MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is
dated as of this 5th day of May, 1999, by and among XXXXXXX FINANCIAL CORP., a
New York corporation ("SFC"), XXXXXX XXXXXXX & CO., INC., a Delaware corporation
and wholly-owned subsidiary of SFC ("MSC"), XXXXXX XXXX ASSOCIATES, INC., a New
York corporation ("APA"), and the persons listed on Schedule 1 hereto who are
the holders in the aggregate of all of the issued and outstanding capital stock
of APA (referred to collectively as "SHAREHOLDERS" and individually as a
"SHAREHOLDER").
W I T N E S S E T H:
WHEREAS, APA is a registered broker-dealer and maintains
securities brokerage accounts;
WHEREAS, the Boards of Directors of APA, SFC and MSC deem it
advisable and in the best interests of their respective shareholders that MSC
acquire APA and, on or prior to the date hereof, such Boards of Directors have
approved the acquisition of APA, upon the terms and subject to the conditions
set forth herein;
WHEREAS, for federal income tax purposes, it is intended that
the Merger (as defined herein) shall constitute a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I
THE REORGANIZATION
SECTION 1.1 THE MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, APA shall be merged with and into MSC (the "MERGER") in accordance
with the General Corporation Law of the State of Delaware ("DELAWARE LAW") and
the Business Corporation Law of the State of New York ("NEW YORK LAW"),
whereupon the separate existence of APA shall cease and MSC shall be the
surviving corporation (the "SURVIVING CORPORATION").
(b) Subject to the fulfillment of the conditions of this
Agreement, as of the Closing Date (as defined herein), APA and MSC shall have
executed and delivered for filing the certificates of merger substantially in
the form of EXHIBIT A-1 and EXHIBIT A-2 hereto (the "CERTIFICATES OF MERGER")
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of New York and make all other filings or recordings required by
Delaware Law and New York Law in connection with the Merger. The Merger shall
become effective (the "EFFECTIVE TIME") at the later of: (i) such time as the
Certificates of Merger are duly filed with the Secretary of State of the State
of Delaware in accordance with Delaware Law and the Secretary of State of the
State of New York in accordance with New York Law or at such later time as
specified in the Certificates of Merger or (ii) the date of the Closing (as
defined herein).
(c) From and after the Effective Time, the separate corporate
existence of MSC with its purpose, object, rights, privileges, powers,
certificates and franchises, shall continue unimpaired by the Merger. At the
Effective Time, the separate corporate existence of APA shall cease, and MSC
shall succeed to all the properties and assets of APA and to all debts, choses
in action and other interests due or belonging to APA and shall be subject to,
and responsible for, all the debts, liabilities and duties of APA with the
effects provided by the applicable provisions of Delaware Law and New York Law.
SECTION 1.2 MERGER CONSIDERATION.
(a) The aggregate consideration to be paid with respect to the
Merger (the "MERGER CONSIDERATION") shall be 600,000 shares (the "SHARES") of
common stock, $.01 par value, of SFC (the "SFC COMMON STOCK").
(b) The Merger Consideration shall be reduced in the event that
APA's Shareholder Equity (as defined herein) is less than $345,000 as of the
date of the Closing Balance Sheet (as defined herein) by a number of Shares (the
"SHORTFALL SHARES") equal to the number of shares of SFC Common Stock obtained
by dividing (i) the amount by which the Shareholder Equity of APA as shown on
the Closing Balance Sheet is less than $345,000 by (ii) $32.00. The Shortfall
Shares shall be transferred to SFC from the Shares held pursuant to the Escrow
Agreement. For purposes of this Agreement, the "CLOSING BALANCE SHEET" shall
mean a balance sheet, dated as of the close of business on the last day of the
month during which the Closing occurs (the "CLOSING BALANCE SHEET DATE"),
prepared by APA consistently with generally accepted accounting principles and
as applied to the audited APA Financial Statements delivered pursuant to SECTION
3.8; PROVIDED, HOWEVER, that the amount of the liability accrued with respect to
the Pension Plan (as defined in SECTION 5.8) shall include the amount necessary
to pay all of the employer contributions, costs and expenses associated with a
"standard termination" of the Pension Plan (within the meaning of Section 4041
of the Employee Retirement Income Security Act of 1974) as of the Effective
Time, to the extent such amount is not covered by the assets of the Pension Plan
at such time. The Closing Balance Sheet shall be certified pursuant to SECTION
8.8. For purposes of this Agreement, "SHAREHOLDER EQUITY" shall have the meaning
ordinarily given to it under generally accepted accounting principles.
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SECTION 1.3 CONVERSION OF SHARES AND PAYMENT OF CONSIDERATION.
At the Effective Time, by virtue of the Merger and without any action
on the part of the holders of the outstanding common stock, $1.00 par value of
APA (the "APA COMMON STOCK") or any shares of capital stock of MSC:
(a) Each share of APA Common Stock, if any, held by APA as
treasury stock or owned by SFC, MSC or any other subsidiary of SFC immediately
prior to the Effective Time shall be canceled and retired and all rights in
respect thereof shall cease to exist without any conversion thereof or payment
therefor.
(b) Each share of APA Common Stock outstanding immediately prior
to the Effective Time shall be converted into the right to receive from the
Surviving Corporation 48.09612 fully-paid, validly issued and nonassessable
shares of SFC Common Stock (the "EXCHANGE RATIO"). The aggregate number of
shares of SFC Common Stock deliverable under this SECTION 1.3(B) shall be
reduced by an aggregate of 60,000 shares of SFC Common Stock to be held by the
Escrow Agent (as defined herein) pursuant to the Escrow Agreement attached
hereto as Exhibit B (the "ESCROW AGREEMENT") (to be contributed by the
Shareholders on a pro rata basis). As of the Effective Time, all such shares of
APA Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of APA Common Stock shall cease to have any rights
with respect thereto. For purposes of this Agreement, "ESCROW AGENT" shall mean
United States Trust Company of New York.
(c) If between the date of this Agreement and the Effective Time,
the outstanding shares of APA Common Stock or SFC Common Stock shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split-up,
combination, exchange of shares or the like, the Exchange Ratio shall be
correspondingly adjusted.
SECTION 1.4 EXCHANGE OF CERTIFICATES.
(a) At the Closing, SFC shall make available for exchange in
accordance with this SECTION 1.4 the shares of SFC Common Stock issuable
pursuant to SECTION 1.2(a) in exchange for outstanding APA Common Stock and the
Shareholders Representative shall make available for exchange certificates
representing all issued and outstanding shares of APA Common Stock (each, a
"CERTIFICATE").
(b) Upon surrender at the Closing of a Certificate for
cancellation to SFC or to such other agent or agents as may be appointed by SFC,
together with a stock power, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate for the number of
whole shares of SFC Common Stock to which the holder of APA Common Stock is
entitled pursuant to SECTION 1.3 hereof and is represented by the Certificate so
surrendered, less the appropriate number of shares of SFC Common Stock to be
held in escrow
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pursuant to SECTION 1.3(b), which shares shall be delivered to the Escrow Agent.
The Certificate so surrendered shall forthwith be canceled.
For the purposes of this Agreement, the Shareholders and each
of them appoint Xxxxx Xxxxxxxxx, as their attorney-in-fact (the "SHAREHOLDERS
REPRESENTATIVE") to do any and all things which any one of them may do under
this Agreement, including, without limitation: delivering the Certificates and
accompanying documents of transfer, negotiating with respect to and settling any
disputes concerning this Agreement and the transactions contemplated hereunder;
waiving any condition of Closing; performing the duties given to the
Shareholders Representative pursuant to the Escrow Agreement; and receiving
notices of negotiating with respect to and settling any claims for
indemnification.
(c) No dividends or other distributions declared or made after the
Effective Time on the SFC Common Stock shall be paid to the holder of any
unsurrendered Certificate until the holder of record of such Certificate shall
surrender such Certificate; PROVIDED, HOWEVER, that upon surrender of a
Certificate, but subject to the effect, if any, of applicable escheat and other
laws, there shall be paid to the holder of such Certificate, without interest,
the amount of dividends or distributions, if any, which theretofore became
payable, but which were not paid by reason of the foregoing, with respect to the
number of whole shares of SFC Common Stock represented by the Certificate or
Certificates issued upon such surrender.
(d) The Merger Consideration, when delivered upon the surrender
for exchange of APA Common Stock in accordance with the terms hereof, shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such APA Common Stock. After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of APA of the shares of
APA Common Stock that were outstanding immediately prior to the Effective Time.
SECTION 1.5 FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of SFC Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to enjoy any other rights of a shareholder of SFC.
Each fractional share of SFC Common Stock issuable to holders of Certificates
pursuant to SECTION 1.3 shall be rounded up to the nearest whole share.
SECTION 1.6 THE CLOSING. The closing of the transaction to be
effected hereunder (the "CLOSING") will be held at the offices of Fulbright &
Xxxxxxxx L.L.P., at 10:00 a.m. New York City time, on May 25, 1999, or such
other date or time or place as the parties shall mutually agree, but in no event
later than the earlier of (i) two weeks following receipt of written approval of
the Merger from the National Association of Securities Dealers or (ii) June 8,
1999. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
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SECTION 1.7 BENEFITS ARRANGEMENTS. Employees of APA at the
Effective Time shall, to the extent eligible, participate in all employee
benefit plans, programs, policies or arrangements as are generally provided by
SFC to its own employees in accordance with the terms of such plans, programs,
policies or arrangements in effect from time to time.
SECTION 1.8 DIRECTORS OF MSC. Immediately prior to the Effective
Time, the Board of Directors of MSC shall consist of four directors. At some
point in the future, Xxxxx Xxxxxxxxx shall be duly appointed or elected to the
Board of Directors to join the existing members of the Board of Directors of
MSC. Promptly following such appointment or election, Xxxxx Xxxxxxxxx shall be
appointed to serve on MSC's Executive Committee.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of MSC as in effect immediately prior to the Effective Time, shall
be the Certificate of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with Delaware Law.
SECTION 2.2 BYLAWS. The Bylaws of MSC as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation,
until thereafter amended in accordance with Delaware Law.
SECTION 2.3 NAME. The name of the Surviving Corporation shall be
Xxxxxx Xxxxxxx & Co., Inc.
