AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN ELECTROMEDICS CORP.
A DELAWARE CORPORATION,
ESI ACQUISITION CORPORATION
A CALIFORNIA CORPORATION,
AND
EQUIDYNE SYSTEMS, INC.,
A CALIFORNIA CORPORATION
TABLE OF CONTENTS
PAGE
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ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Date of the Merger . . . . . . . . . . . 2
1.3 Surviving Corporation; Articles of Incorporation
of Surviving Corporation . . . . . . . . . . . . 2
1.4 Firm Shares; Conversion of ESI Common Stock;
Cancellation of Acquisition Corp. Common Stock. 2
1.5 Exchange of Certificates . . . . . . . . . . . . . 3
1.6 No Fractional Shares . . . . . . . . . . . . . . . 5
1.7 Certificates in Other Names . . . . . . . . . . . 5
1.8 Treatment of Options . . . . . . . . . . . . . . . 5
1.9 Appraisal Rights . . . . . . . . . . . . . . . . . 5
ARTICLE II
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Closing Date . . . . . . . . . . . . . . . . . . . 6
2.2 Deliveries at the Closing . . . . . . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ESI . . . . . . . . . . . . 6
3.1 Due Incorporation . . . . . . . . . . . . . . . . 6
3.2 Due Authorization . . . . . . . . . . . . . . . . 6
3.3 Non-Contravention; Consents and Approvals . . . . 7
3.4 Capitalization . . . . . . . . . . . . . . . . . . 7
3.5 Financial Statements; Undisclosed Liabilities;
Other Documents . . . . . . . . . . . . . . . . 8
3.6 No Material Adverse Effects or Changes . . . . . . 9
3.7 Tax Returns and Audits . . . . . . . . . . . . . . 9
3.8 Litigation . . . . . . . . . . . . . . . . . . . . 11
3.9 Compliance with Applicable Laws . . . . . . . . . 11
3.10 Contracts . . . . . . . . . . . . . . . . . . . . 12
3.11 Property . . . . . . . . . . . . . . . . . . . . . 13
3.12 Employees . . . . . . . . . . . . . . . . . . . . 13
3.13 Insurance . . . . . . . . . . . . . . . . . . . . 14
3.14 Inventories . . . . . . . . . . . . . . . . . . . 14
3.15 Accounts Receivable. Schedule 3.15 . . . . . . . 14
3.16 Intellectual Property . . . . . . . . . . . . . . 14
3.17 Environmental Matters . . . . . . . . . . . . . . 15
3.18 Books and Records . . . . . . . . . . . . . . . . 15
3.19 Related Party Transactions . . . . . . . . . . . . 16
3.20 Fees of Brokers, Consultants and Financial
Advisors . . . . . . . . . . . . . . . . . . . . 16
3.21 Required Vote . . . . . . . . . . . . . . . . . . 16
3.22 General Representation and Warranty . . . . . . . 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION CORP. AND AEC . 16
4.1 Due Incorporation . . . . . . . . . . . . . . . . 16
4.2 Due Authorization . . . . . . . . . . . . . . . . 17
4.3 Non-Contravention; Consents and Approvals . . . . 17
4.4 Capitalization . . . . . . . . . . . . . . . . . . 18
4.5 Financial Statements; Undisclosed Liabilities;
Other Documents . . . . . . . . . . . . . . . . 18
4.6 Securities Law Filings . . . . . . . . . . . . . . 19
4.7 No Material Adverse Effects or Changes . . . . . . 19
4.8 Insurance . . . . . . . . . . . . . . . . . . . . 19
4.9 Labor Matters . . . . . . . . . . . . . . . . . . 19
4.10 Tax Returns and Audits . . . . . . . . . . . . . . 20
4.11 Litigation . . . . . . . . . . . . . . . . . . . . 20
4.12 Compliance with Applicable Laws . . . . . . . . . 20
4.13 Contracts; No Defaults . . . . . . . . . . . . . . 21
4.14 Fees of Brokers, Finders and Investment Bankers . 21
4.15 General Representation and Warranty . . . . . . . 21
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Implementing Agreement . . . . . . . . . . . . . . 21
5.2 Access to Information and Facilities;
Confidentiality . . . . . . . . . . . . . . . . 21
5.3 Preservation of Business . . . . . . . . . . . . . 22
5.4 ESI Stockholder Approval . . . . . . . . . . . . . 23
5.5 Consents and Approvals . . . . . . . . . . . . . . 23
5.6 Periodic Reports . . . . . . . . . . . . . . . . . 24
5.7 Publicity . . . . . . . . . . . . . . . . . . . . 24
5.8 No Negotiation. . . . . . . . . . . . . . . . . . 24
5.9 Blue Sky Approvals . . . . . . . . . . . . . . . . 24
5.10 Principal Stockholder . . . . . . . . . . . . . . 24
5.11 Status of ESI Stockholders as Accredited
Investors . . . . . . . . . . . . . . . . . . . 25
5.12 Registration Rights . . . . . . . . . . . . . . . 25
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND AEC . . . . . . . . . . . . . . . . 26
6.1 Warranties True as of Closing Date . . . . . . . . 26
6.2 Compliance With Agreements and Covenants . . . . . 26
6.3 ESI Certificate . . . . . . . . . . . . . . . . . 26
6.4 Secretary's Certificate . . . . . . . . . . . . . 27
6.5 Good Standing Certificates . . . . . . . . . . . . 27
6.6 Employment Agreements . . . . . . . . . . . . . . 27
6.7 Escrow Agreement . . . . . . . . . . . . . . . . . 27
6.8 Stockholder Letters . . . . . . . . . . . . . . . 27
6.9 Opinion of Counsel . . . . . . . . . . . . . . . . 27
6.10 Approval of Merger . . . . . . . . . . . . . . . . 27
6.11 Dissent and Appraisal . . . . . . . . . . . . . . 27
6.12 Consents and Approvals . . . . . . . . . . . . . . 27
6.13 Resignations . . . . . . . . . . . . . . . . . . . 28
6.14 Actions or Proceedings . . . . . . . . . . . . . . 28
6.15 Other Closing Documents . . . . . . . . . . . . . 28
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF ESI . . . . . . . . . 28
7.1 Warranties True as of Closing Date . . . . . . . . 28
7.2 Compliance with Agreements and Covenants . . . . . 28
7.3 AEC Certificate . . . . . . . . . . . . . . . . . 28
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . 29
7.5 Consents and Approvals . . . . . . . . . . . . . . 29
7.6 Actions or Proceedings . . . . . . . . . . . . . . 29
7.7 Other Closing Documents. . . . . . . . . . . . . . 29
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Termination . . . . . . . . . . . . . . . . . . . 29
8.2 Effect of Termination and Abandonment . . . . . . 30
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Indemnification by ESI Stockholders . . . . . . . 31
9.2 Indemnification by AEC . . . . . . . . . . . . . . 31
9.3 Procedure . . . . . . . . . . . . . . . . . . . . 32
9.4 Remedies . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 33
10.1 Expenses . . . . . . . . . . . . . . . . . . . . . 33
10.2 Amendment . . . . . . . . . . . . . . . . . . . . 33
10.3 Notices . . . . . . . . . . . . . . . . . . . . . 33
10.4 Waivers . . . . . . . . . . . . . . . . . . . . . 34
10.5 Interpretation . . . . . . . . . . . . . . . . . . 34
10.6 Applicable Law . . . . . . . . . . . . . . . . . . 34
10.7 Assignment . . . . . . . . . . . . . . . . . . . . 34
10.8 No Third Party Beneficiaries . . . . . . . . . . . 34
10.9 Enforcement of the Agreement. . . . . . . . . . . 35
10.10 Severability . . . . . . . . . . . . . . . . . . . 35
10.11 Remedies Cumulative . . . . . . . . . . . . . . . 35
10.12 Entire Understanding . . . . . . . . . . . . . . . 35
10.13 Waiver of Jury Trial . . . . . . . . . . . . . . . 35
10.14 Counterparts . . . . . . . . . . . . . . . . . . . 35
SCHEDULES
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NUMBER DESCRIPTION
3.3 ESI Non-Contravention; Consents and Approvals.
3.4 ESI Stock and Warrants.
3.7 Tax Powers of Attorney.
3.9 ESI Permits.
3.10 ESI Contracts.
3.12 ESI Personal property valued over $1,000.
3.13 ESI Employees.
3.14 ESI Insurance.
3.16 ESI Accounts receivable.
3.18 ESI Intellectual Property.
3.20 ESI Corporate.
3.21 ESI Related Party Transactions.
4.7 Changes to AEC since January 31, 1998.
4.10 AEC Tax Returns.
EXHIBITS
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A. Escrow Agreement
B. ESI Stockholder Representation Letter
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 27,
1998 (the "Agreement"), among AMERICAN ELECTROMEDICS CORP., a
Delaware corporation ("AEC"), ESI ACQUISITION CORPORATION, a
California corporation ("Acquisition Corp."), and EQUIDYNE
SYSTEMS, INC., a California corporation ("ESI").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Acquisition Corp. is a newly-formed wholly-
owned subsidiary of AEC;
WHEREAS, AEC desires to acquire all of the issued and
outstanding shares of ESI Common Stock, no par value (the "ESI
Common Stock"), through the merger of Acquisition Corp. with and
into ESI, pursuant to the terms hereinafter set forth (the
"Merger");
WHEREAS, the respective Boards of Directors of AEC and
Acquisition Corp. deem it advisable and in the best interests of
AEC and Acquisition Corp. that Acquisition Corp. be merged with
and into ESI upon the terms and conditions hereinafter specified;
WHEREAS, the Board of Directors of ESI deems it
advisable and in the best interests of ESI that Acquisition Corp.
be merged with and into ESI upon the terms and conditions
hereinafter specified;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger. At the Effective Time (as defined in
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Section 1.2 hereof), in accordance with this Agreement and the
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relevant provisions of the California General Corporation Law
(the "CGCL"), Acquisition Corp. shall be merged with and into
ESI. ESI shall be the surviving corporation of the Merger and
ESI shall continue, and be deemed to continue, for all purposes
after the Merger, and the existence of Acquisition Corp. shall
cease at the Effective Time.
