EXECUTION VERSION
EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
AMONG
XXXX ACQUISITION CORP.,
INTERIORS, INC.,
XXXX LIGHTING, INC.,
AND
THE SHAREHOLDERS OF XXXX LIGHTING, INC.
JULY 2, 1998
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TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS......................................................................... 1
ARTICLE II THE MERGER.......................................................................... 7
2.01 Merger....................................................................... 7
2.02 Effective Time............................................................... 7
2.03 Articles of Incorporation, Bylaws, Directors and Officers, Name.............. 7
2.04 Assets and Liabilities....................................................... 8
2.05 Further Assurances........................................................... 8
2.06 Conversion of Securities..................................................... 9
2.07 Post-Closing Adjustments..................................................... 9
2.08 Exchange of Shares........................................................... 10
2.09 Escrow; Indemnification Representative....................................... 12
2.10 Consummation of Merger....................................................... 13
2.11 Closing...................................................................... 13
2.12 Actions at the Closing....................................................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY................................ 14
3.01 Organization and Good Standing; Authorization................................ 14
3.02 No Conflicts................................................................. 15
3.03 Capitalization............................................................... 15
3.04 Financial Statements......................................................... 16
3.05 Title to Property; Encumbrances.............................................. 16
3.06 Inventory and Accounts Receivable............................................ 18
3.07 Compliance with Law.......................................................... 18
3.08 Trademarks, Patents, Etc..................................................... 19
3.09 Banking and Insurance........................................................ 20
3.10 Indebtedness................................................................. 21
3.11 Judgments; Litigation........................................................ 21
3.12 Income and Other Taxes....................................................... 22
3.13 Corporate Records............................................................ 23
3.14 Employee Benefit Matters..................................................... 23
3.15 No Undisclosed Liabilities................................................... 23
3.16 Permits, Licenses, Etc....................................................... 24
3.17 Regulatory Filings........................................................... 24
3.18 Consents..................................................................... 25
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3.19 Material Contracts; No Defaults............................................. 25
3.20 Absence of Certain Changes.................................................. 27
3.21 Employees and Labor Matters................................................. 28
3.22 Affiliations................................................................ 29
3.23 Principal Customers and Suppliers........................................... 29
3.24 Warranty Liability.......................................................... 30
3.25 Hazardous Materials......................................................... 30
3.26 Brokers' Fees............................................................... 31
3.27 Disclosure.................................................................. 31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................................ 32
4.01 Organization, Power and Authority of Buyer.................................. 32
4.02 Authorization............................................................... 32
4.03 No Conflict or Violation.................................................... 32
4.04 Capitalization.............................................................. 33
4.05 Consents and Approvals...................................................... 33
4.06 Reports and Financial Statements............................................ 33
4.07 WARN Act.................................................................... 34
4.08 Brokers' Fees............................................................... 34
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER............................................... 34
5.01 Conditins to Obligations of Buyer and Newco................................. 35
5.02 Conditions to Obligations of the Company and the Principal Shareholder...... 35
ARTICLE VI CONDUCT OF BUSINESS PENDING CLOSING................................................ 36
6.01 Qualification............................................................... 36
6.02 Ordinary Course............................................................. 36
6.03 Organic Changes............................................................. 36
6.04 Indebtedness................................................................ 37
6.05 Accounting.................................................................. 37
6.06 Compliance with Legal Requirements.......................................... 37
6.07 Disposition of Assets....................................................... 37
6.08 Compensation................................................................ 37
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6.09 Modification or Breach of Agreements; New Agreements........................ 37
6.10 Capital Expenditures........................................................ 38
6.11 Maintain Insurance.......................................................... 38
6.12 Discharge................................................................... 38
6.13 Actions..................................................................... 38
6.14 Permits..................................................................... 38
6.15 Tax Assessments and Audits.................................................. 38
ARTICLE VII ADDITIONAL COVENANTS............................................................... 39
7.01 Covenants of the Company and the Principal Shareholders..................... 39
7.02 Covenants of Buyer.......................................................... 40
7.03 Access and Information...................................................... 41
7.04 Expenses.................................................................... 41
7.05 Publicity; Employee Communications.......................................... 42
7.06 Further Assurances.......................................................... 42
7.07 Competing Offers; Merger or Liquidation..................................... 42
7.08 Compensation................................................................ 43
7.09 Inconsistent Action......................................................... 43
7.10 Registration of Merger Shares............................................... 43
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................. 44
8.01 Termination................................................................. 44
8.02 Effect of Termination....................................................... 44
8.03 Amendment................................................................... 45
8.04 Waiver...................................................................... 45
ARTICLE IX INDEMNIFICATION.................................................................... 45
9.01 Survival of Representations and Warrants and Covenants...................... 45
9.02 Indemnification............................................................. 46
9.03 Third Party Claims.......................................................... 47
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ARTICLE X GENERAL PROVISIONS................................................................ 48
10.01 Notices.................................................................... 48
10.02 Severability............................................................... 49
10.03 Entire Agreement........................................................... 49
10.04 Successors and Assigns..................................................... 49
10.05 Counterparts............................................................... 50
10.06 Schedules and Annexes...................................................... 50
10.07 Construction............................................................... 50
10.08 Consent to Jurisdiction.................................................... 50
10.09 Governing Law.............................................................. 51
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
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of July 2, 1998 by and among Xxxx Acquisition Corp., an Illinois corporation
("Newco"), Interiors, Inc., a Delaware corporation ("Buyer"), Xxxx Lighting,
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Inc., an Illinois corporation (the "Company"), Xxxxx X. Xxxxxxx, a resident of
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Annapolis, Maryland ("Xxxxxxx") and Xxxx X. Xxxxxxx, a resident of Woodland
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Hills, California ("Xxxxxxx," together with Xxxxxxx, collectively the "Principal
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Shareholders").
R E C I T A L S
- - - - - - - -
(A) Buyer owns all of the issued and outstanding shares of capital stock
of Newco.
(B) The Board of Directors of each of Newco and the Company have
determined that it is fair to, and in the best interests of, their respective
corporations and stockholders for Newco to be merged with and into the Company
upon the terms and subject to the conditions set forth herein (the "Merger").
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(C) The Board of Directors of each of Newco and the Company have
approved the Merger in accordance with the Illinois Business Corporation Act.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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Unless the context otherwise requires, the terms defined in this Article
I shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and plural forms of any of the terms herein
defined. All accounting terms defined in this Article I and those accounting
terms used in this Agreement and not defined in this Article I shall, except as
otherwise provided for herein, be construed in accordance with GAAP.
"Action" shall mean any actual or threatened claim, action, suit,
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arbitration, hearing, inquiry, proceeding,
complaint, charge or investigation by or before any Governmental Entity or
arbitrator and any appeal from any of the foregoing.
"Affiliate" shall mean any Person which directly or indirectly controls,
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is controlled by, or is under common control with, the indicated Person.
"Agreement" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Anniversary Date" shall have the meaning assigned to such term in
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Section 2.07(a).
"Balance Sheet" and "Balance Sheet Date" shall have the respective
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meanings assigned to such terms in Section 3.04(a).
"Business Day" shall mean any day excluding Saturday, Sunday or any day
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which shall be in the State of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the introductory
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paragraph of this Agreement.
"Buyer Common Stock" shall mean the Class A Common Stock, par value
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$.001 per share, of Buyer.
"Buyer Reports" shall have the meaning assigned to such term in Section
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4.06(a).
"Certificates" shall have the meaning assigned to such term in Section
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2.08(a).
"Closing" and "Closing Date" shall have the respective meanings assigned
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to such terms in Section 2.11.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Common Stock" shall mean the Common Stock, par value $.01 per share, of
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the Company.
"Company" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Constituent Corporations" shall have the meaning assigned to such term
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in Section 2.01.
"Damages" shall mean any and all losses, liabilities, obligations,
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costs, expenses, damages or judgments of any kind or nature whatsoever
(including without limitation reasonable attorneys', accountants' and experts'
fees, disbursements of
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counsel, and other costs and expenses incurred pursuing indemnification claims
under Article IX hereof).
"Effective Time" shall have the meaning assigned to such term in Section
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2.02.
"Environmental Laws" shall mean all Legal Requirements pertaining to the
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protection of the environment, the treatment, emission and discharge of gaseous,
particulate and effluent pollutants and the use, handling, storage, treatment,
removal, transport, transloading, cleanup, decontamination, discharge and
disposal of Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
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as amended from time to time.
"Escrow Account" shall have the meaning set forth in the Escrow
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Agreement.
"Escrow Agent" shall mean U.S. Bank Trust, a national association.
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"Escrow Agreement" shall have the meaning assigned to such term in
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Section 2.09.
"Escrow Shares" shall have the meaning assigned to such term in Section
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2.09.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended.
"Financial Statements" shall have the meaning assigned to such term in
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Section 3.04(a).
"Fixed Value" shall have the meaning assigned to such term in Section
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2.07(a).
"GAAP" means United States generally accepted accounting principles,
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consistently applied.
"Governmental Entity" shall mean any local, state, federal or foreign
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(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
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reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect, or as amended in the future
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in any manner which does not expand or contract the current definition of
hazardous or toxic substance, material or waste.
"Illinois Corporation Law" shall mean the Illinois Business Corporation
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Act, as amended.
"Indebtedness" shall mean, when used with reference to any Person,
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without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related Indebtedness or to acquire the security
therefor; (iii) all liabilities or obligations secured by a Lien upon property
owned by such Person and upon which liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has not
assumed or become liable for the payment of such liabilities or obligations; and
(iv) any amendment, renewal, extension, revision or refunding of any such
liability or obligation; provided, however, that Indebtedness shall not include
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any liability for compensation of such Person's employees or for inventory or
similar property acquired and consumed in the Ordinary Course or for services.
"IRS" shall mean the United States Internal Revenue Service.
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"Leased Real Property" shall mean all real property, including
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Structures, leased by the Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
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regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics' liens,
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regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges,
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trusts (constructive or other), deeds of trust, options or other charges,
encumbrances or restrictions.
"Material Adverse Effect" shall mean any effect on the business,
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financial condition, properties, profitability, prospects, operations or results
of the Company which has or can reasonably be expected to have (either alone or
combined with other effects) more than a $75,000 effect on the financial
condition, operations or results of the Company.
"Merger" shall have the meaning assigned to such term in Recital C
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hereof.
"Merger Consideration" shall have the meaning assigned to such term in
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Section 2.06(a).
"Merger Shares" shall have the meaning assigned to such term in Section
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2.06(a).
"Newco" shall have the meaning assigned to such term in the introductory
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paragraph of this Agreement.
"Options" shall mean all outstanding options, warrants and other rights
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to acquire Common Stock.
"Ordinary Course" shall mean, when used with reference to the Company,
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the ordinary course of the Company's business consistent with past practices.
"Permits" shall have the meaning assigned to such term in Section 3.16
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hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or personal
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property taxes or assessments not at the time due and (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such Liens are not then delinquent.
"Person" shall mean all natural persons, corporations, business trusts,
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associations, companies, partnerships, limited liability companies, joint
ventures, Governmental Entities and any other entities.
"Policies" shall have the meaning assigned to such term in Section
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3.09(b) hereof.
"Principal Shareholders" shall mean the meaning assigned to such term in
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the introductory paragraph of this Agreement.
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"Proprietary Information" shall have the meaning assigned to such term
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in Section 3.08(b).
"Registered Rights" shall have the meaning assigned to such term in
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Section 3.08(a).
