Exhibit 2.1
MERGER AGREEMENT
among
A.S.V., INC.,
LMI MERGER CORP.,
XXXXXXXXX MFG. INC.,
THE XXXXXXX X. XXXXXXXXX REVOCABLE TRUST
and
XXXXXXX X. XXXXXXXXX
dated
October 1, 2004
Execution Copy
TABLE OF CONTENTS
Recitals.......................................................................................................... 1
I. Definitions.................................................................................................... 1
II. The Merger.................................................................................................... 7
2.1 The Merger.......................................................................................... 7
2.2 Conversion of Securities............................................................................ 7
2.3 Escrow.............................................................................................. 8
2.4 The Closing......................................................................................... 8
2.5 Stock Certificates.................................................................................. 10
2.6 Effect of Merger.................................................................................... 11
2.7 Taking of Necessary Action; Further Action.......................................................... 11
2.8 Tax-Free Reorganization............................................................................. 11
2.9 Buyer Common Stock.................................................................................. 12
III. Representations and Warranties of Shareholder................................................................ 12
3.1 Power and Authority................................................................................. 12
3.2 Valid and Binding Agreement......................................................................... 12
3.3 No Breach; Consents................................................................................. 12
3.4 Stock Ownership..................................................................................... 12
3.5 Investment.......................................................................................... 13
IV. Representations and Warranties of the Company and Shareholder................................................. 13
4.1 Incorporation; Power and Authority.................................................................. 13
4.2 Valid and Binding Agreement......................................................................... 13
4.3 No Breach; Consents................................................................................. 13
4.4 Capitalization...................................................................................... 14
4.5 Subsidiaries........................................................................................ 14
4.6 Financial Statements................................................................................ 14
4.7 Absence of Undisclosed Liabilities.................................................................. 15
4.8 Books and Records................................................................................... 15
4.9 Absence of Certain Developments..................................................................... 15
4.10 Property............................................................................................ 17
4.11 Accounts Receivable................................................................................. 18
4.12 Inventory........................................................................................... 18
4.13 Tax Matters......................................................................................... 18
4.14 Intellectual Property Rights........................................................................ 20
4.15 Material Contracts.................................................................................. 23
4.16 Litigation.......................................................................................... 24
4.17 Insurance........................................................................................... 24
4.18 Compliance with Laws; Government Authorizations..................................................... 25
4.19 Environmental Matters............................................................................... 25
4.20 Warranties.......................................................................................... 27
4.21 Employees........................................................................................... 28
4.22 Employee Benefits................................................................................... 29
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4.23 Customers........................................................................................... 31
4.24 Suppliers........................................................................................... 31
4.25 Affiliate Transactions.............................................................................. 31
4.26 Brokerage........................................................................................... 32
4.27 Availability of Documents........................................................................... 32
4.28 Disclosure.......................................................................................... 32
V. Representations and Warranties of Buyer........................................................................ 32
5.1 Incorporation; Power and Authority.................................................................. 32
5.2 Valid and Binding Agreement......................................................................... 32
5.3 No Breach; Consents................................................................................. 33
5.4 Certain Tax Matters................................................................................. 33
5.5 Brokerage........................................................................................... 33
5.6 Investment Intent................................................................................... 33
5.7 Buyer Common Stock.................................................................................. 33
5.8 SEC Filings; Financial Statements................................................................... 33
VI. Agreements of the Company..................................................................................... 34
6.1 Tax Matters......................................................................................... 34
VII. Agreements of Buyer.......................................................................................... 34
7.1 Tax Matters......................................................................................... 35
7.2 Board of Directors.................................................................................. 35
7.3 Registration Statement.............................................................................. 35
7.4 Listing............................................................................................. 36
7.5 Employment; Employee Benefits....................................................................... 37
7.6 Litigation.......................................................................................... 37
VIII. Indemnification............................................................................................. 37
8.1 Indemnification Obligation.......................................................................... 37
8.2 Basket.............................................................................................. 38
8.3 Cap................................................................................................. 38
8.4 Buyer Claims........................................................................................ 38
8.5 Third Party Action.................................................................................. 39
8.6 Escrow Fund......................................................................................... 41
8.7 Survival............................................................................................ 41
IX. General....................................................................................................... 41
9.1 Press Releases and Announcements.................................................................... 41
9.2 Expenses............................................................................................ 41
9.3 Amendment and Waiver................................................................................ 42
9.4 Notices............................................................................................. 42
9.5 Assignment.......................................................................................... 43
9.6 No Third Party Beneficiaries........................................................................ 43
9.7 Severability........................................................................................ 43
9.8 Complete Agreement.................................................................................. 43
9.9 Schedules........................................................................................... 43
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9.10 Signatures; Counterparts............................................................................ 44
9.11 Governing Law....................................................................................... 44
9.12 Specific Performance................................................................................ 44
9.13 Jurisdiction........................................................................................ 44
9.14 Waiver of Jury Trial................................................................................ 44
9.15 Construction........................................................................................ 45
9.16 Time of Essence..................................................................................... 45
9.17 LBW Release......................................................................................... 45
9.18 Xxxxx and Xxxxxx Xxxxxxxxx.......................................................................... 45
9.19 Xxxxxx Xxxxxxxxx'x Intellectual Property............................................................ 46
9.20 S Corp.............................................................................................. 46
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Release
Exhibit C - Form of Articles of Merger
Exhibit D - Form of Plan of Merger
Exhibit E - Form of Real Property Transfer Agreement - Plant
Exhibit F - Form of Real Property Transfer Agreement - Lot
Exhibit G - Form of Employment Agreement - Xxxxx Xxxxxx
Exhibit H - Form of Employment Agreement - Xxxxx Xxxxxxxxx
Exhibit I - Release of LBW Management, LLC
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MERGER AGREEMENT
This MERGER AGREEMENT (this "Agreement") is made as of October 1, 2004,
among A.S.V., Inc., a Minnesota corporation ("Buyer"), LMI Merger Corp., a North
Dakota corporation and wholly owned subsidiary of Buyer ("Merger Subsidiary"),
Xxxxxxxxx Mfg. Inc., a North Dakota corporation (the "Company"), Xxxxxxx X.
Xxxxxxxxx and her successors in trust, as trustees of The Xxxxxxx X. Xxxxxxxxx
Revocable Trust March 28, 1996, the sole shareholder of the Company (the
"Loegering Trust"), and Xxxxxxx X. Xxxxxxxxx, an individual resident of the
State of North Dakota (the Loegering Trust and Xxxxxxx X. Xxxxxxxxx are
collectively referred to in this Agreement as the "Shareholder").
RECITALS
WHEREAS, the respective Boards of Directors of Buyer, Merger Subsidiary
and the Company have determined that it is advisable and in the best interests
of the respective corporations and their shareholders that Merger Subsidiary be
merged with and into the Company (the "Merger") in accordance with the North
Dakota Business Corporation Act (the "NDBCA") and the terms of this Agreement,
pursuant to which the Company will be the surviving corporation and will be a
wholly owned subsidiary of Buyer.
WHEREAS, for United States federal income tax purposes, the parties intend
that the Merger will qualify as a "reorganization" under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
constitutes a "plan of reorganization" within the meaning of the Code.
WHEREAS, Buyer, Merger Subsidiary, the Company and Shareholder desire to
make certain representations, warranties and agreements in connection with, and
establish various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
I. DEFINITIONS
The following terms not defined below are defined in the sections of
Articles II through V, inclusive, and Articles VII through VIII, inclusive,
indicated below:
DEFINITION DEFINED
---------- -------
Accredited Investor 3.5
Admitted Claim 8.4(a)
Agreement Preamble
Annual Financial Statements 4.6
Basket Amount 8.2
Buyer Preamble
Buyer Claim 8.4(a)
Buyer Common Stock 2.2(a)
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DEFINITION DEFINED
---------- -------
Buyer Common Stock Price 2.2(a)
Buyer Indemnified Parties 8.5(a)
Buyer SEC Reports 5.8(a)
Cap Amount 8.3
Closing 2.4(a)
Closing Date 2.4(a)
Code Recitals
Company Preamble
Company Common Stock 2.2(a)
Continuing Employee 7.5(a)
Converted Company Common Stock 2.2(a)
Environmental Costs 4.19(a)(i)
Environmental Law 4.19(a)(ii)
Escrow Account 2.3(a)
Escrow Amount 2.3(a)
Escrow Agent 2.3(a)
Escrow Agreement 2.3(a)
Escrow Cash 2.3(a)
Escrow Shares 2.3(a)
Escrow Fund 2.3(a)
Exchange Ratio 2.2(a)
Form S-3 Registration Statement 7.3(a)
Hazardous Materials 4.19(a)(iii)
Last Fiscal Year End 4.6
Latest Balance Sheet 4.6
Latest Balance Sheet Date 4.6
Latest Financial Statements 4.6
Leased Real Property 4.10(b)
List 4.19(a)(iv)
Loegering Trust Preamble
Loss 8.1
Material Contracts 4.15(a)
Merger Recitals
Merger Consideration 2.2(a)
Merger Subsidiary Preamble
NDBCA Recitals
Property 4.19(a)(v)
Real Property 4.10(b)
Regulatory Action 4.19(a)(vi)
Release 4.19(a)(vii)
Shareholder Preamble
Surviving Corporation 2.1
Surviving Corporation Common Stock 2.2(b)
Third Party Action 8.5(a)
Third-Party Environmental Claim 4.19(a)(viii)
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"Acquisition Proposal" means any offer, proposal, inquiry or indication of
interest (other than by Buyer) contemplating or otherwise relating to any
Acquisition Transaction.
"Acquisition Transaction" means any transaction or series of transactions
involving (a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer
or other similar transaction (i) in which the Company is a constituent
corporation, (ii) in which a Person or "group" (as defined in the Exchange Act
and the rules promulgated thereunder) of Persons directly or indirectly acquires
beneficial or record ownership of securities representing more than 15% of the
outstanding securities of any class of voting securities of the Company or (iii)
in which the Company issues or sells securities representing more than 20% of
the outstanding securities of any class of voting securities of the Company; or
(b) any sale (other than sales of inventor in the ordinary course of business),
lease (other than in the ordinary course of business), exchange, transfer (other
than sales of inventory in the ordinary course of business), license (other than
nonexclusive licenses in the ordinary course of business), acquisition or
disposition of any business or businesses or assets that constitute or account
for 20% or more of the consolidated net revenues, net income or assets of the
Company.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
"Ancillary Agreements" means the Escrow Agreement, the Releases, the
Employment Agreements with Xxxxx Xxxxxx and Xxxxx Xxxxxxxxx, the Real Property
Transfer Agreements and the Release of LBW Management, LLC.
"Capital Lease" means a lease to which the Company is a party that is a
capital lease as determined in accordance with GAAP.
"Consent" means any authorization, consent, approval, filing, waiver,
exemption or other action by or notice to any Persons.
"Constituent Corporations" means the Company and Merger Subsidiary as the
parties to the Merger.
"Contract" means a contract, agreement, commitment or binding
understanding, whether oral or written, that is in effect as of the date of this
Agreement or any time after the date of this Agreement.
"Disclosure Schedule" means the schedules referred to in the Agreement,
and delivered by the Company to Buyer on the date of this Agreement.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting principles, as in
effect from time to time prior to the Closing Date.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, registration or other authorization issued, granted, given, made
available or otherwise required by any Governmental Entity or pursuant to Law.
"Governmental Entity" means any federal, state, local, foreign,
international or multinational entity or authority exercising executive,
legislative, judicial, regulatory, administrative or taxing functions of or
pertaining to government.
"Governmental Order" means any judgment, injunction, writ, order, ruling,
award or decree by any Governmental Entity or arbitrator.
"Insider" means (i) a shareholder, officer, director or employee of the
Company, (ii) any Member of the Immediate Family of any shareholder, officer,
director or employee of the Company or (iii) any entity in which any of the
Persons described in clause (i) or (ii) owns any beneficial interest (other than
less than one percent of the outstanding shares of capital stock of any
corporation whose stock is listed on a national securities exchange or publicly
traded on The NASDAQ National Market).
"Intellectual Property" means all rights in patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, Software,
mask works, trade secrets, know-how and other intellectual property rights.
"Intellectual Property Rights" means (i) rights in patents, patent
applications and patentable subject matter, whether or not the subject of an
application, (ii) rights in trademarks, service marks, trade names, trade dress
and other designators of origin, registered or unregistered, (iii) rights in
copyrightable subject matter or protectable designs, registered or unregistered,
(iv) trade secrets, (v) rights in Internet domain names, uniform resource
locators and e-mail addresses, (vi) rights in semiconductor topographies (mask
works), registered or unregistered, (vii) know-how and (viii) all other
intellectual and industrial property rights of every kind and nature and however
designated, whether arising by operation of Law, Contract, license or otherwise.
"IRS" means the United States Internal Revenue Service.
"Knowledge of the Company" and "Knowledge of the Shareholder" means the
knowledge of the Company, Shareholder, or any director or officer of the
Company.
"Law" means any constitution, law, ordinance, principle of common law,
regulation, statute or treaty of any Governmental Entity.
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"Liability" means any liability or obligation whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due, whether
known or unknown, and regardless of when asserted; provided, however,
"liability" specifically excludes deferred tax liabilities, in connection with
past timing differences, which have not been recorded during the time that the
Company was an S corporation, as Shareholder was responsible for taxes on the
Company's income.
"Licensed-In Intellectual Property Rights" means Third-Party Intellectual
Property Rights used or held for use by the Company with the permission of the
owner.
"Litigation" means any claim, action, arbitration, mediation, audit,
hearing, investigation, proceeding, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Entity or
arbitrator or mediator.
"Material Adverse Effect" means any change, effect, event or condition,
individually or in the aggregate, that has had, or, with the passage of time,
could have, a material adverse effect on the business, assets, properties,
condition (financial or otherwise), results of operations, prospects or
customer, supplier or employee relationships of the Company (which, for purposes
of this Agreement, shall be deemed to mean matters involving a value in excess
of $25,000).
"Member of the Immediate Family" of Persons means a spouse, parent, child,
sibling, mother- or father-in-law, son- or daughter-in-law, and brother- or
sister-in-law of such Persons.
"Off-the-Shelf Software" means Software that is widely commercially
available.
"Ordinary Course of Business" means the ordinary course of business of the
Company consistent with past custom and practice (including with respect to
quantity and frequency) as it has been conducted since the Last Fiscal Year End.
"Organizational Documents" means the articles or certificate of
incorporation and the bylaws of a corporation, including any amendments.
