SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 31, 1997
TOKHEIM CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Indiana 1-6018 35-0712500
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
10501 Corporate Drive, Fort Wayne, IN 46845
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (219)-470-4600
N/A
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 31, 1997, Tokheim Corporation (the "Company") completed
the acquisition of all of the outstanding capital stock of Management
Solutions, Inc., a Colorado corporation ("MSI"). MSI, located in Denver,
is a developer, publisher and distributor of retail automation
point-of-sale software systems, primarily for the convenience store,
petroleum dispensing and fast food service industries. The acquisition
was made pursuant to the terms of a stock purchase agreement (the "Stock
Purchase Agreement"), dated as of December 29, 1997, among Arthur S.
("Rusty") Elston, Ronald H. Elston, Eric E. Burwell and Curt E. Burwell
(collectively, the "Sellers") and the Company.
As consideration for MSI's stock, the Company paid the Sellers an
initial amount of $12 million. The Company will also pay the Sellers an
earnout amount of up to $13 million in additional consideration over the
next three years, based upon MSI's achievement of certain profitability
goals. The acquisition was funded by a loan through the Company's
existing credit agreement with the First Chicago NBD Corporation and
certain other banks.
As part of the transaction, the Company entered into an employment
relationship with Rusty Elston, the president of MSI, pursuant to which
he will oversee its point-of-sale software business.
The brief summary above of certain terms of the acquisition is
qualified by reference to the complete text of the Stock Purchase
Agreement which is incorporated herein by reference and attached hereto
as an exhibit.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements of Business Acquired.
It is impracticable at this time to provide the historical
financial statements of MSI required by Regulation S-X. They will be
filed as soon as practicable but not later than 60 days after this report
is required to be filed.
(b) Pro Forma Financial Information.
It is impracticable at this time to provide the pro forma financial
statements of MSI required by Regulation S-X. They will be filed as soon
as practicable but not later than 60 days after this report is required
to be filed.
(c) Other Exhibits.
1. Stock Purchase Agreement, dated as of December 29, 1997,
among Arthur S. ("Rusty") Elston, Ronald H. Elston, Eric E. Burwell and
Curt E. Burwell and the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
TOKHEIM CORPORATION
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Registrant
Date: January 14, 1998 By: /S/ DOUGLAS K. PINNER
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Douglas K. Pinner
Chairman, President and Chief
Executive Officer
Date: January 14, 1998 By: /S/ JOHN A. NEGOVETICH
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John A. Negovetich
President, Tokheim North America
and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
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1. Stock Purchase Agreement, dated as of December 29, 1997,
among Arthur S. ("Rusty") Elston, Ronald H. Elston, Eric E.
Burwell and Curt E. Burwell and the Company.
STOCK PURCHASE AGREEMENT
AMONG
TOKHEIM CORPORATION,
ARTHUR S. ("RUSTY") ELSTON,
RONALD H. ELSTON,
ERIC E. BURWELL
AND
CURT E. BURWELL
Dated as of December 29, 1997
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Transfer of Stock. ........................................1
1.2 Consideration. ............................................1
1.3 Adjusted EBIT. ............................................3
1.4 Procedures for Determining Adjusted EBIT. .................4
1.5 Payment of the Contingent Payments. .......................6
1.6 Conduct of Business Following Closing.......................6
ARTICLE II
CLOSING
2.1 The Closing.................................................7
2.2 Closing Deliveries..........................................7
2.3 Further Assurances..........................................9
ARTICLE III
JOINT REPRESENTATIONS AND WARRANTIES OF THE SELLERS
3.1 Corporate Organization, Etc.................................9
3.2 No Violation...............................................10
3.3 Capital Stock..............................................10
3.4 Subsidiaries...............................................11
3.5 Financial Statements; Liabilities..........................11
3.6 Absence of Certain Changes.................................11
3.7 Compliance with Law; Governmental Authorizations...........13
3.8 Intellectual Property......................................14
3.9 Taxes......................................................16
3.10 Contracts...................................................19
3.11 Insurance...................................................20
3.12 Litigation..................................................20
3.13 Consents and Approvals......................................21
3.14 Environmental Matters.......................................21
3.15 Employee Benefit Plans......................................23
3.16 Labor Matters...............................................26
3.17 Bank and Other Accounts.....................................27
3.18 Property....................................................27
3.19 No Brokers' or Other Fees...................................27
3.20 Accounts Receivable.........................................27
3.21 Inventory...................................................28
3.22 Insider Interests...........................................28
3.23 Products and Warranties.....................................28
3.24 Disclosure..................................................29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization.....................................29
4.2 Authorization, Etc.........................................29
4.3 No Violation...............................................30
4.4 Buyer's SEC Reports........................................30
4.5 Consents and Approvals.....................................31
4.6 Disclosure.................................................31
4.7 Acquisition for Investment.................................31
4.8 No Brokers' or Other Fees..................................31
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business........................................31
5.2 Books, Records and Properties..............................33
5.3 Filings and Consents.......................................34
5.4 Tax Matters................................................34
5.5 Supplements to Disclosure Schedule; Notice and Cure........39
5.6 Covenant to Satisfy Conditions.............................40
5.7 Employee Benefits and Employment...........................40
5.8 Restrictive Covenants. ...................................40
5.9 Confidentiality............................................42
5.10 Acquisition Proposals to the Company........................43
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLERS
6.1 Representations and Warranties.............................43
6.2 Performance................................................43
6.3 Injunctions................................................43
6.4 Governmental Filings and Consents..........................44
6.5 Officer's Certificate......................................44
6.6 Corporate Documents........................................44
6.7 Opinion of Counsel.........................................44
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
7.1 Representations and Warranties.............................44
7.2 Performance................................................44
7.3 Injunctions................................................45
7.4 Governmental Filings and Consents; Third-Party Consents....45
7.5 Sellers' Certificate.......................................45
7.6 Opinion of Counsel.........................................45
7.7 Employment Agreement.......................................45
7.8 Resignations...............................................45
7.9 Archived Software. .......................................45
7.10 Absence of Certain Changes..................................45
7.11 Tax Matters.................................................46
ARTICLE VIII
TERMINATION
8.1 Termination................................................46
8.2 Effect of Termination......................................46
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification............................................47
9.2 Survival of Representations and Warranties.................49
9.3 Arbitration................................................50
9.4 Remedies Cumulative........................................51
ARTICLE X
REPRESENTATIONS AND WARRANTIES
OF THE INDIVIDUAL SELLERS
10.1 Authorization, Etc........................................52
10.2 No Violation..............................................52
10.3 Ownership of Stock........................................52
10.4 No Foreign Persons........................................53
10.5 S Corporation Election....................................53
ARTICLE XI
MISCELLANEOUS
11.1 Fees and Expenses.........................................53
11.2 Governing Law.............................................53
11.3 Amendment.................................................53
11.4 No Assignment.............................................53
11.5 Waiver....................................................54
11.6 Notices...................................................54
11.7 Complete Agreement........................................55
11.8 Publicity.................................................56
11.9 Headings..................................................56
11.10 No Third-Party Beneficiaries...............................56
11.11 Counterparts...............................................56
TABLE OF ANNEXES
Definitions..........................................................Annex A
Stockholders.........................................................Annex B
Allocation of Purchase Price.........................................Annex C
Promissory Note......................................................Annex D
Opinion of Counsel for Sellers.......................................Annex E
Opinion of Counsel for Buyer.........................................Annex F
Employment Agreement.................................................Annex G
Master Facility Lease................................................Annex H
EXHIBITS
5.1(b) Certain Payments Between Signing and Closing
DISCLOSURE SCHEDULE
3.1 Corporate Organization, Etc.
3.3 Capital Stock
3.5 Financial Statements; Liabilities
3.6 Absence of Certain Changes
3.7 Compliance with Law; Governmental Authorizations
3.8 Intellectual Property
3.9 Taxes
3.10 Contracts
3.11 Insurance
3.14 Environmental Matters
3.15 Employee Benefit Plans
3.16 Labor Matters
3.17 Bank and Other Accounts
3.18 Property
3.19 No Brokers' or Other Fees
3.22 Insider Interests
3.23 Products and Warranties
4.3 No Violation
4.8 No Brokers' or Other Fees
5.1 Conduct of Business
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of December 29, 1997, by and among Arthur S. ("Rusty")
Elston ("Seller 1"), Ronald H. Elston ("Seller 2"), Eric E. Burwell
("Seller 3") and Curt E. Burwell ("Seller 4," and together with Seller
1, Seller 2 and Seller 3, the "Sellers") and Tokheim Corporation, an
Indiana corporation ("Buyer"). Capitalized terms used but not defined
in this Agreement shall have the meanings ascribed to such terms in
Annex A hereto.
WHEREAS, Management Solutions, Inc., a Colorado corporation
engaged in the business of developing and marketing point of sale and
management systems (the "Company"), has 500,000 issued and outstanding
shares of common stock, no par value (the "Company Common Stock"),
which is owned by the Sellers in the amounts shown in Annex B;
WHEREAS, the parties intend that Buyer shall have the option
to cause the transactions contemplated hereby be treated under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), as a sale of assets; and
WHEREAS, Buyer desires to purchase from the Sellers, and the
Sellers desire to sell to Buyer, all of the Company Common Stock,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
covenants, agreements, representations and warranties contained in this
Agreement, the Sellers and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Transfer of Stock. On the Closing Date (as defined in
Section 2.1 hereof) and subject to the terms and conditions set forth
in this Agreement, the Sellers will sell, assign, transfer and deliver
to Buyer all of the Company Common Stock, free and clear of all
Encumbrances (as defined in Annex A hereto).
1.2 Consideration. (a) On the Closing Date and subject to
the terms and conditions set forth in this Agreement, in reliance on
the representations, warranties, covenants and agreements of the
parties contained herein and in consideration of the sale, assignment,
transfer and delivery by the Sellers to Buyer of the Company Common
Stock and the nonsolicitation, noninterference, nondisclosure and
noncompetition covenants contained in Section 5.8 hereof, Buyer will
pay to the Sellers (x) a fixed payment of $12,000,000 (the "Fixed
Purchase Price"), plus (y) up to three contingent payments based upon
the performance of the Company, totaling no more than $8,000,000 (the
"Contingent Purchase Price," together with the Fixed Purchase Price,
the "Purchase Price"). The aggregate Purchase Price will not exceed
$20,000,000.
(b) The Fixed Purchase Price shall be payable by Installment
Promissory Note, in substantially the form attached hereto as Annex D.
(c) The Contingent Purchase Price shall be payable to the
Sellers on or within 30 days after completion of a final determination
consistent with Section 1.4 hereof of the Adjusted EBIT for each of three
successive periods (each a "Period," and each such payment a "Contingent
Payment") as follows:
(i) Buyer shall pay the Sellers an amount equal to
[*1] (the "Payment Multiple") times the amount by which the
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1 Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
Adjusted EBIT (as defined in Section 1.3) for fiscal year 1998
exceeds [*2] (the "Estimated 1997 Adjusted EBIT"). The
parties hereto agree that fiscal year 1998 consists of the 12-
month period from December 1, 1997 to November 30, 1998;
___________________
2 Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
(ii) Buyer shall pay the Sellers an amount equal
to the Payment Multiple times the amount by which the Adjusted
EBIT for fiscal year 1999 exceeds the higher of the Estimated 1997
Adjusted EBIT and the actual Adjusted EBIT for fiscal year 1998;
and
(iii) Buyer shall pay the Sellers an amount equal
to the Payment Multiple times the amount by which the Adjusted
EBIT for fiscal year 2000 exceeds the highest of the Estimated
1997 Adjusted EBIT, the actual Adjusted EBIT for fiscal year 1998
and the actual Adjusted EBIT for fiscal year 1999.
(d) In each Period, the fiscal year will be deemed to begin
on December 1st of the prior calendar year and end on the following
November 30th.
(e) In no event shall the aggregate Contingent Payments
under Section 1.2(c) be more than $8,000,000, nor shall the aggregate
Purchase Price under Section 1.2(a) be more than $20,000,000.
(f) Buyer shall make a Contingent Payment for a given Period
only if the Adjusted EBIT generated during that Period exceeds any
negative Adjusted EBIT incurred, on a cumulative basis, by the Company in
the preceding Period or Periods.
(g) Upon termination during the Periods by the Company with
cause (as provided in the Employment Agreement) or by the employee for
reasons other than a material breach of the Employment Agreement by the
Company of Rusty Elston's employment with the Company, any Contingent
Payment that would otherwise subsequently be payable to the Sellers shall
be calculated using a Payment Multiple of [*3]. Upon termination during
the Periods by the Company without cause or by the employee due to a
material breach by the Company as finally and judicially determined of
Rusty Elston's employment with the Company, the maximum Contingent
Purchase Price (less any portion previously paid) shall be paid to the
Sellers on the next regular date on which a Contingent Payment is due.
___________________
3 Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
(h) Buyer and the Sellers agree to allocate the Purchase
Price among the Company Common Stock and the noninterference,
nondisclosure, nonsolicitation and noncompetition agreements contained in
Section 5.8 in accordance with Section 5.4(a)(iii) and for all purposes
(including financial, accounting and tax purposes) in accordance with the
allocation schedule attached hereto as Annex C. This allocation will be
binding upon the parties hereto, who shall file their tax returns in
accordance with this allocation.
(i) Notwithstanding anything in this Agreement to the
contrary, if within the three-year period following the Closing Date
(i) Buyer sells all or any portion of the capital stock of the Company
such that the Company is no longer eligible to be a member of Buyer's
consolidated group as defined for federal income tax purposes, or (ii)
the Company sells all or substantially all of its assets to any person
or entity other than a member of Buyer's consolidated group, then the
maximum Contingent Purchase Price (less any portion previously paid)
shall be paid to the Sellers on the next regular date on which a
Contingent Payment is due.
1.3 Adjusted EBIT. (a) For purposes of this Agreement, the
term "Adjusted EBIT" shall mean the earnings of the Company, if any,
before deducting interest payments and taxes during each Period,
computed in accordance with the accounting practices applied by Coopers
& Lybrand LLP during its audit of the Company's financial statements as
of November 30, 1997, and the provisions set forth herein.