ARTICLE III
ARTICLE REPRESENTATIONS AND WARRANTIES OF APA AND THE SHAREHOLDERS
As a material inducement to SFC and MSC to enter into this Agreement,
APA and the Shareholders jointly and severally represent, warrant, covenant and
agree that:
SECTION 3.1 CORPORATE EXISTENCE AND POWER. APA is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New York and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals (collectively "GOVERNMENTAL
AUTHORIZATIONS") required to own, lease and operate its properties and to carry
on its business as now conducted. APA is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary except where the failure to be so licensed or
qualified would not have a Material Adverse Effect on APA. For purposes of this
Agreement, a "MATERIAL ADVERSE EFFECT," with respect to any person or entity,
means a material adverse effect on the financial condition, business,
liabilities (including contingent liabilities), prospects or results of
operations of such person or entity taken as a whole; "MATERIAL ADVERSE CHANGE"
shall mean a change or a development involving a prospective change which would
have a Material Adverse Effect. APA has heretofore delivered to SFC or its agent
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true and complete copies of its Articles of Incorporation and Bylaws as
currently in effect.
SECTION 3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by APA of this Agreement and the consummation by APA of the
transactions contemplated hereby are within APA's corporate power and authority,
and have been duly authorized by all necessary corporate action, except for any
required approval by APA's shareholders in connection with the consummation of
the Merger. This Agreement constitutes a valid and binding agreement of APA,
enforceable against APA in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (b) the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 3.3 GOVERNMENTAL CONSENTS AND APPROVALS. Other than as
provided in SECTION 7, the execution, delivery and performance by APA and the
Shareholders of this Agreement and the consummation of the Merger by APA and the
Shareholders require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than: (a) the filing of
the Certificates of Merger in accordance with Delaware Law and New York Law; (b)
such other filings or registrations with, or authorizations, consents or
approvals of, governmental bodies, agencies, officials or authorities, the
failure of which to make or obtain would not have a Material Adverse Effect on
APA, or would not materially and adversely affect the ability of SFC, MSC, APA
or the Shareholders to consummate the Merger.
SECTION 3.4 REGULATORY MATTERS AND ACCOUNT DOCUMENTATION. APA is
and has been duly registered as a broker-dealer with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers (the
"NASD") and in the states where such registration is required under the
securities laws of such states. APA is in compliance in all material respects
with all federal and state laws regulating broker-dealers or requiring
registration, licensing or qualification as a broker-dealer, and is a member in
good standing and has all licenses and authorizations in self-regulatory or
trade organizations or registered clearing agencies, required to permit the
operation of its business as presently conducted. Each such federal and state
registration is in full force and effect. APA has furnished to SFC a true,
correct and complete copy of its Form BD, as amended to date, filed by APA with
the SEC and NASD. APA has in its files for each of its existing customer
accounts all appropriate applications, certificates, agreements and other
documentation necessary or appropriate in connection with the current and
historical level and type of trading or other activities engaged in within such
accounts ("DOCUMENTATION"). All Documentation has been duly executed and
delivered to APA by the appropriate person or persons with respect to each such
account.
SECTION 3.5 NON-CONTRAVENTION. The execution, delivery and
performance by APA and the Shareholders of this Agreement and the consummation
by APA of the Merger do not and will not: (a) contravene or conflict with the
Articles of Incorporation or Bylaws of APA; (b) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to APA or any of the
Shareholders; (c) constitute a default under or give rise to a right of
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termination, cancellation, acceleration, loss of any material benefit or cause
of action for damages upon breach under any agreement, contract, license or
other instrument binding upon APA or any of the Shareholders, or any license,
franchise, permit or other similar authorization held by APA or any of the
Shareholders; or (d) result in the creation or imposition of any Lien on any
material asset of APA or any capital stock of APA except as may be created
hereunder. For purposes of this Agreement, the term "LIEN" means, with respect
to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset.
SECTION 3.6 CAPITALIZATION. The authorized capital stock of APA
consists of 100,000 shares of APA Common Stock and no shares of preferred stock,
of which (a) 12,475 shares of APA Common Stock are issued and outstanding and
(b) 15,850 shares of APA Common Stock are held by APA in its treasury. Except as
set forth herein, as of the date of this Agreement, no shares of capital stock
or other voting securities of APA were issued, reserved for issuance or
outstanding. There are no outstanding stock appreciation rights. All outstanding
shares of capital stock of APA are, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of APA having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of APA may vote. There are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which APA or any of its subsidiaries is a party or by which any
of them is bound obligating APA or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of APA or of any of its subsidiaries or
obligating APA or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. There are not any outstanding contractual
obligations of APA or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of APA or any of its subsidiaries.
SECTION 3.7 SUBSIDIARIES; JOINT VENTURES. APA has no Subsidiaries
or Joint Ventures. APA does not, directly or indirectly, own any interests in
any person that is not a Subsidiary. For purposes of this Agreement, (a)
"SUBSIDIARY" means, with respect to any entity, any corporation of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned by such entity, and (b) "JOINT VENTURE" means,
with respect to any entity, any corporation or organization (other than such
entity and any Subsidiary thereof) of which such entity or any Subsidiary
thereof is, directly or indirectly, the beneficial owner of 25% or more of any
class of equity securities or equivalent profit participation interest.
SECTION 3.8 FINANCIAL STATEMENTS. APA has delivered to SFC the
audited balance sheets of APA as of December 31, 1996, 1997, and 1998, and the
unaudited balance sheet of APA as of March 31, 1999, and the related audited
statements of income, shareholder's equity and cash flows for the fiscal years
ended December 31, 1996, 1997 and 1998, together with the notes thereto and the
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unaudited statements of income, stockholder's equity and cash flow for the
period ended March 31, 1999 (the "APA FINANCIAL STATEMENTS"). The APA Financial
Statements present fairly, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the financial position of APA as of the dates thereof and their
results of operations and cash flows for the periods then ended. For purposes of
this Agreement, "APA BALANCE SHEET" means the balance sheet of APA as of March
31, 1999, and the notes thereto, contained in the APA Financial Statements and
"APA BALANCE SHEET DATE" means March 31, 1999.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Since the APA Balance Sheet
Date, APA has in all material respects conducted business in the ordinary course
and there has not been: (a) any Material Adverse Change with respect to APA; (b)
any declaration, setting aside or payment of any dividend or other distribution
in respect of any shares of capital stock of APA, or any repurchase, redemption
or other acquisition by APA of any outstanding shares of capital stock or other
securities of, or other ownership interests in, APA; (c) any amendment of any
material term of any outstanding capital stock of APA; (d) any damage,
destruction or other casualty loss (whether or not covered by insurance)
materially affecting the business or assets of APA; (e) any material change in
any method of accounting or accounting practice by APA, except for any such
change required by reason of a concurrent change in generally accepted
accounting principles or disclosed in the APA Financial Statements; or (f) any
(i) grant of any severance or termination pay to any director, officer or
employee of APA, (ii) entering into of any written employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of APA, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, or (iv) increase in compensation, bonus or other benefits
payable to any director, officer or, other than in the ordinary course of
business, employee of APA.
SECTION 3.10 NO UNDISCLOSED LIABILITIES. Except for liabilities
under this Agreement, liabilities disclosed or provided for on the APA Balance
Sheet, liabilities disclosed on SCHEDULE 3.10 or liabilities incurred in the
ordinary course of business consistent with past practice, since the APA Balance
Sheet Date, APA has not incurred any liabilities or obligations of any nature,
whether or not accrued, known or unknown, contingent or otherwise, which have,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on APA or that would be required by generally accepted
accounting principles to be reflected on a balance sheet of APA (including the
notes thereto).
SECTION 3.11 LITIGATION. There is no suit, claim, action, proceeding
or investigation pending or, to the knowledge of APA, threatened against, APA or
any of its properties before any court or arbitrator or any governmental body,
agency or official, and APA is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, in the future would have a Material Adverse Effect on APA
or would prevent APA from consummating the transactions contemplated hereby. To
the knowledge of APA, there is no fact, event or circumstance now in existence
that reasonably could be expected to give rise to any action, suit, claim,
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proceeding or investigation that individually or in the aggregate would have a
Material Adverse Effect upon APA or the transactions contemplated hereby.
SECTION 3.12 COMPLIANCE WITH LAWS.
(a) APA has all licenses, permits, franchises, orders or approvals
of any federal, state, local or foreign governmental or regulatory body as are
necessary under applicable law to own its properties and conduct its businesses
(collectively, "PERMITS"), except to the extent the failure to have such Permits
would not, individually or in the aggregate, have a Material Adverse Effect on
APA. Such Permits are in full force and effect, and no proceeding is pending or,
to the knowledge of APA, threatened to revoke or limit any Permit. SCHEDULE 3.12
contains a true and complete list of all Permits.
(b) APA is not in violation of and has no liabilities, whether
accrued, absolute, contingent or otherwise, under any federal, state, local or
foreign law, ordinance or regulation or any order, judgment, injunction, decree
or other requirement of any court, arbitrator or governmental or regulatory
body, including without limitation laws relating to labor and employment
practices, health and safety, zoning, pollution or protection of the
environment, except for violations of or liabilities under any of the foregoing
which would not, individually or in the aggregate, have a Material Adverse
Effect on APA. During the last three years, APA has not received notice of, and
there has not been any citation, fine or penalty imposed against APA for, any
such violation or alleged violation.
SECTION 3.13 CONTRACTS AND OTHER AGREEMENTS. Each of the contracts
set forth on SCHEDULE 3.13 is valid, subsisting, in full force and effect,
binding upon APA, and to the knowledge of APA, binding upon the other parties
thereto in accordance with their terms, and APA has paid in full or accrued all
amounts now due from it thereunder and has satisfied in full or provided for all
of its liabilities and obligations thereunder which are presently required to be
satisfied or provided for, and is not in default under any of them, nor, to the
knowledge of APA, is any other party to any such contract or other agreement in
default thereunder, nor does any condition exist that with notice or lapse of
time or both would constitute a default thereunder. The continuation, validity
and effectiveness of all contracts and agreements to which APA is a party will
in no way be affected by the Merger or the other transactions contemplated
hereby. SCHEDULE 3.13 sets forth a list of the following contracts and other
agreements to which APA is a party or by or to which it or its assets or
properties are bound or subject:
(a) any agreement that individually requires aggregate
expenditures by APA in any one year of more than $25,000;
(b) any indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, obligations or liabilities for
borrowed money in excess of $25,000;
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(c) any lease, sublease, installment purchase or similar
arrangement for the purchase, use or occupancy of real or personal property (i)
that individually requires aggregate expenditures by APA in any one year of more
than $25,000, or (ii) pursuant to which APA is the lessor of any real property
which has rentals over $25,000 per year, together with the date of termination
of such leases, the name of the other party and the annual rental payments
required to be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other
than (i) an agreement in the ordinary course of business with respect to
obligations in an amount not in excess of $25,000, or (ii) indemnification
provisions contained in agreements not otherwise required to be disclosed;
(e) any agreement, including without limitation employment
agreements and bonus plans, relating to the compensation of (i) officers, (ii)
employees or (iii) former employees;
(f) any agreement containing covenants of APA not to compete in
any line of business, in any geographic area or with any person or covenants of
any other person not to compete with APA or in any line of business of APA;
(g) any license or agreement granting or restricting the right of
APA to use a trade name, trade xxxx, logo or Proprietary Rights (as defined
herein); and
(h) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $25,000 by APA within one year.
