<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 30, 1999
FOURTH SHIFT CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota (0-21992) 41-1437794
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(State or other jurisdiction of COMMISSION FILE NO. (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 800
TWO MERIDIAN CROSSINGS
MINNEAPOLIS, MINNESOTA 55423
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(Address of principal executive offices) (Zip Code)
(612) 851-1500
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1999, Fourth Shift Corporation (the "Company") completed
the acquisition of all of the outstanding common stock of Computer Aided
Business Solutions, Inc. ("CABS"), a Colorado corporation. Pursuant to the Stock
Purchase Agreement (the "Agreement") between the Company and Keith Vincent, the
sole shareholder of CABS (the "Shareholder"), the Company paid the Shareholder
$1,200,000 of cash and issued to the shareholder 130,000 shares of the Company's
common stock at closing, and agreed to pay the shareholder an additional $1
million over a period of four years. The Company also agreed to pay the
shareholder up to $1.5 million of additional consideration based on revenue and
operating profit during 1999. The amount of cash paid at closing was financed by
the Company's line of credit.
CABS was founded in 1986 as a developer of software solutions for
manufacturing companies. CABS has developed and currently markets the VisiBar
and VisiWatch product lines. Many Fourth Shift customers use VisiBar for data
collection. VisiBar works with virtually any data source and a wide range of
data collection hardware, including barcode guns and serial devices such as
digital scales, relays and vertical carousels. VisiWatch allows Fourth Shift
customers to automate routine tasks. When specified transactions occur,
VisiWatch takes predetermined actions such as sending an email message,
synchronizing multiple databases, or triggering a report.
As part of the transaction, CABS entered into a four year employment
agreement with the Shareholder. The Company intends that CABS will continue to
operate in Golden, Colorado and that the Shareholder will continue as CABS'
chief executive officer.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
c) Exhibits
EXHIBIT NUMBER DESCRIPTION
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2.1 Stock Purchase Agreement
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
FOURTH SHIFT CORPORATION
By /s/ JIMMIE H. CALDWELL
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Jimmie H. Caldwell, President
Dated: July 8, 1999
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STOCK PURCHASE AGREEMENT
by and between
FOURTH SHIFT CORPORATION
and the
SOLE SHAREHOLDER
of
COMPUTER AIDED BUSINESS SOLUTIONS, INC.
June 30, 1999
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
June 30, 1999, is made and entered into by and among Fourth Shift Corporation, a
Minnesota corporation ("Buyer"), and Keith Vincent ("Shareholder"), the sole
shareholder of Computer Aided Business Solutions, Inc., a Colorado corporation
(the "Company").
WHEREAS, the Shareholder owns 5,000 shares of common stock, par
value $1.00 per share, of the Company (the "Shares"), constituting all the
issued and outstanding shares of capital stock of the Company; and
WHEREAS, the Shareholder desires to sell to Buyer, and Buyer
desires to purchase from the Shareholder, the Shares on the terms and the
conditions set forth in this Agreement.
WHEREAS, as an inducement to Buyer to consummate the transactions
contemplated herein, the Shareholder is willing to make certain representations,
warranties and indemnities in this Agreement for the benefit of Buyer.
WHEREAS, as an inducement to the Shareholder to consummate the
transactions contemplated herein, Buyer is willing to make certain
representations, warranties and indemnities in this Agreement for the benefit of
Shareholder.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
1.01 Defined Terms. The following terms shall have the meanings
set forth in the sections referred to below:
<TABLE>
<CAPTION>
<S> <C>
"1999 CABs Operating Profit" 2.03(a)(h)
"1999 CABs Revenue" 2.03(a)(h)
"AAA" 10.01(a)
"Agreement" Recitals
"Allocation" 5.07(b)
"Annual Financial Statements" 3.08
"Arbitration Rules" 10.01(a)
"Audited Party" 5.04
"Buyer" Recitals
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"Buyer Basket Amount" 8.03(b)
"Buyer Indemnified Parties" 8.02(a)
"Buyer Related Documents" 8.03(a)
"Cash Purchase Price" 2.02(a)
"Claim" 8.04(a)
"Claim Notice" 8.04(b)
"Closing" 2.03(a)
"Closing Adjustment" 2.02(b)
"Closing Date" 2.05(a)
"Closing Date Statement" 2.02(b)
"Closing Purchase Price" 2.02(a)
"Closing Transactions" 2.05(b)
"Code" 2.02(a)
"Company" Recitals
"Current Real Property" 3.12(a)
"Deferred Purchase Price" 2.02(a)(iv)
"Disclosure Schedule" Article III
"DOL" 3.21(c)
"Earn-Out" 2.03(a)
"Earn-Out Payment Date" 2.03(a)
"Earn-Out Statement" 2.03(b)
"Earn-Out Objection Notice" 2.03(c)
"Employment Agreement" 6.01(k)(v)
"Environmental Claim" 3.26(a)(iv)
"Environmental Laws" 3.26(a)(ii)
"Environmental Permits" 3.26(c)
"ERISA" 3.21(a)
"Exchange Act" 5.08(b)(iv)
"Financial Statements" 3.08
"Funded Debt" 2.03(e)
"GAAP" 2.02(b)
"Governmental Entity" 3.03
"Hazardous Materials 3.26(a)(i)
"Indemnified Party" 8.04
"Indemnifying Party" 8.04
"Independent Accounting Firm" 2.02(d)
"Installment Purchase Price" 2.02(a)
"Installment Purchase Price Payment Date" 2.04
"Intellectual Property Right" 3.17(a)
"IRS" 3.15(h)
"Issued Shares" 2.02(a)
"Knowledge" 9.12
"Latest Balance Sheet" 3.08
"Latest Financial Statements" 3.08
"Leases" 3.12(a)
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"Liabilities" 2.02(b)
"Losses" 8.02
"Majority-Owned Subsidiary" 5.06(d)
"National Priorities List" 3.26(f)
"Objection Notice" 2.02(c)
"PCBs" 3.26(a)(i)
"Permits" 3.25(b)
"Permitted Transfer" 5.08(b)
"Plan" 3.21(a)
"Real Property" 3.26
"Reference Net Assets" 2.02(b)
"Regulatory Action" 3.26(a)(v)
"Related Documents" 8.03(a)
"Release" 3.26(a)(iii)
"Restricted Period" 5.06(a)
"Restrictions" 2.03(b)(i)
"Returns" 3.15(a)
"Section 338(h)(10) Election" 5.07(a)
"Shareholder Related Documents" 3.32
"Shareholder" Recitals
"Shares" Recitals
"Tax Affiliate" 3.15(a)
"Tax Benefit" 8.04(d)
"Taxes" 3.15(p)
"Third Party Environmental Claims" 3.26(a)(vi)
"Total Consideration" 2.02(a)(iv)
"Total Fixed Consideration" 2.02(a)(iii)
"Transaction Documents" 3.02
"Working Capital" 2.02(b)
"Year 2000 Compliant" 3.19
"401(k) Plan Termination" 5.16
</TABLE>
ARTICLE II
PURCHASE AND SALE OF SHARES
2.01 Basic Transaction. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from the Shareholder, and
the Shareholder agrees to sell to Buyer, all of the Shares held by the
Shareholder, as set forth on Exhibit A hereto, for the consideration specified
below in this Article II.
2.02 Total Consideration.
(a) Subject to the adjustments described in clause (b) below, the
total consideration to be paid by Buyer for the Shares is the sum of:
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(i) $1,200,000 (the "Closing Purchase Price"), payable in
cash by wire transfer at the Closing to the Shareholder in the manner
provided in Section 2.03;
(ii) $1,000,000 (the "Installment Purchase Price" and
together with the Closing Purchase Price, the "Cash Purchase Price")
payable to the Shareholder in four (4) equal annual payments of
$250,000 in immediately available funds within thirty (30) calendar
days of December 31, 2000, December 31, 2001, December 31, 2002 and
December 31, 2003 (each an "Installment Purchase Price Payment Date")
to the account designated by the Shareholder prior to each such date;
(iii) 130,000 shares of common stock, par value $.01 per
share, of Buyer to be issued to the Shareholder at the Closing, in the
manner provided in Section 2.05 and subject to the transfer
restrictions set forth in Section 5.08 (the "Issued Shares" and
together with the Cash Purchase Price, the "Total Fixed
Consideration"); and
(iv) an earn-out payable in accordance with Section 2.03
(such earn-out, when used together with the Installment Purchase Price
being hereafter referred to as the "Deferred Purchase Price" and when
used together with the Total Fixed Consideration, being hereafter
referred to as the "Total Consideration").
Any payments of the Deferred Purchase Price shall be deemed to include interest
at the lowest rate provided under the Internal Revenue Code of 1986, as amended
(the "Code") for installment obligations.
(b) As promptly as practicable, but not more than thirty (30) days,
after the Closing Date, Buyer shall prepare, at its cost, in consultation with
the Shareholder and in conformity with generally accepted accounting principals
("GAAP"), applied on a basis consistent with the Annual Financial Statements,
and deliver to the Shareholder, a balance sheet of the Company as of the close
of business on the Closing Date (the "Closing Date Statement") and its
calculation of Working Capital as of the close of business on the Closing Date.
The costs and expenses of preparing the Closing Date Statement shall be borne by
Buyer, and the costs and expenses of reviewing the Closing Date Statement, if
any, shall be borne by the Shareholder. The Purchase Price shall be decreased
(any such decrease being hereinafter referred to as, the "Closing Adjustment"),
if at all, by the amount by which Working Capital at Closing is less than
$500,000. To the extent that Working Capital at Closing is more than $500,000,
the Basket Amount (as defined in Section 8.02(b)) will be increased by fifty
percent (50%) of such excess (the "Basket Adjustment"). Any disputes arising in
connection with the calculation of Working Capital on the Closing Date Statement
shall be resolved in accordance with the procedures set forth in Sections
2.02(c) and 2.02(d). The Closing Adjustment, if any, shall be paid to Buyer by
the Shareholder by wire transfer in immediately available funds within ten (10)
days after final determination of the Closing Adjustment. The parties agree and
acknowledge that Buyer may take the actions contemplated by Section 5.09 prior
to the calculation of Working Capital. For the purposes of this Agreement,
"Working Capital" means the aggregate amount of cash, plus accounts receivable,
plus inventory of product held for sale (but specifically excluding any
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advances, loans receivable or notes payable arising out of the transactions
contemplated by this Agreement), less the aggregate amount of the liabilities of
the Company, including, without limitation, accounts payable, deferred revenue,
accrued payroll expense and any notes payable or accrued interest on notes
payable all as computed in accordance with GAAP.
(c) The Shareholder shall be deemed to have accepted the Closing Date
Statement and the Working Capital indicated therein unless, within ten (10)
business days after the date of delivery of the Closing Date Statement, the
Shareholder gives written notice (the "Closing Date Objection Notice") to Buyer
of objection to any item thereon, which notice shall specify in reasonable
detail the basis for such objection. If the Shareholder gives an Closing Date
Objection Notice, Buyer and the Shareholder shall attempt in good faith to
resolve the dispute as promptly as possible, subject to the terms of Section
2.04.
(d) The right to receive Deferred Purchase Price may not be
transferred by any Shareholder for any reason other than by operation of law or
by will or the laws of descent and distribution. Any attempted transfer of the
Deferred Purchase Price by any holder thereof (other than as set forth in the
preceding sentence) shall be null and void.
2.03 Earn-Out.
(a) Subject to the terms and conditions herein, Buyer shall pay and
deliver to the Shareholder, an amount (the "Earn-Out") equal to (A) $500,000 in
the event that the 1999 CABs Operating Profit is more than $550,000 but less
than or equal to $599,000, (B) $1,000,000 in the event the 1999 CABs Operating
Profit is more than $599,000 but less than or equal to $699,000, and (C)
$1,500,000 in the event the 1999 CABs Operating Profit is more than $699,000;
provided, however, that no Earn-Out shall be due and payable to Shareholder in
any such case unless the 1999 CABs Revenue equals or exceeds $2,614,990. Buyer
shall pay to the Shareholder the Earn-Out in four (4) equal annual payments.
Such payments shall be made in immediately available funds within thirty (30)
calendar days of December 31, 2000, December 31, 2001, December 31, 2002 and
December 31, 2003 (each an "Earn-Out Payment Date") to the account designated by
the Shareholder prior to each such date.
(b) Within ninety (90) days following the close of the 1999 calendar
year, Shareholder, at Buyer's expense, shall cause to be prepared and deliver to
Shareholder and Buyer (i) copies of audited financial statements for the Company
for the 1999 calendar year and (ii) a statement similar to the form of Exhibit F
hereto, certified as being true and correct by Shareholder as to the calculation
of the Earn-Out (an "Earn-Out Statement") allocating items to consistent with
the definition contained in Section 2.03(h)(i).
(c) The Earn-Out Statement shall be subject to review by Buyer or, at
the election and expense of Buyer, by an independent public accounting firm of
its choice. Shareholder shall permit Buyer and its representatives to have
reasonable access during normal business hours to all relevant accounting
records, data and information upon which the Earn-Out Statement was prepared and
to the employees and/or representatives who assisted in its preparation.