"Owned Intellectual Property Rights" means Intellectual Property Rights
owned by the Company.
"Permitted Encumbrances" means (i) Encumbrances for Taxes and other
governmental charges and assessments that are not yet due and payable or which
are being contested in good faith by appropriate proceedings, (ii) Encumbrances
of carriers, warehousemen, mechanics' and materialmen and other like
Encumbrances arising in the ordinary course of business, (iii) easements, rights
of way, title imperfections and restrictions, zoning ordinances and other
similar encumbrances affecting the real property and which do not unreasonably
restrict the use thereof in the ordinary course of business, (iv) statutory
Encumbrances in favor of lessors arising in connection with any property leased
to the Company, (v) Encumbrances reflected in the Financial Statements or
arising under Material Contracts and (vi) Encumbrances that will be removed
prior to or in connection with the Closing.
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"Person" means any individual, corporation, general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, Governmental Entity or other entity.
"Plan" means every plan, fund, contract, program and arrangement (whether
written or not) for the benefit of present or former employees, including those
intended to provide (i) medical, surgical, health care, hospitalization, dental,
vision, workers' compensation, life insurance, death, disability, legal
services, severance, sickness or accident benefits (whether or not defined in
Section 3(1) of ERISA), (ii) pension, profit sharing, stock bonus, retirement,
supplemental retirement or deferred compensation benefits (whether or not tax
qualified and whether or not defined in Section 3(2) of ERISA) or (iii) salary
continuation, unemployment, supplemental unemployment, severance, termination
pay, change-in-control, vacation or holiday benefits (whether or not defined in
Section 3(3) of ERISA), (w) that is maintained or contributed to by the Company,
(x) that the Company has committed to implement, establish, adopt or contribute
to in the future, (y) for which the Company is or may be financially liable as a
result of the direct sponsor's affiliation with the Company or the Company's
shareholders (whether or not such affiliation exists at the date of this
Agreement and notwithstanding that the Plan is not maintained by the Company for
the benefit of its employees or former employees) or (z) for or with respect to
which the Company is or may become liable under any common law successor
doctrine, express successor liability provisions of Law, provisions of a
collective bargaining agreement, labor or employment Law or agreement with a
predecessor employer. Plan does not include any arrangement that has been
terminated and completely wound up prior to the date of this Agreement and for
which the Company has no present or potential liability.
"Real Property Transfer Agreements" means the agreement providing for the
purchase by Buyer of the Real Property upon which the Loegering plant is
located, in the form of Exhibit E, and the agreement providing for the purchase
by Buyer of the Real Property used by the Company as a parking lot for the
Loegering plant, in the form of Exhibit F.
"Registered Intellectual Property Rights" means Intellectual Property
Rights that are the subject of a pending application or an issued patent,
trademark, copyright, design right or other similar registration formalizing
exclusive rights.
"Remedies Exception," when used with respect to any Person, means except
to the extent enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally and by general equitable principles.
"Return" means any return, declaration, report, estimate, information
return and statement pertaining to any Taxes.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Software" means computer programs or data in computerized form, whether
in object code, source code or other form.
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"Subsidiary" means any Person in which any ownership interest is owned,
directly or indirectly, by another Person.
"Taxes" means all taxes, charges, fees, levies or other assessments,
including all net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, including all interest and penalties thereon, and additions to
tax or additional amounts imposed by any Governmental Entity upon the Company or
any Tax Affiliate.
"Third-Party Intellectual Property Rights" means Intellectual Property
Rights in which a Person other than the Company has any ownership interest.
"Treasury Regulations" means the rules and regulations under the Code.
II. THE MERGER
2.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement, on the Closing Date, Merger Subsidiary will be merged with and
into the Company, the separate existence of Merger Subsidiary will cease, and
the Company will continue as the surviving corporation under the corporate name
it possesses immediately prior to the Closing Date. The Company, in its capacity
as the corporation surviving the Merger, is sometimes referred to as the
"Surviving Corporation."
2.2 Conversion of Securities.
(a) On the Closing Date, by virtue of the Merger and without any action on
the part of Buyer, Merger Subsidiary, the Company, the Surviving Corporation or
the holder of any of the following securities, the shares of the Company's
common stock, $1.00 par value ("Company Common Stock"), issued and outstanding
immediately prior to the Closing Date ("Converted Company Common Stock") will be
canceled and extinguished and be converted into and become a right on the part
of the Shareholder to receive at the Closing in the aggregate (i) a cash payment
of $3,380,000, (ii) Merger Consideration deposited into the Escrow Account,
consisting of (A) that number of shares of the common stock, par value $.01 per
share, of Buyer ("Buyer Common Stock") equal to $1,400,000 divided by the Buyer
Common Stock Price and (B) $100,000 and (iii) that number of shares of Buyer
Common Stock equal to $13,350,000 divided by the Buyer Common Stock Price (the
"Exchange Ratio"). The Exchange Ratio is subject to equitable adjustment in the
event that, prior to the Closing Date, there is any share split, subdivision,
combination, share dividend, extraordinary dividend or reorganization involving
the Buyer Common Stock. "Buyer Common Stock Price" means the average closing
sale price of Buyer Common Stock at the end of regular trading on the NASDAQ
Stock Market for the 15 trading days ending on the trading day immediately
preceding the Closing Date. The term "Merger Consideration" means the
consideration into which any capital stock of the Company will be converted
pursuant to this subsection 2.2(a).
(b) Each share of common stock, $.01 par value, of Merger Subsidiary
issued and outstanding immediately prior to the Closing Date will be converted
into one fully paid and
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nonassessable share of common stock, $.01 par value, of the Surviving
Corporation ("Surviving Corporation Common Stock").
(c) The parties hereto intend that the Merger will constitute a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code pursuant
to Section 368(a)(2)(E) of the Code. Therefore, notwithstanding anything
provided for in subsection 2.2(a) above to the contrary, the final allocation of
cash and Buyer Common Stock to be transferred and conveyed to Shareholder in
connection with the Merger will be adjusted, if and to the extent necessary, to
comply with the requirement of the Code that no more than 20% of the aggregate
consideration be in the form of consideration other than voting common stock of
Buyer. The decision as to whether such an adjustment is to be made is the
Shareholder's only, and shall be made prior to Closing.
2.3 Escrow.
(a) An amount of unregistered shares of Buyer Common Stock from the Merger
Consideration equal to $1,400,000 divided by the Buyer Common Stock Price (the
"Escrow Shares") and the sum of $100,000 cash from the Merger Consideration (the
"Escrow Cash" and, together with the Escrow Shares, the "Escrow Amount") will be
deposited by Shareholder with Xxxxx Fargo Bank, N.A., as escrow agent (the
"Escrow Agent"), to be held in escrow (the "Escrow Fund") in an account (the
"Escrow Account") pursuant to the terms of the Escrow Agreement (the "Escrow
Agreement") among Buyer, Shareholder and the Escrow Agent in the form of Exhibit
A. All cash in the Escrow Account shall be deposited in an interest-bearing
account.
(b) The Escrow Amount will be distributed out by the Escrow Agent in
accordance with the terms and conditions set forth in the Escrow Agreement.
2.4 The Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Xxxxxx & Whitney LLP at 00 Xxxxx
Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxxx, Xxxxxxxxx 00000, at 9:00 a.m. on October
1, 2004 (the "Closing Date") or at such other place and on such other date as
may be mutually agreed by the Company and Buyer, in which case Closing Date
means the date so agreed.
(b) On the Closing Date:
(i) the Company and Shareholder will deliver and/or cause to be
delivered to Buyer:
(A) certificates representing all of the outstanding Company
Common Stock, free and clear of all Encumbrances, duly endorsed or
accompanied by duly executed stock powers with requisite stock
transfer tax stamps, if any, attached;
(B) a copy of the text of the resolutions adopted by the board
of directors of the Company authorizing the execution, delivery and
performance of
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this Agreement and declaring its advisability, certified by an
appropriate officer of the Company;
(C) a copy of the text of the resolutions adopted by
Shareholder approving the Merger, certified by an appropriate
officer of the Company;
(D) resignations in writing (effective as of the Closing Date)
from each member of the board of directors of the Company, and each
corporate officer of the Company (solely in their capacity as board
members and/or corporate officers, and not as employees);
(E) a copy of each Ancillary Agreement to which the Company or
Shareholder is a party, duly executed by the Company and
Shareholder, respectively;
(F) a copy, duly executed by Shareholder, of the Escrow
Agreement;
(G) duly executed copies of all Required Consents;
(H) a duly executed FIRPTA statement for purposes of
satisfying Buyer's obligations under Section 1.1445-2(b)(2) of the
Treasury Regulations, such that no withholding is required under
such Treasury Regulations;
(I) duly executed copies of the Real Property Transfer
Agreements;
(J) a Release of the Company to be signed by Shareholder and
each other officer and director of the Company that Buyer may
request prior to the Closing, each substantially in the form of
Exhibit B, as of the Closing Date;
(K) a statement from the holder of each note and mortgage
listed on Schedule 2.4(b)(i)(K), if any, dated the Closing Date,
setting forth the principal amount then outstanding on the
indebtedness represented by such note or secured by such mortgage,
the interest rate thereon and a statement to the effect that the
Company, as obligor under such note or mortgage, is not in default
under any of the provisions thereof, or that the holder of such note
or mortgage waives any defaults;
(L) releases of all Encumbrances on the Real Property, other
than Permitted Encumbrances, including releases of each mortgage of
record and reconveyances of each deed of trust with respect to each
parcel of Real Property;
(M) certificates dated as of a date not earlier than the third
business day prior to the Closing as to the good standing of the
Company, executed by the appropriate officials of the State of North
Dakota; and
(N) such other certificates, documents and instruments that
Buyer reasonably requests not later than two (2) business days
before the Closing for the purpose of (1) evidencing the accuracy of
the Company's representations and
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warranties, (2) evidencing the performance and compliance by the
Company with agreements contained in this Agreement or (3) otherwise
facilitating the consummation of the transactions contemplated by
this Agreement;
(ii) Buyer and Merger Subsidiary will deliver to the Company:
(A) a copy of the texts of the resolutions adopted by the
boards of directors of Buyer and Merger Subsidiary authorizing the
execution, delivery and performance of this Agreement, certified by
an appropriate officer of Buyer and Merger Subsidiary, respectively;
(B) a copy of the text of resolutions adopted by the sole
shareholder of Merger Subsidiary approving the Merger, certified by
an appropriate officer of Merger Subsidiary;
(C) a copy of each Ancillary Agreement to which Buyer is a
party, duly executed by Buyer;
(D) a copy, duly executed by Buyer, the Surviving Corporation
and the Escrow Agent, of the Escrow Agreement; and
(E) such other certificates, documents and instruments that
the Company reasonably requests not later than two (2) business days
before the Closing for the purpose of (1) evidencing the accuracy of
Buyer's and Merger Subsidiary's representations and warranties, (2)
evidencing the performance and compliance by Buyer and Merger
Subsidiary with agreements contained in this Agreement or (3)
otherwise facilitating the consummation of the transactions
contemplated by this Agreement.
(c) Subject to the conditions set forth in this Agreement, on the Closing
Date, Buyer will deposit the Escrow Amount in the Escrow Fund to be held by the
Escrow Agent in accordance with the terms of the Escrow Agreement.
(d) All items delivered by the parties at the Closing will be deemed to
have been delivered simultaneously, and no items will be deemed delivered or
waived until all have been delivered.
(e) The consummation of the Merger will be effected as promptly as
practicable on the Closing Date. The parties will cause a copy of the Articles
of Merger in the form of Exhibit C to which a copy of the Plan of Merger will be
attached in the form of Exhibit D to be executed, delivered and filed with the
Secretary of State of the State of North Dakota in accordance with the NDBCA.
The Merger will become effective immediately upon the filing of such Articles of
Merger with the Secretary of State.
2.5 Stock Certificates.
(a) On the Closing Date, Shareholder shall surrender to Buyer such
Shareholder's stock certificates canceled and extinguished on the Closing Date
pursuant to Section 2.2 in order
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to effect the exchange of such certificates on such holder's behalf. After
surrender to Buyer of Shareholder's stock certificates, Buyer will distribute to
Shareholder that portion of the Merger Consideration into which such shares of
Company Common Stock will have been converted at the Closing Date pursuant to
subsections 2.2(a)(i) and 2.2(a)(iii).
(b) Thereafter, the Escrow Agent will distribute to Shareholder that
portion of the Merger Consideration referenced in subsection 2.2(a)(ii) and
represented by the Escrow Fund as and to the extent payable in accordance with
the terms of the Escrow Agreement.
2.6 Effect of Merger.
(a) The effect of the Merger will be as set forth in Section 10-19.1-102
of the NDBCA.
(b) From and after the Closing and until further amended in accordance
with applicable law, the Articles of Incorporation of Merger Subsidiary as in
effect immediately prior to the Closing will be the Articles of Incorporation of
the Surviving Corporation. From and after the Closing and until further amended
in accordance with law, the Bylaws of Merger Subsidiary as in effect immediately
prior to the Closing will be the Bylaws of the Surviving Corporation.
(c) From and after the Closing Date, the directors of the Surviving
Corporation will be the Persons who were the directors of Merger Subsidiary
immediately prior to the Closing Date and the officers of the Surviving
Corporation will be the Persons who were the officers of Merger Subsidiary
immediately prior to the Closing Date. Such directors and officers of the
Surviving Corporation will hold office for the term specified in, and subject to
the provisions contained in, the Articles of Incorporation and Bylaws of the
Surviving Corporation and applicable law.
2.7 Taking of Necessary Action; Further Action. Buyer, Merger Subsidiary,
Shareholder and the Company will each take all such action as may be necessary
or appropriate to effectuate the Merger under the NDBCA. If, at any time after
the Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all properties, rights, privileges, immunities,
powers and franchises of either of the Constituent Corporations, the officers of
the Surviving Corporation are authorized in the name of each Constituent
Corporation or otherwise to take all such lawful and necessary action.
2.8 Tax-Free Reorganization. The acquisition contemplated by this
Agreement is intended to be a reorganization within the meaning of Section
368(a) of the Code and this Agreement is intended to be a "plan of
reorganization" within the meaning of the Treasury Regulations promulgated under
Section 368 of the Code. Each party to this Agreement agrees to treat this
acquisition as a reorganization within the meaning of Section 368(a) of the Code
and agrees to treat this Agreement as a "plan of reorganization" within the
meaning of the Treasury Regulations under Section 368 of the Code, unless and
until there is a determination, within the meaning of Section 1313 of the Code,
that such treatment is not correct. Each party acknowledges and agrees that it
is relying solely on the advice of its own tax advisors regarding the tax
treatment of the Merger and the other transactions contemplated by this
Agreement.
