Execution Copy
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
INDUSTRIAL DISTRIBUTION GROUP, INC.,
a Delaware corporation,
LDS ACQUISITION COMPANY, INC.,
a Georgia corporation,
X. X. SUPPLY, INC.
a Kansas corporation,
AND
THE STOCKHOLDERS NAMED HEREIN
DATED AS OF JUNE 5, 1998
TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT ................................................ 1
ARTICLE I: DEFINITIONS .............................................. 1
1.01 Certain Defined Terms....................................... 1
1.02 Other Definitional Provisions............................... 14
1.03 Captions.................................................... 14
ARTICLE II: THE MERGER; RELATED MATTERS; AND RELATED AGREEMENTS ..... 15
2.01 Certificate Of Merger ...................................... 15
2.02 The Effective Time ......................................... 15
2.03 Certain Effects of the Merger .............................. 15
2.04 Effect of the Merger on Capital Stock ...................... 15
2.05 Delivery, Exchange, and Payment ............................ 16
2.06 Fractional Shares .......................................... 17
2.07 Guaranteed Receivables ..................................... 17
2.08 Resale Registration Statement .............................. 18
2.09 Establishment of Escrow .................................... 18
2.10 Issuance of Options ........................................ 19
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF EACH SELLING
STOCKHOLDER .......................................................... 19
3.01 Representations and Warranties of Each Selling
Stockholder .............................................. 19
3.02 Investment Intentions ...................................... 19
3.03 Ownership and Status of the Company Capital Stock .......... 20
3.04 Power of the Selling Stockholder; Approval of the
Merger Transaction ....................................... 20
3.05 No Conflicts or Litigation ................................. 21
3.06 No Brokers ................................................. 21
3.07 Preemptive and Other Rights; Waiver ........................ 21
3.08 Control of Related Businesses . . . . . . . . . . . 21
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE MANAGEMENT STOCKHOLDERS .......................................... 22
4.01 Truthfulness of the Representations and Warranties by
the Company and Each Management Stockholder .............. 22
4.02 Organization and Capitalization of Company ................. 22
4.03 Qualification .............................................. 22
4.04 Authorization; Enforceability; Absence of Conflicts;
Required Consents ........................................ 22
4.05 Charter Documents and Records; No Violation ................ 23
4.06 No Defaults ................................................ 23
4.07 Company Subsidiaries ....................................... 24
4.08 Capital Stock of the Company and the Company
Subsidiaries ............................................. 24
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4.09 Transactions in Capital Stock .............................. 24
4.10 Predecessor Status; Etc. ................................... 25
4.11 Related Party Agreements ................................... 25
4.12 Litigation ................................................. 25
4.13 Financial Statements; Disclosure ........................... 25
4.14 Compliance with Laws ....................................... 26
4.15 Certain Environmental Matters............................... 27
4.16 Liabilities and Obligations................................. 27
4.17 Receivables ................................................ 28
4.18 Owned and Leased Real Properties ........................... 28
4.19 Owned and Leased Property, Plant, and Equipment ............ 28
4.20 Proprietary Rights ......................................... 29
4.21 Title to Other Properties .................................. 29
4.22 Commitments ................................................ 29
4.23 Capital Expenditures ....................................... 31
4.24 Inventories ................................................ 31
4.25 Insurance .................................................. 32
4.26 Employee Matters ........................................... 32
4.27 Compliance with ERISA, Etc. ................................ 34
4.28 Taxes ...................................................... 36
4.29 Government Contracts ....................................... 38
4.30 Absence of Changes ......................................... 38
4.31 Bank Relations; Powers of Attorney ......................... 39
4.32 Relations with Governments, Etc. ........................... 39
4.33 Financial Condition ........................................ 39
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO .......... 40
5.01 Representations and Warranties of IDG and Newco ........... 40
5.02 Organization and Capital Stock of Newco ................... 40
5.03 Organization; Power ........................................ 40
5.04 Authorization; Enforceability; Absence of Conflicts;
Required Consents ...................................... 40
5.05 Charter Documents .......................................... 41
5.06 Capital Stock of IDG ...................................... 42
5.07 Financial Statements of IDG ................................ 42
5.08 Absence of Undisclosed Liabilities ......................... 42
5.09 Securities Filings ........................................ 42
5.10 Compliance with Laws; No Litigation ........................ 43
5.11 No Brokers ................................................ 43