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(d) Buyer shall be deemed to have accepted the Earn-Out Statement and
the 1999 CABs Operating Profit and 1999 CABs Revenue indicated therein unless,
within ten (10) days after the date of delivery of such Earn-Out Statement,
Buyer gives written notice (the "Earn-Out Objection Notice" and together with a
Closing Date Objection Notice, an "Objection Notice") to Shareholder of
objection to any item thereon, which notice shall specify in reasonable detail
the basis for such objection. If Buyer gives an Earn-Out Objection Notice,
Shareholder and Buyer shall attempt in good faith to resolve the dispute as
promptly as possible, subject to the terms of Section 2.04.
(e) The Shareholder acknowledges that Buyer's obligation to pay the
Deferred Purchase Price will be subordinated to any indebtedness for borrowed
money incurred by Buyer or its affiliates with institutional lenders ("Funded
Debt") and the Shareholder agrees to cooperate with Buyer and the holders of
such Funded Debt in connection with such subordination. Notwithstanding the
foregoing, any amount which is due and payable and not in dispute shall be
immediately paid to the Shareholder and nothing contained in this section
2.03(e) shall act to prevent the Shareholder from commencing arbitration or
litigation to compel payment of any due and payable amounts not in dispute
hereunder.
(f) The Earn-Out shall represent only a right to receive cash from
Buyer subject to the terms set forth herein. The Earn-Out shall not possess any
attributes of common stock.
(g) As a material inducement to the parties to enter into this
Agreement, the Shareholder and Buyer covenant and agree that from and after the
Closing Date, the Company shall be operated and managed in compliance with the
ordinary and customary policies and procedures of the Company. The Shareholder
and Buyer acknowledge that compliance by the Company with applicable laws, rules
and regulations may require the Company to incur additional expenses as compared
to operations of the Company prior to the Closing Date. The Shareholder and
Buyer agree and acknowledge that Buyer will not unreasonably interfere with the
Shareholder's operation of the Company during calendar year 1999 in any manner
that would impact Shareholder's ability to obtain the Earn-Out.
(h) For purposes of this Agreement, the following terms have the
meanings set forth in this Section 2.03(h) (and, by way of example, Exhibit F is
attached hereto and incorporated herein as part of the following meanings):
(i) "1999 CABs Operating Profit" shall mean the Company's
income from operations for the year ending December 31, 1999, as set forth
in its audited financial statements, plus (A) any amortization or interest
charges resulting from Buyer's acquisition of the Company, and plus (B) the
legal and accounting expenses incurred by the Shareholder in connection
with the transactions contemplated hereby. The calculation of 1999 CABs
Operating Profit shall be determined based on the books and records of the
Company, maintained in a manner consistent with the Annual Financial
Statements, with GAAP consistently applied.
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(ii) "1999 CABs Revenue" shall mean the Company's total
sales for the year ending December 31, 1999, as set forth in the Company's
audited financial statements, less (A) Buyer license revenue and Buyer
customer support program revenue, and less (B) all reimbursed expenses.
Notwithstanding the foregoing, no sales discounts relating to the sale of
the software products of Buyer shall be included in the calculation of 1999
CABs Revenue. The calculation of 1999 CABs Revenue shall be determined
based on the books and records of the Company, maintained in a manner
consistent with the Annual Financial Statements, with GAAP consistently
applied.
2.04 Resolution of Closing Date Objection Notices and Earn-Out
Objection Notices.
(a) If Buyer and the Shareholder have not been able to agree upon
a resolution of a dispute covered by an Objection Notice within thirty (30) days
after the date of the Objection Notice (which thirty (30) day period may be
extended by written agreement of the parties), such dispute shall be resolved
fully, finally and exclusively through use of PriceWaterhouseCoopers, a mutually
agreeable national independent accounting firm ("Independent Accounting Firm"),
which represents, and has represented, neither Buyer nor the Shareholder, and
such determination shall be final and binding on the parties. If such accounting
firm shall be unwilling to serve as the Independent Accounting Firm, then
Shareholder and Buyer shall each submit to the other party' independent auditor
the name of a national accounting firm (other than any accounting firm employed
by the Company, Shareholder or Buyer during the last four (4) years), and the
Independent Accounting Firm shall be selected by lot from those two firms by the
independent auditors of the two parties. If no national accounting firm shall be
willing to serve as the Independent Accounting Firm, then an arbitrator shall be
selected to serve as such, such selection shall be made according to the above
procedures. The costs of the Independent Accounting Firm or the arbitrator, as
the case may be, shall be apportioned between the Shareholder and Buyer as
determined by the Independent Accounting Firm or the arbitrator, as the case may
be, in such manner as such entity deems reasonable taking into account the
circumstances of the case, the conduct of the parties during the proceeding and
the result of the proceeding. Any such proceeding shall be concluded in a
maximum of six (6) months from the date of the Objection Notice. All
negotiations pursuant to Sections 2.02(c), 2.03(d) and this Section 2.04 shall
be treated as compromise and settlement negotiations for purposes of all
federal, foreign, state and local rules of evidence, and all negotiations and
proceedings under Sections 2.02(c), 2.03(d) and this 2.04 shall be treated as
confidential information. The procedures of Sections 2.02(c), 2.03(d) and this
2.04 are exclusive and shall be fully exhausted prior to the initiation of any
litigation. The Independent Accounting Firm's or the arbitrator's, as the case
may be, decision may be filed as a judgment in any court of competent
jurisdiction. Either party may seek specific enforcement or take other necessary
legal action to enforce any decision under this Section 2.04. Any such request
for specific enforcement or other legal action shall not be subject to the
mandatory arbitration provisions of Article X. The other party's only defense to
such a request for specific enforcement or other legal action shall be fraud by
or on the Independent Accounting Firm's or the arbitrator, as the case may be.
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2.05 The Closing.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Minor & Brown, P.C.
commencing at 10:00 a.m. local time (MST) on June 30, 1999 or at such other
place or on such other date as Buyer and the Shareholder may mutually determine
(the "Closing Date").
(b) Subject to the conditions set forth in this Agreement, the
parties agree to consummate the following "Closing Transactions" on the Closing
Date:
(i) The Shareholder shall assign and transfer to Buyer good
and valid title in and to the Shares, free and clear of any security
interests, claims, liens, pledges, options, encumbrances, charges,
agreements, voting trusts, proxies or other arrangements, restrictions or
other legal or equitable limitations of any kind ("Restrictions"), by
delivering to Buyer stock certificates representing the Shares, duly
endorsed for transfer or accompanied by duly executed stock powers endorsed
in blank with requisite stock transfer tax stamps, if any, attached;
(ii) Buyer shall deliver to the Shareholder the Closing
Purchase Price by wire transfer of immediately available funds to the
account designated by the Shareholder to Buyer prior to the Closing;
(iii) Buyer shall deliver to the Shareholder certificates
for the Issued Shares registered in the name of the Shareholder; and
(iv) Each of the parties shall deliver to the other parties
the documents required to be delivered pursuant to Article VI hereof.
2.06 Right of Set-Off. Buyer shall set-off any amounts to which
it may be entitled under the terms of this Agreement against the last scheduled
payments of the Deferred Purchase Price. Neither the exercise of, nor the
failure to exercise such right of set-off will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it hereunder.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER
As a material inducement to Buyer to enter into this Agreement,
with the understanding that Buyer will be relying thereon in consummating the
transactions contemplated hereunder, and except as set forth in the disclosure
schedule delivered by the Shareholder to Buyer on the date hereof and as updated
at and as of the Closing (the "Disclosure Schedule") (which Disclosure Schedule,
as accepted by Buyer, sets forth the exceptions to the representations and
warranties contained in this Article III under captions referencing the Sections
to which such exceptions apply and shall be deemed to revise the representations
and warranties in this Agreement, except as specifically provided herein), the
Shareholder hereby makes the representations and warranties set forth in this
Article III.
3.01 Incorporation and Power.
(a) The Company: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado; (ii) has
all requisite power and authority and all authorizations, licenses, permits and
certifications necessary to carry on and conduct its business as it is now being
conducted and to own or lease its properties and assets; and (iii) is duly
qualified or licensed and in good standing in each jurisdiction in which the
conduct of its business or the ownership or leasing of its properties and assets
requires it to be so qualified. Schedule 3.01(a) of the Disclosure Schedule
contains a correct and complete list of the jurisdictions in which the Company
is qualified to do business. The Company is not in default under or in violation
of any provisions of its charter, bylaws or other organizational documents.
(b) The copies of the articles of incorporation, bylaws and other
organizational documents of the Company that have been previously delivered to
Buyer are the complete, true and correct articles of incorporation, bylaws and
other organizational documents of the Company in effect on the date hereof. The
minutes of directors' and shareholder meetings and the minute books of the
Company that have previously been delivered to or reviewed by the Buyer are the
complete, true and correct records of directors' and shareholder meetings and
share issuances through and including the date hereof and reflect all
transactions appropriate to be contained in such records, as determined by the
directors and shareholders, respectively.
3.02 Execution; Delivery; Valid and Binding Agreements. The
Shareholder has the right, power and capacity to execute, deliver and perform
this Agreement, and the Employment Agreement (collectively, the "Transaction
Documents") and to consummate the transactions contemplated hereby and thereby.
The Transaction Documents have been duly and validly executed and delivered by
the Shareholder and constitute the legal, valid and binding obligation of each
of the Shareholder enforceable in accordance with their terms. The Shareholder
is not acting in a fiduciary or representative capacity.
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3.03 No Breach. The execution, delivery and performance of the
Transaction Documents by the Shareholder and the consummation by the Shareholder
of the transactions contemplated hereby and thereby do not and will not conflict
with or result in any breach of any of the provisions of, constitute a default
under, result in a violation of, result in the creation of a right of
termination or acceleration or any lien, security interest, charge or
encumbrance upon any of the Shares or any assets of the Company, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other Governmental Entity, under, the provisions of the articles of
incorporation, bylaws or other organizational documents of the Company or any
indenture, mortgage, lease, loan agreement or other agreement or instrument by
which the Company or the Shareholder is bound, or any law, statute, rule or
regulation or order, judgment or decree to which the Company or the Shareholder
is subject. For the purposes of this Agreement, "Governmental Entity" means any
national, federal, foreign, state, local or other governmental or regulatory
authority, court, agency, commission or body.
3.04 Governmental Authorities; Consents. Neither the Shareholder
nor the Company is required to submit any notice, report or other filing with
any Governmental Entity in connection with the execution or delivery of this
Agreement or the consummation of the transactions contemplated hereby. No
consent, approval or authorization of any Governmental Entity or any other party
or person is required to be obtained by the Shareholder or the Company in
connection with the execution, delivery and performance of this Agreement or the
transactions contemplated.
3.05 Capitalization. The authorized capital stock of the Company
consists of 30,000 shares of common stock, par value $1.00 per share, of which
only the Shares are issued and outstanding. The Shares have been duly
authorized, and are validly issued, fully paid and nonassessable. The Company
has no other equity securities or securities containing any equity features
authorized, issued or outstanding. There are no agreements or other rights or
arrangements existing which provide for the sale or issuance of capital stock or
other equity interest by the Company and there are no rights, subscriptions,
warrants, options, conversion rights or agreements of any kind outstanding to
purchase or otherwise acquire from the Company any shares of capital stock or
other equity interest of the Company of any kind. All currently outstanding
securities of the Company were issued in full compliance with the registration
requirements of all applicable securities laws, and were not issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase securities. There are no agreements or other obligations (contingent or
otherwise) which may require the Company to repurchase or otherwise acquire any
shares of its capital stock.
3.06 Subsidiaries. The Company does not own, nor has it ever
owned any stock, partnership interest, joint venture interest, limited liability
company interest or any other security or ownership interest issued by any other
corporation, organization, limited liability company, partnership or other
entity.
3.07 Ownership of Capital Stock. The Shareholder owns,
beneficially and of record, all right, title and interest in and to the Shares,
free and clear of any Restrictions and, on the Closing Date, the delivery by the
Shareholder of certificates in the manner set forth in
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Section 2.03(b)(i) will transfer good and valid title to the Shares to Buyer
free and clear of any restrictions.
3.08 Financial Statements. The Company has delivered to Buyer, or
its authorized representatives, copies of (i) its unaudited balance sheet, as of
May 31, 1999 (the "Latest Balance Sheet") and its unaudited statements of income
for the five-month period ended May 31, 1999 (such statements together with the
Latest Balance Sheet are hereinafter referred to as the "Latest Financial
Statements"), and (ii) its audited balance sheets, as of December 31, 1998 and
1997, and its audited statements of income, shareholders' equity and cash flows
for each of the fiscal years ended December 31, 1998 and 1997 (collectively, the
"Annual Financial Statements" and together with the Latest Financial Statements,
the "Financial Statements"). The Financial Statements, including the notes
thereto, are based upon and are in accordance with the information contained in
the books and records of the Company and fairly present the financial condition
of the Company as of the dates thereof and the financial position and results of
operations of the Company for the periods referred to therein. The books and
records of the Company are accurate and have been maintained in the ordinary
course of business. The Annual Financial Statements have been prepared in
accordance with GAAP, consistently applied throughout the periods indicated.