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2.9 Buyer Common Stock. Each certificate representing Buyer Common Stock
will be imprinted with a legend substantially in the following form:
The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be transferred without
registration or an exemption therefrom.
If Shareholder desires to transfer unregistered shares of Buyer Common Stock,
Shareholder first must furnish Buyer with (i) a written opinion reasonably
satisfactory to Buyer in form and substance from counsel reasonably satisfactory
to Buyer by reason of experience to the effect that Shareholder may transfer
such unregistered shares of Buyer Common Stock as desired without registration
under the Securities Act and (ii) a written undertaking executed by the desired
transferee reasonably satisfactory to Buyer in form and substance agreeing to be
bound by the restrictions on transfer contained herein.
III. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder represents and warrants to Buyer that:
3.1 Power and Authority. Shareholder has all necessary power and authority
to execute, deliver and perform this Agreement and the Ancillary Agreements to
which Shareholder will become a party.
3.2 Valid and Binding Agreement. This Agreement has been duly executed and
delivered by Shareholder and constitutes the valid and binding obligation of
Shareholder, enforceable against Shareholder in accordance with its terms,
subject to the Remedies Exception. Each Ancillary Agreement to which Shareholder
will become a party, when executed and delivered by or on behalf of Shareholder,
will constitute the valid and binding obligation of Shareholder, enforceable
against Shareholder in accordance with its terms, subject to the Remedies
Exception.
3.3 No Breach; Consents. The execution, delivery and performance of this
Agreement and the Ancillary Agreements to which Shareholder will become a party
by Shareholder will not (a) violate or conflict with any Law, Governmental Order
or Governmental Authorization; (b) conflict with, result in any breach of any of
the provisions of, constitute a default (or any event which would, with the
passage of time or the giving of notice or both, constitute a default) under,
result in a violation of, increase the burdens under, result in the termination,
amendment, suspension, modification, abandonment or acceleration of payment (or
any right to terminate) or require a Consent under any Contract or Governmental
Authorization that is either binding upon or enforceable against Shareholder;
(c) result in the creation of any Encumbrance upon any Company Capital Stock
owned by Shareholder; or (d) require any Governmental Authorization.
3.4 Stock Ownership. As of the date of this Agreement, the Xxxxxxxxx Trust
owns 1,200 shares of Company Common Stock, which shares represent all of the
issued and outstanding shares of Company Capital Stock.
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3.5 Investment. Shareholder (a) understands that the shares of Buyer
Common Stock being acquired by Shareholder have not been, and, except as
specifically described in Section 7.3, will not be, registered under the
Securities Act or under any state securities laws, are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering and will contain a legend restricting transfer; (b) is acquiring
such shares of Buyer Common Stock solely for Shareholder's own account for
investment purposes, and not with a view to the distribution thereof; (c) is a
sophisticated investor with knowledge and experience in business and financial
matters; (d) has received certain publicly available information concerning
Buyer and has had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding the Buyer Common
Stock; (e) is able to bear the economic risk and lack of liquidity inherent in
holding the Buyer Common Stock; and (f) is an "Accredited Investor" as that term
is defined under Rule 501 of the Securities Act.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDER
The Company and Shareholder represent and warrant to Buyer that, except as
described in the Disclosure Schedule:
4.1 Incorporation; Power and Authority.
(a) The Company is a legal entity duly organized, validly existing and in
good standing under the laws of the State of North Dakota, and has all necessary
power and authority necessary to own, lease and operate its assets and to carry
on its business as now conducted and presently proposed to be conducted. The
Company is duly qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its business or its ownership of property
requires it to be so qualified, except where the absence to be so qualified in
any single jurisdiction would not have a Material Adverse Effect. The Company
has all necessary power and authority to execute, deliver and perform this
Agreement and any Ancillary Agreements to which it will become a party.
(b) The Company is in full compliance with all provisions of its
Organizational Documents.
4.2 Valid and Binding Agreement. The execution, delivery and performance
by the Company of this Agreement and any Ancillary Agreements to which it will
become a party have been duly and validly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to the Remedies Exception. Each Ancillary
Agreement to which the Company will become a party, when executed and delivered
by the Company, will constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to the
Remedies Exception.
4.3 No Breach; Consents. The execution, delivery and performance of this
Agreement and the Ancillary Agreements to which it will become a party will not
(a) contravene any provision of the Organizational Documents of the Company; (b)
violate or conflict with any
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Law, Governmental Order or Governmental Authorization; (c) conflict with, result
in any breach of any of the provisions of, constitute a default (or any event
that would, with the passage of time or the giving of notice or both, constitute
a default) under, result in a violation of, increase the burdens under, result
in the termination, amendment, suspension, modification, abandonment or
acceleration of payment (or any right to terminate) or require a Consent under
any Contract or Governmental Authorization that is either binding upon or
enforceable against the Company or any Subsidiary or any Governmental
Authorization that is held by the Company; (d) result in the creation of any
Encumbrance upon the Company or any of the assets of the Company; (e) require
any Governmental Authorization; (f) give any Governmental Body or other Person
the right to challenge any of the contemplated transactions or to exercise any
remedy or obtain any relief under any Legal Requirement, Order or Governmental
Authorization; or (g) cause Buyer to become subject to, or to become liable for
the payment of, any Tax.
4.4 Capitalization. The authorized capital stock of the Company consists
solely of 50,000 shares of Company Common Stock, of which 1,200 shares of
Company Common Stock are issued and outstanding, none of which are held in
treasury. All issued and outstanding shares of Company Common Stock are owned by
Shareholder. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable, free of preemptive
rights or any other third party rights and in certificated form, and have been
offered, sold and issued by the Company in compliance with applicable securities
and corporate Laws, Contracts applicable to the Company and the Company's
Organizational Documents and in compliance with any preemptive rights, rights of
first refusal or similar rights. The rights and privileges of the Company Common
Stock are set forth in the Company's Organizational Documents or otherwise
provided by Law. There is no option, warrant, call, subscription, convertible
security, right (including preemptive right) or Contracts of any character to
which the Company is a party or by which it is bound obligating the Company to
issue, exchange, transfer, sell, repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of or enter into any such option, warrant, call,
subscription, convertible security, right or Contract. There are no outstanding
or authorized stock appreciation, phantom stock or similar rights with respect
to the Company. Except as contemplated by this Agreement, there are no
registration rights agreements, no voting trust, proxy or other Contract and no
restrictions on transfer with respect to any capital stock of the Company.
4.5 Subsidiaries. The Company does not own any Subsidiary.
4.6 Financial Statements. The unaudited balance sheet as of August 31,
2004 ("Latest Balance Sheet Date") of the Company (the "Latest Balance Sheet")
and the unaudited statements of income, changes in shareholders' equity and cash
flows of the Company for the eight-month period then ended (such statements and
the Latest Balance Sheet, the "Latest Financial Statements") and the audited
balance sheet, as of December 31, 2003 (the "Last Fiscal Year End") and for each
of the prior three fiscal year ends, of the Company and the audited statements
of income, changes in shareholders' equity and cash flows, including the notes,
of the Company for each of the four years ended on the Last Fiscal Year End
(collectively, the "Annual Financial Statements") are based upon the books and
records of the Company, and except to the extent disclosed in Schedule 4.7 have
been prepared in accordance with GAAP consistently applied during the periods
indicated and present fairly the financial position, results of operations and
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cash flows of the Company at the respective dates and for the respective periods
indicated, except that the Latest Financial Statements may not contain all notes
and are subject to year-end adjustments, none of which are material.
Notwithstanding anything provided for in this Section 4.6 to the contrary, the
representations and warranties of the Company and Shareholder made in this
Section 4.6 are subject to the exceptions disclosed in Schedule 4.6.
4.7 Absence of Undisclosed Liabilities. Except for the disclosure made in
Schedule 4.7, and except as reflected or expressly reserved against in the
Latest Balance Sheet, the Company has no Liability, and there is no basis for
any present or future Litigation, charge, complaint, claim or demand against the
Company giving rise to any Liability, except (a) a Liability that has arisen
after the date of the Latest Balance Sheet in the Ordinary Course of Business
and that is not a Liability for breach of Contract, breach of warranty, tort,
infringement, Litigation or violation of Governmental Order, Governmental
Authorization or Law or (b) obligations under any Contract listed on a Schedule
to this Agreement or under a Contract not required to be listed on such a
Schedule.
4.8 Books and Records. The books of account of the Company are complete
and correct and have been maintained in accordance with sound business
practices. Each transaction is properly and accurately recorded on the books and
records of the Company, and each document upon which entries in the Company's
books and records are based is complete and accurate in all respects. The
Company maintains a system of internal accounting controls adequate to insure
that it maintains no off-the-books accounts and that its assets are used only in
accordance with its management directives. The minute books and stock or equity
records of the Company, all of which have been made available to Buyer, are
complete and correct. The minute books of the Company contain accurate records
of all meetings held and actions taken by the holders of stock or equity
interests, the boards of directors and committees of the boards of directors or
other governing body of the Company, and no meeting of any such holders, boards
of directors or other governing body or committees has been held for which
minutes are not contained in such minute books. At the Closing, all such books
and records will be in the possession of the Company.
4.9 Absence of Certain Developments. Since the Latest Balance Sheet Date,
and except for the disclosures and exceptions in Schedule 4.9, there has not
been any Material Adverse Effect and:
(a) the Company has not sold, leased, transferred or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
(b) the Company has not entered into any Contract (or series of
related Contracts) outside the Ordinary Course of Business;
(c) no party has accelerated, suspended, terminated, modified or
canceled any Contract (or series of related Contracts) to which the
Company is a party or by which it is bound;
(d) no Encumbrance has been imposed on any assets of the Company;
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(e) the Company has not made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(f) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans and acquisitions) outside the
Ordinary Course of Business or acquired (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any Person;
(g) the Company has not issued any note, bond or other debt security
or created, incurred, assumed or guaranteed any indebtedness for borrowed
money or capitalized lease obligation outside the ordinary course of
business;
(h) the Company has not delayed, postponed or accelerated the
payment of accounts payable or other Liability or the receipt of any
accounts receivable, in each case outside the Ordinary Course of Business;
(i) the Company has not canceled, compromised, waived or released
any right or claim (or series of related rights or claims) outside the
Ordinary Course of Business;
(j) except incidental to the sale of products or services, the
Company has not granted any license or sublicense of any rights under or
with respect to any Intellectual Property;
(k) there has been no change made or authorized in the
Organizational Documents of the Company;
(l) the Company has not issued, sold or otherwise disposed of any of
its capital stock or equity interests, or granted any options, warrants or
other rights to purchase or obtain any of its capital stock;
(m) the Company has not declared, set aside or paid any dividend or
made any distribution with respect to its capital stock or equity
interests (whether in cash or in kind) or redeemed, purchased or otherwise
acquired any of its capital stock or split, combined or reclassified any
outstanding shares of its capital stock;
(n) the Company has not experienced any material damage, destruction
or loss (whether or not covered by insurance) to its property;
(o) the Company has not entered into any employment or collective
bargaining agreement, written or oral, or modified the terms of any such
existing agreement;
(p) the Company has not granted any increase in the base
compensation or made any other change in employment terms of any of its
directors, officers or employees outside the Ordinary Course of Business;
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(q) the Company has not adopted, amended, modified or terminated any
bonus, profit-sharing, incentive, severance or other plan, Contract or
commitment for the benefit of any of its directors, officers or employees
(or taken any such action with respect to any other Plan);
(r) the Company has not discharged or satisfied any Encumbrance or
paid any liability other than current liabilities paid in the Ordinary
Course of Business;
(s) the Company has not disclosed, to any Person other than Buyer
and authorized representatives of Buyer, any proprietary confidential
information, other than pursuant to a confidentiality agreement
prohibiting the use or further disclosure of such information, which
agreement is listed on Schedule 4.9 and is in full force and effect on the
date of this Agreement;
(t) the Company has not made any change in accounting principles or
practices from those utilized in the preparation of the Annual Financial
Statements; and
(u) the Company has not committed to take any of the actions
described in this Section 4.9.
4.10 Property.
(a) The Company owns no real properties. The real properties leased by the
Company listed on Schedule 4.10 constitute all of the real property leased
(whether or not occupied and including any leases assigned or leased premises
sublet for which the Company remains liable), used or occupied by the Company.
(b) The leases of real property listed on Schedule 4.10 as being leased by
the Company (the "Leased Real Property" sometimes referred to as the "Real
Property") are in full force and effect, and the lessee holds a valid and
existing leasehold interest under each of the leases for the term listed on
Schedule 4.10.
(c) To the knowledge of the Company and Shareholder, each parcel of Real
Property has access, sufficient for the conduct of the business as now conducted
or as presently proposed to be conducted by the Company on such parcel or Real
Property, to public roads and to all utilities used in the operation of the
business at that location. The zoning for each parcel of Real Property permits
the presently existing improvements and the continuation of the business
presently being conducted thereon. The Company is not in violation of any
applicable zoning ordinance or other Law relating to the Real Property, and the
Company has not received any notice of any such violation, or the existence of
any condemnation proceeding with respect to any of the Real Property. The
buildings and other improvements are located within the boundary lines of each
parcel of Real Property and do not encroach over applicable setback lines.
(d) To the knowledge of the Company and Shareholder, there are no
improvements made or contemplated to be made by any Governmental Entity, the
costs of which are to be assessed as special Taxes or charges against any of the
Real Property, and there are no present assessments.
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(e) The Company has good and marketable title to, or a valid leasehold
interest in, the buildings, machinery, equipment and other tangible assets and
properties used by the Company, located on its premises or shown in the Latest
Balance Sheet or acquired after the date thereof, free and clear of all
Encumbrances, except for Encumbrances listed on Schedule 4.10 and properties and
assets disposed of in the Ordinary Course of Business since the date of the
Latest Balance Sheet.
(f) The buildings, machinery, equipment and other tangible assets and
properties used in the conduct of the business of the Company are in good
condition and repair, ordinary wear and tear excepted, and are usable in the
Ordinary Course of Business. Each such asset is suitable for the purposes for
which it presently is used and presently is proposed to be used, is free from
known defects, and has been maintained in accordance with normal industry
practices. The Company owns, or leases under valid leases, all buildings,
machinery, equipment and other tangible assets and properties necessary for the
conduct of its respective business as presently conducted and as presently
proposed to be conducted.