(b) Notwithstanding anything to the contrary in this
Agreement, the calculation of Adjusted EBIT shall not include (i) any
purchase accounting adjustments (such as additional depreciation
resulting from the write up of the assets of the Company) and
amortization of goodwill arising as a result of the transactions
described herein; (ii) any corporate overhead allocation by Buyer; (iii)
any moving expenses relating to the relocation of employees of Buyer to
the Company's location and either reimbursed to such employees or paid
directly by the Company on behalf of such employees; (iv) any charges to
earnings that may result from claims against the Company or the Sellers
for which the Company and/or Buyer is entitled to indemnification
pursuant to Article IX hereof and for which either recovery thereunder is
actually made or Sellers provide written confirmation that such claim is
properly subject to the indemnification provisions of Article IX,
regardless of whether the claim is subject to the "basket" referred to in
the second clause of the penultimate sentence of Section 9.1(b); (v) any
amounts paid as the Incentive Bonus pursuant to Section 4.4 of the
Employment Agreement; and (vi) items of revenue and related expense
generated during a given Period on the basis of circumstances that Buyer
and Sellers' Representative agree are not reasonably likely to recur,
including, without limitation, items that are extraordinary or unusual
items as such terms are defined by generally accepted accounting
principles (collectively, the "Non-Recurring Items"), to the extent to
which such Non-Recurring items exceed 5% of the total revenue generated
during such Period.
1.4 Procedures for Determining Adjusted EBIT.
(a) Within sixty (60) days after the end of each Period,
Buyer shall deliver to each Seller a statement calculating the Adjusted
EBIT and the amount of any resulting Contingent Payment payable in
connection with such Period, prepared in accordance with the applicable
provisions of this Article I (collectively, the "Statement of Adjusted
EBIT") and shall deliver a copy of such Statement of Adjusted EBIT to
each Seller individually. If the Sellers disagree with any item,
deduction, computation or Contingent Payment set forth in the Statement
of Adjusted EBIT, within thirty (30) days after the receipt by the
Sellers of the Statement of Adjusted EBIT, one of the Sellers appointed
by the other Sellers (the "Sellers' Representative") shall deliver to
Buyer a written notice (a "Notice of Objection") setting forth in
reasonable detail Sellers' objections. If the Sellers' Representative
fails to deliver a Notice of Objection within such thirty day period, or
delivers a written acceptance of the Statement of Adjusted EBIT executed
by the Sellers' Representative, the Statement of Adjusted EBIT will
become final and binding upon the Sellers. In addition, upon receipt of a
Notice of Objection, the Statement of Adjusted EBIT shall become final
and binding as to all amounts not disputed in such Notice of Objection.
If the Sellers' Representative so notifies Buyer of its objection to the
Statement of Adjusted EBIT, the Sellers' Representative and Buyer shall,
within 30 days following the date of such notice (the "Resolution
Period"), attempt to resolve their differences. Any resolution by them as
to any disputed amounts shall be final, binding and conclusive. If at the
conclusion of the Resolution Period the Sellers' Representative and Buyer
do not resolve the dispute, then Ernst & Young LLP (or any other firm of
independent public accountants mutually agreed to by the Sellers'
Representative and Buyer, other than Hiratsuka, Cassaday & Schaus, LLP
and Coopers & Lybrand LLP) (the "Neutral Auditor") shall resolve the
dispute and determine the Adjusted EBIT for the Period within forty-five
(45) days after its appointment by the parties. Each party agrees to
execute, if requested by the Neutral Auditor, a reasonable engagement
letter. All fees and expenses relating to the work, if any, to be
performed by the Neutral Auditor shall be borne one-half by Buyer and
one-half by the Sellers. The Neutral Auditor shall act as an arbitrator
to determine, based solely on presentations by Buyer and the Sellers'
Representative, and not by independent review, only those issues still in
dispute. The Neutral Auditor's determination shall be set forth in a
written statement delivered to Buyer and the Sellers, and shall be final,
binding and conclusive.
(b) For purposes of this Agreement, Seller 1 has been
unanimously selected by the Sellers to act as Sellers' Representative
with full power of substitution, for each of the Sellers and in their
respective names, place and stead, in any and all capacities, and with
full power and authority to do and perform each and every act required to
be performed under this Agreement including, without limitation, the
power to give and to receive, on behalf of the Sellers, any notice
hereunder. By executing this Agreement, the Sellers hereby ratify and
confirm all that the Sellers' Representative, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
(c) The duties and obligations of the Sellers'
Representative hereunder shall be determined solely by the express
provisions of this Agreement, and the Sellers' Representative shall, in
determining its duties hereunder, be under no obligation to refer to any
other documents between or among the parties related in any way to this
Agreement, it being specifically understood that the following provisions
are accepted by all of the parties hereto. The Sellers shall, jointly and
severally, indemnify and hold the Sellers' Representative harmless from
and against any and all liability and expense which may arise out of any
action taken or omitted by the Sellers' Representative in accordance with
this Agreement, except such liability and expense as may result from the
gross negligence or willful misconduct of the Sellers' Representative.
The Sellers' Representative shall not be liable to any person by reason
of any error of judgment or for any act done or step taken or omitted by
it, or for any mistake of fact or law or anything which it may do or
refrain from doing in connection herewith unless caused by or arising out
of its own gross negligence or willful misconduct.
1.5 Payment of the Contingent Payments.
(a) Buyer shall pay any undisputed amount of Contingent
Payment for any Period not more than ten (10) days after it becomes final
and binding as set forth in Section 1.4(a) hereof (such amount to bear
interest after such date until paid at the default interest rate of the
prime rate of interest in effect from time to time as publicly announced
by First Chicago NBD Bank Corp. or its successor (the "Prime Rate") plus
six hundred basis points) and shall pay any disputed amount of a
Contingent Payment (and interest thereon from the date of receipt of a
Notice of Objection with respect thereto through the date of final
resolution pursuant to Section 1.4(a) at the Prime Rate plus one hundred
basis points and thereafter to the date of payment at the Prime Rate plus
six hundred basis points) within ten (10) days after resolution of any
disputes in accordance with Section 1.4(a) hereof.
(b) All payments made to the Sellers under this Agreement
will be made in proportion to each Seller's ownership of Company Common
Stock, as listed on Annex B. All Contingent Payments shall be made by
Buyer to the accounts specified by Sellers' Representative. So long as
Buyer follows Sellers' Representative's directions, Buyer shall have no
further liability with respect to the making of such payments.
1.6 Conduct of Business Following Closing.
(a) Buyer shall have the right, only after consultation with
the Sellers' Representative, to make material business decisions
affecting the Company and its business, properties, operations and
products after the Closing Date with respect to the manufacturing and
servicing of electronic and mechanical petroleum dispensing systems,
including petroleum dispensers, point-of-sale systems and dispenser
payment terminals, to owners of retail fuel service stations, convenience
stores, hypermarkets and other retailers and other commercial customers
including, but not limited to, the right to (i) establish all prices for
the Company's products; (ii) modify existing products; (iii) determine
when and how to introduce new products; (iv) determine the future level
of research and development expenditures; and (v) determine whether such
products should be sold or otherwise distributed, and if distributed, the
method of distribution (lease, rental, set purchase plan, etc.).
(b) Buyer agrees, for the mutual benefit of itself and the
Sellers, to operate the Company in good faith, taking into account the
Sellers' desire to maximize the Contingent Payment provided herein, and
to devote the degree of attention, financing, support, engineering
expertise, marketing talent and personnel to the business of the Company
as Buyer, in its good faith business judgement, deems consistent with the
operation of the other facets of Buyer. Buyer agrees to provide working
capital to the Company following the Closing in the form of loans or
capital contributions. Any such loan shall bear interest at a rate not
higher than Buyer's cost of capital. The amount of such loans or
contributions, if any, shall be determined by the Board of Directors of
the Company.
ARTICLE II
CLOSING
2.1 The Closing. Subject to Section 8.1 hereof, the closing
(the "Closing") of the transactions contemplated by this Agreement
shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois at 10:30 a.m., local time, on December
31, 1997, or at such other place and time as may be agreed upon by the
Sellers and Buyer (the "Closing Date").
2.2 Closing Deliveries.
(a) Deliveries by the Sellers. At or prior to the Closing,
the Sellers shall deliver or cause to be delivered to Buyer the
following:
(i) certificates evidencing the Company Common
Stock, free and clear of any Encumbrances, which certificates
shall be properly endorsed for transfer or accompanied by duly
executed stock powers, in either case executed in blank or in
favor of Buyer or its nominee as Buyer may have directed prior to
the Closing Date, and otherwise in a form acceptable for transfer
on the books of the Company;
(ii) all books and records of the Company,
including the corporate minute book, seal and stock ledger book;
(iii) all Permits and third-party consents
required to be obtained and delivered by the Sellers pursuant to
Section 7.4 hereof;
(iv) the Sellers' certificate required by Section
7.5 hereof;
(v) the opinion of counsel for the Sellers
required by Section 7.6 hereof;
(vi) the resignations of all members (other than
Seller 1) of the Board of Directors of the Company; provided,
further, that Buyer shall not require the resignation of Seller 1
from the Board of Directors of the Company during any Period.
(vii) a copy of the Software, as
required by Section 7.9 hereof; and
(viii) an executed Employment Agreement as
required by Section 7.7;
(ix) the certificate required by Section 1445 of
the Code to establish that Buyer is not required to withhold any
United States federal income tax from payments of any part of the
Purchase Price to Sellers; and
(x) all other previously undelivered documents
required to be delivered by the Sellers to Buyer at or prior to
the Closing Date in connection with the transactions contemplated
hereby.
(b) Deliveries by Buyer. At or prior to the Closing, Buyer
shall deliver or cause to be delivered to the Sellers the following:
(i) installment promissory notes in the aggregate
amount specified in Section 1.2(b) payable to the order of Sellers
as provided therein;
(ii) the officers certificate required by Section
6.5 hereof;
(iii) copies of resolutions of the Board of
Directors of Buyer, certified by the corporate secretary or
assistant secretary of Buyer, authorizing the execution, delivery
and performance by Buyer of this Agreement and the transactions
contemplated hereby as required by Section 6.6 hereof;
(iv) the opinion of counsel for the Buyer required
by Section 6.7 hereof;
(v) all other previously undelivered documents
required to be delivered by Buyer to the Sellers at or prior to
the Closing Date in connection with the transactions contemplated
hereby.
2.3 Further Assurances. After the Closing, each party hereto
shall, from time to time, at the request of the other party and without
further cost or expense to such other party, execute and deliver such
other instruments and take such other actions as such other party may
reasonably request to more effectively consummate the transactions
contemplated hereby and to vest in Buyer good and valid title to the
Company Common Stock free and clear of Encumbrances.
ARTICLE III
JOINT REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers each hereby jointly and severally represent and
warrant to Buyer as follows:
3.1 Corporate Organization, Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Colorado and has full corporate power and authority to
carry on its business as it is now being conducted and to own, operate
or lease its properties. The Company is duly qualified or otherwise
authorized as a foreign corporation to conduct the business conducted
by it and is in good standing in each jurisdiction in which such
qualification or authorization is required under applicable law, except
jurisdictions in which the failure to be so qualified or otherwise
authorized would not, individually or in the aggregate, result in a
material adverse effect on the business, condition (financial or
otherwise), assets, liabilities, prospects or operations (a "Material
Adverse Effect") of the Company. Section 3.1 of the Disclosure
Schedule sets forth each jurisdiction in which the Company is duly
qualified or otherwise authorized as a foreign corporation to conduct
business. The Sellers have delivered to Buyer complete and correct
copies of the charter and bylaws of the Company as presently in effect.
3.2 No Violation. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
will not (a) conflict with or result in a violation of any provision of
the charter or bylaws of the Company, (b) conflict with, violate, or
constitute a breach or default (with or without notice or lapse of time
or both), or give rise to any right of termination, cancellation or
acceleration (whether as a result of a change of control or otherwise)
under or otherwise impair any contract, commitment, undertaking,
policy, indenture, mortgage, note, lease, security agreement, deed or
other agreement of any nature, whether oral or written, including,
without limitation, those specified in Section 3.10 of the Disclosure
Schedule to which the Company is a party or by which the Company or any
of its properties or assets may be bound or affected (each a
"Contract"), (c) conflict with or result in a violation by the Company
of any federal, state, local or foreign law, statute, rule, regulation,
ordinance or code or any order, judgment, writ, injunction, decree or
award entered by any federal, state, local or foreign court, arbitrator
or other forum of competent jurisdiction ("Law" or "Laws"), (d) result
in or give rise to the imposition of any Encumbrance on the business of
the Company or on any assets of the Company, or (e) conflict with,
violate or constitute a breach or default (with or without notice or
lapse of time or both), or give rise to any right of termination,
cancellation or acceleration under, or otherwise impair, any license,
permit, order, consent, approval, registration, authorization,
qualification or filing of or by the Company under any Law or with any
Governmental Authority (collectively, "Permits").
3.3 Capital Stock. The authorized capital stock of the
Company consists of 1,000,000 shares of common stock, no par value, of
which only the Company Common Stock is issued and outstanding. No
other shares of any other class or series of capital stock are
authorized, issued or outstanding. All of the shares of Company Common
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Except as set forth in
Section 3.3 of the Disclosure Schedule, there are no subscriptions,
options, convertible or exchangeable securities or instruments,
warrants, calls, rights, contracts, commitments, understandings,
restrictions or arrangements relating to or providing for the issuance,
sale, purchase, redemption, transfer or voting of any shares of Company
Common Stock or other capital stock or ownership interests in the
Company.
3.4 Subsidiaries. The Company does not own, directly or
indirectly, any capital stock or other equity securities of any
corporation or have any direct or indirect equity or ownership interest
in any partnership, joint venture, corporation, trust, unincorporated
organization or any other entity.
3.5 Financial Statements; Liabilities. (a) Set forth in
Section 3.5 of the Disclosure Schedule are true, complete and correct
copies of the audited balance sheets of the Company at December 31,
1995 and 1996 and November 30, 1997, and the related audited statements
of income, stockholders' equity and cash flows of the Company for the
year ended December 31, 1996 and the eleven months ended November 30,
1997 (collectively, the "Financial Statements"). The audited balance
sheet of the Company at November 30, 1997 shall be referred to herein
as the "Balance Sheet".
