AGREEMENT AND PLAN OF MERGER
AND PLAN OF REORGANIZATION
BY AND AMONG
HA-LO INDUSTRIES, INC.,
HA-LO ACQUISITION CORPORATION OF MICHIGAN, INC.,
CREATIVE CONCEPTS IN ADVERTISING, INC.,
CREADIS GROUP INC.,
1132832 ONTARIO INC.,
1132831 ONTARIO CORP.,
and
THE SHAREHOLDERS OF
CREATIVE CONCEPTS IN ADVERTISING, INC.,
1132832 ONTARIO INC.,
and
1132831 ONTARIO CORP.
THIS AGREEMENT AND PLAN OF MERGER AND PLAN OF REORGANIZATION, dated as of
October 29, 1996 (this "Agreement"), is by and among HA-LO Industries, Inc., an
Illinois corporation ("Acquiror"), HA-LO Acquisition Corporation of Michigan,
Inc., a Michigan corporation ("Acquiror Sub"), Creative Concepts In Advertising,
Inc., a Michigan corporation (the "U.S. Company"), Creadis Group Inc., a British
Columbia corporation (the "Canada Company"), 1132832 Ontario Inc., an Ontario
corporation ("Canada Holding Company-2"), 1132831 Ontario Corp., an Ontario
corporation ("Canada Holding Company-1"), Xxxxxx X. Xxxxxx, majority shareholder
of the U.S. Company and sole shareholder of Canada Holding Company-1 ("Xxxxxx"),
and the other shareholders of the U.S. Company, who are identified on Exhibit A
to this Agreement (Xxxxxx, such shareholders, and every other person who, with
Acquiror's consent, acquires shares of the authorized capital stock of the U.S.
Company after the date hereof, are hereafter collectively referred to as the
"U.S. Shareholders", and individually as a "U.S. Shareholder").
WITNESSETH:
WHEREAS, the U.S. Company is engaged in the business of creating,
developing, marketing and distributing specialty advertising, promotion and
premium products in the United States and the United Kingdom;
WHEREAS, the Canada Company is engaged in the business of creating,
developing, marketing and distributing specialty advertising, promotion and
premium products in Canada;
WHEREAS, the Canada Company is a wholly-owned subsidiary of Canada Holding
Company-2, which is a wholly-owned subsidiary of Canada Holding Company-1 (the
Canada Company, Canada Holding Company-1 and Canada Holding Company-2 are
hereafter sometimes collectively referred to as the "Canadian Target
Companies");
WHEREAS, the U.S. Shareholders are the sole shareholders of the U.S.
Company, and Nelson is the sole shareholder of Canada Holding Company-1;
WHEREAS, the U.S. Company and the Canadian Target Companies are
"affiliates" through common ownership within the meaning of (i) paragraphs (c)
and (d) of Rule 145 of the rules and regulations of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act"), and
(ii) Accounting Series, Releases 130 and 135, as amended, of the Commission (the
U.S. Company and the Canadian Target Companies are hereafter sometimes
collectively referred to as "Target Companies");
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Business Corporation Act of the State of Michigan, as
amended ("Michigan Law"), Acquiror Sub,
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a wholly-owned subsidiary of Acquiror, will merge with and into the U.S. Company
(the "U.S. Merger");
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Xxxxxx will exchange all of the outstanding shares of Canada Holding Company-1
solely for voting stock of Acquiror (such transaction is hereafter the "Canada
Reorganization", and together, the U.S. Merger and the Canada Reorganization are
hereafter sometimes collectively referred to as the "Unitary Transaction");
WHEREAS, the U.S. Shareholders and the Board of Directors of the U.S.
Company have determined that the U.S. Merger and the Unitary Transaction are in
the best interest of the U.S. Company and its shareholders, and have unanimously
approved and adopted this Agreement and consented to the transactions
contemplated hereby;
WHEREAS, the Boards of Directors of each Canadian Target Company have
determined that the Canada Reorganization and the Unitary Transaction are in the
best interests of that Canadian Target Company and its shareholders, and have
unanimously approved and adopted this Agreement and consented to the
transactions contemplated hereby;
WHEREAS, the Board of Directors of Acquiror has determined that the U.S.
Merger, the Canada Reorganization and the Unitary Transaction are in the best
interests of Acquiror and its shareholders, and has approved and adopted this
Agreement and consented to the transactions contemplated hereby;
WHEREAS, the shareholder and Board of Directors of Acquiror Sub have
determined that the U.S. Merger and the Unitary Transaction are in the best
interests of Acquiror Sub and its shareholder, and has approved and adopted this
Agreement and consented to the transactions contemplated hereby; and
WHEREAS, it is the intent of the parties to account for the Unitary
Transaction as (i) a tax-free reorganization under applicable U.S. and Canadian
rules and regulations, including the Internal Revenue Code of 1986, as amended
(the "Code"), and the Canada-U.S. Income Tax Convention, as amended (the
"Treaty"), and (ii) a "pooling of interests" under applicable rules and
regulations, including U.S. generally accepted accounting principles and
standards ("GAAP"), the Securities Act and releases of the Financial Accounting
Standards Board and the Commission;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
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ARTICLE I
THE UNITARY TRANSACTION
SECTION 1.01. THE U.S. MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Michigan Law, at
the "Effective Time" (as hereafter defined), Acquiror Sub shall be merged with
and into the U.S. Company. As a result of the U.S. Merger, the separate
corporate existence of Acquiror Sub shall cease and the U.S. Company shall
continue as the surviving corporation of the Merger (hereafter, the "U.S.
Surviving Corporation").
SECTION 1.02. THE CANADA REORGANIZATION. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time, Xxxxxx shall
convey, transfer and assign to Acquiror all of his right, title and interest in
and to his shares of Canada Holding Company-1 common stock, representing one
hundred percent (100%) of the outstanding stock of Canada Holding Company-1
(hereafter, the "Canada Holding Company Stock"), solely in exchange for shares
of the common voting stock, no par value, of Acquiror ("Acquiror Common Stock").
SECTION 1.03. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or, if permissible, waiver, of the conditions set forth in Article
VII, the parties shall cause the Unitary Transaction to be consummated by filing
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Michigan in such form as required by, and executed in
accordance with, the relevant provisions of Michigan Law (the date and time of
such filing is the "Effective Time").
SECTION 1.04. EFFECT OF THE U.S. MERGER. At the Effective Time, the
effect of the U.S. Merger shall be as provided in the applicable provisions of
Michigan Law. Without limiting the generality of those laws, and subject to
their provisions, at the Effective Time, except as otherwise provided in this
Agreement, all the properties, rights, privileges, powers and franchises of
Acquiror Sub and the U.S. Company shall vest in the U.S. Surviving Corporation,
and all debts, liabilities and duties of Acquiror Sub and the U.S. Company shall
become the debts, liabilities and duties of the U.S. Surviving Corporation.
SECTION 1.05. ARTICLES OF INCORPORATION; BY-LAWS. At the Effective Time,
the Articles of Incorporation of the U.S. Company shall be the Articles of
Incorporation of the U.S. Surviving Corporation, and the By-Laws of Acquiror Sub
shall be the By-Laws of the U.S. Surviving Corporation. Acquiror reserves the
right, exercisable in its sole discretion on and after the Effective Time, to
amend, or cause to be amended, the Articles of Incorporation and By-Laws of any
or all of the Canadian Target Companies.
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SECTION 1.06. DIRECTORS AND OFFICERS. The initial Board of Directors of
the U.S. Surviving Corporation shall be comprised of thirteen (13) individuals,
seven (7) of whom shall be selected by Acquiror, in its sole discretion, and the
remainder of whom shall be those individuals named on Schedule 1.06 to this
Agreement; provided, however, in matters of routine governance, such Board shall
delegate its authority to an Executive Committee comprised of Xxxxxx, Xxxxxxx
and each of Acquiror's Chief Executive, Operating and Financial Officers.
Except as may be provided in the "Company Contracts" (as hereafter defined), or
in the Employment Agreements attached as Exhibits to this Agreement, at the
Effective Time the officers of Acquiror Sub immediately preceding the Effective
Time shall be the initial officers of the U.S. Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation or By-Laws of the
U.S. Surviving Corporation, and until their respective successors are duly
elected or appointed and qualified.
SECTION 1.07. TAKING NECESSARY ACTION; FURTHER ACTION. The parties shall
each use reasonable efforts to take all actions as may be necessary or
appropriate to effectuate the Unitary Transaction. If, at any time following
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement or to vest the U.S. Surviving Corporation with
full right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of its constituent corporations, the officers
of the U.S. Surviving Corporation are fully authorized, in the name of each
constituent corporation or otherwise, to take, and shall take, all such lawful
and necessary action, to carry out the purposes of this Agreement.
SECTION 1.08. THE CLOSING. The closing of the transactions contemplated
by this Agreement will take place at the offices of Xxxx Xxxxxx & Xxxxxxxxx,
Chicago, Illinois, and will be effective at the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. SHARE CONSIDERATION. At the Effective Time, by virtue of
the Unitary Transaction, Acquiror shall issue a total of two million two hundred
fifty thousand (2,250,000) shares of Acquiror Common Stock to the U.S.
Shareholders and Xxxxxx (in his capacity as sole shareholder of Canada Holding
Company-1), as more fully set forth in Sections 2.01(a) and (b), below:
(a) CONVERSION APPLICABLE TO OUTSTANDING SHARES OF THE U.S. COMPANY.
At the Effective Time, by virtue of the U.S. Merger, and without any
further action on the part of Acquiror, Acquiror Sub, the U.S. Company, the
U.S. Share-holders or the holders of any other shares of capital stock of
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the U.S. Company, each share of common stock, no par value per share, of
the U.S. Company ("U.S. Company Stock") issued and outstanding immediately
preceding the Effective Time shall be converted into and become that share
quantity of Acquiror Common Stock (such number is the "U.S. Merger Exchange
Ratio") equal to the quotient of (i) two million two hundred thousand
(2,200,000), over (ii) the number of whole shares of U.S. Company Stock
issued and outstanding immediately prior to the Effective Time. Each such
share of U.S. Company Stock so converted shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the shares of Acquiror Common Stock into which such U.S. Company
Stock was converted in the U.S. Merger. Certificates previously
representing shares of U.S. Company Stock shall, together with such duly
executed documents and other instruments of transfer as may reasonably be
required by Acquiror, be exchanged for certificates representing whole
shares of Acquiror Common Stock issued in consideration therefor, without
interest. All shares of Acquiror Common Stock issued upon conversion of
U.S. Company Stock in accordance with the terms of this Agreement shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of U.S. Company Stock.
(b) CONSIDERATION ISSUABLE TO NELSON IN THE CANADA REORGANIZATION.
At the Effective Time, by virtue of the Canada Reorganization, Acquiror
shall issue fifty thousand (50,000) shares of Acquiror Common Stock to
Xxxxxx against delivery by Nelson of the Canada Holding Company Stock,
together with such duly executed documents and other instruments of
transfer as may reasonably be required by Acquiror.
(c) RESTRICTIONS APPLICABLE TO ACQUIROR COMMON STOCK. The Target
Companies, the U.S. Shareholders and Xxxxxx (in his capacity as sole
shareholder of Canada Holding Company-1) acknowledge that the shares of
Acquiror Common Stock issued and delivered by Acquiror at the Effective
Time pursuant to this Agreement have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and even if so
registered, may be subject to restrictions on resale under federal and
state securities laws or under this Agreement generally. As used in this
Agreement, the term "Unregistered Shares" shall mean the shares of Acquiror
Common Stock issued hereunder which have not been registered for resale
under the Securities Act. In addition, the Target Companies, the U.S.
Shareholders and Xxxxxx acknowledge that, until the Unregistered Shares
have been registered in accordance with the provisions of Section 6.03, and
subject to the provisions of Article IX, including but not limited to
Section 9.06 thereof, Acquiror shall be entitled to set-off against or
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withhold from the Unregistered Shares all or a portion of the damages
sustained directly or indirectly by Acquiror under this Agreement or in
connection with the Unitary Transaction. The Target Companies, the U.S.
Shareholders and Xxxxxx hereby consent to the issuance by Acquiror of
Unregistered Shares in the Unitary Transaction, and agree they shall
possess no independent right to compel, and shall forbear from taking any
action whatsoever to cause, the registration of Unregistered Shares, except
to the extent provided under Article VI hereof.
(d) EFFECT OF RECAPITALIZATION, ETC. If between the date of this
Agreement and the Effective Time the outstanding shares of Acquiror Common
Stock, U.S. Company Stock or Canada Holding Company Stock shall have been
changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the U.S. Exchange Ratio and/or
aggregate shares of Acquiror Common Stock to be issued to the U.S.
Shareholders and Xxxxxx under subsections (a) and (b), above, shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
(e) NO FRACTIONAL SHARES. Anything in this Agreement to the contrary
notwithstanding, any fractional shares of Acquiror Common Stock otherwise
issuable in the Unitary Transaction shall be rounded upward or downward to
the nearest whole number of shares of Acquiror Common Stock.
(f) TREASURY AND OTHER SHARES. Each share of U.S. Company Stock held
in the treasury of the U.S. Company immediately preceding the Effective
Time shall be cancelled and extinguished without any conversion or exchange
of such shares and no payment shall be made with respect to such shares.
(g) CONVERSION OF ACQUIROR SUB SHARES. Each share of common stock,
no par value, of Acquiror Sub issued and outstanding immediately preceding
the Effective Time shall be converted into and exchanged for one (1) newly
and validly issued, fully paid and nonassessable share of common stock of
the U.S. Surviving Corporation.
SECTION 2.02. STOCK TRANSFER BOOKS. On and as of the date of this
Agreement, the stock transfer books of the Target Companies shall be closed and
thereafter, solely with respect to the Unitary Transaction, and except as
provided in Section 2.03, there shall be no further registration of transfers of
shares of stock of the Target Companies on the records of the Target Companies.
From and after the Effective Time, the holders of certificates representing
shares of U.S. Company Stock outstanding immediately preceding the Effective
Time shall cease to have any rights with respect to such
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shares of U.S. Company Stock following the U.S. Merger except as otherwise
provided in this Agreement or by "Law" (as hereafter defined). For the purposes
of this Agreement, the term "Law" shall mean any foreign, U.S. federal, state,
provincial, local or municipal law, statute, ordinance, rule, regulation, order,
judgment or decree.
SECTION 2.03. OTHER U.S. COMPANY SECURITIES AND OPTIONS. As of the
Effective Time, each outstanding share of common and preferred capital stock of
the U.S. Company other than U.S. Company Stock ("Other U.S. Company
Securities"), together with all options, warrants or other rights, agreements,
arrangements or commitments (collectively, the "U.S. Company Options") to sell
or purchase shares of U.S. Company Stock or Other U.S. Company Securities,
whether written, oral, authorized, outstanding, issued, unissued, vested or
unvested, shall be cancelled and terminated, and of no further force or effect.
Prior to the Effective Time, except as provided below, the U.S. Company and the
U.S. Shareholders shall take all corporate action necessary to effectuate the
cancellation and termination of all Other U.S. Company Securities and U.S.
Company Options.
(a) The Target Companies and U.S. Shareholders hereby acknowledge
that, by virtue of the U.S. Merger, the last-named U.S. Shareholder on
Exhibit A hereto (hereafter, "Xxxxxxx") is entitled to a distribution of
U.S. Company Stock in accordance with the provisions of the Company
Contract described at Item No. 3 of Section 3.10(a)(ii) to the Target
Company Disclosure Schedules (such shares are hereafter, the
"Contract-Based Shares"). At least three (3) days prior to the Effective
Time, (i) the U.S. Company or Xxxxxx shall physically transfer the
Contract-Based Shares to Xxxxxxx, or at Xxxxxx'x direction, each U.S.
Shareholder shall assign such quantity of U.S. Company Stock to Xxxxxxx as
shall be necessary to create equivalent proportionality of interest among
all U.S. Shareholders (assuming the Contract-Based Shares had been issued
directly by the U.S. Company), and (ii) the U.S. Company and U.S.
Shareholders shall provide Acquiror with reasonably satisfactory
verification of their compliance with the foregoing requirements.
(b) Acquiror acknowledges the Contract-Based Shares have been issued
to Xxxxxxx by virtue of the Unitary Transaction, and agrees that if this
Agreement is terminated prior to the Effective Time, Xxxxxxx'x liability to
Acquiror shall be (i) several (opposed to joint and several), and (ii)
limited to equitable relief awarded in connection with, and "Damages" (as
hereafter defined) proximately resulting from or occasioned by, a breach of
or violation in any covenant or agreement on Xxxxxxx'x part to be performed
prior to the Effective Time, but only to the extent Acquiror may properly
claim such relief
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or Damages under the other terms and conditions of this Agreement (opposed
to this Section 2.03(c)).
(c) Xxxxxxx represents to Acquiror that, as of the date hereof, no
Target Company is in default under or has breached any material term or
condition of any agreement, contract or understanding to which Xxxxxxx is a
party, and except for the Contract-Based Shares, wages and other
remuneration not yet overdue, and benefits to be paid under the "Employee
Benefit Plans" listed in Section 3.11 of the Target Company Disclosure
Schedules, no basis whatsoever exists for Xxxxxxx'x assertion of a claim
against the Target Companies for the payment of money, securities or other
property.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE TARGET COMPANIES AND U.S. SHAREHOLDERS
The term "Target Company Adverse Effect", as used in this Agreement, shall
mean any change or event that, individually or when taken together with all
other such changes or events, would reasonably be considered to be adverse to
the financial condition, business or results of operations of a Target Company
or any of its subsidiaries; provided, however, except to the extent set forth in
Section 9.03 hereof, the occurrence of any change or event described in any
Section of the Target Company Disclosure Schedules attached to this Agreement as
Schedule 3.00 (the "Target Company Disclosure Schedules") shall not,
individually or in the aggregate, constitute a Target Company Adverse Effect.
The term "subsidiary" (or its plural) as used in this Agreement with
respect to a Target Company, the U.S. Surviving Corporation, Acquiror, Acquiror
Sub or any other entity, shall mean any corporation, partnership, joint venture
or other entity of which a Target Company, the U.S. Surviving Corporation,
Acquiror, Acquiror Sub or other entity, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
five percent (5%) or more of the stock or other equity interests generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other entity.
For purposes of this Article III, and as generally applied to a Target
Company or U.S. Shareholder, the term "knowledge" means the actual knowledge of
Xxxxxx, Xxxxxxx and Xxxx Xxxxxxxxxx obtained in the normal conduct of business
and following an investigation which is reasonable under the circumstances;
provided, however, no investigation shall be required with respect to the Target
Company locations listed below, and with respect to such locations, the term
"knowledge" shall include the actual
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knowledge of the employee(s) whose names are set forth opposite such locations:
United Kingdom (U.S. Company) Xxxxxxxxxxx Xxxxxxxx
Alabama (U.S. Company) Xxxxxxx Xxxxxx
British Columbia (Canada Company) Xxxx Xxxxxxx/Xxxx Xxxxx
Ontario (Canada Company) Xxxx Xxxxxxx/Xxxx Xxxxx
The Target Companies and the U.S. Shareholders jointly and severally
represent and warrant to Acquiror and Acquiror Sub that, except as specifically
described in the Target Company Disclosure Schedules, the statements contained
in this Article III are true and correct as of the date of this Agreement and
will be true and correct as of the Effective Time (as though made then) with
respect to the Target Companies, their respective businesses, the U.S.
Shareholders and Xxxxxx (in his capacity as sole shareholder of the Canada
Company):
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each Target
Company and its subsidiaries (if any) is a corporation validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization. Except to the extent described in Section 3.01 of the Target
Company Disclosure Schedules, each Target Company possesses all requisite
corporate power and authority to own, lease and operate its properties and/or to
carry on their business as it is now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of the
business conducted by such Target Company or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
do so would not have a Target Company Adverse Effect. A true and complete
listing of each Target Company's direct and indirect subsidiaries, together with
the jurisdiction of incorporation or organization of each such subsidiary and
the percentage of each subsidiary's outstanding stock or other equity interests
owned by such Target Company or subsidiary thereof, is set forth in Section 3.01
of the Target Company Disclosure Schedules.
SECTION 3.02. ARTICLES OF INCORPORATION; BY-LAWS. The U.S. Company has
furnished to Acquiror complete and correct copies of its Articles of
Incorporation and By-Laws, as amended or restated, together with those of each
of its subsidiaries. The Canadian Target Companies have each furnished to
Acquiror complete and correct copies of their respective Articles of
Incorporation and By-Laws, as amended or restated, together with those of each
of their respective subsidiaries. Except as set forth in Section 3.02 of the
Target Company Disclosure Schedules, no Target Company and no subsidiary thereof
is in violation of any provision of its Articles of Incorporation or By-Laws.
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SECTION 3.03. CAPITALIZATION OF THE TARGET COMPANIES.
(a) As of the date of this Agreement, the authorized capital stock of
the U.S. Company consists solely of fifty thousand (50,000) shares of U.S.
Company Stock, $1.00 par value, of which five thousand (5,000) shares are
issued and outstanding. As of the Effective Time, except for the
Contract-Based Shares, there shall not be any Other U.S. Company Securities
authorized by the U.S. Company.
(b) As of the date of this Agreement, the authorized capital stock of
Canadian Holding Company-1 consists solely of an unlimited number of common
voting shares without par value, of which one hundred (100) shares are
issued and outstanding. As of the date hereof there are not, and at the
Effective Time there shall not be, any Canada Holding Company-1 securities
authorized by Canada Holding Company-1 and not described in the preceding
sentence.
(c) As of the date of this Agreement, the authorized capital stock of
Canadian Holding Company-2 consists solely of an unlimited number of common
voting shares without par value, of which one hundred (100) shares are
issued and outstanding. As of the date hereof there are not, and at the
Effective Time there shall not be, any Canada Holding Company-2 securities
authorized by Canada Holding Company-2 and not described in the preceding
sentence.
(d) As of the date of this Agreement, the authorized capital stock of
the Canada Company consists solely of (i) ten thousand (10,000) shares of
Class A common voting shares without par value, of which one thousand
(1,000) shares are issued and outstanding, (ii) ten thousand (10,000)
shares of Class B common voting shares, none of which are issued or
outstanding, and (iii) ten thousand (10,000) shares of Class C common
voting shares, one thousand (1,000) of which are issued and outstanding.
As of the date hereof there are not, and at the Effective Time there will
not be, any Canada Company securities authorized by the Canada Company and
not described in the preceding sentence.
(e) Except as described in Section 3.03(e) of the Target Company
Disclosure Schedules, no authorized shares of Target Company stock are held
in treasury or are reserved for any other purpose.
(f) All outstanding shares of Target Company stock are, and as of the
Effective Time will be, duly authorized, validly issued, fully paid and
non-assessable, and not subject to preemptive rights created by Law, a
Target Company's Articles of Incorporation or By-Laws, or any agreement as
to which a Target Company is party or by which it is bound. Section
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3.03(f) of the Target Company Disclosure Schedules sets forth (i) the
number of authorized shares of each class of stock of, or other equity
interests in, each subsidiary of a Target Company, (ii) the number of
outstanding shares (if any) of each such class, and (iii) the legal and
beneficial holder of each such outstanding share. All outstanding shares
of stock of, or other equity interests in, the subsidiaries of the Target
Companies are, and as of the Effective Time will be, duly authorized,
validly issued, fully paid and non-assessable, and such shares or other
equity interests are owned by their respective holders free and clear of
all security interests, liens, claims, pledges, agreements, limitations on
voting rights, charges or other encumbrances of any nature whatsoever
except as disclosed in Section 3.03(f) of the Target Company Disclosure
Schedules.
(g) Except as disclosed in Section 3.03(g) of the Target Company
Disclosure Schedules, there are no U.S. Company Options to which the U.S.
Company or any of its subsidiaries is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, the
U.S. Company or any of its subsidiaries, or obligating the U.S. Company or
any of its subsidiaries to grant, issue, sell or register for sale any
shares of the capital stock of, or other equity interests in, the U.S.
Company or any subsidiaries thereof, whether by sale, lease, license or
otherwise. As of the date of this Agreement there are no, and as of the
Effective Time there will be no, obligations, contingent or otherwise, of
the U.S. Company or any of its subsidiaries to (x) repurchase, redeem or
otherwise acquire any shares of U.S. Company Stock or the capital stock of,
or other equity interests in, any subsidiary of the U.S. Company, or (y)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary or other person except for (i) guarantees of
obligations of subsidiaries in the ordinary course of business, and (ii)
advances and loans described in Section 3.03(g) of the Target Company
Disclosure Schedules to a supplier or employee of the U.S. Company.
(h) Except as disclosed in Section 3.03(h) of the Target Company
Disclosure Schedules, there are no options to which any Canadian Target
Company or any of its subsidiaries is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, a
Canadian Target Company or any of its subsidiaries or obligating a Canadian
Target Company or any of its subsidiaries to grant, issue, sell or register
for sale any shares of the capital stock of, or other equity interests in,
a Canadian Target Company or any subsidiaries thereof, whether by sale,
lease, license or otherwise. As of the date of this Agreement there
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are no, and as of the Effective Time there will be no, obligations,
contingent or otherwise, of a Canadian Target Company or any of its
subsidiaries to (x) repurchase, redeem or otherwise acquire any shares of
such Canadian Target Company's stock, or the stock of, or other equity
interests in, any subsidiary of such Canadian Target Company, or (y)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any subsidiary or other person except for (i) guarantees of
obligations of subsidiaries in the ordinary course of business, and (ii)
advances and loans described in Section 3.03(h) of the Target Company
Disclosure Schedules to a supplier or employee of such Canadian Target
Company.
