Exhibit 10(26)
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AGREEMENT AND PLAN OF MERGER
by and among
AUTOMATION ENGINEERING, INC.,
▇▇▇▇▇ ▇▇▇▇▇▇▇ BY, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇,
AXSYS TECHNOLOGIES, INC.
and
AEI ACQUISITION CORP.
Dated as of October 3, 2000
TABLE OF CONTENTS
ARTICLE I THE MERGER.......................................................8
1.1 THE MERGER..............................................8
1.2 MERGER CONSIDERATION AND CONVERSION OF SHARES...........8
1.3 SURRENDER OF CERTIFICATES...............................9
1.4 NO FURTHER OWNERSHIP RIGHTS.............................9
1.5 CLOSING OF TRANSFER BOOKS...............................9
1.6 CLOSING.................................................9
1.7 NO FRACTIONAL SHARES...................................10
1.8 CHANGE IN STRUCTURE....................................10
1.9 ADJUSTMENT OF MERGER CONSIDERATION.....................10
ARTICLE II THE SURVIVING CORPORATION......................................10
2.1 CERTIFICATE OF INCORPORATION...........................10
2.2 BYLAWS.................................................10
2.3 DIRECTORS AND OFFICERS.................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS AND THE COMPANY.................................11
3.1 CORPORATE ORGANIZATION; AUTHORITY......................11
3.2 CAPITALIZATION.........................................12
3.3 SUBSIDIARIES...........................................12
3.4 NO VIOLATIONS..........................................12
3.5 FINANCIAL STATEMENTS...................................13
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES, ETC...............13
3.7 ABSENCE OF UNDISCLOSED LIABILITIES.....................15
3.8 TAXES..................................................15
3.9 EMPLOYEE BENEFITS MATTERS..............................18
3.10 ENVIRONMENTAL MATTERS..................................21
3.11 LITIGATION, ETC........................................21
3.12 COMPLIANCE WITH APPLICABLE LAW.........................22
3.13 CONTRACTS..............................................22
3.14 REAL PROPERTY..........................................24
3.15 CERTAIN FEES...........................................25
3.16 INTELLECTUAL PROPERTY..................................25
3.17 RELATED PARTY TRANSACTIONS.............................27
3.18 LABOR MATTERS..........................................27
3.19 IMPROPER PAYMENTS......................................28
3.20 INSURANCE..............................................28
3.21 SUFFICIENCY OF ASSETS..................................28
3.22 ACCOUNTING MATTERS; REORGANIZATION.....................29
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3.23 OPERATION OF THE BUSINESS OF THE
COMPANY; RELATIONSHIPS................................29
3.24 BANK ACCOUNTS.........................................29
3.25 BOOKS AND RECORDS.....................................29
3.26 ACCOUNTS RECEIVABLE...................................29
3.27 POWER OF ATTORNEY.....................................30
3.28 FULL DISCLOSURE.......................................30
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND
MERGER SUBSIDIARY............................................30
4.1 CORPORATE ORGANIZATION; AUTHORITY......................30
4.2 CAPITALIZATION OF BUYER AND MERGER SUBSIDIARY..........31
4.3 NO VIOLATIONS..........................................31
4.4 SEC DOCUMENTS..........................................32
4.5 FINANCIAL STATEMENTS...................................33
4.6 ACCOUNTING MATTERS; REORGANIZATION.....................33
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS..............33
5.1 AUTHORITY, BINDING EFFECT..............................33
5.2 TITLE..................................................34
5.3 NO VIOLATIONS..........................................34
5.4 ACCREDITED INVESTOR....................................35
5.5 INVESTMENT; SECURITIES LAWS............................35
5.6 RULE 144...............................................35
ARTICLE VI COVENANTS OF THE PARTIES.......................................35
6.1 MUTUAL COVENANTS.......................................35
6.2 COVENANTS OF BUYER.....................................37
6.3 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS..........38
6.4 ADDITIONAL COVENANTS OF THE SHAREHOLDERS...............42
ARTICLE VII CONDITIONS TO THE MERGER......................................42
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.................42
7.2 CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE SHAREHOLDERS...........................43
7.3 CONDITIONS TO THE OBLIGATIONS OF BUYER
AND MERGER SUBSIDIARY..................................44
ARTICLE VIII TERMINATION..................................................45
8.1 TERMINATION............................................45
8.2 EFFECT OF TERMINATION..................................46
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ARTICLE IX MISCELLANEOUS..................................................46
9.1 NOTICES................................................46
9.2 SURVIVAL; INDEMNIFICATION..............................47
9.3 AMENDMENTS, MODIFICATION AND WAIVER....................51
9.4 EXPENSES...............................................51
9.5 SUCCESSORS AND ASSIGNS; BINDING EFFECT.................51
9.6 GOVERNING LAW..........................................52
9.7 SEVERABILITY...........................................52
9.8 THIRD PARTY BENEFICIARIES..............................52
9.9 ENTIRE AGREEMENT.......................................52
9.10 COUNTERPARTS; EFFECTIVENESS............................52
9.11 INTERPRETATIONS; DEFINITIONS...........................53
9.12 CONSENT TO JURISDICTION................................53
9.13 SPECIFIC PERFORMANCE...................................54
EXHIBIT A Escrow Agreement
EXHIBIT B Articles of Incorporation of Surviving Corporation
EXHIBIT C Officers of Surviving Corporation
EXHIBIT D Affiliate Letter
EXHIBIT E Selling Shareholders Agreements
EXHIBIT F Registration Rights Agreement
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TABLE OF DEFINITIONS
Accredited Investor.........................................................27
Acquisition Proposal........................................................32
affiliate...................................................................33
Affiliate Letter............................................................33
affiliated service group....................................................11
Agreement....................................................................1
Annual Financial Statements..................................................7
APB No. 16..................................................................28
Articles of Merger...........................................................2
August 31 Balance Sheet......................................................7
Business Combinations.......................................................28
Buyer........................................................................1
Buyer Ancillary Agreements..................................................23
Buyer Common Stock...........................................................2
Buyer Disclosure Schedule...................................................24
Buyer Financial Statements..................................................25
Buyer Indemnified Parties...................................................40
Buyer SEC Documents.........................................................25
change-in-control...........................................................11
Closing......................................................................3
Closing Date.................................................................3
Closing Price...............................................................45
Code.........................................................................1
common control..........................................................11, 12
Company......................................................................1
Company Ancillary Agreement..................................................5
Company Disclosure Schedule..................................................5
Company Expenses............................................................43
Company Intellectual Property...............................................18
Company Shares...............................................................2
Contract....................................................................15
Contracts...................................................................15
controlled group of corporations............................................11
Copyrights..................................................................18
Damages.....................................................................40
Debt........................................................................44
Decree.......................................................................6
Effective Time...............................................................2
employee benefit plan...............................................11, 12, 40
employee pension benefit plan...............................................12
Encumbrances.................................................................6
Environmental Claim.........................................................14
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Environmental Laws..........................................................14
Equity Related Rights........................................................6
ERISA.......................................................................12
ERISA Affiliate.............................................................12
Escrow Agreement.............................................................3
Escrow Stock.................................................................3
excess parachute payment....................................................13
Exchange Act................................................................24
Filings and Consents.........................................................7
Final Returns...............................................................29
Financial Statements.........................................................7
Governmental Entity..........................................................7
Hazardous Materials.........................................................14
Including...................................................................45
including, without limitation...............................................45
Intellectual Property.......................................................18
Interim Financial Statements.................................................7
Law..........................................................................6
leased employee.............................................................13
Leases......................................................................17
Litigation..................................................................14
Material Adverse Effect......................................................5
MBCL.........................................................................1
Merger.......................................................................1
Merger Subsidiary............................................................1
mulitemployer pension plan..................................................13
multi-employer plan.........................................................11
NASDAQ......................................................................25
Outstanding Company Shares...................................................2
Patents.....................................................................18
Per Share Merger Consideration...............................................2
Permit......................................................................15
Permits.....................................................................15
Person......................................................................32
Plans.......................................................................11
Real Property...............................................................17
Receivables.................................................................22
Registration Rights Agreement...............................................34
Related Party...............................................................20
Release.....................................................................14
Representative..............................................................41
SEC.........................................................................25
Secretary of State...........................................................2
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Securities Act..............................................................27
Selling Shareholder Agreement...............................................34
Share Certificate............................................................2
Shareholder..................................................................1
Shareholder Ancillary Agreements............................................26
Shareholders.................................................................1
SPD.........................................................................12
Subsidiary..................................................................44
Surviving Corporation........................................................1
Tax.........................................................................11
Tax Return..................................................................11
Taxes.......................................................................11
Trademarks..................................................................18
Transfer Taxes..............................................................29
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 3, 2000 (the
"Agreement"), by and among AUTOMATION ENGINEERING, INC., a Massachusetts
corporation (the "Company"), ▇▇▇▇▇ ▇▇▇▇▇▇▇ BY, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇ ▇.
▇▇▇▇▇ (each individually, a "Shareholder" and collectively, the "Shareholders"),
AXSYS TECHNOLOGIES, INC., a Delaware corporation ("Buyer"), and AEI ACQUISITION
CORP., a Massachusetts corporation and a wholly owned subsidiary of Buyer
("Merger Subsidiary").
W I T N E S S E T H :
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WHEREAS, the respective Boards of Directors of Buyer, Merger Subsidiary
and the Company have each approved and declared advisable and in the best
interests of their respective shareholders the execution, delivery and
performance of this Agreement and the merger of Merger Subsidiary with and into
the Company, with the Company as the surviving corporation (the "Merger"), upon
the terms and subject to the conditions set forth herein and in accordance with
the Massachusetts Business Corporation Law (the "MBCL");
WHEREAS, all of the outstanding capital stock of the Company is owned by
▇▇▇▇▇ ▇▇▇▇▇▇▇ By, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇;
WHEREAS, for United States federal income tax purposes, it is intended
that (i) the Merger qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
this Agreement constitute a plan of reorganization within the meaning of Section
368(a) of the Code and the Treasury regulations thereunder;
WHEREAS, the parties intend that the Merger be accounted for as a
pooling-of-interests for accounting purposes; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, agreements and conditions hereinafter set forth, and intending to be
legally bound hereby, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
1.1 THE MERGER. (a) Upon the terms and subject to the conditions of this
Agreement, and in accordance with the MBCL, at the Effective Time (as defined in
Section 1.1(b)), Merger Subsidiary shall be merged with and into the Company,
whereupon the separate existence of Merger Subsidiary shall cease and the
Company shall be the surviving corporation (sometimes referred to herein as the
"Surviving Corporation"), governed by the laws of the Commonwealth of
Massachusetts.
(b) Concurrently with the Closing (as defined in Section 1.6), the
Company, Buyer and Merger Subsidiary shall cause articles of merger with respect
to the Merger (the "Articles of Merger") to be executed and filed with the
Secretary of State of the Commonwealth of Massachusetts (the "Secretary of
State") as provided in the MBCL. The Merger shall become effective on the date
and at the time at which the Articles of Merger have been duly filed with the
Secretary of State or such later time as the Articles of Merger shall specify
(the "Effective Time").
(c) Upon consummation of the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and Merger Subsidiary shall
vest in the Surviving Corporation and all obligations, restrictions,
disabilities, duties, debts and liabilities of the Company and Merger Subsidiary
shall be the obligations, restrictions, disabilities, duties, debts and
liabilities of the Surviving Corporation.
1.2 MERGER CONSIDERATION AND CONVERSION OF SHARES. At the Effective Time,
by virtue of the Merger and without any action on the part of Buyer, Merger
Subsidiary or the Company:
(i) (a) Each of the shares of common stock of the Company, no par
value ("Company Shares"), issued and outstanding immediately prior to the
Effective Time (other than Company Shares held by the Company as treasury stock
or by Buyer, Merger Subsidiary or any other Subsidiary (as defined in Section
9.11) of Buyer) ("Outstanding Company Shares") shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into the
right to receive 13.69095 shares ("Buyer Common Stock"), of common stock of
Buyer, par value $0.01 per share (the "Per Share Merger Consideration"), payable
upon surrender of the certificates formerly representing such Outstanding
Company Shares (each, a "Share Certificate") in the manner provided in Section
1.3. All Outstanding Company Shares shall, by virtue of the Merger and without
any action on the part of the holders thereof, cease to be outstanding and be
canceled and retired, and each holder of a Share Certificate shall thereafter
cease to have any rights with respect to the Company Shares represented thereby
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except the right to receive the Per Share Merger Consideration therefor, without
interest thereon, upon the surrender of the Share Certificate in accordance with
Section 1.3.
(ii) (b) All Company Shares that are held by the Company as treasury
stock and any Company Shares owned by Buyer, Merger Subsidiary or any other
Subsidiary of Buyer shall be canceled and no payment shall be made in respect
thereof.