"Representative" shall mean Xxxxx X. Xxxxxxx.
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"SEC" shall have the meaning assigned to such term in Section 4.06(a).
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"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Shareholder Agreement" shall have the meaning assigned to such term in
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Section 2.08(a).
"Shareholders" shall mean those persons and entities listed on Schedule
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3.03 attached hereto.
"Shares" shall mean the issued and outstanding Common Stock.
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"Shortfall Amount" shall have the meaning assigned to such term in
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Section 2.07(a).
"Stock Plans" shall mean all stock option plans and other stock or
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equity-related plans of the Company.
"Structure" shall mean any facility, building, plant, factory, office,
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warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
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association or other business entity at least fifty percent (50%) of the
outstanding voting power of which is at the time owned or controlled directly or
indirectly by such Person or by one or more of such subsidiary entities, or
both.
"Surviving Corporation" shall have the meaning assigned to such term in
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Section 2.01 hereof.
"Tax" shall mean any federal, state, local or foreign income, gross
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receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind
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whatsoever, including, without limitation, any interest, fine penalty or
addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
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refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
ARTICLE II
THE MERGER
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SECTION 2.01 Merger. Upon the terms and subject to the conditions of
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this Agreement, Newco shall be merged with and into the Company in accordance
with the applicable provisions of the Illinois Corporation Law. The Company and
Newco are herein sometimes referred to as the "Constituent Corporations." At
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the Effective Time, the identity and separate corporate existence of Newco shall
cease and the Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). The Merger
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shall have the effects set forth in Section 5/11.50 of the Illinois Corporation
Law.
SECTION 2.02 Effective Time. The Merger shall become effective on the
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date and at the time the Articles of Merger referred to in Section 2.11 hereof
are filed with and a Certificate of Merger is issued by the Secretary of State
of the State of Illinois in accordance with Section 5/11.40 of the Illinois
Corporation Law. The time at which the Merger shall become effective as
aforesaid is referred to hereinafter as the "Effective Time."
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SECTION 2.03 Articles of Incorporation, Bylaws, Directors and Officers,
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Name.
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(a) The Articles of Incorporation of Newco, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation, from and after the Effective Time until amended in
accordance with applicable law.
(b) The Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation from and after
the Effective Time until amended in accordance with applicable law, the
Surviving Corporation's Articles of Incorporation and such Bylaws.
(c) The directors and officers of Newco in office immediately prior to
the Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation, and each shall hold his or her respective office or
offices from and after the Effective Time until his or her
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successor shall have been elected and shall have qualified or as otherwise
provided in the Bylaws of the Surviving Corporation.
(d) The name of the Surviving Corporation from and after the Effective
Time shall be "Xxxx Lighting, Inc." until changed in accordance with applicable
law.
SECTION 2.04 Assets and Liabilities. At the Effective Time, the
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Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
and all the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations,
and the title to any real estate vested by deed or otherwise under the laws of
any jurisdiction, in any of the Constituent Corporations, shall not revert or be
in any way impaired by this Article II; but all rights of creditors and all
liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
SECTION 2.05 Further Assurances. If, at any time after the Effective
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Date, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, properties or assets of the Constituent Corporations
acquired or to be acquired as a result of the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, properties or assets of the
Constituent Corporations acquired or to be acquired as a result of the Merger
and otherwise to carry out the purposes of this Agreement.
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SECTION 2.06 Conversion of Securities.
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(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any of the Shares, all of the Shares shall
be converted into and represent the right to receive an aggregate of (i)
$250,000 in cash, together with interest on such amount at a rate of eight
percent (8%) from the date hereof through the Closing Date and (ii) shares of
Buyer Common Stock with a fair market value on the Closing Date of $975,000 (the
"Merger Shares"). The cash and Buyer Common Stock issuable in exchange for the
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Shares is referred to herein, in the aggregate, as the "Merger Consideration."
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The Merger Consideration allocable to each individual Shareholder shall be in
the amounts set forth opposite each Shareholder's name on Schedule 2.06(a). For
purposes of this Section 2.06, the fair market value per share of Buyer Common
Stock on the Closing Date shall mean the average closing bid price of Buyer
Common Stock for the thirty (30) trading days preceding two (2) days prior to
the Closing Date.
(b) Prior to the Effective Time, the Company shall take all action
necessary so that (i) all outstanding Options are exercised in full immediately
prior to the Effective Time and (ii) there shall be no Options outstanding
immediately prior to the Effective Time. Any holder of Options who so exercises
his or her Options immediately prior to the Effective Time shall be considered a
"Shareholder" for purposes of this Agreement, and the Company shall obtain an
agreement of the holder of each Option to be bound by the terms of this
Agreement. The Company shall terminate all Stock Plans immediately prior to the
Effective Time, and the Surviving Corporation shall not assume any Stock Plan of
the Company.
(c) By virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time each share of Common Stock held by the
Company as a treasury share immediately prior to the Effective Time shall be
canceled and no payment of any consideration shall be made with respect thereto.
(d) By virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time, each share of common stock of Newco that
is issued and outstanding immediately prior to the Effective Time shall be
converted into one newly issued share of common stock of the Surviving
Corporation, par value $.01 per share.
SECTION 2.07 Post-Closing Adjustments.
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(a) If, on July 2, 1999 (the "Anniversary Date"), the Merger Shares
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have a fair market value of less than an amount equal to $1,053,000 less (i) the
amount of any and all cash and cash equivalents in the Escrow Account and (ii)
the amount of
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any resolved Indemnifiable Claims theretofore paid out under the Escrow
Agreement (the "Fixed Value"), then Buyer shall issue to the Shareholders
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additional shares of Buyer Common Stock (the "Additional Shares") having a fair
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market value as of the Anniversary Date equal to the difference between (x) the
Fixed Value and (y) the fair market value of the Merger Shares on the
Anniversary Date (such difference being referred to herein as the "Shortfall
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Amount"); provided, however, that should the number of Additional Shares exceed
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ten percent (10%) of the number of Merger Shares, the number of Additional
Shares shall be capped at ten percent (10%) of the Merger Shares and the
remainder of the Shortfall Amount shall be paid in cash. Any such issuance of
Buyer Common Stock or payment of cash shall be made by Buyer to the Shareholders
in the same proportions which the Merger Consideration was allocated among the
Shareholders. The number of Additional Shares issuable to each Shareholder shall
be rounded to the nearest whole share. Any issuance of Additional Shares or
payment of cash to the Shareholders pursuant to this Section 2.07(a) shall be
subject to the provisions of the Escrow Agreement.
(b) If, on the Anniversary Date, the Merger Shares have a fair market
value greater than the Fixed Value, then the Shareholders shall return to Buyer
shares of Buyer Common Stock having a fair market value on the Anniversary Date
equal to the difference between (x) the Fixed Value and (y) the fair market
value of the Merger Shares on the Anniversary Date. Any such return of shares
of Buyer Common Stock shall be made by the Shareholders to Buyer in the same
proportions which the Merger Consideration was allocated among the Shareholders,
within fourteen (14) days of the Anniversary Date. The number of shares of
Buyer Common Stock to be returned by each Shareholder to Buyer pursuant to this
Section 2.07(b) shall be rounded to the nearest whole share.
(c) The Escrow Agreement shall set forth the provisions governing the
application of this Section 2.07 with respect to any Escrow Shares and/or cash
or cash equivalents held past the Anniversary Date in connection with any
pending or unresolved Indemnifiable Claims.
(d) For purposes of this Section 2.07, the fair market value of the
Merger Shares and the Additional Shares as of the Anniversary Date shall be
computed by using the average closing bid price per share of Buyer Common Stock
for the thirty (30) trading days immediately preceding the Anniversary Date.
SECTION 2.08 Exchange of Shares.
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(a) Each holder of a certificate or certificates (the "Certificates")
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which immediately prior to the Effective Time represented outstanding shares of
Common Stock will
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be entitled to receive, upon surrender to Buyer of such Certificates for
cancellation and execution and delivery of the Shareholder Agreement (the
"Shareholder Agreement") substantially in the form of Annex C hereto, his or her
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portion of the Merger Consideration in the amounts calculated in accordance with
Section 2.06 hereof. Until properly surrendered, each such Certificate shall be
deemed for all purposes to evidence only the right to receive such Merger
Consideration.
(b) If any payment is to be made to a person other than the person in
whose name the Certificates surrendered are registered, it shall be a condition
of payment that the Certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificates surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Following the Effective Time, until surrendered
to Buyer in accordance with the provisions of this Section 2.08, each
Certificate shall represent for all purposes only the right to receive upon such
surrender the amount specified in the second sentence of this Section 2.08,
without any interest thereon, subject to any required withholding taxes.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Buyer shall issue in exchange
for such lost, stolen or destroyed Certificate applicable the Merger
Consideration issuable in exchange therefor pursuant to Section 2.06. Buyer
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give Buyer
indemnity against any claim that may be made against Buyer with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(d) No party hereto shall be liable to a holder of Common Stock for
any cash or interest thereon delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws. If any Certificates
shall not have been surrendered prior to three (3) years after the Effective
Time (or immediately prior to such earlier date on which any payment in respect
thereof would otherwise escheat to or become the property of any governmental
unit or agency), the payment in respect of such Certificates shall, to the
extent permitted by applicable law, become the property of the persons who have
previously surrendered Certificates to the Buyer, and the Surviving Corporation
shall cause the amount of such payment or payments to be divided among the
holders of previously surrendered Certificates in proportion to the payments
previously made to such holders in respect of the stock represented by such
Certificates,
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and such holders shall be entitled to such payments free and clear of all claims
of interest of any person previously entitled thereto.
(e) From and after the Effective Time, the holders of shares of Common
Stock outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such shares of Common Stock, except as otherwise
provided herein or by law.
(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and promptly exchanged for a portion of the Merger
Consideration as provided in this Section 2.08.
(g) No certificates or script representing fractional shares of Buyer
Common Stock shall be issued to the Shareholders upon the surrender for exchange
of Certificates, and no Shareholder shall be entitled to any voting rights,
rights to receive any dividends or distributions or other rights as a
shareholder of Buyer with respect to any fractional shares of Buyer Common Stock
that would otherwise be issued to such Shareholder. In lieu of any fractional
shares of Buyer Common Stock that would otherwise be issued, each Shareholder
that would have been entitled to receive a fractional share of Buyer Common
Stock shall, upon proper surrender of such person's Certificates, receive a cash
payment equal to (i) the fair market value per share of Buyer Common Stock
multiplied by (ii) the fraction of a share that such Shareholder would otherwise
be entitled to receive.
SECTION 2.09 Escrow; Indemnification; Representative.
---------------------------------------
(a) On the Closing Date, Buyer, the Representative and the Escrow
Agent shall execute and deliver an Escrow Agreement substantially in the form of
Annex A attached hereto (the "Escrow Agreement") in order to provide Buyer with
----------------
security for Indemnifiable Claims hereunder. Within fifteen (15) days after the
Closing Date, Buyer shall deliver to the Escrow Agent the Merger Shares and,
after the Anniversary Date, if required pursuant to the terms of the Escrow
Agreement, Buyer shall deliver to the Escrow Agent the Additional Shares, if any
(collectively, the "Escrow Shares"). The Escrow Shares shall be payable to
-------------
Buyer or to the Shareholders, as the case may be, in accordance with the terms
set forth in the Escrow Agreement.