For purposes of this Agreement, "PROPRIETARY RIGHTS" means all patents,
trademarks, service marks, trade names, trade secrets, franchises, inventions
and copyrights, all information regarding the registration of any of the
foregoing, or applications therefor, and all grants and licenses or other rights
running to or from APA relating to any of the foregoing, that are necessary for
the conduct of its business. True and complete copies of all the contracts and
other agreements set forth in SCHEDULE 3.13 have been previously made available
to SFC or its advisers.
SECTION 3.14 PROPERTIES. APA owns and has good title to all of its
assets and properties reflected in the APA Balance Sheet, free and clear of any
Lien, except for (a) the Liens reflected on the APA Balance Sheet, (b) assets
and properties disposed of, or subject to purchase or sales orders, in the
ordinary course of business since the date of the APA Balance Sheet, or (c)
Liens securing the liens of materialmen, carriers, landlords and like persons,
all of which are not yet due and payable. APA owns or has a valid leasehold
interest in, or other incontrovertible right to occupy, all of the buildings,
structures, leasehold improvements, equipment and other tangible property
material to the business of APA, all of which are in good and sufficient
operating condition and repair, ordinary wear and tear excepted, for the conduct
of their business in accordance with past practices and APA has not received
notice that any of such property is in violation in any material respect of any
existing law or any building, zoning, health, safety or other ordinance, code or
regulation.
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SECTION 3.15 FINDER'S FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of APA who is entitled to any fee or commission upon consummation of
the transactions contemplated by this Agreement.
SECTION 3.16 NAMES, FRANCHISES, PERMITS, ETC. APA has good right to
use its name in every state and country in which it now does business. Except as
noted on SCHEDULE 3.16, APA has no franchises, permits, licenses, trademarks,
trade names, patents, patent applications, copyrights, trade secrets, computer
software, formula, designs or inventions and none of the same are necessary to
conduct its business as now operated without infringing on the rights of any
other person. APA has not infringed or violated in any way any trademark, trade
name, copyright, trade secret rights or contractual relationships of others, and
has not received any notice, claim or protest respecting any such violations or
infringement. APA has not given any indemnification to any person for any such
violations or infringements.
SECTION 3.17 THE SHAREHOLDERS. Other than as set forth on SCHEDULE
3.17, the Shareholders own all of the issued and outstanding capital stock of
APA listed next to their names in SCHEDULE 1 hereto, free and clear of all
agreements, charges, options, liens, security interests, pledges, claims,
restrictions and encumbrances of any nature whatsoever, and are entitled to sell
and transfer to MSC the full record ownership of all of such shares without the
consent of any third party.
SECTION 3.18 SHAREHOLDER QUALIFICATIONS. Each Shareholder (a) has
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of his or her investment in the
SFC Common Stock, (b) is able to bear the complete loss of his or her investment
in the SFC Common Stock, (c) acknowledges receipt from SFC of its Annual Report
to Shareholders for the fiscal year ended December 31, 1998 and its proxy
statement in connection with its annual meeting of shareholders and (d)
represents to SFC (i) that he or she has reviewed such reports and statements
and (ii) that he or she has been afforded the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of SFC
Common Stock in connection with the Merger and to obtain any additional
information that SFC possesses or can acquire without unreasonable effort or
expense that is necessary to verify any of the information contained in any such
reports and statements.
SECTION 3.19 INVESTMENT REPRESENTATION. The Shareholders understand
that as of the date when the SFC Common Stock is issued to the Shareholders
pursuant to SECTION 1.2 it will not have been registered under the Securities
Act of 1933 (the "SECURITIES ACT") or qualified under any applicable state
securities laws, on the ground that the transfer of the SFC Common Stock to the
Shareholders is exempt from the registration and prospectus delivery
requirements of the Securities Act and from qualification under any applicable
state securities laws, and that such exemptions are based on the Shareholders'
representations and warranties made herein. The Shareholders are acquiring any
SFC Common Stock issued pursuant to this Agreement for their own account and not
for that of any other persons, and without a view to or in connection with any
distribution thereof which is proscribed by the Securities Act or in violation
of any applicable state securities laws.
11
In addition to the restrictions contained in SECTION 8.3 on the
Shareholders' ability to make a Disposition of the SFC Common Stock issued
pursuant to this Agreement, the Shareholders shall not offer, sell or otherwise
dispose of the Shares except in conformity with Rule 144 under the Securities
Act or pursuant to a registration statement under the Securities Act and
qualification under applicable state securities laws or pursuant to an opinion
of counsel satisfactory to SFC that such registration and qualification is not
required. The Shareholders acknowledge and agree that the SFC Common Stock
certificate or certificates acquired by them pursuant to the Merger shall be
endorsed with the following legend or one substantially similar thereto:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or any state securities
laws. They may not be sold, offered for sale or otherwise disposed of
in the absence of an effective registration statement as to such shares
under the Securities Act and qualification under applicable state
securities laws, or an opinion of counsel satisfactory to the issuer
that such registration is not required."
SFC may require as a condition precedent to any proposed offer, sale,
transfer, pledge, hypothecation or other disposition of the Shares by the
Shareholders other than in conformity with Rule 144 or pursuant to a
registration statement under the Securities Act that the proposed transferee
first sign, seal and deliver to SFC an investment agreement with respect to the
Shares and the Additional Shares to be offered, sold, transferred, pledged,
hypothecated or otherwise disposed of containing substantially the agreements,
representations and warranties set forth in this SECTION 3.19.
SECTION 3.20 SHAREHOLDERS AUTHORITY. The Shareholders have full
right, power and authority to execute, deliver and perform this Agreement and
each related agreement to which they are parties. This Agreement has been duly
executed and delivered by the Shareholders and constitutes, and each related
agreement to which they will be parties will be duly executed and delivered and,
when so executed and delivered, will constitute, the valid and legally binding
obligation of each of them, enforceable in accordance with their respective
terms except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 3.21 EMPLOYEE BENEFITS; EMPLOYEES.
(a) Schedule 3.21 contains a list of each employee benefit plan
(including, without limitation, any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, restricted stock, savings, change in control, employment, consulting,
collective bargaining, dependent care, employee assistance, fringe benefit,
medical, dental, post-retirement welfare, retention, retirement, vacation,
severance, disability, death benefit, hospitalization, insurance or other plan,
agreement, arrangement or understanding (whether or not written or legally
binding) (all of the foregoing being herein called the "APA BENEFIT PLANS"),
established, sponsored, maintained or contributed to (or with respect to which
12
any obligation to contribute has been undertaken) within the last six years by
APA or any entity that would be deemed a "single employer" with APA under
Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA (an "ERISA
AFFILIATE"), APA has provided to SFC a true and correct copy of (i) each APA
Benefit Plan (and any amendments thereto) and summary plan descriptions thereof,
(ii) each trust agreement and group annuity contract, if any, relating to such
APA Benefit Plan (iii) the three most recent annual report for each APA Benefit
Plan currently maintained or contributed to by APA (Form 5500), (iv) the most
recent IRS determination letter relating to any APA Benefit Plan intended to be
qualified under Sections 401(a) and 501(a) of the Code, and (v) the three most
recent actuarial valuation reports relating to any APA Benefit Plan subject to
Title IV of ERISA.
(b) Except as set forth in SCHEDULE 3.21, each of the APA Benefit
Plans is maintained and administered in accordance with its terms and in
compliance with applicable law, including, without limitation, the provisions of
ERISA and the Code (including substantial compliance with the periodic reporting
obligations under those statutes) and no such plan has or could be expected to
have any accumulated funding deficiency (whether or not waived) within the
meaning of Section 302 of ERISA or Section 412 of the Code and no excise or
other taxes have been or could be expected to be incurred or are due with
respect to any such plan because of any failure to comply with the minimum
funding standards of the Code or ERISA. No security under Section 401(a)(29) of
the Code has been or could be expected to be required. With respect to the APA
Benefit Plans, individually and in the aggregate, no event has occurred and, to
APA's knowledge, there exists no condition or set of circumstances, in
connection with which it could be subject to any material liability.
(c) In accordance with the governing documents and applicable law,
all contributions, insurance premiums, benefits and other payments required to
be made to or under each APA Benefit Plan with respect to all periods prior to
the Effective Time have been made or will be made prior to the Effective Time or
adequate reserves will be set aside therefore and such liabilities will be fully
accrued on the Closing Balance Sheet. With respect to each APA Benefit Plan, (1)
no application, proceeding or other matter is pending before the Internal
Revenue Service, the Department of Labor or any other governmental agency; (2)
no action, suit, proceeding or claim (other than routine claims for benefits) is
pending or, to APA's knowledge, threatened; and (3) to the knowledge of APA, no
facts exist which could give rise to an action, suit, proceeding or claim which,
if asserted, could result in a material liability for APA or the plan assets.
(d) With respect to each funded APA Benefit Plan which is an
employee pension plan within the meaning of Section 3(2) of ERISA, (1) a
favorable IRS determination letter is currently in effect and, since the date of
the last determination letter, the APA Benefit Plan has not been amended or
operated in a manner which would adversely affect its qualified status and no
event has occurred which has caused or could cause the loss of such status; and
(2) there has been no termination or partial termination within the meaning of
Section 411(d)(3) of the Code.
13
(e) None of APA, its ERISA Affiliates or any of their respective
predecessors has ever contributed to, contributes to, has ever been required to
contribute to, or otherwise participated in or participates in or in any way,
directly or indirectly, has any liability with respect to any "multiemployer
plan" (within the meaning of Sections (3)(37) or 4001(a)(3) of ERISA or Section
414(f) of the Code) or any single employer pension plan (within the meaning of
Section 4001(a)(15) of ERISA) which is subject to Sections 4063 and 4064 of
ERISA.
(f) With respect to each APA Benefit Plan which is or was covered
by Title IV of ERISA, the present value of all "benefit liabilities" (whether or
not vested) (within the meaning of Section 4001(a)(16) of ERISA) based on the
actuarial assumptions used for funding purposes (1) as set forth in the most
recent actuarial report; and (2) as required by the Pension Benefit Guaranty
Corp. ("PBGC") for the APA Benefit Plan's termination did not exceed as of the
most recent actuarial valuation date the then current fair market value of the
assets of such plan and no amendments or other modifications to such plan or its
actuarial assumptions were adopted since the date of such plan's most recent
actuarial report.