(i) The U.S. Shareholders hold of record and own the entire
beneficial interest in all of the outstanding shares of U.S. Company Stock,
and Xxxxxx holds of record and owns the entire beneficial interest in all
of the outstanding Canada Holding Company Stock. Such U.S. Company Stock
and Canada Holding Company Stock is, and as of the Effective Time will be,
free and clear of all liabilities, liens, charges, security interests,
adverse claims, pledges, restrictions, encumbrances and demands whatsoever.
Except for Xxxxxxx'x right to Contract-Based Shares, no other person has,
and as of the Effective Time no other person will have, any right, title or
interest in or to any shares of U.S. Company Stock or Canada Holding
Company Stock, whether by reason of any purchase agreement, Law, statute,
rule, option, assignment, contract (written or oral) or otherwise. Neither
Xxxxxx nor any U.S. Shareholder is a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of such shares
of U.S. Company Stock or Canada Holding Company Stock. Neither Xxxxxx nor
any U.S. Shareholder has entered into, issued or given, or agreed to enter
into, issue or give, any person other than Acquiror or its subsidiaries an
option, warrant, right, put, call, commitment or agreement relating to, or
any security convertible into, any shares of stock of the Target Companies
or any such convertible security and, except as set forth in Section
3.03(i) to the Target Company Disclosure Schedules, no Target Company is a
party to any agreement (written or oral) respecting the issue, purchase,
sale or transfer of any of the same.
(j) Canada Holding Company-1 holds of record and owns the entire
beneficial interest in all of the outstanding stock of Canada Holding
Company-2, and Canada Holding Company-2 holds of record and owns the entire
beneficial interest in all of the outstanding stock of the Canada Company.
Such Canada Holding Company-2 stock and Canada Company stock is, and at the
Effective Time will be, free and clear of all liabilities, liens, charges,
security interests, adverse claims, pledges,
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restrictions, encumbrances and demands whatsoever, except for an unreleased
security interest with respect to a purchase money note which has
previously been paid in full. Except as disclosed in Section 3.03(j) of
the Target Company Disclosure Schedules, no other person has, or at the
Effective Time will have, any right, title or interest in or to such shares
of Canada Holding Company-2 stock or Canada Company stock, whether by
reason of any purchase agreement, Law, statute, rule, option, assignment,
contract (written or oral) or otherwise. Neither Canada Holding Company-2
nor the Canada Company is a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of such shares, and
neither has entered into, issued or given, or agreed to enter into, issue
or give, any person other than Acquiror or its subsidiaries an option,
warrant, right, put, call, commitment or agreement relating to, or any
security convertible into, any shares of stock of the Target Companies or
any such convertible security.
SECTION 3.04. AUTHORITY.
(a) Each Target Company possesses the requisite corporate power and
authority to execute and deliver this Agreement, including the Exhibits
attached hereto, to perform its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by each Target Company and the consummation
by such Target Company of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of any Target Company are necessary to
authorize this Agreement or to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Target Companies, and assuming the due authorization, execution and
delivery by Acquiror and Acquiror Sub, constitutes the legal, valid and
binding obligation of each Target Company, enforceable in accordance with
its terms and conditions.
(b) Each U.S. Shareholder has full power and authority to execute and
deliver this Agreement, including the Exhibits attached hereto, and to
perform his obligations hereunder and thereunder. This Agreement has been
duly executed and delivered by each U.S. Shareholder, and assuming the due
authorization, execution and delivery by Acquiror and Acquiror Sub,
constitutes the legal, valid and binding obligation of such U.S.
Shareholder.
SECTION 3.05. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the U.S. Company
does not, and the performance of this Agreement
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by the U.S. Company shall not (i) conflict with or violate its Articles of
Incorporation or By-Laws or equivalent organizational documents, or those
of any of its subsidiaries, (ii) subject to (x) obtaining the consents,
authorizations, approvals and permits of, and making filings with or
notifications to, any governmental or regulatory authority, domestic or
foreign (collectively, "Governmental Entities"), pursuant to the applicable
requirements of U.S. federal, state and local rules, Laws and regulations,
including but not limited to the Securities Act and the rules and
regulations thereunder, the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act"), state
securities or blue sky laws and the rules and regulations thereunder ("Blue
Sky Laws"), the Code, the Treaty, the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), and the filing and recordation of appropriate
merger documents as required by Michigan Law, and (y) obtaining the
consents, approvals, authorizations or permits described in Section 3.05(d)
of the Target Company Disclosure Schedules, conflict with or violate any
Laws applicable to the U.S. Company or any of its subsidiaries or by which
any of their respective properties is bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of the U.S. Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the U.S.
Company or any of its subsidiaries is a party or by which the U.S. Company
or any of its subsidiaries or any of their respective properties is bound
or affected, except for any such conflicts or violations described in
clause (ii), or breaches or defaults described in clause (iii) that would
not have a Target Company Adverse Effect.
(b) The execution and delivery of this Agreement by the Canadian
Target Companies does not, and the performance of this Agreement by the
Canadian Target Companies shall not (i) conflict with or violate their
respective Articles or By-Laws or equivalent organizational documents, or
those of any of their subsidiaries, (ii) subject to (x) obtaining the
consents, authorizations, approvals and permits of, and making filings with
or notifications to, any Governmental Entities pursuant to the applicable
requirements of U.S. and Canadian federal, state, provincial and local
rules, Laws and regulations, including but not limited to the XXX Xxx, xxx
Xxxxxxxxxxx Xxx (Xxxxxx), and the rules and regulations thereunder (the
"Competition Act"), the Investment Canada Act,
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and the rules and regulations thereunder (the "Investment Act"), the Code,
and the rules and regulations thereunder, and the Income Tax Act (Canada),
RSC 1985 (5th Supplement) c. 1, as amended, including draft legislation
introduced on April 23, 1996 and June 20, 1996, and budget proposals
introduced on March 6, 1996, and the rules and regulations thereunder (the
"ITA"), and (y) obtaining the consents, approvals, authorizations or
permits described in Section 3.05(d) of the Target Company Disclosure
Schedules, conflict with or violate any Laws applicable to the Canadian
Target Companies or any of their subsidiaries or by which any of their
respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Canadian Target Companies or any of their subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Canadian
Target Companies, or any of their subsidiaries, is a party or by which the
Canadian Target Companies or any of their subsidiaries or any of their
respective properties is bound or affected, except for any such conflicts
or violations described in clause (ii), or breaches or defaults described
in clause (iii) that would not have a Target Company Adverse Effect.
(c) Neither the execution, delivery nor performance of this
Agreement, nor the observance or compliance with the terms and conditions
hereof, will violate any judgment, order, writ, injunction or decree of any
court or agency, any Law, statute, regulation or rule, or any material
indenture, agreement or other instrument, to which a U.S. Shareholder is a
party or by which such U.S. Shareholder or any of his assets or properties
is bound, which could cause a Target Company Adverse Effect.
(d) The execution and delivery of this Agreement by the Target
Companies and the U.S. Shareholders does not, and the performance of this
Agreement by the Target Companies and the U.S. Shareholders shall not,
individually or collectively, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Entities
or other persons, except for applicable requirements, if any, of the
Securities Act, Exchange Act, Blue Sky Laws, the HSR Act, the Competition
Act, the Investment Act, the Code, the Treaty, the ITA, the consents,
approvals, authorizations or permits described in Section 3.05(d) of the
Target Company Disclosure Schedules, and the filing and recordation of
appropriate merger documents as required by Michigan Law, as applicable.
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SECTION 3.06. PERMITS; COMPLIANCE. Each Target Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary for such Target Company and its subsidiaries to
own, lease and operate their respective properties or to carry on their
respective businesses as they are now being conducted (each, a "Company
Permit"), other than where the failure to so possess a Company Permit would not
have a Target Company Adverse Effect, and no suspension, revocation or
cancellation of any such Company Permit is pending or, to the knowledge of any
Target Company, threatened. No Target Company or subsidiary thereof is
operating in conflict with, or is in default or violation of (i) any foreign,
federal, state, provincial or local rule, Law or regulation applicable to such
person or by which its properties are bound or affected, or (ii) any Company
Permit, except for any such conflicts, defaults or violations which would not
have a Target Company Adverse Effect. Each Company Permit material to the
operations of a Target Company is listed in Section 3.06 to the Target Company
Disclosure Schedules.
SECTION 3.07. GOVERNMENTAL REPORTS; FINANCIAL STATEMENTS.
(a) Since December 31, 1992, the Target Companies and their
respective subsidiaries have filed all forms, reports, statements and other
documents required to be filed with any applicable Governmental Entities,
except where failure to file any such forms, reports, statements and other
documents would not have a Target Company Adverse Effect (all such forms,
reports, statements and other documents referred to in this Subsection (a)
are, collectively, "Company Reports"). The Company Reports, including all
Company Reports filed after the date of this Agreement and prior to the
Effective Time (i) were or will be prepared in all material respects in
accordance with the requirements of applicable Laws, and (ii) did not, at
the times they were filed, or will not at the time they are filed, contain
any untrue statement of a material fact or omit to state a 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
materially misleading.
(b) Except as disclosed in Section 3.07(b) of the Target Company
Disclosure Schedules, (X) the audited Balance Sheets, Income Statements,
Statements of Cash Flow and Statements of Equity of the U.S. Company as at
and for the periods ended December 31, 1993, 1994 and 1995 (separate
company audited and combined unaudited for the period ended December 31,
1995, and restated to include all of the Target Companies), and (Y) the
audited Balance Sheets, Income Statements and Statements of Changes in
Financial Position of the Canada Company as at and for the nine-month
period ended May 31, 1995, and the twelve-
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month period ended 1996 (including, in each case, related notes)
(collectively, the "Target Company Financial Statements") delivered to
Acquiror prior to the date of this Agreement (i) have been prepared from,
and are in agreement in all material respects with, the books, records and
accounts (including consolidating workpapers and supporting entries), of
the Target Companies and their subsidiaries, (ii) have been prepared in all
material respects in substantial accordance with the published rules and
regulations of the Financial Accounting Standards Board and GAAP (Canadian
GAAP, in the case of the Canada Company) applied on a consistent basis
throughout the periods involved, (iii) taken as a whole, fairly present in
all material respects the financial position of the Target Companies and
their subsidiaries on a combined or uncombined basis, as the case may be,
as of the dates thereof, and (iv) taken as a whole, fairly present, in all
material respects, the results of operations of the Target Companies for
the periods indicated.
(c) Prior to the date hereof, the Target Companies have internally
prepared and delivered to Acquiror unaudited combined and combining (X)
Balance Sheets, Income Statements, Statements of Cash Flow and Statements
of Equity of the U.S. Company as at and for the calendar quarterly periods
ended March 31, and June 30, 1996, and (Y) Balance Sheets, Income
Statements and Statements of Changes in Financial Position of the Canada
Company as at and for the quarterly period ended September 30, 1996 (the
"Interim Target Company Financial Statements", which term shall include all
quarterly Target Company financial statements hereafter delivered to
Acquiror in accordance with the provisions of Section 5.01(e) hereof). The
Interim Target Company Financial Statements (i) have been prepared from,
and are in agreement in all material respects with, the books, records and
accounts (including consolidating workpapers and supporting entries), of
the Target Companies and their subsidiaries, (ii) fairly present in all
material respects the financial position of the Target Companies and their
subsidiaries as of the dates thereof, and (iii) fairly present, in all
material respects, the results of operations of the Target Companies for
the periods indicated; provided, however, Acquiror acknowledges that the
Interim Target Company Financial Statements are subject to normal year-end
adjustments and may lack footnotes and other presentation items; provided,
however, no such year-end adjustment shall be deemed to have cured a prior
breach of or misstatement in any representation or warranty set forth in
this Agreement.
(d) At the Effective Time, the Target Companies and their respective
subsidiaries shall have no liabilities, obligations or indebtedness of any
nature whatsoever (and there shall be no basis for any present or future
action, suit, proceeding, hearing, charge, claim, complaint,
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investigation or demand against any such Target Company or subsidiary
giving rise to such liability, obligation or indebtedness), except for (i)
liabilities, obligations and indebtedness set forth in the Balance Sheets
included in the Interim Target Company Financial Statements dated nearest
to the Effective Time (the "Most Recent Statements"), and (ii) liabilities,
obligations and indebtedness which have arisen after the date of the Most
Recent Statements in the ordinary course of business of the Target
Companies; provided, however, such liabilities, obligations and
indebtedness shall be subject to the other representations and warranties
set forth in this Article III.
(e) Except as and to the extent set forth on the Target Company
Financial Statements, including all notes thereto, the Target Companies and
their respective subsidiaries have no liability, obligation or indebtedness
of any nature whatsoever (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on, or reserved against
in, a combined balance sheet of the Target Companies (or in the notes
thereto), prepared in accordance with GAAP applied on a consistent basis,
except for liabilities, obligations or indebtedness described in Section
3.07(e) of the Target Company Disclosure Schedules, or incurred in the
ordinary course of business since December 31, 1995, in the case of the
U.S. Company, or May 31, 1996, in the case of the Canada Company, that
would not have a Target Company Adverse Effect.
(f) Section 3.07(f) of the Target Company Disclosure Schedules
describes by category and amount the aggregate reserves, obligations and
other allowances established by the Target Companies in the audited
combined Balance Sheet at December 31, 1995 (collectively, the "Closing
Reserves"). Except as set forth in Section 3.07(f) of the Target Company
Disclosure Schedules, each item included in the Closing Reserves has been
established in accordance with GAAP in a manner consistent with that of
prior periods, using such accounting methods, policies, practices and
procedures, and classification, judgments and estimation methodology, as
are deemed reasonably advisable by the Target Companies, after consultation
with their independent auditors.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in Section 3.08 of the Target Company Disclosure Schedules, (i) since December
31, 1995, there has not been, and the Target Companies have no knowledge of any
facts that are reasonably likely to result in, any event or events causing a
Target Company Adverse Effect, and (ii) from December 31, 1995, to the date of
this Agreement there has not been any change by a Target Company or any
subsidiary in its accounting methods, principles or practices, except any such
change after the date of this Agreement mandated by a change in GAAP.
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SECTION 3.09. ABSENCE OF LITIGATION.
(a) Section 3.09(a) of the Target Company Disclosure Schedules lists
and briefly describes all claims, actions, suits, litigations, proceedings,
arbitrations or investigations of any kind affecting each Target Company
and its subsidiaries, at law or in equity (including actions or proceedings
seeking injunctive relief), which are pending or, to the knowledge of the
Target Companies, threatened. Except as noted in Section 3.09(a) of the
Target Company Disclosure Schedules, none of the matters listed therein may
reasonably be expected to have a Target Company Adverse Effect. There is
no action pending or to the knowledge of the Target Companies threatened
seeking to enjoin or restrain the Unitary Transaction or any of the
transactions contemplated by this Agreement.
(b) Except as set forth in Section 3.09(b) of the Target Company
Disclosure Schedules, no Target Company or subsidiary is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of such Target Company,
continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders
which could have a Target Company Adverse Effect.
SECTION 3.10. CONTRACTS; NO DEFAULT.
(a) Section 3.10(a) of the Target Company Disclosure Schedules sets
forth as of the date of this Agreement a listing of all Target Company (and
subsidiary) contracts, agreements and other arrangements in effect as of
the date of this Agreement, or providing for full or partial performance by
any party thereto after the date of this Agreement, which:
(i) concern a partnership, joint venture or other business venture
providing for the sharing of profits with another person;
(ii) relate to the employment or compensation of any employee,
officer, director, representative, consultant or agent, with respect to
which there is or may be an obligation by a Target Company or subsidiary to
provide current or deferred payments in excess of fifty thousand dollars
($50,000) annually, or which are not terminable by such Target Company or
subsidiary without premium or penalty on fewer than thirty (30) days prior
notice or, with respect to Canada contracts, the greater of thirty (30)
days or the legal minimum provided for in applicable Canadian employment
standards legislation;
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(iii) relate to the obligation of a Target Company or its subsidiary
to develop, purchase or distribute tangible or intangible property for the
benefit of, or ownership by, a customer or other third party, or which
incorporates, whether or not pursuant to written license, the proprietary
rights, name or logo of such customer or third party, and under which such
Target Company or subsidiary is subject to liability or penalty in excess
of ten thousand dollars ($10,000) on account of nonperformance or
nonconformity;
(iv) relate to any customer of a Target Company listed on Section
3.26 to the Target Company Disclosure Schedules;
(v) relate to or inventory purchases or capital expenditures
involving an expenditure (or series thereof) in excess of fifty thousand
dollars ($50,000);
(vi) relate to bonus and incentive plans or similar plans and
arrangements providing for the payment of bonuses, commissions, incentive
compensation or similar result-based salary or other remuneration to
employees and other service providers to the Target Companies;
(vii) relate to borrowed money, guarantees or undertakings to answer
for the debts of another, or otherwise encumbering title to any asset,
excepting purchase money obligations relating to personal property which do
not exceed fifty thousand dollars ($50,000) in any one case;
(viii) concern a lease or agreement relating in any manner to real
estate;
(ix) relate to royalty or licensing contracts, or contracts
requiring similar payments (including software license agreements)
involving, or which may reasonably in the future involve, an amount in
excess of ten thousand dollars ($10,000) annually; or
(x) otherwise create unfulfilled obligations in excess of fifty
thousand dollars ($50,000) on the part of such Target Company or
subsidiary.
(b) Section 3.10(b) of the Target Company Disclosure Schedules lists
each contract or agreement to which any Target Company or any of their
respective subsidiaries, directors, affiliates, shareholders, or officers
is a party limiting the right of such Target Company or any such person to
engage in, or to compete with any person in, any business, including each
contract or agreement containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by such Target Company or
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any such person prior to or after the Effective Time, or by the Acquiror or
any of its subsidiaries or affiliates after the Effective Time. To the
knowledge of the Target Companies, after conducting interviews with Xxxxxx
Xxxxx ("Baida") and the other sales representatives of the U.S. Company who
were previously in the employ of Idea Man, Inc. ("Idea Man"), neither Baida
nor such other sales representatives are party to any contract or agreement
with Idea Man or any other entity whereunder they are restricted or limited
in the right to compete with Idea Man or such other entity, or otherwise to
engage in business within a specific geographic area or with a specific
customer or class of customers, and, to the knowledge of the Target
Companies, neither Baida nor such other sales representatives have, while
conducting sales for the U.S. Company, violated any such contract or
agreement with, engaged in unfair competition against, or tortiously
interfered with, Idea Man or such another entity. For the purpose of this
Agreement, the term (i) "affiliate", in addition to the meaning given by
the Commission, means (x) any person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person, and (y) with respect to a U.S.
Shareholder, such U.S. Shareholder's spouse, children and descendants, and
the respective spouses of each, (ii) "control" (including the terms
"controlled by" and "under common control with") means the possession,
directly or indirectly or as trustee or executor, of the power to direct or
cause the direction of the management or policies of a person, whether
through the ownership of stock or as trustee or executor, by contract or
credit arrangement or otherwise, and (iii) "Company Contracts" means the
contracts and agreements listed in Sections 3.10(a) and 3.10(b) of the
Target Company Disclosure Schedules.
(c) Each Company Contract, each other material contract or agreement
which would have been required to be disclosed in Section 3.10(a) of the
Target Company Disclosure Schedules had such contract or agreement been
entered into prior to the date of this Agreement, and each contract or
agreement listed in Section 3.10(b) of the Target Company Disclosure
Schedules is, on the date hereof, and shall be at the Effective Time, in
full force and effect and valid and binding as to the contracting Target
Company and, to the knowledge of the Target Companies, the other party or
parties signatory thereto. With respect to each such Company Contract,
there is no event of default by a Target Company or, to the knowledge of
the Target Companies, any other party or parties thereto, in the timely
performance of any obligation to be performed or amount to be paid
thereunder, which default would have a Target Company Adverse Effect.
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SECTION 3.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 3.11(a) of the Target Company Disclosure Schedules sets
forth all pension, retirement, savings, disability, medical, dental,
health, life (including any individual life insurance policy as to which a
Target Company is owner, beneficiary or both of such policy), death
benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus, incentive, vacation pay, severance pay, "cafeteria" or
"flexible benefit" plans, or other employee benefit plans, trusts,
arrangements, contracts, agreements, policies or commitments (including
without limitation, any employee pension benefit plan as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any pension plan as defined in Section 1 of the Pension Benefits
Act (or similar law of the province of British Columbia), as amended
("PBA"), and any employee welfare benefit plan as defined in Section 3(1)
of ERISA), under which current or former employees of a Target Company or
its subsidiaries or "Plan Affiliates" (as defined in Section 3.11(b) below)
are entitled to participate by reason of their employment with such Target
Company, subsidiary or its Plan Affiliates, whether or not any of the
foregoing is funded, and whether insured or self-funded, (i) to which a
Target Company, subsidiary or Plan Affiliate is a party or a sponsor or a
fiduciary thereof or by which such Target Company, subsidiary or Plan
Affiliate (or any of their rights, properties or assets) is bound, or (ii)
with respect to which such Target Company, subsidiary or Plan Affiliate has
made any payments, contributions or commitments, or may otherwise have any
liability (whether or not such plan, trust, arrangement, contract,
agreement, policy or commitment is still in effect or frozen as to benefits
or assets) (collectively, the "Employee Benefit Plans").
(b) For purposes of this Agreement, the term "Plan Affiliate" shall
mean any trade or business (whether or not incorporated) that is part of
the same controlled group, or under common control with, or part of an
affiliated service group that includes, a Target Company within the meaning
of Section 414(b), (c), (m) or (o) of the Code, or within the intendment of
the PBA.
(c) As used in this Agreement, "Pension Plan" means any Employee
Benefit Plan which is an employee pension benefit plan as defined in ERISA
or the PBA, or is otherwise a pension, savings or retirement plan or a plan
of deferred compensation, and the term "Welfare Plan" means any Employee
Benefit Plan which is not a Pension Plan.
(d) With respect to the Employee Benefit Plans:
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(i) There are no Employee Benefit Plans which are multiemployer plans
as defined in Section 3(37) of ERISA or Section 1 of the PBA, and neither
the Target Companies nor any of their respective subsidiaries or ERISA
Affiliates has incurred or may reasonably be expected to incur, any direct
or indirect liability under or by operation of Title IV of ERISA or the
PBA.
(ii) There are no Employee Benefit Plans which promise or provide
health or life benefits to retirees or former employees of a Target
Company, subsidiary or Plan Affiliate other than as required by Title I of
ERISA or Section 4980 of the Code, or otherwise as identified in Section
3.11(d) of the Target Company Disclosure Schedules.
(iii) Except as disclosed in Section 3.11(d) of the Target Company
Disclosure Schedules, each Employee Benefit Plan has at all times been
operated and administered in material compliance with the applicable
requirements of ERISA, the Code, the PBA, the ITA and any other applicable
law (including regulations and rulings thereunder), and its terms.
(iv) Each Pension Plan identified in Section 3.11(a) of the Target
Company Disclosure Schedules has (i) received a favorable determination
letter from the Internal Revenue Service ("IRS") stating that such Plan
meets all the requirements of the Code and that any trust or trusts
associated with the plan are tax exempt under Section 501(a) of the Code,
or (ii) been accepted for registration under the ITA. Any trust or trusts
associated with such Pension Plans are tax exempt under Section 501(a) of
the Code or the relevant provisions of the ITA. To the knowledge of the
Target Companies, there is no reason why the tax-qualified or registered
status of any such Pension Plan should be revoked, whether retroactively or
prospectively, by any Governmental Entity pursuant to applicable rules,
Laws or regulations. All amendments to the Pension Plans which were
required to be made through the date hereof and the Effective Time under
Section 401(a) of the Code or the applicable provisions of the ITA
subsequent to the issuance of each such Plan's determination letter or
registration have been made, including all amendments required to be made
by each respective date by the Tax Reform Act of 1986, the ITA and any
other rules, Laws or regulations legislation affecting such Employee
Benefit Plans. Except as set forth in Section 3.11(d) of the Target
Company Disclosure Schedules, there are no amendments which are required to
be made to such Pension Plans which adversely affect, or may result in the
discontinuance of, the continuing tax-qualification or registered status of
such Pension Plans under the Code or the ITA.
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(v) To the knowledge of the Target Companies, no actual or threatened
disputes, lawsuits, claims (other than routine claims for benefits),
investigations, audits or complaints to, or by, any person or Governmental
Entity have been filed or are pending with respect to any Employee Benefit
Plan or its sponsor, or such sponsor's subsidiaries or Plan Affiliates, in
connection with any Employee Benefit Plan, or the fiduciaries responsible
for such Employee Benefit Plan, and to the knowledge of the Target
Companies, no state of facts or conditions exist which reasonably could be
expected to subject such Target Company, subsidiary or Plan Affiliate to
any material liability (other than routine claims for benefits) in
accordance with the terms of such Employee Pension Plan or pursuant to
applicable rules, Laws or regulations.
