Exhibit 2
FINAL
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
XXXXXXX X. XXXX, XXXXX XXXX,
XXXXX X. XXXXXX, XX., XXXXXX X. XXXXXX, XXXXX XXXXXX,
XXXXXX X. XXXXX, XXXXXX X. XXXXXX, XXXXX XXXX
AND XXXXX X. XXXXXXXX XX
(SHAREHOLDERS),
SOUTHWEST MICROELECTRONIC MATERIALS, INC.
AND
ALLIEDSIGNAL INC.
DATED
DECEMBER 22, 1998
SCHEDULES
2.05 Allocation Schedule
3.01 Organization
3.02 The Shares
3.04 No Breach
3.05 Consents and Approvals
3.07 Capitalization
3.08 Financial Statements
3.09 Absence of Certain Changes
3.10 Absence of Undisclosed Liabilities
3.12 Environmental Health and Safety
3.13 Employee Benefit Plans
3.14 Labor and Employment Matters
3.16 Intellectual Property
3.17 Contracts
3.18 Assets
3.19 Insurance
3.20 Litigation; Warranty Claims;
Product Liability
3.22 Customers
3.23 Suppliers
3.24 Assumed Contracts
3.25 Certain Interests
3.26 Accounts; Lockboxes; Safe Deposit
Boxes; Powers of Attorney
3.29 Knowledge
5.07 Employee Matters
EXHIBITS
Exhibit A Indemnity Escrow Agreement
Exhibit B Earnout Escrow Agreement
Exhibit C Earnout Amount Calculation
Exhibit D Form of Retention Agreements
Exhibit E Opinion of Counsel for the Company
Exhibit F Opinion of Counsel for AlliedSignal
Exhibit G Form of Registration Rights Agreement
AGREEMENT
This Agreement and Plan of Merger (this "Agreement"), dated
as of the 15th day of December, 1998, is made by and among
Xxxxxxx X. Xxxx, Xxxxx Xxxx, Xxxxx X. Xxxxxx Xx., Xxxxxx X.
Xxxxxx, Xxxxx Xxxxxx, Xxxxxx X. Xxxxx, Xxxxxx X. Xxxxxx, Xxxxx
Xxxx, and Xxxxx X. Xxxxxxxx XX (collectively, the
"Shareholders"), Southwest Microelectronic Materials, Inc., an
Arizona corporation (the "Company"), and AlliedSignal Inc., a
Delaware corporation ("AlliedSignal").
RECITALS
WHEREAS, the Company is in the business of developing,
manufacturing and selling high purity electronic chemicals used
in the semi-conductor industry (the "Business"); and
WHEREAS, the Shareholders are the sole owners of all of the
outstanding capital stock of the Company; and
WHEREAS, AlliedSignal and the Company desire to adopt a plan
of reorganization within the meaning of Section 368(a)(1)(A) of
the Code, pursuant to which the Shareholders will receive shares
of AlliedSignal Common Stock in a merger; and
WHEREAS, AlliedSignal and the Company deem it advisable that
the Company be merged into AlliedSignal with AlliedSignal as the
surviving corporation pursuant to this Agreement and in
accordance with the applicable statutes of the State of Delaware
and the State of Arizona (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the
covenants, representations, warranties and agreements set forth
below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the meanings hereby ascribed to them.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, such specified Person.
"Agreement" means this agreement including all recitals,
exhibits and the Disclosure Schedules relating hereto.
"AlliedSignal Common Stock" means common stock, $1.00 par
value per share, of AlliedSignal.
"Ancillary Agreements" means the Indemnity Escrow Agreement,
the Earnout Escrow Agreement, the Retention Agreements and the
Registration Rights Agreement.
"Arbiter" means a nationally recognized accounting firm
mutually agreeable to AlliedSignal and Shareholders.
"Average Closing Price" has the meaning set forth in Section
2.05(a).
"Average Trading Price" of AlliedSignal Common Stock means
the arithmetic mean of all the Closing Prices of AlliedSignal
Common Stock during the first ten consecutive Trading Days
immediately preceding the second Business Day prior to the
Earnout Payment Date.
"Benefit Plan" has the meaning set forth in Section 3.13(a).
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"Business" has the meaning set forth in the Recitals.
"Business Day" means any day which is not a Saturday, Sunday
or any other day on which banks in New York City are authorized
or required by law to close.
"Closing" and "Closing Date" have the meanings set forth in
Section 2.04.
"Closing Price" means the actual closing sales price per
share of AlliedSignal Common Stock as reported in the New York
Stock Exchange Composite Transactions as published in The Wall
Street Journal with respect to a given date, as of such date.
"Closing Statement" has the meaning set forth in Section
2.07.
"Code" means the Internal Revenue Code of 1986, as amended
at any time and from time to time.
"Company Common Stock" has the meaning set forth in Section
2.05.
"Contract" means any agreement, contract, lease, mortgage,
indenture, note, guarantee, obligation, license, franchise,
instrument or other commitment, arrangement or understanding of
any kind, to which the Company is a party or by which the Company
or any of its property may be bound or affected.
"Current Assets" means cash, trade accounts receivable,
employee advances, prepaid expenses and inventories of the
Company, less any reserves reflected on the Company's books as of
the Closing Date for doubtful accounts, and for obsolete,
impaired or slow moving inventories.
"Current Liabilities" means trade accounts payable, income
taxes due by the Company, any other accrued liabilities and
prepayments made by customers on purchases of the Company's
Products, as reflected on the Company's books as of the Closing
Date.
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"Disclosure Schedules" means the Company's disclosure
schedules attached hereto and forming an integral part hereof
delivered by the Company to AlliedSignal.
"Dispute Notice" has the meaning set forth in Section 2.07.
"Earnout" has the meaning set forth in Section 2.08.
"Earnout Escrow" means the escrow account for the Earnout
established under the Earnout Escrow Agreement.
"Earnout Escrow Agreement" has the meaning set forth in
Section 2.10.
"Earnout Payment Date" has the meaning set forth in Exhibit
C.
"Earnout Period" has the meaning set forth in Exhibit C.
"Earnout Shares" has the meaning set forth in Section 2.10.
"Environmental Damage" means all claims, judgments, damages,
losses, penalties, fines, liabilities, encumbrances, liens, costs
and expenses of investigation and defense of any claim, whether
or not such claim is ultimately defeated, and of any good faith
settlement of judgment, which are incurred as a result of the
existence of Hazardous Material upon, about, or beneath any of
the Company's properties or which are migrating or threatening to
migrate to or from any such property, or the existence of a
violation of Environmental Requirements pertaining to any such
property.
"Environmental Requirements" means all statutes,
regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, and franchises, of
all
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governmental agencies and instrumentalities, and all judicial and
administrative and regulatory decrees, judgments and orders
relating to the protection of human health or the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means the agent selected by the mutual
agreement of the parties prior to Closing to perform the duties
of the Escrow Agent pursuant to the Indemnity Escrow Agreement
and the Earnout Escrow Agreement.
"Escrow Market Value" means the Closing Price for the
Trading Day two Business Days prior to the date of payment from
the Escrow Agent of amounts due under the escrow to AlliedSignal
and/or the Shareholders under the Earnout Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Expense Amount" has the meaning set forth in Section 5.16.
"Financial Statements" has the meaning set forth in Section
3.08.
"GAAP" means United States generally accepted accounting
principles, applied on a consistent basis.
"Hazardous Material" means any chemical substance: (i) the
presence of which requires investigation or remediation under any
Environmental Requirements, or (ii) which is defined as a
"hazardous waste" or "hazardous substance" under any federal,
state or local statute, regulation or ordinance or amendments
thereto or (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is regulated by any governmental authority, or
instrumentality of the United States or any state or any
political
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subdivision thereof; or (iv) the presence of which on any
property of the Company causes or threatens to cause a nuisance
upon such property or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on
or about any such property, or (v) the presence of which on
adjacent properties could constitute a trespass by the Company.
"Income Tax Basis" means prepared in accordance with GAAP
except for the GAAP reconciliation exceptions described in
Schedule 3.08(b)..
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for
borrowed money, (b) all obligations of such Person for the
deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures
or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
sale of such property ), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance
with GAAP, recorded as capital leases and (f) all obligations,
contingent or otherwise, of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock
of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock,
at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends. Indebtedness shall
also include (x) all Indebtedness of others (as such term is
defined in clauses (a) through (f) above) guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to
pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness, (ii) to
purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds
to or in any manner invest in the debtor (including any agreement
to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss,
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and (y) all Indebtedness (as such term is defined in clauses (a)
through (f) above) secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Indemnity Escrow" means the escrow account for the
Indemnity Shares established under the Indemnity Escrow
Agreement.
"Indemnity Escrow Agreement" has the meaning set forth in
Section 2.06.
"Indemnity Escrow Period" has the meaning set forth in
Section 2.06.
"Indemnity Shares" has the meaning set forth in Section
2.06.
"Intellectual Property" has the meaning set forth in Section
3.16.
"Know-How" has the meaning specified in Section 3.16.
"Laws" has the meaning specified in Section 3.11.
"Liability" means any Indebtedness and any liability,
obligation, loss, claim, damage, cost or expense of any kind,
character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, matured or unmatured,
liquidated or unliquidated, secured or unsecured, insured or
uninsured, joint or several, due or to become due, vested or
unvested, executory, determined, determinable, fixed or otherwise
and whether or not GAAP requires that the same be reflected on
financial statements, and shall include, without limitation, any
debt, claim, judgment, litigation, proceeding, damage (including,
without limitation, actual, punitive, and consequential damages),
loss, penalty, fine, Tax, levy, impost, duty, deficiency,
assessment, charge, penalty, strict liability in tort, civil or
criminal violation of applicable
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Law, Lien, cost of defending any claim, amount or cost of any
judgment or good faith settlement, cost of any repair, recall,
rework or replacement, and other costs, fees and expenses,
including without limitation accounting, reasonable legal and
similar fees and expenses.
"Lien" means, with respect to any asset (including, without
limitation, any security), any mortgage, lien, pledge, charge,
security interest, encumbrance or similar restriction or
limitation.
"Loss" has the meaning specified in Section 6.01.
"Market Value" means the Closing Price for the Trading Day
two Business Days prior to the Closing Date.
"Material Adverse Effect" means any circumstance or change
in or effect on the Business or the Company that, individually or
in the aggregate with any other circumstances or change in or
effects on the Business or the Company (a) is, or could be
reasonably expected to be, materially adverse to the business,
operations, assets or Liabilities, employee relationships,
customer or supplier relationships, prospects, results of
operations or the condition (financial or otherwise) of the
Company or the Business or (b) could be reasonably expected to
adversely affect in any material respect the ability of
AlliedSignal or the Company to operate or conduct the Business in
the manner in which it is currently operated or conducted by the
Shareholders and the Company.
"Merger" has the meaning set forth in the Recitals.
"Net Sales" shall be calculated in accordance with and have
the meaning set forth in Exhibit C.
"Net Working Capital" means Current Assets minus Current
Liabilities.
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"Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust,
estate or other unincorporated entity or organization.
"Products" means etchants, acids, resist ancillaries,
solvents, services and such other high purity electronic
chemicals of the type sold or developed by the Company prior to
the Closing Date, and any material whose design is directly
derived therefrom.
"Receivables" means any and all accounts receivable, notes
and other amounts receivable by the Company from third parties,
including without limitation, customers, arising from the conduct
of the Business or otherwise before the Closing Date, whether or
not in the ordinary course, together with all unpaid financing
charges accrued thereon.
"Reference Balance Sheet" means the balance sheet of the
Business as of September 30, 1998 (including the notes and
explanations thereto) attached to this Agreement as part of the
Financial Statements.
"Registration Rights Agreement" has the meaning set forth in
Section 3.06.
"Retention Agreements" means those agreements made with key
individuals pursuant to Section 5.07.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning set forth in Section 4.05.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"Shares" has the meaning set forth in Section 3.07.
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"Share Encumbrance" means, with respect to any security, any
option, voting trust arrangement, right of first refusal,
transfer restriction under any Shareholders or similar agreement,
or any other agreement, arrangement, commitment or understanding
restricting or otherwise relating to voting rights, dividend
rights or disposition of Shares.
"Shareholder Representatives" has the meaning set forth in
Section 2.07(a).
"Tax" or "Taxes" has the meaning set forth in Section 3.15.
"Trading Day" means any day on which the New York Stock
Exchange is open for business and AlliedSignal Common Stock is
traded thereon.
"Uncollected Receivables" has the meaning set forth in
Section 5.09.
ARTICLE II
THE MERGER AND THE EXCHANGE OF SHARES; ADJUSTMENTS;
CONTINGENT CONVERSION AMOUNT
2.01 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time (as hereafter defined), the
Company shall be merged with and into AlliedSignal (the "Merger")
in accordance with the Delaware General Corporation Law (the
"DGCL") and the Arizona Business Corporation Act (the "ABCA") and
AlliedSignal shall be the surviving corporation (the "Surviving
Corporation").