ARTICLE VI: COVENANTS EXTENDING TO THE EFFECTIVE TIME .............. 43
6.01 Access and Cooperation; Due Diligence ...................... 43
6.02 Conduct of Business Pending Closing ........................ 44
6.03 Prohibited Activities ...................................... 44
6.04 No Shop; Release of Directors .............................. 46
6.05 Notice to Bargaining Agents ................................ 46
6.06 Notification of Certain Matters ............................ 46
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6.07 Supplemental Information ................................... 47
6.08 Additional Financial Statements ............................ 47
6.09 Termination of Plans ....................................... 48
6.10 Disposition of Unwanted Assets ............................. 48
6.11 HSR Act Matters ............................................ 48
ARTICLE VII: THE CLOSING AND CONDITIONS TO CLOSING .................. 48
7.01 The Closing and Certain Actions ........................... 48
7.02 Conditions to the Obligations of Each Party at the
Closing ................................................. 49
7.03 Conditions to the Obligations of the Company and the
Selling Stockholders .................................... 49
7.04 Conditions to the Obligations of IDG and Newco ............. 50
ARTICLE VIII: COVENANTS FOLLOWING THE EFFECTIVE TIME ................ 52
8.01 Disclosure ................................................. 52
8.02 Preparation and Filing of Tax Returns ...................... 52
8.03 Removal of Guaranties ...................................... 52
ARTICLE IX: INDEMNIFICATION ........................................ 52
9.01 Survival of Representations and Warranties ................ 52
9.02 Indemnification of Seller Indemnified Parties ............. 53
9.03 Indemnification of IDG Indemnified Parties ................ 54
9.04 Conditions of Indemnification ............................. 54
9.05 Remedies Not Exclusive .................................... 57
9.06 Limitations on Indemnification ............................ 57
9.07 Special Indemnification Considerations Regarding
Selling Stockholders ................................... 57
ARTICLE X: LIMITATIONS ON COMPETITION ............................. 57
10.01 Prohibited Activities ................................... 57
10.02 Damages ................................................. 58
10.03 Reasonable Restraint .................................... 58
10.04 Severability; Reformation ................................ 59
10.05 Independent Covenant .................................... 59
10.06 Materiality ............................................. 59
ARTICLE XI: GENERAL PROVISIONS ..................................... 59
11.01 Restrictions on Transfer of IDG Common Stock ............. 59
11.02 Brokers and Agents ...................................... 61
11.03 Assignment; No Third Party Beneficiaries ................. 61
11.04 Entire Agreement; Amendment; Waivers .................... 61
11.05 Counterparts ............................................. 61
11.06 Expenses ................................................ 61
11.07 Notices .................................................. 62
11.08 Governing Law ............................................ 63
11.09 Exercise of Rights and Remedies .......................... 63
11.10 Time ..................................................... 63
11.11 Reformation and Severability ............................ 63
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11.12 Remedies Cumulative ....................................... 64
11.13 Treatment of Confidential Information ..................... 64
11.14 Restriction on Trading .................................... 65
ARTICLE XII: TERMINATION ............................................ 65
12.01 Termination of this Merger Agreement ..................... 65
12.02 Liabilities in Event of Termination ...................... 66
ARTICLE XIII: POWER OF ATTORNEY ..................................... 66
13.01 Appointment of Stockholders' Agent ....................... 66
13.02 Liability of Agent ........................................ 66
13.03 Succession ................................................ 66
13.04 Irrevocable; Binding on Successors, Etc. ................. 67
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ANNEXES AND EXHIBITS
Annex 1 Initial Directors and Officers of the Surviving Corporation
Annex 2 Merger Consideration
Annex 3 Guaranteed Receivables
Annex 4 Management Stockholders
Exhibit A Form of Employment Agreement
Exhibit B Form of Escrow Agreement
SCHEDULES
Schedule 3.02 Selling Stockholders Who Are Not Accredited Investors
Schedule 3.03 Disclosure of Equity Ownership and Liens
Schedule 3.06 Brokers
Schedule 3.08 Disclosure of Stockholders' Controlling Interests and
Material Related Transactions
Schedule 4.02 Authorized Capital Stock of the Company and Company
Subsidiaries
Schedule 4.03 Jurisdictions Of Authorization Or Qualification
Schedule 4.04(c) Conflicts
Schedule 4.06 Defaults
Schedule 4.07 Company Subsidiaries
Schedule 4.08 Capital Stock
Schedule 4.09(a) Obligations with Respect to Company's
Capital Stock
Schedule 4.09(b) Stock Transfers Since June 30, 1997
Schedule 4.10 Legal and Assumed Names
Schedule 4.11 Continuing Related Party Agreements
Schedule 4.12 Litigation
Schedule 4.13 Exceptions to GAAP
Schedule 4.14(a) Compliance with Laws: Licenses, Permits, and Government
Approvals
Schedule 4.14(b) Non-Compliance with Laws
Schedule 4.15(a) Environmental Matters: Noncompliance
Schedule 4.15(b) Environmental Matters: Release of Hazardous Substances
Schedule 4.15(c) Environmental Matters: Offsite Disposal of Hazardous
