EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
X.X. XXXXXX EQUITY INVESTORS I, LP
JFL MERGER CO.,
XXXXX INDUSTRIES, INC.,
AND
SHAREHOLDERS OF
XXXXX INDUSTRIES, INC.
August 13, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I. THE MERGER......................................................1
1.1. The Merger......................................................1
1.2. Effective Time..................................................2
1.3. Closing of the Merger...........................................2
1.4. Effects of the Merger...........................................4
1.5. Articles of Incorporation and Bylaws............................4
1.6. Directors.......................................................4
1.7. Officers........................................................4
1.8. Preferred Stock.................................................4
1.9. Exchange Offer..................................................4
1.10. Conversion of the Cancelled Shares..............................4
1.11. Continuing Shares...............................................5
1.12. Appraisal Rights................................................6
1.13. Payment of Merger Consideration.................................6
1.14. Exchange of Certificates........................................7
1.15. Stock Options; Warrants.........................................7
1.16. Additional Consideration........................................8
1.17. Payment of Shareholder Debt and Exercise Proceeds...............9
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS..................9
2.1. Title to Common Stock...........................................9
2.2. Requisite Consents; Nonviolation................................9
2.3. Due Incorporation; Requisite Power and Authority; Authorization
and Enforceability.............................................10
2.4. Capitalization.................................................10
2.5. Subsidiaries, Etc..............................................11
2.6. Financial Data.................................................11
2.7. No Material Changes............................................11
2.8. Undisclosed Liabilities........................................12
2.9. Governmental Authorizations....................................12
2.10. Litigation.....................................................12
2.11. Employee Benefit Plans.........................................12
2.12. Patent, Trademark and Related Matters..........................14
2.13. Real and Personal Property.....................................14
2.14. Insurance......................................................14
2.15. Tax Matters....................................................14
2.16. Environmental Matters..........................................16
2.17. Contracts......................................................17
2.18. Inventory......................................................18
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TABLE OF CONTENTS (cont.'d)
PAGE
2.19. Accounts Receivable............................................18
2.20. Condition of Plant and Equipment...............................18
2.21. Customers and Suppliers........................................18
2.22. Bank Accounts..................................................18
2.23. Labor Practices................................................19
2.24. Government Contracts...........................................19
2.25. Certain Business Practices.....................................20
2.26. Product Liability..............................................21
2.27. Disclosure in the Shareholders' Schedule.......................21
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PARENT.......................21
3.1. Due Incorporation; Requisite Power and Authority...............21
3.2. Requisite Consents; Nonviolation...............................21
3.3. No Prior Activities............................................22
ARTICLE IV. CERTAIN TRANSACTIONS AND AGREEMENTS PRIOR TO THE CLOSING DATE..22
4.1. Cooperation; Confidentiality...................................22
4.2. Business Organization..........................................22
4.3. Further Assurances.............................................22
4.4. Shareholder Acknowledgment, Waiver and Voting Agreement........23
ARTICLE V. COVENANTS REGARDING POST-CLOSING ACTIVITIES....................23
5.1. Shareholders' Indemnification..................................23
5.2. Tax Indemnity..................................................25
5.3. Payment out of Escrow Account; Merger Consideration
Adjustment.....................................................26
5.4. Survival.......................................................26
5.5. Maintenance of Employee Benefit Plans..........................27
5.6. Employee Service Credit........................................27
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF PARENT AND SHAREHOLDERS...........27
6.1. Government Approvals; Litigation...............................27
6.2. Permits and Approvals..........................................27
6.3. Consummation of Debt Issuance..................................27
6.4. Exchange Offer.................................................28
6.5. Escrow Agreement...............................................28
ARTICLE VII. CONDITIONS TO PARENT'S OBLIGATIONS.............................28
7.1. Representations and Warranties.................................28
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TABLE OF CONTENTS (cont.'d)
PAGE
7.2. Closing Deliveries.............................................28
7.3. Due Diligence Review...........................................28
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS......................28
8.1. Representations and Warranties; Performance....................28
8.2. Closing Deliveries.............................................29
ARTICLE IX. FEES AND EXPENSES..............................................29
9.1. Expenses.......................................................29
9.2. Fees or Commissions of Brokers................................29
ARTICLE X. TERMINATION....................................................29
10.1. Termination of Agreement.......................................29
10.2. Effect of Termination..........................................30
ARTICLE XI. MISCELLANEOUS..................................................30
11.1. Time of the Essence............................................30
11.2. Entire Agreement...............................................30
11.3. Press Release and Public Announcements.........................30
11.4. Counterparts...................................................30
11.5. Descriptive Headings...........................................30
11.6. Notices........................................................30
11.7. Arbitration....................................................31
11.8. Choice of Law..................................................32
11.9. Binding Effect; Benefits.......................................32
11.10. Assignability..................................................32
11.11. Waiver and Amendment...........................................32
11.12. Attorneys' Fees................................................32
11.13. Knowledge Standard.............................................32
11.14. Parent's Knowledge of Breach of Shareholders' Representation...32
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EXHIBITS
Exhibit A - List of Holders of Cancelled Shares and Continuing Shares
Exhibit B - Xxxxxxxx & Xxxxxxxx LLP Form of Opinion
Exhibit C - Xxxxxx, Xxxx & Xxxxxxxx LLP Form of Opinion
Exhibit D - Specified Indebtedness
Exhibit E - Escrow Agreement
Exhibit F - Management Bonuses
Exhibit G - Shareholders' Schedule
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of August 13, 1997, is entered into by and among X.X. Xxxxxx Equity Investors
I, L.P., a Delaware limited partnership ("Parent"), JFL MergerCo., a
California corporation ("MergerCo"), Xxxxx Industries, Inc., a California
corporation ("Xxxxx"), and the other persons signatory hereto (each such
person hereinafter referred to as a "Shareholder," and collectively all such
persons hereinafter referred to as the "Shareholders").
RECITALS
WHEREAS, the Boards of Directors of Xxxxx, Parent and MergerCo
have each (i) determined that the Merger (as defined below) is fair and in
the best interests of their respective shareholders and (ii) approved the
Merger in accordance with this Agreement;
WHEREAS, Shareholders own the aggregate number of issued and
outstanding shares of Common Stock, without par value (the "Common Stock"),
and options and warrants to purchase Common Stock of Xxxxx, representing a
majority of the issued and outstanding Common Stock;
WHEREAS, Shareholders, by signing this Agreement, acknowledge
and agree that, pursuant to the Merger, certain shares of Common Stock set
forth on EXHIBIT A under the caption "Cancelled Shares" (the "Cancelled
Shares") will be cancelled and converted into the right to receive the merger
consideration described herein and certain shares of Common Stock set forth
on EXHIBIT A under the caption "Continuing Shares" (the "Continuing Shares")
will, through the process described below, become shares of common stock of
the corporation surviving the Merger; and
WHEREAS, Shareholders have unanimously determined that the
Merger is fair and in their best interests and have agreed to vote to adopt
and approve this Agreement.
AGREEMENT
In consideration of the mutual agreements, provisions and
covenants set forth below, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Parent, MergerCo,
Xxxxx, and Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined below) and upon the
terms and subject to the conditions of this Agreement and in accordance with
the California General
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Corporation Law ("the CGCL"), MergerCo shall be merged with and into Xxxxx
(the "Merger"). Following the Merger, Xxxxx shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate
existence of MergerCo shall cease.
1.2. EFFECTIVE TIME. Subject to the terms and conditions set forth in
this Agreement, an Agreement of Merger (the "Agreement of Merger") shall be
duly executed and acknowledged by MergerCo and Xxxxx, together with the
required officers' certificates attached thereto, and thereafter delivered to
the Secretary of State of the State of California for filing pursuant to the
CGCL effective as of the Closing Date (as defined in Section 1.3). The
Merger shall become effective at such time as a properly executed and
certified copy of the Agreement of Merger is duly filed with the Secretary of
State of the State of California in accordance with the CGCL or such later
time as Parent and Xxxxx may agree upon and set forth in the Agreement of
Merger (the time the Merger becomes effective being referred to herein as the
"Effective Time").
1.3. CLOSING OF THE MERGER.
(a) The closing of the Merger (the "Closing") shall take place
at 10:00 a.m. local time, at the offices of Xxxxxx, Xxxx & Xxxxxxxx LLP, 000
Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, on August 15, 1997, or at
such other time, date and place as the parties may mutually agree, but not
later than August 25, 1997 (the "Closing Date").
(b) At the Closing, the Shareholders shall deliver to Parent:
(i) certificates representing the Cancelled Shares duly
endorsed in blank for transfer or accompanied by duly executed stock powers
assigning the Cancelled Shares in blank, which certificates shall not bear
any legend restricting the transfer of such Cancelled Shares;
(ii) a certificate of good standing for Xxxxx issued by
the Secretary of State of the State of California and a certificate of tax
good standing for Xxxxx issued by the California Franchise Tax Board
certifying that such corporation is in good standing upon the records of
their respective offices, together with certificates to transact business as
a foreign corporation in each jurisdiction set forth in Section 2.3 of the
Shareholders' Schedule, each as of a date not more than ten (10) days prior
to the Closing Date;
(iii) a copy of the Articles of Incorporation and Bylaws
of Xxxxx, as amended to date, and a certified copy of resolutions of the
Board of Directors of Xxxxx authorizing all actions necessary to consummate
the transactions contemplated by this Agreement certified by the secretary or
an assistant secretary of Xxxxx;
(iv) a certificate of Xxxxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxx, Xxxxx X. Xxxxxxxx, Xxxx X. Xxxxxxxxxx and Xxxxx X. Xxxxxxxxxxx
certifying that the conditions set forth in Section 7.1 have been fulfilled;
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(v) the written opinion of Xxxxxxxx & Xxxxxxxx LLP,
special counsel to the Shareholders, substantially in the form attached
hereto as EXHIBIT B, which opinion shall expressly state that Parent's
lenders and investors are entitled to rely thereon;
(vi) the official stock register and minute book of
Xxxxx, certified by the secretary or an assistant secretary of Xxxxx;
(vii) any consents, approvals or other authorizations
necessary to effect the transactions contemplated hereby; and
(viii) an executed counterpart of the Escrow Agreement.
(c) At the Closing, Parent shall deliver, or shall cause the
Surviving Corporation to deliver, to Shareholders:
(i) the Aggregate Merger Consideration;
(ii) certificates representing the Surviving Shares in
accordance with Section 1.14;
(iii) a long-form certificate of good standing for Parent
issued by the Secretary of State of the State of Delaware, a certificate of
good standing for MergerCo issued by the Secretary of State of the State of
California and a certificate of tax good standing for MergerCo issued by the
California Franchise Tax Board certifying that Parent or MergerCo, as the
case may be, is in good standing upon the records of their respective
offices, each as of a date not more than ten (10) days prior to the Closing
Date;
(iv) a certified copy of resolutions of the Board of
Directors of MergerCo and a certified copy of resolutions of the Managing
Members of JFL Investors, L.L.C., the sole general partner of Parent,
authorizing all actions necessary to consummate the transactions contemplated
by this Agreement;
(v) a certificate of Parent certifying that the
conditions set forth in Section 8.1 have been fulfilled;
(vi) the written opinion of Xxxxxx, Xxxx & Xxxxxxxx LLP,
special counsel to Parent, substantially in the form attached hereto as
EXHIBIT C; and
(vii) an executed counterpart of the Escrow Agreement.