(g) APA is not liable for and will not be liable for any liability
of any ERISA Affiliate (including predecessors) with regard to any "employee
benefit plan" (within the meaning of Section 3(3) of ERISA). All premiums due to
the PBGC by APA or any ERISA Affiliate have been paid on a timely basis. No
"reportable event" within the meaning of Section 4043(b) of ERISA has occurred
or is expected to occur and the consummation of the transaction contemplated by
this Agreement will not result in a reportable event.
(h) With respect to each APA Benefit Plan which is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan"
within the meaning of Section 4975(e) of the Code, there has occurred no
transaction which is prohibited by Section 406 of ERISA or which constitutes a
"prohibited transaction" under Section 4975(c) of the Code and with respect to
which a prohibited transaction exemption has not been granted and is not
currently in effect and the consummation of the transaction contemplated by this
Agreement will not constitute or directly or indirectly result in such a
"prohibited transaction".
(i) APA and its ERISA Affiliates have complied in all material
respects with the provisions of Section 4980B of the Code with respect to each
APA Benefit Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. Neither APA nor any of its ERISA Affiliates maintains,
contributes to, or is obligated under any plan, contract, policy or arrangement
providing health or death benefits (whether or not insured) to current or former
employees or other personnel beyond the termination of their employment or other
services (other than pursuant to Section 4980B of the Code). Each APA Benefit
Plan may be unilaterally terminated and/or amended by APA at any time.
(j) Except as set forth in SCHEDULE 3.21, the consummation of the
transactions contemplated by this Agreement will not (either alone or in
conjunction with another event, such as a termination of employment or other
services) entitle any employee or other person to receive severance or other
14
compensation which would not otherwise be payable absent the consummation of the
transaction contemplated by this Agreement or cause the acceleration of the time
of payment or vesting of any award or entitlement under any APA Benefit Plan.
(k) Neither APA nor any ERISA Affiliate, or any officer or
employee thereof, has made any promises or commitments, whether legally binding
or not, to create any additional plan, agreement, or arrangement, or to modify
or change any existing APA Benefit Plan. No event, condition, or circumstance
exists that could result in an increase of the benefits provided under any APA
Benefit Plan or the expense of maintaining any APA Benefit Plan from the level
of benefits or expense incurred for a material increase the most recent fiscal
year ended before the Merger. Neither APA nor any ERISA Affiliate has any
unfunded liabilities pursuant to any APA Benefit Plan that is not intended to be
qualified under Section 401(a) of the Code.
SECTION 3.22 DISCLOSURE. The representations, warranties and
statements made by APA and the Shareholders in this Agreement and in the
certificates delivered pursuant hereto do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
SECTION 3.23 REORGANIZATION. Neither APA nor any of its Affiliates
has taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
SECTION 3.24 TAXES. (a) For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Affiliated Group" shall mean any affiliated group
within the meaning of Section 1504 of the Code or any similar group defined
under a similar provision of state, local or foreign law, including, but not
limited to, any combined, consolidated or unitary group.
(ii) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(iii) "IRS" shall mean the Internal Revenue Service.
(iv) "Tax" or "Taxes" shall mean any and all federal, state,
local, foreign and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax imposed
in connection therewith or with respect thereto), including, without limitation,
taxes imposed on, or measured by, income, franchise, profits, or gross receipts,
and also ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer, and
gains taxes, and custom duties.
15
(v) "Tax Return" shall mean returns, reports, information
statements, and other documentation (including any additional or supporting
material) filed or maintained, or required to be filed or maintained, in
connection with the calculation, determination, assessment or collection of any
Tax.
(b) Except as set forth on SCHEDULE 3.24:
(i) All Tax Returns required to be filed by or on behalf of
APA have been properly prepared and duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects.
(ii) All Taxes payable by or on behalf of APA or in respect
of its income, assets or operations (including interest and penalties) have been
fully and timely paid, and adequate reserves or accruals for Taxes have will be
provided in the Closing Balance Sheet with respect to any period for which Tax
Returns have not yet been filed or for which Taxes are not yet due and owing.
APA has made all required estimated tax payments for 1998 to avoid any
underpayment penalty.
(iii) APA has not executed or filed with the IRS or any other
taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation), and no power of attorney with respect to any Tax matter is
currently in force.
(iv) APA has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(v) SFC has received complete copies of (A) all U.S.
federal and foreign income or franchise Tax Returns of APA relating to the
taxable periods since December 31, 1994 and (B) any audit report issued within
the last three years relating to Taxes due from or with respect to APA, or its
income, assets or operations. No income and franchise Tax Returns filed by or on
behalf of APA for the taxable years ended on the respective dates set forth on
SCHEDULE 3.24 have been examined by the relevant taxing authority or the statute
of limitations with respect to such Tax Returns has expired.
(vi) SCHEDULE 3.24 lists all material types of Taxes paid
and material types of Tax Returns filed by or on behalf of APA and indicates
those Taxes with respect to which APA is or has been a member of an Affiliated
Group for any Tax purpose for all taxable years after 1995. No claim has been
made by a taxing authority in a jurisdiction where APA does not file Tax Returns
such that it is or may be subject to taxation by that jurisdiction.
16
(vii) All deficiencies asserted or assessments made as a
result of any examinations by the IRS or any other taxing authority of the Tax
Returns of or covering or including APA have been fully paid, and there are, to
the knowledge of APA and the Shareholders, no other audits or investigations by
any taxing authority or proceedings in progress, nor have the Shareholders or
APA received any notice from any taxing authority that it intends to conduct
such an audit or investigation. No issue has been raised by a U.S. federal,
state, local or foreign taxing authority in any current or prior examination
which, by application of the same or similar principles, could reasonably be
expected to result in a proposed deficiency for any subsequent taxable period.
The results of any settlement and the necessary adjustments resulting therefrom
will be properly reflected in the Closing Balance Sheet.
(viii) Neither APA nor any other person (including any of the
Shareholders) on behalf of APA has (A) filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by APA, (B) agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by APA or has any knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of APA, or has otherwise taken any action
that would have the effect of deferring any liability for Taxes from any taxable
period ending on or before the Closing to any taxable period ending thereafter,
(C) executed or entered into closing agreement pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law with respect to APA, or (D) requested any extension of time
within which to file any Tax Return, which Tax Return has since not been filed.
(ix) No property owned by APA is (A) property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (B)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (C) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(x) APA is not a party to any tax sharing or similar
agreement or arrangement (whether or not written).
(xi) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by SFC or any of its
Affiliates by reason of Section 280G of the Code, or would constitute
compensation in excess of the limitation set forth in Section 162(m) of the
Code.
(xii) APA has substantial authority for the treatment of or
has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give rise to a
17
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code.
(xiii) APA is not subject to any private letter ruling of the
IRS or comparable rulings of other taxing authorities.
(xiv) There are no liens as a result of any unpaid Taxes upon
any of the assets of APA.
(xv) All material Tax elections of APA are clearly set forth
in the Tax Returns described in Section 3.24(b)(v). APA does not have elections
in effect for U.S. federal income tax purposes under Sections 108, 168, 338,
441, 463, 472, 1017, 1033 or 4977 of the Code.
(xvi) APA has never been a member of any Affiliated Group of
corporations for any Tax purposes. APA does not own any interest in any entity
that is treated as a partnership for U.S. federal income tax purposes or would
be treated as a pass-through or transparent entity for any tax purpose.
(xvii) No Shareholder is a foreign person within the meaning
of Section 1445 of the Code.
(xviii) APA has properly and timely elected under Section 1362
of the Code, and under each analogous or similar provision of state and local
law in each jurisdiction where APA is required to file a Tax Return, to be
treated as an "S" corporation for all taxable periods beginning as of January 1,
1987. There has not been any voluntary or involuntary termination or revocation
of any such election.
SECTION 3.25 YEAR 2000. The computer software operated by APA which
is material to the conduct of its business is capable of providing uninterrupted
millennium functionality to record, store, process and present calendar dates
falling on or after January 1, 2000 in substantially the same manner and with
the same functionality as such software records, stores, processes and presents
such calendar dates falling on or before December 31, 1999.
SECTION 3.26 ATTRIBUTES REGARDING POOLING OF INTERESTS ACCOUNTING.
APA is autonomous and has not been a subsidiary or division of another
corporation within two years prior to the initiation of this Agreement, as the
foregoing terms are defined in Accounting Principles Board Opinion No. 16 and
amendments thereto and interpretations thereof. APA has not changed the equity
interest of its voting common stock in contemplation of the Merger to be
consummated pursuant hereto or any other business combination, including but not
limited to such changes effected by distributions to shareholders and additional
issuances, exchanges and retirements of securities. APA has not re-acquired any
shares of its voting common stock within two years prior to the initiation of
this Agreement.
18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SFC AND MSC
As a material inducement to APA and its Shareholders to enter into this
Agreement, SFC and MSC, jointly and severally represent, warrant, covenant and
agree that:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. SFC is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all Governmental
Authorizations required to own, lease and operate its properties and to carry on
its business as now conducted. MSC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and has
all corporate powers and all Governmental Authorizations required to own, lease
and operate its properties and to carry on its business as now conducted. SFC
and MSC are duly qualified to do business as foreign corporations and are in
good standing in each jurisdiction where the character of the property owned or
leased by them or the nature of their activities makes such qualification
necessary except where the failure to be so licensed or qualified would not have
a Material Adverse Effect. Each of SFC and MSC has heretofore delivered to APA
true and complete copies of its Articles or Certificate of Incorporation and
Bylaws as currently in effect.
SECTION 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by SFC and MSC of this Agreement and the consummation by SFC and MSC
of the transactions contemplated hereby are within SFC's and MSC's corporate
power and authority and have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and binding agreement of SFC or MSC,
as the case may be, enforceable against SFC and MSC in accordance with its terms
except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 4.3 GOVERNMENTAL CONSENTS AND APPROVALS. Other than as
provided in SECTION7, the execution, delivery and performance by SFC and MSC of
this Agreement and the consummation of the Merger by SFC and MSC require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than: (a) the filing of the Certificates of Merger
in accordance with Delaware Law and New York Law; (b) such other filings or
registrations with, or authorizations, consents or approvals of, governmental
bodies, agencies, officials or authorities, the failure of which to make or
obtain would not have a Material Adverse Effect on SFC and MSC, taken together
as a whole, or would not materially adversely affect the ability of SFC, MSC,
APA or the Shareholders to consummate the Merger.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and
performance by SFC and MSC of this Agreement and the consummation by SFC and MSC
of the Merger do not and will not: (a) contravene or conflict with the
Certificate or Articles of Incorporation or Bylaws of SFC or MSC; (b) contravene
or conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
19
SFC or MSC; (c) constitute a default under or give rise to a right of
termination, cancellation, acceleration or loss of any material benefit under
any agreement, contract, license or other instrument binding upon SFC or MSC or
any license, franchise, permit or other similar authorization held by SFC or
MSC; or (d) result in the creation or imposition of any Lien on any material
asset of SFC or MSC.