2.02 Effect of the Merger. At the Effective Time, the
Surviving Corporation shall be considered the same business and
corporate entity as each of AlliedSignal and the Company and
thereupon and thereafter, all the property, rights, privileges,
powers and franchises of each of AlliedSignal and the Company
shall vest in the Surviving Corporation and the
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Surviving Corporation shall be subject to and be deemed to have
assumed all of the Liabilities and duties of each of AlliedSignal
and the Company and shall have succeeded to all of each of their
relationships, as fully and to the same extent as if such
property, rights, privileges, powers, franchises, debts,
liabilities, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving
Corporation. In addition, any reference to AlliedSignal or the
Company in any contract or document, whether executed or taking
effect before or after the Effective Time, shall be considered a
reference to the Surviving Corporation if not inconsistent with
the other provisions of the contract or document; and any pending
action or other judicial proceeding to which either of
AlliedSignal or the Company is a party shall not be deemed to
have abated or discontinued by reason of the Merger, but may be
prosecuted to final judgment, order or decree in the same manner
and to the same extent (but only to the same extent) as if the
Merger had not been made; or the Surviving Corporation may be
substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against either
of AlliedSignal or the Company to the same extent (but only to
the same extent) as if the Merger had not occurred.
2.03 Certificate of Incorporation and Related Matters. The
certificate of incorporation of AlliedSignal at the Effective
Time shall be the certificate of incorporation of the Surviving
Corporation and shall not otherwise be amended by this Agreement
or the Merger but thereafter may be amended as provided by law.
At the Effective Time, the By-laws of AlliedSignal shall be the
By-laws of the Surviving Corporation until otherwise amended as
provided by law, the directors of AlliedSignal shall be the
directors of the Surviving Corporation, and the officers of
AlliedSignal shall be the officers of the Surviving Corporation.
2.04 Effective Time and Closing. The Merger shall become
effective (the "Effective Time") at the close of business on the
first day as of which the certificates of merger, in form and
substance satisfactory to AlliedSignal and the Company, shall
have been duly and properly filed
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with both the Secretary of State of the State of Delaware (the
"Delaware Certificate of Merger") and the Corporation Commission
of the State of Arizona (the "Arizona Certificate of Merger"). A
closing (the "Closing") shall take place prior to the Effective
Time at a time and on a date mutually agreeable and as soon as
practicable (but in any event within five Business Days)
following the receipt of all necessary regulatory and
governmental consents and the expiration of all statutory waiting
periods in respect thereof and the satisfaction or waiver of all
of the conditions to the consummation of the Merger specified in
Article VII hereof (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at
the Closing) (the "Closing Date"), at the offices of AlliedSignal
in Tempe, Arizona. Immediately following the Closing, the parties
shall forthwith cause the Effective Time to occur.
2.05 Conversion of the Company Stock. Each share of common
stock, par value $1.00 per share, of the Company (the "Company
Common Stock"), issued and outstanding immediately prior to the
Effective Time (including fractional shares) shall, by virtue of
the Merger and without any action on the part of the holder
thereof, be converted into the right to receive a number of
shares of AlliedSignal Common Stock determined as follows:
(a) Aggregate Merger Number. Subject to the provisions of this
Section 2.05, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be
converted at the Effective Time into the right to receive in the
aggregate the number of shares (the "Aggregate Merger Number") of
AlliedSignal Common Stock, determined as follows: The Aggregate
Merger Number shall be determined by dividing (i) $4,000,000,
minus the principal amount and accrued or unaccrued interest
thereon of any Indebtedness of the Company existing as of the
Closing Date; by (ii) the Average Closing Price (as hereafter
defined). The "Average Closing Price" of AlliedSignal Common
Stock means the arithmetic mean of all the Closing Prices of
AlliedSignal Common Stock during the first ten consecutive
Trading Days immediately preceding the second Business Day prior
to the Closing Date.
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(b) Adjustment of Aggregate Merger Number Due to Net Working
Capital Changes. The Aggregate Merger Number shall be adjusted
as set forth below. For purposes of this section, Net Working
Capital shall be calculated in accordance with Section 2.07
below. Results obtained pursuant to this section shall be
calculated to three decimal points and rounded to the nearest
whole number.
If Net Working Capital as of the Closing Date exceeds
Net Working Capital as of September 30, 1998, the
Aggregate Merger Number shall be increased by the
quotient obtained when the amount of such excess is
divided by the Average Closing Price per share; and
If Net Working Capital as of September 30, 1998 exceeds
the Net Working Capital as of the Closing Date, the
Aggregate Merger Number shall be decreased by the
quotient obtained when the amount of such excess is
divided by the Average Closing Price per share.
For purposes of this Section 2.05(b), Net Working Capital
shall be grossed up by the Expense Amount between September 30,
1998 and the Closing Date. The $30,000 reimbursement cap
described in Section 5.16 shall be reduced to the extent of the
Expense Amount. The Expense Amount shall be reflected on the
Closing Statement as a separate line item entitled "prepaid
merger expenses".
(c) Allocation of Aggregate Merger Number; No Fractional
Shares. Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be
converted at the Effective Time into the right to receive a
number of shares of AlliedSignal Common Stock, determined by
multiplying the Aggregate Merger Number (as adjusted pursuant to
Section 2.05(b)) by a fraction, the numerator of which is the
number of issued and outstanding shares of Company Common Stock
held by such Shareholder immediately prior to the Effective Time
and the denominator of which is the total issued and outstanding
shares of
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Company Common Stock as set forth on Schedule 3.02 hereof as
adjusted for additional shares of the Company Common Stock issued
to the Shareholders after the date hereof through the Closing.
No fractional shares of AlliedSignal Common Stock shall be issued
to any Shareholder. The number of shares to which such holder is
entitled shall be rounded to the nearest whole number. Schedule
2.05 sets forth the allocation schedule for the conversion of
Company Common Stock into AlliedSignal Common Stock on the basis
of the number of shares of Company Common Stock issued and
outstanding on the date hereof.
(d) Cancellation of the Company Certificates. After the
Effective Time, all shares of Company Common Stock shall no
longer be outstanding and shall automatically be cancelled and
shall cease to exist. The Shareholders shall cease to have any
rights with respect to shares of Company Common Stock and shall
be entitled to receive certificates evidencing shares of
AlliedSignal Common Stock issued pursuant to this Article II.
The shares of AlliedSignal Common Stock outstanding prior to the
Merger shall be unaffected by the Merger.
Agreement (which obligations shall be charged against the
Indemnity Shares 2.06 Indemnity Escrow. At the Effective
Time, AlliedSignal shall deliver to the Escrow Agent from the
number of shares issued under Section 2.05(a) to the
Shareholders, in proportion to their ownership interests in the
Company immediately prior to the Effective Time, a number of
shares of AlliedSignal Common Stock having a Market Value
measured by the Average Closing Price equal to $500,000 (the
"Indemnity Shares"). The Indemnity Shares shall be held in
escrow pursuant to the terms of the escrow agreement, attached as
Exhibit A (the "Indemnity Escrow Agreement"), for a period of one
year after the Closing (and thereafter until any claims made by
AlliedSignal within the one-year period pursuant to the
provisions of Article VI are resolved) (the "Indemnity Escrow
Period"); provided, however, that any remaining Indemnity Shares
shall be finally released from the Indemnity Escrow no later than
the fifth anniversary of the Closing Date, except for such number
of Indemnity Shares relating to a bona fide dispute between the
parties as to whom the remaining Indemnity Shares should be
released concerning any unresolved claims
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made by AlliedSignal pursuant to Article VI hereof and (a) shall
serve as the sole source for the payment of all claims by
AlliedSignal under this based upon the Market Value as measured
by the Average Closing Price), except with respect to claims
relating to title to the Company Common Stock and fraud or
intentional misrepresentation or omission, and (b) shall be
subject to return to AlliedSignal to the extent that the
Shareholders are entitled to a lesser number of shares of
AlliedSignal Common Stock pursuant to the provisions of Sections
2.05(b) and 2.07. After conclusion of the Indemnity Escrow
Period, any Indemnity Shares then remaining in escrow shall be
delivered to the Shareholders in proportion to their ownership
interests in the Company immediately prior to the Effective Time.
2.07 Calculation of Net Working Capital and Distribution or
Return of AlliedSignal Common Stock.
(a) On the Closing Date, employees or agents of the Company
and AlliedSignal shall jointly conduct a physical inventory (of
inventory). Within sixty (60) days after the Closing Date,
AlliedSignal, in consultation with Xxxxxxx X. Xxxx and Xxxxx X.
Xxxxxx (the "Shareholder Representatives"), shall prepare and
deliver to the Shareholders a statement of Net Working Capital as
of the Closing Date, setting forth in detail all items of Net
Working Capital (collectively, the "Closing Statement"). The
Closing Statement shall be prepared on the Income Tax Basis and
in accordance with the accounting practices and policies of the
Company, consistently applied as set forth on the Reference
Balance Sheet (except that the Closing Statement shall use the
results of the joint physical inventory) and otherwise consistent
with the calculation of Net Working Capital from the Reference
Balance Sheet. If the Shareholders are in disagreement with the
Closing Statement, the Shareholder Representatives shall notify
AlliedSignal of such disagreement, within thirty (30) days of
their receipt of the Closing Statement, setting forth each item
of disagreement, including the dollar amount for each item of
disagreement and the reasons therefor in sufficient detail to
enable AlliedSignal to adequately investigate and determine the
validity of such dispute (the "Dispute Notice"). Upon receipt of
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such Dispute Notice, the Shareholders and AlliedSignal shall
attempt in good faith to resolve each disagreement. If the
Shareholder Representatives or AlliedSignal is dissatisfied with
the progress being made towards a resolution, such party may, by
notice to the other, refer the disagreement to the Arbiter. Not
later than thirty (30) days after the engagement of the Arbiter
(as evidenced by the date of its written acceptance by facsimile
or as otherwise designated by the Arbiter to both AlliedSignal
and the Shareholder Representatives), AlliedSignal and the
Shareholder Representatives shall submit simultaneous briefs to
the Arbiter (with a copy to the other party). If additional
briefing, a hearing, or other information or investigative
procedure is required by the Arbiter, the Arbiter shall give
notice thereof to AlliedSignal and the Shareholder
Representatives as soon as practicable, and AlliedSignal and the
Shareholder Representatives shall promptly cooperate and respond
with a view to minimize any delay in the decision. The Arbiter
shall make a determination with respect to the disputes so
submitted and the same shall be conclusive and binding upon the
parties hereto; provided, however, that in no event shall the
Arbiter determine, with respect to any item, an amount that is
outside of the range of the amounts submitted by AlliedSignal and
the Shareholder Representatives. The fees and expenses of the
Arbiter shall be shared equally by the Shareholders and
AlliedSignal.
(b) If the Aggregate Merger Number is increased pursuant to
Section 2.05(b), AlliedSignal shall, within five Business Days
after the Closing Statement becomes final, issue to the
Shareholders, the additional shares of AlliedSignal Common Stock
due under Section 2.05(b). If the Aggregate Merger Number is
decreased pursuant to Section 2.05(b), within five Business Days
after the Closing Statement becomes final, a number of Indemnity
Shares equal to the number of shares reflecting the applicable
amount of such decrease shall be released from the Indemnity
Escrow to AlliedSignal. If the product of (i) the Average Closing
Price per share and (ii) all remaining Indemnity Shares after
such adjustments is less than $400,000 in the aggregate, the
Shareholders shall within five Business Days after the Closing
Statement deposit with the Escrow Agent under the Indemnity
Escrow Agreement a number of shares of AlliedSignal Common Stock
so that, based upon the Market Value as measured by the Average
Closing Price per share, the Escrow Agent has shares of
AlliedSignal Common Stock with a value of $500,000 in the
aggregate.
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2.08 Earnout. In addition to the amounts described above,
AlliedSignal shall deliver to the Shareholders an earnout amount
(the "Earnout"), subject to the satisfaction of certain
conditions set forth in Exhibit C.
2.09 Calculation of the Earnout. The Earnout to be paid
hereunder shall be calculated pursuant to Exhibit C.
