<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 23, 1998
THE EASTWIND GROUP, INC.
------------------------
(Exact name of issuer as specified in charter)
Delaware 0-27638 23-2732753
(State or other Jurisdiction Commission (I.R.S. Employer
of Incorporation or file number Identification Number)
Organization)
100 Four Falls Corporate Center
Suite 305
West Conshohocken, Pennsylvania 19428
(Address of principal executive offices)
(610) 828-6860
(registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On February 23, 1998 The Eastwind Group, Inc. (the "Company") sold all of
the outstanding common stock of Ivy Industries, Inc., a Pennsylvania corporation
("Ivy"), to RPD Enterprises, Inc., a Virginia corporation (the "Purchaser")
pursuant to a Stock Purchase Agreement dated as of February 13, 1998. In return
for the Ivy Common stock, the Company received from the Purchaser, $1,152,250
payable as follows:
$377,500 in cash at closing;
$377,500 in the form of a promissory note due 30 days after closing; and
$397,250 in the form of a promissory note due in 36 monthly principal
installments of $11,035, plus interest of 8.5%, commencing in April 1998.
Ivy was a majority-owned (92.5%) subsidiary of the Company, which was
formed in October 1996 for the purpose of acquiring substantially all of the
assets of Tygart Moulding Corp. Ivy manufactures architectural hardwood trim
for the residential building trade, and manufactures and finishes picture
moulding for the picture wholesale trade.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
----------------------------------
(a) Financial statements of businesses acquired (provided in accordance
with Item 310(c) of Regulation S-B).
NOT APPLICABLE.
(b) Pro forma financial information (provided in accordance with Item
310(d) of Regulation S-B).
The following unaudited pro forma consolidated financial statements are filed
with this report:
Pro Forma Condensed Consolidated Balance Sheet as of
September 27, 1997 Page F-1
Pro Forma Condensed Consolidated Statement of Operations
for the Three Quarters Ended September 27, 1997 Page F-2
The pro forma condensed consolidated balance sheet of the Company as of
September 27, 1997 reflects the financial position of the Company after giving
effect to the disposition of the assets and assumption of the liabilities
discussed in Item 2 and assumes the disposition took place on September 27,
1997. The pro forma condensed consolidated statement of operations for the
three quarters ended September 27, 1997 assumes that the disposition occurred on
January 1, 1997 and is based on the operations of the Company for the three
quarters ended September 27, 1997. Ivy was acquired by the Company on December
31, 1996. The acquisition was accounted for using the purchase method of
accounting. Accordingly, adjustments to the historical consolidated statements
of operations for the three quarters ended September 30, 1996 and the year ended
December 31, 1996 are not required.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Company based upon assumptions deemed proper by it. The
unaudited pro forma condensed consolidated financial statements presented herein
are shown for illustrative purposes only and are not necessarily indicative of
the future financial position or future results of operations of the Company, or
of the financial position or results of operations of the Company that would
have actually occurred had the transaction been in effect as of the date or for
the period presented. In addition, it should be noted that the Company's
consolidated financial statements will reflect the disposition only from
February 23, 1998, the closing date.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical financial statements and related
notes of the Company.
(c) Exhibits
2.1 Stock Purchase Agreement by and between the Company and the
Purchaser dated as of February 13, 1998.
<PAGE>
The Eastwind Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 27, 1997
(unaudited)
<TABLE>
<CAPTION>
Pro forma
adjustments
--------------------------
ASSETS Historical Ivy (a) Other Pro forma
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 230,700 $ 23,302 $ 377,500 (b) $ 584,898
Accounts receivable, net 7,802,342 371,993 - 7,430,349
Due from related parties - 212,900 212,900 (c) -
Notes receivable - - 377,500 (b) 377,500
Inventories 5,449,825 2,514,293 - 2,935,532
Prepaid expenses 335,910 20,427 - 315,483
Prepaid or recoverable income taxes 1,225,538 - (332,000)(d) 893,538
----------- ---------- ------------ -----------
Total current assets 15,044,315 3,142,915 635,900 12,537,300
Property, plant and equipment, net 8,312,020 1,787,276 - 6,524,744
Notes receivable - long-term - - 397,250 (b) 397,250
Goodwill and other assets 8,390,819 102,530 - 8,288,289
----------- ---------- ------------ -----------
$31,747,154 $5,032,721 $1,033,150 $27,747,583
=========== ========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit $ 5,798,421 $1,111,113 $ - $ 4,687,308
Current portion of long-term debt 1,340,065 181,648 - 1,158,417
Current portion of capitalized lease obligations 903,123 33,544 - 869,579
Accounts payable 5,489,024 496,544 - 4,992,480
Accrued expenses 2,668,778 103,965 - 2,564,813
Due to related party - 80,500 80,500 (c) -
Deferred income taxes 59,431 - - 59,431
----------- ---------- ------------ -----------
Total current liabilities 16,258,842 2,007,314 80,500 14,332,028
Other liabilities
Long-term debt 5,382,636 2,595,329 - 2,787,307
Capitalized lease obligations 1,744,613 66,552 1,678,061
Accrued pension and postretirement benefits 209,005 - - 209,005
Deferred credit, net 141,737 - - 141,737
Other liabilities 217,459 - - 217,459
Deferred income taxes 398,550 - - 398,550
----------- ---------- ------------ -----------
Total liabilities 24,352,842 4,669,195 80,500 19,764,147
Minority interest in consolidated subsidiary 26,145 26,145 - -
----------- ---------- ------------ -----------
Redeemable Series B preferred stock 900,000 - - 900,000
----------- ---------- ------------ -----------
Stockholders' equity 6,468,167 337,381 952,650 7,083,436
----------- ---------- ------------ -----------
$31,747,154 $5,032,721 $1,033,150 $27,747,583
=========== ========== ============ ===========
</TABLE>
(a) To eliminate the assets and liabilities included in the balance sheet of Ivy
as of September 27, 1997.
(b) To reflect the consideration received from the Purchaser as described in
Item 2.
(c) To reflect the settlement of intercompany balances.
(d) To reflect income tax liabilities related to the transaction.
F-1
<PAGE>
The Eastwind Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three quarters ended September 27, 1997
(unaudited)
<TABLE>
<CAPTION>
Pro forma
adjustments
-------------------------------
Historical Ivy (a) Other Pro forma
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $38,155,075 $ 4,954,820 $ - $33,200,255
Cost of goods sold 30,570,686 3,073,924 - 27,496,762
----------- ----------- ----------- -----------
Gross profit 7,584,389 1,880,896 - 5,703,493
----------- ----------- ----------- -----------
Selling, general and administrative expenses
Selling 3,010,192 61,168 - 2,949,024
General and administrative 5,430,438 1,288,664 - 4,141,774
Consolidation expenses - Team Graphics, Inc. 212,228 - - 212,228
Contract settlement with former officer 430,137 - - 430,137
----------- ----------- ----------- -----------
9,082,995 1,349,832 - 7,733,163
----------- ----------- ----------- -----------
Operating income (loss) (1,498,606) 531,064 - (2,029,670)
Interest expense, net 1,342,247 296,287 - 1,045,960
----------- ----------- ----------- -----------
Income before income tax expense
(benefit) and minority interest (2,840,853) 234,777 - (3,075,630)
Income tax expense (benefit) (976,592) 85,200 - (1,061,792)
----------- ----------- ----------- -----------
Income (loss) before minority
interest (1,864,261) 149,577 - (2,013,838)
Minority interest in income of consolidated
subsidiary 11,218 11,218 - -
----------- ----------- ----------- -----------
NET INCOME (LOSS) (1,875,479) 138,359 - (2,013,838)
Preferred stock dividends (148,500) - - (148,500)
----------- ----------- ----------- -----------
Net income (loss) available to common
stockholders $(2,023,979) $ 138,359 $ - $(2,162,338)
=========== =========== =========== ===========
Earnings (loss) per share $ (0.75) $ 0.05 $ - $ (0.80)
=========== =========== =========== ===========
Shares used in computing earnings (loss)
per share 2,698,949 2,698,949 - 2,698,949
=========== =========== =========== ===========
</TABLE>
(a) To eliminate the profit and loss of Ivy for the entire period.
F-2
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE EASTWIND GROUP, INC.
Date: March 9, 1998 By: /s/ William B. Miller
----------------------------------
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- --------- -----------
2.1 Stock Purchase Agreement by and between the Company and RPD
Enterprises, Inc., dated as of February 13, 1998.
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
RPD ENTERPRISES, INC.
(A VIRGINIA CORPORATION)
AND
THE EASTWIND GROUP, INC.
(A DELAWARE CORPORATION)
RELATING TO THE PURCHASE OF THE STOCK OF
IVY-TYGART ACQUISITION CORP.