(vi) Except as disclosed in Section 3.11(d) of the Target Company
Disclosure Schedules, the following clauses are true with respect to each
Employee Benefit Plan:
(A) All material filings required by ERISA, the Code or the ITA,
or any other applicable rules, Laws or regulations, have been timely
filed and all material notices and disclosures to Plan participants
required by same have been timely provided.
(B) The Target Companies and their respective subsidiaries and
Plan Affiliates have not made, nor have they committed to make,
whether in writing or orally, any representation, payment,
contribution or award to or under any Employee Benefit Plan (other
than as required by its terms, the Code, ERISA, the ITA or the PBA).
(C) All contributions and payments made or accrued with respect
to each Employee Benefit Plan required to be disclosed in Section
3.11(a) of the Target Company Disclosure Schedules are deductible in
full under the Code or the ITA, as applicable. All contributions,
premiums or payments required to be made with respect to each such
Employee Benefit Plan have been or will hereafter be made on or before
their due date(s).
(D) Except as disclosed in Section 3.11(e) of the Target Company
Disclosure Schedules, with respect to each Employee Benefit Plan, the
Target Companies have delivered to Acquiror true and complete copies
of the following documents to the extent in each case that such
documents exist or are required to be preserved under applicable
domestic or foreign Laws:
(1) plan documents, subsequent plan amendments, and any and
all other documents that
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establish or describe the existence of the plan, trust,
arrangement, contract, policy or commitment;
(2) summary plan descriptions and summaries of material
amendments and modifications;
(3) the most recent tax-qualified determination letters
received from, or applications pending with, the IRS with respect
to Pension Plans;
(4) the most recent letters received from the Department of
National Revenue and the Pension Commissions of Ontario (and
equivalent authority under British Columbia law) relating to the
status of the Pension Plans adopted by the Canada Company, and a
copy of the most recent letter of confirmation of registration
for such Plans pursuant to the ITA and the PBA;
(5) the three most recent annual information returns,
including related schedules and audited financial statements and
opinions of independent certified public accountants, for each
Employee Benefit Plan filed (i) on IRS Form 5500 for Employee
Benefit Plans adopted by the U.S. Company, and (ii) on such forms
prescribed under the PBA for Employee Benefit Plans adopted by
the Canada Company; and
(6) all related trust agreements, insurance contracts or
other funding agreements that implement each such Employee
Benefit Plan.
(vii) At no time have the Target Companies adopted any Pension Plan
which is or could become subject to Title IV of ERISA, the funding
standards of Section 402 of the Code, or which contain defined benefit
provisions within the meaning of Section 147.1(1) of the ITA. The Target
Companies have not, and no subsidiaries or Plan Affiliates thereof have,
incurred any liability to, or adopted any Employee Benefit Plan or other
arrangement which may expose it to liability of any nature whatsoever, to
(i) the Pension Benefit Guarantee Corporation under Title IV or Section 502
of ERISA, (ii) the IRS under Chapter 43 of the Code, or (iii) the
Department of National Revenue or the Pension Commissions of Ontario and
British Columbia under the ITA or other Canadian Laws;
(viii) With respect to each Employee Benefit Plan, there has not
occurred, and no person or entity is contractually bound to enter into, any
nonexempt "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406
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of ERISA, or any other transaction contrary to the provisions of the ITA,
the PBA or the terms of such Employee Benefit Plan.
(e) The Target Companies have complied in all material respects
with the provisions of ERISA, the Code and the ITA, as applicable, with
respect to each Pension Plan and Welfare Plan heretofore adopted or
currently in effect for the benefit of its employees, together with
employees of their respective subsidiaries and Plan Affiliates. Each
Employee Benefit Plan described in Section 3.11(a) of the Target Company
Disclosure Schedules may, by its express terms, be amended or terminated,
in whole or in part.
(f) Except as disclosed in Section 3.11(f) of the Target Company
Disclosure Schedules, no payment that is owed or may become due to any
director, officer, employee or agent of a Target Company is subject to, and
none shall result in the imposition of, tax under Section 280(G) or 4999 of
the Code, nor is any Target Company obligated, orally or in writing, to
"gross up" or otherwise compensate any such person due to the imposition of
an excise or similar tax on payments made to such person by the Target
Company.
(g) Except as disclosed in Section 3.11(g) of the Target Company
Disclosure Schedules, the consummation of the transactions contemplated by
this Agreement will not accelerate or terminate, nor does there exist any
basis for the acceleration or termination of, (i) benefits payable to
employees of or other compensated personnel at the Target Companies under
any Employee Benefit Plan, Welfare Plan, or other plan, arrangement,
contract or agreement, written or oral, (ii) a participant's vesting
credits or years of service under any Pension Plan or Welfare Plan, or
(iii) accruals with respect to any other benefits or amounts reserved under
any such plan or arrangement.
(h) Section 3.11(h) of the Target Company Disclosure Schedules lists,
as of the date of this Agreement, all collective bargaining or other labor
union contracts to which a Target Company or any of its subsidiaries is a
party and which is applicable to persons employed by such Target Company or
subsidiary. There is no pending or, to the knowledge of the Target
Companies, threatened, labor dispute, strike or work stoppage against a
Target Company or any of its subsidiaries which may materially interfere
with the business activities of such Target Company, its revenues, profits,
cash flows, or other results of operations, or those of its subsidiaries.
The Target Companies have no knowledge of the commission of any unfair
labor practices in connection with the operation of their respective
businesses or the businesses of their respective subsidiaries, and there is
not now pending
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or, to the knowledge of the Target Companies, threatened, any charge,
complaint or other proceeding against any Target Company or its
subsidiaries by the National Labor Relations Board, or comparable
Governmental Entities, both Canadian and U.S., state and provincial, and
local.
(i) Section 3.11(a) of the Target Company Disclosure Schedules sets
forth all written employment agreements, employment contracts or
understandings relating to employment to which each Target Company or any
of its subsidiaries is a party, other than (i) the general employment of
employees pursuant to an at-will understanding, and (ii) agreements,
contracts or understandings which may be terminated without penalty or
premium on no more than thirty (30) days' prior notice to the employed
person (or the legal minimum provided for in applicable Canadian employment
standards legislation).
SECTION 3.12. TAXES.
(a) (i) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all material Returns (as defined below) in respect of
"Taxes" (as defined below) required to be filed with respect to a Target
Company or a subsidiary have been or will be timely filed (including
pursuant to those extensions described in such Disclosure Schedules).
(ii) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all Taxes shown on the Returns or otherwise known by
a Target Company or subsidiary to be due or payable (whether by such Target
Company or subsidiary or, in the case of the election by U.S. Shareholders
and the U.S. Company under Section 1361 ET. SEQ. of the Code [the "S
Corporation Election"], by such Shareholders) have been or will be timely
paid by the party to whom chargeable and all payments of estimated Taxes
required to be made with respect to a Target Company or any of its
subsidiaries, affiliates or shareholders under the Code, the ITA, Part IX
of the Excise Tax Act (Canada) (the "GST") or any comparable provision of
foreign, federal, state, provincial, local or municipal Law have been made
on the basis of the applicable party's good faith estimate of the required
installments or have been expensed on the Target Company Financial
Statements or have been reserved against.
(iii) Except as disclosed in Section 3.12(a) of the Target Company
Disclosure Schedules, all such Returns (or, in cases where amended Returns
have been filed, such Returns as amended) are believed by the Target
Companies to be true, correct and complete in all material respects.
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(iv) Each Target Company and its subsidiaries has withheld and paid
to the applicable taxing authority all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(v) No material adjustment relating to any Return has been proposed
in writing by any Tax authority, except proposed adjustments that have been
resolved prior to the date hereof.
(vi) There are no outstanding subpoenas or requests for information
with respect to any Return or the Taxes reflected on such Returns.
(vii) No Target Company has, in any taxable period for which the
statute of limitations on assessment remains open, acquired, either
directly or through any subsidiary, any corporation that filed a
consolidated federal income tax return with any other corporation that was
not also acquired, either directly or through any subsidiary, by such
Target Company, and no subsidiary or corporation that was included in the
filing of a Return with a Target Company on a combined, consolidated or
unitary basis has left such corporation's combined, consolidated or unitary
group in a taxable year for which the statute of limitations on assessment
remains open.
(viii) No consent under Section 341(f) of the Code has been filed with
respect to the Target Companies or their subsidiaries.
(ix) There are no Tax liens on any assets of a Target Company or
its subsidiaries other than liens for Taxes not yet due or payable or being
contested in good faith.
(x) Except as disclosed on Section 3.12(a) to the Target Company
Disclosure Schedules, neither the Target Companies nor their subsidiaries
have been at any time a member of any partnership or joint venture or the
holder of a beneficial interest in any trust for any period for which the
statute of limitations for any Tax potentially applicable as a result of
such membership or holding has not expired.
(xi) Neither the Target Companies nor their subsidiaries owe any
material amount pursuant to any Tax sharing agreement or arrangement, and
no such corporation will have any liability after the date hereof in
respect of any Tax sharing agreement or arrangement executed or agreed to
prior to the date hereof with respect to any company that has been sold or
disposed prior to the date of this Agreement or the Effective Time, whether
any such agreement or arrangement is written or unwritten.
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(xii) All material Taxes required to be withheld, collected or
deposited by each Target Company and its subsidiaries during any taxable
period for which the statue of limitations on an assessment remains open
have been timely withheld, collected or deposited and, to the extent
required, have been paid to the relevant Tax authority; without limiting
the generality of the foregoing, the Canada Company has withheld at source
and remitted to the relevant Government Entity all material amounts
required to be withheld under the ITA, and has accounted for and remitted
all Tax that has been collected and is remittable under the GST.
(xiii) Neither the Target Companies nor any of their subsidiaries were
acquired in a qualified stock purchase under Section 338(d)(3) of the Code
and no elections under Section 338(g) of the Code, protective carryover
basis elections, offset prohibition elections or other deemed or actual
elections are applicable to such Target Company or any of its subsidiaries.
No Target Company received any assets in accordance with, and no Target
Company is the subject of an election under, the terms and conditions of
Section 367 of the Code.
(xiv) Neither the Target Companies nor any of their subsidiaries were
or have been subject to the provisions of Section 1503(d) of the Code
related to "dual consolidated loss" rules.
(xv) Except as disclosed on Section 3.12(a) to the Target Company
Disclosure Schedules, neither the Target Companies nor any of their
subsidiaries were a party to any agreement, contract, or arrangement that
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code by
reason of the Unitary Transaction.
(xvi) To the knowledge of Target Companies, no property of any Target
Company or any of its subsidiaries is property that is or will be required
to be treated as being owned by another person under the provisions of
section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986); or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax, other than
real or personal property Taxes to which a Target Company or its
subsidiaries may be subject;
(ii) Neither the Target Companies nor any of their subsidiaries are,
as of the date of this Agreement, under audit with respect to any taxable
period for any foreign,
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xxxxxxx, xxxxx, xxxxxxxxxx, local or municipal Tax (including income and
franchise Taxes but not including real or personal property Taxes) by the
IRS, Revenue Canada or the applicable Tax authority in each such other
foreign, federal, state, provincial, local or municipal jurisdiction.
(c) (i) Except as expressly provided in this subdivision (i),
neither the Target Companies nor any of their subsidiaries have any --
(A) Material income reportable for a period ending after the
Effective Time but attributable to an installment sale occurring in or
a change in accounting method made for a period ending at or prior to
the Effective Time which resulted in a deferred reporting of income
from such transaction or from such change in accounting method (other
than a deferred intercompany transaction), or
(B) Material deferred gain or loss arising out of any deferred
intercompany transaction.
(ii) No written Tax sharing or allocation agreement exists involving
a Target Company.
(iii) Except as disclosed on Section 3.12(c) of the Target Company
Disclosure Schedules, neither the Target Companies nor any of their
subsidiaries have any unused net operating loss, unused net capital loss,
unused credit, unused foreign tax credit, or excess charitable contribution
for federal or Canada income tax purposes as of the Effective Time.
(d) For purposes of this Agreement, "Tax" or "Taxes" shall mean any
and all taxes, payable to any foreign, federal, state, provincial, local or
municipal governmental entity or taxing authority or agency, including,
without limitation,
(i) Income, franchise, net worth, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use, goods
and services, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, Medicare, workers
compensation, unemployment compensation, utility, severance, production,
excise, stamp, occupation, premiums, withholding taxes pursuant to the Tax
Convention, windfall profits, transfer and gains taxes;
(ii) Customs duties, imposts, charges, levies or other similar
assessments of any kind; and
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(iii) Interest, penalties and additions to tax imposed with respect
thereto.
As used herein, the term "Returns" shall mean any and all returns, reports,
information returns and information statements with respect to Taxes required to
be filed with the IRS, Revenue Canada, or any other foreign, federal, state,
provincial, local or municipal governmental entity or tax authority or agency,
including, without limitation, consolidated, combined, unitary and Subchapter S
Returns. For the purposes of this Section 3.12, references to a Target Company
and each of its subsidiaries shall include former subsidiaries of such Target
Company for periods during which any such corporations were owned, directly or
indirectly, by such corporation.
SECTION 3.13. INTELLECTUAL PROPERTY RIGHTS. Except as set forth in
Section 3.13 to the Target Company Disclosure Schedules, to such Target
Company's knowledge, each Target Company and its subsidiaries owns or possesses
the right or license to use all material patents, trademarks, servicemarks,
trade names, slogans, registered copyrights, industrial designs, and all trade
secrets (including scientific and technical information, design processes,
procedures, formulae, data processing techniques, computer programs and
improvements, the specialized information and technology embodied in
communications program materials, software documentation and other program and
system designs), it currently uses, without any known conflict or alleged
conflict with, or infringement of, the rights of others. Section 3.13 of the
Target Company Disclosure Schedules identifies in all material respects (i) the
intellectual property (including, without limitation, issued domestic and
foreign patents, patent applications pending, patent applications in process,
industrial designs, industrial design applications and registrations,
trademarks, trademark registrations, trademark registration applications,
copyright registrations, copyright registration applications, service marks,
service xxxx registrations, service xxxx registration applications, know-how
agreements, licenses (other than of computer software which is generally
commercially available), rights acquired through litigation, logos, trade names
and trade secrets) material to the conduct of the business of the Target
Companies (collectively, the "Owned Intellectual Property"), and (ii)
intellectual property currently licensed to such Target Company ("Licensed
Intellectual Property") (together with the "Owned Intellectual Property", the
"Intellectual Property"). To the knowledge of the Target Companies, (i) the
agreements and/or arrangements for Licensed Intellectual Property (including
computer software) are in full force and effect; (ii) the rights of each Target
Company and subsidiary thereunder are free and clear of all adverse claims,
options, liens, charges, security interests and encumbrances; and (iii) no
material defaults exist thereunder. There are no interference, opposition or
cancellation proceedings or infringement suits pending nor, to the actual
knowledge of the
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Target Companies, without necessity of investigation, threatened, with respect
to any Owned Intellectual Property. Within the last six (6) years, no Target
Company or subsidiary has been charged with infringing any patent or trademark
right of any person. The Intellectual Property comprises all of the
intellectual property rights and licenses pertaining thereto necessary for the
Target Companies to conduct their respective businesses as now operated. No
Target Company has knowingly taken or knowingly allowed there to be taken any
action to cause any of the material Owned Intellectual Property relating to its
business or operations to enter the public domain, or knowingly failed to take
such action necessary to prevent such Owned Intellectual Property from so
entering the public domain.
SECTION 3.14. CERTAIN BUSINESS PRACTICES AND REGULATIONS. Neither the
Target Companies, their subsidiaries, nor any of their respective executive
officers, directors, or managerial employees have, to the knowledge of the
Target Companies, (i) made or agreed to make any contribution, payment or gift
to any customer, supplier, governmental official, employee or agent where either
the contribution, payment or gift or the purpose thereof was illegal under any
Law, (ii) established or maintained any unrecorded fund or asset for any purpose
or made any false entries on its books and records for any reason, or (iii) made
or agreed to make any contribution, or reimbursed any political gift or
contribution made by any other person, to any candidate for foreign, federal,
state, provincial or local public office in violation under any Law.
SECTION 3.15. INSURANCE. All policies and binders of insurance for
professional liability, directors and officers, fire, liability, worker's
compensation and other customary matters held by or on behalf of each Target
Company or its subsidiaries ("Insurance Policies") have been made available to
Acquiror. The Insurance Policies (which term shall include any insurance policy
entered into after the date of this Agreement in replacement of an Insurance
Policy; provided, that such replacement policy shall insure against risks and
liabilities, and in amounts and under terms and conditions, substantially the
same as those provided in such replaced policy or binder) are in full force and
effect and neither a Target Company nor any of its subsidiaries is in default
with respect to any material provision contained in any Insurance Policy nor, to
the knowledge of such Target Company, has such Target Company or its
subsidiaries failed to give any notice of any claim under any Insurance Policy
in due and timely fashion, nor, to the knowledge of such Target Company, has any
coverage for current claims been denied, except where such default or failure
individually or in the aggregate would not reasonably be expected to have a
Target Company Adverse Effect.
SECTION 3.16. ACCOUNTING AND TAX MATTERS. None of the Target Companies
nor, to the knowledge of the Target Companies, any subsidiaries or affiliates
thereof, has taken or agreed to take any
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action that would prevent either the U.S. Merger or the Canada Reorganization
from being effected as a pooling of interests under GAAP or the rules and
regulations promulgated by the Commission, or would prevent the U.S. Merger or
the Canada Reorganization from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 3.17. REAL PROPERTY. Section 3.17(1) to the Target Company
Disclosure Schedules sets forth a complete description of (i) all real property
owned by the Target Companies and their subsidiaries as of the date of this
Agreement ("Owned Real Property"), and (ii) all real property leased by the
Target Companies and their subsidiaries as of the date of this Agreement
("Leased Real Property"). No later than thirty (30) days after the date of this
Agreement, the Target Companies shall furnish Acquiror or its counsel true and
complete copies of (i) the most recent lease with respect to each parcel of
Leased Real Property, and (ii) each written, and a written description of each
oral, contract, arrangement or understanding relating to Owned Real Property or
Leased Real Property. Except as set forth in Section 3.17(2) to the Target
Company Disclosure Schedules:
(a) There is no condemnation proceeding or eminent domain proceeding
pending or, to the knowledge of the Target Companies, threatened, against
any Owned Real Property or Leased Real Property.
(b) Neither the Target Companies nor their subsidiaries have any
interest in, or any right or obligation to acquire any material interest
in, any real property other than Owned Real Property and Leased Real
Property.
(c) There are no pending or, to the knowledge of the Target
Companies, threatened, requests, applications or proceedings to alter or
materially restrict the zoning or other use restrictions applicable to the
Owned Real Property and Leased Real Property.
(d) The rental set forth in each lease for Leased Real Property is
the actual rental being paid, and there are no separate agreements or
understandings with respect to the same not set forth in Section 3.17(2) to
the Target Company Disclosure Schedules.
(e) Each Target Company or subsidiary which is lessee under a lease
for Leased Real Property has, as of the date hereof, and shall have at the
Effective Time, the full right to exercise any and all renewal options
contained therein.
(f) There are no written or oral contracts between a Target Company
or subsidiary and any third party relating to any claim by such third party
of any right to all or any part
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of the interest of such Target Company or subsidiary in any Owned Real
Property or Leased Real Property.
(g) All security deposits required under leases for Leased Real
Property have been made and no forfeiture with respect thereto has been
claimed by any of the lessors.
SECTION 3.18. ENVIRONMENTAL REPRESENTATIONS. Except as specifically
described in Section 3.18 to the Target Company Disclosure Schedules:
(a) No Target Company or any subsidiary or affiliate thereof has
generated, used, transported, treated, stored, handled, released or
disposed of, whether temporarily or permanently, any "Hazardous Substances"
(as herein defined) at any location described in Section 3.17(1) to the
Target Company Disclosure Schedules in violation of any applicable statute,
Law, rule or regulation or so as to require reporting to or notification of
any governmental official, agency, bureau, board, commission, court,
department or other instrumentality.
(b) To the knowledge of the Target Companies, there has never been
any generation, use, transportation, treatment, storage, release, presence,
handling or disposal of any Hazardous Substances by any other person at the
Owned Property in violation of any applicable statute, Law, rule or
regulation or so as to require reporting to or notification of any
governmental official, agency, bureau, board, commission, court, department
or other instrumentality.
(c) To the knowledge of the Target Companies, no asbestos or
polychlorinated biphenyl is contained in or located at the Owned Real
Property.
(d) All Hazardous Substances generated, disposed of, handled or dealt
with in any way in the conduct by the Target Companies, or their
subsidiaries and affiliates, of their respective businesses has been and is
being generated, disposed of, handled or dealt with in all material
respects in compliance with all applicable statutes, Laws, rules and
regulations.
(e) Each Target Company and each subsidiary thereof is in material
compliance with, and to the knowledge of the Target Companies, the Owned
Real Property has not been used by any other person in violation of, any
Environmental Laws.
(f) No Target Company is the subject of any remedial order entered
with respect to any real property described in Section 3.17(1) to the
Target Company Disclosure Schedules.
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(g) As used in this Agreement, the term "Hazardous Substances" shall
mean (i) substances which are defined or listed in, or otherwise classified
pursuant to, any applicable statutes, Laws, rules or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," (ii) any oil, petroleum or petroleum derived substance, (iii)
any flammable substances or explosives, (iv) any radioactive materials,
(v) asbestos in any form, (vi) urea formaldehyde foam insulation, (vii)
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million,
(viii) pesticides, or (ix) any other pollutant, contaminant, hazardous,
dangerous or other material which is defined as a toxic chemical or waste
under any environmental laws.
(h) For purposes of this Agreement, the term "Environmental Laws"
shall mean all foreign, federal, state, provincial, local and municipal
statutes, Laws, ordinances, codes, rules, regulations, orders, decrees,
directives, permits, licenses and guidelines relating to protection of the
environment, or to protection of the public health from releases into the
environment of hazardous substances, pollutants or contaminants, including,
but not limited to, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, the Resource Conservation and
Recovery Act of 1976, as amended, the Environmental Quality Act, R.S.Q.C.,
Q-2, and Canadian and U.S. state and provincial tort laws and common Laws.
SECTION 3.19. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of a U.S. Shareholder, any Target Company or their respective
subsidiaries or affiliates.
SECTION 3.20. TITLE TO ASSETS. With the exception of those items
disclosed in Sections 3.20, 3.03(f) and 3.03(j) of the Target Company Disclosure
Schedules, statutory liens for real estate tax, materialmen, warehousemen and
landlord liens incurred in the ordinary course of business and not yet due or
which are being contested in good faith and for which the Target Company has
established a specific Closing Reserve in the Target Company Financial
Statements, or minor imperfections in title which would not have a Target
Company Adverse Effect, each Target Company and its applicable subsidiary is the
owner of and has good and valid title to, or in the case of leased property has
a valid leasehold interest in, its material properties and assets, including
those assets and properties reflected in the Target Company Financial
Statements.
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SECTION 3.21. RELATED PARTY TRANSACTIONS. Except as disclosed in Section
3.21 of the Target Company Disclosure Schedules, and except with respect to the
ownership of not greater than two percent (2%) of the outstanding securities of
a company trading on an established public exchange, to the knowledge of the
Target Companies, neither the Target Companies, their subsidiaries, or their
respective directors, employees, shareholders, officers or agents, have any
direct or indirect interest in any competitor, supplier or customer of a Target
Company or in any person from whom or to whom a Target Company leases any
property, or in any other person, firm or entity with whom a Target Company
transacts business of any nature. Section 3.21 to the Target Company Disclosure
Schedules identifies and describes all material contracts and other arrangements
(oral or written), including, but not limited to, intercompany loans, advances,
transfers of goods or services, or other transactions (whether or not for
consideration), to which a Target Company is a party and to which another Target
Company, its subsidiaries or affiliates, or the officers, directors, employees,
shareholders, officers or agents of a Target Company, is directly or indirectly
also a party.
SECTION 3.22. BANK ACCOUNTS. Section 3.22 to the Target Company
Disclosure Schedules sets forth all banks and other institutions or agents in
which a Target Company or any of its subsidiaries has or maintains an account,
installment obligation, mortgage, deposit, escrow, lockbox or safe deposit box,
the names of all persons authorized to draw thereon or to have access thereto,
the number of signatures required to be given for any transaction, deposit or
withdrawal, and a description of the type of relationship maintained by such
entity with such bank, institution or agent.
SECTION 3.23. OFFICERS AND DIRECTORS. Section 3.23 to the Target Company
Disclosure Schedules sets forth a list of the names, addresses and years of
service of all officers and directors of the Target Companies and their
respective subsidiaries as of the date hereof.
SECTION 3.24. POWERS OF ATTORNEY. No Target Company has given a power of
attorney (irrevocable or otherwise) to any person or entity for any purpose
whatsoever.