2.10 Payment of the Earnout. At the Closing, AlliedSignal
shall deliver to the Escrow Agent for release at a later date to
the Shareholders, upon satisfaction of certain conditions set
forth in Exhibit C, a number of shares of AlliedSignal Common
Stock (the "Earnout Shares") having a Market Value measured by
the Average Closing Price equal to $2,720,000. The Earnout
Shares shall be held in escrow pursuant to the terms of the
earnout escrow agreement attached as Exhibit B (the "Earnout
Escrow Agreement") until termination of the Escrow Period
described in Exhibit C; provided, however, that any remaining
Earnout Shares be released from the Earnout Escrow no later than
the fifth anniversary of the Closing Date, except for such number
of Earnout Shares relating to a bona fide dispute between the
parties as to whom the remaining Earnout Shares should be
released pursuant to Article II and Exhibit C hereof. If the
Earnout Shares in the Earnout Escrow are insufficient to make all
the Earnout payments to the Shareholders in accordance with
Exhibit C, any remaining Earnout payment obligation shall be paid
to the Shareholders in cash, in proportion to their ownership of
Company Common Stock immediately prior to the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND THE COMPANY
The Company and each of the Shareholders (in each case for
the Company and with respect to himself (as the context may
require), but not for any other Shareholder) hereby, jointly and
severally, represents and warrants to AlliedSignal as follows:
17
3.01 Organization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Arizona and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its
businesses as now being conducted. Attached hereto as Schedule
3.01 are accurate and complete copies of the Articles of
Incorporation and Bylaws of the Company, as in effect on the date
hereof. Such Articles of Incorporation and Bylaws have not been
modified and are in full force and effect.
(b) The Company owns no capital stock, partnership
interest, limited liability company interest or other equity
interest in any Person.
(c) The Company is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary.
(d) There are no corporations, partnerships, joint
ventures, associations or other entities controlled by the
Company directly or indirectly through one or more
intermediaries.
(e) The stock register of the Company accurately records:
(i) the name and address of each person owning shares of capital
stock of the Company and (ii) the certificate number of each
certificate evidencing shares of capital stock issued by the
Company, the number of shares evidenced by such certificate, the
date of issuance thereof and, in the case of cancellation, the
date of cancellation. The minute books of the Company contain
accurate records of all meetings of and accurately reflect all
other action taken by the Shareholders, Board of Directors and
the committees of the Boards of Directors of the Company.
Complete and accurate copies of the stock register and all such
minute books of the Company have been provided by the
Shareholders to AlliedSignal.
18
3.02 The Shares. Schedule 3.02 sets forth the number of
Shares of Company Common Stock owned by such Shareholder on the
date hereof (and such Shareholder's name exactly as it appears on
the stock certificate, together with any other names that appear
thereon) and the total of such number of Shares constitutes all
the issued and outstanding shares of capital stock of the
Company. Except as set forth in Schedule 3.02, such Shareholder
has good, marketable and valid title to the Shares set forth
opposite his name in Schedule 3.02, free and clear of any Lien or
Share Encumbrance. Except as set forth in Schedule 3.02, upon
delivery to AlliedSignal at the Closing of certificates
representing the Shares, duly endorsed by the Shareholders for
transfer to AlliedSignal, and upon the Shareholders' receipt of
AlliedSignal Common Stock, good, marketable and valid title to
the Shares of such Shareholder will pass to AlliedSignal, free
and clear of any Lien or Share Encumbrance.
3.03 Authority. The Company and such Shareholder has the
full right, power and authority to execute, enter into and
deliver this Agreement and the Ancillary Agreements to which the
Company or such Shareholder is a party and to consummate the
transactions contemplated hereby and thereby. All necessary
action, corporate or otherwise, required to have been taken by or
on behalf of the Company to authorize (i) the approval, execution
and delivery on behalf of the Company of this Agreement, and (ii)
the performance by the Company of its obligations under this
Agreement and the consummation of the transactions contemplated
hereby has been taken. All necessary action required to have
been taken by such Shareholder to (i) execute and deliver this
Agreement and the Ancillary Agreements and (ii) perform his
obligations under this Agreement and the Ancillary Agreements and
consummate the transactions contemplated hereby and thereby has
been taken. Upon execution and delivery by the Company and such
Shareholder, this Agreement and each Ancillary Agreement to which
the Company or such Shareholder is a party shall constitute a
valid and binding agreement of the Company and such Shareholder,
enforceable against them in accordance with its terms, except (x)
as the same may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws of general application relating to or
affecting creditors' rights, including without limitation, the
effect of statutory or other laws
19
regarding fraudulent conveyances and preferential transfers, and
(y) for the limitations imposed by general principles of equity.
3.04 No Breach. The execution and delivery by such
Shareholder or the Company of this Agreement and each Ancillary
Agreement to which the Company or such Shareholder is a party
does not, and the consummation of the transactions contemplated
hereby and thereby will not, (i) violate or conflict with the
Articles of Incorporation or Bylaws of the Company, or (ii)
except as set forth on Schedule 3.04, constitute a breach or
default (or an event that with notice or lapse of time or both
would become a breach or default) or give rise to any Lien, Share
Encumbrance, third-party right of termination, cancellation,
amendment or revocation of any Contract to which such Shareholder
or the Company is a party or by which such Shareholder or the
Company or any of the Shares of such Shareholder is bound or
(iii) constitute a violation of any Laws applicable to the
Company or the Business. No such Shareholder nor the Company is
a party to or bound by any agreement that restricts or purports
to restrict the ability of such Shareholder or the Company to
engage in the Business or such Shareholder to work for the
Company.
3.05 Consents and Approvals. Except as disclosed in
Schedule 3.05, neither the execution nor the delivery by such
Shareholder or the Company of this Agreement nor the Ancillary
Agreements to which the Company or such Shareholder is a party ,
nor the consummation of the transactions contemplated hereby or
thereby will require any consent, approval, authorization or
permit of, or action by, filing with or notification to, any
governmental or regulatory authority or any other party.
3.06 Acquisition of AlliedSignal Common Stock. Such
Shareholder has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and
risks of his investment in the shares of AlliedSignal Common
Stock. Such Shareholder confirms that AlliedSignal has made
available to such Shareholder the opportunity to ask questions of
the officers and management employees of AlliedSignal and to
acquire additional information about the business, assets and
financial condition of AlliedSignal. Such
20
Shareholder is acquiring the shares of AlliedSignal Common Stock
to be received in the transaction for investment only, and not
with a view toward or for sale in connection with any
distribution (as such term is used in the Securities Act)
thereof, or with any present intention of distributing or selling
such shares; provided, however, that the Shareholders shall have
the right from and after Closing to exercise their rights under
the Registration Rights Agreement (in the form attached hereto as
Exhibit G, the "Registration Rights Agreement") to register
AlliedSignal Common Stock for resale as set forth in the
Registration Rights Agreement, and the Shareholders shall be
entitled to sell their shares of AlliedSignal Common Stock in
accordance with Rule 144 under the Securities Act, commencing one
year after Closing. Such Shareholder acknowledges and agrees that
the shares of AlliedSignal Common Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise
disposed of without registration under the Securities Act and
applicable state securities laws, except pursuant to Rule 144 or
another exemption from such registration available under the
Securities Act and such applicable state securities laws.
3.07 Capitalization. The authorized capital stock of
the Company consists of 1,000,000 shares of common stock, par
value $1.00 per share, of which 151,500 shares of common stock
(the "Shares") represent all of the issued and outstanding
capital stock of the Company. Except as disclosed in Schedule
3.07, all the Shares have been duly and validly issued, are fully
paid and non-assessable and are owned of record and beneficially
solely by such Shareholder as set forth on Schedule 3.02, free
and clear of any Lien or Share Encumbrance. None of the issued
and outstanding Shares of the Company Common Stock was issued in
violation of any pre-emptive or antidilutive rights, whether
contractual or otherwise. There is outstanding (i) no share of
capital stock or other voting security of the Company except as
set forth above in this Section 3.07, (ii) no security of the
Company convertible into or exchangeable for shares of capital
stock or voting securities of the Company, and (iii) no option,
warrant or other right to acquire from the Company, and no
obligation, agreement, arrangement or commitment of any kind of
the Company to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or
voting securities of the Company. There is no outstanding
obligation or commitment of any kind of the Company to
repurchase, redeem or otherwise
21
acquire any of the Company Common Stock. There is no voting
trust, stockholder agreement, proxy or other agreement or
understanding to which such Shareholder or the Company is a party
with respect to the voting or transfer of capital stock of the
Company. The Company does not hold shares of its capital stock
in its treasury, except as set forth in the Financial Statements.
3.08 Financial Statements. (a) Schedule 3.08(a) contains
the (i) statements of income and balance sheets for the Company
for the years ended December 31, 1997 and 1996, (ii) the
Reference Balance Sheet, and (iii) statement of income for the
Company for the nine-month period ended September 30, 1998, (the
"Financial Statements") each of which (a) has been prepared on
the Income Tax Basis and consistent with the Company's accounting
policies applied on a consistent basis throughout the periods
covered thereby, (b) presents fairly, in all material respects,
the financial condition of the Company as of the dates indicated
and the operating results for the periods indicated, and (c) is
correct and complete and is consistent with the financial books
and records of the Company in all material respects (which books
and records are, in all material respects, correct and complete).
(b) Schedule 3.08(b) contains (i) a reconciliation between
the Income Tax Basis of preparing the Financial Statements and
GAAP basis of preparing the Financial Statements for the years
ended December 31, 1996 and 1997 and for the nine-month period
ended September 30, 1998 and (ii) certain disclosures pursuant to
Sections 3.10, 3.15, 3.18, 3.21 and 5.09 of this Agreement.
3.09 Absence of Certain Changes. Except as disclosed in
Schedule 3.09, since the date of the Reference Balance Sheet,
there has been no (i) material adverse change in the financial
position, assets, operations or prospects of the Company,
(ii) damage, destruction or loss to any of the properties or
assets of the Company, whether or not covered by insurance, that
has materially and adversely affected or impaired or that may
materially and adversely affect or impair the ability to conduct
the Business after Closing consistent with the Company's past
practice, or (iii) other event or condition of any character
that, individually or in the aggregate, have or would reasonably
be expected to have a Material Adverse Effect. Since the
22
date of the Reference Balance Sheet, the Company and the
Shareholders have caused the Business to be conducted in the
ordinary course, consistent with past practice, and no such
Shareholder nor the Company has taken any action of a type
described in Section 5.01.
3.10 Absence of Undisclosed Liabilities. There are no
Liabilities of the Company except (i) those reflected or
otherwise provided for or reserved against in the Reference
Balance Sheet, (ii) those arising subsequent to the date of the
Reference Balance Sheet in the ordinary and usual course of
business consistent with past practice of the Company and which
do not and could not have a Material Adverse Effect, or
(iii) those disclosed in Schedule 3.10. Except as disclosed in
Schedule 3.08(b), reserves are reflected on the Reference Balance
Sheet against all Liabilities of the Company in amounts that have
been established on a basis consistent with the past practices of
the Company and in accordance with GAAP.
3.11 Compliance With Law. The Company holds all licenses,
franchises, certificates, consents, permits and authorizations
necessary for the lawful conduct of its business. The Company
has conducted and continues to conduct the Business in accordance
with, and has neither violated, nor is in violation of, any
federal, state, local or foreign statutes, law, ordinance,
regulation, rule, code, order, or other requirement or rule of
law (collectively, "Laws") applicable to the Business or any such
licenses, franchises, certificates, consents, permits or
authorizations, and the Company has received no notice of any
such violation.
3.12 Environmental Health and Safety. Except as disclosed
on Schedule 3.12, to the knowledge of the Company and such
Shareholder,:
(a) The business and properties of the Company have been
and are currently operated in compliance with all Environmental
Requirements.
(b) There has been no discharge, emission, release,
disposal, offsite shipment of or exposure of employees to any
Hazardous Material at, on, under or from the properties or
operations of the Company.
23
(c) The Company has not received notice of any alleged
violation of Environmental Requirements or liability for
Environmental Damages in connection with the present or past
business or properties of the Company, and there exists no writ,
injunction, decree, order or judgment outstanding, nor any
lawsuit, claim, proceeding, citation, directive, summons or
investigation, pending or threatened, relating thereto.
(d) The Company has all permits and licenses required under
Environmental Requirements in respect of its business and
properties, and is in compliance with the terms and conditions of
such permits and licenses.
(e) All reports of environmental surveys, audits,
investigations and assessments relating to the properties or
business of the Company, of which such Shareholder has knowledge,
are attached to Schedule 3.12.
(f) None of the assets of the Company (i) is required to be
upgraded or modified to be in compliance with any Environmental
Requirements or any proposed or pending Environmental
Requirements or (ii) includes any Hazardous Material in a
quantity exceeding that which is required for the operation of
the Business.