3.09 Absence of Undisclosed Liabilities. Except as reflected in
the Latest Balance Sheet, the Company has no liabilities arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, that would be required to be set forth in the
financial statements of the Company in accordance with GAAP, other than
liabilities which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business consistent with past practices (none of which is a
material uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit).
3.10 No Material Adverse Changes. Since the date of the Latest
Balance Sheet, there has been no material adverse change in the assets,
financial condition, operating results, employee, customer or supplier
relations, or business condition of the Company. Since the date of the Latest
Balance Sheet, the Shareholder does not Know of any event which, so far as could
be foreseen by a reasonable person in the Company's industry, might result in
any such change.
3.11 Absence of Certain Developments. Since the date of the
Latest Balance Sheet, the business of the Company has been operated in the
ordinary course, consistent with past practices. As amplification and not
limitation of the foregoing, since the date of the Latest Balance Sheet, the
Company has not:
(a) borrowed any amount or incurred or become subject to \any
liability or obligation in excess of $1,000 (whether absolute, accrued, or
contingent and whether due or to become due), except (i) current liabilities
incurred in the ordinary course of business consistent with past practices and
(ii) liabilities under contracts entered into in the ordinary course of business
consistent with past practices;
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(b) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any of its assets, except (i) liens for current property
taxes not yet due and payable, (ii) liens imposed by law and incurred in the
ordinary course of business consistent with past practices for obligations not
yet due to carriers, warehousemen, laborers, materialmen and the like, (iii)
liens in respect of pledges or deposits under workers' compensation laws or (iv)
liens set forth in Section 3.11 in the Disclosure Schedule, all of which liens
in clauses (i) through (iv) are less than $10,000 in the aggregate;
(c) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $3,000, other than notes
payable, all of which shall be paid prior to Closing, or current liabilities
paid in the ordinary course of business consistent with past practices;
(d) except as set forth in Section 5.09, sold, assigned, leased,
licensed, transferred or otherwise disposed of (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets
which, individually or in the aggregate, have a fair market value in excess of
$5,000 or canceled any debts or claims, in each case, except in the ordinary
course of business consistent with past practices, or with the consent, or at
the direction, of Buyer;
(e) sold, assigned, leased, licensed, transferred or otherwise
disposed of (including, without limitation, transfers to any employees,
affiliates or shareholders) any patents, trademarks, trade names, copyrights,
trade secrets or other intangible assets;
(f) disclosed to any person, other than Buyer or authorized
representatives of Buyer and Company, any proprietary confidential
information, other than pursuant to a confidentiality agreement prohibiting
the use and further disclosure of such information, which agreements are
identified in Section 3.11 of the Disclosure Schedule and are in full force
and effect on the date hereof;
(g) except to the extent contemplated by subsection (v) below,
waived any rights of material value or suffered any extraordinary losses or
adverse changes in collection loss experience;
(h) declared, set aside, paid any dividends or other
distributions with respect to any shares of its capital stock or other equity
interest or redeemed, purchased or otherwise acquired, directly or indirectly,
any shares of its capital stock or other equity interest or options to purchase
capital stock or other equity interest that the Company or the Shareholder Knows
would cause a Closing Adjustment pursuant to Section 2.02(b);
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any bonds
or debt securities;
(j) taken any other action or entered into any other transaction
other than in the ordinary course of business consistent with past practices, or
entered into any transaction
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with any officer, director, employee, Shareholder, or any member of the
immediate family (as defined in Section 3.23) of any such officer, director or
Shareholder, or any entity in which any of such persons owns any beneficial
interest (other than any publicly held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than
two percent (2%) of the stock of which is beneficially owned by any of such
persons), other than the transactions contemplated by this Agreement;
(k) suffered any material theft, damage, destruction, casualty or
loss of or to any property or properties owned or used by it, whether or not
covered by insurance;
(l) made, granted, promised or announced any bonus or any wage,
salary or compensation increase to any director, officer, or employee, or
consultant or made or granted any increase in any employee benefit plan or
arrangement, or amended or terminated any existing employee benefit plan or
arrangement, or adopted any new employee benefit plan or arrangement, or made
any commitment or incurred any liability to any labor organization, except for
the wage, salary or compensation increases set forth in Section 3.11 of the
Disclosure Schedule;
(m) made any single capital expenditure or commitment therefor in
excess of $10,000;
(n) made any loans or advances to, or guarantees for the benefit
of, any persons that have not been, or will not be, repaid prior to the Closing
Date;
(o) made charitable contributions or pledges which, individually
or in the aggregate, exceed $10,000;
(p) made any change in accounting or tax principles or practices
from those utilized in the preparation of the Financial Statements or the
Returns;
(q) experienced any amendment, modification or termination of any
existing, or entered into any new, contract, agreement, plan, lease, license,
permit or franchise which is, either individually or in the aggregate, material
to its business, operations, financial position or prospects other than in the
ordinary course of business consistent with past practices;
(r) experienced any labor dispute material to its business,
operations or financial position;
(s) experienced any change in any assumption underlying or method
of calculating, any bad debt, inventory, warranty, contingency or other reserve;
(t) except as set forth in subsection (v) below, written off as
uncollectible any note or account receivable, or canceled any debts, other than
in the ordinary course of business consistent with past practices;
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<PAGE>
(u) except as contemplated herein, or consented to or directed by
Buyer, failed to replace or replenish inventory or supplies as such inventory or
supplies may have been depleted from time to time;
(v) collected accounts receivable, or otherwise managed its
working capital accounts, except in the ordinary course of business consistent
with past practices and except that the Company may have managed accounts
receivable to collect the same more rapidly than past practice provided that the
Company did not discount the same by more than five percent (5%) without the
consent of Buyer;
(w) failed to maintain all material assets in accordance with
past practice and in good operating condition and repair, ordinary wear and tear
excepted; or
(x) discontinued or altered, in any material respect, its
advertising or promotional activities or its pricing and purchasing policies.
3.12 Title to Properties.
(a) The real property demised by the leases (the "Leases")
described in Section 3.12 in the Disclosure Schedule constitutes all of the real
property currently used or occupied by the Company (the "Current Real
Property"). The Current Real Property has access, sufficient for the conduct of
the Company's business as now conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural gas and
other utilities, used in the operation of the business of the Company at that
location. To Shareholder's Knowledge, the buildings, structures, leasehold
improvements and other physical improvements of any kind situated on the Current
Real Property are free from material defects, have been maintained in good
operating, sanitary and readily usable condition, and are sufficient for the
continued conduct of the business of the Company after the Closing in the same
manner as conducted prior to the Closing.
(b) The Leases are in full force and effect, and the Company
holds a valid and existing leasehold interest under each of the Leases. The
Shareholder has delivered to Buyer complete and accurate copies of each of the
Leases, and none of the Leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies delivered to Buyer.
The Company is not in default, and no circumstances exist which, if unremedied,
would, either with or without notice or the passage of time or both, result in
such default under any of the Leases; nor, to the best Knowledge of the
Shareholder, is landlord of the Leases in default.
(c) The Company does not own, nor has ever owned, any real
property.
(d) The Company owns good and marketable title or a valid
leasehold interest in each of the tangible properties and tangible assets
reflected on the Latest Balance Sheet or acquired since the date thereof, free
and clear of all Restrictions, except for (i) liens for current taxes not yet
due and payable, (ii) liens set forth in Section 3.12 of the Disclosure
Schedule, (iii) the Current Real Property, (iv) assets disposed of since the
date of the Latest Balance Sheet
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<PAGE>
in the ordinary course of business consistent with past practices, (v) liens
imposed by law and incurred in the ordinary course of business consistent with
past practices for obligations not yet due to carriers, warehousemen, laborers
and materialmen and (vi) liens in respect of pledges or deposits under workers'
compensation laws, all of which liens in classes (i) through (vi) aggregate less
than $5,000.
(e) Section 3.12 of the Disclosure Schedule lists all equipment,
machinery, motor vehicles, furniture, fixtures, leasehold improvements and other
tangible assets which are (i) owned by the Company, (ii) leased by the Company
as lessee or (iii) owned by any third party for which the Company is
responsible. All of such assets are in good operating condition and readily
usable condition and state of repair, ordinary wear and tear excepted. There are
no defects Known to the Shareholder in such assets or other conditions relating
thereto which, in the aggregate, materially adversely affect the operation or
value of such assets. The Company owns, or leases under valid leases, all
equipment, machinery, motor vehicles, furniture, fixtures leasehold improvements
and other tangible assets necessary for the conduct of its business.
(f) To the best of the Shareholder's Knowledge, the Company is
not in violation of any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties used in the operation of
its business, and neither the Shareholder nor the Company has received any
notice of any such violation, or the existence of any condemnation proceeding
with respect to the Current Real Property.
(g) There are no improvements being made or, to the best
Knowledge of the Shareholder, planned by any public or private authority, the
costs of which are to be assessed as special taxes or charges against any of the
Current Real Property, and, to Shareholder's Knowledge, there are no present
assessments.
3.13 Receivables. The net accounts receivable (after adjustment
for the bad debt reserve), notes receivable and other receivables of the Company
reflected on the Latest Balance Sheet and those arising thereafter are valid
receivables created in the ordinary course of business consistent with past
practices are not subject to valid counterclaims or set-offs. The goods and
services sold and delivered by the Company that gave rise to such accounts
receivable were sold and delivered in material conformity with all applicable
purchase orders, agreements and specifications.
3.14 Customers. Section 3.14 of the Disclosure Schedule lists the
ten (10) largest customers of the Company for the fiscal year ended December 31,
1998, and sets forth opposite the name of each such customer the approximate
dollar amount of net sales and gross profit by the Company attributable to each
such customer for such period.
3.15 Tax Matters.
(a) The Company, any affiliated, combined, consolidated, or
unitary group of which Company is or was a member, and any Plans, as the case
may be (each, a "Tax Affiliate" and, collectively, the "Tax Affiliates"), has:
(i) timely filed, or has had timely filed on its behalf,
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or will timely file, all returns, declarations, reports, estimates, information
returns, and statements ("Returns") required to be filed or sent by it in
respect of any Taxes or required to be filed or sent by it by any taxing
authority having jurisdiction, for all periods prior to the Closing Date; (ii)
timely and properly paid, or has had paid on its behalf or will timely and
properly pay, all Taxes due and payable in connection with such Returns; and
(iii) complied with all applicable laws, rules, and regulations relating to the
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Code) and timely and
properly withheld from individual employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under all applicable laws.
(b) All Taxes of the Company and any Tax Affiliate which will be
due and payable, whether now or hereafter, for any period ending on and
including, or ending prior to the Closing Date, shall have been paid by or on
behalf of the Company or shall be reflected on the Company's books as a Tax
liability accrued in accordance with GAAP, either current or deferred, the
amount of which as of the date of the Latest Financial Statements is set forth
in Section 3.15(b) of the Disclosure Schedule.
(c) There are no liens for Taxes upon any assets of the Company
or of any Tax Affiliate, except liens for Taxes not yet due and payable. The
Company is not a party to any tax sharing agreement or other arrangement for the
payment or reimbursement of Taxes.
(d) No deficiency for any Taxes has been proposed, asserted or
assessed against the Company or any Tax Affiliate that has not been resolved and
paid in full. No waiver, extension or comparable consent given by the Company or
any Tax Affiliate regarding the application of the statute of limitations with
respect to any Taxes or Returns is outstanding, nor is any request for any such
waiver or consent pending. There has been no Tax audit or other administrative
proceeding or court proceeding with regard to any Taxes or Returns, nor is any
such Tax audit or other proceeding pending, nor has there been any notice to the
Company or any Tax Affiliate by any taxing authority regarding any such Tax,
audit or other proceeding, or, to the best Knowledge of the Shareholder, is any
such Tax audit or other proceeding threatened with regard to any Taxes or
Returns. The Shareholder does Know of any assessment of additional Taxes of the
Company or any Tax Affiliate and does not Know of any unresolved questions,
claims or disputes concerning the liability for Taxes of the Company or any Tax
Affiliate which would exceed the estimated reserves established on the Latest
Financial Statements.
(e) Neither the Company nor any Tax Affiliate is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by the Company or any Tax Affiliate that are not deductible (in whole or in
part) under Section 280G of the Code.
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<PAGE>
(f) Neither the Company nor any Tax Affiliate has requested any
extension of time within which to file any Return, which Return has not since
been filed.
(g) No property of the Company or any Tax Affiliate is property
that such Company or any Tax Affiliates is or will be required to treat as being
owned by another person under the provisions of Section 168(f)(8) of the Code
(as in effect prior to amendment by the Tax Reform Act of 1986) or is
"tax-exempt use property" within the meaning of Section 168 of the Code.
(h) Neither the Company nor any Tax Affiliate is required to
include in income any adjustment under Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any Tax
Affiliate as a result of the Tax Reform Act of 1986 and neither the Company nor
any Tax Affiliate has Knowledge that the Internal Revenue Service (the "IRS")
has proposed any such adjustment or change in accounting method.
(i) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code as it applied
prior to repeal) or an underpayment of tax (within the meaning of Section 6662
of the Code) were reported in a manner for which there is substantial authority
or were adequately disclosed (or, with respect to Returns filed before the
Closing Date, will be reported in such a manner or adequately disclosed) on the
Returns required in accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of
the Code.
