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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) December 10, 1999
PREFERRED NETWORKS, INC.
(Exact name of Registrant as Specified in its Charter)
GEORGIA 0-27658 58-1954892
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification
Number)
850 Center Way, Norcross, GA 30071
(Address of principal executive offices)
(Zip Code)
(770) 582-3500
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last year)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 10, 1999, the Registrant consummated the sale of its
wholly-owned subsidiary EPS Wireless, Inc. ("EPS") pursuant to the terms of a
Share Purchase Agreement dated December 10, 1999 between the Registrant and
Celestica Corporation ("Celestica"). The Share Purchase Agreement provided for
an aggregate cash purchase price of $14.9 million for the shares of EPS,
subject to a holdback of $750,000 to be paid, net of any claims for
indemnification by Celestica under the Share Purchase Agreement, on or about
June 10, 2000. The balance of $14.15 million was paid to or for the benefit of
the Registrant on December 10, 1999, with $4.6 million being paid directly to
the Registrant and $9.55 million being paid directly to certain lenders of the
Registrant on the Registrant's behalf.
Approximately $7.02 million of the proceeds of the sale of EPS were
used to retire the Registrant's term note with Bank of America, N.A. and to
reduce the Registrant's outstanding balance under its revolving credit facility
with Bank of America. Concurrently, Bank of America and the Registrant amended
certain terms and conditions of the revolving credit facility to establish a
$2.0 million facility to be used for working capital purposes that matures
March 2001.
In addition, the Registrant used approximately $2.53 million of the
proceeds from the sale of EPS to repay a portion of the notes under its
equipment credit facility with Glenayre Electronics, Inc. Under the terms of
this repayment, Glenayre amended certain payment terms with respect to the
outstanding balance under the remaining notes to suspend principal payments
until March 2001 (although interest will still be paid), at which time monthly
principal and interest payments will commence and continue until December 2001.
The purchase price and other terms of the sale of EPS to Celestica
were determined by arms-length negotiation of the parties. Celestica is an
independent third party not affiliated with the Registrant. Prior to the sale,
EPS operated as a wholly-owned subsidiary of the Registrant, engaging in the
business of pager and cellular product repair services, product sales and
inventory management and fulfillment.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Information
As of the date of this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the financial statements required by this Item
7(b). In accordance with Item 7(b) of Form 8-K, such financial information will
be filed no later than 60 days after the date this Current Report on Form 8-K
must be filed.
(c) Exhibits
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2. Share Purchase Agreement between the Registrant and Celestica
Corporation dated December 10, 1999 (the exhibits and schedules
to the Share Purchase Agreement have been omitted and will be
furnished supplementally to the Securities and Exchange
Commission upon request).
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10.1 Second Agreement Concerning Amendment to Credit Agreement
dated as of December 9, 1999 by and among PNI Systems, LLC,
the Registrant and Bank of America, N.A.
10.2 Agreement Concerning Amendment to Credit Agreement dated as
of December 9, 1999 by and between the Registrant and
Glenayre Electronics, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREFERRED NETWORKS, INC.
Date: December 22, 1999 By: /s/ Kathryn Loev Putnam
--------------------------------------------
Kathryn Loev Putnam
Senior Vice President and Chief
Financial Officer
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EXHIBIT 2
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SHARE PURCHASE AGREEMENT
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BETWEEN
PREFERRED NETWORKS, INC.
and
CELESTICA CORPORATION
DECEMBER 10, 1999
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TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
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1.1 Defined Terms .............................................. 1
1.2 Currency ................................................... 8
1.3 Sections and Headings ...................................... 8
1.4 Number, Gender and Persons ................................. 9
1.5 Entire Agreement ........................................... 9
1.6 Time of Essence ............................................ 9
1.7 Applicable Law ............................................. 9
1.8 Severability ............................................... 9
1.9 Successors and Assigns ..................................... 9
1.10 Amendment and Waivers ...................................... 9
1.11 Agreements, etc ............................................ 10
1.12 Schedules .................................................. 10
ARTICLE 2
PURCHASE AND SALE OF PURCHASED SHARES
2.1 Purchase and Sale of Purchased Shares ...................... 10
2.2 Purchase Price ............................................. 11
2.3 Adjustment Amount .......................................... 11
2.4 Payment of Purchase Price .................................. 11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
3.1 Enforceability ............................................. 11
3.2 No Other Agreements to Purchase ............................ 12
3.3 No Violation by Vendor ..................................... 12
3.4 Ownership of Purchased Shares .............................. 12
3.5 Organization ............................................... 12
3.6 Authorized and Issued Capital .............................. 13
3.7 No Options ................................................. 13
3.8 No Subsidiaries ............................................ 13
3.9 No Violation by Corporation ................................ 13
3.10 Business of the Corporation ................................ 13
3.11 Title to Personal and Other Property ....................... 13
3.12 Real Property .............................................. 14
3.13 Location of Leased Property ................................ 14
3.14 Real Property Leases ....................................... 14
3.15 Inventories ................................................ 14
3.16 Accounts Receivable ........................................ 14
3.17 Intellectual Property ...................................... 15
3.18 Insurance .................................................. 15
3.19 Year 2000 Compliance ....................................... 15
3.20 Agreements and Commitments ................................. 16
3.21 Compliance with Laws; Licences ............................. 17
3.22 Consents and Approvals ..................................... 17
3.23 November 1999 Financial Statements ......................... 17
3.24 Books and Records .......................................... 17
3.25 Absence of Changes ......................................... 18
3.26 Tax Matters ................................................ 19
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3.27 Litigation ................................................. 20
3.28 Accounts and Attorneys ..................................... 21
3.29 Directors and Officers ..................................... 21
3.30 Dividends .................................................. 21
3.31 Non-Arm's Length Transactions .............................. 21
3.32 Environmental .............................................. 21
3.33 Employee Plans ............................................. 23
3.34 Collective Agreements ...................................... 25
3.35 Employees .................................................. 25
3.36 Employee Accruals .......................................... 25
3.37 Customers and Suppliers .................................... 25
3.38 Product Warranties ......................................... 26
3.39 Related Party Indebtedness ................................. 26
3.40 Full Disclosure ............................................ 26
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Organization ............................................... 26
4.2 Enforceability ............................................. 26
4.3 Consents and Approvals ..................................... 27
4.4 Financial Capability ....................................... 27
4.5 Environmental .............................................. 27
ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 Survival of Representations and Warranties of the Vendor ... 27
5.2 Expiry of the Representations and Warranties of the
Purchaser ................................................ 28
5.3 Due Diligence Investigation by Purchaser ................... 28
ARTICLE 6
COVENANTS
6.1 Delivery of Books and Records .............................. 28
6.2 Discharge Liabilities and Indebtedness ..................... 28
6.3 Employee Bonuses ........................................... 28
6.4 Corporate Action ........................................... 29
6.5 Delivery of Documents ...................................... 29
6.6 Tax Matters ................................................ 29
6.7 Employee Benefits Matters .................................. 31
6.8 Transition Services Agreement .............................. 32
ARTICLE 7
CLOSING ARRANGEMENTS
7.1 Deliveries by the Vendor ................................... 32
7.2 Deliveries by the Purchaser ................................ 33
7.3 Place of Closing ........................................... 33
7.4 Further Assurances ......................................... 33
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ARTICLE 8
INDEMNIFICATION
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8.1 Indemnification by the Vendor .............................. 34
8.2 Intentionally Deleted ...................................... 34
8.3 Intentionally Deleted ...................................... 34
8.4 Tax Indemnification and Section 338(h)(10) Election ........ 34
8.5 Indemnification by the Purchaser ........................... 36
8.6 Notice of Claim ............................................ 37
8.7 Direct Claims .............................................. 37
8.8 Third Party Claims ......................................... 37
8.9 Settlement of Third Party Claims ........................... 38
8.10 Co-operation ............................................... 39
8.11 Exclusivity ................................................ 39
8.12 Offset Against Holdback .................................... 39
8.13 Certain Limitations ........................................ 39
ARTICLE 9
MISCELLANEOUS
9.1 Confidentiality of Information ............................. 40
9.2 Notices .................................................... 40
9.3 Commissions, etc. .......................................... 41
9.4 Consultation ............................................... 41
9.5 Waiver of Jury Trial ....................................... 42
9.6 Disclosure ................................................. 42
9.7 Assignment by Purchaser .................................... 42
9.8 Cooperation ................................................ 42
9.9 Counterparts ............................................... 43
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SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 10th day of December, 1999,
B E T W E E N:
PREFERRED NETWORKS, INC.
a corporation incorporated
under the laws of the State of Georgia,
(hereinafter called the "Vendor"),
OF THE FIRST PART,
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CELESTICA CORPORATION,
a corporation incorporated under the laws of
the State of Delaware,
(hereinafter called the "Purchaser"),
OF THE SECOND PART.
THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants, agreements, representations, warranties and indemnities herein
contained and for other good and valuable consideration (the receipt and
sufficiency of which are acknowledged by each party), the parties covenant and
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS. For the purpose of this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings set
out below and grammatical variations of such terms shall have corresponding
meanings:
"401(K) PLAN" has the meaning set forth in section 3.33(b);
"ADJUSTMENT AMOUNT" means the amount equal to the amount, if any, of
Non-Permitted Indebtedness of the Corporation as at November 30, 1999
reflected in the November 1999 Financial Statements which is not paid
in full on or prior to the Time of Closing in accordance with section
6.2;
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"AFFILIATE" means, in relation to any Person, any other Person that
directly or indirectly controls, or that is directly or indirectly
controlled by, or that is under the direct or indirect common control
of, such Person; provided, however, that any corporation in respect of
which any Person owns beneficially, directly or indirectly, not less
than 50% of such corporation's voting securities, shall be deemed to be
an Affiliate of such Person (for purposes hereof, "CONTROL" means, in
respect of any Person, the power or authority to direct, or cause the
direction of, directly or indirectly, the management, policies or
actions of any other Person, whether through the ownership of equity
securities or voting securities or by Contract or otherwise);
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision
of state, local or foreign law;
"ALLOCATION" has the meaning set out in section 8.4(b)(ii);
"APPLICABLE LAW" means all statutes, laws, by-laws, regulations,
enactments, directives and ordinances and all injunctions, decisions,
directives, judgements and orders of any Governmental Authority having
jurisdiction in respect of a particular matter, and all amendments
thereto, at any time and from time to time in force;
"ARBITRATOR" has the meaning set out in section 8.4(a)(ii);
"ASSOCIATE", where used to indicate a relationship with any Person,
means:
(a) any body corporate of which the Person beneficially owns,
directly or indirectly, voting securities carrying more than 10%
of the voting rights attached to all voting securities of the
body corporate for the time being outstanding,
(b) any partner of that Person,
(c) any trust or estate in which the Person has a substantial
beneficial interest or as to which the Person serves as trustee
or in a similar capacity,
(d) any relative of the Person, including the Person's spouse, where
the relative has the same home as the Person, or
(e) any relative of the spouse of the Person where the relative has
the same home as the Person;
"BUSINESS" means the business currently and heretofore carried on by the
Corporation of wireless equipment outsourcing specializing in wireless
equipment remanufacturing and wireless product sourcing and sales;
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"BUSINESS DAY" means any day, other than a Saturday or a Sunday, on
which banks are open for ordinary banking business in each of (a)
Toronto, Ontario and (b) Dallas, Texas;
"CAPITAL LEASE" means any lease which is treated as a capital lease
under GAAP;
"CLAIM" has the meaning set out in section 8.6(a);
"CLOSING DATE" means December 10, 1999 or such other date as may be
mutually agreed upon by the Vendor and the Purchaser;
"CODE" means the Internal Revenue Code of 1986 (United States), as
amended;
"COMMON SHARES" means the common shares in the capital of the
Corporation;
"CONTRACT" means any agreement, indenture, contract, lease, deed of
trust, licence, option, instrument or other commitment, whether written
or oral;
"CORPORATION" means EPS Wireless, Inc., a corporation existing under
the laws of the State of Georgia;
"DIRECT CLAIM" has the meaning set out in section 8.6(a);
"EMPLOYEES" has the meaning set out in section 3.35;
"EMPLOYMENT LEGISLATION" means all Applicable Laws relating to the
employment of labour, including without limitation, those related to
wages, hours, collective bargaining and the payment and withholding of
taxes;
"ENCUMBRANCE" means any encumbrance, lien, charge, hypothec, pledge,
mortgage, title retention agreement, security interest of any nature,
adverse claim, exception, reservation, easement, right of occupation,
any matter capable of registration against title, option, right of
pre-emption, privilege or any Contract to create any of the foregoing;
"ENVIRONMENTAL LAWS" has the meaning set out in section 3.32(b);
"ENVIRONMENTAL PERMITS" has the meaning set out in section 3.32(c);
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.;
"ERISA AFFILIATE" as applied to any person, means (a) any corporation
which is a member of a controlled group of corporations, within the
meaning of Section 414(b) of the Code, of which that Person is a
member, (b) any trade or business (whether or not incorporated) which
is a member of a group of trades or businesses under common control,
within the
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meaning of Section 414(c) of the Code, of which that Person is a
member, and (c) any member of an affiliated service group, within the
meaning of Section 414(m) and (o) of the Code, of which that person or
any entity described in clause (a) or (b) is a member;
"GAAP" means United States generally accepted accounting principles
consistently applied;
"GOVERNMENTAL AUTHORITY" means any international, national, state,
provincial, county, municipal, district or local government body, or
any public administrative or regulatory agency, political subdivision,
commission, board or body, or representative of any of the foregoing,
foreign or domestic, of, or established by any such government or
government body;
"HAZARDOUS SUBSTANCES" has the meaning set out in section 3.32(b);
"HOLDBACK" has the meaning attributed thereto in section 2.4(b);
"INDEBTEDNESS" means, without duplication, with respect to the
Corporation, whether recourse is to all or any portion of the assets of
the Corporation, and whether or not contingent:
(i) indebtedness of the Corporation for borrowed money or
for the deferred purchase price of property or
services, excluding trade payables incurred in the
ordinary course of business that are not overdue;
(ii) other indebtedness of the Corporation evidenced by
notes, bonds, debentures or similar instruments,
(iii) all indebtedness, obligations and liabilities of the
Corporation secured by any Encumbrance on any
property or asset owned or held by the Corporation,
whether or not any other Person has assumed or is
liable for the indebtedness, obligations or
liabilities so secured and whether or not the rights
and remedies of the secured party are limited to
repossession or sale of the property or assets
covered;
(iv) any reimbursement obligations of the Corporation with
respect to letters of credit, bankers acceptances or
similar facilities;
(v) obligations of the Corporation under any Capital
Leases, or operating leases under which such
Corporation has furnished a residual value guarantee
in respect of which the Corporation is liable as
lessee;
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(vi) all shares in the capital of the Corporation, which
are mandatorily redeemable by the Corporation or
redeemable or retractable at the option of any other
Person;
(vii) the liability of the Corporation in respect of
interest rate or currency hedge agreements, swaps or
forward contracts;
(viii) all indebtedness, obligations and liabilities of
others of the type referred to in (i) to (vii) above
(A) which the Corporation has directly or indirectly
guaranteed, endorsed (otherwise than for collection
or deposit in the ordinary course of business),
discounted with recourse or otherwise becomes
obligated to pay or become obligated under agreement
(contingently or otherwise) to purchase, repurchase
or otherwise acquire or become liable, or (B) in
respect of which the Corporation has agreed to supply
or advance funds (whether by way of loan, share
purchase or capital contribution, through a
commitment to pay for property or services regardless
of the non-delivery of the property or the
non-furnishing of the services or otherwise) or (C)
in respect of which the Corporation has otherwise
become directly or indirectly liable;
"INDEMNIFIED PARTY" has the meaning set out in section 8.6(a);
"INDEMNIFYING PARTY" has the meaning set out in section 8.6(a);
"INTELLECTUAL PROPERTY" has the meaning set out in section 3.17;
"KNOWLEDGE OF THE VENDOR" or "VENDOR'S KNOWLEDGE" means the knowledge
that any one of (i) those officers, directors or employees of the
Vendor who are principally responsible for the negotiation and
consummation of the transactions contemplated by this Agreement, and
(ii) the directors and officers of the Corporation, actually has;
"LEASED PROPERTY" has the meaning set out in section 3.13;
"LEASES" has the meaning set out in section 3.14;
"LICENCES" has the meaning set out in section 3.21;
"LOSSES", in respect of any matter, means all claims, demands,
proceedings, losses, damages, liabilities, deficiencies, costs and
expenses (including, without limitation, all legal and other
professional fees and disbursements, reasonably incurred, interest,
penalties and amounts paid in settlement) arising directly or
indirectly as a consequence of such matter;
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"MADSP" has the meaning set out in section 8.4(b)(ii);
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3.33(a);
"NOVEMBER 1999 FINANCIAL STATEMENTS" means the unaudited financial
statements of the Corporation as at and for the 11 month period ended
November 30 1999, a copy of which is annexed hereto as Schedule 3.23;
"NON-PERMITTED INDEBTEDNESS" means all Indebtedness of the Corporation
other than Permitted Indebtedness;
"PERMITTED ENCUMBRANCES" means:
(a) liens for taxes, assessments and governmental charges due and
being contested in good faith and diligently by appropriate
proceedings (and for the payment of which adequate provision
has been made);
(b) servitudes, easements, restrictions, rights-of-way and other
similar rights in real property or any interest therein,
provided the same are not of such nature as to materially
adversely affect the use of the property subject thereto by
the Corporation;
(c) liens for taxes either not due and payable or due but for
which notice of assessment has not been given;
(d) undetermined or inchoate liens, charges and privileges
incidental to current construction or current operations and
statutory liens, charges, adverse claims, security interests
or encumbrances of any nature whatsoever claimed or held by
any governmental authority which have not at the time been
filed or registered against the title to the asset or served
upon the Corporation pursuant to law or which relate to
obligations not due or delinquent;
(e) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease and liens or
rights reserved in any lease for rent or for compliance with
the terms of such lease;
(f) security given in the ordinary course of the Business to any
public utility, municipality or government or to any statutory
or public authority in connection with the operations of the
Business, other than security for borrowed money; and
(g) the Permitted Encumbrances described in Schedule 3.11(a);
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"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness for Taxes, assessments or governmental charges or
levies incurred in the ordinary course of business and which
are not at the time due or delinquent or the validity of which
are being constituted in good faith by proper legal
proceedings and as to which reserves are being maintained in
accordance with GAAP;
(b) Indebtedness which is subject to a Permitted Encumbrance; and
(c) trade payables and normal course lease obligations including
obligations under Capital Leases;
excluding any such Indebtedness owing or payable to any Related Party;
"PERSON" includes an individual, a partnership, a limited partnership,
a joint venture, a syndicate, a sole proprietorship, a company or
corporation with or without share capital, an unincorporated
association, a trust, a trustee, an executor, an administrator or other
legal personal representative, a regulatory body or agency, a
government or governmental agency, an authority or entity however
designated or constituted, and every other legal or business entity
whatsoever;
"PLANS" has the meaning set out in section 3.33;
"PURCHASE PRICE" has the meaning set out in section 2.2;
"PURCHASED SHARES" means 100 Common Shares, constituting all of the
issued and outstanding shares in the capital of the Corporation;
"PURCHASER'S ENVIRONMENTAL REPORT" means the Phase I Environmental Site
Assessment report dated December 2, 1999 prepared by Golder Associates
Inc. relating to the Leased Property; a copy of which has been provided
to the Vendor;
"RELATED PARTY" means any of:
(a) the Vendor;
(b) any Affiliate of the Vendor (other than the Corporation);
(c) any director, officer or shareholder of the Corporation or of
any Person in clauses (a) and (b) of this definition; and
(d) any Associate of any Person in clauses (a), (b) or (c) of this
definition (other than the Corporation);
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"SECTION 338 FORMS" has the meaning set out in section 8.4(b)(iii);
"SECTION 338(H)(10) ELECTION" has the meaning set out in section
8.4(b)(i);
"SYSTEMS" means all computer systems owned or used by the Corporation
in the operation of the Business and also includes all process
controls, environmental controls, and any other support systems or
equipment owned or used by the Corporation in the operation of the
Business which employs, stores or processes date/time information in
electronic form;
"TAX" means federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax or
governmental charge or assessment of any kind whatsoever imposed or
required to be collected by any Taxing Authority, whether disputed or
not. Tax shall include any interest, penalty, or addition to a Tax;
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof;
"TAXING AUTHORITY" shall mean any federal, state, local or foreign
governmental authority, or any political subdivision, agency or
instrumentality thereof;
"THIRD PARTY" has the meaning set out in section 8.8;
"THIRD PARTY CLAIM" has the meaning set out in section 8.6(a);
"TIME OF CLOSING" means 10:00 a.m. (Eastern Standard Time) on the
Closing Date; and
1.2 CURRENCY. All dollar amounts referred to in this Agreement are
expressed in United States dollars.