3.13 Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a complete and correct list of
any employee benefit plan, arrangement or policy, whether or not
subject to ERISA and whether or not written, including without
limitation, any stock option, stock purchase, stock award, stock
appreciation, phantom stock, deferred compensation, pension,
retirement, savings, profit sharing, incentive, bonus, change-in-
control, health, life insurance, cafeteria, flexible spending,
dependent assets, fringe benefit, vacation pay, holiday pay,
disability, sick pay, workers compensation, unemployment,
severance, employee loan or educational assistance plan,
arrangement or policy, which is maintained or contributed to by
the Company or any of its Affiliates, on behalf of current
24
or former employees, consultants or directors of the Company
("Benefit Plans"). Neither the Company nor any of its Affiliates
has communicated to present or former employees of the Company or
formally adopted or authorized any additional Benefit Plan or any
change in or termination of any existing Benefit Plan. No
Benefit Plan covers employees other than employees of the
Company.
(b) The Company has delivered to AlliedSignal complete and
correct copies of each Benefit Plan, or written summaries of any
unwritten Benefit Plan, any employee handbook applicable to
employees of the Company and, with respect to each Benefit Plan,
the current summary plan description and any related trust
agreements or insurance contracts.
(c) Each Benefit Plan is and has been operated and
administered in accordance with its terms and all applicable
laws. All contributions and premium payments required to have
been paid under or with respect to any Benefit Plan have been
timely paid.
(d) No Benefit Plan provides health, life insurance or
other welfare benefits to retirees or other terminated employees
of the Company, other than continuation coverage required by
Section 4980B of the Code or Section 601-608 of ERISA ("COBRA")
or any other similar State law, and the Company has no obligation
to provide such benefits in the future.
(e) The Company has never maintained or contributed to, or
had an obligation to contribute to, (i) a plan intended to be tax-
qualified under Section 401(a) of the Code or (ii) a plan subject
to Section 412 of the Code or Title IV of ERISA (including, but
not limited to, a "multiemployer plan" within the meaning of
Section 3(37) or 4001(a)(3) of ERISA).
(f) To the knowledge of the Company and such Shareholder,
except as set forth in Schedule 3.12(f), no event has occurred
and no condition exists with respect to any Benefit Plan which
could subject any Benefit Plan, the Company or AlliedSignal,
directly or indirectly, to a liability for a breach of fiduciary
duty, a "prohibited transaction," within the meaning of Section
406 of ERISA or Section 4975 of the Code, or any tax, penalty or
fine.
25
(g) Except as set forth on Schedule 3.12(g), there are no
action, suits or claims (other than routine claims for benefits
in the ordinary course) with respect to any Benefit Plan pending,
or, to the knowledge of the Company and such Shareholder,
threatened, and neither the Company nor such Shareholder has any
knowledge of any facts which could give rise to any such actions,
suits or claims.
(h) To the knowledge of the Company and such Shareholder,
the Company has no liability with respect to (i) any terminated
employee benefit plan or arrangement previously maintained or
contributed to by the Company or (ii) any employee benefit plan
or arrangement currently or previously maintained or contributed
to by any Affiliate of the Company.
(i) Neither the execution of this Agreement or the
Ancillary Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will (i) increase the amount of
benefits otherwise payable under any Benefit Plan, (ii) result in
the acceleration of the time of payment, exercisability, funding
or vesting of any such benefits, or (iii) result in any payment
(whether severance pay or otherwise) becoming due to, or with
respect to, any current or former employee or director of the
Company.
3.14 Labor and Employment Matters.
(a) Schedule 3.14(a) sets forth a complete and correct list
of all employees of the Company including for each such employee
his or her (i) name, (ii) job title, (iii) status as a full-time
or part-time employee, (iv) base salary or wage rate, and (v)
bonus. Schedule 3.14(a) also lists each employee of the Company
who is not actively at work for any reason other than vacation,
and the reason for such absence.
(b) Schedule 3.14(b) sets forth a complete and correct list
of all individuals who perform services for the Company as a
leased employee or as an independent contractor, the services
they perform, and their rate of compensation.
26
(c) There is no employment agreement nor any collective
bargaining agreement or other labor agreement to which the
Company is a party or by which the Company is bound. No
employees of the Company are, or within the last three years have
been, represented by a union or other bargaining agent, and, to
the knowledge of the Company and such Shareholder, no employee
organizing efforts are pending with respect to employees of the
Company. Within the last three years, there has been no strike,
work slowdown or other material labor dispute with respect to
employees of the Company, nor to the knowledge of the Company and
such Shareholder is any strike, work slowdown or other material
labor dispute pending.
(d) The Company has complied with all applicable laws
relating to the employment of the employees of the Company,
including without limitation, those related to wages, hours,
collective bargaining and the payment and withholding of taxes
and have withheld and paid, or are holding for payment not yet
due, all amounts required to be withheld from the employees of
the Company and are not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the
foregoing. To the knowledge of the Company and such Shareholder,
there is no violation by or claim, arbitration, investigation or
similar proceeding against, the Company pursuant to any statute,
law, ordinance, rule or regulation relating to employment, labor,
affirmative action, anti-discrimination or civil rights
(including provisions thereof relating to wages, hours,
collective bargaining and the payment of social security and
similar taxes).
3.15 Tax Matters. (a) The Company is, and has been since
its inception, an "S" corporation as defined in Section 1361(a)
of the Internal Revenue Code of 1986. All foreign, Federal,
state, county and local income, ad valorem, excise, sales, use,
withholding, unemployment, social security and other taxes and
assessments of or payable by or with respect to the Company
("Tax" or "Taxes") due and payable with respect to all periods
ending on or before the Closing Date have been or will be duly
and properly computed, reported, fully paid and discharged.
(b) There are no unpaid Taxes with respect to any period
ending on or before the Closing Date which are or could become a
lien on the assets of the Company, except for current Taxes not
yet due and payable. Except as set
27
forth in Schedule 3.08(b), all such Taxes not yet due and payable
with respect to all periods ending on or before the Closing Date
have been properly accrued on the books of account of Company in
accordance with GAAP. There are no known or, to the knowledge of
the Company and such Shareholder, proposed penalty, interest or
deficiency assessments in respect to Federal income Tax returns
or other Tax returns filed by the Company.
(c) The Company will file all presently unfiled Tax returns and
reports (including any amended returns and reports) for periods
through the Closing Date using accounting methods and practices
consistent with past methods and practices.
(d) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately
or in the aggregate, in connection with this Agreement or any
change of control of the Company, in the payment of any "excess
parachute payments" within the meaning of Code Section 280G.
(e) The Company had not agreed to make, or is not required to
make, any adjustment under Code Section 263A or 418(a) or any
comparable provision of state or foreign Tax laws by reason of a
change in accounting method or otherwise, and the Company has not
taken action which is not in accordance with past practice that
could defer a liability for Taxes from any Tax period ending on
or prior to the Closing Date to any Tax period ending after the
Closing Date.
3.16 Intellectual Property. Schedule 3.16 sets forth a true
and complete list of all patents, trademarks (registered or
unregistered), trade names, service marks and copyrights and
applications therefor (collectively, "Intellectual Property")
owned, used, held for use or filed by the Company. The Company
owns the Intellectual Property and all trade secrets, technology
and know-how related to the Products or used or held for use in
the Business (collectively, "Know-How"), and the consummation of
the transactions contemplated hereby will not alter or impair the
Intellectual Property or the Know-How. No intellectual property,
other than the Intellectual Property and Know-How, are required
for conducting the Business, and the Company has the right to use
any such licensed intellectual property without payment to the
28
other party. Neither the Company nor such Shareholder has
licensed or otherwise granted to any third party the right to use
or exploit any of the Intellectual Property or Know-How, or
otherwise transferred or assigned any Intellectual Property or
Know-How to any third party. Neither the Company nor such
Shareholder has any knowledge of any intellectual property or
other right owned by a third party which would be infringed by
the manufacture, use or sale of the Products or otherwise in the
conduct of the Business. No claims are pending or, to the
knowledge of the Company and such Shareholder, threatened against
the Company by any Person with respect to the ownership,
validity, enforceability or use of any Intellectual Property or
Know-How, and no basis in fact exists to support any such claim.
3.17 Contracts.
(a) Attached as Schedule 3.17(a) is a true, correct and
complete list of all Contracts of the Company having a duration
beyond the date that is three months after the Closing Date or
involving a commitment by the Company of at least $10,000. The
Company has delivered to AlliedSignal complete and correct copies
of all such Contracts.
(b) Each such Contract is valid and enforceable in accordance
with its terms, and, except as disclosed in Schedule 3.17(b),
there is no material default under any Contract by the Company
or, to the knowledge of the Company and such Shareholder, by any
other party thereto, and, except as disclosed in Schedule
3.17(b), to the knowledge of the Company and such Shareholder, no
event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder.
3.18 Assets.
(a) Except as disclosed in Schedule 3.18(a), the Company has
good, marketable and valid title to all assets used in the
Business, in each case free and clear of all Liens. Such assets,
together with the Contracts, constitute (i) all the assets,
property (both intangible and tangible), goodwill and business
currently used or held for use by the Company in the
29
operation of the Business and (ii) all the assets, property (both
intangible and tangible), goodwill and business necessary for
AlliedSignal to operate the Business as of the Closing in the
manner in which it has been operated prior thereto. All real
property used by the Company is owned or leased under the terms
contained in the Contracts.
(b) Schedule 3.18(b) sets forth a complete and correct fixed
asset register for the Company as of September 30, 1998.
3.19 Insurance. Schedule 3.19 contains a complete and
correct list and summary description of all insurance policies
maintained by the Company. The Company has delivered to
AlliedSignal complete and correct copies of all such policies
together with all riders and amendments thereto. Such policies
are in full force and effect, and all premiums due thereon have
been paid. The Company has complied in all material respects
with the terms and provisions of such policies. Schedule 3.19
sets out all claims made by the Company under any policy of
insurance during the last three (3) years with respect to the
Business.
3.20 Litigation; Warranty Claims; Product Liability.
(a) There is no existing or, to the knowledge of the
Company and such Shareholder, threatened litigation, claim,
arbitration, investigation or other proceeding against the
Company, nor is there any judgment, decree, injunction, ruling or
order of any court, governmental authority, arbitrator or any
other person that binds the Company.
(b) Schedule 3.20 includes and identifies separately (i)
complete and correct copies of the standard terms and conditions
of sale or lease of the Products by the Company and (ii) any
material non-standard terms and conditions or express warranties
made with respect to the Products of the Business applicable to
particular customers (listing such customers). There is no
existing or, to the knowledge of the Company and such
Shareholder, threatened claim against the Company for breach of
any express or implied warranty in connection with any Product
manufactured, sold, leased or delivered by the Company.
30
(c) There is no existing or, to the knowledge of the
Company and such Shareholder, threatened claim that alleges that
any physical injury, death or damage to property was caused by
any products manufactured, sold, distributed or otherwise placed
into the stream of commerce by the Company.
3.21 Inventory. Except as disclosed in Schedule 3.08(b),
the Reference Balance Sheet reflects all of the inventory of the
Company used or held for use in the operation of the Business as
of September 30, 1998. Except as disclosed in Schedule 3.08(b),
the value of the inventory as shown on the Reference Balance
Sheet has been established in accordance with GAAP and has been
consistently applied. Since the date of the Reference Balance
Sheet, the inventory has been maintained, and orders for
inventory items have been made, only in the ordinary course of
business consistent with past practice. Except as disclosed in
Schedule 3.08(b), the inventory is now, and will be on the
Closing Date, of a quality and quantity that can be sold, used or
consumed within periods reasonable in the industry and in the
ordinary course of business.
3.22 Customers. Schedule 3.22 contains a current and
complete list of the names and addresses of all customers of the
Business since January 1, 1995, describing the Products purchased
or leased by each such customer. Except as set forth on Schedule
3.22, the Company has not received any notice or has any reason
to believe that any significant customer of the Company (a) has
ceased, or will cease to use the Products of the Business, or (b)
has substantially reduced or will substantially reduce, the use
of any Products, of the Business. To the knowledge of the
Company and such Shareholder, no such customer has otherwise
threatened to take any action described in the preceding sentence
as a result of the consummation of the transactions contemplated
by this Agreement.
3.23 Suppliers. Schedule 3.23 contains a current and
complete list of the names and addresses of all suppliers to the
Business since January 1, 1995, describing the materials supplied
by each such supplier.
31
3.24 Assumed Contracts.
(a) Schedule 3.24 sets forth, with respect to each pending
Contract to sell or lease Products, the dollar amount of any
backlog, the amount of any prepayments, whether the customer has
the right to terminate the Contract for convenience, a brief
description of the products and services to be provided, the
proposed delivery dates therefor and any unexercised valid and
subsisting options, and whether the Company is reasonably capable
of performance in accordance with the terms and conditions of
each such Contract. The Company has received no written notice
that any of such Contracts will be canceled or materially
altered.
