enforceable against Seller and the Company
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, and by general equitable principles affecting the
availability of equitable relief.
SECTION 3.7. NO VIOLATION. Neither the execution and delivery of
this Agreement or the other Closing Documents, nor the consummation by Seller
or the Company or any Subsidiary of the transactions contemplated hereby and
thereby (i) will violate any statute, law, rule, regulation, order, writ,
injunction or decree of any court or Governmental Authority applicable to
Seller or the Company or any Subsidiary, (ii) will require any authorization,
consent, approval, exemption or other action by, or filing with or notice to,
any court or Governmental Authority or any other Person, other than the filings
with and approvals disclosed in Schedule 3.7, or (iii) will violate or conflict
with, or constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or will result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the assets material
to the business, assets or financial condition of the Company, under any term
or provision of (a) the Certificate of Incorporation or By-laws of the Company
or Seller or any Subsidiary, or (b) any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character
to which Seller or the Company or any Subsidiary is a party, or by which Seller
or the Company or any Subsidiary, or any of their respective assets or
properties may be bound.
SECTION 3.8. FINANCIAL STATEMENTS. (a) Seller has delivered to Buyer
certain financial information concerning the Company and its Subsidiaries,
including audited financial statements for the fiscal years ended December 31,
1994, 1995 and 1996 (the " Annual Statements"), inclusive, consisting of
balance sheets and related statements of income and cash flow for the years
then ended (including the notes and schedules contained therein or annexed
thereto), which
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<PAGE> 13
financial statements have been audited by Ernst & Young LLP, independent
certified public accountants for the Company for such years.
(b) Included as Schedule 3.8(b) is the financial
statement of the Company and its Subsidiaries for the seven (7) months ended
July 26, 1997, consisting of a balance sheet and related statement of income as
at July 26, 1997 and for the seven (7) month period then ended (the "Interim
Statement").
(c) Included as Schedule 3.8(c) is the consolidated
balance sheet of the Company and its Subsidiaries as at August 30, 1997, which
balance sheet has been reviewed by the chief financial officer of the Company.
(d) Except as and to the extent indicated in the notes
thereto, the Annual Statements and the Interim Statement referenced in this
Section 3.8 (including all notes and schedules contained therein or annexed
thereto) and the Preliminary Pro Forma Balance Sheet are true and correct in
all material respects, have, or will have, been prepared in accordance with
GAAP consistently applied, and fairly present the financial position and the
results of operations, changes in stockholder's equity and cash flow of the
Company and its Subsidiaries as of the dates and for the years and periods
therein stated.
SECTION 3.9. TAX MATTERS.
(a) Each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all material respects. True and complete copies of each of the
most recent of any such material return or statement, and such other returns
and statements requested by Buyer, have been provided to Buyer. All Taxes owed
by any of the Company and its Subsidiaries (whether or not shown on any Tax
Return) have been paid or fully accrued on the Preliminary Pro Forma Balance
Sheet. Except as set forth in Schedule 3.9(a), none of the Company and its
Subsidiaries currently is the beneficiary of any extension of time within which
to file any Tax Return. Other than that stated in Schedule 3.9(a), to the
Company's knowledge, no claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. Except
as set forth on Schedule 3.9(a), there are no security interests on any of the
assets of any of the Company and its Subsidiaries that arose in connection with
any failure (or alleged failure) to pay any Tax. No tax liability will be
incurred by the Company or any Subsidiary as a result of the transactions
contemplated by this Agreement, including but not limited to the contribution
to capital of the Debenture and the resultant termination of the Debenture.
Except as described on Schedule 3.9(a), the Company has not been delinquent in
the payment of any Tax, or in the filing of any Tax Return or information
statement.
(b) Each of the Company and its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder,
or other third party.
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<PAGE> 14
(c) There is no dispute or claim concerning any Tax Liability of
any of the Company and its Subsidiaries either (A) claimed or raised by any
Governmental Authority in writing or (B) as to which any of the Seller and the
directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such Governmental Authority. Schedule 3.9(c) lists all federal,
state, local, and foreign income Tax Returns filed with respect to any of the
Company and its Subsidiaries for taxable periods ended on or after December 31,
1994, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. To the Company's
knowledge, no officer or employee of Seller or the Company or any Subsidiary
has been contacted by the Internal Revenue Service or other Governmental
Authority in connection with any personal liability for employment or sales
Taxes that would otherwise be due and payable by the Company or any Subsidiary.
(d) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) None of the Company and its Subsidiaries has filed a consent
under Code Section 341(f) concerning collapsible corporations. None of the
Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). None
of the Company and its Subsidiaries has been a member of an Affiliated Group
filing a consolidated federal income Tax Return other than a group the common
parent of which was Seller or the Company.
(f) Schedule 3.9(f) sets forth the following information with
respect to each of the Company and its Subsidiaries (or, in the case of clause
(B) below, with respect to each of the Subsidiaries) as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Closing
Date giving effect to the consummation of the transactions contemplated
hereby): (A) the basis of the Company or Subsidiary in its assets; (B) the
basis of the stockholder(s) of the Subsidiaries in the stock of the
Subsidiaries (or the amount of any Excess Loss Account); (C) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company or its
Subsidiaries; and (D) the amount of any deferred gain or loss allocable to the
Company or its Subsidiaries arising out of any Deferred Intercompany
Transaction.
(g) The unpaid Taxes of the Company and its Subsidiaries (A) did
not, as of the most recent fiscal month end, exceed a reserve for Tax Liability
to be reflected on the Pro Forma Closing Date Balance Sheet (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company and its Subsidiaries in filing
their Tax Returns.
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<PAGE> 15
(h) Seller's Affiliated Group has filed all income Tax Returns
that it was required to file for each taxable period during which any of the
Company and its Subsidiaries was a member of the group. All such Tax Returns
were correct and complete in all material respects. All material income Taxes
owed by Seller's Affiliated Group (whether or not shown on any Tax Return) have
been paid or reserves have been established for each taxable period during
which any of the Company and its Subsidiaries was a member of the group.
(i) There is no dispute or claim concerning any material income
Tax Liability of Seller's Affiliated Group for any taxable period during which
any of the Company and its Subsidiaries was a member of the group either (A)
claimed or raised by any Governmental Authority in writing or (B) as to which
any of the Seller and the directors and officers (and employees responsible for
Tax matters) of any of Seller and its Subsidiaries has knowledge based upon
personal contact with any agent of such Governmental Authority.
(j) None of the Company and its Subsidiaries has any liability for
the Taxes of any Person other than the Company and its Subsidiaries (A) under
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), (B) as a transferee or successor, (C) by contract, or (D) otherwise.
(k) As of the Closing Date, the Company will not be a party to,
will not be bound by, and will have no obligation under, any tax sharing
agreement or contract.
(l) The Company is subject to income tax only with respect to the
United States and the States of California, Pennsylvania, and Michigan.
SECTION 3.10. ACCOUNTS RECEIVABLE. The amounts shown as accounts
receivable, net of reserves, on the balance sheets of the Company dated July
26, 1997 and August 30, 1997, in the amounts of $296,478 and $291,014,
respectively, and those arising after August 30, 1997 represent good and
collectible receivables at the amounts shown. Such accounts receivable have
arisen only in the ordinary course of business, reflect valid transactions and
are subject to no counterclaims or offsets. Included in Schedule 3.10 is an
aged schedule of the accounts receivable, net of reserves, reflected on the
July 26, 1997 and August 30, 1997 balance sheets of the Company.
SECTION 3.11. EQUIPMENT. The equipment listed on Schedule 3.16(b)
consists of items of a quality and quantity usable by the Company in the
ordinary course of business. The Company has no inventory except as disclosed
in Schedule 3.16(b).
SECTION 3.12. ABSENCE OF CERTAIN CHANGES. Except as and to the
extent set forth in Schedule 3.12, since July 26, 1997 there has not been:
(a) NO MATERIAL ADVERSE CHANGE. Any material adverse
change in the working capital, financial condition, properties, assets,
liabilities, business or results of operations of the Company or any
Subsidiary;
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<PAGE> 16
(b) NO DAMAGE. Any material loss, damage or destruction,
whether or not covered by insurance, adversely affecting the business or
properties of the Company;
(c) NO INCREASE IN COMPENSATION. Except as pursuant to
current compensation arrangements or programs and the terms of any Employee
Benefit Plans, any increase in the compensation, salaries or wages payable or
to become payable to any employee, officer, director, independent contractor or
agent of the Company or any Subsidiary (including, without limitation, any
increase or change pursuant to any Employee Benefit Plan), or any bonus or
other employee benefit or other forms of direct or indirect compensation
granted, made or accrued;
(d) NO LABOR DISPUTES. Any labor dispute or disturbance,
other than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company or any
Subsidiary;
(e) NO COMMITMENTS. Any contractual commitment or any
other transaction by the Company or any Subsidiary (including, without
limitation, any borrowing or capital expenditure), except in the ordinary
course of the Company's business consistent with past practice;
(f) NO CAPITAL EXPENDITURES. Any capital expenditure by
(i) the Company exceeding $10,000 or (ii) any Subsidiary;
(g) NO TRANSFER OF INTELLECTUAL PROPERTY. Any transfer
or grant of any material rights under or to, or entry into any settlement
regarding breach, infringement or unauthorized use of, the Intellectual
Property, or modification of any existing rights with respect thereto;
(h) NO AFFILIATE TRANSACTION. Except as specifically
contemplated by this Agreement, any transaction with any Affiliate of the
Company;
(i) NO DIVIDENDS, STOCK TRANSACTIONS. Any declaration,
setting aside, or payment of any dividend or other distribution in respect of
the capital stock of the Company or any Subsidiary; any redemption, purchase or
other acquisition by the Company or any Subsidiary of any capital stock of the
Company or any Subsidiary, or any security relating thereto; or any other
distribution of assets of the Company or any Subsidiary to its stockholders,
except by way of compensation to employees within the limitations set forth in
subsection (c) above;
(j) NO DISPOSITION OF PROPERTY. Any sale, lease or other
transfer or disposition of any properties or assets of the Company or any
Subsidiary, except in the ordinary course of business;
(k) NO ISSUANCE OF STOCK. Any issuance of equity
securities of the Company or any Subsidiary or grant of any options, warrants,
rights or convertible securities with respect to the same;
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<PAGE> 17
(l) NO INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company or any Subsidiary, except for
intercompany advances from Seller in the ordinary course of business consistent
with past practices;
(m) NO LIENS. Any mortgage, pledge, lien or encumbrance
imposed or agreed to be imposed on any of the properties or assets of the
Company or any Subsidiary, other than Permitted Liens;
(n) NO AMENDMENT OF CONTRACTS. Any material amendment,
modification, waiver, release, rescission or termination of any contract to
which the Company or any Subsidiary is a party;
(o) NO CANCELLATION OF INDEBTEDNESS. Any cancellation or
waiver of any claims or debts in excess of $5,000, except with respect to the
contribution of the Debenture to the capital of the Company;
(p) NO ACCOUNTING CHANGES. Any material change in the
accounting methods followed by the Company; and
(q) NO AGREEMENT. Any agreement by the Company or any
Subsidiary to do any of the things described in this Section 3.12.
SECTION 3.13. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
reflected in the Interim Statement or as specifically disclosed in Schedule
3.13 and except for current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, since the date of
the Interim Statement, neither the Company nor any Subsidiary has a material
obligation or liability, whether absolute, accrued, contingent or otherwise.
There are no facts in existence which might reasonably serve as the basis for
any liability or obligation of the Company or any Subsidiary which is not fully
disclosed in this Agreement and the Schedules thereto. Except as described in
Schedule 3.13, the Company and each Subsidiary is and as of the Closing Date
will be current in all payment obligations to which it is subject, except as
otherwise agreed by Buyer.
SECTION 3.14. NO LITIGATION. Except as set forth in Schedule 3.14,
there is no action, suit, arbitration proceeding, investigation or inquiry
pending or, to the Company's knowledge, threatened against the Company or any
Subsidiary. Except as set forth in Schedule 3.14, neither the Company nor its
Subsidiaries, nor their respective business or assets are subject to any
outstanding judgment, order, writ or injunction of any court or Governmental
Authority. Except as set forth in Schedule 3.14, neither the Company nor any
Subsidiary is engaged in any legal action to recover money due or damages
sustained by it other than normal collection actions relating to accounts
receivable.
SECTION 3.15. COMPLIANCE WITH LAWS.
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(a) COMPLIANCE. Except as disclosed in Schedule 3.15(a),
the Company and each Subsidiary is in compliance with all Laws applicable to
the Business, except for such noncompliance which does not, individually or in
the aggregate, have a material adverse effect on the Company or the Business.
All material reports and returns required by law to be filed by the Company or
any Subsidiary with any Governmental Authority on or before the date hereof
have been filed. Neither the Company nor any Subsidiary has ever received any
notice from any Governmental Authority claiming violation of any Laws. The
Company and each Subsidiary has complied with all applicable state and federal
securities Laws in connection with the sale or resale of all equity interests
in the Company or any Subsidiary. Seller does not know of any reason why the
Company will not or may not be able to continue the Business, as presently
conducted, after the Closing. Seller confirms that none of the Subsidiaries is
conducting any active trade or business.
(b) LICENSES AND PERMITS. Except as set forth in
Schedule 3.15(b), the Company has all material governmental licenses and
permits required for the conduct of the Business as currently conducted. All
such licenses and permits are described in Schedule 3.15(b) and are in full
force and effect. Except as set forth in Schedule 3.15(b), the Company is in
compliance in all material respects with all such permits and licenses.
(c) ENVIRONMENTAL LAWS. Except as set forth in Schedule
3.15(c), the Company and each Subsidiary has obtained all material permits,
licenses and other authorizations which are required with respect to the
operation of its business under applicable Environmental Laws (collectively,
"Environmental Permits"). All such permits, licenses and other authorizations
are described in Schedule 3.15(c) and are in full force and effect.
(d) COMPLIANCE WITH ENVIRONMENTAL PERMITS. Except as set
forth in Schedule 3.15(d), the Company and each Subsidiary is in compliance in
all material respects with its Environmental Permits.
(e) NO ENVIRONMENTAL CLAIMS. Except as set forth in
Schedule 3.15(e), there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending against the Company or any Subsidiary relating in any
way to any liability under CERCLA or any equivalent state law or any actual or
alleged violation by the Company or any Subsidiary under any Environmental Law
or to any regulation, code, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder (an
"Environmental Claim").
(f) MATTERS OF ENVIRONMENTAL CONCERN. Except as set
forth in Schedule 3.15(f), there are no past or present events, conditions,
circumstances, activities, practices, incidents or actions which could form the
basis of an Environmental Claim against the Company or any Subsidiary. Neither
the Company nor any Subsidiary has owned, operated or leased a hazardous waste
management or transfer facility, or a "treatment, storage or disposal" facility
as defined under the Resource Conservation and Recovery Act of 1976, as
amended.
