<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):
AUGUST 31, 1998
COMPUSA INC.
(Exact name of registrant as specified in is charter)
Delaware 001-11566 752261497
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
14951 North Dallas Parkway, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 982-4000
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 31, 1998, pursuant to a Stock Purchase Agreement dated June
21, 1998, as amended (the "Stock Purchase Agreement"), CompUSA Inc. (the
"Registrant"), a Delaware corporation, acquired all the outstanding capital
stock of Computer City, Inc. ("CCI"), a Delaware corporation, from Tandy
Corporation ("Tandy"), a Delaware corporation, for a purchase price of
$210,950,000. The purchase price, which is subject to certain post-closing
adjustments, consisted of (i) a subordinated promissory note (the "Seller
Note") in the principal amount of $136,000,000 and (ii) a cash payment of
$74,950,000. The principal of the Seller Note is payable to Tandy in 14
equal semiannual installments during the period beginning December 31, 2001
and ending June 30, 2008. Interest on the Seller Note accrues at a rate of
9.48% per annum and is payable semiannually each June 30 and December 31
beginning December 31, 1998. The Seller Note ranks pari passu with the
Registrant's outstanding 9 1/2% Senior Subordinated Notes due 2000 and is
subordinated in right of payment to the Registrant's senior indebtedness.
The purchase price was equal to the net book value of CCI on the closing
date, as adjusted in accordance with the Stock Purchase Agreement, less
$48,700,000.
The acquired operations include 96 retail stores located in the United
States, 58 of which the Registrant currently intends to close; seven retail
stores in Canada, none of which the Registrant currently intends to close;
and six corporate sales and/or training offices, five of which the Registrant
currently intends to close. The Registrant also acquired a call center and
technical configuration center located in the Dallas/Fort Worth area, both of
which the Registrant currently intends to operate. The acquired stores in
the United States will operate under the Registrant's name, while those in
Canada will be operated under the "Computer City" name. All of the acquired
stores that will be operated by the Registrant will continue to offer
personal computers and related products and services and will be converted to
the Registrant's format and merchandise mix.
The foregoing is qualified by reference to the Stock Purchase Agreement,
which is filed as an exhibit to this Report and incorporated herein by
reference.
-2-
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses being acquired.
(b) Pro forma financial information.
The historical financial statements and information of CCI required by
Item 7(a) and the pro forma financial statements and information
required by Item 7(b) will be filed by amendment to this Report no
later than 60 days after the date on which this Report is required to
be filed.
(c) Exhibits.
<TABLE>
<S> <C>
Exhibit 2.1 - Stock Purchase Agreement dated as of June 21, 1998
between the Registrant, as buyer, and Tandy
Corporation, as seller (the "Stock Purchase
Agreement").
Exhibit 2.2 - Amendment dated August 31, 1998 to the Stock
Purchase Agreement.
Exhibit 2.3 - Subordinated Promissory Note dated August 31, 1998
of the Registrant in the principal amount of
$136,000,000 payable to Tandy Corporation.
</TABLE>
-3-
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
Date: September 15, 1998 CompUSA Inc.
By: /s/ Mark R. Walker
-----------------------------------------
Mark R. Walker, Senior Vice President and
General Counsel
-4-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------- ------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement dated as of June 21, 1998
between the Registrant, as buyer, and Tandy
Corporation, as seller (the "Stock Purchase
Agreement").
2.2 Amendment dated August 31, 1998 to the Stock Purchase
Agreement.
2.3 Subordinated Promissory Note dated August 31, 1998 of
the Registrant in the principal amount of $136,000,000
payable to Tandy Corporation.
</TABLE>
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
TANDY CORPORATION,
AS SELLER,
AND
COMPUSA INC.,
AS BUYER,
FOR THE PURCHASE AND SALE OF
ALL OUTSTANDING CAPITAL STOCK OF
COMPUTER CITY, INC.,
A DELAWARE CORPORATION
-----------------------------
DATED AS OF JUNE 21, 1998
-----------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. SALE AND PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1. Agreement to Sell and to Purchase . . . . . . . . . . . . . . . .1
SECTION 1.2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.3. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.4. Preliminary Purchase Price; Payment . . . . . . . . . . . . . . .2
SECTION 1.5. Post-Closing Adjustment to Preliminary
Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLER. . . . . . . . . . . . . .6
SECTION 2.1. Corporate Organization. . . . . . . . . . . . . . . . . . . . . .6
SECTION 2.2. Capitalization; Title to the Shares . . . . . . . . . . . . . . .7
SECTION 2.3. Subsidiaries and Equity Investments;
Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 2.4. Validity of Agreement; Authorization. . . . . . . . . . . . . . .9
SECTION 2.5. No Conflict or Violation. . . . . . . . . . . . . . . . . . . . 10
SECTION 2.6. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.8. Absence of Certain Changes or Events. . . . . . . . . . . . . . 11
SECTION 2.9. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.10. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 16
SECTION 2.11. Interests in Real Property . . . . . . . . . . . . . . . . . . 16
SECTION 2.12. Personal Property. . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.13. Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.14. Licenses, Permits and Governmental
Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.15. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.16. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.17. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.18. Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.19. Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.20. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.21. Customers and Suppliers. . . . . . . . . . . . . . . . . . . . 28
SECTION 2.22. Bonds and Insurance. . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.23. Transactions with Directors, Officers
and Affiliates . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.24. Change in Ownership. . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.25. Environmental Matters. . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.26. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.27. Products Liability . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.28. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.29. Vendor Debits. . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.30. Accuracy of Information. . . . . . . . . . . . . . . . . . . . 35
SECTION 2.31. Investment Representations . . . . . . . . . . . . . . . . . . 35
SECTION 2.32. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i)
<PAGE>
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER. . . . . . . . . . . . . 36
SECTION 3.1. Corporate Organization. . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.2. Validity of Agreement; Authorization. . . . . . . . . . . . . . 36
SECTION 3.3. No Conflict or Violation. . . . . . . . . . . . . . . . . . . . 37
SECTION 3.4. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.5. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.6. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.7. No Material Adverse Change. . . . . . . . . . . . . . . . . . . 38
SECTION 3.8. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.1. HSR Act Compliance. . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.2. Certain Changes and Conduct of Business . . . . . . . . . . . . 39
SECTION 4.3. Access to Properties and Records. . . . . . . . . . . . . . . . 43
SECTION 4.4. Negotiations. . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.5. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.6. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 4.7. Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.8. Notice of Breach. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.9. Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.10. Confidential Information . . . . . . . . . . . . . . . . . . . 46
SECTION 4.11. Transfer of Seller Note. . . . . . . . . . . . . . . . . . . . 46
SECTION 4.12. Amended Schedules. . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.13. Lease Cancellation . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.14. Benefit and Compensation Plans . . . . . . . . . . . . . . . . 48
SECTION 4.15. Assigned Intellectual Property Rights. . . . . . . . . . . . . 49
SECTION 4.17. Transitional Services. . . . . . . . . . . . . . . . . . . . . 49
SECTION 4.18. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 4.19. Contribution of Certain Assets . . . . . . . . . . . . . . . . 50
SECTION 4.20. Company's Credit Card Program. . . . . . . . . . . . . . . . . 50
SECTION 4.21. Real Property Leases . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE V. TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 5.1. Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . 53
SECTION 5.2. Tax Indemnity and Tax Return Filings. . . . . . . . . . . . . . 55
SECTION 5.3. Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 5.4. Retention of Carryovers . . . . . . . . . . . . . . . . . . . . 59
SECTION 5.5. Retention of Books, Records, Tax Software
and Reference Materials . . . . . . . . . . . . . . . . . . . 59
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF THE BUYER. . . . . . . . . . . . . . . . 60
SECTION 6.1. Representations and Warranties of the
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 6.2. Performance of the Seller's Obligations . . . . . . . . . . . . 60
SECTION 6.3. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 60
SECTION 6.4. HSR.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 6.5. No Violation of Orders. . . . . . . . . . . . . . . . . . . . . 61
SECTION 6.6. No Material Adverse Change. . . . . . . . . . . . . . . . . . . 61
SECTION 6.7. Other Closing Matters . . . . . . . . . . . . . . . . . . . . . 61
(ii)
<PAGE>
SECTION 6.8. Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 6.9. Intellectual Property Assignment. . . . . . . . . . . . . . . . 62
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE SELLER. . . . . . . . . . . . . . . 62
SECTION 7.1. Representations and Warranties of the
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.2. Performance of the Buyer's Obligations. . . . . . . . . . . . . 62
SECTION 7.3. HSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.4. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.5. No Violation of Orders. . . . . . . . . . . . . . . . . . . . . 63
SECTION 7.6. No Material Adverse Change. . . . . . . . . . . . . . . . . . . 63
SECTION 7.7. Other Closing Documents . . . . . . . . . . . . . . . . . . . . 63
SECTION 7.8. Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VIII. TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . . 64
SECTION 8.1. Methods of Termination; Upset Date. . . . . . . . . . . . . . . 64
SECTION 8.2. Procedure Upon Termination. . . . . . . . . . . . . . . . . . . 65
SECTION 8.3. Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE IX. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.1. Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.2. Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE X. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 10.1. Survival of Provisions . . . . . . . . . . . . . . . . . . . . 68
SECTION 10.2. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.3. Successors and Assigns; No
Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . 69
SECTION 10.4. Investment Bankers, Financial
Advisors, Brokers and Finders. . . . . . . . . . . . . . . . 69
SECTION 10.5. Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 10.6. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 10.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.8. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.10. Titles and Headings. . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.11. Signatures and Counterparts. . . . . . . . . . . . . . . . . . 72
SECTION 10.12. Enforcement of the Agreement . . . . . . . . . . . . . . . . . 73
SECTION 10.13. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
(iii)
<PAGE>
EXHIBITS
- --------
EXHIBIT A FORM OF SELLER NOTE
<TABLE>
<CAPTION>
SELLER DISCLOSURE SCHEDULE
- --------------------------
<S> <C>
SECTION 2.1 CORPORATE ORGANIZATION
SECTION 2.3 SUBSIDIARIES AND EQUITY INVESTMENTS
SECTION 2.5 CONFLICTS OR VIOLATIONS
SECTION 2.6 CONSENTS AND APPROVALS
SECTION 2.7 FINANCIAL STATEMENTS
SECTION 2.8 CERTAIN CHANGES OR EVENTS
SECTION 2.9 TAX MATTERS
SECTION 2.10 UNDISCLOSED LIABILITIES
SECTION 2.11 REAL PROPERTY INTERESTS
SECTION 2.12 PERSONAL PROPERTY
SECTION 2.13 TRADEMARKS, TRADE NAMES AND KNOW-HOW
SECTION 2.14 LICENSES, PERMITS AND GOVERNMENTAL APPROVAL
SECTION 2.15 COMPLIANCE WITH LAWS
SECTION 2.16 LITIGATION
SECTION 2.17 CONTRACTS
SECTION 2.18 ACCOUNTS RECEIVABLE
SECTION 2.20 EMPLOYEE PLANS
SECTION 2.21 CUSTOMERS, SUPPLIERS AND COMPETITORS
SECTION 2.22 INSURANCE
SECTION 2.23 TRANSACTIONS WITH DIRECTORS, OFFICERS
AND AFFILIATES
SECTION 2.25 ENVIRONMENTAL MATTERS
SECTION 2.26 LABOR MATTERS
SECTION 4.2 CERTAIN CHANGES AND CONDUCT OF BUSINESS
SECTION 4.16 PRE-CLOSING DIVIDEND
BUYER DISCLOSURE SCHEDULE
- -------------------------
SECTION 3.3 BUYER CONFLICTS OR VIOLATIONS
SECTION 3.4 BUYER CONSENTS AND APPROVALS
SECTION 6.3 CONSENTS AND APPROVALS (BUYER CLOSING CONDITION)
SECTION 7.4 CONSENTS AND APPROVALS (SELLER CLOSING CONDITION)
</TABLE>
(iv)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of this 21ST day of June, 1998, by and between Tandy
Corporation, a Delaware corporation (the "SELLER"), and CompUSA Inc., a
Delaware corporation (the "BUYER").
W I T N E S S E T H:
WHEREAS, the Seller owns 100% of the issued and outstanding shares
of Series A and Series B Common Stock of Computer City, Inc. (the "COMPANY")
(all such shares of capital stock are referred to herein as the "SHARES");
WHEREAS, the Buyer desires to purchase the Shares from the Seller,
and the Seller desires to sell the Shares to the Buyer, in each case upon the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, conditions
and other agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I.
SALE AND PURCHASE
SECTION 1.1. AGREEMENT TO SELL AND TO PURCHASE. On the Closing
Date (as hereinafter defined) and upon the terms and subject to the
conditions set forth in this Agreement, the Seller shall sell, assign,
transfer, convey and deliver the Shares, free and clear of any liens, claims,
charges, security interests or other legal or equitable encumbrances,
limitations or restrictions, to the Buyer, and the Buyer shall purchase and
accept the Shares from the Seller.
SECTION 1.2. CLOSING. The closing of such sale and purchase (the
"CLOSING") shall take place at 10:00 A.M., on the last day of the month
during which the conditions to Closing set forth in Articles VI and VII
hereof (other than the conditions with respect to actions the respective
parties will take at the Closing itself) are satisfied, but not earlier than
60 days after the date hereof, or at such other time and date as the parties
hereto shall agree in writing (the "CLOSING DATE"), at the offices of
Thompson & Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas
75201, or at such other place as the parties hereto shall agree in writing.
At the Closing, the Seller shall deliver to the Buyer or its designees stock
certificates representing the Shares, duly endorsed in blank for transfer or
<PAGE>
accompanied by appropriate stock powers duly executed in blank, with all
taxes, direct or indirect, attributable to the transfer of such Shares paid
or provided for. In full consideration and exchange for the Shares, the
Buyer shall thereupon pay to the Seller the Purchase Price as provided in
Section 1.3 hereof.
SECTION 1.3. PURCHASE PRICE. Subject to the terms and conditions
set forth in this Agreement, the aggregate purchase price (the "PURCHASE
PRICE") to be paid to the Seller for the Shares shall be an amount equal to
the Adjusted Net Book Value (as defined below) MINUS $12,500,000, payable as
provided herein.
SECTION 1.4. PRELIMINARY PURCHASE PRICE; PAYMENT.
(a) PRELIMINARY PURCHASE PRICE. The Seller shall prepare and
deliver to the Buyer at least five Business Days prior to the Closing Date an
estimated consolidated balance sheet (the "PRELIMINARY CLOSING BALANCE
SHEET") for the Company as of the Closing Date (the "PRELIMINARY CLOSING
BALANCE SHEET DATE"). As used in this Agreement, the term "BUSINESS DAY"
shall mean any day except a Saturday, Sunday or other day on which commercial
banking institutions in the City of Dallas are authorized by law or executive
order to close. The Preliminary Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles for financial
reporting in the United States ("GAAP") applied on a basis consistent with,
and following the accounting principles, procedures, policies and methods
employed in preparing, the 1997 Financial Statements (as defined in Section
2.7 hereof), it being understood that the balances reflected in the
Preliminary Closing Balance Sheet shall represent the Seller's best estimates
of balances as of the Closing Date and shall be based on the best information
then available. As used in this Agreement, the term "ADJUSTED NET BOOK
VALUE" shall mean the consolidated stockholder's equity of the Company as
reflected in the Preliminary Closing Balance Sheet and Final Closing Balance
Sheet, adjusted as follows: (i) there shall be included as liabilities of
the Company (x) all severance obligations, termination payments or similar
liabilities to Company employees arising as a result of the transactions
contemplated hereby other than such obligations, payments or liabilities
arising out of actions taken by the Buyer or the Company after the Closing
Date and (y) all fees and expenses incurred by the Company in connection with
the consummation of the transactions contemplated hereby; (ii) there shall be
deemed to be contributed to the capital of the Company the entire outstanding
principal of, and accrued and unpaid interest on, all intercompany notes and
payables of the Company payable to Seller or any Affiliate (as hereinafter
defined) which are outstanding
-2-
<PAGE>
as of the Closing Date (the "INTERCOMPANY PAYABLES"), all of which
obligations of the Company thereunder shall be deemed to be satisfied as of
the Closing Date; (iii) no value shall be attributed to the Assigned
Intellectual Property Rights (as defined in Section 4.15 hereof); (iv)any
write down of assets arising from the application of Statement of Financial
Accounting Standards No. 121 after the date of the Interim Balance Sheet
shall be excluded from the calculation of Adjusted Net Book Value; (v) any
prepaid insurance as of the Closing Date shall not be included as an asset;
and (vi) such balance sheets shall give effect to the transactions
contemplated by Sections 4.15, 4.16 and 4.19. The Seller represents that the
aggregate amount of Intercompany Payables outstanding as of May 31, 1998 was
$130,386,304.40. On the Closing Date, the Seller shall surrender to the
Company for cancellation all notes, instruments and agreements, if any,
evidencing the Intercompany Payables. The Buyer acknowledges that the
Company has outstanding indebtedness. Seller agrees that on or prior to
Closing it will repay in full all indebtedness under the Credit Agreement
dated December 19, 1997 between the Company, NationsBank of Texas, N.A. and
other Lenders (the "Company Credit Agreement"), and that it will take all
action necessary to terminate such agreement effective as of the Closing Date
with no further obligation or liability of the Company or any Subsidiary
thereunder.
(b) PAYMENT. The Buyer shall pay on the Closing Date, in the
manner specified below, an amount equal to the Adjusted Net Book Value as of
the Preliminary Closing Balance Sheet Date, MINUS $12,500,000 (the
"PRELIMINARY PURCHASE PRICE"). Such payment shall be made by (i) the Buyer
delivering to the Seller a subordinated promissory note in the principal
amount of $150,000,000 in the form attached as Exhibit A hereto (the "SELLER
NOTE"), (ii) the Buyer making a cash payment, by wire transfer in immediately
available funds to an account or accounts designated by the Seller (which
account or accounts shall be designated by the Seller not less than two (2)
Business Days prior to the Closing Date), of an amount equal to the
Preliminary Purchase Price MINUS $150,000,000; PROVIDED, HOWEVER, that if the
Preliminary Purchase Price is less than $150,000,000, then, on the Closing
Date, in lieu of the cash payment referred to in clause (ii) of this
sentence, the Seller shall make a cash payment to the Buyer, by wire transfer
in immediately available funds to an account or accounts designated by the
Buyer (which account or accounts shall be designated by the Buyer not less
than two (2) Business Days prior to the Closing Date), of an amount equal to
the amount by which $150,000,000 exceeds the Preliminary Purchase Price.
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SECTION 1.5. POST-CLOSING ADJUSTMENT TO PRELIMINARY PURCHASE
PRICE. The Preliminary Purchase Price shall be subject to adjustment after
the Closing as follows:
(a) FINAL BALANCE SHEET.
(i) As soon as practicable, but not later than 60 calendar
days after the Closing Date, the Seller shall deliver to the Buyer the
audited consolidated balance sheet (the "FINAL CLOSING BALANCE SHEET") of the
Company as at the Preliminary Closing Balance Sheet Date. The Final Closing
Balance Sheet shall be examined by and accompanied by the report of Price
Waterhouse LLP, independent certified public accountants. The Seller
warrants that the Final Closing Balance Sheet shall be prepared in accordance
with GAAP, applied on a basis consistent with, and following the accounting
principles, procedures, policies and methods employed in preparing, the 1997
Financial Statements.
(ii) The Final Closing Balance Sheet shall be examined by the
Buyer, which shall, not later than 30 calendar days after receipt of the
Final Closing Balance Sheet, render a written report thereon (the "FINAL
CLOSING BALANCE SHEET REPORT"). The Seller agrees that the Buyer and Ernst &
Young LLP shall have immediate access to the books and records, other
financial information (including the working papers of Price Waterhouse LLP)
and appropriate financial personnel of the Seller which the Buyer reasonably
deems necessary or advisable for the Final Closing Balance Sheet Report. The
Final Closing Balance Sheet Report shall list those items the Buyer disputes,
the Buyer's proposed adjustments and an adjusted balance sheet reflecting
such adjustments. If the Buyer fails to deliver to the Seller the Final
Closing Balance Sheet Report within 30 calendar days following receipt of the
Final Closing Balance Sheet or the Buyer acknowledges in writing that the
Final Closing Balance Sheet is accurate, the Buyer shall be deemed to have
accepted the Final Closing Balance Sheet for the purposes of any Purchase
Price adjustment under Section 1.5(b). If the Seller does not give the Buyer
notice within 20 calendar days following receipt of the Final Closing Balance
Sheet Report (which notice disputes the Buyer's proposed adjustments or
proposes in writing other adjustments supported in writing by the Seller's
independent accountant's as a result of the adjustments proposed by the
Buyer) or the Seller acknowledges in writing that the Final Closing Balance
Sheet as adjusted by the Buyer is accurate, the Seller shall be deemed to
have accepted the Final Closing Balance Sheet as adjusted for the
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purposes of any Purchase Price adjustment under Section 1.5(b).
(iii) If the Seller gives the Buyer notice of objections to
the Final Closing Balance Sheet Report, and if the Buyer and the Seller are
unable, within 15 calendar days after receipt by the Buyer of the notice of
objections by the Seller, to resolve the disputed exceptions and such other
proper adjustments raised by the Seller in connection therewith, all such
disputed items and proper adjustment will be referred to another firm of
independent certified public accountants ("INDEPENDENT ACCOUNTING FIRM")
mutually acceptable to the Seller and the Buyer unless the Buyer notifies
the Seller by the end of such 15 day period that the Buyer elects to withdraw
the objections raised by it in the Final Closing Balance Sheet Report, in
which case the Final Closing Balance Sheet shall be deemed accepted by the
parties for the purposes of any Purchase Price adjustment under Section
1.5(b). The Independent Accounting Firm shall, within 60 days following its
selection, deliver to the Seller and the Buyer a written report determining
such disputed exceptions, and its determinations will be conclusive and
binding upon the parties to this Agreement for the purposes of any Purchase
Price adjustment under Section 1.5(b). The fees and disbursements of the
Independent Accounting Firm acting under this Section shall be shared equally
by the Buyer and the Seller.