(b) The Financial Statements were prepared in the ordinary
course of business and in accordance with United States GAAP consistently
applied through the periods involved. The Financial Statements are true,
complete and accurate in all material respects and fairly present the
financial condition and results of operation of the Company at and as of
the dates and for the periods indicated therein.
(c) As of the date hereof, the Company does not have any
material indebtedness, obligation or liability of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become
due) which was not reflected on the Balance Sheet. To the best knowledge
of the Sellers, there is no reasonable basis for the assertion of any
material indebtedness, obligation or liability of any nature against the
Company is not reflected on the Balance Sheet.
3.6 Absence of Certain Changes. Since December 31, 1996, the
Company has not suffered a Material Adverse Effect. Except as and to
the extent set forth in Section 3.6 of the Disclosure Schedule, since
December 31, 1996 the Company has not:
(a) suffered any material adverse change in its working
capital, financial condition, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves, business, operations or prospects;
(b) incurred any liability or obligation (absolute, accrued,
contingent or otherwise), except items incurred in the ordinary course of
business and consistent with past practice, which individually exceeds
$10,000 (including obligations or liabilities arising from one
transaction or a series of similar transactions, and all periodic
installments or payments under any lease or other agreement providing for
periodic installments or payments, as a single obligation or liability)
and $100,000 in the aggregate, or increased, or experienced any change in
any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves;
(c) paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations reflected or
reserved against in the Balance Sheet, or incurred in the ordinary course
of business, consistent with past practice since the date of the Balance
Sheet;
(d) written down the value of any inventory (including
write-downs by reason of shrinkage or mark-down) except for immaterial
write-downs and write-offs in the ordinary course of business and
consistent with past practice and not exceeding $100,000 in the
aggregate;
(e) cancelled any debts or waived any claims or rights of
substantial value;
(f) sold, transferred, or otherwise disposed of any of its
material properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent
with past practice;
(g) disposed of or permitted to lapse any rights to the use
of any patent, trademark, trade name or copyright, or disposed of or
disclosed (except as necessary in the conduct of its business) any
material trade secret, formula, process or know-how not theretofore a
matter of public knowledge to any Person other than Company employees,
representatives of Buyer or Persons subject to a confidentiality
agreement that fully protects the Company's proprietary interest in and
to such confidential information;
(h) granted any increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any increase in the
compensation payable, or to become payable, to any officer or employee,
other than increases consistent with historical practice, and no such
increase is required by agreement or understanding;
(i) made any single capital expenditure or commitment in
excess of $20,000 for additions to property, plant, equipment or
intangible capital assets or made aggregate capital expenditures and
commitments in excess of $100,000 for additions to property, plant,
equipment or intangible capital assets;
(j) declared, paid or set aside for payment any dividend or
other distribution (other than distributions to the Sellers sufficient to
permit the Sellers to pay all applicable income taxes on income earned by
the Company) in respect of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock
or other securities of the Company;
(k) made any change in any method of accounting or
accounting practice;
(l) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement
with, any of its officers or directors or any affiliate or associate of
any of its officers or directors except for directors' fees, and
compensation to officers as described in (h) above;
(m) made or changed any material election relating to Taxes
(as defined in Section 3.9(k)) or settled or compromised any material Tax
liability or refund; or
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 3.6.
3.7 Compliance with Law; Governmental Authorizations.
(a) The Company is in compliance in all material respects with all
applicable Laws relating to or affecting the operation, conduct or
ownership of the property or businesses of the Company.
(b) Set forth in Section 3.7 of the Disclosure Schedule is a
true and complete list of each material Permit held by the Company,
containing the date of issuance and scheduled expiration date of each
license and a description of the scope of each license. Except as set
forth in Section 3.7 of the Disclosure Schedule, (i) no proceeding is
pending in which any Person (as defined in Annex A) is seeking to revoke
or deny the renewal of any material Permit, (ii) each material Permit is
in full force and effect without any default or breach thereunder by the
Company, and (iii) in the aggregate the material Permits are sufficient
for the conduct of the business as currently conducted by the Company.
3.8 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property"
shall mean all intellectual property rights used in or necessary to the
business of the Company as currently conducted and as currently proposed
to be conducted, including all patents and patent applications;
trademarks, trademark registrations and applications; trade names;
service marks and service mark registrations and applications; the
goodwill of the business connected with the use of and symbolized by such
trademarks or brand names; copyright and copyright registrations and
applications; computer software; technology, know-how, patterns, plans,
designs, research data, trade secrets, proprietary processes and
formulae; and all technical manuals and documentation made or used in
connection with any of the foregoing.
(b) Section 3.8 of the Disclosure Schedule sets forth a
complete and accurate list of all of the Company's Intellectual Property.
Except as set forth in Section 3.8 of the Disclosure Schedule, the
Company owns or has the right to use, sell or license the Intellectual
Property, free and clear of all Encumbrances. To the extent that
registrations are necessary, all Intellectual Property registrations are
valid and subsisting, are held in the name of the Company and are validly
maintained. Except as set forth in Section 3.8 of the Disclosure
Schedule, no application or registration in Section 3.8 of the Disclosure
Schedule is the subject of any pending, existing or threatened
opposition, interference, cancellation proceeding or other legal or
governmental proceeding before any Governmental Authority.
(c) No person has a right to receive a royalty or similar
payment in respect of any item of Intellectual Property pursuant to any
contractual arrangements entered into by the Company, the Sellers or
otherwise. Neither any former or present employees, officers or directors
of the Company nor the Sellers or any of their Affiliates (other than the
Company) holds any right, title or interest, directly or indirectly, in
whole or in part, in or to any Intellectual Property.
(d) Section 3.8 of the Disclosure Schedule sets forth a
complete and accurate list of all agreements pertaining to the use or
grant of any right to use or practice any rights under any Intellectual
Property, whether the Company is the licensee or licensor thereunder
(collectively, the "Licenses"). The Licenses are valid and binding
obligations of the Company, enforceable in accordance with their terms,
and there are no breaches or defaults thereunder by the Company and, to
the best knowledge of the Sellers, the other parties thereto.
(e) Section 3.8 of the Disclosure Schedule lists all of the
computer software that is owned, licensed, leased or otherwise used by
the Company in connection with the operation of its business as currently
conducted, and identifies which is owned, licensed, leased or otherwise
used, as the case may be; provided, however, that excluded from the
disclosure of computer software that is used by the Company is generally
available off-the-shelf software used for the Company's daily business
operations, including, without limitation, accounting, spreadsheet and
word processing software. Except as provided in Section 3.8 of the
Disclosure Schedule, all computer software listed in Section 3.8 of the
Disclosure Schedule was developed (i) by employees of the Company within
the scope of their employment or (ii) as "works-made-for-hire," as that
term is defined under Section 101 of the United States Copyright Act, 17
U.S.C. Section 101, pursuant to written agreements. With respect to all
computer software owned by the Company, the Company has taken or will
take prior to the Closing all reasonable steps necessary to obtain and
retain valid and enforceable intellectual property rights therein.
(f) No trade secret, know-how or any other confidential
information relating to the Company has been disclosed or authorized to
be disclosed (except as necessary in the conduct of its business) to any
third party, other than to employees, to representatives of Buyer or
pursuant to a non-disclosure agreement that fully protects the Company's
proprietary interest in and to such confidential information.
(g) The conduct of the business of the Company does not
infringe upon any intellectual property right owned or controlled by any
third party. There are no claims or suits pending or, to the Sellers'
best knowledge, threatened, and neither the Company nor the Sellers have
received notice of any claim or suit (i) alleging that the Company's
activities in relation to the conduct of its business infringes upon or
constitutes the unauthorized use of the proprietary rights of any third
party or (ii) challenging the ownership, use, validity or enforceability
of the Intellectual Property, nor is there, to the Sellers' best
knowledge, a valid basis for any such claim or suit.
(h) Except as set forth in Section 3.8 of the Disclosure
Schedule, to the best knowledge of the Sellers, no third party is
infringing upon any Intellectual Property owned or controlled by the
Company, and no such claims have been made by the Sellers.
(i) There are no settlements, consents, judgments, orders or
other agreements that restrict the Company's rights to use any
Intellectual Property.
(j) Except as set forth in Section 3.8 of the Disclosure
Schedule, the consummation of the transactions contemplated hereby will
not (i) give rise to any right of termination, amendment, renegotiation,
cancellation or acceleration with respect to any License or (ii) result
in the loss or impairment of the Company's rights to own, use, license or
sell any of the Intellectual Property or (iii) require the consent of any
Governmental Authority or third party. Upon consummation of the
transactions contemplated hereby, the Company will be entitled to use
and/or sell the Intellectual Property on the same terms applicable to the
Company's use and/or sale of such Intellectual Property prior to the
consummation of the transaction.
(k) All software included in the Intellectual Property and
related hardware shall perform, at no additional cost, during and after
the year 2000 without error relating to date data, including, without
limitation, any error that references the wrong century or more than one
century (i.e., such software and hardware shall be capable of accounting
for all calculations using a century-and date-sensitive algorithm for the
year 2000).
3.9 Taxes. Except as set forth in Section 3.9 of the
Disclosure Schedule:
(a) All returns, reports and other documents (including any
amendments thereto) filed or required to be filed with any Governmental
Authority with respect to Taxes of the Company, including any returns,
reports or documents of an affiliated or combined or unitary group that
includes the Company (collectively, the "Tax Returns"), have been or will
be timely filed, and all such Tax Returns are true, correct and complete
in all material respects. The Company (i) has timely paid (or there has
been paid on its behalf) all Taxes (as defined in Section 3.9(k) hereof)
that are due, and (ii) with respect to any Taxes are not yet due or
owing, the Company has made due and sufficient current accruals for such
Taxes in its books and records in accordance with GAAP. The Company has
made (or there has been made on its behalf) all required current
estimated Tax payments.
(b) There are no Encumbrances for Taxes upon the assets of
the Company other than Encumbrances for current Taxes not yet due. Any
Encumbrances for Taxes listed in Section 3.9 of the Disclosure Schedule
are with respect to the nonpayment of Taxes which are currently being
contested in good faith by the Company.
(c) The United States federal income Tax Returns of the
Company and of each "affiliated group" (within the meaning of the Code)
of which the Company is or has been a member have not been audited or
examined by the United States Internal Revenue Service (the "IRS"). The
state, local and foreign Tax Returns of the Company and of each
affiliated, consolidated, combined, or unitary group of which the Company
is or has been a member have not been audited or examined. There are no
outstanding agreements, waivers, or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to the
Company for any taxable period. Sellers have previously delivered to
Buyer true, correct and complete copies of (i) the 1994, 1995 and 1996
federal and state income Tax Returns filed by the Company and (ii) each
of any audit reports issued by the IRS or any other global taxing
authority within the last three years relating to United States federal,
state, local or foreign Taxes due from or with respect to the Company. No
closing agreement pursuant to Section 7121 of the Code (or any
predecessor provision) or any similar provision of any Law has been
entered into by or with respect to the Company.
(d) No audit or other proceeding by any Governmental
Authority is pending or, to the best knowledge of the Sellers,
threatened, with respect to any Taxes due from or with respect to the
Company or any Tax Return filed by or with respect to the Company. No
assessment of Tax is proposed against the Company or any of its
respective assets.
(e) With the exception of the change from the cash method of
accounting to the accrual method, effective 1/1/98, the Company has not
agreed to and is not required to make any adjustment pursuant to Section
481(a) of the Code or under any similar provisions of the Code (or any
predecessor provisions) or any similar provisions of Law, and there is no
application pending with any taxing authority requesting permission for
any changes in any accounting method of the Company. Neither the IRS nor
any other taxing authority has proposed any such adjustment or change in
accounting method.
(f) The Company has not been and is not in violation (nor
with notice would be in violation) of any Law relating to the payment or
withholding of Taxes. The Company has duly and timely withheld from
employee salaries, wages, and other compensation and paid over to the
appropriate taxing authorities all amounts required to be so withheld and
paid over for all periods under all applicable Laws.
(g) The Company is not a party to, is not bound by, and does
not have any obligation under, any Tax sharing agreement or similar
contract. Notwithstanding any disclosure contained in the Disclosure
Schedule, the Sellers represent and warrant that, at the Closing, the
Company shall not be a party to, be bound by or have any obligation under
any Tax sharing agreement or similar Contract.
(h) Section 3.9 of the Disclosure Schedule sets forth all
state, local and foreign consolidated, combined or unitary Tax Returns
for the 1996 Tax year filed by or with respect to the Company as well as
all such similar Tax Returns filed or to be filed by the Company for the
1997 Tax year.
(i) As a result of transactions contemplated by this
Agreement, neither the Buyer nor Company will be obligated to make a
"parachute payment" to a disqualified individual" as those terms are
defined in Section 280G of the Code.
(j) The Company is, and since its incorporation always has
been, a valid and fully qualified "S Corporation" (within the meaning of
Section 1361 of the Code) for federal and any applicable state income Tax
purposes, and the Company has, on a timely basis, (i) made all elections
and taken all actions necessary to obtain and maintain the qualification
of the Company as an "S Corporation" and (ii) filed all Tax Returns on a
basis that is consistent with such status.
(k) "Tax" (including with correlative meaning, the terms
"Taxes" and "Taxable") means (i) any income, gross receipts, ad valorem,
intangible, premium, excise, value-added, sales, use, transfer,
franchise, license, permit, severance, stamp, occupation, service, lease,
withholding, employment, payroll, premium, property or windfall profits
tax, alternative or add-on minimum tax, or other tax, fee or assessment,
together with any interest and any penalty, addition to tax or additional
amount imposed by any Governmental Authority responsible for the
imposition of any such tax, with respect to the Company and (ii) any
liability of the Company for the payment of any amount of the type
described in clause (i) as a result of the Company being owned by the
Sellers or being a member of an affiliated or combined group with, or a
successor to, or transferee of, any other corporation at any time on or
prior to the Closing Date.
(l) For purposes of this Section 3.9, any reference to the
Company shall include any corporation which merged or was liquidated with
and into the Company.
(m) There is not in excess of $1,000,000 in "net section
1231 losses" within the meaning of section 1231(c)(2) of the Code.
3.10 Contracts.
(a) Section 3.10(a) of the Disclosure Schedule lists all
material Contracts to which the Company is a party or by which the
Company's assets, properties, rights or operations are bound or subject.