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<PAGE> 19
(g) NO CONDEMNATION OR EXPROPRIATION. Neither the whole
nor any portion of any property or assets of the Company is subject to any
governmental decree or order directing or authorizing the sale, condemnation,
expropriation or other taking of such property or assets by any Governmental
Authority, with or without payment of compensation therefor, nor, to the
knowledge of the Company, is any such governmental action threatened.
(h) RELEASE; STORAGE TANKS. There have not been any
Releases or threatened Releases of any Hazardous Materials at or from the Real
Property at any time during which such property was occupied by the Company or,
to the Company's knowledge, at any time prior thereto that (i) is in violation
of applicable Environmental Laws, or (ii) could reasonably be expected to give
rise to an action to compel an investigation and/or cleanup or to pay material
civil administrative fines, penalties or other damages. There are no
underground storage tanks on the Real Property or any other premises leased by
the Company.
(i) ZONING. The zoning of the Real Property permits the
presently existing improvements and the continuation of the Business presently
being conducted on such parcel.
SECTION 3.16. TITLE TO AND CONDITION OF PROPERTIES.
(a) REAL PROPERTY. Neither the Company nor any
Subsidiary owns any real property. The Company has delivered to Buyer a true
and correct copy of the Lease. The Lease is valid and in full force, and there
does not exist any default or event that with notice or lapse of time, or both,
would constitute a default by the Company under the Lease. The Company has not
assigned, subleased or conveyed any interest in the Lease or the premises
covered thereby to any third party. All the buildings, fixtures and leasehold
improvements used by the Company in the Business are located on the Real
Property. The improvements on the Real Property are not in violation of any
applicable Laws or similar regulatory requirements or zoning requirements, the
violation of which would in any material way impair the use of any such
improvement in the manner used by the Company. No claim of adverse possession
is pending or, to the Company's knowledge, threatened against any portion of
the Real Property. The rights and privileges of the Company under the Lease
are sufficient to permit the Company to conduct the Business as currently
conducted.
(b) PERSONAL PROPERTY. The Company has good and
marketable title to or holds valid leasehold interests in all equipment,
machinery, furniture, fixtures and other tangible personal property listed on
Schedule 3.16, and such property constitutes all of the personal property
currently in existence which is being used in connection with the Business.
Except as set forth in Schedule 3.16, all of such personal property is located
at the Real Property. Except as set forth in Schedule 3.16, none of such
personal property is subject to any lien, encumbrance or security interest or
to any contract of sale, except inventory to be disposed of in the ordinary
course of business consistent with past practice. The equipment, machinery,
furniture and fixtures used or necessary in the operation of the business of
the Company (i) are not subject to any commitment or arrangement for their use
by any Person other than the Company, (ii) are in good operating condition and
repair, reasonable wear and tear excepted, and (iii) are usable for the
purposes for which they are intended. The Company holds valid and binding
lease
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<PAGE> 20
agreements for all personal property which is used in and material to the
business of the Company and which is not owned by the Company.
SECTION 3.17. CONTRACTS AND COMMITMENTS.
(a) REAL PROPERTY LEASES. Except for the Lease which is
described in Schedule 3.17(a), the Company is not a party to any lease of real
property, whether as lessor or lessee.
(b) OTHER MATERIAL CONTRACTS. Schedule 3.17(b) contains
a complete list of all leases of personal property and all contracts or
commitments of any nature, in each case (i) to which the Company is a party and
(ii) which involve consideration or other expenditures in excess of $5,000 or
performance over a period of more than 30 days.
(c) PURCHASE COMMITMENTS. Except as set forth on
Schedule 3.17(c), the Company has no purchase commitments for inventory items
or supplies in excess of three months normal usage or which involve
consideration in excess of $10,000.
(d) PERFORMANCE COMMITMENTS. The Company has no forward
obligations under consulting or other service agreements or contracts with
independent agents except those made at arms' length in the ordinary course of
business and, except those in excess of $5,000 to any one customer which are
identified in Schedule 3.17(d).
(e) POWERS OF ATTORNEY. Except as disclosed in Schedule
3.17(e), neither the Company nor any Subsidiary has given a power of attorney,
which is currently in effect, to any Person for any purpose whatsoever.
(f) CONTRACTS WITH AFFILIATES. Except as disclosed in
Schedule 3.17(f), neither the Company nor any Subsidiary has any agreement,
understanding, contract or commitment (written or oral) with any Affiliate that
is not cancelable by the Company or such Subsidiary on notice of not longer
than thirty (30) days, without liability, penalty or premium of any nature or
kind.
(g) CONTRACTS WITH EMPLOYEES. Except as set forth in
Schedule 3.17(g), neither the Company nor any Subsidiary has any collective
bargaining or employment agreements, non-disclosure or non-competition
agreements or any agreements that contain any severance or termination pay,
liabilities or obligations, or any bonus, vacation, deferred compensation,
stock purchase, stock option, profit sharing, pension, retirement or other
Employee Benefit Plans.
(h) CONTRACTS SUBJECT TO RENEGOTIATION. Neither the
Company nor any Subsidiary is a party to any contract with any Governmental
Authority which is subject to renegotiation.
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(i) LOAN AGREEMENTS AND GUARANTEES. Except as set forth
in Schedule 3.17(i), neither the Company nor any Subsidiary is obligated under
any loan agreement, promissory note or other evidence of indebtedness as a
signatory, guarantor or otherwise and has not otherwise guaranteed the
performance by any person or entity of the obligations of such person or entity
under any contract or other agreement.
(j) JOINT VENTURES. Neither the Company nor any
Subsidiary is a party to any joint venture contract, partnership arrangement,
or other agreement involving a sharing of profits, losses, costs or liabilities
by the Company or any Subsidiary with any other party.
(k) RESTRICTIVE COVENANTS. Neither the Company nor any
Subsidiary is a party to any agreement or commitment containing covenants which
in any way purport to restrict the Company's business activity or purport to
limit the freedom of the Company to engage in any line of business or to
compete with any person.
(l) BURDENSOME AGREEMENTS. Neither the Company nor any
Subsidiary is a party to, and is bound by, any agreement, deed, lease or other
instrument not otherwise listed in Schedules 3.17(a) through 3.17(k), which is
so burdensome as to have a material adverse effect on the Company or the
Business.
(m) NO DEFAULT. Neither the Company nor any Subsidiary
is in default under the Lease, any other material lease, contract or
commitment, nor has any event occurred, which through the passage of time or
the giving of notice, or both, would constitute a default by the Company or
such Subsidiary thereunder, or cause the acceleration of any of the Company's
or such Subsidiary's obligations thereunder, or result in the creation of any
material lien, encumbrance or restriction on any of the assets of the Company
or such Subsidiary. To the knowledge of Seller, no third party is in default
under any material lease, contract or commitment to which the Company or any
Subsidiary is a party, nor has any event occurred which, through the passage of
time or the giving of notice, or both, would constitute a default thereunder.
SECTION 3.18. LABOR MATTERS. Except as disclosed in Schedule 3.18,
since January 7, 1994, the Company has not experienced any labor disputes,
union organization attempts or any work stoppage due to labor disagreements in
connection with its business. Except to the extent set forth in Schedule 3.18:
(a) there is no unfair labor practice charge or complaint against the Company
or any Subsidiary pending before the National Labor Relations Board or any
Governmental Authority; (b) there is no labor strike, dispute, written request
for representation, slowdown or stoppage currently pending or threatened
against the Company or any Subsidiary (including without limitation any
organizational drive); (c) no written inquiry concerning representation of
Company or any Subsidiary employees has been received by the Company or any
Subsidiary and Seller has no knowledge of any questions having been raised with
respect thereto; (d) no labor grievance which, if determined adversely to the
Company or a subsidiary could have a material adverse effect on the Company,
nor any arbitration proceeding arising out of or under any collective
bargaining agreement to which the Company or a subsidiary is a party,
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<PAGE> 22
is pending and Seller has no knowledge of any basis therefor; and (e) there are
no administrative charges or court complaints against the Company or a
subsidiary concerning alleged employment discrimination or other
employment-related matters pending or threatened before the U.S. Equal
Employment Opportunity Commission or any state or federal court or agency.
SECTION 3.19. EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.19(a) sets forth a true and complete list of all
written and oral Employee Benefit Plans and other programs, commitments or
funding arrangements maintained by the Company or any Subsidiary to which the
Company or any Subsidiary is a party, or under which the Company or any
subsidiary has any obligations, present or future (other than obligations to
pay current wages, salaries or sales commissions terminable on notice of 30
days or less) in respect of, or which otherwise cover or benefit, any Subject
Employees or their beneficiaries. Seller has delivered or made available to
Buyer true and complete copies of all documents, as they may have been amended
to the date hereof, embodying the terms of the Employee Benefit Plans,
including the following:
(i) The text (including amendments) of each of the
Employee Benefit Plans and related trust, insurance or annuity agreements
maintained in connection therewith, to the extent reduced to writing;
(ii) A description of all material elements of each of the
Employee Benefit Plans, to the extent not previously reduced to writing;
(iii) All agreements between the Company or any Subsidiary
and a trustee or administrative service provider pertaining to the Employee
Benefit Plans of the Company or any subsidiary.
(iv) With respect to each Employee Benefit Plan that is an
employee benefit plan (as defined in Section 3(3) of ERISA), the following:
(A) The most recent summary plan description, as
described in Section 102 of ERISA;
(B) Any summary of material modifications that
has been distributed to participants or filed with the U.S. Department of Labor
but that has not been incorporated in an updated summary plan description
furnished under subparagraph (A) above; and
(C) The annual reports, as described in Section
103 of ERISA, for the most recent plan year for which an annual report has
been prepared (including all schedules and attachments);
(iv) Any handbook, manual, policy statement or similar
written guidelines furnished to employees of Seller, excluding any such item
that has been superseded by any subsequent handbook, manual, policy statement
or similar written guidelines; and
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<PAGE> 23
(v) All determination letters issued by the IRS and any
outstanding request for a determination letter (including all correspondence
with respect thereto).
(b) Except for the Employee Benefit Plans identified in Schedule
3.19(a), there are no other Employee Benefit Plans maintained by the Company or
any Subsidiary. Except as disclosed on Schedule 3.19(b), no Employee Benefit
Plan to which Seller or any member of the Controlled Group has maintained or
contributed to is subject to Title IV of ERISA or Section 412 of the Code.
(c) The Company does not maintain nor has maintained a plan which
meets the safe harbor requirements of Section 414(n)(5) of the Code and the
Company has not made any representations (including oral representations) with
respect to the existence of such a plan to any customers, clients, employees or
any other person. The Company does not maintain nor has maintained any
"voluntary employees' beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(d) Except as set forth in Schedule 3.19(a)-(b), each Employee
Benefit Plan described therein is in full force and effect in accordance with
its terms and there are no material actions, suits or claims pending (other
than routine claims for benefits), or, to Seller's knowledge, threatened,
against any Employee Benefit Plan or any fiduciary thereof for which the
Company or any Subsidiary may have any liability. The Company and the
administrators and fiduciaries of each Employee Benefit Plan have performed all
material obligations required to be performed by it under, and is not in
default under or in violation of, any Employee Benefit Plan in any material
respect, and the Company is in compliance in all material respects with the
requirements prescribed by Laws applicable to the Employee Benefit Plans,
including, without limitation, ERISA and the Code for which the Company or any
Subsidiary may have any liability. Each Employee Benefit Plan has at all times
been properly administered in accordance with all such requirements of law and
in accordance with its terms to the extent consistent with all such Laws for
which the Company or any Subsidiary may have any liability.
(e) Neither the Company nor any other "party-in-interest", as
defined in Section 3(14) of ERISA, has engaged in any "prohibited transaction,"
as defined in Section 406 of ERISA, which could subject any Employee Benefit
Plan, the Company or Buyer or any officer, director, partner or employee of the
Company or Buyer or any fiduciary of any Employee Benefit Plan to a material
penalty or excise tax imposed under Section 502(i) of ERISA or Section 4975 of
the Code.
(f) Except as set forth in Schedule 3.19(a) or (b), neither the
Company nor any member of the Controlled Group is a party to any agreement to
provide nor does it have an obligation to provide (except pursuant to Section
162(k) of the Code with respect to tax years beginning before January 1, 1989
and Section 4980B of the Code thereafter) any individual, or such individual's
spouse or dependent, with any benefit following his or her retirement or
termination of employment, nor his or her spouse, any dependent or any
beneficiary subsequent to his or her death, with retirement, medical or life
insurance or any benefit under any employee
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<PAGE> 24
pension benefit plan and any employee welfare benefit plan. The Company and
each Subsidiary and each member of the Controlled Group has complied with all
their obligations under Section 162(k) and Section 4980B of the Code and Part 6
of Title I of ERISA.
(g) Other than any such event that occurs due to the transactions
contemplated by this Agreement, no "reportable event" (as defined in ERISA)
has occurred with respect to any Employee Benefit Plan. No liability to the
PBGC has been incurred, or is expected by Seller to be incurred, by the Company
or any Subsidiary with respect to any Employee Benefit Plan. There has been no
event or condition which presents a risk of termination of any Employee Benefit
Plan by the PBGC. No Employee Benefit Plan of the Company or any member of the
same Controlled Group as the Company is a multiemployer plan, as defined in
ERISA, or a multiple employer plan. With respect to any such multiemployer
plan or multiple employer plan, there has been no withdrawal of a "substantial
employer," as defined by ERISA, and Seller does not expect such a withdrawal to
occur.
(h) No Employee Benefit Plan, administrator or fiduciary of any
Employee Benefit Plan or the Company or any Subsidiary has taken any action, or
failed to take any action, that could subject it or any other person to any
liability for any excise tax or for breach of fiduciary duty with respect to
or in connection with any Employee Benefit Plan.
(i) No Employee Benefit Plan, administrator or fiduciary of any
Employee Plan or the Company or any Subsidiary has any liability under any
provision of ERISA or any other applicable law by reason of any communication
or failure to communicate with respect to or in connection with any Employee
Benefit Plan, or any filing or failure to file with any Governmental Authority.
(j) No Employee Benefit Plan, administrator or fiduciary of any
Employee Benefit Plan or the Company or any Subsidiary has any liability to any
plan participant, beneficiary or other person or entity under any provision of
ERISA or any other applicable law by reason of any payment of benefits or
other amounts or failure to pay benefits with respect to or in connection with
any Employee Benefit Plan, except in accordance with the terms of such Employee
Benefit Plan. The Company or any Subsidiary and each member of the Controlled
Group is not delinquent or in arrears on other amounts owed to or with respect
to any contributions under any Employee Benefit Plan.
(k) The Company and each member of the Controlled Group does not
maintain any "pension plan" as defined in Section 3(2) of ERISA which does not
have assets sufficient to pay all accrued benefit obligations and all benefit
obligations on termination of the plan, and have satisfied all funding
obligations under ERISA and the Code with respect to any such pension plan.
After the Closing Date the Seller and each member of the Controlled Group shall
satisfy all funding obligations under ERISA and the Code to the extent that any
such pension plan is maintained by the Seller and each member of the Controlled
Group after the Closing Date for which the Company or any Subsidiary may have
liability.