(A DELAWARE CORPORATION)
FEBRUARY 13, 1998
<PAGE>
TABLE OF CONTENTS
Article 1
Purchase and Sale of the Shares..............................................1
Section 1.1 Purchase and Sale of the Shares..............................1
Section 1.2 Purchase Price...............................................1
Section 1.3 Payment of the Purchase Price................................1
Article 2
Related Agreements...........................................................1
Section 2.1 Guaranty.....................................................1
Section 2.2 Tax Agreement................................................2
Section 2.3 Intercompany Receivable......................................2
Article 3
Representations and Warranties of Seller.....................................2
Section 3.1 Organization and Qualification of Seller.....................2
Section 3.2 Authority Relative to this Agreement.........................2
Section 3.3 The Shares...................................................2
Section 3.4 Organization and Qualification of Ivy-Tygart.................3
Section 3.5 Ivy-Tygart Capital Structure.................................3
Section 3.6 Financial Statements.........................................3
Section 3.7 No Undisclosed Liabilities...................................3
Section 3.8 Taxes........................................................4
Section 3.9 No Violation.................................................4
Section 3.10 Consents and Approval........................................4
Section 3.11 Licenses and Permits.........................................5
Section 3.12 Absence of Certain Changes or Events.........................5
Section 3.13 Properties...................................................6
Section 3.14 Accounts Receivable..........................................7
Section 3.15 Maintenance of Real Property and Tangible Personal
Property.....................................................7
Section 3.16 Intellectual Property........................................7
Section 3.17 Agreements, Contracts and Commitments........................8
Section 3.18 Inventory....................................................8
Section 3.19 Insurance....................................................9
Section 3.20 Litigation...................................................9
Section 3.21 Environmental Matters........................................9
Section 3.22 Employee Benefit Plans......................................11
Section 3.23 Compliance with Laws........................................11
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Section 3.24 Interested Party Transactions.............................12
Section 3.25 Labor and Employment Matters..............................12
Section 3.26 Full Disclosure...........................................12
Section 3.27 Finders...................................................12
Article 4
Representations and Warranties of Buyer...................................12
Section 4.1 Organization of Buyer......................................12
Section 4.2 Buyer Capital Structure....................................12
Section 4.3 Authority; No Conflict; Required Filings and Consents......13
Section 4.4 Consents and Approvals.....................................13
Section 4.5 Litigation.................................................13
Section 4.6 Full Disclosure............................................13
Section 4.7 Finders....................................................14
Article 5
Additional Agreements.....................................................14
Section 5.1 Business In Ordinary Course; Restrictions..................14
Section 5.2 Access to Information......................................15
Section 5.3 Third Party Consents.......................................16
Section 5.4 Releases...................................................16
Section 5.5 1997 Income Tax Returns....................................16
Section 5.6 No Solicitation............................................16
Section 5.7 Fees and Expenses..........................................17
Section 5.8 Public Disclosure..........................................17
Section 5.9 Subsequent Events..........................................17
Section 5.10 Further Assurances........................................17
Article 6
Conditions to Closing.....................................................17
Section 6.1 Conditions to Each Party's Obligation to Closing...........17
Section 6.2 Additional Conditions to Obligations of Buyer..............18
Section 6.3 Additional Conditions to Obligations of Seller.............19
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<PAGE>
Article 7
The Closing............................................................20
Section 7.1 Time and Place of Closing...............................20
Section 7.2 Deliveries by Seller....................................20
Section 7.3 Deliveries by Buyer.....................................21
Section 7.4 Deliveries by Seller and Buyer..........................21
Article 8
Indemnification........................................................21
Section 8.1 Indemnification By the Parties..........................21
Section 8.2 Limitation on Amount....................................21
Section 8.3 Procedure for Indemnification...........................22
Section 8.4 Survival; Investigation.................................22
Article 9
Termination and Amendment..............................................23
Section 9.1 Termination.............................................23
Section 9.2 Effect of Termination...................................23
Section 9.3 Amendment...............................................23
Section 9.4 Extension; Waiver.......................................23
Article 10
Miscellaneous Provisions...............................................23
Section 10.1 Notices...............................................23
Section 10.2 Interpretation........................................24
Section 10.3 Counterpart Copies....................................25
Section 10.4 Entire Agreement; No Third Party Beneficiaries........25
Section 10.5 Governing Law.........................................25
Section 10.6 No Assignment.........................................25
LIST OF EXHIBITS
Exhibit A Single Payment Promissory Note
Exhibit B Installment Promissory Note
Exhibit C Guaranty
Exhibit D Tax Agreement
Exhibit E Seller's Opinion of Counsel
Exhibit F Buyer's Opinion of Counsel
-iii-
<PAGE>
Stock Purchase Agreement
This Stock Purchase Agreement (The "Agreement"), Dated as of February 13,
1998, is made between RPD Enterprises, Inc., a Virginia Corporation ("Buyer")
and The Eastwind Group, Inc., a Delaware Corporation ("Seller").
The Recitals
Seller owns 92.5 shares of the issued and outstanding common stock, par
value $0.01 per share, of Ivy-Tygart Acquisition Corp., a Delaware corporation
("Ivy-Tygart"). Seller desires to sell and Buyer desires to purchase all of
such shares (the "Shares").
The Agreement
Now, Therefore, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth below, the parties agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF THE SHARES
SECTION 1.1 PURCHASE AND SALE OF THE SHARES. At the Closing, Seller
agrees to sell the Shares to Buyer, and Buyer agrees to purchase the Shares, for
the consideration and on the terms set forth in this Agreement.
SECTION 1.2 PURCHASE PRICE. The consideration to be paid for the Shares
(the "Purchase Price"), which shall be paid in the manner set forth in Section
1.3, shall be $1,152,250.00.
SECTION 1.3 PAYMENT OF THE PURCHASE PRICE. The Purchase Price shall be
paid to Seller as follows:
(1) $377,500.00 (the "Cash Payment") shall be paid to Seller at the
Closing (hereinafter defined) in immediately available funds by wire transfer to
an account at a banking or other financial institution designated in writing by
Seller;
(2) $377,500.00 shall be paid by delivery at the Closing to Seller of
Buyer's single payment promissory note due thirty (30) days after the Closing in
that principal amount (the "Buyer Note No. 1"), substantially in the form of the
promissory note attached to this Agreement as EXHIBIT A; and
(3) $397,250.00 shall be paid by delivery at the Closing to Seller of
Buyer's installment promissory note in that principal amount (the "Buyer Note
No. 2"), substantially in the form of the promissory note attached to this
Agreement as EXHIBIT B.
ARTICLE 2
RELATED AGREEMENTS
SECTION 2.1 GUARANTY. The obligations of the Buyer under Buyer Note No. 1
and Buyer Note No. 2 shall be guaranteed by John C. Reid pursuant to a Guaranty
substantially in the form of the Guaranty attached hereto as EXHIBIT C (the
"Reid Guaranty").
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<PAGE>
SECTION 2.2 TAX AGREEMENT. In connection with the sale and purchase of
the Shares contemplated by this Agreement, Seller and Buyer will enter into a
tax agreement in substantially the form attached hereto as EXHIBIT D (the "Tax
Agreement"), pursuant to which Seller and Buyer will agree to make certain tax
elections with respect to the acquisition of the Shares, and will provide for
the preparing and filing of certain tax returns for Ivy-Tygart and the
allocation of liability for certain taxes attributable to the income or loss of
Ivy-Tygart.
SECTION 2.3 INTERCOMPANY RECEIVABLE. In connection with the sale and
purchase of the Shares contemplated by this Agreement, Seller, immediately prior
to Closing, will cause Ivy-Tygart to declare a dividend (the "Dividend") equal
to the intercompany receivable due from Seller to Ivy-Tygart in the amount of
$252,900 which is reflected on Ivy-Tygart's financial records as of December 31,
1997 in order to offset such receivable. Seller shall cause Ivy-Tygart to take
such actions as may lawfully be taken to permit it to declare the Dividend in
accordance with the General Corporation Law of Delaware ("DGCL"). If, after
taking such actions, the amount of a dividend that may be declared in accordance
with the DGCL is still less than the amount of the intercompany receivable (the
"Deficit Amount") the Seller shall pay to Ivy-Tygart an amount equal to the
Deficit Amount in satisfaction of the remaining amount of the intercompany
receivable.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that the statements contained
in this Article 3 are true and correct, except as set forth in the disclosure
schedule delivered by Seller to Buyer on or before the date of this Agreement
(the "Seller Disclosure Schedule"). The Seller Disclosure Schedule shall be
arranged in items corresponding to the numbered and lettered sections contained
in this Article 3, and the disclosure in any item shall qualify only to
corresponding section in this Article 3 and any other section in which a cross
reference to such item is made.
SECTION 3.1 ORGANIZATION AND QUALIFICATION OF SELLER. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power to own, lease and
operate its property and to carry on its business. Seller has no offices and
conducts no business other than in the Commonwealth of Pennsylvania and is not
required to qualify to do business as a foreign corporation in any state.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has the
corporate power and authority to execute and deliver this Agreement and the Tax
Agreement, and to consummate the transactions contemplated hereby and thereby.
Except for approved by the Seller's Board of Directors, no other corporate
action or proceedings on its part are necessary with respect to the execution
and delivery by Seller of this Agreement and the Tax Agreement, and the
consummation by it of the transactions contemplated hereby and thereby. Subject
any to such approval, this Agreement has been duly executed and delivered by
Seller and this Agreement, constitutes, and the Tax Agreement, when executed and
delivered by Seller, will constitute valid and binding obligations of Seller,
enforceable against it in accordance with their respective terms except as such
enforcement may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or general principles of equity, whether considered
in a proceeding in equity or at law.
SECTION 3.3 THE SHARES. Except as set forth in Item 3.3 of the Disclosure
Schedule, (i) Seller is the owner of the Shares, has good title to the
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<PAGE>
Shares, and has the right and authority to sell the Shares to the Buyer pursuant
to this Agreement free of any restrictions, liens, pledges or other
encumbrances, and (ii) upon delivery to Buyer of certificates evidencing the
Shares pursuant to this Agreement, Buyer will have good title to the Shares,
free of liens, mortgages, charges, security interests and other defects in title
generally considered to be encumbrances ("Encumbrances").