(b) PURCHASE PRICE ADJUSTMENT. Within two Business Days
following the final determination of the Final Closing Balance Sheet pursuant
to Section 1.5(a), (i) if the Preliminary Purchase Price exceeded an amount
equal to (x) the Adjusted Net Book Value as reflected on the Final Closing
Balance Sheet MINUS (y) $12,500,000 (such sum being referred to herein as the
"RECOMPUTED PURCHASE PRICE"), the Seller shall pay to the Buyer in cash such
excess amount, plus interest on such excess amount from and including the
Closing Date through the date of payment referred to in this Section 1.5(b)
at an annual rate equal to 7.5%, calculated on the basis of a 365-day year or
for the actual days elapsed, in immediately available funds to an account
designated by the Buyer, or (ii) if the Preliminary Purchase Price was less
than the Recomputed Purchase Price, the Buyer shall pay to the Seller in cash
such excess amount, plus interest on such excess amount from and including
the Closing Date through the date of payment referred to in this Section
1.5(b) at an annual rate equal to 7.5%, calculated on the basis of a 365-day
year or for the actual days elapsed, in immediately available funds to an
account designated by the Buyer.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents, warrants and agrees as follows:
SECTION 2.1. CORPORATE ORGANIZATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority and all
governmental licenses, authorizations, permits, consents and approvals to own
its properties and assets and to conduct its businesses as now conducted,
except where the failure to have such licenses, authorizations, permits,
consents and approvals would not have a Material Adverse Effect. The Company
is duly qualified to do business as a foreign corporation and is in good
standing in every jurisdiction where the character of the properties owned or
leased by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would
not have a Material Adverse Effect (as hereinafter defined). Section 2.1 to
the Seller Disclosure Schedule sets forth all of the jurisdictions in which
the Company is qualified to do business. Copies of the Articles of
Incorporation and by-laws of the Company, with all amendments thereto to the
date hereof, have been furnished by the Seller to the Buyer or its
representatives, and such copies are accurate and complete as of the date
hereof.
SECTION 2.2. CAPITALIZATION; TITLE TO THE SHARES. The authorized
capital stock of the Company consists of 30,000,000 shares of Series A Common
Stock, 25,000,000 shares of Series B Common Stock, and 5,000,000 shares of
Preferred Stock, of which 30,000,000 shares of Series A Common Stock,
20,000,000 shares of Series B Common Stock and no shares of Preferred Stock
are issued and outstanding. All of the Shares are owned of record and
beneficially by the Seller. The Shares have been duly authorized and validly
issued and are fully paid and nonassessable and no personal liability
attaches to the ownership thereof. The Shares represent all of the issued
and outstanding shares of capital stock of the Company, and except for this
Agreement, there are no outstanding options, warrants, agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire the Shares, any unissued or treasury shares of capital
stock of the Company, any outstanding obligations of the Company to
repurchase, redeem or otherwise acquire outstanding Shares or any securities
convertible into or exchangeable for any shares of capital stock of the
Company. The Seller has valid and
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marketable title to all the Shares, and the sale and transfer of the Shares
by the Seller to the Buyer hereunder will vest title to the Shares in the
Buyer free and clear of any liens, claims, charges, security interests or
other legal or equitable encumbrances, limitations or restrictions of any
nature whatsoever. Prior to the Closing Date, (i) the Company's 1997
Incentive Stock Plan shall be terminated, (ii) all stock options ("Company
Stock Options") under the Company's 1997 Incentive Stock Plan shall be
canceled and become null and void, (iii) that certain Management Agreement
(the "Management Agreement"), dated as of July 17, 1997, between the Company,
Eureka Venture Partners III, a Texas limited liability company ("Eureka"),
and certain members of management of the Company named therein, shall be
"terminated" (as defined in the Company's 1997 Incentive Stock Plan), (iv)
that certain Stock Purchase Agreement (the "Stock Purchase Agreement"), dated
July 17, 1997, by and between Eureka, the Seller and the Company shall be
terminated and of no further force and effect, (v) Eureka shall have ceased
to provide the day-to-day management of the Company as contemplated by the
Stock Purchase Agreement, (vi) Eureka shall have ceased to own at least 19.9
percent of the total issued and outstanding common stock of the Company,
(vii) Seller shall have reacquired all of the capital stock of the Company
purchased by Eureka pursuant to the Stock Purchase Agreement and (viii) the
Warrant issued to Eureka pursuant to the Stock Purchase Agreement shall have
been canceled, in each case without any liability or future obligation on the
part of the Company in respect thereof, including any obligation to issue
securities of the Company.
SECTION 2.3. SUBSIDIARIES AND EQUITY INVESTMENTS; AFFILIATES. (a)
Section 2.3(a) of the Seller Disclosure Schedule sets forth: (i) the name of
each corporation of which the Company owns, directly or indirectly, shares of
capital stock having in the aggregate 50% or more of the total combined
voting power of the issued and outstanding shares of capital stock entitled
to vote generally in the election of directors of such corporation (each
corporation so owned by the Company hereinafter referred to, individually, as
a "SUBSIDIARY", and collectively, as the "SUBSIDIARIES"); (ii) the name of
each corporation, partnership, joint venture or other entity (other than the
Subsidiaries) in which the Company has, or pursuant to any agreement has the
right to acquire at any time by any means, directly or indirectly, an equity
interest or investment; (iii) in the case of each corporation described in
clauses (i) and (ii) above, (A) the jurisdiction of incorporation, (B) the
capitalization thereof and the percentage of each class of capital voting
stock owned by the Company or another Subsidiary, (C) a description of any
contractual limitations on the holder's ability to vote or alienate such
securities, (D) a description of any outstanding
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options or other rights to acquire securities of such corporation and (E) a
description of any other contractual charge or impediment which would
materially limit or impair the Company's ownership of such entity or interest
or its ability effectively to exercise the full rights of ownership of such
entity or interest; and (iv) in the case of each unincorporated entity
described in clause (ii) above, information substantially equivalent to that
provided pursuant to clause (iii) above with regard to corporate entities.
(b) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own its
properties and assets and to conduct its business as now conducted. Each
Subsidiary is duly qualified to do business as a foreign corporation in every
jurisdiction in which the character of the properties owned or leased by it
or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified would not have a
Material Adverse Effect. All of the issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable, and are owned of record and beneficially,
directly or indirectly, by the Company or another Subsidiary, free and clear
of any liens, claims, charges, security interests or other legal or equitable
encumbrances, limitations or restrictions. There are no outstanding options,
warrants, agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any issued or unissued shares of
capital stock of any Subsidiary.
SECTION 2.4. VALIDITY OF AGREEMENT; AUTHORIZATION. The Seller has
full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by the Seller, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of the Seller and no other corporate action on the part of
the Seller is necessary to authorize the execution, delivery and performance
of this Agreement by the Seller and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Seller and constitutes a legal, valid and binding obligation of the
Seller enforceable against it in accordance with its terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally and by general principles
of equity.
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SECTION 2.5. NO CONFLICT OR VIOLATION. Except as set forth in
Section 2.5 of the Seller Disclosure Schedule, the execution, delivery and
performance by the Seller of this Agreement does not and will not violate or
conflict with any provision of the respective charter documents or by-laws of
the Company, any Subsidiary or the Seller and does not and will not violate
any provision of law, or any order, judgment or decree of any court or other
governmental or regulatory authority, nor violate or result in a breach of or
constitute (with due notice or lapse of time or both) a default under, or
result in the termination of, or accelerate the performance required by, any
contract, lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Seller, any
Subsidiary or the Company is a party or by which any of them is bound or to
which any of their respective properties or assets is subject, or result in
the creation or imposition of any lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of the Company, or result in
the cancellation, modification, revocation or suspension of any Licenses (as
hereinafter defined).
SECTION 2.6. CONSENTS AND APPROVALS. Section 2.6 of the Seller
Disclosure Schedule sets forth a true and complete list of each consent,
waiver, authorization or approval of any governmental or regulatory
authority, domestic or foreign, or any other person, firm or corporation, and
each declaration to or filing or registration with any such governmental or
regulatory authority, that is required of or to be made by the Company, any
Subsidiary or the Seller in connection with the execution, delivery and
performance of this Agreement.
SECTION 2.7. FINANCIAL STATEMENTS. (a) The Seller has heretofore
furnished to the Buyer copies of (i) the audited balance sheet of the Company
as of December 31, 1997, together with the related statements of income,
stockholders' equity and cash flow for the period then ended and the notes
thereto, if any; (ii) the audited balance sheets of the Company as of the
fiscal year ended December 31, 1996, together with the related statements of
income, stockholders' equity and cash flow for the two years in the period
ended December 31, 1996 and the notes thereto; and (iii) the unaudited
balance sheet of the Company as of May 31, 1998 (the "INTERIM BALANCE SHEET")
(the audited financial statements listed in clause (i) above being
hereinafter referred to as the "1997 FINANCIAL STATEMENTS"; and all financial
statements referred to in clauses (i), (ii) and (iii) above being hereinafter
collectively referred to as the "FINANCIAL STATEMENTS"). The Financial
Statements, including, in the case of the audited Financial Statements, the
notes thereto: (i) were prepared in accordance with GAAP applied on a
consistent basis
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throughout the periods covered thereby; (ii) present fairly the consolidated
financial position, and, in the case of the audited Financial Statements,
results of operations and changes in cash flow of the Company as of such
dates and for the periods then ended (subject, in the case of the unaudited
interim Financial Statements, to normal year-end adjustments consistent with
prior periods); and (iii) are complete, correct and in accordance with the
books of account and records of the Company.
(b) Except as disclosed on Section 2.7 of the Seller Disclosure
Schedule, the Company has no assets, properties or liabilities other than
assets and properties obtained and liabilities incurred in the ordinary
course of business since the date of the Interim Balance Sheet.
(c) Except as disclosed in Section 2.7 of the Disclosure Schedule,
the Company has no commitments involving amounts in excess of $25,000 to make
any capital expenditures or to invest, advance or loan any monies to any
persons or to make any similar commitments with respect to outstanding bids
or proposals.
SECTION 2.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Section 2.8 of the Seller Disclosure Schedule, since December 31,
1997, the business of the Company and each of the Subsidiaries has been
conducted in the ordinary course consistent with past practices and there has
not been any:
(a) Change made in the Company's or any Subsidiary's authorized
capital or outstanding securities;
(b) Issuance, sale, delivery of, or agreement to issue, sell, or
deliver, any capital stock, bonds, or other securities of the Company or any
Subsidiary (whether authorized and unissued or held in treasury), or grant
of, or agreement to grant, any options, warrants, or other rights of the
Company or any Subsidiary calling for the issue, sale, or delivery thereof;
(c) Borrowing of, or agreement to borrow, any funds by the Company
or any Subsidiary, except borrowings incurred or agreements made in the
ordinary course of business or borrowings under the Company Credit Agreement,
none of which, individually or in the aggregate, are material;
(d) Other than in the ordinary course of business consistent with
past practice and other than changes in compensation policies of the Company
made in the first quarter of 1998, increase in the base salary or other base
compensation payable or to become payable by the Company or any Subsidiary to
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any of its or their officers, directors, or employees, or the declaration,
payment, commitment, or obligation of any kind for the payment of additional
base salary or base compensation to any such person exceeding $15,000
individually or $150,000 in the aggregate for all such increases;
(e) Other than in the ordinary course of business consistent with
past practice, accrual or arrangement, whether direct or indirect, for, or
payment of, bonuses or special compensation of any kind, or any severance or
termination pay, to any present or former officer, director, or employee of
the Company or any Subsidiary exceeding $15,000 individually or $150,000 in
the aggregate for all such accruals;
(f) Event, development or occurrence of any character that, as of
the date hereof has had or could reasonably be expected to have a material
adverse effect on the business, assets, properties, operations, or condition,
financial or otherwise, of the Company and its Subsidiaries, taken as a whole
(a "MATERIAL ADVERSE EFFECT") (it being agreed that for purposes of this
Section 2.8(f) sales declines or operating losses in the fiscal quarter in
which the date of this Agreement is included shall not be deemed to
constitute a Material Adverse Effect);
(g) Destruction of, damage to, or loss of, any material asset of
the Company or any Subsidiary (whether or not covered by insurance);
(h) Labor dispute or activity or proceeding by a labor union or
threat thereof that could have a Material Adverse Effect;
(i) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization methods, policies, or
rate) by the Company or any Subsidiary;
(j) Entry into or amendment, modification, or termination of any
Commitment (as hereinafter defined) or material contract, lease, license,
promissory note, commitment, indenture, mortgage, deed of trust, collective
bargaining agreement, employee benefit plan, or any other material agreement,
instrument, indebtedness, or obligation to which the Company or any
Subsidiary is a party, or by which it or any of its assets or properties are
bound, except those agreements, amendments, or terminations effected in the
ordinary course of business consistent with past practices;
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(k) Waiver or release of any right or claim of the Company or any
Subsidiary or cancellation of any debts or claims, except in the ordinary
course of business consistent with past practice;
(l) Declaration or making of, or agreement to declare or make, any
payment of dividends or distribution of any asset of any kind whatsoever in
respect to the Company's capital stock, nor any purchase, redemption, or
other acquisition or agreement to purchase, redeem, or otherwise acquire, any
of such outstanding capital stock;
(m) Citation received by the Company or any Subsidiary for any
violations of any act, law, rule, regulation, or code of any governmental
entity or agency which is reasonably likely to have a Material Adverse Effect
on such entity;
(n) Sale, transfer, or disposal of any of the assets, properties,
or rights (tangible or intangible) of the Company or any Subsidiary other
than in the ordinary course of business consistent with past practice;
(o) Mortgage, pledge, or subjection to lien, charge, or other
encumbrance, of any of the assets, properties, or rights (tangible or
intangible) of the Company or any Subsidiary other than immaterial liens
incurred in the ordinary course of business which do not impair the value or
continued use of the asset, property or right to which they relate
("Permitted Liens");
(p) Agreement entered into granting any preferential rights to
purchase any of the assets, properties, or rights (tangible or intangible) of
the Company or any Subsidiary (including management and control thereof), or
requiring the consent of any party to the transfer and assignment of any such
assets, properties, or rights (including management and control thereof);
(q) Capital expenditures exceeding $100,000 made or committed to be
made by the Company or any Subsidiary since the date of the Interim Balance
Sheet;
(r) Re-valuation by the Company or any Subsidiary of any of its or
any of their assets;
(s) Loan by the Company or any Subsidiary to any person or entity,
guaranty by the Company or any Subsidiary of any loan, or incurrence by the
Company or any Subsidiary of any indebtedness outside the ordinary course of
business consistent with past practice; or
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(t) Agreement by the Company or any Subsidiary to do any of the
things described in the preceding clauses (a) through (s).
SECTION 2.9. TAX MATTERS. (a) Seller is the common parent of an
affiliated group of corporations (within the meaning of Section 1504(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) eligible to file
consolidated federal income Tax Returns, of which the Company is a member.
With respect to the taxable year ending on the Closing Date, the Seller will
include the Company in its consolidated federal income Tax Return as a member
of the affiliated group of which Seller is the common parent.
(b) Except as otherwise disclosed in Section 2.9 of the Seller
Disclosure Schedule, (i) the Company has filed (or joined in the filing of)
when due all Tax Returns required by applicable law to be filed with respect
to the Company and all Taxes shown to be due on such Tax Returns have been
paid; (ii) all such Tax Returns were true, correct and complete as of the
time of such filing; (iii) all Taxes relating to periods ending on or before
the Closing Date owed by the Company (whether or not shown on any Tax Return)
or to which the Company may be liable under Treasury Regulations Section
1.1502-6 (or analogous state or foreign provisions) by virtue of having been
a member of any "affiliated group" (or other group filing on a combined or
unitary basis) at any time on or prior to the Closing Date, if required to
have been paid, have been paid (except for Taxes which are being contested in
good faith); (iv) any liability of the Company for Taxes not yet due and
payable, or which are being contested in good faith, has been provided for on
the financial statements of the Company in accordance with generally accepted
accounting principles; (v) there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to, the
Company in respect of any Tax or assessment, nor is any claim for additional
Tax or assessment asserted by any Tax authority; (vi) since the inception of
the Company, no claim has been made by any Tax authority in a jurisdiction
where the Company does not currently file a Tax Return that it is or may be
subject to Tax by such jurisdiction, nor to Sellers' knowledge is any such
assertion threatened; (vii) there is no outstanding request for any extension
of time within which to pay any Taxes; (viii) there has been no waiver or
extension of any applicable statute of limitations for the assessment or
collection of any Taxes of the Company; (ix) no property of the Company is
"tax-exempt use property" within the meaning of Section 168(h) of the Code;
(x) the Company is not a party to any lease made pursuant to former Section
168(f)(8) of the Internal Revenue Code of 1954; (xi) the Company has not
filed any agreement or consent
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under Section 341(f) of the Code; (xii) Seller is not a "foreign person"
within the meaning of Section 1445 of the Code; (xiii) no ruling with respect
to Taxes (other than a request for determination of the status of a qualified
pension plan) has been requested by or on behalf of the Company; (xiv) the
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; and (xv) the Company has
withheld and paid all material Taxes required to be withheld in connection
with any amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(c) For purposes of this Agreement, "TAXES" shall mean any and all
federal, state, local, provincial, foreign and other taxes, levies, fees,
imposts, duties and charges of whatever kind (including any interest,
penalties or additions to the tax imposed in connection therewith or with
respect thereto), whether or not imposed on the Company, including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, and also ad valorem, value added, sales, use, service, real
or personal property, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premium, windfall profits, transfer and gains taxes and customs duties; and
"TAX RETURN" shall mean any returns, reports, information statements and
other documentation (including any additional or supporting material) filed
or maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax and shall
include any amended returns required as a result of examination adjustments
made by the Internal Revenue Service or other Tax authority.
SECTION 2.10. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in Section 2.10 of the Seller Disclosure Schedule, neither the
Company nor any Subsidiary has any indebtedness or liability, absolute or
contingent, direct or indirect, which is not shown or provided for on the
consolidated balance sheets of the Company included in the 1997 Financial
Statements other than liabilities incurred or accrued in the ordinary course
of business which are not material in amount (including liens for current
taxes and assessments not in default) since December 31, 1997. Except as
shown in such balance sheets or in the notes to the 1997 Financial Statements
or set forth in Section 2.10 of the Disclosure Schedule, neither the Company
nor any Subsidiary is, directly or indirectly, liable upon or with respect to
(by discount, repurchase agreements or otherwise), or obligated in any other
way to provide funds in
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respect of, or to guarantee or assume, any debt, obligation or dividend of
any person, except endorsements in the ordinary course of business in
connection with the deposit of items for collection.
SECTION 2.11. INTERESTS IN REAL PROPERTY. (a) Except as disclosed
in Section 2.11 of the Seller Disclosure Schedule, neither the Company nor
any Subsidiary owns any real property. Section 2.11 of the Seller Disclosure
Schedule sets forth a true and complete list of all real properties leased by
the Company or any Subsidiary (all such properties are referred to herein,
collectively and individually as the context requires, as the "PROPERTY"),
including the annual rental payable thereon, the length of the term, any
option to renew with respect thereto, any provisions relating to percentage
rents, assignment or recapture or restricting the ability of the lessee to
cease operations at the property, and the notice and other provisions with
respect to termination of rights to the use thereof. Except as disclosed on
Section 2.11 of the Seller Disclosure Schedule, the Company has good
leaseholds in all Property set forth in Section 2.11 of the Seller Disclosure
Schedule as leased by it, in each case under valid and enforceable leases
(all such leases being referred to herein as "REAL PROPERTY LEASES"). Except
as disclosed on Schedule 2.11 of the Seller Disclosure Schedule, there does
not exist under any Real Property Leases any default or any event which with
notice or lapse of time or both would constitute a default. Except as
disclosed on Section 2.11 of the Seller Disclosure Schedule, the Property is
not subject to any liens (other than liens for current property taxes and
assessments not in default), mortgages or encumbrances; and none of the
Property is subject to any easements, rights of way, licenses, grants,
building or use restrictions, exceptions, reservations, limitations or other
impediments which has a material adverse effect on the value thereof to the
Company or any Subsidiary or which interfere with or impair the present and
continued use thereof in the usual and normal conduct of the business of the
Company or any Subsidiary. The operations of the Property by the Company or
any Subsidiary conform to all applicable laws, ordinances and administrative
regulations. All buildings, structures, improvements and fixtures owned,
leased or used by the Company or any Subsidiary in the conduct of its
business at the Property conform in all material respects to all applicable
codes and rules adopted by national and local associations and boards of
insurance underwriters; and all such buildings, structures, improvements and
fixtures are in good operating condition and repair.
(b) To the knowledge of the Seller, there are no outstanding
requirements or recommendations by any insurance
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company which has issued a policy covering the Property, or by any board of
fire underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on the Property.
(c) Except as set forth in Section 2.11 of the Seller Disclosure
Schedule, none of the Company's or any Subsidiary's leased real properties is
subject to any sublease, license or other agreement granting to any person
any right to the use, occupancy or enjoyment of such property or any portion
thereof; and, with respect to each such sublease, license or other agreement,
Section 2.11 of the Seller Disclosure Schedule sets forth the annual rental
payment thereon, the length of the term, any option to renew with respect
thereto and the notice and other provisions with respect to termination of
rights to the use thereof.
(d) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the
Company or any Subsidiary is responsible under the Real Property Leases in
the buildings or improvements are in good working order and condition as
required under the applicable Real Property Lease, and the roof, basement and
foundation walls of such buildings and improvements for which the Company is
responsible under the Real Property Leases are in good condition.