1.2 Effective Date of the Merger. This Agreement
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shall be submitted to the stockholders of ESI as provided in
Section 5.4 hereof, and to the sole stockholder of Acquisition
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Corp., as provided in Section 5.4 hereof, for approval as soon as
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practicable after the execution of this Agreement. Subject to
the terms and conditions hereof and the authorization, approval
and adoption hereof by the affirmative vote of AEC, in its
capacity as the sole stockholder of Acquisition Corp., and of the
holders of ESI Common Stock entitled to vote thereon holding at
least a majority of the issued and outstanding shares of ESI
Common Stock as provided by the CGCL. A copy of the Agreement
together with officer's certificates of AEC, Acquisition Corp.
and ESI meeting the requirements of Section 1103 of the CGCL
shall be delivered to the Secretary of State of California for
filing (the time of such filing being the "Effective Time" and
the date of such filing being the "Effective Date").
1.3 Surviving Corporation; Articles of Incorporation
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of Surviving Corporation. Following the Merger, ESI shall
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continue to exist under, and be governed by, the laws of the
State of California, and AEC will own all of the issued and
outstanding ESI Common Stock. The Articles of Incorporation and
By-Laws of ESI, as in effect as of the Effective Time, shall
continue in full force and effect as the Articles of
Incorporation and By-Laws of ESI.
1.4 Firm Shares; Conversion of ESI Common Stock;
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Cancellation of Acquisition Corp. Common Stock. (a) At the
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Effective Time, by virtue of the Merger and without any action on
the part of Acquisition Corp., ESI or the holders of ESI Common
Stock, the holders of ESI Common Stock (an "ESI Holder")
immediately prior to the Effective Time shall receive 600,000
shares of common stock, $.10 par value per share, of AEC ("AEC
Common Stock"), which shall be the "Firm Shares" subject to
adjustment as provided in this Section 1.4 and subject to the
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Escrow Agreement, as described in Section 6.7 hereof. Each ESI
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Holder as of the Effective Date shall be entitled to receive a
number of shares of AEC Common Stock equal to the product of
(x) a fraction, the numerator of which being the number of shares
of ESI Common Stock owned of record by the ESI Holder on the
Effective Date and the denominator of which shall be the total
issued and outstanding shares of ESI Common Stock on the
Effective Date, multiplied by (y) the number of Firm Shares, or
an additional Firm Shares pursuant to Subsection (c) or (d)
below. Until surrendered in accordance with the provisions of
Section 1.5 hereof, each certificate of ESI Common Stock shall
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represent, for all purposes, only the right to receive the Firm
Shares or appraisal rights under Section 1.9 hereof.
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(b) No adjustment shall be made to the number of Firm
Shares if at any time during the ninety (90) day period
immediately preceding and the six (6) month period immediately
after the Effective Time (the "Measuring Period"), the closing
price of AEC Common Stock on the OTC Electronic Bulletin Board or
such other quotation system on which the AEC Common Stock is then
traded (the "Closing Price") is equal to or greater than Three
Dollars ($3.00) per share on any seven (7) trading days in any
thirty (30) day period during the Measuring Period,
notwithstanding the absence of trading or trading activity in AEC
Common Stock on any number of days during any month in the
Measuring Period.
(c) An adjustment of an additional 1,600,000 shares of
AEC Common Stock shall be made to the number of Firm Shares if
the Closing Price of AEC Common Stock fails to exceed One Dollar
($1.00) per share at any time during the Measuring Period.
(d) Should the average high Closing Price of AEC
Common Stock (the "Average High Price") equal or exceed One
Dollar ($1.00) per share for any five (5) consecutive trading
days during the Measuring Period, but never attained the price as
set forth in Subsection (b) above, then, an adjustment shall be
made to the number of Firm Shares by adding a number of shares of
AEC Common Stock equal to resultant of (x) a fraction, the
numerator of which being (A) 3 minus (B) the Average High Price
and the denominator of which being 2, multiplied by (Y)
1,200,000, up to a maximum adjustment of 1,200,000 shares.
(e) If between the date of this Agreement and the
Effective Time the outstanding shares of AEC Common Stock shall
have been changed into a different number of shares or a
different class by reason of a stock dividend, subdivision,
reclassification, recapitalization, split-up or combination, the
number of Firm Shares shall be appropriately adjusted.
(f) At the Effective Time, (i) all shares of ESI
Common Stock which are owned by ESI as treasury stock shall be
canceled and retired and cease to exist, and (ii) all outstanding
shares of ESI Preferred Stock shall be converted into ESI Common
Stock pursuant to their respective terms.
(g) At the Effective Time, each share of Acquisition
Corp. Common Stock issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any
action on the part of AEC, be canceled and cease to exist.
1.5 Exchange of Certificates. (a) Prior to the
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Effective Time, AEC shall select an exchange agent (the "Exchange
Agent") reasonably acceptable to ESI to effectuate the delivery
of the Firm Shares provided for in Section 1.4 hereof to holders
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of ESI Common Stock upon surrender of certificates which
immediately prior to the Effective Time represented outstanding
shares of ESI Common Stock ("Certificates").
(b) As of the Effective Time, AEC shall provide, or
shall take all steps necessary to provide, to the Exchange Agent,
the maximum aggregate number of shares of AEC Common Stock
representing the Firm Shares. The Exchange Agent shall, pursuant
to irrevocable instructions, make the deliveries of the Firm
Shares required in respect of the Merger.
(c) Promptly after the Effective Time, the Exchange
Agent shall mail to each record ESI Holder of an outstanding
Certificate, determined as of the Effective Date, a form letter
of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange
Agent), advising such ESI Holder of the terms of the exchange
effected by the Merger and the procedure for surrendering to the
Exchange Agent such Certificate in exchange such Holder's share
of the Firm Shares.
(d) Upon surrender of a Certificate to the Exchange
Agent, together with such letter of transmittal, duly executed,
the ESI Holder of such Certificate shall be entitled to receive
in exchange therefor such Holder's unadjusted portion of Firm
Shares, less ten (10%) percent of such ESI Holders' shares of AEC
Common Stock that shall be delivered to the Escrow Agent to be
held under the Escrow Agreement pursuant to Section 6.7 hereof,
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and held for no more than five (5) months thereunder, subject to
the terms and conditions of such Escrow Agreement, and the
Certificate so surrendered shall forthwith be canceled. Shares
of AEC Common Stock shall be delivered to each ESI Holder as
promptly as practicable and (except as hereinafter provided) in
no event later than twenty (20) days after proper delivery of the
applicable Certificates and letters of transmittal to the
Exchange Agent. In the event of any adjustment in the Firm Shares
by reason of Section 1.4(c) and (d) hereof, the additional Firm
Shares shall be delivered to the ESI Holders following the
procedures in this Section.
(e) All shares of AEC Common Stock issued upon
exchange of the shares of ESI Common Stock in accordance with the
terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of ESI
Common Stock.
(f) Neither Acquisition Corp., AEC nor ESI shall be
liable to any ESI Holder for any such shares of AEC Common Stock
delivered to a public official pursuant to any abandoned
property, escheat or similar law. Until surrendered in
accordance with the provisions of this Section 1.5, each
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Certificate shall represent, for all purposes, only the right to
receive the Firm Shares or appraisal rights under Section 1.9
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hereof.
(g) Any shares of AEC Common Stock which remain
undistributed to ESI Holders for six (6) months after the
Effective Time shall, except as provided by Section 1.5(d), be
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delivered to AEC, upon demand, and any ESI Holder who has not
theretofore complied with this Section 1.5 shall thereafter look
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to AEC for the number of Firm Shares to which he is entitled.
1.6 No Fractional Shares. No certificates or scrip
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for fractional shares of AEC Common Stock will be issued. In
lieu of issuing any such fractional shares to which and ESI
Holder would otherwise be entitled to receive, the Exchange Agent
shall round up or down to the nearest whole share of AEC Common
Stock.
1.7 Certificates in Other Names. If any certificate
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evidencing shares of AEC Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange
therefore is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent or to
AEC acting solely in its corporate capacity, as the case may be,
any transfer or other taxes required by reason of the issuance of
a certificate for shares of AEC Common Stock in any name other
than that of the registered holder of the Certificate surrendered
or otherwise required or establish to the satisfaction of the
Exchange Agent or of AEC acting solely in its corporate capacity,
as the case may be, that such tax has been paid or is not
payable.
1.8 Treatment of Options. At the Effective Time, all
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outstanding warrants, options or other rights to purchase ESI
Common Stock ("ESI Warrants") as set forth on Schedule 3.4, shall
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be canceled.
1.9 Appraisal Rights. (a) Notwithstanding Sections 1.4
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and 1.5 hereof, shares of ESI Common Stock which are held by an
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ESI Holder who has properly preserved and perfected appraisal
rights with respect to such shares pursuant to the applicable
provisions of the CGCL ("Dissenting Stockholder") shall not be
converted into Firm Shares pursuant to Section 1.4 hereof, and
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instead shall be treated in accordance with those provisions of
the CGCL, as the case may be, unless and until the right of such
Dissenting Stockholder under the applicable provisions of the
CGCL to payment for his shares of ESI Common Stock shall cease.
(b) If any Dissenting Stockholder shall effectively
withdraw or lose (through failure to perfect or otherwise) such
Dissenting Stockholder's right to payment for any of such
Dissenting Stockholder's shares of ESI Common Stock, such shares
shall be automatically converted into the right to receive Firm
Shares in accordance with Section 1.4 hereof.
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ARTICLE II
CLOSING
2.1 Closing Date. The closing of the Merger (the
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"Closing") shall take place at the offices of Xxxx & Priest LLP,
00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 11:00 a.m.,
local time, on that day on which the last of the conditions set
forth in Articles VI and VII shall have been satisfied or, if
permissible, waived (other than those conditions which by their
terms are to occur only at the Closing), or on and at such other
date, time and place as AEC, Acquisition Corp. and ESI may agree
(the date of the Closing hereinafter being referred to as the
"Closing Date").