(iii) (c) Each share of common stock, par value $0.01 per share, of
Merger Subsidiary issued and outstanding immediately prior to the Effective Time
shall be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
1.3 SURRENDER OF CERTIFICATES. At the Closing, the Shareholders shall
deliver to Buyer the Share Certificates representing all of the Outstanding
Company Shares, and Buyer shall deliver to each Shareholder stock certificates
representing that number of shares of Buyer Common Stock equal to the Per Share
Merger Consideration multiplied by the number of Outstanding Company Shares
represented by the Share Certificates surrendered by him, less the number of
shares of Buyer Common Stock equal to such Shareholder's pro rata share of the
Escrow Stock (as defined below). The term "Escrow Stock" means 66,667 shares of
Buyer Common Stock. The Escrow Stock shall be held in escrow pursuant to an
Escrow Agreement substantially in the form of Exhibit A hereto (the "Escrow
Agreement").
1.4 NO FURTHER OWNERSHIP RIGHTS. The Per Share Merger Consideration
delivered upon the surrender for exchange of any Share Certificate in accordance
with the terms hereof shall be deemed to have been delivered (and paid) in full
satisfaction of all rights pertaining to the Company Shares previously
represented by such Share Certificate.
1.5 CLOSING OF TRANSFER BOOKS. After the Effective Time, the stock
transfer books of the Company shall be closed, and no transfer of Company Shares
shall thereafter be made.
1.6 CLOSING. Subject to the provisions of Article VII, the closing of the
transactions contemplated by this Agreement (the "Closing") and all actions
specified in this Agreement to occur at the Closing shall take place at the
offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ at 10:00 a.m., New York time, on the second business day
following the day on which the last of the conditions set forth in Sections 7.1,
7.2 and 7.3 (other than conditions which by their terms are to be satisfied at
the Closing) shall have been fulfilled or waived, or at such other time and/or
place and/or on such other date as Buyer and the Company shall agree (the date
on which the Closing takes place, the "Closing Date"). If the Closing occurs
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other than on December 31, 2000, the parties agree that the tax year of the
Company will be closed and tax items will be allocated pursuant to Section
1362(e)(6)(D) of the Code.
1.7 NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Buyer Common Stock shall be issued upon the surrender for exchange of
Share Certificates pursuant to Section 1.3. Notwithstanding any other provision
of this Agreement, each holder of Outstanding Company Shares exchanged pursuant
to the Merger who would otherwise be entitled to receive a fraction of a share
of Buyer Common Stock (after taking into account all Share Certificates
delivered by such holder) shall receive, in lieu thereof, cash from Buyer in an
amount equal to such fractional part of a share of Buyer Common Stock multiplied
by the Closing Price (as defined in Section 9.11 (d)).
1.8 CHANGE IN STRUCTURE. Buyer may at any time change the method of
effecting the combination with the Company (including without limitation the
provisions of this Article I) if and to the extent it deems such change to be
desirable, including without limitation to provide for a merger of the Company
directly into Buyer or into Merger Subsidiary, in which Buyer or Merger
Subsidiary is the surviving corporation; provided, however, that no such change
shall (A) change the amount or kind of consideration to be issued to holders of
Company Shares as provided for in this Agreement, or (B) cause the combination
not to constitute a "reorganization" within the meaning of Section 368(a) of the
Code.
1.9 ADJUSTMENT OF MERGER CONSIDERATION. In the event of any change in the
Buyer Common Stock between the date of this Agreement and the Effective Time by
reason of any stock split, reverse stock split, stock dividend, subdivision,
reclassification, combination, merger, consolidation, exchange of Buyer Common
Stock or the like, the Per Share Merger Consideration and the other terms set
forth in this Agreement shall be adjusted if and as appropriate.
ARTICLE II
THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. At the Effective Time the articles of
organization of the Company shall be the articles of organization of the
Surviving Corporation, amended as set forth in Exhibit B.
2.2 BYLAWS. The bylaws of Merger Subsidiary, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation
until thereafter amended in accordance with applicable Law (as defined in
Section 3.4).
2.3 DIRECTORS AND OFFICERS. The directors of Merger Subsidiary immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
and the officers of Merger Subsidiary immediately prior to the Effective Time as
well as the individuals listed on Exhibit C hereto shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in accordance with applicable Law.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS AND THE COMPANY
In order to induce Buyer and Merger Subsidiary to enter into this
Agreement, each of the Shareholders and the Company, jointly and severally,
hereby represent and warrant to Buyer and Merger Subsidiary as of the date
hereof and as of the Closing Date as follows:
3.1 CORPORATE ORGANIZATION; AUTHORITY. (a) The Company is a corporation
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation, and has all requisite corporate power and
authority to own, lease and operate the properties owned, leased and operated by
it and to carry on the operations of its business as now being conducted by it.
The Company is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such licensing or qualification
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed or in good standing individually or in the aggregate does
not have a Material Adverse Effect (as defined below). The Company has
heretofore made available to Buyer true and complete copies of its articles of
organization and bylaws as currently in effect. Listed in Section 3.1 of the
disclosure schedule delivered by the Shareholders and the Company to Buyer and
dated the date hereof (the "Company Disclosure Schedule") is each jurisdiction
in which the Company is qualified to do business and in good standing as of the
date of this Agreement. As used herein, any reference to a state of facts,
event, change or effect having a "Material Adverse Effect" means such state of
facts, event, change or effect that has had, has, or would reasonably be
expected to have, a material adverse effect on the assets, liabilities,
business, results of operations, prospects or financial condition of the Company
or the ability of the Company or the Shareholders to consummate the transactions
contemplated hereby.
(b) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and each of the agreements, documents and
instruments to be executed and delivered by it in connection herewith (the
"Company Ancillary Agreements") and to perform its obligations hereunder and
thereunder. The execution and delivery by the Company of this Agreement and
each Company Ancillary Agreement and the performance of its obligations
hereunder and thereunder have been duly and validly authorized by the Board
of Directors of the Company and by the requisite vote or written consent of
each of the Shareholders and no other corporate proceedings or shareholder
proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement or any Company
Ancillary Agreement. This Agreement has been, and each Company Ancillary
Agreement has been, or will have been prior to the Closing, duly executed and
delivered by the Company and each constitutes, or will upon such execution
and delivery constitute, assuming due authorization, execution and delivery
of this Agreement and each Company Ancillary Agreement by each other party
thereto, a valid and binding obligation of
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the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights generally or (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
3.2 CAPITALIZATION. The authorized capital stock of the Company consists
of 200,000 Company Shares. There are 48,694 Company Shares issued and
outstanding and no Company Shares held in the treasury. All of the Outstanding
Company Shares have been duly authorized and validly issued, are fully paid and
nonassessable and are not subject to any preemptive rights. Except as set forth
in this Section 3.2 and Section 3.2 of the Company Disclosure Schedule, there
are outstanding (i) no shares of capital stock or other securities of the
Company, (ii) no options or other rights to acquire from the Company, or to
cause the Company to issue, any capital stock or other securities and no phantom
stock rights, stock appreciation rights or other equity related rights of the
Company (each and all of the foregoing, "Equity Related Rights"), and (iii) no
Contracts (as defined in Section 3.13) obligating or permitting the Company to
redeem or repurchase any shares of capital stock or other securities of the
Company.
3.3 SUBSIDIARIES. The Company does not own, directly or indirectly, any
equity or other ownership interest in any Person (as defined in Section 6.3(b)).
Except as set forth in Section 3.3 of the Company Disclosure Schedule, the
Company is not a party to any Contract to purchase or provide funds to or make
any investment (in the form of a loan, capital contribution or otherwise) in any
Person.
3.4 NO VIOLATIONS. (a) Except as set forth in Section 3.4 of the Company
Disclosure Schedule, neither the execution and delivery by the Company of this
Agreement or any of the Company Ancillary Agreements, nor the performance by the
Company of its obligations hereunder and thereunder, will:
(i) conflict with or result in any breach of any provision of the
articles of organization or bylaws of the Company;
(ii) result in a violation or breach of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or accelerate the performance required by, or give rise to any
right of termination, modification, cancellation or acceleration or result in
the imposition of any liens, pledges, security interests, claims, restrictions
or other encumbrances ("Encumbrances") upon any of the assets of the Company
under, or give rise to any right to compensation or payment under, any Contract
or Permit (as defined in Section 3.12); or
(iii) violate or conflict with any judgment, ruling, order,
injunction or decree (each a "Decree") of any Governmental Entity (as defined in
Section 3.4(b)) or any foreign, federal, state or local statute, law, rule,
regulation,
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or common law (each a "Law") applicable to the Company or by which the Company
or its properties or assets may be bound;
excluding from the foregoing clauses (ii) and (iii) such matters that do not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in Section 3.4 of the Company Disclosure
Schedule, no filing or registration with, notification to, or authorization,
waiver, consent or approval of (collectively, "Filings and Consents"), any court
or legislative, executive, governmental or regulatory authority or agency (each,
a "Governmental Entity") is required in connection with the execution and
delivery of this Agreement or any of the Company Ancillary Agreements by the
Company or the performance by the Company of its obligations hereunder or
thereunder, except (i) the filing of the Articles of Merger in accordance with
the MBCL and (ii) such other Filings and Consents, the failure of which to be
made or obtained does not, individually or in the aggregate, have a Material
Adverse Effect.
3.5 FINANCIAL STATEMENTS. Included as Section 3.5 of the Company
Disclosure Schedule are (i) the balance sheet of the Company as of December 31,
1999 and the related income statement for the fiscal year then ended, (the
"Annual Financial Statements") and (ii) the balance sheet of the Company as of
August 31, 2000 (the "August 31 Balance Sheet") and the related income statement
for the eight month period then ended and the footnotes and schedules thereto
(the "Interim Financial Statements," and collectively with the Annual Financial
Statements, the "Financial Statements"). The Interim Financial Statements are
true and correct in all material respects, except as otherwise disclosed in the
footnotes thereto or in Section 3.5 of the Company Disclosure Schedule, and
fairly present in all material respects the financial position of the Company as
of their date and the results of operations of the Company for the period then
ended in accordance with the principles set forth in the footnotes thereto.
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES, ETC. Except as set forth in
Section 3.6 of the Company Disclosure Schedule, since August 31, 2000, the
Company has conducted its business in the ordinary course consistent with past
practice, and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts which, individually or in the aggregate, has a Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock or other
securities of the Company, or any repurchase, redemption or other acquisition by
the Company of any outstanding shares of capital stock or other securities of,
or other ownership interest in, the Company;
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(c) any sale or other disposition of material properties or assets
of the Company;
(d) any incurrence, assumption or guarantee by the Company of any
Debt (as defined in Section 9.11);
(e) any making of any loan, advance or capital contribution to or
investment in any Person or any defeasance, repayment or retirement of any Debt;
(f) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company which,
individually or in the aggregate, has a Material Adverse Effect;
(g) any transaction made, or Contract entered into, by the Company,
or any relinquishment by the Company of any Contract, Permit, Intellectual
Property or other right, which, individually or in the aggregate, has a Material
Adverse Effect;
(h) any change in any method of accounting or accounting principle
or practice by the Company, or revaluation of any assets of the Company other
than write-offs of accounts receivables in the ordinary course of business
consistent with past practice;
(i) any capital expenditures in excess of $10,000 in any individual
case or $25,000 in the aggregate;
(j) any acceleration of collection of accounts receivable, delay in
payment of accounts payable or changes in cash balances of the Company from the
collection, payment and cash management practices of such Company in the
ordinary course of business consistent with past practice;
(k) any payment, agreement to pay or incurrence of any obligation
for any payment of any contribution or other amount to, or with respect to, any
Plans (as defined in Section 3.9) other than in the ordinary course of business
consistent with past practice pursuant to the terms of such Plan; any increase
in the compensation of any of its directors, officers or employees other than
normal compensation increases associated with annual reviews in the ordinary
course of business to employees who are not officers or directors of the
Company; or any increase in the benefits payable under any pension, retirement
or other Plans; or
(l) any Contract entered into in connection with or in contemplation
of any of the foregoing.
-14-
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section 3.7
of the Company Disclosure Schedule, the Company has no liabilities or
obligations of any kind, whether accrued, absolute or fixed, contingent or
otherwise (and whether or not the subject of any other representation or
warranty hereunder), other than (a) those disclosed, reflected or reserved
against in the August 31 Balance Sheet, and (b) liabilities or obligations
incurred in the ordinary course of business since August 31, 2000 (none of which
is a result of a breach of Contract or violation of Law) which do not,
individually or in the aggregate, have a Material Adverse Effect.