SECTION 2.12. PERSONAL PROPERTY. Except as set forth in Section
2.12 of the Seller Disclosure Schedule, the Company or a Subsidiary owns
outright and has good title, free and clear of all title defects and
objections, security interests, liens, charges and encumbrances of any nature
whatsoever (other than liens for current property taxes and assessments not
in default, if any and Permitted Liens) to the vehicles, equipment,
furniture, fixtures and other tangible personal property owned by the Company
or a Subsidiary (the "VEHICLES, FURNITURE, FIXTURES AND EQUIPMENT") and to
all the machinery, equipment, furniture, fixtures, inventory, receivables and
other tangible or intangible personal property reflected on the balance sheet
included in the 1997 Financial Statements and all such property acquired
since the date thereof, except for sales and dispositions in the ordinary
course of business since such date. Except as set forth in Section 2.12 of
the Disclosure Schedule, none of the title defects, objections, security
interests, liens, charges or encumbrances (if any) listed on Section 2.12 of
the Seller Disclosure Schedule adversely affects the value of any of the
items of personal property to which it relates or interferes with its use in
the conduct of business of the Company or a Subsidiary. Except as set forth
in Section 2.12 of the Seller
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Disclosure Schedule, the Company or a Subsidiary holds leaseholds under valid
and enforceable leases in all of the Vehicles, Furniture, Fixtures and
Equipment leased by it, and none of such Vehicles, Furniture, Fixtures and
Equipment leased by the Company or a Subsidiary is subject to any sublease,
license or other agreement of the Seller, the Company or any Subsidiary
granting to any person any right to use such property (all such leases,
subleases, licenses and other agreements are collectively referred to herein
as "VEHICLES, FURNITURE, FIXTURES AND EQUIPMENT LEASES"). Except as
disclosed in Section 2.12 of the Disclosure Schedule, neither the Company nor
any Subsidiary is in breach of or default under (and no event has occurred
which, with due notice or lapse of time or both, may constitute such a breach
or default) any provision of any of the Vehicles, Furniture, Fixtures and
Equipment Leases. Except as disclosed in Section 2.12 of the Disclosure
Schedule, the Vehicles, Furniture, Fixtures and Equipment and other personal
property now owned, leased or used by the Company or a Subsidiary is
sufficient to carry on its business as presently conducted and all items
thereof are in good operating condition and repair, normal wear and tear
excepted.
SECTION 2.13. INTANGIBLE ASSETS. (a) Section 2.13 of the Seller
Disclosure Schedule sets forth a list of all registration and applications
for registration related to Intellectual Property Rights material to the
current operation of the Company owned by, registered in the name of,
licensed to, or otherwise used in the business of the Company or any
Subsidiary (the "INTANGIBLE ASSETS"). Except as set forth in Section 2.13 of
the Seller Disclosure Schedule, all of such Intangible Assets are owned by
the Company or a Subsidiary free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by the Company or a
Subsidiary pursuant to a valid and enforceable license or other agreement.
Such list includes a summary description of each such application and
registration, and specifies, where applicable, the registration or
application number, jurisdiction and date granted or applied for and the
current status thereof. As used herein, "INTELLECTUAL PROPERTY RIGHT" means
any United States or foreign patent, patent right, trademark, service mark,
copyright, domain name, software (source code and object code) and any
application for or registration of any of the foregoing, and any trade name,
trade secret, know-how, license and other intellectual property right of any
nature whatsoever, including, without limitation, customer lists, supplier
lists, and all other information relating to the business and operation of
the Company.
(b) To the knowledge of the Seller, none of the Intangible Assets
infringes upon or unlawfully or wrongfully uses
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any Intellectual Property Right owned or claimed by another, and no
Intellectual Property Right owned or claimed by another infringes upon or
unlawfully or wrongfully uses any of the Intangible Assets. Except as set
forth in Section 2.13 of the Seller Disclosure Schedule, neither the Company
nor any Subsidiary has initiated or received any notice of any claim of
infringement or any other claim or proceeding relating to any Intellectual
Property Right owned or claimed by another, and there are no such claims
pending or, to the knowledge of the Seller, threatened with respect to any of
the Intangible Assets. Except as set forth in Section 2.13 of the Seller
Disclosure Schedule, no present or former employee of the Company or any
Subsidiary or any other person owns or has any proprietary, financial or
other interest, direct or indirect, in whole or in part, in any of the
Intangible Assets owned by the Company or any Subsidiary.
SECTION 2.14. LICENSES, PERMITS AND GOVERNMENTAL APPROVALS. (a)
Except as set forth in Section 2.14(a) of the Seller Disclosure Schedule and
except for Licenses that are not individually or in the aggregate, material,
each of the Company and its Subsidiaries has all licenses (including, but not
limited to, any environmental licenses, permits, registrations or
authorizations), health or other permits, franchises, authorizations and
approvals from the United States, any state or local government, any foreign
national or local government, or any department, agency, board, commission,
bureau or instrumentality of any of the foregoing (each a "LICENSE" and,
collectively, the "LICENSES") as are required, and such licenses are
sufficient to permit the continued lawful conduct of its business in the
manner now conducted and the ownership, occupancy and operation of its real
property for its present uses. Each material License has been issued to, and
duly obtained and fully paid for by, the holder thereof and is valid, in full
force and effect, and not subject to any pending or known threatened
administrative or judicial proceeding to suspend, revoke, cancel or declare
such License invalid in any respect.
(b) Except as set forth in Section 2.14(b) of the Seller Disclosure
Schedule, neither the Company nor any Subsidiary is in violation of any of
the Licenses. The Licenses have never been suspended, revoked or otherwise
terminated, subject to any fine or penalty, or subject to judicial or
administrative review, for any reason other than the renewal or expiration
thereof nor has any application of the Company for any License ever been
denied. The operations of the Company and each of its Subsidiaries are not
being conducted in a manner that violates in any material respect any of the
terms or conditions under which any License was granted.
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SECTION 2.15. COMPLIANCE WITH LAW. Except as set forth in Section
2.15 of the Seller Disclosure Schedule, the operations of the Company and its
Subsidiaries have been conducted in all material respects in accordance with
all applicable laws, regulations, orders and other requirements of all courts
and other governmental or regulatory authorities having jurisdiction over the
Company or the applicable Subsidiary and its assets, properties and
operations, including, without limitation, all such laws, regulations, orders
and requirements promulgated by or relating to consumer protection, currency
exchange, equal opportunity, health, environmental protection, conservation,
architectural barriers to the handicapped, fire, zoning and building,
occupation safety, pension, employment and employment practices, hours and
terms and conditions of employment, securities and trading-with-the-enemy
matters. Neither the Seller nor the Company nor any of its Subsidiaries has
received notice of any material violation of any such law, regulation, order
or other legal requirement, or is in default with respect to any order, writ,
judgment, award, injunction or decree of any federal, state or local court or
governmental or regulatory authority or arbitrator, domestic or foreign,
applicable to the Company or any of its Subsidiaries or any of their assets,
properties or operations.
SECTION 2.16. LITIGATION. Except as set forth in Section 2.16 of
the Seller Disclosure Schedule, there are no claims, actions, suits,
proceedings, labor disputes or investigations (an "Action") pending or, to
the knowledge of the Seller, threatened before any federal, state or local
court or governmental, administrative or regulatory authority, domestic or
foreign, or before any arbitrator of any nature, brought by or against the
Seller (to the extent such action relates to the business of the Company or
any Subsidiary), the Company or any of its Subsidiaries or the officers,
directors, employees or agents of the Company or its Subsidiaries, or any of
their respective affiliates involving, affecting or relating to any assets,
properties or operations of the Company or any of its Subsidiaries or the
transactions contemplated by this Agreement that are material. Section 2.16
of the Seller Disclosure Schedule sets forth a list and a summary description
of all such pending or known threatened Actions that are material. Neither
the Seller, the Company nor the Subsidiaries nor any of their respective
assets or properties is subject to, nor, to the knowledge of the Seller, does
any basis exist for, any order, writ, judgment, award, injunction or decree
of any federal, state or local court or governmental or regulatory authority
or arbitrator, that affects the Shares or the assets, properties, operations,
prospects, net income or financial condition of the
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Company or its Subsidiaries or which would interfere with the transactions
contemplated by this Agreement.
SECTION 2.17. CONTRACTS. Section 2.17 of the Seller Disclosure
Schedule sets forth (subject to the dollar amount limitations of clause (ii)
below) a true and complete list of all material contracts, agreements,
instruments, commitments and other arrangements to which the Company or its
Subsidiaries is a party and all, (i) contracts, agreements and commitments
not made in the ordinary course of business; (ii) purchase contracts
involving amounts in excess of $100,000 and supply contracts containing
minimum purchase requirements in excess of $500,000, in the case of hardware
vendors, and $100,000 in the case of software vendors; (iii) contracts, loan
agreements, letters of credit, repurchase agreements, mortgages, security
agreements, guarantees, pledge agreements, trust indentures, promissory notes
and other documents or arrangements relating to the borrowing of money or for
lines of credit; (iv) tax sharing agreements; (v) any agreement relating to
Intangible Assets; (vi) agreements and other arrangements for the sale of any
assets, property or rights other than in the ordinary course of business or
for the grant of any options or preferential rights to purchase any assets,
property or rights; (vii) documents granting any power of attorney with
respect to the affairs of the Company or its Subsidiaries; (viii) suretyship
contracts, performance bonds, working capital maintenance or other forms of
guaranty agreements; (ix) contracts or commitments limiting or restraining
the Company from engaging or competing in any lines of business or with any
person, firm, or corporation; (x) partnership or joint venture agreements;
(xi) shareholder agreements or agreements relating to the issuance of any
securities of the Company or its Subsidiaries or the granting of any
registration rights with respect thereto; and (xii) all amendments,
modifications, extensions or renewals of any of the foregoing (the foregoing
contracts, agreements and documents, together with the Real Property Leases
or any subleases relating thereto, Vehicles, Furniture, Fixtures and
Equipment Leases, Employee Plans, Bonds, Policies and Employment and Labor
Agreements, are hereinafter referred to collectively as the "COMMITMENTS" and
individually as a "COMMITMENT"). Each Commitment is valid, binding and
enforceable against the parties thereto in accordance with its terms, and in
full force and effect on the date hereof, except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by general principles of equity.
Each of the Company and its Subsidiaries has performed all obligations,
including, but not limited to, the timely making of any rental or other
payments, required to be performed by it under, and is not in default or
breach in respect of, any Commitment, and to the
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knowledge of Seller, no event has occurred which, with due notice or lapse of
time or both, would constitute such a default or breach. To the knowledge of
the Seller, no other party to any Commitment is in default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default or breach.
SECTION 2.18. RECEIVABLES. Except as set forth in Section 2.18 of
the Seller Disclosure Schedule, all Accounts Receivable payable to or for the
benefit of the Company or its Subsidiaries reflected on the Interim Balance
Sheet, and those acquired by the Company or its Subsidiaries after the date
thereof and prior to or on the Closing Date, were legally and validly
incurred pursuant to BONA FIDE transactions in the ordinary course of
business and have been collected or are (or will be) current and collectible
in amounts not less than the aggregate amount thereof, net of reserves,
carried (or to be carried) on the books of the Company in accordance with
GAAP, and, to the knowledge of the Seller, are not subject to any
counterclaims or set-offs which are not recorded in the assets of the
Company. Reserves established against Accounts Receivable have been
determined in accordance with GAAP and consistent with past practices.
During the period from December 31, 1997 to the Closing Date, write-offs of
outstanding credit memos or unapplied cash balances included in Accounts
Receivable have been made consistent with past practices. The Seller has no
knowledge of any facts or circumstances generally (other than general
economic conditions) which would result in any material increase in the
uncollectibility of the Accounts Receivable as a class in excess of the
reserves therefor set forth on the Interim Balance Sheet, the Preliminary
Closing Balance Sheet or the Final Closing Balance Sheet, as applicable. The
Final Closing Balance Sheet will reflect all Accounts Receivable as of the
Closing Date. "ACCOUNTS RECEIVABLE" means all accounts, notes and leases
receivable of the Company or any of its Subsidiaries existing on the Closing
Date.
SECTION 2.19. INVENTORIES. All inventories are of good, usable
and (where for sale in the ordinary course of business) merchantable quality.
All inventories are carried at not more than the lower of cost or market
value, and the Interim Balance Sheet, the Preliminary Closing Balance Sheet
and the Final Closing Balance Sheet, as applicable, do and will include
adequate reserves, including but not limited to reserves for any obsolete
inventory, and surplus inventory, in accordance with GAAP and consistent with
past practices. All outstanding purchase commitments of the Company to
purchase inventory are not in excess of requirements based on the historical
needs of the Company and market conditions and, other than commitments for
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immaterial amounts made in the ordinary course of business consistent with
past practice, are not at prices in excess of market prices. All outstanding
purchase commitments of the Company are consistent with the types and
quantities of Inventories necessary to conduct the business of the Company
consistently with past practice.
SECTION 2.20. EMPLOYEE PLANS. (a) Section 2.20(a) of the Seller
Disclosure Schedule sets forth a true and complete list of all bonus,
pension, stock option, stock purchase, benefit, welfare, profit-sharing,
retirement, disability, vacation, severance, hospitalization, insurance,
incentive, deferred compensation and other similar fringe or employee benefit
plans, funds, programs or arrangements, whether written or oral, in each of
the foregoing cases which cover, are maintained for the benefit of, or relate
to any or all current or former employees of the Company, and any other
entity ("ERISA AFFILIATE") related to the Company under Section 414(b), (c),
(m) and (o) of the Code (the "EMPLOYEE PLANS"). With respect to each
Employee Plan, the Seller has furnished to the Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, (ii) the most
recent determination letter received from the Internal Revenue Service, (iii)
the latest financial statements for all tax-qualified plans, (iv) the latest
Form 5500 Annual Report, including Schedule A and Schedule B thereto, (v) all
related trust agreements, insurance contracts or other funding arrangements
which implement any of such Employee Plans, (vi) all Summary Plan
Descriptions and summaries of material modifications and all modifications
thereto communicated to employees, and (vii) in the case of outstanding stock
options or stock appreciation rights issued under any Employee Plan which is
a stock option or stock appreciation rights plan, a list of holders, dates of
grant, number of shares, exercise price per share and dates exercisable.
(b) Each of the Employee Plans, and the administration thereof, is,
and has been, in compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, but not limited to, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code. Each Employee Plan
and its related trust which is intended to qualify under Section 401(a) and
Section 501(a) of the Code has heretofore been determined by the Internal
Revenue Service so to qualify, and, to the knowledge of the Seller, nothing
has occurred to cause the loss of such qualification. No Employee Plan is
intended to be exempt under Section 501(c)(9) or 501(c)(17) of the Code. No
Employee Plan is subject to Title IV of ERISA or Section 412 of the Code, and
there has not been any such plan (which would be an
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Employee Plan but for the fact that it is not currently maintained) during
the six-year period ending on the date hereof. All required reports and
descriptions of the Employee Plans (including but not limited to Form 5500
Annual Reports, Form 1024 Application for Recognition of Exemption Under
Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have
been timely filed and distributed as required by ERISA and the Code. Any
notices required by ERISA or the Code or any other state or federal law or
any ruling or regulation of any state or federal administrative agency with
respect to the Employee Plans, including but not limited to any notices
required by Section 204(h), Section 606 or Section 4043 of ERISA or Section
4980B of the Code, have been appropriately given.
(c) With respect to the Employee Plans, all required contributions
for all periods ending before the Closing Date have been made in full in
accordance with the terms of the Employee Plans. Subject only to normal
retrospective adjustments in the ordinary course, all insurance premiums have
been paid in full in accordance with the terms of the Employee Plans with
regard to such Employee Plans for policy years or other applicable policy
periods ending on or before the Closing Date.
(d) With respect to each Employee Plan (i) no nonexempt prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code
have occurred or are expected to occur as a result of the transactions
contemplated by this Agreement, (ii) no action, suit, grievance, arbitration
or other manner of litigation, or claim with respect to the assets thereof of
any Employee Plan (other than routine claims for benefits made in the
ordinary course of plan administration for which plan administrative review
procedures have not been exhausted) is pending, threatened or imminent
against or with respect to any of the Employee Plans, the Company, any ERISA
Affiliate or, to the knowledge of the Seller, any fiduciary, as such term is
defined in Section 3(21) of ERISA ("FIDUCIARY"), including but not limited to
any action, suit, grievance, arbitration or other manner of litigation, or
claim regarding conduct that allegedly interferes with the attainment of
rights under any Employee Plan, and (iii) none of the Seller, the Company or,
to the knowledge of the Seller, any Fiduciary has any knowledge of any facts
which would give rise to or could give rise to any such actions, suits,
grievances, arbitration or other manner of litigation, or claims with respect
to any Employee Plan. None of the Seller, the Company or its directors,
officers, or employees, or, to the knowledge of the Seller, any Fiduciary has
any liability for failure to comply with ERISA or the Code for any action or
failure to act in connection with the administration or investment of such
plans.
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(e) Except as provided in Section 2.20(e) of the Seller Disclosure
Schedule, neither the Company nor any ERISA Affiliate has (or has had during
the six-year period ending on the date hereof) an obligation to contribute to
any multi-employer plan, as defined in Section 3(37) or Section 4001(a)(3) of
ERISA or Section 414(f) of the Code ("MULTI-EMPLOYER PLAN").
(f) Section 2.20(f) of the Seller Disclosure Schedule sets forth a
true and complete list of all manuals, brochures or publications or similar
documents of the Company or any Subsidiary regarding personnel matters and
hiring, evaluation, supervision, training, termination and promotion of
employees, including but not limited to the Company's affirmative action
plan, if any, and all communications to employees concerning such matters.
The Seller has furnished to the Buyer true and correct copies of all the
documents listed in Section 2.20(f) of the Seller Disclosure Schedule.
(g) Except as disclosed in Section 2.20(g) of the Seller Disclosure
Schedule, neither the Company nor any ERISA Affiliate maintains, contributes
to, or has any liability (fixed, contingent or otherwise) for medical,
health, life, or other welfare benefits for terminated employees or for
present employees after termination of their employment (other than any
welfare benefits provided in compliance with Section 4980B of the Code,
Section 601 of ERISA or other applicable law).
(h) There are no contracts, agreements, plans or arrangements
covering any employee or former employee of the Company or the Subsidiaries
with "change of control" or similar provisions with respect to a change in
control of the Company (each, a "CHANGE OF CONTROL ARRANGEMENT"). There is
no contract, agreement, plan or arrangement covering any employee or former
employee of the Company or any Subsidiary that individually or collectively
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code. Neither the Company nor
any ERISA Affiliate has incurred any liability under the Worker Adjustment
and Retraining Act or any similar state law relating to employment
termination in connection with a mass layoff, plant closing or similar event.
(i) Except as disclosed in Section 2.20(i) of the Seller Disclosure
Schedule, there has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any ERISA Affiliates
relating to a change in employee participation or coverage or benefits under
any Employee Plan which would increase materially the expense of maintaining
such Employee Plan above the level of expense incurred in respect thereof for
the fiscal year ended December 31, 1997.
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SECTION 2.21. CUSTOMERS AND SUPPLIERS. Section 2.21 of the Seller
Disclosure Schedule sets forth a complete and correct list of (a) all
customers of the Company or any Subsidiary with whom the Company or a
Subsidiary has or had a Commitment involving aggregate payments of $5,000,000
or more during the fiscal year ended December 31, 1997 and (b) any customers
who accounted for more than $1,000,000 of gross sales in either of the last
two fiscal years who within the last 12 months have terminated any agreement,
contract or other arrangement with the Company or any Subsidiary or with whom
the Company or any Subsidiary has terminated any agreement, contract or other
arrangement, in each case with or without cause, prior to the stated
expiration thereof. Except as disclosed on Section 2.21 of the Seller
Disclosure Schedule, none of the Company's or any Subsidiary's customers or
suppliers has terminated, or, to the knowledge of the Seller as of the date
of this Agreement, intends to terminate or not exercise any option to renew
or otherwise change significantly its relationship with the Company or any
Subsidiary. Neither the Company nor any Subsidiary has granted any credit,
rebate, trade-in, free return or other sales terms to customers or others
which substantially differ from terms granted in the ordinary course of
business consistent with past practice.
SECTION 2.22. BONDS AND INSURANCE. (a) The Seller has furnished
or will make available prior to the date the Amended Schedules are required
to be delivered pursuant to Section 4.12, true, complete and accurate copies
of all outstanding fidelity bonds, letters of credit, cash collateral,
performance bonds and bid bonds issued to or in respect of the Company or its
Subsidiaries (collectively, the "BONDS") and all policies of title insurance,
liability and casualty insurance, property insurance, auto insurance,
business interruption insurance, tenant's insurance, workers' compensation,
life insurance, disability insurance, excess or umbrella insurance and any
other type of insurance insuring the properties, assets, employees and/or
operations of the Company or its Subsidiaries (collectively, the "POLICIES").
All premiums payable under all such Policies and Bonds have been paid timely
and each of the Seller, the Company and the Subsidiaries has complied in all
material respects with the terms and conditions of all such Policies and
Bonds.
(b) Except as set forth in Section 2.22 of the Seller Disclosure
Schedule, all such Policies and Bonds are in full force and effect and will
not in any way be affected by or terminated or lapsed by reason of the
consummation of the transactions contemplated by this Agreement; provided,
however, Buyer acknowledges that all such Policies and Bonds which are
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maintained by the Seller or its Affiliates (other than the Company or any
Subsidiary) may be terminated at 12:01 a.m. on the day immediately succeeding
the Closing Date. The Seller shall use its reasonable best efforts to cause
the Company and the Subsidiaries to maintain the coverage under all Policies
and Bonds in full force and effect through the Closing Date. Neither the
Seller, the Company nor any Subsidiary is in default under any provisions of
the Policies or Bonds, and none of the Seller, the Company or any Subsidiary
has received notice of any claim as to which the amount in controversy
exceeds $100,000 by the Company or any Subsidiary or any other person,
corporation or firm pending under any of the Policies or Bonds as to which
coverage has been denied or disputed by the underwriters or issuers of such
Policies or Bonds. The Policies and Bonds maintained by the Company and the
Subsidiaries are adequate in accordance with industry standards, the
requirements of any applicable leases and are in at least the minimum amounts
required by, and are otherwise sufficient for purposes of, any currently
applicable law, rule, or regulation of any federal, state or local
government, agency or authority, including, without limitation, environmental
regulations.