Substances
Schedule 4.15(d) Environmental Matters: Storage Tanks
Schedule 4.16(a) Liabilities: Not Reflected on Balance Sheet
Schedule 4.16(b) Liabilities: Incurred After Balance Sheet
Schedule 4.16(c) Liabilities: Outstanding Guaranties
Schedule 4.17 Receivables Not Collected or Collectible as of Current
Balance Sheet Date
Schedule 4.18(a) Owned and Leased Real Property
Schedule 4.18(b) Liens on Owned and Leased Properties
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Schedule 4.18(c) Subleases
Schedule 4.18(d) Fixed Assets Not in Good Condition
Schedule 4.19(a) Owned and Leased Personal Property, Plant, and
Equipment
Schedule 4.19(b) Liens on Personal Property, Plant, and Equipment
Schedule 4.19(c) Subleases Relating to Personal Property, Plant, and
Equipment
Schedule 4.19(d) Personal Property, Plant, and Equipment Not in Good
Condition
Schedule 4.20 Proprietary Rights
Schedule 4.22(a)(i) Partnerships, Joint Ventures, Cost-Sharing Arrangements
Schedule 4.22(a)(ii) Guaranties or Suretyships, Indemnification or
Contribution Agreements, Performance Bonds
Schedule 4.22(a)(iii) Instruments, Agreements, or Other Obligations
Evidencing or Relating to Indebtedness or to
Money Lent or to be Lent to Another Person
Schedule 4.22(a)(iv) Contracts to Purchase or Sell Real Property or
any Material Property, Plant, and Equipment
Schedule 4.22(a)(v) Agreements with Dealers or Sales or Commission Agents,
Public Relations or Advertising Agencies,
Accountants or Attorneys
Schedule 4.22(a)(vi) Related Party Agreements Requiring Penalties or
Notice to Terminate
Schedule 4.22(a)(vii) Material Service, Supplies, Equipment, Inventory, or
Fixture Agreements
Schedule 4.22(a)(viii) Non-Compete Agreements
Schedule 4.22(a)(ix) Purchasing Agreements
Schedule 4.22(a)(x) Material Commitments and Commitments Not Made in the
Ordinary Course of Business
Schedule 4.22(b) Defaults, Penalties, and Waivers
Schedule 4.22(c) Expected Cancellations of Company
Commitments
Schedule 4.23 Capital Expenditures
Schedule 4.24(a) Nonconforming Inventory
Schedule 4.24(b) Designated Inventory
Schedule 4.25(a) Insurance: Policies
Schedule 4.25(b) Insurance: Loss Runs and Workers' Compensation Claims
Schedule 4.26(a) Employee Matters: Cash Compensation
Schedule 4.26(b) Employee Matters: Engagement and Non-Competition
Agreements
Schedule 4.26(c) Employee Matters: Other Compensation Plans
Schedule 4.26(d) Employee Matters: ERISA Benefit Plans
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Schedule 4.26(e) Employee Matters: Employee Policies and Procedures
Schedule 4.26(f) Employee Matters: Unwritten Amendments
Schedule 4.26(g) Employee Matters: Labor Compliance
Schedule 4.26(h) Employee Matters: Unions
Schedule 4.26(j) Employee Matters: Change of Control Benefits
Schedule 4.26(k) Employee Matters: Retirees
Schedule 4.27(b) Compliance with ERISA: Plans Not Qualified
Schedule 4.27(g) Compliance with ERISA: Participation in Multiemployer
Plan
Schedule 4.27(h) Compliance with ERISA: Claims and Litigation
Schedule 4.27(k) Compliance with ERISA: Liabilities Incurred in
Amending or Modifying Plans
Schedule 4.28 Exceptions to Tax Representations and Warranties
Schedule 4.29 Governmental Contracts
Schedule 4.30 Changes Since Balance Sheet Date
Schedule 4.31 Bank Accounts
Schedule 4.33 Adjustments to EBITDA
Schedule 5.08 Material Liabilities of IDG
Schedule 6.02 Conduct of Business Pending Closing: Exceptions
Schedule 6.03 Prohibited Activities: Exceptions for Activities
Involving ERISA Employee Benefit Plans or Any Other
Compensation Plan, or Employee Policies and
Procedures
Schedule 6.10 Disposition of Unwanted Assets
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Execution Copy
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
"Merger Agreement") is made as of June 5, 1998, by and
among INDUSTRIAL DISTRIBUTION GROUP, INC., a Delaware corporation
("IDG"), LDS ACQUISITION COMPANY, INC., a Georgia corporation and
a wholly owned subsidiary of IDG ("Newco"), X. X. SUPPLY, INC., a
Kansas corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Selling Stockholders".
PRELIMINARY STATEMENT
The Company is a distributor that provides procurement
solutions, products, and services to industrial users that have
maintenance, repair, operating, and production supply
requirements (the "Business"). IDG is in a similar line of
business as the Company. The parties to this Merger Agreement
have determined that it is in their respective best long-term
interests to effect a business combination pursuant to which the
Company will merge with and into Newco, a newly formed Georgia
corporation, on the terms and subject to the conditions set forth
herein (the "Merger").
The parties to this Merger Agreement intend that this Merger
Agreement be approved and adopted by all relevant parties as a
plan of reorganization within the provisions of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used in this Merger
Agreement, the following terms have the meanings assigned to them
below in this Section 1.01.
"Adjusted EBITDA" has the meaning set forth in Section 4.33.
"Affiliate" means, as to any specified Person, any other
Person that, directly or indirectly through one or more
intermediaries or otherwise, controls, is controlled by, or is
under common control with the specified Person. As used in this
definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of
Capital Stock of that Person, by contract, or otherwise).
"Balance Sheet" means the unaudited balance sheet of the
Company as at the Balance Sheet Date.
"Balance Sheet Date" means February 28, 1998.
"Business" has the meaning set forth in the first paragraph
of the Preliminary Statement.