3.8 TAXES. (a) Except as set forth in Section 3.8 of the Company
Disclosure Schedule:
(i) the Company has duly filed, on a cash basis, all Tax Returns (as
defined in Section 3.8(d)) required to have been filed by it in a timely manner
(taking into account all lawful extensions of due dates), all of which Tax
Returns are true and complete in all material respects;
(ii) all Taxes (as defined in Section 3.8(d)) required to have been
paid by the Company have been paid. Adequate reserves have been established in
the August 31 Balance Sheet for the payment of all Taxes of the Company that are
attributable to the period ending on August 31, 2000 that are not yet due and
payable; and adequate reserves have been or will be established in the books and
records of the Company for the payment of all Taxes of the Company that are
attributable to the period beginning after August 31, 2000 and ending on the
Closing Date that are not yet due and payable;
(iii) the Company has complied with all applicable Laws relating to
the withholding of Taxes (including withholding of Taxes pursuant to Sections
1441 and 1442 of the Code or similar provisions under any foreign Laws), and
has, within the time and within the manner prescribed by Law, withheld and paid
over to the proper Governmental Entities all amounts required to be withheld and
paid over under all applicable Laws in connection with amounts paid or owing to
any employee, independent contractor, creditor, shareholder or other third
party;
(iv) no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns of the Company have been given by or on behalf of the Company, and all
Federal income Tax Returns for taxable periods ended prior to January 1, 1997,
have been audited by the Internal Revenue Service or are closed by the
applicable statute of limitations;
-15-
(v) the Company has not requested an extension of time within which
to file any Tax Return in respect of any fiscal year which has not since been
filed;
(vi) the Company has not agreed to, nor is it required to include in
income, any adjustment pursuant to Section 481(a) or 482 of the Code (or similar
provisions of other Law) (nor has any taxing authority proposed any such
adjustment or change of accounting method);
(vii) no power of attorney has been granted by or with respect to
the Company with respect to any matter relating to Taxes;
(viii) all Tax deficiencies which have been claimed, proposed or
assessed against the Company have been fully paid or finally settled, and the
Company is not the subject of any currently ongoing Tax audit;
(ix) no closing agreement pursuant to Section 7121 of the Code (or
any predecessor provision) or any similar provision of any Law has been entered
into by or with respect to the Company, nor has the Company received a ruling
from any taxing authority;
(x) the Company has not filed a consent pursuant to Section 341(f)
of the Code (or any predecessor provision);
(xi) the Company is not obligated by any Contract to indemnify any
other Person with respect to Taxes; the Company is not now nor has it ever been
a party to or bound by any Contract (including, without limitation, any
arrangement required or permitted by applicable Law (including pursuant to
Treasury Regulation Section 1.1502-6 or any analogous provision of state, local
or foreign Law) and including any Tax sharing agreement) which (i) requires the
Company to make any Tax payment to or for the account of any other Person, (ii)
affords any other Person the benefit of any net operating loss, net capital
loss, investment Tax credit, foreign Tax credit, charitable deduction or any
other credit or Tax attribute which could reduce Taxes (including, without
limitation, deductions and credits related to alternative minimum Taxes) of the
Company or (iii) requires or permits the transfer or assignment of income,
revenues, receipts or gains to the Company from any other Person;
(xii) the Company has not disposed of any property in a transaction
being accounted for under the installment method pursuant to Section 453 of the
Code;
(xiii) there are no liens with respect to Taxes upon any of the
properties or assets, real or personal, tangible or intangible, of the Company
-16-
(other than Permitted Encumbrances (as defined in Section 3.14) for Taxes not
yet due); and
(xiv) no jurisdiction where the Company does not file Tax Returns
has claimed that the Company is or may be subject to taxation by that
jurisdiction.
(b) The Company has previously delivered or made available to Buyer
complete and accurate copies of each of: (i) all audit reports, letter rulings
and Technical Advice Memoranda relating to United States federal, state, local
and foreign Taxes due from or with respect to the Company, (ii) all United
States federal Tax Returns and the state, local and foreign Tax Returns filed by
the Company since 1997 and (iii) any closing agreements entered into by the
Company with any taxing authority. The Company will promptly deliver to Buyer
all materials with respect to the foregoing for all matters arising after the
date hereof.
(c) The Company and each of its Shareholders have each made a valid
election, effective as of November 1, 1990 with respect to the Company, to be
treated as an "S" corporation within the meaning of Section 1361(a) of the Code
and within the meaning of analogous state or local provisions in the
jurisdictions set forth on Section 3.8 of the Company Disclosure Schedule. For
federal and applicable state and local income Tax purposes, the Company has
properly qualified as an "S" corporation since the effective date of such
election through the date of this Agreement, and will properly qualify as an "S"
corporation through and until the Closing Date in all jurisdictions in which it
is subject to Tax. The Company has never been taxed other than as an "S"
corporation for federal, state and local income tax purposes. Other than the
sale of the Company Shares by the Shareholders pursuant to this Agreement, none
of the Shareholders nor the Company has taken or omitted to take any actions
which would cause the Company to cease to be treated as an "S" corporation for
federal and applicable state and local income Tax purposes.
(d) For purposes of this Agreement, (i) "Tax" (and, with correlative
meaning, "Taxes") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
premium, withholding, alternative or added minimum, ad valorem, inventory,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest, penalty or addition to tax, imposed by any Governmental Entity, and
(ii) "Tax Return" means any return, report or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
-17-
3.9 EMPLOYEE BENEFITS MATTERS. (a) Section 3.9 of the Company Disclosure
Schedule contains a true and complete list of (i) each employment, bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
stock appreciation right or other stock-based incentive, severance or
termination pay, hospitalization or other medical, life, disability or other
insurance, supplemental unemployment benefit, profit sharing, pension, or
retirement plan, program, policy or other Contract, including, without
limitation, each "employee benefit plan," within the meaning of Section 3(3) of
ERISA and each "multi-employer plan" within the meaning of Sections 3(37) or
4001(a)(3) of ERISA, (ii) each individual employment, consulting severance or
"change-in-control" Contract, and (iii) each other compensation or employee
benefit plan, program, policy or other Contract, in each case pursuant to which
the Company or any of its affiliates may have any liability (contingent or
otherwise) (the "Plans"). Except as set forth in Section 3.9 of the Company
Disclosure Schedule, the Company has not expressed any intention or made any
Contract, whether legally binding or not, to maintain or modify any Plan, or to
establish any other compensation or employee benefit plan, program, policy or
other Contract. Except as set forth in Section 3.9 of the Company Disclosure
Schedule, each Plan may be amended, terminated or otherwise discontinued at the
will of the Company, as applicable, without any liability for such amendment,
termination or discontinuance other than for the payment of benefits accrued
through the date thereof.
(b) Section 3.9 of the Company Disclosure Schedule sets forth each
Person which is or has ever been a member of a "controlled group of
corporations" under "common control" or an "affiliated service group" with the
Company within the meaning of Section 414(b), (c) or (m) of the Code, or
required to be aggregated with the Company under Section 414(o) of the Code, or
under "common control" with the Company within the meaning of Section
4001(a)(14) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (any such Person, an "ERISA Affiliate").
(c) Each of the Plans has been administered in accordance with the
terms thereof and all applicable Law, except where the failure to do so does
not, individually or in the aggregate, have a Material Adverse Effect. Each of
the Plans which is an "employee pension benefit plan" (within the meaning of
Section 3(2) of ERISA) and which is intended to be qualified under Section
401(a) of the Code is, and since its inception has been, so qualified and has
received a favorable determination letter from the Internal Revenue Service to
such effect, and the Company is not aware of any circumstances which could
adversely affect such qualification. Except as disclosed in Section 3.9 of the
Company Disclosure Schedule, there is no pending or, to the Company's knowledge,
threatened Litigation (as defined in Section 3.11) relating to any Plan
(including, but not
-18-
limited to, proceedings by the Pension Benefit Guaranty Corporation to terminate
any Plan).
(d) With respect to each of the Plans, the Company has delivered to
Buyer true and complete copies of each material document with respect thereto,
including the following: (i) a copy of the documents that constitute the Plan
(including all amendments thereto), or a written description of any Plan that is
not otherwise in writing; (ii) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding Contract (including
all amendments thereto) and the latest financial statements thereof; (iii) all
Contracts relating to the Plans with respect to which the Company may have any
liability, including, without limitation, insurance Contracts, investment
management Contracts, subscription and participation Contracts and recordkeeping
Contracts; and (iv) for each "employee benefit plan" (within the meaning of
Section 3(3) of ERISA), (w) a copy of the annual report on Form 5500 series (and
all schedules thereto) for the last three years; (x) a copy of the actuarial
valuation reports (if any) for the last three years; (y) a copy of the most
recent Summary Plan Description ("SPD"), all Summaries of Material Modification
issued with respect to such SPD and all other material employee communications
relating to each such Plan; and (z) the most recent determination letter from
the Internal Revenue Service, if any.
(e) None of the Plans is subject to, nor does the Company or any of
its ERISA Affiliates have any liability (contingent or otherwise) under, Title
IV of ERISA or Section 412 of the Code.
(f) Neither the Company, nor any of the Plans, nor any trust created
thereunder nor any trustee or administrator thereof has taken (or omitted to
take) any action as a result of which (either alone or upon the occurrence of
any other event) the Company, any of the Plans, any such trust, any trustee or
administrator thereof, or any party dealing with the Plans or any such trust
could be subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a Tax imposed pursuant to Section 4975 or 4980B of the Code.
(g) All contributions, premiums and payments required to be made
under the terms of any Plan or under Applicable Law have been made.
(h) At no time has the Company or any ERISA Affiliate contributed to
or been required to contribute to, or incurred any withdrawal liability (within
the meaning of Section 4201 of ERISA) to any "multiemployer pension plan"
(within the meaning of Section 3(37) of ERISA). No Plan is a plan described in
Section 4063(a) of ERISA, nor has the Company or any of its affiliates had any
liability in respect of any such plan within the five-year period ending on the
last day of the Company's most recently-ended fiscal year. None of the Plans is
funded by a trust described in Section 501(c)(9) of the Code. No
-19-
"leased employee," as that term is defined in Section 414(n) of the Code,
performs services for the Company and no individual performing services to the
Company or any of its affiliates who is an employee has been treated for tax
purposes or for purposes of the Plans as other than an employee.
(i) Except as set forth in Section 3.9 of the Company Disclosure
Schedule, the Company does not maintain, contribute to, or have any liability in
respect of any Contract which provides or has any liability to provide life
insurance or medical or other employee welfare benefits to any employee or
former employee upon or following retirement or termination of employment, and
the Company has not represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided.
(j) With respect to each Plan that is funded wholly or partially
through an insurance policy, there will be no liability of the Company as of the
Closing under any such insurance policy or ancillary Contract with respect to
such insurance policy (whether in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability) arising wholly
or partially out of events occurring on or prior to the Closing (including the
transactions contemplated hereby), except for liabilities in amounts which have
been accrued on the books of the Company prior to the Closing.
(k) The execution of, and performance of the transactions
contemplated by, this Agreement or any of the Company Ancillary Agreements
(either alone or upon the occurrence of any other event) will not result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee or former employee of the Company and its
affiliates, and no payment made by Buyer or the Company and its affiliates in
connection with the execution of, and performance of the transactions
contemplated by, this Agreement or any of the Company Ancillary Agreements (or
in connection with such other event) will be characterized as an "excess
parachute payment" within the meaning of Section 280G of the Code.
-20-
3.10 ENVIRONMENTAL MATTERS. (a) (i) "Environmental Claim" means any
Litigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, governmental response or remediation costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (A) the presence or Release of any Hazardous Materials at any
location, or (B) any facts, conditions or circumstances forming the basis of any
violation of any Environmental Law.
(i) (ii) "Environmental Laws" means any Law or Decree relating to
pollution or protection of human health or the environment, including, without
limitation, Laws relating to Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, transport or handling of Hazardous Materials.
(ii) (iii) "Hazardous Materials" means all substances, materials,
wastes, chemicals or compounds defined as "hazardous substances", "oils",
"pollutants" or "contaminants" in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined as such by, or
otherwise regulated under, anY other Environmental Law.
(iii) (iv) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration
of Hazardous Materials into the environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface strata).
(b) Except as disclosed in Section 3.10 of the Company Disclosure
Schedule, (i) the Company has been and is in compliance with all applicable
Environmental Laws (which compliance includes the possession by the Company of
any Permits required under applicable Environmental Laws, all of which are in
full force and effect, and compliance with the terms and conditions thereof),
except where failure to be in compliance does not, individually or in the
aggregate, have a Material Adverse Effect; (ii) there is no Environmental Claim
pending or, to the Company's knowledge, threatened against the Company or
against any Person whose liability for any Environmental Claim the Company has
or may have retained or assumed either by Contract or by operation of Law which,
if adversely determined, individually or in the aggregate, has a Material
Adverse Effect, and (iii) the Company has not received notice nor has it any
knowledge of any facts or conditions that may give rise to any Environmental
Claim.
3.11 LITIGATION, ETC. Except as set forth in Section 3.11 of the Company
Disclosure Schedule, there are no civil, criminal, administrative or arbitral
suits, actions, hearings, complaints, claims, proceedings, audits, examinations
or investigations ("Litigation") pending, or, to the Company's knowledge,
threatened against, relating to or involving the Company (or any of its officers
or directors in connection with the business
-21-
or affairs of the Company) or any properties or rights of the Company. There is
no Litigation pending or, to the Company's knowledge, threatened, challenging
the validity or propriety of the transactions contemplated by this Agreement.