2.2 Deliveries at the Closing. At the Closing ESI
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will deliver to AEC the various certificates, instruments and
document referred to in Article VI, and AEC and Acquisition Corp.
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will deliver to ESI the various certificates, instruments and
documents referred to in Article VII.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ESI
ESI hereby represents and warrants to AEC and
Acquisition Corp. as follows:
3.1 Due Incorporation. (a) ESI is a corporation duly
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organized, validly existing and in good standing under the laws
of the State of California, with all requisite power and
authority to own, lease and operate its properties and to carry
on its business as they are now being owned, leased, operated and
conducted. ESI is not required to qualify to do business as a
foreign corporation in any jurisdiction and the nature of the
properties owned, leased or operated by it and the business
transacted by it require such qualification. ESI does not have
(i) any record or beneficial interest in any corporation,
proprietorship, firm, partnership, limited partnership, limited
liability company, trust, association or other entity, (ii) any
direct or indirect subsidiaries, either wholly or partially
owned, (iii) any voting or management interest in any
corporation, proprietorship, firm, partnership, limited
partnership, limited liability company, trust, association,
individual or other entity (a "Person") or own any security
issued by any Person.
3.2 Due Authorization. ESI has full power and
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authority to enter into this Agreement and, subject to obtaining
the necessary approval of this Agreement and the Merger by the
stockholders of ESI, to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by
ESI of this Agreement have been duly and validly approved and
authorized by the Board of Directors of ESI, and, subject to
obtaining the necessary approval of the Merger by the ESI
stockholders, the transactions contemplated hereby, ESI has duly
and validly executed and delivered this Agreement. Subject to
obtaining the necessary approval of the ESI stockholders, this
Agreement constitutes the legal, valid and binding obligation of
ESI enforceable against ESI in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors'
rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 Non-Contravention; Consents and Approvals.
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(a) Except to the extent set forth on Schedule 3.3, the
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execution and delivery of this Agreement by ESI does not, and the
performance by ESI of its obligations hereunder and the
consummation of the transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of ESI under, any of
the terms, conditions or provisions of (i) the Articles of
Incorporation or By-Laws of ESI, or (ii) subject to obtaining the
necessary approval of this Agreement and the Merger by the ESI
stockholders and the taking of the actions described in paragraph
(b) of this Section 3.3, (x) any statute, law, rule, regulation
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or ordinance (together, "Laws"), or any judgment, decree, order,
writ, permit or license, of any Governmental Entity (as defined
in paragraph (b) below), applicable to ESI or any of its assets
or properties, or (y) any contract, agreement or commitment to
which ESI is a party or by which ESI or any of its assets or
properties is bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any court, admini-
strative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"),
or any other Person, is required by ESI in connection with the
execution and delivery of this Agreement or the consummation by
ESI of the transactions contemplated hereby, except for the
filing of this Agreement together with the requisite officer's
certificate of ESI with the Secretary of State of the State of
California in accordance with the requirements of the CGCL.
3.4 Capitalization. (a) The authorized capital stock
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of ESI consists of (i) 12,000,000 shares of Preferred Stock, no
par value, of which 800,500 shares are issued and outstanding and
designated as Series A Preferred Stock and 14,300 shares are
issued and outstanding and designated as Series B Preferred
Stock, and (ii) 25,000,000 shares of Common Stock, no par value,
of which 669,060 shares are issued and outstanding. All of the
issued and outstanding shares of ESI Preferred Stock and Common
Stock are validly issued, fully paid and nonassessable and the
issuance thereof was not subject to preemptive rights the
complete terms of the Preferred Stock are set forth in the ESI
Articles of Incorporation. All of the outstanding Preferred
Stock will be converted into ESI Common Stock on or before the
Effective Date. Schedule 3.4 is a correct and complete list of
------------
the record holders of the outstanding ESI Preferred Stock and
Common Stock.
(b) Schedule 3.4 is a correct and complete list of all
------------
outstanding ESI Warrants. Except for shares issuable pursuant to
ESI Warrants, there are no shares of ESI Preferred Stock, Common
Stock or other equity securities (whether or not such securities
have voting rights) of ESI issuable or any subscriptions,
options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating ESI to
issue, transfer or sell any shares of capital stock or other
securities (whether or not such securities have voting rights) of
ESI, or agreements to enter into any of the foregoing.
3.5 Financial Statements; Undisclosed Liabilities;
----------------------------------------------
Other Documents. (a) For purposes of this Agreement, "ESI
---------------
Financial Statements" shall mean (x) the unaudited financial
statements of ESI as of December 31, 1997 and December 31, 1996
and the fiscal years then ended (including all notes thereto),
consisting of the balance sheets at such dates and the related
statements of income, stockholders' equity and cash flows for the
years then ended and (y) the unaudited financial statements of
ESI as of February 28, 1998 and February 28, 1997 (including all
notes thereto), consisting of the balance sheets at such dates
and the results of operations for the two months then ended (the
"ESI Financial Statements"). The ESI Financial Statements have
been prepared in accordance with GAAP consistently applied,
present fairly the financial position of ESI as at the dates
thereof and the results of operations, stockholders' equity and
cash flows of ESI for the periods covered thereby, and are
substantially in accordance with the financial books and records
of ESI, subject to normal year end adjustments with respect to
the interim Financial Statements.
(b) ESI does not have any liabilities or obligations
of any nature, whether accrued, absolute, contingent or
otherwise, which individually or in the aggregate could be
reasonably expected to have an ESI Material Adverse Effect (as
defined below) except (i) as set forth on or reflected in the
balance sheet at February 28, 1998 (the "ESI Interim Balance
Sheet") included in the ESI Financial Statements or
(ii) liabilities and obligations incurred since February 28, 1998
in the ordinary and usual course of its business.
3.6 No Material Adverse Effects or Changes. Since
--------------------------------------
December 31, 1997, ESI has not suffered any damage, destruction
or Loss to any of its assets or properties (whether or not
covered by insurance) which is having or could reasonably be
expected to have an ESI Material Adverse Effect. "Loss" shall
mean liabilities, losses, costs, claims, damages (including
consequential damages), penalties and expenses (including
attorneys' fees and expenses and costs of investigation and
litigation). An "ESI Material Adverse Effect" shall mean an
effect on or circumstance involving the business, operations,
assets, liabilities, results of operations, cash flows or
condition (financial or otherwise) of ESI which is materially
adverse to ESI. ESI has not (i) declared, set aside or paid any
dividend or other distribution in respect of its capital stock;
(ii) made any direct or indirect redemption, purchase or other
acquisition of any shares (other than purchases in connection
with the exercise of options) of its capital stock or made any
payment (other than dividends) to any of their stockholders (in
their capacity as stockholders); (iii) issued or sold any shares
of its capital stock or any options, warrants or other rights to
purchase any such shares or any securities convertible into or
exchangeable for such shares or taken any action to reclassify or
recapitalize or split up their capital stock; (iv) mortgaged,
pledged or subjected to any lien, lease, security interest,
encumbrance or other restriction, any of their material
properties or assets except in the ordinary and usual course of
their business and consistent with past practice; (v) entered
into any acquisition or merger agreement or commitment, (vi)
except in the ordinary and usual course of its business and
consistent with its past practices forgiven or canceled any
material debt or claim, waived any material right; or (vii)
adopted or amended any plan or arrangement (other than amendments
that are not material or that were made to comply with laws or
regulations) for the benefit of any director, officer or employee
or changed the compensation (including bonuses) to be paid to any
director, officer or employee, except for changes made consistent
with the prior practice of ESI.
3.7 Tax Returns and Audits. "Taxes", as used in this
---------------------- -----
Agreement, means any federal, state, county, local or foreign
taxes, charges, fees, levies, or other assessments, including all
net income, gross income, sales and use, ad valorem, transfer,
-- -------
gains, profits, excise, franchise, real and personal property,
gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination,
settlement or litigation of any tax liability. "Tax Return", as
----------
used in this Agreement, means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes, including where permitted or required, combined
or consolidated returns for any group or entities.
(a) Filing of Timely Tax Returns. ESI has duly filed
----------------------------
all Tax Returns required to be filed by it under applicable law
and will file all Tax Returns required to be filed by it at or
prior to the Effective Date under applicable law. All Tax
Returns were in all material respects (and, as to Tax Returns not
filed as of the date hereof, will be) complete and correct and
filed on a timely basis. ESI has not requested any extension of
time within which to file any Tax Return, which Tax Return has
not since been filed.
(b) Payment of Taxes. ESI has, within the time and in
----------------
the manner prescribed by law, paid (and until the Effective Date
will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been
taken.
(c) Tax Liens. There are no Tax liens upon the assets
---------
of ESI except liens for Taxes not yet due.
(d) Withholding Taxes. ESI has complied (and until
-----------------
the Effective Date will comply) in all respects with the
provisions of the Code relating to the payment and withholding of
Taxes, including, without limitation, the withholding and
reporting requirements under Sections 1441 through 1464, 3401
through 3606, and 6041 and 6049 of the Code, as well as similar
provisions under any other laws, and has, within the time and in
the manner prescribed by law, withheld from employee wages and
paid over to the proper governmental authorities all amounts
required.
(e) Statute of Limitations. ESI has not executed any
----------------------
outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any
Taxes or Tax Returns. The statute of limitations for the
assessment of all Taxes has expired for all applicable Tax
Returns of ESI or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against ESI that has not been resolved and
paid in full.
(f) Audit, Administrative and Court Proceedings. No
-------------------------------------------
audits or other administrative proceedings or court proceedings
are presently pending or, to the knowledge of ESI, threatened
with regard to any Taxes or Tax Returns of ESI. Except as
disclosed in Schedule 3.7, no power of attorney currently in
------------
force has been granted by ESI concerning any Tax matter. To the
knowledge of ESI, no facts exist or have existed which would
constitute grounds for the assessment of Taxes on ESI with
respect to periods which have not been audited by the Internal
Revenue Service (the "IRS") or other taxing authorities.
