AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of , 1996 (the
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"Agreement"), among Turtle Beach Systems, Inc., a Pennsylvania corporation
("TBS"), Integrated Circuit Systems, Inc., a Pennsylvania corporation ("ICS"),
CFJ Systems Inc., a New York corporation ("CFJ"), Xxxxxxx X. Xxxxxxx and
Xxxxxxxxx X. Xxxxxx, as individuals (collectively the "CFJ Stockholders"),
Voyetra Technologies Inc., a Delaware corporation ("VTI"), and VTI Merger, Inc.
a New York corporation and wholly owned subsidiary of VTI ("VTI Merger"). CFJ,
the CFJ Stockholders, TBS, ICS, VTI, and VTI Merger shall be herein referred to
collectively as the "Parties" and each individually as a "Party."
WITNESSETH
WHEREAS, the Boards of Directors of ICS, TBS, CFJ, VTI, and VTI Merger have each
determined that it is in the best interests of their respective stockholders
that VTI, TBS and CFJ enter into a business combination;
WHEREAS, the combination of VTI, TBS and CFJ shall be effected by the terms of
this Agreement through transactions in which (i) VTI Merger will merge into CFJ
such that CFJ will become a wholly owned subsidiary of VTI and the stockholders
of CFJ will become stockholders of VTI (the "Merger") , and (ii) ICS as the
majority stockholder of TBS will swap its shares of TBS Common Stock for shares
of VTI Common Stock and accordingly TBS will become a subsidiary of VTI and ICS
will become a stockholder of VTI (the "Stock Purchase").
WHEREAS, the Boards of Directors of VTI, TBS and CFJ have each determined that
the transactions as contemplated hereby are consistent with, and in furtherance
of, their respective business strategies and goals and have each approved such
transactions upon the terms and conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that these transactions
shall qualify as tax-free reorganizations under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I -- THE MERGER AND PURCHASE AND SALE TRANSACTION
SECTION 1.1 -- Closing. The closing of the transactions contemplated herein
will take place at 12:00 a.m., EST, on November 29, 1996, concurrently at the
offices of ICS and Xxxxxxxx Xxxxxxxxx & XxXxxxxx PC, unless another date, place
or time is agreed to in writing by CFJ and ICS (the "Closing Date" or
"Closing").
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SECTION 1.2 -- The Merger. At the Effective Time (as defined in Section 1.3
hereof) and subject to the terms and conditions of this Agreement and the
applicable state law (a) VTI Merger shall be merged with and into CFJ (VTI
Merger and CFJ are sometimes referred to below as "Constituent Corporations" or
the "New York Constituent Corporations"), the separate corporate existence of
VTI Merger shall cease, and CFJ shall continue as the surviving corporation
which shall be a wholly owned subsidiary of VTI (the "Merger"). CFJ as the
surviving corporation after the Merger may also be referred to herein as the
"Surviving Corporation or the "New York Surviving Corporation". VTI Merger as
the non-surviving corporation after the Merger may be referred to herein as the
"Merged Corporation".
SECTION 1.3 -- Effective Time of the Merger. As promptly as practicable after
the consummation of the Closing referred to in Section 1.1 hereof, the Parties
shall cause the Merger to be consummated by filing a certificate of merger with
respect to such Merger, with the Department of State of and under the laws of
New York. Such certificate of merger shall be in such form as required by, and
executed in accordance with, the relevant provisions of the applicable state
laws (the time of such filing being the "Effective Time").
SECTION 1.4 -- Effects of the Merger. Without limiting the generality of the
foregoing, and subject thereto, (a) at the Effective Time (i) the bylaws of of
the Surviving Corporation shall be the bylaws of the Merged Corporation, as in
effect immediately prior to the Effective Time, until thereafter amended as
provided by law, (ii) the Certificate of Incorporation of CFJ as in effect
immediately prior to the Effective Time, shall be amended so that Article Fourth
thereof shall read in its entirety as follows: "The total number of shares of
all classes of stock which the corporation shall have authority to issue is
1,000, all of which shall consist of Common Stock, par value $.001 per share."
and, as so amended, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation, (iii) the directors and officers
of the Merged Corporation shall continue to serve as the directors and officers
in their respective offices of the Surviving Corporation from and after the
Effective Time, in each case until their successors are elected or appointed and
qualified or until their resignation or removal, and (iv) at and after the
Effective Time all of the property, rights, privileges, powers and franchises of
the Constituent Corporations shall continue with, or vest in, as the case may
be, the Surviving Corporation, and all debts, liabilities and duties of the
Constituent Corporation shall continue to be, or become, as the case may be, the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5 -- Purchase and Sale of Common Stock. On the Closing Date and
subject to the terms and conditions of this Agreement and the applicable state
law ICS shall sell and VTI shall purchase from ICS 4,976,400 shares of TBS
Common Stock (as defined in Section 3.3 hereof,) and as sole consideration
therefor VTI agrees to and shall cause to be issued and delivered to ICS a
certificate or certificates registered in the name of ICS, representing
1,730,922 validly issued, fully paid and non-assessable shares of VTI Common
Stock ( as defined in Section 4.3 hereof) free and clear of all pledges, liens,
encumbrances, claims and other charges and restrictions thereof of every kind.
Such ratio (i.e. 1,730,922/4,976,400=0.34783) of TBS Common Stock to VTI Common
Stock is hereinafter referred to as the "TBS Exchange Ratio".
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ARTICLE II --CONVERSION OF SECURITIES
SECTION 2.1 -- Conversion of Capital Stock. The manner and basis of converting
the shares of common stock of the Surviving Corporation and of the Merged
Corporation at the Effective Time, by virtue of the Merger and without any
action on the part of any of the Parties or the holder of any such capital
stock, shall be as hereinafter set forth in this Article II. Each issued and
outstanding share of the capital stock of VTI Merger shall be converted into and
become five fully paid and non-assessable shares of Common Stock, par value
$0.001 per share of the New York Surviving Corporation.
SECTION 2.2 -- Conversion of Shares. (a) Based upon a capital structure for CFJ
consisting solely of 200 shares of common stock issued and outstanding
immediately before the Closing Date, such shares of common stock, no par value
per share, of CFJ ("CFJ Common Stock") and all rights in respect thereof, shall
at the Effective Time be converted into the right to receive 3,000,000 shares of
VTI Common Stock (as defined in Section 4.3 hereof).
(b) No fractional share certificate for VTI Common Stock will be
issued upon the surrender for exchange of certificates evidencing CFJ Common
Stock or TBS Common Stock, and to the extent the application of such CFJ
Exchange Ratio or TBS Exchange Ratio would otherwise result in requirement to
issue a fractional share of VTI Common Stock, such conversion result will be
rounded to the nearest full share equivalent.
SECTION 2.3 -- Cancellation of Treasury Shares. At the Closing Date, each share
of common stock held in the treasury of TBS or CFJ immediately prior to the
Closing Date, if any, shall be canceled and retired and no shares of stock or
other securities of VTI shall be issuable, and no payment or other consideration
shall be made, with respect thereto.
SECTION 2.4 -- Conversion of Shareholder Debt into Common Stock. (a) Prior to
the Closing Date, ICS and TBS shall cause all outstanding loans and other
amounts remaining owed by TBS to ICS to be converted to TBS Common Stock. (b)
Prior to the Closing Date, CFJ and the CFJ Stockholders shall cause all
outstanding loans and other amounts remaining owed by CFJ to the CFJ
Stockholders to be converted to CFJ Common Stock. For purposes of this section
only, outstanding loans and other monies owed shall not include interest on such
outstanding loans, monies owed pursuant to trade liabilities in the ordinary
course of business or pursuant to a CFJ or TBS employee Benefit Arrangement as
defined in Sections 3.9 and 4.9 hereof. The Parties represent and agree that
such loans and the interest thereon are and have been fully reflected in the
financial statements furnished to each other and that any accrual of interest
has stopped as of the date of conversion of such loan to common stock. All such
amounts remaining owed shall be paid prior to February 28, 1997.
SECTION 2.5 -- Options to Purchase TBS Common Stock. (a) At the Closing Date,
VTI shall, for a period expiring thirty days after the Closing Date, offer to
convert each option or warrant granted by TBS prior to the date of this
Agreement to purchase shares of TBS Common Stock which is validly outstanding
and unexercised on the Closing Date into an option or warrant to purchase shares
of VTI Common Stock at a price and for the quantity of shares as determined by
the board of directors of VTI, provided however that in the event any of such
options for TBS Common Stock are exercised (and not converted into options for
VTI Common Stock) and such holders of the shares of TBS Common Stock resulting
from such exercise desire to sell such shares to VTI, VTI shall and does hereby
agree to cause to be issued to such individuals who have exercised their stock
options, in accordance with the provisions of this section, from the 500,000
shares reserved for issuance pursuant to a stock option plan, such number of
shares of VTI Common Stock as are determined in accordance with the TBS Exchange
Ratio,
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to exchange the shares of TBS Common Stock that are issued as a result of the
exercise of options for TBS Common Stock. Certificates representing the number
of validly issued, fully paid and non-assessable shares of Common Stock,
registered in the name of the respective individuals shall be delivered by VTI
to the respective individuals as soon as is practical thereafter, free and clear
of all pledges, liens encumbrances, claims and other charges and restrictions
thereon of every kind.
SECTION 2.6 -- Shares of TBS Common Stock Other Than Shares Owned By ICS. VTI
hereby agrees to extend to the stockholders of TBS other than ICS an offer to
purchase (through an exchange of VTI Common Stock for the TBS Common Stock) the
remaining 773,600 issued and outstanding shares of TBS Common Stock (i.e.,
excluding such shares as are purchased pursuant to Section 2.5, above as a
result of the exercise of options), and as consideration therefor and subject to
the acceptance of such offer by such stockholders, shall cause to be issued
certificates registered in the name of the respective TBS stockholders
accepting such offer, representing the quantity of validly issued, fully paid
and non-assessable shares of VTI Common Stock ( as defined in Section 4.3
hereof), free and clear of all pledges, liens, encumbrances, claims and other
charges and restrictions thereof of every kind, as determined by multiplying the
number of shares of TBS Common Stock held by such stockholders by the TBS
Exchange Ratio (see Schedule 3.3). Such offer shall remain open for at least a
period of fifteen business days after the Closing Date hereof, after which time
it may be withdrawn by VTI.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF TBS AND ICS
TBS and ICS hereby represent and warrant as of the date hereof to CFJ, the CFJ
Stockholders, and VTI as follows:
SECTION 3.1 -- Organization and Qualification. TBS is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. TBS has the requisite corporate
power and authority and any necessary governmental authority, franchise, license
or permit to own, operate or lease the properties that it purports to own,
operate or lease and to carry on its business as it is now being conducted, and
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for such failure which, when taken together with all other
such failures, would not have a Material Adverse Effect on TBS.
SECTION 3.2 -- Certificate of Incorporation and Bylaws. TBS or ICS has
heretofore furnished to CFJ a complete and correct copy of the Certificate of
Incorporation and the Bylaws, each as amended to the date hereof, of TBS. Such
Certificate of Incorporation and Bylaws are in full force and effect, and TBS is
not in violation of any of the provisions of its Certificate of Incorporation
or, in any material respect, its Bylaws.