(g) The Company owns or leases all of the assets, tangible and intangible,
of any nature whatsoever, necessary to operate the businesses of the Company in
the manner presently operated by the Company.
4.11 Accounts Receivable. All notes and accounts receivable of the Company
are reflected properly on its books and records, are valid, have arisen from
bona fide transactions in the Ordinary Course of Business, are subject to no
setoff or counterclaim, and are current and collectible. Such notes and accounts
receivable will be collected in accordance with their terms at their recorded
amounts, subject only to the reserve for bad debts on the face of the Latest
Balance Sheet as adjusted for the passage of time through the Closing Date in
the Ordinary Course of Business.
4.12 Inventory. The inventory of raw materials, work in process, supplies
and finished goods of the Company consists of items of a quality and quantity
usable and, with respect to finished goods only, salable at normal profit
levels, in each case, in the Ordinary Course of Business. The inventory of
finished goods is not slow-moving (as determined in accordance with past
practices), obsolete, damaged or defective, subject only to any reserve for
inventory on the face of the Latest Balance Sheet as adjusted for the passage of
time through the Closing Date in the Ordinary Course of Business and is
merchantable and fit for its particular use. The Company has on hand or has
ordered and expects timely delivery of such quantities of raw materials and
supplies and has on hand such quantities of work in process and finished goods
as are reasonably required (and are not in excess) to fill current orders on
hand in a timely manner and to maintain the manufacture and shipment of products
at its normal level of operations. Notwithstanding anything provided in this
Section 4.12 to the contrary, the representations and warranties in this Section
4.12 are subject to the exceptions and disclosures made in Schedule 4.12.
4.13 Tax Matters.
(a) The Company has (i) timely filed (or has had timely filed on its
behalf) all Returns required to be filed or sent by it in respect of any Taxes
or required to be filed or sent by
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it by any Governmental Entity, all which were correct and complete in all
respects; (ii) timely and properly paid (or has had paid on its behalf) all
Taxes shown to be due and payable on such Returns; (iii) established on the
Latest Balance Sheet, in accordance with GAAP and consistent with past
practices, reserves that are adequate for the payment of any Taxes not yet due
and payable; and (iv) complied with all Laws relating to the withholding of
Taxes and the payment thereof and paid over to the proper Governmental Entity
all amounts required to be so withheld and paid over under applicable Law.
(b) Subject to the exceptions and disclosures in Schedule 4.7, all Taxes
of the Company that will be due and payable for any period ending on and
including or ending prior to the Closing Date, will have been paid by or on
behalf of the Company or will be reflected, in a manner consistent with past
practice, on the Company's books as an accrued Tax liability, either current or
deferred.
(c) No deficiency for any Taxes or adjustment or change in accounting
method has been proposed, asserted or assessed against the Company that has not
been resolved and paid in full. No waiver, extension or comparable consent given
by the Company regarding the application of the statute of limitations with
respect to any Taxes or Return is outstanding, nor is any request for any such
waiver or consent pending. There has been no Tax audit or other administrative
proceeding or court proceeding with regard to any Taxes or Return for any Tax
year subsequent to the year ended December 31, 1999, nor is any such Tax audit
or other proceeding pending, nor has there been any notice to the Company by any
Governmental Entity regarding any such Tax, audit or other proceeding, or, to
the Knowledge of the Company, is any such Tax audit or other proceeding
threatened with regard to any Taxes or Return. No claim has ever been made by a
Governmental Entity in a jurisdiction where the Company does not file any Return
that the Company is or may be subject to taxation.
(d) The Company has provided or made available to Buyer true and complete
copies of all income, franchise and sales tax Returns for taxable periods
beginning on or after January 1, 2000.
(e) The Company is not a party to any Tax allocation or sharing agreement.
(f) The Company will be upon the day of Closing a corporation or
association taxable as a corporation under subchapter C of the Code for United
States income tax purposes. From January 1, 1996, until the day before Closing,
the Company has been taxable as a corporation under subchapter S of the Code for
United States income tax purposes. From the date of its incorporation until
December 31, 1995, the Company was taxable as a corporation under subchapter C
of the Code for United States income tax purposes.
(g) The Company validly elected to be an "S corporation" within the
meaning of Sections 1361 and 1362 of the Code on January 1, 1996 and has
maintained its status as an "S corporation" at all times since such date. The
Company has also validly elected to be an "S corporation" in all state and local
jurisdictions which recognize such status and in which it would, absent such an
election, be subject to corporate income Tax, and has maintained its status as
an "S corporation" in each such jurisdiction at all times since the date of such
election. No facts or circumstances exist, or have existed, which would cause,
or would have caused, the
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status of the Company as an "S corporation" under federal, state or local law to
be subject to termination or revocation.
(h) The Xxxxxxxxx Trust is, and at all times has been, taxable as a
grantor trust for federal income tax purposes.
(i) The Company has no "qualified subchapter S subsidiary" within the
meaning of Section 1361(b)(3)(B) of the Code.
(j) The Company is not, and, while the Company was a valid "S corporation"
was not, subject to federal, state or local income, franchise or minimum Tax,
including without limitation any Tax imposed pursuant to Section 1374 and 1375
of the Code or any corresponding provisions of the laws of any state or local
jurisdiction. The Company has not, in the past ten (10) years, (i) acquired
assets from another corporation in a transaction in which Company's Tax basis
for the acquired assets was determined, in whole or in part, by reference to the
Tax basis of the acquired assets (or any other property) in the hands of the
transferor or (ii) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
(k) The Company (i) has not been a member of an affiliated group filing a
consolidated Return (other than a group the common parent of which was the
Company) and (ii) has no liability for the Taxes of any Person under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.
(l) Neither the Company nor any affiliate has taken or agreed to take any
action or knows of any circumstances that (without regard to any action taken or
agreed to be taken by Buyer or its affiliates) would prevent the acquisition
contemplated by this Agreement from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
4.14 Intellectual Property Rights. Subject to the exceptions and
disclosures in Schedules 4.14(a), 4.14(b) and 4.14(e):
(a) Schedule 4.14(a) lists and describes all Owned Intellectual Property
Rights that are Registered Intellectual Property Rights and all other Owned
Intellectual Property Rights. Schedule 4.14(a) lists all Contracts relating to
Licensed-In Intellectual Property Rights other than Software and describes the
Intellectual Property Rights covered by such Contracts; to the extent there is
no written Contract covering a Licensed-In Intellectual Property Right, Schedule
4.14(a) lists the licensor and describes the Intellectual Property Rights so
licensed. Schedule 4.14(a) lists all Contracts relating to Licensed-In
Intellectual Property Rights that are Software other than Off-the-Shelf Software
and describes the Intellectual Property Rights covered thereby; to the extent
there is no written Contract covering any Software, Schedule 4.14(a) lists the
licensor and describes the Software so licensed. Schedule 4.14(a) lists and
describes all materials otherwise protectable under Intellectual Property Rights
used in the business of the Company as now conducted or presently proposed to be
conducted that are in the public domain. The Owned Intellectual Property Rights
and the Licensed-In Intellectual Property Rights constitute all Intellectual
Property Rights necessary for the business of the Company as now conducted or
presently proposed to be conducted.
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(b) The Company owns all right, title and interest in the Owned
Intellectual Property Rights free and clear of all Encumbrances (including
royalty or other payments), except for those licenses of the Owned Intellectual
Property Rights to Persons other than the Company, payments for use of the Owned
Intellectual Property Rights and other Encumbrances listed on Schedule 4.14(b).
The Company is the official and sole owner of record of all Owned Intellectual
Property Rights that are Registered Intellectual Property Rights. No Owned
Intellectual Property Right is infringed by any Person. The Company owns all
Intellectual Property Rights developed by its current and former employees and
independent contractors during the period of their employment or within the
scope of their contracting or consulting relationship, as the case may be, with
the Company. No employee or former employee or independent contractor of the
Company has any claim with respect to any Owned Intellectual Property Right of
the Company.
(c) Subject to the exceptions and disclosures in Schedules 4.14(a) and
4.14(b), all Owned Intellectual Property Rights are valid and enforceable, and
no Person has asserted that any Owned Intellectual Property Right is invalid or
not enforceable. All Owned Intellectual Property Rights that are Registered
Intellectual Property Rights are in full force and effect, and all actions
required to keep such rights pending or in effect or to provide full available
protection have been taken, and no such Registered Intellectual Property Right
is the subject of any interference, opposition, cancellation, nullity,
re-examination or other proceeding placing in question the validity or scope of
such rights. All products covered by Owned Intellectual Property Rights or
Licensed-In Intellectual Property Rights that are Registered Intellectual
Property Rights and all usages of Owned Intellectual Property Rights or
Licensed-In Intellectual Property Rights that are Registered Intellectual
Property Rights have been marked with the appropriate patent, trademark or other
marking required or desirable to maximize available damage awards.
(d) The documentation relating to all trade secrets listed on Schedule
4.14(a) is current, accurate and sufficient in detail and content to identify
and explain such trade secrets and to allow their full and proper use without
reliance on the knowledge or memory of any individual. All reasonable
precautions have been taken to protect the secrecy, confidentiality and value of
the trade secrets and all other proprietary information used by the Company,
and, subject to the exception and disclosure in Schedule 4.14(d), each current
and former employee and independent contractor of the Company has executed such
an agreement. Subject to the exception and disclosure in Schedule 4.14(e), there
has been no breach or other violation of such agreements. The Company has an
unqualified right to use all trade secrets and other proprietary information
currently used in its business, subject to any Contract relating to Licensed-In
Intellectual Property Rights. Subject to the exception and disclosure in
Schedule 4.14(e), no such trade secret or other proprietary information is part
of the public knowledge or literature, and no trade secret or other proprietary
information has been used, divulged or appropriated either for the benefit of
any Person other than the Company or to the detriment of the Company.
(e) Subject to the exception and disclosure in Schedule 4.14(e), the
Company has not taken action, or failed to take an action, that might have the
effect of estopping or otherwise limiting its right to enforce Owned
Intellectual Property Rights against any Person.
(f) The Company has no present expectation or intention of not fully
performing any obligation pursuant to any License, and there is no breach,
anticipated breach or default by any
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other party to any License. There are no renegotiations of, attempts to
renegotiate, demands for or outstanding rights to renegotiate any License. All
rights under each License will be fully available to the Company after the
Closing.
(g) Each Licensed-in Intellectual Property Right for which the Company has
an exclusive right is in full force and effect, all actions required to keep
such right pending or in effect or to provide full protection have been taken.
No Licensed-in Intellectual Property Right that is a Registered Intellectual
Property Right for which the Company has an exclusive right is the subject of
any interference, opposition, cancellation, nullity, re-examination or other
proceeding placing in question the validity or scope of such right.
(h) Subject to the exceptions and disclosures in Schedules 4.14(a) and
4.14(b), the Company has not infringed, misappropriated or otherwise violated
any Third-Party Intellectual Property Right, and the Company has not received
any notice of any infringement, misappropriation or violation by the Company of
any Third-Party Intellectual Property Right. Subject to the exceptions and
disclosures in Schedules 4.14(a) and 4.14(b), no actual or claimed infringement,
misappropriation or violation of any Third-Party Intellectual Property Right has
occurred or will occur with respect to products and services currently being or
previously sold by the Company or with respect to the products or services
currently under development or with respect to the conduct of the business of
the Company as now conducted or presently proposed to be conducted.
(i) All Software that is used by the Company or is present at any facility
or on any equipment of the Company is owned by the Company or is subject to a
current license agreement that covers all use of the Software in the business of
the Company, as now conducted or as presently proposed to be conducted. The
Company has the right to use the Software currently used in its business as it
is presently being used, without any conflict with the rights of others. The
Company is not in breach of any license to, or license of, any Software. The
Company does not use, rely on or contract with any Person to provide service
bureau, outsourcing or other computer processing services to the Company, in
lieu of or in addition to its use of the Software. Following the transactions
contemplated by this Agreement, the Company will have sufficient rights to all
necessary Software, as a result of its licensing of the applicable Software, to
operate its business as it is now conducted or as presently proposed to be
conducted.
(j) Schedule 4.14(j) lists and describes an Owned Intellectual Property
Right for a product currently under development.
(k) Schedule 4.14(k) lists and describes all Owned Intellectual Property
Rights relating to a recently developed product of the Company. The Intellectual
Property Rights listed in Schedule 4.14(k) constitute all Intellectual Property
Rights for this product, all of which have been assigned to, and are presently
owned by, the Company.
(l) Xxxxxx Xxxxxxxxx does not own any Intellectual Property Rights (i)
used in the conduct of the business of the Company, or (ii) presently
contemplated by the Company to be used in the conduct of the Company's business.
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4.15 Material Contracts.
(a) Schedule 4.15 lists the following Contracts to which the Company is a
party or subject or by which it is bound (with the Contracts required to be
listed on Schedule 4.15, the "Material Contracts"):
(i) all employment, agency or consulting Contracts;
(ii) all stock purchase, stock option and stock incentive plans
(other than Plans);
(iii) all Contracts (A) with any Insider or (B) between or among any
Insiders relating in any way to the Company;
(iv) all distributor, reseller, OEM, dealer, manufacturer's
representative, sales agency or advertising agency, finder's and
manufacturing or assembly Contracts;
(v) all franchise agreements;
(vi) any Contracts or group of related Contracts with the same party
for the purchase of products or services with a undelivered balance in
excess of $25,000;
(vii) any Contract or group of related Contracts with the same party
for the sale of products or services with an undelivered balance in excess
of $25,000;
(viii) all leases of personal property with aggregate annual
payments in excess of $25,000;
(ix) any Contract for the sale of any capital assets;
(x) any Contract for capital expenditures in excess of $25,000;
(xi) all Contracts relating to the borrowing of money or to
mortgaging, pledging or otherwise placing an Encumbrance on any of the
assets of the Company;
(xii) each written warranty, guaranty or other similar undertaking
with respect to contractual performance extended by the Company other than
in the Ordinary Course of Business;
(xiii) all Contracts relating to any surety bond or letter of credit
required to be maintained by the Company;
(xiv) any Contract that contains or provides for an express
undertaking by the Company to be responsible for consequential damages;
(xv) any Contract concerning a partnership or joint venture;
(xvi) any Contract providing for the development of any products,
Software or Intellectual Property Rights or the delivery of any services
by, for or with any third party;
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(xvii) any Contracts containing exclusivity, noncompetition or
nonsolicitation provisions or that would otherwise prohibit the Company
from freely engaging in business anywhere in the world or prohibiting the
solicitation of the employees or contractors of any other entity;
(xviii) all Contracts pertaining to confidentiality or
non-disclosure;
(xix) each Capital Lease;
(xx) all Contracts terminable by any other party upon a change of
control of the Company or upon the failure of the Company to satisfy
financial or performance criteria specified in such Contract;
(xxi) any power of attorney that is currently in effect;
(xxii) all leases of real property; and
(xxiii) any and all other Contracts of the Company not entered into
in the Ordinary Course of Business or that are material to the business,
financial condition, results of operations or prospects of the Company.