(g) Code Section 341(f). ESI has not filed (and will
-------------------
not file prior to the Closing) a consent pursuant to Code Section
341(f) and has not agreed to have Code Section 341(f)(2) apply to
any disposition of a subsection (f) asset (as that term is
defined in Code Section 341(f)(4)) owned by ESI.
(h) Code Section 168. No property of ESI is property
----------------
that ESI or any party to this transaction is or will be required
to treat as being owned by another person pursuant to the
provisions of Code Section 168(f)(8) (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Code Section 168.
(i) U.S. Real Property Holding Corporation. ESI is
--------------------------------------
not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during
the applicable period specified in section 897(c)(1)(A)(ii) of
the Code.
3.8 Litigation. There are no actions, suits,
----------
arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to ESI's
knowledge, threatened against or affecting ESI any of its
officers or directors in their capacity as such, or any of its
property or business which could reasonably be expected to have
an ESI Material Adverse Effect. No event has occurred or
circumstance exists that may give rise or serve as a basis for
the commencement of any such proceeding. ESI is not subject to
any order, judgment, decree, injunction, stipulation or consent
order of or with any court or other Governmental Entity, other
than orders of general applicability.
3.9 Compliance with Applicable Laws. ESI holds all
-------------------------------
permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities which are required in the operation of
its business (the "ESI Permits"), and is in compliance with the
terms of the ESI Permits, except where the failure so to comply
would not have an ESI Material Adverse Effect. Schedule 3.9 is a
------------
complete and correct list of all Permits. The entry into and
consummation of this Agreement and the Merger will not require
any modification, re-application, approval or other consent as to
any ESI Permit. ESI is not in violation of any law, ordinance or
regulation of any Governmental Authority, including environmental
and labor laws and regulations, except for possible violations
which individually and in the aggregate do not, and, insofar as
reasonably can be foreseen by ESI, will not in the future have an
ESI Material Adverse Effect.
3.10 Contracts. (a) Except for the contracts,
---------
agreements, commitments, instruments, bids and proposals to which
ESI is a party listed on Schedule 3.10, ESI is not a party to or
-------------
otherwise bound by any written or oral (i) mortgage, indenture,
note, installment obligation or other instrument relating to the
borrowing of money, (ii) guarantee of any obligation (excluding
endorsements of instruments for collection in the ordinary course
of business of ESI), (iii) letter of credit, bond or other
indemnity, (iv) joint venture, partnership or other agreement
involving the sharing of profits and losses, (v) performance of
services or delivery of goods in an amount exceeding $5,000 or
which would not be completed within three (3) months, (vi)
agreement for the sale or lease by ESI to any person of any
material amount of its assets other than the retirement or other
disposition of assets no longer useful to ESI or the sale of
assets in the ordinary course of the operation of ESI, (vi)
agreement requiring the payment by ESI of more than $5,000 in any
12-month period for the purchase or lease of any machinery,
equipment or other capital assets, (viii) agreement providing for
the lease or sublease by ESI (as lessor, sublessor, lessee or
sublessee) of any real property, (ix) distributor, sales
representative, broker or agent agreement, (x) collective
bargaining agreement, employment or consulting agreement or
agreement providing for severance payments or other additional
rights or benefits (whether or not optional) in the event of the
sale of ESI, (xi) agreement requiring the payment by ESI to any
person of more than $5,000 in any 12-month period for the
purchase of goods or services, (xii) material warranties relating
to products distributed or services provided by ESI, (xiii)
license or sublicense agreement (whether as licensor, licensee,
sublicensor or sublicensee) with respect to any material item of
Intellectual Property owned or licensed by ESI, and (xiv)
agreement imposing non-competition, confidentiality or exclusive
dealing obligations on ESI.
(b) ESI has delivered or made available to AEC
complete and correct copies of each written agreement listed on
Schedule 3.10 each as amended to date and a summary of the terms
-------------
of each oral agreement listed on Schedule 3.10. Each agreement
-------------
listed on Schedule 3.10 is a valid, binding and enforceable
-------------
obligation of ESI and, to ESI's knowledge, the other party or
parties thereto (subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
Laws affecting creditors' rights and remedies generally and
subject as to enforceability to general principles of equity,
including principles of commercial reasonableness, good faith and
fair dealing) and is in full force and effect. Except as set
forth on Schedule 3.10 (i) neither ESI nor, to ESI's knowledge,
-------------
any other party thereto is in material breach of any material
term of any such agreement or has repudiated any material term of
any such agreement, (ii) no event, occurrence or condition exists
(including the transactions contemplated under this Agreement)
which, with the lapse of time or the giving of notice or both,
would become a default under any such agreement by ESI or, to
ESI's knowledge, any other party thereto, and (iii) ESI has not
released or waived any material right under any contract. ESI is
not required to give any notice to any other person who is a
party to an agreement listed on Schedule 3.10 regarding this
-------------
Agreement or the Merger.
(c) Schedule 3.10 sets forth a correct and complete
-------------
list of the ten largest customers of ESI in terms of net revenues
during each of the 1997 and 1996 fiscal years and the first two
months of fiscal 1998, showing the approximately total net
revenue received in each such period from each such customer.
Except to the extent set forth on Schedule 3.10, since December
-------------
31, 1997, there has not been any adverse change in the business
relationship between ESI and any customer listed on such
Schedule.
3.11 Property. Schedule 3.12 is a complete and
-------- -------------
correct list of all personal property of ESI (other than
inventory) not reflected on any other Schedule hereto and having
a book value exceeding $5,000. Except as set forth on Schedule
--------
3.12, ESI now has and on the Closing Date will have good and
----
marketable title to all personal property purported to be owned
by it, free and clear of all Liens. The material, tangible
assets of ESI taken as a whole, including all machinery and
equipment, are, in all material respects, in good condition and
repair, reasonable wear and tear excepted and have been well
maintained. ESI does not own, nor have any right to acquire, any
real property.
3.12 Employees. Schedule 3.12 contains a complete
--------- -------------
and correct list of (i) all full-time and part-time employees of
ESI, including their respective salaries, dates of hire,
positions and last salary adjustment and (ii) all bonus, deferred
compensation, severance or termination pay, insurance, medical,
dental, drug, profit sharing, pension, retirement, stock option,
stock purchase, hospitalization insurance or other material plans
or arrangements providing employee benefits to any current or
former director, officer, employee or consultant of ESI and all
relevant vacation policies. ESI is not a party to any union,
collective bargaining or similar agreement, and there are no
controversies pending or, to ESI's knowledge, threatened between
ESI and any current or former employee or any labor or other
collective bargaining unit representing any current or former
employee of ESI that could reasonably be expected to result in a
material labor strike, dispute, slow-down or work stoppage or
otherwise have a material adverse effect on the financial
condition of ESI. ESI is not aware of any organizational effort
presently being made or threatened by or on behalf of any labor
union with respect to employees of ESI. ESI has paid or accrued
in full all wages, salaries, commissions, bonuses and other
compensation (including severance pay and vacation benefits) for
all services performed by its employees and former employees, and
has withheld such amounts as were required to be withheld
therefrom and has paid the withheld amounts to the proper tax and
other receiving officers within the time required under
applicable law. ESI does not have any benefit plan subject to the
reporting requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code and other applicable
Laws, nor has had such a plan since January 1, 1996.
3.13 Insurance. Schedule 3.13 contains a complete
--------- -------------
and correct schedule of coverage and list of all policies of
insurance owned by ESI under which ESI assets, properties,
operations or employees are insured (including amount of
coverage, type of insurance, amount of deductible, if any, the
policy number and expiration date), and all claims made under any
of such policies or prior policies since December 31, 1996.
Since December 31, 1996, ESI has given due and timely notice of
any claim and of any occurrence known to ESI which may be covered
by any of such policies or prior policies. All scheduled
policies are in full force and effect and are in amounts and
coverage sufficient for compliance by ESI with all applicable
requirements of Law and all agreements to which ESI is a party or
subject and customary in its industry. All premiums in
connection with such policies are fully paid. No event has
occurred which, with notice or lapse of time, would constitute a
breach or default thereunder or permit termination, modification
or acceleration of any policy, and no party to any policy has
repudiated any provisions thereof.
3.14 Inventories. The amounts at which the
-----------
inventories are carried on the ESI Interim Balance Sheet and on
the books of ESI reflect the normal valuation policy of ESI in
accordance with GAAP. The amount of repair parts and supplies
maintained by ESI is consistent with its prior practices. The
reserves estimated for obsolescence as of the Closing Date will
be adequate to cover the diminution in value of inventories due
to obsolescence.
3.15 Accounts Receivable. Schedule 3.15 sets forth a
------------------- -------------
complete and correct list of the work-in-process and accounts
receivable of ESI as set forth on the ESI Interim Balance Sheet,
including the degree of completion for each project and the
amounts expended thereon. All accounts receivable which have
arisen subsequent to the ESI Interim Balance Sheet represent
sales or work performed made in the ordinary course of business,
are current and collectible and, to ESI's knowledge, the same
will be collected in full (net of reserve for bad debts) in the
ordinary course of business and are not subject to any claims,
offsets, allowances or adjustments.
3.16 Intellectual Property. Schedule 3.16 is a
--------------------- -------------
complete and correct list of all of the trademarks, tradenames,
service marks, trade dress, and patents (including any
registrations of or pending applications for any of the
foregoing), know-how, databases, trade secrets and
confidentiality information (collectively, "Intellectual
Property") used by ESI in the conduct of its business. Except as
disclosed on Schedule 3.16:
-------------
(a) all of such Intellectual Property is owned by
ESI free and clear of all liens, and is not subject to any
license, royalty or other agreement;
(b) none of such Intellectual Property has been or
is the subject of any pending or, to the best of ESI's knowledge,
threatened litigation or claim of infringement;
(c) no license or royalty agreement to which ESI is
a party is in breach or default by any party thereto except where
such breach or default would not have an ESI Material Adverse
Effect or is the subject of any notice of termination given or,
to ESI's knowledge, threatened;
(d) to ESI's knowledge, ESI is not breaching or
infringing any Intellectual Property of third parties; and
(e) the Intellectual Property is sufficient for the
conduct of the business of ESI as presently conducted.