(j) Neither the Company nor any Tax Affiliate has engaged in any
transaction that would result in a deemed election under Section 338(e) of the
Code, and neither the Company nor any Tax Affiliate will engage in any such
transaction within any applicable "consistency period" (as such term is defined
in Section 338 of the Code).
(k) The Company and each of the Tax Affiliates have evidence of
payment for all taxes, charges, fees, levies, or other assessments of a foreign
country paid or accrued for any year in which the Company or any Tax Affiliate
has claimed the foreign tax credit and for which such years are still open years
subject to audit by the IRS.
(l) All deductions claimed or reported on all Returns of the
Company and each Tax Affiliate on account of royalties or similar fees payable
with respect to any intellectual property of the Company or any other party are
allowable in full.
(m) No consent under Section 341(f) of the Code has been filed
with respect to the Company.
(n) The Company has continuously been a "small business
corporation" (within the meaning of Section 1361 of the Code) at all times
during its existence up to and including the Closing Date, and has duly elected
under Section 1362(a) of the Code to be taxed as an S corporation (and has been
so treated) for federal income tax purposes. The Company has
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been treated as an S corporation for purposes of taxation by all state and
local taxing authorities. The Company has not received any correspondence from
any taxing authority questioning its ability to be taxed as an S corporation
(or any corresponding provisions under state or local law).
(o) Since its election to be treated as an S Corporation, the
Company has never been subject to tax under Section 1375 of the Code (relating
to excess net passive income).
(p) For purposes of this Agreement, the term "Taxes" means all
taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance, stamp,
occupation, property, or other taxes, customs duties, fees, assessments, or
charges of any kind whatsoever, including, without limitation, all interest and
penalties thereon, and additions to tax or additional amounts imposed by any
taxing authority, domestic or foreign, upon the Company or any Tax Affiliate.
3.16 Contracts and Commitments.
(a) Section 3.16 of the Disclosure Schedule lists the following
agreements, whether oral or written, to which the Company is a party and which
are currently in effect:
(i) collective bargaining agreement or contract with any
labor union;
(ii) bonus, pension, profit sharing, retirement or other
form of deferred compensation plan, other than as described in Section
3.21 of the Disclosure Schedule (or excluded by Section 3.21 from
inclusion thereunder);
(iii) hospitalization insurance or other welfare benefit
plan or practice, whether formal or informal, other than as described
in Section 3.21 of the Disclosure Schedule (or excluded by Section
3.21 from inclusion thereunder);
(iv) stock purchase or stock option plan;
(v) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or
relating to severance pay for any such person;
(vi) confidentiality agreement;
(vii) agreement or indenture relating to the borrowing of
money or to mortgaging, pledging or otherwise placing a lien on any of
the assets of the Company;
(viii) guaranty by it of any obligation for borrowed money
or otherwise;
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(ix) lease or agreement under which it is lessee of, or
holds or operates any property, real or personal, owned by any other
party, for which the annual rental exceeds $3,000, other than as
described in Section 3.12 of the Disclosure Schedule;
(x) lease or agreement under which it is lessor of, or
permits any third party to hold or operate, any property, real or
personal, for which the annual rental exceeds $3,000 other than as
described in Section 3.12 of the Disclosure Schedule;
(xi) contract or group of related contracts with the same
party for the purchase of products or services under which the
undelivered balance of such products or services is in excess of
$1,000 (other than purchase orders entered into in the ordinary course
of business consistent with past practices);
(xii) contract or group of related contracts with the same
party for the sale of products or services under which the undelivered
balance of such products or services has a sales price in excess of
$2,000 (other than purchase orders entered into in the ordinary course
of business consistent with past practices);
(xiii) contract or group of related contracts with the same
party (other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of
more than six months from the date or dates thereof, not terminable by
it on 30 (thirty) days' or less notice without penalty and involving
more than $5,000;
(xiv) contract or group of related contracts with the same
party calling for any rebates, allowances, discounts, performance
money or compensation of any type previously paid or granted or to be
paid or granted to or by the Company;
(xv) contract which prohibits the Company from freely
engaging in business anywhere in the world;
(xvi) franchise agreement;
(xvii) license agreement or agreement providing for the
payment or receipt of royalties or other compensation by the Company
in connection with the intellectual property rights listed in Section
3.17 of the Disclosure Schedule;
(xviii) contract or commitment for capital expenditures in
excess of $10,000;
(xix) agreement for the sale of any capital asset not in the
ordinary course of business or exceeding $10,000;
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(xx) contract with any affiliate which in any way relates to
the Company (other than for employment on customary terms);
(xxi) contract under which a change in control of the
Company terminates or modifies any of the Company's rights or
obligations;
(xxii) contract for the distribution of the Company's
products (including any distributor, sales and original equipment
manufacturer contracts); or
(xxiii) other agreement which is either material to the
business of the Company or the transactions contemplated hereby or
which was not entered into in the ordinary course of business
consistent with past practices.
Section 3.16 of the Disclosure Schedule shall separately indicate whether any
contract, commitment or obligation of the Company listed thereon has been
guaranteed by the Shareholder.
(b) The Company has performed all obligations required to be
performed by it through the Closing Date in connection with the contracts or
commitments required to be disclosed in Section 3.16 of the Disclosure Schedule
and is not in receipt of any claim of default under any contract or commitment
required to be disclosed under such caption. The Company has no present
expectation or intention of not fully performing any material obligation
pursuant to any contract or commitment required to be disclosed under such
caption. The Shareholder has no Knowledge of any breach or anticipated breach by
any other party to any contract or commitment required to be disclosed in
Section 3.16 of the Disclosure Schedule.
(c) Prior to the date of this Agreement, the Shareholder has
provided to Buyer a true and correct copy of each written contract or
commitment, and a written description of each oral contract or commitment,
referred to in Section 3.16 in the Disclosure Schedule, together with all
amendments, waivers or other changes thereto.
3.17 Intellectual Property Rights.
(a) Section 3.17 of the Disclosure Schedule describes all rights
in patents, patent applications, trademarks, service marks, trade names,
corporate names, copyrights, mask works, trade secrets or other intellectual
property rights owned by, licensed to or otherwise controlled by the Company or
used in, developed for use in or necessary to the conduct of the business of the
Company as now conducted (the "Intellectual Property Rights"). The Company owns
and possesses all right, title and interest, or holds a valid license, in and to
the rights set forth in Section 3.17 of the Disclosure Schedule. Section 3.17 of
the Disclosure Schedule sets forth all products marketed or that have been
marketed by the Company within the past two years and identifies the method of
intellectual property protection utilized by the Company with respect to each
such product. Section 3.17 of the Disclosure Schedule describes all Intellectual
Property Rights which have been licensed to third parties (other than license to
end-users in accordance with a shrink-wrap license in the ordinary course of
business) and those Intellectual Property Rights which are licensed from third
parties (other than licenses to the Company as an
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end-user in accordance with a shrink-wrap license or other general end-user
license agreements which will remain effective licenses to the Company after
consummation of the transactions contemplated hereby). Except as disclosed in
Section 3.17 of the Disclosure Schedule, all of the Intellectual Property Rights
will remain the Intellectual Property Rights of the Company after the
consummation of the transactions contemplated by this Agreement, without the
requirement that any consent to assignment be obtained or any payment be made.
(b) The Company has taken such action to protect the Intellectual Property
Rights as is necessary for the Company to use such rights in its business as
currently conducted without the payment of royalties or penalties (except as set
forth in the Disclosure Schedule). Without limiting the generality of the
foregoing, except as set forth in Section 3.17 of the Disclosure Schedule, all
employees, contract workers, consultants and other agents of the Company have
executed agreements sufficient to vest in the Company ownership or the right to
use the Intellectual Property Rights on which they have performed services in
the business of the Company as currently conducted without the payment of
royalties or penalties. The Company has not received any notice of, nor are
there any facts Known to the Company which indicate, any infringement or
misappropriation by, or conflict from, any third party with respect to the
Intellectual Property Rights; no claim by any third party contesting the
validity of any Intellectual Property Rights has been made, is currently
outstanding or, to the best Knowledge of the Shareholder, is threatened; the
Company has not received any notice of any infringement, misappropriation or
violation of any intellectual property rights of any third parties and, to the
best Knowledge of the Shareholder, the Company has not infringed,
misappropriated or otherwise violated any such intellectual property rights;
and, to the best Knowledge of the Shareholder, no infringement, illicit copying,
misappropriation or violation has occurred with respect to products currently
being sold by the Company or with respect to the products currently under
development (in their present state of development) or with respect to the
conduct of the business of the Company as now conducted.
3.18 Litigation. There are no actions, suits, proceedings, orders
or investigations pending or, to the best Knowledge of the Shareholder,
threatened against the Company, at law or in equity, or before or by any
arbitrator or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, nor
does the Shareholder Know of any basis therefor. No Governmental Entity has at
any time challenged or questioned the legal right of the Company to offer or
sell any of their products or services in the present manner or style thereof.
3.19 Year 2000 Compliance.
(a) The products and/or services offered by the Company
(including any predecessor in interest) that are listed in Schedule 3.19(a) are
Year 2000 Compliant. In those instances in which the Company is obligated to
repair or replace products or services previously provided by the Company that
are not Year 2000 Compliant in order to meet the Company's contractual
obligations, to avoid liability, to avoid misrepresentation claims, or due to
other obligations, the Company has repaired or replaced such products and
services so that such products and services are Year 2000 Compliant. The Company
is not subject to any pending or, to the Knowledge of Shareholder, threatened
regulatory action, proceeding or investigation
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concerning the Year 2000 Compliance of its products, services or operations,
and, to the best Knowledge of Shareholder, there is no basis for any such
regulatory action, investigation or proceeding. No claim that the Company has
liability because its products or services are not Year 2000 Compliant has been
asserted or, to the Knowledge of Shareholder, threatened and, to the best
Knowledge of Shareholder, there is no legal or contractual basis for any such
claim or action. The Shareholder has furnished Buyer with true, correct and
complete copies of any customer agreements or other materials in which the
Company has furnished assurances as to the Year 2000 Compliance of its products
or services, including any responses to surveys or requests for certification of
Year 2000 Compliance and letters of assurance to customers.
(b) To the best of the Shareholder's Knowledge, other than with
respect to the MIS systems acquired by the Company from Buyer, the internal MIS
systems (including hardware, firmware, operating system software, utilities, and
applications software) and the systems used in the ordinary course of the
Company's business by or on behalf of the Company, including the Company's
payroll, accounting, billing/receivables, customer service, human resources, and
e-mail systems, are Year 2000 Compliant in all material respects.
(c) To the best Knowledge of the Shareholder, all vendors of
products or services to the Company, and their respective products, services and
operations, are Year 2000 Compliant in all material respects, and, to the
Knowledge of Shareholder, each such vendor will continue to furnish its products
or services to the Company, without interruption or material delay, on and after
January 1, 2000.
(d) For purposes of this Agreement, "Year 2000 Compliant" or
"Year 2000 Compliance" means that (1) the products, services, or other item(s)
at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, and sequencing) from, into, and between the
years 1999 and 2000, including leap year calculations, and (2) neither the
performance nor the functionality nor the Company's provision of the products,
services, and other item(s) at issue will be affected by any dates/times prior
to, on, after, or spanning January 1, 2000. The design of the products,
services, and other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time data century
recognition and recognition of 1999 and 2000, calculations that accommodate
single century and 1900/2000 formulae and date/time values before, on, after,
and spanning January 1, 2000, and date/time data interface values that reflect
the century, 1999, and 2000.
3.20 Employees. To the best Knowledge of the Shareholder, no
employee of Company has any plans to terminate his or her employment, whether in
connection with the transactions contemplated by this Agreement or otherwise.
The Company has complied in all material respects with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes. The Company has no material labor relations problem pending and its
labor relations are satisfactory. There are no workers' compensation claims
pending against the Company, nor does the Shareholder Know of any facts that
would give rise to such a claim. To the best Knowledge of the Shareholder, no
employee of the Company is subject to any secrecy or noncompetition agreement or
any other agreement or restriction of any kind that would impede
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in any way the ability of such employee to carry out fully all activities of
such employee in furtherance of the business of such entity. No employee or
former employee of the Company has any claim with respect to any intellectual
property rights of such Company set forth in Section 3.17 of the Disclosure
Schedule. Section 3.20 of the Disclosure Schedule lists, as of the date set
forth in the Disclosure Schedule, each employee of the Company, along with the
position, title, remuneration (including any scheduled salary or remuneration
increases) and date of employment of each such employee. The Company does not
accrue vacation pay for employees and has no obligation to make monetary
payments in lieu of vacation.