Each such Contract is valid and binding and in full force and effect, and
there is no existing default or event of default that would (with or
without notice, lapse of time or the happening or occurrence of any other
event) constitute a default by the Company thereunder or, to the best
knowledge of the Sellers, any other party thereto.
(b) Except as identified in Section 3.10 of the Disclosure
Schedule, the Company is not a party to and is not bound by or subject
to: (i) any Contract that contains any severance, parachute or similar
payment liabilities or obligations; (ii) any employment, consultation or
similar Contract; (iii) any Contract relating to the disposition or
acquisition of the stock or assets of, or any interest in, any business
enterprise; (iv) any Contract relating to capital expenditures by the
Company and involving future payments which, together with future
payments under all other Contracts relating to the same capital project,
exceeds $10,000 or more and is not cancellable by the Company without
penalty within 30 days; (v) any other Contract which involves payments by
the Company of $10,000 or more and is not cancellable without penalty
within 30 days; (vi) any lease, sublease, installment purchase or similar
Contract for personal property calling for annualized payments with
respect to such personal property in excess of $10,000, (vii) any
indebtedness for borrowed money or any indebtedness evidenced by any
promissory notes; (viii) any indebtedness of whatsoever nature (including
without limitation open account indebtedness) to any Seller or any
Affiliate of any Seller (other than the Company), or any Contract with
any Seller or any Affiliate of any Seller (other than the Company); (ix)
any Contract containing any covenant limiting the freedom of the Company
to engage in any line of business or compete with any Person or in any
geographic area; (x) any Contract limiting the right of the Company to
pay dividends or make distributions; (xi) any Contract which relates to
the purchase, licensing or development of any computer software, hardware
or data bases (other than sales of inventory in the normal course) used
or to be used by the Company; (xii) any Contract to sell any products or
services which is presently expected to result in a loss upon completion
or performance thereof in an amount in excess of $5,000; (xiii) any
Contract which includes provisions regarding minimum volumes or volume
discounts or pursuant to which a rebate, discount, bonus, commission or
other payment with respect to the sale of any product of the Company will
be payable or required after the Closing; (xiv) any consignment,
distributor, dealer, manufacturer's representative, sales agency,
advertising representative or advertising or public relations Contract;
or (xv) any other Contract that involves payments by the Company of
$10,000 or more in any calendar year. The Sellers have previously
delivered to Buyer each written Contract set forth in Section 3.10 of the
Disclosure Schedule.
3.11 Insurance. Section 3.11 of the Disclosure Schedule contains
an accurate and complete list of all (i) liability, property, fidelity,
workers compensation, directors and officers liability and other
policies of insurance, bonds or surety arrangements that insure or relate
to the business, properties, employees, operations or affairs of the
Company and (ii) unpaid claims and all paid claims (along with a brief
description of each such paid and unpaid claim) made under all such
insurance policies since January 1, 1995. A complete and correct copy of
each such policy issued to the Company has previously been provided to
Buyer. All such policies (x) are in full force and effect and (y) are
sufficient for compliance by the Company with all material applicable
requirements of Law and all Contracts to which the Company is a party or
subject. The Company is not in default with respect to any provision of
any insurance policy issued for its benefit, nor has the Company failed
to give any notice or present any claim thereunder in due or timely
fashion or as required by any of such insurance policies that would
result in failure to recover any material amount in full under such
policies. Except as set forth in Section 3.11 of the Disclosure Schedule,
the insurance coverage provided by the policies described above will not
terminate or lapse by reason of the transactions contemplated by this
Agreement. The Company has not failed to give or present (or is aware or
any facts or circumstances which may give rise to a claim for failure to
give or present) any notice or claim thereunder in accordance with such
policies, such as would permit the insurer to deny coverage under such
policies.
3.12 Litigation. There is no claim, action, suit, inquiry,
proceeding, arbitration or investigation by or before Governmental
Authority, arbitrator or other tribunal pending or, to the best knowledge
of the Sellers, threatened, against the Company, or against any of the
Sellers and relating to the Company. Neither the Sellers nor the Company
has received any written notice of any claim or assertion of material
liability on the part of the Company. The Company has not been the
subject of any proceeding or investigation by or before any Governmental
Authority with jurisdiction over the Company relating its business
practices.
3.13 Consents and Approvals. No consent, approval or
authorization of, or notice to, or declaration, filing or registration
with any Governmental Authority or any other Person is required to be
made or obtained by the Company in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, or to enable the Company to continue to
conduct its business after the Closing Date in a manner that is
consistent with that in which it is presently conducted.
3.14 Environmental Matters.
(a) The Company is in compliance in all material respects
with all applicable Environmental Laws (as defined in Section 3.14(g)),
which compliance includes, but is not limited to, the possession by the
Company of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof (collectively, "Company Environmental Permits"). The
Company has not received any notice (whether written or oral), whether
from a Governmental Authority, citizens group, employee, private party or
otherwise, that alleges that the Company is not in such compliance, and
there is no past or present condition, event, circumstance, change or
effect that is reasonably likely to prevent or interfere with such
compliance in the future. All Company Environmental Permits now held by
the Company are in full force and effect, and no appeal or any other
proceeding is pending to revoke any such Company Environmental Permit.
All Company Environmental Permits are listed in Section 3.14 of the
Disclosure Schedule.
(b) No transfer, reissuance or renewal of any Company
Environmental Permit, or notice to any Governmental Authority, is
required under any Environmental Law, and no additional such Permit will
be required to permit the Buyer to conduct its business in compliance
with all applicable Environmental Laws immediately following the Closing.
(c) There is no Environmental Claim pending or, to the best
knowledge of the Sellers, threatened, against the Company or any Person
whose liability for any Environmental Claim has been retained or assumed
by the Company, whether by agreement or by operation of Law.
(d) There is no past or present condition, event,
circumstance, change or effect, including the presence, Release or
threatened release of any Hazardous Material, which could reasonably be
expected to form the basis of any Environmental Claim against the Company
or any Person whose liability for any Environmental Claim has been
retained or assumed by the Company, whether by agreement or by operation
of Law.
(e) The Company has delivered or otherwise made available
for inspection to Buyer true, correct and complete copies of all reports,
studies, analyses, tests and monitoring results possessed by, available
to or initiated by the Company pertaining to any Hazardous Material in,
on, beneath or adjacent to the Real Property or pertaining to compliance
by the Company with, or liability under, any applicable Environmental
Law.
(f) For purposes of this Agreement, "Environmental Claim"
means any claim, action, cause of action, investigation, demand, suit,
order or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability
for or requirement to incur investigatory costs, Cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material
of Environmental Concern at any location, whether or not owned or
operated by the Company or (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(g) For purposes of this Agreement, "Environmental Laws"
means all Laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without
limitation, Laws relating to emissions, discharges, releases or
threatened releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials of Environmental Concern.
(h) For purposes of this Agreement, "Hazardous Materials"
means chemicals, pollutants, contaminants, wastes, hazardous or toxic
substances, radionuclides, petroleum and petroleum products and any of
the substance or waste material under an Environmental Law.
(i) For purposes of this Agreement, "Cleanup" means all
actions required to: (1) cleanup, remove, treat or remediate Hazardous
Substances in the outdoor environment; (2) prevent the Release of
Hazardous Substances so that they do not migrate, endanger or threaten to
endanger public health or welfare or the outdoor environment; (3) perform
pre-remedial studies and investigations and post-remedial monitoring and
care; (4) respond to requests by any Governmental Authority for
information or documents in any way relating to cleanup, removal,
treatment or remediation or potential clean up, removal, treatment or
remediation of Hazardous Substances in the outdoor environment; or (5)
any legal or administrative proceedings related to items (1) through (4),
including, but not limited to, actions brought by third-parties to
recover costs incurred with respect to Cleanup.
(j) For purposes of this Agreement, "Release" means any
release, spill, emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
indoor or outdoor environment (including, without limitation, ambient
air, surface water, groundwater, and surface or subsurface strata) or
into or out of any property, including the movement of Hazardous
Substances, Oils, Pollutants or Contaminants through or in the air, soil,
surface water, groundwater or property.
3.15 Employee Benefit Plans. (a) Section 3.15 of the Disclosure
Schedule contains a true and complete list of each bonus, deferred
compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefits, profit-sharing,
pension, or retirement plan, program, agreement or arrangement, and each
other employee benefit plan, program, agreement or arrangement,
sponsored, maintained or contributed to or required to be contributed to
by the Company or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), that together with the Company would be deemed a
"single employer" within the meaning of section 4001(b) of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA"), for the benefit of any
employee or former employee of the Company, whether formal or informal
and whether legally binding or not (the "Plans"). Section 3.15 of the
Disclosure Schedule identifies each of the Plans that is an "employee
welfare benefit plan" or "employee pension benefit plan," as such terms
are defined in sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA Plans"). Neither the
Sellers, the Company nor any ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional Plan
or modify or change any existing Plan that would affect any employee or
terminated or retired employee of the Company.
(b) With respect to each of the Plans, the Sellers have
heretofore delivered to Buyer true and complete copies of each of the
following documents:
(i) a copy of the Plan (including all amendments
thereto);
(ii) a copy of the annual report, if required
under ERISA, with respect to each such Plan for the last three
years;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each such Plan for the last three
years;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material
Modification issued with respect to such SPD, required under ERISA
with respect to such Plan, and all other material employee
communications relating to such Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding
agreement (including all amendments thereto) and the latest
financial statements thereof;
(vi) all Contracts relating to the Plan with
respect to which the Sellers, the Company, or any ERISA Affiliate
may have any liability, including without limitation insurance
contracts, investment management agreements, subscription and
participation agreements and record keeping agreements; and
(vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended
to be qualified under Section 401 of the Code.
(c) No Plan is subject to Title IV of ERISA or Section 412
of the Code or Section 302 of ERISA. This representation applies not only
with respect to the ERISA Plans but also with respect to any employee
benefit plan, program, agreement or arrangement to which the Company or
any ERISA Affiliate made, or was required to make, contributions during
the five (5)-year period ending on the last day of the Company's most
recent fiscal year.
(d) Neither the Sellers, the Company, any ERISA Affiliate,
any of the ERISA Plans, any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction or has taken or failed
to take any action in connection with which the Company, any ERISA
Affiliate, any of the ERISA Plans, any such trust, any trustee or
administrator thereof, or any party dealing with the ERISA Plans or any
such trust could be subject to either a civil penalty assessed pursuant
to section 409 or 502(i) of ERISA or a tax imposed pursuant to section
4975, 4976 or 4980B of the Code.
(e) Full payment has been made or will be made in accordance
with section 404(a)(6) of the Code, of all amounts that the Company or
any ERISA Affiliate is required to pay under the terms of each of the
ERISA Plans and all such amounts properly accrued through the Closing
with respect to the current plan year thereof will be paid, or be caused
to be paid, by the Company on or prior to the Closing.
(f) None of the ERISA plans is a "multiemployer plan," as
such term is defined in section 3(37) of ERISA.
(g) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Laws, including but
not limited to ERISA and the Code.
(h) Each of the ERISA Plans that is intended to be
"qualified" within the meaning of section 401(a) of the Code is so
qualified.
(i) Each of the ERISA Plans that is intended to satisfy the
requirements of section 501(c)(9) of the Code has so satisfied such
requirements.
(j) No amounts payable under the Plans will fail to be
deductible for federal income tax purposes by virtue of section 280G of
the Code.
(k) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to
current or former employees after retirement or other termination of
service other than (i) coverage mandated by applicable Law, (ii) death
benefits or retirement benefits under any "employee pension benefit
plan," as that term is defined in section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the Financial Statements
and the books of the Company or the ERISA Affiliates, or (iv) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary).
(l) With respect to each Plan that is funded wholly or
partially through an insurance policy, there will be no liability of the
Sellers, the Company, or an ERISA Affiliate, as of the Closing Date,
under any such insurance policy or ancillary agreement with respect to
such insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability arising
wholly or partially out of events occurring prior to the Closing Date.
3.16 Labor Matters. (a) Section 3.16 of the Disclosure
Schedule sets forth a list containing the name, position, date of hire,
current base salary or wage rate, aggregate annual compensation
(including salary, wages, bonuses and commissions), accrued holiday,
vacation, sick leave and long-service entitlement (if any), and
permitted time off due as compensation for additional time worked for
each full-time and part-time employee of the Company.
(b) The Company is not a party to any labor or collective
bargaining agreement. No employees of the Company are represented by any
labor organization (insofar as the same relates to the business of the
Company), and no labor organization or group of employees of the Company
has made a pending demand for recognition or certification. There is no
labor strike, dispute, slowdown, lockout or stoppage pending or
threatened against the Company, and during the past three (3) years,
there has not been any such action. None of the Company's employees has
suffered an "employment loss" as defined in the Worker Adjustment and
Retraining Notification Act in the three (3) months prior to the date
hereof.
(c) There are no complaints, charges or claims against the
Company pending or threatened arising out of, in connection with, or
otherwise relating to the failure to hire, employment, termination of
employment or unfair labor practices by the Company, of any individual.
The Company is, and has at all times been, compliance in all material
respects with all Laws relating to the employment of labor, including but
not limited to all such Laws relating to wages, hours, discrimination,
civil rights, safety and health, workers compensation and the collection
and payment of withholding and/or social security, Medicare and similar
Taxes. There is no unfair labor practice charge or complaint against the
Company pending or, to the best knowledge of the Sellers, threatened
before any Governmental Authority, including but not limited to the NLRB
and the EEOC.
(d) There are no written personnel policies, rules or
procedures applicable to the Company's employees, other than those set
forth in Section 3.16 of the Disclosure Schedule, true, correct and
complete copies of which have heretofore been delivered to Buyer.
3.17 Bank and Other Accounts. Section 3.17 of the Disclosure
Schedule sets forth a list of all bank and other financial institution
accounts maintained by the Company.
3.18 Property. The Company does not own and has never owned
any real property and, except as set forth in Section 3.18 of the
Disclosure Schedule, is not a party to any lease of real property.