SECTION 4.5 CAPITALIZATION.
(a) The authorized capital stock of SFC consists of 49,000,000
shares of common stock, $0.01 par value, of which 22,194,553 shares are
outstanding and 2,080,000 shares are reserved for issuance. The authorized
capital stock of MSC consists of 2,000 shares of common stock, $1.00 par value,
and 10,000 shares of preferred stock, $1.00 par value. All issued and
outstanding shares of MSC's capital stock are held by SFC.
(b) All outstanding SFC Shares are and the shares of SFC Common
Stock to be issued pursuant to SECTION 1.3 hereof when issued in accordance with
the terms of this Agreement will be, duly authorized, validly issued, fully paid
and nonassessable and free of any preemptive or similar rights in respect
thereto.
SECTION 4.6 LITIGATION. Except as set forth on SCHEDULE 4.6, there
is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of SFC, threatened against, SFC or any of its subsidiaries or any of
their properties before any court or arbitrator or any governmental body, agency
or official, and neither SFC nor any of its subsidiaries is the subject of any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, in the future would have
a Material Adverse Effect on SFC and its subsidiaries, taken together as a
whole, or would prevent SFC or any of its subsidiaries from consummating the
transactions contemplated hereby. To the knowledge of SFC, there is no fact,
event or circumstance now in existence that reasonably could be expected to give
rise to any action, suit, claim, proceeding or investigation that individually
or in the aggregate would have a Material Adverse Effect upon SFC and its
subsidiaries, taken together as a whole, or the transactions contemplated
hereby.
SECTION 4.7 DISCLOSURE. The representations, warranties and
statements made by SFC and MSC in this Agreement and in the certificates
delivered pursuant hereto do not contain any untrue statement of a material
fact, and, when taken together, do not omit to state any material fact necessary
to make such representations, warranties and statements, in light of the
circumstances under which they are made, not misleading.
20
ARTICLE V
PRE-CLOSING COVENANTS OF APA AND THE SHAREHOLDERS
APA and the Shareholders agree that:
SECTION 5.1 NEGATIVE COVENANTS. From the date hereof until the
Effective Time, APA shall in all material respects conduct its business in the
ordinary course. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, except as contemplated hereby, without the
written consent of SFC:
(a) APA will not adopt or propose any change in its Articles of
Incorporation or Bylaws;
(b) APA will not issue or propose the issuance of, or consummate,
enter into negotiations for or accept any offers for, the issuance or sale of
any shares of its capital stock, Voting Debt (as defined herein), or securities
convertible or exchangeable into shares of capital stock of APA and (ii) APA
will not amend or change the period of exercisability or accelerate the
exercisability of any outstanding options or warrants, or accelerate, amend or
change the vesting period of any outstanding restricted stock. For purposes of
this Agreement, "VOTING DEBT" means bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into securities having the
right to vote);
(c) No change shall be made in the number of shares of authorized
or issued capital stock of APA, nor shall any option, warrant, call, commitment,
right or agreement of any character be granted or made by APA relating to its
authorized or issued capital stock. No transfers in the ownership of shares of
APA shall occur other than the transfer of 6,533 shares of APA Common Stock
covered by that certain Letter Agreement, dated May 5, 1995, as amended, among
the Shareholders;
(d) APA will not (i) pay any dividend or make any other
distribution to holders of its capital stock, (ii) split, combine or reclassify
any of its capital stock or propose or authorize the issuance of any other
securities in respect of or in lieu of or in substitution for any shares of its
capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock;
(e) APA will not directly or indirectly, merge or consolidate with
another entity;
(f) APA will not incur any additional indebtedness for borrowed
money (including, without limitation, by way of guarantee or the issuance and
sale of debt securities or rights to acquire debt securities) other than in the
ordinary course of business and not exceeding $5,000 in the aggregate up to the
Closing;
(g) APA will not (i) other than in the ordinary course of business
and consistent with past practices, sell, license, sublicense or otherwise
transfer or dispose of or encumber, or otherwise restrict, any tangible or
intangible assets of APA, including any Proprietary Rights, or (ii) other than
21
in the ordinary course of business and consistent with past practices, acquire
any tangible or intangible assets of any third party, including any license,
distribution or similar arrangement with respect to any product or technology
not owned or licensed by APA on the date of this Agreement;
(h) APA will not settle or compromise, or agree to settle or
compromise, any suit or other litigation matter or matter in an arbitration
proceeding for any material amount (after taking into account any insurance
proceeds to which APA is entitled) or otherwise on terms which could have a
Material Adverse Effect on APA;
(i) APA will not agree or commit to do any of the foregoing;
SECTION 5.2 AFFIRMATIVE COVENANTS. From the date hereof until the
Effective Time:
(a) APA will keep in full force and effect its existing insurance
policies and will not modify or reduce the coverage thereunder;
(b) APA shall meet all of its obligations as they become due, and
shall use its best efforts to maintain its corporate records, to keep its
accounts receivable current, to preserve the business organization and
properties of APA intact, to keep available the services of APA's employees, and
to preserve the goodwill of APA's clients, suppliers, and others with whom
business relationships exist;
(c) APA shall pay or fund all expenses and liability incurred by
it with respect to all periods prior to the Closing, including without
limitation all salaries and rents, and, without limiting the foregoing, shall
pay or fund all tax liabilities relating to periods ending on or before the
Closing, regardless of when such expenses and liabilities would ordinarily be
payable. APA shall pay or fund any liabilities or amounts due to its employees
as bonuses, profit-sharing or pensions, calculated in accordance with APA's past
practices, with respect to the fiscal year ended December 31, 1998; and
(d) APA shall maintain its registration and remain in good
standing with the SEC and NASD, and with the states where such registration is
required under the securities laws of such states.
SECTION 5.3 SHAREHOLDER APPROVAL. Promptly following the execution
and delivery of this Agreement, APA shall hold a special meeting of the
shareholders of APA in accordance with New York Law to approve this Agreement
and the transactions contemplated hereby.
SECTION 5.4 ACCESS TO FINANCIAL, OPERATING AND TECHNICAL
INFORMATION. From the date hereof until the Effective Time, APA, upon receipt of
at least 48 hours notice, will give SFC, its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of APA, will
furnish to SFC, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and all other scientific and
technical information as such persons may reasonably request and will instruct
22
APA's employees, counsel and financial advisors to cooperate with APA in its
investigation of the business of APA and in the planning for the combination of
the businesses of APA and SFC or its subsidiary following the consummation of
the Merger; PROVIDED, HOWEVER, that no investigation pursuant to this Section
shall affect any representation or warranty given by APA to SFC hereunder. All
requests for information made pursuant to this Section shall be directed to
Xxxxx Xxxxxxxxx or such person as may be designated by him or her.
SECTION 5.5 OTHER OFFERS. From the date hereof until the earlier of
the Effective Time or the termination of this Agreement in accordance with the
terms hereof, APA, its officers, directors, employees or other agents, and the
Shareholders will not, directly or indirectly (i) take any action to solicit,
initiate, encourage or facilitate the making of any Acquisition Proposal (as
defined herein); (ii) agree to or endorse any Acquisition Proposal; or (iii)
engage in negotiations with, or disclose any nonpublic information relating to
APA or afford access to the properties, books or records of APA to, any person
or entity; PROVIDED, HOWEVER, that nothing in this SECTION 5.4 shall prevent APA
from providing information which is generally publicly available to any person
in response to an unsolicited request for information. APA and the Shareholders
will promptly notify SFC after receipt of any Acquisition Proposal or any
request for nonpublic information relating to APA received by any of them in
connection with an Acquisition Proposal or for access to the properties, books
or records of APA by any person or entity which has made, or which reasonably
could be expected to make, an Acquisition Proposal, and all relevant information
in respect thereof. The term "ACQUISITION PROPOSAL" shall mean any offer or
proposal for, or any indication of interest in, (i) any merger, consolidation,
tender offer, exchange offer or other business combination involving APA, (ii)
any acquisition of a substantial equity interest in, or a substantial portion of
the assets of, APA, other than in each case the transactions contemplated by
this Agreement or (iii) any license, distribution or similar agreement in
respect of any product or Proprietary Right of APA. For purposes hereof, a
"SUBSTANTIAL EQUITY INTEREST" shall mean any equity interest representing
beneficial ownership of five percent or more of any class or series of the
outstanding capital stock of APA.
SECTION 5.6 COMPLIANCE WITH OBLIGATIONS. Prior to the Effective
Time, APA shall comply with (i) all material applicable federal, state, local
and foreign laws, rules and regulations, (ii) all material agreements and
obligations, including its Articles of Incorporation and Bylaws, by which it,
its properties or its assets may be bound, and (iii) all decrees, orders, writs,
injunctions, judgments, statutes, rules and regulations applicable to APA, its
properties or its assets.
SECTION 5.7 NO TRANSFER OF APA COMMON STOCK. Each of the
Shareholders agrees that he or she will not make any Disposition (as defined
herein) of APA Common Stock without the prior written consent of SFC, other than
as set forth on SCHEDULE 3.17.
SECTION 5.8 PENSION PLAN. APA, without the prior consent of SFC,
shall not consent to any amendment to, or cause an amendment of, the APA Defined
Benefit Plan (the "PENSION PLAN") except for any amendment required in
connection with the cessation of benefit accruals under the Pension Plan and any
other amendment needed to maintain the qualified status of the Pension Plan or
23
to otherwise comply with applicable law, copies of which shall promptly be
delivered to SFC. Prior to the Effective Time, APA will take such actions as may
be necessary or appropriate in order to effect, prior to the Effective Time, the
cessation of all future benefit accruals under the Pension Plan. As soon as
practicable after the Effective Time, SFC will take or cause to be taken such
action as may be necessary or appropriate in order to effect a "standard
termination" of the Pension Plan pursuant to Section 4041 of ERISA. The trust
maintained as part of the Pension Plan will continue to be maintained until
pending the completion of the termination process (including, without
limitation, the issuance of a determination letter and compliance with Title IV
of ERISA) and the final satisfaction of the plan liabilities to participants and
beneficiaries. SFC will be entitled to recover from the assets held pursuant to
the Escrow Agreement any funding and other costs and expenses associated with
the termination of the Pension Plan (including, without limitation, plan
contribution, legal, accounting and administrative costs) to the extent that the
total amount of such costs and expenses exceeds the amount that was accrued
therefor on the Closing Balance Sheet pursuant to Section 1.2(b) hereof.