(d) At the Closing, Parent shall repay or pay, as appropriate
(i) the aggregate amount, as of the Closing Date, of principal of, together
with any accrued but unpaid interest on, or prepayment penalties associated
with, the indebtedness of Xxxxx set forth on EXHIBIT D hereto and (ii) the
bonuses and other expenses listed on EXHIBIT D hereto as of the Closing Date
(collectively, the "Specified Indebtedness").
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1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the CGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time all the properties, rights,
privileges, powers and franchises of Xxxxx and MergerCo shall vest in the
Surviving Corporation and all debts, liabilities and duties of Xxxxx and
MergerCo shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Surviving Corporation shall be amended and
restated at and as of the Effective Time to read the same as the Articles of
Incorporation and Bylaws of MergerCo immediately prior to the Effective Time
(except that the name of the Surviving Corporation shall remain unchanged as
"Xxxxx Industries, Inc.").
1.6. DIRECTORS. The directors of MergerCo at the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
1.7. OFFICERS. The officers of Xxxxx at the Effective Time shall be
the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
1.8. PREFERRED STOCK. Prior to the Closing, Xxxxx shall create a
series of preferred stock designated the Series A Preferred Stock, no par
value, of Xxxxx (the "Preferred Shares"). If all of the shareholders of
Xxxxx entitled to vote on the Merger approve the Merger, Xxxxx will not issue
any Preferred Shares.
1.9. EXCHANGE OFFER. Immediately prior to the Effective Time, each
Continuing Share shall be exchanged by the holders thereof for one Preferred
Share (the "Exchange Offer"). Each Shareholder surrendering pursuant to the
Exchange Offer a certificate representing Continuing Shares shall receive a
certificate representing a like number of Preferred Shares and, if such
certificate also represents Cancelled Shares, a certificate representing a
like number of Cancelled Shares. Any Continuing Shares not surrendered for
exchange pursuant to the Exchange Offer will be deemed Cancelled Shares for
all purposes in the Merger and in this Agreement. Notwithstanding the
foregoing, if all of the shareholders of Xxxxx entitled to vote on the Merger
approve the Merger, the Exchange Offer will not take place.
1.10. CONVERSION OF THE CANCELLED SHARES.
(a) At the Effective Time, each Cancelled Share issued and
outstanding immediately prior to the Effective Time (which shall constitute
all of the issued and outstanding Common Stock, including those shares issued
pursuant to the exercise of the Company Stock Options (as defined below)
listed on Pages 2 and 3 of EXHIBIT A under the caption "Cancelled Shares,"
other than (i) shares of Common Stock held in Xxxxx'x treasury or by any of
Xxxxx'x subsidiaries, (ii) shares of Common Stock held by Parent, MergerCo or
any other subsidiary of Parent and (iii) the Continuing Shares, including
those shares issued pursuant to the exercise of
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the Company Stock Options listed on Pages 2 and 3 of EXHIBIT A under the
caption "Continuing Shares") shall, by virtue of the Merger and without any
action on the part of MergerCo, Xxxxx or the holder thereof, be converted
into and shall become the right to receive an amount in cash, without
interest, equal to the Merger Consideration PLUS its pro rata share of the
aggregate Exercise Proceeds and the aggregate Shareholder Debt LESS its pro
rata share of the Transaction Expenses. The "Merger Consolidation" shall be
equal to the Aggregate Merger Consideration (as defined below) divided by the
number of Fully Diluted Shares (as defined below). The number of Fully
Diluted Shares shall be the number of outstanding shares of Common Stock PLUS
the number of outstanding Preferred Shares PLUS the number of shares of
Common Stock underlying the Warrant (as defined below), each determined as of
the Closing Date. The amount of the Merger Consideration is subject to
adjustment pursuant to Section 1.16. Notwithstanding the foregoing, if
between the date of this Agreement and the Effective Time, the Cancelled
Shares shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
then the Merger Consideration contemplated by the Merger shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) The consideration for the Merger (the "Aggregate Merger
Consideration") shall consist of:
(i) cash in the amount of (x) $137,500,000 MINUS (y) the
Specified Indebtedness (the "Cash Amount"), PLUS
(ii) the Tax Savings (as defined in Section 1.16).
(c) At the Effective Time, each outstanding share of the common
stock, par value $.01 per share, of MergerCo shall be converted into one
share of Common Stock.
(d) At the Effective Time, each share of Common Stock held in
the treasury of Xxxxx and each share of Common Stock held by Parent, MergerCo
or any subsidiary of Parent, MergerCo or Xxxxx immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of MergerCo, Xxxxx or the holder thereof, be cancelled, retired and
cease to exist and no payment shall be made with respect thereto.
1.11. CONTINUING SHARES. Upon consummation of the Merger, each
Continuing Share, including those shares issued pursuant to the exercise of
the Company Stock Options listed on Pages 2 and 3 of EXHIBIT A under the
caption "Continuing Shares" or each Preferred Share will become the right to
receive (i) that portion of the Merger Consideration consisting of the Tax
Savings, (ii) its pro rata share of the aggregate Exercise Proceeds and the
aggregate Shareholder Debt LESS its pro rata share of the Transaction
Expenses and (iii) one share of Common Stock of the Surviving Corporation (a
"Surviving Share"). All such Surviving Shares will be registered on the
stock transfer books of the Surviving Corporation.
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1.12. APPRAISAL RIGHTS. The holders of Shares shall be entitled to such
appraisal rights as provided in the CGCL.
1.13. PAYMENT OF MERGER CONSIDERATION.
(a) The Merger Consideration shall be paid:
(i) On the Closing Date, by paying the Net Cash Amount
(as defined below) to either Xxxxxx X. Xxxxxx or Xxxxxxx X. Xxxxxx (acting
separately or jointly, the "Paying Agent"), as agent for and for the benefit
of the shareholders of Xxxxx and the holders of the Company Stock Options as
more specifically set forth in the Shareholder Representative and Paying
Agent Agreement (the "Paying Agent Agreement") by wire transfer in
immediately available funds to the account designated by the Paying Agent and
provided to the Parent. The "Net Cash Amount" shall equal (A) ninety-five
percent (95%) of the Cash Amount LESS (B) the Cash Amount multiplied by the
aggregate number of outstanding Continuing Shares and Preferred Shares
immediately prior to the Effective Time DIVIDED by the number of Fully
Diluted Shares. From the Net Cash Amount paid to the Paying Agent hereunder
each holder shall receive the amount set forth opposite each holder's name on
EXHIBIT A hereto under the caption "Cash Distributed at Close," whether
listed on Page 1, 2 or 3 of EXHIBIT A, which amounts were determined in
accordance with the following formula:
Such holder's Fully Diluted Shares MULTIPLIED BY the Merger
Consideration LESS (x)(i) such holder's pro rata share of the Escrow
Amount as shown on EXHIBIT A, (ii) the number of such holder's
Continuing Shares or Preferred Shares, as the case may be, MULTIPLIED BY
the Cash Amount, DIVIDED BY the number of Fully Diluted Shares, (iii)
the exercise price of each Company Stock Option held by such holder
MULTIPLIED BY the number of shares of Common Stock subject to such
Company Stock Option (regardless of whether such Company Stock Option is
exercised or cancelled prior to the Effective Date) (the "Exercise
Proceeds"), (iv) the aggregate amount of any indebtedness (to the extent
not included in clause (iii)) owed to Xxxxx by such holder as of the
Closing Date (the "Shareholder Debt") and (v) such holder's pro rata
share of the Transaction Expenses (as defined in the Paying Agent
Agreement) PLUS (y) such holder's pro rata share of the aggregate
Exercise Proceeds and the aggregate Shareholder Debt. For purposes of
this Agreement, "pro rata share" shall mean such holder's Fully Diluted
Shares divided by all of the Fully Diluted Shares.
(ii) Five percent (5%) of the Cash Amount (the "Escrow
Amount") by wire transfer in immediately available funds to an account (the
"Escrow Account") in the name of First Trust of California, National
Association, as escrow holder (the "Escrow Holder"), for the benefit of each
shareholder of Xxxxx and each holder of a Company Stock Option in the
respective amounts set forth opposite each holder's name on EXHIBIT A hereto
under the caption "Escrow Withholding," to be distributed pursuant to the
Escrow Agreement, of even date herewith, among Parent, Escrow Holder and the
Shareholders in the form attached hereto as EXHIBIT E; and
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(iii) the Tax Savings shall be paid as described in and in
accordance with Section 1.16.
(b) In the event that any Certificate representing Cancelled
Shares shall have been lost, stolen or destroyed, the Parent shall issue in
exchange therefor, upon the making of an affidavit of that fact by the holder
thereof, such Merger Consideration as may be required pursuant to this
Agreement; PROVIDED, HOWEVER, that Parent may, in its discretion, require the
delivery of a suitable bond or indemnity.
(c) All Merger Consideration paid upon the surrender for
exchange of Shares in accordance with the terms hereof shall be deemed to
have been paid in full satisfaction of all rights pertaining to such Shares,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates are presented to the Surviving Corporation for any reason they
shall be cancelled and exchanged as provided in this Article I.
(d) Neither Parent nor the Surviving Corporation shall be liable
to any holder of Shares for cash delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.14 EXCHANGE OF CERTIFICATES. At the Closing, (i) Parent shall
receive one or more certificates representing the Surviving Shares upon
cancellation of the shares of common stock of MergerCo pursuant to the
Merger, (ii) each Shareholder holding a certificate representing both
Cancelled Shares and Continuing Shares or Preferred Shares, as the case may
be, shall, upon surrender of such certificate, receive one or more
certificates representing a number of Surviving Shares equal to the number of
Continuing Shares or Preferred Shares, as the case may be, represented by the
certificate surrendered and (iii) each Shareholder holding a certificate
representing Preferred Shares shall, upon surrender of such certificate,
receive one or more certificates representing a like number of Surviving
Shares.
1.15. STOCK OPTIONS; WARRANTS. Set forth on Page 2 and 3 of EXHIBIT A
are each outstanding option and/or warrant to purchase Common Stock issued
pursuant to any plans or agreements of Xxxxx (a "Company Stock Option"), to
the extent vested in accordance with its terms (including by reason of the
transactions contemplated by this Agreement), as of the date hereof. As of
the Effective Time, each of the warrants listed on EXHIBIT A (a "Warrant")
shall be cancelled and each holder of a Warrant shall be entitled to receive
from Parent in exchange for each share of Common Stock subject to such
Warrant cash in an amount equal to the difference between (i) the sum of the
Merger Consideration PLUS the pro rata Exercise Proceeds and Shareholder Debt
and (ii) the sum of the exercise price per share of such Warrant and the pro
rata Transaction Expenses, payable pursuant to the terms of Section 1.13.