(b) Each Material Contract is valid and binding, currently in force and
enforceable in accordance with its terms, subject to the Remedies Exception. The
Company has performed all obligations required to be performed by it in
connection with each Material Contract. The Company has not received any notice
of any claim of default by it under or termination of any Material Contract. The
Company has no present expectation or intention of not fully performing any
obligation pursuant to any Material Contract, and there is no breach,
anticipated breach or default by the Company or any other party to any Material
Contract. There are no renegotiations of, attempts to renegotiate or outstanding
rights to renegotiate any material terms of any Material Contract and no Person
has made written demand for such renegotiation. The Company can perform each
Material Contract on time, at a profit and without unusual expenditures of time
and money. The Company has no obligation to refund payments received for work
not yet performed under a Material Contract where the percentage of work
completed is less than the percentage of revenues received to date.
4.16 Litigation. Schedule 4.16 lists all Litigation pending or, to the
Knowledge of the Company, threatened against the Company and each Governmental
Order to which the Company is subject.
4.17 Insurance.
(a) The Company has at all times maintained insurance relating to its
business and covering property, fire, casualty, liability, workers' compensation
and all other forms of insurance customarily obtained by businesses in the same
industry. Such insurance (i) is in full force and effect, (ii) is sufficient for
compliance with all requirements of applicable Law and of any Contract to which
the Company is subject, (iii) is valid and enforceable, (iv) insures against
risks of the kind customarily insured against and in amounts customarily carried
by businesses
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similarly situated and (v) provides adequate insurance coverage for the
activities of the Company. Schedule 4.17 lists each policy of insurance in
effect.
(b) Schedule 4.17 lists by year for the current policy year and each of
the two preceding policy years a summary of the loss experience under each
policy involving any claim in excess of zero dollars, setting forth (i) the name
of the claimant, (ii) a description of the policy by insurer, type of insurance
and period of coverage and (iii) the amount and a brief description of the
claim. Schedule 4.17 also describes the loss experience for all claims in excess
of $25,000 that were self-insured, including the aggregate cost of such claims.
4.18 Compliance with Laws; Government Authorizations.
(a) The Company has complied with all applicable Laws and Governmental
Orders, except where such failure to so comply would not have a Material Adverse
Effect upon the Company. The Company is not relying on any exemption from or
deferral of any Law, Governmental Order or Governmental Authorization that would
not be available to it after the Closing.
(b) The Company has in full force and effect all Governmental
Authorizations necessary to conduct its business and own and operate its
properties. Schedule 4.18(b) lists each Governmental Authorization held by the
Company. The Company has complied with all Governmental Authorizations
applicable to it.
(c) The Company has not offered, authorized, promised, made or agreed to
make gifts of money, other property or similar benefits (other than incidental
gifts of articles of nominal value) to any actual or potential customer,
supplier, governmental employee, political party, political party official or
candidate, official of a public international organization or any other Person
in a position to assist or hinder the Company in connection with any actual or
proposed transaction, other than payments required or permitted by the Laws of
the applicable jurisdiction and in compliance with the U.S. Foreign Corrupt
Practices Act.
4.19 Environmental Matters.
(a) As used in this Section 4.19, the following terms have the following
meanings:
(i) "Environmental Costs" means any and all costs and expenditures,
including any fees and expenses of attorneys and of environmental
consultants or engineers incurred in connection with investigating,
defending, remediating or otherwise responding to any Release of Hazardous
Materials, any violation or alleged violation of Environmental Law, any
fees, fines, penalties or charges associated with any Governmental
Authorization, or any actions necessary to comply with any Environmental
Law.
(ii) "Environmental Law" means any Law, Governmental Authorization
or Governmental Order relating to pollution, contamination, Hazardous
Materials or protection of the environment.
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(iii) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined
in or governed by any Law relating to such substance or otherwise relating
to the environment or human health or safety, including any waste,
material, substance, pollutant or contaminant that might cause any injury
to human health or safety or to the environment or might subject the owner
or operator of the Property to any Environmental Costs or liability under
any Environmental Law.
(iv) "List" means the United States Environmental Protection
Agency's National Priorities List of Hazardous Waste Sites or any other
list, schedule, log, inventory or record, however defined, maintained by
any Governmental Entity with respect to sites from which there has been a
Release of Hazardous Materials.
(v) "Property" means real property now or previously owned, leased,
controlled or occupied by the Company.
(vi) "Regulatory Action" means any Litigation with respect to the
Company brought or instigated by any Governmental Entity in connection
with any Environmental Costs, Release of Hazardous Materials or any
Environmental Law.
(vii) "Release" means the spilling, leaking, disposing, discharging,
emitting, depositing, ejecting, leaching, escaping or any other release or
threatened release, however defined, whether intentional or unintentional,
of any Hazardous Material.
(viii) "Third-Party Environmental Claim" means any Litigation (other
than a Regulatory Action) based on negligence, trespass, strict liability,
nuisance, toxic tort or any other cause of action or theory relating to
any Environmental Costs, Release of Hazardous Materials or any violation
of Environmental Law.
(b) No Third-Party Environmental Claim or Regulatory Action is pending or,
to the Knowledge of the Company, threatened against the Company.
(c) No Property is listed on a List.
(d) Subject to the exceptions and disclosures in Schedule 4.19, all
transfer, transportation or disposal of Hazardous Materials by the Company to
properties not owned, leased or operated by the Company has been in compliance
with applicable Environmental Law. The Company has not transported or arranged
for the transportation of any Hazardous Materials to any location that is (i)
listed on a List, (ii) listed for possible inclusion on any List or (iii) the
subject of any Regulatory Action or Third-Party Environmental Claim.
(e) Subject to the exceptions and disclosures in Schedule 4.19, no
Property has ever been used as a landfill, dump or other disposal, storage,
transfer, handling or treatment area for Hazardous Materials, or as a gasoline
service station or a facility for selling, dispensing, storing, transferring,
disposing or handling petroleum and/or petroleum products.
(f) Subject to the exceptions and disclosures in Schedule 4.19, there has
not been any Release of any Hazardous Material on, under, about, from or in
connection with the Property,
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including the presence of any Hazardous Materials that have come to be located
on or under the Property from another location.
(g) Subject to the exceptions and disclosures in Schedule 4.19, the
Property at all times has been used and operated by the Company, in compliance
with all applicable Environmental Law, from the time of initial use or occupancy
by the Company to the date of this Agreement.
(h) The Company has obtained all Governmental Authorizations relating to
the Environmental Law necessary for operation of the Company, each of which is
listed on Schedule 4.19. All Governmental Authorizations relating to the
Environmental Law will be valid and in full force and effect upon consummation
of the transactions contemplated by this Agreement. The Company has filed all
reports and notifications required to be filed under and pursuant to all
applicable Environmental Law.
(i) Subject to the exceptions and disclosures in Schedule 4.19, no
Hazardous Materials have been generated, treated, contained, handled, located,
used, manufactured, processed, buried, incinerated, deposited, or stored on,
under, or about any part of the Property during the time the Company has had use
and/or possession of the Property, which have not been properly and lawfully
disposed of. To the knowledge of the Company and Shareholder, the property
contains no asbestos, urea, formaldehyde, PCBs, or pesticides. Subject to the
exceptions and disclosures in Schedule 4.19, to the knowledge of the Company and
Shareholder, no aboveground or underground storage tanks are presently located
on, under, or about the Property.
(j) No expenditure will be required in order for Buyer or the Company to
comply with any Environmental Law in effect at the time of Closing in connection
with the operation or continued operation of the Property in a manner consistent
with the present operation thereof.
(k) All environmental reports and investigations that the Company has
obtained or ordered with respect to the Company or the Property are listed on
Schedule 4.19.
(l) No Encumbrance has been attached or filed against the Company in favor
of any Person for (i) any liability under or violation of any applicable
Environmental Law, (ii) any Release of Hazardous Materials or (iii) any
imposition of Environmental Costs.
4.20 Warranties. Schedule 4.20 lists all claims pending or, to the
Knowledge of the Company, threatened for product liability or breach of any
warranty relating to any products sold or services performed by the Company
prior to the date of this Agreement. Such claims in the aggregate are not in
excess of the reserve for product warranty claims set forth on the face of the
Latest Balance Sheet. Schedule 4.20 describes the warranties for products sold
or services performed by the Company. No product or service manufactured, sold,
leased or delivered by the Company is subject to any guaranty, warranty or other
indemnity other than such warranties. Except as listed on Schedule 4.20, none of
the products manufactured, sold, leased or delivered by the Company has been the
subject of any product recall (whether voluntary or involuntary) during the past
five years.
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4.21 Employees.
(a) Schedule 4.21(a) states the total number of employees of the Company,
lists each employee of the Company as of the date of this Agreement and shows
for each such employee full-time, part-time or temporary status, annual salary
or wages, any other compensation payable (including compensation payable
pursuant to bonus, deferred compensation or commission arrangements), date of
employment and position. To the Knowledge of the Company, no executive employee
of the Company and no group of employees of the Company has any plans to
terminate his, her or their employment. The Company has complied at all times
with all applicable Laws relating to employment and employment practices and
those relating to the calculation and payment of wages. The Company has no labor
relations problem pending or, to the Knowledge of the Company, threatened and
its labor relations are satisfactory. Except as listed in Schedule 4.21(a),
there are no workers' compensation claims pending against the Company or, to the
Knowledge of the Company, any facts that would give rise to such a claim. No
employee of the Company is subject to any secrecy or noncompetition agreement or
any other agreement or restriction of any kind that would impede in any way the
ability of such employee to carry out fully all activities of such employee in
furtherance of the business of the Company.
(b) No employee of the Company as of the date of this Agreement holds a
temporary work authorization.
(c) The employment of any terminated former employee of the Company has
been terminated in accordance with any applicable Contract terms and applicable
Law, and the Company has no liability under any Contract or applicable Law
toward any such terminated employee. The transactions contemplated by this
Agreement will not cause the Company to incur or suffer any liability relating
to, or obligation to pay, severance, termination or other payment to any Person.
(d) The Company has not made any loans (except advances for business
travel, lodging or other expenses in the Ordinary Course of Business) to any
employee of the Company.
(e) No employee of the Company is covered by any collective bargaining
agreement, no collective bargaining agreement is currently being negotiated and
no attempt is currently being made or threatened or during the past five years
has been made to organize any of its employees to form or enter into any labor
union, employee association or similar organization. There are no strikes,
slowdowns, work stoppages or other labor controversies pending or, to the
Knowledge of the Company, threatened against or otherwise affecting the
employees or facilities of the Company. The Company has not experienced any
labor strike, slowdown, work stoppage or other material labor controversy
involving its employees within the past two years.
(f) Except as disclosed in Schedule 4.7, the Company has paid in full to
all employees all wages, salaries and commissions due and payable to such
employees and has fully reserved on the Latest Balance Sheet all amounts for
wages, salaries and commissions due but not yet payable to such employees on the
Latest Balance Sheet Date.
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(g) There has been no lay off of employees or work reduction program
undertaken by or on behalf of the Company in the past two years, and no such
program has been adopted by the Company or publicly announced.
4.22 Employee Benefits.
(a) Schedule 4.22 lists all Plans by name and provides a brief description
identifying (i) the type of Plan, (ii) the funding arrangements for the Plan,
(iii) the sponsorship of the Plan, (iv) the participating employers in the Plan
and (v) any one or more of the following characteristics that may apply to such
Plan: (A) defined contribution plan as defined in Section 3(34) of ERISA or
Section 414(i) of the Code, (B) defined benefit plan as defined in Section 3(35)
of ERISA or Section 414(j) of the Code, (C) plan that is or is intended to be
tax qualified under Section 401(a) or 403(a) of the Code, (D) plan that is or is
intended to be an employee stock ownership plan as defined in Section 4975(e)(7)
of the Code (and whether or not such plan has entered into an exempt loan), (E)
nonqualified deferred compensation arrangement, (F) employee welfare benefit
plan as defined in Section 3(1) of ERISA, (G) multiemployer plan as defined in
Section 3(37) of ERISA or Section 414(f) of the Code, (H) multiple employer plan
maintained by more than one employer as defined in Section 413(c) of the Code,
(I) plan providing benefits after separation from service or termination of
employment, (J) plan that owns any Company or other employer securities as an
investment, (K) plan that provides benefits (or provides increased benefits or
vesting) as a result of a change in control of the Company, (L) plan that is
maintained pursuant to collective bargaining and (M) plan that is funded, in
whole or in part, through a voluntary employees' beneficiary association exempt
from Tax under Section 501(c)(9) of the Code.
(b) Schedule 4.22 lists each corporation, trade or business (separately
for each category below that applies): (i) that is (or was during the preceding
five years) under common control with the Company within the meaning of Section
414(b) or (c) of the Code, (ii) that is (or was during the preceding five years)
in an affiliated service group with the Company within the meaning of Section
414(m) of the Code, (iii) that is (or was during the preceding five years) the
legal employer of Persons providing services to the Company as leased employees
within the meaning of Section 414(n) of the Code and (iv) with respect to which
the Company is a successor employer for purposes of group health or other
welfare plan continuation rights (including Section 601 et seq. of ERISA) or the
Family and Medical Leave Act.
(c) Schedule 4.22 lists (i) the most recent determination letter received
by the Company from the IRS regarding each Plan, (ii) the most recent
determination or opinion letter ruling from the IRS that each trust established
in connection with Plans that are intended to be tax exempt under Section 501(a)
or (c) of the Code are so tax exempt, (iii) all pending applications for
rulings, determinations, opinions, no action letters and the like filed with any
governmental agency, (iv) the financial statements for each Plan for the three
most recent fiscal or plan years (in audited form if required by ERISA) and,
where applicable, Annual Report/Return (Form 5500) with disclosure schedules, if
any, and attachments for each Plan, (v) the most recently prepared actuarial
valuation report for each Plan, (vi) plan documents, trust agreements, insurance
contracts, service agreements and all related contracts and documents with
respect to each Plan and (vii) collective bargaining agreements relating to the
establishment, maintenance, funding and operation of any Plan.