(b) In order to efficiently administer the transactions contemplated
hereby, including (i) the defense and/or settlement of any claims for which the
Shareholders may be
12
required to indemnify Buyer pursuant to Article IX hereof and (ii) entering into
the Escrow Agreement, the Principal Shareholders hereby agree to the appointment
of the Representative. The Representative is hereby authorized to take any and
all action as is contemplated to be taken by the Shareholders by the terms of
this Agreement. All Shareholders shall have executed the Shareholder Agreement
pursuant to which all Shareholders agree that all decisions and actions by the
Representative shall be binding upon all of the Shareholders, whether or not a
party to this Agreement, and no Shareholder shall have the right to object,
dissent, protest or otherwise contest the same.
SECTION 2.10 Consummation of Merger. As soon as practicable after
----------------------
satisfaction of the conditions set forth in Article V hereof, Newco and the
Company shall each execute and deliver to the Secretary of State of the State of
Illinois duly executed and verified Articles of Merger, and the parties shall
take all such other and further actions as may be required by law to make the
Merger effective, including without limitation the filing of the Certificate of
Merger with a copy of the Articles of Merger affixed thereto in the office of
the Recorder of the appropriate county or counties.
SECTION 2.11 Closing. The closing of the Merger and the other
-------
transactions contemplated hereby (the "Closing") shall take place at the offices
-------
of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, Twenty-Third Floor, 000 Xxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at 10:00 A.M. local time on or before
forty-five (45) days from the date hereof or, if all conditions appearing in
Article VI hereof to the obligations of the parties hereto to consummate the
transactions contemplated hereby have not been satisfied or waived by such date,
as promptly as practicable upon satisfaction of such conditions as Buyer and the
Company may mutually establish (such time and date being referred to herein as
the "Closing Date").
------------
SECTION 2.12 Actions at the Closing. At the Closing:
----------------------
(a) The Company and the Principal Shareholders shall deliver or cause
to be delivered to Buyer and Newco all of the documents, certificates,
agreements and instruments required to be delivered to Buyer or Newco pursuant
to Section 5.01.
(b) Buyer and Newco shall deliver or cause to be delivered to the
Company and the Shareholders all of the documents, certificates and instruments
required to be delivered to the Company or the Principal Shareholders pursuant
to Section 5.02.
13
(c) Newco and the Company shall each file Articles of Merger with
the Secretary of State of the State of Illinois.
(d) Buyer, the Representative and the Escrow Agent shall execute and
deliver the Escrow Agreement, and, within fourteen (14) days after the Closing
Date, Buyer shall deliver to the Escrow Agent a certificate or certificates
representing the Merger Shares.
(e) Immediately after the Effective Time, Buyer shall, or shall cause
the Surviving Corporation to, extinguish each of the obligations of the
Surviving Corporation to certain Shareholders of the Company, as more
particularly set forth on Schedule 2.12(e), through the payment to such
Shareholders of $1,700,000, together with interest on such amount at a rate of
eight percent (8%) from the date hereof through the Closing Date, in immediately
available funds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
REGARDING THE COMPANY
---------------------
The Principal Shareholders hereby jointly and severally represent and
warrant to, and covenant and agree with, Buyer and Newco that:
SECTION 3.01. Organization and Good Standing; Authorization.
---------------------------------------------
(a) The Company has been duly organized and is existing as a
corporation in good standing under the laws of the State of Illinois with full
power and authority (corporate and other) to own and lease its properties and to
conduct its business as currently conducted. The Company is duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which the nature of its business or the
ownership of its properties and assets requires such qualification, as set forth
in Schedule 3.01(a), except where the absence of such qualification will not or
could not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.
(b) Except as set forth in Schedule 3.01(b), the Company has no
Subsidiaries nor owns or controls, or has any other equity investment or other
interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other Person.
14
(c) The Company has the corporate power and authority to execute and
deliver this Agreement, to consummate the transactions contemplated hereby and
to perform its obligations under this Agreement. The execution and delivery by
the Company of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by the Company. This Agreement, upon its execution and delivery by each of the
Company and the Principal Shareholders (assuming the due authorization,
execution and delivery hereof by the other parties hereto), will constitute the
legal, valid and binding obligation of the Company and the Principal
Shareholders, enforceable against the Company and the Principal Shareholders in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and similar laws relating to creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.02 No Conflicts. Subject to compliance with the applicable
------------
requirements of the Securities Act and any applicable state securities laws and
the filing of the Articles of Merger, as required by the Illinois Corporation
Law, except as set forth in Schedule 3.02, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not (a) conflict with or result in a breach or
violation of any term or provision of, or constitute a default under (with or
without notice or passage of time, or both), or otherwise give any Person a
basis for accelerated or increased rights or termination or nonperformance
under, any indenture, mortgage, deed of trust, loan or credit agreement, lease,
license or other agreement or instrument to which the Company is a party or by
which the Company is bound or affected or to which any of the property or assets
of the Company is bound or affected including, without limitation, all
arrangements in Section 3.19 hereof, (b) result in the violation of the
provisions of the Articles of Incorporation or Bylaws of the Company or any
Legal Requirement applicable to or binding upon it, (c) result in the creation
or imposition of any Lien upon any property or asset of the Company or (d)
otherwise adversely affect the contractual or other legal rights or privileges
of the Company. Schedule 3.02 sets forth a list of all agreements requiring the
consent of any party thereto to any of the transactions contemplated hereby.
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company consists solely of 1,000,000 shares of Common Stock, of which 319,000
are, and on the Closing Date will be, issued and outstanding. Schedule 3.03
sets forth a complete and accurate list of the holders of shares of Common
Stock, indicating the number of Shares held by each holder and their respective
addresses. All of the issued and outstanding shares of Common Stock are duly
authorized, validly issued, fully paid,
15
nonassessable and free of all preemptive rights. Other than as set forth on
Schedule 3.03, (i) there are no existing Options, warrants, right, calls or
commitments of any character relating to shares of Common Stock, (ii) there are
no outstanding securities or other instruments convertible into or exchangeable
for shares of Common Stock and no commitments to issue such securities or
instruments and (iii) no Person has any right of first refusal, preemptive
right, subscription right or similar right with respect to any shares of Common
Stock. The offer, issuance and sale of the Shares were (i) exempt from the
registration and prospectus delivery requirements of the Securities Act, (ii)
registered or qualified (or exempt from registration or qualification) under the
registration or qualification requirements of all applicable state securities
laws and (iii) accomplished in conformity with all other Legal Requirements.
SECTION 3.04 Financial Statements.
--------------------
(a) Schedule 3.04(a) contains true and complete copies of (i) the
audited balance sheet of the Company at December 31, 1997 and the related
audited statements of income, shareholders' equity and cash flows for the year
then ended, together with the opinion thereon of Deloitte & Touche LLP, the
Company's independent accountants, and (ii) the unaudited balance sheet of the
Company (the "Balance Sheet") at April 30, 1998 (the "Balance Sheet Date") and
------------- ------------------
the related unaudited statements of income, shareholders' equity and cash flows
for the four-month period ended on the Balance Sheet Date (such audited and
unaudited financial statements (including, where applicable, the footnotes
thereto) are collectively referred to as the "Financial Statements").
--------------------
(b) The Financial Statements present fairly the financial condition of
the Company as of the dates indicated therein and the results of operations and
changes in financial position of the Company for the periods specified therein,
have been prepared in conformity with GAAP during the periods covered thereby
and prior periods (except that the Balance Sheet and the related unaudited
statements of income, shareholders' equity and cash flows for the four-month
period ended on the Balance Sheet Date do not contain footnotes), have been
derived from the accounting records of the Company and represent only actual,
bona fide transactions. To the actual knowledge of the Principal Shareholders,
the Financial Statements are true and correct in all material respects.
SECTION 3.05 Title to Property; Encumbrances.
-------------------------------
(a) The Company does not own any real property or any Structures.
16
(b) The Company has, and immediately prior to the Closing will have,
good and valid title to all personal property reflected on the Balance Sheet as
owned by the Company and all personal property acquired by the Company since the
Balance Sheet Date, in each case free and clear of all Liens except (i) as set
forth on Schedule 3.05(b) and (ii) Permitted Liens.
(c) Schedule 3.05(c) contains a list of all tangible personal property
having a cost or fair market value in excess of $5,000 owned by the Company
(other than personal property held by the Company as lessee under a personal
property lease).
(d) Schedule 3.05(d) contains a list of all real property leases,
licenses and personal property leases under which the Company is the lessee or
licensee, together with (i) the location and nature of each of the leased or
licensed properties, (ii) the termination date of each such lease or license,
(iii) the name of the lessor or licensor, (iv) all rental and other payments
made or required to be made for the fiscal years ending December 31, 1998 and
December 31, 1999 and (v) the date and amount of the next permitted cost-of-
living increase in each such lease or license. All leases and licenses pursuant
to which the Company leases or licenses from others real or personal property
are valid, subsisting in full force and effect in accordance with their
respective terms, and there is not, under any real property lease, personal
property lease or license, any existing default or event of default (or event
that, with notice or passage of time, or both, would constitute a default, or
would constitute a basis of force majeure or other claim of excusable delay or
----- -------
nonperformance). True and complete copies of all real property leases, licenses
and personal property leases listed on Schedule 3.05(d) have been delivered to
Buyer heretofore. Except as set forth in Schedule 3.05(d), no such lease or
license will require the consent of the lessor or licensor to or as a result of
the consummation of the transactions contemplated by this Agreement. For
purposes of this Agreement, a "lease" shall include a sublease.
(e) To the actual knowledge of the Principal Shareholders, all
personal property owned by the Company and all personal property held by the
Company pursuant to personal property leases is in good operating condition and
repair in all material respects, subject only to ordinary wear and tear, has
been operated, serviced and maintained properly within the recommendations and
requirements of the manufacturers thereof (if any) and is suitable and
appropriate for the use thereof made and proposed to be made by the Company in
its business and operations. The Leased Real Property and personal property
described in Sections 3.05(b) and 3.05(c) and the personal property held by the
Company pursuant to the leases and licenses described in Schedule
17
3.05(d) comprise all of the Leased Real Property and personal property used in
the conduct of business of the Company. To the actual knowledge of the Principal
Shareholders, Schedule 3.05(e) sets forth a true, complete and accurate listing
of all inoperative personal property and personal property not in use (other
than inventory), valued at $1,000 or more and owned by the Company.
SECTION 3.06 Inventory and Accounts Receivable.
---------------------------------
(a) All inventory set forth or reflected in the audited balance sheet
dated as of December 31, 1997 (with the exception of slow moving or obsolete
inventory for which a provision for obsolescence has been made in said balance
sheet) (i) consists of a quality and quantity usable and saleable by the Company
in the Ordinary Course, (ii) reflects the normal inventory valuation policy of
the Company, on a basis consistent with that of preceding periods, and (iii)
reflects inventory at its lower of cost or market value in accordance with GAAP.
All inventory acquired by the Company subsequent to December 31, 1997 consists
of a quality and quantity usable and saleable by the Company in the Ordinary
Course, and the value at which inventories are carried on the Balance Sheet
reflects the normal inventory valuation policy of the Company, on a basis
consistent with that of preceding periods.