3.21 Employee Benefit Plans.
(a) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and "Plan" means every plan, fund, contract, program and
arrangement (whether written or not) which is maintained or contributed to by
the Company for the benefit of present or former employees or with respect to
which the Company otherwise has current or potential liability. "Plan" includes
any arrangement intended to provide: (i) medical, surgical, health care,
hospitalization, dental, vision, workers' compensation, life insurance, death,
disability, legal services, severance, sickness or accident benefits (whether or
not defined in Section 3(1) of ERISA), (ii) pension, profit sharing, stock
bonus, retirement, supplemental retirement or deferred compensation benefits
(whether or not tax qualified and whether or not defined in Section 3(2) of
ERISA), (iii) bonus, incentive compensation, stock option, stock appreciation
right, phantom stock or stock purchase benefits, or (iv) salary continuation,
unemployment, supplemental unemployment, termination pay, vacation or holiday
benefits (whether or not defined in Section 3(3) of ERISA). Section 3.21 of the
Disclosure Schedule sets forth all Plans by name and brief description
identifying: (i) the type of Plan, (ii) the funding arrangements for the Plan,
(iii) the sponsorship of the Plan, and (iv) the participating employers in the
Plan.
(b) To the extent required (either as a matter of law or to
obtain the intended tax treatment and tax benefits), all Plans comply with the
requirements of ERISA and the Code. With respect to the Plans, (i) all required
contributions which are due have been made and a proper accrual has been made on
the books and records of the Company for all future contribution obligations;
(ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of the Code).
All benefits under the Plans are payable either through a fully-funded trust or
an insurance contract and no Plan is self-funded.
(c) Buyer has received true and complete copies of (i) all Plan
documents, including related trust agreements or funding arrangements; (ii) the
most recent determination letter, if any, received by the Company from the IRS
regarding the Plans and any amendment to any Plan made subsequent to any Plan
amendments covered by any such determination letter; (iii) the most recent
financial statements for the Plans; (iv) the most recently prepared actuarial
valuation reports; (v) current summary plan descriptions; (vi) annual
returns/reports on Form 5500 and summary annual reports for each of the most
recent three plan years; (vii) any filings with the IRS or the Department of
Labor ("DOL") within the last five years preceding the date of this Agreement;
and (viii) any material correspondence to or from the IRS or DOL within the
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last three years preceding the Closing Date in connection with any Plan. Nothing
has occurred that could adversely affect the qualification of the Plans and
their related trusts.
(d) The Company does not maintain or contribute to (and has never
contributed to) any multi-employer plan, as defined in Section 3(37) of ERISA.
The Company has no actual or potential liabilities under Title IV of ERISA,
including under Section 4201 of ERISA for any complete or partial withdrawal
from a multi-employer plan. The Company has no actual or potential liability for
death or medical benefits after separation from employment, other than (i) death
benefits under the employee benefit plans or programs (whether or not subject to
ERISA) set forth in Section 3.21 of the Disclosure Schedule and (ii) health care
continuation benefits described in Section 4980B of the Code.
(e) Neither the Company nor any of its directors, officers,
employees or other "fiduciaries", as such term is defined in Section 3(21) of
ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or
any other applicable law with respect to the Plans which would subject the
Company, Buyer or any of their respective directors, officers or employees to
any liability under ERISA or any applicable law.
(f) The Company has not incurred any liability for any tax or
civil penalty or any disqualification of any Plan imposed by Sections 4980B and
4975 of the Code and Part 6 of Title I and Section 502(i) of ERISA.
(g) There are no other trades or businesses, whether or not
incorporated, which, together with the Company, would be deemed to be a "single
employer" within the meaning of Code Sections 414(b), (c) or (m).
(h) Except with respect to Taxes on benefits paid or provided, no
Tax has been waived or excused, has been paid or is owed by any person
(including, but not limited to, any Plan, any Plan fiduciary or the Company)
with respect to the operations of, or any transactions with respect to, any
Plan. No action has been taken by the Company, nor has there been any failure by
the Company to take any action, nor is any action or failure to take action
contemplated by the Company (including all actions contemplated under this
Agreement), that would subject any person or entity to any liability or Tax
imposed by the IRS or DOL in connection with any Plan. No reserve for any Taxes
has been established with respect to any Plan by the Company nor has any advice
been given to the Company with respect to the need to establish such a reserve.
(i) There are no (i) legal, administrative or other proceedings
or governmental investigations or audits, or (ii) complaints to or by any
Governmental Entity, which are pending, anticipated or, to the best Knowledge of
the Shareholder, threatened, against any Plan or its assets, or against any Plan
fiduciary or administrator, or against the Company or its officers or employees
with respect to any Plan.
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(j) There are no leased employees, as defined in Section 414(n)
of the Code, that must be taken into account with respect to the requirements
under Section 414(n)(3) of the Code.
(k) Each Plan may be terminated directly or indirectly by Buyer
and the Company, in their sole discretion, at any time after the Closing Date in
accordance with its terms, without causing the Buyer or the Company to incur any
liability to any person, entity or government agency for any conduct, practice
or omission of the Company which occurred prior to the Closing Date, except for
liabilities, to and the rights of, the employees thereunder accrued prior to the
Closing Date, or if later, the time of termination, and except for continuation
rights required by the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, or other applicable law.
3.22 Insurance. The Company maintains and has maintained during
the periods set forth, the types of insurance with the coverage limitations set
forth in Section 3.22 to the Disclosure Schedule. Such insurance: (a) is in full
force and effect; (b) is sufficient for compliance in all material respects with
all requirements of applicable law and of any contract or agreement to which the
Company is subject; and (c) is valid, outstanding, and enforceable.
3.23 Affiliate Transactions. Other than pursuant to this
Agreement or as described in Section 3.23 of the Disclosure Schedule, no
officer, director or Shareholder, or any member of the immediate family of any
officer, director or Shareholder, or any entity in which Shareholder or his
immediate family owns any beneficial interest (other than any publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than two percent (2%) of the stock of which is
beneficially owned by any of such persons), has any agreement with the Company
or any interest in any property, real, personal or mixed, tangible or
intangible, used in or pertaining to the business of the Company (other than
ownership of capital stock of the Company). Except as described in Section 3.23
of the Disclosure Schedule and other than an interest in a publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than two percent (2%) of the stock of which is
beneficially owned by any of such persons, neither the Shareholder nor any
member of the immediate family of the Shareholder has any direct or indirect
interest in any competitor, supplier or customer of the Company or in any
person, firm or entity from whom or to whom the Company leases any property, or
in any other person, firm or entity with whom the Company transacts business of
any nature. For purposes of this Section 3.23, members of the immediate family
of an officer, director or Shareholder shall consist of the spouse and minor
children of the same. All agreements and transactions between the Company, on
one hand, and any of such persons, on the other hand, were made for bona fide
business purposes on terms no less favorable than could be obtained from an
unaffiliated third party.
3.24 Officers and Directors; Bank Accounts. Section 3.24 of the
Disclosure Schedule lists (a) all officers and directors of the Company, and (b)
all bank accounts of the Company (designating each authorized signer).
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3.25 Compliance with Laws; Permits.
(a) The Company and its officers and directors have complied in
all material respects with all applicable laws, regulations and other
requirements, including, but not limited to, national, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements including,
without limitation, those pertaining to product labeling, consumer products
safety, equal employment opportunity, employee retirement, affirmative action
and other hiring practices, occupational safety and health, workers'
compensation, and unemployment laws, which materially affect the business of the
Company and to which the Company may be subject. No claims have been filed
against the Company alleging a violation of any such laws, regulations or other
requirement. The Company is not relying on any exemption from or deferral of any
such applicable law, regulation or other requirement that would not be available
to Buyer after the Closing Date.
(b) The Company has, in full force and effect, all
authorizations, licenses, permits and certificates, from all Governmental
Entities necessary to conduct its business and own and operate its properties
(other than Environmental Permits) (collectively, the "Permits"). A true,
correct and complete list of all the Permits is set forth in Section 3.25 of the
Disclosure Schedule. The Company has conducted its business in compliance with
all material terms and conditions of the Permits.
(c) None of the Company, the Shareholder or officers, employees
or agents of the Company or any person acting on behalf of any such person or
entity, has, directly or indirectly received, agreed to receive, given or agreed
to give any gift or similar benefit from or to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) which violated or violates in any material
respect any national, federal, foreign, state or local law, rule or regulation.
Solely for purposes of this Section 3.25, "material" shall mean violations which
would result in assessments, penalties or fines by the Company, singly or in the
aggregate, of more than $5,000.
3.26 Environmental Matters. The Company is, and to the Knowledge
of the Shareholder the Leased Property is, and at all times relevant hereto has
been, in compliance, in all material respects, with all applicable environmental
laws. No violation of any environmental law now exists or has ever existed for
which the Company remains in violation; no notice of violation or any alleged
violation has been issued by any Governmental Entity and, to the Knowledge of
the Shareholder, there are no pending investigations involving the Company. To
its Knowledge, the Company is not required to possess environmental permits,
licenses, certificates of compliance, approvals or other authorizations to
conduct its business or to operate the Leased Property. The Company does not
Know of any hazardous substance that has been deposited, stored, or released on,
under or about any part of the Leased Property.
3.27 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in
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connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company or any
Shareholder.
3.28 Warranties. Except as set forth in Section 3.28 of the
Disclosure Schedule, the Company does not make nor has made any express or
implied warranties or guaranties on its own behalf as to goods sold or services
provided by it. Section 3.28 of the Disclosure Schedule also lists all claims
outstanding, pending or, to the best Knowledge of the Shareholder, threatened
for breach of any warranty relating to any products or services sold by the
Company prior to the date hereof.
3.29 Business of the Company. Except as specifically set forth in
Section 5.09, this Agreement, together with the performance of the Shareholder's
obligations hereunder will convey to Buyer all of the tangible and intangible
assets directly or indirectly related to the business of the Company, including,
but not limited to, account receivables, inventory, contract rights, office
equipment and supplies, customer and supplier lists, systems and software,
trademarks, licenses and patents, and such assets constitute all of the assets
necessary to conduct the business of the Company as it was conducted prior to
the Closing Date.
3.30 Inventory. The Company's inventory of product held for sale
consists of items of a quality and quantity usable and salable in the ordinary
course of the Company's business.
3.31 Investment. The Shareholder (i) understands that the Issued
Shares have not been, and will not be, registered under the Securities Act of
1933, as amended, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving a public offering and, as such, may not be sold or transferred in the
absence of an effective registration statement under applicable federal and
state securities laws or an opinion of counsel satisfactory to Buyer that such
sale or transfer is exempt from such registration, (ii) is a sophisticated
investor with Knowledge and experience in business and financial matters, (iii)
has received certain information concerning the Buyer and has had the
opportunity to obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the Issued Shares, (iv) is able the
bear the economic risk and lack of liquidity in holding the Issued Shares, (v)
is an accredited investor as that term is defined in Regulation D promulgated
under the Securities Act, and (vi) understands that the certificates
representing the Issued Shares will bear a legend indicating that the Issued
Shares may not be transferred unless in compliance with applicable law as
determined by counsel for Buyer (which Buyer may enforce by issuing
stop-transfer instructions to its transfer agent).
3.32 Disclosure. None of this Agreement, or the Disclosure
Schedule, the exhibits to this Agreement, the due diligence binder or the
financial statements referred to in Section 3.08 hereof (collectively, the
"Shareholder Related Documents"), contain any untrue statement of a material
fact regarding its business or any of the other matters dealt with in this
Article III relating to the Company or the transactions contemplated by this
Agreement. The Shareholder has not Knowingly concealed or omitted any material
fact necessary to make the statements contained herein, in light of the
circumstances in which they were made, not
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misleading, and there is no fact which has not been disclosed to Buyer of which
the Shareholder has Knowledge which materially affects adversely or could
reasonably be anticipated to materially affect adversely the business,
including operating results, assets, customer relations, employee relations and
business prospects, of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
BUYER
Buyer hereby represents and warrants to the Shareholder that:
4.01 Incorporation and Corporate Power. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Minnesota, with the requisite corporate power and authority to enter
into this Agreement and perform its obligations hereunder. The Company is duly
qualified and in good standing in each jurisdiction in which the conduct of its
business or the ownership or leasing of its properties requires it to be
qualified.
4.02 Execution, Delivery; Valid and Binding Agreement. The
execution, delivery and performance of the Transaction Documents by Buyer and
the consummation of the transactions contemplated thereby and hereby have been
duly and validly authorized by all requisite action of Buyer's management and
Board of Directors, and no other proceedings on its part are necessary to
authorize the execution, delivery or performance of the Transaction Documents.
The Transaction Documents have been duly and validly executed and delivered by
Buyer, and constitute the legal, valid and binding obligations of Buyer
enforceable in accordance with their terms.
4.03 No Breach. The execution, delivery and performance of the
Transaction Documents by Buyer and the consummation by Buyer of the transactions
contemplated hereby and thereby do not and will not conflict with or result in
any breach of any of the provisions of, constitute a default under, result in a
violation of, result in the creation of a right of termination or acceleration
or any lien, security interest, charge or encumbrance upon any assets or
securities of Buyer, or require any authorization, consent, approval, exemption
or other action by or notice to any court or other Governmental Entity, under
the provisions of the articles of incorporation, bylaws or other organizational
documents of Buyer or any indenture, mortgage, lease, loan agreement or other
agreement or instrument by which Buyer is bound or affected, or any law,
statute, rule or regulation or order, judgment or decree to which Buyer is
subject.