The Company is not subject to any Decree or, to the Company's knowledge, any
other governmental restriction which, individually or in the aggregate, has a
Material Adverse Effect.
3.12 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Section 3.12
of the Company Disclosure Schedule, the Company has been and is in compliance
with all applicable Decrees and Laws (which compliance includes the possession
by the Company of all franchises, grants, authorizations, licenses, permits,
exemptions, consents, certificates or approvals of any Governmental Entity (each
a "Permit" and collectively, "Permits") required under applicable Law, all of
which are in full force and effect, and compliance with the terms and conditions
thereof) except where the failure to be in compliance does not, individually or
in the aggregate, have a Material Adverse Effect. Except as disclosed in Section
3.12 of the Company Disclosure Schedule, no Governmental Entity has indicated in
writing an intention to conduct any investigation, review or audit with respect
to the Company.
3.13 CONTRACTS. (a) Section 3.13 of the Company Disclosure Schedule sets
forth each contract, agreement, commitment, arrangement or understanding,
written or oral, to which the Company is a party or by which it or its
properties or assets may be bound (each, a "Contract" and collectively,
"Contracts"):
(i) for the lease from or to third parties of personal property
with annual payments exceeding $12,000 or any real property;
(ii) concerning a partnership or joint venture with any Person;
(iii) under which the Company has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) Debt or
providing for the imposition of any Encumbrance on any of its
assets, tangible or intangible;
(iv) which contains any non-compete or exclusivity provision with
respect to any business or any geographic area in which
business is conducted with respect to the Company or which
restricts the conduct of any business by the Company or any
geographic area in which the Company may conduct business or
the ability of the Company to solicit for hire or to hire any
Person;
(v) obligating third parties to maintain confidentiality of
information relating to the Company or obligating the Company
to maintain confidentiality of information relating to any
third party;
-22-
(vi) concerning any collective bargaining arrangement or with any
labor union;
(vii) constituting a license, sublicense, permission or other
Contract in respect of, or granting any right to use or
practice any rights under, any Intellectual Property (as
defined in Section 3.16), whether the Company is the licensee
or licensor thereunder (other than off-the-shelf software
licenses), or for the development or acquisition of
Intellectual Property;
(viii) which is a stock purchase agreement, asset purchase agreement
or other acquisition or divestiture Contract entered into by
the Company at any time since its inception;
(ix) with respect to the lending or investing of funds by the
Company to or in any Person;
(x) other than those categories of Contracts otherwise required to
be disclosed by this Section 3.13, requiring payments after
the date hereof to or by the Company of more than $12,000 over
the life of the Contract unless terminable without such
payment by the Company on less than 60 days' notice;
(xi) under which the Company is obligated to pay any earnout or
other contingent purchase price payment;
(xii) not otherwise disclosed in Section 3.13 of the Company
Disclosure Schedule, under which the burdens imposed
thereunder, net of any benefit likely to be realized, are
reasonably likely to have a Material Adverse Effect or which
was not entered into in the usual and ordinary course of
business; or
(xiii) which, individually or with all other Contracts of the same
type or with the same or affiliated parties (and whether or
not covered by any other clause of this Section 3.13), is
material to the Company irrespective of amount.
(b) The Company has delivered or otherwise made available to Buyer a
true and complete copy of each written Contract (including all amendments
thereto) and a summary of the material terms of each oral Contract required to
be listed in Section 3.13 of the Company Disclosure Schedule. Neither the
Company, nor, to the Company's knowledge, any other party is in breach or
default thereof, and no event has occurred which with notice or lapse of time or
both would constitute a breach or
-23-
default or permit termination or modification thereof or acceleration
thereunder.
(c) Except as set forth in Section 3.13 or Section 3.17 of the
Company Disclosure Schedule, there are no outstanding notes payable from,
accounts receivable from, or advances by the Company to, and the Company is not
otherwise a creditor of, any officer, director, employee or shareholder of or
holder of any other equity interest in the Company.
3.14 REAL PROPERTY. (a) For the purposes of this Agreement, "Permitted
Encumbrances" means (i) mechanics', carriers', workers', repairers',
materialmen's, warehousemen's, landlord's and other similar Encumbrances arising
or incurred in the ordinary course of business, (ii) Encumbrances for current
Taxes not yet due or that are being contested in good faith by appropriate
proceedings for which adequate accruals have been made in the Financial
Statements or, if relating to the period after August 31, 2000, in the books and
records of the Company, (iii) any other covenants, conditions, restrictions,
reservations, rights, easements and other matters affecting title, which do not
individually or in the aggregate materially adversely affect the value or
occupancy of any of the Real Property (as defined below), (iv) zoning, building,
land use, and other similar restrictions imposed by Law, and (v) matters set
forth in Section 3.14 of the Company Disclosure Schedule, none of which matters
individually or in the aggregate has a Material Adverse Effect. The term
"Leases" means the real property leases, subleases, licenses and use or
occupancy agreements pursuant to which the Company is the lessee, sublessee,
licensee, user or occupant of any real property or any interests therein. The
term "Real Property" means all interests in real property leased, subleased,
licensed, used or occupied by the Company pursuant to the Leases. The Company
does not own, nor has it ever owned, any real property.
(b) Section 3.14 of the Company Disclosure Schedule contains a
complete and correct list of all of the Real Property. Each Lease grants the
lessee under the Lease the exclusive right to use and occupy the premises and
rights demised thereunder in accordance with the terms thereof free and clear of
any Encumbrances other than Permitted Encumbrances. The Company has good, valid
and marketable title to the leasehold estate or other interest created under its
Leases free and clear of any Encumbrances other than Permitted Encumbrances.
(c) The Real Property listed in Section 3.14 of the Company
Disclosure Schedule constitutes all interests in real property held by the
Company and constitutes all of the fee, leasehold and other interests in real
property necessary for the conduct of the business of the Company as it is
currently conducted or currently proposed to be conducted. The use and operation
of the Real Property in the conduct of the business of the Company does not
violate any
-24-
instrument of record or Contract affecting the Real Property, except for such
violations that do not, individually or in the aggregate, have a Material
Adverse Effect.
3.15 CERTAIN FEES. Except as set forth in Section 3.15 of the Company
Disclosure Schedule, neither the Shareholders nor the Company has employed any
financial advisor or finder or has otherwise incurred any liability for any
financial advisory or finders' fees in connection with this Agreement or the
transactions contemplated hereby.
3.16 INTELLECTUAL PROPERTY. (a) For purposes of this Agreement, the term
"Intellectual Property" includes (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice) and all improvements
thereon, (ii) all patents, patent applications and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions and reexaminations thereof (collectively, "Patents"), (iii) all
trademarks, service marks, trade dress, logos, trade names and corporate names
(collectively, "Trademarks"), together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, (iv) all copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith (collectively, "Copyrights"),
(v) all mask works and all applications, registrations and renewals in
connection therewith, (vi) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals), (vii) all
computer software (including data and related documentation), (viii) all other
proprietary rights, (ix) all copies and tangible embodiments of the foregoing
(in whatever form or medium) and (x) all licenses or agreements in connection
with the foregoing. The term "Company Intellectual Property" means all
Intellectual Property used at any time in or held for use in connection with or
necessary for the conduct of the business of the Company as currently conducted
or currently proposed to be conducted.
(b) Each item of Company Intellectual Property will be owned or
available for use by the Company on identical terms and conditions immediately
subsequent to the Closing. The Company has taken all necessary and desirable
action to maintain and protect each item of Company Intellectual Property.
Section 3.16 of the Company Disclosure Schedule sets forth a list of (i) all
software (other than off-the-shelf commercially available software, the cost of
which does not exceed $1,000 per unit), and (ii) all Patents, Trademarks and
Copyrights, included in the Company Intellectual Property. There is no
restriction or limitation on the right of the Company to transfer any of the
Company Intellectual Property.
(c) The Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
-25-
rights of third parties, and the continued operation of the Company as presently
conducted and as presently proposed to be conducted will not interfere with,
infringe upon, misappropriate or otherwise come into conflict with any
Intellectual Property rights of third parties, except for interferences,
infringements, misappropriations and conflicts which do not, individually or in
the aggregate, have a Material Adverse Effect. The Company has not received any
notice, nor is it the subject of any Litigation, alleging any such interference,
infringement, misappropriation or violation (including any claim that the
Company must license or refrain from using any Intellectual Property rights of
any third party). Other than as set forth on Section 3.16(c) of the Company
Disclosure Schedule, to the Company's knowledge, no third party has interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Company Intellectual Property.
(d) With respect to each item of Company Intellectual Property,
except as set forth in Section 3.13 or 3.16 of the Company Disclosure Schedule:
(i) the Company possesses all right, title and interest in and to
the item, free and clear of any Encumbrance, except minor imperfections of title
and encumbrances, if any, which, individually or in the aggregate, do not
materially adversely affect the value of the Company Intellectual Property
subject thereto or have a Material Adverse Effect;
(ii) the item is not subject to any outstanding Decree;
(iii) no Litigation is pending or, to the Company's knowledge,
threatened, which challenges the legality, validity, enforceability, use or
ownership of the item;
(iv) the Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict with
respect to the item;
(v) each license, sublicense, permission or other Contract covering
the item is legal, valid, binding, enforceable and in full force and effect;
(vi) each license, sublicense, permission or other Contract covering
the item will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the Closing;
(vii) no party to any license, sublicense, permission or other
Contract covering the item is in breach or default thereof, and no event has
occurred which with notice or lapse of time would constitute a breach or default
thereof or permit termination, modification or acceleration thereunder;
-26-
(viii) no party to any license, sublicense, permission or other
Contract covering the item has repudiated any provision thereof;
(ix) with respect to any sublicense covering the item, the
representations and warranties set forth in subsections (v) through (viii) above
are true with respect to the underlying license; and
(x) with respect to each license, sublicense, permission or other
Contract covering the item, the Company has not granted any sublicense or
similar right with respect thereto.
(e) To the Company's knowledge, there are no new products, services,
inventions, procedures or methods that any competitors or other third parties
have developed or marketed or are in the process of doing so which reasonably
could be expected to supersede or make obsolete any product, service or process
of the Company.
3.17 RELATED PARTY TRANSACTIONS. Section 3.17 of the Company Disclosure
Schedule describes all Contracts between the Company, on the one hand, and any
Related Party (as defined below), on the other hand, or under which any Related
Party has any interest whatsoever, which are currently in effect or which, to
the Company's knowledge, were in effect or were consummated at any time on or
after January 1, 1997, and sets forth all current balances payable to or
receivable from such Related Party with respect thereto. For the purpose of this
Agreement, "Related Party" means (i) any officer, director or shareholder of the
Company, (ii) any spouse, former spouse, child, parent, parent of a spouse,
sibling or grandchild of any of the Persons listed in clause (i), and (iii) any
affiliate of any of the Persons listed in clauses (i) and (ii) other than the
Company.
3.18 LABOR MATTERS. (a) Except to the extent set forth in Section 3.18 of
the Company Disclosure Schedule, (i) the Company is in compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, except where the failure to be in
compliance does not, individually or in the aggregate, have a Material Adverse
Effect; (ii) the Company has withheld all amounts required by Law or by
agreement to be withheld from the wages, salaries and other payments to
employees; is not liable for any arrears of wages or any taxes or any penalty
for failure to comply with any of the foregoing; and is not liable for any
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits for employees except where the failure to be in compliance
does not, individually or in the aggregate, have a Material Adverse Effect;
(iii) there is no unfair labor practice complaint or charge against the Company
pending or, to the Company's knowledge, threatened before the National Labor
Relations Board; (iv) there is no labor strike, dispute, slowdown or stoppage
pending or, to the Company's knowledge, threatened against or affecting the
Company and there has been no
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such job action during the past three years; (v) no representation question
exists respecting the employees of the Company, and, to the Company's knowledge,
there are no current organizing activities among the employees of the Company;
and (vi) there is no pending or, to the Company's knowledge, threatened
Litigation between the Company on the one hand, and any current or former
officer or employee, on the other hand, including, without limitation, any
claims for wrongful termination, breach of any express or implied Contract of
employment or violation of equal employment opportunity Laws.
(b) There are no written personnel policies, rules or procedures
applicable to employees of the Company other than those set forth in Section
3.18(b) of the Company Disclosure Schedule. True and complete copies of such
written personnel policies have heretofore been delivered or made available by
the Company to the Buyer.
3.19 IMPROPER PAYMENTS. Neither the Company, nor any other Person acting
on behalf of the Company, has (a) used any corporate or other funds for unlawful
contributions, gifts or entertainment, or has made any unlawful expenditures
relating to political activity of governmental officials or others or
established or maintained any unlawful funds or (b) accepted or received any
unlawful contributions, payments, gifts or expenditures.