SECTION 3.25. GUARANTEES. Except as disclosed in Section 3.25 to the
Target Company Disclosure Schedules, no Target Company is a guarantor of, or
indemnitor, co-maker or otherwise liable for, any indebtedness of any person,
except as an endorser of checks received by it and deposited in the ordinary
course of business.
SECTION 3.26. CUSTOMERS. Section 3.26 to the Target Company Disclosure
Schedules sets forth a true, complete and accurate listing of (i) the names,
addresses and telephone numbers of the ten (10) largest customers (measured by
revenue) to whom each
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Target Company has provided services or sold products during calendar year 1995
and the first nine months of 1996, (ii) the revenues attributable to each such
customer for the same periods, and (iii) the approximate gross profits
attributable to each such customer for such periods. The business of the Target
Companies will, as of the Effective Time, include the services provided on
behalf of those customers listed on Section 3.26 to the Target Company
Disclosure Schedules. Except as specifically noted on such Disclosure
Schedules, the Target Companies have no knowledge that the customers listed
therein will not continue as customers of the U.S. Surviving Corporation and
Canada Company on and after the Effective Time.
SECTION 3.27. CUSTOMER XXXXXXXX; OPEN PURCHASE ORDERS.
(a) Except for xxxxxxxx with respect to customer deposits, the Target
Companies have made no xxxxxxxx whatsoever to their customers for services
to be provided or products to be sold after the Effective Time which could
result in a Target Company Adverse Effect. All customer deposits held by a
Target Company arose from written agreements between such Target Company
and the remitting customer, are correct as to amount, and no such customer
has notified the Target Company of its intention to seek a refund of its
deposit. All such customer deposits were received by the Target Companies
in cash, in the ordinary course of their business. The Target Companies
have previously delivered to Acquiror true and complete copies of all
contracts and agreements (and written descriptions of any oral
arrangements) between all such customers and the applicable Target Company.
As of the date of this Agreement, no party to any such contract has
defaulted in any of its material obligations thereunder, and no customer is
in default of its payment obligations on invoices for services previously
rendered or products previously sold by such Target Company.
(b) The open purchase orders of the U.S. Company and Canada Company
reflected in the most current Interim Target Company Financial Statements
were entered into by such Target Companies in good faith, in the ordinary
course of business, and with the exception of routine cancellations in the
ordinary course of business, such open purchase orders were, and to the
extent any such order remains unfilled as of the date of this Agreement,
and are, in full force and effect. To the knowledge of the Target
Companies, the sales prices under such open purchase orders were calculated
to yield gross profit margins which are customary for the business
conducted by the Target Companies.
SECTION 3.28. PROPRIETARY SOFTWARE USED IN THE BUSINESS. Section 3.28 to
the Target Company Disclosure Schedules contains a description of all material
non-licensed computer software products
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and software programs (collectively, "Software Programs"), both generally
available in a Target Company's business and under development (in all stages of
development), that are used or intended for use in the business and operations
of each Target Company. To the extent any Software Program has been developed
by a third party for the benefit of, or in accordance with specifications
provided by, a Target Company, Section 3.28 to the Target Company Disclosure
Schedules sets forth the form and placement of the proprietary legends and/or
copyright notices displayed in or on the Software Programs. To the knowledge of
the Target Companies, in no instance has the eligibility of any such Software
Program for protection under applicable copyright law been forfeited to the
public domain by omission of any required notice or any other action or inaction
by a Target Company unless such forfeiture would not have a Target Company
Adverse Effect. Except as provided in Section 3.28 of the Target Company
Disclosure Schedules, to the knowledge of the Target Companies, the source code
for such Software Programs has at all times been maintained in strict confidence
and the only individuals or entities who have access to such source code are
parties to written nondisclosure agreements with the Target Company.
SECTION 3.29. RECEIVABLES AND ADVANCES. Except as described on Section
3.29(1) to the Target Company Disclosure Schedules, all accounts receivable and
advances of the Target Companies have arisen in the ordinary course of business,
for full and adequate consideration, and, to the knowledge of the Target
Companies, are subject to no claims, charges or defenses (either by a Target
Company or by any other person). Sections 3.29(2) and (3) to the Target Company
Disclosure Schedules sets forth by outstanding principal amount, accrued
interest and payor, all loans and advances by the Target Companies and their
subsidiaries as to which balances remain unpaid on the date of this Agreement,
together with a written description of all future commitments to make any such
loans or advances, other than loans and advances arising from the sale of
products or services to customers in the ordinary course of business. Without
limiting the generality of the foregoing sentence, such Schedules shall include
loans and advances to or on behalf of Target Company (or subsidiary)
shareholders, directors, officers, employees, sales representatives, independent
contractors, agents, vendors, and their respective affiliates. No person has
asserted a right of set-off (or similar right) against any receivable, loan or
advance made by a Target Company (or its subsidiary). Anything in this Section
3.29 to the contrary notwithstanding, Acquiror acknowledges and agrees that the
Target Companies shall not be required to institute any actions against obligors
under loans and advances described on Schedule 3.29 to the Target Company
Disclosure Schedule.
SECTION 3.30. COMMISSION POLICIES. Each Target Company's commission and
bonus policies with respect to sales personnel, employed and independent,
entitled to receive commissions and/or
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bonus in excess of ten thousand dollars ($10,000) per year are described on
Section 3.30 to the Target Company Disclosure Schedules.
SECTION 3.31. LABOR MATTERS. Each Target Company is in compliance in all
material respects with all applicable foreign, federal, state, provincial and
local Laws, rules or regulations relating to the employment of labor, including
those relating to salaries, wages, hours, collective bargaining, affirmative
action and the payment and withholding of Taxes. Each Target Company has
withheld all amounts required by Law or agreement to be withheld from the
salaries or wages of its employees and is not liable for any arrears of any Tax
or penalties for failure to comply with the foregoing. Each Target Company has
paid to the appropriate Governmental Entity, at the time or times required by
Law, or accrued as an expense on its books, all employment taxes and withholding
taxes with respect to its employees. No Target Company is party to any
collective bargaining agreement or other material labor agreement. To the
knowledge of the Target Companies, there are no impending labor difficulties
involving groups of employees (whether or not organized) which involve strikes,
slowdowns, work stoppages, job actions, lockouts, union certifications or
grievances before any foreign, federal, state, provincial or local labor
commission or bureau.
SECTION 3.32. SOLE SOURCE SUPPLIERS. Section 3.32 to the Target Company
Disclosure Schedules sets forth the names and addresses of, and volume of
purchases from, any suppliers of significant goods, equipment or services to
each Target Company (other than public utilities) with respect to which
practical alternative sources of supply are not available.
SECTION 3.33. INVENTORY AND WARRANTY MATTERS.
(a) The product inventories of the Target Companies and their
subsidiaries are in good and merchantable condition. The Program
inventories of the Target Companies reflected in the Interim Target Company
Financial Statements at and as of December 31, 1996 do not contain more
than "immaterial amounts" of "Obsolete Program Inventory Costs" (hereafter
defined).
(b) As used herein, the terms (i) "Program" shall mean the sale or
distribution by a Target Company, whether directly to a customer for
redistribution, or to the end-users of such customer, of customized
products incorporating or promoting a distinctive name, logo, idea,
likeness, affiliation, copyright, trademark or other exclusionary property
right, and which are therefore limited for use by the owner or licensee of
such distinctive property right, (ii) "immaterial amounts" shall mean those
products includible within, or sold as part of, a particular Program with
an aggregate extended cost not
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exceeding two thousand dollars ($2,000), and (iii) "Obsolete Program
Inventory Costs" shall mean, with respect to each of the Program-types (or
product-types) described in clauses (1) through (5), below, the extended
cost of products attributable to such Program reflected in the inventory of
a Target Company at January 1, 1997, LESS the amount of actual recoveries
thereon through December 31, 1997. The calculation of Obsolete Program
Inventory Costs shall be limited to the following Programs and products:
(i) Programs which have been discontinued prior to January 1,
1997;
(ii) Products bearing distinctive identifying marks, the use of
which have been discontinued prior to January 1, 1997, or
which have been determined to infringe the property rights
of a third-party on or prior to March 31, 1997;
(iii) Products as to which catalogue sales have been discontinued
prior to January 1, 1997;
(iv) Products which advertise an event, or series thereof, having
taking place prior to January 1, 1997; or
(v) Products as to which there exist general defects or flaws in
the distinctive identifying marks thereon which cannot be
corrected or which are saleable in the ordinary course of
business at an average price not exceeding seventy-five
percent (75%) of cost.
(c) Representatives of Acquiror, the U.S. Company and/or the Canada
Company shall, within a reasonable time following Acquiror's written
request given prior to June 30, 1997, conduct a full or partial count and
extension of such Target Company's Program product inventories. Product
units comprising Program inventories shall be identified by vendor code,
product code or such other reasonable tracking method as Acquiror shall
determine. For purposes of such count, all product units (i) containing
the same or a similar distinguishing xxxx, and (ii) customized in
accordance with the same specifications or constituting a component of a
single Program theme, shall be considered part of the individual Program.
At the conclusion of the count, Acquiror and the U.S. Company shall approve
a definitive listing, on a Program-by-Program basis, of (i) the aggregate
Program products counted in each Program, (ii) the base cost for each
product unit so counted, (iii) the extended value of all such
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product units, and (iv) the Obsolete Program Inventory Costs satisfying the
definitions herein.
SECTION 3.34. DISCLOSURE. No representations or warranties made by a
Target Company or U.S. Shareholder under this Agreement or in any certificate,
Schedule, Exhibit or other document furnished or to be furnished to Acquiror,
Acquiror Sub or their respective counsel pursuant hereto contains or will
contain any untrue statement of any material fact, or omits or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
SECTION 3.35. SCOPE OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any other provision of this Agreement, to the extent any breach of or
misstatement in a representation or warranty under Article III also constitutes
a breach of or misstatement in a representation or warranty under any one of the
Agreements described in Section 3.35 of the Target Company Disclosure Schedules
(each, a "Predecessor Agreement") then, to the extent (i) such representation or
warranty under the Predecessor Agreement survives for at least sixty (60) days
following discovery of such breach or misstatement, (ii) the U.S. Surviving
Corporation is entitled, by virtue of its status as successor to the U.S.
Company, to indemnification under the Predecessor Agreement in respect of such
breach or misstatement, (iii) Xxxxxx, in his capacity as Chief Executive Officer
of the U.S. Surviving Corporation, or his successor, authorizes the filing of a
claim for indemnification under the terms and conditions of such Predecessor
Agreement, and (iv) the U.S. Surviving Corporation actually receives payment for
its Damages resulting from such breach or misstatement, Acquiror shall be deemed
not to have incurred or suffered Damages of like amount in respect of the
applicable representation or warranty made under this Article III; provided,
however, (aa) Acquiror's claim for indemnification under this Agreement shall be
stayed during the pendency of any claim filed with respect to such Predecessor
Agreement, but only with respect to the maximum amount recoverable thereunder,
and the balance thereof shall be prosecutable by Acquiror (provided, the
provisions of clause (cc), below, shall not apply), (bb) any Unregistered Shares
securing such pendent claim shall not be sold until the final resolution
thereof, subject to limitations set forth in Section 9.02(iii), (cc) any factual
or legal determination made with respect to the U.S. Surviving Corporation's
claim under the Predecessor Agreement shall have the effect of RES JUDICATA for
purposes of Acquiror's claim under this Agreement, and (dd) Acquiror shall at
all times retain the right to appoint legal counsel to prosecute the U.S.
Surviving Corporation's claim under the Predecessor Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB
The term "Acquiror Adverse Effect" as used in this Agreement shall mean any
change or event that, individually or when taken together with all other such
changes or events, would reasonably be considered to be adverse to the financial
condition, business or results of operations of Acquiror and its subsidiaries;
provided, however, the occurrence of any change or event described in any
Section of the Acquiror Disclosure Schedules attached to this Agreement as
Schedule 4.00 (the "Acquiror Disclosure Schedules") shall not, individually or
in the aggregate, constitute a Acquiror Adverse Effect.
Acquiror and Acquiror Sub jointly and severally represent and warrant to
and with the Target Companies and U.S. Shareholders that, except as specifically
described in the Acquiror Disclosure Schedules, the statements contained in this
Article IV are true and correct as of the date of this Agreement and will be
true and correct as of the Effective Time (as though made then) with respect to
Acquiror and Acquiror Sub, and their respective businesses:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Acquiror and Acquiror's subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, has all requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and each of Acquiror and its subsidiaries is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
do so would not have an Acquiror Adverse Effect. A true and complete list of
all of Acquiror's directly or indirectly owned subsidiaries, together with the
jurisdiction of incorporation or organization of each subsidiary and the
percentage of each subsidiary's outstanding capital stock or other equity
interests owned by the Acquiror or another subsidiary of Acquiror, is set forth
in Section 4.01 of the Acquiror Disclosure Schedules.
SECTION 4.02. ARTICLES OF INCORPORATION; BY-LAWS. Acquiror has furnished
to the Target Companies a complete and correct copy of the Articles of
Incorporation and the By-Laws, as amended or restated, of Acquiror and Acquiror
Sub. Neither Acquiror nor Acquiror Sub is in violation of any of the provisions
of its Articles of Incorporation or By-Laws.
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SECTION 4.03. CAPITALIZATION OF ACQUIROR.
(a) The authorized capital stock of Acquiror consists of (i)
25,000,000 shares of Acquiror Common Stock, and (ii) 10,000,000 shares of
preferred stock, no par value per share. As of the date of this Agreement,
(i) 12,479,219 shares of Acquiror Common Stock are issued and outstanding,
and are duly authorized, validly issued, fully-paid and non-assessable and
not subject to preemptive rights created by statute, Law, Acquiror's
Articles of Incorporation or By-Laws or any agreement to which Acquiror is
a party or is bound, (ii) approximately 3,111,905 shares of Acquiror Common
Stock were reserved for future issuance pursuant to stock options, warrants
and awards issued to certain officers, employees, consultants, directors
and affiliates of Acquiror, and (iii) approximately 3,060,426 shares of
Acquiror Common Stock were issued and outstanding pursuant to the terms and
conditions of those certain agreements described in Section 4.03(a) of the
Acquiror Disclosure Schedules, a significant portion of which are subject
to set-off or cancellation in accordance with the terms and provisions of
such agreements, and therefore may not be fully-paid and non-assessable.
As of the date of this Agreement, no shares of Acquiror preferred stock
were outstanding.
(b) As of the date of this Agreement, except as set forth in Section
4.03(b) to the Acquiror Disclosure Schedules, there are no obligations,
contingent or otherwise, of Acquiror or any of its subsidiaries to
repurchase, issue, redeem or otherwise acquire any shares of Acquiror
Common Stock or the capital stock of, or other equity interests in, any
subsidiary of Acquiror.
SECTION 4.04. CAPITALIZATION OF ACQUIROR SUB.
(a) The authorized capital stock of Acquiror Sub consists of 100,000
shares of Acquiror Sub Common Stock of which, as of the date of this
Agreement, 10,000 shares are issued and outstanding. On the date of this
Agreement, all issued and outstanding shares of Acquiror Sub Common Stock
are, and at the Effective Time all issued and outstanding shares of
Acquiror Sub Common Stock will be, duly authorized, validly issued, fully
paid and non-assessable. Acquiror is the record holder of all issued and
outstanding shares of Acquiror Sub Common Stock, and such shares are owned
by Acquiror free and clear of any and all security interests, liens,
claims, pledges, agreements, limitations on Acquiror's voting rights,
charges or other encumbrances of any nature whatsoever.
(b) Except as disclosed in Section 4.0(b) to the Acquiror Disclosure
Schedules, as of the date of this
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Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments to which Acquiror or Acquiror Sub is a party of
any character relating to the issued or unissued capital stock of, or other
equity interests in, Acquiror Sub, or obligating Acquiror or Acquiror Sub
to grant, issue, sell or register for sale any shares of the capital stock
of, or other equity interests in, Acquiror Sub by sale, lease, license or
otherwise.
SECTION 4.05. AUTHORITY. Each of Acquiror and Acquiror Sub has the
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Acquiror
and Acquiror Sub, and the consummation by Acquiror and Acquiror Sub of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Acquiror or
Acquiror Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Acquiror and Acquiror Sub and, assuming the due
authorization, execution and delivery by the Target Companies and U.S.
Shareholders, constitutes the legal, valid and binding obligation of Acquiror
and Acquiror Sub.
SECTION 4.06. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
such Acquiror Subs shall not (i) conflict with or violate the Articles,
By-Laws or equivalent organizational documents of Acquiror Sub or any of
Acquiror's subsidiaries, (ii) subject to (x) obtaining the consents,
approvals, authorizations and permits of, and making filings or
notifications to, any Governmental Entities pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky
Laws, the NASDAQ, the HSR Act, the Competition Act, the Investment Act, the
Code, the Treaty, the ITA and the filing and recordation of appropriate
merger and amalgamation documents as required by Michigan Law, and (y)
obtaining the consents, approvals, authorizations or permits described in
Section 4.06(b) of the Acquiror Disclosure Schedules, conflict with or
violate any Laws applicable to Acquiror, Acquiror Sub or any of Acquiror's
other subsidiaries or by which any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance on
any of the properties or assets of Acquiror, Acquiror Sub or any of
Acquiror's other subsidiaries pursuant to, any note, bond,
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mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Acquiror, Acquiror Sub or any of
Acquiror's other subsidiaries is a party or by which Acquiror, Acquiror Sub
or other Acquiror subsidiaries or any of their respective properties is
bound or affected, except for any such conflicts or violations described in
clause (ii), or breaches or defaults described in clause (iii) that would
not have an Acquiror Adverse Effect.
(b) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub shall not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entities or
other persons, except for (i) applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the NASDAQ, the HSR Act,
the Competition Act, the Investment Act, the Code, the Treaty and the ITA,
(ii) the consents, approvals, authorizations or permits described in
Section 4.06(b) of the Acquiror Disclosure Schedules, and (iii) the filing
and recordation of appropriate merger and amalgamation documents as
required by Michigan Law.
SECTION 4.07. PERMITS; COMPLIANCE. Each of Acquiror and its subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary for Acquiror or any of its subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Acquiror Permits") and no suspension, revocation or cancellation of any of the
Acquiror Permits is pending or, to the knowledge of Acquiror, threatened, except
where the failure to have, or the suspension, revocation or cancellation of, any
of the Acquiror Permits would not have an Acquiror Adverse Effect. Neither
Acquiror nor any of its subsidiaries is in conflict with, or in default or
violation of (i) any Law applicable to Acquiror or any of its subsidiaries or by
which any of their respective properties is bound or affected, or (ii) any of
the Acquiror Permits, except for any such conflicts, defaults or violations
which would not have an Acquiror Adverse Effect.
SECTION 4.08. SECURITIES REPORTS; FINANCIAL STATEMENTS.
(a) Since December 31, 1993, Acquiror and its subsidiaries have filed
(x) all forms, reports, statements and other documents required to be filed
(or filed by reference) with (i) the Commission, including without
limitation, (A) all Annual Reports on Form 10-K, (B) all Quarterly Reports
on Form 10-Q, (C) all Proxy Statements relating to meetings of
shareholders, (D) all required current reports on Form 8-K, (E) all other
reports and registration statements, and (F) all amendments and supplements
to all such reports and
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registration statements (collectively, the "Acquiror SEC Documents"), and
(ii) any applicable state securities authorities, and (y) all forms,
reports, statements and other documents required to be filed with
any other applicable federal or state regulatory authorities, except
where failure to file any such forms, reports, statements and other
documents under this clause (y) would not have an Acquiror Adverse Effect
(all such forms, reports, statements and other documents referred to in
this Subsection (a) are, collectively, "Acquiror Reports"). The Acquiror
Reports, including all Acquiror Reports filed after the date of this
Agreement and prior to the Effective Time (i) were or will be prepared in
all material respects in accordance with the requirements of applicable
Law, and (ii) did not, at the times they were filed, or will not at the
time they are filed, contain any untrue statement of a material fact or
omit to state a 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.
(b) Except as disclosed in Section 4.08(b) of the Acquiror Disclosure
Schedules, and except for changes required under GAAP or by the Commission,
each of Acquiror's financial statements (including any notes to such
financial statements) included within the Acquiror Reports (i) has been or
will be prepared in all material respects in accordance with the published
rules and regulations of the Financial Accounting Standards Board and GAAP
and the Commission applied on a consistent basis throughout the periods
involved, and (ii) fairly present, or will fairly present, in all material
respects, the consolidated financial position of the Acquiror as of the
respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated; provided, however, the interim
financial statements of Acquiror may (x) be subject to normal or recurring
adjustments at Acquiror's fiscal year-end, (y) not necessarily be
indicative of results for a full-fiscal year, and (z) contain pro-forma
financial information which is not necessarily indicative of Acquiror's
consolidated financial position.
(c) Except as and to the extent disclosed in Section 4.08(c) of the
Acquiror Disclosure Schedules, neither Acquiror nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected
on, or reserved against in, a balance sheet of Acquiror, prepared in
accordance with GAAP, except (i) as otherwise disclosed in Section 4.08(c)
of the Acquiror Disclosure Schedules, or (ii) for liabilities or
obligations incurred in the ordinary course of business since September 30,
1996, that would not have an Acquiror Adverse Effect.
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(d) Since the date of Acquiror's most-recent filings with the
Commission (whether on Form 10-Q or otherwise), there are no material facts
and circumstances known to Acquiror that have not been reported which would
cause a material reduction in the value of Acquiror's shares if known.
SECTION 4.09. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in Section 4.09 of the Acquiror Disclosure Schedules, or as contemplated in this
Agreement, (i) since June 30, 1996, there has not been, and Acquiror has no
knowledge of any facts that are reasonably likely to result in, an Acquiror
Adverse Effect, and (ii) from December 31, 1995, to the date of this Agreement,
there has not been any change by Acquiror or its subsidiaries in their
accounting methods, principles or practices, except any such change after the
date of this Agreement required by GAAP or the Commission.
SECTION 4.10. ABSENCE OF LITIGATION.
(a) There is no claim, action, suit, litigation, proceeding,
arbitration, or, to the knowledge of Acquiror, investigation of any kind
affecting Acquiror or any of its subsidiaries, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or,
to the knowledge of Acquiror, threatened, except for claims, actions,
suits, litigations, proceedings, arbitrations or investigations which
cannot reasonably be expected to have an Acquiror Adverse Effect.
(b) Neither Acquiror nor any of its subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of Acquiror, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for
such matters which cannot reasonably be expected to have an Acquiror
Adverse Effect.
SECTION 4.11. TITLE TO ASSETS. Acquiror, or its applicable subsidiary, is
the owner of and has good and valid title to, or in the case of leased property
has a valid leasehold interest in, all of its material properties and assets
(except statutory liens for taxes, materialmen, warehousemen and landlords
incurred in the ordinary course of business and not yet due), including those
assets and properties reflected in the Acquiror's consolidated financial
statements.
SECTION 4.12. ACCOUNTING AND TAX MATTERS. Neither Acquiror nor, to the
knowledge of Acquiror, any of its subsidiaries or affiliates, has taken or
agreed to take any action that would prevent either the U.S. Merger or the
Canadian Reorganization from
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being effected as a pooling of interests under GAAP or the rules and regulations
promulgated by the Commission, or would prevent the U.S. Merger or the Canadian
Reorganization from constituting a transaction qualifying as a reorganization
under Section 368(a) of the Code.
SECTION 4.13. OWNERSHIP OF ACQUIROR SUB; PRIOR ACTIVITIES.
(a) Acquiror Sub was formed for the purpose of engaging in the
transactions contemplated by this Agreement and has no material debts or
liabilities.
(b) As of the Effective Time, all the outstanding capital stock of
Acquiror Sub will be owned directly by Acquiror. As of the Effective Time,
there will be no options, warrants or other rights (including registration
rights), agreements, arrangements or commitments to which Acquiror Sub is a
party of any character relating to the issued or unissued capital stock of,
or other equity interests in, Acquiror Sub or obligating Acquiror Sub to
grant, issue or sell any shares of the capital stock of, or other equity
interests in, Acquiror Sub, by sale, lease, license or otherwise. There
are no obligations, contingent or otherwise, of Acquiror Sub to repurchase,
redeem or otherwise acquire any shares of the capital stock of Acquiror
Sub.
SECTION 4.14. BROKERS. Except as disclosed in Section 4.14 of the
Acquiror Disclosure Schedules, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Acquiror.
SECTION 4.15. DISCLOSURE. No representations or warranties made by
Acquiror under this Agreement or in any certificate, Schedule, Exhibit or other
document furnished or to be furnished to the Target Companies, U.S. Shareholders
or their respective counsel pursuant hereto contains or will contain any untrue
statement of any material fact, or omits or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
ARTICLE V
COVENANTS RELATING TO THE CONDUCT OF TARGET COMPANY BUSINESS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE TARGET COMPANIES. The Target
Companies and U.S. Shareholders hereby covenant and agree with Acquiror and
Acquiror Sub that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by Acquiror, each
Target Company shall, and shall cause its subsidiaries to:
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(a) Operate its business in the usual and ordinary course, consistent
with reasonable past practices.