SECTION 2.23. TRANSACTIONS WITH DIRECTORS, OFFICERS AND
AFFILIATES. Section 2.23 of the Seller Disclosure Schedule, lists all
contracts and arrangements entered into since July 17, 1997 between (i) the
Company or any Subsidiary, on the one hand, and the Seller or any "AFFILIATE"
(as defined in Rule 405 under the Securities Act of 1933, as amended (the
"SECURITIES ACT")) of the Seller, on the other hand, and (ii) the Company or
any Subsidiary, on the one hand, and any such officer or director of the
Company, any Subsidiary, the Seller or any Affiliates of the Seller (or
entity controlled by any officer or director), on the other hand, involving,
in the case of this clause (ii), amounts in excess of $50,000. Since July
17, 1997, to the knowledge of the Seller, none of the officers or directors
of the Company or any Subsidiary, or any spouse or member of the immediate
family of any of such persons, has been a director or officer of, or has had
any direct or indirect interest in, any firm, corporation, association or
business enterprise which during such period has been a supplier, customer or
sales agent of the Company or any Subsidiary or has competed with or been
engaged in any business of the kind being conducted by the Company or any
Subsidiary, except for passive investments in publicly traded companies.
Except as set forth in Section 2.23 of the Seller Disclosure Schedule,
neither the Seller nor any of its Affiliates (other than the Company) owns or
has any rights in or to any of the assets, properties or rights used by the
Company or any Subsidiary in the ordinary course of its business. Except as
set
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forth in Section 2.23 of the Seller Disclosure Schedule, Seller and its
Affiliates provide no material services to the Company.
SECTION 2.24. CHANGE IN OWNERSHIP. To the best of the Seller's
knowledge as of the date hereof, neither the purchase of the Shares by the
Buyer nor the consummation of the transactions contemplated by this Agreement
will result in any event that will result in a Material Adverse Effect or in
the loss of the benefits of any relationship with any customer or supplier.
SECTION 2.25. ENVIRONMENTAL MATTERS. Notwithstanding anything to
the contrary contained in this Agreement and in addition to the other
representations and warranties contained herein:
(a) The Company, its Subsidiaries and the operations of the Company
and its Subsidiaries are in compliance with all applicable laws, regulations
and other requirements of governmental or regulatory authorities or duties
under the common law relating to toxic or hazardous substances, wastes or
pollution or to the protection of health, safety or the environment
(collectively, "ENVIRONMENTAL LAWS") and have obtained and maintained in
effect all licenses, permits and other authorizations or registrations
(collectively "ENVIRONMENTAL PERMITS") required under all Environmental Laws
(other than immaterial Environmental Permits) and are in compliance with all
such Environmental Permits.
(b) Neither the Company nor its Subsidiaries has performed or
suffered any act which could give rise to, or has otherwise incurred,
liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 ET SEQ. ("CERCLA"), or any other Environmental Laws, nor has the Company
received notice of any such liability or any claim therefor or submitted
notice pursuant to Section 103 of CERCLA to any governmental agency with
respect to any of its assets.
(c) No hazardous substance, hazardous waste, contaminant, pollutant
or toxic substance (as such terms are defined in any applicable Environmental
Law and collectively referred to herein as "HAZARDOUS MATERIALS") has been
released, placed, dumped or otherwise come to be located on, at, beneath or
near any of the assets or properties owned or leased by the Company or its
Subsidiaries or any surface waters or groundwaters thereon or thereunder, in
any case in amounts that could result in a liability to the Company or any
Subsidiary.
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(d) Except as disclosed on Section 2.25 of the Seller Disclosure
Schedule, neither the Company nor any of its Subsidiaries owns or operates,
or has ever owned or operated, aboveground or underground storage tanks.
(e) Except as set forth in Section 2.25 of the Seller Disclosure
Schedule, with respect to any or all of the real properties leased by the
Company or its Subsidiaries: (i) there are no asbestos-containing materials,
urea formaldehyde insulation, polychlorinated biphenyls or lead-based paints
present at any such properties that could result in any liability to the
Company or any Subsidiary; and (ii) there are no wetlands as defined under
any Environmental Law located on any such properties.
(f) None of the real properties leased by the Company or its
Subsidiaries: (i) has been used or is now used for the generation,
transportation, storage, handling, treatment or disposal of any Hazardous
Materials in any manner which could result in any liability to Company or any
Subsidiary; or (ii) is identified on a federal, state or local listing of
sites which require or might require environmental cleanup.
(g) No condition exists on any of the real properties leased by the
Company or its Subsidiaries that upon the failure to act, the passage of time
or the giving of notice would give rise to liability under any Environmental
Law.
(h) There are no ongoing investigations or negotiations, pending
or, to the knowledge of the Seller, threatened administrative, judicial or
regulatory proceedings, or consent decrees or other agreements in effect that
relate to environmental conditions in, on, under, about or related to the
Company, its Subsidiaries, the operations of the Company or its Subsidiaries
or the real properties leased by the Company or its Subsidiaries.
(i) Neither the Company nor its Subsidiaries nor the operations of
the Company or its Subsidiaries is subject to reporting requirements under
the federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Section 11001 ET SEQ., or analogous state statutes and related regulations.
SECTION 2.26. LABOR MATTERS. (a) Except as set forth in Section
2.26(a) of the Seller Disclosure Schedule: (i) neither the Company nor its
Subsidiaries is a party to any outstanding employment, consulting or
management agreements or contracts with officers or employees that are not
terminable at will, or that provide for the payment of any bonus or
commission
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following termination of such agreement or contract; (ii) neither the Company
nor its Subsidiaries is a party to any agreement, policy or practice that
requires it to pay termination or severance pay to salaried, non-exempt or
hourly employees (other than as required by law or as contemplated by Section
4.2 hereof); (iii) neither the Company nor its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or the Subsidiaries, nor does the Seller know
of any activities or proceedings of any labor union to organize any such
employees. The Seller has furnished to the Buyer complete and correct copies
of all such agreements ("EMPLOYMENT AND LABOR AGREEMENTS"). Neither the
Company nor its Subsidiaries has breached or otherwise failed to comply with
any provisions of any Employment and Labor Agreement, and is in full
compliance with all terms of any collective bargaining agreement and there
are no grievances outstanding thereunder.
(b) Except as set forth in Section 2.26(b) of the Seller Disclosure
Schedule: (i) there is no unfair labor practice charge or complaint pending
before the National Labor Relations Board ("NLRB"); (ii) there is no labor
strike, material slowdown or material work stoppage or lockout actually
pending or the Seller's knowledge threatened against or affecting the Company
or any Subsidiary, and neither the Company nor any Subsidiary has at any time
experienced any strike, material slow down or material work stoppage, lockout
or other collective labor action by or with respect to employees of the
Company or any Subsidiary; (iii) there is no representation claim or petition
pending before the NLRB or any similar foreign agency and no question
concerning representation exists relating to the employees of the Company or
any Subsidiary; (iv) there are no charges with respect to or relating to the
Company or any Subsidiary pending before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices; and (v) neither the Company nor
any Subsidiary has formal notice from any federal, state, local or foreign
agency responsible for the enforcement of labor or employment laws of an
intention to conduct an investigation of the Company or any Subsidiary and no
such investigation is in progress.
SECTION 2.27. PRODUCTS LIABILITY. (a)(i) Except as set forth in
Section 2.27 or 2.16 of the Seller Disclosure Schedule, there is no notice,
demand, claim, action, suit, inquiry, hearing, proceeding, notice of
violation or investigation of a civil, criminal or administrative nature
before any court or governmental or other regulatory or administrative
agency, commission or authority against or
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involving any product, substance or material (collectively, a "PRODUCT"), or
class of claims or lawsuits involving any Product produced, distributed or
sold by or on behalf of the Company or any Subsidiary which is pending or, to
the knowledge of the Seller, threatened, resulting from an alleged defect in
design, manufacture, materials or workmanship of any Product produced,
distributed or sold by or on behalf of the Company or any Subsidiary, or any
alleged failure to warn, or from any breach of implied warranties or
representations, and (ii) there has not been any Occurrence (as defined
below).
(b) For purposes of this Section 2.27, the term "OCCURRENCE" shall
mean any accident, happening or event which was caused or allegedly caused by
any alleged hazard or alleged defect in manufacture, design, materials or
workmanship including, without limitation, any alleged failure to warn or any
breach of express or implied warranties or representations with respect to,
or any such accident, happening or event otherwise involving, a Product
(including any parts or components) manufactured, produced, distributed or
sold by or on behalf of the Company or any Subsidiary which is likely to
result in a claim or loss.
SECTION 2.28. ACCOUNTS PAYABLE. Accounts Payable reflected on the
Interim Balance Sheet, the Preliminary Closing Balance Sheet and the Final
Closing Balance Sheet, as applicable, represent or will represent the total
amount due to vendors net of reserves as of the dates thereof and have been
or will be recorded in accordance with GAAP and consistent with past
practices. From the date of the Interim Balance Sheet through the Closing
Date other than in the ordinary course of business consistent with past
practice, the recorded liability for unmatched receivers shall only be
relieved upon the matching of such receivers to invoices to be paid to the
vendor with respect to goods received prior to the Closing Date. From the
date of the Interim Balance Sheet through the Closing Date, Accounts Payable
have not been, and will not be, reduced by invalid or uncollectible Vendor
Debits. "ACCOUNTS PAYABLE" means all accounts and notes payable (including
without limitation unmatched receivers) of the Company or any Subsidiary
existing on the Closing Date net of reserves for Vendor Debits. "VENDOR
DEBITS" means all vendor debits (including, but not limited to, coop
advertising credits, price protection credits, rebates, credits for returned
goods, and similar items) of the Company or any Subsidiary existing on the
Closing Date, whether previously deducted from an invoice or any other
liability owed to the vendor or recorded on the financial statements of the
Company as an Account Receivable, a reduction of Accounts Payable or
otherwise.
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SECTION 2.29. VENDOR DEBITS. All Vendor Debits were legally and
validly incurred pursuant to BONA FIDE transactions in the ordinary course of
business prior to or on the Closing Date and are collectible in amounts not
less than the aggregate amount thereof (net of reserves established in
accordance with prior practice and in accordance with GAAP) and to the
knowledge of Seller are not subject to any counterclaims or setoffs. The
Seller has no knowledge of any facts or circumstances generally (other than
general economic and industry conditions) which would result in any material
increase in the uncollectibility of the Vendor Debits as a class in excess of
the reserves therefor set forth on the Interim Balance Sheet, the Preliminary
Closing Balance Sheet or the Final Closing Balance Sheet, as applicable.
SECTION 2.30. ACCURACY OF INFORMATION. None of the
representations, warranties or statements of the Seller contained in this
Agreement, or in the Disclosure Schedule or exhibits hereto, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make any of such representations, warranties or
statements not misleading.
SECTION 2.31. INVESTMENT REPRESENTATIONS. The Seller acknowledges
that it is acquiring the Seller Note for investment, and without any present
intention of transferring such securities to any other person, and neither
the Seller nor any other person acquiring such securities directly or
indirectly from the Seller shall sell or otherwise transfer such securities
in a manner that would constitute a "distribution" as such term is used in
the Securities Act, provided that nothing in this Section 2.31 shall prevent
the Seller from transferring the Seller Note to a wholly owned subsidiary of
the Seller.
SECTION 2.32. SURVIVAL. Each of the representations and
warranties set forth in this Article II shall be deemed represented and made
by the Seller at the Closing as if made at such time (except Sections 2.8(f)
and 2.24, which shall be deemed represented and made by the Seller as of the
date hereof) and shall survive the Closing for a period terminating on the
later of (a) the date 18 months after the Closing Date, and (b) with respect
to claims asserted pursuant to Section 9.1 of this Agreement before the
expiration of the applicable representation or warranty, on the date such
claim is finally liquidated or otherwise resolved; PROVIDED, HOWEVER, that
the representations and warranties in Sections 2.1, 2.2, 2.3 and 2.9 hereof
shall survive until the applicable statute of limitations for third party or
governmental actions has expired.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents, warrants and agrees as follows:
SECTION 3.1. CORPORATE ORGANIZATION. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority and all
governmental licenses, authorizations, permits, consents and approvals to own
its properties and assets and to conduct its businesses as now conducted and
as proposed to be conducted, except where the failure to have such licenses,
authorizations, permits, consents and approvals would not have a Buyer
Material Adverse Effect. The Buyer is duly qualified to do business as a
foreign corporation and is in good standing in every jurisdiction where the
character of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified would not have a Buyer Material Adverse Effect.
SECTION 3.2. VALIDITY OF AGREEMENT; AUTHORIZATION. The Buyer has
full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by the Buyer, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of the Buyer and no other corporate action on the part of
the Buyer is necessary to authorize the execution, delivery and performance
of this Agreement by the Buyer and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Buyer and constitutes a legal, valid and binding obligation of the Buyer
enforceable against it in accordance with its terms, except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally and by general principles of
equity.
SECTION 3.3. NO CONFLICT OR VIOLATION. Except as set forth in
Section 3.3 of the Buyer Disclosure Schedule, the execution, delivery and
performance by the Buyer of this Agreement does not and will not violate or
conflict with any provision of the respective charter documents or by-laws
of the Buyer or any of its subsidiaries and does not and will not violate any
provision of law, or any order, judgment or decree of any court or other
governmental or regulatory authority, nor violate or result in a breach of or
constitute (with due notice
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or lapse of time or both) a default under, or result in the termination of,
or accelerate the performance required by, any contract, lease, loan
agreement, mortgage, security agreement, trust indenture or other agreement
or instrument to which the Buyer or any of its subsidiaries is a party or by
which any of them is bound or to which any of their respective properties or
assets is subject, or result in the creation or imposition of any lien,
charge or encumbrance of any kind whatsoever upon any of the properties or
assets of the Buyer, or result in the cancellation, modification, revocation
or suspension of any of its material licenses, franchises, permits,
authorizations or approvals.
SECTION 3.4. CONSENTS AND APPROVALS. Section 3.4 of the Buyer
Disclosure Schedule sets forth a true and complete list of each consent,
waiver, authorization or approval of any governmental or regulatory
authority, domestic or foreign, or any other person, firm or corporation, and
each declaration to or filing or registration with any such governmental or
regulatory authority, that is required of or to be made by the Buyer or any
of its subsidiaries in connection with the execution, delivery and
performance of this Agreement
SECTION 3.5. SEC FILINGS.
(a) The Buyer has delivered to the Seller:
(i) its annual report on Form 10-K for its fiscal year
ended June 28, 1997 (the "1997 FORM 10-K");
(ii) its quarterly reports on Form 10-Q for its fiscal
quarters ending September 27, 1997 and December 27, 1997 and March 28, 1998;
(iii) its proxy or information statements relating to any
meetings of, or action taken without a meeting by, the stockholders of the
Buyer held since June 28, 1997; and
(iv) all reports on Form 8-K and registration statements
filed with the Securities and Exchange Commission ("SEC") since June 28, 1997.
(b) As of its filing date, no such report or statement contained
any untrue statement of a material fact or omitted to state any 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 3.6. FINANCIAL STATEMENTS. The audited consolidated
financial statements and unaudited interim financial statements (including
the notes thereto) of the Buyer included in the 1997 Form 10-K and quarterly
reports on Form 10-Q referred to in Section 3.5(a)(ii) present fairly, in
conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Buyer and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any interim financial
statements).
SECTION 3.7. NO MATERIAL ADVERSE CHANGE. Since March 28, 1998,
there has not been any event, development or occurrence of any character
that, as of the date hereof, has had or could reasonably be expected to have
a material adverse effect on the business, assets, properties, operations, or
condition, financial or otherwise, of the Buyer and its subsidiaries, taken
as a whole (a "BUYER MATERIAL ADVERSE EFFECT") (it being agreed that for
purposes of this Section 3.7 sales declines or operating losses in the fiscal
quarter in which the date of this Agreement is included shall not be deemed
to constitute a Buyer Material Adverse Effect).
SECTION 3.8. SURVIVAL. Each of the representations and warranties
set forth in this Article III shall be deemed represented and made by the
Buyer at the Closing as if made at such time (except Section 3.7, which shall
be deemed represented and made by the Buyer as of the date hereof) and shall
survive the Closing for a period terminating on the later of (a) the date 18
months after the Closing Date, and (b) with respect to claims asserted
pursuant to Section 9.1 of this Agreement before the expiration of the
applicable representation or warranty, on the date such claim is finally
liquidated or otherwise resolved; PROVIDED, HOWEVER, that the representations
and warranties in Section 3.1 hereof shall survive until the applicable
statute of limitations for third party or governmental action has expired.
ARTICLE IV.
COVENANTS
SECTION 4.1. HSR ACT COMPLIANCE. The Buyer and the Seller shall
each file or cause to be filed with the Federal Trade Commission and the
United States Department of Justice any notifications required to be filed by
their respective "ultimate parent" companies under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR ACT") and the rules and
regulations promulgated thereunder with respect to the transactions
contemplated herein. The parties shall use their
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reasonable efforts to make such filings promptly, to respond to any requests
for additional information made by either of such agencies and to cause the
waiting periods under the HSR Act to terminate or expire at the earliest
possible date.
SECTION 4.2. CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) Except
as set forth on Section 4.2 of the Seller Disclosure Schedule, from and after
the date of this Agreement and until the Closing Date, the Company shall
conduct its business solely in the ordinary course consistent with past
practices and, without the prior written consent of the Buyer (which consent
shall not be unreasonably withheld, it being agreed that if the Buyer does
not respond to a request by the Seller for a consent under this Section
4.2(a) within 48 hours of the time of such request, the Buyer shall be deemed
to have consented to such request), the Seller will not, except as required
or permitted pursuant to the terms hereof, permit the Company or any
Subsidiary to:
(i) make any material change in the conduct of its
businesses and operations or enter into any transaction other than in the
ordinary course of business consistent with past practices;
(ii) make any change in its charter documents or bylaws or
issue any additional shares of capital stock or equity securities or grant
any option, warrant or right to acquire any capital stock or equity
securities or issue any security convertible into or exchangeable for its
capital stock or alter any term of any of its outstanding securities or make
any change in its outstanding shares of capital stock or other ownership
interests or in its capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(iii) (A) incur, assume or guarantee any indebtedness for
borrowed money, issue any notes, bonds, debentures or other corporate
securities or grant any option, warrant or right to purchase any thereof,
other than borrowings under the Company Credit Agreement, as such agreement
is in effect as of the date hereof, (B) issue any securities convertible or
exchangeable for debt securities of the Company or any Subsidiary, or (C)
issue any options or other rights to acquire from the Company or any
Subsidiary, directly or indirectly, debt securities of the Company or any
Subsidiary, or any security convertible into or exchangeable for such debt
securities;
(iv) make any sale, assignment, transfer, abandonment or
other conveyance of any of its assets or any part thereof, except
transactions pursuant to existing contracts set
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forth in the Disclosure Schedule and dispositions of inventory or of worn-out
or obsolete equipment for fair or reasonable value in the ordinary course of
business consistent with past practices;
(v) subject any of its assets, or any part thereof, to any
lien, security interest, charge, interest or other encumbrance, or suffer
such to be imposed other than such liens, security interests, charges,
interests or other encumbrances as may arise in the ordinary course of
business consistent with past practices by operation of law which will not,
individually or in the aggregate, have a Material Adverse Effect on the
Company or any Subsidiary;
(vi) redeem, retire, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock or declare, set aside or pay
any dividends or other distribution in respect of such shares;
(vii) acquire any assets, raw materials or properties, or
enter into any other transaction, other than in the ordinary course of
business consistent with past practices;
(viii) enter into any new (or amend any existing) employee
benefit plan, program or arrangement or any new (or amend any existing)
employment, severance or consulting agreement, grant any general increase in
the compensation of officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment)
or grant any increase in the compensation payable or to become payable to any
employee, except in accordance with pre-existing contractual provisions or
where any of the foregoing do not result in any liability to the Company or a
Subsidiary on or after the Closing Date;
(ix) make or commit to make any capital expenditure or
capital contribution involving amounts in excess of $25,000 or to invest,
advance, loan, pledge or donate any monies to any customers or other persons
or to make any similar commitments with respect to outstanding bids or
proposals except as disclosed in Section 2.7(c) of the Seller Disclosure
Schedule;
(x) except for payments under the Services Agreement (as
hereinafter defined) pay, loan or advance any amount to, or sell, transfer or
lease any properties or assets to, or enter into any agreement or arrangement
with, any of its Affiliates;
(xi) guarantee any indebtedness for borrowed money or any
other obligation of any other person;
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(xii) fail to keep in full force and effect any Bonds or
Policies comparable in amount and scope to coverage maintained by it (or on
behalf of it) on the date hereof;
(xiii) take any other action that would cause any of the
representations and warranties made herein not to remain true and correct in
all material respects;
(xiv) make any change in any method of accounting or
accounting principle, method, estimate or practice except for any such change
required by reason of a concurrent change in GAAP or write down the value of
any inventory or write off as uncollectible any Accounts Receivable except in
the ordinary course of business consistent with past practices;
(xv) settle, release or forgive any claim or litigation or
waive any right in excess of $250,000;
(xvi) make, change or revoke any election or method of
accounting with respect to Taxes affecting or relating to the Company;
(xvii) enter into any closing or other agreement or settlement
with respect to Taxes affecting or relating to the Company in excess of
$25,000;
(xviii) enter into any leases or comparable transactions,
including without limitation leases for real property, with annual
commitments exceeding $50,000; or
(xix) commit itself to do any of the foregoing.