(b) All accounts receivable of the Company reflected in the Balance
Sheet and all accounts receivable of the Company that have arisen since the
Balance Sheet Date (except such accounts receivable as have been collected since
such dates) are valid and enforceable claims against the account debtor, and the
goods and services sold and delivered that gave rise to such accounts were sold
and delivered in conformity with all applicable express and implied warranties,
purchase orders, agreements and specifications. Such accounts receivable of the
Company are subject to no valid defense, offset or counterclaim and are fully
collectible in the Ordinary Course, except to the extent of the allowance for
doubtful accounts reflected on the Balance Sheet. Schedule 3.06(b)(1) contains a
true and complete aging of the Company's accounts receivable as of May 31, 1998.
Schedule 3.06(b)(2) contains a true and complete list of all customers of the
Company who enjoy non-standard discounts or non-standard payment terms, together
with a summary of any such non-standard discounts or non-standard payment terms.
To the actual knowledge of the Principal Shareholders, Schedule 3.06(b)(3)
contains a true, complete and accurate listing of all specifically identified
doubtful accounts of the Company. Nothing contained herein shall be deemed as a
guaranty by the Principal Shareholders of payment or collection of the Company's
accounts receivable.
SECTION 3.07 Compliance with Law. Through and including the date
-------------------
hereof, the Company (i) to the actual knowledge
18
of the Principal Shareholders, has not violated, has not conducted its business
or operations in violation of, and has not used or occupied its properties or
assets in violation of, any Legal Requirement, (ii) to the actual knowledge of
the Principal Shareholders, has not been alleged to be in violation of any Legal
Requirement, and (iii) has not received any notice of any alleged violation of,
nor any citation for noncompliance with, any Legal Requirement.
SECTION 3.08 Trademarks, Patents, Etc.
------------------------
(a) Schedule 3.08(a) contains a true and complete list of all patents,
patent applications, trade names, logos, trademarks, service marks, trademark
and service xxxx registrations and applications, copyrights, copyright
registrations and applications, Internet domain names, 1-800 and 1-888 telephone
numbers, grants of a license or right to the Company with respect to any of the
foregoing, both domestic and foreign, owned or claimed by the Company or used or
proposed to be used by the Company in the conduct of its business, whether
registered or not (collectively herein, "Registered Rights"). To the actual
-----------------
knowledge of the Principal Shareholders, no other patent, trademark, service
xxxx, trade name or copyright, or license with respect to any of the foregoing,
is necessary to permit the Company's business to be conducted as now conducted
or as heretofore or proposed to be conducted. True and complete copies of all
documentation related to the Registered Rights have been delivered to Buyer
heretofore.
(b) Except as described in Schedule 3.08(b), the Company owns
exclusively and has the exclusive and unrestricted right to use the Registered
Rights, and all renewals therefor and claims for infringement thereof, and every
trade secret, know-how, process, discovery, development, design, technique,
customer and supplier list, promotional idea, marketing and purchasing strategy,
computer program (including source code), technical data, invention, process,
confidential data and other information (collectively herein, "Proprietary
-----------
Information") required for or incident to the design, development, manufacture,
-----------
operation, sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Company, free and clear of any right,
equity or claim of others and without infringing upon or otherwise acting
adversely to the right or claimed right of any third party under or with respect
to any of the Proprietary Information. To the actual knowledge of the Principal
Shareholders, the Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all Proprietary Information.
(c) Schedule 3.08(c) contains a true and complete list and non-
confidential description of all licenses of, or rights to, Proprietary
Information granted to the Company by
19
others or to others by the Company. Except as described in Schedule 3.08(c), (i)
the Company has not sold, transferred, assigned, licensed, restricted,
encumbered or subjected to any Lien, any Registered Right or Proprietary
Information or any interest therein, and (ii) the Company is not obligated or
under any liability whatever to make any payments by way of royalties, fees or
otherwise to any owner or licensor of, or other claimant to, any Registered
Right or Proprietary Information.
(d) There are no claims or demands of any Person pertaining to, or any
Actions that are pending or, to the actual knowledge of the Principal
Shareholders, threatened, which challenge the rights of the Company in respect
of any Registered Right or any Proprietary Information.
SECTION 3.09 Banking and Insurance.
---------------------
(a) Schedule 3.09(a) contains a true and complete list of the names
and locations of all financial institutions at which the Company maintains a
checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) Schedule 3.09(b) contains a true and complete list of all
insurance policies and bonds and self insurance arrangements currently in force
that cover or purport to cover risks or losses to, or associated with, the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. To the actual knowledge of
the Principal Shareholders, the insurance policies, bonds and arrangements
described on Schedule 3.09(b) (the "Policies") provide such coverage against
--------
such risk of loss and in such amounts as are customary for corporations of
established reputation engaged in the same or similar business and similarly
situated. To the actual knowledge of the Principal Shareholders, the Company
has no obligation, liability or other commitment relating to any contract of
insurance containing a provision for retrospective rating or adjustment of the
Company's premium obligation. Except as set forth in Schedule 3.09(b), to the
actual knowledge of the Principal Shareholders, no facts or circumstances exist
that would cause the Company to be unable to renew its existing insurance
coverage as and when the same shall expire upon terms at least as favorable as
those currently in effect, other than possible increases in premiums that do not
20
result from any act or omission of the Company or the Shareholders.
SECTION 3.10 Indebtedness.
------------
(a) To the actual knowledge of the Principal Shareholders, the Company
has no liability or obligation for Indebtedness other than as set forth on
Schedule 3.10(a), and true and complete copies of all instruments and documents
evidencing, creating, securing or otherwise relating to such Indebtedness have
been delivered to Buyer heretofore. Except as described in Schedule 3.10(a), no
event has occurred and no condition has become known to the Principal
Shareholders (including the transactions contemplated hereby) that constitutes
or, with notice or passage of time, or both, would constitute a default or a
basis of force majeure or other claim of accelerated or increased rights,
----- -------
termination, excusable delay or nonperformance by the Company or any other
Person under any instrument or document relating to or evidencing Indebtedness
that would entitle any Person to require the Company to pay any portion of the
principal amount of such Indebtedness prior to the scheduled maturity thereof.
Except as set forth in Schedule 3.10(a), no instrument or document evidencing,
creating, securing or otherwise relating to Indebtedness will require the
consent of any Person to or as a result of the consummation of the transactions
contemplated by this Agreement.
(b) Schedule 3.10(b) contains a list and brief description of all
agreements or instruments pursuant to which any of the Company's directors,
employees or shareholders have guaranteed any Indebtedness of the Company (the
"Guaranties"). True and complete copies of all Guaranties have been delivered to
-----------
Buyer heretofore.
SECTION 3.11 Judgments; Litigation. Except as set forth on Schedule
---------------------
3.11:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting the Company or its properties, assets or business or (ii) Action
pending against or affecting the Company or its properties, assets or business.
(b) To the actual knowledge of the Principal Shareholders, there is no
(i) outstanding judgment, order, decree, award, stipulation, injunction of any
Governmental Entity or arbitrator against or affecting any officer, director or
employee of the Company relating to the Company or its business, (ii) Action
threatened against the Company or its properties, assets or business, (iii)
Action pending or threatened against the Company's officers, directors or
employees relating to the Company or its business, or (iv) basis for the
institution of any Action against
21
the Company or any of its officers, directors, employees, properties or assets
which, if decided adversely, would have a Material Adverse Effect.
SECTION 3.12 Income and Other Taxes. Except as set forth on Schedule
----------------------
3.12:
(a) All Tax Returns required to be filed through and including the
date hereof in connection with the operations of the Company are true, complete
and correct in all respects and have been properly and timely filed. The
Company has not requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed. Buyer has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three taxable years, and of all
reports of, and communications from, any Governmental Entities relating to such
period. The Company has disclosed on its Federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
income Taxes for federal income tax purposes within the meaning of Code Section
6662.
(b) All Taxes required to be paid or withheld and deposited through
and including the date hereof in connection with the operations of the Company
have been duly and timely paid or deposited by the Company. The Company has
properly withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent contractors
and other third parties, and for Taxes on sales, and has properly and timely
remitted such withheld or collected amounts to the appropriate Governmental
Entity. The Company has no liabilities for any Taxes for any taxable period
ending prior to or coincident with the Closing Date other than in the Ordinary
Course.
(c) The Company has made adequate provision on its books of account
for all Taxes with respect to its business, properties and operations through
the Closing Date, and the accruals for Taxes in the Balance Sheet are adequate
to cover all liabilities for Taxes of the Company for all periods ending on or
before the Closing Date.
(d) The Company (i) does not have a tax deficiency proposed, asserted
or assessed against it, (ii) has not executed any waiver of any statute of
limitations on the assessment or collection of any Taxes, and (iii) has not been
delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject of
other Action by any Governmental Entity. Except as set forth on Schedule
3.12(e), the Company has not received any notice from any Governmental Entity of
any pending
22
examination or any proposed deficiency, addition, assessment, demand for payment
or adjustment relating to or affecting the Company or its assets or properties
and the Principal Shareholders have no reason to believe that any Governmental
Entity may assess (or threaten to assess) any Taxes for any periods ending on or
prior to the Closing Date.
(f) The Company (i) has not filed any consent or agreement pursuant to
Code Section 341(f), and no such consent or agreement will be filed at any time
on or before the Closing Date; (ii) has not made any payments, is not obligated
to make any payments and is not a party to any agreement that under certain
circumstances could obligate the Company to make any payments that will not be
deductible under Code Section 280G; (iii) is not a United States real property
holding corporation within the meaning of Code Section 897(c)(2); (iv) is not a
party to a tax allocation or sharing agreement; (v) has never been (or does not
have any liability for unpaid Taxes because it was) a member of an affiliated
group with the meaning of Code Section 1504(a); (vi) has never applied for a tax
ruling from a Governmental Entity; and (vii) has never filed or been the subject
of an election under Code Section 338(g) or Code Section 338(h)(10) or caused or
been the subject of a deemed election under Code Section 338(e).
(g) Set forth on Schedule 3.12(g) is the amount, as of the most recent
practicable date, of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax or excess charitable contribution.
SECTION 3.13 Corporate Records. The copies or originals of the
-----------------
Articles of Incorporation, Bylaws, minute books and stock records of the Company
previously delivered to, or made available for inspection by, Buyer are true,
complete and correct.
SECTION 3.14 Employee Benefit Matters. Except as set forth in Schedule
------------------------
3.14, the Company maintains no pension, retirement, profit-sharing, employee
stock ownership plan, deferred compensation, stock bonus or other similar plan;
medical, vision, dental or other health plan; life insurance plan; vacation,
severance, golden parachute or other similar plan or arrangement; stock option,
stock appreciation or other similar plan or arrangement; and any other employee
benefit plan, including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of ERISA, which, in any case, relates to the Company and
for which the Surviving Corporation will incur any liability by operation of law
or otherwise as a result of the transactions contemplated by this Agreement.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the extent set
--------------------------
forth or provided for in the Balance Sheet or the notes thereto, (ii) as set
forth on Schedule 3.15 or (iii) for non-material current liabilities incurred
since the Balance Sheet
23
Date in the Ordinary Course, as of the date hereof the Company has no
liabilities, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including Taxes with respect to or based upon the transactions or events
occurring at or prior to the Closing which will, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.16 Permits, Licenses, Etc. Except where such failure will
----------------------
not or could not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect, the Company possesses, and is operating in
compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) occupy, maintain, operate and use the Leased Real Property as it is
currently used and proposed to be used (including, if applicable, with respect
to stormwater runoff and treatment of any of the Leased Real Property as a
hazardous waste facility), (ii) conduct its business as currently conducted and
as proposed to be conducted, and (iii) maintain and operate its employee benefit
plans (the "Permits"). Schedule 3.16 contains a true and complete list of all
-------
Permits and each expiration date and scheduled renewal date related to each
Permit. Each Permit has been lawfully and validly issued, and no proceeding is
pending or, to the actual knowledge of the Principal Shareholders, threatened
looking toward the revocation, suspension or limitation of any Permit. The
consummation of the transactions contemplated by this Agreement will not result
in the revocation, suspension or limitation of any Permit and, except as set
forth in Schedule 3.16, no Permit will require the consent of its issuing
authority to or as a result of the consummation of the transactions contemplated
hereby.