(b) Use reasonable efforts to preserve intact its business
organization and assets, maintain its material rights and franchises,
retain the services of its officers, key employees and managers, and
maintain existing good relationships with its material customers, clients,
vendors and suppliers.
(c) Use reasonable efforts to keep in full force and effect all
liability insurance and bonds comparable in amount and scope of coverage to
that currently maintained.
(d) Confer with Acquiror from time-to-time at Acquiror's reasonable
request to report on all manner of operational matters, and to provide,
orally or in writing, as Acquiror shall reasonably request, the general
status of the ongoing operations of the business of such Target Company.
(e) Internally prepare and deliver to Acquiror combined and combining
interim (i) quarterly financial statements (including a Balance Sheet,
Income Statement, Statement of Cash Flow [Statement of Changes in Financial
Position with respect to the Canada Company] and Statement of Equity) as at
and for the period ended September 30, 1996, and (ii) monthly financial
statements as at and for the monthly periods ending October 31, November 30
and, if more than thirty (30) days prior to the Effective Time, December
31, 1996. The Interim Target Company Financial Statements shall be
prepared in accordance with GAAP, applied on a consistent basis for the
periods involved, and shall present fairly, in all material respects, the
combined and combining financial positions of the Target Companies as of
the dates indicated therein, and the combined and combining results of
operations and cash flows of the Target Companies for the periods then
ended; provided, however, the Interim Target Company Financial Statements
are subject to normal year-end adjustments and may lack footnotes and other
presentation items.
(f) File their foreign and federal income tax Returns, and all
required provincial, state, local and municipal income and franchise tax
Returns, and Subchapter S Returns, that include a Target Company or any of
its subsidiaries, for the fiscal tax year coinciding with or ending in
1995, on or before the due date for filing such Returns (including
extensions), and if such Returns, or any of them, are filed prior to the
Effective Time, such corporation shall afford to Acquiror reasonable
opportunity for review of such returns prior to filing.
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(g) Unless otherwise instructed by Acquiror, the U.S. Company shall
(i) use its reasonable efforts to solicit bids and offers for those
non-operating assets described in Section 5.01(g) to the Target Company
Disclosure Schedules (the "Non-Operating Assets"), (ii) prior to the
Effective Time, use its reasonable efforts to enter into agreements to
sell, convey, assign or transfer its entire right and interest in each
Non-Operating Asset for an aggregate consideration, consisting of cash or
its equivalent, not less than the U.S. Company's carrying value therefor,
as set forth in the Target Company Financial Statements, and (iii) use its
reasonable efforts to close, subject to Acquiror's supervision, the sale of
all Non-Operating Assets pursuant to the terms and conditions so
established. To the extent any such assets are not sold prior to the
Effective Time, Xxxxxx agrees he shall purchase same immediately prior to
consummation of the U.S. Merger for the consideration set forth in clause
(ii), payable in accordance with the terms of a Promissory Note executed by
Xxxxxx and delivered to the U.S. Company (the "Xxxxxx Note"), in form and
substance reasonably satisfactory to Acquiror, and providing, INTER ALIA,
the following terms and conditions:
The Xxxxxx Note shall be in a principal amount equal to the carrying
value of such Non-Operating Assets remaining unsold by the U.S.
Company immediately prior to the Effective Time and shall be payable,
together with interest calculated at the short-term applicable federal
rate from time to time in effect, compounded monthly, in one lump sum
on the one-year anniversary of the Effective Time. The Xxxxxx Note
shall be unsecured and fully negotiable. The holder of the Xxxxxx
Note shall have all the rights of a commercial lender under Illinois
Law in the event Xxxxxx shall default in the payment of principal or
interest thereunder. The Xxxxxx Note shall be prepayable without
premium or penalty by Xxxxxx. Xxxxxx shall be obligated to make
mandatory prepayments against the principal amount of the Xxxxxx Note
and interest accrued thereunder to the extent of the net proceeds
received by Xxxxxx from the first sales of "Registered Shares"
(hereafter defined) through and until payment in full of all amounts
outstanding and accrued under the Xxxxxx Note. Acquiror and Xxxxxx
agree that the default provisions under the Xxxxxx Note shall be
commercially reasonable for commercial loans of the same relative
magnitude.
The Target Companies agree that neither they, nor any employee, officer,
director, shareholder or agent of the Target Companies, shall be
compensated, directly or indirectly, for their services in connection with
the sale of the Non-Operating Assets; provided, the foregoing provision
shall not prevent such individual from receiving his regular
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compensation from a Target Company or, to the extent of the documentation
therefor, reimbursement for reasonable out-of-pocket expenditures incurred
on behalf of the U.S. Company in effectuating a sale to a person other than
Xxxxxx.
(h) At the Effective Time, each individual reflected as an obligor
under a loan from the U.S. Company in Section 3.29(2) to the Target Company
Disclosure Schedules shall execute and deliver to the U.S. Surviving
Corporation a promissory note for the outstanding principal balance under
such loan, which promissory note shall have a term as set forth on such
Schedules, bear interest at the short-term applicable federal rate and
otherwise be in form and substance reasonably satisfactory to Acquiror.
Xxxxxx hereby agrees to indemnify and hold the U.S. Surviving Corporation
harmless from and against any losses under each such promissory note,
including principal and interest which is not paid when due, and upon full
satisfaction of the principal amount and accrued interest outstanding under
any such promissory note by Xxxxxx, the U.S. Surviving Corporation shall
quitclaim to Xxxxxx, without recourse of any nature whatsoever, its entire
right, title and interest in such promissory note. Thereafter, Xxxxxx
shall hold the U.S. Surviving Corporation (and its successor) harmless from
and against any and all claims arising thereunder.
(i) Prior to the Effective Time, Acquiror and the U.S. Company shall
mutually determine the Taxes, if any, payable by the U.S. Shareholders with
respect to the Subchapter S Status of the U.S. Company for the taxable year
ending December 31, 1996 and the 1997 short period ending prior to the
Effective Time (the "Stub Period"). Such Taxes shall be calculated at a
combined rate equal to the highest marginal rate of federal and state
income tax applicable to Xxxxxx'x taxable income for the taxable year
ending December 31, 1996. Immediately prior to the Effective Time, the
U.S. Company shall declare and pay to each U.S. Shareholder an amount in
cash (the "S Corporation Tax Distribution") equal to the difference between
(i) the Taxes so determined by Acquiror and the U.S. Company based on their
estimate of such Shareholder's portion of U.S. Company taxable income for
the taxable year ended December 31, 1996, and the Stub Period, LESS (ii)
aggregate distributions by the U.S. Company to such Shareholder after
January 1, 1996; provided, however, such distributions shall be net of any
cash distributions (1) reported to such Shareholder as wages on Form W-2,
or interest, rents, periodic payments, reimbursement amounts, loans,
annuities and pension distributions on Forms 1099 issuable in respect of
such Shareholder in respect of the 1996 taxable year, or (2) made to Xxxxxx
in April, 1996 to cover his Taxes on U.S. Company taxable income for the
year ended December 31, 1995 (such net distribution amount is hereafter the
"Prior S Corporation Distribution").
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(i) Acquiror has informed the U.S. Shareholders, and the U.S.
Shareholders hereby acknowledge, that Acquiror's ability to
characterize the Unitary Transaction herein as a
pooling-of-interests may be compromised if Prior S Corporation
Distributions and S Corporation Tax Distributions to a U.S.
Shareholder exceed his share of the U.S. Company's taxable income
for 1996. The U.S. Shareholders therefore agree that, upon
Acquiror's written demand after the Effective Time, they shall be
jointly and severally obligated to pay the U.S. Surviving
Corporation the amount, if any, by which the U.S. Company's
taxable income during the entire 1996 taxable year, as reported
on the U.S. Company's Form 1120S for such period, is less than
the sum of the S Corporation Tax Distribution and the Prior S
Corporation Distribution. The U.S. Shareholders agree that
payment of such amount to the U.S. Surviving Corporation shall be
made promptly upon written demand by Acquiror. Each U.S.
Shareholder jointly and severally warrants to Acquiror that from
the date of this Agreement to the Effective Time, the U.S.
Company shall not make any distributions to, for or on account of
any U.S. Shareholder other than in respect of wages or those
other Form 1099 items enumerated above.
(ii) The U.S. Shareholders agree the S Corporation Tax Distribution
shall be final and binding for all purposes under this Agreement,
notwithstanding subsequent changes in the U.S. Company's net
income or Xxxxxx'x tax calculations for 1995, and whether due to
error, mistake, permissive adjustments, the recalculation of U.S.
Company income or expenses, or other matters, and whether within
or outside the control of the U.S. Company or U.S. Shareholders.
SECTION 5.02. NEGATIVE COVENANTS OF THE TARGET COMPANIES. Except as
expressly contemplated by this Agreement, or otherwise consented to in writing
by Acquiror, which consent shall not be unreasonably withheld, from the date of
this Agreement until the Effective Time, the Target Companies shall not, and
shall not cause their subsidiaries to, and no U.S. Shareholder shall cause a
Target Company to, individually or collectively, do any of the following:
(a) (i) Increase the compensation payable or to become payable to any
director, officer, manager or employee, except for increases in salary,
bonuses or wages payable or to become payable in the ordinary course of
business and consistent with past practice to employees who are not
directors, officers or managers, (ii) grant any severance or termination
pay (other than pursuant to normal severance policy) to, or enter into
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any severance agreement with, any director, officer, manager or employee,
(iii) enter into any employment agreement of any nature whatsoever with any
director, officer, manager or employee that would extend beyond the
Effective Time, except on an at-will basis, or (iv) establish, adopt, enter
into or amend any employee benefit plan or arrangement, except as may be
required to comply with applicable Law;
(b) Except as provided in Section 5.01(i) hereof, declare or pay, or
agree to declare or pay, in any manner whatsoever, any dividend on, or make
any other distribution in respect of, outstanding shares of U.S. Company
Stock, Other U.S. Company Securities or U.S. Company Options, and the
stock, securities or options of each of the Canadian Target Companies;
(c) (i) Redeem, purchase or otherwise acquire any shares of its or
any of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its subsidiaries'
capital stock, or any options, warrants or conversion or other rights to
acquire any shares of its or its subsidiaries' capital stock or any such
securities or obligations, (ii) effect any reorganization or
recapitalization, or (iii) split, combine or reclassify any of its or its
respective subsidiaries' capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock;
(d) Issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale of (including the grant of any security
interests, liens, claims, pledges, limitations in voting rights, charges or
other encumbrances), any shares of any class of its or its subsidiaries'
capital stock (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire any such shares, or amend or
otherwise modify the terms of any such rights, warrants or options, the
effect of which shall be to make such terms more favorable to the holders
thereof;
(e) Acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with reasonable past practices);
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(f) Except to the extent required under Section 5.01(g) of this
Agreement, sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any amount of any of its or its subsidiaries'
operating assets, except for retirements of operating assets in the
ordinary course of business and consistent with reasonable past practices;
(g) The U.S. Shareholders agree not to sell their shares in any of
the Target Companies;
(h) Initiate, solicit or encourage (including by way of furnishing
any information or assistance in connection with) any inquiries or the
making of any offer that constitutes, or may reasonably be expected to lead
to, any "Competing Transaction" (as such term is defined below), enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction. Each Target Company shall
promptly notify Acquiror if any such inquiries or proposals are received by
a Target Company or any of its subsidiaries, or by any of their respective
officers, directors, financial advisors, attorneys, accountants or other
representatives. For purposes of this Agreement, the term "Competing
Transaction" shall mean any of the following involving a Target Company or
any subsidiary (other than the transactions contemplated by this
Agreement): (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of two percent (2%) or more
of the assets of a Target Company or a subsidiary thereof, in a single
transaction; (iii) any sale or exchange for any outstanding shares of
capital stock of a Target Company or any subsidiary thereof; or (iv) any
agreement to, or announcement by a Target Company of a proposal, plan or
intention, to do any of the foregoing;
(i) Adopt any amendments to their Articles or By-Laws;
(j) Change any methods of accounting in effect at December 31, 1995,
or make or rescind any express or deemed election relating to taxes
(including an election to file a Subchapter S Return), settle or compromise
any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or change any method
of reporting income, gain, expense, loss or deduction for foreign, federal,
state, provincial or local income tax purposes from those employed in the
preparation of income tax returns for taxable years ending on or prior to
September 30, 1996, in the case of the Canada Company, or December 31,
1995,
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in the case of the U.S. Company, except in either case as may be required
by Law;
(k) Incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except for borrowings under the Credit Agreement
described in Section 6.08(b)(1) hereof in furtherance of a Target Company's
activities with respect to the sale of product inventories to customers in
the ordinary course of business, or those borrowings made with the prior
written consent of Acquiror, which consent shall not be unreasonably
withheld; provided, however, such consent may be withheld in Acquiror's
sole discretion in the event (i) such borrowing exceeds fifty thousand
dollars ($50,000) in any instance, or the aggregate of all such borrowings
after the date hereof exceeds two hundred fifty thousand dollars
($250,000), or (ii) no funds are available for disbursement under the said
Credit Agreement;
(l) Agree in writing or otherwise to do any of the foregoing; or
(m) Without first consulting with Acquiror, (i) perform any act
which, if performed, would prevent or excuse the performance of this
Agreement by Acquiror or which would result in any representation or
warranty herein contained of the Target Companies to be untrue in any
material respect as if originally made on and as of the Effective Time, or
(ii) fail to perform any act which, if omitted to be performed, would
prevent or excuse the performance of this Agreement by Acquiror or which
would result in any representation or warranty herein contained of the
Target Companies to be untrue in any material respect as if originally made
on and as of the Effective Time.
SECTION 5.03. AFFIRMATIVE COVENANTS OF ACQUIROR. Acquiror hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by the
Target Companies, Acquiror will, and will cause each of its subsidiaries to:
(a) Operate its business in the usual and ordinary course;
(b) Use reasonable efforts to preserve intact its business
organization and assets, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain the
relationships with its respective customers and suppliers;
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(c) Use reasonable efforts to keep in full force and effect liability
insurance and bonds comparable in amount and scope of coverage to that
currently maintained; and
(d) Disclose a reasonable time beforehand and consult with Xxxxxx
with respect to any material acquisition prior to entering into any binding
agreement with respect to such acquisition.
SECTION 5.04. NEGATIVE COVENANTS OF ACQUIROR. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Target Companies, from the date of this Agreement to the Effective Time,
Acquiror shall not, and shall not permit any of its subsidiaries to (i) amend
any of the material terms or provisions of Acquiror's securities, (ii) agree in
writing or otherwise to do the foregoing, or (iii) without first consulting with
the Target Companies, (x) perform any act which, if performed, would prevent or
excuse the performance of this Agreement by the Target Companies or which would
result in any representation or warranty herein contained of the Acquiror to be
untrue in any material respect as if originally made on and as of the Effective
Time, or (y) fail to perform any act which, if omitted to be performed, would
prevent or excuse the performance of this Agreement by the Target Companies or
which would result in any representation or warranty herein contained of
Acquiror to be untrue in any material respect as if originally made on and as of
the Effective Time.
SECTION 5.05. ACCESS AND INFORMATION.
(a) Upon reasonable prior notice from Acquiror, the Target Companies
shall (and shall cause their subsidiaries to) afford to Acquiror and its
officers, employees, accountants, consultants, legal counsel and other
representatives, reasonable access during business hours to (i) the
properties and locations at which the Target Companies and their
subsidiaries are conducting business activities, (ii) the directors,
officers and management personnel of the Target Companies at all such
locations, and (iii) all information (including, if available, original
documents and Returns) concerning the business, properties, contracts,
records and personnel of the Target Companies and their subsidiaries. The
Target Companies shall permit Acquiror to make copies of such books,
records and other documents as Acquiror reasonably considers necessary or
appropriate for the purpose of familiarizing itself with the business,
properties, contracts, records and personnel of such corporations, and/or
for obtaining any approvals, consents, licenses or permits for the
transactions contemplated by this Agreement.
(b) Acquiror shall (and shall cause its subsidiaries to) afford to
the Target Companies and their respective officers,
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employees, accountants, consultants, legal counsel and other
representatives, reasonable access upon reasonable notice to all
information concerning the business, properties, contracts, records,
personnel (whether employees or independent contractors), and independent
accountants and legal counsel of Acquiror or its subsidiaries as the Target
Companies may reasonably request, and as may be lawfully disclosed by
Acquiror.
(c) The parties and their respective officers, employees,
accountants, consultants, legal counsel and other representatives shall
comply with all of their respective obligations under that certain
Confidentiality Letter Agreement dated August, 1996, among Acquiror, the
U.S. Company, and Xxxxxx.
SECTION 5.056. NEW U.S. SHAREHOLDERS. Only to the extent Acquiror consents
in writing to the addition of a new U.S. Shareholder prior to the Effective
Date, the Target Companies shall cause each person so becoming a U.S.
Shareholder to be bound by this Agreement, by executing a counterpart of this
Agreement and such other documents in form and substance reasonably satisfactory
to Acquiror which causes this Agreement, and the duties and obligations of
current and subsequent U.S. Shareholders hereunder, to become valid and binding
on such new U.S. Shareholder; provided, however, prior to the Effective Time no
person shall be permitted to acquire shares of stock in, and consent shall be
deemed automatically denied with respect to any (i) proposed transfer of shares
of, the Canada Company or Canada Holding Company-2, or (ii) proposed transfer of
shares of the U.S. Company or the Canada Company if Acquiror believes such
transfer may prevent the Unitary Transaction from qualifying as a
pooling-of-interests.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. AFFILIATE STATUS; ACCOUNTING AND TAX TREATMENT. Each U.S.
Shareholder acknowledges and agrees that (i) as of the date hereof, he/she is an
affiliate of the Target Companies under applicable accounting releases with
respect to pooling-of-interests accounting treatment, and (ii) at and after the
Effective Time, by virtue of his/her shareholdings in Acquiror, as well as
his/her employment status, status set forth in Section 6.13 hereof, or
relationship to Xxxxxx, he/she shall be deemed to be an affiliate of Acquiror.
As used herein, the term "affiliate" shall have the same meaning given to such
term for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations of the Commission under the Securities Act, and/or as used in and
for purposes of Accounting Series, Releases 130 and 135, as amended, of the
Commission. Prior to the Effective Time, but in any event not later than the
second business day following any acquisition by a
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U.S. Shareholder of registered shares of Acquiror's Common Voting Stock in a
transaction executed on a recognized public securities exchange, each U.S.
Shareholder shall execute and deliver to each of Acquiror, the U.S. Company and
the Canada Company an agreement substantially in the form of Exhibit B hereto
("Affiliate Agreement"), and thereafter such U.S. Shareholder shall perform in
accordance with the terms and conditions thereof. In addition, each party shall
use reasonable efforts to cause the U.S. Merger, the Canada Reorganization and
the Unitary Transaction to qualify, and shall not take any actions which could
prevent any such transaction from qualifying, for pooling-of-interests
accounting treatment and as a reorganization qualifying under the provisions of
Section 368(a) of the Code; provided, however, that the incurrence of tax by
Nelson upon consummation of the Canada Reorganization by virtue of the Canada
Company's status as a "controlled foreign corporation" under the Code shall not,
in itself, be deemed a disqualification from reorganization treatment under the
provisions of Section 368(a) of the Code.
SECTION 6.02. RULES GOVERNING THE ISSUANCE AND HOLDING OF ACQUIROR COMMON
STOCK. Shares of Acquiror Common Stock are being issued by Acquiror to the U.S.
Shareholders under the U.S. Merger and Canada Reorganization in reliance upon
the following representations, warranties and agreements of the U.S.
Shareholders, each of which shall be true and correct as of the date hereof and
at the Effective Time, and each of which shall survive the Effective Time.
(a) Each U.S. Shareholder acknowledges that shares of Acquiror Common
Stock issuable to him/her at the Effective Time in the U.S. Merger and
Canada Reorganization will not have been registered under the Securities
Act or under applicable state securities laws.
(b) All shares of Acquiror Common Stock deliverable to a U.S.
Shareholder in the Unitary Transaction are being acquired solely for
investment purposes and for such Shareholder's account, and not as a
nominee or agent for others or with a view to or for sale in connection
with any distribution, and such Shareholder has no present intention of
selling, granting a participation in or otherwise distributing such shares
of Acquiror Common Stock or any portion thereof.
(c) Each U.S. Shareholder agrees that he/she shall not make a
disposition of any shares of Acquiror Common Stock issued in the Unitary
Transaction unless such shares have been registered in accordance with
Section 6.03 hereof, or are sold in accordance with the terms and
conditions of the Affiliate Agreement.
(d) Each U.S. Shareholder acknowledges that his/her investment in
shares of Acquiror Common Stock is a speculative
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investment with limited liquidity and subject to the risk of loss. Each
U.S. Shareholder represents and warrants to Acquiror that he/she is able to
fend for himself/herself in the transactions contemplated by this
Agreement, has such knowledge and expertise in financial and business
matters as to be capable of evaluating the merits and risks of his/her
investment and has the ability to bear the economic risks (including the
risk of loss) of his/her investment.
(e) Each U.S. Shareholder represents and warrants that he/she has had
the opportunity to ask questions of Acquiror concerning its business and to
obtain any information which he/she considered necessary to verify the
accuracy of or to amplify upon Acquiror's disclosures, and has had all
questions which have been asked by him/her answered by Acquiror. The
information, documentation, analyses, compilations, studies or other
documentation, whether supplied by Acquiror to a U.S. Shareholder or
prepared by any of them on their own behalf, in connection with the
transactions contemplated hereby (hereinafter "Information"), will be kept
confidential and shall not, without Acquiror's prior written consent or as
may be required by Law, be disclosed directly or indirectly by the U.S.
Shareholders, the Target Companies, or their subsidiaries, employees,
officers, directors, agents or representatives in any manner whatsoever, in
whole or in part, and shall not be used by the U.S. Shareholders, the
Target Companies, or their subsidiaries, employees, officers, directors,
agents or representatives in any manner whatsoever, except for the purpose
of assessing the transactions contemplated hereby.
(f) Each U.S. Shareholder acknowledges that his/her shares of
Acquiror Common Stock must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration
is available. Such U.S. Shareholder acknowledges he/she is aware of the
provisions of Rule 144 and Rule 144A promulgated under the Securities Act
which permit limited resales of unregistered securities, subject to the
satisfaction of certain conditions.
(g) Each U.S. Shareholder acknowledges that his/her shares of
Acquiror Common Stock are subject to set-off and cancellation as provided
herein for (i) the breach by a U.S. Shareholder or a Target Company of a
covenant or agreement hereunder, (ii) a breach of or misstatement in the
representations or warranties of a U.S. Shareholder or a Target Company
under this Agreement, or (iii) a claim as to which a U.S. Shareholder has
agreed to indemnify Acquiror in accordance with the terms and conditions of
Article IX hereof; provided, however, Acquiror's right of set-off and
cancellation in respect of such indemnification shall be limited to two
hundred two thousand five hundred (202,500)
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unregistered shares of Acquiror Common Stock, representing nine percent
(9%) of the total number of shares of Acquiror Common Stock issuable by
Acquiror to the U.S. Shareholders in the Unitary Transaction; and provided,
further, Acquiror rights under this Agreement shall not be so limited with
respect to any claim respecting, or breach or violation of, those matters
described in Schedule 6.02(g) to the Acquiror Disclosure Schedules.
SECTION 6.03. STEP REGISTRATION OF ACQUIROR COMMON STOCK. On or prior to
May 17, 1997, Acquiror shall effect the registration for resale of thirty-three
and one-third percent (33 1/3%) of the Acquiror Common Stock previously issued
to the U.S. Shareholders in the Unitary Transaction. Acquiror further agrees
that (i) on or prior to the first anniversary of the Effective Time, it shall
effect the registration for resale of an additional thirty-three and one-third
percent (33 1/3%) of the unregistered shares of the original total Acquiror
Common Stock, and (ii) on or prior to the second anniversary of the Effective
Time, except as provided below, it shall effect the registration for resale of
the balance of such unregistered shares of Acquiror Common Stock, to the extent
then owned by the U.S. Shareholders. Acquiror shall use all reasonable efforts
to effect the registration of the unregistered shares of Acquiror Common Stock
for resale under the Securities Act, by performing the following:
(a) The registration for resale shall be effected through a shelf
registration statement and related prospectus (collectively, "Resale
Prospectus") covering the applicable unregistered shares of Acquiror Common
Stock ("Unregistered Shares"), prepared and filed by Acquiror with the
Securities and Exchange Commission (the "Commission"). Acquiror shall
cause each Resale Prospectus to become and remain effective for a period of
five years from the Effective Time.
(b) Acquiror shall, if deemed reasonably necessary by any U.S.
Shareholder, use its best efforts to register, or obtain and maintain
exemption from registration or qualification for, such Unregistered Shares
otherwise qualifying for registration under this Section under the
securities or blue sky laws of each state as such Shareholder shall
reasonably request, and update such registration, qualification or
exemption and take any other action which may be reasonably necessary or
advisable to enable such Shareholder to consummate the sale or disposition
of Acquiror Common Stock in such states; provided, however, Acquiror shall
not be required to (i) qualify to do business as a foreign corporation in
any such state, (ii) consent to general service of process in any such
state, or (iii) comply with any requirement or condition to registration or
qualification which would impose an unreasonable burden on Acquiror or any
of its respective officers, directors or shareholders.