SECTION 3.3 -- Capitalization. (a) The authorized capital stock of TBS consists
solely of 7,500,000 shares of common stock, par value $0.01 per share (the "TBS
Common Stock"), of which, immediately prior to the Closing, (i) 5,750,000 shares
of TBS Common Stock were issued and outstanding, (ii) 4,976,400 shares of TBS
Common Stock are owned by ICS, (iii) no
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shares were held in the treasury of TBS and (iv) 399,500 shares of TBS Common
Stock were issuable upon the exercise of options outstanding under the TBS
option plans listed on Schedule 3.3 hereto. Except as set forth on Schedule 3.3
or, after the date hereof, (i) since November 11, 1996, no shares of TBS Common
Stock have been issued, except upon the exercise of options described in the
immediately preceding sentence, and (ii) there are no outstanding TBS Equity
Rights. For purposes of this Agreement, TBS Equity Rights shall mean
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) to purchase or
otherwise acquire from TBS at any time, or upon the happening of any stated
event, any shares of the capital stock of TBS ("TBS Equity Rights"). Schedule
3.3 hereto sets forth a complete and accurate list of certain information with
respect to all outstanding TBS Equity Rights as of November 11, 1996. Since
November 11, 1996, no TBS Equity Rights have been issued except as set forth on
Schedule 3.3, or, after the date hereof.
(b) Except as set forth on Schedule 3.3, or as provided in Articles I or II of
this Agreement, as of and after the date hereof there are no obligations,
contingent or otherwise, of TBS to repurchase, redeem or otherwise acquire any
shares of capital stock of TBS, or to make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity.
(c) All of the issued and outstanding shares of TBS Common Stock are validly
issued, fully paid and non-assessable, and as to the shares issued to ICS are
free and clear of all security interests, liens, claims, pledge agreements or
incumbrance of any nature.
SECTION 3.4 -- Authority Relative to this Agreement. TBS and ICS have the
necessary corporate power and authority to enter into this Agreement and,
subject to obtaining any necessary stockholder approval of the Agreement, to
carry out their obligations hereunder. The execution and delivery of this
Agreement by TBS and ICS and the consummation by TBS and ICS of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of TBS and ICS. This Agreement has been duly executed and delivered
by TBS and ICS and, assuming the due authorization, execution and delivery
thereof by the other Parties, constitutes a legal, valid and binding obligation
of TBS and ICS, enforceable against them in accordance with its terms.
SECTION 3.5 -- No Conflict; Required Filings and Consents. (a) Except as listed
on Schedule 3.5 hereto or as described in subsection (b) below, the execution
and delivery of this Agreement by ICS and TBS does not, and the performance of
this Agreement by ICS and TBS will not, (i) violate or conflict with the
Certificate of Incorporation or Bylaws of ICS or TBS, (ii) conflict with or
violate any law, regulation, court order, judgment or decree applicable to ICS
or TBS or by which any of their respective property is bound or affected, (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of TBS pursuant to, result in the
loss of any material benefit under, or require the consent of any other party
to, any contract, instrument, permit, license or franchise to which TBS is a
party or by which TBS, or any of its property is bound or affected, except, in
the case of clause (ii) and (iii) above, for conflicts, violations, breaches,
defaults, results or consents which, individually or in the aggregate, would not
have a Material Adverse Effect on TBS.
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(b) Except as listed on Schedule 3.5 and except for applicable requirements, if
any, of state or federal regulatory laws and commissions, the Exchange Act, the
notification requirements of the HSR Act, filing and recordation of appropriate
merger or other documents as required by Delaware, New York and Pennsylvania law
and any filings required pursuant to any state securities or "blue sky" laws or
the rules of any applicable stock exchanges, neither ICS nor TBS are required to
submit any notice, report or other filing with any governmental authority,
domestic or foreign, in connection with the execution, delivery or performance
of this Agreement. Except as set forth in the immediately preceding sentence, no
waiver, consent, approval or authorization of any governmental or regulatory
authority, domestic or foreign, is required to be obtained by TBS or ICS in
connection with its execution, delivery or performance of this Agreement.
SECTION 3.6 -- Absence of Certain Changes or Events. Except as disclosed on
Schedule 3.6, or the interim balance sheet dated October 26, 1996, since June
29, 1996, TBS has not incurred any material liability, except in the ordinary
course of its businesses consistent with its past practices, and there has not
been any change, or any event involving a prospective change, in the business,
financial condition or results of operations of TBS which has had, or is
reasonably likely to have, a Material Adverse Effect on TBS, and TBS has
conducted its business in the ordinary course consistent with its past
practices.
SECTION 3.7 -- Litigation. There are no claims, actions, suits, proceedings,
arbitration or investigations pending or, to TBS's or ICS's knowledge,
threatened against TBS, or any properties or rights of TBS, before any court,
administrative, governmental, arbitral, mediation or regulatory authority or
body, domestic or foreign, as to which there is more than a remote possibility
of an adverse judgment or determination against TBS or any properties or rights
of TBS which may reasonably be expected to have a Materially Adverse Effect on
TBS, except (a) as disclosed on Schedule 3.7 hereto and (b) as disclosed on
Schedule 3.8 through and including Schedule 3.20, hereto.
SECTION 3.8 -- No Violation of Law. The business of TBS is not being conducted
in violation of any statute, law, ordinance, regulation, judgment, order or
decree of any domestic or foreign governmental or judicial entity (including any
stock exchange or other self-regulatory body) ("Legal Requirements"), or in
violation of any permits, franchises, licenses, authorizations or consents that
are granted by any domestic or foreign government or judicial entity (including
any stock exchange or other self- regulatory body) ("Permits"), except for
possible violations none of which, individually or in the aggregate, may
reasonably be expected to have a Material Adverse Effect on TBS. Except as set
forth on Schedule 3.8 hereto, no investigation or review by any domestic or
foreign governmental or regulatory entity (including any stock exchange or other
self-regulatory body) with respect to TBS in relation to any alleged violation
of law or regulation is pending or, to TBS's or ICS's knowledge, threatened, nor
has any governmental or regulatory entity (including any stock exchange or other
self-regulatory body) indicated an intention to conduct the same, except for
such investigations which, if they resulted in adverse findings, would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on TBS. Except as set forth on Schedule 3.8 hereto, TBS is not
subject to any cease and desist or other order, judgment, injunction or decree
issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or has
adopted any board resolutions at the request of, any court, governmental entity
or
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regulatory agency that materially restricts the conduct of its business or which
may reasonably be expected to have a Material Adverse Effect on TBS, nor has TBS
or ICS been advised that any court, governmental entity or regulatory agency is
considering issuing or requesting any of the foregoing. None of the
representations and warranties made in this Section 3.8 are being made with
respect to Environmental Laws.
SECTION 3.9 -- Employee Matters; ERISA. (a) Set forth on Schedule 3.9 hereto is
a true and complete list of all employee benefit plans covering present and
former employees or directors of TBS or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity,
including, but not limited to, any employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any deferred compensation bonuses, stock options, restricted stock
plans, incentive compensation, severance or change in control agreements and any
other material benefit arrangements or payroll practices (collectively, the "TBS
Benefit Plans"). Except as described in Schedule 3.9 TBS is not a party to or
bound by any oral or written (i) employment agreement (other than employment
agreements terminable by TBS without premium or penalty on notice of 30 days or
less under which the only the only material monetary obligation is to make
current wage or salary payments and provide current fringe benefits) or
consulting agreement; (ii) contract or agreement with any officer, director, or
employee (other than employment agreements disclosed in response to or excluded
from the scope of clause (i) above, of TBS; or (iii) compensation arrangements,
bonus or benefit plans, programs or arrangements, including without limitation
all policies, plans and programs relating to retirement, disability, insurance
(including any self-insured arrangements,) severance pay, supplemental
unemployment benefit, equity participation, stock purchase, stock option, stock
appreciation right or any other incentive program (each a "TBS Benefit
Arrangement").
(b) All contributions and other payments required to be made by TBS to or under
any TBS Benefit Plan and TBS Benefit Arrangement (or to any person pursuant to
the terms thereof) for any period ending before or on, or including the Closing
Date have been made or the amount of such payment or contribution obligation has
been reflected in the TBS Financial Statements (as defined in Section 3.18
hereof).
(c) Each of the TBS Benefit Plans and TBS Benefit Arrangements intended to be
"qualified" within the meaning of Section 401(a) of the Code has been determined
by the Internal Revenue Service (the "IRS") to be so qualified, and, to TBS's
knowledge, no circumstances exist that could reasonably be expected by TBS to
result in the revocation of any such determination. TBS is in compliance in all
material respects with, and each of the TBS Benefit Plans and TBS Benefit
Arrangement is and has been operated in all material respects in compliance
with, all applicable Legal Requirements governing such plan, including, without
limitation, ERISA and the Code. Each TBS Benefit Plan and TBS Benefit
Arrangement intended to provide for the deferral of income or the reduction of
salary or other compensation, or to afford other income tax benefits, complies
in all material respects with the requirements of the applicable provisions of
the Code and other Legal Requirements to the extent required to provide such
income tax benefits.
(d) With respect to the TBS Benefit Plans and TBS Benefit Arrangements,
individually and in the aggregate, no event has occurred and, to TBS's or ICS's
knowledge, there does not now exist any condition or set of circumstances, that
could subject TBS to any liability arising under
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the Code, ERISA or any other applicable Legal Requirements (including, without
limitation, any liability to any such plan, any affiliate plan or the Pension
Benefit Guaranty Corporation (the "PBGC")), or under any indemnity agreement to
which TBS is a party, that would reasonably be likely to have a Material Adverse
Effect on TBS.
(e) TBS and ICS have no current or expired collective bargaining agreements.
(f) Except as set forth on Schedule 3.9 hereto, (i) the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any (A) payment (whether of severance pay or otherwise) becoming due from TBS
to any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement, or (B) benefit under any TBS
Benefit Plan being established or becoming accelerated, vested or payable, (ii)
TBS is not a party to (or bound by) (A) any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting from
a change in control), bonus or other contract for personal services with any
current or former officer, director or employee (whether or not characterized as
a plan for purposes of ERISA), (B) any consulting contract with any person who
prior to entering into such contract was a director or officer of TBS, or (C)
any plan, agreement, arrangement or understanding similar to any of the items
described in clause (ii)(A) or (B) of this sentence, and (iii) TBS is not a
party to (or bound by) any agreement with any officer or key employee of TBS
providing any term of employment or compensation guarantee extending for a
period longer than six months from the date hereof or for payment of
compensation in excess of $75,000 per annum.