SECTION 3.4 ORGANIZATION AND QUALIFICATION OF IVY-TYGART. Ivy-Tygart is a
corporation duty organized, validly existing and in good standing under the laws
of the state of Delaware, has all requisite corporate power to own, lease and
operate its property and to carry on its business as presently conducted and is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified does not and cannot
reasonably be expected to have a material adverse effect on the Shares, its
business, assets (including intangible assets), earnings, financial condition or
results of operations or prospects (a "Material Adverse Effect"). Seller has
previously delivered to Buyer complete and correct copies of the Certificate of
Incorporation and Bylaws of Ivy-Tygart, as currently in effect. Ivy-Tygart has
no subsidiary corporations.
SECTION 3.5 IVY-TYGART CAPITAL STRUCTURE.
(1) The authorized capital stock of Ivy-Tygart consists of 1,000
shares of common stock $0.01 par value ("Ivy-Tygart Common Stock"). One hundred
shares of Ivy-Tygart Common Stock are issued and outstanding, all of which are
validly issued, fully nonassessable, 92.5 shares of which are owned of record
and beneficially by Seller and 7.5 shares of which are owned of record by John
C. Reid. No shares of Ivy-Tygart Common Stock are held in the treasury of Ivy-
Tygart. There are no obligations, contingent or otherwise, of Ivy-Tygart to
repurchase, redeem or otherwise acquire any shares of Ivy-Tygart Common Stock
held by Seller or, to Seller's knowledge, to repurchase, redeem or otherwise
acquire any shares of Ivy-Tygart Common Stock held by John C. Reid, or to make
any investment (in the form of a loan, capital contribution or otherwise) in any
corporation, partnership, limited liability company, joint venture, or other
organization.
(2) With the exception of Ivy-Tygart Common Stock, there are no equity
securities of any class of Ivy-Tygart, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. There are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Ivy-Tygart is a party or by
which it is bound obligating Ivy-Tygart to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of Ivy-Tygart
or obligating Ivy-Tygart to grant, extend, accelerate the vesting of or enter
into any such option, warrants equity security, call, right, commitment or
agreement. Except as set forth in Item 3.3 of the Seller Disclosure Schedule,
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting of the shares of capital stock of Ivy-Tygart held by
Seller or, to Seller's knowledge, with respect to the voting of the shares of
capital stock of Ivy-Tygart held by John C. Reid.
SECTION 3.6 FINANCIAL STATEMENTS. Seller has previously furnished Buyer
with true and complete copies of the unaudited opening balance sheet of Ivy-
Tygart as of December 31, 1996, and has also furnished Buyer with true and
complete copies of the unaudited interim financial statements of Ivy-Tygart for
the eleven-month period ending November 30, 1997. Except as may be indicated
therein or in the notes thereto, such financial statements (collectively, the
"Financial Statements") present fairly in all material respects the financial
position of Ivy-Tygart as of such dates and the results of its operations and
changes in financial position for such periods and have been prepared in
accordance with generally accepted accounting principles (except with respect to
financial statement footnotes) applied on a consistent basis.
SECTION 3.7 NO UNDISCLOSED LIABILITIES. Neither Seller nor Ivy-Tygart has
any liabilities, either accrued or contingent, and whether due or to become due,
which individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on Ivy-Tygart which are not reflected in the Financial
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<PAGE>
Statements other than normal or recurring liabilities incurred since November
30, 1997 in the ordinary course of business consistent with past practices.
SECTION 3.8 TAXES.
(1) For the purposes of this Agreement, a "Tax" or, collectively,
"Taxes," means any and all federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(2) Ivy-Tygart (or Seller on behalf of Ivy-Tygart, through
consolidated tax returns) has accurately prepared and timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
required to be filed at or before the Closing ("Returns") relating to any and
all Taxes concerning or attributable to Ivy-Tygart or to its operations, and
such Returns are true and correct in all material respects and have been
completed in all material respects in accordance with applicable law.
(3) As of the Closing, Ivy-Tygart (or Seller on behalf of Ivy-Tygart)
will have (i) paid all Taxes required on the basis of such returns, estimates,
information statements and reports to be paid prior to the Closing Date, and
(ii) withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld, except where any failure to
make such payment or withholding could not reasonably be expected to have a
Material Adverse Effect on Ivy-Tygart.
(4) To the knowledge of Seller, there is no Tax deficiency
outstanding, proposed or assessed against Ivy-Tygart that is not reflected as a
liability on the Financial Statements. Ivy-Tygart (or Seller on behalf of Ivy-
Tygart) has not executed any waiver of any statute of limitations on, or any
agreement extending the period for, the assessment or collection of any Tax.
Ivy-Tygart (or Seller on behalf of Ivy-Tygart) has not executed any power of
attorney authorizing any person to represent it in connection with any Tax
matter.
(5) Ivy-Tygart does not have any material liabilities for unpaid
federal, state, local and foreign Taxes that have not been accrued for or
reserved on the Financial Statements, whether asserted or unasserted, contingent
or otherwise.
SECTION 3.9 NO VIOLATION. Except as set forth in Item 3.9 of the Seller
Disclosure Schedule, the execution and delivery by Seller of this Agreement and
the Tax Agreement do not, and the consummation of the transactions contemplated
hereby and thereby will not, (i) violate or result in a breach of any provision
of the Certificate of Incorporation or Bylaws of Seller, or the Certificate of
Incorporation or Bylaws of Ivy-Tygart, (ii) result in a default (or give rise to
any right of termination, cancellation or acceleration) under the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Seller or Ivy-Tygart
is a party or by which Seller, Ivy-Tygart or the Shares may be bound, or (iii)
violate any law or regulation, or any judgment, order or decree of any court,
governmental body, commission, agency or arbitrator applicable to Seller, Ivy-
Tygart or the Shares.
SECTION 3.10 CONSENTS AND APPROVAL. Except as set forth in Item 3.10 of
the Seller Disclosure Schedule, there is no requirement applicable to Seller or
Ivy-Tygart to make any filing with, or obtain any permit, authorization, consent
or approval of any individual, corporation, partnership, association, labor
union, trust or any other entity or organization, including a government, a
governmental body, a political subdivision
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<PAGE>
or an agency of instrumentality thereof (individually, a "Person" and
collectively, "Persons") as a condition to the lawful consummation of the
transactions contemplated by this Agreement and the Tax Agreement.
SECTION 3.11 LICENSES AND PERMITS. The term "Licenses and Permits" as used
herein means governmental licenses, permits, approvals and authorizations,
whether federal, state and local, domestic or foreign, other than Environmental
Permits (hereinafter defined). Item 3.11 of the Seller Disclosure Schedule
contains a complete list of all of such Licenses and Permits required to conduct
its business as it is presently being conducted, other than those the failure of
which to have would not reasonably be expected to have a Material Adverse Effect
on Ivy-Tygart, all of which are in full force and effect, except as otherwise
set forth therein. The business of Ivy-Tygart has been operated in compliance
with all of the terms and conditions set forth in such Licenses and Permits,
except for such violations thereof as do not and cannot reasonably be expected
to have a Material Adverse Effect on Ivy-Tygart. No notice of a violation of
any such License or Permit has been received by Seller or Ivy-Tygart, or to the
knowledge of Seller, recorded or published, and no proceeding is pending or, to
the knowledge of Seller, threatened, to modify, amend, suspend or revoke any of
them.
SECTION 3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Item 3.12 of the Seller Disclosure Schedule, since November 30, 1997, Ivy-Tygart
has conducted its business only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been:
(1) any change, or development involving a prospective change,
including, without limitation, any damage, destruction or loss (whether or not
covered by insurance) which have or, to the knowledge of Seller, can reasonably
be expected to have a Material Adverse Effect on Ivy-Tygart;
(2) any obligation or liability involving more than $25,000 (whether
matured, absolute, accrued, contingent or otherwise) incurred by Ivy-Tygart
other than in the ordinary course of business;
(3) any general uniform increase in the compensation of the employees
of Ivy-Tygart including, without limitation, those required by law or collective
bargaining agreements;
(4) any increase in the compensation payable to any officer of Ivy-
Tygart;
(5) any amendment to any employment agreement to which any employee of
Ivy-Tygart is a party;
(6) any sale of assets of Ivy-Tygart other than in the ordinary course
of business;
(7) any deterioration of relations between Ivy-Tygart and its
suppliers which could reasonably be expected to have a Material Adverse Effect
on Ivy-Tygart, or any deterioration of relations between Ivy-Tygart and its
customers;
(8) any direct or indirect redemption, purchase or other acquisition
of any shares of the capital stock of Ivy-Tygart held by Seller or, to Seller's
knowledge, held by John C. Reid;
(9) any split, combination or other similar change in the outstanding
capital stock of Ivy-Tygart;
(10) any declarations setting aside or payment of any dividend (whether
in cash, capital stock or property) with respect to the Shares; or
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(11) any issuance by Ivy-Tygart of any shares of its capital stock, or
any securities or obligations convertible into or exchangeable for, or giving
any person the right to acquire from it, any shares of its capital stock.
SECTION 3.13 PROPERTIES.
(1) Item 3.13(1) of the Seller Disclosure Schedule contains a true and
complete list of all real property owned by Ivy-Tygart. Ivy-Tygart does not
lease any real property from any third party. Except as disclosed in Item
3.13(1) of the Seller Disclosure Schedule and except for Permitted Exceptions
(hereinafter defined), Ivy-Tygart has good title to all of its properties real
and personal, free and clear of Encumbrances.