"Capital Lease" means a lease of (or other agreement
conveying the right to use) real or personal property that is
required to be classified and accounted for as a capital lease in
accordance with GAAP as in effect on the date of this Merger
Agreement.
"Capital Stock" means, with respect to (a) any corporation,
any share, or any depository receipt or other certificate
representing any share, of an equity ownership interest in that
corporation, and (b) any other Entity, any share, membership or
other percentage interest, unit of participation, or other
equivalent (however designated) of an equity interest in that
Entity.
"Cash Compensation" means, as applied to any employee, non-
employee director or officer of, or any natural person who
performs consulting or other independent contractor services for,
the Company or any Company Subsidiary, the wages, salaries,
bonuses (discretionary and formula), fees and other cash
compensation paid or payable by the Company or any Company
Subsidiary to that employee or other natural person.
"Certificate of Merger" means the articles or certificate of
merger or other documents respecting the Merger that contains the
information required by the GBCC and the laws of the Company's
Organization State to effectuate the Merger.
"Charter Documents" means, with respect to any Entity at any
time, in each case as amended, modified and supplemented at that
time, the articles or certificate of formation, incorporation or
organization (or the equivalent organizational documents) of that
Entity, (b) the bylaws, operating agreement, trust indenture or
regulations (or the equivalent governing documents) of that
Entity and (c) each document setting forth the designation,
amount and relative rights, limitations and preferences of any
class or series of that Entity's Capital Stock or of any rights
in respect of that Entity's Capital Stock.
"Claim" means any right of indemnification of a party
pursuant to Article IX hereof.
"Claims Notice" means a Third Party Claims Notice or
Indemnity Notice.
"Closing Date" has the meaning set forth in Section 7.01.
"Closing Memorandum" means the form of closing memorandum to
be prepared by IDG for the Closing under this Merger Agreement in
which are included the forms of certificates of officers, the
opinions of counsel, and certain other documents to be delivered
at the Closing as provided in Article VII.
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"COBRA" means the continuation coverage requirements of
Section 1001 of the Consolidated Omnibus Reconciliation Act of
1985, as amended, as codified in ERISA Sections 601 through 608
and Section 4980B of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means X. X. Supply, Inc., a Kansas corporation.
"Company Capital Stock" means the common stock, par value
$100.00 per share, of the Company.
"Company Commitment" has the meaning set forth in Section
4.22.
"Company Subsidiary" means any Entity that is a Subsidiary
of the Company at that time.
"Confidential Information" means, with respect to any
Person, all trade secrets and other confidential, nonpublic
and/or proprietary information of that Person, including
information derived from reports, investigations, research, work
in progress, codes, marketing and sales programs, capital
expenditure projects, cost summaries, pricing formulae, contract
analyses, financial information, projections, confidential
filings with any Governmental Authority and all other
confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or
on behalf of that Person.
"Counsel For IDG and Newco" means Xxxxxxxxxx Xxxxxxxx XXX,
Xxxxxxx, Xxxxxxx.
"Counsel for the Company" means Bever, Dye, Mustard &
Berlin, L.C.
"Covenanting Stockholder" has the meaning set forth in
Section 10.01.
"Current Date" means any day during the 20-day period ending
on the date of the Closing.
"Damages" to any specified Person means any costs, damages
(including any consequential, exemplary, punitive, or treble
damages) or expenses (including reasonable fees and actual
disbursements by attorneys, consultants, experts, or other
Representatives, and Litigation costs) to, any fine of or penalty
on, or any liability (including loss of earnings or profits) of
any other nature to that Person.
"Damages Claim" means, as asserted (a) against any specified
Person, any claim, demand, or Litigation made or pending against
that Person for Damages to any other Person, or (b) by the
specified Person, any claim or demand of the specified Person
against any other Person for Damages to the specified Person.
"Derivative Securities" of a specified Entity means any
Capital Stock or debt security or other Indebtedness of the
specified Entity or any other Person that is convertible into or
exchangeable for, or any option, warrant, or other right to
acquire common stock of the specified Entity.
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"Designated Inventory" has the meaning set forth in Section
4.24.
"Disclosure Statement" means the Schedules and a written
statement executed by the Company, each of the Selling
Stockholders, IDG, and Newco prior to the execution and delivery
of this Merger Agreement in which either (a) exceptions are taken
to representations and warranties made herein by the respective
parties herein or (b) it is confirmed that no exception is taken
to such representations and warranties.
"Dissenting Stockholder" shall mean any Person holding
record title to any shares of the Company Capital Stock, who has
exercised such Person's statutory right to dissent from the
Merger, in compliance with, and as required by, the laws of the
Organization State of the Company.
"Effective Time" has the meaning set forth in Section 2.02.
"Election Period" has the meaning set forth in Section
9.04(a).
"Employee Policies and Procedures" means at any time all
employee manuals and all material policies, procedures, and work-
related rules that apply at that time to any employee, non-
employee director or officer of, or any other natural person
performing consulting or other independent contractor services
for, the Company or any Company Subsidiary.