SECTION 3.10 -- Labor Matters. Except as disclosed on Schedule 3.10 hereto, TBS
and ICS are not party to any written or oral collective bargaining agreement or
other labor agreement with any union or labor organization and no union or labor
organization has been recognized by TBS or ICS as a bargaining representative
for employees of TBS. Except as disclosed on Schedule 3.10 hereto, to TBS's or
ICS's knowledge, there is no current union representation question involving
employees of TBS, nor does TBS or ICS have knowledge of any significant activity
or proceeding of any labor organization (or representative thereof) or employee
group to organize any such employees. Neither ICS or TBS has made any commitment
not in collective bargaining agreements listed on Schedule 3.10 hereto that
would require the application of the terms of any collective bargaining
agreements entered into by TBS to VTI, to any joint venture of VTI, or to any
Subsidiary of VTI. For purposes of this Section 3.10, "material" refers to any
liability which could reasonably be expected to exceed $75,000.
SECTION 3.11 -- Environmental Matters. Except as set forth on Schedule 3.11
hereto:
(a) To TBS's and ICS's knowledge, (i) no underground storage tanks are present
under any property that TBS has at any time owned, operated, occupied or leased,
(ii) no material amount of any substance that has been designated by any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") or by applicable federal, state, or
local law to be radioactive, toxic, hazardous, or otherwise a danger to health
or the environment, including without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde, and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource
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Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws ( a "Hazardous Material"), but excluding
office and janitorial supplies, are present as a result of the actions of TBS or
ICS or any actions of any third party or otherwise, in on or under any
property, including the land and improvements, ground water and surface water,
that TBS has at any time owned, operated, occupied or leased, (iii) at no time
has TBS transported, stored, used, manufactured, disposed of, released, or
exposed its employees or others to Hazardous Materials in violation of any law
in effect on or before the Closing Date, which has had or is reasonably likely
to have a Material Adverse Effect on TBS, nor has TBS disposed of,
transported, sold or manufactured any product containing a Hazardous Material
(collectively, "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity to
prohibit, regulate or control Hazardous Materials or any Hazardous Materials
Activity, which has had or is reasonably likely to have a Material Adverse
Effect on TBS.
(b) To TBS's and ICS's knowledge, (i) TBS currently holds all environmental
approvals, permits, licenses, clearances, and consents (the "Environmental
Permits") necessary for the conduct of its Hazardous Material Activities and
other businesses of TBS as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to have a Material
Adverse Effect on TBS, (ii) no action, proceeding, amendment procedure, writ,
injunction or claim is pending or threatened concerning any Environmental Permit
or Hazardous Materials Activity of TBS, (iii) there are no facts or
circumstances which could involve TBS in any environmental litigation or impose
upon TBS any environmental liability which would reasonably be likely to have a
Material Adverse Effect on TBS.
SECTION 3.12 -- Board Action; Vote Required; Amendment of Rights Agreement. (a)
The Board of Directors of TBS and ICS have determined that the transactions
contemplated by this Agreement are in the best interests of TBS and its
stockholders and to the extent a stockholder vote is required by applicable law
have resolved to recommend to such stockholders that they vote in favor thereof.
SECTION 3.13 -- Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's, investment banking or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of TBS or ICS.
SECTION 3.14 -- Tax Matters. Except as set forth on Schedule 3.14 hereto:
(a) All returns and reports relating to TBS Taxes (as defined below) required to
be filed by or on behalf of TBS on or prior to the Closing Date with respect to
all taxable periods ending on or prior to the Closing Date have been or will be
filed with the appropriate governmental authorities on or prior to the Closing
Date or by the due date thereof including any applicable extensions;
(b) The returns and reports referred to in subpart (a) of this Section 3.14
correctly reflect (and as to returns not filed as of the date hereof, will
correctly reflect) all material liabilities of TBS required to be shown thereon;
(c) All material federal, state, local and foreign income, profits, franchise,
transfer, payroll, property, sales, use, customs, excise, withholding, gross
receipts, estimated and other taxes or
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imposts for which TBS is liable, including additions to the aforesaid for
interest and penalties ("TBS Taxes"), shown as due on those returns and reports
referred to in subpart (a) of this Section 3.14 which have been, should have
been or will be filed by the Closing Date, as well as any TBS Taxes imposed on
or in respect of any amounts paid to or by TBS, whether or not such amounts or
TBS Taxes are referred to or shown on any returns or reports referred to in
Section 3.14(a) hereof, have been or will be paid on or prior to the Closing
Date, and any TBS Taxes not yet due shall be adequately reflected as a liability
on TBS's books and records and on its financial statements for all relevant
periods.
(d) With respect to any period for which returns and reports for TBS Taxes have
not yet been filed, or for which TBS Taxes are not yet due or owing, TBS has
made, or will make, due and sufficient accruals for such TBS Taxes in its books
and records and financial statements;
(e) With respect to such returns referred to in Section 3.14 (a) hereof, (i)
neither the IRS nor any other taxing authority has asserted in writing, or has
threatened in writing to assert against any member of the affiliated group that
includes TBS (the "TBS Group"), any deficiency or claim for additional TBS
Taxes; (ii) no member of the TBS Group has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any TBS Taxes for which any member of the TBS Group may be liable; (iii) no
power of attorney with respect to any such TBS Taxes has been executed or filed
with any taxing authority, and (iv) no closing agreement with respect to any
material TBS Taxes has been entered into by or with respect to any member of the
TBS Group pursuant to sections 7121 or 7122, as amended of the Code or any
similar provision of any state, local or foreign law.
(f) If, for any state, local, or foreign tax purpose, a taxable period for TBS
begins before the Closing Date and ends after the Closing Date (a "Bridge
Period"), the Parties hereto will, to the extent permitted by applicable law,
elect with the relevant taxing authority to treat the portion of the Bridge
Period on or before the Closing Date and for all purposes as a short taxable
period ending as of the close of the Closing Date and such short taxable period
shall be treated as a taxable period ending on the Closing Date for purposes of
this Agreement; for purposes of preparing a return for TBS Taxes for any such
Bridge Period, TBS Taxes for the Bridge Period shall be allocated between the
portion of the Bridge Period ending on the Closing Date and the portion of the
Bridge Period beginning on the day after the Closing Date using a closing of the
books method and assuming that each taxable period of TBS ended at the end of
the Closing Date, except that (i) exemptions, allowances or deductions that are
calculated on an annual basis (such as the deduction for depreciation) shall (to
the extent permitted by law) be apportioned on a per diem basis, (ii) real
property TBS Taxes shall be allocated in accordance with section 164(d) of the
Code, and (iii) other property TBS Taxes that are calculated on an annual basis
shall be apportioned on a per diem basis.
(g) TBS has been or will be included in the consolidated federal income tax
return and the consolidated or combined state and local tax returns during such
period of time in which ICS owned or controlled at least eighty percent of the
voting stock or total stock value of TBS.
(h) No irrevocable federal income tax elections are in effect with respect to
or affecting TBS (including without limitation elections under Sections 108,
168, 341 1017, 1033, 1502-20 and 4977 of the Code), and no property owned by
TBS is property that TBS is required to treat as being owned by another person
pursuant to the provisions of section 168(f)(8) of the Code, as
10
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986, or is "tax-exempt use property within the meaning of section 168(h)(1)
of the Code.
(i) From and after the date hereof, ICS shall not, and shall not permit any of
its affiliates to, amend any return or report for Taxes previously filed, which
includes information relating to or effecting TBS, which amendment could affect
the liability for Taxes of VTI or TBS, unless prior written notice thereof has
been delivered to VTI; any such amended federal, state or local return or
report shall not be filed with out the express written consent of VTI if the
amendment reports an increase in Taxes, unless ICS, at the time of filing such
amended return, pays the IRS or other relevant taxing authority an amount equal
to such increase in Taxes; for the purposes of preparing all returns for Taxes
for taxable periods up prior to or including the Closing Date, the income,
deductions, and credits of TBS shall be allocated in a manner consistent with
the method provided above; all returns and reports for Taxes filed after the
execution date of this Agreement shall, insofar as they relate to items for
periods that included days on or before the Closing Date, to the extent
permitted by applicable law, be on a basis consistent with the last previous
such returns filed in respect of or including items of TBS.
SECTION 3.15 -- Intellectual Property. (a) TBS owns, is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights and mask works, and any applications for such
patents, trademarks, trade names, service marks, copyrights and mask works, as
well as any schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material that
are necessary to conduct the business of TBS as currently conducted, the absence
of which would be reasonably likely to have a Material Adverse Effect on TBS
(the "TBS Intellectual Property Rights"). Schedule 3.15 lists (i) all patents
and patent applications, trademarks, registered copyrights, maskworks, trade
names and service marks which TBS considers to be material in such conduct of
its business and included in the TBS Intellectual Property Rights, including the
jurisdiction in which each of such TBS Intellectual Property Right has been
issued or registered or in which any such application for issuance or
registration has been filed, (ii) all material licenses, sublicenses and other
agreements as to which TBS is a party and pursuant to which (A) TBS is
authorized to use any third party patents, trademarks or copyrights, including
software ("TBS Third Party Intellectual Property Rights") which are incorporated
in, are, or form a part of any TBS product that is material to its business, and
(B) TBS authorizes a third party's use of TBS Intellectual Propery Rights, other
than as an end user purchaser of a TBS product.
(b) TBS is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations hereunder, in breach of any
license, sublicense or other agreement relating to the TBS Intellectual Property
Rights or the TBS Third Party Intellectual Property Rights, the breach of which
would be reasonably likely to have a Material Adverse Effect on TBS.
(c) To TBS's or ICS's knowledge all patents, registered trademarks, service
marks and copyrights held by TBS are valid and subsisting. Except as set forth
on Schedule 3.15, TBS (i) has not been sued in any suit, action or proceeding
which involves a claim of infringement of any patents, trademarks, service
marks, copyrights or violation of any trade secret or other proprietary right of
any third party; and (ii) neither TBS nor ICS has any knowledge that the
manufacture, marketing, licensing or sale of its products infringes any patent,
trademark,
11
service xxxx, copyright, trade secret or other proprietary right of any third
party, which infringement would reasonably be expected to have a Material
Adverse Effect on TBS.
SECTION 3.16 -- Insurance. Except as set forth on Schedule 3.16 hereto, TBS is,
and has been continuously since its inception, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by TBS during such
time period. Schedule 3.16 contains a complete and accurate schedule of all
insurance policies held by TBS or ICS related TBS's business and now in force
(including, without limitation, public liability, property damage, workmen's
compensation, fidelity bonds, theft, forgery and other coverage,) and such
schedule indicates the nature of each policy, and the amount of coverage in each
case. All such policies are in full force and the premiums due thereon have
been timely paid. TBS or ICS, as the case may be, shall continue to maintain
such insurance coverage in full force and effect until the Closing Date. Except
as set forth on such Schedule 3.16 TBS has not received notice of cancellation
or termination with respect to any material insurance policy of TBS. The
insurance policies of TBS are valid and enforceable policies.
SECTION 3.17 -- Certain Contracts. (a) Schedule 3.17 contains a list of all
material (as such term is used in regulation S-K, Item 601 under of the Exchange
Act) contracts as to which TBS is a party, and true and complete copies of all
such material Contracts have been delivered to CFJ. All TBS contracts are valid
and in full force and effect on the date hereof except to the extent they have
previously expired in accordance with their terms, and TBS has not violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default or breach under the
provisions of, any TBS contract, except for defaults or breaches which,
individually and in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on TBS.