3.20 INSURANCE. Section 3.20 of the Company Disclosure Schedule contains a
true and complete description of all policies of fire, liability, production,
completion bond, errors and omissions, workmen's compensation and other forms of
insurance owned or held by the Company currently in effect or in effect at any
time since December 31, 1998 covering the assets, business, operations,
officers, directors or employees of the Company. All current insurance 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 will be paid
prior to the Closing, and no notice of cancellation or termination has been
received with respect to any such policy. Such policies (i) are sufficient for
compliance with all requirements of Law and of all Contracts to which the
Company is a party, (ii) to the Company's knowledge, provide insurance coverage
for the assets and operations of the Company consistent with the coverage
customarily maintained by similarly situated companies, (iii) cover the
respective policy periods set forth in Schedule 3.20 of the Company Disclosure
Schedule and (iv) will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. During the last
three years, the Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
3.21 SUFFICIENCY OF ASSETS. The Company has good and marketable title to,
or has valid leasehold interests in or valid rights under Contracts to use, all
tangible and intangible properties and assets used in or necessary for the
conduct of the business of the Company, free and clear of all Encumbrances other
than (i) Permitted Encumbrances and
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(ii) as set forth in Section 3.21 of the Company Disclosure Schedule. All
tangible properties and assets of the Company are in good working order and
condition, ordinary wear and tear excepted, and adequate and suitable for the
purposes for which they are presently being used.
3.22 ACCOUNTING MATTERS; REORGANIZATION. Neither the Company nor any of
its affiliates has taken or agreed to take any action that would (a) prevent
Buyer from accounting for the business combinations to be effected by the Merger
as a pooling-of-interests for accounting purposes or (b) prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
3.23 OPERATION OF THE BUSINESS OF THE COMPANY; Relationships. (a) Since
August 31, 2000, except for entering into this Agreement, the Company has not
engaged in any transaction which, if done after execution of this Agreement,
would violate Section 6.3(a) of this Agreement except as set forth in Section
3.23 of the Company Disclosure Schedule.
(b) Except as set forth in Section 3.23 of the Company Disclosure
Schedule, since September 30, 1999, (i) no customer of the Company which either
by itself or in the aggregate represented over $50,000 in revenue for the last
12 months or is projected to represent over $50,000 in revenue over the next 12
months has indicated that it will stop or materially decrease the purchase of
products or services from the Company and (ii) no supplier of the Company which
either by itself or in the aggregate represented over $50,000 in products or
services for the last 12 months or is projected to represent over $50,000 in
products or services over the next 12 months has indicated that it will stop or
materially decrease the supply of products or services to the Company.
3.24 BANK ACCOUNTS. Section 3.24 of the Company Disclosure Schedule lists
all bank accounts of the Company and all signatories with respect to each such
bank account.
3.25 BOOKS AND RECORDS. The books and records of the Company are located
at ▇-▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇. The books of account and other
financial and corporate records of the Company are true and complete in all
material respects, and are maintained in accordance with good business
practices. The minute books and stock record books of the Company contain (i)
minutes of all meetings of the shareholders, boards of directors and any
committees of the boards of directors, (ii) written statements of all actions
taken by the shareholders, boards of directors and any committees of the boards
of directors without a meeting, and (iii) records of the issuance, transfer and
cancellation of all shares of capital stock and other securities, in each case
since the dates of incorporation of the Company. Such minute books and stock
record books reflect all transactions referred to therein accurately and
completely.
3.26 ACCOUNTS RECEIVABLE. All accounts and notes receivable of the Company
("Receivables") (i) are reflected properly on the Company's respective books and
records,
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(ii) arose in the ordinary course of business from bona fide transactions, (iii)
are valid receivables subject to no setoffs or counterclaims, (iv) are current
and fully collectible, subject to, in the case of Receivables outstanding on
August 31, 2000, any reserve therefor reflected on the August 31 Balance Sheet,
and (v) will be collected in accordance with their terms at their recorded
amounts, subject to any such reserves.
3.27 POWER OF ATTORNEY. Except as set forth in Section 3.28 of the Company
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
3.28 FULL DISCLOSURE. No representation or warranty made by the
Shareholders or the Company in this Agreement (including the Schedules and
Exhibits), contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements made herein, in
light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
In order to induce the Company and the Shareholders to enter into this
Agreement, Buyer and Merger Subsidiary, jointly and severally, hereby represent
and warrant to the Company and the Shareholders as of the date hereof and as of
the Closing Date as follows:
4.1 CORPORATE ORGANIZATION; AUTHORITY. (a) Buyer and Merger Subsidiary
each is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation, and has all requisite
corporate power and authority to own, lease and operate the properties owned,
leased and operated by it and to carry on the operations of its business as now
being conducted by it. Buyer has heretofore made available to the Company true
and complete copies of the respective organizational documents and bylaws, as
currently in effect, of Buyer and Merger Subsidiary.
(b) Buyer and Merger Subsidiary each has the requisite corporate
power and authority to execute and deliver this Agreement and each of the
agreements, documents and instruments to be executed and delivered by it in
connection herewith (the "Buyer Ancillary Agreements") and to perform its
obligations hereunder and thereunder. The execution and delivery by Buyer and
Merger Subsidiary of this Agreement and the Buyer Ancillary Agreements and the
performance of their respective obligations hereunder and thereunder have been
duly and validly authorized by the respective Boards of Directors of Buyer and
Merger Subsidiary and by the sole shareholder of Merger Subsidiary and no other
corporate or shareholder proceedings on the part of Buyer or Merger Subsidiary
will be necessary to authorize the execution, delivery and performance of this
Agreement or any Buyer Ancillary Agreement. This Agreement has been, and the
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Buyer Ancillary Agreements have been, or will have been prior to the Closing,
duly executed and delivered by Buyer and Merger Subsidiary and each constitutes,
or will upon such execution and delivery constitute, assuming due authorization,
execution and delivery thereof by each other party thereto, a valid and binding
obligation of each of Buyer and Merger Subsidiary, enforceable against each of
them in accordance with its terms, except as such enforceability may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws
now or hereafter in effect relating to creditors' rights generally or (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
4.2 CAPITALIZATION OF BUYER AND MERGER SUBSIDIARY. As of June 30, 2000,
Buyer's authorized capital stock consisted solely of (i) 30,000,000 shares of
Buyer Common Stock, of which (x) 4,126,007 shares were issued and outstanding
and (y) 137,762 shares were issued and held in treasury, and (ii) 4,000,000
shares of Series Preferred Stock, par value $0.01 per share, none of which were
issued and outstanding. Each outstanding share of Buyer Common Stock is, and the
shares of Buyer Common Stock to be issued in connection with the Merger will be,
duly authorized and validly issued, fully paid and nonassessable, and none of
the outstanding shares of Buyer Common Stock has been, and the shares of Buyer
Common Stock to be issued in connection with the Merger will not be, issued in
violation of any preemptive or similar rights. As of June 30, 2000, other than
as set forth in the first sentence hereof or in Section 4.2 of the disclosure
schedule delivered by Buyer to the Company and dated the date hereof (the "Buyer
Disclosure Schedule"), there are outstanding (i) no shares of capital stock or
other securities of Buyer, (ii) no options or other rights to acquire from
Buyer, or to cause Buyer to issue, any capital stock or other securities, and
(iii) no obligation of Buyer to redeem or repurchase any shares of capital stock
or other securities of Buyer, and, except as set forth in Section 4.2 of the
Buyer Disclosure Schedule, there have been no material changes in any of the
foregoing from June 30, 2000 to the date of this Agreement. The Buyer Common
Stock is registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As of the date of this Agreement, Merger Subsidiary's
authorized capital stock consisted solely of 1,000 shares of common stock, par
value $0.01 per share, of which 100 shares were issued and outstanding and held
by Buyer.
4.3 NO VIOLATIONS. Neither the execution and delivery by Buyer and Merger
Subsidiary of this Agreement or any of the Buyer Ancillary Agreements, nor the
performance by Buyer and Merger Subsidiary of their respective obligations
hereunder and thereunder, will:
(i) conflict with or result in a breach of any provision of the
certificate of incorporation or articles of organization or
bylaws of Buyer or Merger Subsidiary;
(ii) result in a violation or breach of, or constitute a default
(or an event which, with notice or lapse of time or both,
would
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constitute a default) under, or accelerate the performance
required by, or give rise to any right of termination,
modification, cancellation or acceleration or result in the
imposition of any Encumbrance upon any of the assets of Buyer
or Merger Subsidiary under, or give rise to any right to
compensation or payment under, any contract, agreement,
commitment, arrangement or understanding, written or oral, to
which the Buyer or Merger Subsidiary is a party or by which
Buyer or Merger Subsidiary or its respective properties or
assets may be bound or any Permit held by Buyer or Merger
Subsidiary; or
(iii) violate or conflict with any Decree or any Law applicable to
Buyer or Merger Subsidiary or by which either of them or their
properties or assets may be bound;
excluding from the foregoing clauses (ii) and (iii) such matters that would not,
individually or in the aggregate, have a material adverse effect on Buyer or
Merger Subsidiary.
(b) No Filings and Consents of any Governmental Entity are required
in connection with the execution and delivery of this Agreement or any of the
Buyer Ancillary Agreements by Buyer or Merger Subsidiary or the performance by
Buyer or Merger Subsidiary of its obligations hereunder or thereunder, except
(i) the filing of the Articles of Merger in accordance with the MBCL; (ii)
compliance with any applicable requirements of the Exchange Act; (iii) the
filing and effectiveness of any registration statement registering the resale of
the shares of Buyer Common Stock to be issued to the Shareholders pursuant to
this Agreement and compliance with any applicable requirements of federal
securities Laws and state blue sky or takeover Laws; (iv) authorization of the
listing of the Buyer Common Stock to be issued in the Merger on Nasdaq National
Market, Inc. ("NASDAQ"); and (v) such other Filings and Consents the failure of
which to be made or obtained would not, individually or in the aggregate, have a
material adverse effect on the ability of Buyer and Merger Subsidiary to
consummate the transactions contemplated hereby.
4.4 SEC DOCUMENTS. Buyer has filed all reports, proxy statements, forms
and other documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") since December 31, 1997 (the Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements
filed by Buyer since December 31, 1997 being hereinafter referred to as the
"Buyer SEC Documents"). As of their respective dates, and giving effect to any
amendments thereto, (a) the Buyer SEC Documents complied in all material
respects with the applicable requirements of the federal securities Laws,
including the applicable rules and regulations
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of the SEC promulgated thereunder, and (b) none of the Buyer SEC Documents when
filed with the SEC contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
4.5 FINANCIAL STATEMENTS. The financial statements of Buyer (including any
notes and schedules thereto) included in the Buyer SEC Documents (the "Buyer
Financial Statements") at the time filed or as subsequently amended by any Buyer
SEC Document filed prior to the date hereof (a) complied as to form in all
material respects with all applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, (b) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except in the case of unaudited statements, as permitted by
Form 10-Q as filed with the SEC under the Exchange Act) during the periods
involved (except as may be indicated in the related notes and schedules thereto)
and (c) fairly present, in all material respects, the consolidated financial
position of Buyer and its consolidated Subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to annual year-end audit
adjustments which are not, individually or in the aggregate, material).
4.6 ACCOUNTING MATTERS; REORGANIZATION. Neither Buyer nor any of its
affiliates has taken or agreed to take any action that would (a) prevent Buyer
from accounting for the business combination to be effected by the Merger as a
pooling-of-interests for accounting purposes or (b) prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
In order to induce Buyer and Merger Subsidiary to enter into this
Agreement, the Shareholders jointly and severally represent and warrant to Buyer
and Merger Subsidiary as of the date hereof and as of the Closing Date as
follows:
5.1 AUTHORITY, BINDING EFFECT. Each Shareholder has the requisite power,
authority and right to execute and deliver this Agreement and each of the
agreements, documents and instruments to be executed and delivered by him in
connection herewith (the "Shareholder Ancillary Agreements") and to perform his
obligations hereunder and thereunder. This Agreement has been, and the
Shareholder Ancillary Agreements have been, or will have been prior to the
Closing, duly executed and delivered by each Shareholder, and, assuming this
Agreement and the Shareholder Ancillary Agreements have been duly authorized,
executed and delivered by each other party hereto and thereto, constitute, or
will upon such execution and delivery constitute, valid and binding obligations
of each Shareholder, enforceable against him in accordance with their respective
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect
-33-
relating to creditors' rights generally or (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). The Shareholders have duly executed Unanimous Written Consents of
Shareholders adopting resolutions approving the Merger, which consents have not
been revoked or rescinded, and have thereby conclusively waived any appraisal or
dissenters rights they may have under the MBCL.
5.2 TITLE. All of the outstanding Company Shares are owned of record and
beneficially by the Shareholders, in the respective amounts set forth in Section
5.2 of the Company Disclosure Schedule and such ownership is in each case free
and clear of any Encumbrances.