SECTION 3.17 Regulatory Filings. The Company has made all required
------------------
registrations and filings with and submissions to all applicable Governmental
Entities relating to the operations of the Company as currently conducted and as
proposed to be conducted, except where the failure to make such registrations
and filings will not or could not be reasonably expected to have, individually
or in the aggregate (including the aggregation of all failures under Section
3.25(h)), a Material Adverse Effect. All such registrations, filings and
submissions were in compliance with all Legal Requirements and other
requirements when filed. No material deficiencies have been asserted by any
such applicable Governmental Entities with respect to such registrations,
filings or submissions and, to the actual knowledge of the Principal
Shareholders, no facts or circumstances exist which would indicate that a
material deficiency may be asserted by any such authority with respect to any
such registration, filing or submission.
24
SECTION 3.18 Consents. All consents, authorizations and approvals of
--------
any Person to, or as a result of the consummation of, the transactions
contemplated hereby that are necessary in connection with the operations and
business of the Company as currently conducted and as proposed to be conducted,
or for which the failure to obtain the same might have, individually or in the
aggregate, a Material Adverse Effect, have been lawfully and validly obtained by
the Company, except as described in Schedules 3.02, 3.05(d), 3.10(a) and 3.16
hereto.
SECTION 3.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.19(a) contains a true and complete list and description
of each individual outstanding sales order and sales contract of the Company
having an indicated gross value in excess of $10,000 or having a term or
duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course. Except
as described in Schedule 3.19(a), the Company has not received any advance,
progress payment or deposit in respect of any sales order or sales contract, and
the Company has no sales order or sales contract that will result, upon
completion or performance thereof, in gross margins materially lower than those
normally experienced by the Company for the services or products covered by such
sales order or sales contract.
(b) Schedule 3.19(b) contains a true and complete list and description
of all outstanding purchase orders and purchase commitments of the Company
having a gross indicated value in excess of $10,000 in the aggregate from any
single supplier or other vendor. All outstanding purchase orders and purchase
commitments of the Company have been incurred in the Ordinary Course, and no
purchase order or purchase commitment of the Company is in excess of the normal,
ordinary and usual requirements of the business of the Company or at an
excessive price.
(c) Schedule 3.19(c) contains a true and complete list of all sales
agency, sales representative and similar contracts or agreements of the Company
and a description of the territory or market and the expiration or renewal date
of each such contract or agreement. True and complete copies of each such
contract or agreement have been delivered to Buyer heretofore. Except as
described in Schedule 3.19(c), all of such contracts and agreements are
terminable at any time by the Company without penalty upon not more than thirty
(30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list and description
of all noncompetition agreements and covenants under which the Company or any
Shareholder or, to the actual knowledge of the Principal Shareholders, any of
the Company's officers, directors or key employees is obligated, and
25
true and complete copies of the same have been delivered to Buyer heretofore.
Except as described in Schedule 3.19(d), the Company is not restricted by any
agreement from carrying on its business or engaging in any other activity
anywhere in the world (including relocating, closing, or terminating any of its
operations or facilities), and, to the actual knowledge of the Principal
Shareholders, no such officer, director or key employee is a party to or
otherwise bound or affected by any agreement, covenant or other arrangement or
understanding that would restrict or impair his ability to perform diligently
his other duties to the Company. Schedule 3.19(d) also contains a true and
complete list and description of all noncompetition agreements or covenants in
favor of the Company, and true and complete copies of the same have been
delivered to Buyer heretofore.
(e) Schedule 3.19(e) contains a true and complete list and description
of all contracts, agreements, understandings, arrangements and commitments,
written or, to the actual knowledge of the Principal Shareholders, oral, of the
Company with any officer, director, consultant, employee or Affiliate of the
Company or with any associate, Affiliate or employee of any Affiliate of the
Company, other than those disclosed in Schedule 3.21(a) hereto; in each case a
true and complete copy of such written contract, agreement, understanding,
arrangement or commitment or a true and complete summary of such oral contract,
agreement, understanding, arrangement or commitment has been delivered to Buyer
heretofore.
(f) Schedule 3.19(f) contains a true and complete list and description
of all other material contracts, agreements, understandings, arrangements and
commitments, written or, to the actual knowledge of the Principal Shareholders,
oral, of the Company by which it or its properties, rights or assets are bound
that are not otherwise disclosed in this Agreement or the Schedules hereto.
True and complete copies of such written contracts, agreements, understandings,
arrangements and commitments and true and complete summaries of such oral
contracts, agreements, understandings, arrangements and commitments have been
delivered to Buyer heretofore. For the purposes of this subsection (f),
"material" means any contract, agreement, understanding, arrangement or
commitment that (i) involves performance by any party more than ninety (90) days
from the date hereof, (ii) involves payments or receipts by the Company in
excess of $10,000, (iii) involves capital expenditures in excess of $10,000 or
(iv) otherwise materially affects the Company.
(g) Except as described in Schedule 3.19(g):
(i) each agreement, contract, arrangement or commitment
described above in this Section 3.19 is binding and enforceable on and against
the Company, and to the actual
26
knowledge of the Principal Shareholders the other parties(ies) thereto, and is
valid, legal and in full force and effect;
(ii) no event or condition has occurred or become known to
the Principal Shareholders or is alleged to have occurred that constitutes or,
with notice or the passage of time, or both, would constitute a default or a
basis of force majeure or other claim of excusable delay, termination,
----- -------
nonperformance or accelerated or increased rights by the Company or, to the
actual knowledge of the Principal Shareholders, any other Person under any
contract, agreement, arrangement, commitment or other understanding, written or
oral, described above in this Section 3.19, or described or otherwise disclosed
pursuant to this Agreement; and
(iii) to the actual knowledge of the Principal Shareholders, no
Person with whom the Company has such a contract, agreement, arrangement,
commitment or other understanding is in default thereunder or has failed to
perform fully thereunder by reason of force majeure or other claim of excusable
----- -------
delay, termination or nonperformance thereunder.
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet Date,
--------------------------
except as disclosed in Schedule 3.20, the Company has not: (i) incurred any
debts, obligations or liabilities (absolute, accrued, contingent or otherwise),
other than current liabilities incurred in the Ordinary Course which,
individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (iii) sold, transferred, licensed or
leased any of its assets or properties except in the Ordinary Course; (iv)
discharged or satisfied any Lien other than a Lien securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the Ordinary Course; (v) canceled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value
other than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect; (vii) entered into any material transaction or otherwise
committed or obligated itself to any capital expenditure other than in the
Ordinary Course; (viii) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; (ix) other than in the Ordinary Course, made or
suffered any amendment or termination of any material contract, agreement, lease
or license to which it is a party; (x) paid, or made any accrual or arrangement
for payment of, any severance or termination pay to, or entered into any
employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xi) paid,
27
or made any accrual or arrangement for payment of, any increase in compensation,
bonuses or special compensation of any kind to any employee other than pursuant
to an agreement disclosed on Schedule 3.21(a) or Schedule 3.21(b) or other than
in the Ordinary Course, or paid, or made any accrual or arrangement for payment
of, any increase in compensation, bonuses or special compensation of any kind to
any officer or director of the Company or any consultant to the Company; (xii)
made or agreed to make any charitable contributions or incurred any nonbusiness
expenses other than in the Ordinary Course and which do not in the aggregate
exceed $1,000; (xiii) changed or suffered change in any Plan or labor agreement
affecting any employee of the Company otherwise than to conform to Legal
Requirements; or (xiv) entered into any agreement or otherwise obligated itself
to do any of the foregoing.
SECTION 3.21 Employees and Labor Matters.
---------------------------
(a) Schedule 3.21(a) contains a true and complete list of all
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Buyer heretofore. A true and complete copy of the Company's
employee manual has been delivered to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of all labor,
collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered to Buyer heretofore.
(c) Except for the employment and labor agreements listed on Schedules
3.21(a) and 3.21(b), neither Buyer nor the Surviving Corporation will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing. There
is no agreement, arrangement, commitment or understanding between the Company
and any of its employees which could prohibit the Company from modifying the
work schedule of its employees.
(d) There is not occurring or, to the actual knowledge of the
Principal Shareholders, threatened, any strike, slow down, picket, work stoppage
or other concerted action by any union or other group of employees or other
persons against the
28
Company or its premises or products. Except for activities by the unions that
are parties to any of the agreements listed on Schedule 3.21(b) with respect to
the existing members of such unions, and except as set forth on Schedule
3.21(d), to the actual knowledge of the Principal Shareholders, no union or
other labor organization has attempted to organize any of the employees of the
Company.
(e) The Company has complied with all Legal Requirements relating to
employment and labor, except where the failure to so comply would not have a
Material Adverse Effect, and, to the best knowledge of the Principal
Shareholders, no facts or circumstances exist that could provide a reasonable
basis for a claim of wrongful termination by any current or former employee of
the Company against the Company.
SECTION 3.22 Affiliations. To the actual knowledge of the Principal
------------
Shareholders, except as disclosed on Schedule 3.22, none of the Shareholders,
any officer, director or key employee of the Company or any associate or
Affiliate of the Company or any of such Persons has, directly or indirectly, (i)
an interest in any Person that (A) furnishes or sells, or proposes to furnish or
sell, services or products that are furnished or sold by the Company or (B)
purchases from or sells or furnishes to, or proposes to purchase from or sell or
furnish to, the Company any goods or services, or (ii) a beneficial interest in
any contract or agreement to which the Company is a party or by which the
Company or any of the assets of the Company are bound or affected.
SECTION 3.23 Principal Customers and Suppliers.
---------------------------------
(a) Schedule 3.23(a) contains a true and complete list of the name and
address of each customer that purchased in excess of five percent (5%) of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of each
supplier (i) from whom the Company purchased in excess of five percent (5%) of
the Company's purchases of goods or services during the twelve (12) months ended
on the Balance Sheet Date, or (ii) which currently do not permit open terms of
payment or purchases on credit and have been used more than once per month, and
since that date no such supplier has terminated its relationship with or
adversely curtailed its accommodations, sales or services to the Company or
indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
29
SECTION 3.24 Warranty Liability. Schedule 3.24 contains (i) a true and
------------------
complete description of all warranties granted or made with respect to services
rendered or products sold by the Company, and (ii) the total amount actually
paid, received or settled by the Company for all warranties, credits, returns
and allowances for each of the last three (3) years.
SECTION 3.25 Hazardous Materials. Except as set forth on Schedule 3.25
-------------------
or disclosed in any document identified on Schedule 3.25 to the extent that such
document has been previously provided to Buyer's designated representatives:
(a) No Hazardous Material (i) has been released, placed, stored,
generated, used, manufactured, treated, deposited, spilled, discharged, released
or disposed of on or under any real property currently or previously owned or
leased by the Company or is presently located on or under any Leased Real
Property (or, to the actual knowledge of the Principal Shareholders, any
property adjoining any Leased Real Property), (ii) is presently maintained,
used, generated, or permitted to remain in place by the Company in violation of
any Environmental Law, (iii) is required by any Environmental Law to be
eliminated, removed, treated or mitigated by the Company, given the nature of
its present condition, location, nature, material or maintenance, or (iv) is of
a type, location, material, nature or condition which requires special
notification to third parties by the Company under Environmental Law or common
law.