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<PAGE> 25
(l) Each funded Employee Benefit Plan that is a "pension plan" as
defined in Section 3(2) of ERISA that is intended to be a qualified plan is
qualified under Section 401(a) of the Code and the trust maintained in
connection with such Employee Benefit Plan has received a determination letter
from the Internal Revenue Service that its trust is exempt from tax under
Section 501(a) of the Code. No event has occurred that will or could give rise
to disqualification or loss of tax-exempt status of any such Employee Benefit
Plan or trust under Code Sections 401(a) or 501(a). No event has occurred that
could subject any such Employee Benefit Plan to tax under Section 511 of the
Code.
(m) Each Employee Benefit Plan as identified on Schedule 3.19(a)
is maintained by the Company under a plan document which does not provide for
other participating employers unless otherwise authorized by the Company. No
Employee Benefit Plan as identified on Schedule 3.19(a) provides credit with
respect to service other than with the Company, and neither of the Company nor
any such Employee Benefit Plan has liability or responsibility with respect to
any such credit. This Section 3.19(n) does not apply to any plan which is a
multiemployer plan (as defined in ERISA) as set forth in Schedule 3.19(a) or
(b).
(n) Seller shall notify Buyer of any amendment to any Employee
Benefit Plan of the Company as identified on Schedule 3.19(a) specifically
requested of the Seller by any Governmental Authority after the Closing Date
and, to the extent that any amendment of any Employee Benefit Plan of the
Controlled Group would materially affect Buyer's obligations with respect to
any Employee Benefit Plan of the Seller and each member of the Controlled Group
for which the Company or any Subsidiary may have any liability Seller shall
give Buyer an opportunity to participate, at Buyer's expense, in any
discussions or negotiations concerning such amendment, and neither party will
take any action with respect to such amendment without the approval of the
other.
(o) The Company and each member of the Controlled Group shall pay
in full, prior to the Closing Date, all contributions and other amounts due
under each Employee Benefit Plan as identified on Schedule 3.19(a) for any
period ending on or before the Closing Date. No Employee Benefit Plan or other
person has sought, or will seek prior to the Closing Date, a waiver of any
funding requirements with respect to any such Employee Benefit Plan.
(p) Seller represents and warrants that no liability to any
employee, beneficiary or other person or entity has been incurred prior to and
including the Closing Date in connection with any Employee Benefit Plan of the
Company or any Subsidiary as identified on Schedule 3.19(a) and any group
health plan of the Company and any member of the Controlled Group under Code
Sections 162(k) and 4980B, by reason of any action or inaction by the Company
or any member of the Controlled Group, or any plan administrator or fiduciary,
or any other Person, other than liabilities undertaken by them under the terms
of the Employee Benefit Plan. Seller agrees that no liability to any employee,
beneficiary or other person or entity shall be incurred following the Closing
Date in connection with any Employee Benefit Plan as identified on Schedule
3.19(a) by reason of any action or inaction by the Company or any member of the
Controlled Group, or any plan administrator or fiduciary, or any other Person,
other than liabilities undertaken by them under the terms of the Employee
Benefit Plan. The Seller
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<PAGE> 26
represents and warrants that there has been no material breach of and no act or
omission has occurred on or before the Closing Date that gives rise to an
indemnification obligation under any agreement with any trustee, insurer, or
administrative service provider with respect to any plan identified on Schedule
3.19(a).
(q) All Subject Employees and their beneficiaries and dependents,
and all other participants and beneficiaries of any Employee Benefit Plan
listed on Schedule 3.19(a), and all available data and benefits applicable to
each of them under the terms of each Employee Benefit Plan (including, without
limitation, complete pertinent pay history and all administrative records),
shall be correctly identified and set forth in records delivered, at the
election of Buyer, on or prior to the Closing Date by Seller to Buyer. Any
such records not delivered by the Closing Date and requested by Buyer shall be
delivered as promptly as practicable thereafter. Seller shall provide Buyer
with all administrative forms, employee booklets, summary plan descriptions and
other employee communication materials used in connection with each Employee
Benefit Plan, to the extent requested by Buyer.
(r) Except as described on Schedule 3.19(a), each of the Employee
Benefit Plans on Schedule 3.19(a) can be terminated by Seller or Company
without any additional contribution to such Employee Benefit Plan or the
payment of any additional compensation or amount or the additional vesting or
acceleration of any benefits.
SECTION 3.20. EMPLOYEE COMPENSATION. Schedule 3.20 contains a true
and complete list of the employees of the Company as of September 4, 1997,
together with, to the extent applicable, (i) the current hourly rate of
compensation for hourly employees, (ii) the current rate of compensation for
salaried employees, (iii) the current titles of each such employee; and (iv)
any changes in compensation since January 1, 1997. No other Person, other than
accountants, attorneys, franchisees, independent contractors and distributors,
regularly performs compensable services relating to the Business. Seller has
delivered to Buyer true and correct copies of the Company's current written
employee policies and practices (including without limitation any employee
handbook).
SECTION 3.21. INTELLECTUAL PROPERTY. Schedule 3.21 lists all
patents, patent applications, trade names, trademarks, trademark registrations
and applications, service marks, copyrights, and copyright registrations and
applications, domestic or foreign (collectively, "Intellectual Property")
owned, possessed, used or held (under license or otherwise) by the Company or
any Subsidiary, in each case free and clear of all liens and encumbrances.
Neither the Company nor any Subsidiary has granted any license, made any
assignment, or entered into any agreement with respect to, or otherwise
consented in writing to the use by any other person of, any Intellectual
Property right listed on Schedule 3.21, nor does the Company or any Subsidiary
pay any royalties or other consideration for the right to use any Intellectual
Property of others. There are no inquiries, investigations, claims or
litigation challenging or threatening to challenge the Company's right, title
and interest in and to its Intellectual Property or its continued use and right
to preclude others from using any of such Intellectual Property. There are no
inquiries, investigations, claims or litigation alleging, nor any judgments
holding, that the activities of the
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Company or any Subsidiary constitute an infringement of any intellectual
property right of a third party.
SECTION 3.22. MAJOR CUSTOMERS. (a) Schedule 3.22 contains a list of
the ten (10) largest customers of the Company for each of the two most recent
fiscal years (determined on the basis of the total dollar amount of net sales
or services), showing the total dollar amount of net sales or services to each
such customer during each such year.
(b) NO ADVERSE DEVELOPMENTS. Seller has not received any written or
oral notice from any customer of the Company listed in Schedule 3.22 stating
that such customer of the Company will not continue to be a customer of the
business of the Company after the Closing Date.
SECTION 3.23. SERVICE INTEGRITY. Schedule 3.23 contains a list and
description of all claims made against, and all liabilities incurred by, the
Company since January 7, 1994 in excess of $5,000 per claim or liability for
damage or injury to person or property arising out of or resulting from the
Company's performance of services.
SECTION 3.24. RELATED PERSON INDEBTEDNESS, CONTRACTS, ETC. (a) All
contracts, agreements and other arrangements between the Company or any
Subsidiary and Seller, or any Affiliate of the Company or Seller are described
on Schedule 3.24(a).
(b) Except as set forth in Schedule 3.24(b), neither the
Seller nor any Affiliate of the Seller has any direct or indirect interest
(except through the ownership of securities listed on a national securities
exchange) in (i) any Person which does business, or is in competition, with the
Company, or (ii) any property, asset or right which is used by the Company in
the conduct of its business.
(c) Schedule 3.24(c) contains a list of (i) all
obligations to the Company of Seller or any Affiliate, and (ii) all obligations
of the Company or any Subsidiary to Seller or any Affiliate.
SECTION 3.25. BROKERS OR FINDERS. Neither Seller, the Company, any
Subsidiary nor any person acting on their behalf has employed any broker or
finder or consultant, or has incurred any obligation or liability for any
brokerage fees, commissions, finders' fees or consultants' fees in connection
with the transactions contemplated by this Agreement, and no Person has or will
have any right, interest or valid claim against or upon Buyer, the Company or
any Subsidiary for any such fee or commission.
SECTION 3.26. INSURANCE. (a) Schedule 3.26 contains an accurate and
complete description of all policies of property, fire and casualty, general
liability, auto, workers' compensation, and other forms of insurance owned or
held by the Company or any Subsidiary. Copies of such policies have been
provided to Buyer.
(b) All policies described in Schedule 3.26 (i) are
sufficient for compliance in all material respects with all requirements of law
and of all applicable agreements to which the
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Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound, (ii) are valid, outstanding and enforceable policies, (iii) provide
adequate insurance coverage for the assets and the operations of the Company or
any Subsidiary for all material risks normally insured against by a person or
entity carrying on the same business or businesses as the Company, and (iv),
except as set forth in Schedule 3.26, will not in any way be affected by,
terminate, or lapse by reason of, the transactions contemplated by this
Agreement. The Company or any Subsidiary is not in default with respect to any
provision contained in any of the policies described in Schedule 3.26 and has
not failed to give any notice or present any claim under any of such insurance
policies in a due and timely fashion.
(c) Neither Seller nor the Company has received, (i) any
notice of cancellation of any policy described in Schedule 3.26 or refusal of
coverage thereunder, (ii) any notice from any insurance carrier denying or
disputing any claim made by the Company or any Subsidiary, the coverage for any
claim or the amount of any claim, (iii) any notice that any issuer of such
policy has filed for protection under applicable bankruptcy laws or is
otherwise in the process of liquidating or has been liquidated, or (iv) any
other indication (oral or written) that such policies are no longer in full
force or effect or that the issuer of any such policy is no longer willing or
able to perform its obligations thereunder.
SECTION 3.27. CERTAIN PAYMENTS. Neither the Company nor any
Subsidiary, nor any director, officer, agent or employee of the Company or any
Subsidiary has and no other Person associated with or acting for or on behalf
of the Company or any Subsidiary has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff influence payment, kickback or other
payment to any Person, private or public, regardless of form whether in money,
property or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured or (iii) to obtain
special concessions or for special concessions already obtained for or in
respect of the Company or any Affiliate of the Company or (b) established or
maintained any fund or asset which has not been recorded in the books of the
Company.
SECTION 3.28. CORPORATE RECORDS. The minute books, stock certificate
books and stock transfer ledgers of the Company and each Subsidiary are in
Seller's possession, are complete and accurate in all material respects and
reflect all those transactions and corporate acts which properly should have
been set forth therein, including but not limited to records of all formal
meetings of, and corporate action taken by, the stockholders and directors of
the Company and each Subsidiary. No meetings of such stockholders and
directors have been held for which minutes have not been prepared and are not
contained in such minute books.
SECTION 3.29. BANK ACCOUNTS. Schedule 3.29 contains an accurate and
complete list showing the name and address of each financial institution or
broker/dealer in which the Company or any Subsidiary has an account or safe
deposit box, the number of any such account or safe deposit box and the names
of all Persons authorized to draw thereon or have access thereto.
SECTION 3.30. SWAPS. The Company is not a party to, nor will it be a
party to, any swap agreement whereby the Company has agreed or will agree to
swap interest rates or currencies
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unless same provides that damages upon termination following an event of
default thereunder are payable on an unlimited "two-way basis" without regard
to fault on the part of either party.
SECTION 3.31. APPLICATION OF CERTAIN LAWS AND REGULATIONS. The
Company is not subject to any statute, rule or regulation which regulates the
incurrence of any indebtedness, including without limitation, statutes or
regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.
SECTION 3.32. FRANCHISE MATTERS. Schedule 3.32 contains (i) a list
of all franchisees of the Company, including name and address of each, and (ii)
all states in which the Company is registered as a franchisor. The Company is
not currently offering to sell any franchises to third parties. The Company
has timely made all filings and registrations required under applicable Laws in
connection with such franchisees and any prior offerings of franchises.
SECTION 3.33. DISCLOSURE. No representation or warranty of Seller of
the Company contained in this Agreement or fact disclosed in the Schedules
hereto contains any untrue statement or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 4.1. ORGANIZATION. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Jersey.
SECTION 4.2. CORPORATE POWER AND AUTHORITY. Buyer has all requisite
corporate power and authority and has taken all corporate action necessary to
execute and deliver this Agreement and the other Closing Documents to be
executed and delivered by Buyer and to consummate the transactions contemplated
hereby and thereby. This Agreement constitutes and, when executed and
delivered, the other Closing Documents will constitute, valid, legal and
binding agreements of Buyer, enforceable against Buyer in accordance with their
respective terms, except as such may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally,
and by general equitable principles affecting the availability of equitable
relief.
SECTION 4.3. GOVERNMENTAL FILINGS. No notices, reports or other
filings are required to be made by Buyer with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Buyer from, any Governmental Authorities of the United States, the several
states or any foreign jurisdictions or any other Person in connection with the
execution and delivery of this Agreement by Buyer and the consummation by Buyer
of the transactions contemplated hereby.
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SECTION 4.4. NO VIOLATIONS. Neither the execution and delivery of
this Agreement or the other Closing Documents by Buyer, nor the consummation by
Buyer of the transactions contemplated hereby and thereby will constitute or
result in (i) a breach or violation of, or a default under, the Certificate of
Incorporation or By-Laws of Buyer, or (ii) a breach or violation of, a default
under, the acceleration of, or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice
or the lapse of time, or both) material to the business, assets or financial
condition of Buyer pursuant to (A) any provision of any material agreement,
lease, contract, note, mortgage, indenture, license, arrangement, instrument or
obligation of Buyer or (B) any law, ordinance, rule, statute or regulation or
judgment, decree, order, award or governmental or non-governmental permit or
license to which Buyer is subject, or (iii) the conferring on any person of the
right to terminate or modify any material agreement, lease, contract, note,
mortgage, indenture, license, arrangement, instrument or other obligation, of
Buyer.
SECTION 4.5. COMPLIANCE WITH LAW. The business of Buyer is not being
conducted in violation of any material law, code, ordinance, rule or regulation
of any Governmental Authority.
SECTION 4.6. BROKERS AND FINDERS. Except as set forth in Schedule
4.6, neither Buyer nor any person acting on its behalf has employed any broker,
finder or consultant, or incurred any obligation or liability for any brokerage
fees, commissions, or finders' fees or consultants' fees in connection with the
transactions contemplated by this Agreement, and in any event no Person has or
will have any right, interest or valid claim against or upon Seller or the
Company for any such fee or commission.
SECTION 4.7. INVESTMENT INTENT. Buyer represents, warrants and
acknowledges that:
(i) The Company Shares have been offered and will
be sold to Buyer pursuant to an exemption from registration under the
Securities Act and all applicable state securities Laws;
(ii) The Company Shares have not been registered
under the Securities Act or any such state securities Laws;
(iii) Buyer is purchasing the Company Shares for
investment purposes and has no present intent to distribute, resell, pledge or
otherwise dispose of any of the Company Shares.
ARTICLE V
COVENANTS OF SELLER
Seller and the Company covenant and agree to comply with the
following:
SECTION 5.1. ACCESS TO INFORMATION AND RECORDS.