(b) Schedule 3.17 identifies each contract, agreement or arrangement to which
TBS is a party or may be bound and (i) under the terms of which any of the
rights or obligations of a party thereto will be modified or altered as a result
of the transactions contemplated hereby in a manner which, individually or in
the aggregate with all such other contracts, agreements or arrangements would
reasonably be expected to result in a Material Adverse Effect on TBS; or (ii) is
an arrangement limiting or restraining CFJ, TBS, VTI or any successor thereto
from engaging or competing in any business which has, or could reasonably be
expected to have in the foreseeable future, a Material Adverse Effect on TBS.
(c) any contract between ICS and TBS is either set forth in Schedule 3.17 or
will be canceled as of the Closing Date.
SECTION 3.18 -- Financial Statements. (a) Schedule 3.18 sets forth financial
statements for TBS as at June 26, 1996, and for the fiscal year then ended, as
well as interim financial statements as at and for the fiscal quarter ending
September 28, 1996 and the month ending October 26, 1996 (the "TBS Financial
Statements"). TBS and ICS represent that such financial statements have been
prepared in accordance with GAAP, and that such statements fairly present in all
material respects the financial position of TBS as of the above dates and for
the respective periods then ended. (b) Except as disclosed inSchedule 3.18, TBS
does not have any other liabilities, either absolute, contingent or otherwise,
whether due or to become due, which individually or in the aggregate, would be
reasonably likely to have a Material
12
Adverse Effect on TBS, other than liabilities appropriately reserved in such
financial statements. (c) The accounts receivable of TBS as reflected on such
financial statements (net of reserves reflected in such financial statements),
to the extent uncollected on the date hereof, are valid and existing and
represent monies due for goods and services sold and delivered in the ordinary
course of business. Except as reflected on such financial statements as
required for warranty claims and sales allowances in the ordinary course of
business, there are no refunds, discounts, or other adjustments payable in
respect of any such accounts receivable and there are no defenses, rights of set
off, assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any account receivable of TBS. (d) The values of the
inventory reflected in the financial statements, including without limitation,
raw materials, work in process and finished goods, reflect TBS's inventory
valuation under GAAP. Purchase commitments for raw materials and parts are not
materially in excess of normal requirements. Sales commitments for finished
goods are at prices in excess of the prices used in valuing inventory items or
of estimated costs of manufacture for items not in inventory, after allowing for
selling expenses, overhead, and a profit margin. Except for items that were
obsolete, below standard quality, or in the process of repair on the date of
this Agreement which have been written down to a realizable market value or for
which adequate reserves under GAAP have been provided, all items on hand as of
the Closing Date will consist, in all material respects, of items of a quality
usable and saleable in the ordinary course of business and will conform in all
material respects to generally accepted standards in the industry of which TBS
is a part. (e) Reserves have been established to the extent required and in
accordance with GAAP for material contingent liabilities, including without
limitation warranty obligations, product liability claims, price protection
policies and liabilities with respect to employees and agents of TBS, and such
reserves are adequate under GAAP to cover such items. The financial statements
referred to in subpart (a) above reflect the effect of transactions between TBS
and ICS. All such transactions between TBS and ICS were at arms length and
pursuant to a valid business purpose.
SECTION 3.19 -- Properties. Set forth on Schedule 3.19 is a true and complete
list of all real property owned by TBS and real property leased by TBS pursuant
to leases providing for the occupancy, in each case, of not less than 5,000
square feet ("Material Leases"), and the name of the Lessor, the date of the
Material Lease and each amendment to the Material Lease, the aggregate annual
rent or other fee payable under any such Material Lease. TBS owns outright the
fee simple title in and to and has good and marketable title, free and clear of
encumbrances, to all real properties purported to be owned by it. All Material
Leases are in good standing, valid and effective in accordance with their
respective terms, and TBS is not in default under any such leases, except where
the lack of such good standing, validity and effectiveness or the existence of
such default would not be reasonably likely to have a Material Adverse Effect on
TBS.
SECTION 3.20 -- Officers, Remuneration, and Bank Accounts. Schedule 3.20
contains a complete and accurate list showing (i) the names of all directors and
officers of TBS, (ii) the compensation paid or to be paid to such officers and
directors, and (iii) the name and location of each bank or other institution in
which TBS has any deposit account, lock box or safe deposit box, and the names
of all persons authorized to draw thereon or have access thereto.
13
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF VTI, CFJ AND CFJ STOCKHOLDERS
VTI, CFJ and CFJ Stockholders hereby represent and warrant as of the date hereof
to TBS and ICS as follows:
SECTION 4.1 -- Organization and Qualification. VTI, CFJ, and VTI Merger are
corporations duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization. VTI and CFJ have the
requisite corporate power and authority and any necessary governmental
authority, franchise, license or permit to own, operate or lease the properties
that they purport to own, operate or lease and to carry on their businesses as
it is now being conducted, and they are duly qualified as foreign corporations
to do business, and are in good standing, in each jurisdiction where the
character of their properties owned, operated or leased or the nature of their
activities makes such qualification necessary, except for such failure which,
when taken together with all other such failures, would not have a Material
Adverse Effect on CFJ or VTI.
SECTION 4.2 -- Certificate of Incorporation and Bylaws. CFJ or CFJ Stockholders
has heretofore furnished to TBS a complete and correct copy of the Certificate
of Incorporation and the Bylaws, each as amended to the date hereof, of VTI,
CFJ, and VTI Merger. Such Certificates of Incorporation and Bylaws are in full
force and effect, and VTI, CFJ, and VTI Merger are not in violation of any of
the provisions of their respective Certificate of Incorporation or, in any
material respect, their Bylaws.
SECTION 4.3 -- Capitalization. (a) The authorized capital stock of CFJ consists
solely of 200 shares of CFJ Common Stock, with no par value, of which,
immediately prior to Closing, (i) 200 shares were issued and outstanding, (ii)
100 shares are owned by CFJ Stockholders and 100 shares are owned by Xxxx
Xxxxxxx, (iii) no shares were held in the treasury of CFJ and (iv) no shares
were issuable upon the exercise of options outstanding under the CFJ option
plans listed on Schedule 4.3 hereto. Except as set forth on Schedule 4.3 or,
after the date hereof, (i) since September 30, 1996, no shares of CFJ Common
Stock have been issued, except upon the exercise of options described in the
immediately preceding sentence, and (ii) there are no outstanding CFJ Equity
Rights. For purposes of this Agreement, CFJ Equity Rights shall mean
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) to purchase or
otherwise acquire from CFJ at any time, or upon the happening of any stated
event, any shares of the capital stock of CFJ ("CFJ Equity Rights"). Schedule
4.3 hereto sets forth a complete and accurate list of certain information with
respect to all outstanding CFJ Equity Rights as of September 30, 1996. Since
September 30, 1996, no CFJ Equity Rights have been issued except as set forth on
Schedule 4.3, or, after the date hereof.
(b) The authorized capital stock of VTI consists solely of 5,500,000 shares of
common stock of VTI, with $0.01 par value per share (the "VTI Common Stock"), of
which, immediately after Closing, (i) 5,000,000 shares of VTI Common Stock were
issued and outstanding in accordance with the terms of Articles I and II of this
Agreement, (ii) no shares were held in the treasury of VTI and (iii) 500,000
shares of VTI Commn Stock were reserved for issuance upon the exercise of
options under the VTI option plans, and (iv) except for the aforesaid options
which may be granted in accordance with the terms of this Agreement, there are
no
14
outstanding VTI Equity Rights. For purposes of this Agreement, VTI Equity Rights
shall mean subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) to
purchase or otherwise acquire from VTI at any time, or upon the happening of any
stated event, any shares of the capital stock of VTI ("VTI Equity Rights").
Schedule 4.3 hereto sets forth a complete and accurate list of certain
information with respect to all outstanding VTI Equity Rights as of the Closing
Date.
(c) Except as set forth on Schedule 4.3, or as provided in Articles I and II of
this Agreement, as of and after the date hereof, there are no obligations,
contingent or otherwise, of VTI or CFJ to repurchase, redeem or otherwise
acquire any shares of capital stock of VTI or CFJ, or to make any investment (in
the form of a loan, capital contribution or otherwise) in any other entity.
(d) All of the issued and outstanding shares of CFJ Common Stock and VTI Common
Stock are validly issued, fully paid and non-assessable (including the shares of
VTI Common Stock issued pursuant to this Agreement,) and as of the issuance or
conversion hereunder are free and clear of all security interests, liens,
claims, pledge agreements or incumbrance of any nature.
SECTION 4.4 -- Authority Relative to this Agreement. VTI, CFJ, and VTI Merger
have the necessary corporate power and authority to enter into this Agreement
and, subject to obtaining any necessary stockholder approval of the Agreement,
to carry out their obligations hereunder. The execution and delivery of this
Agreement by VTI, CFJ, and VTI Merger and the consummation by VTI, CFJ, and VTI
Merger of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of VTI, CFJ, and VTI Merger, subject to
any approval of this Agreement by VTI's and CFJ's stockholders if required by
applicable law. This Agreement has been duly executed and delivered by VTI, CFJ,
VTI Merger and CFJ Stockholders and, assuming the due authorization, execution
and delivery thereof by the other Parties, constitutes a legal, valid and
binding obligation of VTI, CFJ, VTI Merger, and CFJ Stockholders, enforceable
against them in accordance with its terms.
SECTION 4.5 -- No Conflict; Required Filings and Consents. (a) Except as listed
on Schedule 4.5 hereto or as described in subsection (b) below, the execution
and delivery of this Agreement by VTI, CFJ, and VTI Merger does not, and the
performance of this Agreement by VTI, CFJ, and VTI Merger will not, (i) violate
or conflict with their Certificate of Incorporation or their Bylaws, (ii)
conflict with or violate any law, regulation, court order, judgment or decree
applicable to VTI, CFJ or CFJ Stockholders or by which any of their respective
property is bound or affected, (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or result in the creation of a lien or encumbrance on any of the properties or
assets of CFJ pursuant to, result in the loss of any material benefit under, or
require the consent of any other party to, any contract, instrument, permit,
license or franchise to which CFJ is a party or by which CFJ, or any of its
property is bound or affected, except, in the case of clause (ii) and (iii)
above, for conflicts, violations, breaches, defaults, results or consents which,
individually or in the aggregate, would not have a Material Adverse Effect on
CFJ.
(b) Except as listed on Schedule 4.5 and except for applicable requirements, if
any, of state or
15
federal regulatory laws and commissions, the Exchange Act, the notification
requirements of the HSR Act, filing and recordation of appropriate merger or
other documents as required by Delaware, New York and Pennsylvania law and any
filings required pursuant to any state securities or "blue sky" laws or the
rules of any applicable stock exchanges, VTI, CFJ, VTI Merger, or the CFJ
Stockholders are not required to submit any notice, report or other filing with
any governmental authority, domestic or foreign, in connection with the
execution, delivery or performance of this Agreement. Except as set forth in the
immediately preceding sentence, no waiver, consent, approval or authorization of
any governmental or regulatory authority, domestic or foreign, is required to be
obtained by VTI, CFJ, or VTI Merger in connection with its execution, delivery
or performance of this Agreement.