1.3 SECTIONS AND HEADINGS. The division of this Agreement into sections and
the insertion of headings are for convenience of reference only and shall not
affect the interpretation of this Agreement. Unless otherwise indicated, any
reference in this Agreement to a section, subsection, clause or a Schedule
refers to the specified section, subsection or clause of or Schedule to this
Agreement.
1.4 NUMBER, GENDER AND PERSONS. In this Agreement, words importing the
singular number only shall include the plural and vice versa, words importing
gender shall include all genders and words importing Persons shall include
individuals, corporations, partnerships,
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associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities.
1.5 ENTIRE AGREEMENT. This Agreement, together with the agreements
specifically contemplated herein or entered into or delivered in connection
herewith constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, including the letter of
intent between the Purchaser and the Vendor dated November 1, 1999 and the
letter agreement between the Purchaser and the Vendor dated December 1, 1999,
both of which are hereby terminated and of no further force or effect, and
without limiting the foregoing, each party hereby releases the other from any
and all claims arising out of such letter of intent and letter agreement. There
are no conditions, covenants, agreements, representations, warranties or other
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
1.6 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
1.7 APPLICABLE LAW. This Agreement shall be construed, interpreted and
enforced in accordance with, and the respective rights and obligations of the
parties shall be governed by, the laws of the State of Georgia and the federal
laws of the United States applicable therein, and each party hereby irrevocably
and unconditionally submits to the non-exclusive jurisdiction of the courts of
the States of Georgia and Texas.
1.8 SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision is hereby
declared to be separate, severable and distinct.
1.9 SUCCESSORS AND ASSIGNS. This Agreement shall enure to the benefit of
and shall be binding on and enforceable by the parties and their respective
successors and permitted assigns. Subject to section 9.7, no party may assign
any of its rights or obligations hereunder without the prior written consent of
the other parties.
1.10 AMENDMENT AND WAIVERS. No amendment or waiver of any provision of this
Agreement shall be binding on any party unless consented to in writing by such
party. No waiver of any provision of this Agreement shall constitute a waiver of
any other provision, nor shall any waiver constitute a continuing waiver unless
otherwise expressly provided.
1.11 AGREEMENTS, ETC. Any reference herein to an agreement, contract,
statute or other law means, unless otherwise specified, a reference to such
agreement, contract, statute or other law as the same may be amended,
supplemented or replaced from time to time.
1.12 SCHEDULES. The following Schedules are attached to and form part of
this Agreement:
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Schedule 3.2 - Encumbrances on Purchased Shares
Schedule 3.3 - Breaches of Contracts
Schedule 3.11(a) - Additional Permitted Encumbrances
Schedule 3.11(b) - Encumbrances in Favour of Vendor's Lender
Schedule 3.13 - Leased Real Property
Schedule 3.14 - Leases
Schedule 3.17 - Intellectual Property
Schedule 3.20 - Agreements and Contracts
Schedule 3.21 - Licences
Schedule 3.22(a) - Regulatory Consents
Schedule 3.22(b) - Vendor's Consents and Approvals
Schedule 3.23 - November 1999 Financial Statements
Schedule 3.25 - Absence of Changes
Schedule 3.26 - Tax Matters
Schedule 3.27 - Legal and Regulatory Proceedings
Schedule 3.28 - Accounts and Attorneys
Schedule 3.29 - Directors and Officers
Schedule 3.32 - Environmental Matters
Schedule 3.33 - Plans
Schedule 3.35 - Employees
Schedule 3.37 - Major Customers and Suppliers
Schedule 3.38 - Product Warranties
Schedule 3.39(a) - Indebtedness to Related Parties
Schedule 3.39(b) - Indebtedness of Related Parties
Schedule 7.1(d) - Form of Opinion of Vendors' Counsel
Schedule 7.1(g) - Form of Release
Schedule 6.8 - Form of Transition Services Agreement
</TABLE>
ARTICLE 2
PURCHASE AND SALE OF PURCHASED SHARES
2.1 PURCHASE AND SALE OF PURCHASED SHARES. Subject to the terms and
conditions hereof the Vendor covenants and agrees to sell, assign and transfer
to the Purchaser, and the Purchaser covenants and agrees to purchase from the
Vendor, at the Time of Closing, all of the Purchased Shares.
2.2 PURCHASE PRICE. The aggregate purchase price payable by the Purchaser
to the Vendor for the Purchased Shares (the "Purchase Price") shall be equal to
(i) $14,900,000 less (ii) an amount equal to the Adjustment Amount, if any. The
Purchase Price shall be paid to the Vendor in accordance with the terms and
provisions of this Agreement.
<PAGE> 15
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2.3 ADJUSTMENT AMOUNT. On the Closing Date the Vendor shall
deliver to the Purchaser a certificate of a senior officer of the Vendor setting
forth (i) the amount of each item of Non-Permitted Indebtedness of the
Corporation as at November 30, 1999 reflected in the November 1999 Financial
Statements; and (ii) all payments made on account of each item of Non-Permitted
Indebtedness referred to in (i) subsequent to November 30, 1999, accompanied, if
requested by the Purchaser, by evidence of the payments referred to in (ii)
reasonably satisfactory to the Purchaser.
2.4 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid or
satisfied as follows:
(a) at the Time of Closing the Purchaser shall pay to the Vendor
an amount equal to $14,150,000 less an amount equal to the Adjustment Amount, if
any, by wire transfer in immediately available funds as follows: (i)
$7,020,191.25 to account #000303748800 at the Charlotte, North Carolina branch
of Bank of America, N.A., (ii) $2,527,224.88 to account #3750332753 at the
Dallas, Texas branch of Nationsbank Global Finance Bank, and (iii) $4,602,583.87
less the Adjustment Amount, if any, to account #3256574981 at the Charlotte,
North Carolina branch of Bank of America, N.A.;
(b) an amount equal to $750,000 shall be retained by the Purchaser
and shall be subject to reduction as provided in section 8.12(a) and any
remaining balance thereof as at the 6 month anniversary of the Closing Date
shall (subject to the provisions of section 8.12(b)) be forthwith paid by the
Purchaser to the Vendor by certified cheque or banker's draft to or to the order
of the Vendor. For the purposes hereof the term "Holdback" at any time means the
said sum of $750,000 less the aggregate amounts of reductions theretofore
applied thereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
The Vendor represents and warrants to the Purchaser as follows
and acknowledges that the Purchaser is relying on such representations and
warranties in connection with its purchase of the Purchased Shares.
3.1 ENFORCEABILITY. This Agreement has been, and each of the other
agreements, indentures, documents and instruments entered into pursuant hereto
when executed and delivered by the Vendor will be, duly executed and delivered
by the Vendor and is, or in the case of all other agreements, indentures,
documents and instruments entered into pursuant hereto, will be, a legal, valid
and binding obligation of the Vendor enforceable against the Vendor by the
Purchaser or the Corporation, as the case may be, in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors generally and except that equitable
remedies may be granted only in the discretion of a court of competent
jurisdiction.
<PAGE> 16
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3.2 NO OTHER AGREEMENTS TO PURCHASE. No Person other than the Purchaser has
any written or oral agreement or option or any right or privilege (whether by
law, pre-emptive or contractual) capable of becoming an agreement or option for
the purchase or acquisition from the Vendor of any of the Purchased Shares
except for those Encumbrances referred to in Schedule 3.2 which shall have been
terminated and discharged, at or prior to the Time of Closing.
3.3 NO VIOLATION BY VENDOR. The execution and delivery of this Agreement,
and all other agreements, indentures, documents and instruments entered into
pursuant hereto by the Vendor and the consummation of the transactions provided
for herein and therein do not and will not result in: (a) the breach or
violation of any of the provisions of, or constitute a default under, or
conflict with or cause the acceleration of any obligation under: (i) except for
those breaches, violations and defaults referred to in Schedule 3.3 which shall
be rectified to the satisfaction of the Purchaser at or prior to the Time of
Closing, any Contract to which the Vendor is a party or by which it is, or any
of his properties is, bound; (ii) any judgment, decree, order or award of any
court, Governmental Authority or arbitrator having jurisdiction over the Vendor
or by which the Vendor is bound; (iii) any licence, permit, approval, consent or
authorization held by the Vendor or necessary to the ownership of the Purchased
Shares; or (iv) any Applicable Law; or (b) the creation or imposition of any
Encumbrance on the Purchased Shares.
3.4 OWNERSHIP OF PURCHASED SHARES. The Vendor is the beneficial owner of
record of the Purchased Shares, with good and marketable title thereto, free and
clear of all Encumbrances and, without limiting the generality of the foregoing,
none of the Purchased Shares is subject to any voting trust, shareholder
agreement or voting agreement, except for those Encumbrances referred to in
Schedule 3.2 which shall be terminated and discharged at or prior to the Time of
Closing. Upon completion of the transactions contemplated by this Agreement, all
of the Purchased Shares will be owned by the Purchaser as the beneficial owner
of record with a good and marketable title thereto, free and clear of all
Encumbrances (other than any Encumbrance which may have been granted by the
Purchaser).
3.5 ORGANIZATION. The Corporation is validly existing under the laws of the
State of Georgia and has the corporate power to own or lease its property and to
carry on the Business as now being conducted by it. The Corporation is duly
qualified as a corporation to do business in each jurisdiction in which the
nature of the Business or the property and assets owned or leased by it makes
such qualification necessary.
3.6 AUTHORIZED AND ISSUED CAPITAL. The authorized capital of the
Corporation consists of 10,000 Common Shares, of which 100 Common Shares (and no
more) have been duly issued and are outstanding as fully paid and
non-assessable.
3.7 NO OPTIONS. No Person has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement, including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of any
unissued shares or other securities of the Corporation.
<PAGE> 17
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3.8 NO SUBSIDIARIES. The Corporation does not own and does not have any
agreements of any nature to acquire, directly or indirectly, any shares in the
capital of or other equity or proprietary interests in any Person, firm or
corporation, and the Corporation does not have any agreements to acquire or
lease any other business operations.
3.9 NO VIOLATION BY CORPORATION. The execution and delivery of this
Agreement by the Vendor and the consummation of the transactions herein provided
for does not and will not (with notice, lapse of time or otherwise) result in
either: (a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any obligation of
the Corporation under: (i) except for those breaches, violations and defaults
referred to in Schedule 3.3 which shall be rectified to the satisfaction of the
Purchaser at or prior to the Time of Closing, any Contract to which the
Corporation is a party or by which it is, or any of its properties are, bound;
(ii) any provision of the articles, by-laws or resolutions of the board of
directors (or any committee thereof) or shareholders of the Corporation; (iii)
any judgment, decree, order or award of any court, governmental body or
arbitrator having jurisdiction over the Corporation; (iv) any licence, permit,
approval, consent or authorization held by the Corporation or necessary to the
operation of the Business; or (v) any applicable law, statute, ordinance,
regulation or rule; or (b) the creation or imposition of any Encumbrance on any
of the property or assets of the Corporation.
3.10 BUSINESS OF THE CORPORATION. The Business is the only business carried
on by the Corporation, and the property and assets owned or leased by the
Corporation are sufficient to carry on the Business. All of the property and
assets owned and used by the Corporation are in good operating condition and are
in a state of good repair and maintenance reasonable wear and tear excepted.
During the two years preceding the date of this Agreement, there has not been
any significant interruption of operations (being an interruption of more than
one day) of the Business due to inadequate maintenance of any of the property
and assets owned and used by the Corporation. With the exception of inventory in
transit, all the tangible assets of the Corporation are situated at 3801 Realty
Road, Dallas, Texas.
3.11 TITLE TO PERSONAL AND OTHER PROPERTY. The property and assets of the
Corporation are owned beneficially by the Corporation as the beneficial owner
thereof with a good and marketable title thereto, free and clear of all
Encumbrances other than the Permitted Encumbrances and the Encumbrances referred
to in Schedule 3.11(b) which shall be released and discharged at or prior to the
Time of Closing.
3.12 REAL PROPERTY. The Corporation is not the beneficial or registered
owner of and has not agreed to acquire any real property or any interest in any
real property (other than the Leased Property).
3.13 LOCATION OF LEASED PROPERTY. Schedule 3.13 sets forth a municipal
address and a complete and accurate legal description of all the real property
leased by the Corporation (the "Leased Property"). The Corporation does not
lease and has not agreed to lease any real property
<PAGE> 18
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or interest in real property other than the Leased Property. To the Vendor's
Knowledge, all buildings, structures, improvements and appurtenances situated on
the Leased Property are in good operating condition and in a state of good
maintenance and repair, are adequate and suitable for the purposes for which
they are currently being used and the Corporation has adequate rights of ingress
and egress for the operation of the Business in the ordinary course. To the
Vendor's Knowledge, none of such buildings, structures, improvements or
appurtenances (or any equipment therein), nor the operation or maintenance
thereof, violates any restrictive covenant or any provision of any federal,
state or municipal law, ordinance, rule or regulation, or encroaches on any
property owned by others.