3.17 Environmental Matters. The business and
---------------------
operations of ESI, including the transportation, treatment,
storage, handling, transfer, disposition, recycling or receipt of
materials, complies with all applicable environmental statutes,
regulations and decrees, whether federal, state or municipal (the
"Environmental Laws"). ESI has not received any notices to the
effect that the business carried on by ESI or the operation of
any equipment or facilities of ESI (including the transportation,
handling, treatment or storage of hazardous materials thereon) is
not in compliance with the requirements of applicable
Environmental Laws or is subject to any remedial control or
action or any investigation or evaluation as to whether any
remedial action is required to respond to a release or threatened
which forms part of or is adjacent to any premises at which ESI's
business is conducted. ESI has performed its services for
customers in material compliance with all applicable
Environmental Laws.
3.18 Books and Records. ESI has maintained and
-----------------
preserved complete and accurate books and records for its
material transactions. The minute books of ESI include complete
and correct minutes of all meetings of its directors committees
and stockholders. The ESI Articles of Incorporation and By-laws
previously delivered to AEC are current and complete. At the
Closing Date, all of those books and records will be in the
possession of ESI. Schedule 3.18 sets forth a complete and
-------------
correct list of (i) all officers and directors of ESI and (ii)
the name and address of each bank, trust company or other
financial institution in which ESI has an account and the names
of all persons authorized to draw thereon as well as all powers
of attorney granted by ESI.
3.19 Related Party Transactions. Schedule 3.19 sets
-------------------------- -------------
forth a complete and correct list of all transactions, loans,
claims, or agreements between or involving ESI and an officer,
director; employee, consultant or stockholder of ESI (or an
affiliate of any such person) since December 31, 1996 (excluding
employment agreements included on another ESI Schedule to this
Agreement and benefits given to all employees of ESI). All
transactions and agreements listed on Schedule 3.19 were on terms
-------------
to ESI no less favorable than what ESI would have had with
unrelated third parties.
3.20 Fees of Brokers, Consultants and Financial
------------------------------------------
Advisors. Neither ESI, nor any officer, director, or employee of
--------
ESI, has employed any broker, finder, consultant or investment
banker or incurred any liability for any brokerage or investment
banking fees, commissions or finders' fees in connection with the
transactions contemplated by this Agreement.
3.21 Required Vote. The affirmative vote of the
-------------
holders of a majority of the outstanding shares of ESI Common
Stock, voting together as one class, is the only vote of the ESI
stockholders required to approve this Agreement, the Merger and
the transactions contemplated herein.
3.22 General Representation and Warranty. Neither
-----------------------------------
this Agreement nor any schedule attached hereto or other
documents and written information furnished by or on behalf of
ESI, its attorneys, auditors or insurance agents to AEC in
connection with this Agreement contains any untrue statement of
material fact or omits to state any material fact necessary to
make the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND AEC
Acquisition Corp. and AEC, jointly and severally,
hereby represent and warrant to ESI as follows:
4.1 Due Incorporation. Each of AEC and Acquisition
-----------------
Corp. is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and California,
respectively, with all requisite power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. AEC is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where
the nature of the properties owned, leased or operated by it and
the business transacted by it require such qualification, except
where the failure to be so qualified could not have an AEC
Material Adverse Effect (as defined in Section 4.7 herein).
-----------
4.2 Due Authorization. Each of AEC and Acquisition
-----------------
Corp. has full power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution, delivery and performance by AEC of this Agreement has
been duly and validly approved by the Board of Directors of AEC,
and no other actions or proceedings on the part of AEC are
necessary to authorize this Agreement. The execution, delivery
and performance by Acquisition Corp. of this Agreement has been
duly and validly approved by the Board of Directors and the sole
stockholder of Acquisition Corp., and no other actions or
proceedings on the part of Acquisition Corp. or its stockholder
are necessary to authorize this Agreement. Each of AEC and
Acquisition Corp. has duly and validly executed and delivered
this Agreement. This Agreement constitutes the legal, valid and
binding obligations of each of AEC and Acquisition Corp.,
enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors'
rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Non-Contravention; Consents and Approvals.
-----------------------------------------
(a) The execution and delivery of this Agreement by AEC and
Acquisition Corp. does not, and the performance by AEC and
Acquisition Corp. of their obligations hereunder and the
consummation of the transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of any of the AEC
Companies (as defined in Section 4.7 hereof) under, any of the
-----------
terms, conditions or provisions of (i) the charter documents or
bylaws of each of the AEC Companies, or (ii) subject to the
taking of the actions described in paragraph (b) of this Section,
(x) any statute, law, rule, regulation or ordinance (together,
"Laws"), or any judgment, decree, order, writ, permit or license,
of any Governmental Entity, or (y) any contract, agreement or
commitment to which any AEC Company is a party or by which any
AEC Company or any of their respective assets or properties is
bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental
Entity is required by AEC or Acquisition Corp. in connection with
the execution and delivery of this Agreement or the consummation
by each of AEC and Acquisition Corp. or each of their respective
stockholders of the transactions contemplated hereby and thereby,
except for:
(i) the filing of this Agreement together with the
requisite officer's certificates of AEC and Acquisition Corp.
with the Secretary of State of the State of California in
accordance with the requirements of the CGCL; and
(ii) filings with various state securities "blue sky"
authorities.
4.4 Capitalization. The authorized capital stock of
--------------
AEC consists of 1,000,000 shares of Preferred Stock, $.01 par
value per share ("AEC Preferred Stock"), and 20,000,000 shares of
AEC Common Stock. On the date hereof, no shares of AEC Preferred
Stock are issued and outstanding and 5,663,036 shares of AEC
Common Stock are issued and outstanding. The authorized capital
stock of Acquisition Corp. consists of 1,000 shares of
Acquisition Corp. Common Stock, of which 1,000 shares are issued
and outstanding. All of the issued and outstanding shares of AEC
and Acquisition Corp. Common Stock are, and all shares of AEC
Common Stock constituting the Firm Shares and any adjustment
thereto to be issued to ESI stockholders in the Merger will be,
validly issued, fully paid and nonassessable and the issuances
thereof were not and will not be subject to preemptive rights.
4.5 Financial Statements; Undisclosed Liabilities;
----------------------------------------------
Other Documents. (a) For purposes of this Agreement, "AEC
---------------
Financial Statements" shall mean (x) the audited consolidated
financial statements of AEC as of July 31, 1997 and July 27, 1996
and for the fiscal years then ended (including all notes thereto)
and (y) the unaudited consolidated financial statements of AEC as
of January 31, 1998 and January 25, 1997 and for the six months
then ended consisting of the consolidated balance sheets at such
dates and the related consolidated statements of operations,
stockholders' equity and cash flows for the periods then ended
which are included in the AEC SEC Documents (as defined in
Section 4.6). The AEC Financial Statements have been prepared in
-----------
accordance with GAAP consistently applied, present fairly the
financial position, of AEC as at the dates thereof and the
results of operations and cash flows of AEC for the periods
covered thereby (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments), and are
substantially in accordance with the financial books and records
of AEC.
(b) AEC does not have any liabilities or
obligations of any nature, whether accrued, contingent, absolute
or otherwise, which individually or in the aggregate could be
reasonably expected to have an AEC Material Adverse Effect (as
defined below) except (i) as set forth in the January 31, 1998
balance sheet (the "AEC Interim Balance Sheet") or (ii)
liabilities or obligations incurred since January 31, 1998 in the
ordinary and usual course of its business.
4.6 Securities Law Filings. AEC is a subject to the
----------------------
reporting requirements of Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and has filed all
required forms, reports and other documents with the U.S.
Securities and Exchange Commission (the "SEC") since July 28,
1996, all of which complied when filed, in all material respects,
with all applicable requirements of the Exchange Act. AEC has
heretofore delivered to ESI complete and correct copies of (i)
its Annual Report on Form 10-KSB for the year ended July 31,
1997, (ii) its Form 10-QSB for the quarter ended January 31,
1998, and (iii) all other reports, forms and other documents
filed by AEC with the SEC since July 27, 1996 (together, the "AEC
SEC Documents").
4.7 No Material Adverse Effects or Changes. Except
--------------------------------------
as listed on Schedule 4.7, or as disclosed in or reflected in the
------------
AEC Financial Statements included in the AEC SEC Documents, or as
contemplated by this Agreement, since January 31, 1998, neither
AEC nor any of its wholly-owned subsidiaries (AEC and such
subsidiaries sometimes collectively, the "AEC Companies") has
suffered any damage, destruction or Loss to any of its assets or
properties (whether or not covered by insurance) which is having
or could be expected to have an AEC Material Adverse Effect. An
"AEC Material Adverse Effect" shall mean an effect on or
circumstances involving the business, operations, assets,
liabilities, results of operations, cash flows or condition
(financial or otherwise) which is materially adverse to the AEC
Companies, taken as a whole.
4.8 Insurance. The AEC Companies are insured with
---------
reputable insurers against all risks and in such amounts normally
insured against by companies of the same type and in the same
line of business as the AEC Companies.
4.9 Labor Matters. Each of the AEC Companies has
-------------
conducted and currently is conducting, its respective business in
full compliance with all laws relating to employment and
employment practices, terms and conditions of employment, wages
and hours and nondiscrimination in employment except where such
failure to be in compliance would not have an AEC Material
Adverse Effect. The relationship of the AEC Companies with their
respective employees is generally satisfactory, and there is, and
during the past three years there has been, no labor strike,
dispute, slow-down, work stoppage or other labor difficulty
pending or, to AEC's knowledge, threatened against or involving
the AEC Companies. None of the employees of the AEC Companies
are covered by any collective bargaining agreement, no collective
bargaining agreement is currently being negotiated by the AEC
Companies and to AEC's knowledge, no attempt is currently being
made or during the past three years has been made to organize any
employees of the AEC Companies to form or enter a labor union or
similar organization.