SECTION 4.6 -- Absence of Certain Changes or Events. Except as disclosed on
Schedule 4.6 or the interim balance sheet dated October 31, 1996, (a) since
December 31, 1995, CFJ has not incurred any material liability, except in the
ordinary course of its businesses consistent with its past practices, and there
has not been any change, or any event involving a prospective change, in the
business, financial condition or results of operations of CFJ which has had, or
is reasonably likely to have, a Material Adverse Effect on CFJ, and CFJ has
conducted its business in the ordinary course consistent with its past
practices; and (b) prior to the Effective Time VTI, and VTI Merger have
conducted no business and have been duly organized solely for the purpose of
consummating the Mergers as provided by this Agreement.
SECTION 4.7 -- Litigation. There are no claims, actions, suits, proceedings,
arbitration or investigations pending or, to CFJ's or the CFJ Stockholder's
knowledge, threatened against CFJ, or any properties or rights of CFJ, before
any court, administrative, governmental, arbitral, mediation or regulatory
authority or body, domestic or foreign, as to which there is more than a remote
possibility of an adverse judgment or determination against CFJ or any
properties or rights of CFJ which may reasonably be expected to have a
Materially Adverse Effect on TBS, except (a) as disclosed on Schedule 4.7 hereto
and (b) as disclosed on Schedule 4.8 through and including Schedule 4.20,
hereto.
SECTION 4.8 -- No Violation of Law. The business of CFJ is not being conducted
in violation of any statute, law, ordinance, regulation, judgment, order or
decree of any domestic or foreign governmental or judicial entity (including any
stock exchange or other self-regulatory body) ("Legal Requirements"), or in
violation of any permits, franchises, licenses, authorizations or consents that
are granted by any domestic or foreign government or judicial entity (including
any stock exchange or other self- regulatory body) ("Permits"), except for
possible violations none of which, individually or in the aggregate, may
reasonably be expected to have a Material Adverse Effect on CFJ. Except as set
forth on Schedule 4.8 hereto, no investigation or review by any domestic or
foreign governmental or regulatory entity (including any stock exchange or other
self-regulatory body) with respect to CFJ in relation to any alleged violation
of law or regulation is pending or, to CFJ's the CFJ Stockholder's knowledge,
threatened, nor has any governmental or regulatory entity (including any stock
exchange or other self-regulatory body) indicated an intention to conduct the
same, except for such investigations which, if they resulted in adverse
findings, would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on CFJ. Except as set forth on Schedule 4.8
hereto, CFJ is not subject to any cease and desist or other order, judgment,
injunction or decree issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order
16
or directive by, or has adopted any board resolutions at the request of, any
court, governmental entity or regulatory agency that materially restricts the
conduct of its business or which may reasonably be expected to have a Material
Adverse Effect on CFJ, nor has CFJ or the CFJ Stockholders been advised that any
court, governmental entity or regulatory agency is considering issuing or
requesting any of the foregoing. None of the representations and warranties made
in this Section 4.8 are being made with respect to Environmental Laws.
SECTION 4.9 -- Employee Matters; ERISA. (a) Set forth on Schedule 4.9 hereto is
a true and complete list of all employee benefit plans covering present and
former employees or directors of CFJ or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity,
including, but not limited to, any employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any deferred compensation bonuses, stock options, restricted stock
plans, incentive compensation, severance or change in control agreements and any
other material benefit arrangements or payroll practices (collectively, the "CFJ
Benefit Plans"). Except as described in Schedule 4.9 CFJ is not a party to or
bound by any oral or written (i) employment agreement (other than employment
agreements terminable by CFJ without premium or penalty on notice of 30 days or
less under which the only the only material monetary obligation is to make
current wage or salary payments and provide current fringe benefits) or
consulting agreement; (ii) contract or agreement with any officer, director, or
employee (other than employment agreements disclosed in response to or excluded
from the scope of clause (i) above, of CFJ; or (iii) compensation arrangements,
bonus or benefit plans, programs or arrangements, including without limitation
all policies, plans and programs relating to retirement, disability, insurance
(including any self-insured arrangements,) severance pay, supplemental
unemployment benefit, equity participation, stock purchase, stock option, stock
appreciation right or any other incentive program (each a "CFJ Benefit
Arrangement").
(b) All contributions and other payments required to be made by CFJ to or under
any CFJ Benefit Plan and CFJ Benefit Arrangement (or to any person pursuant to
the terms thereof) for any period ending before or on, or including the Closing
Date have been made or the amount of such payment or contribution obligation has
been reflected in the CFJ Financial Statements (as defined in Section 4.18
hereof).
(c) Each of the CFJ Benefit Plans and CFJ Benefit Arrangements intended to be
"qualified" within the meaning of Section 401(a) of the Code has been determined
by the Internal Revenue Service (the "IRS") to be so qualified, and, to CFJ's
knowledge, no circumstances exist that could reasonably be expected by CFJ to
result in the revocation of any such determination. CFJ is in compliance in all
material respects with, and each of the CFJ Benefit Plans and CFJ Benefit
Arrangement is and has been operated in all material respects in compliance
with, all applicable Legal Requirements governing such plan, including, without
limitation, ERISA and the Code. Each CFJ Benefit Plan and CFJ Benefit
Arrangement intended to provide for the deferral of income or the reduction of
salary or other compensation, or to afford other income tax benefits, complies
in all material respects with the requirements of the applicable provisions of
the Code and other Legal Requirements to the extent required to provide such
income tax benefits.
(d) With respect to the CFJ Benefit Plans and CFJ Benefit Arrangements,
individually and in the aggregate, no event has occurred and, to CFJ's or the
CFJ Stockholder's knowledge,
17
there does not now exist any condition or set of circumstances, that could
subject CFJ to any liability arising under the Code, ERISA or any other
applicable Legal Requirements (including, without limitation, any liability to
any such plan, any affiliate plan or the Pension Benefit Guaranty Corporation
(the "PBGC")), or under any indemnity agreement to which CFJ is a party, that
would reasonably be likely to have a Material Adverse Effect on CFJ.
(e) CFJ has no current or expired collective bargaining agreements.
(f) Except as set forth on Schedule 4.9 hereto, (i) the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any (A) payment (whether of severance pay or otherwise) becoming due from CFJ
to any officer, employee, former employee or director thereof or to the trustee
under any "rabbi trust" or similar arrangement, or (B) benefit under any CFJ
Benefit Plan being established or becoming accelerated, vested or payable, (ii)
CFJ is not a party to (or bound by) (A) any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting from
a change in control), bonus or other contract for personal services with any
current or former officer, director or employee (whether or not characterized as
a plan for purposes of ERISA), (B) any consulting contract with any person who
prior to entering into such contract was a director or officer of CFJ, or (C)
any plan, agreement, arrangement or understanding similar to any of the items
described in clause (ii)(A) or (B) of this sentence, and (iii) CFJ is not a
party to (or bound by) any agreement with any officer or key employee of CFJ
providing any term of employment or compensation guarantee extending for a
period longer than six months from the date hereof or for payment of
compensation in excess of $75,000 per annum.
SECTION 4.10 -- Labor Matters. Except as disclosed on Schedule 4.10 hereto, CFJ
is not party to any written or oral collective bargaining agreement or other
labor agreement with any union or labor organization and no union or labor
organization has been recognized by CFJ as a bargaining representative for
employees of CFJ. Except as disclosed on Schedule 4.10 hereto, to CFJ's or the
CFJ Stockholder's knowledge, there is no current union representation question
involving employees of CFJ, nor does CFJ or the CFJ Stockholders have knowledge
of any significant activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any such employees.
Neither the CFJ Stockholders or CFJ hasmade any commitment not in collective
bargaining agreements listed on Schedule 4.10 hereto that would require the
application of the terms of any collective bargaining agreements entered into by
CFJ to VTI, to any joint venture of VTI, or to any Subsidiary of VTI . For
purposes of this Section 4.10, "material" refers to any liability which could
reasonably be expected to exceed $75,000.
SECTION 4.11 -- Environmental Matters. Except as set forth on Schedule 4.11
hereto:
(a) To CFJ's and CFJ Stockholders's knowledge, (i) no underground storage tanks
are present under any property that CFJ has at any time owned, operated,
occupied or leased, (ii) no material amount of any substance that has been
designated by any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") or by
applicable federal, state, or local law to be radioactive, toxic, hazardous, or
otherwise a danger to health or the environment, including without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde, and all substances listed as
hazardous substances pursuant to
18
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws ( a "Hazardous Material"), but excluding
office and janitorial supplies, are present as a result of the actions of CFJ or
CFJ Stockholders or any actions of any third party or otherwise, in on or under
any property, including the land and improvements, ground water and surface
water, that CFJ has at any time owned, operated, occupied or leased, (iii) at no
time has CFJ transported, stored, used, manufactured, disposed of, released, or
exposed its employees or others to Hazardous Materials in violation of any law
in effect on or before the Closing Date, which has had or is reasonably likely
to have a Material Adverse Effect on CFJ, nor has CFJ disposed of, transported,
sold or manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Materials Activity, which has had
or is reasonably likely to have a Material Adverse Effect on CFJ.
(b) To CFJ's and CFJ Stockholders's knowledge, (i) CFJ currently holds all
environmental approvals, permits, licenses, clearances, and consents (the
"Environmental Permits") necessary for the conduct of its Hazardous Material
Activities and other businesses of CFJ as such activities and businesses are
currently being conducted, the absence of which would be reasonably likely to
have a Material Adverse Effect on CFJ, (ii) no action, proceeding, amendment
procedure, writ, injunction or claim is pending or threatened concerning any
Environmental Permit or Hazardous Materials Activity of CFJ, (iii) there are no
facts or circumstances which could involve CFJ in any environmental litigation
or impose upon CFJ any environmental liability which would reasonably be likely
to have a Material Adverse Effect on CFJ.
SECTION 4.12 -- Board Action; Vote Required; Amendment of Rights Agreement. (a)
The CFJ Stockholders and the Board of Directors of CFJ have determined that the
transactions contemplated by this Agreement are in the best interests of CFJ and
its stockholders and have resolved to recommend to such stockholders that they
vote in favor thereof.
(b) The approval of the Agreement by a majority of the votes entitled to be cast
by all holders of CFJ Common Stock is the only vote of the holders of any class
or series of the capital stock of CFJ required to approve this Agreement, and
the other transactions contemplated hereby.
SECTION 4.13 -- Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's, investment banking or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CFJ or the CFJ Stockholders.