(b) Except as set forth on Section 3.18 of the Disclosure
Schedule, all properties and assets (real, personal and mixed, tangible
and intangible) that the Company owns, including, without limitation, all
the properties and assets reflected in the Balance Sheet and all the
properties and assets purchased by the Company since the date of the
Balance Sheet, which subsequently acquired properties and assets (other
than inventory purchased since the date of the Balance Sheet for an
aggregate amount of less than $4,000) are listed in Section 3.18 of the
Disclosure Schedule), are free and clear of all title defects and other
Encumbrances. All properties and assets that are necessary or useful for
the conduct of the business of the Company as such business has been
heretofore conducted are owned or leased by the Company and are in good
condition in accordance with industry practice and as such are, in the
aggregate, adequate to conduct the business of the Company as presently
conducted. All tangible properties and tangible assets reflected on the
Balance Sheet have a fair market or realizable value equal to at least
the value thereof as reflected thereon.
3.19 No Brokers' or Other Fees. Except as set forth in
Section 3.19 of the Disclosure Schedule, no broker, finder, investment
banker or other Person is entitled to any brokerage, finder or other
similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Sellers or the Company. Following the Closing, the Company will not be
liable for or obligated to pay any such fees or commissions with
respect to the transactions contemplated hereby.
3.20 Accounts Receivable. All accounts receivable of the
Company, whether reflected in the Financial Statements or arising
thereafter in the ordinary course of business prior to the Closing, (i)
arose or will arise in the ordinary course of business from bona fide
arm's-length transactions for the sale of goods or performance of
services by the Company, (ii) are valid and (iii) are collectible in
the ordinary course of business and are not subject to counterclaims or
setoffs, subject to reserves shown on the Balance Sheet.
3.21 Inventory. The inventories of the Company (i) are usable or
saleable in the ordinary course of the Company's business, as presently
conducted by the Company, (ii) do not infringe third party patent or
other industrial property rights and (iii) meet the Company's
specifications and industry standards applicable to such inventories,
except for obsolete products and materials and materials of below
standard quality, which have either been written down to their realizable
market value (including provision for anticipated disposal costs) in the
accounts and records of the Company in accordance with GAAP, consistently
applied, or for which adequate reserves have been provided for in such
accounts and such inventories are not excessive in light of present
operations.
3.22 Insider Interests. Except as set forth in Section 3.22 of
the Disclosure Schedule, no shareholder, officer or director of the
Company has any interest in any property, real or personal, tangible or
intangible, of the Company including, without limitation, the
Intellectual Property. Except as set forth in Section 3.22 of the
Disclosure Schedule, neither the Sellers, any present officer or director
who is an employee of the Company nor any Affiliates or relatives thereof
(i) has received a loan or advance from the Company that is currently
outstanding, (ii) has the right to borrow from the Company, (iii) has any
obligation to make any loan to the Company or (iv) has any other business
relationship or contract with the Company, other than in his or her
capacity as an officer, director, or significant employee.
3.23 Products and Warranties. The products sold by the Company
conform in design in all material respects with, and meet or exceed the
standards required by, all applicable laws, ordinances and regulations
now in effect, and to the Sellers' best knowledge, there is no pending
legislation, ordinance or regulation, not otherwise applicable to the
Company's industry generally, which if adopted or enacted would have a
material adverse effect upon the products sold by the Company. A written
description of any recurring warranty problems is set forth on Section
3.23 of the Disclosure Schedule. The Company does not have any
outstanding agreements or contracts, or proposals therefor, that depart
from its warranties and customer service policies and practices. No
claims of customers or others based upon an alleged or admitted defect of
material, workmanship or design or otherwise in respect of any of the
Company's products are presently pending or, to the Seller's best
knowledge, threatened against it.
3.24 Disclosure. The Disclosure Schedule is divided into sections
that correspond to the subsections of this Agreement and is attached
hereto. The Disclosure Schedule is accurate and complete as of the date
hereof (subject to any "materiality" limitations explicitly set forth
within any representation or warranty), and the disclosures in any
subsection thereof will not constitute disclosure for purposes of any
other subsection unless specifically cross-referenced in each subsection.
No representation or warranty by the Sellers contained in this Agreement
and no statement contained in the Disclosure Schedule or any certificate,
instrument or other document delivered by the Sellers to Buyer pursuant
to this Agreement contains any untrue statement of a material fact, or
omits to state any material fact necessary, in light of the circumstances
under which it was made, to make the statements herein or therein not
misleading, it being understood that as used in this Section 3.24
"material" means material to the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows:
4.1 Corporate Organization. Buyer is a corporation duly organized
and validly existing under the laws of the State of Indiana and has full
corporate power and authority to carry on its business as it is now being
conducted and to own, operate or lease its properties.
4.2 Authorization, Etc. Buyer has full corporate power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. The Board of Directors of Buyer has
duly approved and authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and no
shareholder approval or other corporate proceeding on the part of Buyer
is necessary to approve and authorize the execution and delivery of this
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by Buyer and constitutes a valid and binding obligation of
Buyer, assuming the due execution of the Agreement by the Sellers,
enforceable against Buyer in accordance with its terms, except that (a)
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any preceding therefor may be brought.
4.3 No Violation. Except as disclosed in Section 4.3 of the
Disclosure Schedule, the execution and delivery of this Agreement by
Buyer and the consummation by Buyer of the transactions contemplated
hereby will not (a) conflict with or result in a violation of any
provision of the charter or bylaws of Buyer, (b) conflict with, violate,
or constitute a breach or default (with or without notice or lapse of
time or both), or give rise to any right of termination, cancellation or
acceleration (whether as a result of a change of control or otherwise)
under or otherwise impair any Contract to which Buyer is a party or by
which Buyer or any of its respective properties or assets may be bound or
affected, (c) conflict with or result in a violation by Buyer of any Law,
(d) result in or give rise to the imposition of any Encumbrance on the
business of the Buyer or on any assets of the Buyer, or (e) conflict
with, violate or constitute a breach or default (with or without notice
or lapse of time or both), or give rise to any right of termination,
cancellation or acceleration under, or otherwise impair, any Permit.
4.4 Buyer's SEC Reports. Buyer has delivered to the Sellers (i)
Buyer's Annual Report on Form 10-K for the year ended November 30, 1996,
as amended, and (ii) Buyer's Quarterly Report on Form 10-Q for the period
ended August 31, 1997, each in the form (including exhibits) filed with
the Securities and Exchange Commission (the "SEC"). Buyer has filed all
required reports, schedules, forms, statements and other documents with
the SEC since December 1, 1996 (such reports, schedules, forms,
statements and other documents are hereinafter referred to as the "SEC
Reports"), and, as of their respective dates, the SEC Reports, as
amended, complied with the requirements of the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as the case may be, and
the rules and regulations promulgated thereunder applicable to the SEC
Reports, as amended, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into
the SEC Reports, as amended (including the related notes and schedules)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, fairly presented the consolidated financial position of
Buyer and its subsidiaries as of its date, and each of the consolidated
statements of income, of stockholders' equity and of cash flows included
in or incorporated by reference into the SEC Reports, as amended
(including any related notes and schedules) fairly presented the results
of operations, stockholders' equity and cash flows of Buyer and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments) in each case
in accordance with GAAP, consistently applied, during the periods
involved, except as may be noted therein.
4.5 Consents and Approvals. No consent, approval or authorization
of, or notice to, or declaration, filing or registration with, any
Governmental Authority or any other Person is required to be made or
obtained by Buyer in connection with the execution, delivery and
performance of this Agreement by Buyer or the consummation by Buyer of
the transactions contemplated hereby, or to enable Buyer to continue to
conduct its business after the Closing Date in a manner that is
consistent with that in which it is presently conducted.
4.6 Disclosure. No representation or warranty by Buyer contained
in this Agreement and no statement contained in any certificate,
instrument or other document delivered by Buyer pursuant to this
Agreement contains any untrue statement of a material fact, or omits to
state any material fact necessary, in light of the circumstances under
which it was made, to make the statements herein or therein not
misleading, it being understood that as used in this Section 4.6
"material" means material to Buyer.
4.7 Acquisition for Investment. Buyer is acquiring the Company
Common Stock solely for its own account and not with a view to any
distribution or other disposition of such stock or any part thereof, or
interest therein.
4.8 No Brokers or Other Fees. Except as set forth in Section 4.8
of the Disclosure Schedule, no broker, finder, investment banker or other
Person is entitled to any brokerage, finder or other similar fee or
commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of Buyer.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. From and after the date of this
Agreement until the Closing Date, and except as is contemplated herein,
the Sellers will conduct, and cause their respective Affiliates to
conduct, their respective business relationships with the Company only in
the ordinary course; provided, however, that except as specifically
provided for by the terms of this Agreement, without the prior written
consent of Buyer, in no event will the Sellers permit the Company to
enter into any Contract or transaction with the Sellers or any Affiliate
of the Sellers other than the lease attached hereto as Annex H (the
"Master Facility Lease"). The Sellers further covenant that, except as
consented to by Buyer in writing, from and after the date of this
Agreement and until the Closing Date, the Sellers shall:
(a) use reasonable efforts consistent with good business
judgment to: (i) preserve intact the present business organization of the
Company, (ii) keep available the services of the employees of the
Company, (iii) maintain in full force and effect all Permits of the
Company and (iv) preserve the present relationships of the Company with
Persons having business dealings with it;
(b) cause the Company to be operated in the ordinary course
of business consistent with prior practice, except that the Company may
(i) pay bonuses to key management in the amounts and to the individuals
listed on Exhibit 5.1(b) hereto; (ii) pay bonuses to all other personnel
which, in the aggregate, do not exceed $144,000; (iii) pay tax gross-ups
in the amounts and to the individuals listed on Exhibit 5.1(b) hereto;
(iv) pay distributions in the amounts set forth on Exhibit 5.1(b) hereto
to the Sellers sufficient to permit the Sellers to pay all applicable
income taxes on income earned by the Company; (v) pay the fees and
commissions owed to UniRock with respect to the transactions contemplated
hereby not to exceed $240,000; and (vi) arrange for the repayment of
loans from the Company to Seller 1 totaling $902,000 through a bonus
payment for the same amount as listed on Exhibit 5.1(b) hereto. The
foregoing notwithstanding, no distributions will be made to cover the
Sellers' Income Taxes (as defined in Section 5.4(b) hereof).
(c) not permit the Company to (i) issue or sell, or commit
to issue or sell, any shares of capital stock or other securities of the
Company, any options, warrants or commitments or rights of any kind with
respect thereto or any convertible or exchangeable securities; (ii)
directly or indirectly purchase, redeem or otherwise acquire or dispose
of any shares of capital stock or other securities of the Company; (iii)
declare, set aside or pay, or commit to pay, any dividend or other
distribution on the capital stock of the Company except as permitted in
(b) above; (iv) borrow or agree to borrow any funds or incur, whether
directly or by way of guarantee, any obligation for borrowed money; (iv)
permit any of the property or assets of the Company (real, personal or
mixed, tangible or intangible) to be subjected to any Encumbrance (except
for Encumbrances that may arise by operation of law) or otherwise permit
or allow the disposition of any property or assets of the Company (real,
personal or mixed, tangible or intangible), other than in the ordinary
course of business consistent with past practice; (vi) make any capital
expenditure over $10,000 or execute any lease (other than the Master
Facility Lease), lease renewal or lease amendment or incur any commitment
or liability therefor; (vii) make or permit to be made any amendment to
its charter or bylaws; (viii) make any change in financial reporting or
accounting methods or practices of the Company (including without
limitation any change with respect to establishment of reserves, losses
or any change in depreciation or amortization policies or rates adopted
by it), except as required by law or GAAP and as set forth in Section 5.1
of the Disclosure Schedule; (ix) knowingly waive or commit to waive any
rights the waiver of which would have, individually or in the aggregate,
a Material Adverse Effect on the Company; (x) make any change in any of
its Tax or accounting practices or policies; (xi) effect any amendment,
termination, waiver, disposal or lapse of, or other failure to preserve,
any material Permit of the Company; or (xii) agree to do any of the
foregoing; and
(d) maintain the books and records of the Company.
5.2 Books, Records and Properties. (a) The Sellers agree that
from the date hereof through the Closing Date, they will give or cause to
be given to Buyer and its auditors and other representatives and agents
full access to all the premises, properties, books, records and employees
of the Company (including with respect to matters relating to Taxes), and
to the extent that the same directly relate to the business of the
Company, the books and records of Sellers and Sellers' Affiliates, and to
cause their respective officers and employees to furnish to Buyer such
financial and operating data and other information with respect to the
properties and the conduct of the businesses of the Company; provided,
however, that any such investigation shall be conducted only for purposes
relating to the transactions contemplated hereby and only during normal
business hours and in such manner as not to interfere unreasonably with
the operation of the businesses of the Sellers or the Company. Any
investigation conducted by or on behalf of Buyer pursuant to this Section
5.2 or otherwise shall not affect Buyers right to rely on the
representations and warranties of the Sellers set forth herein.
(b) The Sellers agree that all documents that are retained
by the Sellers after the Closing Date and that are directly related to
the business of the Company (specifically excluding the individual tax
returns of the Sellers) shall be open for inspection by representatives
of Buyer at any time during regular business hours for a period of one
year after the Closing Date and until such time as documents are
destroyed or possession thereof is given to Buyer and that Buyer may
during such period at its expense make such copies thereof as it may
reasonably request. It is understood and agreed that all books and
records of the Company shall remain the property of the Company.
5.3 Filings and Consents. (a) The parties hereto will cooperate
with each other to obtain, as promptly as practicable, all necessary
consents, approvals, authorizations and agreements of, and the giving of
all notices and make all other filings with, any third parties, including
Governmental Authorities, necessary to authorize, approve or permit the
consummation of the transactions contemplated hereby.
(b) The Sellers will (and will cause the Company to), (i)
take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, to obtain as promptly as practicable the approvals,
authorizations and consents listed in Section 3.13 of the Disclosure
Schedule and (ii) provide such information and communications to the
Persons requiring such approvals, authorizations and consents as Buyer or
such Persons may reasonably request.
5.4 Tax Matters.
(a) Section 338 (h)(10) Elections and Forms.