(2) The term "Permitted Exceptions" shall mean (i) with respect to the
real property of Ivy-Tygart located in Charlottesville, Virginia, (A) the lien
of a Credit Line Deed of Trust from Ivy-Tygart to M. Clifton McClure and Fred S.
Landess, trustees, dated as of December 27, 1996, securing the obligations of
Ivy-Tygart under the Loan Agreement dated December 5, 1996 between Ivy-Tygart
and Jefferson National Bank in the original principal amount of $1,075,000 (the
"JNB Loan Agreement"); (b) the lien of a Deed of Trust (Participation) from Ivy-
Tygart to Dawn V. DiBenedetto and Lorraine R. Dismond, trustees, dated February
6, 1997, securing the obligations of Ivy-Tygart under the Authorization for
Debenture Guarantee 504 Loan Program dated December 17, 1996 between Ivy-Tygart
and the U.S. Small Business Administration in the original principal amount of
$750,000 (the "SBA Loan Agreement"); and (C) the leasehold interest of The
Mattie Corporation for 11,000 square feet of the Charlottesville facility
pursuant to Commercial Lease dated May 7, 1997 between Ivy-Tygart, as landlord
and The Mattie Corporation, as tenant expiring on June 30, 1998 (the "Mattie
Corporation Lease"), (ii) with respect to real property of Ivy-Tygart located in
Beverly, West Virginia, the lien of (A) a Trust Deed from Ivy-Tygart to R. Sue
Core, trustee, dated December 23, 1996, securing the obligations of Ivy-Tygart
under an Adjustable Rate Note dated December 23, 1996 payable to Mountain Valley
Bank, N.A. in the original principal amount of $300,000 (the "Mountain Valley
Bank Note No. 1"), and (B) a Trust Deed from Ivy-Tygart to R. Sue Core, trustee,
dated July 9, 1997, securing the obligations of Ivy-Tygart under a fixed rare
note (10.1%) dated July 9, 1997 payable to Mountain Valley Bank, N.A. in the
original principal amount of $275,000 (the "Mountain Valley Bank Note No. 2");
(iii) with respect to the equipment and machinery accounts receivable and
inventory of Ivy-Tygart, a security interest granted to Fidelity Funding,
Inc. by Loan and Security Agreement dated as of December 31, 1996, as collateral
for obligations of Ivy-Tygart in the aggregate amount of $1,950,000 (the
"Fidelity Funding Loan Agreement"); (iv) statutory liens for current taxes or
assessments not yet due or delinquent; (v) mechanics, carriers, worker,
repairers and other similar liens arising or incurred in the ordinary and usual
course of business relating to obligations as to which there is no default or as
to which default has been cured, provided that the same shall be fully
discharged of record before the Closing; (vi) exceptions shown on surveys
furnished by Seller or Ivy-Tygart to Buyer on or before the date hereof and
agreed to in writing by Buyer; (vii) purchase money liens in favor of (A)
Jenkins Ford-Mercury, Inc. on a 1997 Ford F-150 pickup truck securing a note
dated June 16, 1997 in the original principal amount of $22.831.10 and (B)
Citizens National Bank on a 1997 Chevrolet 3500 pickup truck securing a note
dated October 20, 1997 in the original principal amount of $24,527.00; (viii)
other purchase money liens, none of which exceed $5,000 individually or $25,000
in the aggregate; (ix) such other liens, imperfections in title, charges,
easements, restrictions and encumbrances which have been agreed to by Buyer or
otherwise shown on Old Republic National Title Insurance Company Policy No. SV
2827891 and Lawyers Title Insurance Corporation Policy No. 136-00-218305 with
respect to the Charlottesville, Virginia and the Beverly, West Virginia real
property, respectively; and (x) with respect to certain rights of the Company
arising out of or related to that certain Asset Purchase Agreement by and
between the Company and Tygart Moulding Corporation dated as of December 31,
1996 and the documents, instruments and agreements related thereto, the security
interests granted by the Company to Fidelity Funding,
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Inc., pursuant to an Assignment of Acquisition Documents dated as of December
31, 1996 by and between the Company and Fidelity Funding, Inc.
SECTION 3.14 ACCOUNTS RECEIVABLE. A correct and complete list of the
accounts receivable for Ivy-Tygart as of January 2, 1998, has previously been
furnished by Seller to Buyer. Such accounts receivable and those acquired by
Ivy-Tygart subsequent to the date of such list and prior to the Closing (and not
collected prior to the Closing), have or will have arisen in the ordinary course
of business and will have been collected or be collectible in amounts not less
than the aggregate amount thereof (net of reserves established in accordance
with prior practice) carried on the books of Ivy-Tygart. Each of such accounts
receivable, and those acquired subsequent to the date of such list furnished to
Buyer, is not and will not be the subject of a pledge or assignment and is and
will be free of Encumbrances except for Permitted Exceptions, and has not been
and will not be placed for collection with any attorney, collection agency or
similar individual or firm.
SECTION 3.15 MAINTENANCE OF REAL PROPERTY AND TANGIBLE PERSONAL PROPERTY.
To Seller's knowledge, the real property and tangible personal property which
belongs to Ivy-Tygart has been maintained in good repair in accordance with the
usual practices in the United States of businesses which are similar to the
business conducted by Ivy-Tygart, in good condition, ordinary wear and tear
excepted, and is usable in the ordinary, course of the business of Ivy-Tygart as
it is presently being conducted, and is owned by Ivy-Tygart free of Encumbrances
except for Permitted Exceptions, and except for equipment leased under the
equipment leases listed in Item 3.15 of the Seller Disclosure Schedule, or as
otherwise disclosed therein.
SECTION 3.16 INTELLECTUAL PROPERTY.
(1) Except for the Permitted Exception set forth in Section
3.13(2)(x), Ivy-Tygart owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks
and copyrights, any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights, and all tangible or
intangible proprietary information or material that is necessary to conduct the
business of Ivy-Tygart as currently conducted ("Ivy-Tygart Intellectual Property
Rights"). Item 3.16 of the Seller Disclosure Schedule lists (i) all patents and
patent applications and all trademarks, registered copyrights, trade names and
service marks, which Ivy-Tygart considers to be material to its business and
included in Ivy-Tygart Intellectual Property Rights, including the jurisdictions
in which each such Ivy-Tygart Intellectual Property Right has been issued or
registered or in which any such application for such issuance and registration
has been filed, (ii) all licenses, sublicenses, distribution agreements and
other agreements as to which Ivy-Tygart is a party and pursuant to which any
person is authorized to use any Ivy-Tygart Intellectual Property Rights, and
(iii) all licenses, sublicenses and other agreements as to which Ivy-Tygart is a
party and pursuant to which Ivy-Tygart is authorized to use any third party
patents, trademarks or copyrights, including software ("Ivy-Tygart Third Party
Intellectual Property Rights") which are incorporated in, are, or form a part of
any Ivy-Tygart product.
(2) Ivy-Tygart is not, nor will it be as a result of the consummation
of the transactions contemplated by this Agreement, in breach of any license,
sublicense or other agreement relating to Ivy-Tygart Intellectual Property
Rights or Ivy-Tygart Third Party Intellectual Property Rights.
(3) Except for the Permitted Exception set forth in Section
3.13(2)(x), all patents, registered trademarks, service marks and copyrights
listed in Item 3.16 of the Seller Disclosure Schedule are valid and subsisting
and free of Encumbrances. Ivy-Tygart (i) has not been sued in any suit, action
or proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party; and (ii) has not been given notice or is otherwise
aware that the manufacturing, marketing, licensing or sale of its products
infringes any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party.
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SECTION 3.17 AGREEMENTS, CONTRACTS AND COMMITMENTS. Item 3.17 of the
Seller Disclosure Schedule sets forth a complete and correct list of each
existing contract, agreement or commitment of Ivy-Tygart (other than the
agreements described in the definition of Permitted Exceptions set forth in
Section 3.13(2)):
(1) upon which any substantial part of its business is dependent or
which, if breached, would be reasonably likely to have a Material Adverse Effect
on Ivy-Tygart;
(2) which provides for aggregate future payments of more than $5,000,
except for purchase orders or sale orders arising in the ordinary and usual
course of business, in which case they are listed only if any party thereto is
obligated to make payments pursuant thereto aggregating more than $25,000;
(3) which extends for more than one hundred eighty (180) days from the
date hereof and is not cancelable by either party on 30 days' notice or less;
(4) which provides for the sale after the date hereof and other than
in the ordinary course of business, of any of its assets;
(5) which relates to the employment compensation, retirement or
termination of the services of any officer or employee or former officer or
employee, including bonus, incentive, pension, profit-sharing, hospitalization,
insurance, deferred compensation, retirement, stock option or stock purchase
plans or similar plans providing employee benefits for or with respect to any
officer or employee;
(6) which contains covenants pursuant to which any person or entity
has agreed not to compete with the business of any other Person or not to
disclose to others information concerning such other Person;
(7) which relates to the sale or other disposition of goods or
services and which (i) involve terms or quantities exceeding normal commitments
or in the ordinary course of business or (ii) contain special pricing terms or
other provisions which would prohibit or limit the ability of Buyer to effect
price increases;
(8) pursuant to which title to any assets of Ivy-Tygart may be
encumbered; or
(9) which relates to any partnership, joint venture or other
arrangement involving a sharing of profits from any enterprise.