Immediately prior to the Effective Time (and the occurrence, if at all, of
the Exchange Offer), all of the Company Stock Options except the Warrants
will be exercised by, and the number of shares of Common Stock subject to
such exercised Company Stock Options will be issued to, the holders thereof,
either as Continuing Shares
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>
or as Cancelled Shares as indicated on Pages 2 and 3 of EXHIBIT A. At or
before the Effective Time, Xxxxx shall cause to be effected any necessary
amendments to existing plans and agreement of Xxxxx to give effect to the
provisions of this Section 1.15.
1.16 ADDITIONAL CONSIDERATION.
(a) Xxxxx shall pay to the Paying Agent, for the benefit of the
holders of any Fully Diluted Shares, on a pro rata basis, as Merger
Consideration, any Tax Savings (as hereinafter defined) realized by Xxxxx or
the Surviving Corporation as a result of (i) the exercise or cancellation of
compensatory stock options which are outstanding as of the date of this
Agreement; (ii) the write-off of any unamortized financing costs and the
payment of any amounts of original issue discount by Xxxxx or the Surviving
Corporation with respect to financing outstanding on the date of this
Agreement; (iii) the prepayment of certain fees and expenses by Xxxxx; or
(iv) the payment by Xxxxx after the date of this Agreement and prior to the
Closing of any bonuses to employees of Xxxxx, each as specifically enumerated
on EXHIBIT F hereto, as such Exhibit may be amended by a majority-in-interest
of the Shareholders and delivered to Parent at or before the Closing.
(b) For purposes of this Section 1.16, the term "Tax Savings"
means a reduction in federal, state or local income or franchise tax
liability, determined, as to any taxable period or estimate tax period, by
computing the tax liability of Xxxxx or the Surviving Corporation on a
separate company basis with and without the deductions available to Xxxxx or
the Surviving Corporation as a result of the items covered by Section
1.16(a). Payments hereunder shall be made not later than thirty (30) days
following the date the Tax Savings are realized, through a reduction in taxes
or estimated taxes payable or through the receipt of a refund. In the case
of a refund, "Tax Savings" shall include an allocable portion of the interest
received from the taxing authority with respect to the refund.
(c) Within thirty (30) days of the date Xxxxx or the Surviving
Corporation files its federal income tax return for the period including the
Closing Date, and within thirty (30) days of the date the Surviving
Corporation files its federal income tax return for any succeeding taxable
year until all tax deductions described in Section 1.16(a)have been claimed
by Xxxxx or the Surviving Corporation on its tax returns and all Tax Savings
with respect thereto have been paid (or the period during which such Tax
Savings may be claimed has expired), Parent shall provide to the Paying Agent
a statement of Xxxxx or the Surviving Corporation's independent public
accountants identifying the deductions claimed by Xxxxx or the Surviving
Corporation resulting therefrom. The Paying Agent may dispute the
calculation by notifying Xxxxx or the Surviving Corporation's independent
public accountants, with a copy to Parent, in writing setting forth in
reasonable detail the basis for such dispute, within twenty (20) business
days of the receipt of the calculation. In the event of any such dispute,
Parent and the Paying Agent shall attempt to reconcile their differences, and
any joint resolution in writing and signed by the Parent and the Paying Agent
shall be final, binding and conclusive on Parent, the Surviving Corporation,
the Paying Agent and all of the shareholders of Xxxxx and the holders of the
Company Stock Options. In the absence of such agreement, within twenty (20)
business days of the date of receipt by the Surviving Corporation's
independent public accountants of the Paying
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Agent written notice of such dispute, Parent and Surviving Corporation shall
refer the disputed items for resolution to Xxxxxx Xxxxxxxx LLP (the "Tax
Savings Accounting Firm"), which shall within twenty (20) business days of
such submission, determine and report to the Paying Agent and the Parent upon
the disputed items. Such report shall (i) include the Tax Savings Accounting
Firm's calculation of the Tax Savings and (ii) be final, binding and
conclusive on shareholders of Xxxxx and the holders of the Company Stock
Options and Parent. Such Tax Savings shall be paid to each shareholder of
Xxxxx and each holder of the Company Stock Options in the amount equal to the
quotient of the Tax Savings DIVIDED BY the number of Fully Diluted Shares,
MULTIPLIED BY the sum of number of such holder's shares of Common Stock PLUS
the number of shares of Common Stock subject of the Company Stock Options of
such holder.
1.17 PAYMENT OF SHAREHOLDER DEBT AND EXERCISE PROCEEDS. Upon the
consummation of the Merger, the obligations of the shareholders of Xxxxx and
the holders of the Company Stock Options relating to the Shareholder Debt or
the Exercise Proceeds shall be satisfied from the deductions from the Net
Cash Amount described in Section 1.13 hereof and, therefore shall be fully
paid and extinguished.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
The Shareholders hereby represent and warrant to Parent, severally, but
not jointly, except as otherwise set forth in the schedule of exceptions
attached hereto as EXHIBIT G (the "Shareholders' Schedule"), as set forth
below; PROVIDED HOWEVER, that Shareholders who are no longer employed by
Xxxxx or CHF Capital Partners shall only be deemed to give the
representations and warrants set forth in Sections 2.1, 2.2 and 2.3(b) as to
themselves and shall not be deemed to have given the other representations
and warranties contained in this Article II regarding the business and
operations of Xxxxx.
2.1 TITLE TO COMMON STOCK. Each Shareholder individually represents
and warrants to Parent that Shareholder is the record and beneficial owner of
the Common Stock set forth opposite its name in EXHIBIT A and Shareholder
holds title to the Common Stock and holds title free and clear of all liens,
charges, encumbrances, marital property rights, pledges, mortgages, security
interests, assessments, restrictions, limitations or rights of first refusal
or first offer ("Encumbrances") (other than restrictions on transferability
generally imposed on securities under federal or state securities laws). The
sale and delivery of the Common Stock to Parent pursuant to the Merger
described in Article I hereof will vest in Parent legal and valid title to
the Common Stock, free and clear of any and all Encumbrances, other than
Encumbrances created by Parent.
2.2 REQUISITE CONSENTS; NONVIOLATION. Except as set forth in Section
2.2 of the Shareholders' Schedule, the execution and delivery of this
Agreement by each of Xxxxx and Shareholders do not and the consummation by
each of Xxxxx and Shareholders of the transactions contemplated by this
Agreement will not (a) require the consent, license, permit, approval,
authorization or other action by or any filing with any governmental person
or entity
9
(except such approvals, permits or filings as may be required to
comply with applicable state securities laws), (b) violate or conflict with
(i) the provisions of the Articles of Incorporation or By-Laws of Xxxxx, (ii)
any provision of law, rule or regulation by which Xxxxx or any Shareholder is
bound or to which Xxxxx or any of its properties or the Common Stock is
subject or (iii) any writ, judgment, order, injunction or decree applicable
to any Shareholder or Xxxxx or (c) constitute a default under, violate or
conflict with, permit any third party to modify, terminate, accelerate or
rescind any term or provision of, or require the consent or approval of any
third party to any material contract, note, lease, mortgage, indenture or
other agreement to which Xxxxx is a party or by which Xxxxx is bound or to
which Xxxxx or any of its properties is subject.
2.3 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY; AUTHORIZATION
AND ENFORCEABILITY.
(a) Xxxxx (i) has been duly organized and is validly existing
and in good standing as a corporation under the laws of the State of
California, (ii) is duly qualified to do business in and is in good standing
under the laws of the jurisdictions set forth in Section 2.3 of the
Shareholders' Schedule, which constitute every jurisdiction where the nature
of the business conducted by it makes such qualification necessary, except
where the failure to be so qualified will not adversely affect its business,
prospects or financial position of Xxxxx and (iii) has all requisite
corporate power and authority to own or lease and to operate its properties
and carry on its business as presently conducted. Xxxxx has made available
to Parent true and complete copies of its Articles of Incorporation and
By-Laws.
(b) Each Shareholder and Xxxxx has the requisite power and
authority to execute and deliver and perform this Agreement and the
agreements, certificates, instruments or other documents to be executed and
delivered in connection herewith and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the related documents has been duly authorized by all requisite
action on the part of Xxxxx. This Agreement has been duly and validly
executed and delivered by each Shareholder and Xxxxx and, upon execution and
delivery by the Shareholders and Xxxxx, will constitute the valid and binding
obligation of each Shareholder and Xxxxx, enforceable against each
Shareholder and Xxxxx in accordance with its terms, except to the extent that
such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally and (ii) is subject to general principles of equity.
2.4 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Xxxxx
consists solely of (i) 15,000,000 shares of Class A Common Stock, without par
value, of which 9,398,870 shares are issued and outstanding and (ii)
5,000,000 shares of Convertible Class B Common Stock, without par value, none
of which is issued and outstanding. All of the issued and outstanding shares
of Class A Common Stock and Class B Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. Other than the Common
Stock, Xxxxx does not have outstanding any other voting or equity securities
or interests. Except as set forth in
10
Section 2.4 of the Sellers Schedule, Xxxxx has no outstanding obligations,
understandings or commitments regarding the issuance of any additional shares
of its capital stock, voting or equity securities or interests or other
securities, or any options, rights, warrants or securities exercisable for or
convertible into such shares, securities or interests. There are no
preemptive rights in respect of the shares of Common Stock of Xxxxx.
2.5 SUBSIDIARIES, ETC. Except as set forth in Section 2.5 of the
Shareholders' Schedule, Xxxxx does not own or control, directly or
indirectly, any beneficial equity interest in any corporation, partnership,
joint venture or other legal entity.
2.6 FINANCIAL DATA. Xxxxx has made available to Parent unaudited
balance sheets of Xxxxx as of July 4, 1997 (the "Balance Sheet") and April 4,
1997, and audited balance sheets of Xxxxx as of December 27, 1996, December
29, 1995 and December 30, 1994 and the notes thereto, together with unaudited
statements of profit and loss and changes in financial position of Xxxxx for
the quarters ended July 4, 1997 and April 4, 1997 and audited statements of
profit and loss and changes in financial position of Xxxxx for the 1996, 1995
and 1994 fiscal years and the notes thereto (collectively, the "Financial
Statements"). The Financial Statements described above (a) were prepared in
accordance with the books and records of Xxxxx, (b) were prepared in
accordance with GAAP consistently applied and (c) contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
position of Xxxxx as of their respective dates and the results of Xxxxx'x
operations for the periods then ended.