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(c) Acquiror shall identify and cause there to be provided at all
times to the U.S. Shareholders a transfer agent for all the Acquiror Common
Stock required to be registered under this Agreement;
(d) Acquiror shall provide, or cause there to be provided, such
certificates, instruments and any other documents required under the
Securities Act, requested by the Commission in connection with the sale by
any U.S. Shareholder of Acquiror Common Stock covered by a Resale
Prospectus, or otherwise necessary or reasonably required in connection
with, or to facilitate, the sale of Acquiror Common Stock in accordance
with this Agreement or any other related agreement;
(e) Acquiror shall file with the appropriate stock exchange or
trading system a notification form for the listing of additional shares
with respect to the Unregistered Shares at the time(s) and in the manner
required by the such exchange or trading system;
(f) Acquiror shall prepare and file with the Commission such required
amendments and supplements to each Resale Prospectus as may be necessary to
update and keep such Resale Prospectus effective and to comply with the
provisions of the Securities Act with respect to the sale of securities
covered by such Resale Prospectus; provided, however, nothing herein shall
require Acquiror to disclose any confidential information concerning its
business, results of operations or contemplated activities not otherwise
required to be disclosed; provided however, that Acquiror covenants and
agrees that it shall not allow any period of greater than three (3) months
to exist wherein the Acquiror would have information such that it could not
appropriately update the Resale Prospectus.
(g) Acquiror shall furnish the U.S. Shareholders with such number of
copies of the preliminary and final Resale Prospectus as the U.S.
Shareholders may reasonably request in order to facilitate the sale of
registered shares of Acquiror Common Stock ("Registered Shares") owned by
such Shareholder; provided that the U.S. Shareholders shall comply with all
prospectus delivery requirements under the Securities Act; and provided,
further, all sales of Registered Shares shall be in accordance with and
subject to the conditions of the Affiliate Agreement.
(h) All expenses incurred by Acquiror in effecting the registration
for resale of Unregistered Shares including, without limitation, all
registration and filing fees with any governmental entity, printing
expenses, and fees and disbursements of counsel for Acquiror, shall be paid
by and the sole obligation of Acquiror. All selling commissions
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applicable to sales of Registered Shares and all fees and disbursements of
counsel in connection therewith shall be paid by and be the sole obligation
of the U.S. Shareholders.
(i) The U.S. Shareholders shall timely furnish such information as
may reasonably be requested by Acquiror for inclusion in, or necessary to
the preparation of, a Resale Prospectus or other filing ancillary thereto.
The information supplied by the U.S. Shareholders (or by a Target Company
on their behalf) for inclusion in a Resale Prospectus shall not, at the
time such Resale Prospectus is declared effective, 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 are made, not misleading.
(j) The information supplied by Acquiror for inclusion in a Resale
Prospectus shall not, at the time such Resale Prospectus is declared
effective, 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
are made, not misleading.
(k) To the extent required by the rules and regulations of the
Commission, the U.S. Shareholders hereby consent to the use of his or her
name and to the inclusion of financial statements and business information
relating to the Target Companies in any registration statement or proxy
statement prepared by Acquiror. The U.S. Shareholders agree to use
reasonable efforts to obtain the written consent of any person or entity
retained by him or a Target Company and required to be named (as an expert
or otherwise) in such registration statement or proxy statement, and
further, agrees to cooperate, with any legal counsel, investment banker,
accountant or other agent or representative retained by Acquiror in
connection with the preparation of any and all information required.
SECTION 6.04. DEMAND REGISTRATION RIGHTS OF U.S. SHAREHOLDERS.
(a) DEMAND REGISTRATION. If, by December 31, 1997, the U.S.
Shareholders have not sold Registered Shares in open market and private
transactions yielding aggregate gross proceeds (hereafter, the "Realized
Value") of eighteen million dollars ($18,000,000), at discounts of seven
percent (7%) or better, then Xxxxxx shall have the right, exercisable at
any time through and including June 30, 1998, to notify Acquiror in writing
of his election to sell a quantity of Registered Shares then having an
aggregate fair market value not exceeding the difference between eighteen
million dollars ($18,000,000) and the Realized Value (Registered Shares
with
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such aggregate fair market value are the "Underwritten Block"). Promptly
upon its receipt of Xxxxxx'x notice, but in no event later than ninety (90)
days thereafter, Acquiror shall select a managing underwriter reasonably
acceptable to Xxxxxx to conduct an underwritten offering of the
Underwritten Block, together with such shares as Acquiror may elect to sell
in such underwritten offering, and each of Acquiror, such managing
underwriter and Xxxxxx shall use their respective best efforts to cause
such an underwritten offering to become effective on or prior to June 30,
1998. In connection with the underwritten offering, Acquiror will:
(i) promptly give to the U.S. Shareholders written notice
thereof of their ability to participate therein to the extent of the
Underwritten Block; and
(ii) include in such registered offering and in the underwriting
involved therein all securities, to the extent of the Underwritten
Block, specified in a written request or requests made within twenty
(20) days after receipt of such written notice from Acquiror by a U.S.
Shareholder. Acquiror, together with such U.S. Share-holders who
shall elect to participate in such registered offering, shall enter
into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by Acquiror. In no event
shall any other holder of registration rights with respect to a
security of Acquiror be given preferential or similar treatment to the
registration rights granted to U.S. Shareholders in accordance with
this Section 6.04.
(b) PIGGYBACK REGISTRATION. If at any time or from time to time,
prior to the disposition of the Acquiror Common Stock issued pursuant to
this Agreement, Acquiror proposes to register under the Securities Act any
Shares of Acquiror Common Stock for its own account or the account of any
other person Acquiror will:
(i) promptly give the U.S. Shareholders written notice thereof;
and
(ii) subject to the other provisions of this Section 6.04 and to
the rights of other stockholders of Acquiror pursuant to (1)
those certain Registration Rights Agreements dated sa of
September 30, 1996 between Acquiror and the former
stockholders of Market USA, Inc., and (2) the Registration
Rights Agreement dated as of January 11, 1995, as amended,
between Acquiror and Merchant Partners, L.P. (and its
distributors and permitted assignees), include in such
registration and
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in the underwriting involved therein all securities
specified in a written request or requests made within
twenty (20) days after delivery of such written notice by
Acquiror to the U.S. Shareholders.
U.S. Shareholders electing to participate in such registration shall enter
into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by Acquiror. With the exception
of the rights of certain Acquiror stockholders Registrants in existence on
the date of this Agreement, no other person shall be granted registration
rights with respect to shares of Acquiror Common Stock which are superior
to or on a par with the rights of the U.S. Shareholders pursuant to this
subsection (b); provided, however, the foregoing prohibition shall expire
and have no further force or effect upon the earlier of (1) expiration of
the "Nominating Period" (hereafter defined), or (2) Xxxxxx'x sale of
sixty-five percent (65%) or more of the shares of Acquiror Common Stock
issued to him in the Unitary Transaction.
(c) REGISTRATION EXPENSES. All demand and piggyback registration
expenses incurred in connection with any registration, qualification or
compliance pursuant this Section 6.04, including but not limited to fees
and expenses of counsel appointed to represent the selling U.S.
Shareholders, shall be borne by Acquiror, except that the selling U.S.
Shareholders shall be responsible for and separately pay their pro-rata
portion of any underwriting discount and any fees of counsel retained by
them.
SECTION 6.05. INDEMNIFICATION FOR SECURITIES MATTERS.
(a) In connection with the registration of the Unregistered Shares
under the Securities Act pursuant to a Resale Prospectus, Acquiror agrees
to indemnify and hold harmless the seller of the Registered Shares, each
underwriter of the Registered Shares and each other person, if any, who
controls such seller or underwriter within the meaning of Section 15 of the
Securities Act, against any Damage (as hereafter defined), joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such Damages (or
actions or proceedings in respect thereof) arise out of or are based upon
any untrue statement (or alleged untrue statement) of a material fact
contained in any Resale Prospectus (or any amendment or supplement
thereto), or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and Acquiror will reimburse such seller,
underwriter and controlling person for any legal or other
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expenses reasonably incurred by such seller, underwriter or controlling
person in connection with investigating or defending against any such
Damage; provided, however, that Acquiror shall not be liable in any such
case to the extent that any such Damage (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement (or alleged
untrue statement) or omission (or alleged omission) of a material fact made
in such Resale Prospectus (or amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to Acquiror
through an instrument duly executed by such seller or underwriter
specifically for use in the preparation thereof; and provided, further,
that Acquiror shall not be liable to any person who participates as an
underwriter in the offer or sale of Registered Shares or any other person,
if any, who controls such underwriter within the meaning of the Securities
Act (or the Exchange Act), in any such case to the extent that any Damage
(or action or proceeding in respect thereof) arises out of such person's
failure to send or give a copy of the final Resale Prospectus, as the same
may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to written confirmation of the sale of Registered Shares to such
person if such statement or omission was corrected in such final Resale
Prospectus.
(b) In connection with the registration of the Unregistered Shares
under the Securities Act pursuant to a Resale Prospectus, Xxxxxx and the
other sellers of the Registered Shares, severally and not jointly, will
indemnify and hold harmless Acquiror, each person, if any, who controls
Acquiror within the meaning of Section 15 of the Securities Act, each
officer of Acquiror who signs the Resale Prospectus, each director of
Acquiror, each underwriter and each person who controls an underwriter
within the meaning of Section 15 of the Securities Act, against any Damage,
joint or several, to which Acquiror or such officer, director, underwriter
or controlling person may become subject under the Securities Act or
otherwise, and will reimburse Acquiror or such officer, director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by Acquiror or such officer, director, underwriter or
controlling person in connection with investigating or defending against
any such Damage, but only insofar as such Damage (or actions in respect
thereof) arises out of or is based upon an untrue statement (or alleged
untrue statement) or omission (or alleged omission) of a material fact
referred to in subsection (a), above; and provided, further, that this
subsection (b) shall apply if and only if such statement (or alleged untrue
statement) or omission (or alleged omission) was made in reliance upon and
in conformity with information furnished in
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writing to Acquiror by or on behalf of Xxxxxx or such seller specifically
for use in such Resale Prospectus.
(c) It shall be a condition of Acquiror's obligations to effect the
registration of Unregistered Shares that the sellers participating in such
registration provide Acquiror and the underwriters, if any, with all
material facts, including, without limitation, furnishing such
certificates, questionnaires and legal opinions as may be required by
Acquiror or such underwriters, concerning such participating sellers and
the Unregistered Shares to be registered which are reasonably required to
be stated in the Resale Prospectus or are otherwise required in connection
with the offering. If any seller does not provide such requisite
information, Acquiror shall have the right to prevent the registration of
unregistered shares held by the cooperative sellers.
(d) If the indemnification provided in this Section 6.05 is for any
reason unavailable or insufficient to hold an indemnified party harmless
hereunder, then the indemnifying party shall contribute the amount paid or
payable by such indemnified party as a result of the Damage referred to
herein in such proportion as is appropriate to reflect the relative fault
of Acquiror, on the one hand, and Xxxxxx, on the other, in connection with
the statements or omissions that resulted in such Damage, as well as any
other relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from a person who was not guilty of
fraudulent misrepresentation. Each party entitled to contribution agrees
that upon the service of a summons or other initial legal process upon it
in any action in respect of which contribution may be sought, it shall
promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission to so notify such party
or parties shall not relieve the party from whom contribution may be sought
from any obligation it may have hereunder.
(e) Acquiror covenants and agrees at the reasonable request of any of
the Shareholders to enter into underwriting agreements containing
indemnification provisions substantially identical to those contained in
this Section 6.05.
SECTION 6.06. MERGERS, ETC. Acquiror agrees that it shall not, directly
or indirectly, enter into any merger, consolidation or reorganization in which
it shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of Acquiror under Sections 6.02(c) and (i),
6.03 and 6.04 hereof; provided, however, that the provisions of Section 6.03
hereof shall not apply in the event of any merger,
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consolidation or reorganization in which Acquiror is not the surviving
corporation if all Acquiror shareholders are entitled to receive consideration
in exchange for their shares of Acquiror Common Stock consisting solely of cash,
securities of the acquiring corporation which may be immediately sold to the
public without registration under the Securities Act, or securities of the
acquiring corporation which the acquiring corporation has agreed to register for
resale to the public within ninety (90) days after the completion of such
transaction.
SECTION 6.07. RATIFICATION OF TARGET COMPANY APPROVAL. At any time or
times prior to the Effective Time as Acquiror shall reasonably request, the U.S.
Shareholders shall provide Acquiror with documents, in such form and substance
as reasonably requested by Acquiror, executed by the shareholder(s) and/or Board
of Directors of each Target Company, affirming and ratifying their unanimous
approval of and consent to the Unitary Transaction and the other transactions
contemplated hereunder.
SECTION 6.08. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Target Companies, U.S. Shareholders and Acquiror shall use
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Laws or otherwise to consummate and make
effective the transactions contemplated by this Agreement as promptly as
practicable, (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by the Target Companies, U.S. Shareholders or Acquiror
or any of their respective subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated herein, including, without
limitation, the Unitary Transaction, and (iii) make all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Unitary Transaction required under (A) the Securities Act
and the Exchange Act, and any other applicable U.S. and Canadian, federal,
provincial or state securities Laws, (B) the HSR Act, (C) the Competition
Act, and (D) any other applicable Law; provided, however, that the Target
Companies and Acquiror shall cooperate with each other in connection with
the making of all such filings, including providing copies of all such
documents to the non-filing party and its advisors prior to filing and, if
requested, to accept all reasonable additions, deletions or changes
suggested in connection therewith. The Target Companies, U.S. Shareholders
and Acquiror shall furnish to each other all information
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required for any application or other filing to be made pursuant to the
rules and regulations of any applicable Law (including, if so requested by
Acquiror, all information required to be included in the Resale Prospectus)
in connection with the transactions contemplated by this Agreement.
(b)(i) The Target Companies, U.S. Shareholders and Acquiror shall give
(or shall cause their respective subsidiaries or affiliates to give) any
notices to third parties, and use, and cause their respective subsidiaries
to use, all reasonable efforts to obtain any third party consents, (A)
necessary or advisable to consummate the transactions contemplated in this
Agreement, or (B) required to prevent a Target Company Adverse Effect from
occurring prior to or after the Effective Time or an Acquiror Adverse
Effect from occurring prior to or after the Effective Time (collectively,
"Material Consents"). Without limiting the generality of the foregoing,
the Target Companies and U.S. Shareholders agree that the consents
described below shall constitute Material Consents, and on and after the
date hereof they shall use their reasonable best efforts to secure such
Material Consents in writing, at no cost to the U.S. Surviving Corporation,
prior to the Effective Time:
1. Consent of Comerica Bank, as Agent, to the assignment by the U.S.
Company to the U.S. Surviving Corporation of all rights under Credit
Agreement dated as of June 28, 1996.
2. Consent of Ford Motor Company to the assignment by the U.S. Company to
the U.S. Surviving Corporation of all rights under (i) Agreement
Relating to Fulfillment and Corporate Marketing and Licensing
Representation, and (ii) Trademark License Agreement, each dated July
11, 1996.
3. Consent of Roots USA, Inc. and Roots Canada Limited to the assignment
by the U.S. Company to the U.S. Surviving Corporation of all rights
under an Agreement dated as of February 2, 1996 with the U.S. Company
and the Canada Company.
(ii) In the event that any party shall fail to obtain a third party
consent described in subsection (b)(i), above, without incurring additional
premium, penalty or cost (excepting, however, legal costs incurred by the
contract principal and charged to a Target Company in connection with such
assignment), such party shall use best reasonable efforts, and shall take
any such actions reasonably requested by the other party hereto, to
minimize any adverse effect upon the Target Companies and Acquiror, their
respective subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
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(c) From the date of this Agreement until the Effective Time, the
Target Companies and U.S. Shareholders shall promptly notify Acquiror in
writing of any pending or, to the knowledge of any Target Company,
threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking damages in connection with
the U.S. Merger, the Canada Reorganization, the Unitary Transaction, the
conversion of U.S. Company Stock into Acquiror Common Stock pursuant to the
U.S. Merger, the conversion of Canada Holding Company Stock into Acquiror
Common Stock pursuant to the Canada Reorganization, and the conversion of
Acquiror Sub capital stock into capital stock of the U.S. Surviving
Corporation, or (ii) seeking to restrain or prohibit the consummation of
the Unitary Transaction, the other transactions contemplated under this
Agreement, or otherwise limit the right of Acquiror or its subsidiaries to
own or operate all or any portion of the businesses or assets of the Target
Companies, the U.S. Surviving Corporation or their subsidiaries, which in
either case is reasonably likely to have a Target Company Adverse Effect
prior to or after the Effective Time, or an Acquiror Adverse Effect after
the Effective Time.
(d) From the date of this Agreement until the Effective Time,
Acquiror shall promptly notify the Target Companies and Xxxxxx in writing
of any pending or, to the knowledge of Acquiror, threatened action,
proceeding or investigation by any Governmental Entity or any other person
(i) challenging or seeking damages in connection with the U.S. Merger, the
Canada Reorganization, the Unitary Transaction, the conversion of U.S.
Company Stock into Acquiror Common Stock pursuant to the U.S. Merger, the
conversion of Canada Holding Company Stock into Acquiror Common Stock
pursuant to the Canada Reorganization, or the conversion of Acquiror Sub
capital stock into capital stock of the U.S. Surviving Corporation, or (ii)
seeking to restrain or prohibit the consummation of the Unitary Transaction
or the other transactions contemplated under this Agreement, or in either
case reasonably likely to have an Acquiror Adverse Effect prior to the
Effective Time.
SECTION 6.09. UPDATED TARGET COMPANY FINANCIAL STATEMENTS. The Target
Companies and U.S. Shareholders shall use their reasonable efforts,
respectively, to cause Coopers & Xxxxxxx, L.L.P., independent public accountants
for the Target Companies and Xxxxxx, to revise and restate the Target Company
Financial Statements for the years ended December 31, 1994 and 1995, in the
format as previously discussed between the respective financial officers of
Acquiror and the U.S. Company to bring them into conformity with the accounting
practices and principles utilized by Acquiror and to satisfy the
pooling-of-interest rules, and which revised and restated Financial Statements
shall be in form and substance reasonably satisfactory to Acquiror.
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SECTION 6.10. UPDATE DISCLOSURE; BREACHES. From and after the date of
this Agreement until the Effective Time, the Target Companies and Xxxxxx, on the
one hand, and Acquiror, on the other hand, shall promptly notify the other by
written update to its Disclosure Schedules of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any condition to the obligations of any party to effect the
Unitary Transaction and the other transactions contemplated by this Agreement
not to be satisfied, or (ii) the failure of any Target Company, Xxxxxx or
Acquiror, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it pursuant to this Agreement
which would be likely to result in any condition to the obligations of any party
to effect the U.S. Merger and the other transactions contemplated by this
Agreement not to be satisfied; provided, however, that the delivery of any
notice pursuant to this Section 6.10 shall not be deemed to cure any breach of
any representation or warranty requiring disclosure of such matter prior to the
date of this Agreement, or otherwise limit or affect the remedies available
hereunder to the party receiving such notice. If the Chief Financial Officer
shall obtain actual knowledge during the course of his due diligence, or in any
other manner prior to the Effective Time, of the occurrence of a change or event
which shall cause a Target Company's or U.S. Shareholder's representation or
warranty under Article III hereof to become untrue, and thereafter, provided
Acquiror shall have had the right to terminate this Agreement in accordance with
the provisions of Section 8.01 hereof (due to the magnitude of the breach or
misstatement in such representation or warranty), but elected not to terminate
this Agreement, Acquiror shall be forever barred, as of and after the Effective
Time, from asserting a claim for indemnification under Article IX of this
Agreement with respect to such change or event, or otherwise alleging Damages
had been incurred or suffered after the Effective Time as a result of such
change or event.
SECTION 6.11. PUBLIC ANNOUNCEMENTS. Acquiror shall consult with the
Target Companies and Xxxxxx before issuing any press release with respect to the
Unitary Transaction or this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, including
as may be required by Law or the requirements of the NASDAQ. The Target
Companies and Xxxxxx acknowledge and agree that any such press release or other
public announcement respecting the Unitary Transaction or this Agreement may be
disseminated only through the agents of Acquiror, except that following
Acquiror's dissemination of a public announcement hereunder, the Target
Companies may issue a press release or other public announcement respecting the
Unitary Transaction with the prior written consent of Acquiror, which consent
shall not be unreasonably withheld.
SECTION 6.12. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE U.S.
COMPANY. From and after the Effective Time, Acquiror
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shall cause the U.S. Surviving Corporation to indemnify, defend and hold
harmless the present and former officers and directors of the U.S. Company (such
U.S. Company present and former officers and directors are collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement, but specifically excluding damages or liabilities attributable
to an inaccuracy in or breach or violation of the representations, warranties,
covenants and agreements of the Target Companies made under or pursuant to the
Agreement) to the fullest extent permitted or required under Michigan Law (and
shall also cause the U.S. Surviving Corporation to advance expenses as incurred
to the fullest extent permitted under Michigan Law, provided that the person to
whom expenses are advanced provides the undertaking to repay such advances
contemplated by Michigan Law). Acquiror and Acquiror Sub agree that all rights
to indemnification, including provisions relating to advances of expenses
incurred in defense of any claim, action, suit, proceeding or investigation (a
"Claim") existing in favor of the Indemnified Parties as provided in each Target
Company's Articles of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
(subject to the exclusions provided for damages and liabilities attributable to
inaccuracies in, and breaches and violations of, this Agreement, as provided
above) survive the Unitary Transaction and continue in full force and effect, as
provided by Law.
SECTION 6.13. ELECTION OF XXXXXX TO ACQUIROR BOARD; ELECTION OF XXXXXX AS
ACQUIROR VICE CHAIRMAN.
(a) During the unexpired term (and any extension term) of Xxxxxx'x
Employment Agreement in the form attached to this Agreement as Exhibit D,
and thereafter, so long as Xxxxxx shall continue to hold at least
thirty-five percent (35%) of the shares of Acquiror Common Stock issued to
him in the Unitary Transaction (hereafter, the "Nominating Period"),
Acquiror will use its best efforts, subject to applicable fiduciary
requirements under Illinois Law (and any other principles or rules which
may apply to the composition of Acquiror's Board of Directors, including
rules promulgated by the Commission), to maintain two (2) seats on
Acquiror's Board of Directors to be filled by Xxxxxx and a second
individual experienced in matters pertaining to public corporations who is
recommended by Xxxxxx and approved by the then-acting Chief Executive
Officer of Acquiror ("Xxxxxx'x Nominee").
(b) Throughout the Nominating Period, Acquiror shall use its best
efforts and take all reasonable steps to cause two (2) seats on its Board
of Directors to be reserved for Xxxxxx and Xxxxxx'x Nominee. The parties
agree that such seats may be newly established by amendment to Acquiror's
By-Laws, or
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pre-existing, through a prior vacancy in Acquiror's Board of Directors. To
the extent Acquiror, consistent with fiduciary requirements and principles,
is unable to nominate Xxxxxx and/or Xxxxxx'x Nominee to such seats on the
Board, then Acquiror shall refrain from nominating any person to such
seats, unless such action would itself violate applicable requirements and
principles. Xxxxxx acknowledges that, due to the fact Acquiror's Directors
are elected annually by its public shareholders, Acquiror is unable to
guarantee the election of Xxxxxx and Xxxxxx'x Nominee to Acquiror's Board.
(c) As soon as practicable following the Effective Time, but not
later than ten (10) days prior to Acquiror's solicitation of proxies in
connection with the Annual Meeting of the Shareholders next following the
Effective Time, Acquiror shall cause a Special Meeting of its Directors to
be convened for the purpose of voting on the appointment of Xxxxxx and
Xxxxxx'x Nominee to (i) any vacancy then existing in the Board, or (ii) to
new seat(s) previously established by action of the Directors of Acquiror.
To the extent the Directors of Acquiror do not elect Xxxxxx and Xxxxxx'x
Nominees to such seats on the Board, Acquiror agrees, to the extent
consistent with applicable fiduciary requirements and principles, to
conduct a reasonable solicitation of its shareholders prior to the next
Annual Meeting for the express purpose of securing the election of Xxxxxx
and Xxxxxx'x Nominee to Acquiror's Board of Directors. Until the
Nominating Period shall have expired, and except to the extent prohibited
by Law or applicable fiduciary requirements and principles, Acquiror shall
refrain from withdrawing its recommendation of or support for Xxxxxx and
Xxxxxx'x Nominee in subsequent solicitations mailed to its shareholders.
(d) Xxxxxx acknowledges and agrees that Xxx Xxxxxxxx, Acquiror's
current Chief Executive Office, and his successor, shall have the sole
authority and discretion, exercised in a reasonable manner and with due
regard for the significant interest in Acquiror's Common Stock owned by
Xxxxxx and the other U.S. Shareholders, to approve or disapprove of
Xxxxxx'x Nominee; provided, however, Xxxxxx shall be entitled to receive an
adequate explanation of (i) the reasons for any such disapproval, and (ii)
the separate criteria, if any, which must be satisfied by Xxxxxx'x Nominee.