(i) Buyer's Option to Make Election. With respect
to Buyers acquisition of the Company Common Stock hereunder, at
Buyers option the Sellers and Buyer shall jointly make all
available Section 338(h)(10) Elections (as defined in Section
5.4(g)(ii) hereof) in accordance with applicable Tax Laws on a
timely basis and as set forth herein. If Buyer determines that
the Section 338(h)(10) Elections shall be made: (A) the Sellers
and Buyer will supply in advance to one another copies of all
correspondence, filings or communications (or memoranda setting
forth the substance thereof) to be sent or made by Buyer or
Sellers or their respective representatives to or with the IRS
relating to any Section 338 (h)(10) Elections; (B) Buyer and the
Sellers agree to report the transfers under this Agreement
consistent with any Section 338(h)(10) Elections, and shall take
no position contrary thereto unless required to do so by
applicable Tax Laws pursuant to a "determination" (as described in
Section 1313 of the Code); and (C) Sellers agree that they will
cause to be given to Buyer and its representatives and agents for
their review access to the Tax Returns of the Company which
include the reporting and tax effect of the Section 338(h)(10)
Elections.
(ii) Preparation of Forms. If the Section
338(h)(10) elections are made, Buyer shall be responsible for the
preparation and filing of all Section 338 Forms (as defined in
Section 5.4(g)(i) hereof) in accordance with applicable Tax Laws
and the terms of this Agreement, and Buyer shall deliver such
forms and related documents to the Sellers at least forty (40)
days prior to the date such Section 338 Forms are required to be
filed under applicable Tax Laws. The Sellers shall provide all
information reasonably requested by Buyer and shall execute and
deliver to Buyer such documents or forms as are reasonably
requested by Buyer and are required by any Tax Laws to properly
complete the Section 338 Forms, no more than twenty (20) days
after the date such documents or forms are requested by Buyer.
(iii) Allocation of Purchase Price. If the
Section 338(h)(10) Elections are made, the Sellers and Buyer will
allocate the "Modified Aggregate Deemed Sale Price," as computed
under applicable Treasury Regulations (or similar state law
provisions) with respect to the acquisition of shares of Company
Common Stock among the Companys assets for tax purposes in
accordance with the parties' reasonable determination of their
fair market values as set forth in Annex C.
(b) Liability for Taxes.
(i) Taxable Periods Ending On or Before the
Closing Date. The Sellers shall be liable for, shall pay and
shall indemnify and hold Buyer and the Company harmless against,
all Taxes of the Company or the Sellers for any taxable year or
taxable period ending on or before the Closing Date due or payable
with respect to the operations, assets or business of the Sellers
or the Company on or before the Closing Date, including any Taxes
(the "Sellers' Income Taxes") resulting (x) from the sale of the
Company Common Stock, including any deemed sale of the Company's
assets pursuant to the making of the Section 338(h)(10) Elections
or (y) pursuant to Treasury Regulation Section 1.1502 6, (or any similar
provision of Law). The foregoing notwithstanding, Buyer shall pay
to Sellers, on an after-tax basis, when due with respect to the
transactions contemplated hereby, an amount equal to the excess of
(x) the combined federal and state income, sales, use and other
similar taxes imposed as the result of making the Section
338(h)(10) Election (as defined in subsection (g) hereof) over (y)
the amount of such taxes which would have been imposed had the
Sellers sold the Company Common Stock without making the Section
338(h)(10) Election (such incremental taxes being the "Section 338
Incremental Taxes"). All liabilities and obligations between the
Company on the one hand, and the Sellers on the other hand, under
any tax allocation agreement or arrangement in effect prior to
Closing (other than this Agreement or as set forth herein) shall
cease to exist as of the Closing.
(ii) Taxable Periods Commencing After the Closing
Date. Buyer shall be liable for, shall pay and shall indemnify
and hold the Sellers harmless against, any and all Taxes
(including Section 338 Incremental Taxes) of the Company for any
taxable year or taxable period commencing after the Closing Date
(other than Sellers' Income Taxes as provided for in Section
5.4(b)(i)).
(iii) Taxable Periods Commencing On or Before the
Closing Date and Ending After the Closing Date. Any Taxes for a
taxable period beginning on or before the Closing Date and ending
after the Closing Date (the "Closing Period") with respect to the
Company shall be apportioned between the Sellers and Buyer as if
the Closing Period had ended at the Closing but with the Sellers
bearing all Seller's Income Taxes and the effect of all the
operations of the Company through and including the Closing Date
and Buyer bearing the Section 338 Incremental Taxes. With respect
to any Taxes for the Closing Period:
(A) at least fifteen (15) days
prior to the due date for the payment of Taxes with
respect to the Closing Period, Buyer shall present the
Sellers with a schedule detailing the computation of the
Closing Period Tax;
(B) ten (10) days after Buyer
presents Sellers with the schedule described in clause
(A) above, the Sellers shall pay to the Internal Revenue
Service when due (or to the Company if such amounts have
been paid by the Company) the amount of the undisputed
Closing Period Tax (and, upon resolution, any disputed
Closing Period Tax if resolved against Sellers pursuant
to paragraph (f) hereof) as computed by Buyer, and Buyer
shall pay all other Taxes with respect to the Closing
Period.
(c) Refunds or Credits. Except as otherwise set forth in
this Agreement, any refunds or credits of Taxes, to the extent that such
refunds or credits are attributable to taxable periods ending on or
before the Closing Date (other than with respect to Section 338
Incremental Taxes) shall be for the account of the Sellers, and, to the
extent that such refunds or credits are attributable to taxable periods
beginning after the Closing Date (and with respect to Section 338
Incremental Taxes), such refunds or credits shall be for the account of
Buyer. To the extent that such refunds or credits are attributable to
Taxes for the Closing Period that are described in Section 5.4(b), such
refunds and credits shall be for the account of the party who bears
responsibility for such Taxes pursuant to Section 5.4(b). Buyer shall
cause the Company promptly to forward to the Sellers or to reimburse the
Sellers for any such refunds or credits due the Sellers pursuant to this
subsection (c) after receipt thereof by either Buyer or the Company of an
aggregate of at least $5,000 of such refunds or credits that are for the
account of the Sellers hereunder, and the Sellers shall promptly forward
to Buyer or reimburse Buyer for any refunds or credits that are for the
account of Buyer after receipt thereof by the Sellers of an aggregate of
at least $5,000 of such refunds or credits that are for the account of
Buyer hereunder; provided, however, that the refunding party shall be
entitled to deduct from the amount to be refunded all reasonable costs
and expenses incurred by such refunding party in obtaining such refund,
but such deduction shall not be included in calculating whether the
$5,000 refund and credit threshold noted above has been reached.
(d) Mutual Cooperation. As soon as practicable, but in any
event within fifteen (15) days after the Sellers or Buyers request, as
the case may be, Buyer shall deliver to the Sellers, or the Sellers shall
deliver to Buyer, as the case may be, such information and other data
relating to the Tax Returns and Taxes of the Company and shall make
available such knowledgeable employees of the Sellers, Buyer, the Company
or any of their Affiliates, as the case may be, as the Sellers or Buyer,
as the case may be, may reasonably request, including providing the
information and other data customarily required by the Sellers or Buyer,
as the case may be, to cause the completion and filing of all Tax Returns
for which it has responsibility or liability under this Agreement or to
respond to audits by any taxing authorities with respect to any Tax
Returns or Taxes for which it has any responsibility or liability under
this Agreement or to otherwise enable the Sellers or Buyer, as the case
may be, to satisfy its accounting or tax requirements. For a period of
five years after the Closing, and, if at the expiration thereof any tax
audit or judicial proceeding is in progress or such statutory period is
extended, for such longer period such audit or judicial proceeding is in
progress or such statutory period is extended Buyer shall, and shall
cause the Company to, maintain and make available to the Sellers on the
Sellers reasonable request, and the Sellers shall, and shall cause their
Affiliates to, maintain and make available to Buyer, on Buyers
reasonable request, copies of any and all information, books and records
referred to in this Section 5.4(d).
(e) Contests. Whenever any Taxing Authority asserts a claim,
makes an assessment, or otherwise disputes the amount of Taxes for which
the Sellers are or may be liable under this Agreement, Buyer shall
promptly inform the Sellers and the Sellers shall have the right to
control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute to the extent such
proceedings or determinations would materially affect the amount of Taxes
for which the Sellers are liable under this Agreement; provided, however,
that Sellers shall not compromise or settle any such claim, assessment or
dispute without the prior written consent of Buyer, which shall not be
unreasonably withheld. Whenever any Taxing Authority asserts a claim,
makes an assessment or otherwise disputes the amount of taxes for which
Buyer is liable under this Agreement, the Sellers shall promptly inform
Buyer, and Buyer shall have the right to control any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute to the extent such proceedings would materially
affect the amount of Taxes for which Buyer is liable under this
Agreement.
(f) Resolution of Disagreements between the Sellers and
Buyer. If the Sellers and Buyer disagree as to the amount of Taxes for
which each is liable under this Agreement, the Sellers and Buyer shall
promptly consult each other in an effort to resolve such dispute. If any
such point of disagreement cannot be resolved within fifteen (15) days of
the date of consultation, the Sellers and Buyer shall within ten (10)
days after such 15-day period jointly engage an auditor (other than
Hiratsuka, Cassaday & Schaus, LLP or Coopers & Lybrand LLP) (the "Tax
Auditor") to act as an arbitrator to resolve all points of disagreement
concerning tax accounting matters with respect to this Agreement. If the
parties cannot agree on the selection of a Tax Auditor within such 10-day
period, then the matter shall be resolved pursuant to Section 9.3, except
that the arbitrator shall be an attorney or certified public accountant
proficient in relevant Tax matters. All fees and expenses relating to the
work performed by any Tax Auditor or arbitrator in accordance with this
Section 5.4(f) shall be borne equally by the Sellers and Buyer, unless
otherwise ordered by the Tax Auditor or arbitrator.
(g) Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Section 338 Forms" shall mean all returns,
documents, statements, and other forms that are required to be
submitted to any federal, state, county, or other local taxing
authority in connection with a Section 338(h)(10) Election.
Section 338 Forms shall include, without limitation, any
"statement of section 338 election" and United States Internal
Revenue Service Form 8023 (together with any schedules or
attachments thereto) that are required pursuant to the treasury
regulations promulgated under Section 338 of the Code.
(ii) "Section 338(h)(10) Election" means an
election described in Section 338(h)(10) of the Code with respect
to the sale of the Company Common Stock to Buyer pursuant to this
Agreement, and any other elections that may be necessary in order
to give effect to the election under Section 338 (h)(10) of the
Code. Section 338(h)(10) Election shall also include any
substantially similar Election under a state or local statute
corresponding to federal Laws.
(iii) "Tax Laws" means the Code and any other Laws
relating to Taxes and any official administrative pronouncements
released thereunder.
5.5 Supplements to Disclosure Schedule; Notice and Cure.
(a) From time to time prior to the Closing, the Sellers and
Buyer will promptly supplement or amend the sections of the Disclosure
Schedule relating to their respective representations and warranties in
this Agreement with respect to any matter, condition or occurrence
hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in their
respective sections of the Disclosure Schedule or would otherwise have
been inconsistent with their representations set forth in this Agreement.
No supplement or amendment by either party shall be deemed to cure (or
affect the rights of any party with respect to) any breach of any
representation or warranty made in this Agreement or have any effect for
the purpose of determining satisfaction of the conditions set forth in
Articles VI or VII hereof.
(b) The Sellers and Buyer shall promptly notify the other in
writing of, and contemporaneously with such notices will provide to the
other true and complete copies of all information and documents relating
to, any event, transaction or circumstance occurring after the date
hereof that causes or is reasonably likely to cause any of its covenants
or agreements under this Agreement to be breached or that renders or is
reasonably likely to render untrue any of its representations or
warranties contained in this Agreement. The Sellers or Buyer, as the case
may be, shall use commercially reasonable efforts to cure, before the
Closing, (a) any such breach or misrepresentation by it and (b) any
violation or breach of any of its representations, warranties, covenants
or agreements in this Agreement, whether occurring or arising before or
after the date hereof.
5.6 Covenant to Satisfy Conditions. The Sellers and Buyer
agree to use all reasonable efforts to assure that the conditions to
the other partys obligations hereunder set forth in Article VI and
Article VII hereof are satisfied, insofar as such matters are within
the control of such party.
5.7 Employee Benefits and Employment. Each employee of the
Company on the Closing Date that continues employment with the Company
as of the Closing Date (each, an "Employee") shall be eligible for
participation in the "employee welfare benefit plans" as are defined in
sections 3(1) of ERISA, maintained by Buyer and as in effect from time
to time (the "Buyer Plans"), subject to the eligibility requirements of
each such Buyer Plan.
5.8 Restrictive Covenants. (a) Each Seller acknowledges and
agrees that (i) the Company is engaged in the business of developing and
selling point of sale and management systems primarily for retail
convenience stores, hypermarkets and fuel service stations (the
"Business") which is conducted throughout the United States, (ii) each
Seller is familiar with the business and affairs, trade secrets, clients,
potential clients, markets, operations and other Confidential Information
of the Company on the date hereof, (iii) the Sellers could effectively
compete against the Company on and after the date hereof, (iv) that the
Confidential Information is vital, sensitive, confidential and
proprietary to the Company and that the disclosure of Confidential
Information to competitors or potential competitors could do serious and
irreparable harm to the business of the Company, (v) the noncompetition
and other covenants contained in this Section 5.8 are an essential part
of this Agreement and the transactions contemplated by this Agreement;
(vi) they have been fully advised by counsel in connection with the
negotiation, preparation, execution and delivery of this Agreement and
the transactions contemplated by this Agreement, including the intent,
meaning and effect of the noncompetition and other covenants contained in
this Section 5.8; (vii) the noncompetition and other covenants contained
in this Section 5.8 are enforceable under the laws of the State of
Colorado; (viii) they shall be bound by the noncompetition and other
covenants contained in this Section 5.8; (ix) compliance with the
noncompetition and other covenants contained herein will not create any
hardship as each Seller has independent means and sufficient income,
including the payments made and to be made pursuant to this Agreement, to
be fully self-supporting without competing with Buyer in the Business or
violating the noncompetition or other covenants contained herein; and (x)
no reasonable Person would engage in any of the transactions contemplated
by this Agreement without the benefit of the noncompetition and other
covenants contained herein by the Sellers. Accordingly, each Seller on
behalf of himself agrees to be bound by the noncompetition and other
covenants contained herein to the extent permitted by law, it being the
intent and spirit of the parties that the noncompetition and other
covenants contained herein shall be valid and enforceable in all respects
and, subject to the terms and conditions of this Agreement, mutually
dependent upon the obligations of Buyer to pay the Sellers the amounts
set forth in this Agreement.