2.7 NO MATERIAL CHANGES.
(a) Except as otherwise specifically disclosed in Section 2.7 of
the Shareholders' Schedule, since the date of the Balance Sheet, there has
not been (i) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the business or financial position of Xxxxx;
(ii) any labor dispute adversely affecting the business or financial position
of Xxxxx; (iii) any disposition of any capital asset of Xxxxx having a net
book value in excess of $100,000; or (iv) any incurrence, discharge or
satisfaction of any obligation or liability of Xxxxx other than in the
ordinary course of business.
(b) Since the date of the Balance Sheet, except in connection
with the transactions contemplated hereby, Xxxxx has not engaged in any of
the following transactions: (i) issued or committed to issue any shares of
Common Stock (except upon exercise of duly issued stock options which were
outstanding as of such date) or other ownership interest, (ii) directly or
indirectly declared, paid or set aside for payment of any dividend or other
distribution in respect of its capital stock, or redeemed, purchased or
otherwise acquired or committed to acquire any shares or other ownership
interest of Xxxxx, (iii) effected a split or reclassification of any shares
of Xxxxx or a recapitalization of Xxxxx, (iv) increased compensation or other
benefits available to any officer, employee, sales agent or representative of
Xxxxx under any bonus or pension plan or other contract or commitment, other
than in the ordinary course of business in accordance with Xxxxx'x customary
practices (including normal periodic performance reviews and related
compensation and benefit increases) or as required by any pre-existing
contract, (v) other than in the ordinary course of business, created or
permitted
11
to arise any lien or encumbrance upon any of the assets of Xxxxx, except for
liens and encumbrances for Taxes not due, purchase money security interests
and mechanics' liens being disputed by Xxxxx in good faith and by appropriate
proceedings or (vi) altered the manner of keeping Xxxxx'x books, accounts or
records or the accounting practices reflected therein.
2.8 UNDISCLOSED LIABILITIES. Xxxxx has no material liabilities or
obligations (whether absolute, contingent or otherwise), except for (a) those
reflected, reserved against or otherwise disclosed in the Financial
Statements or the notes thereto and not heretofore paid or discharged, (b)
those that are set forth in Section 2.8 of the Shareholders' Schedule, (c)
those not required by GAAP to be reflected, reserved against or otherwise
disclosed in the Financial Statements or the notes thereto or (d) those
incurred in, or as a result of, the ordinary course of business of Xxxxx
since the date of the Balance Sheet.
2.9 GOVERNMENTAL AUTHORIZATIONS. Xxxxx is in compliance with all
material governmental licenses, permits, approvals and other governmental
authorizations ("Permits") necessary to permit the operation of the business
of Xxxxx as presently conducted. To the knowledge of Shareholders, Xxxxx is
in compliance with all federal, state and local laws, ordinances, rules and
regulations applicable to its businesses or properties and not otherwise
dealt with elsewhere in this Article II including building codes and zoning
ordinances and similar laws, currently in effect ("Applicable Laws"). To the
knowledge of Shareholders, neither any Shareholder nor Xxxxx has received any
notification of any asserted present or past failure by Xxxxx to comply with
any Applicable Law or Permit. To the knowledge of Shareholders, neither any
Shareholder nor Xxxxx has received any notification of any proposed special
assessment or any proposed change in property tax, land use or zoning laws
affecting Xxxxx'x owned or leased real property.
2.10 LITIGATION. Except as set forth in Section 2.10 of the
Shareholders' Schedule, there is no pending or, to the knowledge of
Shareholders, threatened action, suit, arbitration, investigation or other
proceeding in any court or before any governmental commission or agency
against Xxxxx, which would have an adverse effect on the business or
financial position of Xxxxx. There is no order, judgment or decree of any
court or governmental authority or agency which specifically applies to Xxxxx
which has or would have an adverse effect on the business or financial
position of Xxxxx. No action, suit, arbitration proceeding, investigation or
other proceeding in any court or before or by any governmental commission or
agency questions or challenges the validity of this Agreement or any action
taken or to be taken pursuant to this Agreement or in connection with the
transactions contemplated hereby.
2.11 EMPLOYEE BENEFIT PLANS.
(a) Xxxxx maintains no Employee Benefit Plan other than those
listed in Section 2.11 of the Shareholders' Schedule (the "Listed Plans").
To the knowledge of Shareholders:
(i) each Listed Plan is, and at all times while
maintained by Xxxxx or any of its ERISA Affiliates has been, operated in
material compliance with all applicable provisions of law, including
provisions of ERISA and the regulations thereunder;
12
(ii) each Listed Plan which is a Qualified Plan is, and
at all times while maintained by Xxxxx has been, operated in compliance with
the applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder;
(iii) Xxxxx and its ERISA Affiliates have made full and
timely payment of all amounts required to be contributed under the terms of
each Employee Benefit Plan and applicable law or required to be paid as
expenses under such Employee Benefit Plan;
(iv) no Listed Plan which is subject to the minimum
funding standards of Section 412 of the Internal Revenue Code has an
"accumulated funding deficiency" as described in that section;
(v) Xxxxx has received no written communication from the
United States Department of Labor stating that any Listed Plan is in
violation of ERISA or the regulations thereunder;
(vi) Xxxxx has received no written communication from the
Internal Revenue Service determining that any Listed Plan which is intended
to be a Qualified Plan is no longer a Qualified Plan;
(vii) no employee of Xxxxx or former employee of Xxxxx
shall accrue or receive additional benefits, service or accelerated rights to
payment under any Listed Plan, including the right to receive any parachute
payment as defined in Section 280G of the Code or become entitled to
severance, termination allowance or similar benefits as a direct result of
the transactions contemplated by this Agreement, except as set forth in
Section 2.11(a) of the Shareholders' Schedule;
(viii) there is no litigation pending by or against any
Listed Plan; and
(ix) Shareholders have heretofore made available to
Parent true and complete copies of each Form 5500, summary plan description
or other disclosure document related to each Listed Plan.
(b) As used in this Section 2.11, the term "Employee Benefit
Plan" means an "employee pension benefit plan" as defined in Section 3(2)(A)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), other than
a Multiemployer Plan, and an "employee welfare benefit plan" as defined in
Section 3(l) of ERISA. As used in this Section 2.11, the term "Qualified
Plan" means a pension, profit sharing or stock bonus plan described in
Section 401 of the Internal Revenue Code. "ERISA Affiliate" of Xxxxx means
any person that, together with Xxxxx as of the relevant measuring date under
ERISA, was or is required to be treated as a single employer under Section
414 of the Code.
2.12 PATENT, TRADEMARK AND RELATED MATTERS.
(a) All registered patents, patent registration applications,
registered trademarks, trademark registration applications, registered
service marks, service xxxx
13
registration applications registered in the name of Xxxxx in the United
States Patent and Trademark Office or any state patent or trademark registry,
all material trade names used by Xxxxx and all material license agreements in
which Xxxxx is the licensee at the date of this Agreement (collectively, the
"Intellectual Property Rights") are listed in Section 2.12(a) of the
Shareholders' Schedule. Except to the extent, if any, set forth in Section
2.12(a) of the Shareholders' Schedule, such Intellectual Property Rights are
(i) in good standing, valid and adequate to permit Xxxxx to conduct its
business as presently conducted, (ii) to the knowledge of Shareholders, not
infringing upon any intellectual property rights of other persons and (iii)
not the subject of any claims of infringement with respect to which Xxxxx has
received notice.
(b) All of the material license agreements in which Xxxxx is the
licensor at the date of this Agreement are listed in Section 2.12 of the
Shareholders' Schedule.
2.13 REAL AND PERSONAL PROPERTY. Section 2.13 of the Shareholders'
Schedule contains a list of all real and personal property owned or leased by
Xxxxx as of the date hereof having, in the case of leased property, an annual
lease obligation in excess of $25,000 or, in the case of owned property, a
book value in excess of $100,000. All such property is owned in fee or held
under valid leases. There is no existing default on the part of Xxxxx under
any of such leases nor, to the knowledge of Shareholders, any facts that
would, with the passage of time, constitute such a default.
2.14 INSURANCE. Section 2.14 of the Shareholders' Schedule lists all
material insurance policies covering Xxxxx, its employees and directors, or
its properties. All such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the Closing
Date have been paid or accrued, and no notice of cancellation or termination
has been received with respect to any such policy. Xxxxx has not received
any notification that material changes are required in the conduct of Xxxxx'x
business as a condition to the continuation of coverage under or renewal of
any such policy. Xxxxx has heretofore made available to Parent true and
complete copies of all such policies.
2.15 TAX MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) "Tax" or "Taxes" shall mean any and all taxes
(whether federal, state, local or foreign), including, without limitation,
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupation, value added ad valorem transfer
and other taxes, duties or assessments of any nature whatsoever, together
with any interest, penalties or additions to tax imposed with respect
thereto.
(ii) "Tax Returns" shall mean any returns, reports and
forms required to be filed with any federal, state, local or foreign
government.
(b) TAX RETURNS FILED AND TAXES PAID. To the knowledge of
Shareholders, all Tax Returns required to be filed by Xxxxx have been duly
filed on a timely basis and all Taxes
14
shown to be payable on the Tax Returns or on subsequent assessments have been
paid in full on a timely basis or are being disputed in good faith by Xxxxx.
Except as set forth on Section 2.15(b) of the Shareholders Schedule, to the
knowledge of Shareholders, there are no proposals or challenges by any Taxing
authority that will have the effect of increasing the Company's taxable
income or reducing the Company's Tax deductions after the Closing Date.
(c) TAX RESERVES. Xxxxx'x liability for unpaid Taxes for all
periods ending before the date of this Agreement has been accrued in the
Financial Statements, including income taxes and related deferred taxes,
applicable to all periods ending on or before the date of this Agreement in
conformity with GAAP, adjusted for operations and transactions in the
ordinary course of business of Xxxxx since December 27, 1996, in accordance
with past custom and practice. Xxxxx'x liability for Taxes (other than
deferred taxes) accrued in the Financial Statements is sufficient to satisfy
all Tax Liabilities of the Company for all taxable periods ending on or
before the date of this Agreement.
(d) TAX RETURNS FURNISHED. For all periods ending on and after
December 31, 1992, Xxxxx has made available to Parent true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by Xxxxx or on behalf of
Xxxxx relating to Taxes and (ii) all pro-forma separate federal and state
income or franchise tax returns for Xxxxx.
(e) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. Except
as set forth in Section 2.15 of the Shareholders' Schedule, no deficiencies
have been asserted with respect to Taxes of Xxxxx. Xxxxx is neither a party
to any action or proceeding for assessment or collection of Taxes, nor to the
knowledge of Shareholders, has such event been asserted or threatened against
Xxxxx or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Tax Returns of Xxxxx.
Except as set forth in Section 2.15 of the Shareholders' Schedule, the Tax
Returns of Xxxxx have never been audited by a government or taxing authority,
nor to the knowledge of Shareholders, is any such audit in process, pending
or threatened.