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(a) During the period from the date hereof to the Closing
Date, the Company shall give Buyer, its counsel, accountants and other
authorized representatives, reasonable access during normal business hours to
all of the Company's properties, books, records, contracts and other documents
and, with the prior consent of the Company (which shall not be unreasonably
withheld), to the salaried personnel of the Company; and the Company shall
furnish or cause to be furnished to Buyer and its representatives all
information with respect to the business and affairs of the Company as Buyer
may reasonably request.
(b) Upon reasonable notice, the Company shall also afford
Buyer and Buyer's representatives access to the Company's properties prior to
the Closing Date for the purpose of conducting an environmental audit of those
properties. Buyer shall at its sole cost and expense restore the properties of
the Company to substantially the same condition as existed immediately prior to
the commencement of any such environmental audit.
(c) Any investigation conducted by Buyer pursuant to this
Section 5.1 shall be so conducted as not to interfere unreasonably with the
business operations of the Company and the relationships of the Company with
its employees, customers and suppliers. No such investigation by Buyer shall
affect or be deemed to modify any representation or warranty made by Seller or
the Company.
SECTION 5.2. CONDUCT OF BUSINESS PENDING CLOSING.
Seller agrees that from the date hereof until the Closing Date, except
as otherwise approved in writing by Buyer:
(a) MAINTAIN BUSINESS AND ORGANIZATION. The Company and
each Subsidiary will carry on its business in the ordinary course consistent
with past practice and, to the extent consistent therewith, will use its
reasonable best efforts to maintain and preserve its business organization
intact and to maintain its current relation with customers, suppliers,
employees, direct sales representatives, franchisees and others having business
relationships with the Company or any Subsidiary.
(b) COMPENSATION. Neither the Company nor any Subsidiary
will (i) enter into any employment or severance agreement with any director,
officer or other employee of the Company or any Subsidiary; (ii) establish,
adopt, enter into, or make any new grants or awards under, or amend, any
collective bargaining, bonus, profit sharing, thrift, compensation or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, except to comply with ERISA and the Code; or
(iii) give any increases in the rates of salary or other compensation payable
to employees, direct sales representatives or franchisees.
(c) NO MATERIAL CONTRACTS. No contract or commitment
will be entered into, and no purchase of supplies and no sale of assets (real,
personal, or mixed, tangible or intangible) will be made, by or on behalf of
the Company or any Subsidiary, except (i) contracts or commitments for the
purchase of, materials and supplies made in the ordinary course of business
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consistent with past practice, (ii) contracts or commitments for the provision
of research services in the ordinary course of business consistent with past
practice, and (iii) other contracts, commitments, purchases or sales in the
ordinary course of business consistent with past practice which are not
material to the Company or any Subsidiary.
(d) CAPITAL EXPENDITURES. Neither the Company nor any
Subsidiary will make any capital expenditures or commitments therefor, in
excess of $2,000 for any single item or $10,000 in the aggregate for additions
to property, plant or equipment, or agree to make any such expenditures or
commitments, except pursuant to existing expenditure or commitment programs in
a manner consistent with the performance of such programs to date.
(e) NO DIVIDENDS. The Company will not (i) declare or
pay any dividend or make any other distribution in respect of its capital
stock; (ii) directly or indirectly, redeem, purchase or otherwise acquire any
of its own stock; (iii) grant any stock options; or (iv) issue or in any way
dispose of any shares of its own stock.
(f) NO CORPORATE CHANGES. Neither the Company nor any
Subsidiary will amend its certificate of incorporation or by-laws, or make any
changes in its authorized or issued capital stock.
(g) INDEBTEDNESS. Neither the Company nor any Subsidiary
will create any indebtedness, other than short-term indebtedness incurred in
the ordinary course of business consistent with past practices pursuant to
existing contracts disclosed in Schedule 3.17(f).
(h) MAINTENANCE OF INSURANCE. The Company will use its
best efforts, consistent with past practice and prudent business judgment, to
maintain all of the insurance policies in effect as of the date hereof and
listed on Schedule 3.26.
(i) MAINTENANCE OF PROPERTY. The Company will use,
operate, maintain and repair all property of Company in a normal business
manner consistent with past practice.
(j) LOANS AND ADVANCES. Neither the Company nor any
Subsidiary will make any loan or advance to any Person, including, without
limitation, any officer, director or employee of the Company or any
Subsidiary.
(k) NO NEGOTIATIONS. Seller will not and the Company
will not directly or indirectly (through a representative or otherwise) solicit
or furnish any information to any prospective buyer, or commence or conduct
presently ongoing negotiations with any other party, or enter into any
agreement with any other party concerning the sale of the Company or its assets
or business, or any part thereof (an "Acquisition Proposal"); and Seller shall
promptly notify Buyer of the receipt of any Acquisition Proposal, provided that
Seller shall be under no obligation to disclose to Buyer the identity of the
author of any such Acquisition Proposal or the terms thereof. Seller shall not
dispose of any interest in the Company Shares except pursuant to this
Agreement, as the same may be amended and in affect from time to time.
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SECTION 5.3. POST-CLOSING TAX FILINGS. The following
provisions shall govern the allocation of responsibility as between Buyer and
Seller for certain tax matters following the Closing Date and certain other tax
matters:
(a) CONSOLIDATED RETURNS FOR PERIODS THROUGH THE CLOSING
DATE. Seller will include the income of the Company and its Subsidiaries
(including any deferred income triggered into income by Treas. Reg. Section
1.1502-13 and Treas. Reg. Section 1.1502-14 and any excess loss accounts taken
into income under Treas. Reg. Section 1.1502-19) on Seller's consolidated
federal income Tax Returns for all periods through the Closing Date and pay any
federal income Taxes attributable to such income. The Company and its
Subsidiaries will furnish Tax information to Seller for inclusion in Seller's
federal consolidated income Tax Return for the period which includes the
Closing Date in accordance with the Company's past custom and practice. Seller
will allow Buyer an opportunity to review and comment upon such Tax Returns
(including any amended returns) to the extent that they relate to the Company
and its Subsidiaries. Seller will take no position on such returns that relate
to the Company and its Subsidiaries that would adversely affect the Company and
its Subsidiaries after the Closing Date unless such position would be
reasonable in the case of a Person that owned the Company and the Subsidiaries
both before and after the Closing Date. The income of the Company and its
Subsidiaries will be apportioned to the period up to and including the Closing
Date and the period after the Closing Date by closing the books of the Company
and its Subsidiaries as of the end of the Closing Date.
(b) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Seller is and shall be responsible for all Taxes payable and is entitled to all
refunds for all taxable periods of the Company ending on or prior to the
Closing Date. Seller shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company and its Subsidiaries for all
periods ending on or prior to the Closing Date which are filed after the
Closing Date other than income Tax Returns with respect to periods for which a
consolidated, unitary or combined income Tax Return of Seller will include the
operations of the Company and its Subsidiaries. Seller shall permit Buyer to
review and comment on each such Tax Return described in the preceding sentence
prior to filing. All refunds or credits attributable to a carryback of losses
or otherwise for a taxable period of the Company or any Affiliated Group of
which the Company is or was a member ending on or prior to the Closing Date
shall belong to Seller and shall be remitted by the Company or caused by Buyer
to be remitted to Seller within fifteen (15) days after receipt thereof. In
addition, to the extent that a claim for refund or a proceeding results in a
payment or credit against Tax by a taxing authority to the Buyer or the Company
and its Subsidiaries of any amount accrued on the Closing Date Balance Sheet,
the Buyer shall pay such amount to Seller within fifteen (15) days after
receipt thereof. Seller shall not be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which would adversely affect the liability for Taxes of the Buyer or the
Company for any period after the Closing Date to any extent (including, but not
limited to, the imposition of income tax deficiencies, the reduction of asset
basis or cost adjustments, the lengthening of any amortization or depreciation
periods, the denial of amortization or depreciation deductions) without the
prior consent of Buyer, which consent shall not be unreasonably withheld.
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<PAGE> 34
(c) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE
CLOSING DATE. Buyer shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Company and its Subsidiaries for Tax periods
which begin before the Closing Date and end after the Closing Date. Seller
shall pay to Buyer within fifteen (15) days after the date on which Taxes are
paid with respect to such periods an amount equal to the portion of such Taxes
which relates to the portion of such Taxable period ending on the Closing Date
to the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred taxes established to reflect timing
differences between book and Tax income) shown on the face of the Pro Forma
Closing Balance Sheet. For purposes of this Section, in the case of any Taxes
that are imposed on a periodic basis and are payable for a Taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such Taxable period ending on the Closing Date shall
(x) in the case of any Taxes other than Taxes based upon or related to income
or receipts, be deemed to be the amount of such Tax for the entire Taxable
period multiplied by a fraction the numerator of which is the number of days in
the Taxable period ending on the Closing Date and the denominator of which is
the number of days in the entire Taxable period, and (y) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company and its Subsidiaries.
(d) COOPERATION ON TAX MATTERS.
(i) Buyer, the Company and its Subsidiaries and
Seller shall cooperate fully, as and to the extent reasonably requested by one
another, in connection with the filing of Tax Returns pursuant to this Section
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request)
the provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. The Company and its Subsidiaries and Seller
agree (A) to retain all books and records with respect to Tax matters pertinent
to the Company and its Subsidiaries relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations
(and, to the extent notified by Buyer or Seller, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, the Company and its
Subsidiaries, or Seller, as the case may be, shall allow the other party to
take possession of such books and records.
(ii) Buyer and Seller further agree, upon request,
to use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
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(iii) Buyer and Seller further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(e) TAX SHARING AGREEMENTS. Any tax sharing agreement or
similar agreement between Seller and the Company or its Subsidiaries shall be
terminated as of the Closing Date and will have no further effort for any
taxable year (whether a current year, future year or past year). After the
Closing Date, the Company and its Subsidiaries shall not be bound thereby or
have any liability thereunder.
(f) LIABILITY FOR CERTAIN TAXES. All transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) arising out of the transactions
contemplated by this Agreement (including any gains Tax, transfer Tax and any
similar tax imposed by a state, subdivision or foreign taxing authority) and
any filing or recording fees payable in connection with the instruments of
transfer provided for herein, shall be paid by Seller when due. Seller will
pay any income, gross receipts or profits Taxes attributable to any of Seller's
income, gain, gross receipts, accretion of wealth or receipt of consideration
arising out of the transactions contemplated by this Agreement. Seller will,
at its own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and any filing or recording fees and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation. Buyer shall
promptly provide Buyer with copies of such Tax Returns and other documentation
with evidence of payment of such Taxes and fees.
(g) OTHER TAX LIABILITIES. Seller agrees to indemnify
Buyer from and against his or its allocable Portion of any Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of any of the Company and its Subsidiaries for Taxes
of any Person other than any of the Company and its Subsidiaries (i) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law); (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
(h) AUDITS.
(i) Seller will allow the Company and its counsel
to participate at its own expense in any audits of Seller consolidated federal
income Tax Returns to the extent that such returns relate to the Company and
its Subsidiaries. Seller will not settle any such audit in a manner which
would adversely affect the Company and its Subsidiaries after the Closing Date
unless such settlement would be reasonable in the case of a Person that owned
the Company and its Subsidiaries both before and after the Closing Date
(ii) Buyer shall notify Seller promptly of any
examinations, audits, litigation or other proceedings respecting the Company
with respect to any taxable period ending on or prior to the Closing Date and
Seller shall have the right to control the conduct of any such examination,
audit, litigation or other proceeding. Buyer shall provide, or shall cause the
Company to provide, Seller with such assistance and cooperation, including the
execution of
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powers of attorney, as Seller may reasonably request in order to enable Seller
to exercise such control.
(iii) Buyer shall have the sole right to represent
the Company in any Tax audit or administrative or court proceeding for all
taxable periods ending after the Closing Date, and to employ counsel of choice
at its own expense.
(iv) Buyer and Seller shall provide timely notice
to the other party in writing of any pending or threatened tax audit with
respect to the Company or its Subsidiaries for a taxable period for which the
other party may have a liability under this Section. Buyer and Seller shall
furnish each other with copies of all correspondence received from any Taxing
Governmental Authority in connection with any tax audit or information request
with respect to such taxable period.
(i) RETENTION OF CARRYOVERS. Seller may elect to retain
the net operating loss carryovers and capital loss carryovers of the Company
and its Subsidiaries under Reg. Section 1.1502-20(g) as identified on Schedule
5.3. At Seller's request, the Buyer will cause any of the Company and its
Subsidiaries to join with Seller in filing any necessary elections under Reg.
Section 1.1502-20(g).
(j) FIRPTA CERTIFICATE. On or prior to the Closing Date,
Seller will provide to Buyer a certification, in a form and manner satisfying
the requirements of Treas. Reg. Section 1.1445-2(c)(3)(i), that neither the
Company nor any Subsidiary has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
SECTION 5.4. CONSENTS. Seller will use its reasonable best efforts
prior to the Closing Date to obtain all consents necessary for the consummation
of the transactions contemplated hereby.
SECTION 5.5. SCHEDULES. Seller shall have a continuing obligation to
promptly notify Buyer in writing with respect to any matter arising or
discovered after the date of execution of this Agreement, which matter, if
existing or known at the date hereof, would have been required to be set forth
or described in the Schedules to this Agreement.
SECTION 5.6. BREAKUP FEE. In the event Seller or the Company
breaches Section 5.2(k) above or if this Agreement is terminated when Seller
has materially breached this Agreement and has not cured the same by the date
of termination, then if Seller or the Company shall sell the Company Shares or
the assets or business of the Company or any material portion thereof (whether
by merger, consolidation or otherwise) other than sales of assets in the
ordinary course of business within 6 months after the date of termination of
this Agreement, then Seller shall pay Buyer $500,000 at the date of such sale.
If the Closing Date does not occur on or before November 15, 1997 through no
fault of Seller or the Company, this Section 5.6 shall no longer be binding
upon Seller.
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ARTICLE VI
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer hereunder are subject to the satisfaction or
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any or all of which may be waived in whole or in part by Buyer:
SECTION 6.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE.
The representations and warranties of Seller and the Company set forth in
Article III of this Agreement, and the statements contained in the Schedules
hereto or in any other Closing Document delivered by Seller or the Company
pursuant to this Agreement, shall be true and correct in all material respects
when made and as of the Closing Date as though made or given on and as of the
Closing Date, except for any changes contemplated or permitted by the terms of
this Agreement or otherwise consented to in writing by Buyer.
SECTION 6.2. COMPLIANCE WITH AGREEMENT. Seller and the Company shall
have performed and complied in all material respects with each obligation and
covenant required to be performed or complied with by Seller and the Company at
or prior to the Closing Date pursuant to the terms of this Agreement, including
delivery of the Closing Documents specified in Section 8.2, which shall be in
form and substance satisfactory to Buyer's counsel.
SECTION 6.3. ABSENCE OF SUIT. No action, suit or proceeding before
any court or any Governmental Authority shall have been commenced or
threatened, and no investigation by any Governmental Authority shall have been
commenced, against Buyer, Seller or the Company, or any of their respective
Affiliates, (i) seeking to restrain, prohibit or enjoin the consummation of the
transactions contemplated hereby or to change any of the terms thereof, (ii)
questioning the validity, legality or enforceability of any such transactions,
or (iii) seeking damages in connection with any such transactions.