4.04 Governmental Authorities; Consents. Buyer is not required to
submit any notice, report or other filing with any Governmental Entity in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby. No consent, approval or
authorization of any Governmental Entity or any other party or person is
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required to be obtained by Buyer in connection with its execution, delivery and
performance of this Agreement or the transactions contemplated hereby.
4.05 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Buyer.
4.06 Issued Shares. The Issued Shares have been duly authorized
and when issued at Closing in accordance with the terms of this Agreement, will
be fully paid and nonassessable, and free and clear of any liens, claims or
encumbrances, except for the restrictions on transferability set forth in
Sections 3.31 and 5.08 herein.
4.07 Investment Intent. Buyer is purchasing the Shares for its
own account with the present intention of holding the Shares for investment
purposes and not with a view to or for sale in connection with any distribution
of the Shares in violation of any applicable securities law. Buyer will refrain
from transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause the Shareholder to be in violation of the
registration requirements of the Securities Act of 1933, as amended, or
applicable state securities or blue sky laws.
ARTICLE V
COVENANTS
5.01 Lien Searches. The Shareholder, at his own expense, shall
cause the Company to secure a release of all liens disclosed by such searches,
other than those consented to by Buyer in its sole discretion.
5.02 Consents and Approvals. The Shareholder shall, at his
expense, obtain, or cause to be obtained, each consent and approval necessary in
order that the transactions contemplated herein not constitute a breach or
violation of, or result in a right of termination or acceleration of, or
creation of any encumbrance on any of the Company's assets pursuant to the
provisions of any lease or other agreement, arrangement or undertaking of or
affecting the Company or any license, franchise or permit of or affecting the
Company. Buyer shall cooperate with Company and the Shareholder in obtaining
such consents and approvals.
5.03 Waivers. The Shareholder hereby irrevocably and
unconditionally waives any right to indemnification from the Company, whether
available under the articles of incorporation, bylaws or other organizational
documents of the Company, an agreement or policy or applicable law, arising in
connection with any event or circumstance occurring on or before the Closing
Date, other than any right to indemnification if and to the extent the Company
has established a specific reserve for such indemnification on its books and
records or as shown on
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the Disclosure Schedule or to the extent that such indemnification is covered
by policies of insurance whose premiums have been fully paid prior to the
Closing.
5.04 Tax Audits. In the event of a Tax audit or other similar
proceeding involving the transactions contemplated by this Agreement and the
Company, the Shareholder or Buyer, the parties not subject to such audit or
proceeding shall cooperate with the party subject to such audit or proceeding
(the "Audited Party") in such a manner and to such an extent as is reasonably
requested by the Audited Party. The Audited Party shall pay all reasonable
expenses incurred by such cooperating party. Neither the Company nor the
Shareholder shall consent to any adjustment or otherwise compromise or settle
any matters with respect to any Taxes resulting from the transactions
contemplated by this Agreement, without the prior written consent of Buyer,
which may be withheld or granted in its sole and absolute discretion. The Buyer
shall use commercially reasonable efforts to retain for the applicable statutory
period all records provided by the Company and Shareholder to Buyer that are
relevant to a Tax audit of Shareholder. If Buyer is unable to retain such
records, Buyer shall use its best efforts to notify Shareholder of its inability
to retain such records and Shareholder shall be permitted to collect and retain
such records for himself. In all events, Shareholder shall be permitted to copy
such records.
5.05 Authorization of the Issued Shares. Upon issuance at
Closing, the Issued Shares will be duly authorized, validly issued, fully paid
and non-assessable.
5.06 Covenant Not to Compete.
(a) Shareholder agrees that during the period commencing on the
Closing Date and ending on the fifth anniversary thereof (such period being
hereinafter referred to as the "Restricted Period"), the Shareholder shall not,
directly or indirectly, compete with the Company or Buyer in any manner or
capacity (e.g., as an advisor, principal, agent, partner, officer, director,
shareholder, employee, equity holder, member of any association or otherwise) in
any phase of the business which the Company or Buyer is conducting during the
Restricted Period or is known by such Shareholder to be proposed to be conducted
at the end of the Restricted Period, including, without limitation, the design,
development, distribution, marketing, leasing or selling of accessories, devices
or systems related to the products or services being sold by the Company, or
Buyer.
(b) Geographic Extent of Covenant. The obligations of the
Shareholder under this Section 5.06 shall apply to any geographic area in which
the Company or Buyer (i) is engaged in business on the Closing Date through the
sale of its goods, provision of its services, promotional, sales or marketing
activity or otherwise or (ii) has otherwise established its goodwill, business
reputation or any customer or supplier relations.
(c) Limitations of Covenant. Ownership by a Shareholder or the
spouse or minor children of the Shareholder, as a passive investment, of (i)
shares of capital stock of a corporation that is not a direct competitor of the
Buyer or the Company, or of (ii) less than two percent (2%) of the outstanding
shares of capital stock or other equity interest of any corporation, shall not
be considered competition within the meaning of this Section 5.06.
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(d) No Solicitation. During the Restricted Period, the
Shareholder shall not (i) induce or attempt to induce any employee of the
Company, Buyer or any of Buyer's majority-owned subsidiaries, as set forth in
Buyer's most recent filing with the Securities and Exchange Commission that
includes such information (each a "Majority-Owned Subsidiary"), to leave the
employ of any such entity or in any way interfere adversely with the
relationship between any such employee and any such entity, (ii) induce or
attempt to induce any employee of the Company, Buyer or any of Buyer's
Majority-Owned Subsidiaries to work for, render services or provide advice to or
supply confidential business information or trade secrets of any such entity to
any third person, firm or corporation, (iii) employ, or otherwise pay for
services rendered by, any employee of the Company, Buyer or any of Buyer's
Majority-Owned Subsidiaries in any business enterprise with which the
Shareholder may be associated, connected or affiliated, (iv) induce or attempt
to induce any customer, supplier, licensee, distributor, licensor or other
business relation of the Company, Buyer or any of Buyer's Majority-Owned
Subsidiaries to cease doing business with any such entity or in any way
interfere with the relationship between any such customer, supplier, licensee,
distributor, licensor or other business relation and the Company, Buyer or any
of Buyer's Majority-Owned Subsidiaries or (v) directly or indirectly solicit,
sell or render services to or for the benefit of any entity that competes with
any phase of the Company's, Buyer's or any of Buyer's Majority-Owned
Subsidiaries' business which any such entity conducts with any customer or
prospective customer with whom such Shareholder worked or had regular contact at
any time during the Restricted Period and the two (2) years prior to the Closing
Date.
(e) Indirect Competition. Shareholder shall not, directly or
indirectly, assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the above provisions of
this Section 5.06, if such activity were carried out by such Shareholder, either
directly or indirectly. In particular, Shareholder agrees that he shall not,
directly or indirectly, induce any employee of the Company, Buyer or any of
Buyer's Majority-Owned Subsidiaries to carry out, directly or indirectly, any
such activity.
(f) Acknowledgment. Shareholder agrees that the restrictions and
agreements contained in this Section 5.06 are reasonable and necessary to
protect the legitimate interests of the Company and Buyer and that any violation
of this Section 5.06 will cause substantial and irreparable harm to the Company
and Buyer that would not be quantifiable and for which no adequate remedy would
exist at law and accordingly injunctive relief shall be available for any
violation of this Section 5.06.
(g) Blue Pencil Doctrine. If the duration or geographical extent
of, or business activities covered by, this Section 5.06 are in excess of what
is valid and enforceable under applicable law, then such provision shall be
construed to cover only that duration, geographical extent or activities that
are valid and enforceable. Shareholder acknowledges the uncertainty of the law
in this respect and expressly stipulates that this Agreement is to be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
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5.07 338(h)(10) Election and Allocation.
(a) 338(h)(10) Election. At the request of Buyer, the Shareholder
and Buyer shall make a joint election under Section 338(h)(10) of the Code (and
under any similar provision of any state, local law and foreign law)
(collectively, the "Section 338(h)(10) Election") with respect to the purchase
of the Shares. On or prior to the completion of the Closing Date Statement (but
in any event within the time period required by law for such forms to be filed),
Buyer and its representatives shall prepare an IRS Form 8023 in accordance with
the terms of this Agreement (together with all required attachments thereto),
and any similar state, local and foreign forms, which shall be executed by the
Shareholder. Buyer shall retain custody of such executed forms and timely file
them with the appropriate Tax authorities. If any changes are required in any of
these forms subsequent to such filing, the parties will promptly agree on such
changes and file any required amended forms or other documents on a timely
basis. The Shareholder shall file all other Tax Returns required to be filed
consistent with the Section 338(h)(10) Election, and Buyer shall cooperate with
such filings.
(b) Allocation of Purchase Price. The Total Fixed Consideration
shall be allocated among the assets of the Company as set forth on Exhibit D
hereto (the "Allocation"). The Shareholder and Buyer agree to use the Allocation
for all income tax purposes and shall not make any inconsistent statement or
adjustment on any Tax Return or during the course of any Tax audit.
5.08 Restriction on Transferability.
(a) Except for Permitted Transfers, for the period beginning on
the Closing Date and ending on the fourth anniversary of the Closing Date, the
Shareholder may not sell, voluntarily or involuntarily transfer or otherwise
dispose of, in any manner whatsoever, the Issued Shares held by the Shareholder
without the approval of Buyer. The Shareholder consents and agrees that the
following legend shall be affixed on the certificates representing the Issued
Shares which such Shareholder shall receive, and, except as provided below, such
legend shall be affixed by Buyer upon each share certificate subsequently issued
to the Shareholders:
Notice of Restriction on Transferability
"The shares evidenced by this certificate are subject to restrictions
on transferability in accordance with an Stock Purchase Agreement by
and between the issuer of this certificate and the former shareholder
of Computer Aided Business Solutions, Inc., a copy of which is on file
in the principal office of the issuer of this certificate. By the
acceptance and holding of this certificate, the registered owner of
this certificate and his heirs, representatives and assigns shall be
bound by the provisions of such agreement and the transfer restrictions
therein contained."
Any attempted transfer of Issued Shares except in compliance with the terms of
this Section 5.08 shall be entirely null and void ab initio.
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(b) Notwithstanding the provisions of Section 5.08(a), Buyer
shall remove such legend and the Shareholder shall be permitted to transfer
Issued Shares held by the Shareholder in accordance with the terms of this
Section 5.08(b) (any such transfer, a "Permitted Transfer"):
(i) The Shareholder shall be entitled to sell, transfer
or otherwise dispose of up to 32,500 Issued Shares on and after the
first anniversary of the Closing Date and an additional 32,500 Issued
Shares on each anniversary thereafter until the fourth anniversary,
when all restrictions imposed by this Section 5.08 shall lapse. Upon
presentment of a certificate after expiration of the periods set forth
above, Buyer shall reissue any such certificate representing the Issued
Shares for which the transfer restrictions have lapsed without the
restrictive legend set forth in Section 5.08(a).
(ii) The Shareholder shall be entitled to transfer Issued
Shares held by the Shareholder by gift to a member of the Shareholder's
immediate family or by reason of the laws of descent and distribution;
provided, that the proposed transferee agrees in writing that the
Issued Shares to be so transferred shall remain subject the
prohibitions on transfer set forth in this Section 5.08. For purposes
of this Section 5.08(b), "immediate family" shall mean a Shareholder's
spouse, children, brother or sisters, parents or the parents of a
Shareholder's spouse or a trust for the benefit of the foregoing.
(iii) The Shareholder shall be entitled to sell, transfer
or otherwise dispose of the Issued Shares if and when the closing price
of Buyer's common stock as reported on the Nasdaq National Market, or
any exchange upon which such stock may then be listed, reaches $15.00
per share.
(iv) The Shareholder shall be entitled to sell, transfer
or otherwise dispose of the Issued Shares if there occurs (A) a change
in control of Buyer of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision thereto or (B) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of Buyer
representing 50% or more of the combined voting power of the Buyer's
then outstanding securities;
5.09 Transfer of certain property. Notwithstanding any other
provision of this Agreement, Buyer acknowledges and agrees that Shareholder may
cause the Company to transfer to Shareholder, prior to Closing, any interest in
event tickets or automobiles held by the Company, all cash, investment
securities and an amount equal to the difference between the Company's accounts
receivable due from Buyer and the Company's accounts payable due to Buyer (even
if such distribution puts the Company in a deficit cash position), provided that
any such transfer shall be recorded prior to the calculation of Working Capital
as of the Closing Date.
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5.10 Termination of 401(k) Plan. Shareholder shall cause the
Company to take such action as is necessary to terminate the Company's 401(k)
plan prior to Closing (the "401(k) Plan Termination").
5.11 Guarantees. Within thirty (30) days after Closing, Buyer shall
use commercially reasonable efforts to obtain the release of Shareholder of any
personal guarantees by Buyer of the obligations of the Company. Buyer shall
fully indemnify and hold harmless Shareholder (without regard the Buyer Basket
Amount) from and against any liability and all reasonable costs incurred by
Shareholder accruing from and after the Closing with regard to any such
guarantees not so released.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article III
hereof shall be true and correct in all material respects at and as of the
Closing Date, except that any such representation or warranty made as of a
specified date (other than the Closing Date) shall only need to have been true
on and as of such date.