"Engagement and Non-Competition Agreements" means at any
time any (a) agreement to which the Company or any Company
Subsidiary is a party that then relates to the direct or indirect
employment or engagement, or arises from the past employment or
engagement, of any natural person by the Company or any Company
Subsidiary, whether as an employee, a non-employee officer or
director, a consultant or other independent contractor, a sales
representative, or a distributor of any kind, including any
employee leasing or service agreement and any noncompetition
agreement, and (b) agreement between the Company or any Company
Subsidiary and any Person that arises from the sale of a business
by that Person to the Company or any Company Subsidiary and
limits that Person's competition with the Company or any Company
Subsidiary.
"Employment Agreements" means the individual employment
agreements to be entered into as of the Closing Date between
Xxxxx Xxxxxxxxx, Xxxxx Xxxxxxxxx, and Xxx Xxxxxxxx and the
Company, which shall be substantially in the form of Exhibit A
attached hereto.
"Entity" or "Entities" means one or more sole
proprietorships, corporations, partnerships of any kind having a
separate legal status, limited liability companies, business
trusts, unincorporated organizations or associations, mutual
companies, joint stock companies, or joint ventures.
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"Environmental Laws" means any and all Governmental
Requirements applicable to the Business and relating to the
environment or worker health or safety, including ambient air,
surface water, land surface, or subsurface strata, or to
emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial toxic or
hazardous substances or wastes (including Hazardous Substances)
or noxious noise or odor into the environment, or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, recycling, removal, transport, or
handling of pollutants, contaminants, chemicals, or industrial
toxic or hazardous substances or wastes (including petroleum,
petroleum distillates, asbestos or asbestos-containing material,
polychlorinated biphenyls, chlorofluorocarbons (including
chlorofluorocarbon-12), or hydrochlorofluoro- carbons), including
but not limited to the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C.A. Section 9601 et seq.; the
Resource Conversation and Recovery Act, 42 U.S.C.A. Section 6901 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C.A. Section 1251
et seq.; the Federal Clean Air Act, 42 U.S.C.A. Section 7401 et seq.;
the Federal Insecticide Fungicide and Rodenticide Act, 7 U.S.C.A.
Section 135 et seq.; the Toxic Substances Control Act, 15 U.S.C.A. Section
2601 et seq.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any Person that is, or at any time
within six years of that time was, a member of any "group of
organizations" within the meaning of Section 414(b), (c), (m) or
(o) of the Code or any "controlled group" as defined in Section
4001(a)(14) of ERISA of which the specified Person is or was a
member at the same time.
"ERISA Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA, excluding any Multiemployer
Plan.
"ERISA Pension Benefit Plan" means any "employee pension
benefit plan", as defined in Section 3(2) of ERISA, excluding any
Multiemployer Plan.
"Escrow Account" has the meaning set forth in Section 2.09.
"Escrow Agent" means American Stock Transfer & Trust
Company, New York, New York.
"Escrow Agreement" means the escrow agreement to be entered
into on the Closing Date by and among IDG, the Selling
Stockholders, and the Escrow Agent, which shall be substantially
in the form of Exhibit B attached hereto.
"Escrowed Merger Consideration" has the meaning set forth in
Section 2.09.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Financial Statements" means the Initial Financial
Statements and the other financial statements of the Company and
the Company Subsidiaries, if any, delivered to IDG pursuant to
Section 6.09 prior to the Effective Time.
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"GAAP" means generally accepted accounting principles and
practices in the United States as in effect from time to time
and, with respect to the Financial Statements of the Company,
that (i) have been concurred in by Xxxxxx Xxxxxxxx LLP and (ii)
have been or are being applied on a basis consistent (except for
changes concurred in by Xxxxxx Xxxxxxxx LLP) with the most recent
Financial Statements delivered to IDG prior to the Effective
Time.
"GBCC" means the Georgia Business Corporation Code, O.C.G.A.
Sections 14-2-101, et. seq.
"Governmental Approval" means at any time any authorization,
consent, approval, permit, franchise, certificate, license,
implementing order, or exemption of, or registration or filing
with, any Governmental Authority, including any certification or
licensing of a natural person to engage in a profession or trade
or a specific regulated activity, at that time.
"Governmental Authority" means (a) any national, state,
county, municipal, or other government, domestic or foreign, or
any agency, board, bureau, commission, court, department, or
other instrumentality of any such government, and (b) any Person
having the authority under any applicable Governmental
Requirement to assess and collect Taxes for its own account.
"Governmental Requirement" means at any time (a) any law,
statute, code, ordinance, order, rule, regulation, judgment,
decree, injunction, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time,
and (b) any obligation included in any certificate,
certification, franchise, permit, or license issued by any
Governmental Authority or resulting from binding arbitration,
including any requirement under common law, at that time.
"Guaranty" means, for any specified Person, without
duplication, any liability, contingent or otherwise, of that
Person guaranteeing or otherwise becoming liable for any
obligation of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including any
liability of the specified Person, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or
payment of) that obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities, or
services for the purpose of assuring the owner of that obligation
of its payment, or (c) to maintain working capital, equity
capital, or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not
include endorsements for collection or deposit in the ordinary
course of the endorser's business.
"Guaranteed Receivables" has the meaning set forth in
Section 2.07.