(b) Except as disclosed in Section 4.2 of the Seller Disclosure
Schedule, from and after the date hereof and until the Closing Date, the
Seller shall cause the Company to use its commercially reasonable best
efforts to:
(i) maintain, in all material respects, its properties in
accordance with present practices in a condition suitable for their current
use;
(ii) file, when due or required, federal, state, foreign and
other Tax Returns and pay when due all Taxes, assessments, fees and other
charges lawfully levied or assessed against it, unless the validity thereof
is contested in good faith and by appropriate proceedings diligently
conducted;
(iii) continue to conduct its business in the ordinary course
consistent with past practices;
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(iv) keep its books of account, records and files in the
ordinary course and in accordance with existing practices;
(v) continue to maintain existing business relationships
with suppliers and customers to the extent that such relationships are, at
the same time, judged to be economically beneficial to the Company; and
(vi) comply with all Environmental Laws; and should the
Seller receive notice that there exists a violation of any Environmental Law
with respect to the real properties owned or leased by the Company or any
Subsidiary or the operations of the Company or any Subsidiary, the Seller
shall immediately notify the Buyer in writing and shall promptly (and in any
event within the time permitted by the applicable governmental authority)
remove or remedy such violation in accordance with all Environmental Laws.
SECTION 4.3. ACCESS TO PROPERTIES AND RECORDS. The Seller shall
afford, and shall cause the Company and the Subsidiaries to afford, to the
Buyer and the Buyer's accountants, counsel and representatives full access
during normal business hours throughout the period prior to the Closing Date
(or the earlier termination of this Agreement pursuant to Article VIII
hereof) to all the properties, books, contracts, Commitments and records of
the Company and the Subsidiaries (including, but not limited to, all
environmental studies, reports and other environmental records) and, during
such period, shall furnish promptly to the Buyer all information concerning
the business, properties, liabilities and personnel of the Company and the
Subsidiaries as the Buyer may request, provided that no investigation or
receipt of information pursuant to this Section shall affect any
representation or warranty of the Seller or the conditions to the obligations
of the Buyer. At the Buyer's sole option, the Buyer shall be permitted,
subject to any required landlord consent, which the Seller will use its
reasonable best efforts to obtain, to conduct testing and analysis of soil,
groundwater, building components, tanks, containers and equipment to confirm
the condition of the real property and improvements thereon.
SECTION 4.4. NEGOTIATIONS. From and after the date hereof,
neither the Seller, the Company nor its officers or directors nor anyone
acting on behalf of the Seller or such persons shall, directly or indirectly,
encourage, solicit, engage in discussions or negotiations with, or provide
any information to, any person, firm, or other entity or group (other than
the Buyer or its representatives) concerning any merger, sale of substantial
assets, purchase or sale of shares of common stock or
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similar transaction involving the Company or any division or Subsidiary
thereof. The Seller shall promptly communicate to the Buyer any inquiries or
communications concerning any such transaction which it may receive or of
which it may become aware. As of the date hereof, none of the Seller, the
Company or any Subsidiary is a party to, or bound by, any definitive
agreement, agreement-in-principle, letter of intent or other agreement (other
than customary confidentiality agreements which do not contain exclusivity or
similar arrangements in favor of any other person) relating to any
transaction or potential transaction of the type referred to in this Section
4.4. On and after the date hereof, the Seller will indemnify, defend and
hold harmless the Buyer and its affiliates against any loss, claim or expense
arising from any breach of the foregoing representation or any claim by any
other person relating to any of the foregoing matters.
SECTION 4.5. CONSENTS AND APPROVALS. Each of the Seller and the
Buyer shall use its reasonable efforts to obtain (or, in the case of the
Seller, cause the Company and the Subsidiaries to obtain) all necessary
consents, waivers, authorizations and approvals of all governmental and
regulatory authorities, domestic and foreign, and of all other persons, firms
or corporations required in connection with the execution, delivery and
performance by it of this Agreement.
SECTION 4.6. FURTHER ASSURANCES. Upon the request of a party or
parties hereto at any time after the Closing Date, the other party or parties
will forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may
request in order to perfect title of the Buyer and its successors and assigns
to the Shares or otherwise to effectuate the purposes of this Agreement.
SECTION 4.7. REASONABLE EFFORTS. Upon the terms and subject to
the conditions of this Agreement, each of the parties hereto will use its
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 consistent with
applicable law to consummate and make effective in the most expeditious
manner practicable the transactions contemplated hereby.
SECTION 4.8. NOTICE OF BREACH. Through the Closing Date, each of
the parties hereto shall promptly give to the other parties written notice
with particularity upon having knowledge of any matter that may constitute a
breach of any representation, warranty, agreement or covenant contained in
this Agreement.
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SECTION 4.9. NON-COMPETITION. The Seller acknowledges that the
agreements and covenants contained in this Section are essential to protect
the value of the Company's business and assets and by virtue of its current
relationship with the Company, the Seller has obtained such knowledge,
contacts, know-how, training and experience and there is a substantial
probability that such knowledge, know-how, contacts, training and experience
could be used to the substantial advantage of a competitor of the Company and
to the Company's substantial detriment. The Seller also acknowledges that
the Buyer has purchased all of the outstanding shares of the Company in
reliance on the covenants made by the Seller in this Section, and that the
Buyer would not have acquired the shares of the Company from the Seller in
the absence of the covenants made by the Seller in this Section. Therefore,
the Seller agrees that for the period commencing on the date of this
Agreement and ending on the fifth anniversary of the Closing Date hereunder
(such period is hereinafter referred to as the "RESTRICTED PERIOD"), the
Seller shall not participate or engage, directly or indirectly, for itself or
on behalf of or in conjunction with any person, partnership, corporation or
other entity, whether as an employee, agent, officer, director, shareholder
(other than as a less-than-10% stockholder of a publicly traded company),
partner, joint venturer, investor or otherwise, in the retail sale and repair
of computer hardware and accessories, computer software and related products
and services, including without limitation associated mail order operations
(the "BUSINESS"); provided, however, that nothing in this Section 4.9 shall
prevent Seller or any Affiliate of the Seller from participating or engaging
in the Business or any other business through (i) its operating businesses
(including, without limitation, Radio Shack and Tech America) as of the date
hereof or (ii) any new entity as long as such new entity does not conduct
Business through retail space occupying more than 6,000 square feet per store.
SECTION 4.10. CONFIDENTIAL INFORMATION. Each party hereto shall
not, directly or indirectly, disclose to any person or entity or use any
information not in the public domain or generally known in the industry, in
any form, whether acquired prior to or after the Closing Date, received from
another party hereto relating to the business and operations of the Company,
the Buyer, the Seller, their respective subsidiaries or affiliates, including
but not limited to information regarding customers, vendors, suppliers, trade
secrets, training programs, manuals or materials, technical information,
contracts, systems, procedures, mailing lists, know-how, trade names,
improvements, price lists, financial or other data (including the revenues,
costs or profits associated with any of the Company's products or services),
business plans, code books, invoices and other
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financial statements, computer programs, software systems, databases, discs
and printouts, plans (business, technical or otherwise), customer and
industry lists, correspondence, internal reports, personnel files, sales and
advertising material, telephone numbers, names, addresses or any other
compilation of information, written or unwritten, which is or was used in the
business of the Company, the Buyer, the Seller or any of their respective
subsidiaries or affiliates.
SECTION 4.11. TRANSFER OF SELLER NOTE. The Seller shall not sell,
assign, pledge, hypothecate, encumber or otherwise transfer or dispose of
(each, a "TRANSFER") the Seller Note or any portion thereof without the prior
written consent of the Buyer, which shall not be unreasonably withheld;
PROVIDED that, prior to any such Transfer, such transferee agrees in writing
to be bound by the provisions of this Agreement as if such transferee were an
original signatory hereto; and PROVIDED FURTHER that the Seller may Transfer
the Seller Note to a wholly-owned subsidiary of the Seller without consent of
the Buyer.
SECTION 4.12. AMENDED SCHEDULES. The Seller represents that, as of
the date hereof, it has endeavored to include in the Seller Disclosure
Schedule all matters responsive to the particular representation or warranty
to which such Schedule relates, including all such matters which, to its
knowledge, would qualify any such representation or warranty. The Seller has
advised the Buyer that, once it has had an opportunity to review such matters
with members of Company management, there may be additional matters to be
included therein. Not later than thirty days after the date hereof, the
Seller shall deliver to the Buyer an amended Seller Disclosure Schedule for
the Seller Disclosure Schedule delivered on the date hereof (other than
Section 4.2 of the Seller Disclosure Schedule)("AMENDED SCHEDULES") which
shall provide any supplemental matters required to be disclosed thereby. The
Buyer shall have a period of thirty days to review the Amended Schedules and
to discuss with the Seller any supplemental information relating to the
Company included therein (the "SUPPLEMENTAL INFORMATION"). At the conclusion
of such thirty day period the Buyer shall notify the Seller that either (i)
it accepts the Supplemental Information (or portions thereof), in which case
the Amended Schedules (or the portions thereof accepted by the Buyer) shall
be deemed to be (or be included in) the Seller Disclosure Schedule for
purposes of this Agreement from the date hereof, or (ii) it has concluded, in
its sole discretion, that the Supplemental Information (or portions thereof),
together with any other matters discovered by the Buyer during the Due
Diligence Period (as defined in Section 8.1(a)), permit the Buyer to deliver
a Termination Notice as provided in Section 8.1(a), in which case, the
provisions of such
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Section 8.1(a) shall govern. If the Seller supplements Section 2.6 or 7.4 of
the Seller Disclosure Schedule, the Buyer shall be entitled to supplement
Section 3.4 and 6.3 of the Buyer Disclosure Schedule. The Seller shall have
no right to deliver Amended Schedules after the 30th day after the date
hereof, except with the prior written consent of the Buyer, which may be
withheld in its sole discretion.
SECTION 4.13. LEASE CANCELLATION. At the request of the Buyer made
at any time on or after the Closing Date, the Seller shall cancel the lease
for the Company's store location at Fort Worth Outlet Square, without
liability of any kind to the Company. Solely in consideration of the
transactions contemplated by this Agreement, Seller shall allow the Company
to continue to occupy such space for up to six months following the Closing
regardless of the cancellation of such lease.
SECTION 4.14. BENEFIT AND COMPENSATION PLANS.
(a) The account of each person who is an employee of the Company
or a Subsidiary on the Closing Date (a "COMPANY EMPLOYEE") in the Tandy Fund
(the "401(k) PLAN") attributable to contributions by the Seller, the Company
or an affiliate of either shall become fully vested and nonforfeitable as of
the Closing. Seller shall take any actions necessary to allow lump sum
distributions to be made to Company Employees from the 401(k) Plan in
accordance with Section 401(k)(10) of the Code on account of the transactions
described in this Agreement. Company Employees shall be allowed to elect
such distributions during the period beginning no later than the close of the
calendar quarter which follows, or begins on, the Closing Date, and ending on
the latest date allowed under Section 401(k)(10) of the Code.
(b) The Seller shall indemnify and hold harmless the Company, each
Subsidiary, the Buyer and each of their respective affiliates, directors,
officers, employees and shareholders against any liabilities (including
reasonable attorneys' fees) incurred with respect to any claim, whether for
payment of benefits or otherwise, related in any way to an Employee Plan.
(c) At the Closing, the Seller shall furnish to the Buyer a
complete and correct list containing the number (by location) of all
employees of the Company whose employment has been terminated by the Company
within the 90-day period ending on the Closing Date. The Seller shall
provide the Buyer, after the Closing Date, with such detailed information
relating to such employment terminations as the Buyer may reasonably request.
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(d) The Buyer will provide health care continuation coverage under
the provisions of the Congressional Omnibus Budget Reconciliation Act of 1985
("COBRA") with respect to employees of the Company and their qualified
beneficiaries who properly elect such coverage and who first became entitled
to make such an election on or after the Closing Date. The Seller shall
provide COBRA coverage with respect to all employees of the Company and their
qualified beneficiaries who were receiving or were first entitled to elect
COBRA coverage as of any date preceding the Closing Date.
SECTION 4.15. ASSIGNED INTELLECTUAL PROPERTY RIGHTS. On the
Closing Date, the Seller shall assign, and cause its affiliates to assign, to
the Company all right, title and interest in and to all Intellectual Property
Rights (excluding software utilized by Tandy Information Services for the
benefit of the Company) owned or licensed by the Seller or any Affiliate of
the Seller and used primarily in the conduct of the business of the Company
or any Subsidiary (the "ASSIGNED INTELLECTUAL PROPERTY RIGHTS") pursuant to
an assignment agreement and other transfer documents reasonably acceptable to
the Buyer. The Buyer will pay or cause the Company to pay the costs
associated with the registration or recordation of the Assigned Intellectual
Property that the Buyer elects to undertake after the Closing.
SECTION 4.16. ASSET PURCHASES BY TANDY FROM THE COMPANY PRIOR TO
CLOSING. Immediately prior to the Closing, the Seller shall purchase from
the Company (i) the furniture, fixtures, equipment, and leasehold
improvements of the Company identified in the Company's accounting records by
the unit numbers set forth on Section 4.16 of the Disclosure Schedule (the
"TANDY CENTER OFFICE ASSETS"), (ii) all barter credits of the Company and any
Subsidiary existing immediately prior to the Closing Date, and (iii) such of
the assets of the Company, determined by the Seller, identified in the
Company's accounting records as Unit Numbers 29-0095 (Information Services)
and 29-0096 (CC-MIS) (the "IS ASSETS") which have, in the aggregate, a net
book value equal to $11,509,000 immediately prior to Closing. The purchase
price for all the assets listed in this Section 4.16 shall be the net book
value of such assets immediately prior to the Closing Date. The Seller shall
indemnify, defend and hold harmless the Buyer, the Company and their
respective Affiliates against all losses, claims and expenses arising as a
result of any of the foregoing. Solely in consideration of the transactions
contemplated by this Agreement, the Company shall continue to have the right
to use (x) the Tandy Center Office Assets, and (y) the IS Assets purchased by
the Seller pursuant to this Section 4.16 for a period of six months following
the Closing Date.
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SECTION 4.17. TRANSITIONAL SERVICES. Solely in consideration of
the transactions contemplated by this Agreement, the parties agree that, on
and after the Closing Date, the Company shall have the right to continue to
receive the services provided by the Seller under the Transitional Services
Agreement dated as of July 17, 1997 (the "SERVICES AGREEMENT") between the
Seller and EVP Colonial, Inc. for a period of not more than six months after
the Closing Date. Without limiting the rights of the Company pursuant to the
previous sentence, the Services Agreement shall be terminated as of the
Closing Date with no further obligation or liability of the Company in
respect thereof.
SECTION 4.18. INSURANCE. The Buyer acknowledges that the Seller
shall not be obligated to provide insurance services to the Company and the
Subsidiaries after the Closing Date as provided in Section 2.22(b). To the
extent the Seller has provided, or caused to be provided, to the Company or
any Subsidiary any insurance coverages with respect to periods on or prior to
the Closing Date, the Seller shall be responsible for claims accruing during
any such time which are covered by such policies, including worker's
compensation claims.
SECTION 4.19. CONTRIBUTION OF CERTAIN ASSETS. Prior to the
Closing Date, the Seller will contribute to the Company those assets
consisting of pre-printed forms, signage and other assets held by the Seller
as of the date hereof for use by the Company in the conduct of its business.
The Seller agrees to seek to minimize the quantities thereof in existence at
the Closing Date and shall refrain from replenishing such assets after the
date hereof, except to the extent required for the conduct of the Company's
business through the Closing Date.
SECTION 4.20. COMPANY'S CREDIT CARD PROGRAM.
(a) Buyer acknowledges that the Company is a party to a certain
Amended and Restated Merchant Services Agreement (Phase I) with Hurley State
Bank dated as of December 29, 1994 ("MSA").
(b) During the Initial Term (as defined in the MSA) of the MSA, to
the extent the Merchant Fees and Marketing Credits (all as defined in the
MSA) then in effect and payable under the MSA over a calendar quarter result
in net credit card discounts that are less favorable to the Company than
those that would result from multiplying the same sales figures for that
quarter by the fee and credit rate factors then in effect under Buyer's
agreement with the credit card issuer providing Buyer's proprietary credit
card program, Seller will reimburse Buyer for the difference as provided
herein. Buyer agrees to advise Seller
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of all rate changes after it is notified of same. Buyer will submit to
Seller a bill within 30 days after the end of each calendar quarter,
accompanied by calculations and all reasonable backup documentation to
support its calculations. Buyer will allow Seller and its agents reasonable
access to its books and records in order to verify all calculations and the
basis for each.
(c) During the Initial Term of the MSA, to the extent charges for
additional services and point of sale supplies, and chargeback rates under
the MSA are greater than those charged by Buyer's credit card issuer for the
same sales volume from similarly situated sales outlets of the Buyer
("BUYER'S CHARGES"):
(i) Seller and Buyer agree to take commercially reasonable steps in
cooperation with each other to reduce such charges; and
(ii) Seller agrees to reimburse Buyer one-half of the amount of which
such charges exceed Buyer's Charges if not reduced; and
(iii) Buyer shall submit a bill to Seller for such charges; and
(iv) Buyer shall allow Seller and its agents reasonable access to its
books and records during regular business hours to verify all calculations
and the basis for each.
(d) The Buyer and the Seller shall cooperate in good faith to
obtain amendments or waivers of the terms of the MSA from Hurley State Bank
if such amendments or waivers become, in the reasonable judgment of the Buyer
or the Seller, necessary due to the exclusivity provisions or store closure
provisions in the MSA. The Buyer and the Seller agree to share equally the
costs of obtaining such waivers or amendments, if any, and any liabilities
arising as a result of such provisions.
(e) With respect to any amount payable under paragraph (b), (c) or
(d) above, Seller will pay the billed amount within 10 days after receipt of
the bill. If Seller disputes any portion of the bill, Seller shall pay the
undisputed portion of same within 10 days after receipt of the bill, and the
dispute shall be referred first to the Chief Financial Officers of each of
Seller and Buyer for resolution, and if they are unable to resolve the
dispute, then to the Chief Executive Officers of each of Seller and Buyer.
If such dispute is not resolved within 30 days after receipt of such bill,
the Buyer shall be entitled to
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pursue any remedies available to it with respect to such nonpayment.
SECTION 4.21. REAL PROPERTY LEASES. (a) At any time following
the Closing, in connection with any extension or renewal of any Real Property
Lease in respect of which Seller is a guarantor, Buyer shall use reasonable
efforts to cause the Seller to be removed from such guaranty upon the
effectiveness of such extension or renewal. If, after the Closing Date, any
claim shall be made against the Seller (in its capacity as a guarantor) by
any landlord (other than the Seller or any Affiliate of the Seller) under any
of the Real Property Leases in respect of any default, or alleged default, by
the Company under the terms of the applicable Real Property Lease, which
default, or alleged default, arises from any act, omission or circumstance
accruing on or after the Closing Date (a "COVERED LEASE CLAIM"), the Buyer
will indemnify the Seller against any loss or expense actually incurred by
the Seller in respect of such Covered Lease Claim; PROVIDED, however, that
such indemnification obligation shall not be applicable with respect to (i)
any default, or alleged default, by the Company arising out of any act,
omission or circumstance accruing prior to the Closing Date or which
constitutes a breach of Section 2.11 of this Agreement (regardless of whether
the survival period with respect to the representations or warranties
contained therein shall have expired and without qualification for any matter
disclosed in Section 2.11 of the Seller Disclosure Schedule) or (ii) any
claim that the sale of the Shares pursuant to this Agreement results in a
breach of or default under the terms of the applicable Real Property Lease.
(b) The Seller will indemnify, defend and hold the Buyer harmless
from and against any Loss or expense incurred by the Buyer in respect of any
claim arising from or asserting the failure of the Company to hold a valid
leasehold interest in any Real Property Lease.
ARTICLE V.
TAX MATTERS
SECTION 5.1. SECTION 338(h)(10) ELECTION.
(a) With respect to sale of the Shares, the Seller and the Buyer
shall jointly make a Section 338(h)(10) Election (as hereinafter defined) in
accordance with applicable laws and under any comparable provision of state,
local or foreign law for which a separate election is permissible and as set
forth herein. The Buyer shall take all necessary steps to properly make a
Section 338(h)(10) Election in accordance with applicable laws and under
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any comparable provision of state, local or foreign law for which a separate
election is permissible. The Buyer and the Seller agree to cooperate in good
faith with each other in the preparation and timely filing of any Tax Returns
required to be filed in connection with the making of such an election,
including the exchange of information and the joint preparation and filing of
Form 8023-A and related schedules. The Buyer and the Seller agree to report
the sale of the Shares consistent with such elections and shall take no
position contrary thereto unless required to do so by applicable tax law
pursuant to a determination as defined in Section 1313(a) of the Code.
(b) The Seller shall be responsible for the preparation and filing
of all Section 338 Forms (as hereinafter defined) in accordance with
applicable tax laws and the terms of this Agreement and shall deliver such
Section 338 Forms to the Buyer within 30 Business Days following the Seller's
receipt of the Valuation (as hereinafter defined), if any. The Buyer agrees
to provide the Seller with any information within the possession of the Buyer
that is needed to complete the Section 338 Forms.
(c) Seller shall provide Buyer with a draft in substantially final
form of the portion of Seller's consolidated federal income tax return that
relates to the Company for the taxable period that includes the Closing Date
no later than the later of (i) 30 calendar days after Seller's receipt of the
Valuation (as defined below) or (ii) 30 calendar days after the final
determination of the Final Closing Balance Sheet pursuant to Section 1.5(a).