ARTICLE VI
PRE-CLOSING COVENANTS OF ALL PARTIES
SECTION 6.1 ADVICE OF CHANGES. Each party will promptly advise each
other party in writing of: (a) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Merger; (b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger; (c) any actions,
suits, claims, investigations or other judicial proceedings commenced or
threatened against it which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to this Agreement or which
relate to the consummation of the Merger; (d) any event known to its executive
officers occurring subsequent to the date of this Agreement that would render
any representation or warranty of such party contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue, inaccurate
or misleading in any material respect (other than an event so affecting a
representation or warranty which is expressly limited to a state of facts
existing at a time prior to the occurrence of such event); and (e) any Material
Adverse Change in the business condition of the party.
SECTION 6.2 REGULATORY APPROVALS. Prior to the Effective Time, each
party shall execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, any self regulatory organization or any stock exchange, which
may be reasonably required, or that the other company may reasonably request, in
connection with the consummation of the Merger. Each party shall use its
commercially reasonable efforts to obtain all such authorizations, approvals and
consents.
SECTION 6.3 ACTIONS CONTRARY TO STATED INTENT. Each of the parties
shall use its best efforts to cause the Merger to constitute a reorganization
under Section 368(a) of the Code. Each of SFC and APA shall use its commercially
24
reasonable efforts to cause its Affiliates (as defined below) not to take any
action, or fail to take any required action, that would prevent the Merger from
qualifying as a reorganization under Section 368(a) of the Code. Neither party
shall take any action that would, or reasonably might be expected to, result in
any of its representations and warranties set forth herein being or becoming
untrue in any material respect, or in any of the conditions to the Merger set
forth in Article VII not being satisfied. An "AFFILIATE" of any person means any
other person who controls, is controlled by or is under common control with such
person.
SECTION 6.4 CERTAIN FILINGS. The parties hereto shall cooperate
with one another: (a) in determining whether any action by or in respect of, or
filing with, any governmental body, agency official, authority, self regulatory
organization or stock exchange is required, or any actions, consents, approvals
or waivers are required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions contemplated by this
Agreement; and (b) in seeking any such actions, consents, approvals or waivers
or making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals or
waivers.
SECTION 6.5 PUBLIC ANNOUNCEMENTS. APA will consult with SFC before
issuing any press release or making any public statement with respect to this
Agreement and the transactions contemplated hereby and, except as may be
required by applicable law, no such press release or public statement (other
than in response to unsolicited inquiries) shall be issued without the written
approval of SFC following such consultation.
SECTION 6.6 SATISFACTION OF CONDITIONS PRECEDENT. The parties will
use their best efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Article VII, as applicable to each of them, and
to cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF SFC AND MSC. The
obligations of SFC and MSC hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing Date, of each of the following conditions
(any one or more of which may be waived by SFC, but only in a writing signed by
SFC):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of APA and the Shareholders contained in Article
III shall be true and accurate in all respects on and as of the Closing Date
with the same force and effect as if they had been made on the Closing Date
(except to the extent a representation or warranty speaks only as of an earlier
date). APA shall have provided SFC with a certificate executed by the President
25
and the Chief Financial Officer of APA, and each of the Shareholders, dated as
of the Closing Date, certifying compliance with this subsection (a).
(b) COVENANTS. APA shall have provided SFC with a certificate
executed by the President and Chief Financial Officer of APA, and each of the
Shareholders, dated as of the Closing Date, that APA and the Shareholders have
performed and complied with all of their respective covenants contained in
Articles V and VI in all material respects on or before the Closing Date.
(c) DISSENTING SHARES. No demand shall have been received from any
Shareholder of APA indicating that they intend to seek dissenters' rights in
accordance with New York law with respect to any shares of capital stock of APA.
(d) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Change in APA since the APA Balance Sheet Date.
(e) ACCOUNTANTS POOLING LETTERS. SFC shall have received letters
from X.X. Xxxxxx & Co. LLP and Xxxxxxx X. Xxxxxx & Company, LLP dated as of the
Closing Date, addressed to SFC advising it that the Merger may be accounted for
as a pooling of interests, which letters shall be substantially in the form of
Exhibits C and D attached hereto.
(f) OPINION OF COUNSEL. SFC shall have received the opinion of
Xxxxxx, Xxxxxxx & Xxxxxxx, counsel to APA, dated the Closing Date, in
substantially the form of Exhibit E hereto.
(g) EMPLOYMENT AGREEMENT. MSC shall have entered into an
employment agreement with each of the Shareholders.
(h) APPROVAL OF DOCUMENTATION. The form and substance of all
opinions certificates, and other documents shall be reasonably satisfactory in
all respects to SFC and its counsel.
(i) SURRENDER OF CERTIFICATES. All Certificates (as defined
herein) shall be surrendered to SFC or its designated agent by the Shareholders
Representative.
(j) FORM 8-K. APA and the Shareholders shall have provided such
records, including without limitation the work papers of its bookkeepers and
accountants, as may be required by SFC in connection with SFC's obligation, if
any, to file a report of its acquisition of APA hereunder with the SEC on Form
8-K and, in the sole judgment of SFC, SFC shall be in a position timely to file
such report, if any, after the Closing.
(k) CLEARING ARRANGEMENTS. APA and the Shareholders shall have
taken all steps necessary or advisable for the transfer of all APA customer
accounts to MSC including, without limitation, any required actions with respect
to MSC's and APA's respective clearing agents, and MSC shall have received a
letter or other certificate signed by APA's clearing agent to such effect.
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(l) CONSENTS. All written consents, assignments, waivers or
authorizations ("CONSENTS"), that are required as a result of the Merger for the
continuation in full force and effect of any contracts or leases of APA shall
have been obtained.
(m) PENSION PLAN. APA shall have taken such actions as are
necessary or appropriate in order to effect the cessation of benefit accruals
under the Pension Plan as required by SECTION 5.8 hereof. SFC shall be satisfied
in its sole discretion with amounts reserved or set aside by APA in respect of
the Pension Plan.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF APA AND THE SHAREHOLDERS.
The obligations of APA and the Shareholders hereunder are subject to the
fulfillment or satisfactions, on and as of the Closing Date, of each of the
following conditions (any one or more of which may be waived by APA (on behalf
of itself and the Shareholders), but only in a writing signed by APA):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of SFC and MSC set forth in Article IV shall be
true and accurate in all respects on and as of the Closing Date with the same
force and effect as if they had been made on the Closing Date (except to the
extent a representation or warranty speaks only as of an earlier date). SFC
shall have provided APA with a certificate executed by the Chief Executive
Officer and Chief Financial Officer of SFC, dated as of the Closing Date,
certifying compliance with this subsection (a).
(b) COVENANTS. SFC and MSC shall have performed and complied with
all of their respective covenants contained in Article VI in all material
respects on or before the Closing Date, and SFC shall have provided APA with a
certificate to such effect executed by the President of each such entity, dated
as of the Closing Date.
(c) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Change in SFC and its subsidiaries, taken together as a whole, since the
date of this Agreement.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF SFC, MSC AND APA. The
respective obligations of SFC, MSC and APA hereunder are subject to the
fulfillment, on or before the Closing Date, of each of the following conditions
(any one or more of which may be waived by such parties, but only in a writing
signed by such parties):
(a) SHAREHOLDER APPROVAL. APA's shareholders shall have duly
approved this Agreement and the Merger, all in accordance with applicable laws
and regulatory requirements.
(b) ILLEGALITY OR LEGAL CONSTRAINT. No statute, rule, regulation,
executive order, decree, injunction or restraining order shall have been
enacted, promulgated or enforced (and not repealed, superseded or otherwise made
inapplicable) by any court or governmental authority which prohibits the
consummation of the Merger (each party agreeing to use its commercially
reasonable efforts to have any such order, decree or injunction lifted).
27
(c) REGULATORY AUTHORIZATIONS. There shall have been obtained any
and all governmental, self regulatory organization and stock exchange
authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws, the failure to comply with which
would be reasonably likely to have a Material Adverse Effect on SFC, MSC, or the
Surviving Corporation or would be reasonably likely to subject any of SFC, MSC,
or the Surviving Corporation or any of their respective directors or officers to
substantial penalties or criminal liability, including without limitations any
required approval from the NASD and the New York Stock Exchange.
ARTICLE VIII
POST-CLOSING COVENANTS
SECTION 8.1 FURTHER ASSURANCES. From time to time after the Closing
at the request of SFC and without further consideration, the Shareholders and/or
APA shall execute and deliver any further instruments and take such other action
as SFC may reasonably require to consummate the transactions contemplated
hereby. To the extent that the transactions contemplated hereby require the
consent of any person in order to avoid a breach of the terms of any lease,
contract or commitment to which APA is a party or by which APA is bound and such
consent is not obtained satisfactorily prior to the Closing, the Shareholders
shall use their best efforts to assure APA of the benefits of such leases,
contracts, commitments and rights.
SECTION 8.2 USE OF NAME. APA and the Shareholders acknowledge and
agree that through the Merger hereunder, SFC and MSC are acquiring the exclusive
use of the name Xxxxxx Xxxx Associates, Inc. for which the Shareholders will
receive full and adequate consideration, and that the Shareholders will not use
such name or any similar name subsequent to the Closing except in connection
with activities performed for SFC and MSC.
SECTION 8.3 SALE OF SFC COMMON STOCK. The Shareholders shall not
sell or in any other way reduce their risk relative to the Shares until such
time as financial results covering at least thirty days of post-Merger combined
operations of SFC and APA have been published. SFC shall use its reasonable
efforts to expeditiously publish such financial results provided that it shall
not be required to publish results with respect to any period not beginning on
the first day of any calendar month and if the 30-day period provided for in
this SECTION 8.3 begins June 1, 1999 SFC's quarterly report on Form 10-Q shall
be the means used for such publication.
SECTION 8.4 REGISTRATION.
(a) REGISTRATION PROCEDURES AND EXPENSES. SFC shall use its best
reasonable efforts to effect the registration of the Shares under the Securities
Act for sale as expeditiously as reasonably possible following the Closing by
performing the following:
28
(i) Within fifteen (15) business days following the Closing, SFC
shall prepare and file with the SEC a registration statement
with respect to the Shares and SFC shall use its best efforts
to cause such registration statement to become and remain
effective for a period of three years from the Closing Date
and shall take such action as is necessary under applicable
state securities laws to permit the sale of the Shares. The
Shareholders' plan of distribution with respect to the Shares
shall be as follows: (a) sale of Shares from time to time by
the selling Shareholders or by pledgees, donees, transferees
or other successors in interest; (b) a block trade in which
the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (c)
purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account (d) regular
brokerage transactions executed on the Nasdaq Stock Market,
(e) negotiated transactions effected at such prices as may be
obtainable and as may be satisfactory to the selling
Shareholder, or (f) other means. If the Securities Act and/or
the rules and regulations promulgated by the SEC thereunder
require that such registration statement or the prospectus
forming a part thereof be amended or supplemented in order to
properly reflect the Shareholder's plan of distribution, the
Shareholders will promptly notify SFC of such matters and
cooperate with SFC in effecting such amendment or supplement.