"Hazardous Substances" means any material or substance, or
combination of materials or substances, that by reason of
quantity, concentration, composition, or characteristic is or in
the future becomes regulated under any Environmental Law.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended, and the rules and regulations
promulgated thereunder.
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"IDG" means Industrial Distribution Group, Inc., a Delaware
corporation.
"IDG Acquisition Candidate" means any Entity engaged in any
of the businesses of providing procurement solutions, products or
services to industrial users that have maintenance, repair,
operating, and production supplies requirements that either the
Company or IDG or any of their Subsidiaries (i) have entered into
discussions regarding a possible acquisition or (ii) have
performed an acquisitions analysis with respect to any possible
acquisition.
"IDG Common Stock" means the common stock, par value $.01
per share, of IDG.
"IDG Indemnified Party" means (a) each Selling Stockholder
and each of that Selling Stockholder's Affiliates (other than the
Company or, following the Effective Time, the Surviving
Corporation or IDG or any of its Subsidiaries, if the Selling
Stockholder is an Affiliate of IDG), agents, and counsel and (b)
prior to the Effective Time, the Company and each of its
officers, directors, employees, agents, and counsel who are not
IDG Indemnified Parties within the meaning of clause (a) of this
definition.
"IDG Indemnified Loss" has the meaning set forth in Section
9.03.
"Immediate Family Member" of a Stockholder means at any
time: (a) if that Stockholder is a natural person, then any child
or grandchild (by blood or legal adoption) or spouse of that
Stockholder at that time, or any child of that spouse, or such
person's parents, siblings, mothers and fathers-in-law, or
brothers and sisters-in-law; and (b) if that Stockholder is an
Entity whose ultimate beneficial owner is a natural person, or a
natural person and his or her spouse, then any child or
grandchild (by blood or legal adoption) or spouse at that time,
or any child of that spouse, or such person's parents, siblings,
mothers and fathers-in-law, or brothers and sisters-in-law of the
ultimate beneficial owner or owners.
"Indebtedness" of any Person means, without duplication, (a)
any liability of that Person (i) for borrowed money or arising
out of any extension of credit to or for the account of that
Person (including reimbursement or payment obligations with
respect to surety bonds, letters of credit, banker's acceptances,
and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other
title retention agreements, other than trade payables arising in
the ordinary course of business, (ii) evidenced by notes, bonds,
debentures, or similar instruments, or (iii) in respect of
Capital Leases; (b) any liability secured by any Lien upon any
property or assets of that Person (or upon any revenues, income,
or profits of that Person therefrom), whether or not that Person
has assumed that liability or otherwise becomes liable for the
payment thereof; or (c) any liability of others of the type
described in the preceding clause (a) or (b) in respect of which
that Person has incurred, assumed, or acquired a liability by
means of a Guaranty.
"Indemnified Party" has the meaning set forth in Section
9.04(a).
"Indemnifying Party" has the meaning set forth in Section
9.04(a).
"Indemnity Notice" has the meaning set forth in Section
9.04(d).
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"Initial Financial Statements" means the unaudited financial
statements of the Company consolidated with the Company
Subsidiaries, if any, as at the Balance Sheet Date.
"Information" means written information, including without
limitation, (a) data, certificates, reports, files, records,
agreements, correspondence, plans, policies, practices, manuals,
and statements, and (b) summaries of unwritten agreements,
arrangements, contracts, plans, policies, programs, or practices
or of unwritten amendments or modifications of, supplements to,
or waivers under any of the foregoing.
"IRS" means the Internal Revenue Service.
"Lien" means, with respect to any property or asset of any
Person (or any revenues, income, or profits of that Person
therefrom) (in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal
process, or otherwise), (a) any mortgage, lien, security
interest, pledge, attachment, levy, or other charge or
encumbrance of any kind thereupon or in respect thereof or (b)
any other arrangement under which the same is transferred,
sequestered, or otherwise identified with the intention of
subjecting the same to, or making the same available for, the
payment or performance of any liability in priority to the
payment of the ordinary, unsecured creditors of that Person,
including any "adverse claim" (as defined in Section 8-302(b) of
each applicable Uniform Commercial Code) in the case of any
Capital Stock. For purposes of this Merger Agreement, a Person
shall be deemed to own subject to a Lien any asset that it has
acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, Capital Lease, or other
title retention agreement relating to that asset.
"Litigation" means any action, case, proceeding, claim,
grievance, suit, or other proceeding conducted by or pending
before any Governmental Authority or any arbitration or mediation
proceeding.
"Management Stockholders" means those Selling Stockholders
set forth in Annex 4.
"Material" means, as applied to any Entity, material to the
business, operations, property or assets, liabilities, financial
condition, results of operations, or prospects of that Entity and
its Subsidiaries considered as a whole.
"Material Adverse Effect" means, with respect to the
consequences of any fact or circumstance (including the
occurrence or non-occurrence of any event) to the Company and the
Company Subsidiaries considered as a whole (or after the
Effective Time, the Surviving Corporation and the Company
Subsidiaries considered as a whole), that such fact or
circumstance has caused, is causing, or may reasonably be
expected to cause, directly, indirectly, or consequentially,
singularly or in the aggregate with other facts and
circumstances, any Damages in excess of the Threshold Amount.