(b) The Shareholder shall have performed in all material respects
all of the covenants and agreements required to be performed and complied with
by him under this Agreement prior to the Closing.
(c) The Shareholder shall have caused the Company to have obtained
each consent and approval necessary in order that the transactions contemplated
herein not constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of
Company's assets pursuant to the provisions of, any lease, agreement,
arrangement or undertaking of or affecting the Company or Shareholder or any
license, franchise or permit of or affecting the Company or any of the
Shareholder.
(d)-(h) Intentionally omitted
(i) The Shareholder shall have delivered to Buyer pay-off letters
from creditors of the Company's debt financing, including, without limitation,
any notes payable by the Company to affiliated parties, indicating the full
release of any claims against such entity upon payment in full at the Closing of
amounts due or to become due to such creditors.
(j) At the Closing, the Shareholder shall have delivered (or
caused to be delivered) to Buyer all of the following:
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(i) Certificates of the Shareholder, dated the Closing
Date, stating that the conditions precedent set forth in subsections
(a) and (b) above have been satisfied.
(ii) Copies of the third party and governmental consents,
approvals and other documents referred to in subsections (c) and (d)
above or elsewhere herein.
(iii) Resignations (effective as of the Closing Date) from
the officers and members of the boards of directors of the Company as
requested by Buyer.
(iv) A copy of the articles of incorporation of the
Company certified by the appropriate Governmental Entity, and
Certificates of Good Standing from the State of Colorado evidencing the
good standing of the Company dated within a reasonable period of the
Closing Date.
(v) An executed copy of the employment and noncompetition
agreement in the form of Exhibit B hereto with Keith Vincent (the
"Employment Agreement");
(vi) An executed Release from the Shareholder forever
releasing the Company, Buyer and Buyer's affiliates from any and all
claims relating to the Company, except for claims arising under the
Transaction Documents;
(vii) The Company's minute books, stock transfer records,
corporate seal and other materials related to each such entity's
corporate administration;
(viii) A copy of the bylaws of the Company as in effect on
the Closing Date; along with a certificate executed on behalf of the
Company by its corporate secretary certifying to Buyer that such copy
is a true, correct and complete copy of the Company's bylaws and that
such bylaws were duly adopted and have not been amended or rescinded;
(ix) the certificate or certificates representing the
Shares duly endorsed to Buyer or in blank;
(x) A written opinion from the counsel for the Company,
dated as of the Closing Date, addressed to Buyer and satisfactory to
Buyer and its counsel, in form and substance substantially similar to
Exhibit C hereto;
(xi) Such evidence of the 401(k) Plan Termination as Buyer
may reasonably request;
(xii) An executed copy of the Assignment Agreement attached
as Exhibit G hereto; and
(xiii) Such other certificates, documents and instruments as
Buyer reasonably requests related to the transactions contemplated
hereby.
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(k) Intentionally omitted.
(l) Buyer shall receive evidence from the Shareholder of
payment in full of (i) all outstanding notes receivable in favor of the Company
and (ii) all advances made by the Company to its employees or officers.
(m) Buyer shall have received the audited balance sheet and
statements of income, changes in shareholders' equity and cash flow as of and
for the fiscal years ended December 31, 1998 and 1997 for the Company, together
with a report of the Company's auditors thereon and the notes thereto prior to
the Closing Date.
6.02 Conditions to the Shareholder's Obligations. The obligations
of the Shareholder to consummate the transactions contemplated by this Agreement
are subject to the satisfaction of the following conditions on or before the
Closing Date:
(a) The representations and warranties set forth in Article IV
hereof will be true and correct in all material respects at and as of the
Closing Date, except that any such representation or warranty made as of a
specified date (other than the Closing Date) shall only need to have been true
on and as of such date.
(b) Buyer shall have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement
prior to the Closing.
(c)-(d) Intentionally omitted
(e) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any Governmental Entity, which would reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in Section
6.02(d) hereof.
(f) At the Closing, Buyer shall have delivered (or caused to be
delivered) to the Shareholder:
(i) a certificate of an appropriate officer of Buyer,
dated the Closing Date, stating that the conditions precedent set forth
in Sections 6.02(a) and 6.02(b) have been satisfied;
(ii) copies of the governmental consents, approvals and
other documents referred to in subsection (c) above;
(iii) a copy of the text of the resolutions adopted by the
board of directors of Buyer authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, along with a
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certificate executed on behalf of Buyer by its corporate secretary
certifying that such copy is a true, correct and complete copy of such
resolutions, and that such resolutions were duly adopted and have not
been amended or rescinded;
(iv) an incumbency certificate executed on behalf of Buyer
by its corporate secretary certifying as to the signature and office of
each officer executing this Agreement or any documents contemplated
hereby;
(v) the Closing Purchase Price;
(vii) a certificate or certificates representing the Issued
Shares;
(viii) an executed copy of the agreement attached as Exhibit
E hereto;
(ix) an executed copy of the Assignment Agreement attached
as Exhibit G hereto; and
(x) such other certificates, documents and instruments as
Shareholder reasonably requests related to the transactions
contemplated hereby.
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.01 Reliance and Survival of Representations and Warranties.
Notwithstanding any investigation made by or on behalf of any of the parties
hereto or the results of any such investigation and notwithstanding the
participation of such party in the Closing, each party shall be deemed to have
relied on the representations, warranties and covenants of the other parties and
the representations and warranties contained in Article III and Article IV
hereof shall survive the Closing in accordance with the terms of this Article
VIII. Notwithstanding the foregoing, no party otherwise entitled to
indemnification shall be entitled to the same after Closing with respect to any
breaches of a representation, warranty or covenant that such party actually knew
to be untrue as of or before the Closing Date; provided, however, that, the
party asserting such knowledge shall have the burden of proving such knowledge
of the other party and that with respect to Buyer, actual knowledge shall mean
the actual knowledge of the M.M. Stuckey, J.H. Caldwell or D.G. Latzke, the
Chief Executive Officer, President and Vice President and Chief Financial
Officer of the Buyer, respectively, whether or not any other personnel of Buyer
were informed; and provided further, that nothing in this clause shall relieve
the Shareholder of scheduling any exceptions to the warranties contained in
Article III of this Agreement.
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8.02 Indemnification by the Shareholder. (a) Subject to the
limitations of Sections 8.02(b) and 8.05, the Shareholder agrees to indemnify in
full, defend and hold harmless Buyer and its officers and directors
(collectively, the "Buyer Indemnified Parties") against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal fees and
expenses) (collectively, "Losses"), whether or not actually incurred or paid
prior to the expiration of the indemnification obligation of the Shareholder
hereunder, which the Buyer Indemnified Parties may suffer, sustain or become
subject to, as a result of any of the following:
(i) any misrepresentation in any of the representations
and warranties of the Shareholder contained in this Agreement, or the
Shareholder Related Documents;
(ii) any breach of, or failure to perform, any agreement
or covenant of the Shareholder contained in this Agreement or the
Shareholder Related Documents; or
(iii) any Claim or threatened Claim against the Buyer
Indemnified Parties that arises in connection with the actions or
inactions of the Company or the Shareholder with respect to the
Company's business prior to the Closing Date.
(b) Shareholder shall be liable to the Buyer Indemnified Parties
for Losses only (i) to the extent the aggregate amount of all Buyer Losses
exceeds $75,000 or such increased amount in accordance with Section 2.02(b) (the
"Basket Amount") in which case the Shareholder shall be obligated to indemnify
the Buyer Indemnified Parties for only the aggregate amount of all such Losses
in excess of the Basket Amount, and (ii) except as set forth below, only to the
extent such Losses do not exceed $2,000,000, which amount shall be reduced by an
amount equal to any payment of the Deferred Purchase Price when such payment is
due Shareholder (such amount as so reduced being hereinafter referred to as the
"Cap"); provided, however, that neither the Basket nor the Cap shall apply to
any Loss for which indemnification is claimed as a result of a breach of any of
the representations and warranties contained in Sections 3.05, 3.07, 3.15 and
3.21; and provided, further that the Cap shall be $4,000,000 for Losses under
Section 8.02(a)(i) arising out of breach of the representations or warranties
contained in Section 3.17, and for Losses pursuant to Section 8.02(a)(iii)
relating to actions or inactions of Shareholder or the Company relating to
infringement or ownership of the Company's principal software products.
8.03 Indemnification by Buyer. (a) Subject to the provisions of
Exhibit E hereto and the limitations of Sections 8.03(b) and 8.05, Buyer agrees
to indemnify in full, defend and hold harmless Shareholder against any Losses,
whether or not actually incurred or paid prior to the expiration of
indemnification obligation of Buyer hereunder, which the Shareholder may suffer,
sustain or become subject to as a result of any of the following:
(i) Any misrepresentation in any of the representations
and warranties of Buyer contained in this Agreement or any exhibits,
schedules, certificates or other documents delivered or to be delivered
by or on behalf of Buyer pursuant to the terms of this Agreement or
otherwise referenced or incorporated in this Agreement (collectively,
the "Buyer Related Documents" and, together with the Shareholder
Related Documents, the "Related Documents");
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(ii) Any breach of, or failure to perform, any agreement
or covenant of Buyer contained in this Agreement or the Buyer Related
Documents; or
(iii) Any Claim or threatened Claim against any Shareholder
that arises solely in connection with the actions or inactions of the
Company or Buyer with respect to the business of the Company after the
Closing Date.
(b) Buyer shall be liable to the Shareholder for any Losses only
(i) to the extent that the aggregate amount of all Losses exceeds $75,000 (the
"Buyer Basket Amount"), and (ii) only to the extent such Losses do not exceed
the Cap.
8.04 Method of Asserting Claims. As used herein, an "Indemnified
Party" shall refer to a Buyer Indemnified Party or a Shareholder, as applicable,
and the "Indemnifying Party" shall refer to the party or parties hereto
obligated to indemnify such Indemnified Party.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim"), then such Indemnified Party shall give the Indemnifying Party prompt
notice thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has adversely affected
the Indemnifying Party's ability to defend successfully a Claim or has caused
additional Losses. The Indemnifying Party shall be entitled to contest and
defend such Claim; provided, that the Indemnifying Party (i) has a reasonable
basis for concluding that such defense may be successful and (ii) diligently
contests and defends such Claim. Notice of the intention so to contest and
defend shall be given by the Indemnifying Party to the Indemnified Party within
fifteen (15) business days after the Indemnified Party's notice of such Claim
(but, in any event, at least ten (10) business days prior to the date that an
answer to such Claim is due to be filed). Such contest and defense shall be
conducted by reputable attorneys employed by the Indemnifying Party. If the
Indemnifying Party fails to give such notice or assume such defense, then the
Indemnified Party shall be entitled to undertake such defense and its reasonable
costs and expenses (including, without limitation, attorney fees and expenses)
shall be included in the Loss to be indemnified by the Indemnifying Party. If
the Indemnifying Party elects to contest and defend a Claim, the Indemnified
Party shall be entitled at any time, at its own cost and expense (which expense
shall not constitute a Loss unless the Indemnified Party reasonably determines
that the Indemnifying Party is not adequately representing or, because of a
conflict of interest, may not adequately represent, any interests of the
Indemnified Parties, and only to the extent that such expenses are reasonable),
to participate in such contest and defense and to be represented by attorneys of
its or their own choosing. If the Indemnified Party elects to participate in
such defense, the Indemnified Party will cooperate with the Indemnifying Party
(who shall be primarily responsible for the conduct of such defense) in the
conduct of such defense. Neither the Indemnified Party nor the Indemnifying
Party may concede, settle or compromise any Claim without the consent of the
other party, which consents will not be unreasonably withheld or delayed.
Notwithstanding the foregoing, (i) if a Claim seeks equitable relief or (ii) if
the subject
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matter of a Claim relates to the ongoing business of any of the
Indemnified Parties, which Claim, if decided against any of the Indemnified
Parties, would materially adversely affect the ongoing business or reputation of
any of the Indemnified Parties, then, in each such case, the Indemnified Parties
shall be entitled to assume the primary defense of such Claim (with the
cooperation of the Indemnifying Party) in the first instance and, if the
Indemnified Parties do not assume the primary defense of such Claim, the
Indemnifying Party shall then have the right to assume the primary defense of
(but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim for
indemnification against any Indemnifying Party (whether such claim does not
involve a Claim or involves a settled or resolved Claim which the Indemnifying
Party has not defended for any reason, or a Claim from which an Indemnified
Party has suffered Losses by reason of the Indemnifying Party's failure to
adequately represent a Indemnified Party's interests or otherwise to indemnify
the Indemnified Party), the Indemnified Party shall deliver a notice of such
claim (a "Claim Notice") to the Indemnifying Party, setting forth in reasonable
detail the identity, nature and estimated amount of Losses (if reasonably
determinable) related to such claim or claims, with reasonable promptness and in
all events prior to the expiration of the Indemnifying Party's indemnification
obligation hereunder. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the claim described in such notice or fails to notify
the Indemnified Party within twenty (20) days after delivery of such notice by
the Indemnified Party whether the Indemnifying Party disputes the claim
described in such notice, the Loss in the amount specified in the Indemnified
Party's notice will be conclusively deemed a liability of the Indemnifying Party
and the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability
with respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute for a
period of at least thirty (30) days. If such dispute has not been resolved by
such time, it shall be resolved fully and finally in accordance with the
procedures set forth in Article X. Notwithstanding the foregoing, for any claim
not involving a Claim, Shareholder shall not be liable to Buyer for any
incidental, internal Losses incurred by Buyer prior to providing Shareholder
with the Claim Notice.