If any of the Shareholders transfer any of the Shares to a
broker or dealer, he or she shall advise such transferee of
the fact that the Shares are sold or are to be sold pursuant
to such registration statement and of the provisions of this
SECTION 8.4.
(ii) SFC shall timely prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
update and keep such registration statement effective and to
comply with the provisions of the Securities Act with respect
to the sale of all securities covered by such registration
statement. Notwithstanding anything else to the contrary
contained herein, SFC shall not be required to disclose any
confidential information concerning pending acquisitions not
otherwise required to be disclosed.
(iii) SFC shall furnish to each Shareholder such number of copies of
the final prospectus as such Shareholder may reasonably
request in order to facilitate the sale of the Shares owned by
such Shareholder. The Shareholders shall comply with all
prospectus delivery requirements under the Securities Act.
(b) ALLOCATION OF EXPENSES. All expenses incurred by SFC in
complying with this subsection (a), including, without limitation, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel for SFC, are herein called Registration Expenses. All selling
commissions applicable to the sales of the Shares and all fees and disbursements
of counsel for any Shareholder are herein called Selling Expenses. SFC will pay
all Registration Expenses in connection with registration pursuant to this
29
Section 8.4. All Selling Expenses in connection with such registration shall be
borne by the Shareholders.
(c) INDEMNIFICATION. In connection with the registration of the
Shares under the Securities Act pursuant to this SECTION 8.4, SFC will indemnify
and hold harmless the seller of such Shares against any losses, claims, damages,
liabilities or expenses, to which such seller may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or action in respect thereof) arise out of or are based
upon (i) any untrue statement of a material fact contained in any registration
statement under which such Shares were registered under the Securities Act
pursuant to this SECTION 8.4, or any post-effective amendment thereof, or the
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement of a material fact contained in any final prospectus (as
amended or supplemented, if SFC shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading or (iii) any filing by SFC
with the SEC pursuant to the Securities Exchange Act of 1934, as amended,
incorporated by reference into said registration statement or said prospectus or
said amendment or supplement; and will reimburse such seller for any legal or
other expenses reasonably incurred by such seller in connection with
investigating or defending any such loss, claim, damage, liability or expense,
PROVIDED, HOWEVER, that SFC will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expenses arises out of or is
based upon any untrue statement or omission (or alleged omission) of material
fact made in said registration statement, said preliminary prospectus or said
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished to SFC by such seller specifically for use in
the preparation thereof.
In connection with the registration of the Shares under the Securities
Act pursuant to this SECTION 8.4, each seller of such Shares, severally and not
jointly, will indemnify and hold harmless SFC, each person, if any, who controls
SFC within the meaning of Section 15 of the Securities Act, each officer of SFC
who signs the registration statement, and each director of SFC against any
losses, claims, damages, liabilities or expenses, joint or several, to which SFC
or such officer, director, or controlling person may become subject under the
Securities Act or otherwise, and will reimburse SFC or such officer, director or
controlling person for any legal or other expenses reasonably incurred by SFC or
such officer, director, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or expense, but only
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or omission
(or alleged omission) of a material fact referred to in clause (i) or (ii) of
the preceding paragraph of this subsection (c), and PROVIDED, HOWEVER, that this
paragraph shall apply if and only if such statement or omission (or alleged
omission) was made in reliance upon and in conformity with information furnished
to SFC by or on behalf of such seller specifically for use in such registration
statement or prospectus.
30
(d) REQUIRED INFORMATION. It shall be a condition of SFC's
obligation to effect registration of the Shares that the sellers participating
in such registration provide SFC with all material facts, including, without
limitation, furnishing such certificates, questionnaires and legal opinions as
may be required by SFC concerning such participating sellers and the Shares to
be registered which are reasonably required to be stated in the registration
statement or in the prospectus or are otherwise required in connection with the
offering.
SECTION 8.5 INDEMNITY BY SHAREHOLDERS. The Shareholders hereby
jointly and severally agree to indemnify and hold SFC and MSC harmless from any
Liabilities or Losses (as defined herein) (including reasonable attorney's fees
and all reasonable costs of investigation and defense) resulting from:
(a) The falsity or inaccuracy of any representations or warranties
made herein by APA or any of the Shareholders;
(b) The failure of APA or any of the Shareholders to completely
perform any of their respective covenants or other obligations hereunder;
(c) Any inaccuracy, material or immaterial, in the Shareholder
Equity amount reflected in the Closing Balance Sheet;
(d) Any claim by an unrelated third party of facts that, if true,
would mean APA's or any of the Shareholders' representations or warranties were
false or inaccurate or Shareholders had failed to completely perform all of
their covenants and other obligations hereunder; and
(e) Any Liability or Loss incurred or suffered by SFC or MSC after
the Closing which relates or is attributable to acts or omissions of APA or any
of the Shareholders prior to the Closing.
For the purposes of this SECTION 8.5, "LIABILITIES" or "LOSSES" means
any and all losses, claims (including allegations), demands, damages,
deficiencies, obligations, assessments, judgments, fines, penalties, costs or
expenses, whether accrued or unaccrued, absolute, known or unknown, direct or
indirect, xxxxxx or inchoate, contingent or otherwise, including, without
limitation, any such Losses arising under any federal, state, local or foreign
law, ordinance or regulation or any order, judgment, injunction, decree or other
requirement of any court, arbitrator or governmental or regulatory body,
including, without limitation, laws and regulations relating to labor and
employment practices, health and safety, securities and/or broker-dealer
regulatory compliance.
Shareholders will be required to hold SFC and MSC harmless from the
cost (including reasonable attorney's fees and all reasonable costs of
investigation and defense) of defending a claim (which is the subject of
indemnification hereunder) made by a third party against SFC or MSC even if it
is ultimately determined that the claim is without merit.
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SECTION 8.6 LIMITATIONS ON INDEMNITY BY SHAREHOLDERS.
Notwithstanding any other provisions of this Agreement, the indemnification of
SFC and MSC provided for in this Agreement shall be subject to the limitations
and conditions set forth in this SECTION 8.6:
(a) Any claim for indemnification by SFC or MSC shall be made by
delivering to APA or the Shareholder's Representative, as the case may be, a
written notice in accordance with SECTION 10.3 prior to the termination of the
Escrow Agreement pursuant to Section 7(a) thereof setting forth in reasonable
detail the alleged factual basis for such claim, the provision or provisions of
this Agreement on which such claim is based and the amount thereof.
(b) Any claim for indemnification made by SFC or MSC pursuant to
this SECTION 8.6 or pursuant to SECTION 8.7 shall be satisfied solely from
shares of SFC Common Stock and/or other property held pursuant to the Escrow
Agreement.
(c) SFC's and MSC's right to indemnification hereunder shall be
reduced to the extent of any tax deduction, credit, refund or other benefit
actually received relating to the same tax period and resulting from the subject
matter of such claim.
(d) If SFC or MSC undertakes to remedy any circumstance or state
of facts which properly forms the basis of a claim for indemnification
hereunder, then APA and the Shareholders shall be obligated, within the limits
set forth in this Section, to indemnify SFC or MSC, as the case may be, only to
the extent of the least expensive remedy or response action required to be
undertaken with respect to such circumstance or state of facts under applicable
law, the terms of this Agreement or otherwise, notwithstanding that SFC or MSC
may elect or may have elected to implement or undertake a more expensive remedy
or response action.
SECTION 8.7 TAX MATTERS
(a) TAX INDEMNIFICATION. (i) Except to the extent Taxes are
reserved for on the Closing Date Balance Sheet, each Shareholder, jointly and
severally, agrees to be responsible for and to indemnify and hold SFC, MSC and
their Affiliates harmless from and against any and all Taxes that may be imposed
upon or assessed against APA, SFC and/or MSC or the assets thereof:
(1) with respect to all taxes of APA for taxable periods
ending on or prior to the Closing Date;
(2) with respect to any and all Taxes of APA for the
period allocated to the Shareholders pursuant to
SECTION 8.7(a)(iv);
(3) with respect to any transfer Tax liability pursuant
to SECTION 8.7(c) hereof;
(4) arising by reason of any breach or inaccuracy of any
of the representations contained in SECTION 3.24
hereof;
32
(5) by reason of APA being a successor-in-interest or
transferee of another entity;
(6) without duplication, arising as a result of the
Merger; and
(7) with respect to any and all Taxes of any member of an
Affiliated Group on or prior to the Closing Date, by
reason of the liability of APA pursuant to Treasury
Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign law or regulation.
(ii) The Shareholders shall also pay and shall indemnify
and hold harmless SFC and MSC and their Affiliates from and against any losses,
damages, liabilities, obligations, deficiencies, costs and expenses (including,
without limitation, reasonable expenses and fees for attorneys and accountants)
("Related Costs") incurred in connection with the Taxes for which the
Shareholders are responsible to indemnify SFC, MSC and their Affiliates pursuant
to this SECTION 8.7(a) (or any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to such Taxes) or the enforcement of this SECTION 8.7(a).
(iii) SFC agrees to indemnify and hold harmless the
Shareholders from and against any and all Taxes (A) of MSC with respect to any
taxable period of MSC beginning after the Closing Date and (B) attributable to
the period allocated to SFC pursuant to SECTION 8.7(a)(iv).
(iv) For federal income tax purposes, the taxable year of
APA shall end as of the close of the Closing Date and, with respect to all other
Taxes, the Shareholders and SFC will, unless prohibited by applicable law, close
the taxable period of APA as of the close of the Closing Date. Neither the
Shareholders nor SFC shall take any position inconsistent with the preceding
sentence on any Tax Return. In any case where applicable law does not permit APA
to close its taxable year on the Closing Date or in any case in which a Tax is
assessed with respect to a taxable period which includes the Closing Date (but
does not end on that day), then Taxes, if any, attributable to the taxable
period of APA beginning before and ending after the Closing Date shall be
allocated (i) to the Shareholders for the period up to and including the Closing
Date, and (ii) to SFC for the period subsequent to the Closing Date. Any
allocation of income or deductions required to determine any Taxes attributable
to any period beginning before and ending after the Closing Date shall be
prepared by SFC and shall be made by means of a closing of the books and records
of APA as of the close of the Closing Date, provided that exemptions, allowances
or deductions that are calculated on an annual basis (including, but not limited
to, depreciation and amortization deductions) shall be allocated between the
period ending on the Closing Date and the period after the Closing Date in
proportion to the number of days in each such period.