3.25 Certain Interests. (a) Except as disclosed in Schedule
3.25, no officer or director of the Company and no relative or
spouse (or relative of such spouse) or immediate family member
who resides with, or is a dependent of, any such officer or
director:
(i) has any director or indirect financial interest in any
competitor, supplier or customer of the Company, provided,
however, that the ownership of securities representing no more
than one (1) percent of the outstanding voting power of any
competitor, supplier or customer, and which are listed on any
national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial
interest" so long as the Person owning such securities has no
other connection or relationship with such competitor, supplier
or customer;
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which
the Company uses or has used in the conduct of the Business or
otherwise; or
(iii) has outstanding any Indebtedness to the Company or a
Shareholder.
(b) Except as disclosed in Schedule 3.25, the Company has no
Liability or any other obligation of any nature whatsoever to any
officer, director or Shareholder of the Company or to
32
any relative or spouse (or relative of such spouse) or immediate
family member who resides with, or is a dependent of, any such
officer, director or Shareholder.
3.26 Accounts; Lockboxes; Safe Deposit Boxes; Powers of
Attorney. Schedule 3.26 sets forth a true and complete list of
(a) the names of each bank, savings and loan association,
securities or commodities broker or other financial institution
in which the Company has an account, including cash contribution
accounts, and the names of all persons authorized to draw thereon
or have access thereto, (b) the location of all lockboxes and
safe deposit boxes of the Company and the names of all Persons
authorized to draw thereon or have access thereto and (c) the
names of all Persons, if any, holding powers of attorney from the
Shareholders relating to the Company or the Business, or from the
Company. At the time of the Closing, without the prior written
consent of AlliedSignal, the Company shall not have any such
account, lockbox or safe deposit box other than those listed in
Schedule 3.26, nor shall any additional Person have been
authorized, from the date of this Agreement, to draw thereon or
have access thereto or to hold any such power of attorney
relating to the Company or the Business or from the Company.
Except as disclosed in Schedule 3.26, no such Shareholder has
commingled monies or accounts of the Company with other monies or
accounts of any Shareholder relating to its other businesses nor
has such Shareholder transferred monies or accounts of the
Company other than to an account of the Company. At the time of
the Closing, all monies and accounts of the Company shall be held
by, and be accessible only to, the Company.
3.27 Brokers and Finders. Neither such Shareholder nor the
Company has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein.
3.28 Disclosure; Accuracy of Documents and Information. No
representation or warranty made by such Shareholder or the
Company in this Agreement or any document furnished by the
Company or such Shareholder pursuant to the terms of this
Agreement, when taken together with this Agreement in its
entirety and all such documents, contains any untrue
33
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.29 Knowledge. Whenever used in this Agreement, "to the
knowledge" of the Company or such Shareholder shall be the actual
knowledge, after reasonable inquiry. For purposes of this
Agreement, "reasonable inquiry" shall mean the inquiry of all the
officers, directors and employees of the Company and its
Affiliates (including without limitation those Persons set forth
in Schedule 3.29) who are in the best position to know the facts
relevant to such inquiry and the review of all Company books,
records and files pertaining to such facts. Notwithstanding the
foregoing, Xxxxx X. Xxxxxxxx XX shall have no duty of inquiry
hereunder, except as to the Shares owned by him.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ALLIEDSIGNAL
AlliedSignal hereby represents and warrants to the
Shareholders as follows:
4.01 Organization and Authority. AlliedSignal is a
corporation duly organized, validly existing and in good standing
under the laws of Delaware. AlliedSignal has all requisite
corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
All necessary corporate action required to have been taken by or
on behalf of AlliedSignal to authorize (i) the approval,
execution and delivery on behalf of it of this Agreement and (ii)
the performance by it of its obligations under this Agreement and
the consummation of the transactions contemplated hereby has been
taken. Upon execution and delivery by AlliedSignal, the
Agreement shall constitute the valid and binding agreement of
AlliedSignal, enforceable against it in accordance with its
terms, except (x) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, including
without limitation, the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers, and
(y) for the limitations imposed by general principles of equity.
34
4.02 AlliedSignal Common Stock. The shares of AlliedSignal
Common Stock to be issued to the Shareholders pursuant to the
terms of this Agreement, upon their issuance and exchange in
accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
4.03 No Breach. The execution and delivery of this
Agreement by AlliedSignal does not, and the consummation of the
transactions contemplated hereby will not, (i) violate or
conflict with its Certificate of Incorporation or Bylaws, (ii)
constitute a material breach or default under any agreement to
which AlliedSignal is a party or (iii) constitute a violation of
any statute, law, ordinance, rule or regulation.
4.04 Consents and Approvals. Neither the execution and
delivery of this Agreement by AlliedSignal nor the consummation
of the transactions contemplated hereby will require any consent,
approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority or any
other party, except (i) filings required under the Securities
Act, (ii) filings required under the Exchange Act, and (iii)
filings required under state securities or "blue sky" laws.
4.05 SEC Reports; Financial Statements. AlliedSignal has
filed all required forms, reports and documents with the SEC
(collectively, the "SEC Reports") since December 31, 1997, each
of which has complied in all material respects with all
applicable requirements of the Securities Act and the Exchange
Act, each as in effect on the dates such forms, reports and
documents were filed. AlliedSignal has heretofore delivered to
Shareholders, in the form filed with the SEC (including any
amendments thereto), (i) its Annual Reports on Form 10-K for the
fiscal year ended December 31, 1997, (ii) all definitive proxy
statements relating to AlliedSignal's meetings of Shareholders
(whether annual or special) held since December 31, 1997 and
(iii) all other reports or registration statements filed by
AlliedSignal with the SEC since December 31, 1997. Each of the
SEC Reports, at the time it was filed, complied, in all material
respects, with all applicable requirements of the Securities Act
and the Exchange Act and did not contain, at the time
35
it was filed, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. No events
have occurred subsequent to the filing with the SEC of such SEC
Reports that would have subjected AlliedSignal to any filing
requirements with the SEC that was not complied with.
4.06 Brokers and Finders. AlliedSignal has not employed any
broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the
transactions contemplated herein.
ARTICLE V
CERTAIN COVENANTS
5.01 Conduct of Business of the Company. Except as
otherwise expressly required by this Agreement, during the period
from the date hereof to the Closing, the Company shall not, and
the Shareholders shall not cause or permit the Company to,
without the prior written consent of AlliedSignal:
(a) amend its charter documents or bylaws;
(b) sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or
amend any of the terms of any securities or agreements
outstanding on the date hereof;
(c) split, combine or reclassify any shares of capital
stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem
or otherwise acquire any of its securities;
36
(d) (i) create, incur or assume any Indebtedness or other
Liability not currently outstanding, other than trade payables,
(ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other Person, or (iii) make any loans,
advances or capital contributions to, or investments in, any
Person;
(e) acquire, sell, lease or dispose of any assets, other
than sales of inventory in the ordinary and usual course of
business consistent with past practice;
(f) subject any of its properties or assets, tangible or
intangible, to any Lien;
(g) enter into any license with any third party for any
Intellectual Property or disclose to any third party or enter
into any agreement to disclose to any third party any
Intellectual Property;
(h) enter into any Contract or other commitment of more
than $10,000 except in the ordinary course of business in
accordance with past practice;
(i) fail to continue in a material respects to meet its
obligations under all Contracts to which it is a party or fail to
pay its obligations as they mature in the ordinary course of
business;
(j) fail to exercise good faith and reasonable conduct to
(i) maintain the Business intact, (ii) retain the present
employees, or (iii) preserve the good relations of its suppliers,
customers and others with whom it has business relations;
(k) fail to maintain its assets in good working order and
repair;
(l) fail to account for, make appropriate filings with
respect to, and pay all taxes, assessments and other governmental
charges as they become due;
37
(m) increase the amount of compensation or benefits payable
or available or to become payable or available to any employee
of, or Person rendering services to, the Company or adopt any new
Benefit Plan; or
(n) enter into any employment agreement, any labor
agreement or negotiations regarding any labor agreement with any
union.
5.02 Updated Schedules. At the Closing, Shareholders shall
deliver to AlliedSignal schedules showing any changed facts or
circumstances from the matters disclosed in each of the
Disclosure Schedules in which the Company or the Shareholders
make disclosures pursuant to Article III, each of which updated
disclosures shall be subject to the terms and conditions of this
Agreement as if the same were in effect immediately prior to such
disclosures and none of which disclosures shall be deemed to
modify in any way the condition stated in Section 7.03(b) which
is based solely upon such Disclosure Schedules as set forth on
the date of this Agreement.
5.03 Public Announcements. Except as otherwise required by
law, no party shall disclose the existence or terms of this
Agreement, without the consent of the other parties hereto.
5.04 Consents. Except as otherwise set forth in this
Agreement, prior to the Closing, the Shareholders shall obtain,
or cause the Company to obtain, all waivers, licenses,
agreements, permits, consents, approvals or authorizations of
third Persons or any modifications or amendments to existing
Contracts with third Persons that are required to be obtained by
the Shareholders or the Company as a consequence of the
transactions contemplated by this Agreement and the Ancillary
Agreements in a form acceptable to the Shareholders and
AlliedSignal.
5.05 Further Assurances. Each of the parties hereto shall
execute such documents and other instruments and take such
further actions as may be reasonably required or desirable to
carry out the provisions hereof and to consummate the
transactions contemplated hereby or, at and after the Closing, to
evidence the consummation of the transactions contemplated by
this
38
Agreement. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall take or cause to be taken all
actions and to do or cause to be done all other things necessary,
proper or advisable to consummate and make effective as promptly
as practicable the transactions contemplated by this Agreement
and the Ancillary Agreements and to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all
necessary registrations and filings. Without limiting the
generality of the foregoing, if title to any asset (tangible or
intangible) used or held for use in the Business is retained by
the Shareholders as of the Closing, at the request of
AlliedSignal, the Shareholders shall transfer such title to
AlliedSignal without further payment of consideration by
AlliedSignal, consistent with the terms of this Agreement.
5.06 Provision of Records; Records Retention.
(a) On the Closing Date, the Shareholders shall, or shall
cause the Company to, deliver to AlliedSignal all minute books
and stock ownership records of the Company and all original
agreements, documents, books, records and files, relating to the
business and operations of the Business and the Company.
(b) After the Closing, the Company and each Shareholder
shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with the preparation and filing
of any Tax return, statement, report or form (including any
report required pursuant to Section 6043 of the Code and all
Treasury Regulations promulgated thereunder), any audit,
litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other
party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other
proceeding and make employees available on a mutually convenient
basis to provide additional information and explanation of any
material provided hereunder. The Company and each Shareholder
agree (i) to retain all books and records under their respective
control with respect to Tax matters pertinent to the Company
relating to any Tax period prior to Closing until the expiration
of the applicable statute of limitations (taking into account any
waivers or extensions), and (ii) to give the other party
reasonable written notice prior
39
to destroying or discarding any such books and records and, if
either party so requests, the other party shall allow the
requesting party to take possession of such books and records.
(c) Pending the Closing, the Company and the Shareholders
shall provide AlliedSignal and its representatives with
reasonable access to the Company's operations and records, during
normal business hours.
5.07 Employee Matters. In order to provide for an orderly
transition of ownership of the Company and to enhance the
performance of the Business, the individuals listed in Schedule
5.07 and AlliedSignal shall, on or prior to Closing, enter into
retention agreements substantially in the form attached hereto as
Exhibit D.
5.08 Registration of AlliedSignal Common Stock.
AlliedSignal shall issue AlliedSignal Common Stock in order to
meet the obligation set forth in Articles I and II. AlliedSignal
and the Shareholders agree, as of the Closing, to enter into the
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit G.
5.09 Accounts Receivable.
(a) In the event that the amount of accounts
receivable included in the Current Assets reflected on the
Reference Balance Sheet, net of the aggregate reserves related
thereto on the Reference Balance Sheet as of September 30, 1998
recorded pursuant to GAAP, except as set forth in Schedule
3.08(b), are not collected by AlliedSignal within one hundred
eighty (180) days following the Closing Date the Aggregate Merger
Number shall be adjusted as provided herein. AlliedSignal agrees
to attempt in good faith, using its reasonable efforts, to
collect such receivables in the ordinary course of business
consistent with AlliedSignal's practices and procedures with
respect to its own receivables. On the tenth Business Day
following delivery to the Shareholders of a list of all of those
accounts receivable unpaid at the end of the one hundred eighty
(180) day collection period net of the aggregate reserves related
thereto (the "Uncollected Receivables"), Indemnity Shares having
a Market Value measured by the Average Closing Price
40
equal to the Uncollected Receivables shall be returned to
AlliedSignal for cancellation and AlliedSignal shall immediately
transfer to the Shareholders in proportion to their ownership of
Company Common Stock immediately prior to the Effective Time by
xxxx of sale its right and interest to such Uncollected
Receivables, including without limitation its right to collect
same. For purposes hereof, any discount granted by AlliedSignal
with respect to a receivable shall not be considered an
Uncollected Receivable.