(f) TAX ELECTIONS AND SPECIAL TAX STATUS. Xxxxx is not a party
to any safe harbor lease within the meaning of Section 168(f)(8) of the Code,
as in effect prior to amendment by the Tax Equity and Fiscal Responsibility
Act of 1982. Xxxxx is not a "consenting corporation" under Section 341(f) of
the Code. Xxxxx has not entered into any compensatory agreements with
respect to the performance of services which payment thereunder would result
in a nondeductible expense to Xxxxx pursuant to Section 280G or Section 162
of the Code or any excise tax to the recipient of such payment pursuant to
Section 4999 of the Code. Xxxxx is not a "United States real property
holding corporation" within the meaning of Section 897 of the Code.
(g) AFFILIATED CORPORATIONS. Xxxxx has not been a member of an
affiliated group of corporations within the meaning of Section 1504 of the
Code.
15
2.16 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) "Company Facility" means any real property or any
other facility presently or previously owned, operated or leased by Xxxxx
since December 9, 1988.
(ii) "Hazardous Materials Laws" shall mean the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended (42 U.S.C. Section 9601 et seq.); the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.); Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.); any so-called "Superfund"
law; and any other law, regulation or order regulating, relating to or
imposing liability or standards of conduct, concerning protection of health
and safety or the environment.
(iii) Hazardous Materials" shall mean any hazardous
substance, pollutant, contaminant, flammable explosives, radioactive
materials, hazardous, toxic or dangerous wastes and any other chemicals,
materials or substances which are identified, defined or regulated pursuant
to any Hazardous Materials Laws, or the release, discharge or exposure to
which is prohibited, limited or regulated by any federal, state or local
government under Hazardous Materials Laws and any petroleum, waste oil and
petroleum by-products, asbestos in any form or urea formaldehyde.
(b) To the knowledge of Shareholders, Xxxxx is in material
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in (i) the Hazardous Materials Laws, (ii) any regulation, code, plan, order,
decree, judgment, notice or demand issued, entered, promulgated or approved
thereunder or (iii) to the knowledge of Shareholders, any proposed law, rule
or regulation which is not in effect as of the date hereof but would have
applicability to the business of Xxxxx upon its effectiveness. Except as set
forth in Section 2.16(b) of the Shareholders' Schedule, to the knowledge of
Shareholders, no Hazardous Material has been generated, used, treated,
stored, released, disposed of, or discharged into the environment, on or from
any Company Facility, nor have Shareholders been notified that any Hazardous
Material has been released on of from any locations at which Xxxxx arranged,
by contract, agreement or otherwise for use, disposal, storage, treatment,
transport for disposal or treatment, of any Hazardous Material. Except as set
forth in Section 2.16 of the Shareholder's Schedule, to the knowledge of
Shareholders, there is no Hazardous Materials deposited or contained in any
existing equipment or otherwise located at any Company Facility. To the
knowledge of Shareholders, Xxxxx is not and will not be subject to any
liability to any third party for any Personal Injury of any person,
including, without limitation, any employee of Xxxxx or former employee of
Xxxxx (A) in any way arising out of any exposure prior to the Closing Date to
any Hazardous Material present at or generated by any Company Facility on or
prior to the Closing Date or (B) in any way arising out of any exposure after
the Closing Date to any Hazardous Material that was present at or generated
by any Company Facility at or prior to the Closing Date.
16
(c) Section 2.16(c) of the Shareholders' Schedule sets forth a
true and complete list of each Company Facility. To the knowledge of
Shareholders, Section 2.16(c) of the Shareholders' Schedule sets forth a true
and complete list of each off-site location to which or at which Xxxxx, or
any agent of Xxxxx, including any employee or former employee of Xxxxx, has
generated, used, stored or disposed of any Hazardous Material since December
9, 1988. To the knowledge of Shareholders, Schedule 2.16(c) of the
Shareholders' Schedule sets forth a true and complete list of each third
party to which or with which Xxxxx, or any agent of Xxxxx, including any
employee or former employee of Xxxxx; has arranged, by contract, agreement or
otherwise for the disposal, storage, treatment, transport for disposal,
storage or treatment of any Hazardous Material since December 9, 1988, and of
each off-site location where such Hazardous Material was disposed, stored or
treated since December 9, 1988.
(d) To the knowledge of Shareholders, Xxxxx has all
environmental permits, licenses, orders, variances, registrations and other
federal, state or local governmental authorizations required for the
handling, use, storage and disposition of Hazardous Materials under Hazardous
Materials Laws that are applicable to Xxxxx'x operations as presently
conducted.
(e) Except as set forth in Section 2.16(e) of the Shareholders'
Schedule, Xxxxx has received no notice from any governmental authority that
Xxxxx is in violation of any of the terms or conditions of its environmental
permits for the handling, use, storage or disposition of Hazardous Materials
under Hazardous Materials Laws.
(f) To the knowledge of Shareholders, true and complete copies
of all environmental reports prepared by third party environmental
consultants related to each Company Facility have previously been provided to
Parent.
2.17 CONTRACTS.
(a) Section 2.17(a) of the Shareholders' Schedule contains a
complete list of each contract of Xxxxx which (i) is made with any officer,
director, shareholder of or any entity directly or indirectly controlling,
controlled by or under common control with Xxxxx, or with any affiliate or
relative of any such officer, director or shareholder that remains executory
on the part of Xxxxx or that has been consummated since January 1, 1994, (ii)
is a contract of employment, (iii) is made with any labor union, or other
labor organization, (iv) is a bank loan or other credit agreement, (v) other
than in connection with outstanding purchase orders, requires, individually,
annual payments of more than $50,000 or aggregate payments over the life of
the contract of more than $250,000, (vi) is for a remaining term of more than
one year and is not cancelable as to all its provisions upon 60 days or less
notice without payment of any material penalty or (vii) is entered into other
than in the ordinary course of business.
(b) To the knowledge of Shareholders, except as set forth in
Section 2.17(b) of the Shareholders' Schedule, as of the Closing Date, Xxxxx
is not a party to any indenture, agreement, lease or other instrument which,
under the circumstances which exist as of the Closing Date, would be
reasonably likely to have a material adverse effect on the business or
17
financial position of Xxxxx if the obligations of the parties thereunder were
substantially performed.
(c) Xxxxx has made available to Parent true and complete copies
of each contract listed in Section 2.17(a) of the Shareholders' Schedule.
Xxxxx and, to the knowledge of Shareholders, each of the other parties to the
contracts set forth in Section 2.17(a) of the Shareholders' Schedule have
performed all material obligations required to be performed by them under
such contracts and, to the knowledge of Shareholders, no event has occurred
which would give any other party to any such contract the right to terminate
or otherwise fail to perform its obligations under the contracts.
2.18 INVENTORY. Except as set forth in Section 2.18 of the
Shareholders' Schedule, as of the date of the Balance Sheet, all inventory of
Xxxxx consisted of a quality and quantity consistent with the past practices
of Xxxxx net of any reserves reflected in the Balance Sheet. The values
reflected on the Balance Sheet of obsolete or substandard items of inventory,
as determined by Xxxxx in consultation with Xxxxx'x accountants, have been
written down to realizable market values or written off, or adequate reserves
therefor have been established, all in accordance with GAAP.
2.19 ACCOUNTS RECEIVABLE. The accounts receivable of Xxxxx reflected
in the Balance Sheet represent sales actually made in the ordinary course of
business, represent valid and enforceable claims, and have been properly
accrued in accordance with GAAP, net of any reserves reflected in the Balance
Sheet. Section 2.19 of the Shareholders' Schedule sets forth an accurate
aging schedule of all accounts receivable reflected in the Balance Sheet.
2.20 CONDITION OF PLANT AND EQUIPMENT. To the knowledge of
Shareholders, there are no material structural defects in the plants of
Xxxxx. To the knowledge of Shareholders, except as set forth in Section 2.20
of the Shareholders' Schedule, the equipment of Xxxxx is in good operating
condition and repair, ordinary wear and tear excepted.
2.21 CUSTOMERS AND SUPPLIERS. Section 2.21 of the Shareholders'
Schedule lists the ten largest customers of each of the aerospace, flooring
and commercial products divisions of Xxxxx and the ten largest suppliers of
each of the aerospace, flooring and commercial products divisions of Xxxxx
for the most recent fiscal year. To the knowledge of Shareholders, since
January 1, 1997, there has been no material adverse change in the business
relationship of Xxxxx with any customer or supplier named on Section 2.21 of
the Shareholders' Schedule. To the knowledge of Shareholders and other than
in the ordinary course of business, no customer or supplier named on Section
2.21 of the Shareholders' Schedule has threatened or expressed an intention
to reduce materially the volume of its purchases from or sales to Xxxxx or
otherwise materially modify its business relationship with Xxxxx.
2.22 BANK ACCOUNTS. Section 2.22 of the Shareholders' Schedule sets
forth the names and locations of all banks, trust companies, brokerage firms
or other financial institutions at which Xxxxx maintains an account, the
account number and type of such account, and the name of each person
authorized to draw thereon or make withdrawals therefrom.
18
2.23 LABOR PRACTICES.
(a) Section 2.23(a) of the Shareholders' Schedule contains a
true and correct list of the ten most highly compensated employees of Xxxxx
(based on annual salary and bonus).
(b) Section 2.23(b) of the Shareholders' Schedule lists each
collective bargaining agreement to which Xxxxx is a party or by which it is
bound. Other than the Collective Bargaining Agreement for Xxxxx'x San Xxxx
facility, which expires October 1997 and the Collective Bargaining Agreement
for Xxxxx HASKON which expires June 6, 2000, no collective bargaining
agreement is currently being negotiated by Xxxxx and, to the knowledge of
Shareholders, no movement to designate a collective bargaining agent to
represent any of Xxxxx'x employees exists or is threatened. There are no
claims for unfair labor practices pending or, to the knowledge of
Shareholders, threatened, between Xxxxx and any of its employees. No
strikes, work stoppages or other labor disputes involving Xxxxx'x other
employees are pending or, to the knowledge of Shareholders, threatened.
Except as set forth in Section 2.23(b) of the Shareholders Schedule, there is
not pending any grievance, procedure or arbitration proceeding under any
collective bargaining agreement covering Xxxxx'x employees or former
employees. Except as set forth in Section 2.23(b) of the Shareholders
Schedule, no charges, audits, investigations, or complaint proceedings are
pending before the Equal Employment Opportunity Commission or any state or
local agency responsible for the prevention of unlawful employment practices.
There is no labor strike, dispute, slowdown or stoppage actually pending or,
to the knowledge of Shareholders, threatened against Xxxxx.