Each of the foregoing is referred to in this Agreement as a "Material
Contract." Each Material Contract is in full force and effect and there has not
occurred, with respect to any such Material Contract, any default or event of
default, which, with or without due notice or with the lapse of time or both,
would constitute a default or event of default on the part of Ivy-Tygart or, to
the best knowledge of Seller, any other party thereto, except where such default
or event of default would not have a Material Adverse Effect on Ivy-Tygart.
Complete copies of each Material Contract have been delivered to Buyer.
SECTION 3.18 INVENTORY. The term "Inventory" as used herein means raw
materials, work-in-progress and finished goods of Ivy-Tygart. Its Inventory (i)
is usable or saleable in the ordinary course of business, (ii) is adequate for
the conduct of the business of Ivy-Tygart as it is presently being operated and
(iii) is carried on the books of Ivy-Tygart at an aggregate amount which
reflects valuations determined in accordance with generally accepted accounting
principles applied on a consistent basis. The Inventory is free of Encumbrances
except for Permitted Exceptions.
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SECTION 3.19 INSURANCE. Item 3.19 of the Seller Disclosure Schedule sets
forth a list of insurance policies maintained by Ivy-Tygart or by Seller on
behalf of Ivy-Tygart. Ivy-Tygart is not in default in any respect under any
provision of any such policy nor has it failed to give notice or present any
claim thereunder in a timely manner so as to bar recovery of any valid claim.
Except as set forth in Item 3.19 of the Seller Disclosure Schedule, Ivy-Tygart
is the sole beneficiary of the proceeds of such policies which are free from
Encumbrances except for Permitted Exceptions.
SECTION 3.20 LITIGATION. Except as set forth in Item 3.20 of the Seller
Disclosure Schedule, there are no actions, suits, claims, investigations or
proceedings (legal, administrative or arbitrative) pending or, to the best
knowledge of Seller, threatened, against Ivy-Tygart, the Seller or any of its
Affiliates (as hereinafter de fined) whether at law or in equity and whether
civil or criminal in nature, before any federal, state, municipal or other
court, arbitrator, governmental department commission, agency or
instrumentality, domestic or foreign nor are there any judgments, decrees or
orders of any such court, arbitrator, governmental department, commission,
agency or instrumentality outstanding against Ivy-Tygart, the Seller or any of
its Affiliates which have, or if adversely determined, could reasonably be
expected to have a Material Adverse Effect on the Shares or Ivy-Tygart, or which
seek specifically to prevent, restrict or delay consummation of the transactions
contemplated by this Agreement or fulfillment of any of the conditions of this
Agreement. As used herein, the term "Affiliate" means with respect to any
person (i) any officer or director of that person, (ii) any person or entity
beneficially owning 10% or more of any class of equity securities of that
person, and (iii) any other person or entity that directly, or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control wide, that person.
SECTION 3.21 ENVIRONMENTAL MATTERS.
(1) Item 3.21 of the Seller Disclosure Schedule contains an index of
the material safety data sheets used by Ivy-Tygart in the ordinary course of
business in its wood finishing process. These materials have been used, stored
and disposed of off-site in compliance with all applicable laws. Except as set
forth in Item 3.21 of the Seller Disclosure Schedule, no material amount of any
substance that has been designated by any governmental entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to such laws (a "Hazardous Material"),
are present as a result of the actions of Ivy-Tygart or any of its subsidiaries,
or, to Seller's knowledge, any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water and
surface water, that Ivy-Tygart has at any time owned, operated, occupied or
leased, where the presence of such Hazardous Material could reasonably be
expected to have a Material Adverse Effect on Ivy-Tygart.
(2) At no time has Ivy-Tygart transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has Ivy-
Tygart or any of its subsidiaries disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any governmental entity to prohibit, regulate it
control Hazardous Materials or any Hazardous Material Activity which has had or
could reasonably be expected to have a Material Adverse Effect on Ivy-Tygart.
(3) The term "Environmental Permits" as used herein means governmental
permits, approvals and authorizations, whether federal, state or local, domestic
or foreign, which relate to the
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environment or to public health and safety or worker health and safety as they
may be affected by the environment, including, without limitation, those
relating to (i) emissions, discharges or threatened discharges of pollutants,
contaminants, hazardous or toxic substances or petroleum into the air, surface
water, ground water or the ocean, or on or into the land and (ii) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous or toxic
substances, or petroleum.
(4) Ivy-Tygart has obtained all Environmental Permits required to
conduct its business as it is presently being conducted. Item 3.21(4) of the
Seller Disclosure Schedule contains a complete list of all such Environmental
Permits, all of which am in full force and effect.
(5) Ivy-Tygart has operated its business in compliance with all laws
and regulations relating to pollution control and environmental contamination
and the provisions of its Environmental Permits, except for such violations
thereof as do not and cannot reasonably be expected to have a Material Adverse
Effect on Ivy-Tygart.
(6) Ivy-Tygart is not obligated, by itself or jointly with others, to
clean up, remedy or otherwise restore to its former condition any building,
contaminated surface water, ground water, soil or any natural resource
associated therewith.
(7) No investigation or review is pending with respect to any alleged
failure of Ivy-Tygart to comply with any of the aforementioned laws or
regulations or the terms and conditions of any of its Environmental Permits,
and, to the knowledge of Seller, no event has occurred or condition exists which
can reasonably be expected to give rise to such an allegation or cause Ivy-
Tygart to be obligated to take any action described in paragraph 3.21(6).
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SECTION 3.22 EMPLOYEE BENEFIT PLANS.
(1) Item 3.22 of the Seller Disclosure Schedule lists all of the
employee benefit plans and programs (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Ivy--Tygart or any trade or
business (whether or not incorporated) which is a member or which is under
common control with Ivy-Tygart within the meaning of Section 414 of the Code (an
"ERISA Affiliate") (together, the "Ivy-Tygart Employee Plans").
(2) With respect to each Ivy-Tygart Employee Plan and to the best
knowledge of Seller, Seller has made available to Buyer a true and correct copy
of (i) such Ivy-Tygart Employee Plan, (ii) each trust agreement and group
annuity contract, if any, relating to such Ivy-Tygart Employee Plan, and (iii)
the most recent actuarial report or valuation relating to a Ivy-Tygart Employee
Plan subject to Title IV of ERISA. Except as set forth on Item 3.22 of the
Seller Disclosure Schedule, no annual report (Form 5500) with respect to any
Ivy-Tygart Employee Plan is due to be filed, and none has been filed, with the
Internal Revenue Service ("IRS").
(3) With respect to Ivy-Tygart Employee Plans, individually and in the
aggregate, no event has occurred, and to the best knowledge of Seller, there
exists no condition or set of circumstances in connection with which Ivy-Tygart
could be subject to any liability that could reasonably be expected to have a
Material Adverse Effect on Ivy-Tygart under ERISA, the Code or any other
applicable law.
(4) With respect to Ivy-Tygart Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Ivy Tygart, which obligations could reasonably be expected to
have a Material Adverse Effect on Ivy-Tygart.
(5) Ivy-Tygart is not a party to any oral or written (i) union or
collective bargaining agreement, (ii) agreement with any officer or other key
employee of Ivy-Tygart, the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
IvyTygart of the nature contemplated by this Agreement, (iii) agreement with any
officer of Ivy-Tygart providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof or for the
payment of compensation in excess of $30,000 per annum, or (iv) agreement or
plan, including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated by the
occurrence of any of the actions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
SECTION 3.23 COMPLIANCE WITH LAWS. Ivy-Tygart has compiled with, is not in
violation of, and has not received any notice of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business or the ownership or operation of its business, except for
failures to comply or violations which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Ivy-
Tygart.
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SECTION 3.24 INTERESTED PARTY TRANSACTIONS. No officer, director or other
Affiliate of Ivy-Tygart (i) competes with or is involved in or has direct or
indirect interest in any business entity which competes with the business
conducted by Ivy-Tygart, (ii) has any agreement with Ivy-Tygart other than an
employment agreement listed on the Seller Disclosure Schedule, or (iii) except
as set forth on Item 3.24 of the Seller Disclosure Schedule, has any interest,
direct or indirect, in any property, real or personal, tangible or intangible,
without limitation, Ivy-Tygart Intellectual Property which is material to Ivy-
Tygart and used in or pertaining to its business.
SECTION 3.25 LABOR AND EMPLOYMENT MATTERS. Item 3.25 of the Seller
Disclosure Schedule sets forth a complete and correct list of each employment
agreement to which Ivy-Tygart is a party. There are no controversies, claims or
grievances pending or, to the knowledge of Seller, threatened between Seller or
Ivy-Tygart and Ivy-Tygart employees, which have or could reasonably be expected
to have, directly or indirectly, a Material Adverse Effect on Ivy-Tygart.
SECTION 3.26 FULL DISCLOSURE. None of the information supplied or to be
supplied by Seller at the date such information is supplied, and none of the
representations and warranties of Seller which are made in this Agreement (a
representation and warranty being deemed to include the information contained in
any schedule hereto or furnished in connection herewith), contains an untrue
statement of a material fact or, taken as a whole, omits to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.27 FINDERS. No broker, finder or investment banker is entitled
to any fee or commission from Seller or Ivy-Tygart for services rendered on
behalf of Seller or Ivy-Tygart in connection with the transactions contemplated
by this Agreement or the Tax Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained in
this Article 4 are true and correct, except as set forth in the disclosure
schedule delivered by Buyer to Seller on or before the date of this Agreement
(the "Buyer Disclosure Schedule"). The Buyer Disclosure Schedule shall be
arranged in items corresponding to the numbered and lettered sections contained
in this Article 4 and the disclosure in any item shall qualify only the
corresponding section in this Article 4 and any other section in which a cross
reference to such item is made.