(b) To the extent any Uncollected Receivables are
transferred by AlliedSignal to the Shareholders, AlliedSignal
hereby agrees to provide the Shareholders with reasonable
information and documentation in its possession with respect
thereto.
5.10 Resignations. On the Closing Date, the Shareholders
shall cause to be delivered to AlliedSignal duly signed
resignations, effective immediately after the Closing, of all
directors of the Company and shall take such other action as is
necessary to accomplish the foregoing.
5.11 Risk of Loss. During the period from the date of this
Agreement to the Closing Date, the risk of loss or damage to any
of the Company's assets shall be borne by the Shareholders. If,
at or prior to the Closing, all or any material part of such
assets are destroyed or damaged, then AlliedSignal, on the one
hand, and the Shareholders, on the other hand, shall each have
the option, exercisable in writing, to terminate this Agreement.
5.12 Indebtedness. All unpaid Indebtedness of the Company
and any accrued or unaccrued interest payable as of the Closing
Date shall be subtracted from $4,000,000 pursuant to Section
2.05(a) in order to determine the Aggregate Merger Number as
calculated in Section 2.05(a) and, unless otherwise agreed by the
parties, any such amounts shall be paid off and extinguished at
Closing. All unpaid Indebtedness of the Company and any accrued
or unaccrued interest payable as of the Closing Date, including
but not limited to the Company's Indebtedness to PurePak
Technology Corporation, the Shareholders and Prism Technologies,
shall be paid in full by the Surviving Corporation on the Closing
Date by wire transfer or check as
41
specified in writing to AlliedSignal by the Shareholders and the
Company at least five Business Days prior to Closing.
5.13 Consents; Cooperation. Subject to the terms and
conditions hereof, the Shareholders and AlliedSignal will use
their reasonable efforts:
(a) to obtain prior to the earlier of the date required (if
so required) or the Closing Date, all authorizations, consents,
orders, permits or approvals of, or notices to, or filings,
registrations or qualifications with, any governmental,
administrative or judicial authority or any other Person that are
required on their respective parts, for the consummation of the
transactions contemplated by this Agreement and the Ancillary
Agreements, provided that the Shareholders and AlliedSignal, as
the case may be, will use their reasonable efforts to make or
obtain the authorizations, consents, orders, permits, approvals,
notices, filings, registrations and qualifications;
(b) to defend, consistent with applicable principles and
requirements of law, any lawsuit or other legal proceedings,
whether judicial or administrative, whether brought derivatively
or on behalf of third persons (including governmental
authorities) challenging this Agreement or the transactions
contemplated hereby;
(c) to furnish to each other such information and
assistance as may reasonably be requested in connection with the
foregoing; and
(d) to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
5.14 Notification of Certain Matters. Between the date
hereof and the Closing, the Shareholders and the Company, on the
one hand, and AlliedSignal, on the other hand, will give prompt
notice in writing to the other of: (i) any information known to
the Shareholders and the Company, on the one hand,
42
or AlliedSignal, on the other hand, that indicates that any
representation or warranty of the Shareholders and the Company,
on the one hand, or AlliedSignal, on the other hand, contained
herein will not be true and correct in any material respect as of
the Closing and (ii) the occurrence of any event known to the
Shareholders and the Company, on the one hand, or AlliedSignal,
on the other hand, which will result, or has a reasonable
prospect of resulting, in the failure to satisfy a condition
specified in Article VII hereof.
5.15 Tax Reorganization. Before the Effective Time, neither
AlliedSignal nor the Shareholders shall intentionally take or
fail to take any action within its control and not contemplated
by this Agreement that would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the
Code. Subsequent to the Effective Time, neither AlliedSignal nor
the Shareholders shall take any action within its control and not
contemplated by this Agreement that would disqualify the Merger
as a reorganization under the Code.
5.16 Professional Fees. AlliedSignal agrees to pay on the
Closing Date, by wire transfer or by check as specified by the
Company in writing to AlliedSignal at least five Business Days
prior to Closing, in exchange for appropriate releases, the
legal, accounting and other professional fees and reasonable out-
of-pocket expenses incurred or paid by the Company in connection
with the execution, delivery and closing of this Agreement and
the Ancillary Agreements (the "Expense Amount") up to an
aggregate limit of $30,000 (such amount to be reduced by the
Expense Amount to the extent is has already been paid). The
Company shall cause to be submitted to AlliedSignal the invoices
and receipts to support all such fees and expenses. Any such
fees and expenses in excess of $30,000 shall be to the account of
the Shareholders.
ARTICLE VI
INDEMNIFICATION
6.01 Indemnification by the Shareholders. The Shareholders,
jointly and severally, shall indemnify AlliedSignal and
the Company against and hold
43
AlliedSignal and the Company harmless from any Liability
(including, without limitation, reasonable legal fees and
expenses) (collectively, a "Loss") to the extent arising from or
relating to (i) any breach of any representation or warranty of
any Shareholder or the Company contained in this Agreement or in
any certificate, instrument or other document delivered pursuant
hereto or in connection with the transactions contemplated
hereby, (ii) any real properties formerly owned or occupied by
the Company but no longer owned or occupied by the Company at the
time of the Closing; (iii) any Liability for Environmental
Damages based upon facts, events, conditions or circumstances
occurring or existing prior to the Closing Date; (iv) any breach
by any Shareholder or the Company of any covenant of or to be
performed by any Shareholder or the Company; (v) any remaining
amounts due as a result of the procedure for Uncollected
Receivables described in Section 5.09(a); and (vi) any Liability
not disclosed by any Shareholder and/or the Company to
AlliedSignal prior to Closing.
6.02 Indemnification by AlliedSignal. AlliedSignal shall
indemnify and hold the Shareholders harmless from (i) any Loss to
the extent arising from any breach of any representation or
warranty of AlliedSignal contained in this Agreement or in any
certificate, instrument or other document delivered pursuant
hereto or in connection herewith; and (ii) any breach by
AlliedSignal of any covenant of or to be performed by
AlliedSignal.
6.03 (a) Survival; Termination and Scope of Indemnification
for Breach of Representations. The representations and
warranties contained in this Agreement and the Ancillary
Agreements shall survive the Closing until the first anniversary
of the Closing Date; provided, however, that the representations
and warranties concerning title to the Shares shall survive the
Closing indefinitely. The covenants contained in this Agreement
and the Ancillary Agreements that by their terms are to be
performed after the Closing shall survive the Closing. The
obligations to indemnify and hold harmless AlliedSignal pursuant
to Section 6.01(i) and the Shareholders pursuant to
Section 6.02(i) shall terminate one (1) year after the Closing;
provided, however, that such obligations to indemnify and hold
harmless shall not terminate with respect to any item as to which
the Person to be indemnified or the related party hereto shall
have, before the expiration of the one (1) year period, made a
claim by delivering a notice (stating in reasonable detail the
basis of such claim) to the indemnifying party and
44
shall survive as to such claim until such claim has been finally
resolved. Neither the Shareholders on the one hand nor
AlliedSignal on the other hand shall have any liability or
obligation to indemnify the other for any such breach until the
aggregate of all claims made pursuant to Section 6.01 (i) or
Section 6.02(i), as the case may be, exceed $25,000 and then only
for the amount which exceeds $25,000. Notwithstanding anything
herein to the contrary, the representations and warranties made
in Section 3.02 shall survive the Closing indefinitely.
(b) Adjustment of Aggregate Merger Number. Any
reimbursement by the Shareholders in connection with a claim made
by AlliedSignal pursuant to Section 6.01 will be deemed an
adjustment in the Aggregate Merger Number and shall occur solely
by withdrawing and returning of the Indemnity Shares to
AlliedSignal in accordance with the provisions of this Agreement
and the Indemnity Escrow Agreement; provided that the limitation
set forth in this Section 6.03 shall not apply to Losses incurred
by AlliedSignal by reason of a breach of the representation and
warranty contained in Section 3.02 or to fraud or willful or
intentional misrepresentation or omission.
(c) Shareholders' Cap. Notwithstanding anything to the
contrary in this Agreement, the aggregate liability of the
Shareholders pursuant to this Agreement will not exceed the
Market Value measured by the Average Closing Price of the
Indemnity Shares, and will be paid by withdrawing AlliedSignal
Common Stock from the Indemnity Escrow Account and returning it
to AlliedSignal at the Market Value measured by the Average
Closing Price; provided, however, that this limitation shall not
apply to a breach of the Shareholders' representation and
warranty contained in Section 3.02 or to fraud or willful or
intentional misrepresentation or omission, for which the
aggregate liability of Shareholders shall in no event exceed the
consideration received by them under this Agreement.
(d) AlliedSignal's Cap. Notwithstanding anything to the
contrary in this Agreement, the aggregate liability of
AlliedSignal pursuant to this Agreement will not exceed
$1,000,000; provided, however, that this limitation shall not
apply to any Loss suffered by the Shareholders as a result of the
breach by AlliedSignal of (i) its representations in Section 4.02
or to fraud
45
or willful or intentional misrepresentation or omission or (ii)
its covenants contained in Section 5.08 (or the Registration
Rights Agreement).
6.04 Indemnification Procedure. (a) Any party seeking
indemnification hereunder (the "Indemnitee") shall notify the
party liable for such indemnification (the "Indemnitor") in
writing of any event, omission or occurrence which the Indemnitee
has determined has given or could give rise to Losses which are
indemnifiable hereunder (such written notice being hereinafter
referred to as a "Notice of Claim"). Any Notice of Claim shall
be given promptly after the Indemnitee becomes aware of such
event, omission or occurrence. Except with respect to claims
governed by the limitations contained in Section 6.03, the
failure of any Indemnitee to give notice as provided in this
Section 6.04 shall not relieve the Indemnitor of its obligations
hereunder, except to the extent that the Indemnitor is actually
prejudiced by such failure to give notice. A Notice of Claim
shall specify in reasonable detail the nature and any particulars
of the event, omission or occurrence giving rise to a right of
indemnification.
(b) This indemnity is conditioned upon and subject to
Indemnitee giving its full cooperation in complying with any
applicable foreign, federal, state or local laws, rules or
regulations or any discovery or testimony necessary to
effectively carry out Indemnitor's obligations hereunder. Such
cooperation shall be without charge to the Indemnitor.
6.05 Claims by Third Parties. If a party to this Agreement
seeks indemnity hereunder with respect to a claim by a third
party:
(a) For the purposes of this Section 6.05, "Third Party
Claim" means any demand which has been made on, or communicated
to AlliedSignal or the Shareholders by or on behalf of any Person
other than AlliedSignal or the Shareholders and which, if
maintained or enforced, might result in a claim for
indemnification in the nature described in Section 6.01 or 6.02
of this Agreement being made.
46
(b) Promptly upon receipt by Indemnitee of notice of any
Third Party Claim in respect of which the Indemnitee proposes to
demand indemnification from another party to this Agreement, the
Indemnitee shall forthwith give notice to that effect to the
Indemnitor.
(c) The Indemnitor shall have the right, exercisable by
giving notice to the Indemnitee not later than thirty (30) days
after receipt of the notice described in Section 6.03 for claims
covered by thereby, and otherwise promptly, as described in
6.05(b) hereto, as the case may be, to assume the defense of the
Third Party Claim.
(d) Upon the assumption of the defense by the Indemnitor as
aforesaid, the Indemnitor shall, at its expense, diligently
proceed with the defense of the Third Party Claim at the
Indemnitor's sole expense, including employment of counsel
satisfactory to the Indemnitee. In connection therewith, so long
as the Indemnitor is defending in good faith any such Third Party
Claim, the Indemnitee shall cooperate fully, but at the expense
of the Indemnitor, to make available to the Indemnitor all
pertinent information and witnesses under Indemnitee's control
and to make such assignments and take such other steps as in the
opinion of counsel for the Indemnitor are necessary to enable the
Indemnitor to conduct such defense, provided always that the
Indemnitee shall be entitled to reasonable security from the
Indemnitor for any expense, costs or other Liabilities to which
it may be or may become exposed by reason of such cooperation.
The Indemnitee shall have the right, but not the obligation, to
participate, at its own expense, in the defense thereof through
counsel of its own choice, and shall have the right, but not the
obligation, to assert any and all allowable crossclaims or
counterclaims it may have pursuant to this Article.
(e) With respect to the defense of a Third Party Claim
undertaken by an Indemnitor, any compromise or settlement of such
Third Party Claim by Indemnitor which would result in a payment
obligations of, or injunctive relief against the Indemnitee,
shall not be made or effective against Indemnitee without the
prior written consent of the Indemnitee (which consent shall not
be unreasonably withheld or delayed).