2.24 GOVERNMENT CONTRACTS.
(a) To the knowledge of Shareholders, with respect to each
Government Contract or Bid (in each case, as defined below) to which Xxxxx or
any affiliate of Xxxxx is a party: (i) Xxxxx have fully complied with all
material terms and conditions and all applicable requirements of statute,
rule, regulation, order or agreement, whether incorporated expressly, by
reference or by operation of law; (ii) all representations and certifications
were current, accurate and complete when made, and Xxxxx have fully complied
with all such representations and certifications; (iii) no allegation has
been made, either orally or in writing, that Xxxxx is in breach or violation
of any statutory, regulatory or contractual requirement; (iv) no termination
for convenience, termination for default, cure notice or show cause notice
has been issued; (v) no material cost incurred by Xxxxx or its subcontractors
has been questioned or disallowed; and (vi) other than in the ordinary course
of business, no money due to Xxxxx has been (or has threatened to be)
withheld or set off.
(b) Neither Xxxxx, any affiliate of Xxxxx, nor any of Xxxxx'x
directors, officers, employees, agents or consultants is (or for the last
three years has been) (i) except as set forth in Section 2.24(b) of the
Shareholders' Schedule and to the knowledge of Shareholders, under
administrative, civil or criminal investigation, indictment or information,
audit or internal investigation with respect to any alleged irregularity,
misstatement or omission regarding a Government Contract or Bid; or (ii) to
the knowledge of Shareholders, suspended or debarred from doing business with
the U.S. Government or any state or local government or declared
19
nonresponsible or ineligible for government contracting. Except as set forth
in Section 2.24(b) of the Shareholders' Schedule, to the knowledge of
Shareholders, neither Xxxxx nor any affiliate of Xxxxx has made a voluntary
disclosure to any U.S. Government, state or local government entity with
respect to any alleged irregularity, misstatement or omission arising under
or relating to any Government Contract or Bid. Except as set forth in Section
2.24(b) of the Shareholders' Schedule, to the knowledge of Shareholders,
Xxxxx knows of no circumstances that would warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or
ineligibility on the part of Xxxxx in the future.
(c) To the knowledge of Shareholders, neither the U.S.
Government, any state or local government nor any prime contractor,
subcontractor or vendor is asserting any claim or initiating any dispute
proceeding against Xxxxx, nor is Xxxxx asserting any claim or initiating any
dispute proceeding, directly or directly, against any such party, concerning
any Government Contract or Bid. To the knowledge of Shareholders, there are
no facts of which Xxxxx is aware upon which such a claim or dispute
proceeding may be based in the future.
(d) For purposes of this Section 2.24, the following terms shall
have the meanings set forth below:
(i) "Bid" means any outstanding quotation, bid or
proposal by Xxxxx or any of their Affiliates which, if accepted or awarded,
would lead to a contract with the U.S. Government or any other entity,
including a prime contractor or a higher tier subcontractor to the U.S.
Government, for the design, manufacture or sale of products or the provision
of services by Xxxxx.
(ii) "Government Contract" means any prime contract,
subcontract, teaming agreement or arrangement, joint venture, basic ordering
agreement, letter contract, purchase order, delivery order, Bid, change
order, arrangement or other commitment of any kind relating to the business
of Xxxxx between Xxxxx and (A) the U.S. Government, (B) any prime contractor
to the U.S. Government or (C) any subcontractor with respect to any contract
described in clause (A) or (B).
(iii) "U.S. Government" means the United States government
including any and all agencies, commissions, branches, instrumentalities and
departments thereof.
2.25 CERTAIN BUSINESS PRACTICES. To the knowledge of Shareholders,
none of Xxxxx, any of its subsidiaries or any directors, officers, agents or
employees of Xxxxx or any of its subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreig n
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
2.26 PRODUCT LIABILITY. Except as set forth in Section 2.26 of the
Shareholders' Schedule, to the knowledge of Shareholders, no action, suit,
arbitration or other proceeding, or claim, demand, demand letter, lien or
notice of noncompliance or violation has been asserted in
20
writing against Xxxxx and no event or circumstance has occurred that could
reasonably be expected to constitute the basis of any claim against Xxxxx for
injury to any person or any property suffered as a result of the manufacture,
distribution or sale of any product or material by Xxxxx, including any
claim arising out of the defective or unsafe nature, or allegedly defective
or unsafe nature, of any such product or material, other than any claim (i)
which would not have an adverse effect on the business or financial position
of Xxxxx or (ii) for which the Company has established adequate reserves in
accordance with GAAP on the Balance Sheet and/or which is within the scope
and limits of coverage of a policy of insurance identified in Section 2.14 of
the Shareholder's Schedule.
2.27 DISCLOSURE IN THE SHAREHOLDERS' SCHEDULE. The disclosure in any
Section of the Shareholders' Schedule of an exception to any representation
and warranty shall constitute disclosure of such exception for all applicable
representations and warranties under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
The Parent hereby represents and warrants to Shareholders as follows:
3.1 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY. Each of
Parent and MergerCo is a corporation duly organized, validly existing and in
good standing as a corporation under the laws of the State of Delaware and
the State of California and has all requisite power and authority to execute
and deliver this Agreement and to perform all transactions contemplated by
this Agreement. The execution and delivery of this Agreement by Parent and
MergerCo has been duly authorized and approved by all ne cessary corporate
action; this Agreement constitutes the valid and binding obligation of each
of Parent and MergerCo, enforceable against each of Parent and MergerCo in
accordance with its terms.
3.2 REQUISITE CONSENTS; NONVIOLATION. The execution and delivery of
this Agreement by each of Parent and MergerCo do not, and the consummation by
each of Parent and MergerCo of the transactions contemplated by this
Agreement will not, (a) require the consent, license, permit, approval,
authorization of or other action by or filing with, any governmental person
or entity (except such approvals, permits or filings as may be required to
comply with applicable state securities laws) or (b) violate or c onflict
with (i) the provisions of the Certificate of Incorporation or By-Laws of
either Parent or MergerCo, (ii) any provision of law, rule or regulation by
which either Parent or MergerCo is bound or to which Parent, MergerCo or any
of their respective properties is subject or (iii) any writ, judgment, order,
injunction or decree applicable to either Parent or MergerCo.
3.3 NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization, and the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
MergerCo has neither incurred any obligation or liability nor
21
engaged in any business or activity of any type or kind whatsoever or entered
into any agreement or any arrangement with any person.
ARTICLE IV
CERTAIN TRANSACTIONS AND AGREEMENTS
PRIOR TO THE CLOSING DATE
4.1 COOPERATION; CONFIDENTIALITY.
(a) Xxxxx and Shareholders have provided Parent information
relating to Xxxxx and Shareholders and have permitted Parent to make an
investigation of Xxxxx and its business. To facilitate a smooth transition
in ownership, prior to the Closing Date, Parent, through its officers,
employees, counsel, accountants and other authorized representatives, may
continue to discuss Xxxxx'x business with Shareholders and Xxxxx'x officers,
employees, independent accountants, actuaries, customers, distributor s and
suppliers and other agents during Xxxxx'x normal business hours in a manner
that does not interfere with Xxxxx'x normal business or contravene any
agreement to which Xxxxx is bound. Without limiting the foregoing, Xxxxx
will provide Parent and its consultants and agents access to its real
properties for the purpose of, and will cooperate in, conducting Phase I
environmental assessments thereon.
(b) Parent agrees to hold in confidence, and to cause its
employees, agents, representatives and affiliated companies to hold in
confidence, all information provided to Parent or its representatives by
Shareholders or Xxxxx before or after the date of this Agreement concerning
Xxxxx'x assets, liabilities and operations. Nothing contained in this
Agreement shall in any way diminish Parent's obligations under that certain
Confidentiality Agreement, dated April 4, 1997, by and between Parent and
Xxxxx, and Parent shall continue to be bound by and will continue to abide by
the terms and conditions thereof in addition to its obligations as set forth
in this Agreement.
4.2 BUSINESS ORGANIZATION. Shareholders will cause Xxxxx to use
reasonable efforts consistent with past practice through the Closing Date (i)
to preserve substantially intact its business organization, (ii) to keep
available the services of the present officers and employees of Xxxxx, (iii)
to preserve the present relationships of Xxxxx with all entities or persons
having significant business dealings with it, (iv) operate its business only
in the ordinary course, consistent with past practice, (in cluding, without
limitation, in respect of the level of working capital maintained by Xxxxx)
and (v) continue in full force and effect all existing insurance policies (or
comparable insurance) of or relating to Xxxxx.
4.3 FURTHER ASSURANCES. Each of the parties hereto agrees that it
will, from time to time after the date of the Agreement, execute and deliver
such other certificates, documents and instruments and take such other action
as may be reasonably requested by the other party to carry out the agreements
and consummate the transactions contemplated by this Agreement.
22
4.4 SHAREHOLDER ACKNOWLEDGMENT, WAIVER AND VOTING AGREEMENT.
(a) Each Shareholder, by signing this Agreement, acknowledges
and agrees that, pursuant to the terms of the Merger set forth in this
Agreement, (i) (x) Cancelled Shares will receive the Merger Consideration
upon consummation of the Merger and (y) Continuing Shares or Preferred
Shares, as the case may be, will become Surviving Shares and (ii) in the
event the Exchange Offer does not take place, all shares of Common Stock will
not be treated equally in the Merger within the meaning of Section 110 1 of
the CGCL.
(b) Each Shareholder, by signing this Agreement, whether or not
the Exchange Offer takes place, waives any rights such Shareholder may have
under Section 1101 of the CGCL by reason of the fact that all shares of
Common Stock will not be treated equally in the Merger.
(c) Each Shareholder, by signing this Agreement, agrees to vote
all of its shares of Common Stock in favor of the adoption and approval of
this Agreement at any and all shareholder meetings held for such purpose and
to execute any and all written consents containing a resolution adopting and
approving this Agreement.
ARTICLE V
COVENANTS REGARDING POST-CLOSING ACTIVITIES
5.1 SHAREHOLDERS' INDEMNIFICATION. The provisions of this Section
5.1 shall apply to indemnification for all matters, other than matters
related to Taxes to which Section 5.2 is applicable.
(a) SHAREHOLDERS' INDEMNIFICATION. Subject to the limitation
of Section 5.1(c), Shareholders shall severally, but not jointly, indemnify
and hold Parent and Xxxxx harmless from any liability, damage, deficiency,
loss, cost or expense (including but not limited to reasonable attorneys'
fees and expenses of investigation) actually incurred or paid by Parent or
Xxxxx, arising out of or resulting from (i) the inaccuracy of any
representation or the breach of any warranty made in this Agreement by Xxxxx
or Shareholders to Parent or (ii) any failure of Shareholders to perform or
comply with any of their covenants and agreements set forth in this Agreement.
(b) NOTIFICATION; CONTROL OF PROCEEDINGS.
(i) Parent shall with reasonable promptness give to the
Shareholders written notice if it becomes aware of any liability, loss,
damage, claim, cost and expense with respect to which indemnity may be
asserted pursuant to Section 5.1(a). If any claim is made by a third person
or an action or proceeding commenced for which Parent shall seek indemnity
from Shareholders, Parent shall give to the Shareholders reasonable written
notice of the claim and shall deliver to the Shareholders, withi n ten (10)
days after receipt thereof by Parent or Xxxxx, copies of all notices and
documents (including court papers) relating to such claim.