(c) Upon completion of the procedures described in Sections
8.04(a) and 8.04(b), any indemnification payable under this Article VIII shall
be first set-off against the last scheduled payment of the Installment Purchase
Price pursuant to Section 2.05 and then to progressively earlier payments, and
then against the last scheduled payments of the Earn-Out and to the extent such
Deferred Purchase Price is not sufficient, shall be collectible directly from
the Indemnifying Party as permitted by law. If an Installment Purchase Price
Payment Date occurs during the pendency of the procedures described in Sections
8.04(a) and 8.04(b), Buyer shall only be obligated to pay that portion of the
Installment Purchase Price payable on such date that exceeds the amount of the
set-off claimed by Buyer until the procedures described in Sections 8.04(a) and
8.04(b) have been completed and the amount of the set-off is determinable, at
which time Buyer shall pay the remainder of the Installment Purchase Price
payable on such date, if any, which Buyer was not allowed to set-off.
(d) The amount of any Loss subject to indemnification hereunder or
any claim therefore shall be calculated net of (i) any net Tax Benefit inuring
to Buyer or the Shareholder on
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account of such Loss, and (ii) any insurance proceeds (net of direct collection
expenses and Taxes with respect thereto) received or receivable by Buyer or the
Shareholder on account of such Loss. If Buyer or the Company receives, directly
or indirectly, a Tax Benefit after an indemnification payment is made, Buyer
shall promptly pay to Shareholder the amount of such Tax Benefit at such time
or times as and to the extent that such Tax Benefit is received for purposes
hereof. "Tax Benefit" shall mean the present value of any refund of Taxes paid
or reduction in the amount of Tax which otherwise would have been paid
currently using the maximum tax rate for the then-current tax year to the
extent that such refund or reduction relates to periods after the Closing.
Buyer and/or the Company shall seek full recovery under any insurance policies
covering any loss to the same extent as they would if such loss were not
subject to indemnification hereunder. In the event that an insurance recovery
is made by Buyer or the Company or any of their respective affiliates with
respect to any loss for which any such person has been indemnified hereunder,
then a refund equal to the net, after-Tax amount of the recovery shall be made
promptly to the Shareholder.
8.05 Limitations on Indemnification.
(a) Notwithstanding any investigation made by or on behalf of any
of the parties hereto or the results of any such investigation and
notwithstanding the participation of such party in the Closing, the
representations and warranties contained in this Agreement, except for the
representations and warranties contained in Sections 3.05, 3.07, 3.15, 3.17 and
3.21, shall survive the Closing for two (2) years from the Closing Date. The
representations and warranties contained in Section 3.17 shall survive the
closing for three (3) years after the Closing Date. The representations and
warranties contained in Sections 3.05 and 3.07 shall survive the Closing
indefinitely, and Sections 3.15 and 3.21 shall survive the Closing for a period
of six months after all applicable statutes of limitations with respect to any
claims governing the respective matters set forth therein have expired. With
respect to any specific representation or warranty under which a party shall
have made a claim for indemnification hereunder prior to the expiration dates
set forth above and as to which such claim has not been completely and finally
resolved prior to such expiration date, such representation or warranty shall
survive for the period of time beyond the expiration date sufficient to resolve,
completely and finally, the claim relating to such representation or warranty.
(b) Any claim for indemnification brought pursuant to Section
8.02(a)(ii), 8.02(a)(iii), 8.03(b)(ii) or 8.03(b)(iii) shall be brought within
two (2) years after the Closing Date; provided, however, that such limitation
shall not affect Buyer's ability to assert a claim for indemnification pursuant
to Section 8.02(a)(i) after the expiration of such two-year time period subject
to the terms of Section 8.05(a); and provided, further, that such time
limitation shall be three (3) years after the Closing Date for any
indemnification claim brought pursuant to Section 8.02(a)(iii) relating to
actions or inactions of Shareholder or the Company relating to infringement or
ownership of the Company's principal software products. With respect to any
claim for indemnification that has been made in accordance with Section
8.02(a)(ii), 8.02(a)(iii), 8.03(b)(ii) or 8.03(b)(iii) prior to the expiration
dates set forth above and as to which such claim has not been completely and
finally resolved prior to such expiration date, such claim for
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indemnification shall survive for the period of time beyond the expiration date
sufficient to resolve, completely and finally, such claim for indemnification.
(c) After the Closing, the rights set forth in this Article VIII
shall be each party's sole and exclusive remedies against the other parties
hereto for misrepresentations or breaches of covenants contained in this
Agreement and the Related Documents. Notwithstanding the foregoing, nothing
herein shall prevent any Indemnified Party from bringing an action based upon
allegations of fraud or other intentional breach of an obligation of or with
respect to either party in connection with this Agreement, the Disclosure
Schedule and the Transaction Documents. In the event such action is brought, the
prevailing party's attorneys' fees and costs shall be paid by the nonprevailing
party, subject to the arbitrator's or arbitrators', as the case may be, decision
that such payments are not warranted or reasonable.
(d) Any indemnification payable under this Article VIII shall be,
to the extent permitted by law, an adjustment to purchase price.
ARTICLE IX
MISCELLANEOUS
9.01 Press Releases and Announcements. Prior to the Closing Date,
neither Buyer nor the Shareholder shall issue any press release (or make any
other public announcement) related to this Agreement or the transactions
contemplated hereby or make any announcement to the customers or suppliers of
the Company or any other third parties without prior written approval of the
other party hereto, except as may be necessary, in the opinion of counsel to the
party seeking to make disclosure, to comply with the requirements of this
Agreement or applicable law or any national stock exchange or Nasdaq. If any
such press release or public announcement is so required, the party making such
disclosure shall consult with the other party prior to making such disclosure,
and the parties shall use all reasonable efforts, acting in good faith, to agree
upon a text for such disclosure which is satisfactory to both parties.
9.02 Expenses. Except as expressly provided otherwise herein, the
parties will pay all of their own expenses in connection with the negotiation of
this Agreement, the performance of their respective obligations hereunder and
the consummation of the transactions contemplated by this Agreement (whether
consummated or not). All legal, accounting, investment banking and other
expenses incurred by the Shareholder for the purpose of facilitating the sale of
the Shares or precipitated by the desire of the Shareholder to cause a change in
ownership of the Company shall be regarded as expenses of the Shareholder;
provided, however, that the Shareholder may cause the Company to pay his legal
expenses in connection with the transactions contemplated by this Agreement
prior to Closing to the extent such payment does not result in a Closing
Adjustment.
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9.03 Further Assurances. Each of the Buyer and the Shareholder
agrees that, on and after the Closing Date, he or it shall take all appropriate
action and execute any documents, instruments or conveyances of any kind which
may be reasonably necessary or advisable to carry out any of the provisions
hereof.
9.04 Amendment and Waiver. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
9.05 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
three (3) days after being mailed by first class mail, return receipt requested,
or one (1) day after sent by Federal Express or other overnight delivery
service, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Buyer and the Shareholder will, unless another address is specified in writing,
be sent to the address indicated below:
Notices to Buyer: Fourth Shift Corporation
Attn: Jimmie H. Caldwell
Two Meridian Crossings
Minneapolis, Minnesota 55423
Facsimile: (612) 851-1584
with a copy to: Dorsey & Whitney LLP
Attn: Thomas O. Martin, Esq.
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile: (612) 340-8738
Notices to Shareholder Computer Aided Business Solutions, Inc.
Attn: Keith Vincent
1600 Jackson Street
Golden, Colorado 80401
with a copy to: Minor & Brown, P.C.
Attn: Lisa A. D'Amrosia
650 South Cherry Street, Suite 1100
Denver, Colorado 80246
Facsimile: (303) 320-6330
9.06 Assignment. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted
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assigns, except that neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by any party hereto without the prior
written consent of the other party hereto.
9.07 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
9.08 Complete Agreement. This Agreement, the Related Documents, the
Transaction Documents, the other documents referred to herein and the Disclosure
Schedule contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
9.09 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
9.10 Governing Law. The internal law, without regard to conflicts
of laws principles, of the State of Minnesota will govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
9.11 Legal Force and Effect. This Agreement shall have no legal
force or effect until all of the parties identified in the first paragraph above
have executed and delivered a copy of this Agreement.
9.12 Knowledge. When applied to any party to this Agreement, the
term "knowledge" or "knows" and any derivatives thereof shall refer to the
actual knowledge of the party after reasonable investigation (if a natural
person), or in the case of Buyer or the Company, the executive officers and
directors of such entity, and shall include such knowledge as a reasonably
prudent person in such position would have after reasonable investigation.
ARTICLE X
ARBITRATION
10.01 Arbitration. Subject to the provisions of Article II and
Sections 5.06 and 10.01(c), the parties hereby agree to settle any controversy,
claim or dispute of whatever nature arising between them under this Agreement or
in connection with the transactions contemplated hereunder, including those
arising out of or relating to the breach, termination, enforceability, scope or
validity hereof, whether such claim existed prior to or arises on or after the
Closing Date, as follows:
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(a) As between the parties to this Agreement or any parent,
subsidiary, affiliate, successor or assign of the parties, any dispute, claim or
controversy directly or indirectly arising out of or related to this Agreement
(or any of the Related Documents, Transaction Documents or any of the other
documents referred to herein) or the breach, termination or validity thereof,
shall be finally settled by arbitration conducted expeditiously in accordance
with the Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association ("AAA"). Within ten (10) business days of the receipt of
a list of arbitrators from the AAA, the parties shall select a sole independent
and impartial arbitrator; provided, however, that if any party so requests, the
parties shall select three (3) independent and impartial arbitrators. If the
parties are unable to agree upon an arbitrator or arbitrators within such
period, the AAA shall appoint an arbitrator on the eleventh (11th) day. The
place of arbitration shall be Minneapolis, Minnesota.
(b) (i) The arbitrator or arbitrators will issue findings of
fact and conclusions of law to support his, her or their opinion.
(ii) Except for damages arising out of or related to an
intentional breach of warranty or fraudulent representation (Articles III or IV
of this Agreement), the arbitrator or arbitrators shall only be empowered to
award actual and direct compensatory contract damages, and shall not be
empowered to award any special, consequential, incidental or punitive damages or
any damages related to a tort claim.
(iii) Judgment upon the award rendered by the arbitrator or
arbitrators may be entered by any court having jurisdiction thereof and enforced
as any other judgment. Any party required to resort to litigation in order to
enforce an arbitral award shall be entitled to all costs of suit including
reasonable attorneys fees and expenses, together with interest on the arbitral
award calculated at the statutory rate for judgments commencing ten (10) days
from the date of the award.
(iv) The arbitrator's or arbitrators' award shall be final
and binding upon the parties and appealable only upon a showing that it is, on
its face, arbitrary, capricious, an abuse of discretion and/or clearly contrary
to statutory or settled case law. The party appealing any award shall, if
unsuccessful, be responsible for all costs of appeal including reasonable
attorneys' fees incurred by the other party.
(v) The arbitrator or arbitrators shall have the power,
but not the obligation, to hire an accounting firm or other professional within
the financial services industry as an expert in order to assist the arbitrator
or arbitrators in issuing findings of fact.
(vi) The arbitration proceedings and all discovery shall
be confidential and neither party shall release any decision rendered by the
arbitrator to any third party.
(vii) The arbitration procedure shall be completed promptly
and a decision rendered within four (4) months of the appointment of the
arbitrator or arbitrators unless extended by the arbitrator or arbitrators due
to circumstances beyond the control of the parties or
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the arbitrator or arbitrators or as necessary, in the arbitrator's or
arbitrators' sole opinion, to avoid manifest injustice. Discovery shall be
limited to that which is directly relevant to the claim or controversy and to
key documents and witnesses that are substantive and reasonably necessary to
establish a party's claim or defense. Whenever reasonably possible and unless
manifestly prejudicial or unfair, affidavits will be substituted for direct
testimony.
(c) Notwithstanding any of the foregoing, the parties recognize
that certain business relationships could give rise to the need for one or
more of the parties to seek emergency, provisional or summary injunctive
relief for various reasons, including, without limitation, to repossess and
sell or otherwise dispose of goods, equipment and/or fixtures, to prevent the
sale or transfer of goods, equipment and/or fixtures, to protect real or
personal property from injury, or to obtain possession of real estate and
terminate leasehold interests, and for other temporary injunctive relief.
Immediately following the issuance of any such relief, the parties agree to
the stay of any judicial proceedings pending arbitration of all underlying
claims between the parties.
[The balance of this page was intentionally left blank. Signature pages follow.]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.
BUYER:
FOURTH SHIFT CORPORATION
By /s/JIMMIE H. CALDWELL
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Its President
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SHAREHOLDER:
/s/ KEITH VINCENT
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Keith Vincent
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