47
(f) Should the Indemnitor fail to give notice to the
Indemnitee as provided in clause (c) hereof, or in the event the
Indemnitor fails to defend, contest or otherwise protect against
any Third Party Claim, the Indemnitee shall have the right, but
not the obligation, to defend, contest, or to otherwise protect
against the same; provided that the Indemnitee shall keep the
Indemnitor reasonably advised as to the current status and
progress thereof. The Indemnitee shall have the right, but not
the obligation, to make any compromise or settlement of any such
Third Party Claim, and, to the extent it is determined that the
Indemnitor is liable for the Loss in connection therewith, the
Indemnitee shall be entitled to all amounts paid as a result of
such Third Party Claim or any compromise of settlement thereof,
provided, however, that any such compromise or settlement which
would result in a payment obligation of or injunctive relief
against Indemnitor shall not be made or effective against
Indemnitor without the prior written consent of Indemnitor which
shall not be unreasonably withheld.
(g) From and after delivery of the notice referred to in
Section 6.05(c) above, the Indemnitor shall be relieved of the
obligations to reimburse the Indemnitee for any other legal,
accounting or other out-of-pocket costs and expenses thereafter
incurred by the Indemnitee with respect to the defense of such
claim, action or proceeding notwithstanding any participation by
the Indemnitee therein.
(h) If the Indemnitee subsequently recovers all or part of
the Third Party Claim from any other Person legally obligated to
pay the claim, the Indemnitee shall forthwith repay to the
Indemnitor the amounts recovered up to an amount not exceeding
the payment made by the Indemnitor to the Indemnitee by way of
indemnity.
6.06 Procedures With Respect to Indemnified Losses of
Shareholders. With respect to any claims existing on the date
hereof or which result in Third Party Claims prior to Closing for
which the Shareholders are required to indemnify AlliedSignal
pursuant to Section 6.01 hereof, AlliedSignal after the Closing
shall cooperate with the Shareholders in defending any such claim
and promptly advise the Shareholders of developments or the
Shareholders shall continue to control such claims as
AlliedSignal and the Shareholders may agree; provided, however,
with respect to Taxes contested in good faith
48
the Shareholders shall control the matter and with respect to
litigation arising before Closing if AlliedSignal determines to
control such matters by appointing new counsel different than
Company's prior counsel, the costs of such new counsel shall not
be a Loss or expense for which the Shareholders are obligated to
indemnify AlliedSignal hereunder. Provided, however,
AlliedSignal based on a change in circumstances and after
consultation with the Shareholders may appoint new counsel if
AlliedSignal agrees in writing to absorb all of the expenses
incurred by new counsel in learning the facts and the law
involved in the case and any other costs of the change in counsel
without seeking indemnification for such expenses from the
Shareholders.
ARTICLE VII
CONDITIONS TO CLOSING
7.01 Conditions to the Obligations of the Company and
AlliedSignal. The respective obligations of the Shareholders and
the Company, on the one hand, and AlliedSignal, on the other
hand, to consummate the transactions contemplated by this
Agreement are subject to fulfillment of the following conditions:
(a) The Indemnity Escrow Agreement and the Earnout Escrow
Agreement shall have been executed and delivered by the parties
thereto in substantially the form thereof attached to this
Agreement.
(b) At the Closing, the Shareholders will deliver to
AlliedSignal certificates evidencing the Shares duly endorsed to
AlliedSignal (or with separate stock powers) and AlliedSignal
will deliver (i) to the Shareholders certificates evidencing the
number of shares of AlliedSignal Common Stock to be transferred
to the Shareholders in accordance with Article II, and (ii) to
the Escrow Agent, certificates evidencing the number of shares of
AlliedSignal Common Stock to be transferred to the Escrow Agent
pursuant to Article II.
49
(c) The Registration Rights Agreement in substantially the
form set forth in Exhibit G shall have been executed and
delivered by AlliedSignal and the Shareholders.
(d) Retention Agreements in substantially the form set
forth in Exhibit D shall have been executed and delivered by the
relevant employees and AlliedSignal on or before the Closing
Date.
(e) No order, stay, judgment or decree will have been
issued by any court and be in effect restraining or prohibiting
the consummation of the transactions contemplated hereby.
7.02 Conditions to the Obligations of the Company and the
Shareholders. The obligations of the Company and the
Shareholders to consummate the transactions contemplated hereby
are subject to the satisfaction, on or prior to the Closing, of
the following conditions:
(a) The representations and warranties of AlliedSignal
contained in this Agreement or in any other document delivered
pursuant hereto shall be true and correct, in all material
respects, on and as of the Closing with the same effect as if
made on and as of the Closing and at the Closing AlliedSignal
shall have delivered to the Shareholders a certificate to that
effect;
(b) Each of the covenants and obligations of AlliedSignal
to be performed on or before the Closing pursuant to the terms of
this Agreement shall have been duly performed on or before the
Closing and at the Closing AlliedSignal shall have delivered to
the Shareholders a certificate to that effect; and
(c) The Shareholders shall have received an opinion of Xxxx
X. Xxxxxx, General Counsel, Specialty Chemicals, dated as of the
Closing, in form and substance reasonably satisfactory to the
Shareholders, covering the matters set forth in Exhibit F.
(b) The repayment in full of the Company's Indebtedness to
PurePak Technology Corporation and the Shareholders.
50
7.03 Conditions to Obligations of AlliedSignal. The
obligation of AlliedSignal to consummate the transactions
contemplated hereby is subject to the satisfaction, on or prior
to the Closing, of the following conditions:
(a) Since the date of this Agreement, there have not been
any material adverse changes in the financial position, assets,
operations or prospects of the Business or the Company;
(b) The representations and warranties of the Shareholders
and the Company contained in this Agreement or in any other
document delivered pursuant hereto shall be true and correct, in
all material respects, on and as of the Closing with the same
effect as if made on and as of the Closing and at the Closing the
Company and the Shareholders shall have delivered to AlliedSignal
a certificate to that effect;
(c) Each of the covenants and obligations of the Company
and the Shareholders to be performed on or before the Closing
pursuant to the terms of this Agreement shall have been duly
performed on or before the Closing and at the Closing the
Shareholders shall have delivered to AlliedSignal a certificate
to that effect;
(d) AlliedSignal shall have received an opinion of Xxxxxxx
Xxxxxxxxxx, counsel for the Company, dated as of the Closing, in
form and substance reasonably satisfactory to AlliedSignal,
covering the matters set forth in Exhibit E;
(e) AlliedSignal shall have received certificates
representing all of the Shares, duly endorsed in blank or
accompanied by stock powers duly executed by the Shareholders in
blank, in proper form for transfer. To the extent any
certificates have been issued in the name of any Person other
than or in addition to any Shareholder, AlliedSignal shall have
received evidence to its reasonable satisfaction that all
necessary consents and approvals have been received by such
Shareholder (indicating due authorization and consent) to enable
such Shareholder to transfer the certificate(s) representing all
of
51
the Shares of such Shareholder free and clear of any Liens or
Share Encumbrances.
(c) The Shareholders and the Company will have furnished
AlliedSignal with such certificates of its officers and others as
AlliedSignal may reasonably request to evidence satisfaction of
the conditions set forth in this Section 7.03 and elsewhere in
this Agreement.
(g) The receipt by the Company of the letter agreement, in
form reasonably satisfactory to AlliedSignal, of Prism
Technologies ("Prism") that it will not exercise the option right
to convert its loan into Company Common Stock pursuant to the
Company's Promissory Note to Prism dated April 21, 1998.
(h) Release of the Company's guarantee of the Indebtedness
of PurePak Technology Corporation ("PurePak") dated December 3,
1996.
(i) Releases from PurePak and the Shareholders upon the
repayment of the Company's Indebtedness thereto, indicating the
full satisfaction of such Indebtedness, in form reasonably
satisfactory to AlliedSignal.
(j) Evidence reasonably satisfactory to AlliedSignal that
Xxxxxxx X. Xxxx and Xxxxx X. Xxxxxx, Xx. have resigned as
officers of PurePak.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time
prior to the Closing:
52
(a) by mutual written consent of the Shareholders and the
Company, on the one hand, and AlliedSignal, on the other hand, or
by mutual written consent of the Company and AlliedSignal;
(b) by either the Shareholders or AlliedSignal, if any
court of competent jurisdiction shall have issued an order,
decree or ruling or taken any other action restraining, enjoining
or otherwise prohibiting the transactions contemplated herein;
(c) by either the Shareholders and the Company, on the one
hand, or AlliedSignal, on the other hand, or by either the
Company or AlliedSignal, if Closing has not occurred by December
31, 1998.
If AlliedSignal or the Shareholders and the Company
terminate this Agreement pursuant to the provisions hereof, such
termination will be effected by written notice to the other party
specifying the provision thereof pursuant to which such
termination is made.
8.02 Effect of Termination. (a) Upon termination of this
Agreement pursuant to Section 8.01 hereof, except as provided in
clause (b) below:
(i) this Agreement will forthwith become null and
void;
(ii) such termination will be the sole remedy with
respect to any breach of any representation or warranty contained
in or made pursuant to this Agreement; and
(iii) no party hereto or any of their respective
officers, directors, employees, agents, consultants, stockholders
or principals will have any liability or obligation hereunder or
with respect hereto.
(b) The provisions of clause (a) above notwithstanding, no
party will be relieved of liability for any known breach (for
this purpose knowledge shall be tested as of the date hereof
only) of any representation or warranty contained herein or any
breach of any covenant or agreement contained herein or for any
termination not made in good faith.
53
ARTICLE IX
MISCELLANEOUS
9.01 Entire Agreement. This Agreement (together with the
Exhibits and Disclosure Schedules attached hereto and the
Ancillary Agreements) constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes
all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the subject matter
hereof.
9.02 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by telecopy, or by
registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to AlliedSignal:
AlliedSignal Inc.
000 Xxxxxxxx Xxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Telecopy: (000) 000-0000
Attention: General Counsel, Specialty Chemicals
if to Shareholders:
Xxxxxxx X. Xxxx
Xxxxx Xxxx
0000 X. Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
54
Xxxxx X. Xxxxxx Xx.
0000 X. Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxxx X. Xxxxxx
Xxxxx Xxxxxx
0000 X. Xxxxxx Xxxx.
Xxxxx X000
Xxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxxx X. Xxxxx
000 Xxxx Xxxxxx
Xxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxxx X. Xxxxxx
0000 X. Xxxxxxxxx Xxxxxx
Xxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Xxxxx Xxxx
0000 X. Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000 (602) 926-6117
Xxxxx X. Xxxxxxxx XX
0000 X. Xxxxxx Xxxx., Xxxxx 000X
Xxxxxxx, Xxxxxxx 00000
55
Telecopy: (000) 000-0000
if to the Company:
Southwest Microelectronic Materials, Inc.
0000 X. Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxx
with a copy to:
Law Offices of Xxxxxxx X. Xxxxxxxxxx
0000 X. Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
or to such other address as the party to whom notice is given may
have previously furnished to the other in writing in the manner
set forth above. Any notice or communication delivered in person
shall be deemed effective on delivery. Any notice or
communication sent by telecopy shall be deemed effective on the
first Business Day after such notice or communication was
received. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth Business
Day at the place from which such notice or communication was
mailed following the day on which such notice or communication
was mailed.
9.03 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Arizona applicable to contracts executed and to be delivered and
performed entirely within such state without regard to principles
of conflicts or choices of.
56
9.04 Disputes. Any dispute, controversy or claim arising
out of or relating to this Agreement or a breach of this
Agreement, shall be finally resolved by arbitration. Either
party may initiate the arbitration process by giving written
notice to the other party. Such notice shall contain a statement
setting forth the nature of the dispute, the amount involved, if
any, and the remedy sought, which may include, without
limitation, specific performance or other equitable relief. The
arbitration shall be conducted in Arizona in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (the "Rules") by a single arbitrator mutually agreed
upon by the parties, or in the absence of any such agreement, by
an arbiter selected from a panel provided by the office of the
American Arbitration Association located in Arizona, in
accordance with the Rules. In the event of any conflict between
the Rules and this Section, the provisions of this section shall
govern. The arbitration hearing shall be held as promptly as is
practicable. The arbitral award shall be in writing and shall be
final and binding upon the parties, and neither party shall
appeal the award to any court, except that judgment upon the
award may be entered in any court having jurisdiction thereof.
Each party shall pay its own costs and attorney's fees and one-
half the fee of the arbitrator.
9.05 Descriptive Headings. The descriptive headings herein
or in any Exhibit or Schedule hereto are inserted for convenience
of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
9.06 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
9.07 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
57
9.08 Expenses. Except as otherwise provided herein (except
for costs incurred by a party as a result of a breach of this
Agreement by the other party), whether or not the transactions
contemplated herein are consummated, each of the parties to this
Agreement shall bear all costs and expenses incurred by it in
connection with the preparation, execution and performance of
this Agreement and the transactions contemplated hereby.
9.09 Binding Effect; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and
their respective legal representatives and successors. This
Agreement may not be assigned by any party hereto.