23
Notwithstanding the foregoing, any failure of the Parent to give prompt
written notice of any claim asserted by it or by any third party shall not
relieve the Shareholders of any indemnification obligation that the
Shareholders may have to Parent except to the extent that the Shareholders
shall have the right to defend against any claim asserted by a third-party at
their expense, and shall give written notice to Parent of the commencement of
such defense within twenty (20) business days after the giving of the written
notice of the claim by Parent.
(ii) Parent shall be entitled to participate with
Shareholders in the defense of any such third-party claim assumed by the
Shareholders and to employ counsel, at its own expense, separate from the
counsel employed by the Shareholders, but shall not be entitled in any way to
release, waive, settle, modify or pay such claim without the written consent
of the Shareholders. In the event Shareholders shall assume the defense of
any third-party claim, Parent shall cooperate in the defense of such action,
and the records of each shall be available to the other with respect to such
defense; PROVIDED, HOWEVER, that the Shareholders shall not, in the defense
of any such action, (A) consent to the entry of any judgment or enter into
any settlement where such entry of judgment or settlement does not include a
provision releasing Parent from all liability with respect to such action or
(B) settle any claim on terms which provide for (x) a criminal sanction or
fine, (y) injunctive relief or (z) monetary damages in excess of the amount
the Shareholders are obligated to pay under this Section 5.1, except, in any
case, with the written consent of Parent (which consent shall not be
unreasonably withheld).
(iii) In the event Shareholders do not accept the defense
of the matter as provided above, or do not notify Parent of their election to
defend such a matter within twenty (20) business days, Parent shall have the
right to defend against such liability in any manner it may deem appropriate;
but no Shareholder shall have any liability with respect to any compromise or
settlement effected without its prior written consent (which consent shall
not be unreasonably withheld).
(c) LIMITATION ON INDEMNIFICATION. Notwithstanding the
provisions of Sections 5.1(a) and 5.1(b) hereof, (i) Shareholders shall not
be liable to Parent on account of any warranty, representation or covenant
made by Shareholders in this Agreement or under any of their indemnities in
this Agreement unless (A) the amount of any single claim exceeds $10,000 and
(B) the aggregate amount of all claims against Shareholders for which
indemnification is sought exceeds $1,200,000 and then only for the am ount by
which such aggregate cumulative liability is in excess of $1,200,000; and
(ii) in no event shall Shareholders' obligations to Parent under Section
5.1(a) exceed, in the aggregate, $8,750,000; PROVIDED, HOWEVER, that the
limitations contained in this Section 5.1(b) shall not apply to any claims
based on a breach of the representations and warranties contained in Sections
2.1, 2.4, 2.24 and 2.25 or based on the fraud on the part of Shareholders.
5.2 TAX INDEMNITY.
(a) For purposes of this Article 5, the term "Tax Indemnitee"
shall mean and include Parent and any corporation or other entity which is,
directly or indirectly, controlled by
24
Parent, or any successor in interest to, or transferee of, Parent, as the
case may be, as determined from time to time, including, without limitation,
Xxxxx and any successor in interest to, or transferee of, Xxxxx.
(b) Each of the Shareholders shall, severally but not jointly,
indemnify and hold harmless Xxxxx and Parent on an after-tax basis from and
against the payment of all Taxes and any losses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses) arising out of or incident to the imposition of any such Tax in
excess of Xxxxx'x current liability accruals for Taxes (excluding reserves
for deferred Taxes) reflected on the December 27, 1996 Financial State ments,
as adjusted for operations and transactions in the ordinary course of
business of Xxxxx since December 27, 1996, in accordance with past custom and
practice:
(i) for which liability is or shall be incurred by an
affiliated group (as defined in Section 1504(a) of the Code as in effect
during the relevant period) of which Xxxxx or any predecessor in interest has
been a member at any time prior to the Closing Date;
(ii) for which liability is or shall be incurred by Xxxxx
or any predecessor in interest with respect to any taxable year or period
beginning prior to the Closing Date;
(iii) resulting from the breach of any representation or
warranty of Shareholders contained in Section 2.15 hereof; and
(iv) resulting from any disallowance, adjustment or
deferral of any of the items described in Section 1.16 hereof for which, and
solely to the extent that, payment with respect to such items has been made
to Shareholders.
(c) For purposes of computing the amount of the Tax liability
subject to indemnification pursuant to paragraph (ii) of subsection (b) and
the amount of Tax liability subject to reimbursement under subsection (d),
any taxable year or other period that begins before and ends after the
Closing Date shall be deemed to end at the close of business on the Closing
Date. Taxes attributable to pre-Closing and post-Closing periods shall be
computed based on a closing of the books method, except that per iodic Taxes
such as real and personal property Taxes shall be prorated.
(d) Xxxxx shall cause to be prepared all returns which are in
respect of the Taxes of Xxxxx or any predecessor-in-interest for taxable
years or periods beginning prior to the Closing Date but which are due to be
filed (taking into account any applicable extensions of time for filing)
after the Closing Date. In preparing such returns, Xxxxx shall exercise its
judgment relating to the determination of the timing of items of income and
deduction in good faith and in a means consistent with prior practice. In
the case of any such return, Shareholders, upon proper notification and
satisfactory documentation of the amount of Tax due with respect to the
return in question, shall pay to Xxxxx, within three (3) business days of
demand by Xxxxx, the amount of Tax due to the extent that the Tax due exceeds
the amount of any accrual on the Closing Balance Sheet for such Tax due.
25
(e) The Tax Indemnitee and Shareholders shall cooperate with
each other in the conduct of any audit or other proceedings involving Xxxxx
or any entity with which it is consolidated or combined for any Tax purposes.
In the event a written claim shall be made by any governmental authority
which, if successful, would result in an obligation on the part of any of the
Shareholders to indemnify any Tax Indemnitee pursuant to this section, the
Tax Indemnitee shall within ten (10) business days of rec eipt of such claim
give notice to Shareholders of the same in writing specifying in reasonable
detail the basis of such claim, action or suit and the facts pertaining
thereto, and shall not make payment of the Tax claimed for at least thirty
(30) days after the giving of such notice. If any of Shareholders wishes to
contest such claim, Shareholders shall have the right to control and make all
decisions regarding such audit or contest, including selection of a forum for
contest, and the Tax Indemnitee agrees that in such event it shall execute,
deliver and file a power of attorney naming the Shareholders and its counsel
or appropriate agent as attorneys-in-fact for such audit or contest and such
other instruments or documents as may be reasonably requested by any the
Shareholders to carry out the provisions of this paragraph; provided,
however, that without the consent of Parent, the Shareholders shall not
settle or otherwise compromise any such audit or contest if it would have the
effect of materially increasing the Xxxxx'x liability for Taxes for any
taxable period after the Closing Date.
5.3 PAYMENT OUT OF ESCROW ACCOUNT; MERGER CONSIDERATION ADJUSTMENT.
(a) Any indemnification or reimbursement payments made pursuant
to this Article 5 shall be paid first from any amounts in the Escrow Account
and the balance shall be payable severally by the Shareholders pursuant to
the terms of the Escrow Agreement. Nothing herein shall be construed to
limit Parent's or Xxxxx'x recourse with respect to amounts owing to either of
them pursuant to this Article 5 to amounts held in the Escrow Account.
(b) Any indemnification payments made pursuant to this Article 5
shall be treated by the Parties as a purchase price adjustment unless
determined otherwise in a final determination as defined in Section 1313 of
the Code.
5.4 SURVIVAL.
(a) The indemnification obligations of Shareholders under
Section 5.1 shall terminate on March 31, 1998 as to any claim not asserted
prior to such date, except that the indemnification obligations of
Shareholders for a breach of Sections 2.1, 2.4, 2.24 or 2.25 shall terminate
upon the expiration of the applicable statute of limitations.
(b) The indemnification obligation of Shareholders under Section
5.2 and an other, covenants, agreements, representations and warranties
relating to Taxes contained in this Agreement shall survive until all
applicable statutes of limitations (including extensions thereof) have
expired with respect to each taxable period or item that is the subject of
such indemnification, covenant, agreement, representation or warranty.
5.5 MAINTENANCE OF EMPLOYEE BENEFIT PLANS. Parent shall not cause
the loss to Xxxxx employees who remain with Xxxxx subsequent to the Closing
Date of any of the sick
26
leave, compensatory time and vacation time accruals actually accrued by them
prior to the Closing Date to which they are entitled as of the Closing Date.
5.6 EMPLOYEE SERVICE CREDIT. Parent agrees to provide the Company
employees with full credit for time of service as an employee of the Company
for purposes of determining eligibility and vesting under the Company's
employee benefit plans and programs.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PARENT AND SHAREHOLDERS
The obligations of Parent and Shareholders to consummate the
transactions contemplated by this Agreement on the Closing Date shall be
subject to the satisfaction of the following conditions, except to the extent
such conditions are waived in writing by Parent and a majority-in-interest of
the Shareholders:
6.1 GOVERNMENT APPROVALS; LITIGATION. All requisite governmental
approvals and authorizations necessary for the consummation of the
transactions contemplated hereby shall have been duly issued or granted. No
action or proceeding by any governmental authority challenging the
transactions contemplated by this Agreement shall be pending or threatened
against any party. No unfavorable decree or order shall exist that would
prevent or make the consummation of any of the transactions contemplated by
th is Agreement unlawful or would result in the payment of damages or other
consequences materially adverse to Shareholders or to the business, prospects
or financial position of Parent or Xxxxx.
6.2 PERMITS AND APPROVALS. Parent, Shareholders and Xxxxx each shall
have received all consents, waivers, approvals, licenses, or other
authorizations required for the execution, delivery and performance of this
Agreement by the parties hereto.
6.3 CONSUMMATION OF DEBT ISSUANCE. By the Closing Date, debt
securities in the principal amount of at least $95,000,000 shall have been
issued or bridge financing in a like principal amount shall have been
obtained, in either case for the purpose of paying the Merger Consideration
and on terms reasonably acceptable to Parent.
6.4 EXCHANGE OFFER. If the Shareholders do not constitute all of the
holders of the Cancelled Shares, an exchange offer shall have been
consummated in accordance with Section 4.4.
6.5 ESCROW AGREEMENT. The Escrow Holder shall have delivered an
executed counterpart of the Escrow Agreement.
27
ARTICLE VII
CONDITIONS TO PARENT'S OBLIGATIONS
The obligations of Parent to consummate the transactions
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by
Parent, such waiver to be evidenced by Parent's consummation of the
transaction contemplated hereby:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties of the Shareholders set forth in this Agreement shall be true
as of the Closing Date with the same effect as though made at such time.