4.10 Tax Returns and Audits. Except as set forth on
----------------------
Schedule 4.10, each of the AEC Companies has duly filed all
-------------
United States, state, local and foreign Tax Returns required to
be filed by it, except where the failure to so file would not
have an AEC Material Adverse Effect. AEC has duly paid (except
for Taxes being contested in good faith) or made adequate
provisions on its books in accordance with GAAP for the payment
of all Taxes which have been incurred or are due and payable, by
the AEC Companies, and AEC will on or before the Effective Time
of the Merger make adequate provision on its books in accordance
with GAAP for all Taxes payable for any period through the
Effective Time of the Merger for which no return is required to
be filed prior to the Effective Time. Since July 31, 1996, the
Tax Returns of the AEC Companies have not been examined by the
IRS or other taxing authority, nor has any of the AEC Companies
granted or given any extensions or waivers of the statute of
limitations with respect to any such federal and state income tax
returns since July 31, 1996. AEC is not aware of any basis for
the assertion of any deficiency against any of the AEC Companies
for Taxes, which, if adversely determined, would have an AEC
Material Adverse Effect.
4.11 Litigation. (a) There are no actions, suits,
----------
arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to AEC's
knowledge, threatened against or affecting any of the AEC
Companies or any of their respective officers or directors in
their capacity as such, or any of their respective properties or
businesses which could reasonably be expected to have an AEC
Material Adverse Effect. No AEC Company is subject to any order,
judgment, decree, injunction, stipulation or consent order of or
with any court or other Governmental Entity, other than orders of
general applicability.
(b) There are no claims, actions, suits, proceedings,
or investigations pending or, to AEC's knowledge, threatened by
or against any of the AEC Companies with respect to this
Agreement, or in connection with the transactions contemplated
hereby or thereby.
4.12 Compliance with Applicable Laws. Each of the AEC
-------------------------------
Companies holds all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
required in the operation of its respective business (the "AEC
Permits") except for those the failure of which to hold would not
have an AEC Material Adverse Effect. The AEC Companies are in
compliance with the terms of the AEC Permits, except where the
failure so to comply would not have an AEC Material Adverse
Effect. None of the AEC Companies is in violation of any law,
ordinance or regulation of any Governmental Authority, including
environmental laws and regulations, except for possible
violations which individually and in the aggregate do not, and,
insofar as reasonably can be foreseen by AEC, will not in the
future have an AEC Material Adverse Effect.
4.13 Contracts; No Defaults. Neither any AEC Company
----------------------
nor to AEC's knowledge any other party thereto, is in breach or
violation of, or in default in the performance or observance of
any term or provision of, and no event has occurred or by reason
of this Agreement or the Merger would occur which, with notice or
lapse of time or both, could be reasonably expected to result in
a default under, any contract, agreement or commitment to which
any AEC Company is a party or by which any AEC Company or any of
its assets or properties is bound, except for breaches,
violations and defaults which are not having and could not be
reasonably expected to have an AEC Material Adverse Effect. None
of the AEC Companies is required to give any notice to any person
regarding this Agreement or the transactions contemplated hereby
or thereby.
4.14 Fees of Brokers, Finders and Investment Bankers.
-----------------------------------------------
Neither AEC nor any officer, director, or employee of AEC has
employed any brokers, finder or investment banker or incurred any
liability for any brokerage or investment banking fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.15 General Representation and Warranty. Neither this
-----------------------------------
Agreement nor any schedule attached hereto or other documents and
written information furnished by or on behalf of AEC, its
attorneys, auditors or insurance agents to ESI in connection with
this Agreement contains any untrue statement of material fact or
omits to state any material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE V
COVENANTS
5.1 Implementing Agreement. Subject to the terms and
----------------------
conditions hereof, each party hereto shall use its best efforts
to take all action required of it to fulfill its obligations
under the terms of this Agreement and to facilitate the
consummation of the transactions contemplated hereby. It is the
intention of the parties thereto that the Closing Date will take
place by April 30, 1998.
5.2 Access to Information and Facilities;
-------------------------------------
Confidentiality. (a) From and after the date of this Agreement,
---------------
ESI shall give AEC and Acquisition Corp. and their
representatives access during normal business hours and upon
reasonable notice to all of the facilities, properties, books,
contracts, commitments and records of ESI and shall make the
officers and employees of ESI available to AEC and Acquisition
Corp. and their representatives as AEC or Acquisition Corp. or
their representatives shall from time to time reasonably request.
AEC and Acquisition Corp. and their representatives will be
furnished with any and all information concerning ESI which AEC
or Acquisition Corp. or their representatives reasonably request.
The obligations set forth in this Section 5.2 shall also apply to
-----------
AEC and Acquisition Corp., mutatis mutandis. The investigation
------- --------
by and knowledge of ESI or AEC and the furnishing of information
to each other shall not affect the right of such party to rely on
the representations, warranties, covenants and agreements of the
other party hereto.
(b) Each of ESI, on one hand, and AEC and Acquisition
Corp., on the other hand, agrees for itself, and its respective
representatives, to keep confidential all information furnished
to it pursuant to this Section 5.2, except for information which
is public or which is disclosed other than by a person subject to
this Section 5.2(b).
--------------
5.3 Preservation of Business. (a) From the date of
------------------------
this Agreement until the Closing Date, each of ESI and AEC,
(including the ESI Companies and the other AEC Companies,
respectively) shall operate only in the ordinary and usual course
of business consistent with past practice, and shall use
reasonable commercial efforts to (i) preserve intact its business
organization, (ii) preserve the good will and advantageous
relationships with customers, suppliers, independent contractors,
employees and other persons material to the operation of its
business, and (iii) not permit any action or omission which would
cause any of the representations or warranties contained herein
to become inaccurate or any of the covenants to be breached in
any material respect.
(b) ESI further covenants that prior to the Closing
Date ESI shall not, nor permit any of the ESI Companies to,
without the prior written consent of AEC (which shall not be
unreasonably withheld):
(i) take any action, incur any obligation or enter
into or authorize any contract or transaction other than in the
ordinary course of business;
(ii) except pursuant to the terms of any ESI Warrants
and the conversion of its Preferred Stock, issue, sell, deliver
or agree or commit to issue, sell or deliver (whether through the
issuance or granting or options, warrants, convertible or
exchangeable securities, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock or any
other securities, or amend any of their terms of any such
securities;
(iii) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem
or otherwise acquire any of its securities;
(iv) make any changes in its accounting systems,
policies, principles or practices except as may be required by
law or GAAP;
(v) make any amendments to its Articles of
Incorporation or By-Laws or call or hold any meeting of
stockholders except as required under this Agreement;
(vi) make any material Tax election or settle or
compromise any material federal, state, local or foreign income
Tax liability, or waive or extend the statute of limitations in
respect of any such Taxes; or
(vii) terminate, or modify, amend or otherwise alter or
change in any material respect, any of the terms or provisions of
any material Contract.
(c) Each of ESI and AEC will promptly notify the other
in writing upon becoming aware of any fact or condition which
would constitute a breach or non-compliance of this covenant.
5.4 ESI Stockholder Approval. As soon as practicable
------------------------
after the date hereof, ESI shall prepare a proxy statement for a
stockholders meeting (the "ESI Stockholders Meeting") at which
irrevocable approval of this Agreement and the Merger will be
voted upon. ESI will convene the ESI Stockholders Meeting as
promptly as practicable after the proxy statement is available.
Subject to fiduciary obligations of the ESI Board of Directors,
the ESI Board of Directors shall recommend approval to its
stockholders of this Agreement and the Merger and use its best
efforts to obtain such approval. At the request of ESI, AEC
shall furnish to ESI such information regarding AEC and
Acquisition Corp. as may reasonably be necessary for inclusion in
the proxy statement. ESI agrees to provide AEC with drafts of
the proxy statement at least two business days prior to
distribution of the final proxy statement to ESI stockholders.
5.5 Consents and Approvals. Subject to the terms and
----------------------
conditions provided herein, each of the parties hereto shall use
reasonable commercial efforts to obtain all consents, approvals,
certificates and other documents required in connection with the
performance by it of this Agreement and the consummation of the
transactions contemplated hereby, in addition to the approval of
ESI Stockholders. As soon as practicable after the date hereof,
each of the parties hereto shall make all filings, applications,
statements and reports to all Governmental Authorities and other
Persons which are required to be made prior to the Closing Date
pursuant to any applicable law or contract in connection with
this Agreement and the transactions contemplated hereby.
5.6 Periodic Reports. Until the Effective Time, AEC
----------------
will, subject to the requirements of applicable laws, furnish to
ESI all filings to be made with the SEC and will solicit comments
with respect thereto, in each case at least two business days (or
as soon prior thereto as is practicable) prior to the time of
such filings and the time of such mailings of reports which refer
to ESI.
5.7 Publicity. Prior to issuing any public
---------
announcement or statement with respect to the transactions
contemplated hereby and prior to making any filing with any
federal or state governmental or regulatory agency with respect
thereto, AEC and ESI will, subject to their respective legal
obligations, consult with each other and will allow each other to
review the contents of any such public announcement or statement
and any such filing. Subject to the preceding sentence, AEC and
ESI each agree to furnish to the other copies of all other public
announcements they may make concerning their respective business
and operations promptly after such public announcements are made.
5.8 No Negotiation. ESI agrees that it shall not,
--------------
after the date hereof and prior to the Effective Time, seek,
directly or through agents, representatives or affiliates (as
defined in the Exchange Act), or permit any of its officers or
directors to seek (whether in their capacities as officers or
directors or in their individual capacities) any person or
persons, (other than AEC), to acquire or purchase all or
substantially all of its assets or to purchase or exchange for
any of its capital stock, or ESI to acquire or purchase in one or
more related transactions the capital stock or related assets of
persons (other than AEC or its affiliates) or to effect a
consolidation or merger (other than the Merger) or other business
combination or recapitalization, or to enter into any agreements
with respect to any of the foregoing transactions, and shall
cease any such discussions held with third parties (other than
AEC) as of the date hereof.
5.9 Blue Sky Approvals. AEC and ESI shall obtain all
------------------
necessary state securities law or "blue sky" permits and
approvals required to carry out the transactions contemplated by
this Agreement and the Merger.