SECTION 6.4. CONSENTS AND APPROVALS. All filings required to be made
prior to the Closing Date by the Company and/or Seller with, and all material
consents, approvals, waivers and authorizations required to be obtained prior
to the Closing Date by the Company and/or Sellers from, Governmental
Authorities or other Persons in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
Buyer, Seller and the Company, including without limitation, the approval of
any regulatory body shall have been made or obtained (as the case may be).
SECTION 6.5. SECTION 1445 AFFIDAVIT. Seller shall have delivered to
Buyer an affidavit, in form satisfactory to counsel for Buyer, to the effect
that Seller is not a "foreign person" under Section 1445 of the Code.
SECTION 6.6. ABSENCE OF LIENS. At or prior to the Closing, Buyer
shall have received a UCC search report issued by the California Secretary of
State and the Clerk of Solano County
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indicating that there are no filings under the Uniform Commercial Code on file
with such office which name the Company as debtor or otherwise indicate any
lien on the property or assets of the Business except as disclosed in Schedule
3.16.
SECTION 6.7. CONDITION OF PROPERTY AND ASSETS. The property and
assets of the Company pertaining to the Business shall not have been materially
or adversely affected in any way as a result of any fire, accident, storm or
other casualty or labor or civil disturbance or act of God or the public enemy.
SECTION 6.8. ADVANCES. Advances shall not have been made after
September 27, 1997 through the Closing Date except as provided in Exhibit D.
Compliance with this condition shall be specifically represented in officer's
certificates from the Company and Seller delivered at the Closing.
SECTION 6.9. FINANCING. Buyer shall have closed, or be ready to
close simultaneously, a financing transaction with a lender, providing funds
necessary to consummate the acquisition by Buyer of the Company Shares and
operation of the Business after the Closing, on terms satisfactory to Buyer in
its sole discretion.
SECTION 6.10. PAYMENT OF INDEBTEDNESS. Seller shall have paid and/or
satisfied in full all indebtedness of the Company described on Schedule
3.17(i), and any lien or encumbrance with respect thereto shall have been
released.
SECTION 6.11. DUE DILIGENCE. Buyer shall have completed, and be
satisfied with the results of, its due diligence investigation of the
prospects, business, assets, contracts, rights, liabilities and obligations of
the Company, including financial, marketing, employee, legal, regulatory and
environmental matters.
SECTION 6.12. CONTRIBUTION OF DEBENTURE. Seller shall have
contributed the Debenture to the capital of the Company and delivered the
Debenture to the Company for cancellation. Seller and the Company shall have
netted all payables and receivables between the Company and Seller,
disregarding for this purpose the Debenture.
SECTION 6.13. RELEASE BY SELLER. Seller shall have executed and
delivered a Release, in the form attached hereto as Exhibit C, in favor of the
Company, releasing the Company of all intercompany liabilities reflected on the
Pro Forma Closing Date Balance Sheet, including any and all Net Advances.
SECTION 6.14. LOAN ARRANGEMENT. The Company and PNC Bank, National
Association, as agent for itself and others, and other financial institutions
(the "Lenders") each shall have executed and delivered the Loan Arrangement and
the Lenders shall have advanced to the Company $3,600,000 less $111,000
pursuant to the Loan Arrangement.
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SECTION 6.15. ACTIONS SATISFACTORY. The form and substance of all
actions, proceedings, instruments and documents required to consummate the
transactions contemplated by the Agreement shall be satisfactory in all
reasonable respects to Buyer and its counsel.
ARTICLE VII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller hereunder are subject to the satisfaction or
fulfillment, at or prior to the Closing Date, of the following conditions:
SECTION 7.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE.
The representations and warranties of Buyer set forth in Article IV of this
Agreement shall be true and correct in all material respects when made and as
of the Closing Date as though made or given on and as of the Closing Date.
SECTION 7.2. COMPLIANCE WITH AGREEMENT. Buyer shall have performed
and complied in all material respects with each agreement and obligation
required to be performed or complied with by it at or prior to the Closing Date
pursuant to the terms of this Agreement, including the delivery of the Closing
Documents specified in Section 8.3, which shall be in form and substance
satisfactory to Seller's counsel.
SECTION 7.3. ABSENCE OF SUIT. No action, suit or proceeding before
any court or any Governmental Authority shall have been commenced or
threatened, and no investigation by any Governmental Authority shall have been
commenced, against Buyer, Seller or the Company or any of their respective
Affiliates, (i) seeking to restrain, prohibit or enjoin the consummation of the
transactions contemplated hereby or to change any of the terms thereof, (ii)
questioning the validity, legality or enforceability of any such transactions,
or (iii) seeking damages in connection with any such transactions.
SECTION 7.4. CONSENTS AND APPROVALS. All filings required to be made
prior to the Closing Date by Buyer with, and all material consents, approvals,
waivers and authorizations required to be obtained prior to the Closing Date by
Buyer from, Governmental Authorities or any other Person in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Buyer, Seller and the Company shall have
been made or obtained (as the case may be).
SECTION 7.5. LETTERS OF CREDIT. Buyer shall have established with a
financial institution an arrangement whereby, after the Closing Date, draws
under letters of credit issued by NationsBank prior to the Closing Date will be
paid by Buyer's financial institution to NationsBank until such time as new
letters of credit are issued by Buyer's financial institution, and provided
further that no amendments or modifications will be made to the existing
letters of credit.
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SECTION 7.6. ACTIONS SATISFACTORY. The form and substance of all
actions, proceedings, instruments and documents required to consummate the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to Seller and his counsel.
ARTICLE VIII
CLOSING
SECTION 8.1. CLOSING DATE. The closing of the acquisition of the
Company Shares and the consummation of the transactions contemplated by the
Agreement (the "Closing") shall take place at the offices of Crummy, Del Deo,
Dolan, Griffinger & Vecchione, One Riverfront Plaza, Newark, New Jersey, at
10:00 a.m. on October 9, 1997 or at such other time and place as may be
mutually agreed upon by the parties (the "Closing Date"). All proceedings to
take place on the Closing Date shall be deemed to take place simultaneously and
no delivery shall be deemed to have been made until all such proceedings have
been completed.
SECTION 8.2. DOCUMENTS TO BE DELIVERED BY SELLER. At the Closing,
Seller shall deliver to Buyer the following documents:
(a) STOCK CERTIFICATES. Certificates representing the
Company Shares in the manner and form required by Section 2.4 hereof.
(b) COMPLIANCE CERTIFICATE. A certificate signed by each
of Seller and the Company to the effect that the representations and warranties
of Seller and the Company set forth in Article III of this Agreement are true
and correct in all material respects on and as of the Closing Date with the
same effect as though made or given on and as of the Closing Date (except for
changes contemplated or permitted by the terms of this Agreement or consented
to in writing by Buyer), and that Seller and the Company have performed and
complied in all material respects with each obligation and covenant required to
be performed or complied with by Seller and the Company on or prior to the
Closing Date.
(c) RESIGNATIONS. Resignations duly executed by each of
the elected and acting directors and officers of the Company, effective as of
the Closing Date, who are also officers of Seller.
(d) RELEASE OF LIENS. Properly executed UCC-3
termination statements or other documents terminating any and all liens and
encumbrances on the property and assets of the Business except those listed on
Schedule 8.2.
(e) GOOD STANDING CERTIFICATES. A good standing
certificate of Seller, the Company and each Subsidiary from the Secretary of
State of the state of its formation and any other jurisdiction where the
Company is required to be qualified to do business and which is listed on
Schedule 3.5, dated within fifteen days of the Closing.
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(f) SECRETARY'S CERTIFICATES. Certificates, each dated
the Closing Date, one executed by the Secretary of Seller and one by the
Secretary of the Company, which shall identify by name and title and bear the
signature of each officer thereof authorized to execute any Closing Document to
be executed and delivered on behalf of Seller or the Company, as the case may
be, pursuant to the terms of this Agreement and shall have attached to it as
exhibits (i) a copy of the By-laws, as amended, of the Company or Seller, as
the case may be, and (ii) a copy of the Certificate of Incorporation, as
amended, of the Company or Seller, as the case may be, certified by the
Secretary of State of the state of its formation as of a recent date.
(g) OPINION OF COUNSEL. The opinion of Liddell, Sapp,
Zivley, Hill & La Boon, L.L.P., counsel to Seller, dated the Closing Date, in
form reasonably satisfactory to Buyer and its counsel.
(h) OPINION OF COUNSEL. The opinion of Brobeck, Phleger
& Harrison, counsel to the Company, dated the Closing Date, in form reasonably
satisfactory to Buyer and its counsel.
(i) EMPLOYMENT AGREEMENT. An Employment Agreement
executed by James M. Cascino and the Company, in form reasonably satisfactory
to Buyer and its counsel.
(j) LOAN ARRANGEMENT. The Loan Arrangement shall have
been executed and delivered by the Company and PNC Bank, National Association,
as agent for itself and others and the Lenders shall have advised Buyer that
conditions precedent to the advance of funds under Section 2.2(a)(ii) of this
Agreement shall have been satisfied.
(k) OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing pursuant
to the terms of this Agreement.
SECTION 8.3. DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing,
Buyer shall deliver to Seller the following documents:
(a) COMPLIANCE CERTIFICATE. A certificate signed by the
President of Buyer to the effect that the representations and warranties of
Buyer set forth in Article IV of this Agreement are true and correct in all
material respects on and as of the Closing Date with the same effect as though
made or given on and as of the Closing Date (except for changes contemplated or
permitted by the terms of this Agreement or consented to in writing by Seller),
and that Buyer has performed and complied in all material respects with each
obligation and covenant required to be performed or complied with by Buyer on
or prior to the Closing Date.
(b) SECRETARY'S CERTIFICATE. A certificate, dated the
Closing Date, executed by the Secretary of Buyer, which shall identify by name
and title and bear the signature of each officer of Buyer authorized to execute
this Agreement and the other Closing Documents on behalf of Buyer and shall
have attached to it as exhibits (i) a copy of the By-laws of Buyer, as amended,
(ii) a copy of the Certificate of Incorporation of Buyer certified by the
Secretary of State of the State of Delaware as of a recent date, and (iii) a
copy of the resolutions of the Board
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<PAGE> 42
of Directors each of Buyer, authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement.
(c) DEMAND NOTE. Buyer shall have executed and delivered
to the Escrow Agent the Demand Note to be held in escrow pursuant to the Escrow
Agreement.
(d) OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Seller at or prior to the Closing Date
pursuant to this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION BY SELLER. Seller covenants and
agrees that it will indemnify and hold Buyer and the Company and their
successors and assigns and their respective Affiliates, officers, directors,
employees, stockholders and agents (collectively, "Buyer's Indemnified
Persons") at all times harmless from and against any Loss (including reasonable
attorneys' fees and other costs of defense) imposed on or incurred by Buyer's
Indemnified Persons caused by or arising out of or in connection with:
(a) subject to Section 9.9 and clause (g) below, any
misrepresentation, breach of warranty, or breach or nonfulfillment of any
covenant or agreement to be performed on the part of Seller on or prior to the
Closing Date under this Agreement or any certificate or other document
delivered or to be delivered pursuant hereto,
(b) any breach or nonfulfillment of any covenant or agreement
to be performed on the part of Seller after the Closing Date under this
Agreement or any certificate or other document delivered or to be delivered
pursuant hereto, (c) any service performed by the Company prior to the Closing
Date,
(d) any Tax liability incurred by Buyer as a result of the
transactions contemplated by this Agreement,
(e) any Tax liability of the Company incurred on or prior to
the Closing Date,
(f) any claim by any Person for a brokerage or finder's fee
based upon any arrangement allegedly made by such Person with Seller or the
Company, or
(g) any breach of any representation contained in Sections
3.1, Section 3.2, Section 3.19 or Sections 3.15(c) through (h);
provided, however, that Seller shall have no liability under this Section 9.1
unless and until the aggregate of all Losses exceeds the sum of $100,000 (the
"Buyer's Minimum Amount"), in which event Seller shall be liable for all
Losses, irrespective of the Buyer's Minimum Amount. The maximum liability of
Seller for Losses relating to clause (a) above shall be limited to the
- 41 -
<PAGE> 43
sum of $1,500,000, exclusive of any Losses resulting from or relating to those
matters described in clauses (b), (c), (d), (e), (f) or (g) above.
9.2. INDEMNIFICATION BY BUYER. Buyer covenants and agrees
that it will indemnify and hold Seller, its successors and assigns and
Affiliates, officers, directors, employees, stockholders and agents
(collectively, "Seller's Indemnified Persons") at all times harmless from and
against any Loss (including reasonable attorneys' fees and other costs of
defense) imposed on or incurred by Seller's Indemnified Persons caused by or
arising out of (a) any misrepresentation, breach of warranty, or breach or
nonfulfillment of any covenant or agreement on the part of Buyer under this
Agreement or any certificate or other document delivered or to be delivered
pursuant hereto, (b) any activity of Buyer or the Company on or after the
Closing Date, or (c) any claim by any Person for a brokerage or finder's fee
based upon any arrangement allegedly made by such Person with Buyer.
9.3. UNDISPUTED CLAIMS. A party (the "Indemnified Party")
may assert a Claim that it is entitled to, or may become entitled to,
indemnification under this Agreement by giving notice of its Claim to the party
or parties that are, or may become, required to indemnify the Indemnified Party
(the "Indemnifying Party"), providing reasonable details of the facts giving
rise to the Claim and a statement of the Indemnified Party's Loss in connection
with the Claim, to the extent such Loss is then known to the Indemnified Party
and, otherwise, an estimate of the amount of the Loss that it reasonably
anticipates that it will incur or suffer. If the Indemnifying Party does not
object to the Claim during the twenty (20) day period following the date of
delivery of the Indemnified Party's notice of its Claim (the "Objection
Period"), the Claim shall be considered undisputed and the Indemnified Party
shall be entitled to recover the amount of its Loss. The fact that a Claim is
not disputed by the Indemnifying Party shall not constitute an admission or
create any inference that the asserted Claim is valid for any purpose other
than the indemnity obligation of the Indemnifying Party as to such Claim
pursuant to this Article IX.
9.4. DISPUTED CLAIMS. If the Indemnifying Party gives
notice to the Indemnified Party within the Objection Period that the
Indemnifying Party objects to the Claim, then (a) the parties shall attempt in
good faith to resolve their differences during the thirty (30) day period
following the date of delivery of the Indemnifying Party's notice of its
objection (the "Resolution Period"), and (b) if the parties fail to resolve
their disagreement during the Resolution Period, either party may unilaterally
submit the disputed Claim for binding arbitration in the State of New Jersey,
in accordance with the American Arbitration Association's rules for commercial
arbitration in effect at the time. The award of the arbitrator or panel of
arbitrators shall include reasonable attorneys' fees to the prevailing party
and may be entered in any appropriate court.