The Purchase Price, liabilities of the Company and other relevant items shall
be allocated in accordance with Section 338(b)(5) of the Code and the
Treasury Regulations thereunder. The Buyer shall, at its option, determine
the fair market value of the assets of the Company (the "VALUATION"). The
Buyer shall be under no obligation to have the Valuation prepared by an
independent appraiser. The Valuation will be provided to the Seller within
120 days after the Closing Date. The Seller shall have ten (10) Business
Days after receipt of the Valuation to object to any fair market value set
forth therein. Thereafter, the parties shall negotiate in good faith to
agree on a final valuation. All values contained in the Valuation shall be
used by each party in preparing the forms referred to in Section 5.1(b) above
and all other relevant Tax Returns.
(d) Notwithstanding any other provision of this Agreement to the
contrary, Seller agrees that any income and gain or loss recognized as a
result of, and in accordance with, the making of the Section 338(h)(10)
Election will be included in the consolidated federal income tax return of
Seller's consolidated group and any resulting tax liability will be paid by
Seller, as
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the common parent of Seller's consolidated group. Seller further agrees that
it will pay and be responsible for, and will indemnify and save Buyer and the
Company harmless from, any Taxes imposed on Buyer and the Company by any
state or local Tax authority resulting from Buyer's election to treat the
purchase of the Shares as an asset acquisition under the statutes of any such
Tax authority.
(e) "SECTION 338 FORMS" means all returns, documents, statements,
and other forms that are required to be submitted to any federal, state,
county or other local Tax authority in connection with a Section 338(g)
Election or a Section 338(h)(10) Election. Section 338 Forms shall include,
without limitation, any "statement of section 338 election" and IRS Form
8023-A (together with any schedules or attachments thereto) that are required
pursuant to Treas. Regs. Section 1.338-1 or Treas. Regs. Section
1.338(h)(10)-1 or any successor provisions.
(f) "SECTION 338(h)(10) ELECTION" means an election described in
Section 338(h)(10) of the Code with respect to the Buyer's acquisition of the
Company pursuant to this Agreement. Section 338(h)(10) Election shall
include any corresponding election under state or local law pursuant to which
a separate election is permissible with respect to sale of the Company Shares
pursuant to this Agreement.
(g) Notwithstanding Section 5.1(a), if so requested by Buyer by
written notice on or before the later of January 31, 1999 or 30 days after
the date specified in the first sentence of Section 5.1(c), Seller and Buyer
shall refrain from making a Section 338(h)(10) Election with respect to the
sale of the Shares. In that event, Buyer shall pay to Seller within 10 days
of such written notice the amount of any Incremental Tax Cost. For purposes
of this paragraph, "INCREMENTAL TAX COST" shall mean the net difference,
whenever realized, between (i) the combined hypothetical federal, state and
local income tax benefit to the Seller attributable to sale of Shares,
computed as if the parties had made the Section 338(h)(10) Election under
Section 5.1(a), and (ii) the combined actual federal, state and local income
tax benefit (if any) to the Seller attributable to the sale of the Shares,
assuming the absence of a Section 338(h)(10) Election and taking into account
the tax benefit of any election by Seller under Section 5.4 hereof, in both
cases computed without giving effect to the federal, state or local income
tax consequences of the receipt of any indemnity payment under this Section
5.1(g). To the extent that the Seller recognizes a federal, state or local
income tax benefit attributable to the sale of the Shares during any taxable
period following the receipt of an indemnity
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payment under this Section 5.1(g), the Seller shall promptly refund an amount
equal to such tax benefit to Buyer.
SECTION 5.2. TAX INDEMNITY AND TAX RETURN FILINGS.
(a) TAX INDEMNITY. Seller shall indemnify the Buyer Indemnitees
(as defined in Section 9.1(a)) and hold them harmless from any Loss
attributable to Pre-Closing Taxes. For purposes of this Agreement,
"PRE-CLOSING TAXES" shall mean, except to the extent accrued on the Final
Closing Balance Sheet, (a) all liability for Taxes of the Company or any of
the Subsidiaries for Pre-Closing Tax Periods; (b) all liability resulting by
reason of the several liability of the Company or any of the Subsidiaries
pursuant to Treasury Regulations Section 1.1502-6 or any analogous state,
local or foreign law or regulation or by reason of the Company having been a
member of any consolidated, combined or unitary group on or prior to the
Closing Date; (c) all liability for Taxes resulting by reason of the Company
or any of the Subsidiaries ceasing to be a member of the affiliated group
that includes Seller; (d) all liability attributable to any misrepresentation
or breach of warranty made by Seller in Section 2.9 of this Agreement; (e)
all liability for Taxes attributable to any failure to comply with any of the
covenants or agreements of Seller or the Company under this Agreement; and
(f) all liability for Taxes of any other person pursuant to any contractual
agreement entered into on or before the Closing Date. The indemnity
limitations set forth in Section 9.1 shall not apply to any indemnity payment
under this Article V, and any amounts due under this Article V shall not be
applied toward the $2,000,000 limitation contained in Section 9.1. For
purposes of this Agreement, "PRE-CLOSING TAX PERIOD" shall mean any taxable
period ending on or before the Closing Date and the portion ending on and
including the Closing Date of any Straddle Period.
(b) PROCEDURES RELATING TO TAX CLAIMS. If a claim is made by any
Tax authority which, if successful, is likely to result in an indemnity
payment to Buyer or any of its affiliates pursuant to this Article V, Buyer
shall notify Seller of such claim (a "TAX CLAIM"), stating the nature and
basis of such claim and the amount thereof, to the extent known. Failure to
give such notice shall not relieve Seller from any liability which it may
have on account of this indemnification or otherwise, except to the extent
that Seller is materially prejudiced thereby. Seller will have the right, at
its option, upon timely notice to Buyer, to assume control of any defense of
any Tax Claim (other than a Tax Claim relating solely to Taxes of the Company
for a Straddle Period) with its own counsel. Seller's right to control a Tax
Claim will be limited to amounts in dispute which would be paid by Seller or
for which Seller would be liable pursuant to this
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Article V. Costs of such Tax Claims are to be borne by Seller unless the Tax
Claim relates to taxable periods ending after the Closing Date, in which
event such costs will be fairly apportioned. Buyer and the Company shall
cooperate with Seller in contesting any Tax Claim, which cooperation shall
include the retention and, upon Seller's request, the provision of records
and information which are reasonably relevant to such Tax Claim and making
employees available on a mutually convenient basis to provide additional
information or explanation of any material provided hereunder.
Notwithstanding the foregoing, Seller shall neither consent nor agree (nor
cause the Company to consent or agree) to the settlement of any Tax Claim
with respect to any liability for Taxes that may affect the liability for any
state or federal income tax of the Company or any affiliated group (as
defined in Section 1504(a) of the Code) of which the Company is a member for
any taxable period ending subsequent to the Closing Date without the prior
written consent of Buyer, and neither Seller, nor any entity related to
Seller, shall file an amended Tax Return that may affect the liability for
Taxes of the Company without the prior written consent of Buyer. Buyer and
Seller shall jointly control all proceedings taken in connection with any
claims for Taxes relating solely to a Straddle Period of the Company.
(c) FILING OF TAX RETURNS. (i) Seller shall prepare and file all
Tax Returns with the appropriate federal, state, local and foreign
governmental agencies relating to the Company or any of its Subsidiaries for
periods ending on or prior to the Closing Date and shall pay all Taxes due
with respect to such Tax Returns. Buyer shall prepare and file, or cause to
be prepared and filed, all Straddle Tax Returns required to be filed by the
Company or any of its Subsidiaries and shall cause the Company to pay the
Taxes shown to be due thereon, provided, however, that Seller shall promptly
reimburse Buyer for the portion of such Tax that relates to a Pre-Closing Tax
Period, except to the extent accrued on the Final Closing Balance Sheet.
Seller will furnish to Buyer all information and records reasonably requested
by Buyer for use in preparation of any Straddle Tax Returns. Buyer shall
allow Seller to review, comment upon and reasonably approve without undue
delay any Straddle Tax Return at any time during the forty-five (45) day
period immediately preceding the filing of such Tax Return. Buyer and Seller
agree to cause the Company and its Subsidiaries to file all Tax Returns for
any Straddle Period on the basis that the relevant taxable period ended as of
the close of business on the Closing Date, unless the relevant Tax authority
will not accept a Tax Return filed on that basis. For purposes of this
Agreement, "STRADDLE TAX RETURN" shall mean any Tax Return covering a taxable
period commencing prior to the Closing Date and ending after the Closing Date.
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(ii) In the case of any Straddle Period, (a) real, personal and
intangible property Taxes ("PROPERTY TAXES") of the Company or any of its
Subsidiaries for the Pre-Closing Tax Period shall be equal to the amount of
such property Taxes for the entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days during the Straddle
Period that are in the Pre-Closing Tax Period and the denominator of which
is the number of days in the Straddle Period; and (b) the Taxes of the
Company (other than property Taxes) for the portion of the Straddle Period
that constitutes a Pre-Closing Tax Period shall be computed as if such
taxable period ended as of the close of business on the Closing Date. For
purposes of this Agreement, "STRADDLE PERIOD" shall mean any taxable period
that includes (but does not end on) the Closing Date.
(iii) Seller will cause any tax sharing agreement or similar
arrangement with respect to Taxes involving the Company or any of the
Subsidiaries to be terminated effective as of the Closing Date, to the
extent any such agreement or arrangement relates to the Company or its
Subsidiaries, and after the Closing Date neither the Company nor any
Subsidiary shall have any obligation under any such agreement or
arrangement for any past, present or future period.
(d) RESPONSIBILITY FOR TAX DEFICIENCIES AND RIGHT TO RECEIVE
REFUNDS. If as a result of a Change in a Pre-Closing Tax Period Tax Return or
Straddle Period Tax Return, there shall result any adjustment which increases
deductions, decreases income or increases credits against Income Taxes ("TAX
BENEFITS") of the Company for any period beginning on or after the Closing
Date, Seller shall notify Buyer of such adjustment and provide Buyer with
such information as may be necessary for Buyer to take into account such
increases or decreases. Buyer shall pay to Seller the amount of any refund
(together with interest, if any received) or reduction of Income Tax
liability resulting from such adjustment, such amount to be paid when, as and
if Buyer actually realizes such refund or reduction in Income Tax liability.
If as a result of a Change relating to the Company or any of its subsidiaries
in a Pre-Closing Tax Period Tax Return or Straddle Period Tax Return, there
shall result any adjustment which provides a Tax Benefit to the Seller
Affiliated Group for a period beginning after the Closing Date, Seller shall
pay to Buyer the amount of refund (together with interest, if any, received)
or reduction of Income Tax liability resulting from such adjustment, such
amount to be paid when, as and if Seller actually realizes such refund or
reduction in Income Tax liability, provided, however, that if any such
adjustment would
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have reduced the Incremental Tax Cost under Section 5.1(g) hereof, assuming
that such adjustment existed as of the Closing Date, Seller shall make an
immediate payment to Buyer in an amount equal to such reduction. "CHANGE"
shall mean any audit, amendment, determination or other change in a tax
return which changes the amount of Taxes paid or payable by the filer of such
tax return from the amount shown thereon to be due, or which changes the
amount of taxable income or loss or the amount of tax credits (including, for
example, increasing a net operating loss) for a corporation included in such
Tax Return.
SECTION 5.3. OTHER TAX MATTERS. All transfer, documentary, sales,
use, stamp, registration, value added and other such Taxes incurred in
connection with this Agreement shall be borne and paid by the Seller when
due, and the Seller will, at its own expense, timely file all necessary Tax
Returns with respect to all such Taxes, and, if required by applicable law,
the Buyer will, and will cause its affiliates to, join in the execution of
any such Tax Returns.
SECTION 5.4. RETENTION OF CARRYOVERS. Seller may elect to retain
any and all net operating loss carryovers and capital loss carryovers of the
Company under Treas. Reg. Section 1.1502.20(g). At Seller's request, Buyer
will cause the Buyer Group to join with Seller in filing any necessary
elections under Treas. Reg. Section 1.1502.20(g) to effect the foregoing.
SECTION 5.5. RETENTION OF BOOKS, RECORDS, TAX SOFTWARE AND
REFERENCE MATERIALS. Seller shall retain all existing files relating to
Taxes and all Tax Returns for Tax Periods which end on or before the Closing
Date or which include the Closing Date. Buyer shall be entitled to a copy of
all existing files relating to Taxes and all Tax Returns that are retained by
Seller and which relate to the operations of the Company and its subsidiaries
or are necessary to file its Tax Returns after the Closing Date. If Buyer
takes possession of any files from Seller, Buyer shall be responsible for the
retention of such files. Computer software, library materials, casebooks,
reference materials, or similar items related to Taxes and/or the preparation
of tax returns shall remain the property of Seller; however, Buyer may
request that software and reference materials be duplicated for its use and
at its expense (including payment of applicable royalty and license fees to
third parties).
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer to consummate the transactions
contemplated by this Agreement are subject to the
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fulfillment, at or before the Closing Date, of the following conditions, any
one or more of which may be waived by the Buyer in its sole discretion:
SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
representations and warranties made by the Seller in this Agreement and
qualified as to materiality or Material Adverse Effect shall be true and
correct and the representations and warranties made by the Seller in this
Agreement not so qualified shall be true and correct in all material
respects, in each case on and as of the Closing Date as if again made by the
Seller on and as of such date, and, if the Closing Date is other than the
date hereof, the Buyer shall have received a certificate dated the Closing
Date and signed by the Chairman of the Board, President or Executive Vice
President of Seller to that effect.
SECTION 6.2. PERFORMANCE OF THE SELLER'S OBLIGATIONS. The Seller
shall have performed in all material respects all obligations required under
this Agreement to be performed by it on or before the Closing Date, and the
Buyer shall have received a certificate dated the Closing Date and signed by
the Chairman of the Board, President or Executive Vice President of Seller to
that effect.
SECTION 6.3. CONSENTS AND APPROVALS. All consents, waivers,
authorizations and approvals set forth on Section 6.3 of the Buyer Disclosure
Schedule shall have been duly obtained and shall be in full force and effect
on the Closing Date.
SECTION 6.4. HSR. The waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have expired
or been earlier terminated.
SECTION 6.5. NO VIOLATION OF ORDERS. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, domestic or foreign, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any government or governmental or
regulatory authority, domestic or foreign, that declares this Agreement
invalid in any respect or prevents the consummation of the transactions
contemplated hereby, or which materially and adversely affects the assets,
properties, operations, prospects, net income or financial condition of the
Company shall be in effect; and no action or proceeding before any court or
governmental or regulatory authority, domestic or foreign, shall have been
instituted by any government or governmental or regulatory authority,
domestic or foreign, or by any other person, or entity which seeks to prevent
or delay the consummation of the transactions contemplated by this Agreement
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or which challenges the validity or enforceability of this Agreement.
SECTION 6.6. NO MATERIAL ADVERSE CHANGE. During the period from
December 31, 1997 to the Closing Date, there shall not have been any event,
development, occurrence or change that has had or could reasonably be
expected to have a Material Adverse Effect (it being agreed that for purposes
of this Section 6.6, sales declines or operating losses in the fiscal quarter
in which the date of this Agreement is included shall not be deemed to
constitute a Material Adverse Effect).
SECTION 6.7. OTHER CLOSING MATTERS. The Buyer shall have received
such other duly executed opinions, certificates, instruments and documents in
confirmation of the representations and warranties of the Seller or in
furtherance of the transactions contemplated by this Agreement as the Buyer
or its counsel may reasonably request.
SECTION 6.8. LEGAL MATTERS. All certificates, instruments,
opinions and other documents required to be executed or delivered by or on
behalf of the Seller under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of the Seller in
furtherance of the transactions contemplated hereby, shall be reasonably
satisfactory in form and substance to counsel for the Buyer.
SECTION 6.9. INTELLECTUAL PROPERTY ASSIGNMENT. The Seller shall
have executed and delivered the agreements and other instruments contemplated
by Section 4.15 with respect to the Assigned Intellectual Property Rights.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF THE SELLER
The obligations of the Seller to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or before
the Closing Date, of the following conditions, any one or more of which may
be waived by the Seller:
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The
representations and warranties made by the Buyer in this Agreement and
qualified as to materiality or Buyer Material Adverse Effect shall be true
and correct and the representations and warranties made by the Buyer in this
Agreement not so qualified shall be true and correct in all material
respects, in each case on and as of the Closing Date as if again made by the
Buyer on and as of such date, and, if the Closing Date is other than the date
hereof, the Seller shall have received a
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certificate dated the Closing Date and signed by the Chairman of the Board,
the President or the Executive Vice President of the Buyer to that effect.
SECTION 7.2. PERFORMANCE OF THE BUYER'S OBLIGATIONS. The Buyer
shall have performed in all material respects all obligations required under
this Agreement to be performed by it on or before the Closing Date, and the
Seller shall have received a certificate dated the Closing Date and signed by
the Chairman of the Board, the President or the Executive Vice President of
the Buyer to that effect.
SECTION 7.3. HSR. The waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have expired
or been earlier terminated.
SECTION 7.4. CONSENTS AND APPROVALS. All consents, waivers,
authorizations and approvals set forth on Section 7.4 of the Seller
Disclosure Schedule shall have been duly obtained and shall be in full force
and effect on the Closing Date.
SECTION 7.5. NO VIOLATION OF ORDERS. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, domestic or foreign, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any government or governmental or
regulatory authority, domestic or foreign, that declares this Agreement
invalid or unenforceable in any respect or which prevents the consummation of
the transactions contemplated hereby shall be in effect; and no action or
proceeding before any court or governmental or regulatory authority, domestic
or foreign, shall have been instituted by any government or governmental or
regulatory authority, domestic or foreign, or by any other person or entity,
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement.
SECTION 7.6. NO MATERIAL ADVERSE CHANGE. During the period from
December 31, 1997 to the Closing, there shall not have been any event,
development, occurrence or change that has had or could reasonably be
expected to have a Buyer Material Adverse Effect (it being agreed that for
purposes of this Section 7.6, sales declines or operating losses in the
fiscal quarter in which the date of this Agreement is included shall not be
deemed to constitute a Buyer Material Adverse Effect).
SECTION 7.7. OTHER CLOSING DOCUMENTS. The Seller shall have
received such other duly executed opinions, certificates, instruments and
documents in confirmation of the
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representations and warranties of the Buyer or in furtherance of the
transactions contemplated by this Agreement as the Seller or its counsel may
reasonably request.
SECTION 7.8. LEGAL MATTERS. All certificates, instruments,
opinions and other documents required to be executed or delivered by or on
behalf of the Buyer under the provisions of this Agreement, and all other
actions and proceedings required to be taken by or on behalf of the Buyer in
furtherance of the transactions contemplated hereby, shall be reasonably
satisfactory in form and substance to counsel for the Seller.
ARTICLE VIII.
TERMINATION AND ABANDONMENT
SECTION 8.1. METHODS OF TERMINATION; UPSET DATE.
(a) DUE DILIGENCE TERMINATION. This Agreement may be terminated
by the Buyer if, on or before the close of business on the 60th day after the
date hereof (the "DUE DILIGENCE PERIOD"), the Buyer shall give written notice
to the Seller (a "TERMINATION NOTICE"), that, as a result of its due
diligence examination of the Company and its Subsidiaries or other matters
which have come to the attention of the Buyer (including, without limitation,
any information disclosed in the Disclosure Schedule) ("DILIGENCE ITEMS"),
the Buyer has concluded that matters, facts or circumstances involving the
Company or its business exist which make it inadvisable for the Buyer to
proceed with the Closing. If the Buyer delivers a Termination Notice to the
Seller, the parties shall seek, in good faith, to (i) resolve any dispute
regarding the subject matter(s) of such Termination Notice and to assess the
financial impact (or potential financial impact) to the Company of the
Diligence Items and (ii) negotiate modifications to the terms of this
Agreement which allocate responsibility for such matter(s) between the Seller
and the Company in an equitable manner, it being understood that, to the
extent consistent with the foregoing standard, the parties will seek to
allocate the burden(s) associated with such matter(s) between the Seller and
the Buyer in a reasonable manner. Notwithstanding anything in this Agreement
to the contrary, if the parties are unable to resolve any such differences or
agree on any such modifications within ten days after a Termination Notice is
given, this Agreement shall automatically terminate at such time, and the
provisions of Section 8.3 shall apply in respect of such termination.
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(b) OTHER TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time before the
Closing:
(i) by the mutual written consent of the Seller and the Buyer;
(ii) by the Seller or the Buyer if the other party or parties
hereto fail to comply in any material respect with any of its or their
covenants or agreements contained herein, or breaches its or their
representations and warranties in any material respect;
(iii) by the Seller or the Buyer if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or
(iv) by the Seller or the Buyer at any time after December 1,
1998.
SECTION 8.2. PROCEDURE UPON TERMINATION. In the event of
termination and abandonment of this Agreement pursuant to Section 8.1,
written notice thereof shall forthwith be given to the other party or parties
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by the Seller or the Buyer. If
this Agreement is terminated as provided herein, no party to this Agreement
shall have any liability or further obligation to any other party to this
Agreement except as provided in Sections 4.10, 8.3, 10.1, 10.4 and 10.5
hereof; PROVIDED, HOWEVER, that no termination of this Agreement pursuant to
this Article VIII shall relieve any party of liability for a willful breach
of any provision of this Agreement occurring before such termination.
SECTION 8.3. TERMINATION FEE. Upon any termination of this
Agreement pursuant to Section 8.1(a), the Buyer shall pay the Seller, within
five Business Days after such termination is effective in accordance with the
provisions of such Section 8.1(a), an amount in cash equal to $10,000,000
(the "TERMINATION FEE"). The payment of the Termination Fee to the Seller
shall be the sole and exclusive remedy of the Seller in connection with the
delivery of a Termination Notice.