5.10 Principal Stockholder. ESI shall cause J.S.
---------------------
Xxxxxxx to enter into an agreement agreeing to vote all of his
shares of ESI Common Stock, and shall cause members of his
immediate families to vote all of their shares of ESI Common
Stock, at the ESI Stockholders Meeting in favor of approval of
this Agreement and the Merger.
5.11 Status of ESI Stockholders as Accredited
----------------------------------------
Investors. Each holder of ESI Common Stock immediately prior to
---------
the Closing Date shall represent to AEC, by means of an
acknowledged questionnaire or other means acceptable to AEC, that
as of the Effective Time such holder is or is not an "accredited
investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and the other representations as set forth on
Exhibit B annexed hereto.
5.12 Registration Rights. (a) Registration. AEC will
------------------- ------------
use its best efforts, within six (6) months from the Effective
Date, to file a registration statement (the "Registration
Statement") on Form SB-2 or such other applicable form under the
Securities Act with the Securities and Exchange Commission (the
"Commission") to register the Firm Shares including any
additional shares pursuant to Section 1.4(c) or (d) hereof (the
---------------------
"Registered Shares"), for sale and use its best efforts to cause
the Registration Statement to be declared effective and to
maintain the Registration Statement under the Securities Act from
its effective date until the earlier of (A) one (1) year after
the Effective Date or (B) all Registered Shares included therein
have been sold. AEC may include the Registered Shares in a
registration statement being filed by AEC with respect to other
securities of AEC. AEC shall give written notice to each ESI
Holder at least twenty (20) days prior to filing the Registration
Statement asking such Holder how many of his shares of AEC Common
Stock he wants to include in the Registration Statement. If an
ESI Holder fails to timely advise AEC in writing of the number of
shares of AEC Common Stock he wants to include in the
Registration Statement, he shall have no further rights to have
his shares of AEC Common Stock included therein. The obligation
of AEC under this provision shall be limited to one Registration
Statement which becomes effective under the Securities Act.
(b) Registration Procedures. (i) AEC shall pay all
-----------------------
expenses of the Registration Statement filed pursuant to this
Section, including, without limitation, all registration, filing
and qualification fees, printing expenses, fees and disbursements
of counsel for AEC, accounting fees incidental to or required by
such registration; provided, however, that each ESI Holder shall
-------- -------
pay all underwriting discounts and commissions applicable to his
Registered Shares and fees and disbursements of his own attorney.
AEC shall furnish the ESI Holders such number of copies of a
prospectus, including a preliminary prospectus, to the
Registration Statement as the ESI Holders may reasonably request.
(ii) In connection with any Registration Statement
filed pursuant to this Section, AEC shall file any post-effective
amendment or amendments to the Registration Statement which may
be required under the Securities Act during the period reasonably
required to effect the distribution contemplated thereby.
(iii) Each ESI Holder who desires to include his
shares of AEC Common Stock in the Registration Statement must
enter into a Selling Stockholders Agreement with AEC regarding
the relative rights and duties of the Selling Stockholders and
AEC, including customary indemnification provisions.
(iv) AEC shall not be required to include in any
Registration Statement any Registered Shares if in the opinion of
counsel to AEC, registration of the Registered Shares proposed
to be included is not required under the Securities Act if such
Registered Shares may then be publicly sold in accordance with
Section 4(1) thereof and Rule 144 thereunder.
(c) State Securities Laws. In connection with the
---------------------
offering of any Registered Common Stock pursuant to this Section,
AEC shall use its best efforts to qualify or register the
Registered Shares under the securities or "Blue Sky" laws of such
jurisdictions as may be reasonably requested by the Holders.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND AEC
The obligations of Acquisition Corp. and AEC to
consummate the Merger are subject to the fulfillment at or before
the Closing of each of the following conditions:
6.1 Warranties True as of Closing Date. Each of the
----------------------------------
representations and warranties of ESI contained herein shall be
true and correct in all material respects on and as of the
Closing Date with the same force and effect as though made on and
as of the Closing Date, without giving effect to any notification
pursuant to Section 5.3(c) hereof.
--------------
6.2 Compliance With Agreements and Covenants. ESI
----------------------------------------
shall have performed and complied with in all material respects
all of its covenants, obligations and agreements contained in
this Agreement to be performed and complied with by ESI on or
prior to the Closing Date, without giving effect to any
notification pursuant to Section 5.3(c) hereof.
--------------
6.3 ESI Certificate. ESI shall have delivered to AEC
---------------
a certificate, dated the Closing Date, from its Chief Executive
Officer and Chief Financial Officer certifying that each of the
conditions specified in Section 6.1 and Section 6.2 hereof are
----------- -----------
satisfied in all respects.
6.4 Secretary's Certificate. ESI will have delivered
-----------------------
to AEC a certificate of the duly authorized Secretary of ESI,
dated the Closing Date, certifying resolutions of ESI Board of
Directors and stockholders authorizing the execution, delivery
and performance of this Agreement and the Merger.
6.5 Good Standing Certificates. ESI will have
--------------------------
delivered to AEC at the Closing certificate of good standing and
tax status from the State of California, as to ESI, which
Certificates shall be dated a date not more than five (5)
business days prior to the Closing Date.
6.6 Employment Agreements. ESI will have delivered to
---------------------
AEC a fully executed employment agreement between ESI and each of
Xxxxxxxx X. Xxxxxxxx and Xxxxxxx X. Xxxxxxxx, in form
satisfactory to AEC.
6.7 Escrow Agreement. ESI will have delivered to AEC
----------------
the Escrow Agreement executed by the Escrow Agent and a person
acceptable to the parties hereto, as the agent of the ESI
stockholders, as provided for in Section 1.4(a) hereof. The
--------------
Escrow Agreement shall be substantially in the form of Exhibit A
---------
attached hereto.
6.8 Stockholder Letters. ESI shall have delivered to
-------------------
AEC executed ESI Stockholder Representation Letters from each ESI
Stockholder, which letters shall be in the form of Exhibit B
attached hereto.
6.9 Opinion of Counsel. ESI will have delivered to
------------------
AEC a legal opinion of IPO Corporate Law Group in form and
substance reasonably satisfactory to AEC and its counsel.
6.10 Approval of Merger. The ESI Stockholders shall
------------------
have approved this Agreement and the Merger contemplated hereby
in accordance with its Articles of Incorporation and By-Laws and
the CGCL.
6.11 Dissent and Appraisal. The holders of not more
---------------------
than five percent (5%) of the issued and outstanding shares of
ESI Common Stock have dissented from the Merger and sought
appraisal rights pursuant to the applicable provisions of the
CGCL.
6.12 Consents and Approvals. AEC shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
ESI Material Adverse Effect or an AEC Material Adverse Effect.
6.13 Resignations. Such officers and directors of ESI
------------
as requested by AEC shall have delivered letters of resignation
of their positions with ESI.
6.14 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
6.15 Other Closing Documents. AEC shall have received
-----------------------
the executed Articles of Merger and such other agreements and
instruments as AEC shall reasonably request, in each case in form
and substance reasonably satisfactory to AEC.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF ESI
The obligations of ESI to consummate the Merger are
subject to the satisfaction or waiver by AEC of the following
conditions precedent on or before the Closing Date:
7.1 Warranties True as of Closing Date. Each of the
----------------------------------
representations and warranties of Acquisition Corp. and AEC
contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as though made by Acquisition Corp. and AEC on and as of
the Closing Date, without giving effect to any notification
pursuant to Section 5.3(c) hereof.
--------------
7.2 Compliance with Agreements and Covenants.
----------------------------------------
Acquisition Corp. and AEC shall have performed and complied with
in all material respects all of their covenants, obligations and
agreements contained in this Agreement, to be performed and
complied with by them on or prior to the Closing Date, without
giving effect to any notification pursuant to Section 5.3(c)
--------------
hereof.
7.3 AEC Certificate. AEC shall have delivered to ESI
---------------
a certificate, dated the Closing Date, from its Chief Executive
Officer and Chief Financial Officer certifying that each of the
conditions specified in Section 7.1 and Section 7.2 hereof are
----------- -----------
satisfied in all respects.
7.4 Opinion of Counsel. AEC shall have delivered to
------------------
ESI a legal opinion of Xxxx & Priest LLP in form and substance
reasonably satisfactory to ESI.
7.5 Consents and Approvals. ESI shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
ESI Material Adverse Effect or an AEC Material Adverse Effect.
7.6 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
7.7 Other Closing Documents. ESI shall have received
-----------------------
such other agreements and instruments as ESI shall reasonably
request, in each case in form and substance reasonably
satisfactory to ESI.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and
-----------
the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the ESI stockholders:
(a) by mutual written consent of the Board of
Directors of AEC and the Board of Directors of ESI;
(b) by AEC, by written notice to ESI, given any time
within sixty (60) days from the date hereof;
(c) by either AEC or ESI, by written notice to the
other, if (i) the Effective Time shall not have occurred on or
before June 30, 1998, or (ii) any court of competent jurisdiction
in the United States or any state shall have issued an order,
judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and
such order, judgment or decree shall have become final and non-
appealable; provided, however, that the right to terminate this
Agreement (X) under clause (i) shall not be available to any
party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date or (Y) under
clause (ii) shall not be available to any party unless such party
shall have used all reasonable efforts to remove such order,
judgment or decree;
(d) by AEC, by written notice to ESI, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of ESI
hereunder which, if not remedied prior to the Closing
Date, would have an ESI Material Adverse Effect and
such breach shall not have been remedied, or ESI shall
not have provided AEC with reasonable assurance that
such breach will be remedied prior to the Closing Date,
within five (5) business days after receipt by ESI of
notice in writing from AEC, specifying the nature of
such breach and requesting that it be remedied; or
(ii) the Board of Directors of ESI shall withdraw
or modify in any manner adverse to AEC its approval or
recommendation of this Agreement or the Merger.
(e) by ESI, by written notice to AEC, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of AEC
hereunder which, if not remedied prior to the Closing
Date, would have an AEC Material Adverse Effect and
such breach shall not have been remedied or AEC shall
not have provided ESI with reasonable assurance that
such breach will be remedied prior to the Closing Date,
within five (5) business days after receipt by AEC of
notice in writing from ESI, specifying the nature of
such breach and requesting that it be remedied; or
(ii) the Board of Directors of AEC shall withdraw
or modify in any manner adverse to ESI its approval or
recommendation of this Agreement or the Merger.