3.14 REAL PROPERTY LEASES. The Corporation is not a party to any lease or
agreement in the nature of a lease in respect of any real property, whether as
lessor or lessee, other than the leases (the "Leases") described in Schedule
3.14 relating to the Leased Property. Schedule 3.14 sets out the parties to each
of the Leases, their dates of execution and expiry dates, the locations of the
leased lands and premises and the rent payable thereunder. Except as described
in Schedule 3.14, the Corporation occupies the Leased Property and has the
exclusive right to occupy and use the Leased Property. Each of the Leases is in
good standing and in full force and effect without amendment thereto, and
neither the Corporation nor, to the Vendor's Knowledge, any other party thereto
is in breach of any covenants, conditions or obligations contained therein. The
Vendor has caused the Corporation to provide to the Purchaser a true copy of
each Lease.
3.15 INVENTORIES. The inventories of the Corporation do not include any
material items which are below standard quality or a quality not useable or
saleable in the normal course of business, the value of which has not been
written down on its books of account to net realizable market value or which
have not been adequately reserved for in its books of account in accordance with
GAAP.
3.16 ACCOUNTS RECEIVABLE. All accounts receivable, book debts and other
debts due or accruing to the Corporation are bona fide, subject to an allowance
for doubtful accounts which has been reflected on the books of the Corporation
in accordance with GAAP.
3.17 INTELLECTUAL PROPERTY. Attached hereto as Schedule 3.17 is a complete
and accurate list of all trade-marks, trade names, business names, patents,
inventions, know-how, copyrights, service marks, brand names, industrial designs
and all other industrial or intellectual property owned or used by the
Corporation in carrying on the Business and all applications therefor and all
goodwill connected therewith, including, without limitation, all licences,
registered user agreements and all like rights used by or granted to the
Corporation in connection with the Business and all right to register or
otherwise apply for the protection of any of the foregoing, other than licenses
of generally available software for personal computers (collectively, the
"Intellectual Property"). Schedule 3.17 also includes complete and accurate
particulars of all registrations or applications for registration of
Intellectual Property owned by the Corporation. The Intellectual Property
comprises all trade-marks, trade names, business names, patents, inventions,
know-how, copyrights, service marks, brand marks, industrial designs and all
other industrial or intellectual property necessary to conduct
<PAGE> 19
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the Business. Except as set forth in Schedule 3.17, the Corporation is the
beneficial owner of the Intellectual Property, free and clear of all
Encumbrances other than Permitted Encumbrances, and is not a party to or bound
by any Contract or other obligation whatsoever that limits or impairs its
ability to sell, transfer, assign or convey, or that otherwise affects, the
Intellectual Property and no Person has been granted any interest in or right to
use all or any portion of the Intellectual Property. To the Vendor's Knowledge,
no claim of any infringement or breach of any industrial or intellectual
property rights of any other Person by the Corporation has been made or
threatened, nor has the Vendor or the Corporation received any notice that the
conduct of the Business, including the use of the Intellectual Property,
infringes upon or breaches any industrial or intellectual property rights of any
other Person, and, to the Vendor's Knowledge, there has been no infringement or
violation of any of the rights of the Corporation in the Intellectual Property.
To the Vendor's Knowledge, the conduct of the Business does not infringe upon
the patents, trade-marks, licences, trade names, business names, copyright or
other industrial or intellectual property rights, domestic or foreign, of any
other Person. To the Vendor's Knowledge, there is no state of facts which casts
doubt on the validity or enforceability of any of the Intellectual Property. The
Vendor has provided to the Purchaser a true and complete copy of all Contracts
and amendments thereto which comprise or relate to the Intellectual Property.
3.18 INSURANCE. The Corporation has insured all of its property and assets
against loss or damage by all insurable hazards or risks on a basis that is
comparable to the insurance maintained by prudent persons operating businesses
similar to the Business. The Corporation is not in default with respect to any
of the provisions contained in any such insurance policy and has not failed to
give any notice or present any claim under any such insurance policy in a due
and timely fashion. The Vendor has provided to the Purchaser a true copy of each
such insurance policy.
3.19 YEAR 2000 COMPLIANCE. All of the Corporation's Systems, including their
operating systems, application software and related supporting data and files,
if used in the manner and for the purposes which they are presently used by the
Corporation, shall function correctly when dealing with dates/times and
date/time related data in the following manner:
(a) the Systems shall, when processing date/time data from, into,
in and between the 20th and 21st centuries, and the year 1999 and 2000, and
performing leap year calculations, accurately process such date/time data
(including, but not limited to accurately inputting, outputting, extracting,
displaying, calculating, comparing, sorting and sequencing such data), and shall
not, as a result of the processing of such data (i) create any logical or
mathematical inconsistency, (ii) malfunction, or (iii) cease to function; and
(b) the Systems shall, before, during and after the year 2000,
accurately exchange date/time data with and shall accurately process the
date/time data exchanged with the information technology systems of all
customers and suppliers.
The Vendor has provided to the Purchaser (i) copies of all correspondence and
statements relating to the Corporation's Year 2000 compliance which have been
made by or on behalf of the
<PAGE> 20
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Corporation to customers, suppliers, auditors, investors or other third parties,
(ii) all copies of reports (including draft reports) prepared by or on behalf of
the Corporation or by the Vendor or any affiliates relating to the Corporation's
Year 2000 compliance, deficiencies or required remediation, (iii) all copies of
proposals (including draft proposals) whether prepared by the Corporation or by
third parties, concerning Year 2000 remediation of the Corporation, and (iv)
copies of all correspondence, statements and reports (including draft reports)
sent or received by the Corporation with respect to the Year 2000 compliance of
the Corporation's customers and suppliers.
3.20 AGREEMENTS AND COMMITMENTS. Except as described on Schedules
3.14, 3.17, 3.18, 3.20 and 3.35, the Corporation is not a party to or bound by
any material Contract relating to the property, assets, Business or operations
of the Corporation, including, without limiting the generality of the foregoing:
(a) any continuing Contract for the purchase of materials,
supplies, equipment or services involving more than $25,000 in respect of any
one Contract or more than $100,000 in respect of all such Contracts;
(b) any employment or consulting Contract or any other written
Contract with any officer, employee or consultant other than oral Contracts of
indefinite hire terminable by the employer without cause on reasonable notice;
and
(c) any Contract providing for any Indebtedness of or guaranteed
by the Corporation including any Contract for capital expenditures in excess of
$25,000 in the aggregate.
The Corporation has performed all of the obligations required
to be performed by it and is entitled to all benefits under, and is not in
default or alleged to be in default in respect of, any Contract relating to the
Business to which it is a party or by which it is bound; all such Contracts are
in good standing and in full force and effect, and no event, condition or
occurrence exists which, after notice or lapse of time or both, would constitute
a default under any of the foregoing. The Vendor has provided to the Purchaser a
true and complete copy of each Contract listed or described on Schedules 3.14,
3.17, 3.18, 3.20 and 3.35 and all amendments thereto.
3.21 COMPLIANCE WITH LAWS; LICENCES. Except to the extent such
matters have been specifically addressed in other representations and warranties
contained herein, the Corporation has complied in all material respects with all
laws, statutes, ordinances, regulations, rules, judgments, decrees or orders
applicable to the Business or the Corporation. Schedule 3.21 sets out a complete
and accurate list of all licences (other than Intellectual Property licences),
permits, approvals, consents, certificates, registrations and authorizations
(whether governmental, regulatory or otherwise) (the "Licences") held by or
granted to the Corporation, and there are no other licences, permits, approvals,
consents, certificates, registrations or authorizations necessary to carry on
the Business or to own or lease any of the property or assets utilized by the
Corporation. Each Licence is valid, subsisting and in good standing and the
Corporation is not in default or breach of any Licence and, to the Knowledge of
the Vendor, no proceeding is pending or threatened to revoke or
<PAGE> 21
-17-
limit any Licence. The Vendor has provided to the Purchaser a true and complete
copy of each Licence and all amendments thereto.
3.22 CONSENTS AND APPROVALS.
(a) There is no requirement to make any filing with, give any
notice to or to obtain any licence, permit, certificate, registration,
authorization, consent or approval of, any Governmental Authority as a condition
to the lawful consummation of the transactions contemplated by this Agreement
except for the filings, notifications, licences, permits, certificates,
registrations, consents and approvals described in Schedule 3.22(a).
(b) There is no requirement under any Contract relating to the
Business or the Corporation to which the Vendor or the Corporation is a party or
by which either of them is bound to give any notice to, or to obtain the consent
or approval of, any party to such agreement, instrument or commitment relating
to the consummation of the transactions contemplated by this Agreement except
for the notifications, consents and approvals described in Schedule 3.22(b).
3.23 NOVEMBER 1999 FINANCIAL STATEMENTS. The November 1999
Financial Statements have been prepared in accordance with GAAP applied on a
basis consistent with prior periods, are correct and complete and present fairly
in all material respects the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of the Corporation as at the
date of the November 1999 Financial Statements and the sales, earnings and
results of operations of the Corporation for the period
covered by the November 1999 Financial Statements. There has been no material
adverse change in the financial position and condition of the Corporation from
that shown on or reflected in the November 1999 Financial Statements.
3.24 BOOKS AND RECORDS. The books and records of the Corporation
fairly and correctly set out and disclose the financial position of the
Corporation in all material respects as at the date hereof and have been
prepared on a consistent basis and all financial transactions of the Corporation
have been accurately recorded in such books and records.
3.25 ABSENCE OF CHANGES. Except as set forth in Schedule 3.25,
since November 30, 1999, the Corporation has carried on the Business and
conducted its operations and affairs only in the ordinary and normal course
consistent with past practice and there has not been:
(a) any adverse change in the condition (financial or otherwise),
assets, liabilities, operations, earnings, Business or prospects of the
Corporation;
(b) any material damage, destruction or loss (whether or not
covered by insurance) affecting the property or assets of the Corporation;
<PAGE> 22
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(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Corporation, other than those incurred in the ordinary and normal course of the
Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any Encumbrance,
liability or obligation of the Corporation (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) other than payment of
accounts payable and tax liabilities incurred in the ordinary course of the
Business consistent with past practice;
(e) any issuance or sale by the Corporation, or any Contract
entered into by the Corporation, for the issuance or sale by the Corporation, of
any shares in the capital of or securities convertible into or exercisable for
shares in the capital of the Corporation;
(f) any organized or other material labour trouble adversely
affecting the Corporation;
(g) any licence, sale, assignment, transfer, disposition, pledge,
mortgage or granting of a security interest or other Encumbrance on or over any
property or assets of the Corporation, other than sales of inventory to
customers in the ordinary and normal course of the Business;
(h) any write-down of the value of any inventory or any write-off
as uncollectible of any accounts or notes receivable or any portion thereof of
the Corporation in amounts exceeding $5,000 in each instance or $20,000 in the
aggregate;
(i) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Corporation in amounts
exceeding $5,000 in each instance or $20,000 in the aggregate;
(j) any general increase in the compensation of employees of the
Corporation (including, without limitation, any increase pursuant to any
Employee Plan or commitment), or any increase in any such compensation or bonus
payable to any officer, employee, consultant or agent thereof (having an annual
salary or remuneration in excess of $50,000) or the execution of any employment
contract with any officer or employee (having an annual salary or remuneration
in excess of $50,000), or the making of any loan to, or engagement in any
transaction with, any employee, officer or director of the Corporation;
(k) any capital expenditures or commitments of the Corporation in
excess of $25,000 in the aggregate;
(l) any forward purchase commitments in excess of the requirements
of the Corporation for normal operating inventories or at prices higher than the
current market prices;
(m) any forward sales commitments other than in the ordinary and
normal course of the Business or any failure to satisfy any accepted order for
goods or services;
<PAGE> 23
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(n) any material change in the accounting or tax practices
followed by the Corporation;
(o) any material change adopted by the Corporation in its
depreciation or amortization policies or rates; or
(p) any material change in the credit terms offered to customers
of, or by suppliers to, the Corporation.
3.26 TAX MATTERS.
(a) All Tax Returns that were required to be filed by, or on
behalf of, the Corporation, either separately or as part of any Affiliated Group
of corporations, have been timely filed. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by the Corporation (whether or
not shown on any Tax Return), either separately or as part of any Affiliated
Group of corporations, have been paid. The Corporation is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by any Taxing Authority in a jurisdiction where the
Corporation does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Encumbrances on any of the assets of any of
the Corporation that arose in connection with any failure (or alleged failure)
to pay any Tax.
(b) The Corporation, and all members of the Affiliated Group of
corporations of which the Corporation is a member, have timely withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any Employee, independent contractor, creditor, stockholder,
nonresident, partner or other third party.
(c) There is no dispute, action, investigation or claim concerning
any Tax for which the Corporation could have liability either (i) claimed,
threatened or raised by any Taxing Authority in writing or (ii) as to which any
of the Vendor or the directors and officers (and employees responsible for Tax
matters) of the Corporation or the Vendor have knowledge (whether or not pending
or threatened). The Corporation is not currently under audit, either separately
or as a member of an Affiliated Group, by any Taxing Authority. Schedule 3.26
lists all Tax Returns that have been audited. The Vendor has delivered to the
Purchaser correct and complete copies of all federal, foreign, state and local
income Tax Returns filed by, and examination reports and statements of
deficiencies assessed against or agreed to by, the Corporation since September
30, 1996.
(d) Neither the Corporation nor the Vendor has given or been
requested to give waivers or extensions of any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Corporation has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Corporation has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to
<PAGE> 24
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make any payments that will not be deductible under Code Section 280G or Code
Section 162(m). The Corporation is not, and has not been, a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Corporation has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. The Corporation is not, and has
never been, a party to any Tax allocation or sharing agreement. The Corporation
does not have any liability for the Taxes of any Person under Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law). No property
of the Corporation (A) is subject to a tax benefit transfer lease subject to the
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, (B)
is "tax-exempt use property" within the meaning of Section 168(h) of the Code or
(C) secures any debt the interest on which is exempt from Tax under Section 103
of the Code.
(f) The unpaid Taxes of the Corporation (i) did not, as of
November 30, 1999, exceed the reserve for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the November 1999
Financial Statements (rather than in any notes thereto) and (ii) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Corporation in filing its
Tax Returns.
3.27 LITIGATION. Except as described in Schedule 3.27, there are no actions,
suits or proceedings (whether or not purportedly on behalf of the Corporation)
to which the Corporation is a party or in respect of which the Corporation has
been served or, to the Knowledge of the Vendor, which are threatened against or
affect, the Corporation at law or in equity or before or by any federal, state,
municipal or other governmental department, court, commission, board, bureau,
agency or instrumentality, domestic or foreign, or by or before an arbitrator or
arbitration board.
3.28 ACCOUNTS AND ATTORNEYS. Schedule 3.28 sets forth a true and complete
list showing: (a) the name of each bank, trust company or similar institution in
which the Corporation has accounts or safe deposit boxes, the number or
designation of each such account and safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto; and (b) the name
of each Person, firm, corporation or business organization holding a general or
special power of attorney from the Corporation and a summary of the terms
thereof.
3.29 DIRECTORS AND OFFICERS. Schedule 3.29 sets forth the names and titles
of all the officers and directors of the Corporation.
3.30 DIVIDENDS. Since November 30, 1999, the Corporation has not, directly
or indirectly, declared or paid any dividends or declared or made any other
distribution on any of its shares of any class and has not, directly or
indirectly, redeemed, purchased or otherwise acquired any of its outstanding
shares of any class or agreed to do so.
<PAGE> 25
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3.31 NON-ARM'S LENGTH TRANSACTIONS. Except as referred to in
Schedules 3.39(a) and 3.39(b), the Corporation has not since November 30, 1999
made any payment or loan to, or borrowed any moneys from or is otherwise
indebted to, any Related Person except for usual employee reimbursements and
compensation paid in the ordinary and normal course of the Business. Except as
referred to in Schedules 3.39(a) and 3.39(b), the Corporation is not a party to
any Contract with any Related Person. No Related Person (a) owns, directly or
indirectly, any interest in (except for shares representing less than one per
cent of the outstanding shares of any class or series of any publicly traded
company), or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor of the Business or the
Corporation or a lessor, lessee, supplier, distributor, sales agent or customer
of the Business or the Corporation; (b) owns, directly or indirectly, in whole
or in part, any property that the Corporation uses in the operation of the
Business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Corporation in connection with the Business, except for
any liabilities reflected in the November 1999 Financial Statements and claims
in the ordinary and normal course of business such as for accrued vacation pay
and accrued benefits under the Employee Plans.