5.3 NO VIOLATIONS. (a) Except as set forth in Section 5.3 of the Company
Disclosure Schedule, neither the execution and delivery by the Shareholders of
this Agreement or any of the Shareholder Ancillary Agreements to which he is a
party, nor the performance by the Shareholders of their obligations hereunder
and thereunder, will:
(i) result in a violation or breach of, or constitute a default
(or an event which, with notice or lapse of time or both,
would constitute a default) under, or accelerate the
performance required by, or give rise to any right of
termination, modification, cancellation or acceleration or
result in the imposition of any Encumbrance upon any of the
assets of any Shareholder under, or give rise to any right to
compensation or payment under, any contract, agreement,
commitment, arrangement or understanding, written or oral, to
which any Shareholder is a party or by which he or his
properties or assets may be bound; or
(ii) violate or conflict with any Decree or any Law applicable to
any Shareholder or by which any of them or their properties or
assets may be bound;
excluding from the foregoing clauses such matters that would not, individually
or in the aggregate, have a material adverse effect on the ability of any
Shareholder to consummate the transactions contemplated hereby.
(b) No Filings and Consents of any Governmental Entity are required
in connection with the execution and delivery of this Agreement or any of the
Shareholder Ancillary Agreements by the Shareholders or the performance by the
Shareholders of their respective obligations hereunder or thereunder, except (i)
the filing of the Articles of Merger in accordance with the MBCL; and (ii) such
other Filings and Consents the failure of which to be made or obtained would
not,
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individually or in the aggregate, have a material adverse effect on the ability
of any Shareholder to consummate the transactions contemplated hereby.
5.4 ACCREDITED INVESTOR. Each Shareholder is an "Accredited Investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act").
5.5 INVESTMENT; SECURITIES LAWS. Each Shareholder is acquiring the Buyer
Common Stock to be purchased under this Agreement for his own account, not as a
nominee or agent, for investment and not with a view to the distribution thereof
(within the meaning of the Securities Act) except in compliance with all
applicable federal and state securities Laws. Each Shareholder understands that
(i) the Buyer Common Stock has not been registered under the Securities Act or
any state securities Laws, and (ii) the Buyer Common Stock may not be sold or
otherwise disposed of unless such sale or other disposition is registered under
the Securities Act and applicable state securities Laws or is exempt from
registration thereunder.
5.6 RULE 144. Each Shareholder acknowledges that the exemption from
registration afforded by Rule 144 promulgated under the Securities Act (the
provisions of which Rule are known to each Shareholder) depends on the
satisfaction of various conditions, and that, if applicable, Rule 144 may afford
the basis for sales only in limited amounts.
ARTICLE VI
COVENANTS OF THE PARTIES
The parties hereto covenant and agree that:
6.1 MUTUAL COVENANTS.
(a) COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION. Each of the
parties shall use commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including (A)
the taking of all necessary actions, and the making and obtaining of all Filings
and Consents from Governmental Entities and other third parties, and (B) the
execution and delivery of any additional instruments, that may be necessary or
desirable to consummate the Merger and the other transactions contemplated by,
and to fully carry out the purposes of, this Agreement.
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(b) POOLING-OF-INTERESTS. The parties shall not, and shall not
permit any of their respective affiliates to, take any actions which would or
would be reasonably likely to prevent Buyer from accounting, and shall use their
best efforts (including, without limitation, providing appropriate
representation letters), to allow Buyer to account, for the Merger in accordance
with the pooling-of-interests method of accounting under the requirements of
Opinion No. 16 "Business Combinations" of the Accounting Principles Board of the
American Institute of Certified Public Accountants, as amended by applicable
pronouncements by the Financial Accounting Standards Board, and all related
published rules, regulations and policies of the SEC ("APB No. 16"), and to
obtain a letter, in form and substance reasonably satisfactory to Buyer, from
Buyer's independent accountants, dated the Closing Date, that they concur with
management's conclusion that the Merger will qualify as transactions to be
accounted for by Buyer in accordance with the pooling-of-interests method of
accounting under the requirements of APB No. 16.
(c) TAX-FREE TREATMENT. The parties shall use their best efforts to
cause the Merger to constitute a "reorganization" under Section 368(a) of the
Code; provided, however, that this covenant shall not require Buyer to agree to
amend any term of this Agreement or any agreement related hereto if such
amendment would adversely affect the benefits to Buyer of the Merger or
materially change the terms hereof.
(d) PUBLIC ANNOUNCEMENTS. The parties shall not, nor shall any of
their respective affiliates, issue or cause the publication of any press release
or other public announcement with respect to this Agreement, the Merger or the
other transactions contemplated hereby without the prior written approval of the
other party, except for such disclosure as may be required by Law or by any
listing agreement with a national securities exchange. Each of the parties
agrees that it shall cooperate with the other parties to jointly announce the
proposed Merger at the time this Agreement is executed.
(e) TRANSFER TAXES. All sales, use, transfer, real property
transfer, documentary, gains, stock transfer and similar Taxes ("Transfer
Taxes") arising out of or in connection with the Merger shall be borne by the
Company. The Company shall prepare and file all necessary Tax Returns and other
documentation with respect to all such Transfer Taxes, and the Shareholders
shall cooperate in such preparation and filing.
(f) TAX MATTERS. The Shareholders shall cause to be prepared,
consistent with prior practice of the Company, all federal, state and local "S"
corporation income Tax Returns of the Company for taxable years ended on or
prior to the Closing Date and shall provide such Tax Returns to Buyer no later
than 30 days prior to the due date of the particular Tax Return (taking into
account
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all extensions) for Buyer's review and consent (the "Final Returns"). The
Company shall timely file all of its Final Returns. Buyer shall make
available to the Shareholders the Company's books and records in the
Company's possession required by the Shareholders in connection with the
preparation of the Final Returns pursuant to this Section 6.1(f).
6.2 COVENANTS OF BUYER.
(a) MERGER SUBSIDIARY. Prior to the Closing, except as specifically
contemplated by this Agreement, Merger Subsidiary shall not conduct any business
or make any investments or have any assets (other than a de minimis amount of
cash received by it for the issuance of its stock to Buyer) or any material
liabilities. Buyer will take all action necessary to cause Merger Subsidiary to
perform its obligations under this Agreement and to consummate the Merger on the
terms and conditions set forth herein.
(b) LISTING. Buyer shall use its best efforts to cause the shares of
Buyer Common Stock issuable pursuant to the Merger to be approved for listing on
NASDAQ.
(c) NOTIFICATION OF CERTAIN MATTERS. During the period from the date
hereof to the Closing, Buyer shall give prompt notice to the Company and the
Shareholders of (i) the occurrence or nonoccurrence of any event the occurrence
or non-occurrence of which would cause any representation or warranty of Buyer
or Merger Subsidiary contained in this Agreement to be untrue or inaccurate at
or prior to the Closing in any material respect and (ii) any material failure of
Buyer or Merger Subsidiary to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.2(b) shall not limit
or otherwise affect the remedies available hereunder to the Company and the
Shareholders.
(d) EMPLOYEES AND EMPLOYEE BENEFITS. As soon as practicable
following the Merger, Buyer shall provide to employees of the Company who are
actively employed on the Closing Date with benefits which are at least
substantially comparable in the aggregate to the benefits (x) currently provided
by the Company or (y) provided to similarly situated active employees of Buyer
or its comparable Subsidiaries. To the extent any employee benefit plan (or
feature thereof), program or policy of Buyer is made available to such employees
and the Company has a similar plan, plan feature, program, or policy: (a)
service with the Company by any such employee prior to the Closing Date shall be
credited for eligibility and vesting purposes under such plan, plan feature,
program or policy, but not for purposes of benefit accrual or any early
retirement subsidies, and (b) with respect to any welfare benefit plans to which
such employees may
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become eligible, Buyer shall cause such plans to provide credit for any
co-payments, deductibles and maximum out-of-pocket provisions by such employees
as to the current plan year and waive all pre-existing condition exclusions and
waiting periods, other than exclusions or waiting periods that have not been
satisfied under any welfare plans maintained by the Company for its employees
prior to the Closing Date.
6.3 COVENANTS OF THE COMPANY AND THE SHAREHOLDERS.
(a) CONDUCT OF THE COMPANY'S OPERATIONS. During the period from the
date of this Agreement to the Closing, the Company shall (and the Shareholders
shall cause the Company to) (i) conduct its operations in the ordinary course
except as expressly contemplated by this Agreement, (ii) use all reasonable
efforts to maintain and preserve its business organization and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers, lessees, licensees and other third parties to the end that
its goodwill and ongoing business shall not be impaired in any material respect,
and (iii) comply in all material respects with all applicable Laws. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Closing, the Company shall not (and the Shareholders shall
cause the Company not to), except as otherwise expressly contemplated by this
Agreement or as set forth in Section 6.3(a) of the Company Disclosure Schedule,
without the prior written consent of Buyer:
(i) do or effect any of the following actions with respect to
securities of the Company: (A) adjust, split, combine or
reclassify the capital stock of the Company, (B) make, declare
or pay any dividend or distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares
of capital stock of the Company, (C) grant (whether or not for
consideration) any Person any option or other right to acquire
any shares of capital stock of the Company or any other Equity
Related Right, (D) issue (whether or not for consideration)
any shares of capital stock or other securities of the
Company, or (E) enter into any agreement, understanding or
arrangement with respect to the sale, voting, registration or
repurchase of its capital stock;
(ii) directly or indirectly sell, transfer, lease, pledge,
mortgage, encumber or otherwise dispose of any of its property
or assets other than sales of products in the ordinary course
of business in a manner consistent with past practice;
(iii) amend its articles of organization or bylaws;
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(iv) merge or consolidate with any other Person;
(v) acquire assets (other than purchases of supplies or products
in the ordinary course of business in a manner consistent with
past practice) or capital stock of or other equity interests
in any other Person;
(vi) incur, create, assume or otherwise become liable for any Debt
or assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other
Person;
(vii) repay, defease or otherwise retire any Debt of the Company;
(viii) enter into or modify any employment, severance, stay-pay,
termination or similar Contracts with, or grant any bonuses,
salary increases, severance or termination pay to, any
officer, director, consultant or employee, or otherwise
increase the compensation or benefits provided to any officer,
director, consultant or employee, except as may be required by
applicable Law;
(ix) enter into or adopt any new employee benefit plan, program or
other Contract or amend any Plan except as may be required by
applicable Law;
(x) change any method or principle of accounting except to the
extent required by generally accepted accounting principles as
advised by the Company's regular independent accountants, or
make any material Tax election (unless required by applicable
Law) or settle any material Tax liability which is the subject
of dispute between the Company and a Governmental Entity;
(xi) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any Contract other
than in the ordinary course of business consistent with past
practices which, individually or in the aggregate, do not have
a Material Adverse Effect;
(xii) enter into any confidentiality, standstill or non-compete
Contracts under which it is the obligor, or modify or waive
any of its rights under any existing confidentiality,
standstill or non-compete Contract under which it is the
beneficiary;
-39-
(xiii) incur or commit to incur any capital expenditures;
(xiv) accelerate collection of accounts receivable, delay payment of
accounts payable, or change cash balances of the Company from
the collection, payment, and cash management policies of the
Company in the ordinary course of business consistent with
past practices;
(xv) take any action that would result in any of the
representations and warranties set forth in Article III hereof
becoming false or inaccurate in any material respect;
(xvi) enter into, amend, terminate or waive any provision of, any
Contract with any Related Party or enter into any new
transaction with any Related Party; or
(xvii) agree in writing or otherwise to take any of the foregoing
actions.
(b) NO SOLICITATION. From the date hereof until the termination of
this Agreement pursuant to Article VIII, the Shareholders and the Company shall
not, and the Shareholders and the Company shall use their best efforts to ensure
that the respective officers, directors, employees or other agents of the
Company will not, directly or indirectly, (a) solicit, initiate or encourage any
Acquisition Proposal (as defined below) or (b) engage in discussions or
negotiations with, or disclose any non-public information relating to the
Company or afford access to the properties, books or records of the Company to,
any Person that has made or is considering making an Acquisition Proposal. For
purposes of this Agreement, "Acquisition Proposal" means any offer or proposal
for a merger or other business combination involving the Company or the
acquisition of any significant equity interest in, or a substantial portion of
the assets of, the Company, other than the transactions contemplated by this
Agreement. "Person" means any natural person, firm, partnership, joint venture,
business trust, trust, association, corporation, company, unincorporated entity
or Governmental Entity.