(b) To more effectively transfer and protect the Business
and the goodwill of the Company, each Seller agrees severally on behalf
of himself that, for a period beginning immediately after the Closing
Date and ending on the third anniversary thereof, such Seller and each
current or future Affiliate of each such Seller shall not, without
Buyer's prior written consent, (i) directly or indirectly solicit any
current employee of Buyer or any subsidiary, Affiliate, successor or
assign of Buyer, to pursue employment opportunities other than with Buyer
or the Company, (ii) directly or indirectly solicit any customer or
client or prospective customer or client of the Company, the Buyer or any
subsidiary, Affiliate, successor or assign of Buyer, for any purpose
competitive with the Business, (iii) at any time, disclose to others,
assist others in the application of, or use for any purpose (including
such Sellers own gain), any Confidential Information, unless and to the
extent that such information has become generally available to the public
other than as a result of such Sellers disclosure of such information in
breach of this Agreement, or (iv) engage in the Business for such
Seller's own account or become interested in any entity that is engaged
in the Business in any capacity, including as an individual, partner,
stockholder, officer, director, principal, agent, trustee or consultant;
provided, however, that Seller 1, or an Affiliate thereof, may enter into
the Master Facility Lease with the Company.
(c) Each Seller agrees severally on behalf of himself that
the provisions of this Section 5.8 are necessary for the proper
protection of the value of the business and affairs of the Company and
are reasonable with respect to matter, length of time and geographical
area. If, at the time of enforcement of this Section 5.8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, Buyer and each Seller
agree that the maximum duration, scope or area permissible under such
circumstances shall be substituted for the stated duration, scope or
area, it being agreed by the parties that the covenant set forth in
Section 5.8(b)(i) above constitutes a separate and independent covenant
with respect to each state of the United States.
(d) Each Seller on behalf of himself acknowledges that Buyer
has no adequate remedy at law and would be irreparably harmed were the
Sellers to breach or threaten to breach the provisions of this Section
5.8, and therefore agrees that in addition to any other legal or
equitable remedy Buyer may have, Buyer shall be entitled to injunctive
relief to prevent any breach or threatened breach of this Section 5.8.
5.9 Confidentiality. Buyer and each Seller will hold and, in the
case of Buyer, will cause its officers, directors, employees,
consultants, advisors and other agents to hold, in strict confidence,
unless compelled to disclose by judicial or administrative process or, in
the opinion of its counsel, by state or federal regulatory agencies
(collectively, "Legal Requirements"), all Confidential Information
concerning the other party furnished it by such other party or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information (i) is or becomes
available in the public domain through no fault of such party, or (ii) is
later lawfully acquired from other sources by the party to which it was
furnished). No party will release or disclose such information to any
other person, except its auditors, attorneys, financial advisors and
other consultants and advisors in connection with this Agreement (unless
compelled to so disclose by Legal Requirements) and shall not use such
information other than in connection with this Agreement or the
transactions contemplated hereby until after the Closing Date. If the
transactions contemplated by this Agreement are not consummated, such
confidence shall be maintained to the extent required above, and such
information shall not be used to the detriment of, or in relation to any
investment in, the other party. All such documents (including copies
thereof) shall be returned to the other party immediately upon the
written request of such other party. Each party shall be deemed to have
satisfied its obligation to hold Confidential Information concerning or
supplied in confidence by the other party if it exercises the same care
as it takes to preserve confidentiality for its own similar information.
The parties acknowledge that if this provision is violated, a party has
no adequate remedy at law and would be irreparably harmed were another
party to breach or threaten to breach the provisions of this Section 5.9,
and therefore agree that in addition to any other legal or equitable
remedy Buyer may have, the non-breaching party shall be entitled to
injunctive relief to prevent any breach or threatened breach of this
Section 5.9.
5.10 Acquisition Proposals to the Company. The Sellers shall not,
and the Sellers shall cause the Company and the Company's employees,
agents, and representatives (including, without limitation, any
investment banker, attorney or accountant retained by the Company or the
Sellers) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making of any proposal with respect to a merger,
consolidation, share exchange or similar transaction involving the
Company, any purchase of all or any significant portion of the assets of
the Company or the sale of the Company Common Stock or any equity
interest in the Company (an "Acquisition Proposal"), or engage in any
negotiations concerning, or provide any Confidential Information to, or
have any discussions with, any person relating to an Acquisition
Proposal. The Sellers shall promptly inform Buyer of all Acquisition
Proposals received by the Company or the Sellers after the date hereof
and provide a copy of any correspondence or other documentation in
connection therewith. The Sellers shall, and the Sellers shall cause the
Company and the Company's employees, agents and representatives to,
terminate and discontinue all prior discussions and negotiations relating
to an Acquisition Proposal.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, unless waived
in writing by each of the Sellers:
6.1 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall be true and correct in
all material respects on and as of the date hereof and on and as of the
Closing Date.
6.2 Performance. Buyer shall have performed in all material
respects all of its obligations under this Agreement to be so performed
by Buyer on or prior to the Closing Date.
6.3 Injunctions. On the Closing Date, there shall be no
injunction, writ, preliminary restraining order or other order in effect
of any nature issued by a Governmental Authority of competent
jurisdiction directing that the transactions provided for herein not be
consummated as provided herein, and no proceeding seeking such action or
challenging the validity or legality of the transactions contemplated
hereby shall be pending or threatened.
6.4 Governmental Filings and Consents. All consents from
Governmental Authorities necessary to permit the consummation of the
transactions contemplated hereby shall have been obtained.
6.5 Officers Certificate. Buyer shall have delivered to the
Sellers a certificate, dated the Closing Date and executed by an
appropriate officer of Buyer, certifying to the fulfillment of the
conditions specified in Sections 6.1 through 6.4 hereof.
6.6 Corporate Documents. The Sellers shall have received from
Buyer resolutions adopted by the Board of Directors of Buyer approving
this Agreement and the transactions contemplated hereby, certified by
Buyers corporate secretary or assistant secretary.
6.7 Opinion of Counsel. Sellers shall have received the opinion
of counsel for Buyer substantially in the form attached hereto as Annex
F.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, unless waived
in writing by Buyer:
7.1 Representations and Warranties. The representations and
warranties made by the Sellers in this Agreement (including, without
limitation, in Articles III and X) shall be true and correct in all
material respects on and as of the date hereof and on and as of the
Closing Date.
7.2 Performance. The Sellers shall have performed in all material
respects all of its obligations under this Agreement to be so performed
by the Sellers on or prior to the Closing Date.
7.3 Injunctions. On the Closing Date, there shall be no
injunction, writ, preliminary restraining order or other order in effect
of any nature issued by a Governmental Authority of competent
jurisdiction directing that the transactions provided for herein not be
consummated as provided herein, and no proceeding seeking such action or
challenging the validity or legality of the transactions contemplated
hereby shall be pending or threatened.
7.4 Governmental Filings and Consents; Third-Party Consents. All
consents from other Persons necessary to permit the consummation of the
transactions contemplated hereby shall have been obtained.
7.5 Sellers' Certificate. The Sellers shall have delivered to
Buyer a certificate, dated the Closing Date and executed by the Sellers,
certifying to the fulfillment of the conditions specified in Sections 7.1
through 7.4 hereof.
7.6 Opinion of Counsel. Buyer shall have received the opinion of
counsel for the Company substantially in the form attached hereto as
Annex E.
7.7 Employment Agreement. Seller 1 shall have delivered an
employment agreement, duly executed by Seller 1, evidencing his agreement
to become an employee of the Company on the terms of that agreement (the
"Employment Agreement").
7.8 Resignations. Subject to the limitation described in Section
2.2(a)(vi), the Sellers shall have delivered all required resignations of
directors of the Company as required by Section 2.2(a)(vi).
7.9 Archived Software. The Sellers shall permanently archive one
complete copy, in a finished state, of each piece of software that it
sells or leases to customers (collectively, the "Software"). The Software
shall include the source code and documentation (collectively, the
"Source Code"). The Source Code shall be reasonably commented and shall
be sufficient to disclose how the Software works and is structured, in
detail sufficient to permit another reasonably skilled programmer to
fully understand, modify and prepare derivative works from the Software
and to locate and correct defects in the Software. Such Company Software
shall be archived in a sealed packaged signed by the Company and Buyer.
7.10 Absence of Certain Changes. Since the date hereof, there
shall not have occurred and no facts or circumstances shall have arisen
or been discovered that would have, individually or in the aggregate, a
Material Adverse Effect on the Company.
7.11 Tax Matters. The Sellers shall have properly and fully
completed and executed all Section 338 Forms and have taken any other
actions necessary to implement the Section 338(h)(10) Election for
federal, state and local tax purposes.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and abandoned
at any time prior to Closing:
(a) by the mutual written consent of the Sellers and Buyer;
(b) by either the Sellers' Representative or Buyer in the
event the Closing has not occurred by December 31, 1997 (the "Cut-Off
Date"), unless the failure of such consummation shall be due to the
failure of the party seeking to terminate this Agreement to fulfill any
obligation under this Agreement;
(c) by either the Sellers or Buyer if any court of competent
jurisdiction or other federal, state or local Governmental Authority
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and such order, decree or ruling or other action
shall have become final and nonappealable after the affected party or
parties have made all reasonable efforts to contest and appeal the
issuance of such order, decree, ruling or other action;
(d) by Buyer or the Sellers if (i) the other party shall
have failed to comply in any material respect with any of the covenants
or agreements contained in this Agreement to be complied with by such
other party at or prior to such date of termination within five business
days following receipt by non-complying party of written notice of such
failure to comply or (ii) any representation or warranty of the other
party shall not be true in all material respects when made (provided that
such breach has not been cured within ten (10) business days following
receipt by the breaching party of written notice of the breach) or on and
as of the Closing Date, as if made on and as of the Closing Date.
8.2 Effect of Termination. In the event of any termination and
abandonment of this Agreement pursuant to this Article VIII, the
terminating party shall promptly give notice thereof to the other party,
and this Agreement shall forthwith become void and have no effect, and
neither party to this Agreement will have any liability to the other
hereunder, except with respect to any breach of any provisions of this
Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification. (a)
(i) Each of the Sellers hereby agrees, severally in proportion
to each Seller's ownership of Company Common Stock as listed on Annex
B, to indemnify, defend and hold Buyer and Buyers Affiliates
including, after the Closing Date, the Company and its directors,
officers, employees, agents, counsel and other representatives (each, a
"Buyer Indemnified Party"), harmless from and against and in respect of
any and all losses, liabilities, Taxes, damages, deficiencies, demands,
claims, costs and expenses (including interest, penalties, fees and
reasonable attorneys fees and expenses and comparable fees and charges
for in-house counsel and experts incurred in connection with any of the
foregoing and in seeking indemnification hereunder) (collectively,
"Claims") that they may suffer, sustain, incur or become subject to,
arising out of, in connection with or due to any inaccuracy of any
representation or the breach of any warranty of Sellers contained in
this Agreement (including, without limitation, those in Article III but
specifically excluding those in Article X hereof) or any certificates,
instruments or documents delivered pursuant to this Agreement
(including the Disclosure Schedule), in each case without regard to any
"materiality," "Material Adverse Effect," or similar limitations,
thresholds or exceptions (and specifically with regard to "knowledge"
qualifiers) contained in such representations and warranties and
without regard to whether any such action giving rise to a Claim is
initiated prior to or after the Closing, provided, that the Sellers
shall not be required to indemnify a Buyer Indemnified Party for Claims
relating to breaches of representations and warranties under this
clause unless and until the aggregate value of all Claims with respect
to the breach of any covenant, undertaking or other agreement of the
Sellers contained in this Agreement or any certificates, instruments or
documents delivered pursuant to this Agreement (including the
Disclosure Schedule) exceeds $100,000. Any amounts to be paid by
Sellers to Buyer under this Article IX shall be deducted first from the
next Contingent Payment or Contingent Payments; Buyer may then collect
any amounts still outstanding from the Sellers severally in proportion
to each Seller's ownership of Company Common Stock as listed on Annex
B. Notwithstanding anything to the contrary in this Agreement, the
Sellers' aggregate liability for indemnification pursuant to this
Section 9.1 shall not exceed $4,000,000.
(ii) Each of the Sellers hereby agrees, severally and not
jointly, to indemnify, defend and hold Buyer and Buyers Affiliates
including, after the Closing Date, each Buyer Indemnified Party,
harmless from and against and in respect of any and all Claims that
they may suffer, sustain, incur or become subject to, arising out of,
in connection with or due to any inaccuracy of any representation or
the breach of any warranty of Sellers contained in Article X of this
Agreement. Each Seller's aggregate liability for indemnification
pursuant to this Section 9.1(a)(ii) shall not exceed the sum of
$4,000,000 multiplied by the percentage ownership of such Sellers'
Company Common Stock as listed on Annex B.
(b) Buyer agrees to indemnify, defend and hold the Sellers
and any agents, counsel and other representatives of such Sellers (each,
a "Seller Indemnified Party"), harmless from and against and in respect
of any and all Claims that they may suffer, sustain, incur or become
subject to arising out of, in connection with or due to any inaccuracy of
any representation or the breach of any warranty of Buyer contained in
this Agreement or any certificates, instruments or documents delivered
pursuant to this Agreement (including the Disclosure Schedule), in each
case without regard to any "materiality," "Material Adverse Effect" or
similar limitations, thresholds or exceptions contained in such
representations and warranties and without regard to whether any such
action giving rise to a Claim is initiated prior to or after the Closing,
provided that Buyer shall not be required to indemnify a Seller
Indemnified Party under this clause unless and until the aggregate value
of all Claims with respect to the breach of any covenant, undertaking or
other agreement of Buyer contained in this Agreement or any certificates,
instruments or documents delivered pursuant to this Agreement (including
the Disclosure Schedule) exceeds $100,000. Notwithstanding anything to
the contrary in this Agreement, Buyer's aggregate liability for
indemnification pursuant to this Section 9.1 shall not exceed $4,000,000;
provided, that such limit shall not apply to any recoverable Claim
hereunder for Buyer's failure to pay the Contingent Purchase Price.