9.5. THIRD PARTY SUITS. In the case of any Third Party
Suit (including, without limitation, for the purposes of this Section 9.5 those
third party suits described in Schedule 3.14), the Indemnifying Party shall
control the defense of the Third Party Suit, and shall be fully responsible for
the costs of counsel related thereto The Indemnifying Party shall consult with
the Indemnified Party with respect to the Third Party Suit upon the Indemnified
Party's reasonable request for consultation, and the Indemnified Party may, at
its expense, participate in (but not
- 42 -
<PAGE> 44
control) the defense and employ counsel separate from the counsel employed by
the Indemnifying Party. All parties shall cooperate in the defense of the Third
Party Suit.
9.6. SETTLEMENT OR COMPROMISE. If the Indemnified Party
is conducting the defense of a Third Party Suit, the Indemnified Party shall
give the Indemnifying Party at least fifteen (15) days prior written notice of
any proposed settlement or compromise, during which time the Indemnifying Party
may assume the defense of the Third Party Suit and, if it does so (or if the
Indemnifying Party has already assumed control of such Third Party Suit), the
proposed settlement or compromise may not be made without the Indemnified
Party's consent, which shall not be unreasonably withheld. If the Indemnifying
Party does not so assume the defense of the Third Party Suit, the Indemnified
Party may enter into the proposed settlement. Any settlement or compromise of
any Third Party Suit by either the Indemnifying Party or the Indemnified Party
entered into in compliance with this Section 9.7 shall also be binding on the
other party in the same manner as if a final judgment or decree had been
entered by a court of competent jurisdiction in the amount of the settlement or
compromise.
9.7. FAILURE TO ACT BY INDEMNIFIED PARTY. Any failure by
the Indemnified Party to defend a Third Party Suit shall not relieve the
Indemnifying Party of its indemnification obligations if the Indemnified Party
gives the Indemnifying Party at least thirty (30) days prior written notice of
the Indemnified Party's intention not to defend and affords the Indemnifying
Party the opportunity to assume the defense.
9.8. INSURED CLAIMS. In case any event shall occur which
would otherwise entitle either party to assert a Claim for indemnification
hereunder, no Loss shall be deemed to have been sustained by the Indemnified
Party to the extent of any proceeds received by the Indemnified Party from any
insurance policies with respect thereto.
9.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except
as expressly set forth herein, all representations and warranties in this
Agreement, the Schedules and any other certificate or document delivered
pursuant to this Agreement will survive for a period of two years following the
Closing Date. The covenants and obligations of the parties under this
Agreement shall survive indefinitely, and the rights of Buyer under Section
9.1(b), (c), (d), (e), (f) and (g) of this Agreement and otherwise relating to
any Third Party Suits relating to distributors, franchisees, employees,
commission agents and the like of the Company, shall survive for the statute of
limitations period applicable thereto. The rights to indemnification or other
remedy based on such representations and warranties will not be affected by any
investigation conducted with respect to or any knowledge acquired at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant or obligation.
- 43 -
<PAGE> 45
ARTICLE X
TERMINATION AND ABANDONMENT
SECTION 10.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of Buyer and Seller.
SECTION 10.2. TERMINATION BY BUYER OR SELLER. This Agreement may be
terminated at any time prior to the Closing Date by Buyer or Seller (i) if the
Closing has not occurred on or before October 15, 1997, unless the party
seeking to invoke this subclause (i) is then in material breach of any of its
obligations hereunder; (ii) if a court of competent jurisdiction or any
Governmental Authority shall have issued an order, decree or ruling or taken
any other action, in each case permanently 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
(iii) if the other party shall have breached or failed to comply in all
material respects with its representations, warranties, covenants and
agreements contained in this Agreement; provided, however, that if such breach
or failure is reasonably capable of being cured on or before October 15, 1997
and such party commences such cure as soon as practicable and diligently
prosecutes (subject to any other limitations of this Agreement) such cure, such
party shall be entitled to postpone the Closing Date for a period reasonably
sufficient to effect such cure to the reasonable satisfaction of the party
asserting such breach or failure, but in no event beyond November 15, 1997.
SECTION 10.3. EFFECT OF TERMINATION. In the event of termination of
this Agreement pursuant to this Article X, no party hereto (or, in the case of
Buyer, any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement, provided that, if this
Agreement is so terminated by a party because one or more of the conditions to
such party's obligations hereunder is not satisfied as a result of the other
party's willful failure to comply with its obligations under this Agreement,
the terminating party's right to pursue all legal remedies for breach of
contract or otherwise, including, without limitation, damages relating thereto,
shall also survive such termination unimpaired and provided further that
termination of this Agreement shall not terminate Section 5.6 or Article IX
hereof.
SECTION 10.4. FAILURE OF MERGER. If the Merger shall not be
consummated prior to October 24, 1997, and the other conditions set forth in
Section 2.2(b) are not satisfied by October 24, 1997, the Demand Note shall be
returned to Buyer and certificates representing the Company Shares to Seller
and this Agreement shall terminate and no party hereto (or, in the case of
Buyer, any of its directors or officers) shall have any liability or other
obligation to any other party to this Agreement.
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<PAGE> 46
ARTICLE XI
MISCELLANEOUS AND GENERAL
SECTION 11.1. SCHEDULES. The Schedules referenced in this Agreement
constitute an integral part hereof. Information set forth in the Schedules
specifically references the article or section of this Agreement to which such
information relates and shall not be deemed to have been disclosed with respect
to any other article or section of this Agreement or for any other purpose.
SECTION 11.2. FURTHER ASSURANCES. Seller and Buyer hereby agree to
execute and deliver such other documents and instruments, and take such other
actions, as may be necessary or desirable in order to consummate and implement
the transactions contemplated by this Agreement.
SECTION 11.3. PARTIES-IN-INTEREST; ASSIGNMENT. This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the parties
hereto and their respective successors and assigns. Buyer may assign its
rights and obligations under this Agreement to any third party without the
consent of Seller, but Seller cannot assign its rights and obligations
hereunder without the prior written consent of Buyer.
SECTION 11.4. GOVERNING LAW. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
SECTION 11.5. AMENDMENT AND MODIFICATION. The parties may amend,
modify and supplement this Agreement only by a writing signed by all parties.
SECTION 11.6. WAIVER OF CONDITIONS. The conditions to the respective
obligations of Buyer and Seller to consummate the transactions contemplated
hereby are for the sole benefit of such party and may be waived by such party
in whole or in part.
SECTION 11.7. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and delivered personally or sent
by express overnight or certified mail, postage prepaid, or by facsimile
transaction:
if to Buyer: IFS Acquisition Corp.
330 South Street
Morristown, New Jersey 07962
Attention: William Walsh, President
Facsimile: 201-540-9246
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<PAGE> 47
with a copy to:
Crummy, Del Deo, Dolan, Griffinger & Vecchione
A Professional Corporation
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attention: Frank E. Lawatsch, Jr. Esq.
Facsimile: (201) 639-6249
if to Seller: Tyler Corporation
520 Post Oak Boulevard
Suite 850
Houston, Texas 77027
Facsimile: (713) 629-9584
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis
Houston, Texas 77002-3095
Attention: Gene G. Lewis, Esq.
Facsimile: (713) 223-3717
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
SECTION 11.8. CONFIDENTIALITY. Buyer shall hold in strict confidence
all documents and information concerning the Company until the Closing Date,
and Seller shall hold in strict confidence all documents and information
concerning Buyer, except that either party may disclose such documents and
information to any Governmental Authority reviewing the transactions
contemplated hereby or as otherwise may be required by applicable federal,
state or local law or regulation or by court order; and if the transactions
contemplated hereby shall not be consummated, such confidence shall be
maintained, and all such documents and information (in whatever form) shall
immediately be returned to the party furnishing the same.
SECTION 11.9. PUBLICITY. Prior to the Closing Date, neither Buyer
nor Seller shall issue or make, or cause to be issued or made, any announcement
or written statement for dissemination to the public concerning this Agreement
or the transactions contemplated hereby without the prior written consent of
the other, except such as may be required to be made by law or by regulation of
any Governmental Authority, and then only, to the extent practicable, after
prior consultation by the party required to make such announcement or statement
with the other parties hereto concerning the timing and content of such
announcement or other statement.
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<PAGE> 48
SECTION 11.10. TRANSFER TAXES. Any excise, transfer or other similar
tax imposed with respect to the transactions provided for in this Agreement,
and any interest or penalties-related thereto, shall be paid by Seller; and
Seller shall indemnify and hold Buyer harmless from and against any such tax,
interest or penalty that may be assessed against Buyer.
SECTION 11.11. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, each of the parties shall bear its own
expenses (including, without limitation, the expenses of its brokers,
accountants, counsel and other agents) in connection with the transactions
contemplated hereby, except as is otherwise provided for in this Agreement or
as may otherwise be agreed to in writing by the parties.
SECTION 11.12. ENTIRE AGREEMENT. This Agreement (including the
Schedules thereto), the Loan Arrangement, the Escrow Agreement, and the Release
constitute the entire agreement between the parties hereto with respect to the
transactions contemplated hereby, and there have been and are no agreements,
representations or warranties between the parties other than those set forth or
provided for herein or therein.
SECTION 11.13. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 11.14. CAPTIONS. The article, section and paragraph captions
herein are for convenience of reference only, do not constitute a part of this
Agreement, and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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<PAGE> 49
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
I.F.S. ACQUISITION CORP.
By:
-------------------------------------
Name: William Walsh
Title: President
TYLER CORPORATION
---------------------------------------
Name: Bruce Wilkinson
Title:
INSTITUTIONAL FINANCING SERVICES, INC.
By:
------------------------------------
Name: James Cascino
Title: President
- 48 -
<PAGE> 50
SCHEDULE OF EXHIBITS
Exhibit A: Pro Forma Balance Sheet
Exhibit B: Note
Exhibit C: Release
Exhibit D: Advances
<PAGE> 51
EXHIBIT A
PRO FORMA BALANCE SHEET
<PAGE> 52
EXHIBIT B
PROMISSORY NOTE
$750,000.00 October __, 1997
FOR VALUE RECEIVED, I.F.S. ACQUISITION CORP., a New Jersey corporation
("Payor") promises to pay to the order of TYLER CORPORATION, a Delaware
corporation ("Payee"), at its offices at 520 Post Oak Boulevard, Suite 850,
Houston, Texas 77027 or at such other address as Payee may specify, in lawful
money of the United States of America, the sum of SEVEN HUNDRED AND FIFTY
THOUSAND DOLLARS ($750,000.00), with interest from the date hereof on the
unpaid principal balance at the rate of six and one-half percent (6.5%) per
annum. Such principal sum, and all unpaid interest accrued thereon, shall be
payable in full on or before December 31, 1998. This Note is the Note referred
to in Section __ of that certain Stock Purchase Agreement, dated as of October
__, 1997.
Each of the following events shall constitute an Event of Default (an
"Event of Default") under this Note:
(a) Failure of Payor to pay any amount due and payable
under this Note when due, whether at the time scheduled for payment thereof or
by reason of acceleration thereof or otherwise;
(b) Payor shall: (i) apply for or consent to the
appointment of a receiver, trustee or liquidator on any material part of its
property, (ii) admit in writing its inability to pay debts as they mature,
(iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated bankrupt or insolvent, (v) file a voluntary petition in bankruptcy
or a petition or an answer seeking an arrangement with creditors or take
advantage of any bankruptcy, insolvency, readjustment of debt, dissolution or
liquidation law, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or (vi) take any action
for the purpose of effectuating any of the foregoing; and
(c) Any order, judgment or decree shall be entered,
without Payor's application, approval or consent, by any court of competent
jurisdiction, approving a petition seeking reorganization of Payor or of all or
a substantial part of its assets, or appointing a receiver, custodian, trustee,
intervenor or liquidator therefor, or such a petition seeking reorganization or
liquidation shall be filed against Payor and such order, judgment or decree
shall continue unstayed and in effect for a period of sixty (60) days.
Upon the occurrence of an Event of Default hereunder, at the option of
Payee: (i) Payee may declare this Note immediately due and payable in full, as
to principal, interest and any other sums payable hereunder, whereupon all such
sums shall be and become immediately due and
<PAGE> 53
payable in full; and (ii) Payee shall be entitled to exercise forthwith against
Payor any and all rights and remedies that may otherwise be available to Payee
hereunder and at law or in equity.
No remedy conferred upon or reserved or available to Payee shall be
exclusive of any other remedy or remedies available to him, but each and every
remedy shall be cumulative and shall be in addition to every such remedy now or
hereafter existing at law or in equity. No delay or omission on the part of
Payee to exercise any right or power arising upon the occurrence of any Event
of Default shall impair any right or power of Payee or be construed to be a
waiver by Payee of such Event of Default. Any right or power of Payee may be
exercised from time to time and as often as may be deemed expedient by it.
Payor hereby: (i) waives demand, presentment for payment, notice of
intention to accelerate, notice of acceleration, protest, notice of protest,
and all other notices and diligence in collecting this Note; and (ii) agrees
that it will not be necessary for Payee, in order to enforce payment of this
Note, to first institute suit or exhaust rights against Payor.
Payor agrees to pay Payee's reasonable expenses to obtain, enforce or
liquidate payment or performance of any of Payor's obligations under this Note,
which expenses shall include reasonable attorneys' fees and expenses incurred
by Payee.
No waiver or modification of the terms of this Note shall be valid
unless in writing signed by each of Payee and Payor and then only to the extent
therein set forth.
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of New Jersey.
This Note shall be binding upon the Payor and its respective
successors and assigns, and shall be enforceable by Payee, its successors,
assigns or subsequent holders of this Note.
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<PAGE> 54
IN WITNESS WHEREOF, Payor has executed and delivered this Note to be
effective as of the day and year first above-written.
I.F.S. ACQUISITION CORP.
By: ______________________________
Name: William Walsh
Title: President
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<PAGE> 55
EXHIBIT C
RELEASE
For and in consideration of the mutual promises, covenants and other
good and valuable consideration set forth in the Stock Purchase Agreement,
dated October ______, 1997 (the "Agreement") (capitalized terms used herein not
otherwise defined shall have the meanings set forth in the Agreement), between
Tyler Corporation, a Delaware corporation, Institutional Financing Services,
Inc., a California corporation (the "Company"), and I.F.S. Acquisition Corp., a
New Jersey corporation ("Buyer"), Tyler Corporation (the "Releasing Party"),
hereby releases and forever discharges the Company and each of its affiliates,
directors, officers, shareholders, agents and employees (collectively, the
"Released Parties") of and from all debts, obligations, promises, covenants,
agreements, contracts, suits, actions, causes of actions, damages, claims or
demands, in law or in equity, arising or accruing prior to the Closing, against
the Released Parties that the Releasing Party ever had, now has or hereafter
can, shall or may have, including without limitation, all debts, claims,
demands, obligations, covenants or promises for payment of any consideration to
the Releasing Party by reason of any relationship with the Released Parties in
any capacity whatsoever, including those obligations set forth on the Pro Forma
Closing Date Balance Sheet. Notwithstanding the foregoing, this Release shall
not be construed to release Buyer or the Company from any obligation to the
Releasing Party under the Agreement.