SECTION 4.14 -- Tax Matters. Except as set forth on Schedule 4.14 hereto:
(a) All returns and reports relating to CFJ Taxes (as defined below) required to
be filed by or on behalf of CFJ on or prior to the Closing Date with respect to
all taxable periods ending on or prior to the Closing Date have been or will be
filed with the appropriate governmental authorities on or prior to the Closing
Date or by the due date thereof including any applicable extensions;
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(b) The returns and reports referred to in subpart (a) of this Section 4.14
correctly reflect (and as to returns not filed as of the date hereof, will
correctly reflect) all material liabilities of CFJ required to be shown thereon;
(c) All material federal, state, local and foreign income, profits, franchise,
transfer, payroll, property, sales, use, customs, excise, withholding, gross
receipts, estimated and other taxes or imports for which CFJ is liable,
including additions to the aforesaid for interest and penalties ("CFJ Taxes"),
shown as due on those returns and reports referred to in subpart (a) of this
Section 4.14 which have been, should have been or will be filed by the Closing
Date, as well as any CFJ Taxes imposed on or in respect of any amounts paid to
or by CFJ, whether or not such amounts or CFJ Taxes are referred to or shown on
any returns or reports referred to in Section 4.14(a) hereof, have been or will
be paid on or prior to the Closing Date, and any CFJ Taxes not yet due shall be
adequately reflected as a liability on CFJ's books and records and on its
financial statements for all relevant periods.
(d) With respect to any period for which returns and reports for CFJ Taxes have
not yet been filed, or for which CFJ Taxes are not yet due or owing, CFJ has
made due and sufficient accruals for such CFJ Taxes in its books and records and
financial statements;
(e) With respect to such returns referred to in Section 4.14 (a) hereof, (i)
neither the IRS nor any other taxing authority has asserted in writing, or has
threatened in writing to assert against CFJ or the CFJ Stockholders (the "CFJ
Group"), any deficiency or claim for additional CFJ Taxes; (ii) no member of the
CFJ Group has granted any waiver of any statute of limitations with respect to,
or any extension of a period for the assessment of, any CFJ Taxes for which any
member of the CFJ Group may be liable; (iii) no power of attorney with respect
to any such CFJ Taxes has been executed or filed with any taxing authority, and
(iv) no closing agreement with respect to any material CFJ Taxes has been
entered into by or with respect to any member of the CFJ Group pursuant to
sections 7121 or 7122, as amended of the Code or any similar provision of any
state, local or foreign law.
(f) If, for any state, local, or foreign tax purpose, a taxable period for CFJ
begins before the Closing Date and ends after the Closing Date (a "Bridge
Period"), the Parties hereto will, to the extent permitted by applicable law,
elect with the relevant taxing authority to treat the portion of the Bridge
Period on or before the Closing Date and for all purposes as a short taxable
period ending as of the close of the Closing Date and such short taxable period
shall be treated as a taxable period ending on the Closing Date for purposes of
this Agreement; for purposes of preparing a return for CFJ Taxes for any such
Bridge Period, CFJ Taxes for the Bridge Period shall be allocated between the
portion of the Bridge Period ending on the Closing Date and the portion of the
Bridge Period beginning on the day after the Closing Date using a closing of the
books method and assuming that each taxable period of CFJ ended at the end of
the Closing Date, except that (i) exemptions, allowances or deductions that are
calculated on an annual basis (such as the deduction for depreciation) shall (to
the extent permitted by law) be apportioned on a per diem basis, (ii) real
property CFJ Taxes shall be allocated in accordance with section 164(d) of the
Code, and (iii) other property CFJ Taxes that are calculated on an annual basis
shall be apportioned on a per diem basis.
(g) The CFJ Stockholders have included or will be including in their federal
income tax return and their state and local tax returns the profit and losses of
CFJ during all periods of time in
20
which a S corporation election was in effect for CFJ.
(h) No irrevocable federal income tax elections are in effect with respect to
or affecting CFJ (including without limitation elections under Section 108, 168,
341 1017, 1033, 1502-20 and 4977 of the Code), and no property owned by CFJ is
property that CFJ is required to treat as being owned by another person pursuant
to the provisions of section 168(f)(8) of the Code, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, or is "tax-
exempt use property within the meaning of section 168(h)(1) of the Code.
(i) From and after the date hereof, VTI shall not, and shall not permit any of
its affiliates to, amend any return or report for Taxes previously filed, which
includes information relating to or effecting ICS, which amendment could affect
the liability for Taxes of ICS, unless prior written notice thereof has been
delivered to ICS; any such amended federal, state or local return or report
shall not be filed with out the express written consent of ICS if the amendment
reports an increase in Taxes, unless VTI, at the time of filing such amended
return, pays the IRS or other relevant taxing authority an amount equal to such
increase in Taxes; for the purposes of preparing all returns for Taxes for
taxable periods up prior to or including the Closing Date, the income,
deductions, and credits of CFJ and VTI shall be allocated in a manner consistent
with the method provided above; all returns and reports for Taxes filed after
the execution date of this Agreement shall, insofar as they relate to items for
periods that included days on or before the Closing Date, to the extent
permitted by applicable law, be on a basis consistent with the last previous
such returns filed in respect of or including items of CFJ.
SECTION 4.15 -- Intellectual Property. (a) CFJ owns, is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights and mask works, and any applications for such
patents, trademarks, trade names, service marks, copyrights and mask works, as
well as any schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material that
are necessary to conduct the business of CFJ as currently conducted, the absence
of which would be reasonably likely to have a Material Adverse Effect on CFJ
(the "CFJ Intellectual Property Rights"). Schedule 4.15 lists (i) all patents
and patent applications, trademarks, registered copyrights, maskworks, trade
names and service marks which CFJ considers to be material in such conduct of
its business and included in the CFJ Intellectual Property Rights, including the
jurisdiction in which each of such CFJ Intellectual Property Right has been
issued or registered or in which any such application for issuance or
registration has been filed, (ii) all material licenses, sublicenses and other
agreements as to which CFJ is a party and pursuant to which (A) CFJ is
authorized to use any third party patents, trademarks or copyrights, including
software ("CFJ Third Party Intellectual Property Rights") which are incorporated
in, are, or form a part of any CFJ product that is material to its business, and
(B) CFJ authorizes a third party's use of CFJ Intellectual Property Rights,
other than as an end user purchaser of a CFJ product.
(b) CFJ is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations hereunder, in breach of any
license, sublicense or other agreement relating to the CFJ Intellectual Property
Rights or the CFJ Third Party Intellectual Property Rights, the breach of which
would be reasonably likely to have a Material Adverse Effect on XXX.
00
(c) To CFJ's or CFJ Stockholders's knowledge all patents, registered
trademarks, service marks and copyrights held by CFJ are valid and subsisting.
Except as set forth on Schedule 4.15, CFJ (i) has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party; and (ii) neither CFJ nor CFJ Stockholders
has any knowledge that the manufacture, marketing, licensing or sale of its
products infringes any patent, trademark, service xxxx, copyright, trade secret
or other proprietary right of any third party, which infringement would
reasonably be expected to have a Material Adverse Effect on CFJ.
SECTION 4.16 -- Insurance. Except as set forth on Schedule 4.16 hereto, CFJ is,
and has been continuously since its inception, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by CFJ during such
time period. Schedule 4.16 contains a complete and accurate schedule of all
insurance policies held by CFJ or CFJ Stockholders related CFJ's business and
now in force (including, without limitation, public liability, property damage,
workmen's compensation, fidelity bonds, theft, forgery and other coverage,) and
such schedule indicates the nature of each policy, and the amount of coverage in
each case. All such policies are in full force and the premiums due thereon
have been timely paid. CFJ or CFJ Stockholders, as the case may be, shall
continue to maintain such insurance coverage in full force and effect until the
Closing Date. Except as set forth on such Schedule 4.16 CFJ has not received
notice of cancellation or termination with respect to any material insurance
policy of CFJ. The insurance policies of CFJ are valid and enforceable policies.
SECTION 4.17 -- Certain Contracts. (a) Schedule 4.17 contains a list of all
material (as such term is used in regulation S-K, Item 601 under the Exchange
Act) contracts as to which CFJ is a party, and true and complete copies of all
such material contracts have been delivered to ICS. All CFJ contracts are valid
and in full force and effect on the date hereof except to the extent they have
previously expired in accordance with their terms, and CFJ has not violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default or breach under the
provisions of, any CFJ contract, except for defaults or breaches which,
individually and in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on CFJ. True and complete copies of all CFJ contracts
have been delivered to TBS.
(b) Schedule 4.17 identifies each contract, agreement or arrangement to which
CFJ is a party or may be bound and (i) under the terms of which any of the
rights or obligations of a party thereto will be modified or altered as a result
of the transactions contemplated hereby in a manner which, individually or in
the aggregate with all such other contracts, agreements or arrangements would
reasonably be expected to result in a Material Adverse Effect on CFJ; or (ii) is
an arrangement limiting or restraining CFJ, CFJ, VTI or any successor thereto
from engaging or competing in any business which has, or could reasonably be
expected to have in the foreseeable future, a Material Adverse Effect on CFJ.
(c) any contract between CFJ and the CFJ Stockholders is either set forth on
Schedule 4.17 or will be canceled as of the Closing Date.
SECTION 4.18 -- Financial Statements. (a) Schedule 4.18 sets forth the
financial statements
22
for CFJ as at December 31, 1995, and for the fiscal year then ended, as well as
interim financial statements as at October 31, 1996 and for the ten month period
then ended (the "CFJ Financial Statements"). CFJ and CFJ Stockholders represent
that such financial statements have been prepared in accordance with GAAP, and
that such statements fairly present in all material respects the financial
position of CFJ as of the above dates and for the respective periods then ended.
(b) Except as disclosed in in Schedule 4.18, CFJ does not have any other
liabilities, either absolute, contingent or otherwise, whether due or to become
due, which individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect on CFJ, other than liabilities appropriately reserved
such financial statements. (c) The accounts receivable of CFJ as reflected on
such financial statements (net of reserves reflected in such financial
statements), to the extent uncollected on the date hereof, are valid and
existing and represent monies due for royalties or for goods and services sold
and delivered in the ordinary course of business. Except as reflected on such
financial statements or as required for warranty claims and sales allowances in
the ordinary course of business, there are no refunds, discounts, or other
adjustments payable in respect of any such accounts receivable and there are no
defenses, rights of set off, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any account receivable
of CFJ. (d) The values of the inventory reflected in the financial statements,
including without limitation, raw materials, work in process and finished goods,
reflect CFJ's inventory valuation under GAAP. Purchase commitments for raw
materials and parts are not materially in excess of normal requirements. Sales
commitments for finished goods are at prices in excess of the prices used in
valuing inventory items or of estimated costs of manufacture for items not in
inventory, after allowing for selling expenses, overhead, and a profit margin.
Except for items that were obsolete, below standard quality, or in the process
of repair on the date of this Agreement which have been written down to a
realizable market value or for which adequate reserves under GAAP have been
provided, all items on hand as of the Closing Date will consist, in al l
material respects, of items of a quality usable and saleable in the ordinary
course of business and will conform in all material respects to generally
accepted standards in the industry of which CFJ is a part. (e) Reserves have
been established to the extent required and in accordance with GAAP for material
contingent liabilities, including without limitation warranty obligations,
product liability claims, price protection policies and liabilities with respect
to employees and agents of CFJ, and such reserves are adequate under GAAP to
cover such items. The financial statements referred to in subpart (a) above
reflect the effect of transactions between CFJ and the CFJ Stockholders. Except
as is set forth in Schedule 4.18 all such transactions between CFJ and the CFJ
Stockholders were at arms length and pursuant to a valid business purpose.