3.32 ENVIRONMENTAL.
(a) Except as described in Schedule 3.32, the Corporation, the
Business, the Leased Property and all current or former properties and
operations of the Corporation have been and are in full compliance with and have
not been and are not in violation of or liable under any of the applicable
federal, state, municipal, local or foreign laws, statutes, ordinances, by-laws
and regulations, and orders, directives and decisions rendered by, and policies,
instructions, guidelines and similar guidance of, any ministry, department or
administrative or regulatory agency or other Governmental Authority, each as
supplemented or amended from time to time, the common law (collectively
"Environmental Laws") to the extent relating to pollution or the protection of
the environment or natural resources, occupational or public health and safety
or the manufacture, processing, distribution, use, treatment, storage, disposal,
discharge, packaging, transport, handling, containment, clean-up or other
remediation or corrective action of any pollutants, contaminants, chemicals or
wastes or substances, including, without limitation, industrial, toxic,
hazardous or radioactive wastes or substances and including any admixture
thereof and specifically including petroleum and all fractions and derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos containing
materials (collectively "Hazardous Substances").
(b) The Corporation has all licences, permits, approvals,
consents, certificates, registrations and other authorizations required under
Environmental Laws (the "Environmental Permits"), including, without limitation,
required in connection with the Leased Property and any other property owned,
leased or operated by the Corporation and for the operation of the Business, all
of which are in full force and effect and are described in Schedule 3.32. No
proceeding is pending or, to the Knowledge of the Vendor, threatened and, to the
Knowledge of the Vendor, no grounds exist which would or could reasonably be
expected to cause the revocation of or the imposition of any limit on any
Environmental Permit.
<PAGE> 26
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(c) Except as described in Schedule 3.32, the Corporation has
never received any notice of, or been prosecuted for, non-compliance with any
Environmental Laws, and neither the Vendor nor the Corporation has settled any
allegation of non-compliance prior to prosecution. There are no notices, orders
or directions relating to environmental matters requiring, or notifying the
Vendor or the Corporation that it is or may be responsible for, any containment,
clean-up, remediation or corrective action or any work, repairs, construction or
capital expenditures to be made under Environmental Laws with respect to the
Business or any current or former property or operation of the Corporation.
(d) Except as disclosed in Schedule 3.32, the Corporation has not
caused or permitted, nor has there been any, release, threatened release,
emission, spill or discharge, in any manner whatsoever, of any Hazardous
Substance on, in, around, from or in connection with any of the properties
(including the Leased Property) or assets it owns or operates or any property or
assets which it previously owned or operated, or any such release or threatened
release on or from a facility owned or operated by any third party but with
respect to which the Corporation is or may reasonably be alleged to have
liability. All Hazardous Substances and all other wastes and other materials and
substances used in whole or in part by the Corporation or resulting from the
Business have been disposed of, treated and stored by the Corporation in full
compliance with all Environmental Laws and the Corporation is not aware of any
property, facility or location at which Hazardous Substances were disposed which
has given rise to or is likely to give rise to a liability claim under
Environmental Laws. Except as disclosed in Schedule 3.32, there are no Hazardous
Materials on the Leased Property or any other property now or heretofore owned
or operated by the Corporation.
(e) The Vendor has delivered to the Purchaser true and complete
copies of all environmental audits, evaluations, assessments, studies, reports,
correspondence (internal, from or to regulators or from or to others), documents
or tests relating to the Corporation, the Business, the Leased Property or any
other property for whose conduct the Corporation is or may be held responsible
which are or with reasonable efforts could be within the possession or control
of the Vendor.
(f) The representations and warranties in paragraphs (a) and (d)
of this Section 3.32, insofar as they relate to matters not arising as a result
of the Corporation's actions or omissions or concerning any property at a time
when it was not owned or operated by the Vendor or the Corporation, are limited
to the Vendor's Knowledge of such matters.
3.33 EMPLOYEE PLANS.
(a) Except as set forth in Schedule 3.33 to this Agreement, the
Corporation (i) neither maintains nor contributes to or has any obligation with
respect to, and none of the Employees are covered by, any bonus, deferred
compensation, severance pay, pension, profit-sharing, retirement, insurance,
stock purchase, stock option, or other fringe benefit plan, arrangement or
practice, written or otherwise, or any other "employee benefit plan," as defined
in Section 3(3) of ERISA, whether formal or informal (collectively, "Plans"), or
(ii) is a party to any contract for the
<PAGE> 27
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employment of any employee of the Corporation or any other person who renders
services to the Corporation. None of the Plans is a "multiemployer plan," as
defined in Section 3(37) of ERISA, (a "Multiemployer Plan"), a "multiple
employer plan" as defined in ERISA or the Code, or a funded welfare benefit
plan, as defined in Section 419 of the Code. The Corporation has no agreement or
commitment to create any additional Plan, enter into any additional employment
agreement, or modify or change any existing Plan or employment agreement.
(b) With respect to the EPS Wireless, Inc. 401(k) Profit Sharing
Plan (the "401(k) Plan"), the Corporation has heretofore delivered or made
available to the Purchaser true, correct and complete copies of (i) all
documents which comprise the most current version of the 401(k) Plan, including
any related trust agreements, insurance contracts, or other funding or
investment agreements and any amendments thereto, (ii) the two most recent
Annual Reports (Form 5500 Series) and accompanying schedules, (iii) the most
current summary plan description (and any summary of material modifications),
(iv) the two most recent certified financial statements, and (v) all Internal
Revenue Service determination letters issued with respect to the 401(k) Plan.
Except as set forth in Schedule 3.33, the 401(k) Plan has not been nor will be
amended prior to the Closing Date. Since the date of the documents were
delivered or made available, there has not been any material change in the
assets or liabilities of the 401(k) Plan or any change in its terms and
operations which could reasonably be expected to affect or alter the tax status
or materially affect the cost of maintaining the 401(k) Plan. The 401(k) Plan
can be amended, modified or terminated by the Corporation within a period of 30
days, without payment of any additional compensation or amount or the additional
vesting or acceleration of any such benefits, except to the extent that such
vesting is required under the Code upon the complete or partial termination of
the 401(k) Plan. The 401(k) Plan is the only Plan currently maintained by the
Corporation or that has been maintained by the Corporation since December 3,
1996 (or, to the Vendor's knowledge, during the three years prior to December 3,
1996) that was intended to be qualified within the meaning of Section 401(a) of
the Code.
(c) The Corporation has performed and complied in all respects
with all of its obligations under and with respect to the 401(k) Plan and has,
at all times, in form, operation and administration complied in all material
respects with its terms, and, where applicable, the requirements of all
applicable laws. The 401(k) Plan is a prototype plan subject to an opinion
letter issued by the Internal Revenue Service and, to the Knowledge of the
Vendor, nothing has occurred since adoption of the 401(k) Plan which reasonably
could be expected to adversely affect such qualified status.
(d) There are no unpaid contributions due prior to the date on
which this representation and warranty is being made with respect to any Plan
that are required to have been made under the terms of such Plan or any
applicable law.
(e) Neither the Corporation nor any ERISA Affiliate has
participated in any "employee pension benefit plan", as defined in Section 3(2)
of ERISA, that is or was subject to Title IV of ERISA, at any time in the last
five years.
<PAGE> 28
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(f) The Corporation has no obligation for any deferred
compensation, pension or non-pension benefits to retired or other former
employees, except for health benefits as specifically required by Section 4980B
of the Code or Part 6 of Title I of ERISA ("COBRA") or pension benefits payable
from a Plan intended to be "qualified" within the meaning of Section 401(a) of
the Code.
(g) Neither the Corporation nor, to the Knowledge of the Vendor,
any other "disqualified person" or "party in interest," as defined in Section
4975 of the Code and Section 3(14) of ERISA, respectively, has engaged in any
"prohibited transaction," as defined in Section 4975 of the Code or Section 406
of ERISA, with respect to the 401(k) Plan nor have there been any fiduciary
violations under ERISA with respect to the 401(k) Plan which could subject the
Corporation (or any officer, director or employee thereof) to any material
penalty or tax under Section 502(i) of ERISA or Sections 4971 and 4975 of the
Code.
(h) With respect to the 401(k) Plan: (i) no filing, application or
other matter is pending with the Internal Revenue Service, the PBGC, the United
States Department of Labor or any other governmental body, (ii) there is no
action, suit or claim pending (nor, to the Knowledge of the Vendor, any basis
for such a claim), other than routine claims for benefits, and (iii) there are
no outstanding liabilities for taxes, penalties or fees.
(i) Neither the execution and delivery of this Agreement, nor the
consummation of any or all of the transactions contemplated hereby will: (i)
entitle any current or former employee of the Corporation to severance pay,
unemployment compensation or any similar payment, (ii) accelerate the time of
payment or vesting or increase the amount of any compensation due to any such
employee or former employee, or (iii) directly or indirectly result in any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" within the meaning of Section 280G of the Code.
(j) The Corporation has complied in all material respects with the
continuation coverage requirements of COBRA, and has complied with the
provisions of the Health Insurance Portability and Accountability Act of 1996,
to the extent it is applicable.
3.34 COLLECTIVE AGREEMENTS. The Corporation has not made any
Contracts with any labour union or employee association nor made commitments to
or conducted negotiations with any labour union or employee association with
respect to any future collective bargaining or any other material agreements and
neither the Vendor nor the Corporation is aware of any current attempts to
organize or establish any labour union or employee association with respect to
any employees of the Corporation, nor is there any certification of any such
union with regard to a bargaining unit. The Business has experienced no
organized or other material work stoppages or strikes (legal or otherwise).
<PAGE> 29
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3.35 EMPLOYEES. Schedule 3.35 contains a complete and accurate list of the
names of all individuals who are full-time, part-time or casual employees or
individuals engaged on contract to provide employment services or sales or other
agents or representatives of the Corporation as of the date of this Agreement
(the "Employees") which list sets forth the date of hire, period of employment,
title or classification and rate of salary or hourly pay, vacation accrued, and
commission or bonus entitlements (if any) for each such Employee. Schedule 3.35
lists all Employees, including those on lay-off, who have been absent
continually from work for a period in excess of one month, as well as the reason
for their absence.
Except as described in Schedule 3.35, there are no complaints, claims or charges
outstanding, or to the Knowledge of the Vendor, anticipated, nor are there any
orders, decisions, directions or convictions currently registered or outstanding
by any tribunal or agency or other Governmental Authority against or
in respect of the Corporation under or in respect of any Employment Legislation.
No Employee is bound by any confidentiality or non-competition agreement in
favour of any Person other than the Corporation or the Vendor.
3.36 EMPLOYEE ACCRUALS. All accruals for unpaid vacation pay, premiums for
unemployment insurance, health premiums, accrued wages, salaries and commissions
and employee benefit plan payments have been reflected in the books and records
of the Corporation.
3.37 CUSTOMERS AND SUPPLIERS. Schedule 3.37 sets out the major customers of
the Corporation (being those customers of the Corporation accounting for more
than 10% of sales for the period January 1, 1999 to October 31, 1999) and there
has been no termination or cancellation of, and no material adverse modification
or change in, the Corporation's business relationship with any major customer or
group of major customers. To the Vendor's Knowledge, there is no reasonable
basis to believe that the benefits of any relationship with any of the major
customers or suppliers of the Corporation will not continue after the Closing
Date in substantially the same manner as prior to the date of this Agreement.
3.38 PRODUCT WARRANTIES. Schedule 3.38 is a complete list of all express,
written warranties given by the Corporation to purchasers of products supplied
by the Corporation.
3.39 RELATED PARTY INDEBTEDNESS. Schedule 3.39(a) sets forth details of all
Indebtedness of the Corporation to any Related Party including, with respect to
each item of such Indebtedness, the name of the applicable Related Party, the
outstanding amount of such Indebtedness as at the date hereof, the rate of
interest and terms of payment applicable thereto, and any security therefor.
Schedule 3.39(b) sets forth details of all Indebtedness of each Related Party
which is indebted to the Corporation including, with respect to each item of
such Indebtedness the information referred to in the preceding sentence.
3.40 FULL DISCLOSURE. To the Vendor's Knowledge, the representations and
warranties of the Vendor in this Agreement do not either (a) individually or
taken together contain any untrue statement of a material fact or (b) omit to
state a fact necessary to make such representations or
<PAGE> 30
-26-
warranties (giving full effect to any dollar, time or other limitation specified
therein), either individually or taken together, not materially misleading. To
the Vendor's Knowledge, there has been no event, transaction or information that
has not been disclosed to the Purchaser in writing which could reasonably be
expected to have a material adverse effect on the assets, business, earnings,
properties or financial condition of the Corporation. The foregoing provisions
of this section 3.40 specifically exclude any effect resulting from (i) acts or
omissions of the Purchaser, including those relating to changes of the
Corporation's ownership and/or management, or (ii) factors generally applicable
to the Corporation's industry.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to each of the Vendor as follows
and acknowledges and confirms that the Vendor is relying on such representations
and warranties in connection with the sale by the Vendor of the Purchased
Shares:
4.1 ORGANIZATION. The Purchaser is a corporation validly existing under the
laws of the State of Delaware and it has the corporate power to enter into and
perform its obligations pursuant to this Agreement.
4.2 ENFORCEABILITY. This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser by the Vendor in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency and
other laws affecting the enforcement of rights of creditors generally and except
that equitable remedies may only be granted in the discretion of a court of
competent jurisdiction.
4.3 CONSENTS AND APPROVALS. There is no requirement for the Purchaser to
make any filing with, give any notice to or obtain any licence, permit,
certificate, registration, authorization, consent or approval of, any
Governmental Authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement.
4.4 FINANCIAL CAPABILITY. As of the Time of Closing, the Purchaser will
have sufficient funds available to effect the Closing.
4.5 ENVIRONMENTAL. To the knowledge of those officers, directors and
employees of the Purchaser who are principally responsible for the negotiation
and consummation of the transactions contemplated by this Agreement, Part II of
Schedule 3.32 sets out all violations of Environmental Laws relating to the
Leased Property specifically identified as such in the Purchaser's Environmental
Report.
<PAGE> 31
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ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE VENDOR. To
the extent that they have not been fully performed at or prior to the Time of
Closing, the covenants, representations and warranties of the Vendor contained
in this Agreement and in any agreement, instrument, certificate or other
document executed or delivered pursuant hereto shall survive the closing of the
transactions contemplated hereby until the date that is fifteen months from the
Closing Date and, notwithstanding such closing nor any investigation made by or
on behalf of the Purchaser, shall continue in full force and effect for the
benefit of the Purchaser during such period, except that:
(a) the representations and warranties set out in sections 3.1,
3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.11 and 3.22(a) (and any certificate updating
such representations and warranties) shall survive and continue in full force
and effect without limitation of time;
(b) the representations and warranties set out in section 3.26
(and any certificate updating such representations and warranties) shall survive
the closing of the transactions contemplated hereby and continue in full force
and effect until, but not beyond, the expiration of the period, if any, during
which an assessment, reassessment or other form of recognized document assessing
liability for Tax, interest or penalties under applicable tax legislation in
respect of any taxation year to which such representations and warranties extend
could be issued under such tax legislation to the Corporation, provided the
Corporation did not file any waiver or other document extending such period; and
(c) a claim for any breach of any of the representations and
warranties contained in this Agreement or in any agreement, instrument,
certificate or other document executed or delivered pursuant hereto involving
fraud or fraudulent misrepresentation may be made at any time following the
Closing Date, subject only to applicable limitation periods imposed by law.
5.2 EXPIRY OF THE REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
To the extent that they have not been fully performed at or prior to the Time of
Closing, the covenants, representations and warranties of the Purchaser
contained in this Agreement and in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto shall survive the closing
of the transactions contemplated hereby and shall continue in full force and
effect without limitation of time.
5.3 DUE DILIGENCE INVESTIGATION BY PURCHASER. The completion of
any due diligence investigation by or on behalf of the Purchaser in respect of
the Corporation or the Business on or prior to the Time of Closing shall not
mitigate or otherwise affect the representations and warranties of the Vendor
hereunder which shall continue in full force and effect as provided in section
5.1.
<PAGE> 32
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ARTICLE 6
COVENANTS
6.1 DELIVERY OF BOOKS AND RECORDS. At the Time of Closing there
shall be delivered to the Purchaser, by the Vendor, all of the books and records
of and relating to the Corporation and the Business. The Purchaser agrees that
it will preserve the books and records so delivered to it for a period of six
years from the Closing Date, or for such longer period as is required by any
Applicable Law, and will permit the Vendor or its authorized representatives
reasonable access thereto in connection with the affairs of the Vendor and to
make copies thereof, but the Purchaser shall not be responsible or liable to the
Vendor for or as a result of any accidental loss or destruction of or damage to
any such books or records.
6.2 DISCHARGE LIABILITIES AND INDEBTEDNESS. The Vendor shall not
permit the Corporation, subsequent to November 30, 1999, to incur or become
liable for any Non-Permitted Indebtedness and shall cause the Corporation to pay
and discharge on or prior to the Time of Closing all Non-Permitted Indebtedness,
it being agreed that the Corporation may utilize any cash on hand, up to an
aggregate amount not to exceed the amount of cash on hand on November 30, 1999,
to repay any such Non-Permitted Indebtedness.