SECTION 4.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed to
be conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
could reasonably be expected to have a Material Adverse Effect on Buyer. Buyer
has previously delivered to Seller complete and correct copies of the Articles
of Incorporation and Bylaws of Buyer as currently in effect.
SECTION 4.2 BUYER CAPITAL STRUCTURE. The authorized capital stock of Buyer
consists of 5,000 shares of common stock, $0.01 par value ("Buyer Common
Stock"), of which 10 shares of Buyer Common Stock are issued and outstanding,
all of which are validly issued, fully paid and non-assessable, and are owned of
record and beneficially by John C. Reid.
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SECTION 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(1) Buyer has all requisite corporate power and authority to enter
into this Agreement, Buyer Note No. 1, Buyer Note No. 2 and the Tax Agreement
and to consummate the transactions contemplated by this Agreement and the Tax
Agreement. Except for approval by the Buyer's Board of Directors, no other
corporate action or proceedings on its part are necessary with respect to the
execution and delivery by Buyer of this Agreement and the Tax Agreement, and the
consummation by it of the transactions contemplated hereby and thereby. Subject
only to such approval, this Agreement has been duly executed and delivered by
Buyer and this Agreement constitutes, and Buyer Note No. 1, Buyer Note No. 2 and
the, Tax Agreement, when executed and delivered by Buyer, will constitute valid
and binding obligations of Buyer, enforceable against it in accordance with
their respective terms except as such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally or general
principles of equity, whether considered in a proceeding in equity or at law.
(2) Except as disclosed in the Buyer Disclosure Schedule, the
execution and delivery by Buyer of this Agreement, Buyer Note No, 1, Buyer Note
No. 2 and the Tax Agreement do not and the consummation of the transactions
contemplated by this Agreement, Buyer Note No. 1, Buyer Note No. 2 and the Tax
Agreement will not, (i) conflict with, or result in any violation or, breach of
any provision of the Articles of Incorporation or Bylaws of Buyer, (ii) result
in any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement instrument or obligation to which Buyer is a
party or by which Buyer or any of its properties or assets may be bound, or
(iii) conflict or violate any permit, concession, franchise, license, judgment
order, decree, statute, law, ordinance, rule or regulation applicable to Buyer
or any of its properties or assets, except in the case of (ii) and (iii) for any
such conflicts, violations, defaults, terminations, cancellations or
accelerations which could not reasonably be expected to have a Material Adverse
Effect on Buyer.
SECTION 4.4 CONSENTS AND APPROVALS. There is no requirement applicable to
Buyer to make any filing with, or to obtain the consent or approval of any
Person as a condition to the consummation of the transactions contemplated by
this Agreement.
SECTION 4.5 LITIGATION. No action, suit, claim, investigation or
proceeding is pending or to the knowledge of Buyer, threatened against Buyer
which seeks to prevent, restrict or delay consummation of the transactions
contemplated by this Agreement
SECTION 4.6 FULL DISCLOSURE. None of the information supplied or to be
supplied by Buyer at the date such information is supplied, and none of the
representations and warranties of Buyer which are made in this Agreement (a
representation and warranty being deemed to include the information contained in
any schedule hereto or furnished in connection herewith), contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
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SECTION 4.7 FINDERS. No broker, finder or investment banker is entitled
to any fee or commission from Buyer for services rendered on behalf of Buyer in
connection with the transactions contemplated by this Agreement or the Tax
Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
SECTION 5.1 BUSINESS IN ORDINARY COURSE; RESTRICTIONS. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing, Seller will cause Ivy-Tygart to
carry on its business in the usual, regular and ordinary course in substantially
the same manner as previously conducted, to pay its debts and Taxes when due,
subject to good faith disputes over such debts or Taxes, to pay or perform its
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees (other than those officers
and employees who are to resign or be removed from office pursuant to Section
7.2 of this Agreement) and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it. Seller shall promptly notify Buyer of any event or occurrence
not in the ordinary course of business of Ivy-Tygart where such event or
occurrence would result in a breach of any covenant of Seller set forth in this
Agreement of cause any representation or warranty Seller set forth in this
Agreement to be untrue as of the date of, or giving effect to, such event or
occurrence. Except as expressly contemplated by this Agreement, Seller shall
not permit Ivy-Tygart to take any actions, without the prior written consent of
Buyer, which would:
(1) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of Ivy-Tygart
or authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement;
(2) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to Ivy-Tygart intellectual Property Rights other than
in the ordinary course of business consistent with past practices;
(3) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(4) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(5) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise or agree to acquire any
ends other than acquisitions involving aggregate consideration of not more than
$20,000;
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(6) sell, lease, license or otherwise dispose of any of its properties
or assets, except for transactions entered into in the ordinary course of
business;
(7) (i) increase or agree; to increase the compensation payable or to
become payable to its officers or employees, (ii) grant any additional severance
or termination pay to, or enter into any employment or severance agreements
with, officers, (iii) grant any severance or termination pay to, or enter into
any employment or severance agreement, with any employee, (iv) enter into any
collective bargaining agreement, (v) establish, adopt, enter into or amend in
any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, defined compensation, employment,
termination, severance or other plan, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(8) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(9) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, other
than indebtedness incurred under outstanding lines of credit consistent with
past practice;
(10) amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by this Agreement;
(11) incur or commit to incur any individual capital expenditure for
the purchase of property or equipment having a useful life of more than one (1)
year in excess of $20,000, or aggregate capital expenditures for such items in
excess of $50,000;
(12) acquire or agree to acquire, directly or indirectly, any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation partnership, limited liability company, joint
venture, or other organization; or
(13) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(1) through 5.1(12) above, or any action which could
reasonably be expected to make any of Ivy-Tygart's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on the
date made (to the extent so limited) or as of the Closing;
SECTION 5.2 ACCESS TO INFORMATION.
(1) Upon reasonable notice, Seller will, and will cause Ivy-Tygart to,
afford to the officers, employees, accountants, counsel and other
representatives of Buyer who have a need to know in connection with the
transaction contemplated by this Agreement, access, during normal business hours
during the period prior to the Closing Date, to all its properties, books,
contracts, commitments and records and, during such period, to furnish promptly
to Buyer all other information concerning its business, properties and personnel
as Buyer may reasonably request.
(2) Buyer agrees that all confidential information furnished by Seller
or Ivy-Tygart to Buyer, will be held and treated by Buyer and its Affiliates in
strict confidence and will be used by Buyer solely for the purposes and in
connection with the transactions contemplated by this Agreement. Any
confidential information furnished to Buyer in written or other tangible form
will be returned to Seller or Ivy-Tygart promptly upon request, including all
copies, summaries, analyses and extracts thereof, in the event this
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Agreement is terminated and the transactions contemplated hereby abandoned prior
to Closing. Nothing herein shall be deemed to restrict Buyer's use or disclosure
of any information which (i) is or becomes generally available to the public
other than as a result of a breach of Buyer's obligations under this Agreement,
(ii) is rightfully received by Buyer from a third party without the breach of
any confidentiality obligation to Ivy-Tygart, or (iii) was available to Buyer on
a nonconfidential basis prior to its disclosure to Buyer by Ivy-Tygart.
(3) No information or knowledge obtained in any investigation pursuant
to this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the transactions contemplated by such Agreement.
SECTION 5.3 THIRD PARTY CONSENTS. Except as to the Thach Contingency
(herein after defined), Seller shall obtain, or cause Ivy-Tygart to obtain, all
waivers, releases, consents and approvals required under the documents,
instruments, agreements, laws, regulations, judgment, orders and decrees
described in Sections 3.9 (No Violation), 3.10 (Consents and Approvals), 3.13(2)
(Properties) and 3.17 (Agreements, Contracts and Commitments) of this Agreement
or otherwise set forth in the Items of the Seller Disclosure Schedule
corresponding to such Sections. Seller shall obtain, or cause Ivy-Tygart to
obtain, all licences and permits listed as Additional Licenses and Permits
Needed necessary to remove the exceptions set forth in Item 3.11 (Licenses and
Permits) of the Seller Disclosure Schedule in order to remove the exceptions to
the representations made in the corresponding Sections of this Agreement Seller
shall protect and indemnify Buyer from any claim that may be asserted by John R.
Thach ("Thach"), his heirs, attorneys, successors or assigns, against Buyer, the
Shares or Ivy-Tygart pursuant to or on account of Seller's letter to Thach dated
June 20, 1997, attached as an exhibit to Seller's Form 10-QSB filed with the
Securities and Exchange Commission as of August 8, 1997, or otherwise (such
potential claims herein referred to as the "Thach Contingency").
SECTION 5.4 RELEASES. Prior to Closing, Seller and Buyer will cooperate
with each other in assisting Ivy-Tygart to negotiate for the release of Seller
from its obligations with respect to the several loan and credit agreements
listed in clauses (i), (ii) and (iii) of Section 3.13(2) (collectively, the
"Credit Agreements"). In that regard, Ivy-Tygart may offer the guarantee of John
C. Reid, in order to obtain the release of Seller from liability therefor.
SECTION 5.5 1997 INCOME TAX RETURNS. With respect to the contributions by
Ivy-Tygart to the consolidated taxable income or loss of the Seller and to the
consolidated tax credits of the Seller for the fiscal year ended December 31,
1997, the consolidated federal and state income tax returns of the Seller (the
"1997 Income Tax Returns") are not due to be filed, and will not be filed, prior
to the Closing. Seller and Buyer agree to prepare and file the 1997 Income Tax
Returns as required by and provided in the Tax Agreement.