9.10 Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of all the parties
expressly stating that it is intended to amend this Agreement.
9.11 Extension; Waiver. Any party hereto may (i) extend the
time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained
herein or in any document, certificate or writing delivered
pursuant hereto by any other party, or (iii) waive compliance
with any of the agreements or conditions contained herein or any
breach thereof. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
58
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on the day and year first above written.
XXXXXXX X. XXXX
/s/ Xxxxxxx X. Xxxx
_______________________________
XXXXX XXXX
/s/ Xxxxx Xxxx
_________________________________
XXXXX X. XXXXXX XX.
/s/ Xxxxx X. Xxxxxx Xx.
_______________________________
XXXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
_______________________________
59
XXXXX XXXXXX
/s/ Xxxxx Xxxxxx
_______________________________
XXXXXX X. XXXXX
/s/ Xxxxxx X. Xxxxx
_______________________________
XXXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
_______________________________
XXXXX XXXX
/s/ Xxxxx Xxxx
_______________________________
XXXXX X. XXXXXXXX XX
/s/ Xxxxx X. Xxxxxxxx XX
_______________________________
60
SOUTHWEST MICROELECTRONIC
MATERIALS, INC.
By:
/s/ Xxxxxxx X. Xxxx
__________________________
Name: Xxxxxxx X. Xxxx
__________________________
Title: President
__________________________
ALLIEDSIGNAL INC.
By: /s/ Xxxx X. Xxxxxx
__________________________
Name: Xxxx X. Xxxxxx
__________________________
Title: VP & General Counsel,
Specialty Chemicals
__________________________
This Agreement and Plan of Merger and the Ancillary Agreements
are hereby agreed and consented to by the following individuals
who are spouses of certain of the Shareholders:
/s/ Xxxxxxx Xxxxxx
__________________________________
Xxxxxxx Xxxxxx, Spouse of Xxxxxx X. Xxxxxx
/s/ Xxxxxxx Xxxxx
__________________________________
Xxxxxxx Xxxxx, Spouse of Xxxxxx X. Xxxxx
/s/ Xxxxxxxx Xxxxxx
__________________________________
Xxxxxxxx Xxxxxx, Spouse of Xxxxx X. Xxxxxx, Xx.
61
Exhibit C
Earnout Calculation
Pursuant to Article II, Earnout payments shall be paid to the
Shareholders in accordance with the following formula based on a
percentage of Net Sales and the terms and conditions as set forth
below:
1.Definitions:
"APEC Sales" means Net Sales of electronic wet process
chemicals (as defined under AlliedSignal's alliance agreement
with Air Products ("APEC")) manufactured by AlliedSignal in
facilities other than the Company's operations made under
AlliedSignal's alliance with APEC in the United States.
Specifically excluded are AlliedSignal's AMM products,
complementary SOG ancillaries sold in conjunction with AMM
products (EBRs, Cup rinses, etc.), Photoresists and all other
chemicals sold by AlliedSignal that are not electronic grade wet
process chemicals. In any given calendar year during the Earnout
Period (as defined below), if APEC does not meet the specified
sales hurdles for that year set forth in AlliedSignal's alliance
agreement with APEC thereby giving AlliedSignal the right to
terminate the agreement and AlliedSignal determines not to so
terminate, then AlliedSignal will guarantee to the Shareholders a
minimum Earnout payment for APEC Sales of $400,000 for any given
calendar year during the Earnout Period in which such conditions
are met. "APEC Sales" must comply with the terms and conditions
of AlliedSignal's alliance agreement with APEC.
"Direct Sales" means Net Sales of Products sold to
semiconductor fabs in the United States. Specifically excluded
are AlliedSignal's AMM products, complementary SOG ancillaries
sold in conjunction with AMM products (EBRs, Cup rinses, etc.),
Photoresists and all other chemicals sold by AlliedSignal that
are not electronic grade wet process chemicals.
"Net Sales" means the aggregate annual gross revenues of
APEC Sales in the US or Direct Sales in the US, calculated on the
accrual basis consistent with past revenue recognition policies
generally applicable to the respective business, less freight,
returns and rebates.
"Gross Profit" means Net Sales less the cost of goods sold
on a basis consistent with AlliedSignal past practices which
includes direct and indirect production labor, production
materials, supplies directly or indirectly used in the production
process, depreciation of production
64
facilities and production equipment, external
manufacturing subcontractors and service personnel and
other production related expenses.
For the avoidance of doubt, Net Sales of Products through
AlliedSignal's subsidiaries and/or Affiliates and Net Sales of
Products by companies or businesses acquired by AlliedSignal
after the Closing Date which are incremental to similar sales by
such companies or businesses prior to acquisition shall be
counted for purposes of the Earnout calculation made herein.
2.Earnout Payment Formula:
Million Dollars of Net Sales
Earnout
Payment
Percentag 1999 2000 2001 2002 2003
e
APEC 0% 0-5 0-10 0-15
Sales
5% 0-15 0-15 >5-20 >10-25 >15-30
1% >15 >15 >20 >25 >30
Direct 0% 0-5 0-5 0-10 0-10 0-15
Sales
5% >5-25 >5-25 >10-30 >10-30 >15-35
1% >25 >25 >30 >30 >35
3.Terms and Conditions:
Earnout payments shall be paid annually for the five-year
period beginning with the year ended December 31, 1999 (the
"Earnout Period").
Any bad debts or uncollectible receivable shall not count
towards the determination of the Earnout payments; provided,
however, if any such
65
bad debt or uncollectible receivable is subsequently
collected, it would be eligible for Earnout payment
determination, when collected.
Direct Sales: The Earnout payment for Direct Sales in a
given calendar year shall only be paid if Net Sales of Direct
Sales for such calendar year have a Gross Profit percentage on an
annual basis of at least 15% in 1999, 20% in 2000, 25% in 2001
and 25% thereafter. If the Gross Profit percentage is below the
relevant Gross Profit percentage described in the previous
sentence for such calendar year, the Earnout payment for such
calendar year shall be decreased by 10% for each one (1)
percentage point that Gross Profit percentage is below the
relevant Gross Profit percentage. No Earnout payment will be made
for any calendar year in which the Gross Profit percentage for
Direct Sales is below 5% for 1999, 10% for 2000 or 15% for 2001
and thereafter. The Gross Profit percentage target for Direct
Sales shall be increased to 30% effective for all the calendar
years in the Earnout Period thereafter upon the first to occur in
a given calendar year of the following: (a) the Gross Profit
percentage for Direct Sales for such calendar year is at least
30% on an annual basis or (b) upon completion in such calendar
year of a new facility to manufacture the Products in the United
States; provided, however, that if a new facility is completed
within the first quarter of such calendar year, the Gross Profit
percentage target of 30% shall be effective for such year as
well. No Earnout payment will be made for any calendar year in
which the Gross Profit percentage for Direct Sales is below 20%
while the Gross Profit percentage target is 30%.
For purposes of this Exhibit C, "Gross Profit percentage"
means Gross Profit divided by Net Sales.
4. Earnout Payment Pay-Out Process:
AlliedSignal will calculate each proposed annual Earnout
payment amount and the Gross Profit for each Earnout payment
year in the Earnout Period and will present such calculations,
in reasonable detail, to the Shareholders' Agent (as defined
in the Earnout Escrow Agreement) and the Escrow Agent no later
than 45 days after the end of the related Earnout payment
year. AlliedSignal will maintain such records as are
necessary to calculate each proposed annual Earnout payment
amount and the Gross Profit percentage for each Earnout
payment year. The proposed annual Earnout payment amount
shall be binding upon the parties to this Agreement and
determined to be the "Earnout Payment Amount" unless the
Shareholders' Agent gives written notice of disagreement with
any proposed annual Earnout payment amount to AlliedSignal and
the Escrow Agent within 30 days after its receipt of a
proposed annual Earnout payment amount, specifying the nature
and extent of such disagreement in sufficient specificity that
AlliedSignal is able to investigate and respond to each
element of such disagreement, and AlliedSignal will give the
Shareholders' Agent reasonable access to records needed to
verify the calculation of each proposed annual Earnout payment
amount. If AlliedSignal and the Shareholders' Agent are
unable to resolve any such disagreement within such period,
the disagreement shall be referred for final determination to
an independent accounting firm of national reputation selected
by the mutual agreement of AlliedSignal and Shareholders'
Agent (the "Earnout
66
Payment Selected Firm"), and the resolution of that
disagreement and the annual Earnout payment resulting
therefrom shall be final and binding upon the parties hereto
for purposes of this Agreement. If AlliedSignal and
Shareholders' Agent cannot agree on the Earnout Payment
Selected Firm, it shall be chosen by Price Waterhouse. The
annual Earnout payment as finally determined by the parties or
by the Earnout Payment Selected Firm is the "Annual Earnout
Payment." Each party shall bear its own costs related to the
preparation and investigation of the annual Earnout payment
amount. The fees and disbursements of the Earnout Payment
Selected Firm shall be shared equally by AlliedSignal and
Shareholders.
Subject to Article II and this Exhibit C, on the fifteenth
Trading Day after determination of the annual Earnout payment
amount (the "Earnout Payment Date"), the Escrow Agent shall
release to the Shareholders' Agent from the Earnout Shares a
number of shares of AlliedSignal Common Stock having an Escrow
Market Value measured by the Average Trading Price equal to
the Annual Earnout Payment in respect of the immediately
preceding Earnout payment year (rounded to the nearest whole
share). The Shareholders' Agent shall distribute to the
Shareholders their proportional share (as set forth on
Schedule 3.02) of the number of Earnout Shares (if any) issued
in payment of the annual Earnout payment amount. Prior to the
expiration of the Earnout Period, AlliedSignal and the
Shareholder Agent shall mutually agree upon a good faith
estimate of the final Earnout payment (if any) so that the
Earnout Shares shall be finally released from the Earnout
Escrow (to either the Shareholders or AlliedSignal, as the
case may be) no later than December 31, 2003. If, during the
Escrow Period, the Earnout Shares are insufficient to make the
Earnout payments, AlliedSignal shall pay any additional
Earnout obligations to the Shareholders in cash in proportion
to their shareholdings of Company Common Stock immediately
prior to the Effective Time.
AlliedSignal shall cause its obligations to make payment of the
Earnout to the Shareholders to be binding on its successors and
assigns to the Business should the Business be sold or otherwise
disposed of by AlliedSignal to a third party. Notwithstanding
the foregoing, the sale or other disposition of the Business by
AlliedSignal shall not relieve AlliedSignal from its obligation
to make the Earnout payments to the Shareholders as calculated in
accordance with this Exhibit C; provided, however, that nothing
herein shall entitle the Shareholders to Earnout payments in
excess of those calculated hereunder.
5. Illustrations: The operation of Article II and this Exhibit
C can be illustrated by the following examples.
Example 1: Assumed Facts: 70,000 Earnout Shares with a
Market Value measured by the Average Closing Price of $40.00
per share are placed into the Earnout Escrow. Further assume
that for the calendar year 1999 the Business has $10,000,000
of Direct Sales and $10,000,000 of APEC Sales. Assume that
the Gross Profit percentage of Direct Sales for such year is
15%. Finally, assume that the Escrow Market Value of the
Earnout Shares measured by the Average Trading Price is $50.00
per share. The Earnout would be calculated as follows:
67
$10,000,000 Direct Sales
5,000,000 Deductible
$ 5,000,000 Excess Direct Sales
5% Applicable Percentage
$ 250,000 Earnout for Direct Sales
$10,000,000 APEC Sales
5% Applicable Percentage
$ 500,000 Earnout for APEC Sales
$ 250,000 Earnout for Direct Sales
$ 500,000 Earnout for APEC Sales
$ 750,000 Total Earnout
$ 750,000 Total Earnout
$ 50.00 Earnout Market Value of Earnout Shares
15,000 Earnout Shares released for year 1 of Earnout
Period
68
Example 2: The facts are the same as in Example 1,
except that the Gross Profit percentage of Direct Sales is 13%
instead of 15%. The Earnout for year 1 would be calculated as
follows:
$10,000,000 Direct Sales
5,000,000 Deductible
$ 5,000,000 Excess Direct Sales
5% Applicable Percentage
$ 250,000 Tentative Earnout for Direct Sales
80% Adjustment for Gross Profit Deficiency
(100% - 20%)
$ 200,000 Earnout for Direct Sales
$10,000,000 APEC Sales
5% Applicable Percentage
$ 500,000 Earnout for APEC Sales
$ 200,000 Earnout for Direct Sales
$ 500,000 Earnout for APEC Sales
$ 700,000 Total Earnout
69
$ 700,000 Total Earnout
/ $50.00 Escrow Market Value of Earnout Shares
14,000 Earnout Shares released for year 1 of Earnout
Period
70