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"Material Agreement" of an Entity means any contract or
agreement (a) to which that Entity or any of its Subsidiaries is
a party, or by which that Entity or any of its Subsidiaries is
bound or to which any property or assets of that Entity or any of
its Subsidiaries is subject and (b) which is Material to that
Entity.
"Merger" has the meaning set forth in the Preliminary
Statement.
"Merger Agreement" means this Agreement and Plan of Merger
and Reorganization, including the Disclosure Statement relating
hereto and all attached Annexes and Exhibits, as each of the same
may be amended, modified or supplemented from time to time
pursuant to the provisions hereof or thereof.
"Merger Consideration" has the meaning set forth in Section
2.04.
"Merger Transaction" means the Merger, and any ancillary
transactions contemplated to be consummated in accordance
herewith.
"Moody's" means Xxxxx'x Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA, Section 414 of the Code, or
Section 3(37) of ERISA.
"Negotiating Period Average Price" means the sum of (a) the
closing price of IDG Common Stock on [April 21, 1998]; plus (b)
the closing price of IDG Common Stock on the last trading day
that is three business days immediately prior to the Closing
Date; plus (c) the Interim Period Average (as such term is
defined below); divided by 3. The term "Interim Period Average"
means the sum of the closing prices of IDG Common Stock on every
trading day from and including the date referenced in clause (a)
above and through and including the date referenced in clause (b)
above, divided by the number of trading days included in such
period. The closing price of IDG Common Stock on a trading day,
for purposes of this calculation, shall be the day's last trade
price as reported by the New York Stock Exchange. If the Company
and IDG are advised by their respective counsel that to permit
the Merger to be completed in accordance with applicable legal
processes and requirements, the Negotiating Period Average Price
must be determined earlier than three business days before the
Closing Date, the Company and IDG shall agree to use a date, for
purposes of clause (b) above, that is the least number of days
prior to the Closing Date that is reasonably acceptable in light
of the advice of such counsel.
"Newco" means LDS Acquisition Company, Inc., a Georgia
corporation.
"Newco Common Stock" means the common stock, par value $.01
per share, of Newco.
"Organization State" means, as applied to (a) any
corporation, its state or other jurisdiction of incorporation,
(b) any limited liability company or limited partnership, the
state or other jurisdiction under which laws such Entity is
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organized and existing in such legal form, and (c) any other
Entity, the state or other jurisdiction whose laws govern such
Entity's internal affairs.
"Other Compensation Plan" means any compensation or benefit
arrangement, plan, policy, practice, or program established,
maintained, or sponsored by the Company or any Company
Subsidiary, or to which the Company or any Company Subsidiary
contributes, on behalf of any of its employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries, including, but not limited to, all pension,
retirement, profit sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or
other incentive plans, medical, vision, dental or other health
plans, life insurance plans, and all other employee benefit plans
or fringe benefit plans, but excluding any ERISA Benefit Plan.
"Permitted Investments" means at the time of purchase or
other acquisition by the Company or any Company Subsidiary (a)
obligations issued or guaranteed by the United States of America
with a remaining maturity not exceeding one year, (b) commercial
paper with maturities of not more than 270 days and a published
rating of not less than A-1 by S&P or P-1 by Moody's, and (c)
certificates of deposit and bankers' acceptances having
maturities of not more than one year of any commercial bank or
trust company if (i) that bank or trust company has a combined
capital and surplus of at least $500,000,000 and (ii) its
unsecured long-term debt obligations, or those of a holding
company of which it is a subsidiary, are rated not less than A-
by S&P or A3 by Moody's.
"Permitted Liens" means, as applied to the property or
assets of any Person (or any revenues, income or profits of that
Person therefrom), (a) Liens for Taxes if the same are not at the
time due and delinquent; (b) Liens of carriers, warehousemen,
mechanics, laborers and materialmen for sums not yet due; (c)
Liens incurred in the ordinary course of that Person's business
in connection with workmen's compensation, unemployment insurance
and other social security legislation (other than pursuant to
ERISA or Section 412(n) of the Code); (d) Liens incurred in the
ordinary course of that Person's business in connection with
deposit accounts or to secure the performance of bids, tenders,
trade contracts, statutory obligations, surety and appeal bonds,
performance and return-of-money bonds and other obligations of
like nature; (e) easements, rights-of-way, reservations,
restrictions and other similar encumbrances incurred in the
ordinary course of that Person's business or existing on property
and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (f) defects or
irregularities in that Person's title to its real properties
which do not materially (i) diminish the value of the surface
estate or (ii) interfere with the ordinary conduct of that
Person's business or the use of any of such properties; (g) any
interest or title of a lessor of assets being leased by any
Person pursuant to any Capital Lease disclosed in Schedule 4.18
or any lease that, pursuant to GAAP, would be accounted for as an
operating lease; and (h) Liens securing purchase money
Indebtedness so long as such Liens do not attach to any property
or assets other than the properties or assets purchased with the
proceeds of such Indebtedness.