(c) ACCESS. During the period from the date hereof to the Closing,
the Company shall and the Shareholders shall cause the Company to (i) permit
representatives of Buyer to have full access at all reasonable times to the
Company's premises, properties, books, records, contracts, documents, customers
and suppliers, and cause the Company's independent accountants to give Buyer
access to such accountants' work papers; (ii) furnish to Buyer and its
representatives such financial and operating data and other information as such
Persons may reasonably request; and (iii) instruct their employees, counsel and
financial advisors to cooperate with Buyer in its investigation of the business
of
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the Company. No investigation pursuant to this Section 6.3(c) shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
(d) NOTIFICATION OF CERTAIN MATTERS. During the period from the date
hereof to the Closing, the Company and the Shareholders shall give prompt notice
to Buyer of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty by the
Company or any of the Shareholders contained in this Agreement to be untrue or
inaccurate at or prior to the Closing Date in any material respect and (ii) any
material failure of the Company or any of the Shareholders to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.3(d) shall not limit or otherwise affect the remedies available
hereunder to Buyer.
(e) SCHEDULES. During the period from the date hereof to the
Closing, the Company and the Shareholders shall promptly supplement or amend the
Company Disclosure Schedule with respect to any matter, condition or occurrence
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described therein. No supplement or
amendment shall be deemed to cure any breach of any representation or warranty
made in this Agreement or have any effect for the purpose of determining
satisfaction of the conditions set forth in Section 7.3(b) or the compliance by
the Company and the Shareholders with any of their covenants contained herein.
(f) PAYMENT OF RELATED PARTY INDEBTEDNESS. Immediately prior to the
Closing, the Company shall cause each Related Party to pay in cash all amounts
owed by such Related Party to the Company.
(g) COMPLIANCE WITH THE SECURITIES ACT AND POOLING REQUIREMENTS.
Concurrently with the execution and delivery of this Agreement, the Company is
delivering to Buyer from each Person who is, at the date of this Agreement, an
"affiliate" of the Company within the meaning of Accounting Series Releases 130
and 135, as amended, of the Securities and Exchange Commission an affiliate
letter in the form attached hereto as Exhibit D (an "Affiliate Letter"). Buyer
shall be entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Buyer Common Stock to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Buyer Common Stock consistent with
the terms of such Affiliate Letters.
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6.4 ADDITIONAL COVENANTS OF THE SHAREHOLDERS.
(a) CERTAIN RESTRICTIONS. From the date of this Agreement to the
Closing Date, the Shareholders will not:
(i) sell, transfer, encumber, assign or otherwise dispose of,
or enter into any Contract with respect to the sale, transfer, encumbrance,
assignment or other disposition of, any Company Shares;
(ii) take any action, or omit to take any action, which would
have the effect of (x) preventing or disabling any Shareholder from delivering
his Company Shares to Buyer or otherwise performing his obligations under this
Agreement or (y) revoking or canceling his consent to this Agreement and the
Merger; or
(iii) assert any appraisal, dissenters or similar rights that
he may have pursuant to the MBCL as a result of the Merger.
(b) TAX BASIS. At or prior to the Closing, each Shareholder shall
provide to Buyer, in writing, his adjusted tax basis in his Company Shares for
United States federal income Tax purposes.
(c) FIRPTA CERTIFICATE. At the Closing, each of the Shareholders
shall deliver to Buyer a certificate prepared in accordance with Treasury
Regulation Section 1.1445-2(b)(2) certifying that such person is not a foreign
Person (within the meaning of Treasury Regulation 1.1445-2(b)(2)).
(d) SHAREHOLDER AGREEMENTS; REGISTRATION RIGHTS AGREEMENTS. At or
prior to the Closing, each Shareholder shall enter into a shareholder agreement
in the form attached hereto as Exhibit E (each, a "Selling Shareholder
Agreement") and the Buyer shall enter into a registration rights agreement in
the form attached hereto as Exhibit F (the "Registration Rights Agreement").
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
the Company, the Shareholders, Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction or, to the extent permitted by applicable
Law, the waiver at or prior to the Closing of each of the following conditions:
(a) NO INJUNCTION; ETC. No temporary restraining order, preliminary
or permanent injunction or other Decree by any federal or state court preventing
the consummation of the Merger shall have been issued and be
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continuing in effect, and no provision of any applicable Law shall prohibit the
consummation of the Merger.
(b) LISTING APPLICATION. The shares of Buyer Common Stock issuable
in the Merger shall have been approved for listing on NASDAQ.
(c) NO LITIGATION. There shall not be pending or threatened any
Litigation (i) challenging the acquisition by Buyer of any Company Shares,
seeking to restrain or prohibit the consummation of the Merger or seeking to
obtain from Buyer or the Company any damages that are material in relation to
the Company taken as a whole, (ii) seeking to prohibit or limit the ownership,
operation or control by the Company or by Buyer or any of its Subsidiaries of
any portion of the business or assets of the Company or Buyer or any of its
Subsidiaries, or to compel the Company or Buyer or any of its Subsidiaries to
dispose of or hold separate any portion of the business or assets of any of them
as a result of the Merger, or (iii) seeking to impose limitations on the ability
of Buyer to acquire or hold, or exercise full rights of ownership of, any
Company Shares.
7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The
obligations of the Company and the Shareholders to consummate the Merger are
further subject to the satisfaction or, to the extent permitted by applicable
Law, the waiver at or prior to the Closing of each of the following conditions:
(a) PERFORMANCE OF OBLIGATIONS BY BUYER AND MERGER SUBSIDIARY. Buyer
and Merger Subsidiary shall each have performed in all material respects each of
their respective agreements and covenants contained in or contemplated by this
Agreement that are required to be performed by them at or prior to the Closing
pursuant to the terms hereof.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer and Merger Subsidiary contained in Article IV hereof (which,
for purposes of this Section 7.2(b), shall be read as though none of them
contained any material adverse effect or materiality or similar qualification)
shall be true and correct in all respects as of the Closing Date with the same
effect as though made as of the Closing Date (provided that any representations
and warranties made as of a specified date shall be required only to continue on
the Closing Date to be true and correct as of such specified date) except (i)
for changes specifically permitted by the terms of this Agreement and (ii) where
the failure of the representations and warranties to be true and correct in all
respects would not in the aggregate have a material adverse effect on Buyer and
its Subsidiaries taken as a whole.
(c) CLOSING CERTIFICATE. The Shareholders shall have received a
certificate signed by an officer of Buyer, dated the Closing Date, to the effect
that,
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to such officer's knowledge, the conditions set forth in Sections 7.2(a) and
7.2(b) have been satisfied.
(d) TAX-FREE REORGANIZATION. The Shareholders shall be reasonably
satisfied that the Merger will qualify as a reorganization under Section 368 (a)
of the Code.
(e) REGISTRATION RIGHTS AGREEMENT. Buyer shall have entered into the
Registration Rights Agreement, and the Registration Rights Agreement shall be in
full force and effect.
(f) OTHER CERTIFICATES. The Shareholders shall have received such
other documents, instruments and certificates as are required to be delivered by
Buyer pursuant to this Agreement or as the Shareholders shall reasonably request
from Buyer.
7.3 CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGER SUBSIDIARY. The
obligations of Buyer and Merger Subsidiary to consummate the Merger are further
subject to the satisfaction or, to the extent permitted by applicable Law, the
waiver at or prior to the Closing of each of the following conditions:
(a) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and the
Shareholders shall have performed in all material respects each of their
respective agreements and covenants contained in or contemplated by this
Agreement that are required to be performed by them at or prior to the Closing
pursuant to the terms hereof.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Shareholders and the Company contained in Article III and the
representations and warranties of the Shareholders contained in Article V (which
for purposes of this Section 7.3(b), shall be read as though none of them
contained any Material Adverse Effect or materiality or similar qualification)
shall be true and correct in all respects as of the Closing Date with the same
effect as though made as of the Closing Date (provided that any representations
and warranties made as of a specified date shall be required only to continue on
the Closing Date to be true and correct as of such specified date) except (i)
for changes specifically permitted by the terms of this Agreement and (ii) where
the failure of the representations and warranties to be true and correct in all
respects would not in the aggregate have a Material Adverse Effect.
(c) CLOSING CERTIFICATE. Buyer and Merger Subsidiary shall have
received a certificate signed by each of the Shareholders, dated the Closing
Date, to the effect that the conditions set forth in Section 7.3(a) and 7.3(b)
have been satisfied.
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(d) FILINGS AND CONSENTS. All Filings and Consents required from any
Governmental Entity or other third party in connection with the transactions
contemplated by this Agreement shall have been obtained or given, other than
those Filings and Consents the failure of which to have been obtained or made
does not, individually or in the aggregate, have a Material Adverse Effect.
(e) POOLING-OF-INTERESTS. Buyer shall have received a letter, in
form and substance reasonably satisfactory to Buyer, dated the date of the
Closing Date, from Buyer's accountants, that the Merger will qualify as a
transaction to be accounted for by Buyer in accordance with the
pooling-of-interests method of accounting under the requirements of APB No. 16.
(f) SELLING SHAREHOLDER AGREEMENTS. The Shareholders shall have
entered into the Selling Shareholder Agreements and each Selling Shareholder
Agreement shall be in full force and effect.
(g) DUE DILIGENCE. Buyer in its discretion shall be satisfied with
its due diligence review of the Company.
(h) OTHER CERTIFICATES. Buyer shall have received such other
documents, instruments and certificates as are required to be delivered by the
Company or the Shareholders pursuant to this Agreement or as Buyer shall
reasonably request from the Company and the Shareholders.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. Notwithstanding anything herein to the contrary, this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Closing:
(a) by the mutual written consent of the Board of Directors of each
of the Company and Buyer;
(b) (i) by Buyer, if (x) there shall have been a breach by the
Company or the Shareholders of any of their representations, warranties,
covenants or agreements contained in this Agreement, which breach would result
in the failure to satisfy one or more of the conditions set forth in Section
7.3(a) or (b), and such breach shall be incapable of being cured or, if capable
of being cured, shall not have been cured within 30 days after written notice
thereof shall have been given to the Company or the Shareholders, as applicable,
or (ii) by the Company, if (x) there shall have been a breach by Buyer of any of
its representations, warranties, covenants or agreements contained in this
Agreement, which breach would result in the failure to satisfy one or more of
the conditions
-45-
set forth in Section 7.2(a) or (b), and such breach shall be incapable of being
cured or, if capable of being cured, shall not have been cured within 30 days
after written notice thereof shall have been given to Buyer.
(c) (i) by Buyer if the Merger have not been consummated by March
31, 2001 provided, however, that the failure of the Merger to occur on or before
such date is not the result of the breach of any covenants, agreements,
representations or warranties hereunder of Buyer; or (ii) by the Company if the
Merger have not taken place on or before March 31, 2001; PROVIDED, HOWEVER, that
the failure of the Merger to occur on or before such date is not the result of
the breach of the covenants, agreements, representations or warranties hereunder
of the Company or the Shareholders; or
(d) by the Company or Buyer, if there shall be any Law that makes
consummation of the Merger illegal or if any Decree enjoining Buyer, the
Shareholders or the Company from consummating the Merger is entered and such
Decree shall become final and nonappealable.
The party desiring to terminate this Agreement pursuant to clause
(b), (c) or (d) of this Section 8.1 shall give written notice of such
termination to the other parties; PROVIDED, that no party in breach of any of
its obligations under this Agreement may terminate this Agreement pursuant to
clause (c) of this Section 8.1.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, this Agreement shall have no further force or effect; provided,
that the agreements contained in Sections 6.1(d) and 9.4 and the last sentence
of Section 6.3(c) shall survive the termination hereof; and provided, further,
that no such termination shall relieve any party hereto of liability for any
breach or default under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement to any
party hereunder shall be in writing and deemed given upon (a) personal delivery,
(b) transmitter's confirmation of a receipt of a facsimile transmission; (c)
confirmed delivery by a nationally recognized overnight carrier; or (d) when
mailed in the United States by certified or registered mail, postage prepaid,
addressed at the following address (or at such other address for a party as
shall be specified by notice given hereunder):
If to Buyer or Merger Subsidiary, to:
Axsys Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇
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with a copy to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
If to the Company, to:
Automation Engineering, Inc.
▇-▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
with a copy to:
White & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to the Shareholders, to them at their respective addresses set
forth below their names on the signature page hereto.
9.2 SURVIVAL; INDEMNIFICATION. (a) The representations and warranties made
by the Company and the Shareholders in this Agreement shall survive the Closing
(i) until the date of the issuance of the first independent audit report on the
Company following the Closing for all representations and warranties the
accuracy of which can be verified through the audit process and (ii) until the
first anniversary of the Closing Date for all other representations and
warranties, and shall thereupon expire together with any associated right of
indemnification, except to the extent that a claim for breach thereof has
theretofore been asserted in writing against any of the Shareholders, in which
event the representations and warranties and associated right of indemnification
shall survive with respect to such claim until the claim is resolved. The
representations and warranties made by Buyer and Merger Subsidiary in this
Agreement shall survive the Closing (i) until the date of the issuance of the
first independent audit report on Buyer
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following the Closing for all representations and warranties the accuracy of
which can be verified through the audit process and (ii) until the first
anniversary of the Closing Date for all other representations and warranties,
and shall thereupon expire. The covenants and agreements of the parties hereto
(including the Surviving Corporation after the Merger) shall survive the Closing
without limitation as to time (except for the covenants and agreements contained
in Section 9.2(b)(i), which shall only survive for the period set forth in the
first sentence of this Section 9.2(a)).