This Release shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assignees.
IN WITNESS WHEREOF, the Releasing Party has set its hand and seal
hereto as of the ___ day of October, 1997.
TYLER CORPORATION
By: ______________________________
Name:
Title:
<PAGE> 56
EXHIBIT D
ADVANCES
Advance account estimated move from September 27, 1997 to October 8, 1997*
Advances as of September 27, 1997 $5,686,000
clearing checks 583,000
receipts (108,000)
checks w/e October 4, 1997 275,000
payroll w/e October 4, 1997 286,000
outstanding checks (250,000)
-------------
Balance as of October 6, 1997 $6,472,000
[Payroll to be funded 10/8 for 10/10 360,000
-------------
forward checks]
$6,832,000
- -----------------------------------
* Any Advances after 10/8/97 will be in the ordinary course of business.
<PAGE> 57
SCHEDULE 4.6
Brokers and Finders
Buyer has an oral agreement to pay a certain fee to Birchwood Partners
in connection with the transactions contemplated by this Agreement.
<PAGE> 1
EXHIBIT 10.26
SUBORDINATION AGREEMENT
Agreement dated October 15, 1997 between PNC BANK, NATIONAL
ASSOCIATION as agent for Senior Lenders (as hereafter defined) and TYLER
CORPORATION ("Subordinated Lender").
BACKGROUND
As an inducement for Agent and Senior Lenders to provide a
secured credit facility in favor of INSTITUTIONAL FINANCING SERVICES, INC., a
California corporation (the "Company"), Subordinated Lender has agreed to enter
into this subordination agreement to provide for the subordination of the
"Subordinated Indebtedness" to the "Senior Indebtedness."
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as follows:
I. Definitions.
I.1. General Terms. For purposes of this
Subordination Agreement, the following terms shall have the following meanings:
"Agent" shall mean PNC Bank, National Association and
its successors and assigns.
"Agreements" shall mean, collectively, the Senior
Lending Agreements and the Purchase Agreement.
"Acquisition Guaranty" shall mean the Guaranty dated
as of the date hereof executed by I.F.S. in favor of Agent for its benefit and
for the ratable benefit of Lenders, as same may be amended from time to time.
"Company" shall mean the Company and its successors
and assigns.
"Creditors" shall mean, collectively, Agent, Senior
Lenders and Subordinated Lender and their respective successors and assigns.
"Default" shall have the meaning set forth in the
Loan Agreement.
"Distribution" shall mean any payment, whether in
cash, in kind, securities or any other property, or security for any such
Distribution.
1
<PAGE> 2
"Documents" shall have the meaning given to the term
"Other Documents" in the Loan Agreement,
"Event" shall have the meaning set forth in Section
2.2(c) hereof.
"Holder of Subordinated Indebtedness" or
"Subordinated Lender" shall mean Tyler Corporation, and any other Person(s) at
any time or in any manner acquiring any right or interest in any of the
Subordinated Indebtedness.
"I.F.S." shall mean I.F.S. Acquisition Corp., a New
Jersey corporation.
"Loan Agreement" shall mean the Revolving Credit, Term
Loan and Security Agreement dated as of October 15, 1997 between the Company,
Agent and Senior Lenders as the same may be amended, supplemented, modified or
restated from time to time.
"Material Default" shall mean a Default under
Sections 10.4, 10.5 (solely with respect to Sections 4.6, 4.9, 4.11, 6.3 and
9.4 of the Loan Agreement), 10.6, 10.7, 10.9 and 10.15 (ii) of the Loan
Agreement.
"Merger" shall mean the merger of the Company with
and into I.F.S. with I.F.S. being the surviving corporation.
"Person" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture, a limited liability company, a
limited liability partnership or other entity, or a government or any agency,
instrumentality or political subdivision thereof.
"Purchase Agreement" shall mean that certain Stock
Purchase Agreement dated as of October 9, 1997 among the Company, Subordinated
Lender and I.F.S., together with all exhibits and schedules thereto, as same
may be amended, modified, restated or supplemented from time to time.
"Senior Indebtedness" shall mean, prior to the
Merger, all obligations of any kind owed by I.F.S. to Agent and Senior Lenders
from time to time under or pursuant to any of the Acquisition Guaranty,
including without limitation, all principal, interest (including all interest
accruing after commencement of any case, proceeding or other action relating to
the bankruptcy, insolvency or reorganization of I.F.S.) accruing thereon,
charges, expenses, fees and other sums chargeable to I.F.S. by Agent and Senior
Lenders, and reimbursement, indemnity or other obligations due and payable to
Agent and Senior Lenders and, subsequent to the Merger, Senior Indebtedness
shall mean all obligations of any kind owed by I.F.S. to Agent and Senior
Lenders from time to time under or pursuant to the Senior Lending Agreements
including, without limitation, all principal, interest (including all interest
accruing after commencement of any case, proceeding or other action relating to
the bankruptcy, insolvency or reorganization of I.F.S.) accruing thereon,
charges, expenses, fees and other sums chargeable to I.F.S. by Agent and Senior
Lenders, and reimbursement, indemnity or other obligations due and payable to
Agent and Senior
2
<PAGE> 3
Lenders. Senior Indebtedness shall continue to Constitute Senior Indebtedness,
notwithstanding the fact that such Senior Indebtedness or any claim for such
Senior Indebtedness is subordinated, avoided or disallowed under the federal
Bankruptcy Code or other applicable law. Senior Indebtedness shall also include
any indebtedness of I.F.S. incurred in connection with a refinancing of the
Senior Indebtedness under the Senior Lending Agreements if the terms and
conditions of the agreements, documents and instruments related to such
refinancing, taken as a whole, are not materially more onerous to the Holder of
Subordinated Indebtedness than those set forth in the Senior Lending
Agreements, as in effect on the date hereof.
"Senior Lenders" shall mean each of the financial
institutions that are now or hereafter become parties to the Loan Agreement and
their successors and assigns.
"Senior Lending Agreements" shall mean, collectively,
the Loan Agreement, the Note and the other Documents between the Company prior
to the Merger and I.F.S. (as successor in interest to the Company) upon the
Merger becoming effective, Agent and/or Senior Lenders each as from time to
time in effect.
"Subordinated Indebtedness" shall mean all principal,
interest and other amounts payable or chargeable in connection with the Section
2.2(a)(iii) of the Purchase Agreement.
I.2. Other Terms. Capitalized terms not otherwise
defined herein shall have the meanings given to them in the Loan Agreement.
I.3. Certain Matters of Construction. The terms
"herein, "hereof" and "hereunder" and other words of similar import refer to
this Subordination Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to cover all
genders. Wherever appropriate in the context, terms used herein in the singular
also include the plural and vice versa. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including,
without limitation, references to any of the Senior Lending Agreements or
Purchase Agreement shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
2. Covenants. I.F.S. and each Holder of Subordinated
Indebtedness hereby covenant that until the Senior Indebtedness shall have been
paid in full and satisfied in cash and the Loan Agreement shall have been
irrevocably terminated, all in accordance with the terms of the Loan Agreement,
each will comply with such of the following provisions as are applicable to it:
2.1. Transfers. Each Holder of Subordinated
Indebtedness covenants that any transferee from it of any Subordinated
Indebtedness shall, prior to acquiring such interest, execute and deliver a
counterpart of this Subordination Agreement to each other party hereto.
2.2. Subordination Provisions. To induce Agent and
Senior Lenders to enter into the Loan Agreement and to make loans and advances
thereunder, notwithstanding any other provision of the Subordinated
Indebtedness to the contrary, any Distribution with respect to the Subordinated
Indebtedness is and shall be expressly junior and subordinated in light of
payment
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to all amounts due and owing upon all Senior Indebtedness outstanding from time
to time. Specifically, but not by way of limitation:
(a) Payments. I.F.S. shall make no Distribution on the
Subordinated Indebtedness until such time as the Senior Indebtedness shall have
been paid in full in cash and the Loan Agreement shall have been irrevocably
terminated; provided, however, so long as no Material Default or Event of
Default shall have occurred under the Senior Lending Agreements or would occur
after giving effect to such payment, I.F.S. may pay and the holders of the
Subordinated Indebtedness may receive payment of the outstanding Subordinated
Indebtedness if the Company has achieved EBITDA of at least $5,017,000 and
revenues of at least $20,813,000 for the period commencing on October 1, 1997
and ending December 31, 1997 ("Initial Period"), which determination shall be
made by Agent based upon a special purpose audit prepared for the Initial
Period by independent certified accountants retained by the Company. In the
event that the foregoing test is not met for the Initial Period, then so long
as no Material Default or Event of Default shall have occurred under the Senior
Lending Agreements or would occur after giving effect to such payment, I.F.S.
may pay and the Holders of Subordinated Indebtedness may receive payment of (1)
$500,000 of the Subordinated Indebtedness if the Company has achieved EBITDA of
at least $4,738,000 and revenues of at least $19,657,000 for the Initial
Period, which determination shall be made by Agent based upon the a special
purpose audit prepared for the Initial Period by independent certified
accountants retained by the Company and (2) the outstanding balance of the
Subordinated Indebtedness if the Company has achieved EBITDA of at least
$5,334,000 and revenues of at least $29,513,000 for the six month period ending
on March 31, 1998, which determination shall be made by Agent based upon a
special purpose audit prepared for the six month period ending on March 31,
1998 by independent certified accountants retained by the Company.
Following the occurrence of a Material Default or an Event of
Default under the Senior Lending Agreements, (i) I.F.S. shall make no
Distribution on the Subordinated Indebtedness and (ii) upon and after receipt
by the Holders of Subordinated Indebtedness of written notice of such Material
Default or Event of Default from Agent (such notice, the "Default Notice") no
such Holder of Subordinated Indebtedness shall be entitled to receive or
retain any such Distribution in respect of the Subordinated Indebtedness,
provided, further, that notwithstanding the foregoing restriction, I.F.S. may
pay and the Holders of Subordinated Indebtedness shall be entitled to receive
and retain a Distribution on account of the Subordinated Indebtedness which
shall have become due and payable (on a non-accelerated basis) on the earliest
to occur of (x) the date on which all such Material Defaults and/or Events of
Default specified in the Default Notice shall have been cured or waived or (y)
payment in full in cash of all Senior Indebtedness and the irrevocable
termination of the Loan Agreement.
(b) Limitation on Acceleration. During any period described
in Section 2.2(a) hereof in which a Distribution is not permitted to be made on
Subordinated Indebtedness, no Holder of Subordinated Indebtedness shall be
entitled to accelerate the maturity of the Subordinated Indebtedness, exercise
any remedies or commence any other action or proceeding to recover any amounts
due or to become due with respect to Subordinated Indebtedness, provided,
however, the foregoing limitation on acceleration or exercise of any remedies
shall not be applicable following (x) the occurrence of an Event (as to which
Section 2.2(c) shall apply), (y)
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following the maturity Or acceleration of all Senior Indebtedness, or (z) one
hundred-eighty (180) days from the delivery of the Default Notice.
(c) Prior Payment of Senior Indebtedness in
Bankruptcy, etc. In the event of any insolvency or bankruptcy proceedings
relative to I.F.S. or its property, or any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, or, in the
event of any proceedings for voluntary liquidation, dissolution or other
winding up of I.F.S. or distribution or marshalling of its assets or any
composition with creditors of I.F.S., whether or not involving insolvency or
bankruptcy, or if I.F.S. shall cease its operations, call a meeting of its
creditors or no longer do business as a going concern (each individually or
collectively, an "Event") then all Senior Indebtedness shall be paid in full
and satisfied in cash and the Loan Agreement irrevocably terminated before any
Distribution shall be made on account of any Subordinated Indebtedness. Any
such Distribution which would, but for the provisions hereof, be payable or
deliverable in respect of the Subordinated Indebtedness, shall be paid or
delivered directly to Agent or its representatives, in the proportions in which
they hold the same, until amounts owing upon Senior Indebtedness shall have
been paid in full in cash and the Loan Agreement irrevocably terminated.
(d) Acceleration. In the event of any Senior
Indebtedness becoming due and payable, whether by acceleration, maturity or
otherwise, no Distribution shall thereafter be made on account of the
Subordinated Indebtedness until all Senior Indebtedness shall be paid in full
in cash and the Loan Agreement be irrevocably terminated.
(e) Power of Attorney. To enable Agent to assert
and enforce its rights hereunder in any proceeding referred to in Section
2.2(c) or upon the happening of any Event, the Agent or any person whom it may
designate is hereby irrevocably appointed attorney in fact for the Subordinated
Lender with full power to act in the place and stead of the Subordinated Lender
including the right to make, present, file and vote such proofs of claim
against I.F.S. on account of all or any part of the Subordinated Indebtedness as
Agent may deem advisable and to receive and collect any and all dividends or
other payments made thereon and to apply the same on account of the Senior
Indebtedness, provided, however, that such power of attorney shall terminate
when the limitations on acceleration are no longer applicable. The Subordinated
Lender will execute and deliver to Agent such instruments as may be required by
Agent to enforce any and all Subordinated Indebtedness, to effectuate the
aforesaid power of attorney and to effect collection of any and all dividends
or other payments which may be made at any time on account thereof, and the
Subordinated Lender hereby irrevocably appoints Agent as the lawful attorney
and agent of the Subordinated Lender to execute financing statements on behalf
of the Subordinated Lender and hereby further authorizes Agent to file such
financing statements in any appropriate public office.
(f) Knowledge; Delivery of Default Notice. No
holder of any Subordinated Indebtedness shall at any time be charged with
knowledge of any of the events described in Section 2.2 (a) hereof or on such
account be prohibited from receiving or retaining any payment of monies or from
taking any action regarding acceleration or the exercise of remedies, unless
and until such holder shall have received the Default Notice; provided,
however, any "default" or "event of default" under the Purchase Agreement shall
automatically constitute an Event of Default under the Senior Lending
Agreements so that payments received by any Holder of Subordinated Indebtedness
following any such occurrence shall not be retained irrespective of the
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<PAGE> 6
lack of receipt by such holder of a Default Notice, unless, (i) the Event of
Default is waived by such Holder of Subordinated Indebtedness, (ii) a copy of
such waiver is given in writing by such Holder of Subordinated Indebtedness to
Agent and (iii) no Default Notice is thereafter forthcoming from Agent within
five (5) Business Days following the giving of notice of the aforesaid waiver,
in which event any Holder of Subordinated Indebtedness may retain all payments
previously or thereafter received, subject to the provisions of Section 2.2
(a).
Each Default Notice shall be deemed to be properly
given by Agent or other holder of Senior Indebtedness to the Holders of
Subordinated Indebtedness if such Default Notice is delivered in accordance
with Section 3.7 hereof; provided, however, that each and every additional or
subsequent Holder of Subordinated Indebtedness shall be entitled to deliver
written notice to Agent of its name and address and of its status as such a
Holder of Subordinated Indebtedness, and upon delivery of such notice said
holder shall also be entitled to receive Default Notices and to have the
benefit of the provisions of this paragraph.