(c) If an event occurs which a party asserts is an
indemnifiable event pursuant to Section 9.1(a) or 9.1(b), the Buyer
Indemnified Party or, as the case may be, the Seller Indemnified Party
(each an "Indemnified Party") shall promptly notify the other party
obligated to provide indemnification (the "Indemnifying Party") promptly,
provided that the failure to give prompt notice shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that
such failure actually prejudices the Indemnifying Party hereunder. If
such event involves the commencement of any action or proceeding by a
third person, the Indemnified Party will give such Indemnifying Party
prompt written notice of the commencement of such action or proceeding,
provided, however, that the failure to provide prompt notice as provided
herein will not relieve the Indemnifying Party of its obligations
hereunder except to the extent that such failure actually prejudices the
Indemnifying Party hereunder. In case any such action shall be brought
against any Indemnified Party and it shall notify the Indemnifying Party
of the commencement thereof, the Indemnifying Party shall be entitled to
participate therein and, to the extent that it shall elect to do so in
writing within 10 days after such notice, to assume the defense thereof,
at its sole cost and expense, with counsel reasonably satisfactory to the
Indemnified Party (provided that the Indemnifying Party first agrees in
writing to pay the full amount of indemnification with respect to such
action to the Indemnified Party, and provided further that the Sellers
shall not be entitled to assume the defense of any action brought against
any Indemnified Party identified in Section 9.1(a) by any Governmental
Authority). After notice from the Indemnifying Party to the Indemnified
Party of such election so to assume the defense thereof, the Indemnified
Party shall have the right to retain its own separate counsel, but the
fees and expenses of such counsel shall be at the Indemnified Partys
expense unless (a) the Indemnifying Party and the Indemnified Party shall
have agreed to the contrary, (b) the Indemnifying Party has failed within
a reasonable time to retain counsel reasonably satisfactory to the
Indemnified Party, and (c) the named party in any such proceeding
(including any impleaded parties) include both the Indemnified Party and
the Indemnifying Party and representation of both parties by the same
counsel could be inappropriate due to actual or potential differing
interests between them. In any matter described above where the
Indemnified Party has obtained counsel to represent it in addition to
counsel obtained by the Indemnifying Party, counsel selected by the
Indemnifying Party shall be required to cooperate fully with counsel
selected by the Indemnified Party in such matter. So long as the
Indemnifying Party is defending in good faith any claim for which
indemnification is sought, the Indemnifying Party shall not be liable for
any claim settled without its consent, which consent may not be
unreasonably withheld. To the extent that the provisions of Section 9.1
are inconsistent with any applicable provision of the indemnity contained
in the provisions of Section 5.4 (relating to tax matters), such
provisions of Section 5.4 shall control.
9.2 Survival of Representations and Warranties. The
representations and warranties of the Sellers and Buyer contained in this
Agreement or in any instrument delivered pursuant hereto shall survive
the Closing Date and shall remain in full force and effect thereafter
until two years after the Closing Date; provided, however, that the
provisions of Article I, specifically including those regarding the
payment of the Contingent Purchase Price, survive indefinitely, that the
representations and warranties contained in Section 10.3 shall survive
indefinitely without limitation, the representations and warranties
contained in Sections 3.8, 3.14 and 5.4 shall survive for five years from
the Closing Date, and the representations and warranties contained in
Section 3.9 shall survive until 60 days after the applicable statutes of
limitations have run. No action or proceeding may be brought with respect
to any Claims based on the breach of a representation or warranty unless
written notice thereof, setting forth in reasonable detail each such
Claim, shall have been delivered to the Sellers or Buyer, as the case may
be, prior to the expiration of the applicable periods set forth above.
9.3 Arbitration. (a) All controversies or Claims arising among
the parties (other than Claims relating to Taxes, which shall be governed
by Section 5.4(f)), including without limitation claims arising out of or
relating to this Agreement, the subject matter hereof, any other Contract
among the parties, and the arbitrability of any Claim, shall be settled
by arbitration. The arbitration and all preliminary proceedings related
thereto shall be conducted in accordance with such rules as may be agreed
upon by the parties, or, failing agreement on such rules, in accordance
with the Rules for Commercial Arbitration of the American Arbitration
Association ("AAA"), as amended from time to time and as modified by this
Agreement. The dispute shall be presented to an arbitration panel sitting
in Denver, Colorado.
(b) Each of the Sellers involved in such dispute, on the one
hand, and Buyer on the other hand, shall select an arbitrator and a third
arbitrator shall be selected jointly by the arbitrators selected by the
parties within fifteen (15) days after demand for arbitration is made by
a party. If the arbitrators are unable to agree on a third arbitrator
within that period, then any party may request that the AAA select the
third arbitrator. The arbitrators shall possess substantive legal
experience in the principal issues in dispute and shall be independent of
the parties hereto.
(c) Any discovery permitted shall be limited to information
directly relevant to the controversy or Claim in arbitration. In the
event of discovery disputes, the arbitrators are directed to issue such
orders as are appropriate to limit discovery in accordance with the
foregoing and as are reasonable in light of the issues in dispute, the
amount in controversy, and other relevant considerations. To the extent
the parties are unable to agree on the scope of discovery, the
arbitrators shall require the party seeking discovery on an issue to
present the legal and factual basis for the Claim and shall permit the
party opposing discovery to respond. The arbitrators shall permit
discovery on an issue only if the arbitrators conclude that there is a
reasonable and good faith basis in Law and in fact for bringing such
allegations and that the discovery appears likely to present substantive
evidence regarding that Claim. The arbitrators may permit limited
discovery to permit investigation of some of the Claims or to determine
whether a Claim has sufficient basis in law or in fact to warrant further
discovery, but shall issue appropriate orders to restrict the scope of
such discovery. The federal or state rules or procedure and evidence
shall not apply to the arbitration proceedings, including without
limitation the rules of discovery. The arbitrators shall consider claims
of privilege, work product and other restrictions on discovery as appear
to be warranted.
(d) The arbitrators shall award the prevailing party its
attorneys and experts fees and disbursements incurred in resolving the
dispute (including those of in-house counsel).
(e) Except as may otherwise be agreed in writing by the
parties or as ordered by the arbitrators upon substantial justification
shown, the hearing for the dispute shall be held within ninety (90) days
of submission of the dispute to arbitration. The arbitrators shall render
their final award within thirty (30) days following conclusion of the
hearing and any required post-hearing briefing or other proceedings
ordered by the arbitrators. The arbitrators shall state the factual and
legal basis for the award. The decision of the arbitrators shall be final
and binding, except as provided in the Federal Arbitration Act, 9 U.S.C.
Section 1, et seq., and except for errors of law based on the findings of
fact. Final judgment may be entered upon such an award in any court of
competent jurisdiction, but entry of such judgment shall not be required
to make such award effective. The parties hereby irrevocably submit to
the exclusive jurisdiction and venue of the state and federal courts
located in Arapahoe County, Colorado. THE PARTIES EXPRESSLY WAIVE THEIR
RIGHTS TO A TRIAL BY JURY.
(f) Notwithstanding anything to the contrary contained
herein, Buyer may seek provisional relief, including but not limited to
temporary restraining orders and preliminary injunctions, in addition to
the remedy of arbitration set forth herein, exclusively from any court of
competent jurisdiction in Arapahoe County, Colorado. Any such action for
relief shall not constitute a waiver of the right to arbitrate.
9.4 Remedies Cumulative. The remedies provided herein shall be
cumulative and shall not preclude an indemnified party from asserting any
of the rights or seeking any other remedies against the indemnifying
party or its successor or assigns.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
OF THE INDIVIDUAL SELLERS
Each of the Sellers, severally and not jointly, represents and
warrants to Buyer, solely with respect to himself, as follows:
10.1 Authorization, Etc. This Agreement has been duly and validly
executed and delivered by each Seller and constitutes a valid and binding
obligation of each Seller, assuming the due execution of the Agreement by
Buyer, enforceable against each Seller in accordance with its terms,
except that (a) such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
10.2 No Violation. The execution and delivery of this Agreement
by each Seller and the consummation by each Seller of the transactions
contemplated hereby will not (a) conflict with, violate, or constitute a
breach or default (with or without notice or lapse of time or both), or
give rise to any right of termination, cancellation or acceleration
(whether as a result of a change of control or otherwise) under or
otherwise impair any contract, commitment, undertaking, policy,
indenture, mortgage, note, lease, security agreement, deed or other
agreement of any nature, whether oral or written, to which such Seller is
a party or by which such Seller or any of their respective properties or
assets may be bound or affected, (b) conflict with or result in a
violation by Seller of any Law, (c) result in or give rise to the
imposition of any Encumbrance on the Shares of such Seller or (d) require
any order, consent, approval, registration, authorization, notice,
qualification or filing by such Seller under any Law or with any
Governmental Authority or any other Person.
10.3 Ownership of Stock. Each of Seller 1, Seller 2, and the
joint tenancy with right of survivorship between Seller 3 and Seller 4
(the "Joint Tenancy") is the sole record and beneficial owner of and has
good, valid and marketable title to the shares of Company Common Stock
that it owns, and has the absolute right, power and capacity to sell,
assign, deliver and transfer its shares of Company Common Stock to Buyer,
free and clear of all Encumbrances, other than the restrictions imposed
by federal and state securities laws. Each of Seller 1, Seller 2, and the
Joint Tenancy is the sole beneficial and record holder of the number of
shares of Company Common Stock listed on Annex B. Upon consummation of
the transactions contemplated hereby, Buyer will acquire good and valid
title to the Company Common Stock, free and clear of all Encumbrances,
other than the restrictions imposed by federal and state securities laws.
Seller 3 and Seller 4 are the only joint tenants in the Joint Tenancy,
which has not been dissolved for any reason under any Law.
10.4 No Foreign Persons. None of the Sellers is a "foreign
person" within the meaning of Section 1445(b)(2) of the Code.
10.5 S Corporation Election. Each of the Sellers has, on a timely
basis, (i) made all elections and taken all actions necessary to obtain
and maintain the qualification of the Company as S Corporation (within
the meaning of Section 1361 of the Code) for federal and any applicable
state income tax purposes and (ii) filed all Tax Returns on a basis that
is consistent with such status.
ARTICLE XI
MISCELLANEOUS
11.1 Fees and Expenses. Each of the parties shall bear its own
expenses (including legal and accounting) in connection with the
negotiation and consummation of the transactions contemplated by this
Agreement except as expressly provided.
11.2 Governing Law. This Agreement shall be construed under and
governed by the laws of the State of Indiana without giving effect to the
conflicts of laws provisions thereof.
11.3 Amendment. This Agreement may not be amended, modified or
supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
11.4 No Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either party
hereto without the prior written consent of the other party; provided,
however, that Buyer shall be entitled to assign any of its rights,
interests or obligations hereunder to any of its Affiliates (provided
that in the event of any such assignment, Buyer shall remain liable for
all obligations of Buyer set forth herein).
11.5 Waiver. Any of the terms or conditions of this Agreement
which may be lawfully waived may be waived in writing at any time by the
party which is entitled to the benefits thereof. Any waiver of any of the
provisions of this Agreement by any party hereto shall be binding only if
set forth in an instrument in writing signed on behalf of such party. No
failure to enforce any provision of this Agreement shall be deemed to or
shall constitute a waiver of such provision, and no waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a
waiver of any other provision hereof (whether or not similar) nor shall
such waiver constitute a continuing waiver.
11.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by
delivery, by telecopier or by mail (registered or certified by mail,
postage prepaid, return receipt requested) to the respective parties as
follows:
(a) If to Buyer by hand, telecopier or mail:
Tokheim Corporation
10501 Corporate Drive
P.O. Box 360
Fort Wayne, Indiana 46801
Attention: Douglas K. Pinner
Telecopy: (219) 407-4743
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Suite 2100
Chicago, Illinois 60606
Attention: William R. Kunkel
Telecopy: (312) 407-0411
(b) If to the Sellers:
Arthur S. ("Rusty") Elston
Management Solutions, Inc.
5351 South Roslyn Street
Suite 200
Greenwood Village, CO 80111
and to:
Ronald H. Elston
13055 Ash St.
Thornton, CO 80241
and to:
Eric E. Burwell
2823 Richard Rd.
Bloomington, IL 61704
and to:
Curt E. Burwell
328 North Logan St.
Lincoln, IL 62656
with a copy to:
Slivka, Robinson, Waters & O'Dorisio, P.C.
1099 18th Street
Suite 2600
Denver, CO 80202
Attention: Ernest J. Panasci
Telecopy: (303) 297-2750
or to such other address as any party hereto may, from time to time,
designate in a written notice given in like manner.
11.7 Complete Agreement. This Agreement and the other documents
and writings referred to herein or delivered pursuant hereto contain the
entire understanding of the parties with respect to the subject matter
hereof. There are no restrictions, agreements, promises, warranties,
covenants or undertakings other than those expressly set forth in such
documents with respect to the subject matter hereof. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
11.8 Publicity. No publication, press release or public
announcement of any nature shall be issued pertaining to this Agreement
or the transactions contemplated hereby without the prior consent of the
other party hereto (which shall not be unreasonably withheld) or except
as required by applicable Law or by obligations pursuant to any listing
agreement with any securities exchange or any securities exchange
regulation, in which case the party proposing to issue such publication
or press release or make such announcement shall use reasonable efforts
to consult with the other party before issuing any such publication or
press release. The parties contemplate a mutually agreed upon press
release announcing the transactions contemplated by this Agreement
subsequent to the execution of this Agreement.
11.9 Headings. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.10 No Third-Party Beneficiaries. Except for Section 9.1, which
is intended to benefit and to be enforceable by any party referred to
therein as entitled to indemnification thereunder, nothing in this
Agreement, express or implied, is intended to confer on any person other
than the parties hereto or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
11.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
IN WITNESS WHEREOF, Buyer and the Sellers have caused this
Agreement to be executed by their duly authorized officers as of the day
and year first above written.
TOKHEIM CORPORATION
By /s/ William D. Shank
Name: William D. Shank
Title: Vice President Corp. Finance
ARTHUR S. ("RUSTY") ELSTON
("Seller 1")
By /s/ Arthur S. Elston
Name: Arthur S. ("Rusty") Elston
RONALD H. ELSTON
("Seller 2")
By /s/ Ronald h. Elston
Name: Ronald H. Elston
ERIC E. BURWELL AND CURT E. BURWELL,
IN JOINT TENANCY
By /s/ Eric E. Burwell
Name: Eric E. Burwell
By /s/ Curt E. Burwell
Name: Curt E. Burwell