SECTION 4.19 -- Properties. Set forth on Schedule 4.19 is a true and complete
list of all real property owned by CFJ and real property leased by CFJ pursuant
to leases providing for the occupancy, in each case, of not less than 5,000
square feet ("Material Leases"), and the name of the Lessor, the date of the
Material Lease and each amendment to the Material Lease, the aggregate annual
rent or other fee payable under any such Material Lease. CFJ owns outright the
fee simple title in and to and has good and marketable title, free and clear of
encumbrances, to all real properties purported to be owned by it. All Material
Leases are in good standing, valid and effective in accordance with their
respective terms, and CFJ is not in default under any such leases, except where
the lack of such good standing, validity and effectiveness or the existence of
such default would not be reasonably likely to have a Material Adverse Effect on
XXX.
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SECTION 4.20 -- Officers, Remuneration, and Bank Accounts. Schedule 4.20
contains a complete and accurate list showing (i) the names of all directors and
officers of CFJ, (ii) the compensation paid or to be paid to such officers and
directors, and (iii) the name and location of each bank or other institution in
which CFJ has any deposit account, lock box or safe deposit box, and the names
of all persons authorized to draw thereon or have access thereto.
ARTICLE V -- ADDITIONAL AGREEMENTS
SECTION 5.1 -- Additional Agreements. Each of the Parties will comply in all
material respects with all applicable laws and with all applicable rules and
regulations of any governmental authority in connection with its execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. Each of the Parties agrees to use all commercially reasonable efforts to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and to use all commercially
reasonable efforts to take, or cause to be taken, all other 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 to enable the preparation and filing by the
Parties of all forms, financial statements, returns (including filing of tax
returns after the Closing Date), reports and other disclosures required by
prevailing laws, rules and regulations as a result of such transactions.
SECTION 5.2 -- Public Announcements. The Parties shall use all reasonable
efforts to develop a joint communications plan and each Party shall use all
reasonable efforts to ensure that all press releases and other public statements
with respect to the transactions contemplated hereby shall be consistent with
such joint communications plan or, to the extent inconsistent therewith, shall
have received the prior written approval of the other. The Parties acknowledge
ICS's disclosure obligations as a public company and agree that such
communications plan shall take into account these obligations.
SECTION 5.3 --Stock Option and Other Benefit Plans. Except as otherwise
provided herein or set forth on Schedule 4.9, VTI, TBS and CFJ agree that,
unless otherwise determined by the VTI board of directors, the CFJ Benefit Plans
in effect at the date hereof shall remain in effect after the Closing Date with
respect to classes of employees covered by such plans immediately prior to the
Closing Date, and to the extent reasonably allowed by their terms, such plans
shall be extended to TBS employees after the Closing Date.
SECTION 5.4 -- Termination of TBS Benefit Plans. TBS shall, to the extent it
can legally do so, terminate as of the Closing Date all TBS Benefit Plans
extended by ICS to and effecting current and past TBS employees. ICS shall bear
the costs of all post-Closing expenses associated with such TBS Benefit Plans,
including the costs of such terminations.
SECTION 5.5 -- Indemnification Obligations. From and after the date hereof (i)
ICS (the "TBS Indemnifying Party"), shall indemnify and hold harmless VTI (the
"TBS Indemnified Party"), and (ii) the CFJ Stockholders (the "CFJ Indemnifying
Party"), shall, jointly and severally, indemnify and hold harmless VTI (the "CFJ
Indemnified Party"), in respect of any and all damages, losses, deficiencies,
liabilities, costs and expenses (collectively the "Damages") resulting from or
arising out of any (1) misrepresentation or breach of warranty made by or on
behalf of the Indemnifying
24
Party in this Agreement, (2) non-fulfillment of any agreement or covenant on the
party of the Indemnifying Party hereunder. In the event of any claim or demand,
or other circumstance or state of facts which could give rise to any claim or
demand, for which an Indemnifying Party may be liable to an Indemnified Party
hereunder is asserted against or sought to be collected, the Indemnified Party
shall promptly notify the Indemnifying Party, specifying the nature of the claim
or demand and the estimated amount thereof. If the claim or demand is asserted
against or sought to be collected by a third party, the Indemnifying Party shall
have thirty days from the receipt of such notice to notify the Indemnified Party
whether or not the Indemnifying Party desires, at the Indemnifying Party's sole
cost and expense and by counsel of its own choosing to defend against such claim
or demand. The Indemnifying Party shall control such defense and settlement
thereof, provided, however, that (1) no settlement shall be made which imposes
-----------------------
any liability upon the Indemnified Party without the prior consent of the
Indemnified Party, and (2) the Indemnified Party shall be entitled at its own
expense and by counsel of its own choosing to participate in (but not control)
such defense. Notwithstanding the foregoing, the Indemnified Party shall have
the right to pay or settle any such claim or demand, and control the defense
thereof, so long as it waives its right to any indemnification hereunder and
such payment or settlement is not likely to have a Material Adverse Effect on
the Indemnifying Party. The Indemnified Party shall cooperate fully with the
Indemnifying Party and its counsel and to make available to the Indemnifying
Party and its counsel all available information and documents relating to such
claim or demand as may reasonably be required to ensure the proper and adequate
defense of such claim or demand. In the event the claim or demand is not being
asserted against or sought to be collected by a third party the Indemnifying
Party and the Indemnified Party shall each attempt in good faith to resolve such
claim or demand in a manner consistent with the indemnification obligations set
forth herein. If such claim or demand cannot be resolved by the Indemnifying
Party and the Indemnified Party within a thirty day period after the receipt of
notice of the claim or demand, they shall jointly appoint a neutral mediator
pursuant to the mediation process set forth herein. The foregoing
notwithstanding no claim or demand shall be made for indemnification hereunder
for any Damages less than U.S.$25,000 individually, and until such time as the
Damages with respect to an Indemnifying Party are in the aggregate equal to or
greater than U.S.$100,000.
SECTION 5.6 -- Post-Closing VTI Board of Directors. At the Closing Date and for
so long thereafter as ICS owns at least twenty (20%) of the voting stock of VTI,
(i) the total number of persons serving on the Board of Directors of VTI shall
be five (unless otherwise agreed in writing by ICS and CFJ Stockholders), (ii)
two of such directors shall be nominated by ICS and the three remaining
directors shall be nominated by CFJ, and (iii) each of the Parties hereunder
which are VTI Stockholders shall vote all of their shares of VTI Common Stock
for such nominees and shall otherwise use its best efforts to accomplish the
aforesaid. In the event that any person so nominated and selected to serve on
the Board of Directors of VTI after the Closing Date is or becomes unable or
unwilling to serve in such position or otherwise resigns or is removed, the
aforesaid constituency which originally nominating such person shall designate a
replacement director to serve in such person's stead. The Parties shall vote
their shares for such designated replacement director or other nominee in
accordance with the provisions of this section. Each of the Parties shall take
such action as they shall reasonably deem advisable to give effect to the
provisions set forth in this section, including but not limited to incorporating
such provisions in the Bylaws of VTI in effect at the Closing Date.
SECTION 5.7 -- Bridge Financing. ICS agrees to provide to VTI bridge financing,
subject to the
25
terms and conditions of the Revolving Credit Agreement and Note attached hereto
as Exhibit A, and incorporated herein by reference.
SECTION 5.8 -- Super Majority. The Parties agree that until such time as VTI
completes a public offering of its Common Stock or ICS shall hold less than
twenty percent of the total voting stock of VTI, whichever comes first, VTI will
not, nor will the Parties hereunder permit VTI or any of VTI's subsidiaries, to
effectuate any of the following actions without an affirmative vote of at least
four members of the Board of Directors of VTI: (i) the issuance of any new
shares (except pursuant to stock options as provided herein) or the creation of
any new class of shares, (ii) the hiring or firing of the CEO, COO or CFO, (iii)
the determination of the compensation (including stock options) payable to the
executive officers, (iv) any agreement or commitment to incur any interest
bearing debt to a third party the value of which, in the aggregate, exceeds
$1,000,000 (except for alternate financing to repay the bridge financing of
Section 5.7), (v) the disposition, other than in the ordinary course of business
or in accordance with the approved business plan, of any material asset, (vi)
any material deviation from the business plan approved, from time to time, by
the board of directors of VTI, (vii) any changes to the certificate of
incorporation or the bylaws of VTI, CFJ or TBS and (viii) any transaction that
would fall within the definition of a related party transaction in accordance
with GAAP or Item 404 of Regulation SK under the Exchange Act (irrespective of
the application of the Exchange Act to VTI, CFJ or TBS). Each of the Parties
shall take such action as shall reasonably be deemed by either thereof to be
advisable to give effect to the provisions set forth in this section, including
but not limited to incorporating such provisions in the Bylaws of VTI in effect
at the Closing Date.
SECTION 5.9 -- Right of First Refusal, Co-Sale. Excluding any shares to be sold
at a public offering as approved by the Board of Directors of VTI or distributed
pursuant to a transaction contemplated by Section 5.10 hereof, VTI Stockholders
who are Parties hereunder shall, on a pro rata basis equivalent to their current
ownership as compared to the total number of shares of VTI Common Stock then
issued and outstanding (as adjusted for VTI Stockholders not exercising their
right hereunder), have a right of first refusal to purchase the shares of any
other Party proposing to sell or otherwise dispose of such shares. Any such VTI
Stockholder proposing to sell or otherwise dispose of shares shall first notify
the other VTI Stockholders which are Parties hereto, advising them of the terms
of such proposed sale, and affording such other VTI Stockholders at least twenty
(20) business days to make a determination as to their participation hereunder.
SECTION 5.10 -- Stock Dividend. The Parties acknowledge and agree that ICS may
and shall be entitled at its election, to distribute all or a portion of its VTI
Common Stock to ICS stockholders as part of a stock dividend, spin-off or
similar transaction. In the event ICS so elects to proceed with such a
transaction VTI shall provide reasonable cooperation with respect to the
preparation and submission of all filings and disclosures required by prevailing
law, rules and regulations covering such transactions, provided however, that
the costs of any required registration statements shall be borne by ICS to the
extent such statements pertain to shares distributed by ICS.
SECTION 5.11 -- Public Offering. The Board of Directors and the officers of VTI
shall exercise their reasonable best efforts to position VTI for and to file a
registration statement to implement an initial public offering of the VTI Common
Stock prior to December 31, 1997 in accordance with the provisions of the
Revolving Credit Agreement and Note. Although the primary intent of
26
any such offering shall be to raise working capital for VTI, ICS and the CFJ
Stockholders shall be entitled to tender from their holdings of VTI Common Stock
up to 75% for ICS and up to 25% for CFJ Stockholders, of the number of shares
offered as part of such offering which exceed VTI's working capital requirements
as determined by VTI's Board of Directors.