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(d) Schedule 4.22(d) lists each employee of the Company who is (i) absent
from active employment due to short or long term disability, (ii) absent from
active employment on a leave pursuant to the Family and Medical Leave Act or a
comparable state Law, (iii) absent from active employment on any other leave or
approved absence (together with the reason for each leave or absence) or (iv)
absent from active employment due to military service (under conditions that
give the employee rights to re-employment).
(e) With respect to continuation rights arising under federal or state Law
as applied to Plans that are group health plans (as defined in Section 601 et
seq. of ERISA), Schedule 4.22(e) lists (i) each employee, former employee or
qualifying beneficiary who has elected continuation and (ii) each employee,
former employee or qualifying beneficiary who has not elected continuation
coverage but is still within the period in which such election may be made.
(f) (i) All Plans intended to be Tax qualified under Section 401(a) or
Section 403(a) of the Code are so qualified, (ii) all trusts established in
connection with Plans intended to be Tax exempt under Section 501(a) or (c) of
the Code are so Tax exempt, (iii) to the extent required either as a matter of
Law or to obtain the intended Tax treatment and Tax benefits, all Plans comply
in all respects with the requirements of ERISA and the Code, (iv) all Plans have
been administered in accordance with the documents and instruments governing the
Plans, (v) all reports and filings with Governmental Entities required in
connection with each Plan have been timely made, (vi) all disclosures and
notices required by Law or Plan provisions to be given to participants and
beneficiaries in connection with each Plan have been properly and timely made
and (vii) the Company has made a good faith effort to comply with the reporting
and taxation requirements for FICA taxes with respect to any deferred
compensation arrangements under Section 3121(v) of the Code, except where the
failure of any of the items set forth in clauses (i) through (vii) of this
Section 4.22(f) to be true and correct would not have a Material Adverse Effect.
(g) (i) All contributions, premium payments and other payments required to
be made in connection with the Plans as of the date of this Agreement have been
made, (ii) a proper accrual has been made on the books of the Company for all
contributions, premium payments and other payments due in the current fiscal
year but not made as of the date of this Agreement, (iii) no contribution,
premium payment or other payment has been made in support of any Plan that is in
excess of the allowable deduction for federal income Tax purposes for the year
with respect to which the contribution was made (whether under Section 162,
Section 280G, Section 404, Section 419, Section 419A of the Code or otherwise)
and (iv) with respect to each Plan that is subject to Section 301 et seq. of
ERISA or Section 412 of the Code, the Company is not liable for any "accumulated
funding deficiency" as that term is defined in Section 412 of the Code and the
projected benefit obligations determined as of the date of this Agreement do not
exceed the assets of the Plan, except where the failure of any of the items set
forth in clauses (i) through (iv) of this Section 4.22(g) to be true and correct
would not have a Material Adverse Effect.
(h) the consummation of the transactions contemplated by this Agreement
will not (i) cause any Plan to increase benefits payable to any participant or
beneficiary, (ii) entitle any current or former employee of the Company to
severance pay, unemployment compensation or any other payment, benefit or award
or (iii) accelerate or modify the time of payment or vesting,
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or increase the amount of any benefit, award or compensation due any such
employee, except where the failure of any of the items set forth in clauses (i)
through (iii) of this Section 4.22(h) to be true and correct would not have a
Material Adverse Effect.
(i) Subject to the exceptions and disclosures in Schedule 4.22: (i) No
Litigation is pending with regard to any Plan other than routine uncontested
claims for benefits, (ii) no Plan is currently under examination or audit by the
Department of Labor, the IRS or the Pension Benefit Guaranty Corporation, (iii)
the Company has no actual or potential liability arising under Title IV of ERISA
as a result of any Plan that has terminated or is in the process of terminating,
(iv) the Company has no actual or potential liability under Section 4201 et seq.
of ERISA for either a complete withdrawal or a partial withdrawal from a
multiemployer plan, (v) with respect to the Plans, the Company has no liability
(either directly or as a result of indemnification) for (and the transactions
contemplated by this Agreement will not cause any liability for): (A) any excise
Taxes under Section 4971 through Section 4980B, Section 4999, Section 5000 or
any other Section of the Code, (B) any penalty under Section 502(i), Section
502(l), Part 6 of Title I or any other provision of ERISA or (C) any excise
Taxes, penalties, damages or equitable relief as a result of any prohibited
transaction, breach of fiduciary duty or other violation under ERISA or any
other applicable Law, (vi) all accruals required under FAS 106 and FAS 112 have
been properly accrued on the Latest Financial Statements, (vii) no condition,
agreement or Plan provision limits the right of the Company to amend, cut back
or terminate any Plan (except to the extent such limitation arises under ERISA)
and (viii) except as listed in Schedule 4.22, the Company has no liability for
life insurance, death or medical benefits after separation from employment other
than (A) death benefits under the Plans and (B) health care continuation
benefits described in Section 4980B of the Code, except where the failure of any
of the items set forth in clauses (i) through (viii) of this Section 4.22(i) to
be true and correct would not have a Material Adverse Effect.
4.23 Customers. Schedule 4.23 lists the 20 largest customers of the
Company for each of the last two fiscal years and for the interim period ended
on the date of the Latest Balance Sheet and sets forth opposite the name of each
such customer the approximate percentage of net sales by the Company
attributable to such customer for each such period. No customer listed on
Schedule 4.23 has indicated that it will stop or decrease the rate of business
done with the Company.
4.24 Suppliers. Schedule 4.24 lists the 20 largest suppliers of the
Company for each of the last two fiscal years and for the interim period ended
on the date of the Latest Balance Sheet and sets forth opposite the name of each
such supplier the approximate percentage of purchases by the Company
attributable to such supplier for each such period. Subject to the exceptions
and disclosures in Schedule 4.24, no supplier listed on Schedule 4.24 is a sole
source of supply for the Company. No supplier listed on Schedule 4.24 has
indicated that it will stop or decrease the rate of business done with the
Company.
4.25 Affiliate Transactions. Subject to the exceptions and disclosures in
Schedule 4.25, no Insider has any Contract with the Company (other than
employment not represented by a written Contract and terminable at will), any
loan to or from the Company or any interest in any assets (whether real,
personal or mixed, tangible or intangible) used in or pertaining to the business
of the Company (other than ownership of capital stock of the Company). Except as
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listed in Schedule 4.25, no Insider has any direct or indirect interest in any
competitor, supplier or customer of the Company or in any Person from whom or to
whom the Company leases any property, or in any other Person with whom the
Company otherwise transacts business of any nature. Schedule 4.25 lists all
transactions between the Company and each Insider for each of the last three
fiscal years and since the Last Fiscal Year End.
4.26 Brokerage. No Person will be entitled to receive any brokerage
commission, finder's fee, fee for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any Contract made by or on behalf of the Company for which Buyer or the
Company is or could become liable or obligated.
4.27 Availability of Documents. The Company and/or Shareholder has
delivered to Buyer correct and complete copies of the items referred to in the
Disclosure Schedule or in this Agreement (and in the case of any items not in
written form, a written description thereof).
4.28 Disclosure.
(a) To the knowledge of the Company and Shareholder, this Agreement, the
exhibits, the Disclosure Schedule, the Annual Financial Statements and the
Latest Financial Statements, taken as a whole, do not contain any untrue
statement or omit any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they were made, not
misleading.
(b) To the knowledge of the Company and Shareholder, except as set forth
in this Agreement or the Disclosure Schedule, there is no fact that has specific
application to the Company (other than general economic or industry conditions)
and that may materially and adversely affect the assets, business, prospects,
financial condition or results of operations of the Company.
V. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and Shareholder that as of
the date of this Agreement and as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement):
5.1 Incorporation; Power and Authority. Each of Buyer and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its jurisdiction of organization, with all necessary
power and authority to execute, deliver and perform this Agreement and any
Ancillary Agreement to which it will become a party.
5.2 Valid and Binding Agreement. The execution, delivery and performance
of this Agreement and any Ancillary Agreement to which it will become a party by
Buyer and Merger Subsidiary have been duly and validly authorized by all
necessary corporate action. This Agreement has been duly executed and delivered
by Buyer and Merger Subsidiary and constitutes the valid and binding obligation
of Buyer and Merger Subsidiary, enforceable against them in accordance with its
terms, subject to the Remedies Exception. Each Ancillary Agreement to which
Buyer will become a party, when executed and delivered by Buyer, will
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constitute the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, subject to the Remedies Exception.
5.3 No Breach; Consents. The execution, delivery and performance of this
Agreement and any Ancillary Agreement to which it will become a party by Buyer
and Merger Subsidiary will not (a) contravene any provision of the
Organizational Documents of Buyer or Merger Subsidiary; (b) violate or conflict
with any Law, Governmental Order or Governmental Authority; (c) conflict with,
result in any breach of any of the provisions of, constitute a default (or any
event which would, with the passage of time or the giving of notice or both,
constitute a default) under, result in a violation of, increase the burdens
under, result in the termination, amendment, suspension, modification,
abandonment or acceleration of payment (or any right to terminate) or require a
Consent, including any Consent under any Contract or Governmental Authorization
that is either binding upon or enforceable against Buyer or Merger Subsidiary;
or (d) require any Governmental Authorization.
5.4 Certain Tax Matters. Neither Buyer nor any affiliate has taken or
agreed to take any action or knows of any circumstances that (without regard to
any action taken or agreed to be taken by Shareholder or the Company or any
affiliate) would prevent the acquisition contemplated by this Agreement from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
5.5 Brokerage. No Person will be entitled to receive any brokerage
commission, finder's fee, fee for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any Contract made by or on behalf of Buyer for which any shareholder of
the Company is or could become liable or obligated.
5.6 Investment Intent. Buyer is acquiring the Company for its own account
for investment purposes, and not with a view to the distribution of any capital
stock thereof.
5.7 Buyer Common Stock. The shares of Buyer Common Stock will, when issued
and delivered in accordance with this Agreement, be duly authorized, validly
issued, fully paid and nonassessable.
5.8 SEC Filings; Financial Statements.
(a) Buyer has filed all forms, reports, schedules, statements and other
documents required to be filed by it during the 12 months immediately preceding
the date of this Agreement (collectively, as supplemented and amended since the
time of filing, the "Buyer SEC Reports") with the SEC. The Buyer SEC Reports (i)
were prepared in all material respects in accordance with all applicable
requirements of the Securities Act and the Exchange Act, as applicable, and (ii)
did not, at the time they were filed, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The representation in clause (ii) of
the preceding sentence does not apply to any misstatement or omission in any
Buyer SEC Report which was superseded by subsequent Buyer SEC Reports.
(b) The audited financial statements and unaudited interim financial
statements of Buyer included or incorporated by reference in the Buyer SEC
Reports have been prepared in
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accordance with GAAP consistently applied during the periods indicated (except
as may otherwise be indicated in the notes) and present fairly the financial
position, results of operations and cash flows of Buyer at the respective dates
and for the respective periods indicated (except interim financial statements
may not contain all notes and are subject to year-end adjustments).
VI. AGREEMENTS OF THE COMPANY
The Company agrees with Buyer that:
6.1 Tax Matters.
(a) Without the prior written consent (which shall not be unreasonably
withheld) of Buyer, the Company shall not make or change any election, change an
annual accounting period, file any amended Return, enter into any closing
agreement, settle any Tax claim or assessment relating to the Company, surrender
any right to claim a refund of Taxes, or take any other similar action, or omit
to take any action relating to the filing of any Return or the payment of any
Tax, if such action or omission would have the effect of increasing the present
or future Tax liability or decreasing any present or future Tax asset of the
Company or Buyer. The Company shall notify Buyer of any consent to any extension
or waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company within 15 days of making such consent or waiver.
Notwithstanding anything to the contrary provided for in this Section 6.1, Buyer
acknowledges that the Company's status for IRS purposes will be changed from a
subchapter S corporation to a subchapter C corporation upon Closing.
Notwithstanding anything to the contrary provided for in this Agreement, the
parties hereto agree that the utilization of Sections 179 and 168(k) of the Code
by the Company or Shareholder for tax periods ending prior to the Closing shall
not constitute a breach of this Section 6.1 or any other provision of this
Agreement.
(b) The Company will not take any action that (without regard to any
action taken or agreed to be taken by Buyer or its affiliates) would prevent the
acquisition contemplated by this Agreement from qualifying as a reorganization
within the meaning of Section 368(a) of the Code. The Company will use its best
efforts to cause the Merger to qualify as a reorganization under Section 368(a)
of the Code. The Company will comply with all reporting obligations under
Section 1.368-3 of the Treasury Regulations with respect to the Merger.
(c) The Company and Shareholder shall, at the Company's expense, prepare
or cause to be prepared and file or cause to be filed all Tax Returns of the
Company which are due on or before the Closing Date and shall pay all Taxes
shown as due on such Tax Returns. The Shareholder shall prepare and file, at its
own expense, all S corporation income or franchise Tax Returns of the Company
for the period ending on the day prior to the Closing Date. The Shareholder
shall have access to the Company's books and records and employees in connection
with the preparation and filing of such Tax Returns. All such Tax Returns shall
be prepared in accordance with past practices. The Shareholder shall permit, and
shall cause the Company to permit, Buyer to review and comment on each such Tax
Return prior to filing.
VII. AGREEMENTS OF BUYER
Buyer agrees with the Company and Shareholder that:
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7.1 Tax Matters.
(a) Buyer will not take any action that (without regard to any action
taken or agreed to be taken by the Company or its affiliates) would prevent the
acquisition contemplated by this Agreement from qualifying as a reorganization
within the meaning of Section 368(a) of the Code; provided however, that nothing
herein shall be deemed to prohibit Buyer from making an indemnification claim
under Article VIII. Buyer will use its best efforts to cause the Merger to
qualify as a reorganization under Section 368(a) of the Code. Buyer will comply
with all reporting obligations under Section 1.368-3 of the Treasury Regulations
with respect to the Merger. To the extent Buyer were to breach its agreement
provided for above in this Section 7.1, Buyer will indemnify Shareholder against
all losses suffered by Shareholder resulting from this breach.
(b) After the Closing Date, Buyer shall have the right to amend, modify or
otherwise change all Tax Returns of the Company for all Tax periods; provided,
however, that any amendment, modification or change that would have the effect
of changing the Shareholder's Tax liability for any Tax period (or portion
thereof) prior to the Closing Date shall first require the consent of the
Shareholder.