SECTION 5.6 NO SOLICITATION. Except as disclosed in Item 5.6 of the
Seller Disclosure schedule, pending the consummation of the transactions
contemplated by this Agreement and unless and until this Agreement is terminated
pursuant to Section 9.1, Seller will not, and will not permit the management of
Ivy-Tygart to, directly or indirectly, (i) solicit, initiate, encourage the
submission of, or accept any offer or proposal or submit any offer or proposal
to any person or entity, other than Buyer that constitutes, or could reasonably
be expected to lead to, a proposal or offer for a merger, consolidation,
business combination, sale of substantial assets, sale of shares of capital
stock (including without limitation by way of a tender offer) or similar
transactions involving Ivy-Tygart other than the transactions contemplated by
this Agreement or described in Item 5.6 of the Seller Disclosure Schedule (any
of the foregoing inquiries or proposals being referred to in this Agreement as
an "Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agree to, approve or recommend
any Acquisition Proposal. Ivy-Tygart shall notify Buyer no later than 24 hours
after receipt by Ivy-Tygart (or its advisors) of any Acquisition Proposal or any
request for
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nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Ivy-Tygart by any Person that informs
Ivy-Tygart that it is considering making, or has made, an Acquisition Proposal.
Such notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
SECTION 5.7 FEES AND EXPENSES. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the transactions
contemplated by this Agreement are consummated.
SECTION 5.8 PUBLIC DISCLOSURE. Buyer and Seller shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation.
SECTION 5.9 SUBSEQUENT EVENTS. If any event shall occur prior to the
Closing which, had it occurred prior to the execution of this Agreement, should
have been disclosed by a party to this Agreement, in a representation and
warranty or otherwise, then upon the happening of such event, such party shall
promptly disclose the happening of such event to the other party hereto.
SECTION 5.10 FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the actions contemplated by this Agreement,
including cooperating fully with the other party. Notwithstanding the foregoing,
neither party shall be required to initiate any litigation, make any substantial
payment or incur any material economic burden, except for a payment otherwise
required of it, to obtain any consent, approval or waiver, and if, despite such
efforts, either party is unable to obtain any consent, approval or waiver, the
other party may terminate this Agreement and shall have no liability therefor
except as is provided in Section 9.2. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each party to this Agreement shall take all such necessary action.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSING. The
respective obligations of each party to this Agreement to close the transactions
contemplated by this Agreement shall be subject to the satisfaction prior to the
Closing Date of the following conditions unless waived in writing by both Seller
and Buyer:
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(1) APPROVALS. All authorizations, consents, orders or approvals of,
---------
or declarations or filings with, or expirations of waiting periods imposed by,
any Person the failure of which to obtain could reasonably be expected to have a
Material Adverse Effect on Buyer or Ivy-Tygart shall have been filed, occurred
or been obtained.
(2) CONSENTS. All consents required to be obtained from third parties
--------
(which consents are set forth in this Agreement or in the Seller Disclosure
Schedule or the Buyer Disclosure Schedule) the failure of which to obtain could
reasonably be expected to have a Material Adverse Effect on Buyer or Ivy-Tygart
shall have been obtained.
(3) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated by this
Agreement or limiting or restricting Buyer's conduct or operation of the
business of Buyer after the Closing shall have been issued, nor shall any
proceeding brought by a domestic administrative agency or commission or other
domestic governmental entity, seeking any of the foregoing be pending; nor shall
there be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the transactions contemplated by this
Agreement which makes the consummation of such transactions illegal.
SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER. The
obligations of Buyer to effect the transactions contemplated by this Agreement
are subject to the satisfaction of each of the following conditions, any of
which may be waived in writing exclusively by Buyer:
(1) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Seller set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak only as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this Agreement, and (ii) where the failure to be true
and correct could not reasonably be expected to have a Material Adverse Effect
on Ivy-Tygart or a material adverse effect upon the consummation of the
transactions contemplated hereby; and Buyer shall have received a certificate
signed on behalf of Seller by its chief executive officer to such effect.
(2) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall have, and
------------------------------------
shall have caused Ivy-Tygart to have performed in all material respects all
obligations required to be performed by them, or either of them, under this
Agreement at or prior to the Closing Date, including, without limitation, the
obtaining of all third party waivers, consents, releases and approvals required
under Section 5.3 of this Agreement, and Buyer shall have received a certificate
signed on behalf of Seller by its chief executive officer to such effect.
(3) APPROVAL OF BOARD OF DIRECTORS OF SELLER. Seller shall have
----------------------------------------
obtained the approval of its Board of Directors of this Agreement and the Tax
Agreement and the transactions contemplated hereby and thereby such that such
documents are valid and binding obligations of Seller, enforceable against it in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or general principles of equity, whether considered in a proceeding in
equity or at law; and Buyer shall have received a certificate signed on behalf
of Seller by its chief executive officer to such effect.
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(4) OPINION OF SELLER'S COUNSEL. Buyer shall have received a written
---------------------------
opinion from Pepper Hamilton LLP, counsel to Seller, dated as of the Closing
Date, substantially in the form attached hereto as EXHIBIT E.
(5) COMPLETION OF DUE DILIGENCE. Buyer shall have completed and shall
---------------------------
have been satisfied in its sole discretion with the results of its examination
and review of the properties, books, contracts, commitments and records of Ivy-
Tygart.
(6) BOARD APPROVAL. The Board of Directors of Buyer shall have
--------------
approved this Agreement and the transactions contemplated hereby, and shall have
authorized the officers of Buyer to consummate the transactions contemplated by
this Agreement in accordance with the terms hereof.
(7) SUBSCRIPTION AGREEMENTS. Buyer shall have received subscription
-----------------------
agreements in form and substance satisfactory to Buyer for the purchase of 390
shares of the Buyer's common stock for the aggregate subscription price of
$728,249.
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER. The
obligation of Seller to effect the transactions contemplated by this Agreement
is subject to the satisfaction of each of the following conditions, any of which
may be waived, in writing, exclusively by Seller:
(1) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations speak only as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except for (i) changes contemplated
by this Agreement and (ii) where the failure to be true and correct could not
reasonably be expected to have a Material Adverse Effect on Buyer or a material
adverse effect upon the consummation of the transactions contemplated hereby;
and Seller shall have received a certificate signed on behalf of Buyer by its
chief executive officer to such effect.
(2) PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have performed
-----------------------------------
in all material respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date, and Seller shall have received a
certificate signed on behalf of Buyer by its chief executive officer to such
effect.
(3) APPROVAL OF BOARD OF DIRECTORS OF BUYER. Buyer shall have
---------------------------------------
obtained the approval of its Board of Directors of this Agreement, Buyer Note
No. 1, Buyer Note No. 2 and the Tax Agreement and the transactions contemplated
hereby and thereby such that such documents are valid and binding obligations of
Buyer, enforceable against it in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or general principles of equity, whether
considered in a proceeding in equity or at law, and Seller shall have received a
certificate signed on behalf of Buyer by its chief executive officer to such
effect.
(4) OPINION OF BUYER'S COUNSEL. Seller shall have received a written
--------------------------
opinion from McGuire, Woods, Battle & Boothe LLP, counsel to Buyer, dated as of
the Closing Date, substantially in the form attached hereto as EXHIBIT F.
(5) RELEASE OF CERTAIN OBLIGATIONS OF SELLER. Seller shall have
----------------------------------------
received appropriate releases of all of its obligations under the guarantees of
Seller of Ivy-Tygart's obligations under the JNB Loan Agreement, the SBA Loan
Agreement, the Mountain Valley Bank Note No. 1, the Mountain Valley Bank Note
No. 2, the Fidelity Funding Loan Agreement and the Lease Agreement (No. 7217752)
for
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Integrated Digital System 108 telephone by and between Clarity Credit Corp. and
Ivy Industries more particularly described in Item 3.15 of the Seller Disclosure
Schedule.
(6) WAIVER OF RIGHTS. Seller shall have received an appropriate
----------------
waiver from John C. Reid with respect to (i) his existing option to acquire ten
(10) shares of the common stock of Ivy-Tygart owned by Seller, and (ii) the
employment agreement between Reid and Seller.
(7) BOARD APPROVAL. The Board of Directors of Seller shall have
--------------
approved this Agreement and the transactions contemplated hereby, and shall have
authorized the officers of Seller to consummate the transactions contemplated by
this Agreement in accordance with the terms hereof.
(8) CERTIFICATE OF JOHN C. REID. Seller shall have received a
---------------------------
Certificate from John C. Reid, in form and substance satisfactory to Seller,
with respect to certain of the representations set forth in this Agreement.
(9) GUARANTY. Seller shall have received the guaranty from John C.
--------
Reid substantially in the form of Guaranty attached hereto as EXHIBIT C.
ARTICLE 7
THE CLOSING
SECTION 7.1 TIME AND PLACE OF CLOSING. The Closing (the "Closing') shall
take place at the offices of McGuire, Woods, Battle & Boothe LLP in
Charlottesville, Virginia, at 10:00 a.m. local time on the later of (i) February
19, 1998, (ii) the next business day after which the last of the Closing
Conditions is fulfilled or waived, or (iii) such date as may be agreed upon by
the parties (the "Closing Date").