Shareholders shall have performed and complied with all agreements, covenants
and conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
7.2 CLOSING DELIVERIES. Parent shall have received the deliveries
set forth in Section 1.3(b).
7.3 DUE DILIGENCE REVIEW. Parent shall be reasonably satisfied with
its legal, business and financial due diligence review of Xxxxx, which
condition shall be deemed satisfied unless written notice is given to
Shareholders by Parent on or before July 31, 1997.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS
The obligations of Shareholders to consummate the transactions
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by
Shareholders, such waiver to be evidenced by Shareholders' consummation of
the transaction contemplated hereby:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties of Parent set forth in this Agreement shall be true in all
material respects as of the Closing Date, with the same effect as though made
at such time. Parent shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
8.2 CLOSING DELIVERIES. Shareholder shall have received the
deliveries set forth in Section 1.3(c).
28
ARTICLE IX
FEES AND EXPENSES
9.1 EXPENSES. Each of the Parent and Shareholders shall pay such
party's own expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by this Agreement. Without
limiting the foregoing, all fees and expenses of Xxxxxxxx & Xxxxxxxx LLP and
$50,000 of the fees and expenses of Ernst & Young LLP incurred in connection
with the transactions contemplated by this Agreement and all out-of-pocket
expenses of the Shareholders shall be borne by the Shareholders.
9.2 FEES OR COMMISSIONS OF BROKERS. Shareholders and Xxxxx hereby
represent to Parent that they have not dealt with any broker or finder in
this transaction other than Xxxxxx Xxxxxxxxx Xxxxxx & Co., whose fees and
expenses shall be paid by Shareholders. Parent hereby represents to
Shareholders that it has not dealt with any broker or finder in this
transaction.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated at any time before the Closing Date, as
follows, and in no other manner:
(a) by mutual consent of Parent and a majority-in-interest of
the Shareholders;
(b) by either Parent or a majority-in-interest of the
Shareholders if the Closing shall not have occurred on or before 5:00 p.m.,
Pacific Time, on August 25, 1997; PROVIDED that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or results in, the failure of the Closing to have occurred within
such period;
(c) by either Parent or a majority-in-interest of Shareholders
if there has been a material breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the other party and
such breach of a covenant or agreement has not been cured within fifteen (15)
days after notice of such breach has been given to the other party; or
(d) by either Parent or a majority-in-interest of Shareholders
if (i) there shall be a final, non-appealable order of a federal or state
court in effect preventing consummation of the transaction, or (ii) there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the MergerCo by any
governmental entity which would make consummation of the transaction illegal.
29
10.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement by any party pursuant to Section 10.1, this Agreement shall become
void and have no effect, and there shall be no obligations or liability on
the part of any party or its respective officers and directors, except as set
forth in Section 4.1 and Article IX.
ARTICLE XI
MISCELLANEOUS
11.1 TIME OF THE ESSENCE. Time is of the essence in this Agreement.
11.2 ENTIRE AGREEMENT. This Agreement, including the Shareholders'
Schedule, contains the entire agreement of the parties hereto, and supersedes
any prior written or oral agreements between them concerning the subject
matter contained herein. There are no representations, agreements,
arrangements or understandings, oral or written, between any of the parties
to this Agreement, relating to the subject matter contained in this
Agreement, which are not fully expressed herein. The Shareholders' Schedu le
and each Exhibit attached to this Agreement or delivered pursuant to this
Agreement is incorporated herein by this reference and constitutes a part of
this Agreement.
11.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. None of Xxxxx,
Shareholders nor Parent shall issue any press release or make any public
announcement concerning the matters set forth in this Agreement (other than
as required by applicable disclosure rules or regulations) without the
consent of the other party. Xxxxx, Shareholders and Parent will cooperate to
jointly prepare and issue any press release which may be issued to announce
the entering into this agreement or the closing of the transaction co
ntemplated by this Agreement.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
11.5 DESCRIPTIVE HEADINGS. The Article and Section headings in this
Agreement are for convenience only and shall not affect the meanings or
construction of any provision of this Agreement.
11.6 NOTICES. Any notices required or permitted to be given under
this Agreement shall be in writing and shall be deemed sufficiently given (i)
on the date delivered personally, (ii) five (5) days after posting by
registered or certified mail, postage prepaid or (iii) on the date
transmitted by telecopier with confirmation of receipt, addressed as follows:
30
If to Parent or
MergerCo, to: X.X. Xxxxxx & Company
000 Xxxx Xxxxxx, Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx
Telecopier: 000-000-0000
with a copy to: Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telecopier: 000-000-0000
If to Shareholders, to: c/o CHF Capital Partners
000 Xxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx or Xxxxxx X. Xxxxxx
Telecopier: 000-000-0000
with a copy to: Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telecopier: 000-000-0000
If to Xxxxx, to: Xxxxx Industries, Inc.
0000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Telecopier: 000-000-0000
with a copy to: Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telecopier: 000-000-0000
or to such other address or addresses as a party shall have previously
designated by notice to the other parties given in accordance with this
Section.
11.7 ARBITRATION. Any dispute under this Agreement which is not
settled by mutual agreement among the parties hereto, shall be finally
settled by binding arbitration, conducted by and in accordance with the rules
then in effect of the American Arbitration Association. The costs of the
arbitration, including administrative and arbitrators' fees, shall be shared
equally by the parties. Each party shall bear its own costs and attorneys'
and witness' fees. The prevailing party in any arbitration, as determined by
the arbitration panel, shall be entitled to an award
31
against the other party in the amount of the prevailing party's costs and
reasonable attorneys' fees. In making any such award, the arbitration panel
shall take into consideration the outcome of the proceeding and the
reasonableness of the conduct of each such party in connection with the
dispute, in light of the facts known to such party at the time such party
engaged in such conduct. The arbitration panel shall not have authority to
award punitive damages hereunder. The arbitration shall be held in San
Francisco County, California.
11.8 CHOICE OF LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
11.9 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors
and permitted assigns. Nothing in this Agreement, express or implied, is
intended to confer on any person other than the parties or their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.10 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party without the prior written
consent of the other party and any attempted assignment without such consent
shall be void; PROVIDED, HOWEVER, that this Agreement may be assigned by
Parent to an affiliate of Parent which shall have been formed for the purpose
of consummating the transactions contemplated hereby; and PROVIDED, FURTHER,
that Parent or such affiliate may assign its rights under this Agreement
(including its rights to any indemnity hereunder) to any lender as collateral
security.
11.11 WAIVER AND AMENDMENT. Any term or provision of this Agreement
may be waived at any time by the party which is entitled to the benefits
thereof. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. The parties may, by mutual agreement in writing, amend this
Agreement in any respect.
11.12 ATTORNEYS' FEES. In the event of any action or proceeding to
enforce the terms and conditions of this Agreement, the prevailing party
shall be entitled to an award of reasonable attorneys' and experts' fees and
costs, in addition to such other relief as may be granted.
11.13 KNOWLEDGE STANDARD. Whenever this document refers to the
"knowledge" of any person, the term shall mean the actual knowledge of such
person, after due investigation.
11.14 PARENT'S KNOWLEDGE OF BREACH OF SHAREHOLDERS' REPRESENTATION.
If, at any time prior to the Closing, Parent obtains actual knowledge of any
facts or circumstances, not described in the Shareholders' Schedule, that
constitute a breach of a representation and warranty of Shareholders
contained in this Agreement, Parent shall advise Xxxxx and Shareholders of
the existence of such facts and circumstances and that such facts and
circumstances constitute a breach of a representation and warranty as so on
as practicable after Parent obtains such knowledge and in any event prior to
the Closing and Stockholders shall have the right to cure such breach or
amend the Shareholders' Schedule prior to the Closing. Failure of Parent to
so
32
notify Shareholders, however, will not constitute a modification, alteration,
limitation on or waiver of any of Shareholders' obligations hereunder.
33
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been executed
by the parties hereto as of the day and year first above written.
PARENT:
X.X. XXXXXX EQUITY INVESTORS I, L.P.
a Delaware limited partnership
By: JFL Management, L.L.C.
its sole general partner
By: a managing member
By: /s/ Xxxxxx Xxxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxxx
MERGERCO:
JFL MERGER CO.
By: /s/ Xxxxx Xxxxx
-------------------------------------------
Name: Xxxxx Xxxxx
Title: Chief Financial Officer and
Vice President
XXXXX:
XXXXX INDUSTRIES, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Chief Executive Officer
34
SHAREHOLDERS:
XXXXXX, XXXXXX & FLAMEN,
a partnership
By: CHF Corporation,
its General Partner
By: /s/ Xxxxxx X. Xxxxxx
--------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxx
/s/ Xxxx X. Xxxxxxxxxx
------------------------------------
Xxxx X. Xxxxxxxxxx
/s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
/s/Xxxxx X. Xxxxxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxxxxx
/s/ Xxxx X. Xxxx
------------------------------------
Xxxx X. Xxxx
35
/s/ Xxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ Xxxxxx Xxxxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxxxx
/s/ Xxxxxxx Xxxxxxxx
------------------------------------
Xxxxxxx Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxx
MS VENTURES II
By:
---------------------------------
Name:
Title:
THE XXXXXX FAMILY REVOCABLE TRUST
By:
---------------------------------
Name:
Title:
/s/ Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxxx
36
/s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxx
------------------------------------
Xxxxx X. Xxxx
/s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ Xxxxxxx X. Xxxxx, XX
------------------------------------
Xxxxxxx X. Xxxxx, XX
/s/ Xxxxx X. Xxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxx
/s/ Xxxxx X. Xxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxx
/s/ Xxxx Xxxxx
------------------------------------
Xxxx Xxxxx
/s/ Xxxx Xxxxx
------------------------------------
Xxxx Xxxxx
37
/s/ Xxxxxxx XxXxxxx
------------------------------------
Xxxxxxx XxXxxxx
/s/ Xxxx X. Xxxxxx
------------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxx X. Xxx, Xx.
------------------------------------
Xxxxxx X. Xxx, Xx.
/s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
/s/ Xxxxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxxxx X. Xxxxxxxx
/s/ Xxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxx
/s/ Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx
/s/ Hassan Khadgenoori
------------------------------------
Hassan Khadgenoori
/s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxxxxx Xxxxxxxx
------------------------------------
Xxxxxxx Xxxxxxxx
/s/ Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxxx X. Xxxxx
38
/s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
/s/ Xxxx X. Xxxxxx
------------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxxxx
------------------------------------
Xxxx X. Xxxxxxxx
/s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ Xxxxx X. XxXxxxxx
------------------------------------
Xxxxx X. XxXxxxxx
/s/ Xxxxxxxxx Xxxxxxx
------------------------------------
Xxxxxxxxx Xxxxxxx
/s/ Xxxxxxx X. X'Xxxxx
------------------------------------
Xxxxxxx X. X'Xxxxx
/s/ Xxxxxxx Xxxxx
------------------------------------
Xxxxxxx Xxxxx
39