(c) In the event of an examination by a federal or state taxing authority
of the Company's return(s) for any Tax period that ends on or prior to the
Closing Date, and/or in the event of an examination by a federal or state taxing
authority of the Shareholder's return(s) for any taxing period that ends on or
prior to the Closing Date, Shareholder and her representatives shall have sole
control of such examination, including settlement and/or litigation thereof;
provided, however, that Buyer shall have the right to participate, at its own
expense, in any such examination that would have the effect of increasing
Buyer's or the Company's Tax liability for any Tax period (or portion thereof)
ending after the Closing Date. Shareholder will be allowed access to the
Company's books and records and employees, at no cost to Shareholder, in the
event of such an examination as to any income tax issues that relate to any Tax
period that ends on or prior to the Closing Date.
7.2 Board of Directors. Within 60 days following the Closing Date, Buyer
will invite a person mutually agreeable to Shareholder and Buyer to join Buyer's
board of directors, which person must satisfy the minimum criteria previously
adopted by the board of directors of Buyer for directors generally.
7.3 Registration Statement.
(a) As promptly as practicable after the date of this Agreement, but in
any event not later than 30 days following the Closing Date, Buyer will prepare
and cause to be filed with the SEC a Registration Statement on Form S-3 to
register a number of shares of Buyer Common Stock equal to $4,500,000 divided by
the Buyer Common Stock Price (the "Form S-3 Registration Statement"). The Form
S-3 Registration Statement will comply with the rules and regulations
promulgated by the SEC. Buyer will respond promptly to any comments of the SEC
or its staff with respect to the Form S-3 Registration Statement. Buyer will use
its commercially reasonable efforts to cause the Form S-3 Registration Statement
to be declared effective under the Securities Act as promptly as possible after
it is filed with the SEC. Buyer will advise
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Shareholder, promptly after it receives notice thereof, of the time when the
Form S-3 Registration Statement has become effective or any supplement or
amendment thereto has been filed, the issuance of any stop order or any request
by the SEC for amendment of the Form S-3 Registration Statement or comments
thereon or responses thereto. Buyer will promptly file, and if required use its
commercially reasonable efforts to cause to become effective as promptly as
possible, any supplement or amendment to the Form S-3 Registration Statement
that becomes necessary after the date the Form S-3 Registration Statement is
declared effective. All documents filed by the Buyer with the SEC in connection
with the transactions contemplated hereby will comply as to form and substance
in all material respects with the applicable requirements of the Securities Act.
Once the Form S-3 Registration Statement has been declared effective by the SEC,
Buyer will promptly request of its counsel a legal opinion that the restrictive
legend can be removed from all shares of Buyer Common Stock to which the Form
S-3 Registration Statement applies, and provide such legal opinion to
Shareholder upon receipt of such legal opinion from Buyer's counsel, provided
Shareholder delivers a customary representation letter to Buyer's counsel
regarding those matters required under applicable securities laws, upon which
such counsel will rely in delivering its legal opinion. Shareholder agrees that
it shall transfer the shares of Buyer Common Stock to be registered on the Form
S-3 Registration Statement in compliance with all applicable securities laws,
including but not limited to compliance with the prospectus delivery
requirements in connection with any sale of shares of Buyer Common Stock
registered on the Form S-3 Registration Statement.
(b) Buyer's obligation to file a registration statement shall, in all
cases, be subject to the following provisions:
(i) Shareholder shall have agreed to furnish any and all agreements,
consents and representations required of it by the SEC in connection with
the filing or which are a condition of having the subject registration
statement declared effective.
(ii) Buyer shall have received all information reasonably requested
in writing by Buyer from Shareholder that is necessary for the filing of
the registration statement.
(c) As to shares of Buyer Common Stock which form a part of the Merger
Consideration and which are not covered by the provisions of subsection 7.3(a),
upon reasonable request by Shareholder following the Closing, Buyer will agree
to remove the restrictive legend that appears on the shares of Buyer Common
Stock issued to Shareholder under this Agreement, provided Shareholder delivers
an opinion of counsel reasonably satisfactory to Buyer that registration of such
shares under all applicable securities laws is not required and such shares may
be sold in reliance upon Rule 144.
7.4 Listing. To the extent that listing of the shares of Buyer Common
Stock being issued in the Merger would be required under the rules of the NASDAQ
National Market, Buyer will use its best efforts to cause the shares of Buyer
Common Stock being issued in the Merger to be approved for listing (subject to
notice of issuance) on the NASDAQ National Market.
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7.5 Employment; Employee Benefits.
(a) Nothing in this Agreement will be construed to create a right in any
employee of the Company to employment with Buyer, the Surviving Corporation or
any other Subsidiary of Buyer (including the Company), and, subject to any
agreement between an employee and Buyer, the Surviving Corporation or any other
Subsidiary of Buyer (including the Company), the employment of each employee of
the Company who continues employment with Buyer, the Surviving Corporation or
any other Subsidiary of Buyer (including the Company) after the Closing Date (a
"Continuing Employee") will be "at will" employment. Notwithstanding anything
provided for in this subsection 7.5(a) to the contrary, Buyer agrees to cause
the Surviving Corporation to execute and enter into at Closing (1) an employment
agreement with Xxxxx Xxxxxx in the form attached hereto as Exhibit G, and (2) an
employment agreement with Xxxxx Xxxxxxxxx in the form attached hereto as Exhibit
H.
(b) Each Continuing Employee will be eligible to continue to participate
in the Surviving Corporation's health, vacation and other non-equity based
employee benefit plans; provided, however, that nothing in this Section 7.5(b)
or elsewhere in this Agreement will limit the right of Buyer or the Surviving
Corporation to amend or terminate any such health, vacation or other employee
benefit plan at any time. Nothing in this Section 7.5(b) will be interpreted to
require Buyer to provide for the participation of any Continuing Employee in any
Buyer Plan. Notwithstanding anything provided for in this subsection 7.5(b) to
the contrary, consummation of the transactions contemplated in this Agreement
shall not impact in any fashion the retiree health insurance plan (benefit)
presently in place at the Company for former employees of the Company currently
receiving such benefit; such benefit (already earned as a qualifying retiree of
the Company) shall be continued in full force and effect after the Closing, at
the cost and expense of the Company, until age 65 with respect to each former
employee of the Company currently receiving such benefit. Buyer will cause the
Surviving Corporation to honor the health insurance commitment to each former
employee of the Company currently receiving such benefit as provided for in this
subsection 7.5(b).
7.6 Litigation. Buyer consents to the resolution of the litigation
disclosed in Schedule 4.16 on the terms disclosed therein, subject to Buyer's
right to indemnification under Section 8.1(b).
VIII. INDEMNIFICATION
8.1 Indemnification Obligation. Shareholder will, jointly and severally,
indemnify in full each of Buyer, the Company (after the Closing) and their
directors, officers, employees and agents (collectively, for purposes of this
Section only, "Buyer") and hold them harmless against any Litigation,
Governmental Order, complaint, claim, demand, damage, deficiency, penalty, fine,
cost, amount paid in settlement, liability, obligation, Tax, Encumbrance, loss,
expense or fee, including court costs and attorneys' fees and expenses ("Loss")
arising from or constituting (a) any breach or inaccuracy in any of the
representations and warranties of the Company or Shareholder contained in this
Agreement, the Disclosure Schedule, any Ancillary Agreement or any closing
certificate delivered by or on behalf of the Company pursuant to this Agreement
or any Ancillary Agreement (any such breach or inaccuracy to be determined
without regard to any qualification for "materiality," "in all material
respects" or similar qualification), (b) any matter
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disclosed on Schedule 8.1(b) to this Agreement, (c) any liability of the Company
for Taxes incurred on or prior to the Closing Date or (d) any breach of any of
the agreements of the Company or Shareholder contained in this Agreement or the
Ancillary Agreements.
8.2 Basket. Shareholder jointly and severally will indemnify Buyer for
Losses pursuant to Sections 8.1(a), 8.1(b), 8.1(c), 8.4 and 8.5 only if the
aggregate amount of all Losses attributable thereto exceeds $100,000 (the
"Basket Amount"), in which case Shareholder will be liable for the aggregate
amount of all Losses.
8.3 Cap. Shareholder's aggregate liability shall not exceed $4,500,000 for
Losses pursuant to Sections 8.1, 8.4 and 8.5 (the "Cap Amount"); provided,
however, that as of the two-year anniversary of the Closing Date, the Cap Amount
shall automatically be reduced to $3,500,000; as of the three-year anniversary
of the Closing Date, the Cap Amount shall automatically be reduced to
$2,500,000; and as of the four-year anniversary of the Closing Date, the Cap
Amount shall automatically be reduced to $1,500,000, and shall remain at this
$1,500,000 level from and after the four-year anniversary of the Closing Date
until the death of Shareholder, at which time all remaining liability of
Shareholder under this Article VIII of this Agreement shall be extinguished.
8.4 Buyer Claims.
(a) If Buyer has a claim for indemnification under Section 8.1, Buyer will
deliver to Shareholder one or more written notices of Loss (each such notice of
Loss a "Buyer Claim"), with a copy to the Escrow Agent, prior to the expiration
of eighteen (18) months from and after the Closing Date, except for Losses
arising from a breach or inaccuracy in the representations and warranties made
in Article III or Sections 4.4, 4.10(e), 4.13, 4.19 or 4.22 or any breach of any
of the agreements by Shareholder contained in this Agreement, for which Buyer
will deliver a Buyer Claim prior to the expiration of the applicable statute of
limitations. Shareholder will not have any liability under Section 8.1 unless
the written notices required by the preceding sentence are given by the date
specified. Any Buyer Claim will state in reasonable detail the basis for such
Losses to the extent then known by Buyer and the nature of the Loss for which
indemnification is sought, and it may state the amount of the Loss claimed. If
such Buyer Claim (or an amended Buyer Claim) states the amount of the Loss
claimed and Shareholder notifies Buyer that it does not dispute the claim
described in such notice or fails to notify Buyer within 15 days after delivery
of such notice by Buyer whether Shareholder disputes the claim described in such
notice, the Loss in the amount specified in Buyer's notice will be admitted by
Shareholder (an "Admitted Claim"), and Shareholder will pay the amount of such
Loss to Buyer. If Shareholder has timely disputed its liability with respect to
a Buyer Claim (or an amended Buyer Claim) stating the amount of a Loss claimed,
Shareholder and Buyer will proceed in good faith to negotiate a resolution of
such dispute. If a claim for indemnification has not been resolved within 30
days after delivery of the notice to Shareholder, Buyer may seek judicial
recourse. If a Buyer Claim does not state the amount of the Loss claimed, such
omission will not preclude Buyer from recovering from Shareholder the amount of
the Loss described in such Buyer Claim if any such amount is subsequently
provided in an amended Buyer Claim.
(b) Shareholder will pay the amount of any Loss to Buyer within 10 days
following the determination of Shareholder's liability for and the amount of a
Loss (whether such
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determination is made pursuant to the procedures set forth in this Section 8.4,
by agreement among Buyer and Shareholder, by arbitration award or by final
adjudication).
8.5 Third Party Action.
(a) Shareholder will, jointly and severally, indemnify, defend and hold
harmless each of Buyer, the Company and their officers, directors, employees,
agents, shareholders and Affiliates (collectively, the "Buyer Indemnified
Parties") against any Loss arising from, relating to or constituting any
Litigation instituted by any third party arising out of the actions or inactions
of the Company (or allegations thereof) with respect to the period up to and
including the Closing Date that are or may be a Loss, and which arise as a
result of any breach or inaccuracy in any of the representations or warranties
of the Company or Shareholder contained in this Agreement, the Disclosure
Schedule, any Ancillary Agreement or any closing certificate delivered by or on
behalf of the Company pursuant to this Agreement or any Ancillary Agreement (any
such breach or inaccuracy to be determined without regard to any qualification
for "materiality", "in all material respects" or similar qualification) (any
such third party action or proceeding being referred to as a "Third Party
Action"). A Buyer Indemnified Party will give Shareholder prompt written notice
of the commencement of a Third Party Action. The complaint or other papers
pursuant to which the third party commenced such Third Party Action will be
attached to such written notice. The failure to give prompt written notice will
not affect any Buyer Indemnified Party's right to indemnification unless such
failure has materially and adversely affected Shareholder's ability to defend
successfully such Third Party Action. Notwithstanding anything in Section 8.5 to
the contrary, written notice of commencement of a Third Party Action to
Shareholder must be given within the same applicable time period as specified in
subsection 8.4(a). Shareholder will not have any liability under this Section
8.5 unless the written notices required by the preceding sentence are given by
the date specified.
(b) Shareholder will contest and defend such Third Party Action on behalf
of any Buyer Indemnified Party that requests that it do so. Notice of the
intention to so contest and defend will be given by Shareholder to the
requesting Buyer Indemnified Party within 15 days after the Buyer Indemnified
Party's notice of such Third Party Action (but, in any event, at least five
business days prior to the date that a response to such Third Party Action is
due to be filed, so long as Shareholder has received notice at least 10 days
before a response to such Third Party Action is due to be filed). Such contest
and defense will be conducted by reputable attorneys retained by Shareholder. A
Buyer Indemnified Party will be entitled at any time, at its own cost and
expense, to participate in such contest and defense and to be represented by
attorneys of its own choosing. If the Buyer Indemnified Party elects to
participate in such defense, the Buyer Indemnified Party will cooperate with
Shareholder in the conduct of such defense. A Buyer Indemnified Party will
cooperate with Shareholder to the extent reasonably requested by Shareholder in
the contest and defense of such Third Party Action, including providing
reasonable access (upon reasonable notice) to the books, records and employees
of the Buyer Indemnified Party if relevant to the defense of such Third Party
Action; provided, that such cooperation will not unduly disrupt the operations
of the business of the Buyer Indemnified Party or cause the Buyer Indemnified
Party to waive any statutory or common law privileges, breach any
confidentiality obligations owed to third parties or otherwise cause any
confidential information of such Buyer Indemnified Party to become public.
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(c) If a Buyer Indemnified Party does not request that Shareholder contest
and defend a Third Party Action, on the basis that such Third Party Action
imposes a significant reputational or monetary risk to Buyer Indemnified Party,
as determined by Buyer Indemnified Party in its sole discretion, such Buyer
Indemnified Party will be entitled to conduct its own defense and to be
represented by attorneys of its own choosing all at its own cost and expense.