SECTION 7.2 DELIVERIES BY SELLER. At the Closing Seller shall deliver to
Buyer the following:
(1) the certificates representing the Shares duly endorsed or
with stock powers attached thereto duly signed;
(2) all of the books and records (whether or not computerized) of
Ivy-Tygart including without limitation its minute books, tax returns,
stockholder records, and any associated software and documentation relating to
its business and employees;
(3) the certificates required by Sections 6.2(l), 6.2(2) and
6.2(3);
(4) the Opinion of Counsel required by Section 6.2(4);
(5) the Tax Agreement;
(6) the resignations of Paul A. DeJuliis, William B. Miller and
John R. Thach as officers and directors of Ivy-Tygart or, alternatively, if any
such resignations cannot be obtained, a certificate of Seller stating that
Seller has duly and properly removed (or has caused the removal of) as officers
and directors of Ivy-Tygart those individuals from whom such resignations could
not be obtained; and
(7) such additional documents as Buyer may reasonably request.
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SECTION 7.3 DELIVERIES BY BUYER. At the Closing Buyer shall deliver to
Seller the following:
(1) the Cash Payment in immediately available funds;
(2) Buyer Note No. 1 duly executed on behalf of Buyer;
(3) Buyer Note No. 2 duly executed on behalf of Buyer;
(4) the certificates required by Section 6.3(l), 6.3(2)
and 6.3(3);
(5) the Opinion of Counsel required by Section 6.3(4);
(6) the Guaranty of John C. Reid;
(7) such additional documents as Seller may reasonably request.
SECTION 7.4 DELIVERIES BY SELLER AND BUYER. At the Closing, Seller and
Buyer shall each execute and deliver to the other the Tax Agreement.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION BY THE PARTIES. Subject to the limitations in
this Article 8, each party (the "Indemnifying Party") will indemnify, defend
and hold the other party (the "Indemnified Party") harmless from and against all
losses, claims, damages, costs, expenses (including reasonable attorneys' and
other advisors' fees), liabilities, concessions, or judgments or amounts that
are paid in settlement of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of any breach by the Indemnifying Party of any representation,
warranty, or covenant made in or pursuant to this Agreement. For purposes of
this Article 8, Buyer and Seller are the parties hereto.
SECTION 8.2 LIMITATION ON AMOUNT. Notwithstanding the foregoing, no claim
made by the Indemnified Party against the Indemnifying Party for indemnification
pursuant to Section 8.1 shall result in any liability to the Indemnifying Party
unless the aggregate of all such claims made by the Indemnified Party pursuant
to Section 8.1 exceeds $100,000, and then only to the extent of such excess. In
addition, the following terms shall govern the Indemnifying Party's liability:
(1) To the extent any claim made by Buyer against Seller under Section
8.1 is based upon breach of any of the representations and warranties made by
Seller under Sections 3.6, 3.12, 3.14 or 3.18 of this Agreement, Seller's
liability to Buyer shall not exceed $750,000.
(2) To the extent any claim made by Buyer against Seller under Section
8.1 is based upon breach of any representation, warranty or covenant made by
Seller other than those contained in Section 3.6, 3.12, 3.14 or 3.18 of this
Agreement, Seller's liability to Buyer shall not exceed the Purchase Price.
(3) In no event shall the $100,000 exclusion from Seller's liability
set forth above nor the foregoing limitations on Seller's liability apply with
respect to any claim made by Buyer related to, arising out of, or in connection
with the Thach Contingency. In the event Buyer shall make a claim for
indemnification against Seller related to, arising out of, or in connection with
the Thach Contingency, Seller
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shall be liable for all losses, claims, damages, costs, expenses (including
reasonable attorneys' and other advisors' fees), liabilities, concessions or
judgments or amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on,
or arising in whole or in part out of, the Thach Contingency. Such liability
shall include all direct damages and out-of-pocket expenses incurred by Buyer
including, but not limited to, return of the Purchase Price and any additional
investment made by Buyer in Ivy-Tygart, provided, however, that Seller shall not
be liable hereunder for any claim based upon lost profits or any claim for the
difference, if any, between the actual value of the Shares and the Purchase
Price or other similar consequential damages.
(4) Buyer's liability for any claim made against it by Seller
under Section 8.1 shall be limited to $375,000.
SECTION 8.3 PROCEDURE FOR INDEMNIFICATION. The Indemnified Party shall
follow the procedures set forth in this Section 8.3 in order to be entitled to
indemnification with respect to claims resulting from the assertion of liability
by persons or entities other than the Indemnified Party, including claims by
governmental entities for penalties, fines and assessments.
(1) In the event that any action, suit or proceeding (hereinafter, a
"Legal Action") is brought against the Indemnified Party or any claim or demand
is made by any person or entity, including any governmental entity (a "Third
Party Claim"), in respect of which the Indemnified Party desires to make a claim
against the Indemnifying Party pursuant to this Section 8.3, the Indemnified
Party shall give prompt written notice to the Indemnifying Party of the
institution of such Legal Action or the making of such Third Party Claim, such
notice to identify the amount, nature of, and other circumstances surrounding
such claim.
(2) Upon the written agreement of the Indemnifying Party that it is
obligated to indemnify hereunder, the Indemnifying Party shall assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Party;
provided, however, that the Indemnified Party shall in any event have the right
to participate at its own expense in the defense of any such Legal Action or
Third Party Claim, and provided further that in no event may the Indemnifying
Party settle or compromise a Legal Action or Third Party Claim without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement or
compromise involving injunction or other equitable relief against the
Indemnified Party or any of its assets, employees or business.
SECTION 8.4 SURVIVAL; INVESTIGATION. Except for (i) the representations
and warranties of the Indemnifying Party contained in Section 3.8 (relating to
Taxes), which shall survive this Agreement indefinitely subject to applicable
statutes of limitations under the 1986 Code or other applicable tax statute, and
(ii) the representations and warranties and covenants of the Seller contained in
Section 3.10 (relating to Consents and Approvals) and the Item 3.10 of the
Seller's Disclosure Schedule with respect to any claims Thach may make with
respect to the stock or assets of Ivy-Tygart, which shall survive until
expiration of the applicable statute of limitations with respect to the Thach
Contingency, the representations and warranties of parties contained in this
Agreement shall survive the Closing until April 30, 1999 (the "Survival Date")
at which time they shall lapse. Notwithstanding the provisions of the preceding
sentence, any representation or warranty in respect of which indemnification may
be sought by an Indemnified Party pursuant to this Article 8 shall survive the
Survival Date if written notice, given in good faith, of the specific breach
thereof is given to the Indemnifying Party prior to the Survival Date, whether
or not liability has actually been sustained.
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ARTICLE 9
TERMINATION AND AMENDMENT
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing (with respect to Sections 9.1(3) and 9.1(4), by written
notice by the terminating party to the other party):
(1) by mutual written consent of Buyer and Seller; or
(2) by either Buyer or Seller if the Closing shall not have occurred
by February 23, 1998, (provided that the right to terminate this Agreement under
this Section 9.1(2) shall not be available to a party if its failure to fulfill
any obligation under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or before such date); or
(3) by either Buyer or Seller if a court of competent jurisdiction or
other governmental entity shall have issued a nonappealable final order, decree
or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, except if the party relying on such order,
decree or ruling or other action has not complied with its obligations under of
this Agreement with respect to such matter; or
(4) by Buyer or Seller, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach shall not have been cured within 10
business days following receipt by the breaching party of written notice of such
breach from the other party.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 9.1, there shall be no liability or obligation
on the part of Seller or Buyer, or its officers, directors, stockholders or
Affiliates, except to the extent that such termination results from the breach
by a party of any of its representations, warranties, covenants or agreements
set forth in this Agreement; provided that, the provisions of Section 5.2(2) of
this Agreement shall remain in full force and effect and survive any termination
of this Agreement.
SECTION 9.3 AMENDMENT. This Agreement may be amended by the parties
hereto but only by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 9.4 EXTENSION; WAIVER. At any time prior to the Closing, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified
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mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(1) if to Buyer, to
RPD Enterprises, Inc.
111 Monticello Avenue West
Charlottesville, VA 22902
Attn: John C. Reid
Fax: (804) 296-5924
with a copy to:
McGuire, Woods, Battle & Boothe LLP
P.O. Box 1288
418 East Jefferson Street
Charlottesville, VA 22902
Attn: Robert E. Stroud
Fax: (804) 980-2272
(2) if to Seller, to:
The Eastwind Group, Inc.
100 Four Falls Corporate Center
Suite 305
West Conshohocken, PA 19428
Attn: Paul A. DeJuliis
Fax: (610) 828-6980
with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
Attn: Peter O. Clauss
Fax: (215) 991-4750
SECTION 10.2 INTERPRETATION. When a reference is made in this Agreement to
a section, such reference shall be to a section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not conflict in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to the
date set forth in the initial paragraph of this Agreement.
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SECTION 10.3 COUNTERPART COPIES. This Agreement may be executed in two or
more counterpart copies all of which shall be considered one and the same
agreement and shall become binding on the parties when a counterpart copy has
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart copy.
SECTION 10.4 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) is not intended to confer upon any person or
entity other than the parties hereto any rights or remedies hereunder.
SECTION 10.5 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without regard to
any applicable conflicts of law.
SECTION 10.6 NO ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as
of the date first written above.
THE EASTWIND GROUP, INC.
/s/ Paul A. DeJuliis
By: ____________________________________
Name: Paul A. DeJuliis
Title: President
RPD ENTERPRISES, INC.
/s/ John C. Reid
By: ____________________________________
Name: John C. Reid
Title: President
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