6.3 EMPLOYEE BONUSES. The Vendor shall at or prior to the Time of
Closing pay a pro rata portion of all bonuses, profit sharing payments and other
similar entitlements otherwise payable by the Corporation (whether or not then
accrued or earned) to its officers, employees, agents or consultants in excess
of regular salary, hourly wages, or commissions in respect of its current fiscal
year (including customary holiday or year-end bonuses), such pro rata portion to
be based on the portion of the said fiscal year which has expired as at the
Closing Date.
6.4 CORPORATE ACTION. The Vendor shall use reasonable commercial
efforts to take and cause the Corporation to take all necessary action, steps
and proceedings to approve or authorize, validly and effectively, the execution
and delivery of this Agreement and the other agreements and documents
contemplated hereby and to complete the transfer of the Purchased Shares to the
Purchaser and to cause all necessary meetings of directors and shareholders of
the Vendor and the Corporation to be held for such purpose.
6.5 DELIVERY OF DOCUMENTS. The Vendor shall deliver to the
Purchaser all necessary transfers, assignments and other documentation
reasonably required to transfer the Purchased Shares to the Purchaser with a
good and marketable title, free and clear of all Encumbrances, except for
Permitted Encumbrances.
6.6 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Purchaser and Vendor for certain tax
matters following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The
Purchaser shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for the Corporation for all periods ending on or prior to the
Closing Date which are filed after the Closing Date, other than any
<PAGE> 33
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such Tax Returns that are being filed on behalf of an Affiliated Group of
corporations of which the Vendor is the common parent corporation. The Purchaser
shall permit the Vendor to review and comment on each such Tax Return described
in the preceding sentence prior to filing. The Vendor shall reimburse the
Purchaser for Taxes of the Corporation with respect to such periods within 15
days after payment by the Purchaser or the Corporation of such Taxes to the
extent such Taxes are not reflected in the reserve for Taxes (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the November 1999 Financial
Statements.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. The Purchaser shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Corporation for Tax periods which begin before
the Closing Date and end after the Closing Date. The Vendor shall pay to the
Purchaser within 15 days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the November 1999 Financial Statements. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date shall (i) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (ii) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Corporation.
(c) COOPERATION ON TAX MATTERS.
(i) The Purchaser, the Corporation, and the Vendor shall
cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section 6.6
and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the
provision of records and information which are
reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a
mutually convenient basis to provide additional
information and explanation of any material provided
hereunder. The Vendor agrees (i) to retain all books
and records with respect to Tax matters pertinent to
the Corporation not relinquished on the Closing Date
relating to any Taxable period beginning before the
Closing
<PAGE> 34
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Date until the expiration of the statute of
limitations (and, to the extent notified by the
Purchaser, any extensions thereof) of the respective
taxable periods, and to abide by all record retention
agreements entered into with any Taxing Authority,
and (ii) to give the Purchaser reasonable written
notice prior to transferring, destroying or
discarding any such books and records and, if the
Purchaser so requests, the Vendor shall allow the
Purchaser to take possession of such books and
records.
(ii) The Purchaser and the Vendor further agree, upon
request, to use their best efforts to obtain any
certificate or other document from any governmental
authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect
to the transactions contemplated hereby).
(iii) The Purchaser and the Vendor further agree, upon
request, to provide each other with all information
that either party may be required to report pursuant
to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) CERTAIN TAXES. All United States federal, state and local
transfer, documentary, sales, use, stamp, registration and other such Taxes and
fees (including any penalties and interest) incurred in connection with this
Agreement, shall be paid by Vendor when due, and Vendor will, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, the Purchaser will, and will cause
its Affiliates to, join in the execution of any such Tax Returns and other
documentation.
(e) REFUNDS. The Vendor shall be entitled to any refund of Taxes
of the Corporation which is attributable to (i) a taxable period ending on or
prior to the Closing Date or (ii) in the case of a taxable period which begins
before and ends after the Closing Date, the portion of such taxable period
ending on the Closing Date, provided that the amount of such Tax refund shall be
repaid (with interest) by the Vendor to the Purchaser if the Corporation is
required to repay such Tax refunds to the appropriate Taxing Authority. The
Corporation and the Purchaser shall be entitled to retain all other Tax refunds
of the Corporation.
6.7 EMPLOYEE BENEFITS MATTERS.
(a) General. The Corporation shall cease to be the sponsor of or a
participating employer in and each Employee shall cease to be an active
participant in all Plans other than the 401(k) Plan as of the Closing Date, and
the Corporation will thereafter not have any obligation or liability with
respect to any Plan other than the 401(k) Plan, which shall continue to be
maintained by the Corporation on and after the Closing Date, provided that the
Corporation shall have the right to amend such 401(k) Plan in any way it deems
appropriate after the Closing Date, and further
<PAGE> 35
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provided that neither the Purchaser nor the Corporation shall be responsible,
obligated or liable for any amounts that may be payable in connection with such
Plan (excluding benefit payments) for any period prior to the Closing Date
including, without limitation, any liabilities that could or did arise by virtue
of the Corporation's having been an ERISA Affiliate of the Vendor prior to the
Closing Date. All Employees on the Closing Date shall continue as Employees of
the Corporation including, without limitation, employees on sick leave and
short-term disability but excluding any Employees on long term disability and
any Employees to which the Purchaser, the Vendor or the Corporation has given
notice terminating their employment on or prior to the Closing Date.
(b) COBRA. The Vendor shall continue to provide benefits pursuant
to the requirements of COBRA with respect to any "qualifying event" (as defined
in Section 4980B of the Code and the regulations thereunder) that occurs before
the Closing Date and neither the Corporation nor the Vendor shall have any
obligations or liability with respect to any "qualifying event" that occurs
before such date. Purchaser shall be responsible for complying with the
requirements of COBRA with respect to any "qualifying event" that occurs on or
after the Closing Date.
(c) Service Credit. The Purchaser and its Affiliates will provide
Employees with credit for all service they had been credited with on or before
the Closing Date with the Corporation or any ERISA Affiliate with respect to all
employee benefits provided to the Employees after the Closing Date, including
but not limited to, the eligibility and vesting requirements (but not the
accrual) under any qualified retirement plan maintained by the Purchaser (except
to the extent, if any, such service credit would result in a duplication of
benefits). The Corporation shall provide the Purchaser with a list showing the
service credited to each Employee, as of the Closing Date under the 401(k) Plan
(which shall be deemed to be the appropriate level of service for all purposes).
(d) Modifications to 401(k) Plan. The Vendor shall have the right,
at any time on or before December 31, 2000, to notify the Purchaser that it has
determined that it needs to take a corrective action involving the 401(k) Plan
with respect to periods prior to the Closing Date in order to maintain the
qualified status of the Vendor's 401(k) Plan under Code Section 401(a) and if
the Purchaser in its reasonable discretion agrees that such action is necessary
and reasonable, it shall cooperate with Vendor's action to correct such problem.
In no event shall any such corrective action result in any reduction in the
account balance of any participant under the 401(k) Plan or otherwise adversely
affect the participants, the Purchaser, or the Corporation, except as the
Purchaser may otherwise expressly agree. The Purchaser agrees to provide any
information and records regarding the 401(k) Plan requested by the Vendor,
acting reasonably, and to cooperate in effectuating such correction. The Vendor
shall bear all costs and expenses related to any such corrective action, and
shall indemnify the Purchaser and the Corporation with respect to any such
corrective action.
6.8 TRANSITION SERVICES AGREEMENT. At the Time of Closing, the
Vendor, the Corporation and the Purchaser shall execute and deliver a transition
services agreement in the form annexed hereto as Schedule 6.8.
<PAGE> 36
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ARTICLE 7
CLOSING ARRANGEMENTS
7.1 DELIVERIES BY THE VENDOR. At the Time of Closing, the Vendor
shall:
(a) deliver to the Purchaser all necessary transfers, assignments
and other documentation reasonably required to transfer the Purchased Shares to
the Purchaser with good and marketable title thereto, free and clear of all
Encumbrances (other than Encumbrances permitted hereby);
(b) deliver to the Purchaser certificates respecting all the
Purchased Shares duly endorsed in favour of the Purchaser for transfer with all
applicable security transfer taxes paid, and cause transfers of such shares to
be duly and regularly recorded in the Stock Registry Book of the Corporation in
name of the Purchaser or its nominee(s);
(c) deliver to the Purchaser a certificate of status (or
equivalent) and copies, certified by a senior officer of the Corporation dated
as of the Closing Date, of the constating documents and by-laws of the
Corporation and of the resolutions of the Corporation authorizing the execution,
delivery and performance by the Corporation of any agreements, indentures,
documents or instruments to be provided by the Corporation pursuant to the
provisions hereof;
(d) deliver to the Purchaser a favourable opinion of Sutherland
Asbill & Brennan LLP, counsel to the Vendor, in the form annexed hereto as
Schedule 7.1(d); provided that the Purchaser agrees to pay up to $7,000 in
respect of the reasonable fees and expenses of such firm in providing such
opinion;
(e) deliver to the Purchaser resignations of such directors and
officers of the Corporation as the Purchaser may specify effective as of the
Time of Closing;
(f) deliver to the Purchaser evidence satisfactory to the
Purchaser that all Indebtedness of any Related Parties to the Corporation shall
have been paid in full;
(g) deliver to the Purchaser releases executed by the Vendor and
such directors and officers of the Corporation as the Purchaser may specify in
favour of the Corporation and the Purchaser in the form annexed hereto as
Schedule 7.1(g); and
(h) execute and deliver such other documents relevant to the
completion of the transaction contemplated hereby as counsel for the Purchaser,
acting reasonably, may request.
7.2 DELIVERIES BY THE PURCHASER. At the Time of Closing, the
Purchaser shall:
(a) make the payment on account of the Purchase Price required to
be made by it to the Vendor pursuant to section 2.4.(a); and
<PAGE> 37
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(b) deliver to the Vendor a certificate of status (or equivalent)
and copies, certified by one of its officers, dated as of the Closing Date, of
its articles and by-laws and of the resolution authorizing the execution,
delivery and performance by it of this Agreement and any other agreements,
indentures, documents or instruments to be provided by it pursuant to the
provisions hereof.
7.3 PLACE OF CLOSING. The closing shall take place at the Time of
Closing at the offices of Sutherland Asbill & Brennan LLP, 999 Peachtree Street
N.E., Atlanta, Georgia, U.S.A., 30309.
7.4 FURTHER ASSURANCES. Each party to this Agreement covenants and
agrees that, from time to time subsequent to the Closing Date, it will, at the
request and expense of the requesting party, execute and deliver all such
documents, including, without limitation, all such additional conveyances,
transfers, consents and other assurances and do all such other acts and things
as any other party hereto, acting reasonably, may from time to time request be
executed or done in order to better evidence or perfect or effectuate any
provision of this Agreement or of any agreement or other document executed
pursuant to this Agreement or any of the respective obligations intended to be
created hereby or thereby.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE VENDOR. The Vendor agrees to indemnify
and save harmless the Purchaser from all Losses suffered or incurred by the
Purchaser as a result of or arising out of or in connection with:
(a) any breach by the Vendor of or any inaccuracy of any
representation or warranty of the Vendor contained in this Agreement or in any
certificate delivered by or on its behalf pursuant hereto (provided that the
Vendor shall not be required to indemnify or save harmless the Purchaser in
respect of any breach or inaccuracy of any representation or warranty unless the
Purchaser shall have provided notice to the Vendor in accordance with section
9.2 on or prior to the expiration of the applicable time period related to such
representation and warranty set out in section 5.1);
(b) any breach or non-performance by the Vendor of any covenant to
be performed by it which is contained in this Agreement or in any agreement,
certificate or other document delivered by it or on its behalf pursuant hereto;
and
(c) all Non-Permitted Indebtedness (including trade credit) of the
Corporation existing at the Time of Closing, including any liabilities for Taxes
of the Corporation for any period up to and including the Time of Closing.
8.2 INTENTIONALLY DELETED.
<PAGE> 38
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8.3 INTENTIONALLY DELETED.
8.4 TAX INDEMNIFICATION AND SECTION 338(H)(10) ELECTION.
(a) The Vendor shall pay, indemnify and hold harmless the
Purchaser, the Corporation and their successors and assigns (but without
duplication of payment) from and against all liabilities for all Taxes of the
Vendor or of the Corporation attributable to taxable periods ending on or before
the Closing Date including, without limitation, Taxes attributable to the
income, business, assets, operations, activities and status of the Corporation
and from all Taxes resulting from the Section 338(h)(10) Election described
below in section 8.4(b)(i). For purposes of the preceding sentence, the Closing
Date shall be treated as the last day of a taxable period whether or not the
taxable period in fact ends on the Closing Date, and the determination of the
amount, if any, of Taxes properly accruable for any taxable period that in fact
begins prior to the Closing Date and ends after the Closing Date shall be made
in accordance with the provisions of Section 6.6(b) hereof. For purposes of this
Agreement (and the calculation of any indemnity), any interest, penalties or
additions to tax accruing after the Closing Date with respect to a liability for
Taxes for which the Vendor indemnifies the Purchaser, the Corporation and their
successors and assigns shall be deemed to be attributable to a taxable period
ending on or before the Closing Date.
(i) The Purchaser and the Corporation shall
include in their notice of any claim for
indemnification pursuant to this section 8.4 a
calculation of the amount of the requested indemnity
payment. If the Vendor disagrees with the calculation
of the indemnity payment, the Vendor and the
Purchaser shall attempt to resolve such disagreement
within a period of 45 days from the date the Vendor
receives the notice of claim for indemnification. If
the parties fail to reach an agreement at the end of
such period, such disagreement shall be submitted to
a partner in the Dallas office of a U.S. national
accounting firm that is independent of the Purchaser,
the Vendor and their respective Affiliates (or that
is otherwise agreeable to the Vendor and the
Purchaser) (the "Arbitrator") whose determination
shall be final and binding on all parties. The costs
of the Arbitrator shall be borne equally by the
Vendor and the Purchaser. Within ten days after the
indemnity calculation has been resolved or
determined, the Vendor shall pay to the Purchaser,
the Corporation (and their successors and assigns)
such amounts as have been determined to be due to the
Purchaser, the Corporation (and their successors and
assigns) as a result of the indemnification provided
in Section 8.4.
(b) If the Purchaser, in its sole discretion, decides
that it wishes to have an election made under the Code Section 338(h)(10) (and
the Treasury Regulations and the administrative pronouncements thereunder) and
any comparable provision of state or local Tax law (collectively, a "Section
338(h)(10) Election") with respect to the Purchased Shares, the Purchaser shall
notify the Vendor of such intent. The Vendor agrees that it shall, in such
event, along with the Purchaser, jointly make an express election under Section
338(h)(10) of the Code and, at the
<PAGE> 39
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Purchaser's election, any analogous state election or any express election under
state law that would result in the treatment of the transaction contemplated by
this Agreement as a sale by the Corporation of its respective assets rather than
as a sale by the Vendor of the stock of the Corporation. The Vendor and the
Purchaser acknowledge that for federal income tax purposes (and for state income
tax purposes in those states whose income tax provisions follow the federal
income tax treatment), the sale of the Purchased Shares combined with the
Section 338(h)(10) Election will be treated as a sale of assets by the
Corporation to the Purchaser followed by a complete liquidation of the
Corporation. The parties acknowledge that the effect of such election will be to
cause the Corporation to be treated as two corporations for federal income tax
purposes: (i) an "old" corporation, which shall be treated (A) as having sold
all of its assets in a taxable transaction as of the end of the Closing Date
while a member of the Vendor's affiliated group, and (B) as having completely
liquidated pursuant to Sections 332 and 337 of the Code, and (ii) a "new"
corporation, which shall be treated as having purchased (as of the beginning of
the day after the Closing Date) the assets deemed sold by the old corporation.
The Purchaser and the Vendor will report any transactions that occur under this
Agreement consistent with the Section 338(h)(10) Election, and will take no
position contrary thereto.
(i) The Vendor and the Purchaser agree that the
computation of the "modified aggregate deemed sale
price" (as defined in the applicable regulations
issued under the Code) (the "MADSP") of the
Corporation's assets shall be reasonable and prepared
in accordance with Section 338 of the Code. The
Purchaser shall allocate the MADSP among the
Corporation's assets (the "Allocation"), provided
that the Vendor shall be provided with a copy of such
Allocation for its review and approval, which
approval shall not be unreasonably withheld or
delayed. The Purchaser and the Vendor shall sign a
copy of such Allocation and the parties hereto shall
prepare and file such forms as may be required under
Section 1060 of the Code in a manner consistent
therewith.