(b) No notice, citation, summons or order has been received by the
Company or any Principal Shareholder, no notice has been given by the Company
and no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or, to the actual knowledge of the Principal
Shareholders, threatened by any Governmental Entity, with respect to (i) any
alleged violation by the Company of any Environmental Law or (ii) any alleged
failure by the Company to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its business
or properties, or (iii) any use, possession, generation, treatment, storage,
recycling, transportation, release or disposal by or on behalf of the Company of
any Hazardous Material.
(c) The Company has not received any request for information, notice
of claim, demand or notification that it is or that indicates that it may be a
"potentially responsible party" with respect to any investigation or remediation
of any threatened or actual release of any Hazardous Material.
(d) No above-ground or underground storage tanks, whether or not in
use, are or have ever been located at any property currently owned or leased by
the Company.
30
(e) No notice has been received by the Company with respect to the
listing or proposed listing of any property currently or previously owned,
operated or leased by the Company on the National Priorities List promulgated
pursuant to CERCLA, CERCLIS or any similar state list of sites requiring
investigation or cleanup.
(f) To the actual knowledge of the Principal Shareholders, there have
been no environmental inspections, investigations, studies, tests, reviews or
other analyses conducted in relation to any Leased Real Property.
(g) To the actual knowledge of the Principal Shareholders, the Company
has not released, transported, or arranged for the transportation of any
Hazardous Material from any property currently or previously owned, operated or
leased by the Company, except in full compliance with all applicable Legal
Requirements.
(h) The Company has made all required filings with and submissions to
all applicable Governmental Entities having jurisdiction over any matters
pertaining to conservation or protection of the environment, and the treatment,
discharge, use, handling, storage or production, or disposal of Hazardous
Materials, except where such failure will not or could not be reasonably
expected to have, individually or in the aggregate (including the aggregation of
all failures under Section 3.17), a Material Adverse Effect. All such filings
and submissions were in compliance with all Environmental Laws and other
requirements when filed. No material deficiencies have been asserted by any
such applicable Governmental Entities with respect to such filings or
submissions and, to the actual knowledge of the Principal Shareholders, no facts
or circumstances exist which would indicate that a material deficiency may be
asserted by any such authority with respect to any such filing or submission.
SECTION 3.26 Brokers' Fees. No broker, finder or similar agent has
-------------
been employed by or on behalf of the Company or the Shareholders in connection
with this Agreement or the transactions contemplated hereby, and neither the
Company nor any of the Shareholders has entered into any agreement or
understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
SECTION 3.27 Disclosure. Except as set forth on Schedule 3.27, no
----------
representation or warranty of the Company or the Shareholders in this Agreement
and no information contained in any Schedule or other writing delivered by the
Company or the Shareholders pursuant to this Agreement or at the Closing
contains or will contain any untrue statement of a material fact or omits
31
or will omit to state a material fact required to make the statements herein or
therein not misleading. There is no fact that the Company or the Shareholders
has not disclosed to Buyer or Newco in writing that has had or, insofar as the
Company or the Shareholders can now foresee, may have a material adverse effect
on the ability of the Company or the Shareholders to perform fully this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to, and covenants and agrees with,
the Principal Shareholders that:
SECTION 4.01 Organization, Power and Authority of Buyer and Newco.
----------------------------------------------------
Each of Buyer and Newco has been duly organized and is existing as a corporation
in good standing under the laws of the State of Delaware and the laws of the
State of Illinois, respectively, with full power and authority (corporate and
other) to own and lease its properties and to conduct its business as currently
conducted.
SECTION 4.02 Authorization. Each of Buyer and Newco has the corporate
-------------
power and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. The execution and delivery by each of Buyer and Newco of this
Agreement, and the consummation by each of them of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action by each of
Buyer and Newco. This Agreement, upon its execution and delivery by each of
Buyer and Newco (assuming the due authorization, execution and delivery hereof
by the other parties hereto), will constitute the legal, valid and binding
obligation of each of Buyer and Newco, enforceable against each of Buyer and
Newco in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency and similar laws relating to creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 4.03 No Conflict or Violation. Subject to compliance with the
------------------------
applicable requirements of the Securities Act and any applicable state
securities laws and the filing of the Articles of Merger, as required by the
Illinois Corporation Law, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(a) conflict with or result in a breach or violation of any term or provision
of, or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any Person a basis for accelerated or increased rights
or termination or
32
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which Buyer or
Newco is a party or by which Buyer or Newco is bound or affected or to which any
of the property or assets of Buyer or Newco is bound or affected, (b) result in
the violation of the provisions of the Certificate of Incorporation, Articles of
Incorporation or Bylaws of Buyer or Newco or any Legal Requirement applicable to
or binding upon them, (c) result in the creation or imposition of any Lien upon
any property or asset of Buyer or Newco or (d) otherwise adversely affect the
contractual or other legal rights or privileges of Buyer or Newco. Schedule 4.03
sets forth a list of all agreements to which Buyer or Newco is a party requiring
the consent of any party thereto to any of the transactions contemplated hereby.
SECTION 4.04 Capitalization. The authorized capital stock of Buyer
--------------
consists of (i) 60,000,000 shares of Buyer Common Stock, of which 16,624,684
were issued and outstanding on June 1, 1998,(ii) 2,500,000 shares of Class B
Common Stock, par value $.001 per share, of which 2,374,750 were issued and
outstanding on June 1, 1998 and (iii) 5,300,000 shares of preferred stock, par
value $.01 per share, of which 666,638 were issued and outstanding on June 1,
1998. All of the issued and outstanding shares of capital stock of Buyer are
duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Shares of Buyer Common Stock to be issued
pursuant to this Agreement, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. The authorized capital stock of Newco consists solely of 100
shares of common stock, of which 100 are, and on the Closing Date will be,
issued and outstanding. All of the issued and outstanding shares of capital
stock of Newco are, and on the Closing Date will be, owned beneficially and of
record by Buyer. Buyer shall maintain sufficient share reserves for the
issuance to satisfy its obligations pursuant to Section 2.07.
SECTION 4.05 Consents and Approvals. No consent, approval,
----------------------
authorization, license, permit or other action by, or filing with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by Buyer and Newco or the consummation
by Buyer and Newco of the transactions contemplated hereby, except for such
consents, approvals, authorizations, licenses, permits, actions or filings as
will have been obtained, taken or filed at or prior to the Closing.
SECTION 4.06 Reports and Financial Statements.
--------------------------------
(a) The Buyer has previously furnished to the Company complete and
accurate copies, as amended or supplemented, of its (i) Quarterly Report on Form
10-Q for the fiscal quarter
33
ended March 31, 1998, (ii) Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, each as filed with the Securities and Exchange Commission (the
"SEC"), and (iii) all other reports filed by the Buyer under Section 13 of the
---
Exchange Act with the SEC since March 31, 1998 (such reports are collectively
referred to herein as the "Buyer Reports"). The Buyer Reports include all of the
-------------
documents required to be filed by the Buyer under the Exchange Act with the SEC
since March 31, 1998. As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of the
Buyer included in the Buyer Reports (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Buyer.
SECTION 4.07 WARN Act. Buyer is in compliance with or exempt from or,
--------
on the Closing Date, will be in compliance with or exempt from the provisions of
the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C.
(S)2101, et seq.
-------
SECTION 4.08 Brokers' Fees. No broker, finder or similar agent has
-------------
been employed by or on behalf of Buyer or Newco in connection with this
Agreement or the transactions contemplated hereby, and neither Buyer nor Newco
have entered into any agreement or understanding of any kind with any person or
entity for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
------------------------------------
SECTION 5.01 Conditions to Obligations of Buyer and Newco.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Newco to consummate the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
34
(a) Buyer shall have received executed and effective signature cards
for all of the accounts referenced in Section 3.09(a) above.
(b) Buyer shall have received a certificate of the Secretary of the
Company dated the Closing Date in substantially the form attached as Annex B
hereto.
(c) Each Shareholder shall have executed a Shareholder Agreement with
Buyer substantially in the form attached as Annex C hereto.
(d) Buyer, the Escrow Agent and the Representative shall have entered
into the Escrow Agreement.
(e) Buyer shall repay to Congress Financial Corporation ("Congress")
--------
all amounts owing to Congress on the Closing Date under the Company's existing
credit facility with Congress.
(f) All authorizations, consents, waivers and approvals by or from
third parties, except for Congress Financial Corporation, required for the
consummation of the transactions contemplated hereby shall have been obtained
and all Liens on the assets and properties of the Company set forth in Schedule
6.01(g) shall have been released or terminated.
(g) All obligations, including without limitation debts, of the
Company to the Shareholders shall be extinguished.
(h) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
SECTION 5.02 Conditions to Obligations of the Company and the Principal
----------------------------------------------------------
Shareholders. Notwithstanding any other provision of this Agreement, the
------------
obligations of the Company and the Principal Shareholders to consummate the
Merger and the other transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
(a) The Principal Shareholders shall have received a certificate of
the Secretary of Buyer dated the Closing Date in substantially the form attached
as Annex E hereto.
35
(b) The Principal Shareholders shall have received a certificate of
the Secretary of Newco dated the Closing Date in substantially the form attached
as Annex F hereto.
(c) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to the Shareholders and their counsel.
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and the Principal Shareholders covenant and agree
(except as expressly otherwise provided by this Agreement or to the extent that
Buyer shall otherwise expressly consent in writing) that:
SECTION 6.01 Qualification. The Company shall maintain all
-------------
qualifications to transact business and remain in good standing in Illinois and
in the foreign jurisdictions set forth on Schedule 3.01(a).
SECTION 6.02 Ordinary Course. The Company shall use its best efforts
---------------
to conduct its business in, and only in, the Ordinary Course and shall preserve
intact its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and going business value shall be unimpaired at the Closing Date. The
Company shall use its best efforts to maintain its properties and assets in good
condition and repair.
SECTION 6.03 Organic Changes. The Company shall not (a) amend its
---------------
Articles of Incorporation or Bylaws (or equivalent documents), (b) acquire by
merging or consolidating with, or agreeing to merge or consolidate with, or
purchase substantially all of the stock or assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof, (c) enter into any partnership or joint
venture, (d) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or purchase or redeem, directly or indirectly,
any shares of its capital stock, (e) issue or sell any shares of its capital
stock of any class or any options, warrants, conversion or other rights to
purchase any such shares or any securities convertible into or exchangeable for
such shares, or (f) liquidate or dissolve or obligate itself to do.
36
SECTION 6.04 Indebtedness. The Company shall not incur any
------------
Indebtedness, sell any debt securities or lend money to or guarantee the
Indebtedness of any Person, unless such Indebtedness is less than $5,000 in the
aggregate (with the exception of Indebtedness incurred to Congress Financial
Corporation which shall not exceed $2,400,000 in the aggregate; provided that
there are no changes in Congress Financial Corporation's current formula for
lending) and is incurred in the Ordinary Course. The Company shall not
restructure or refinance its existing Indebtedness.
SECTION 6.05 Accounting. The Company shall not make any change in the
----------
accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted by it. The
Company shall maintain its books, records and accounts in accordance with GAAP.