SECTION 5.12 -- Blue Sky. TBS and CFJ will use their best efforts to obtain
prior to the Closing Date all necessary blue sky permits and approvals required
to permit the distribution of the shares of VTI Common Stock to be issued in
accordance with the provisions of this Agreement.
SECTION 5.13 -- Tax-Free Reorganization. Each of the Parties will use
reasonable efforts to cause the transactions hereunder to qualify as tax-free
reorganizations under the Code.
SECTION 5.14 -- Review and Adjustments to Closing Balance Sheets. (a) TBS shall
prepare a pre-Closing balance sheet of TBS at and as of the close of the
business day immediately preceding the Closing Date. CFJ shall prepare a pre-
Closing balance sheet of CFJ at and as of the close of the business day
immediately preceding the Closing Date. Such pre-Closing balance sheets shall
be prepared in accordance with GAAP, but reflect prior reported accounts,
practices, elections and methodology for an ongoing business, to the extent such
practices, elections and methodology are not inconsistent with GAAP; (b) VTI
shall, at its sole expense, retain and cause such prepared pre-Closing balance
sheets to be examined and verified in accordance with generally accepted
accounting standards by a public accounting firm, which in the case of the TBS
balance sheet shall be the firm of KPMG Peat Marwick (ICS's and TBS's current
auditing firm, hereafter "KPMG"), and in the case of the CFJ balance sheet shall
be the firm of Xxxx and Xxxx (CFJ's current auditing firm, hereafter "L&C").
Such public accounting firm (KPMG for the TBS balance sheet and L&C for the CFJ
balance sheet) shall report in writing to VTI (with copies also furnished to
ICS), as to (i) the accuracy of the inventory account set forth on such balance
sheets and the valuations and methodologies used with respect to such inventory
accounts, and (ii) whether such prepared pre-Closing balance sheets present
fairly the financial position of the CFJ and TBS, respectively, as at the close
of the business day immediately preceding the Closing Date, in conformity with
GAAP (but reflecting prior reported accounts, practices, elections and
methodology for an ongoing business, to the extent such practices, elections and
methodology are not inconsistent with GAAP;) (c) Such public accounting firms
(KPMG for the TBS balance sheet and L&C for the CFJ balance sheet) shall also
each prepare and deliver to VTI (with copies also furnished to ICS) a Special
Purpose Statement of Net Worth (i.e., the sum of the capital stock, capitalized
stockholder debt and accumulated earning and losses), accompanied by a report
from such auditing firm to the effect that the Special Purpose Statement of Net
Worth is presented fairly in accordance with this Agreement. (d) Each such
Special Purpose Statement of Net Worth shall be prepared based upon any
adjustments to the respective CFJ and TBS interim balance sheets as at the
fiscal period end October, 1996, referred to in Sections 3.18 and 4.18 of this
Agreement, as required for conformance of such interim balance sheets with the
corresponding pre-Closing balance sheets prepared pursuant to subpart (a) above,
as examined and verified by such auditing firm, provided however that such
adjustments shall reflect only variances in the following specified balance
sheet accounts: Cash and Cash Equivalents, Accounts Receivable, Inventory,
Property and Equipment, Deposits, Accounts Payable and Accrued Liabilities. (e)
An adjustment is only required and will be made hereunder in the event that such
adjustment is unfavorable and exceeds the greater of (i) $250,000. or (ii) 10%
of the net worth set forth in the
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aforesaid interim balance sheet of Sections 3.18 and 4.18.
SECTION 5.15 -- Inspection and Financial Reporting. For so long as ICS shall
hold at least twenty percent of the outstanding VTI Common Stock or there is any
amount owed to ICS pursuant to the bridge financing of Section 5.7, whichever is
longer, (A) VTI shall furnish to ICS such financial statements and reports as
are described in the Revolving Credit Agreement and Note. (B) VTI shall permit
representative of ICS, at ICS's expense and upon reasonable prior notice, to
visit and inspect the properties of VTI and its subsidiaries, during normal
business hours, to examine and make copies of, and to discuss with its
directors, officers and professional advisors the books of accounts of VTI, in
each case for any purpose reasonably related to ICS's investment in and/or loan
to VTI.
Section 5.16 -- Key-Man Insurance. VTI shall, as soon as practicable after the
date hereof, purchase and thereafter maintain for so long as ICS holds at least
twenty percent of the VTI Common Stock or there is any amount owed to ICS
pursuant to the bridge financing of Section 5.7, whichever is longer, key-man
life insurance on the life of Xxxxxxx Xxxxxxx in the amount of $3 million
(provided, however, that such amount can be reduced to the extent that such
insurance cannot be obtained on commercially reasonable terms). Such policies
shall name VTI as beneficiary. VTI shall at all times retain all the incidents
of ownership of such insurance and shall not borrow upon or otherwise impair its
right to receive the proceeds of such insurance. Any proceeds received by VTI
under such key-man insurance policies shall first be applied to reduce the
amount outstanding under any bridge financing provided by ICS hereunder.
Section 5.17 -- Non-Compete and Non-Disclosure Agreements. For at least so long
as ICS holds at least 10% of the VTI Common Stock or there is any amount owed to
ICS pursuant to the bridge financing of Section 5.7, whichever is longer,
Xxxxxxx Xxxxxxx and Xxxx Xxxxxx shall enter into and remain parties to a written
agreement with VTI providing for the protection and safeguarding of VTI's (and
its subsidiaries) confidential and proprietary information, and covenanting that
Mssrs. Xxxxxxx and Xxxxxx will not compete with the business of VTI during the
term of their employment with VTI and for a reasonable period thereafter.
Section 5.18 -- Auditing Firm. VTI shall retain and cause CFJ and TBS to retain
one of the "big six" public auditing firms as their auditors following the
closing of the 1996 fiscal year.
Section 5.19 -- ICS Tax Benefit. ICS agrees to pay to TBS, after the Closing
Date, and as and to the extent received by ICS, such tax refund benefits as
result from ICS having had TBS included in its consolidated tax returns during
any period prior to the Closing Date, with at least $1,000,000 of such benefit
being payable to TBS on or before June 30, 1997.
ARTICLE VI -- GENERAL PROVISIONS
SECTION 6.1 -- Survival of Covenants and Agreements. Nothing contained herein
shall limit any obligation, covenant or agreement of the Parties which by its
terms contemplates performance after the Closing Date. All representations made
pursuant to Sections 3 and 4 of this Agreement shall be deemed to made at the
time of execution of this Agreement and shall survive the execution and delivery
of this Agreement until March 31, 1998, or with respect to the
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representations made in Sections 3.14 and 4.14 only, until the expiration of any
associated statute of limitations with respect to any liability for taxes.
SECTION 6.2 -- Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the Parties at the following
addresses or telecopy numbers (or at such other address or telecopy number for a
Party as shall be specified by like notice):
(a) if to TBS (with a copy to ICS at the address set forth below):
Turtle Beach Systems, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attn.: President
Fax: 000-000-0000
(b) if to ICS:
Integrated Circuit Systems, Inc.
2435 Blvd. of the Generals
Xxxxxx Xxxxx, XX, 00000-0000
Attn.: Xxxx X. Xxx, COO
Fax: 000-000-0000
(c) if to CFJ or the CFJ Stockholders:
Voyetra Technologies
c/o CFJ Systems Inc.
0 Xxxxx Xxxxx
Xxxxxxx, XX 00000
Fax: 000-000-0000
Attn.: Xxxxxxx X. Xxxxxxx
(d) if to VTI (with a copy to ICS at the address set forth above, and a copy to
Xxxxxxxx, Xxxxxxxxx & XxXxxxxx P.C., Xxxxxxxxxx Xxxxxxxx Xxxx., 0 Xxxxxxxx
Xxxxxx - 4/th/ floor, New York, NY 10013):
Voyetra Technologies
x/x XXX Systems Inc.
0 Xxxxx Xxxxx
Xxxxxxx, XX 00000
Fax: 000-000-0000
Attn.: Xxxxxxx X. Xxxxxxx
SECTION 6.3 -- Expenses. Except as otherwise provided herein, all costs and
expenses of the
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Parties reasonably incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by CFJ, TBS or VTI as is
applicable.
SECTION 6.4 -- Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as the same may be amended from
time to time, and "Exchange Act" means the Securities Exchange Act of 1934, as
the same may be amended from time to time.
(b) "affiliate" of a person means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person.
(c) "control" (including the terms "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit arrangement or
otherwise.
(d) "GAAP" means generally accepted accounting principles which have been and
are consistently applied.
(e) "HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
the same may be amended from time to time.
(f) "knowledge" of any Party shall mean the actual knowledge of the officers of
such Party.
(g) "person" means an individual, corporation, partnership, association, trust,
unincorporated organization, entity or group (as defined in the Exchange Act).
(h) "Material Adverse Effects" means any change in or effect on the business of
the referenced corporation that is or will be materially adverse to the
business, operations (including the income statement), properties (including
intangible properties), condition (financial or otherwise), assets, liabilities,
but shall not include effects of changes that are generally applicable in (A)
the multimedia hardware and software industry or (B) the U.S. economy.
SECTION 6.5 -- Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.6 -- Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the maximum extent possible.
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SECTION 6.7 -- Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and, except as expressly set forth herein,
supersedes any and all other prior agreements and undertakings, both written and
oral, among the Parties, or any of them, with respect to the subject matter
hereof and, except for Section 5.6 (Post-Closing VTI Board of Directors), is not
intended to confer upon any person other than TBS, CFJ, and VTI and, after the
Closing Date, their respective stockholders, any rights or remedies hereunder.
SECTION 6.8 -- Assignment. This Agreement shall not be assigned by operation of
law or otherwise.
SECTION 6.9 -- Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State, without
regard to the conflicts of laws provisions thereof.
SECTION 6.10 -- Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original, but all of which shall
constitute one and the same agreement. Counterparts bearing the signature of a
Party transmitted by facsimile shall be deemed to bind such Party, providing
however that the original of such counterpart shall also be provided to the
intended recipient or recipients.
SECTION 6.11-- Limitation of Damages. IN NO EVENT SHALL ANY PARTY BE LIABLE
HEREUNDER TO THE OTHER FOR CONSEQUENTIAL, INDIRECT, PUNITIVE OR OTHER SPECIAL
DAMAGES OF ANY NATURE, EVEN IF ADVISED OF THE POTENTIAL EXISTENCE OF SUCH
DAMAGES.
SECTION 6.12 -- Non-Binding Mediation. The Parties shall each attempt in good
faith to resolve any claim or dispute arising hereunder. If, however, such
claim or dispute cannot be resolved by the Parties within a thirty day period
after the receipt of notice of the claim or dispute, they shall jointly appoint
a neutral mediator recognized as having expertise in the subject of the claim or
dispute within five days after the end of such thirty day period. Such mediator
shall attempt to resolve such claim or demand within a thirty day period after
appointment, and the Parties shall fully cooperate with such mediator. The
proposed resolution of such mediator shall, however, be non-binding.
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