(d) Shareholder may not concede, settle or compromise any Third Party
Action without the consent of the Buyer Indemnified Party, which consent will
not be unreasonably withheld. Notwithstanding the foregoing, (i) if a Third
Party Action seeks the issuance of an injunction, the specific enforcement of an
obligation or similar remedy or (ii) if the subject matter of a Third Party
Action relates to the ongoing business of any Buyer Indemnified Party, which
Third Party Action, if decided against any Buyer Indemnified Party, would
materially and adversely affect the ongoing business or reputation of any Buyer
Indemnified Party, at the option of the Buyer Indemnified Party, the Buyer
Indemnified Party alone will be entitled to settle such Third Party Action in
the first instance, at its own cost and expense (without being indemnified by
Shareholder for any settlement payments or Loss of any kind), and, if the Buyer
Indemnified Party elects not to settle such Third Party Action and such election
is the result of Buyer unreasonably withholding its consent to such settlement,
then the Buyer Indemnified Party shall itself be solely obligated to contest and
defend such Third Party Action, at the sole cost and expense of such Buyer
Indemnified Party, and Shareholder shall have no obligation whatsoever to
indemnify the Buyer Indemnified Party for any Loss it suffers in contesting
and/or defending such Third Party Action.
(e) Notwithstanding anything provided for in this Section 8.5 to the
contrary, if Shareholder notifies a Buyer Indemnified Party that Shareholder
disputes the assertion that Shareholder has a duty to indemnify, defend, and
hold harmless such Buyer Indemnified Party under this Section 8.5, after
Shareholder has received a request to contest and defend a Third Party Action on
behalf of a Buyer Indemnified Party (which notice of dispute must be given by
Shareholder within fifteen (15) days of receipt of the request to contest and
defend a Third Party Action (but, in any event, at least five business days
prior to the date that a response to such Third Party Action is due to be filed,
so long as Shareholder has received notice at least 10 days before a response to
such Third Party Action is due to be filed), from a Buyer Indemnified Party),
then Shareholder has no duty to indemnify, defend, and hold harmless the Buyer
Indemnified Party until and unless the Buyer Indemnified Party has sought
judicial recourse and has obtained a final judgment declaring that Shareholder
has a duty to so indemnify, defend, and hold harmless the Buyer Indemnified
Party, but only as to the specific claims and only to the extent provided for in
the final judgment.
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8.6 Escrow Fund. Notwithstanding anything provided in this Article VIII to
the contrary, Shareholder shall have the right to satisfy Shareholder's
obligations under this Article VIII from Shareholder's Merger Consideration that
is not in the Escrow Account. If Shareholder elects not to cover 100% of any
such indemnification obligation from Shareholder's non-escrowed Merger
Consideration, Shareholder shall have the right to pay up to 20% of such
indemnification obligation in cash (such cash payment to be made out of the cash
proceeds received by Shareholder pursuant to Section 2.2(a)), in order to ensure
continued compliance with the requirements under the federal tax laws regarding
tax-free reorganizations, with the balance paid out of the Escrow Shares in the
Escrow Account; in that event, to the extent shares of Buyer Common Stock are
available in the Escrow Fund, Buyer may request that the Escrow Agent satisfy
Shareholder's obligation by transfer of shares of Buyer Common Stock in the
Escrow Fund to Buyer. The availability of the Escrow Fund will not affect
Buyer's rights under this Article VIII. Shareholder will remain responsible for
any liability in excess of the Escrow Fund, subject to the limitations set forth
in Sections 8.2 and 8.3. Notwithstanding any provision in this Agreement to the
contrary, all Merger Consideration that is placed in the Escrow Account shall be
and remain the property of Shareholder (owned by Shareholder), and any cash
dividends (but not stock dividends) and/or interest paid on any shares of Buyer
Common Stock and cash held in the Escrow Account shall be paid to Shareholder
directly (outside of the Escrow Account), and Shareholder shall be entitled to
vote all shares of stock held in the Escrow Account.
8.7 Survival. Notwithstanding any investigation made by or on behalf of
any of the parties to this Agreement or the results of any such investigation
and notwithstanding the fact of, or the participation of such party in, the
Closing, the representations, warranties and agreements in this Agreement and
the Ancillary Agreements will survive the Closing.
IX. GENERAL
9.1 Press Releases and Announcements. Any public announcement will be
issued, if at all, at such time and in such manner as Buyer determines and
approves. Buyer will have the right to be present for any in-Person announcement
by the Company. Unless consented to by Buyer or required by Law, the Company
will keep this Agreement and the transactions contemplated by this Agreement
confidential.
9.2 Expenses. Except as otherwise expressly provided for in this
Agreement, Buyer will pay all expenses incurred by Buyer, and the Company will
pay all expenses incurred by the Company and Shareholder, in connection with the
transactions contemplated by this Agreement, including legal, accounting,
investment banking and consulting fees and expenses incurred in negotiating,
executing and delivering this Agreement and the other agreements, exhibits,
documents and instruments contemplated by this Agreement (whether the
transactions contemplated by this Agreement are consummated or not); provided,
however, that the portion of such expenses that represent personal expenses of
the Shareholder shall be charged as a distribution to the Shareholder, and as a
reduction of the Shareholder's equity in the Company, and the offsetting entry
will reduce the tax-deductible expenses of the Company; provided further, that
the portion of such expenses that represent personal expenses of the Shareholder
shall not exceed $50,000.
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9.3 Amendment and Waiver. This Agreement may not be amended, nor may any
provision of this Agreement or any default, misrepresentation, or breach of
warranty or agreement under this Agreement be waived, except in a writing
executed by the party against which such amendment or waiver is sought to be
enforced. Neither the failure nor any delay by any Person in exercising any
right, power or privilege under this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege. In
addition, no course of dealing between or among any Persons having any interest
in this Agreement will be deemed effective to modify or amend any part of this
Agreement or any rights or obligations of any Persons under or by reason of this
Agreement. The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
9.4 Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given (i) when delivered if personally
delivered by hand (with written confirmation of receipt), (ii) when received if
sent by a nationally recognized overnight courier service (receipt requested),
(iii) five business days after being mailed, if sent by first class mail, return
receipt requested, or (iv) when receipt is acknowledged by an affirmative act of
the party receiving notice, if sent by facsimile, telecopy or other electronic
transmission device (provided that such an acknowledgement does not include an
acknowledgment generated automatically by a facsimile or telecopy machine or
other electronic transmission device). Notices, demands and communications to
Buyer, Merger Subsidiary, the Company and Shareholder will, unless another
address is specified in writing, be sent to the address indicated below:
If to Buyer or Merger Subsidiary:
A.S.V., Inc.
000 Xxxx Xxxx
X.X. Xxx 0000
Xxxxx Xxxxxx, XX 00000
Attn: Chief Executive Officer
Facsimile No. (000) 000-0000
With a copy to:
Xxxxxx & Whitney LLP
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attn: Xxx X. Xxxxxx
Facsimile No. (000) 000-0000
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If to Shareholder or the Company:
Xxxxxxx X. Xxxxxxxxx
15970 - 00 X Xxxxxx XX
Xxxxxxxxx, XX 00000
Facsimile No. (000) 000-0000
With a copy to:
Xxxxxxx Xxxxxxxx, P.C
X.X. Xxx 000
Xxxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Facsimile No. (000) 000-0000
9.5 Assignment. Subject to the provisions of Section 9.6, neither this
Agreement nor any of the rights, interests or obligations under this Agreement
may be assigned by any party to this Agreement without the prior written consent
of the other parties to this Agreement. Subject to the foregoing, this Agreement
and all of the provisions of this Agreement will be binding upon and inure to
the benefit of the parties to this Agreement and their respective successors and
permitted assigns.
9.6 No Third Party Beneficiaries. Nothing expressed or referred to in this
Agreement confers any rights or remedies upon any Person that is not a party or
permitted assign of a party to this Agreement; provided, however, that upon
consummation of the Closing, the Shareholder's spouse, Xxxxxx Xxxxxxxxx, shall
be an intended third party beneficiary as to continued health insurance as
provided for in subsection 7.5(b), and Xxxxxx Xxxxxxxxx shall be an intended
third-party beneficiary as to Section 9.19.
9.7 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable Law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
9.8 Complete Agreement. This Agreement and when executed and delivered the
Ancillary Agreements contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral.
9.9 Schedules. The Disclosure Schedule contains a series of schedules
corresponding to the sections contained in this Agreement. In order to be
effective to disclose an exception to a representation or warranty made in this
Agreement, and notwithstanding anything provided to the contrary in this
Agreement, the exception must be expressly stated, with particularity, in this
Agreement and/or in one or more of the schedules in the Disclosure Schedule. The
disclosures in any section of the Disclosure Schedule shall qualify (a) the
corresponding section of the Agreement and (b) other sections of the Agreement
to the extent that such disclosures logically relate to such other sections and
the relevance of such disclosures to such other sections is
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reasonably apparent (notwithstanding the absence of a specific cross reference)
on the face thereof.
9.10 Signatures; Counterparts. This Agreement may be executed in one or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same instrument. A facsimile signature will be considered an original signature.
9.11 Governing Law. THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, OF THE STATE OF NORTH DAKOTA WILL GOVERN ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE
PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT.
9.12 Specific Performance. Each of the parties acknowledges and agrees
that the subject matter of this Agreement, including the business, assets and
properties of the Company, is unique, that the other parties would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached, and
that the remedies at law would not be adequate to compensate such other parties
not in default or in breach. Accordingly, each of the parties agrees that the
other parties will be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in addition to any
other remedy to which they may be entitled, at law or in equity. The parties
waive any defense that a remedy at law is adequate and any requirement to post
bond or provide similar security in connection with actions instituted for
injunctive relief or specific performance of this Agreement.
9.13 Jurisdiction. Any legal action or proceeding with respect to this
Agreement and the transactions contemplated by this Agreement and any action for
enforcement of any judgment in respect thereof may be brought only in the courts
of Cass County, State of North Dakota, or of the United States of America for
the District of North Dakota, Southeastern Division, and, by execution and
delivery of this Agreement, the parties hereby accept for themselves and in
respect of their property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts and appellate courts. The parties further
irrevocably consent to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, return receipt requested, restricted delivery,
postage prepaid, to the parties at their addresses referred to in Section 9.4.
The parties hereby irrevocably waive any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to above and hereby further irrevocably waive and agree, to the
extent permitted by applicable law, not to plead or claim in any such court that
any such action or proceeding brought in any such court has been brought in an
inconvenient forum.
9.14 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND
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THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND
CERTIFICATIONS IN THIS SECTION 9.14.
9.15 Construction. The parties and their respective counsel have
participated jointly in the negotiation and drafting of this Agreement. In
addition, each of the parties acknowledges that it is sophisticated and has been
advised by experienced counsel and, to the extent it deemed necessary, other
advisors in connection with the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties and no
presumption or burden of proof will arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The parties
intend that each representation, warranty and agreement contained in this
Agreement will have independent significance. Any reference to any Law will be
deemed to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The headings preceding the text of articles and
sections included in this Agreement and the headings to the schedules and
exhibits are for convenience only and are not to be deemed part of this
Agreement or given effect in interpreting this Agreement. References to
sections, articles, schedules or exhibits are to the sections, articles,
schedules and exhibits contained in, referred to or attached to this Agreement,
unless otherwise specified. The word "including" means "including without
limitation." The use of the masculine, feminine or neuter gender or the singular
or plural form of words will not limit any provisions of this Agreement. A
statement that an action has not occurred in the past means that it is also not
presently occurring.
9.16 Time of Essence. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
9.17 LBW Release. At the Closing, the Company will execute a mutual
Release in favor of LBW Management, LLC, Xxxxxx Xxxx, and Xxxx Xxxxxxxx, in the
form attached hereto as Exhibit I, conditioned only upon receipt at closing of
the original of said Release signed by LBW Management, LLC, Xxxxxx Xxxx, and
Xxxx Xxxxxxxx.
9.18 Xxxxx and Xxxxxx Xxxxxxxxx. Notwithstanding any provision of this
Agreement to the contrary, following the Closing, and so long as Xxxxx Xxxxxxxxx
is an employee of the Company (as the Surviving Corporation following the
Merger), Xxxxx Xxxxxxxxx shall be free to work with Xxxxxx Xxxxxxxxx outside of
his work hours at the Company on concepts and projects that may become
protectible Intellectual Property Rights, and all such concepts, projects, and
Intellectual Property Rights shall be and remain the exclusive property and
right of Xxxxx
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Xxxxxxxxx and Xxxxxx Xxxxxxxxx, provided that (a) such concepts, projects, and
Intellectual Property Rights do not include any Intellectual Property Rights
owned by the Company and (b) such activities do not breach a legal obligation
owed by Xxxxx Xxxxxxxxx to the Company under any agreement between Xxxxx
Xxxxxxxxx and the Company entered into on or after the Closing Date. The rights
of the Company, following the effective time of the Merger, in any
confidentiality agreement it has or may have with Xxxxx Xxxxxxxxx shall be and
remain subject to the provisions of this Section 9.18.
9.19 Xxxxxx Xxxxxxxxx'x Intellectual Property. Notwithstanding anything
provided in this Agreement to the contrary, Xxxxxx Xxxxxxxxx'x Intellectual
Property Rights, owned by him personally, in his own name, shall remain his
Intellectual Property Rights absolutely and will not be challenged by Buyer
and/or the Company, or any of their respective successors and assigns, following
the Closing Date.
9.20 S Corp. Buyer acknowledges that the Company has been operating as a
subchapter S corporation, and this Agreement is subject to the disclosures and
exceptions contained in Schedule 9.20.
[The remainder of this page is intentionally left blank;
signature page follows]
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IN WITNESS WHEREOF, Buyer, Merger Subsidiary, the Company and Shareholder
have executed this Merger Agreement as of the date first above written.
BUYER: THE COMPANY:
ASV, INC. XXXXXXXXX MFG. INC.
By: /s/ Xxxx Xxxxx By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------- ------------------------
Name: Xxxx X. Xxxxx Name: Xxxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer Title: Secretary
MERGER SUBSIDIARY: STOCKHOLDER:
LMI MERGER CORP. XXXXXXX X. XXXXXXXXX AND HER
SUCCESSORS IN TRUST, AS
TRUSTEES OF THE XXXXXXX X.
XXXXXXXXX REVOCABLE TRUST
MARCH 28, 1996
By: /s/ Xxxx Xxxxx
--------------------------------
Name: Xxxx X. Xxxxx
Title: President By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxxx
Signature Page to Merger Agreement