SECTION 6.06 Compliance with Legal Requirements. The Company shall use
----------------------------------
its best efforts to comply promptly with all requirements that applicable law
may impose upon it and its operations and with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and furnish
information to, Buyer in connection with any such requirements imposed upon
Buyer, or upon any of its affiliates, in connection therewith or herewith.
SECTION 6.07 Disposition of Assets. The Company shall not sell,
---------------------
transfer, license, lease or otherwise dispose of, or suffer or cause the
encumbrance by any Lien upon any of, its properties or assets, tangible or
intangible, or any interest therein other than sales of inventory in the
Ordinary Course.
SECTION 6.08 Compensation. The Company shall not (a) adopt or amend in
------------
any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other plan, agreement, trust, fund or arrangement for the benefit
of employees (whether or not legally binding) other than to comply with any
Legal Requirement or (b) pay, or make any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind, or
any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any current or former officer, director, employee
or consultant of the Company.
SECTION 6.09 Modification or Breach of Agreements; New Agreements. The
----------------------------------------------------
Company shall not terminate or modify, or commit or cause to be committed any
act that will result in breach or violation of any term of, or (with or without
notice or passage of time, or both) constitute a default under or otherwise give
any person a basis for nonperformance under, any indenture, mortgage, deed of
trust, loan or credit agreement, lease, license or other
37
agreement, instrument, arrangement or understanding, written or oral, disclosed
in this Agreement or the Schedules hereto. The Company shall refrain from
becoming a party to any contract or commitment other than in the Ordinary
Course. The Company shall meet all of its contractual obligations in accordance
with their respective terms.
SECTION 6.10 Capital Expenditures. Except for capital expenditures or
--------------------
commitments necessary to maintain its properties and assets in good condition
and repair (the amount of which shall not exceed $30,000 in the aggregate), the
Company shall not purchase or enter into any contract to purchase any capital
assets.
SECTION 6.11 Maintain Insurance. The Company shall maintain its
------------------
Policies in full force and effect and shall not do, and shall use its best
efforts not to permit or allow to be done, any act by which any of the Policies
may be suspended, impaired or canceled.
SECTION 6.12 Discharge. The Company shall not cancel, compromise,
---------
release or discharge any claim of the Company upon or against any person or
waive any right of the Company of material value, and not discharge any Lien
(other than Permitted Liens) upon any asset of the Company or compromise any
debt or other obligation of the Company to any person other than Liens, debts or
obligations with respect to current liabilities of the Company, unless such
cancellation, compromise, release or discharge is (a) in the Ordinary Course,
(b) not in excess of $2,500 in the individual and (c) not in excess of $25,000
in the aggregate.
SECTION 6.13 Actions. The Company shall not institute, settle or agree
-------
to settle any Action before any Governmental Entity.
SECTION 6.14 Permits. The Company shall maintain in full force and
-------
effect, and comply with, all Permits.
SECTION 6.15 Tax Assessments and Audits. The Company shall furnish
--------------------------
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the Company's operations for periods ending on or prior to the Closing Date.
The Principal Shareholders shall cause the Company to promptly inform Buyer of
any investigation, audit or other proceeding by a Governmental Entity in
connection with any Taxes, assessment, governmental charge or duty, and shall
not consent to any settlement or final determination in any proceeding, other
than those set forth in Schedule 3.12 (for the amounts set forth in Schedule
3.12) in the Ordinary Course, without the prior written consent of Buyer.
38
ARTICLE VII
ADDITIONAL COVENANTS
--------------------
SECTION 7.01 Covenants of the Company and the Principal Shareholders.
-------------------------------------------------------
During the period commencing on the date hereof and continuing through the
Closing Date, the Company and each Principal Shareholder agrees to:
(a) use its best efforts to comply promptly with all requirements that
applicable Legal Requirements may impose upon it with respect to the
transactions contemplated by this Agreement, and shall cooperate promptly with,
and furnish information to, Buyer in connection with any such requirements
imposed upon Buyer or upon any of its affiliates in connection therewith or
herewith;
(b) use its reasonable efforts to obtain (and to cooperate with Buyer
in obtaining) any consent, authorization or approval of, or exemption by, any
Person required to be obtained or made by the Company or the Principal
Shareholders, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) deliver such notices as the Buyer may request to employees of the
Company with respect the effect of the Merger on present, continued and future
employment of such employees, including without limitation all notices required
to be given under the provisions of any Legal Requirement such as the federal
Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101, et
--
seq.;
----
(d) use its reasonable efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in Section 6.01 of this Agreement;
(e) promptly advise Buyer orally and, within three (3) Business Days
thereafter, in writing of any change in the Company's business or condition that
has had or may have a Material Adverse Effect;
(f) to vote all of its shares in favor of approval of the Merger;
(g) deliver to Buyer a written consent by Deloitte & Touche LLP to the
incorporation, use and disclosure of all audited financial statements prepared
by Deloitte & Touche LLP in the past or in the future in any and all filings,
submissions and disclosures to any Governmental Entities;
39
(h) deliver to Buyer within five (5) days after the Closing Date a
complete aging of the Company's accounts receivable as of the Closing Date; and
(i) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 8.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 7.02 Covenants of Buyer. During the period commencing on the
------------------
date hereof and continuing through the Closing Date, Buyer agrees to:
(a) use its best efforts to comply promptly with all requirements that
applicable Legal Requirements may impose upon it with respect to the
transactions contemplated by this Agreement, and shall cooperate promptly with,
and furnish information to, the Company and the Principal Shareholders in
connection with any such requirements imposed upon the Principal Shareholders or
the Company or upon any of the Affiliates of the Company in connection therewith
or herewith;
(b) use its reasonable efforts to obtain any consent, authorization or
approval of, or exemption by, any Person required to be obtained or made by
Buyer in connection with the transactions contemplated by this Agreement;
(c) use its reasonable efforts to preserve intact its business
organization, employees and other business relationships, to operate its
business in the Ordinary Course and to maintain its books, records and accounts
in accordance with GAAP;
(d) use its reasonable efforts to bring about the satisfaction of the
conditions precedent to Closing set forth in Section 5.01 of this Agreement; and
(e) provide the Principal Shareholders with a copy of the final tax
return of the Company prior to the filing thereof, and the Principal
Shareholders shall have the right to consult with the Surviving Corporation with
respect to any tax treatment in such final tax return which could affect the
Principal Shareholders' representations or warranties hereunder;
40
provided, however, that the Surviving Corporation shall be under no obligation
to make any changes to the final tax return as a result of such consultation.
SECTION 7.03 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, (i) the Company will
permit, and the Principal Shareholders will cause the Company's officers,
directors, key employees and advisors to permit, Buyer and its representatives
and agents reasonable access to the Company's books and records, facilities, key
personnel, customers, suppliers, independent accountants and attorneys, as
requested by Buyer and (ii) Buyer will permit the Company and its
representatives and agents access to Buyer's books and records, facilities, key
personnel, customers, suppliers, independent accountants and attorneys, as
requested by the Company.
(b) Each of the parties hereto acknowledges that all information,
documents, customer lists, patents, trademarks, copyrights, materials,
specifications, business strategies, information or any other ideas which
directly relate to the business of the other party (collectively, "Confidential
Information") shall be the exclusive, confidential property of such other party,
except to the extent expressly authorized in writing for dissemination. From
the date of this Agreement through and including the twenty-fourth (24th) month
following the Closing Date, each party shall not disclose any of such
Confidential Information of the other party to any third party without the prior
written consent of the other party and shall take all reasonable steps and
actions necessary to maintain the confidentiality of such Confidential
Information. The foregoing restrictions shall not apply to any information
which (i) becomes generally available to the public other than as a result of
disclosures by the non-disclosing party, (ii) was available to the non-
disclosing party on a non-confidential basis prior to disclosure to it by the
other party, (iii) becomes available to the non-disclosing party on a non-
confidential basis from any source other than the disclosing party, provided
such source is not bound by a confidentiality agreement with one of the parties
hereto, or (iv) is required to be disclosed by any Governmental Entity. In
addition, the obligations set forth in this Section 7.03(b) shall not apply to
Buyer or Newco with respect to Confidential Information which is acquired by
Buyer or Newco as a result of the consummation of the transactions contemplated
herein.
SECTION 7.04 Expenses. Except as otherwise specifically provided
--------
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
41
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents; provided, however, that, on the date hereof, Buyer
-------- -------
shall pay to the Company the sum of $50,000 for legal fees incurred by the
Company in connection with this Agreement. The Company shall not incur legal
fees in connection with this Agreement or the transactions contemplated hereby
in excess of such amount. Any such excess shall be paid directly by the
Shareholders.
SECTION 7.05 Publicity; Employee Communications. At all times prior to
----------------------------------
the Closing Date, each party shall obtain the consent of all other parties
hereto prior to issuing, or permitting any of its directors, officers, employees
or agents to issue, any press release or other information to the press,
employees of the Company or any third party with respect to this Agreement or
the transactions contemplated hereby; provided, however, that no party shall be
-------- -------
prohibited from supplying any information to any of is representatives, agents,
attorneys, advisors, financing sources and others to the extent necessary to
complete the transactions contemplated hereby so long as such representatives,
agents, attorneys, advisors, financing sources and others are made aware of and
agree to be bound by the terms of this Section 7.05. Nothing contained in this
Agreement shall prevent any party to this Agreement at any time from furnishing
any required information to any Governmental Entity or authority pursuant to a
Legal Requirement or from complying with its legal or contractual obligations.
SECTION 7.06 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any action not expressly required
under this Agreement is necessary or desirable to carry out the purposes of this
Agreement, the Principal Shareholders or the proper officers or directors of the
Company, Buyer or Newco, as the case may be, shall take or cause to be taken all
such necessary or convenient action and execute, and deliver and file, or cause
to be executed, delivered and filed, all necessary or convenient documentation
at no cost or expense to him, it or them.
SECTION 7.07 Competing Offers; Merger or Liquidation.
---------------------------------------
(a) For a period of sixty (60) days from the date of execution of this
Agreement, the Company and the Principal
42
Shareholders agree that they will not, and the Principal Shareholders will cause
the Company not to, directly or indirectly, through any officer, director, agent
or otherwise, solicit, initiate or encourage discussions with, or the
submissions of bids, offers or proposals by, any Person with respect to an
acquisition of the Company or its assets or capital stock or a merger or similar
transaction, and the Company and the Principal Shareholders will not, and the
Principal Shareholders will not permit the Company to, engage any broker,
financial adviser or consultant with an incentive to initiate or encourage
proposals or offers from other parties. Furthermore, for a period of sixty (60)
days from the date of execution of this Agreement, the Company and the
Shareholders shall not, and the Shareholders shall not permit the Company to,
directly or indirectly, through any officer, director, agent or otherwise,
engage in negotiations concerning any such transaction with, or provide
information to, any Person other than Buyer and its representatives, with a view
to engaging, or preparing to engage, that Person with respect to any matters
referenced in this Section.
(b) The Principal Shareholders shall ensure that the Company shall not
commence any proceeding to merge, consolidate or liquidate or dissolve or
obligate itself to do so.
SECTION 7.08 Inconsistent Action. The Principal Shareholders shall not
-------------------
take, and shall not permit the Company to take or cause to be taken, any action
that would cause any of the representations or warranties of the Principal
Shareholders in this Agreement to be untrue, incorrect, incomplete or
misleading.