(e) As soon as practicable following the Effective Time, Acquiror
shall cause its directors to amend Acquiror's By-Laws to include the office
of Vice Chairman (which office is described on Exhibit C to this Agreement)
as an elected position of Acquiror, and shall so elect Xxxxxx to such
position. Thereafter, until the Nominating Period shall have expired,
Acquiror's Directors shall nominate and elect Xxxxxx as Vice Chairman of
Acquiror at each Annual Meeting of
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the Board of Directors of Acquiror. Once so nominated and elected,
Acquiror's Directors shall not, until expiration of the Nominating Period
and except to the extent of applicable fiduciary requirements and
principles, remove Xxxxxx from such position.
SECTION 6.14. OBLIGATIONS OF ACQUIROR SUB. Acquiror shall take all
reasonable action necessary to cause of Acquiror Sub to perform its obligations
under this Agreement and to consummate the Unitary Transaction on the terms and
conditions set forth in this Agreement.
SECTION 6.15. OBLIGATIONS OF THE TARGET COMPANIES. Each Target Company
shall take all reasonable action necessary to cause the others to perform its
obligations under this Agreement and to consummate the Unitary Transaction on
the terms and conditions set forth in this Agreement.
SECTION 6.16. OBLIGATIONS OF THE U.S. SHAREHOLDERS. Each U.S. Shareholder
shall take all reasonable action necessary to cause the Target Companies to
perform their respective obligations under this Agreement and to consummate the
Unitary Transaction on the terms and conditions set forth in this Agreement.
SECTION 6.17. REAL ESTATE PURCHASE.
(a) At the Effective Time, the U.S. Surviving Corporation, as
successor to the U.S. Company, shall purchase from Maple Lane Acquisition,
L.L.C., a Michigan Limited Liability Company and affiliate of Xxxxxx
("Xxxxxx'x LLC"), and Xxxxxx'x LLC shall sell, convey and assign to the
U.S. Surviving Corporation, the vacant parcel of real property located at
0000 Xxxxx Xxxx, Xxxx, Xxxxxxx Xxxxxx, Xxxxxxxx, and more particularly
described on Schedule 6.17(a) attached hereto or all of the outstanding
interests in Xxxxxx'x LLC (the "Maple Property"), together with all rights
of way, privileges and appurtenances pertaining thereto, and all
foundations, structures, wiring, plumbing and property of every kind,
character and description appurtenant thereto. The purchase price for the
Maple Property shall be that quantity of unregistered shares of Acquiror
Common Stock as shall have an aggregate market value (determined in
accordance with the last sentence of this subsection) of one million
dollars ($1,000,000) LESS the value of the adjustments described in
subsection (b) hereof. Such Unregistered Shares shall be subject
to the restrictions and rights otherwise set forth in this Agreement and
made applicable to Unregistered Shares issuable to Xxxxxx in the Unitary
Transaction, and shall be registered for resale in accordance with a Resale
Prospectus on the last date provided in Section 6.03 hereof; provided,
however, no Unregistered Shares issuable to Xxxxxx in respect of the sale
of the Maple Property shall be subject
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to Acquiror's right of set-off arising upon a breach of the other provisions
of this Agreement, and such shares shall be subject to cancellation or
set-off, if at all, for a breach in or violation of the representations,
warranties, covenants and agreements of Xxxxxx and Xxxxxx'x LLC set forth
in the agreements prepared in accordance with the provisions of Section
6.17(c) hereof. For purposes of this Section 6.17(a), each share of
Acquiror's Common Stock issuable in respect of the Maple Property shall be
valued at the mean between the bid and ask prices for shares of Acquiror
Common Stock as reported by the NASDAQ National Market or other securities
exchange on which the Acquiror Common Stock is traded ("NASDAQ") as of the
close of trading on the date of this Agreement.
(b) The purchase price for the Maple Property shall be reduced by the
unamortized value of all assets or costs reflected in the Interim Target
Company Disclosure Schedules which are attributable or pertain to, or have
been incurred in connection with, the Maple Property (hereafter,
"Construction Plans"), including, without limiting the generality of the
foregoing, the following assets:
(i) Those certain architectural plans for the construction of
an office/ warehouse complex prepared by Xxx Xxxxx Architects, and
approved by the City of Troy, Michigan;
(ii) That certain Construction Contract with Contractor
International Development Co. of Farmington Hills, Michigan;
(iii) That certain Construction Loan Agreement with Comerica
Bank; and
(iv) Excavation costs, tear-down costs for any structures
previously in place on the Maple Property, foundation costs, land
acquisition costs, capitalized interest and construction loan
principal payments, and real estate taxes attributable to the Maple
Property.
(c) Within fifteen (15) days after the date of this Agreement, the
Target Companies, Xxxxxx and Xxxxxx'x LLC shall provide Acquiror with all
documents, instruments and other items in their possession (or in the
possession of an affiliate) which relate to the Maple Property, including
the Construction Plans, surveys, charts, warranties, other plans, designs
and the like. Not later than forty-five (45) days following the date of
this Agreement, Acquiror Sub, the U.S. Company, Xxxxxx and Xxxxxx'x LLC
shall enter into binding agreements for the purchase and sale of the Maple
Property in accordance with the terms of this Section 6.17, pursuant to
instruments and other documents required or customary in
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connection with the sale of real property under Michigan Laws, all in the
condition provided for herein, with full warranty of title, and in form and
substance reasonably satisfactory to Acquiror. Such agreements shall
contain provisions for Xxxxxx'x (i) repurchase of the Maple Property, at
Acquiror's election, for an all-cash purchase price which is not less than
the price reflected in Section 6.17(a) hereof, plus the sum of all
construction expenditures and interest on construction loans incurred with
respect thereto after the date hereof, and (ii) obligation to enter into a
lease with the U.S. Surviving Corporation, at Acquiror's option, for such
repurchased improved Maple Property (should the repurchase election have
been exercised) and, until the Maple Property has been fully improved and
occupied, such other commercial real properties as have been previously
leased to the Target Companies, at rentals which do not exceed market
rates.
(d) At least forty-five (45) days prior to the Effective Time, Xxxxxx
shall cause Xxxxxx'x LLC, at its sole cost, to furnish Acquiror a title
commitment in form and substance reasonably satisfactory to Acquiror
("Title Commitment") for the issuance of an owner's title insurance policy
on ALTA Form B or other form reasonably acceptable to Acquiror ("Title
Policy") for the Maple Property. The Title Commitment shall be issued in
the name of Acquiror for an amount of title coverage equal to one hundred
thousand dollars ($100,000). The Title Commitment shall set forth the
state of title of the Maple Property as of the date of such Title
Commitment (which date shall be a date subsequent to the date of this
Agreement), and shall describe all exceptions or conditions to title or
usage, including, but not limited to, easements, zoning and other
restrictions, rights-of-way, covenants, reservations, mortgages, liens and
other encumbrances, whether or not separately insured, waived or cured by
easement or other endorsement. No information disclosed by the Title
Commitment shall materially or adversely affect the value of, or the
ability of the U.S. Surviving Corporation to operate, occupy or use, the
Maple Property.
(e) At least ten (10) days prior to the Effective Time, Xxxxxx shall
cause Xxxxxx'x LLC, at its sole cost, to furnish Acquiror a so-called
"Phase I" environmental impact audit for the Maple Property, commenced not
earlier than the date of this Agreement, by a licensed environmental
consultant in the general vicinity of the insured property selected by the
U.S. Company and reasonably acceptable to Acquiror. No information
respecting the Maple Property coming to the attention of Acquiror prior to
the Effective Time as a result of such Phase I audit shall (i) disclose
necessity for performing material environmental remediation activities at
such property, or (ii) otherwise materially affect the value of, or
Acquiror's
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ability to construct upon, operate, occupy or use, the Maple Property.
SECTION 6.18. INITIAL EXECUTIVE STOCK OPTION GRANTS. At the Effective
Time and as directed by Xxxxxx, Acquiror shall issue a total of one hundred
fifty thousand (150,000) options (the "Initial Options") to acquire one hundred
fifty thousand (150,000) shares of Acquiror Common Stock pursuant to the terms
of the HA-LO Industries, Inc. Stock Plan (the "Plan") to certain executives
employed by the U.S. Surviving Corporation and the Canada Company. Acquiror
agrees to amend the Plan as necessary to fulfill the requirements of this
Section 6.18.
SECTION 6.19. ADDITIONAL EXECUTIVE STOCK OPTION GRANTS. In addition to
the Initial Options, Acquiror shall issue a total of three hundred fifty
thousand (350,000) options (the "Additional Options") to acquire three hundred
fifty thousand (350,000) shares of Acquiror Common Stock pursuant to the terms
of the Plan. The issuance of the Additional Options shall be subject to the
following terms and conditions.
(a) Acquiror shall issue the Additional Options in four (4) annual
installments of eighty seven thousand five hundred (87,500) options each.
The issuance of each installment is subject to the achievement of certain
annual profitability goals for the U.S. Surviving Corporation and the
Canada Company, to be set by mutual agreement of Xxxxxx and Xxx Xxxxxxxx
from time to time for each of the four (4) installments, the first such
goal to be established within thirty (30) days after the Effective Time.
As promptly as possible after the end of a year as to which the
profitability goal has been satisfied, the entire installment shall be
granted to such company executive employees designated by Xxxxxx.
(b) The Additional Options shall then, when issued, vest according to
the Plan and shall have an exercise price per option equal to the
arithmetic mean between the bid and the ask price of Acquiror Common Stock
at the close of business on the date of grant.
(c) Acquiror agrees to cause the amendment of the Plan as necessary
to fulfill the requirements of this Section 6.19. If for any reason
Acquiror does not amend the Plan, Acquiror shall create a separate
non-qualified stock option plan for the executives of the U.S. Surviving
Corporation and the Canada Company and as necessary, cause the registration
of the shares of Acquiror Common Stock covered thereunder with respect to
the Additional Options.
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ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Unitary
Transaction and the other transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable Law:
(a) NO ACTION OR PROCEEDING. There shall not have been instituted
and there shall not be pending any action or proceeding by a Governmental
Entity, and no such action or proceeding shall have been specifically
threatened in a written communication from a representative of a
Governmental Entity with authority to institute such an action or
proceeding, before any court of competent jurisdiction or governmental
agency or regulatory or administrative body, and no order or decree shall
have been entered in any action or proceeding before such court, agency or
body (i) imposing or seeking to impose limitations on the ability of
Acquiror to acquire or hold or to exercise full rights of ownership of any
securities of the U.S. Surviving Corporation, Canada Holding Company-1 or
any of their respective subsidiaries or affiliates, (ii) imposing or
seeking to impose limitations on the ability of Acquiror to combine and
operate the business and assets of any Target Company with any of
Acquiror's subsidiaries or other operations, (iii) imposing or seeking to
impose other sanctions, damages or liabilities arising out of the Unitary
Transaction on Acquiror, Acquiror Sub, the U.S. Company, the Canadian
Target Companies, any of their respective officers or directors, and
Xxxxxx, (iv) requiring or seeking to require divestiture by Acquiror of all
or any significant portion of the business, assets or properties of any
Target Company or any of its subsidiaries, or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
the U.S. Merger, the Canada Reorganization, or both.
(b) HSR ACT. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(c) COMPETITION ACT. If deemed reasonably necessary, the Director
under the Competition Act shall have informed the parties in writing that
no approval, consent or application for an order is required under the
Competition Act; provided, if approval is required thereunder, then such
approval, consent or order shall have been received.
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(d) SECTION 116 CERTIFICATE. Xxxxxx shall have delivered to Acquiror
a certificate issued under Section 116 of the Treaty indicating a
certificate limit equal to the value of Acquiror's Common Stock issued in
connection herewith.
Section 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR. The
obligations of Acquiror to effect the Unitary Transaction and the other
transactions contemplated in this Agreement are also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Target Companies and Xxxxxx contained in this Agreement
shall be true and correct in all material respects as of the Effective
Time, as though made on and as of the Effective Time, and Acquiror shall
have received a certificate of the Chief Executive Officer (acting in such
capacity) of each Target Company to that effect (subject to provisions for
identified breaches of or misstatements in representations and warranties);
provided, however, that those representations and warranties which address
matters only as of a particular date shall remain true and correct in all
material respects as of such date.
(b) AGREEMENTS AND COVENANTS. Xxxxxx and each Target Company shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
or him on or prior to the Effective Time, and Acquiror shall have received
a certificate of the Chief Executive Officer (acting in such capacity) of
each Target Company to that effect.
(c) CONSENTS UNDER AGREEMENTS. The Material Consents shall have been
obtained.
(d) AFFILIATE AGREEMENTS. Acquiror shall have received from each
U.S. Shareholder, and any other person who may be deemed to have become an
affiliate or shareholder of a Target Company after the date of this
Agreement and on or prior to the Effective Time (or affiliate of Acquiror
after the Effective Time), a duly executed Affiliate Agreement in the form
of Exhibit B.
(e) EMPLOYMENT AND OTHER AGREEMENTS. Acquiror, on behalf of the U.S.
Surviving Corporation, shall have received from (i) Xxxxxx, an executed
Employment Agreement in the form of Exhibit D hereto, (ii) Xxxxxx X.
Xxxxxxx, an executed Addendum to Employment Agreement in the form of
Exhibit E hereto, (iii) Xxxx Xxxxxxxxxx, an executed Addendum to Employment
Agreement in the form of Exhibit F hereto, (iv) Xxxx Xxxxxxx, an executed
Addendum to Employment Agreement in the form of Exhibit G hereto, and (v)
Xxxx Xxxxx and Xxx
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Xxxxx, executed Employment Agreements in the form of Exhibit H hereto, and
all such Employment Agreements, as amended, shall be in full force and
effect at and as of the Effective Time. In addition, Acquiror shall have
received from Xxxxxx an executed Agreement and Covenant Against Unfair
Competition, in the form of Exhibit I hereto, and from Xxxxxx and each
other individual executing an Employment Agreement or Addendum thereto
pursuant to this subsection (e), a General Release of Claims, in the form
of Exhibit J hereto.
(f) RESIGNATIONS. Except as specifically provided in the Employment
Agreements referenced in Section 7.02(e), above, each Director or Officer
of a Target Company shall provide such Target Company with his written
resignation from office, effective as of the Effective Time.
(g) THE CANADA REORGANIZATION. Acquiror, Xxxxxx and the Canadian
Target Companies shall have closed the transactions under the Canada
Reorganization.
(h) CASH ACCOUNTS. Acquiror shall have received, if it so requests,
terminations of authority, effective as of the Effective Time, by each
employee or agent of a Target Company having signatory or other authority
over such Target Company's cash, checking, lock box, safe deposit and other
depositary arrangements, and for each institution described in Section 3.22
to the Target Company Disclosure Schedules.
(i) OPINION OF COUNSEL. Acquiror shall have received the opinion of
Xxxx Xxxxxx & Xxxxxx, legal counsel for the Target Companies, dated as of
the Effective Time, with respect to those matters set forth in Exhibit K
hereto, and in a form reasonably acceptable to Acquiror.
(j) COMPLETE FINANCIAL INFORMATION. Acquiror shall have received
true and complete financial information from the Target Companies and U.S.
Shareholders in the form required, in the reasonable opinion of Xxxxxx
Xxxxxxxx, L.L.P., the independent auditor for Acquiror, to be included in
any and all of Acquiror's filings with the Commission after the Effective
Time. In addition, Acquiror shall have received the Target Company
Financial Statements as provided in Section 6.09 hereof.
(k) DIRECTOR RESOLUTIONS. Acquiror shall have received resolutions
of each Target Company's Board of Directors, dated after the date hereof
and immediately prior to the Effective Time, and certified by such Target
Company's Secretary, unanimously approving, ratifying and confirming (1)
all matters and things done by the officers and directors of such Target
Company at any time in the conduct its business or otherwise during the
course of operations, and (2) the
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consummation of the Unitary Transactions and other transactions
contemplated by this Agreement.
(l) SHAREHOLDER RESOLUTIONS. Acquiror shall have received
resolutions of each Target Company's shareholders, dated after the date
hereof and immediately prior to the Effective Time, and certified by such
Target Company's Secretary, unanimously approving, ratifying and confirming
(1) all matters and things done by the officers and directors of such
Target Company at any time in the conduct its business or otherwise during
the course of operations, and (2) the consummation of the Unitary
Transactions and other transactions contemplated by this Agreement.
(m) WAIVER OF AGREEMENT. Acquiror shall have received a written
waiver and termination, in form and substance satisfactory to Acquiror, of
the provisions of Section 16 of that certain Asset Purchase Agreement dated
as of February 27, 1995, and described at Item 1 of Section 3.35 to the
Target Company Disclosure Statements.
(n) OTHER DOCUMENTS AND INSTRUMENTS. Acquiror shall have received,
upon its written request given at least two (2) days prior to the Effective
Time, such other certificates, instruments and other documents reasonably
required to effectuate the transactions contemplated hereby, or to confirm
to Acquiror the effectiveness thereof.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE TARGET COMPANIES AND
XXXXXX. The obligations of the Target Companies and Xxxxxx to effect the
Unitary Transaction and the other transactions contemplated in this Agreement
are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Acquiror contained in this Agreement shall be true and
correct in all material respects as of the Effective Time, as though made
on and as of the Effective Time, and the Target Companies and U.S.
Share-holders shall have received a certificate of the Chief Operating
Officer or Chief Financial Officer of Acquiror to that effect (subject to
provisions for identified breaches of or misstatements in representations
and warranties); provided, however, that those representations and
warranties which address matters only as of a particular date shall remain
true and correct in all material respects as of such date.
(b) AGREEMENTS AND COVENANTS. Acquiror and its subsidiaries shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Target Companies and Xxxxxx
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shall have received a certificate of the Chief Operating Officer or Chief
Financial Officer of Acquiror to that effect.
(c) CONSENTS UNDER AGREEMENTS. Acquiror shall have obtained the
consent or approval of each person whose consent or approval shall be
required in connection with the Unitary Transaction under all loan or
credit agreements, notes, mortgages, indentures, leases or other agreements
or instruments to which it or any of its subsidiaries is a party, except
those agreements or instruments for which failure to obtain such consents
and approvals would, in the Target Companies' reasonable estimation, not
have a Target Company Adverse Effect prior to or after the Effective Time,
or an Acquiror Adverse Effect after the Effective Time.
(d) AFFILIATE AGREEMENTS. Each person entering into an Affiliate
Agreement shall have received an executed counterpart thereof from
Acquiror.
(e) EMPLOYMENT AGREEMENTS. Each individual entering into an
Employment Agreement/Addendum with the U.S. Surviving Corporation or Canada
Company shall have received an executed counterpart thereof from Acquiror
and the U.S. Surviving Corporation or Canada Company, as the case may be.
(f) OPINION OF COUNSEL. The Target Companies and U.S. Shareholders
shall have received the opinion of Xxxx Xxxxxx & Xxxxxxxxx, counsel for
Acquiror, dated as of the Effective Time, with respect to those matters set
forth in Exhibit M hereto, and in a form reasonably acceptable to the
Target Companies.
(g) OTHER DOCUMENTS AND INSTRUMENTS. The Target Companies and U.S.
Shareholders shall have received, upon their written request given at least
two (2) days prior to the Effective Time, such other certificates,
instruments and other documents reasonably required to effectuate the
transactions contemplated hereby, or to confirm to the Target Companies and
U.S. Shareholders the effectiveness thereof.
(h) RELEASE OF XXXXXX GUARANTEES. Xxxxxx shall have received from
Acquiror a release, in form and substance reasonably satisfactory to
Xxxxxx, of Xxxxxx'x guarantee obligations under those Agreements described
in Section 3.35 to the Target Company Disclosure Schedules.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement, and the Unitary Transaction,
may be terminated at any time prior to the Effective Time in the following
manner:
(a) MUTUAL CONSENT. By mutual consent of Acquiror and the Target
Companies (or Xxxxxx acting on their behalf and on behalf of the other U.S.
Shareholders).
(b) TARGET BREACH. By Acquiror, if (i) there has been a breach by a
Target Company or U.S. Shareholder of any covenant or agreement on their
part to be performed under this Agreement, or (ii) Acquiror shall
reasonably determine that any one or more of the representations and
warranties of the Target Companies and U.S. Shareholders contained in
Article III of this Agreement is in breach, and the aggregate potential
Damages which could be sustained, directly or indirectly, by Acquiror as a
result of such breach exceeds five hundred thousand dollars ($500,000)
(hereafter, the "Termination Threshold"); provided, however, (x) the Target
Companies and U.S. Shareholders shall have the right to cure any such
breach in accordance with the provisions of Section 8.01(h) hereof, and (y)
Acquiror shall have the right to compel Xxxxxx to cure any such breach in
accordance with the provisions of Section 8.01(i) hereof.
(c) ACQUIROR BREACH. By Xxxxxx (acting alone and on behalf of the
Target Companies and other U.S. Shareholders), if (i) there has been a
material breach by Acquiror of any covenant or agreement on its part to be
performed under this Agreement, and such breach is not cured within thirty
(30) days following receipt by Acquiror of written notice thereof from the
Target Companies or Xxxxxx, or (ii) Xxxxxx shall reasonably determine that
any one or more of the representations and warranties of Acquiror contained
in Article IV of this Agreement is in material breach, and the aggregate
potential Damages which could be sustained, directly or indirectly, by
Xxxxxx and the Target Companies as a result of such breach exceeds five
hundred dollars ($500,000).
(d) INJUNCTION. By Acquiror or Xxxxxx (acting alone and on behalf of
the Target Companies and other U.S. Shareholders) if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting
consummation of the U.S. Merger or the Canada Stock Reorganization shall
have become final and nonappealable.
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(e) OUTSIDE DATE. By Acquiror or Xxxxxx (acting alone and on behalf
of the Target Companies and other U.S. Shareholders) if the Unitary
Transaction shall not have been consummated on or prior to January 31, 1997
(the "Outside Date") unless otherwise mutually agreed to by the parties.
(f) TARGET COMPETING TRANSACTION. By Acquiror, if any Target Company
or U.S. Shareholder shall have engaged or shall propose to engage in any
Competing Transaction (as defined in Section 5.02(h) hereof.
(g) ACQUIROR REFUSAL TO CLOSE. By Xxxxxx (acting alone and on behalf
of the Target Companies and other U.S. Shareholders), if Acquiror shall
have refused to consummate the U.S. Merger or Canada Reorganization, and
(i) Acquiror shall not have exercised its right to terminate this Agreement
under any provision of this Section 8.01, and (ii) no Target Company or
U.S. Shareholder is otherwise in breach of the provisions of this Agreement
in an amount that would give Acquiror the right to terminate this
Agreement.
(h) TARGET CURE PROVISIONS. Acquiror shall not exercise its
termination rights under this Section 8.01 until the expiration of thirty
(30) days following a written election by the Target Companies and Xxxxxx
(acting alone and on behalf of the other U.S. Shareholders) to cure a
breach or violation of any covenant, agreement, representation or warranty
set forth in this Agreement; provided, however, such election by the Target
Companies and U.S. Shareholders, and the manner in which any such breach is
cured, shall be in strict accordance with the following provisions:
(i) In the event there has been a breach by a Target Company or
U.S. Shareholder of any covenant or agreement on their part to be
performed under this Agreement, then immediately following written
notice by the Target Companies and Xxxxxx to Acquiror given not later
than the Outside Date, the Target Companies and U.S. Shareholders
shall have thirty (30) days in which to cure such breach of covenant
or agreement, and in the event such covenant or agreement is cured,
(x) the new Outside Date shall be April 1, 1997, and (y) unless there
shall be any new or further breach hereunder by the Target Companies
or U.S. Shareholders, Acquiror shall not have the right to terminate
this Agreement under Section 8.01(b)(i); or
(ii) In the event there has been a breach by a Target Company or
U.S. Shareholder of any representation or warranty on their part made
under this Agreement, then immediately following written notice by the
Target Companies and Xxxxxx to Acquiror given not later than the
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Outside Date, the Target Companies and U.S. Shareholders shall have
thirty (30) days in which to fully cure the matter or event which has
resulted in such breach of representation or warranty, and in the
event such breach of representation or warranty is cured, (x) the new
Outside Date shall be April 1, 1997, and (y) unless there shall be any
new or further breach hereunder by the Target Companies or U.S.
Shareholders, Acquiror shall not have the right to terminate this
Agreement under Section 8.01(b)(ii); provided, however, if such
representation or warranty is not capable of cure and relates to a
loss or expense incurred by a Target Company prior to the Effective
Time or which may be incurred by a Target Company after the Effective
Time, then Xxxxxx shall have the right, prior to the expiration of
such thirty (30) day period, to cure such breach by contributing cash
to the affected Target Company equal to the difference between (1) the
total loss or expense incurred or to be incurred by such Target
Company, LESS (2) that portion of the Termination Threshold, if any,
which exceeds the aggregate potential Damages which could be
sustained, directly or indirectly, by Acquiror as a result of all
breaches of this Agreement by the Target Companies and U.S.