(g) Payments Held in Trust. Should any
Distribution or the proceeds thereof, in respect of the Subordinated
Indebtedness, be collected or received by the Subordinated Lender or any
Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the
Securities and Exchange Commission pursuant to the Securities Act of 1933) of
the Subordinated Lender at a time when the Subordinated Lender is not permitted
to receive any such Distribution or proceeds thereof including if same is
collected or received when there is or would be after giving effect to such
payment a Material Default or an Event of Default under the Loan Agreement,
then the Subordinated Lender will forthwith deliver, or cause to be delivered,
the same to Agent in precisely the form held by the Subordinated Lender (except
for any necessary endorsement) and until so delivered, the same shall be held
in trust by the Subordinated Lender, or any such Affiliate, as the property of
the Agent on behalf of Senior Lenders and shall not be commingled with other
property of the Subordinating Lender or any such Affiliate.
(h) Subrogation. Subject to the prior payment in
full in cash of the Senior Indebtedness and the irrevocable termination of the
Loan Agreement, to the extent that Agent or any Senior Lender has received any
Distribution on the Senior Indebtedness which, but for this Subordination
Agreement, would have been applied to the Subordinated Indebtedness, the
Subordinated Lender shall be subrogated to the then or thereafter rights of
Agent and Senior Lenders including, without limitation, the right to receive
any Distribution made on the Senior Indebtedness until the principal of,
interest on and other charges due under the Subordinated Indebtedness shall be
paid in full; and, for the purposes of such subrogation, no Distribution to the
Agent or any Senior Lender to which the Subordinated Lender would be entitled
except for the provisions of this Subordination Agreement shall, as between
I.F.S., its creditors (other than Agent and Senior Lenders) and the
Subordinated Lender, be deemed to be a Distribution by I.F.S. to or on account
of Senior Indebtedness, it being understood that the provisions hereof are and
are intended solely for the purpose of defining the relative rights of the
Subordinated Lender on the one hand, and the Agent and Senior Lenders on the
other hand.
(i) Scope of Subordination. The provisions of
this Subordination Agreement are solely to define the relative rights of any
Holder of Subordinated Indebtedness, Agent and Senior Lenders. Nothing in this
Subordination Agreement shall impair, as between I.F.S. and the Subordinated
Lender the unconditional and absolute obligation of I.F.S. to punctually pay
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<PAGE> 7
the principal, interest and any other amounts and obligations owing under the
Purchase Agreement in accordance with the terms thereof, subject to the rights
of Agent and Senior Lenders under this Subordination Agreement.
3. Miscellaneous.
3.1. Additional Agreements. In the event that the
Senior Indebtedness is refinanced in full, Subordinated Lender agrees at the
request of such refinancing party to enter into a subordination agreement on
terms substantially similar to this Subordination Agreement.
3.2. Survival of Rights. The right of Agent to enforce
the provisions of this Subordination Agreement shall not be prejudiced or
impaired by any act or omitted act of I.F.S., Agent or any Senior Lender
including forbearance, waiver, consent, compromise, amendment, extension,
renewal, or taking or release of security in respect of any Senior Indebtedness
or noncompliance by I.F.S. with such provisions, regardless of the actual or
imputed knowledge of Agent or such Senior Lender.
3.3. Receipt of Agreements. Agent hereby acknowledges
receipt of a correct and complete copy of the Purchase Agreement as in effect
on the date hereof. The Subordinated Lender, solely for the purposes of this
Subordination Agreement, hereby acknowledges receipt of a correct and complete
copy of each of the Senior Lending Agreements as in effect on the date hereof.
3.4. No Amendment of Purchase Agreement. So long as the
Loan Agreement remains in effect, neither I.F.S. nor any Holder of Subordinated
Indebtedness shall enter into any amendment to or modification of any Purchase
Agreement which relates to or affects the principal amount, interest rate,
payment terms, or any other material covenant or agreement of I.F. S.
thereunder or in respect thereof, without the prior written consent of Agent.
3.5. Amendments to Senior Lending Agreements. Nothing
contained in this Subordination Agreement, or in any other agreement or
instrument binding upon any of the parties hereto, shall in any manner limit or
restrict the ability of Agent and Senior Lenders from increasing or changing
the terms of the loans under the Senior Lending Agreements, or to otherwise
waive, amend or modify the terms and conditions of the Senior Lending
Agreements, in such manner as Agent, Senior Lenders and the Company (prior to
the Merger being effective) or I.F.S. (upon the Merger becoming effective)
shall mutually determine. Each Holder of Subordinated Indebtedness hereby
consents to any and all such waivers, amendments, modifications and
compromises, and any other renewals, extensions, indulgences, releases of
collateral or other accommodations granted by Agent and/or Senior Lenders to
the Company (prior to the Merger being effective) or I.F.S. (upon the Merger
becoming effective) from time to time, and agrees that none of such actions
shall in any manner affect or impair the subordination established by this
Subordination Agreement in respect of the Subordinated Indebtedness.
3.6, Notice of Default and Certain Events. Agent and the
Holders of Subordinated Indebtedness shall undertake in good faith to notify
the other of the occurrence of any of the following as applicable:
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(i) the obtaining Of actual knowledge of the
occurrence of any default or breach under the Purchase Agreement;
(ii) the acceleration of any Senior Indebtedness
by Senior Lenders or of any Subordinated Indebtedness by any Holder of
Subordinated Indebtedness;
(iii) the granting by Senior Lenders of any waiver
of any Event of Default under the Loan Agreement or the granting by any Holder
of Subordinated Indebtedness of any waiver of any "default" or "event of
default" under the Purchase Agreement; or
(iv) The payment in full by (whether as a result
of refinancing or otherwise) of all Senior Indebtedness.
The failure of any party to give such notice shall not affect
the subordination of the Subordinated Indebtedness as provided in this
Subordination Agreement.
3.7. Notices. Any notice or other communication required
or permitted pursuant to this Subordination Agreement shall be deemed given (a)
when personally delivered to any officer of the party to whom it is addressed,
(b) on the earlier of actual receipt thereof or three (3) days following
posting thereof by certified or registered mail, postage prepaid, or (c) upon
actual receipt thereof when sent by a recognized overnight delivery service or
(d) upon actual receipt thereof when sent by telecopier to the number set forth
below with telephone communication, confirming receipt and subsequently
confirmed by registered, certified or overnight mail to the address set forth
below, in each case addressed to each party at its address set forth below or
at such other address as has been furnished in writing by a party to the other
by like notice:
If to Agent: PNC BANK, NATIONAL ASSOCIATION
2 PNC Plaza
620 Liberty Avenue
Pittsburgh, Pennsylvania 15265
Attention: Wallace G. Clements
Telephone., (412) 768-4376
Facsimile: (412) 762-4069
with copies to: Hahn & Hessen LLP
350 Fifth Avenue
New York, NY 10118-0075
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1010
Facsimile: (212) 594-7167
If to Subordinated
Lender: TYLER CORPORATION
520 Post Oak Boulevard, Suite 850
Houston, Texas 77027
Attention: Bruce W. Wilkinson
Telephone: (713) 629-9584
Facsimile: (713) 629-9936
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with copies to: Lidell, Sapp, Zivley, Hill & La Boon
600 Travis
3400 Texas Commerce Tower
Houston, Texas 77002-3004
Attention: David Taylor, Esq.
Telephone: (713) 226-1200
Facsimile: (713) 223-3717
If to the Company: INSTITUTIONAL FINANCING SERVICES,
INC.
5100 Park Road
Benicia, California 94510
Attention: James Cascino, President
Telephone: (707) 747-2124
Facsimile: (707) 747-4188
with copies to: CRUMMY, DEL DEO, DOLAN,
GRIFFINGER & VECCHIONE
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attention: Frank E. Lawatsch, Esq.
Telephone. (201) 596-4500
Facsimile: (201) 639-6249
3.8. Books and Records. The Subordinated Lender
shall (a) make notations on the books of the Subordinated Lender beside all
accounts or on other statements evidencing or recording any Subordinated
Indebtedness to the effect that such Subordinated Indebtedness is subject to
the provisions of this Subordination Agreement, (b) furnish Agent, upon request
from time to time, a statement of the account between the Subordinated Lender
and I.F.S. and (c) give Agent, upon its request, full and free access to the
Subordinated Lender's books pertaining only to such accounts with the right to
make copies thereof
3.9. Binding Effect; Other. This Subordination
Agreement shall be a continuing agreement, shall be binding upon and shall
inure to the benefit of the parties hereto from time to time and their
respective successors and assigns, shall be irrevocable and shall remain in
full force and effect until the Senior Indebtedness shall have been satisfied
or paid in full in cash and the Loan Agreement shall have been irrevocably
terminated, but shall continue to be effective, or be reinstated, as the case
may be, if at any time payment, or any part thereof, of any amount paid by or
on behalf of I.F.S. (both before and after giving effect to the Merger) with
regard to the Senior Indebtedness is rescinded or must otherwise be restored or
returned upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of I.F.S. (both before and after giving effect to the Merger),
or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee, custodian, or similar officer, for I.F.S. (both
before and after giving effect to the Merger) or any substantial part of its
property, or otherwise, all as though such payments had not been made. No
action which any Agent or any Senior Lender or I.F. S. may take or refrain from
taking with
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respect to the Senior Indebtedness, including any amendments thereto, shall
affect the provisions of this Subordination Agreement or the obligations of any
Subordinated Lender hereunder. Any waiver or amendment hereunder must be
evidenced by a signed writing of the party to be bound thereby, and shall only
be effective in the specific instance. This Subordination Agreement shall be
governed by and construed in accordance with the laws of the State of New York.
The headings in this Subordination Agreement are for convenience of reference
only, and shall not alter or otherwise affect the meaning hereof.
4. Representations and Warranties.
(a) Subordinated Lender represents and warrants
to Agent and Senior Lenders that Subordinated Lender is the holder of the
Subordinated Indebtedness. Subordinated Lender agrees that it shall not assign
or transfer any of the Subordinated Indebtedness without (i) prior notice being
given to Agent and (ii) such assignment or transfer being made expressly
subject to the terms of this Subordination Agreement, Subordinated Lender
further warrants to Agent and Senior Lenders that it has full right, power and
authority to enter into this Subordination Agreement and, to the extent
Subordinated Lender is an agent or trustee for other parties, that this
Subordination Agreement shall fully bind all such other parties.
(b) Agent represents and warrants to Subordinated
Lender that Senior Lenders are the holders of the Senior Indebtedness. Agent
agrees that neither Agent nor any Senior Lender shall assign or transfer any of
the Senior Indebtedness or without (i) prior notice being given to Subordinated
Lender and (ii) such assignment or transfer being made expressly subject to the
terms and provisions of this Subordination Agreement. Agent further warrants to
Subordinated Lender that it has full right, power and authority to enter into
this Subordination Agreement and, to the extent Agent is an agent or trustee
for other parties, that this Subordination Agreement shall fully bind all such
other parties.
5. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR
AGAINST ANY SUBORDINATED LENDER WITH RESPECT TO THIS OR ANY RELATED AGREEMENT
MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN STATE OF NEW YORK,
UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF THIS SUBORDINATION
AGREEMENT EACH SUBORDINATED LENDER, AGENT AND I.F.S. ACCEPT FOR THEMSELVES AND
IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE
BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
SUBORDINATION AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
PROCEEDINGS AGAINST THE SUBORDINATED LENDER IN ANY COURTS OF ANY OTHER
JURISDICTION ANY JUDICIAL PROCEEDING BY ANY SUBORDINATED LENDER AGAINST AGENT
OR ANY SENIOR LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN
ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS SUBORDINATION
AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A COURT LOCATED
IN THE CITY OF NEW YORK, STATE OF NEW YORK; PROVIDED THAT NOTWITHSTANDING THE
FOREGOING, IF IN ANY JUDICIAL PROCEEDING BY
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OR AGAINST ANY SUBORDINATED LENDER THAT IS BROUGHT IN ANY OTHER COURT SUCH
COURT DETERMINES THAT AGENT OR ANY SENIOR LENDER IS AN INDISPENSABLE PARTY,
SUCH SUBORDINATED LENDER SHALL BE TO ENTITLED TO JOIN OR INCLUDE AGENT OR SUCH
LENDER IN SUCH PROCEEDINGS IN SUCH OTHER COURT. EACH SUBORDINATED LENDER WAIVES
ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED
UPON FORUM NON CONVENIENS.
6. Waiver Of Jury Trial. EACH CREDITOR HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS SUBORDINATION AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR
OR ANY OF THEM WITH RESPECT TO THIS SUBORDINATION AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENTS OR AGREEMENT EXECUTED OR DELIVER, BY THEM IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE AND EACH CREDITOR HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRAIL WITHOUT JURY, AND
THAT EITHER OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have entered into this
Subordination Agreement this 15th day of October, 1997.
PNC BANK, NATIONAL ASSOCIATION
as Agent
By: /s/ CRAIG STILLWAGON
-----------------------------------------
Craig Stillwagon, Vice President
TYLER CORPORATION,
as Subordinated Lender
BY: /s/ BRUCE WILKINSON
-----------------------------------------
Name: Bruce Wilkinson
---------------------------------------
Title: Authorized Signature
--------------------------------------
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ACKNOWLEDGEMENT
The undersigned hereby acknowledges and agrees to the
foregoing Subordination Agreement. The undersigned agrees to be bound by the
terms and provisions thereof as they relate to the relative rights of the
Creditors with respect to each other. However, nothing therein shall be deemed
to amend, modify, supersede or otherwise alter the terms of the respective
agreements between the undersigned and each Creditor. The undersigned further
agrees that the Subordination Agreement is solely for the benefit of the
Creditors and shall not give the undersigned, its successors and assigns, or
any other person, any rights vis-a-vis any Creditor.
I.F.S. ACQUISITION CORP.
By: /s/ WILLIAM WALSH
--------------------------------
Name: William Walsh
Title: Chairman of the Board
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ____ day of October, 1997, before me personally came
Craig Stillwagon to me known, who, being by me duly sworn did depose
and say that he is a Vice/President of PNC BANK, NATIONAL ASSOCIATION,
the bank described in and which executed the above instrument; and
that he was authorized to sign his name thereto.
------------------------------------
Notary Public
STATE OF TEXAS )
) ss.:
COUNTY OF HARRIS )
On the ___ day of October, 1997, before me personally came
Bruce W. Wilkinson to me known, who, being duly sworn did depose and
say that he is the Authorized Signatory of TYLER CORPORATION, the
corporation described in and which executed the above instrument; and
that he signed his name * hereto by order or the board of directors of
said corporation.
/s/ DEJUANA A. BIVINS
------------------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ___ day of October, 1997, before me personally came
William Walsh to me known, who being by me duly sworn did depose and
say that he is the Chairman of the Board of I.F.S. ACQUISITION CORP.,
the corporation described in and which executed the above instrument;
and that he signed his name thereto by order of the board of directors
of said corporation.
------------------------------------
Notary Public
13