(ii) The Vendor and the Purchaser shall each
provide to the other all necessary information to
permit the Section 338(h)(10) Election to be made.
The Purchaser shall be responsible for the
preparation and filing of all forms or documents
required to be filed with any Taxing Authority in
connection with (including, without limitation, IRS
Form 8023) the Section 338(h)(10) Election (the
"Section 338 Forms"). On the Closing Date, the
Purchaser and the Vendor shall execute IRS Form 8023
(or a pro forma Form 8023 if the final version is not
as yet prepared) and any forms required to make any
elections under state or local law that are analogous
to a Section 338(h)(10) Election. The Vendor shall
execute and deliver to the Purchaser any other
documents or forms as the Purchaser reasonably
requires to complete properly the Section 338 Forms.
The Vendor hereby authorizes the Purchaser to file
the Section 338 Forms and any other forms referred to
in the preceding sentence with the appropriate Taxing
Authorities at the Purchaser's
<PAGE> 40
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election, and the Purchaser shall provide the Vendor
with copies of such Section 338 Forms after such
Section 338 Forms are filed with the appropriate
Taxing Authorities. The Purchaser and the Vendor
agree to prepare and file all Tax Returns on a basis
consistent with any Section 338(h)(10) Election (or,
if such election is made and is not available under
any state or local income tax law, on a basis
consistent with any election available under such law
that is analogous to an election under Code Section
338(g)) and with an allocation of the MADSP that is
consistent with the Allocation of MADSP provided for
in section 8.4(b)(ii).
(iii) The Vendor shall calculate the gain or loss,
if any, resulting from the Section 338(h)(10)
Election in a manner consistent with the
determination of MADSP and the Allocation and shall
not take any position inconsistent with the Section
338(h)(10) Election, the MADSP or the Allocation in
connection with any Tax Return or otherwise.
(iv) The Purchaser shall determine its tax basis
for the assets of the Corporation in a manner
consistent with the determination of MADSP and the
Allocation and shall not take any position
inconsistent with the Section 338(h)(10) Election,
the MADSP or the Allocation in any Tax Return or
otherwise.
8.5 INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to
indemnify and save harmless the Vendor from all Losses suffered or incurred by
the Vendor as a result of or arising out of or in connection with:
(a) any breach by the Purchaser of or any inaccuracy of any
representation or warranty of the Purchaser contained in this Agreement or in
any certificate delivered by it or on its behalf pursuant hereto; and
(b) any breach or non-performance by the Purchaser of any covenant
to be performed by it which is contained in this Agreement or in any agreement,
certificate or other document delivered by it or on its behalf pursuant hereto.
8.6 NOTICE OF CLAIM.
(a) In the event that a party (the "Indemnified Party")
shall become aware of any claim, proceeding or other matter (a "Claim") in
respect of which it in good faith believes another party (the "Indemnifying
Party") has agreed to indemnify the Indemnified Party pursuant to this
Agreement, the Indemnified Party shall promptly give written notice thereof to
the Indemnifying Party. Such notice shall specify whether the Claim arises as a
result of a claim by a Person against the Indemnified Party (a "Third Party
Claim") or whether the Claim does not so arise (a "Direct
<PAGE> 41
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Claim"), and shall also specify with reasonable particularity (to the extent
that the information is available) the factual basis for the Claim and the
amount of the Claim, if known.
(b) If, through the fault of the Indemnified Party, the
Indemnifying Party does not receive notice of any Claim in time to contest
effectively the determination of any liability susceptible of being contested,
the Indemnifying Party shall be entitled to set off against the amount claimed
by the Indemnified Party the amount of any Losses incurred by the Indemnifying
Party resulting from the Indemnified Party's failure to give such notice on a
timely basis.
8.7 DIRECT CLAIMS. With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
have 60 days to make such investigation of the Claim as is considered necessary
or desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or prior to the expiration of such 60-day period (or any mutually
agreed upon extension thereof) to the validity and amount of such Claim, the
Indemnifying Party shall immediately pay to the Indemnified Party the full
agreed upon amount of the Claim, failing which the matter shall be referred to
binding arbitration in such manner as the parties may agree or shall be
determined by a court of competent jurisdiction.
8.8 THIRD PARTY CLAIMS. With respect to any Third Party Claim, the
Indemnifying Party shall have the right, at its expense, to participate in or
assume control of the negotiation, settlement or defence of the Claim and, in
such event, the Indemnifying Party shall reimburse the Indemnified Party for all
the Indemnified Party's out-of-pocket expenses incurred in response to such
Third Party Claim prior to and during such participation or prior to such
assumption. If the Indemnifying Party elects to assume such control, the
Indemnified Party shall have the right to participate in the negotiation,
settlement or defence of such Third Party Claim and to retain counsel to act on
its behalf, provided that the fees and disbursements of such counsel shall be
paid by the Indemnified Party unless the named parties to any action or
proceeding include both the Indemnifying Party and the Indemnified Party and the
representation of both the Indemnifying Party and the Indemnified Party by the
same counsel would be inappropriate due to a conflict of interest not waived by
the affected party. If the Indemnifying Party, having elected to assume such
control, thereafter fails to defend the Third Party Claim within a reasonable
time, the Indemnified Party shall be entitled to assume such control, and the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to such Third Party Claim. If any Third Party Claim is of a
nature such that: (a) the Indemnified Party is required by applicable law or the
order of any court, tribunal or regulatory body having jurisdiction; or (b) it
is necessary in the reasonable view of the Indemnified Party acting in good
faith and in a manner consistent with reasonable commercial practices in respect
of: (i) a Third Party Claim by a customer relating to products or services
supplied by the Business; or (ii) a Third Party Claim relating to any Contract
which is necessary to the ongoing operations of the Business or any material
part thereof by a reasonable and prudent operator in substantially the same
manner in which it has heretofore been operated by the
<PAGE> 42
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Corporation in order to avoid material damage to the relationship between the
Indemnified Party and any of its major customers or to preserve the rights of
the Indemnified Party under such an essential Contract, to make a payment to any
Person (a "Third Party") with respect to the Third Party Claim before the
completion of settlement negotiations or related legal proceedings, as the case
may be, the Indemnified Party may make such payment and the Indemnifying Party
shall, forthwith after demand by the Indemnified Party, reimburse the
Indemnified Party for such payment. If the amount of any liability of the
Indemnified Party under the Third Party Claim in respect of which such payment
was made, as finally determined, is less than the amount which was paid by the
Indemnifying Party to the Indemnified Party, the Indemnified Party shall,
forthwith after receipt of the difference from the Third Party, pay the amount
of such difference to the Indemnifying Party. If such a payment, by resulting in
settlement of the Third Party Claim, precludes a final determination of the
merits of the Third Party Claim and the Indemnified Party and the Indemnifying
Party are unable to agree whether such payment was reasonable in the
circumstances having regard to the amount and merits of the Third Party Claim,
such dispute shall be submitted to arbitration pursuant to the Federal
Arbitration Act, 9 U.S.C. sections 1-16.
8.9 SETTLEMENT OF THIRD PARTY CLAIMS. If the Indemnifying Party
fails to assume control of the defence of any Third Party Claim, the Indemnified
Party shall have the exclusive right to contest, settle or pay the amount
claimed. Whether or not the Indemnifying Party assumes control of the
negotiation, settlement or defence of any Third Party Claim, the Indemnifying
Party shall not settle any Third Party Claim without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or delayed;
provided, however, that the liability of the Indemnifying Party shall be limited
to the proposed settlement amount if any such consent is not obtained for any
reason.
8.10 CO-OPERATION. The Indemnified Party and the Indemnifying Party
shall co-operate fully with each other with respect to Third Party Claims, and
shall keep each other fully advised with respect thereto (including supplying
copies of all relevant documentation promptly as it becomes available).
8.11 EXCLUSIVITY. If the Closing occurs, then the remedies provided
in this Article 8 constitute the sole and exclusive remedies for recoveries
against another party for breaches of representations, warranties, covenants and
agreements set forth in this Agreement and any other contract, document or other
instrument executed and delivered pursuant hereto, but neither the foregoing nor
anything else in this Agreement shall limit the right of a party to enforce the
performance of this Agreement or of any contract, document or other instrument
executed and delivered pursuant to this Agreement by any remedy available to it
in equity.
8.12 OFFSET AGAINST HOLDBACK.
(a) If prior to the payment in full of the Holdback to the Vendor,
the Purchaser shall be entitled to be paid by the Vendor for any Losses incurred
by it pursuant to this Article 8, the Purchaser shall be entitled to satisfy
such portion of the Losses as is equal to the Holdback at that
<PAGE> 43
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time (or the applicable portion of the Holdback if the amount of the Losses is
less than the Holdback) by offsetting such portion of the Losses against the
Holdback, and the Holdback shall be reduced accordingly. Nothing in this section
8.12(a) shall affect the liability of the Vendor for any Losses (or portion
thereof) not satisfied by being so offset against the Holdback or the right of
the Purchaser to maintain any legal action against the Vendor to recover such
Losses or portion thereof.
(b) Notwithstanding the provisions of section 2.4(b), if on the 6
month anniversary of the Closing Date, the Purchaser shall have given notice to
the Vendor of a claim for indemnification under this Article 8 which claim has
not been resolved, the Purchaser shall be entitled to continue to retain such
portion of the Holdback at that time equal to the amount of the Losses (or the
entire Holdback if the amount of such Losses claimed shall exceed the Holdback)
claimed to be suffered by the Purchaser until a final resolution of such claim,
and upon the resolution of any such claim the provisions of section 8.12(a)
shall be applicable.
8.13 CERTAIN LIMITATIONS.
(a) The Vendor's obligation to make indemnification payments shall
be limited to an aggregate amount equal to $2,200,000 provided that this
limitation shall not apply to, and there shall be excluded from the calculation
of such aggregate amount, Losses suffered or incurred by the Purchaser as a
result of or arising out of or in connection with in respect of the following:
(i) any breach by the Vendor of the representation and
warranty in section 3.26 and those referred to in
section 5.1(a) (and any certificate updating any such
representations and warranties);
(ii) any breach by the Vendor of any of the covenants in
sections 6.2 and 6.6;
(iii) the indemnities of the Vendor in section 8.4; and
(iv) any breach of representations, warranties or
covenants contained in this Agreement or in any
agreement, instrument, certificate or other document
executed and delivered pursuant hereto involving
fraud or fraudulent misrepresentation.
(b) The Vendor shall not be required to indemnify for breaches of
its representations and warranties unless and until the aggregate amount of
Losses claimed in respect thereof exceeds $100,000.
(c) Notwithstanding anything in this Agreement to the contrary:
(i) the Indemnified Party shall act in good faith and in a commercially
reasonable manner to mitigate any damages it may suffer and (ii) the Vendor
shall not be liable to the Purchaser for any Loss to the extent that it relates
to any act or omission of the Purchaser or any of its Affiliates or the agents
of any of them.
<PAGE> 44
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ARTICLE 9
MISCELLANEOUS
9.1 CONFIDENTIALITY OF INFORMATION. If the transactions contemplated herein
are not consummated for any reason, the Purchaser covenants and agrees that,
except as otherwise authorized by the Vendor or as may be required by applicable
law or order of a court or regulatory authority of competent jurisdiction,
neither it nor its representatives, agents or employees will disclose to third
parties, directly or indirectly, any confidential information or confidential
data relating to the Corporation or the Business discovered by it or its
representatives as a result of the Vendor and the Corporation making available
to the Purchaser and its representatives the information requested by them in
connection with the transactions contemplated herein provided that this covenant
shall not apply to any such information or data that shall have come into the
public domain.
9.2 NOTICES.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be delivered in person,
transmitted by telecopy or similar means of recorded electronic communication or
sent by registered mail, charges prepaid, addressed as follows:
(i) if to the Vendor:
850 Center Way
Norcross, Georgia 30071
Attention: Vice-President of Legal Affairs
Telecopier No.: (770) 582-3669
with a copy to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street NE
Atlanta, Georgia
Attention: Robert J. Pile
Telecopier No.: (404) 853-8806
(ii) if to the Purchaser:
844 Don Mills Road, 32/737
North York, Ontario M3C 1V7
Attention: Director, Corporate Business Development
Telecopier No.: (416) 448-5444
<PAGE> 45
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(b) Any such notice or other communication shall be deemed to have
been given and received on the day on which it was delivered or transmitted (or,
if such day is not a Business Day, on the next following Business Day) or, if
mailed, on the third Business Day following the date of mailing; provided,
however, that if at the time of mailing or within three Business Days thereafter
there is or occurs a labour dispute or other event which might reasonably be
expected to disrupt the delivery of documents by mail, any notice or other
communication hereunder shall be delivered or transmitted by means of recorded
electronic communication as aforesaid.
(c) Any party may at any time change its address for service from
time to time by giving notice to the other parties in accordance with this
section 9.2.
9.3 COMMISSIONS, ETC. The Vendor agrees to indemnify and save
harmless the Purchaser from and against all Losses suffered or incurred by the
Purchaser in respect of any commission or other remuneration payable or alleged
to be payable to any broker, agent or other intermediary who purports to act or
have acted for or on behalf of the Vendor.
9.4 CONSULTATION. The parties shall consult with each other before
issuing any press release or making any other public announcement with respect
to this Agreement or the transactions contemplated hereby and, except as
required by any applicable law or regulatory requirement, neither the Vendor nor
the Purchaser shall issue any such press release or make any such public
announcement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed.
9.5 WAIVER OF JURY TRIAL. Each party hereto hereby waives, to the
fullest extent permitted by applicable laws, any right it may have to a trial by
jury in respect of any litigation directly or indirectly arising out of, under
or in connection with this Agreement. Each party hereto (a) certifies that no
representative, agent or counsel of any other party has represented expressly or
otherwise that any other party would not, in the event of litigation, seek to
enforce the foregoing waiver, and (b) acknowledges that it and any other party
hereto has been induced to enter into this Agreement by, among other things, the
mutual waivers and certifications contained in this section.
9.6 DISCLOSURE. Prior to any public announcement of the
transaction contemplated hereby pursuant to section 9.4, neither party shall
disclose this Agreement or any aspect of such transaction except to its board of
directors, its senior management, its legal, accounting, financial or other
professional advisors, any financial institution contacted by it with respect to
any financing required in connection with such transaction and counsel to such
institution, or as may be required by any applicable law or any regulatory
authority or stock exchange having jurisdiction.
9.7 ASSIGNMENT BY PURCHASER. The Purchaser may assign its rights
under this Agreement in whole or in part to any of its Affiliates; provided,
however, that any such assignment shall not relieve the Purchaser from any of
its obligations hereunder.
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9.8 COOPERATION. The parties hereto will cooperate in good faith
with each other and their respective counsel and accountants in connection with
all steps to be taken as part of their obligations under this Agreement.
[Remainder of page intentionally left blank.]
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9.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the
parties.
PREFERRED NETWORKS, INC.
by /s/ Mark H. Dunaway c.s.
--------------------------------
CELESTICA CORPORATION
by /s/ Iain Kennedy c.s.
--------------------------------
<PAGE> 1
EXHIBIT 10.1
SECOND AGREEMENT CONCERNING AMENDMENT
TO CREDIT AGREEMENT
This Agreement dated as of December 9, 1999 by and among PNI
Systems, LLC, a Georgia limited liability company (the "Company"), Preferred
Networks, Inc., formerly a Delaware corporation and presently reincorporated in
the State of Georgia (the "Parent"), each of the undersigned "Guarantors" and
Bank of America, N.A., successor in interest to NationsBank, N.A. (the
"Lender").
W I T N E S S E T H:
WHEREAS, the Parent and the Company (hereinafter sometimes
collectively referred to as "Borrowers") and the Lender entered into that
certain Credit Agreement dated as of August 8, 1996 as amended by Amendments
dated December 20, 1996, March 12, 1997, April 11, 1997, March 19, 1998 and
November 12, 1998 and an Agreement concerning Amendment to Credit Agreement
dated May 27, 1999 (as so amended the "Credit Agreement");
WHEREAS, the indebtedness and obligations of the Borrowers under and
related to the Credit Agreement are secured by, among other things, assets of
each of the Guarantors;
WHEREAS, the Borrowers and the Guarantors wish to obtain Lender's
consent to the proposed sale, assignment and transfer of all of the issued and
outstanding stock and other equity interests, of EPS Wireless, Inc., one of the
Guarantors, ("EPS") and wish Lender to release the security interest in and to
the assets, the share certificates representing the shares of stock pledged to
Lender together with the stock powers related thereto, the release of EPS as a
Guarantor of the Borrower's obligations, and release of the Letter of Credit
pursuant to Section 10.21 of the Credit Agreement.
WHEREAS, Lender is willing to enter into this Agreement in return for
and in reliance on Borrowers' and Guarantors' covenants, reaffirmations and
obligations, contained herein;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein, Ten Dollars ($10.00) in hand paid by Lender to each
of Borrowers and Guarantors, Lender's reliance hereon and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms not otherwise specifically
defined herein shall have the same meaning as given them in the Credit
Agreement.