8.2 Effect of Termination and Abandonment. In the
-------------------------------------
event of termination of this Agreement and abandonment of the
Merger pursuant to this Article VIII, this Agreement shall
------------
forthwith become void and no party hereto (or any of its
directors, officers or stockholders) shall have any liability or
further obligation to any other party to this Agreement, except
that nothing herein will relieve any party from liability for any
breach of any of its representations or warranties under this
Agreement or its failure to comply with one of its covenants,
agreements or obligations under this Agreement, except if the
termination is by reason of a breach by ESI of its covenants
under Section 5.8 hereof, ESI shall pay to AEC a non-refundable
-----------
fee equal to $200,000.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by ESI Stockholders.
-----------------------------------
(a) In consideration of the receipt of the Firm
Shares, including any additional shares received as an adjustment
to the number of Firm Shares pursuant to Section 1.4 hereof, ESI
-----------
and the ESI Holders shall indemnify and hold harmless AEC from
and against any claims, demands, debts, suits, actions,
obligations, proceedings, losses, damages, liabilities,
deficiencies, costs and expenses (including without limitation,
all reasonable legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) (collectively, "Claims") arising out of, based upon
or by reason of (A) any breach of any representation or warranty
of ESI contained in this Agreement or in any Schedule or
certificate delivered pursuant to this Agreement or (B) any
breach or non-fulfillment of, or failure to perform, any of the
covenants, agreements or understandings of ESI which are
contained in or made pursuant to this Agreement.
(b) Notwithstanding anything to the contrary herein,
any claim by AEC against the ESI Holders under this Section 9.1
-----------
shall be payable by the ESI Holders only to the extent that AEC's
damages (the "Damages") shall exceed in the aggregate $25,000
(the "Threshold Amount"). At such time as the aggregate amount
of AEC Damages exceed the Threshold Amount, the ESI Stockholders
shall be liable on a dollar-for-dollar basis for the full amount
of all AEC Damages, including the Threshold Amount. Any payments
to be made by the ESI Stockholders under this Section 9.1 shall
-----------
be from shares of AEC Common Stock and/or funds held under the
Escrow Agreement, and shall be pro-rata based upon their
--------
respective ownership of ESI Common stock as of immediately prior
to the Effective Time. In no event shall the aggregate liability
of the ESI Holders under this Section 9.1 exceed the amount of
-----------
funds and/or shares of AEC Common Stock and/or funds ($360,000)
held under the Escrow Agreement.
9.2 Indemnification by AEC
----------------------
(a) AEC shall indemnify and hold harmless the ESI
Holders (the "Indemnified Stockholders") from and against any
claims, demands, debts, suits, actions, obligations, proceedings,
losses, damages, liabilities, deficiencies, costs and expenses
(including without limitation, all reasonable legal and other
professional fees and disbursements, interest, penalties and
amounts paid in settlement) (collectively, "Claims") arising out
of, based upon or by reason of (A) any breach by AEC of any
representation or warranty by AEC contained in this Agreement or
(B) any breach or non-fulfillment of, or failure to perform, any
of the covenants, agreements or undertakings of AEC which are
contained in or made pursuant to this Agreement. It is
acknowledged that the person who is acting as the agent of the
Indemnified Stockholders pursuant to the Escrow Agreement shall
also act as agent on behalf of the Indemnified Stockholders
pursuant to this Section 9.2 (the "Stockholders' Agent").
-----------
(b) Notwithstanding anything to the contrary herein,
any claim by the Indemnified Stockholders against AEC under this
Section 9.2 shall be payable by AEC only to the extent that the
-----------
Indemnified Stockholders damages ("Damages") shall exceed the
Threshold Amount. At such time as the aggregate amount of the
Indemnified Stockholders Damages exceed the Threshold Amount, AEC
shall thereafter be liable on a dollar-for-dollar basis for the
full amount of all Indemnified Stockholders Damages, including
the Threshold Amount. AEC may make payments of amounts payable
under this Section 9.2 in U.S. currency and/or shares of AEC
Common Stock, which shares be valued at the Average Closing Price
per share for the five trading days immediately prior to the
payment date, as provided in the Escrow Agreement. In no event
shall the aggregate liability of AEC under this Section 9.2
exceed $360,000.
9.3 Procedure. (a) Any Claim brought by AEC or the
---------
ESI Stockholders under this ARTICLE IX must be in writing,
specifying the nature of the Claim and the estimated amount of
damages, and be received by the party against whom
indemnification is being sought within one year after the
Effective Date (the "Indemnity Termination Date").
(b) In the event that subsequent to the Effective
Time, and prior to the Indemnity Termination Date, AEC receives
written notice of the assertion of a claim or the commencement of
any action or proceeding by any person who is not a party to this
Agreement (including any Governmental Entity) (a "Third Party
Claim"), against AEC, ESI or one of their affiliates against
which AEC may be entitled to indemnification hereunder, AEC shall
give written notice of the Third Party Claim to the Stockholders'
Agent. AEC shall have the right to conduct the defense of the
Third Party Claim, and the cost of such defense shall be part of
AEC Damages. If an offer is made to settle a Third Party Claim
and AEC desires to accept such offer, AEC shall give written
notice of the offer of settlement to the Stockholders' Agent who
shall have fifteen (15) days from receipt thereof to accept or
reject the offer, which rejection must be on a reasonable basis.
The failure of the Stockholders Agent to respond to a desired
offer of settlement shall be deemed acceptance thereof.
9.4 Remedies. Each of AEC and Acquisition Corp, on
--------
one hand, and ESI (until the Effective Time) and the ESI
Stockholders (after the Effective Time), on the other hand, shall
not be liable or responsible in any manner whatsoever to the
other, whether for indemnification or otherwise, with respect to
any matter arising out of the representations, warranties or
covenants of this Agreement or any Schedule hereto or any
certificate delivered in connection herewith except for (i)
equitable relief, (ii) pursuant to remedies expressly provided
for elsewhere in this Agreement and (iii) indemnity as expressly
provided in this ARTICLE IX, all of which provide the exclusive
remedy of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. Each party hereto shall bear its own
--------
expenses with respect to the transactions contemplated hereby.
10.2 Amendment. This Agreement may not be amended,
---------
modified or supplemented except by a writing executed by
Acquisition Corp., AEC and ESI.
10.3 Notices. Any notice, request, instruction or
-------
other document to be given hereunder by a party hereto shall be
in writing and shall be deemed to have been given, (a) when
received if given in person, (b) on the date of transmission if
sent by telex, facsimile or other wire transmission (with receipt
confirmed) or (c) three business days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
(a) If to ESI:
Equidyne Systems, Inc.
00000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx X
Xxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Chief Executive Officer
Facsimile No.: 000-000-0000
with a copy to:
IPO Corporate Law Group
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 000000
Attn: Xxxxx X. Xxxx, Esq.
Facsimile No.:
---------------
(b) If to AEC or Acquisition Corp.:
American Electromedics Corp.
00 Xxxxxxxx Xxxxx, Xxxxx 00
Xxxxxxx, Xxx Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx, President
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx & Priest LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxx, Esq.
Facsimile No.: (000) 000-0000
or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
10.4 Waivers. The failure of a party hereto at any
-------
time or times to require performance of any provision hereof
shall in no manner affect its right at a later time to enforce
the same. No waiver by a party of any condition or of any breach
of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no
waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in
other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
10.5 Interpretation. The headings preceding the text
--------------
of Articles and Sections included in this Agreement and the
headings to Schedules attached to this Agreement are for
convenience only and shall not be deemed part of this Agreement
or be given any effect in interpreting this Agreement. The use
of the masculine, feminine or neuter gender herein shall not
limit any provision of this Agreement. The use of the terms
"including" or "include" shall in all cases herein mean
"including, without limitation" or "include, without limitation,"
respectively. Underscored references to Articles, Sections,
Paragraphs, Subsections, Subparagraphs, Schedules or Exhibits
shall refer to those portions of this Agreement. Prior drafts of
this Agreement shall not be considered in interpreting the rights
and obligations of the parties hereunder.
10.6 Applicable Law. This Agreement shall be governed
--------------
by and construed and enforced in accordance with the internal
laws of the State of California without giving effect to the
principles of conflicts of law thereof.
10.7 Assignment. This Agreement shall be binding upon
----------
and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no
assignment of any rights or obligations shall be made by any
party without the prior written consent of all the other parties
hereto.
10.8 No Third Party Beneficiaries. This Agreement is
----------------------------
solely for the benefit of the parties hereto and, to the extent
provided herein, and their respective directors, officers,
employees, agents and representatives, and no provision of this
Agreement shall be deemed to confer upon other third parties any
remedy, claim, liability, reimbursement, cause of action or other
right.
10.9 Enforcement of the Agreement. The parties hereto
----------------------------
agree that irreparable damage would result in the event that any
provision of this Agreement is not performed in accordance with
specific terms or is otherwise breached. It is accordingly
agreed that the parties hereto will be entitled to equitable
relief including an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and
provisions hereof.
10.10 Severability. If any provision of this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity,
legality or enforceability of the other provisions hereof shall
not be affected thereby, and there shall be deemed substituted
for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
10.11 Remedies Cumulative. The remedies provided in
-------------------
this Agreement shall be cumulative and shall not preclude the
assertion or exercise of any other rights or remedies available
by law, in equity or otherwise.
10.12 Entire Understanding. This Agreement sets forth
--------------------
the entire agreement and understanding of the parties hereto and
supersede all prior agreements, arrangements and understandings
among the parties hereto.
10.13 Waiver of Jury Trial. Each party hereto waives
--------------------
the right to a trial by jury in any dispute in connection with
the transactions contemplated by this Agreement, and agrees to
take any and all action necessary or appropriate to effect such
waiver.
10.14 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
AMERICAN ELECTROMEDICS CORP.
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chairman
ESI ACQUISITION CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: President
EQUIDYNE SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