SECTION 7.09 Post-Termination Employment. The Principal Shareholders
---------------------------
acknowledge and agree that, subject to any written contracts of employment, if
any, after the Closing (a) neither Buyer nor the Surviving Corporation shall be
required to employ or retain any employee of the Company or any other Person,
and (b) Buyer, in its sole and absolute discretion, may cause the Surviving
Corporation to retain all, some, or none of such employees.
SECTION 7.10 Registration of Merger Shares. Within one hundred twenty
-----------------------------
(120) days after the Closing Date, Buyer shall prepare and file a registration
statement under the Securities Act, on Form S-3, covering one hundred ten
percent (110%) of the Merger Shares and shall use its best efforts to cause such
registration statement to become effective as soon as practicable after the
filing thereof.
43
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by mutual consent of all of the parties hereto;
(b) by the Principal Shareholders, on the one hand, or by Buyer, on
the other hand, by written notice to the other party or parties hereto if the
Merger shall not have been consummated on or before August 16, 1998 (or such
later date as Buyer and the Principal Shareholders may agree), provided that in
the case of a termination under this clause (b), the party or parties
terminating this Agreement shall not then be in material breach of any of its or
their obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by the Principal Shareholders under
this Agreement, (ii) any of the conditions precedent to Closing set forth in
Section 5.01 have not been met on the Closing Date or (iii) if the Company or
the Principal Shareholders unjustifiably refuse to complete the transactions
contemplated herein, and, in each case, Buyer is not then in material default of
its obligations hereunder; or
(d) by the Principal Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement, (ii) any of the conditions precedent to Closing set forth in Section
5.02 have not been met on the Closing Date or (iii) if the Buyer unjustifiably
refuses to complete the transactions contemplated herein, and, in each case,
neither the Principal Shareholders nor the Company is then in material default
of their/its obligations hereunder.
SECTION 8.02 Effect of Termination.
---------------------
(a) In the case of any termination of this Agreement, the provisions
of Sections 7.03(b) and 7.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section 8.01(a),
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto or their respective directors,
officers, employees, agents or other representatives.
(c) In the event of termination of this Agreement as provided in
Section 8.01(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party
44
or parties or any other Person under the terms of this Agreement or otherwise,
and, in the event of a termination pursuant to Section 8.01(c)(iii) or
8.01(d)(iii), the non-terminating party shall reimburse the terminating party
for its legal fees and costs incurred in connection herewith up to maximum of
$30,000.
SECTION 8.03 Amendment. This Agreement may be amended only by a
---------
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 8.03 shall be binding upon all parties hereto.
SECTION 8.04 Waiver. Any term or provision of this Agreement may be
------
waived in writing at any time by the party or parties entitled to the benefits
thereof. Any waiver effected pursuant to this Section 8.04 shall be binding
upon all parties hereto. No failure to exercise and no delay in exercising any
right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude the
exercise of any other right, power or privilege. No waiver of any breach of any
covenant or agreement hereunder shall be deemed a waiver of any preceding or
subsequent breach of the same or any other covenant or agreement. The rights
and remedies of each party under this Agreement are in addition to all other
rights and remedies, at law or in equity, that such party may have against the
other parties.
ARTICLE IX
INDEMNIFICATION
---------------
SECTION 9.01 Survival of Representations and Warranties and Covenants.
--------------------------------------------------------
(a) The representations and warranties of the parties hereto contained
in this Agreement or in any writing delivered pursuant hereto or at the Closing
shall survive the execution and delivery of this Agreement and the Closing and
the consummation of the transactions contemplated hereby (and any examination or
investigation by or on behalf of any party hereto) for a period of one (1) year
following the date hereof (except for claims in respect thereof pending at such
time, which shall survive until finally resolved or settled); provided, however,
-------- -------
that the representations and warranties contained in Sections 3.12, 3.14, 3.17
and 3.25 shall survive until the expiration of the applicable statute of
limitations with respect to such matters.
(b) No Action may be commenced with respect to any representation,
warranty, covenant or agreement in this Agreement, or in any writing delivered
pursuant hereto, unless written notice, setting forth in reasonable detail the
claimed breach thereof, shall be delivered pursuant to Section 10.01 to the
party or parties against whom liability for the claimed breach
45
is charged on or before the termination of the survival period specified in
Section 9.01(a) for such representation, warranty, covenant or agreement.
SECTION 9.02 Indemnification.
---------------
(a) Subject to the limitations set forth in Sections 9.02(c) and (d),
the Shareholders jointly and severally covenant and agree to defend, indemnify
and hold harmless Buyer and each Person who controls Buyer within the meaning of
the Securities Act, and after the Closing, the Company, from and against any
Damages arising out of or resulting from: (i) any inaccuracy in or breach of
any representation, warranty, covenant or agreement made by the Principal
Shareholders in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; or (ii) the failure of the Principal Shareholders
or the Company to perform or observe fully any covenant, agreement or provision
to be performed or observed by the Principal Shareholders or the Company
pursuant to this Agreement.
(b) Subject to the limitation set forth in Sections 9.02(e), Buyer
covenants and agrees to defend, indemnify and hold harmless the Shareholders
from and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by Buyer in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; (ii) the failure by Buyer to perform or observe any
covenant, agreement or condition to be performed or observed by it pursuant to
this Agreement; or (iii) any Action arising out of the Surviving Corporation's
failure to pay any debt permitted by and disclosed under this Agreement which
was incurred by the Company prior to and assumed by the Surviving Corporation
after the Closing Date as a result of insolvency caused by a withdrawal of
capital from the Surviving Corporation.
(c) The Shareholders' liability under this Section 9.02 shall be
allocated among them pro rata in accordance with the number of Shares owned by
each of them as set forth on Schedule 3.03 hereto. No Shareholder shall have
any right of contribution or equitable indemnification against the Company or
the Surviving Corporation for the Shareholders' obligations under Section
9.02(a).
(d) The indemnification obligations of the Shareholders under Section
9.02(a) shall apply only to the extent that the amount of Damages exceeds an
accumulated total of $25,000, at which point the obligations of the Shareholders
shall be to indemnify for all Damages (including the first $25,000). The maximum
aggregate liability of the Shareholders under this Section 9.02 shall be limited
to the Escrow Shares.
(e) The indemnification obligations of Buyer under Section 9.02(b)
shall apply only to the extent that the amount of Damages exceeds an accumulated
total of $25,000, at
46
which point the obligations of Buyer shall be to indemnify for all Damages
(including the first $25,000). The maximum aggregate liability of Buyer under
this Section 9.02 shall be $150,000.
(f) Notwithstanding anything in this Article IX to the contrary, each
party hereto shall retain all rights and remedies to which it may be entitled
under applicable law for conduct constituting fraud, deceit or misrepresentation
by any party hereto in connection with the transactions contemplated hereby.
SECTION 9.03 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to Section 9.02
(an "Indemnified Party") receives notice of the assertion by any third party,
-----------------
including the IRS, of any claim or of the commencement by any such third person,
including the IRS, of any Action (any such claim or Action being referred to
herein as an "Indemnifiable Claim") with respect to which another party hereto
-------------------
(an "Indemnifying Party") is or may be obligated to provide indemnification, the
------------------
Indemnified Party shall promptly notify the Indemnifying Party in writing (the
"Claim Notice") of the Indemnifiable Claim; provided, however, that the failure
------------- -------- -------
to provide such notice shall not relieve or otherwise affect the obligation of
the Indemnifying Party to provide indemnification hereunder, except to the
extent that any Damages directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days after receipt
of the Claim Notice to undertake, conduct and control, through counsel of its
own choosing, and at its expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided, however, that (i) the Indemnifying Party shall permit the
-------- -------
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent.
(c) If the Indemnifying Party does not notify the Indemnified Party
within thirty (30) days after receipt of the Claim Notice that it elects to
undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
--------
47
however, that the Indemnified Party shall notify the Indemnifying Party of any
-------
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 9.03 to the contrary
notwithstanding, the Shareholders shall not be entitled to assume the defense
for any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Buyer or the Company which Buyer
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of Buyer or the Company; provided,
--------
however, if such equitable relief portion of the Indemnifiable Claim can be so
-------
separated from that for money damages, the Shareholders shall be entitled to
assume the defense of the portion relating to money damages.
ARTICLE X
GENERAL PROVISIONS
------------------
SECTION 10.01 Notices. All notices and other communications under or in
-------
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), or by a nationally recognized one-day
or two-day delivery service, upon actual delivery or refusal of delivery, or (c)
if given by facsimile, upon confirmation of transmission by facsimile, in each
case to the parties at the following addresses:
(a) If to Buyer or Newco, addressed to:
Interiors, Inc.
000 Xxxxxxxxxx Xxxxxx
Xx. Xxxxxx, Xxx Xxxx 00000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxx Xxxx
With copies to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
Twenty-Third Floor
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: XxXxxx X. Xxxxx, Esq.
48
and
Xxxxx Xxxxxxxx, Esq.
00 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
and
Xxxxxx X. X'Xxxxx
Artisan House, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
(b) If to the Company or the Principal Shareholders, addressed to:
Xx. Xxxxx X. Xxxxxxx
00 Xxxx Xxxxxx
X.X. Xxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy to:
Katten, Muchin & Zavis
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
SECTION 10.02 Severability. If any term or provision of this Agreement
------------
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.
SECTION 10.03 Entire Agreement. Except as specifically set forth
----------------
herein, this Agreement, including the annexes and schedules attached hereto and
other documents referred to herein, contain the entire understanding of the
parties hereto in respect of their subject matter and supersede all prior and
contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter.
SECTION 10.04 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of each
49
of the parties hereto and their respective successors, heirs and assigns;
provided, however, that no party may assign either this Agreement or any of its
-------- -------
rights, interests or obligations hereunder in whole or in part without the prior
written consent of the other parties hereto (other than to the Surviving
Corporation as a result of the Merger), and any such transfer or assignment
without said consent shall be void, ab initio. Subject to the immediately
---------
preceding sentence, this Agreement is not intended to benefit, and shall not run
to the benefit of or be enforceable by, any other person or entity other than
the parties hereto and their permitted successors and assigns.
SECTION 10.05 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 10.06 Schedules and Annexes. The schedules and annexes to this
---------------------
Agreement are incorporated herein and, by this reference, made a part hereof as
if fully set forth at length herein. Any disclosure set forth in any particular
schedule hereto shall be deemed disclosed in reference to all schedules to which
such disclosure specifically relates.
SECTION 10.07 Construction.
------------
(a) The article, section and subsection headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context clearly
requires, "or" is not exclusive.
SECTION 10.08 Consent to Jurisdiction. Each party hereto irrevocably
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submits to the exclusive jurisdiction of the courts of the State of New York and
the United States District Court for the Southern District of New York for the
purpose of any suit, action, proceeding or judgment relating to or arising out
of this Agreement and the transactions contemplated hereby and to the laying of
venue in any such court. Each party hereto irrevocably waives any objection to
the laying of venue of any such suit, action or proceeding brought in any such
court and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
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SECTION 10.09 Governing Law. This Agreement shall be governed by and
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construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
XXXX ACQUISITION CORP.
By:_____________________________
Xxxxxx X. X'Xxxxx
Executive Vice President
INTERIORS, INC.
By:_____________________________
Xxxxxx X. X'Xxxxx
Executive Vice President
XXXX LIGHTING, INC.
By:_____________________________
Xxxxx X. Xxxxxxx
Chairman of the Board
--------------------------------
Xxxxx X. Xxxxxxx
--------------------------------
Xxxx X. Xxxxxxx
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