2. Amendments to the Credit Agreement and Notes Effective only upon
Timely Fulfillment of the "Amendment Conditions". Upon, but not only upon,
Lender's determination, in its sole discretion, that each and all of the
"Amendment Conditions" (as that term is defined in Section 4 below) have been
fulfilled in accordance with the terms and conditions hereof by no
<PAGE> 2
later than December 15, 1999, the Credit Agreement and the Notes shall,
effective upon such fulfillment, be amended as follows:
a) The Credit Agreement is amended by deleting from
Section 1.1 thereof the definition of the term
"Parent Commitment" and "Termination Date" in their
entirety and substituting in their respective places
the following:
"Parent Commitment" shall mean the
obligation of the Lender to make Parent
Loans to the Parent in an aggregate
principal amount at any one time
outstanding up to but not exceeding
$2,000,000.
"Termination Date" shall mean March 31,
2001.
b) Sections 8.1 through 8.6 of the Credit Agreement
shall be deleted and shall be replaced by the
following new Sections 8.1 through 8.4:
8.1 The Parent and its Subsidiaries'
must on the last day of each calendar
month, hold on a consolidated basis cash
and Cash Equivalents in an aggregate amount
inclusive of the unused availability under
the Parent Commitment, greater than or
equal to (a) $3,100,000 for the period
beginning December 31, 1999 and ending
March 30, 2000, (b) $2,000,000 for the
period beginning March 31, 2000 and ending
June 29, 2000, (c) $1,300,000 for the
period beginning June 30, 2000 and ending
September 29, 2000, (d) $1,100,000 for the
period beginning September 30, 2000 and
ending on December 30, 2000, and (e)
$1,100,000 for the period beginning
December 31, 2000 and ending on March 31,
2001.
8.2 Borrowers shall submit weekly
Borrowing Base certification for use in
determining availability of further draws
or mandatory pay downs under the Credit
Agreement.
8.3 Borrower will allow Lender to
perform, at Borrower's expense, such
comprehensive monitoring of borrowing base
collateral (including but not limited to
field exams) as Lender deems reasonably
necessary or appropriate and Borrower shall
cooperate fully with same;
-2-
<PAGE> 3
c) The Maturity Date of the Parent Note shall be
changed from April 30, 2000 to March 31, 2001; and,
accordingly, the "Termination Date" as redefined in
the Fourth Amendment of the Credit Agreement shall
mean March 31, 2001. Section 2.13 of the Credit
Agreement concerning extension of Termination Date
shall be deleted and the Letter of Credit pledged
herewith will be deleted.
d) Section 10.21 of the Credit Agreement shall be
deleted and the Letter of Credit pledged herewith
will be released.
e) The following Section 2.8(f) shall be added to and
included in the Credit Agreement:
2.8(f) Fees. Borrowers agree to pay Lender
a restructure fee of Twenty Five Thousand
Dollars ($25,000) at the closing of the
sale of EPS. Borrower agrees to pay Lender
an exit fee of $50,000 upon payment in full
of the Parent Note but Lender will waive
said fee if the Parent Note is paid in full
by June 30, 2000 or will reduce said fee to
$25,000 if the Parent Note is paid in full
prior to December 31, 2000. If the Parent
Note is not paid by December 31, 2000 and
the above Exit Fee is unpaid as of that
date, the Exit Fee, at the Bank's option,
will be added as principal to the Parent
Note and the terms of its repayment will be
governed thereunder.
The foregoing amendments to the Credit Agreement shall become effective
automatically and without the need for any further documentation at such time
as Lender has determined in its sole discretion that each and all of the
Amendment Conditions have been timely fulfilled in strict accordance with the
terms and conditions hereof, which determination shall be evidenced by the
"Triggering Event" as hereinafter defined in Section 3 below.
3. Consent and Release. Upon Lender's determination, in its sole
discretion, that each and all of the Amendment Conditions have been timely
performed in strict accordance with the terms and conditions hereof, Lender
shall consent to the sale of the shares of EPS as described on Schedule 1
hereto and shall release its security interest in and to EPS' assets and shares
by executing a Consent and Release in the form attached hereto as Schedule 2
and appropriate UCC-3s terminating its security interest in and to the assets
and shares of capital stock of EPS (together with the stock powers related
thereto) as a matter of record. For purposes of this Agreement Lender's
execution of the aforesaid Consent and Release and UCC-3s and delivery thereof
to the Borrowers shall be deemed to be the "Triggering Event". To the extent
the Amendment Conditions require a payment to Lender of certain of the proceeds
from the sale of shares of EPS, assuming all other Amendment Conditions have
been fulfilled, Lender will execute
-3-
<PAGE> 4
and deliver the aforesaid Consent and Release and UCC-3s simultaneously with
delivery to it of such proceeds in immediately available funds.
4. Amendment Conditions. For purposes of this Agreement the
following shall constitute the "Amendment Conditions":
a) There shall be no default or Event of Default
existing under the terms of the Credit Agreement;
b) Borrowers shall have delivered to Lender evidence
satisfactory to Lender that the net proceeds paid by
buyer to Borrower from the sale of the assets of EPS
will be an amount of at least $13,000,000;
c) Borrowers shall have caused to be made a principal
payment against the Parent Note out of the proceeds
of the sale of the assets of EPS in the amount of
$2,000,000.00 in immediately available funds and
shall pay the Company Note in full;
d) Borrowers and Parent shall have paid any past due
interest;
e) Borrowers shall have caused to be made a payment to
Lender of a loan fee out of the proceeds of the sale
of the assets of EPS in the amount of $25,000.00;
and
f) Borrowers shall have received at least $2,569,425
cash out of the proceeds of the sale of the assets
of EPS for operating capital which are to be placed
in a Lender account.
7. Waiver of Claims.
Borrowers warrant and represent to the Lender that the Note is not
subject to any credits, charges, claims, or rights of offset or deduction of
any kind or character whatsoever; Borrowers and Guarantors release and
discharge Lender from any and all claims and causes of action, whether known or
unknown and whether now existing or hereafter arising, including without
limitation, any usury claims, that have at any time been owned, or that are
hereafter owned, in tort or in contract by Borrowers and their affiliates and
Guarantors and that arise out of any one or more circumstances or events that
occurred prior to the date of this Agreement. Moreover, Borrowers and their
affiliates and Guarantors, jointly and severally, waive any and all claims now
or hereafter arising from or related to any delay by Lender in exercising any
rights or remedies under the Loan Documents, including, without limitation, any
delay in foreclosing any collateral securing any of the Notes.
8. Bankruptcy.
(a) In entering into this Agreement, Borrowers, Guarantors and
Lender hereby stipulate, acknowledge and agree that Lender
gave up valuable rights and agreed to forbear from exercising
legal remedies available to it in exchange for the
-4-
<PAGE> 5
promises, representations, acknowledgements and warranties of
Borrower and Guarantor as contained herein and that Lender
would not have entered into this Agreement but for such
promises, representations, acknowledgements, agreements, and
warranties, all of which have been accepted by Lender in good
faith, the breach of which by Borrower or Guarantor in any
way, at any time, now or in the future, would admittedly and
confessedly constitute cause for dismissal of any such
bankruptcy petition pursuant to 11 U.S.C. ss.1112(b).
(b) As additional consideration for Lender agreeing to forbear
from immediately enforcing its rights and remedies under the
Credit Agreement and in the Loan Documents, including but not
limited to the institution of foreclosing proceedings,
Borrowers and Guarantors agree that in the event a bankruptcy
petition under any Chapter of the Bankruptcy Code (11 U.S.C.
ss.101, et seq.) is filed by or against Borrowers at any time
after the execution of this Agreement, Lender shall be
entitled to the immediate entry of an order from the
appropriate bankruptcy court granting Lender complete relief
from the automatic stay imposed by ss.362 of the Bankruptcy
Code (11 U.S.C. ss.362) to exercise its foreclosure and other
rights, including but not limited to obtaining a foreclosure
judgement and foreclosure sale, upon the filing with the
appropriate court of a motion for relief from the automatic
stay with a copy of this Agreement attached thereto. Borrowers
and Guarantors specifically agree (i) that upon filing a
motion for relief from the automatic stay, Lender shall be
entitled to relief from the stay without the necessity of an
evidentiary hearing and without the necessity or requirement
of the Lender to establish or prove the value of the Property,
the lack of adequate protection of its interest in the
Property, or lack of equity in the Property; (ii) that the
lifting of the automatic stay hereunder by the appropriate
bankruptcy court shall be deemed to be "for cause" pursuant to
ss. 362(d)(1) of the Bankruptcy Code (11 U.S.C. ss.362(d)(1));
and (iii) that Borrowers and Guarantors will not directly or
indirectly oppose or otherwise defend against Lender's efforts
to gain relief from the automatic stay. This provision is not
intended to preclude Borrowers or Guarantors from filing for
protection under any Chapter of the Bankruptcy Code. The
remedies prescribed in this paragraph are not exclusive and
shall not limit Lender's rights under the Loan Documents, this
Agreement or under any law.
(c) All of the above terms and conditions have been freely
bargained for and are all supported by reasonable and
adequate consideration and the provisions herein are material
inducements for Lender entering into this Agreement.
-5-
<PAGE> 6
9. Miscellaneous.
a) Expenses. Borrowers hereby jointly and severally agree to pay
any and all reasonable expenses of the Lender in anyway
relating to this Agreement or to the Credit Agreement or
loans evidenced thereby, including but not limited to actual
attorneys' fees simultaneously with the closing of the sale
of assets and stock of EPS described above out of ongoing
operations, as appropriate.
b) Reaffirmation. Each of the Guarantors hereby acknowledges and
reaffirms its obligations and liabilities under its Guaranty
and consents to the modifications made and which may be made
to the Credit Agreement and the Notes pursuant to the terms
of this Agreement.
c) Time is of the essence.
d) Full Force and Effect. Except as expressly here and amended,
the terms and conditions of the Credit Agreement and the
other Loan Documents remain in full force and effect.
e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which need not contain the signatures
of more than one party and all of which taken together shall
constitute one in the same original same instruments.
BORROWER
PNI SYSTEMS, LLC
By: Preferred Networks, Inc., its manager
By: /s/ Mark H. Dunaway
-----------------------------------
Mark H. Dunaway
Chief Executive Officer
PREFERRED NETWORKS, INC.
By: /s/ Mark H. Dunaway
---------------------------------------
Mark H. Dunaway
Chief Executive Officer
-6-
<PAGE> 7
GUARANTORS
PNI SPECTRUM, LLC HTB COMMUNICATIONS, INC.
By: Preferred Networks, Inc., its Manager
By: /s/ Mark H. Dunaway
-----------------------------
Mark H. Dunaway
By: /s/ Mark B. Jones Chief Executive Officer
-----------------------------------
Mark B. Jones
Secretary
PNI GEORGIA, INC. M.P.C. DISTRIBUTORS, INC.
By: /s/ Mark H. Dunaway By: /s/ Mark H. Dunaway
--------------------------------------- -----------------------------
Mark H. Dunaway Mark H. Dunaway
Chief Executive Officer Chief Executive Officer
MERCURY PAGING & CUSTOM PAGE, INC.
COMMUNICATIONS, INC.
By: /s/ Mark H. Dunaway
-----------------------------
By: /s/ Mark H. Dunaway Mark H. Dunaway
--------------------------------------- Chief Executive Officer
Mark H. Dunaway
Chief Executive Officer
PREFERRED TECHNICAL SERVICES, INC.
By: /s/ Mark H. Dunaway
---------------------------------------
Mark H. Dunaway
Chief Executive Officer
-7-
<PAGE> 8
LENDER
BANK OF AMERICA, N.A.
By: /s/ Michael J. Fey
------------------------------------
Name: Michael J. Fey
-----------------------------
Title: Assistant Vice President
----------------------------
-8-
<PAGE> 9
SECOND AGREEMENT CONCERNING AMENDMENT TO CREDIT AGREEMENT
SCHEDULE OF ASSETS
On the terms and subject to the conditions set forth in that certain
Share Purchase Agreement, dated December 10, 1999, by and between Preferred
Networks, Inc. ("Vendor"), a Georgia corporation, and Celestica Corporation
("Purchaser"), a Delaware corporation, Vendor transfers, assigns and delivers
to Purchaser all of Vendor's right, title, and interest in and to the following
assets:
1. All of the issued and outstanding common stock, and other
equity interests of EPS Wireless, Inc.;
2. Cash;
3. Accounts Receivable and accounts;
4. Prepaid expenses;
5. Other current assets;
6. Deposits;
7. Chattel Paper and Negotiable Instruments;
8. Books and Records, including but not limited to customer
lists;
9. Contracts and Licenses;
10. Equipment, Fixed Assets, Leasehold Improvements, Furniture
and Fixtures, Computer Equipment and Software;
11. Inventory;
12. General Intangibles;
13. Insurance Proceeds;
14. Intellectual Property, including the Intellectual Property
set forth on Section 3.17 and the Schedule 3.17 of the Share
Purchase Agreement;
15. Leased Real and Personal Property, including the Leased Real
Property set forth in Section 3.13 and Schedule 3.13 of the
Share Purchase Agreement;
16. All other assets utilized in the business operations of EPS
Wireless, Inc.
<PAGE> 10
SCHEDULE 2
FORM OF CONSENT AND RELEASE
Bank of America, N.A.
101 North Tryon Street
Charlotte, North Carolina 28255
Celestica Corporation
844 Don Mills Road, 32/737
North York, Ontario M3C 1V7
Reference is hereby made to the Credit Agreement dated as of August 8,
1996 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") by and among Preferred Networks, Inc. ("PNI"), PNI Systems,
LLC and Bank of America, N.A., as successor in interest to NationsBank, N.A.
(the "Lender"). All capitalized terms used herein and not defined herein shall
have the meanings given to such terms in the Credit Agreement.
Pursuant to Section 7.1 of the Credit Agreement, PNI and its
Subsidiaries may not sell any of their assets (other than in the ordinary
course of business) without the consent of Lender. It is contemplated that PNI
will sell all of the outstanding shares of EPS WIRELESS, INC. ("EPS"), a
wholly-owned subsidiary of PNI and a Guarantor under the Credit Agreement (the
"Sale") to Celestica Corporation ("Celestica") pursuant to that certain Share
Purchase Agreement dated as of December 10, 1999 ("Share Purchase Agreement").
This letter constitutes the consent of the Lender to the Sale pursuant to the
Share Purchase Agreement, provided that the "Amendment Conditions" set forth in
that certain Second Agreement Concerning Amendment to Credit Agreement between
Lender and PNI (the "Agreement") have been satisfied or waived by December 15,
1999. Upon certification of same, the Lender will by notice to PNI confirm the
effectiveness of the release and discharge EPS from any and all obligations
under the Credit Agreement.
Upon and effective as of the time the Amendment Conditions are
satisfied or waived, all of the liens and security interests held by the Lender
in any and all of the property of EPS pursuant to the Loan Documents shall be
deemed to be released and terminated, and EPS shall be released and discharged
from any liability or obligation as Guarantor of the Borrowers' obligations
under the Loan Documents.
The Lender will deliver to EPS (or such other party as PNI may
designate), at PNI's expense, as soon as practicable following the satisfaction
of the Amendment Conditions, executed Uniform Commercial Code termination
statements and such other instruments of release and discharge pertaining to
any liens and security interests of the Lender in any of the property of EPS
and the shares of common stock of EPS (including, without limitation, stock
certificates representing shares of stock of EPS pledged to the Lender,
together with stock powers related thereto) as counsel to PNI or Celestica
reasonably deem necessary to release and discharge all
<PAGE> 11
such liens and security interests. The Lender further agrees, at PNI's expense,
to execute such other termination statements or documents as PNI may reasonably
request from time to time in order to evidence the release and termination by
the Lender of its security interest and liens in any of the property of EPS and
EPS' release and discharge from any liability or obligation as a Guarantor of
the Borrowers' obligations under the Loan Documents.
This agreement may be executed by one or more of the parties hereto on
any number of separate counterparts (including by facsimile), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
This agreement shall be governed by and construed in accordance with
the laws of the State of Georgia.
Very truly yours,
BANK OF AMERICA, N.A.
By: /s/ Michael J. Fey
-------------------------------------
Name: Michael J. Fey
-----------------------------------
Title: Assistant Vice President
----------------------------------
Accepted and Agreed to:
PREFERRED NETWORKS, INC.
By: /s/ Mark H. Dunaway
----------------------------------------
Mark H. Dunaway, Chief Executive Officer
EPS WIRELESS, INC.