Shareholders prior to the Effective Time, and Acquiror agrees that
upon such contribution by Xxxxxx, the representation or warranty which
was the subject matter of the breach shall be deemed cured for
purposes of this Agreement.
(i) ACQUIROR FORCED CURE PROVISIONS. In the event there has been a
breach by a Target Company or U.S. Shareholder of any representation or
warranty (or series thereof) on their part made under this Agreement, and
the aggregate potential Damages which could be sustained, directly or
indirectly, by Acquiror as a result of all such breaches exceeds the
Termination Threshold, then in the event Xxxxxx shall not elect to cure
such breach in accordance with the provisions of Section 8.01(h) hereof,
and immediately following Acquiror's written notice to Xxxxxx given not
later than the Outside Date, Xxxxxx shall be obligated to cure such breach
within thirty (30) days following receipt of such notice by making a cash
contribution to the affected Target Company equal to the difference between
(x) the total loss or expense incurred or to be incurred by such Target
Company, LESS (y) that portion of the Termination Threshold, if any, which
exceeds the aggregate potential Damages which could be sustained, directly
or indirectly, by Acquiror as a result of all breaches of this Agreement by
the Target Companies and U.S. Shareholders prior to the Effective Time, and
Acquiror agrees that upon such contribution by Xxxxxx, the representations
or warranties which were the subject matter of its notice shall be deemed
cured for purposes of this Agreement; provided, however,
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Xxxxxx shall not be obligated to contribute more than $1 million to the
affected Target Companies, and in the event Acquiror's aggregate potential
Damages from all breaches exceeds $1.5 million, then Acquiror shall be
required to waive its claims for Damages in excess of $1.5 million or,
alternatively, it may elect to terminate this Agreement in accordance with
Section 8.01(b); and provided, further, if Xxxxxx breaches his obligations
under this subsection (i), Acquiror shall, if it otherwise elects to close
the Unitary Transaction, retain all remedies at law or in equity to proceed
against Xxxxxx on account of such breach.
SECTION 8.02. EFFECT OF TERMINATION. Upon termination of this Agreement
in accordance with the provisions of Section 8.01 hereof, the remedies of the
terminating party shall be limited to those provided under Sections 8.03 and
9.02, and except to the extent necessary for the enforcement of such party's
rights thereunder, this Agreement shall be null and void, and all other rights
and obligations of Acquiror, Acquiror Sub, the U.S. Company, the Canada Company,
Canada Holding Company-1, Canada Holding Company-2 and U.S. Shareholders shall
forthwith cease and have no further force or effect.
SECTION 8.03. FEES AND EXPENSES.
(a) Except as specifically provided in subsections (d) and (e),
below, all "Expenses" (as hereafter defined) incurred by the parties hereto
shall be borne solely and entirely by the party which has incurred the
same.
(b) As used in this Agreement, the term "Expenses" shall include all
reasonable out-of-pocket expenses and disbursements (including, without
limitation, all reasonable fees and expenses of counsel and accountants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation of the Resale
Prospectus and all other matters related to the closing of the transactions
contemplated herein. As used herein, the term "Payment Date" shall mean
the tenth business day following a party's receipt of an election to
terminate this Agreement pursuant to Section 8.01 hereof.
(c) The Target Companies and U.S. Shareholders agree that if Acquiror
shall terminate this Agreement pursuant to Section 8.01(b), and Acquiror
shall be without fault of its own, on the Payment Date, the Target
Companies shall pay to Acquiror an amount equal to the sum of the Expenses
incurred by Acquiror in connection with this Agreement.
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(d) Acquiror agrees that if the Target Companies shall terminate this
Agreement pursuant to Section 8.01(c), and each of the Target Companies and
U.S. Shareholders shall be without fault of their own, on the Payment Date,
Acquiror shall pay to the Target Companies an amount equal to the sum of
the Expenses incurred by them in connection with this Agreement.
(e) The Target Companies agree that if Acquiror shall terminate this
Agreement pursuant to Section 8.01(f), on the Payment Date the Target
Companies shall jointly and severally pay to Acquiror an amount equal to
fifteen million dollars ($15,000,000) plus all of the Expenses incurred by
Acquiror in connection with this Agreement.
(f) Acquiror agrees that if the Target Companies shall terminate this
Agreement pursuant to Section 8.01(g) without fault of their own, on the
Payment Date Acquiror shall pay to the Target Companies an amount equal to
fifteen million dollars ($15,000,000) plus all of the Expenses incurred by
the Target Companies in connection with this Agreement.
(g) Any demand for the payment of Expenses shall itemize in
reasonable detail all qualifying disbursements and accruals, and
notwithstanding one party's payment of another party's Expenses, the party
incurring such items may update and/or supplement its demand at any time
and from time to time, until the expiration of sixty (60) days from the
date of the initial demand. All payments owing in accordance with this
Section 8.03 shall be made by wire transfer of immediately available funds
to an account designated by the party so entitled to receive payment
therefor.
(h) Notwithstanding the provisions of this Article VIII, in the event
a party shall refuse to comply with the terms and provisions of this
Agreement, the other party may bring an action to specifically enforce this
Agreement, each party hereby acknowledging and agreeing that (i) time is of
the essence of this Agreement, (ii) a party may suffer irreparable injury
in the event of a wilful breach of this Agreement, and (iii) monetary
damages from a party's wilful failure to observe the provisions hereof may
be impossible to calculate; provided, however, no action to specifically
enforce this Agreement may be brought by any party who actually receives
the amounts provided under Sections 8.03(d) or (e) hereof.
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ARTICLE IX
INDEMNIFICATION MATTERS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding the closing of the Unitary Transaction, the
representations and warranties of Xxxxxx, the Target Companies and Acquiror
contained in this Agreement shall survive the Effective Time until sixty (60)
days following the audit by Acquiror's independent accountants of the Target
Companies' results of operations for the fiscal year ending December 31, 1997
(the expiration of such sixty (60) days is hereafter the "Audit Cut-Off"). The
covenants and agreements contained herein to be performed or complied with on or
prior to the Effective Time shall expire at the Effective Time. The covenants
and agreements contained herein to be performed or complied with after the
Effective Time, and the parties' liabilities in respect of a breach thereof
(other than the covenant to indemnify against breaches of the representations
and warranties of the parties), shall survive the Effective Time until such
covenants and agreements have been performed or complied with, or until they
shall have expired in accordance with their respective terms.
SECTION 9.02. INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF ACQUIROR.
(a) From and after the Effective Time, the U.S. Shareholders covenant
and agree they shall jointly and severally indemnify and save harmless
Acquiror from and against any and all Damages incurred or suffered directly
or indirectly by Acquiror and proximately resulting from the breach of any
one or more of the representations or warranties of Xxxxxx and the Target
Companies made in this Agreement. Except as provided in Section 9.03
hereof, such indemnification by the U.S. Shareholders shall be subject to
the following limitations:
(i) Any and all claims by Acquiror for Damages pursuant to this
Section 9.02 shall be enforceable, if at all, only against the shares
of Acquiror Common Stock issuable to the U.S. Shareholders in the
Unitary Transaction and further limited as provided herein; provided,
however, the U.S. Shareholders may, upon reasonable notice to
Acquiror, elect to pay any claim hereunder in cash, opposed to set-off
against Unregistered Shares.
(ii) In valuing the Unregistered Shares for purposes of
Acquiror's set-off and indemnification rights under this Section 9.02,
such Unregistered Shares shall in all events be valued at the average
closing sale price of a
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share of Acquiror Common Stock as reported by the NASDAQ for the ten
(10) trading days prior to the Effective Time (the "Average Value").
In illustration of the foregoing, if an indemnification claim for
thirty thousand dollars ($30,000) is asserted, and the Average Value
is calculated at thirty dollars ($30) per share, then subject to
clause (iii) herein, and notwithstanding that the fair market value of
such shares may be higher at the time, one thousand (1,000) shares of
Acquiror Common Stock shall be subject to set-off in satisfaction of
such claim. Each U.S. Shareholder acknowledges that any such set-off
shall be treated as a reduction of the share consideration received in
the Unitary Transaction, and agree that any and all Returns filed in
connection with the Unitary Transaction after such set-off shall so
reflect.
(iii) Acquiror's right of indemnification under this Section 9.02
shall in each and every instance be limited to the set-off against and
cancellation of no greater than nine percent (9%) of the total number
of shares of Acquiror Common Stock issued in the Unitary Transaction.
Thus, if all two million two hundred fifty thousand (2,250,000) shares
of Acquiror Common Stock are issued to the U.S. Shareholders in
accordance with the provisions of Article II, then only two hundred
two thousand five hundred (202,500) of such shares, valued in
accordance with clause (ii), above, shall be subject to set-off
hereunder.
(iv) Acquiror shall not be entitled to any recovery under this
Section 9.02 unless a claim for indemnification is made prior to the
Audit Cut-Off.
(v) Acquiror shall not be entitled to any recovery for Damages
(or portion thereof) which are attributable to (x) amounts for which
Acquiror has received (or is indirectly entitled to receive) proceeds
of insurance under a policy which was in effect at the Effective Time
with respect to the matter for which indemnification is otherwise
available hereunder, or (y) the actual amounts of Closing Reserves
created in or added to the Interim Target Company Financial Statements
prior to the Effective Time by the U.S. Company, but only to the
extent such amounts were created or added at the specific request of
Acquiror's Treasurer or Chief Financial Officer.
(vi) Acquiror shall not be entitled to (i) make any
indemnification claim unless such claim equals or exceeds one thousand
dollars ($1,000); and (ii) recover any amount for such allowed
indemnification claims under this
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Section 9.02 unless and until the aggregate Damages which Acquiror is
entitled to recover in respect of all such claims exceeds five hundred
thousand dollars ($500,000) LESS the amount of any Damages sustained
by Acquiror as a result of any breach of representation or warranty
determined prior to the Effective Time and used in the calculation of
the Termination Threshold under Section 8.01(b)(ii) hereof (such
difference is hereafter the "Basket"), and only to the extent such
Damages exceed the Basket.
(vii) Acquiror shall not be entitled to recover any amount for
indemnification claims under this Section 9.02 for Damages arising
solely from the failure to obtain a Material Consent; provided,
however, that the U.S. Shareholders and the Target Companies have used
reasonable best efforts to obtain such Material Consent.
SECTION 9.03. SPECIAL PROVISIONS RELATING TO CERTAIN TAX LIABILITIES AND
OTHER MATTERS. Anything in this Agreement to the contrary notwithstanding:
(a) The U.S. Shareholders shall be primarily liable for and shall pay
directly all foreign, federal, state and local income Taxes imposed upon,
assessed against or attributable to the U.S. Company, and any Taxes
calculated or measured with respect to the revenues, receipts, gross
profits or net profits of the U.S. Company, in each case attributable to
periods (or portions thereof) ending on or prior to the Effective Time. In
addition, the U.S. Shareholders covenant and agree they shall indemnify and
save harmless Acquiror from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and resulting from the Taxes
described in the preceding sentence, or attributable to Taxes which would
not have been payable by or assessable against the U.S. Company if a valid
S Corporation Election had been in effect with respect to the U.S. Company
during such Tax periods.
(b) In the event of a recharacterization by any taxing authority of
the employment status of a Target Company's sales representatives, such
that the representations of the Target Companies and U.S. Shareholders set
forth in Section 3.12(a) (iv) or (xii) are breached or otherwise incorrect,
the U.S. Shareholders covenant and agree they shall, subject to application
of the Basket under Section 9.02(a)(vi) hereof, indemnify and save harmless
Acquiror from and against any and all Taxes, interest and penalties
incurred or suffered by the U.S. Surviving Corporation or Acquiror, and
resulting from such recharacterization.
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(c) Subject to application of the Basket under Section 9.02(a)(vi)
hereof, the U.S. Shareholders covenant and agree they shall indemnify and
save harmless Acquiror from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and proximately resulting from
or attributable to (i) Obsolete Program Inventory Costs, determined in
accordance with the provisions of Section 3.33 hereof, and (ii) slow moving
or excessive products reflected in the inventories of the Target Companies
as of December 31, 1996, and determined below. To the extent that, during
the period from January 1, 1997 through completion of the audit by
Acquiror's independent accountants of the Target Companies' results of
operations for the fiscal year ending December 31, 1997, the Target
Companies are unable to sell or dispose of at least ninety-five percent
(95%) of the entire quantity of product items included in each "product
unit" reflected in the inventories of the Target Companies as of December
31, 1996 (the "Base Shortfall"), or the Target Companies' net revenues from
the sale of product items so reflected are less than the extended cost
therefor (the "Secondary Shortfall"), then in each case, at the Audit
Cut-Off, the U.S. Shareholders shall indemnify Acquiror for the Base
Shortfall and the Secondary Shortfall, subject to the Basket, by payment of
such Shortfall(s) to Acquiror, or by set-off of an amount equal to such
Shortfall(s) against Unregistered Shares in accordance with the provisions
of this Article IX, as Xxxxxx shall determine. For purposes of this
subsection, (1) the Base Shortfall shall equal the extended cost of all
items included in each product unit, and remaining unsold as of the
applicable date, and (2) the Secondary Shortfall shall mean the amount by
which net revenues from the sale such product items is less than the
extended cost therefor. As used herein, the term "product unit" shall mean
each separate product or merchandise unit offered for sale by a Target
Company. Product units shall be identified by vendor code, product code or
such other reasonable tracking method as Acquiror shall determine.
(d) Notwithstanding the Basket, the U.S. Shareholders shall indemnify
and hold Acquiror harmless from and against any and all Damages incurred or
suffered directly or indirectly by Acquiror and proximately resulting from
or attributable to those litigation matters described in Section 3.09(a) to
the Target Company Disclosure Schedules; provided, in the event the
liability of the U.S. Company under Item Nos. 1 and 2 thereon is zero or a
nominal amount, no indemnification shall be required in respect of
attorney's fees and costs; and provided, further, the Basket shall be
increased by the amount of any recovery, net of attorney's fees and costs,
under Item No. 3 thereon.
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SECTION 9.04. ACQUIROR'S INDEMNIFICATION. Acquiror covenants and agrees
to indemnify and save harmless the Target Companies and Xxxxxx from and against
any and all Damages incurred or suffered directly or indirectly by them and
proximately resulting from or attributable to the breach of, or misstatement in,
any one or more of the representations or warranties of Acquiror made in this
Agreement. The Target Companies and Xxxxxx shall not be entitled to recover any
amount for indemnification claims under this Section 9.04 unless and until the
aggregate Damages which the Target Companies are entitled to recover in respect
of all such claims exceed the Basket, and only to the extent the Target
Companies' aggregate Damages exceed the Basket. In addition, the Target
Companies and Xxxxxx shall not be entitled to any recovery under this Section
9.04 unless a claim for indemnification is made prior to expiration of the Audit
Cut-Off.
SECTION 9.05. INDEMNIFICATION PROCEDURES.
(a) In the event that any party hereto shall sustain or incur any
Damages in respect of which indemnification may be sought by such party
pursuant to this Agreement, the party to be indemnified hereunder (the
"Indemnitee") shall assert a claim for indemnification by serving written
notice on the party providing indemnification (the "Indemnitor"), stating
the nature and basis of such claim.
(b) In case either party has received actual notice of any claim
asserted or any action or administrative or other proceeding in respect of
which claim, action or proceeding such party believes indemnity properly
may be sought against the other party pursuant to this Agreement, the
Indemnitee shall, within thirty (30) days of receiving such notice, give
notice thereof in writing to the Indemnitor, but failure to give such
notice within such time period shall relieve the Indemnitor of its
indemnification obligation only to the extent of actual prejudice resulting
therefrom. Within fifteen (15) days after receipt of notice of such claim,
action or proceeding, the Indemnitor may give the Indemnitee written notice
of its election to conduct the defense of such claim, action or proceeding;
provided, however, that the Indemnitee shall have the right to participate
in the defense thereof, but such participation shall be solely at the
expense of the Indemnitee, without a right of further reimbursement. Until
the Indemnitee has received notice of the Indemnitor's election whether to
defend any claim, action or proceeding, the Indemnitee shall take
reasonable steps to defend (but may not settle) such claim, action or
proceeding. If the Indemnitor has not so notified the Indemnitee in
writing within the time hereinabove provided of its election to conduct the
defense of such claim, action or proceeding, the Indemnitee shall conduct
the defense of any such claim, action or proceeding; provided that the
Indemnitee shall not at any
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time settle, compromise or satisfy any such claim, action or proceeding
without the written consent of the Indemnitor, which shall not unreasonably
be withheld. Any such settlement, compromise or satisfaction made by the
Indemnitee with the Indemnitor's consent of, or any such final judgment or
decree entered in, any claim, action or proceeding defended only by the
Indemnitee shall be binding upon the Indemnitor. The failure of the
Indemnitor to assume the defense of any claim, action or proceeding shall
not be deemed a concession that it is required to indemnify the Indemnitee
for the subject matter thereof. If the Indemnitor has elected under this
Section to conduct the defense of any claim, action or proceeding, then the
Indemnitor shall be obligated to pay the amount of any adverse final
judgment or decree rendered with respect to such claim, action or
proceeding.
SECTION 9.06. DISPUTE RESOLUTION. In the event a U.S. Shareholder shall
notify Acquiror in writing that it objects to any characterization of a breach,
Damage calculation, indemnification claim or other determination made by
Acquiror under this Agreement, and sets forth with particularity the amounts in
dispute, the nature of the dispute and the basis therefor, the parties shall in
good faith thereafter attempt to resolve such dispute, in which event no set-off
against Unregistered Shares shall be made by Acquiror until the resolution
thereof and, if applicable, no right of termination shall be exercised until the
resolution thereof. Any such objection must be delivered to Acquiror not later
than twenty (20) days following Acquiror's delivery of its claim for
indemnification. If the parties do not reach agreement resolving the dispute
within twenty (20) days after notice is given in accordance with herewith, the
parties shall submit the dispute to an independent certified public accounting
firm mutually agreeable to the parties, which firm shall not have had a material
relationship with Acquiror, the Target Companies or any of their respective
Affiliates within the two (2) years preceding the date hereof (the "Arbiter"),
for resolution in a proceeding to be conducted in Chicago, Illinois. If the
parties cannot agree on the selection of the independent certified public
accounting firm to act as Arbiter, the parties shall request the American
Arbitration Association (the "Association") to appoint such a firm, and such
appointment shall be conclusive and binding on the parties. Promptly, but not
later than sixty (60) days after acceptance of its appointment as Arbiter, the
Arbiter shall determine, based on presentations by Acquiror and Xxxxxx (acting
on behalf of all U.S. Shareholders) or, if deemed necessary by the Arbiter, by
independent review, only those issues in dispute, and shall render a report as
to the dispute, and the resulting determination on Acquiror's claim for
indemnification, which determination shall be conclusive and binding upon the
parties, and in the event any portion of Acquiror's claim is allowed, Acquiror
may thereafter set-off such portion against the Unregistered Shares. In
resolving any disputed item, the Arbiter may not assign
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a value to any item greater than the greatest value for such item claimed by a
party in its claim or objection thereto, or less than the smallest value for
such item claimed by either party. The fees, costs and expenses of the Arbiter
shall be paid one-half by Acquiror and one-half by Xxxxxx. Whether any dispute
is resolved by agreement among the parties or by the Arbiter, changes to
Acquiror's claim for indemnification shall be made hereunder only for items as
to which a U.S. Shareholder has taken exception as provided herein. Anything in
this Agreement to the contrary notwithstanding, Acquiror shall not be obligated
to register any Unregistered Shares under Section 6.03 hereof, to the extent
such Unregistered Shares are the subject of Acquiror's claim for indemnification
made prior to expiration of the Audit Cut-Off.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
If to Acquiror or Acquiror Sub:
HA-LO Industries, Inc.
0000 Xxxx Xxxxx Xxxxxx
Xxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxx, CFO
Facsimile number: 847.647.4970
with copies to:
Xxxx X. Xxxx, Esq.
Xxxx X. Xxxx & Associates, Ltd.
000 Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Facsimile number: 847.336.6368
-and-
Xxxxx X. Xxxxxxxx, Esq.
Xxxx Xxxxxx & Xxxxxxxxx
Two Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Facsimile number: 312.269.1747
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If to the Target Companies:
Creative Concepts in Advertising, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, CFO
Facsimile No.: 810.988.9406
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxx Xxxxxx & Xxxxxx
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Facsimile No.: 810.646.4204
If to Xxxxxx:
Xxxxxx X. Xxxxxx
c/o Creative Concepts in Advertising, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxxx Xxxxx, XX 00000
Facsimile No.: 810.258.1340
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxx Xxxxxx & Xxxxxx
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx Xxxxx, XX 00000
Facsimile No.: 810.646.4204
SECTION 10.02. AMENDMENT. This Agreement may be amended by the parties by
action taken personally, in the case of Xxxxxx, or by their respective Boards of
Directors at any time prior to the Effective Time. This Agreement may not be
amended except by an instrument in writing signed by the parties.
SECTION 10.03. WAIVER. At any time prior to the Effective Time, any party
may (i) extend the time for the performance of any of the obligations or other
acts of the other party, (ii) waive in writing any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement, and (iii) waive compliance
by the other party with any of the agreements or conditions contained in this
Agreement. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
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SECTION 10.04. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.06. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits, and the Target Company and Acquiror Disclosure Schedules and the other
documents delivered pursuant hereto), constitutes the entire agreement of the
parties and supersede all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other person any rights or remedies hereunder. Any matter which
is disclosed in any portion of the Target Company or Acquiror Disclosure
Schedules shall be deemed to have been disclosed for the purposes of all
relevant provisions of this Agreement. The inclusion of any item in any such
Disclosure Schedules shall not be deemed evidence of the materiality of such
item for purposes of this Agreement. The parties make no representations or
warranties to each other, except as contained in this Agreement, and any and all
prior representations and warranties made by any party or its representatives,
whether orally or in writing, shall be deemed to have been merged into this
Agreement, it being intended that no such prior representations or warranties
shall survive the execution and delivery of this Agreement.
SECTION 10.07. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.08. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party, and nothing in this Agreement,
express or implied, other than the right to receive the consideration payable in
the Unitary Transaction pursuant to Article II, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
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SECTION 10.09. GOVERNING LAW; CURRENCY DIFFERENCES. Except as provided in
Sections 1.01, 1.03 and 6.17(c) hereof, this Agreement shall be governed by and
construed in accordance with the Laws of the State of Illinois, regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
law. As used herein, all dollar-denominated monetary amounts shall refer to
U.S. dollars, and there shall be no adjustments made for differences in the
value of currencies existing at the date of this Agreement, or for fluctuations
in such values after the date hereof.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Each person owning shares
of U.S. Company or Canada Holding Company Stock on the date of this Agreement
shall execute this Agreement on the date hereof as a Target Company shareholder,
and every other person so acquiring shares of U.S. Company or Canada Holding
Company Stock after the date of this Agreement and prior to the Effective Time
shall execute a separate undertaking or counterpart hereof, agreeing to be bound
by all the representations, warranties, covenants and agreements of a Target
Company shareholder herein.
SECTION 10.11. SCHEDULES. To the extent that any fact or facts set forth
in any Target Company Disclosure Schedule (delivered by the Company concurrently
herewith) is relevant to any one or more other schedules included in the
schedule volume, such fact or facts shall be deemed included on each such
relevant schedule or schedules.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub, the U.S. Company, the Canada
Company, Canada Holding Company-1, Canada Holding Company-2 and the U.S.
Shareholders have caused this Agreement to be executed as of the date first
written above, in the case of each corporate entity, by their respective
officers duly authorized.
HA-LO INDUSTRIES, INC.
By:
-----------------------------------------
Its: CEO
HA-LO ACQUISITION CORPORATION
OF MICHIGAN, INC.,
By:
-----------------------------------------
Its: CEO
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CREATIVE CONCEPTS IN ADVERTISING, INC.,
By:
-----------------------------------------
Its: CEO
CREADIS GROUP INC.
By:
-----------------------------------------
Its: CEO
1132832 ONTARIO INC.
By:
-----------------------------------------
Its: CEO
1132831 ONTARIO INC.
By:
-----------------------------------------
Its: CEO
----------------------------------------------
XXXXXX X. XXXXXX
----------------------------------------------
XXXXXXXX XXXXXX
----------------------------------------------
XXXXX X. XXXXXX, not individually,
but as Trustee u/a/d 01/01/96
f/b/o Xxxxxxx X. Xxxxxx
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----------------------------------------------
XXXXX X. XXXXXX, not individually,
but as Trustee u/a/d 01/01/96
f/b/o Xxxxxxx X. Xxxxxx
----------------------------------------------
XXXXXX X. XXXXXXX
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STATE OF MICHIGAN )
) SS.
COUNTY OF OAKLAND )
I, __________________________, a Notary Public in and for said State and
County, do hereby certify that Xxxxx X. Xxxxxx, who is personally known to me as
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person and acknowledged that she signed and delivered the
said instrument as her own free and voluntary act, for the uses and purposes
therein set forth.
Given under my hand and notarial seal this ____ day of October, 1996.
------------------------------
Notary Public
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