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ARTICLE IX.
INDEMNIFICATION
SECTION 9.1. COVERAGE. (a) Notwithstanding the Closing or the
delivery of the Shares and regardless of any investigation at any time made
by or on behalf of the Buyer or of any knowledge or information that the
Buyer may have, the Seller shall indemnify and fully defend, save and hold
the Buyer, its Affiliates and their respective directors, officers,
employees, agents and attorneys, and the Company, its Affiliates (other than
the Seller) and their respective directors, officers, employees, agents and
attorneys (collectively, the "BUYER INDEMNITEES") harmless if any such party
shall at any time or from time to time suffer any damage, liability, loss,
cost, expense (including all reasonable attorneys', consultants' and experts'
fees, including such fees incurred in any action or proceeding between the
Buyer and the Seller), claim or cause of action (each, a "LOSS") arising out
of, relating to or resulting from, or shall pay or become obligated to pay
any sum on account of (i) any and all Events of Breach (as hereinafter
defined) of the Seller or (ii) any Loss resulting or arising from any Action
pending against the Company or any Subsidiary or against the Seller in
respect of the Company or any Subsidiary, as of the Closing Date.
(b) Notwithstanding the Closing or the delivery of the Shares and
regardless of any investigation at any time made by or on behalf of the
Seller or of any knowledge or information that the Seller may have, the Buyer
shall indemnify and fully defend, save and hold the Seller, its Affiliates
and their respective directors, officers, employees, agents and attorneys
(collectively, the "SELLER INDEMNITEES") harmless if any such party shall at
any time or from time to time suffer any Loss arising out of, relating to or
resulting from, or shall pay or become obligated to pay any sum on account
of, any and all Events of Breach of the Buyer.
(c) As used herein, "EVENT OF BREACH" shall be and mean any one or
more of the following:
(i) any untruth or inaccuracy in any representation by the
indemnitor or the breach of any warranty by the indemnitor contained in
this Agreement or any certificate, schedule, exhibit or annex or other
document furnished by the indemnitor to the other party pursuant to this
Agreement or in connection with the Closing; and
(ii) any failure by the indemnitor duly to perform or observe
any term, provision, covenant, agreement
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or condition on the part of such indemnitor to be performed or observed
under this Agreement.
(d) (i) The Seller shall have no obligation to make any payment
under Section 9.1(a) on account of an Event of Breach described in Section
9.1(c)(i) with respect to any representation or warranty, other than a
representation or warranty contained in Sections 2.1, 2.2, 2.3 and 2.9, made
in good faith without actual knowledge or notice of falsity unless the
aggregate amount to which all Buyer Indemnitees are entitled by reason of all
such claims exceeds $2,000,000 (the "SELLER THRESHOLD AMOUNT"), it being
agreed that once such amount is exceeded, the aggregate of all such claims in
excess of the Seller Threshold Amount shall be payable by the Seller on
demand by the Buyer, and (ii) the aggregate liability of the Seller under
Section 9.1(a) on account of an Event of Breach described in Section
9.1(c)(i) shall not exceed the outstanding principal balance of the Seller
Note at the time such claims are asserted.
(e) (i) The Buyer shall have no obligation to make any payment
under Section 9.1(a) on account of an Event of Breach described in Section
9.1(c)(i) with respect to any representation or warranty, other than a
representation or warranty contained in Section 3.1, made in good faith
without actual knowledge or notice of falsity unless the aggregate amount to
which the Seller Indemnitees are entitled by reason of all such claims
exceeds $2,000,000 (the "BUYER THRESHOLD AMOUNT"), it being agreed that once
such amount is exceeded, the aggregate of all such claims in excess of the
Buyer Threshold Amount shall be payable by the Buyer on demand by the Seller,
and (ii) the aggregate liability of the Buyer under Section 9.1(a) on account
of an Event of Breach described in Section 9.1(c)(i) shall not exceed the
outstanding principal balance of the Seller Note at the time such claims are
asserted.
SECTION 9.2. PROCEDURES. If an Event of Breach occurs or is
alleged and the party or parties entitled to receive the benefits of the
indemnification provisions hereunder (the "INDEMNIFIED PARTY") asserts that a
party or parties has become obligated to the Indemnified Party pursuant to
Section 9.1 hereof (the "INDEMNIFYING PARTY"), or if any suit, action,
investigation, claim or proceeding is begun, made or instituted as a result
of which the Indemnifying Party may become obligated to the Indemnified Party
hereunder, the Indemnified Party shall give written notice to the
Indemnifying Party. The Indemnifying Party may, and at the request of the
Indemnified Party shall, participate in and defend, contest or otherwise
protect the Indemnified Party against any such suit, action, investigation,
claim or proceeding by counsel of the Indemnifying Party's choice
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at its sole cost and expense; PROVIDED, HOWEVER, that the Indemnifying Party
shall not make any settlement or compromise without the prior written consent
of the Indemnified Party, which consent shall not be unreasonably withheld.
The Indemnified Party shall have the right, but not the obligation, to
participate at its own expense in the defense thereof by counsel of the
Indemnified Party's choice and shall in any event cooperate with and assist
the Indemnifying Party to the extent reasonably possible. If the
Indemnifying Party fails timely to defend, contest or otherwise protect
against such suit, action, investigation, claim or proceeding, the
Indemnified Party shall have the right to do so, including, without
limitation, the right to make any compromise or settlement thereof, and the
Indemnified Party shall be entitled to recover the entire cost thereof from
the Indemnifying Party, including, without limitation, reasonable attorneys'
fees, disbursements and amounts paid as the result of such suit, action,
investigation, claim or proceeding.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.1. SURVIVAL OF PROVISIONS. Subject to Sections 2.32,
3.8 and 8.2 hereof, the respective representations, warranties, covenants and
agreements of each of the parties to this Agreement (except covenants and
agreements which are expressly required to be performed and are performed in
full on or before the Closing Date) shall survive the Closing Date and the
consummation of the transactions contemplated by this Agreement. In the
event of a material breach of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants
have been made shall have all rights and remedies for such breach available
to it under the provisions of this Agreement or otherwise, whether at law or
in equity, regardless of any disclosure to, or investigation made by or on
behalf of such party on or before the Closing Date.
SECTION 10.2. PUBLICITY. On or prior to the Closing Date, neither
party shall, nor shall it permit its Affiliates to, issue or cause the
publication of any press release or other announcement with respect to this
Agreement or the transactions contemplated hereby without the consent of the
other party hereto. Notwithstanding the foregoing, in the event any such
press release or announcement is required by law to be made by the party
proposing to issue the same, such party shall use its best efforts to consult
in good faith with the other party prior to the issuance of any such press
release or announcement.
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SECTION 10.3. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY
BENEFICIARIES. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and assigns;
PROVIDED, HOWEVER, that neither party shall assign or delegate any of the
obligations created under this Agreement without the prior written consent of
the other party. Nothing in this Agreement shall confer upon any person or
entity not a party to this Agreement, or the legal representatives of such
person or entity, any rights or remedies of any nature or kind whatsoever
under or by reason of this Agreement.
SECTION 10.4. INVESTMENT BANKERS, FINANCIAL ADVISORS, BROKERS AND
FINDERS. (a) The Seller shall indemnify and defend and hold the Buyer and
the Company harmless against and in respect of all claims, losses,
liabilities and expenses which may be asserted against the Buyer (or any
Affiliate of the Buyer) by any broker or other person who claims to be
entitled to an investment banker's, financial advisor's, broker's, finder's
or similar fee or commission in respect of the execution of this Agreement or
the consummation of the transactions contemplated hereby, by reason of his
acting at the request of the Seller.
(b) The Buyer shall indemnify and agrees to save and hold the
Seller harmless against and in respect of all claims, losses, liabilities,
fees, costs and expenses which may be asserted against them by any broker or
other person who claims to be entitled to an investment banker's, financial
advisor's, broker's, finder's or similar fee or commission in respect of the
execution of this Agreement or the consummation of the transactions
contemplated hereby, by reason of his acting at the request of the Buyer.
SECTION 10.5. FEES AND EXPENSES. Except as otherwise expressly
provided in this Agreement, all legal, accounting and other fees, costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees, costs or
expenses, except that the Seller shall pay all expenses of the Company
incurred in connection with the consummation of the transactions contemplated
by this Agreement except for the cost of audit of the Closing Date Balance
Sheet, which shall be borne by the Buyer.
SECTION 10.6. NOTICES. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made if delivered personally or sent by registered or certified
mail (postage prepaid, return receipt requested) to the parties at the
following addresses:
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(a) If to the Buyer, to:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: Chief Executive Officer
Telecopy: (972) 982-4000
with copies to:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attention: General Counsel and Secretary
Telecopy: (972) 982-4000
(b) If to the Seller, to:
Tandy Corporation
1900 One Tandy Center
Ft. Worth, Texas 76102
Attention: Senior Vice President &
Chief Financial Officer
Telecopy: (817) 390-2647
with a copy to:
Tandy Corporation
1900 One Tandy Center
Ft. Worth, Texas 76102
Attention: General Counsel
Telecopy: (817) 390-2647
or to such other persons or at such other addresses as shall be furnished by
either party by like notice to the other, and such notice or communication
shall be deemed to have been given or made as of the date so delivered or
mailed. No change in any of such addresses shall be effective insofar as
notices under this Section 10.6 are concerned unless such changed address is
located in the United States of America and notice of such change shall have
been given to such other party hereto as provided in this Section 10.6.
SECTION 10.7. ENTIRE AGREEMENT. This Agreement, together with
the Disclosure Schedule and the exhibits hereto, represent the entire
agreement and understanding of the parties with reference to the transactions
set forth herein and no
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representations or warranties have been made in connection with this
Agreement other than those expressly set forth herein or in the Disclosure
Schedule, exhibits, certificates and other documents delivered in accordance
herewith. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement and all prior drafts
of this Agreement, all of which are merged into this Agreement. No prior
drafts of this Agreement and no words or phrases from any such prior drafts
shall be admissible into evidence in any action or suit involving this
Agreement.
SECTION 10.8. WAIVERS AND AMENDMENTS. The Seller or the Buyer may
by written notice to the other: (a) extend the time for the performance of
any of the obligations or other actions of the other; (b) waive any
inaccuracies in the representations or warranties of the other contained in
this Agreement; (c) waive compliance with any of the covenants of the other
contained in this Agreement; (d) waive performance of any of the obligations
of the other created under this Agreement; or (e) waive fulfillment of any of
the conditions to its own obligations under this Agreement. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach, whether or not
similar, unless such waiver specifically states that it is to be construed as
a continuing waiver. This Agreement may be amended, modified or supplemented
only by a written instrument executed by the parties hereto.
SECTION 10.9. SEVERABILITY. This Agreement shall be deemed
severable, and the invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of this Agreement or
of any other term or provision hereof. Furthermore, in lieu of any such
invalid or unenforceable term or provision, the parties hereto intend that
there shall be added as a part of this Agreement a provision as similar in
terms to such invalid or unenforceable provision as may be possible and be
valid and enforceable.
SECTION 10.10. TITLES AND HEADINGS. The Article and Section
headings and any table of contents contained in this Agreement are solely for
convenience of reference and shall not affect the meaning or interpretation
of this Agreement or of any term or provision hereof.
SECTION 10.11. SIGNATURES AND COUNTERPARTS. Facsimile
transmission of any signed original document and/or retransmission of any
signed facsimile transmission shall be the same as delivery of an original.
At the request of either party,
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the parties will confirm facsimile transmission by signing a duplicate
original document. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 10.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto
agree that irreparable damage would occur if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 10.13. GOVERNING LAW. This Agreement shall be governed by
and interpreted and enforced in accordance with the laws of the State of
Delaware without giving effect to the choice-of-law provisions thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
TANDY CORPORATION
By: /s/ Dwain H. Hughes
-----------------------------------
Name: Dwain H. Hughes
Title: Senior Vice President
COMPUSA INC.
By: /s/ James F. Halpin
-----------------------------------
Name: James F. Halpin
Title: President & Chief Executive
Officer
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EXHIBITS AND SCHEDULES
The exhibits and schedules to the Stock Purchase Agreement dated as of
June 21, 1998 between CompUSA Inc. and Tandy Corporation have been omitted
from this filing in accordance with Item 601(b)(2) of Regulation S-K. A list
of such exhibits and schedules is contained on page (iv) of the Stock
Purchase Agreement, and the Registrant agrees to furnish supplementally a
copy of any omitted exhibit or schedule to the Securities and Exchange
Commission upon request.
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EXHIBIT 2.2
AMENDMENT TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT ("Amendment") is made this 31st day of August, 1998, by and
between Tandy Corporation, a Delaware corporation ("Seller"), and CompUSA Inc.,
a Delaware corporation ("Buyer"), and amends the Stock Purchase Agreement dated
as of June 21, 1998 (the "Original Agreement", and as amended hereby, the
"Agreement") between Seller and Buyer.
W I T N E S S E T H:
WHEREAS, Seller owns 100% of the issued and outstanding shares of Series A
and Series B Common Stock (the "Shares") of Computer City, Inc., a Delaware
corporation (the "Company"); and
WHEREAS, Seller and Buyer have entered into the Original Agreement,
pursuant to which Buyer agreed to purchase from Seller all of the Shares on the
terms and conditions specified in the Original Agreement; and
WHEREAS, pursuant to Section 8.1(a) of the Original Agreement, Buyer has
given written notice ("Termination Notice") to Seller that matters, facts or
circumstances involving the Company or its business make it inadvisable for
Buyer to proceed with the Closing (as defined in the Original Agreement); and
WHEREAS, Buyer and Seller have endeavored, in good faith, to resolve
certain matters regarding the Company and have agreed to allocate responsibility
for such matters in an equitable and reasonable manner and, to effect such
allocation, the parties have agreed to enter into this Amendment; and
WHEREAS, in order to induce Buyer to proceed with the Closing, Seller is
willing to modify the terms of the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Buyer and
Seller agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined in this
Amendment shall have the definitions ascribed to them in the Original Agreement.
All references to the "Agreement" in the Original Agreement shall mean the
Original Agreement as amended hereby.
2. AMENDMENT OF SECTION 1.3. Section 1.3 of the Original Agreement is
hereby amended by replacing the reference to "$12,500,000" with "$48,700,000".
3. AMENDMENT OF SECTION 1.4(b). Section 1.4(b) of the Original Agreement
is hereby amended by replacing the reference to "$12,500,000" with
"$48,700,000", and by replacing all references to "$150,000,000" with
"$136,000,000".
<PAGE>
4. ADDITION OF SECTIONS 1.4(c) THROUGH 1.4(f). The following new
Sections 1.4(c) through 1.4(f) are hereby added to the Original Agreement:
(c) Notwithstanding anything to the contrary contained
herein, Buyer and Seller agree that the reserve for repairs to real
estate improvements of the Company (the "Repairs Reserve") as of
August 31, 1998 shall be $100,000. No post-closing adjustment for the
agreed-upon Repairs Reserve shall be made pursuant to Section 1.5, and
Seller shall have no liability for routine repairs to real estate
improvements of the Company beyond the agreed-upon Repairs Reserve.
(d) Notwithstanding anything to the contrary contained
herein, Buyer and Seller agree that: (i) the liability of the Company
and the related reserve for potential warranty claims on the Company's
private label, built-to-order products ("BTO Warranty Liability") as
of August 31, 1998 shall be $800,000; (ii) up to $1,000,000 shall be
added to the existing reserve, if any, of the Company for employee
vacations ("Accrued Vacation") as of August 31, 1998; provided,
however, that in no event shall the reserve for Accrued Vacation
exceed $1,200,000 (for example, if the existing reserve for Accrued
Vacation is $300,000, then $900,000 shall be added; however, if the
existing reserve for Accrued Vacation is $100,000, then $1,000,000
shall be added); and (iii) the reserve for prepaid obligations to
provide software training on and after the Closing Date ("Prepaid
Training") as of August 31, 1998, shall be $1,000,000. No post-closing
adjustment for the agreed-upon BTO Warranty Liability, Accrued
Vacation, or Prepaid Training shall be made pursuant to Section 1.5,
and Seller shall have no liability for BTO Warranty Liability, Accrued
Vacation, or Preferred Training beyond their respective agreed-upon
reserves.
(e) Notwithstanding anything to the contrary contained
herein, neither the Preliminary Closing Balance Sheet nor the Final
Closing Balance Sheet (as it may be adjusted) shall include any asset
value associated with the Tech Factory "Logistics Pipeline" System of
the Company processing system used by the Company at its facility
located at 5400 Sandshell Drive, Fort Worth, Texas, and described in
Item 22 of Section 2.8 of the Seller Disclosure Schedule.
(f) In the event that the gross book value of property and
equipment on either the Preliminary Closing Balance Sheet or the Final
Closing Balance Sheet (as it may be adjusted) exceeds $187,000,000,
the Adjusted Net Book Value shall be decreased, dollar for dollar, by
such excess.
5. AMENDMENT OF SECTION 1.5(b). Section 1.5(b) of the Original Agreement
is hereby amended by adding the phrase "(as it may be adjusted)" after the
phrase "Final Closing Balance Sheet", by replacing the reference to
"$12,500,000" with "$48,700,000", and by replacing all references to "7.5%" with
"9.48%".
6. AMENDMENT OF SECTION 1.5(c). The following new Section 1.5(c) is
hereby added to the Original Agreement:
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(c) SPECIAL INVENTORY ADJUSTMENT. This subsection (c)
relates only to adjustments to the value of the Company's inventory
(the "Inventory") as of the Closing Date based on the quality,
condition, age and categorization of the Inventory, and not to any
adjustments based on errors in accounting or record-keeping for which
GAAP requires a devaluation of inventory. As promptly as reasonably
practicable after the Closing Date, Buyer will provide to Seller any
information obtained by Buyer that Buyer believes would be useful for
purposes of valuing the Inventory. Notwithstanding anything in
Section 1.5(b) to the contrary, if the value of the Inventory in the
Final Closing Balance Sheet, as first presented by Seller pursuant to
Section 1.5(a)(i), exceeds the value of the Inventory in the Final
Closing Balance Sheet, as finally accepted or adjusted pursuant to
Section 1.5(a)(ii) or (iii) (such excess being referred to herein as
the "Inventory Devaluation Amount"), by more than $10,000,000, then
the value of the Inventory in the Final Closing Balance Sheet (as
finally accepted or adjusted) shall be deemed increased, for purposes
of determining the Recomputed Purchase Price pursuant to Section
1.5(b), by an amount equal to the sum of (a) $10,000,000 plus (b) 50%
of the amount by which the Inventory Devaluation Amount exceeds
$10,000,000. If the Inventory Devaluation Amount does not exceed
$10,000,000, then the value of the Inventory in the Final Closing
Balance Sheet (as finally accepted or adjusted) shall be deemed, for
purposes of determining the Recomputed Purchase Price, to be equal to
the value of the Inventory in the Final Closing Balance Sheet, as
first presented by Seller pursuant to Section 1.5(a)(i).
7. AMENDMENT OF SECTION 4.14(c). Section 4.14(c) of the Original
Agreement is hereby amended by replacing the first sentence with the following:
Seller shall provide to Buyer: (i) at Closing, a complete
and correct list containing the number (by location) of all employees
of the Company whose employment was terminated by the Company between
June 1, 1998 and August 8, 1998; and (ii) on or before September 22,
1998, a complete and correct list containing the number by location of
all employees of the Company whose employment was terminated by the
Company between August 9, 1998 and August 31, 1998.
8. ADDITION TO SECTION 5.1(g). Section 5.1(g) of the Original Agreement
is hereby amended by adding the following sentences at the end of such section:
If, following the final determination of the Recomputed Purchase Price
and any payment required by Section 1.5(b), there is any subsequent
indemnity payment made between Buyer and Seller, the Incremental Tax
Cost shall be recalculated. If, as a result of a subsequent indemnity
payment, the Incremental Tax Cost is increased, Buyer shall pay to
Seller an amount equal to such increase within ten (10) days following
the payment of such indemnity payment. If, as a result of a
subsequent indemnity payment, the Incremental Tax Cost is reduced,
Seller shall pay to Buyer an amount equal to such decrease within ten
(10) days following the payment of such indemnity payment.
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9. AMENDMENT OF SECTIONS 9.1(d)(ii) AND 9.1(e)(ii). Sections 9.1(d)(ii)
and 9.1(e)(ii) of the Original Agreement are hereby amended by replacing the
phrase "the outstanding principal balance of the Seller Note at the time such
claims are asserted" with "$136,000,000".
10. REPLACEMENT OF EXHIBIT A TO THE ORIGINAL AGREEMENT. Exhibit A to
Original the Agreement is hereby replaced in its entirety by the form of
subordinated promissory note in the principal amount of $136,000,000 attached
hereto as Exhibit 1.
11. AMENDMENTS AND SUPPLEMENTS TO SELLER DISCLOSURE SCHEDULES. The Seller
Disclosure Schedules shall consist of the Seller Disclosure Schedules attached
to the Original Agreement and those Amended Schedules delivered by Seller to
Buyer and dated as of July 13, 1998 and July 21, 1998, amended and supplemented
as set forth in Exhibit 2.
12. WAIVER AND WITHDRAWAL. Buyer hereby waives any and all leasehold
valuation issues and fixed asset valuation issues raised by Buyer in the
Termination Notice, and there shall be no post-closing adjustment with respect
thereto. Buyer hereby withdraws any request that Seller assume the leases
identified as "Inappropriate Leases" on Schedule B attached to the Termination
Notice. The foregoing shall not constitute a waiver by Buyer of any
indemnification or other rights, and shall not relieve Seller of any
indemnification or other obligations, under the Agreement, other agreements or
otherwise, with regard to the Company or its leases or fixed assets.