By: /s/ Mark B. Jones
----------------------------------------
Mark B. Jones, Secretary
CELESTICA CORPORATION
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-11-
<PAGE> 1
EXHIBIT 10.2
AGREEMENT CONCERNING AMENDMENT TO CREDIT AGREEMENT
This Agreement dated as of December 9, 1999 by and between Preferred Networks,
Inc., formerly a Delaware corporation and presently reincorporated in the State
of Georgia ("PNI") and Glenayre Electronics, Inc. ("Glenayre").
STATEMENT OF PURPOSE
PNI and Glenayre entered into that certain Promissory Note and Credit Agreement
dated as of January 26, 1996 (herein with all amendments, riders and
modifications thereto and any accompanying notes, collectively referred to as
the "Credit Agreement"). It is contemplated that PNI will sell all or
substantially all of its shares of common stock in EPS WIRELESS, INC. ("EPS"), a
Georgia corporation and a wholly-owned subsidiary of PNI to Celestica
Corporation (the "Sale") pursuant to that certain Share Purchase Agreement dated
as of December 10, 1999, as amended ("Share Purchase Agreement"). PNI wishes to
obtain Glenayre's consent to a proposed sale of EPS and to modify the certain
terms of the Credit Agreement. Glenayre is willing to enter into this Agreement
in return for an in reliance on PNI's covenants, reaffirmations and obligations,
contained herein and only on the terms and conditions of this Agreement.
NOW THEREFORE, for and in consideration of the premises, the mutual covenants
contained herein and Glenayre's reliance hereon and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Capitalized terms not otherwise specifically defined
herein shall have the same meaning as given them in the Credit
Agreement.
2. No Collateral. PNI represents and warrants to Glenayre that PNI
remains and shall remain after the Sale the sole legal and beneficial
owner of all items of the Collateral, with good and marketable title
thereto, free and clear of all encumbrances (except for Collateral
which PNI has sold and for which PNI has paid Glenayre the proceeds as
required by the Credit Agreement).
3. Amendments to the Credit Agreement and Notes Effective only upon
Timely Fulfillment of the "Amendment Conditions". Upon Glenayre's
determination, in its sole discretion, that each and all of the
"Amendment Conditions" (as that term is defined in Section 5 below)
have been fulfilled in accordance with the terms and conditions hereof
by no later than December 15, 1999, the Credit Agreement and the Note
shall, effective upon such fulfillment, be amended as follows:
(a) The Credit Agreement is amended by deleting Section 1.1 in
its entirety and substituting in lieu thereof the following:
1.1. Modified Payment Terms. PNI agrees and promises
to pay to Glenayre the Principal Balance (as that
term is defined in Section 5(b) below) and interest
in accordance with the Amortization Schedule set
forth in Exhibit A attached hereto; to wit, PNI
shall pay interest to Glenayre on the first day of
each month, commencing on January 1, 2000, computed
on the unpaid Principal Balance from the date hereto
and accruing at the rate of 12.57% simple interest
per annum, and continuing until the Principal
Balance is fully repaid to Glenayre, and in addition
to said payment of
<PAGE> 2
interest to Glenayre, PNI shall pay to Glenayre all
principal payments deferred up to March 31, 2001 on
or before March 31, 2001, and subsequently pay to
Glenayre interest and principal payments on the 1st
day of each month beginning April 1, 2001 until the
Maturity Date, on which date all remaining unpaid
principal and accrued but unpaid interest hereunder
shall be due and payable, if not sooner paid. For
avoidance of doubt, it is the parties' intent that
this section shall not affect Glenayre's rights
and/or remedies if an Event of Default occurs.
(b) The Credit Agreement is amended by deleting Section 6.8 in
its entirety and substituting in lieu thereof the following:
6.8. Inspection and Monitoring. PNI shall allow
Glenayre and its agents and employees to perform, at
PNI's expense, such comprehensive inspection and
monitoring of the Collateral and its and its
Subsidiaries' properties and books and records
(including but not limited to field exams) as
Glenayre deems reasonably necessary or appropriate
and PNI shall cooperate fully with same.
(c) The Credit Agreement is amended by deleting from Section 9.1
thereof the definition of the term "Interest Rate" and
"Maturity Date" in their entirety and substituting in their
respective places the following:
"Interest Rate" means, except as otherwise set forth
in Section 4, a fixed rate of interest of 12.57% per
annum.
"Maturity Date" means December 1, 2001.
The foregoing amendments to the Credit Agreement shall become
effective automatically and without the need for any further
documentation at such time as Glenayre has determined in its sole
discretion that each and all of the Amendment Conditions have been
timely fulfilled in strict accordance with the terms and conditions
hereof.
4. Consent and Release. Upon Glenayre's determination, in its sole
discretion, that each and all of the Amendment Conditions have been
timely performed in strict accordance with the terms and conditions
hereof, Glenayre shall consent to the Sale by executing an
acknowledgement and consent document ("Acknowledgement and Consent")
in the form attached hereto as Exhibit B. To the extent the Amendment
Conditions require a payment to Glenayre of certain of the proceeds
from the Sale, assuming all other Amendment Conditions have been
fulfilled, Glenayre shall execute and deliver the aforesaid
Acknowledgement and Consent simultaneously with delivery to it of such
proceeds in immediately available funds.
5. Amendment Conditions. For purposes of this Agreement the following
shall constitute the "Amendment Conditions":
(a) There shall be no default or Event of Default existing under
the terms of the Credit Agreement;
(b) PNI shall have caused to be made a principal payment against
the Note out of the proceeds of the Sale in the amount of Two
Million Four Hundred Fifty-Four
<PAGE> 3
Thousand Seven Hundred Fifty U.S. Dollars and Fifty Eight
Cents ($2,454,750.58) in immediately available funds, so that
the unpaid principal balance of the Note, (after giving
effect to such principal payment and the payment for the sale
of the Collateral, as set forth in Section 5(c) below) is One
Million Nine Hundred Seventy Four Thousand One Hundred Ninety
Seven U.S. Dollars and Forty Cents ($1,974,197.40)
("Principal Balance");
(c) In addition to the principal payment pursuant to Section
5(b), PNI shall have paid any past due interest (including,
but not limited to, the December 1999 interest payment of
$46,671.70) and all amounts required to be paid by the Credit
Agreement due to PNI's sale of Collateral (including, but not
limited to, the amount due for the November 1999 sale of
Collateral, which PNI has represented to Glenayre to be
$25,802.60); and
(d) Glenayre shall have received a fully executed copy of this
Agreement.
6. Waiver of Claims. PNI warrants and represents to Glenayre that the
Note is not subject to any credits, charges, claims, or rights of
offset or deduction of any kind or character whatsoever; PNI releases
and discharges Glenayre from any and all claims and causes of action,
whether known or unknown and whether now existing or hereafter
arising, including without limitation, any usury claims, that have at
any time been owned, or that are hereafter owned, in tort or in
contract by PNI and its Affiliates and that arise out of any one or
more circumstances or events that occurred prior to the date of this
Agreement. Moreover, PNI and its Affiliates, jointly and severally,
waive any and all claims now or hereafter arising from or related to
any delay by Glenayre in exercising any rights or remedies under the
Documents.
7. Bankruptcy.
(a) In entering into this Agreement, PNI and Glenayre hereby
stipulate, acknowledge and agree that Glenayre gave up
valuable rights and agreed to forbear from exercising legal
remedies available to it in exchange for the promises,
representations, acknowledgements and warranties of PNI as
contained herein and that Glenayre would not have entered
into this Agreement but for such promises, representations,
acknowledgements, agreements, and warranties, all of which
have been accepted by Glenayre in good faith, the breach of
which by PNI in any way, at any time, now or in the future,
would admittedly and confessedly constitute cause for
dismissal of any such bankruptcy petition pursuant to 11
U.S.C. ss. 1112(b).
(b) As additional consideration for Glenayre agreeing to forbear
from immediately enforcing its rights and remedies under the
Credit Agreement and in the Documents, PNI agree that in the
event a bankruptcy petition under any Chapter of the
Bankruptcy Code (11 U.S.C.ss. 101, et seq.) is filed by or
against PNI at any time after the execution of this Agreement,
Glenayre shall be entitled to the immediate entry of an order
from the appropriate bankruptcy court granting Glenayre
complete relief from the automatic stay imposed by ss.362 of
the Bankruptcy Code (11 U.S.C.ss.362) to exercise its
foreclosure and other rights, including but not limited to
obtaining a foreclosure judgement and foreclosure sale, upon
the filing with the appropriate court of a motion for relief
from the automatic stay with a copy of this Agreement attached
thereto. PNI specifically
<PAGE> 4
agree (i) that upon filing a motion for relief from the
automatic stay, Glenayre shall be entitled to relief from the
stay without the necessity of an evidentiary hearing and
without the necessity or requirement of Glenayre to establish
or prove the value of the Collateral, the lack of adequate
protection of its interest in the Collateral, or lack of
equity in the Collateral; (ii) that the lifting of the
automatic stay hereunder by the appropriate bankruptcy court
shall be deemed to be "for cause" pursuant to ss.362(d)(1) of
the Bankruptcy Code (11 U.S.C.ss.362(d)(1); and (iii) that
PNI will not directly or indirectly oppose or otherwise
defend against Glenayre's efforts to gain relief from the
automatic stay. This provision is not intended to preclude
PNI from filing for protection under any Chapter of the
Bankruptcy Code. The remedies prescribed in this paragraph
are not exclusive and shall not limit Glenayre's rights under
the Documents, this Agreement or under any law.
(c) All of the above terms and conditions have been freely
bargained for and are all supported by reasonable and
adequate consideration and the provisions herein are material
inducements for Glenayre entering into this Agreement.
8. Miscellaneous.
(a) Reaffirmation. PNI hereby acknowledges and reaffirms its
obligations and liabilities under the Credit Agreement
pursuant to the terms of this Agreement.
(b) Time is of the essence.
(c) Full Force and Effect. Except as expressly herein amended,
the terms and conditions of the Credit Agreement and the
other Documents remain in full force and effect.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which need not contain the signatures
of more than one party and all of which taken together shall
constitute one in the same original same instruments.
Delivery by facsimile by any of the parties hereto of an
executed counterpart of this Agreement shall be as effective
as an original executed counterpart hereof and shall be
deemed a representation that an original executed counterpart
hereof will be delivered.
(e) Enforceability. PNI represent and warrant that it has the
corporate or other necessary power and authority, and the
legal right, to make, deliver and perform the Documents to
which it is a party (including, but not limited to, this
Agreement) and has taken all necessary corporate action to
authorize the terms and conditions of Agreement and to
authorize the execution, delivery and performance of the
Documents to which it is a party. No consent or authorization
of, filing with, notice to or other similar act by or in
respect of, any Person is required to be obtained or made by
or on behalf of PNI in connection with the execution,
delivery, performance, validity or enforceability of the
Documents. This Agreement has been duly executed, authorized
and delivered on behalf of PNI. This Agreement and the
Documents, when executed and delivered, will constitute, a
legal, valid and binding obligation enforceable against such
party in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally
<PAGE> 5
and by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Agreement to be duly executed and delivered as of the date first above written.
PNI
PREFERRED NETWORKS, INC.
By: /s/ Kathryn Putnam
-----------------------------------------
Title: Senior Vice President &
Chief Financial Officer
--------------------------------------
GLENAYRE
GLENAYRE ELECTRONICS, INC.
By: /s/ John C. Berens
-----------------------------------------
Name: John C. Berens
---------------------------------------
Title: Treasurer
--------------------------------------
<PAGE> 6
EXHIBIT A
AMORTIZATION SCHEDULE
Preferred Networks, Inc.
Compound Period ..........: Monthly
Nominal Annual Rate ......: 12.570 %
Effective Annual Rate ....: 13.320 %
Periodic Rate ............: 1.0475 %
Daily Rate ...............: 0.03444%
<TABLE>
<CAPTION>
Event Start Date Amount Number Period End Date
<S> <C> <C> <C> <C> <C>
1 Loan 01-Dec-99 4,454,750.58 1
2 Payment 09-Dec-99 Interest Only 1
3 Payment 09-Dec-99 2,480,553.58 1
Fixed Payment (+ Interest)
4 Payment 01-Jan-00 Interest Only 15 Monthly 03/01/2001
5 Payment 31-Mar-01 1,024,124.17 1
Fixed Payment (+ Interest)
6 Payment 01-Apr-01 Interest Only 1
7 Payment 01-May-01 124,426.17 8 Monthly 12/01/2001
</TABLE>
AMORTIZATION SCHEDULE - Normal Amortization
<TABLE>
<CAPTION>
# Date Payment Interest Principal Balance
<S> <C> <C> <C> <C> <C>
Loan 01-Dec-99 4,454,750.58
1 09-Dec-99 12,273.14 12,273.14 0.00 4,454,750.58
2 09-Dec-99 2,480,553.58 0.00 2,480,553.58 1,974,197.00
1999 Totals 2,492,826.72 12,273.14 2,480,553.58
3 01-Jan-00 15,637.26 15,637.26 0.00 1,974,197.00
4 01-Feb-00 20,679.71 20,679.71 0.00 1,974,197.00
5 01-Mar-00 20,679.71 20,679.71 0.00 1,974,197.00
6 01-Apr-00 20,679.71 20,679.71 0.00 1,974,197.00
7 01-May-00 20,679.71 20,679.71 0.00 1,974,197.00
8 01-Jun-00 20,679.71 20,679.71 0.00 1,974,197.00
9 01-Jul-00 20,679.71 20,679.71 0.00 1,974,197.00
10 01-Aug-00 20,679.71 20,679.71 0.00 1,974,197.00
11 01-Sep-00 20,679.71 20,679.71 0.00 1,974,197.00
12 01-Oct-00 20,679.71 20,679.71 0.00 1,974,197.00
13 01-Nov-00 20,679.71 20,679.71 0.00 1,974,197.00
14 01-Dec-00 20,679.71 20,679.71 0.00 1,974,197.00
2000 Totals 243,114.07 243,114.07 0.00
15 01-Jan-01 20,679.71 20,679.71 0.00 1,974,197.00
16 01-Feb-01 20,679.71 20,679.71 0.00 1,974,197.00
17 01-Mar-01 20,679.71 20,679.71 0.00 1,974,197.00
18 31-Mar-01 1,044,520.60 20,396.43 1,024,124.17 950,072.83
19 01-Apr-01 327.19 327.19 0.00 950,072.83
20 01-May-01 124,426.17 9,952.01 114,474.16 835,598.67
21 01-Jun-01 124,426.17 8,752.90 115,673.27 719,925.40
22 01-Jul-01 124,426.17 7,541.22 116,884.95 603,040.45
23 01-Aug-01 124,426.17 6,316.85 118,109.32 484,931.13
24 01-Sep-01 124,426.17 5,079.65 119,346.52 365,584.61
25 01-Oct-01 124,426.17 3,829.50 120,596.67 244,987.94
26 01-Nov-01 124,426.17 2,566.25 121,859.92 123,128.02
27 01-Dec-01 124,426.17 1,298.15 123,128.02 0.00
2001 Totals 2,102,296.28 128,099.28 1,974,197.00
Grand Totals 4,838,237.07 383,486.49 4,454,750.58
</TABLE>
<PAGE> 7
EXHIBIT B
FORM OF ACKNOWLEDGEMENT AND CONSENT
Glenayre Electronics, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Reference is hereby made to the Credit Agreement dated as January 26, 1996 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") by and between Preferred Networks, Inc. ("PNI"), Glenayre
Electronics, Inc. (the "Glenayre"). All capitalized terms used herein and not
defined herein shall have the meanings given to such terms in the Credit
Agreement.
Pursuant to Section 7.3 of the Credit Agreement, PNI and its Subsidiaries may
not sell any of their assets (other than in the ordinary course of business)
without the consent of Glenayre. It is contemplated that PNI will sell all or
substantially all of its shares of common stock in EPS WIRELESS, INC. ("EPS"),
a Georgia corporation and a wholly-owned subsidiary of PNI to Celestica
Corporation (the "Sale") pursuant to that certain Share Purchase Agreement
dated as of December 10, 1999, as amended ("Share Purchase Agreement"). This
letter constitutes the consent of Glenayre to the Sale pursuant to the Share
Purchase Agreement, provided that the "Amendment Conditions" set forth in that
certain Agreement concerning Amendment to Credit Agreement between Glenayre and
PNI dated December 9, 1999 (the "Agreement") have been satisfied or waived by
December 15, 1999.
This agreement may be executed by one or more of the parties hereto on any
number of separate counterparts (including by facsimile), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. This agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina.
Very truly yours,
Acknowledged, Accepted and Agreed to:
GLENAYRE ELECTRONICS, INC. PREFERRED NETWORKS, INC.
By: /s/ John C. Berens By: /s/ Kathryn Loev Putnam
------------------------------- -------------------------------------
Name: John C. Berens Name: Kathryn Loev Putman
------------------------------- -----------------------------------
Title: Treasurer Title: Senior Vice President and
------------------------------ Chief Financial Officer
----------------------------------