(b) From and after the Closing Date, to the extent provided in this
Section 9.2, the Shareholders shall jointly and severally indemnify and hold
harmless Buyer and any affiliate thereof (including the Surviving Corporation),
and any shareholder, director, officer, employee, agent or "employee benefit
plan" (within the meaning of Section 3(3) of ERISA) of any of them (Buyer and
such other Persons are collectively hereinafter referred to as the "Buyer
Indemnified Parties") from and against any liabilities, claims, demands,
judgments, losses, costs, damages or expenses whatsoever (including reasonable
attorneys', consultants' and other professional fees and disbursements of every
kind, nature and description) (collectively, "Damages") asserted against,
resulting to, imposed upon or incurred or suffered by a Buyer Indemnified Party
by reason of, resulting from or arising out of:
(i) a breach of or inaccuracy in any representation or warranty of
the Company or any Shareholder contained in this Agreement (it
being understood that for all purposes of this Section 9.2(b),
any representation or warranty shall be interpreted without
giving effect to the words "Material Adverse Effect,"
"material," "materially" or other similar qualifications) (a
"Breach of Warranty"); or
(ii) any breach of any covenant or agreement of the Company or any
Shareholder contained in this Agreement.
For purposes of determining whether Buyer, as a Buyer Indemnified Party, shall
have had any Damages asserted against, resulting to, imposed upon or incurred or
suffered by it in connection with any of the matters described in the
immediately preceding clauses (i) and (ii), Buyer shall be deemed to have had
asserted against, resulting to, imposed upon or incurred or suffered by it any
and all Damages asserted against, resulting to, imposed upon or incurred or
suffered by the Surviving Corporation or any Subsidiary thereof in connection
with any of such matters.
(c) At the Effective Time, Buyer shall deposit the Escrow Stock with
the Escrow Agent pursuant to the Escrow Agreement. Any claim by a Buyer
-48-
Indemnified Party for indemnification shall first be satisfied by recourse to
the Escrow Stock as more fully provided in the Escrow Agreement. Any claim by a
Buyer Indemnified Party for indemnification shall be made by giving written
notice of such claim (in the case of a third-party claim, within 30 days of
receipt of written notice from the third party claimant of such third party
claim) (the "Indemnification Notice"), including in reasonable detail the basis
and the amount thereof, to each of the Representative (as defined in Section
9.2(d)) and the Escrow Agent; provided, that the failure by a Buyer Indemnified
Party to timely give an Indemnification Notice shall not relieve the
Shareholders of their obligations under this Section 9.2 except to the extent
the Shareholders are materially prejudiced thereby. In accordance with the terms
of the Escrow Agreement, the Escrow Agent shall release to Buyer shares of
Escrow Stock having an aggregate value (based upon a per share value equal to
the Closing Price) equal to the Damages ultimately allowed under such claim.
Buyer shall thereupon retire (and hold in treasury) or cancel such released
shares and, if the Buyer Indemnified Party with respect to such Damages is not
Buyer, pay or cause to be paid such Damages to such Buyer Indemnified Party. In
the event that a claim by a Buyer Indemnified Party for indemnification involves
a claim by a third party, the Representative shall have 30 days after receipt of
the Indemnification Notice to notify Buyer whether the Shareholders will
undertake the defense thereof, and if he so notifies Buyer in writing, and
acknowledges in writing the Shareholders' responsibility to indemnify the Buyer
Indemnified Party against such claim, the Representative may undertake, conduct
and control, through counsel of his own choosing (reasonably acceptable to the
Buyer Indemnified Party) and at the Shareholders' expense, the defense thereof,
and the Buyer Indemnified Party shall cooperate with the Representative in
connection therewith, PROVIDED, that the Buyer Indemnified Party may participate
in such defense through counsel chosen by it the fees and expenses of which
shall be borne by the Buyer Indemnified Party. The Representative shall not,
without the written consent of the Buyer Indemnified Party (which consent shall
not be unreasonably withheld), settle or compromise any claim. If the
Representative does not notify the Buyer Indemnified Party in writing within 30
days after the receipt of the Buyer Indemnified Party's Indemnification Notice
that the Shareholders elect to undertake the defense thereof accompanied by the
acknowledgement as aforesaid, the Buyer Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any right
to indemnification therefor pursuant to this Agreement. Notwithstanding the
foregoing, the Representative may not undertake the defense of any claim which
seeks (i) damages in excess of $1,650,000 or (ii) injunctive relief, specific
performance or other equitable relief, or (iii) any criminal penalty, fine or
other sanction. The Shareholders and Buyer shall cooperate with one another and
make available such assistance and materials as may be reasonably requested in
the
-49-
conduct of any investigation or defense of any third-party claim in respect
of which indemnification is sought pursuant to this Section 9.2.
(d) For purposes of this Section 9.2 and the Escrow Agreement, in
view of the fact that successful claims for indemnification will ultimately have
the effect of reducing the Per Share Merger Consideration, G. ▇▇▇▇▇▇ ▇▇▇ shall
act as the representative and attorney-in-fact (the "Representative") on behalf
of himself and all of the other Shareholders, subject to the provisions of
Section 9.2(e). The Representative shall keep the Shareholders reasonably
informed of his decisions of a material nature. The Representative is authorized
to take any action deemed by him appropriate or reasonably necessary to carry
out the provisions of, and is authorized to act on behalf of, the Shareholders
for all purposes related to this Section 9.2, including the acceptance of
service of process upon such Shareholders and the acceptance or compromise of
claims for indemnification, and all decisions and actions of the Representative
shall be binding and conclusive upon the Shareholders and may be relied upon by
the Indemnified Parties and the Escrow Agent as the decision and action of all
of the Shareholders.
(e) The Representative shall not be liable to any of the
Shareholders for any error of judgment, act done or omitted by him in good
faith, or mistake of fact or Law unless caused by his own gross negligence or
willful misconduct. In taking any action or refraining from taking any action
whatsoever the Representative shall be protected in relying upon any notice,
paper or other document reasonably believed by him to be genuine, or upon any
evidence reasonably deemed by him to be sufficient. The Representative may
consult with counsel in connection with his duties and shall be fully protected
in any act taken, suffered or permitted by him in good faith in accordance with
the advice of counsel. The Representative shall not be responsible for
determining or verifying the authority of any Person acting or purporting to act
on behalf of any party to this Agreement or the Escrow Agreement.
(f) Notwithstanding anything in the foregoing provisions of this
Section 9.2 to the contrary, the Buyer Indemnified Parties shall be entitled to
recover Damages in respect of Breaches of Warranty (except in respect of
breaches of Section 3.2, 3.8, 3.9, 3.15, or 3.17 as to which the limitations of
this Section 9.2(f) shall not apply), only when the aggregate of all claims for
Damages in respect of Breaches of Warranty exceeds $100,000, after which the
Buyer Indemnified Parties shall be entitled to seek indemnification or otherwise
to recover Damages in respect of Breaches of Warranty starting with the first
dollar of such Damages. Under no circumstances shall the aggregate recoveries of
the Buyer Indemnified Parties, or the aggregate payments by the Shareholders to
the Buyer Indemnified Parties, arising out of any claims for Damages for
Breaches of
-50-
Warranty, exceed $3,000,000 in the aggregate for Breaches of Warranty. For
purposes of this Section 9.2(f), the amount of any recoveries or payments in the
form of shares of Escrow Stock shall be calculated as though the Escrow Stock
were valued at the Closing Price.
(g) The shares of Escrow Stock shall be released to the Shareholders
as provided in the Escrow Agreement.
(h) In no event shall any Shareholder have any right, whether by way
of contribution or otherwise, to reimbursement from Buyer, the Surviving
Corporation or the Company for any indemnification payments made by release of
Escrow Stock pursuant to this Section 9.2.
(i) If the Closing occurs, the indemnification provided in this
Section 9.2 shall be the sole and exclusive remedy for any Breach of Warranty,
except in the case of fraud.
9.3 AMENDMENTS, MODIFICATION AND WAIVER. (a) Except as may otherwise be
provided herein, any provision of this Agreement may be amended, modified or
waived by the parties hereto prior to the Closing if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Buyer, Merger Subsidiary and the Shareholders and, in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
9.4 EXPENSES. All costs and expenses incurred by the Company in connection
with this Agreement, the Merger and the transactions contemplated hereby,
including fees and expenses of lawyers, accountants and financial advisors (the
"Company Expenses"), up to $45,000 in the aggregate, shall be paid by the
Company, and all additional Company Expenses shall be paid by the Shareholders.
All such costs and expenses incurred by Buyer or Merger Subsidiary shall be paid
by Buyer.
9.5 SUCCESSORS AND ASSIGNS; BINDING EFFECT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned, directly or
indirectly, including, without limitation, by operation of law, by any party
hereto without the prior written consent of the other parties hereto; provided,
however, that all or any of the rights of Buyer or Merger Subsidiary may be
assigned to any Person that is directly or indirectly wholly owned by Buyer for
the purpose of effecting the transactions contemplated hereby or to any Person
to whom Buyer or Merger Subsidiary sells
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substantially all of the assets or a majority of the outstanding stock of the
Company, provided that no such assignment shall relieve Buyer or Merger
Subsidiary of any of its liabilities hereunder. Subject to the preceding
sentence, this Agreement and all of the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, representatives, administrators, successors and permitted assigns.
9.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York (regardless of the Laws that
might otherwise govern under applicable principles of conflicts of laws thereof)
as to all matters, including, but not limited to, matters of validity,
construction, effect, performance and remedies, except for the validity of the
Merger which shall be governed and construed in accordance with the MBCL.
9.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated herein are not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner.
9.8 THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of
the Company and its respective successors and permitted assigns and the
Shareholders and their respective heirs, executors, representatives,
administrators, successors and permitted assigns, with respect to the
obligations of Buyer and Merger Subsidiary under this Agreement, and for the
benefit of Buyer, Merger Subsidiary, the Surviving Corporation and the other
Buyer Indemnified Parties and their respective successors and permitted assigns
with respect to the obligations of the Company and the Shareholders under this
Agreement, and this Agreement shall not be deemed to confer upon or give to any
other third party any remedy, claim, liability, reimbursement, cause of action
or other right.
9.9 ENTIRE AGREEMENT. This Agreement, including any exhibits or schedules
hereto, constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes all other prior agreements or
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof.
9.10 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be deemed an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
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9.11 INTERPRETATIONS; DEFINITIONS. (a) When a reference is made in this
Agreement to an Article or Section, such reference shall be to an Article or
Section of this Agreement unless otherwise indicated. The headings and the table
of contents contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
(b) For purposes of this Agreement, a "Subsidiary" of any Person
means another Person, an amount of the voting securities or other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting securities or interests, 50% or more of the equity interests
of which are owned directly or indirectly by such first Person).
(c) For purposes of this Agreement, "Debt" means, without
duplication, the outstanding principal amount of, and all interest and other
amounts accrued in respect of, (i) all indebtedness for borrowed money of the
Company, whether or not recourse to the Company, (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
(iii) every reimbursement obligation of the Company with respect to letters of
credit (including standby letters of credit only to the extent drawn upon),
bankers' acceptances or similar facilities issued for the account of the
Company, (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
capital lease obligation of the Company, and (vi) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, the Company has guaranteed
or for which the Company is responsible or liable, directly or indirectly,
jointly or severally, as obligor, guarantor or otherwise.
(d) For purposes of this Agreement, the "Closing Price" shall mean
the closing price of a share of Buyer Common Stock as reported on NASDAQ for the
trading day immediately preceding the Closing.
(e) For purposes of this Agreement, references to any financial
statement or any component thereof shall be deemed to include footnotes thereto.
(f) For purposes of this Agreement, the term "including" shall mean
"including, without limitation. "
9.12 CONSENT TO JURISDICTION. EACH OF THE PARTIES HERETO (I) CONSENTS TO
SUBMIT TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF
NEW YORK OR ANY NEW YORK STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II)
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AGREES THAT SUCH PARTY SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL
JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III)
AGREES THAT SUCH PARTY SHALL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A
FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR A NEW YORK STATE COURT. THE
FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY PARTY TO ENFORCE ANY DECREE OF A
FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR A NEW YORK STATE COURT IN ANY
OTHER COURT OF COMPETENT JURISDICTION.
9.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as an inducement under seal as
of the date and year first above written.
AUTOMATION ENGINEERING, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ By
--------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇ By
Title: President and Treasurer
▇▇▇▇▇ ▇▇▇▇▇▇▇ BY
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/: G. ▇▇▇▇▇▇ ▇▇▇
-------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/: ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
----------------------------------------
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AXSYS TECHNOLOGIES, INC.
By:/s/: ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
AEI ACQUISITION CORP.
By:/s/: ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Treasury
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