13. RATIFICATION. Except as specifically provided herein, no term,
condition or provision of the Original Agreement is amended or modified by this
Amendment. The Original Agreement is hereby ratified and confirmed and shall
remain and continue in full force and effect in accordance with the terms and
provisions thereof, as amended by this Amendment and other written amendments
and modifications executed and delivered by the parties.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
Tandy Corporation
By: /s/ Dwain H. Hughes
-----------------------------------------
Dwain H. Hughes
Senior Vice President & Chief Financial
Officer
CompUSA Inc.
By: /s/ Robert Gary
-----------------------------------------
J. Robert Gary
Vice President - Finance
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EXHIBITS
The exhibits to the Amendment to Stock Purchase Agreement dated August 31,
1998, which are listed below, have been omitted from this filing, and the
Registrant agrees to furnish supplementally a copy of any omitted exhibit to the
Securities and Exchange Commission upon request.
Exhibit 1 Subordinated Promissory Note dated August 31, 1998 of
the Registrant in the principal amount of $136,000,000
payable to Tandy Corporation.
Exhibit 2 Revisions to Seller Disclosure Schedule.
<PAGE>
EXHIBIT 2.3
SUBORDINATED
PROMISSORY NOTE
$136,000,000 August 31, 1998
FOR VALUE RECEIVED, CompUSA Inc., a Delaware corporation (the
"MAKER"), promises to pay Tandy Corporation, a Delaware corporation (the
"SELLER"), the principal sum of One Hundred Thirty Six Million Dollars
($136,000,000).
1. PRINCIPAL PAYMENTS. The principal amount of this Note shall be
due and payable to the Seller in fourteen (14) equal semiannual installments of
$9,714,285.71, the first payment to be made on December 31, 2001, and each
subsequent payment to be made on each June 30 and December 31 (or, if any such
day is not a business day, the next business day thereafter) (each such date, a
"PAYMENT DATE"), until the payment of this Note in full. The unpaid principal
amount of this Note may be prepaid, in whole or in part, at any time at the
option of the Maker, without premium or penalty. If the Maker elects to make a
partial prepayment of principal of this Note, such prepayment shall be applied
against the principal amount owing to the Seller at the next Payment Date(s),
and at such Payment Date(s) the amount then due shall be deemed to be
correspondingly reduced.
2. INTEREST. Interest on the unpaid principal balance of this Note
shall accrue at a rate of nine and forty-eight/one hundredths percent (9.48%)
per annum from the date hereof, calculated on the basis of a 365-day or 366-day
year and for the actual days elapsed, and shall be payable semiannually in
arrears, with the first interest payment due December 31, 1998, and subsequent
payments due each June 30 and December 31 thereafter, until the payment of this
Note in full.
3. PURCHASE AGREEMENT, SECURITY; RANKING. This Note is issued
pursuant to that certain Stock Purchase Agreement, dated as of June 21, 1998
(the "PURCHASE AGREEMENT"), by and between the Maker and the Seller. This Note
is an unsecured obligation of the Maker. The indebtedness evidenced by this
Note ranks pari passu with the Maker's 9 1/2% Senior Subordinated Notes due 2000
and is subordinated in right of payment to the Senior Obligations (as defined in
Paragraph 7 of this Note) as provided in Paragraphs 7 through 10 of this Note.
4. METHOD OF PAYMENT. All payments of principal and interest under
this Note shall be made in cash.
5. PLACE OF PAYMENT. All payments made hereunder shall be payable
at the Seller's principal office, 100 Throckmorton, Suite 1800, Fort Worth,
Texas 76102, Attention: Treasury Department, or at such other place as the
Seller shall notify the Maker in writing, by certified or bank check, or by
wired funds to an account designated in writing by the Seller no later than two
(2) business days prior to each date on which a payment is required hereunder.
6. EVENTS OF DEFAULT. Subject to the provisions contained in
Paragraph 7 of this Note, if any of the following events shall occur, the Seller
may, at its option, declare the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest thereon, immediately due and
payable and thereby accelerate the maturity hereof (provided that in the case of
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default under clause (c) or (d) below, acceleration shall occur automatically
upon default), and the Seller may proceed to exercise any rights or remedies
that it may have under this Note or such other rights and remedies which the
Seller may have at law, equity or otherwise:
(a) if the Maker shall default in the payment of (i) any principal
under this Note, or (ii) any interest under this Note, which default is not
cured within twenty (20) business days (in the case of both clause (i) and (ii)
whether or not payment is prohibited by Paragraph 7 of this Note); or
(b) if a default occurs and is continuing with respect to any
indebtedness of the Maker or any subsidiary of the Maker for borrowed money
other than this Note, which default results in the acceleration of the other
indebtedness prior to its express maturity and the principal amount of the other
indebtedness so accelerated is $35,000,000 or more in the aggregate; or
(c) the Maker pursuant to or within the meaning of Title 11, U.S.
Code or any similar federal or state law for the relief of debtors ("BANKRUPTCY
LAW"):
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law
("CUSTODIAN") of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(d) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Maker in an involuntary case,
(ii) appoints a Custodian of the Maker or for all or
substantially all of the property of the Maker, or
(iii) orders the liquidation of the Maker,
and the order or decree remains unstayed and in effect for sixty (60)
consecutive days.
7. SUBORDINATION. (a) The indebtedness evidenced by this Note
shall be subordinate and junior in right of payment, to the extent and in the
manner hereinafter set forth, to all the Senior Obligations (as hereinafter
defined). As used herein, the term "SENIOR OBLIGATIONS" shall mean (i) all
principal of and interest on the loans made to the Maker under the Second
Amended and Restated Credit Agreement (as it may be amended, supplemented,
restructured, replaced, restated, increased, extended or otherwise modified, the
"SENIOR CREDIT AGREEMENT") among the Maker, certain lenders and NationsBank,
N.A., as administrative lender and all other obligations and liabilities of the
Maker (including without limitation liabilities for fees, indemnifications,
reimbursements, expenses or charges) now or hereafter arising under or out of
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the Senior Credit Agreement, (ii) any indebtedness incurred by the Maker to
refinance or replace all or any portion of the indebtedness represented by the
Senior Credit Agreement or any such refinancing indebtedness and (iii) all of
the Maker's obligations with respect to trade payables, and (iv) any other
indebtedness in respect of borrowed money or evidenced by bonds, notes or
similar instruments or letters of credit or representing the unpaid purchase
price of any property or any guarantee of any of the foregoing ("INDEBTEDNESS")
that is incurred by the Maker and not specifically by its terms made pari passu
with or subordinated in right of payment to this Note. Notwithstanding anything
to the contrary in the foregoing, Senior Obligations shall not include (w) any
liability for federal, state, local or other taxes owed or owing by the Maker,
(x) any indebtedness or other obligations of the Maker to any of its
subsidiaries or other affiliates, or (y) for so long as the indenture of the
Maker dated as of June 17, 1993, pursuant to which the Maker's 9 1/2% Senior
Subordinated Notes due 2000 were issued, remains in effect, any indebtedness of
Maker that is incurred in violation of such indenture, as amended, modified or
waived from time to time (the "INDENTURE").
(b) In the event of any insolvency, bankruptcy or receivership
proceedings, and any other similar proceedings in connection therewith, relative
to the Maker, its creditors or its property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of the Maker, whether
or not involving insolvency or bankruptcy, and in the event of any distribution,
division or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any substantial part of the property,
assets or business of the Maker or the proceeds thereof to any creditor or
creditors other than in the ordinary course of business, then the holders of the
Senior Obligations shall be entitled to receive payment in full of all
principal, premium (if any), interest (including interest accrued subsequent to
the filing of any petition under any bankruptcy, insolvency or similar law or
after any declaration or determination of insolvency or bankruptcy) and other
amounts included in the Senior Obligations before the Seller or any other holder
of this Note is entitled to any payment on account of principal, accrued
interest or any other obligations and liabilities of the Maker, now existing or
hereafter arising, arising under or out of this Note (collectively, the
"SUBORDINATED OBLIGATIONS") (except that the Seller or any other holder of this
Note may receive securities of the Maker that are subordinated to at least the
same extent as the Subordinated Obligations to (1) the Senior Obligations and
(2) any securities issued in exchange for Senior Obligations), and, to that end,
the holders of the Senior Obligations shall be entitled to receive for
application in payment of the Senior Obligations any payment or distribution of
any kind or character, whether in cash or property or securities (except that
the Seller or any other holder of this Note may receive securities of the Maker
that are subordinated to at least the same extent as the Subordinated
Obligations to (1) the Senior Obligations and (2) any securities issued in
exchange for Senior Obligations), that may be payable or deliverable in any such
proceedings in respect of the Subordinated Obligations, including any such
payment or distribution that may be payable or deliverable by virtue of the
provisions of any indebtedness that is subordinate and junior in right of
payment to the Subordinated Obligations.
(c) So long as any of the Senior Obligations remain outstanding and
unpaid, neither the Seller nor any other holder of this Note will be entitled to
take, demand or receive, and the Maker will not make, give or permit, directly
or indirectly, by set-off, redemption, purchase or in any manner, any payment or
realization on the Subordinated Obligations (other than securities of the Maker
that are subordinated to at least the same extent as the Subordinated
Obligations to (1) the Senior Obligations and (2) any securities issued in
exchange for the Senior Obligations) if:
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(i) a default in the payment of any principal, interest or other
amount included in the Designated Senior Obligations (as defined
below) occurs and is continuing beyond any applicable period of
grace period in the agreement, indenture or other document
governing such Designated Senior Obligation; or
(ii) a default, other than a payment default, on any of the
Designated Senior Obligations occurs and is continuing beyond any
applicable period of grace with respect to such Designated Senior
Obligations that permits the holders thereof (or an agent on such
holders' behalf) to accelerate such Designated Senior Obligations,
and the Seller or other holder of this Note receives a written
notice of such default from either the Maker or the holder or
holders (or an agent on such holders' behalf) of such Designated
Senior Obligations.
Only one notice with respect to nonpayment defaults may be given
during any 360 day period. No nonpayment default that existed or was continuing
on the date of delivery of any notice given under the immediately preceding
clause (ii) shall be the basis of any subsequent notice of default unless such
default shall have been waived or cured for a period of not less than one
hundred eighty (180) days.
So long as such payment or realization is otherwise permitted
hereunder, the Seller or any other holder of this Note will be entitled to
resume receiving, and the Maker shall resume making in any manner, any payment
or realization on the Subordinated Obligations, upon the earlier to occur of:
(i) the date upon which the default is cured or waived; or
(ii) in the case of a nonpayment default referred to in Paragraph
7(c)(ii) above, 179 days have passed after notice of such default
was received by the Seller or other holder of this Note and the
maturity of the applicable Designated Senior Obligation has not
been accelerated.
For purposes of this Paragraph 7, the term "DESIGNATED SENIOR
OBLIGATIONS" means (i) all indebtedness and liabilities of the Maker under the
Senior Credit Agreement and (ii) any other Senior Obligations (other than trade
payables) the principal amount of which is $50,000,000 or more.
(d) By its acceptance of this Note, the Seller and any other holder
of this Note agrees that any payment received by it in any bankruptcy or
insolvency proceedings of the Maker, or received by it in payment or prepayment
of all or any part of the Subordinated Obligations other than as permitted
hereby, shall be deemed to be held in trust by the Seller or such holder for the
benefit of the holders of the Senior Obligations and, upon written request by
the holders of the Senior Indebtedness, shall be remitted to the holders of the
Senior Obligations, as their respective interests may appear, for application to
the payment of the Senior Obligations to the extent necessary to pay such Senior
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of the Senior
Obligations, unless otherwise required by applicable law or order of a court of
competent jurisdiction.
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(e) By its acceptance of this Note, the Seller or any other holder of
this Note agrees and consents that without notice to or assent by the Seller or
such holder:
(i) the Senior Obligations and the obligations and liabilities of any
other party or parties in respect of the Senior Obligations may, from time
to time, in whole or in part, be renewed, extended, modified, replaced,
refinanced, restated, supplemented, increased, restructured, prematured,
compromised or released; and
(ii) any and all mortgages, pledges, assignments, encumbrances, liens,
pledges or security interests (legal or equitable) at any time, present or
future, held, given or intended to be given for the Senior Obligations,
and any rights or remedies in respect thereof, may, from time to time, in
whole or in part, be exchanged, sold, surrendered, released, modified,
waived or extended by the holders of the Senior Obligations, and the
holders of the Senior Obligations may permit or consent to any such action
or the result of any such action;
all as the holders of the Senior Obligations may deem advisable and all
without impairing, abridging, diminishing, releasing or affecting the
subordination provided for herein to the Senior Obligations.
(f) After all of the Senior Obligations have been paid in full, the
Seller and any other holder of this Note shall be subrogated (equally and
ratably with all other indebtedness pari passu in right of payment to the
Subordinated Obligations) to the rights of the holders of the Senior Obligations
to receive payments or distributions applicable to the Senior Obligations to the
extent that payments or distributions otherwise payable to the Seller or other
holder of this Note have been applied to the payment of the Senior Obligations.
Any payment or distribution made under this Paragraph 7 of the Senior
Obligations that otherwise would have been made to the Seller or other holder of
this Note is not, as between the Maker and the Seller or other holder of this
Note, a payment by the Maker on the Subordinated Obligations.
(g) The Maker shall promptly notify the Seller or any other holder of
this Note in writing of any facts known to the Maker that would cause a payment
of the Subordinated Obligations to violate this Paragraph 7, but failure to so
give any such notice shall not affect the subordination of the Subordinated
Obligations to the Senior Obligations as provided in this Paragraph 7.
(h) So long as any Designated Senior Obligations are outstanding, no
declaration of the principal of and interest on this Note as due and payable
pursuant to Paragraph 6 of the Note shall be effective until the earlier of (i)
the day which is five (5) business days after the receipt by NationsBank, N.A.,
as administrative lender (or any successor thereto), under the Senior Credit
Agreement of written notice of acceleration or (ii) the date of acceleration of
any Designated Senior Obligations.
8. MODIFICATION OF SENIOR OBLIGATIONS. No extension, renewal,
modification, forbearance or waiver of any terms of the Senior Credit Agreement
or any other instrument or document referred to in the Senior Credit Agreement
or otherwise relating to, evidencing or securing the Senior Obligations nor any
release, modification or substitution of any collateral therefor shall affect,
modify or impair the subordination provided for herein or the rights of the
holders of the Senior Obligations hereunder.
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9. NO IMPAIRMENT. No present or future holder of Senior Obligations
shall be prejudiced in its right to enforce the subordination of the
Subordinated Obligations by any act or failure to act on the part of the Maker.
The foregoing provisions as to subordination are solely for the purpose of
defining the relative rights of the holders of the Senior Obligations hereunder,
on the one hand, and the Seller or any other holder of this Note, on the other
hand, and none of these provisions shall impair, as between the Maker and the
Seller or such holder, the obligations of the Maker, which are unconditional and
absolute, to pay to the Seller or such holder the Subordinated Obligations in
accordance with the terms of this Note, nor shall such provisions prevent any
holder of this Note from exercising all remedies otherwise permitted by
applicable law or under the terms of this Note upon default hereunder, subject
to the rights (if any) of the holders of the Senior Obligations under the
foregoing provisions to receive cash, property or securities otherwise payable
or deliverable to the Seller or such holder.
10. FURTHER ASSURANCES. Each of the Maker and, by its acceptance of
this Note, the Seller and each other holder of this Note, agrees to execute,
acknowledge, deliver and comply with the terms of any instruments reasonably
requested from time to time by the holders of the Senior Obligations relating to
the subordination of this Note.
11. SUBSIDIARY GUARANTEES. (a) Each Significant Subsidiary shall
execute a guarantee (collectively, the "GUARANTEES") in favor of the Seller,
which Guarantees shall be effective only at such times as the Maker has
outstanding $35,000,000 or more of Pari Passu Debt that is also guaranteed by
any Significant Subsidiary; provided that only those Significant Subsidiaries
that are required to guarantee the Pari Passu Debt shall be required to execute
Guarantees. The Guarantees shall guarantee the Maker's payment of this Note on
substantially the same terms and conditions as the subsidiary guarantees on the
Pari Passu Debt guarantee the payment of the Pari Passu Debt.
(b) If at any time the Guarantees are not required to be maintained
pursuant to paragraph (a) above, the Seller shall, immediately upon the request
of the Maker, deliver to the Maker and the Significant Subsidiaries written
releases with respect to all the Guarantees. If at any time any Significant
Subsidiary is entitled to be released from its guarantee of the Pari Passu Debt,
it shall also be entitled to be released from its Guarantee of this Note.
(c) The obligations of each Significant Subsidiary under its
Guarantee shall be junior and subordinated to Senior Obligations of such
Guarantor on the same basis as this Note is junior and subordinated to Senior
Obligations of the Maker. For the purposes of the foregoing sentence, (a) each
Significant Subsidiary may make, and the Seller and each other holder of this
Note shall have the right to receive and/or retain, payments by any of the
Significant Subsidiaries only at such times as the Seller or any other holder of
this Note may receive and/or retain payments in respect of this Note, including
Paragraph 7 of this Note, and (b) the rights and obligations of the relevant
parties relative to the Guarantees and Senior Obligations of the Significant
Subsidiaries shall be the same as their respective rights and obligations
relative to this Note and Senior Obligations of the Maker pursuant to Paragraph
7 of this Note. "SENIOR OBLIGATIONS OF THE SIGNIFICANT SUBSIDIARIES" shall mean
(i) any guarantee by such Significant Subsidiary of any Senior Obligations of
the Maker (including all indebtedness and other obligations under the Senior
Credit Agreement and any guarantee of indebtedness incurred to refinance,
replace or increase all or any portion of the indebtedness represented by the
Senior Credit Agreement or any such refinancing indebtedness), and (ii) any
other Indebtedness of such Significant Subsidiary (including trade
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payables) unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Guarantee of such Significant Subsidiary. Notwithstanding
anything to the contrary in the foregoing, Senior Obligations of a
Significant Subsidiary shall not include (x) any liability for federal,
state, local or other taxes owed or owing by such Significant Subsidiary or
(y) any Indebtedness of such Significant Subsidiary that is incurred in
violation of the Indenture. For purposes of Bankruptcy Law, Uniform
Fraudulent Conveyance Act, Uniform Fraudulent Transfer Act and any similar
federal or state law, all Senior Obligations of a Significant Subsidiary
shall be deemed to have been incurred prior to the incurrence of the
Guarantee of such Significant Subsidiary regardless of the actual order of
such incurrence.
12. ADDITIONAL DEFINITIONS For purposes of this Note, the term
"SIGNIFICANT SUBSIDIARY" shall mean a wholly owned subsidiary of the Maker that
has assets equal in value to at least 10% of the consolidated assets of the
Maker and its subsidiaries, and the term "PARI PASSU DEBT" shall mean the
Maker's $110,000,000 9 1/2% Senior Subordinated Notes due 2000 and any other
indebtedness of the Maker that is expressly made pari passu with this Note.
13. CLASSES OF OBLIGATIONS. The Maker will not incur, create,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any indebtedness that is subordinate or junior in right of payment to
any Senior Obligations and senior in any respect in right of payment to this
Note, and no Significant Subsidiary that has delivered a Guarantee will incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to any indebtedness that is subordinate or junior in right
of payment to any guarantee of Senior Obligations and senior in any respect in
right of payment to such Guarantee.
14. NOTICES. All notices, requests, demands and other communications
under this Note shall be in writing and shall be deemed to have been duly given
(i) on the date of service if served personally on the party to whom notice is
to be given, (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, (iii) on the day after delivery to an
overnight courier service, or (iv) on the fifth day after mailing, if mailed to
the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed, to the party as follows:
If to the Seller:
Tandy Corporation
100 Throckmorton Street, Suite 1800
Fort Worth, Texas 76021
Attn: Chief Executive Officer
Telecopy: (817) 415-2647
Copy to:
Tandy Corporation
100 Throckmorton Street, Suite 1800
Fort Worth, Texas 76021
Attn: General Counsel
Telecopy: (817) 415-2647
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If to the Maker:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attn: Chief Executive Officer
Telecopy: (972) 982-4000
Copy to:
CompUSA Inc.
14951 North Dallas Parkway
Dallas, Texas 75240
Attn: General Counsel and Secretary
Telecopy: (972) 982-4000
Any party may change its address for the purpose of this Section by
giving the other party written notice of its new address in the manner set forth
above.
15. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the State of Delaware. The Maker hereby submits
to personal jurisdiction in said State for the enforcement of the Maker's
obligations hereunder, and the Maker waives any and all personal rights under
the law of any other state to object to jurisdiction within such State for the
purposes of litigation to enforce such obligations of the Maker.
16. AMENDMENTS. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom such agreement is sought
to be enforced, and no amendment, modification or waiver of any provision hereof
shall in any event be effective unless made by an agreement in writing signed by
the holders of the Senior Obligations.
17. TRANSFERS. The Seller may transfer this Note at any time in
whole to a wholly owned subsidiary without consent of the Maker. With regard to
all transfers of this Note to any entity other than a wholly owned subsidiary of
the Seller, (i) prior to August 31, 1999, this Note may not be transferred and
(ii) on or after August 31, 1999, until this note is paid in full (the
"TRANSFERABILITY PERIOD"), the Seller may transfer this Note in whole to any
other third party with the prior written consent of the Maker, which consent
shall not be unreasonably withheld; provided that on four occasions during the
Transferability Period, the Maker may send written notice to the Seller or any
other holder of this Note that this Note shall not be transferable for a
ninety-day period after the date of such notice.
18. INTEGRATION. THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
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<PAGE>
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Maker has executed this Note on the day and
year first above written.
COMPUSA INC.
By: /s/ Robert Gary
------------------------------------
Name: J. Robert Gary
Title: Vice President-Finance
Accepted and agreed:
TANDY CORPORATION
By: /s/ Dwain H. Hughes
---------------------------------
Name: Dwain H. Hughes
Title: Senior Vice President
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