(v) If any indemnification payment under SECTION 8.7
(including, without limitation, this SECTION 8.7(a)(v)) is determined to be
taxable to the party receiving such payment by any taxing authority, the paying
party shall also indemnify the party receiving such payment for any Taxes
incurred by reason of the receipt of such payment (taking into account any
actual reduction in tax liability to the receiving party) and any Related Costs
33
incurred by the party receiving such payment in connection with such Taxes (or
any asserted deficiency, claim, demand, action, suit, proceeding, judgment or
assessment, including the defense or settlement thereof, relating to such
Taxes).
(vi) The indemnification provided for in this SECTION 8.7
shall be the sole remedy for any claim with respect to Taxes. Any claim for
indemnification under this SECTION 8.7 may be made at any time prior to 60 days
after the expiration of the applicable statute of limitation with respect to the
relevant taxable period (including all periods of extension, whether automatic
or permissive).
(b) AUDITS. SFC and the Shareholder Representative shall promptly
notify each other in writing of any notice of any Tax audits of or assessments
against any for any Taxable periods of a ending on or before the Closing Date.
The failure of one party to notify the other party of any such audit or
assessment shall not relieve the other party of its indemnification obligations
under this Agreement except to the extent any such failure actually prejudices
the defense of any Tax claim. With respect to any Tax claim that may be the
subject of indemnification under SECTION 8.7(A), the Shareholders may, upon
written notice to SFC from the Shareholder Representative, assume and control
the defense of such Tax Claim at their sole cost and expense and in their
reasonable discretion. If the Shareholders elect to assume the defense of any
such Tax claim, the Shareholders shall have the right to either settle such Tax
Claim at such time and on such terms as they shall deem appropriate or assume
the entire defense thereof; PROVIDED, HOWEVER, that the Shareholders shall in no
event take any position in such settlement or defense that subjects SFC, MSC or
any of their Affiliates to any civil fraud or any civil or criminal penalty.
Notwithstanding the foregoing, the Shareholders shall not settle any Tax claim
without the prior written consent of SFC, which prior written consent shall not
be unreasonably withheld, to any change in the treatment of any item which
would, in any manner whatsoever, affect the Tax liability of SFC, MSC or any of
their Affiliates for a period subsequent to the Closing Date. SFC and its
Affiliates shall have the sole right to represent APA's or MSC's interests in
any other Tax proceeding (including any proceeding that the Shareholders have
the ability to control but do not elect to control pursuant to this SECTION
8.7(B)).
(c) TRANSFER TAXES. All recordation, sales, use, stamp, filing,
transfer, documentary or similar fees or Taxes and related costs and fees
relating to the transactions contemplated by this Agreement shall be the joint
and several liability of the Shareholders.
(d) CONTINUITY OF BUSINESS ENTERPRISE. MSC will, and SFC will
cause MSC to, continue the historic business of APA, or use at least a
significant portion of APA's historic business assets in a business, in each
case with the meaning of Reg. ss.1.368-1(d), except that MSC may transfer APA's
historic business assets (i) to a corporation that is a member of MSC's
"qualified group," within the meaning of Reg. ss.1.368-1(d)(4)(ii),or (ii) to a
partnership if (A) one or more members of MSC's "qualified group" have active
and substantial management functions as a partner with respect to APA's historic
business or (B) members of MSC's "qualified group" in the aggregate own an
34
interest in the partnership representing a significant interest in APA's
historic business, in each case within the meaning of Reg.
ss.1.368-1(d)(4)(iii).
SECTION 8.8 CLOSING BALANCE SHEET
(a) Within five (5) business days of the Closing Balance Sheet
Date, the Shareholders shall provide SFC with the Closing Balance Sheet, along
with a certificate executed by each of the Shareholders certifying that the
Closing Balance Sheet was prepared in accordance with the requirements of
SECTION 1.2(B) and is otherwise true and accurate in all respects as of the
Closing Balance Sheet Date.
(b) MSC shall then make a cash distribution to the Shareholders
consistent with distributions made by APA to the Shareholders in the past
reflecting bonuses accrued as of the Closing Date. Each of the Shareholders
shall be required to agree in writing prior to the time of any such distribution
that the distribution is in full satisfaction of each such Shareholder's rights
under this Section 8.8 and that no further distributions shall be due to or paid
to such Shareholder by SFC and/or MSC irrespective of any later reversal,
adjustment or other change to any of the amounts reflected on the Closing
Balance Sheet.
(c) Nothing contained in this SECTION 8.8 shall in any way be
construed to limit or reduce amounts that may be recovered by SFC pursuant to
the other provisions of this Agreement for any shortfall or inaccuracy, material
or immaterial, in the Closing Balance Sheet.
ARTICLE IX
TERMINATION OF AGREEMENT
SECTION 9.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time whether before or after the approval by the
shareholders of APA:
(a) by mutual consent of the Boards of Directors of SFC, MSC and
APA;
(b) by SFC and MSC, if neither is in material breach of its
obligations under this Agreement, and if (i) there has been a material breach by
APA or any of the Shareholders of any of their respective representations and
warranties hereunder such that SECTION 7.1(A) will not be satisfied or (ii)
there has been the willful breach on the part of APA or any of the Shareholders
of any of their respective covenants or agreements contained in this Agreement
such that SECTION 7.1(B) will not be satisfied, and, in both case (i) and case
(ii), such breach has not been promptly cured within 15 days after notice to APA
or the relevant Shareholder;
(c) by APA, if it is not in material breach of its obligations
under this Agreement, and if (i) there has been a material breach by SFC or MSC
of any of their respective representations and warranties hereunder such that
SECTION 7.2(A) will not be satisfied or (ii) there has been the willful breach
on the part of SFC or MSC of any of their respective covenants or agreements
contained in this Agreement such that SECTION 7.2(B) will not be satisfied, and,
35
in both case (i) and (ii), such breach has not been promptly cured within 15
days after notice to SFC and MSC.
Nothing contained in SECTION 8.1 shall be deemed to constitute a waiver
by SFC and/or MSC of their respective rights under this SECTION 9.1.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement pursuant to SECTION 9.1 hereof, this Agreement shall forthwith
become void, and there shall be no liability on the part of any of the parties
hereto PROVIDED, HOWEVER, that in the event this Agreement is terminated
pursuant to SECTIONS 9.1(b) or 9.1(c) hereof, as the case may be, the party
terminating the Agreement shall be entitled to reimbursement for all its
reasonable out-of-pocket expenses incurred in connection with this Agreement
from the other party. No termination of this Agreement shall relieve any person
from liability resulting from a breach by a party of any of its representations,
warranties, covenants or agreements set forth herein.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 ASSIGNMENT: SUCCESSORS AND ASSIGNS. The provisions of
this Agreement shall be binding upon, and inure to the benefit of, the
respective successors, assigns, heirs, executors and administrators of the
parties hereto. This Agreement shall not be assignable by any party without the
prior written consent of the other parties to this Agreement.
SECTION 10.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Closing of the transactions contemplated
hereby.
SECTION 10.3 NOTICES. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be delivered
by hand, by telecopier, by overnight mail or mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
(a) If to APA, to it at:
000 Xxxxxxx Xxxxxx; Xxxxx 000
Xxxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx
with a copy to:
Xxxxxx, Xxxxxxx & Xxxxxxx
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
36
(b) If to any of the Shareholders or the Shareholders
Representative, to the Shareholders Representative
at:
000 Xxxxxxx Xxxxxx; Xxxxx 000
Xxxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx
(c) If to SFC or MSC, to it at:
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxx Xxxxxxxx, Executive Vice President
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
(Or at such other address or addresses as may have been furnished in writing by
the parties hereto).
Notices provided in accordance with this SECTION 10.3 shall be
deemed delivered upon personal delivery, receipt by telecopy or overnight mail,
or 48 hours after deposit in the mail in accordance with the above.
SECTION 10.4 ENTIRE AGREEMENT. This Agreement, together with the
instruments and other documents contemplated to be executed and delivered in
connection herewith, contains the entire agreement and understanding of the
parties hereto, and supersedes any prior agreements or understandings between or
among them, with respect to the subject matter hereof, including, without
limitation, that certain letter of intent dated December 18, 1998 between SFC
and APA, as amended on January 14, 1999, February 26, 1999 and March 19, 1999.
SECTION 10.5 AMENDMENTS AND WAIVERS. Subject to SECTION 7.2, this
Agreement may not be amended or waived (either generally or in a particular
instance and either retroactively or prospectively) except by a written
instrument signed by the party against who enforcement of such amendment,
modification or waiver is sought. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
37
SECTION 10.6 ARBITRATION. Any controversy, dispute or claim arising
out of or relating to this Agreement, or the breach hereof, shall be settled by
arbitration in New York, New York, in accordance with the rules of the NASD, and
any decision or judgment rendered in any such arbitration shall be final and
binding on the parties hereto. In any such arbitration, each party shall pay its
own expenses and the cost and expenses of the arbitrator shall be divided
equally between the parties hereto. Judgment upon the award rendered may be
entered in any court having jurisdiction therefor.
SECTION 10.7 THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended to, or shall be construed so as to create any third party beneficiary
to this Agreement or otherwise confer any rights upon any person, firm or
corporation that is not a party hereto.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10.9 GOVERNING LAW. This Agreement shall be governed by and
interpreted and construed in accordance with the laws of the State of New York,
without reference to is conflicts of laws provisions.
38
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as an instrument of the date first above written.
XXXXXX XXXX ASSOCIATES, INC.
By: /s/ XXXXX XXXXXXXXX
--------------------------------
Name: Xxxxx Xxxxxxxxx
Title: President
/s/ XXXXXX XXXXXXXX
-------------------------------------
Xxxxxx Xxxxxxxx
/s/ XXXXXX XXXXXXXXX
-------------------------------------
Xxxxxx Xxxxxxxxx
/s/ XXXXX XXXXXX
-------------------------------------
Xxxxx Xxxxxx
/s/ XXXXXXX XXXXXXX
-------------------------------------
Xxxxxxx Xxxxxxx
/s/ XXXXX XXXXXXXXX
-------------------------------------
Xxxxx Xxxxxxxxx
/s/ XXXX XXXXX
-------------------------------------
Xxxx XxXxx
XXXXXXX FINANCIAL CORP.
By: /s/ XXXXXX X. XXXXXXX
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
XXXXXX XXXXXXX & CO., INC.
By: /s/ XXXXXX X. XXXXXXX
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