"Person" means any natural person, Entity, estate, trust,
union or employee organization, or Governmental Authority or, for
the purpose of the definition of "ERISA Affiliate", any trade or
business.
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"Prohibited Transaction" means any transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA
and not exempt under Section 4975 of the Code or Section 408 of
ERISA.
"Property, Plant, and Equipment" means at any time any
property that then would be included and classified as property,
plant, and equipment on a balance sheet prepared in accordance
with GAAP of the Company or a Company Subsidiary.
"Proprietary Rights" means (a) patents, applications for
patents, and patent rights, (b) in each case, whether registered,
unregistered, or under pending registration, trademark rights,
trade names, trade name rights, corporate names, business names,
trade styles or dress, service marks and logos, and other trade
designations and copyrights, and (c), in the case of the Company
or any Company Subsidiary, all agreements relating to the
technology, know-how, or processes used in any business of the
Company or any Company Subsidiary, which are protectable as trade
secrets under applicable law.
"Pro Rata Share" means, for each Selling Stockholder, the
fraction expressed as a percentage the numerator of which is the
number of shares of outstanding Company Capital Stock owned by
that Selling Stockholder and the denominator of which is the
total number of shares of outstanding Company Capital Stock owned
by all Stockholders, as of the Closing Date.
"Receivables Determination Date" shall mean the date that
ends on the first anniversary of the Closing Date.
"Registration Statement" has the meaning set forth in
Section 2.08.
"Related Party Agreement" means any contract or other
agreement, written or oral, (a) to which the Company or any
Company Subsidiary is a party or is bound or by which any
property of the Company or any Company Subsidiary is bound or may
be subject, and (b) (i) to which any Stockholder or any of that
Stockholder's Related Persons or Affiliates also is a party, (ii)
of which any Stockholder or any of that Stockholder's Related
Persons or Affiliates is a beneficiary, or (iii) as to which any
transaction contemplated thereby properly would be characterized
(without regard to the amount involved) as a related party
transaction for purposes of applying the disclosure requirements
of GAAP or the SEC applicable to the Registration Statement.
"Related Person" of a Stockholder means (a) if that
Stockholder is a natural person, (i) any Immediate Family Member
of that Stockholder, (ii) any Estate of that Stockholder or any
Immediate Family Member of that Stockholder, (iii) the trustee of
any inter vivos or testamentary trust of which all the
beneficiaries are Related Persons of that Stockholder, and (iv)
any Entity the entire equity interest in which is owned by any
one or more of that Stockholder and Related Persons of that
Stockholder; and (b) if that Stockholder is an Entity, Estate, or
trust, (i) any Person who owns an equity interest in that
Stockholder on the date hereof, (ii) any Person who would be a
Related Person under clause (a) of this definition of a natural
person who is an ultimate beneficial owner of that Stockholder,
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or (iii) any other Entity the entire equity interest in which is
owned by any one or more of that Stockholder and Related Persons
of that Stockholder. As used in this definition, "Estate" means,
as to any natural person who has died or been adjudicated
mentally incompetent by a court of competent jurisdiction, that
person's estate or the administrator, conservator, executor,
guardian, or representative of that estate.
"Representatives" means, with respect to any Person, the
directors, officers, employees, Affiliates, accountants
(including independent certified public accountants), advisors,
attorneys, consultants, or other agents of that Person, or any
other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants
(including independent certified public accountants), advisors,
attorneys, consultants or other agents.
"Restricted Payment" means, with respect to any Entity at
any time, any of the following effected by that Entity, (a) any
declaration or payment of any dividend or other distribution,
direct or indirect, on account of any Capital Stock of that
Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase, or other acquisition
for value of, or any direct or indirect purchase, payment, or
sinking fund or similar deposit for the redemption, retirement,
purchase, or other acquisition for value of, or to obtain the
surrender of, (i) any then outstanding Capital Stock of that
Entity or any Affiliate of that Entity or (ii) any then
outstanding warrants, options, or other rights to acquire or
subscribe for or purchase unissued or treasury Capital Stock of
that Entity or any Affiliate of that Entity.
"Returns" means the returns, reports, or statements
(including any information returns) any Governmental Requirement
requires to be filed for purposes of any Tax.
"S Corporation Tax Amount" means fifty percent (50%) of the
total additions to the accumulated adjustment account for 1997
and the portion of 1998 ending on the Effective Date, exclusive
of the tax effect of distributions of life insurance and the GAAP
variances set forth inSchedule 4.13. For these purposes the
total additions to the accumulated adjustments account means the
total of the separately and non-separately stated items which
appear on the Company's Form K-1 plus tax-exempt income and less
non-deductible expenses.
"Schedules" shall mean those certain disclosures made by the
Company, the Stockholders, IDG or Newco containing such
information, as appropriate, relating to the representations and
warranties made by the respective party as set forth in the
Disclosure Statement.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.07.
"Securities Act" means the Securities Act of 1933, as
amended.
"Seller Indemnified Party" means IDG and its Subsidiaries.
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"Seller Indemnified Loss" has the meaning set forth in
Section 9.02.
"Selling Stockholders" shall mean all Persons holding record
title to any of the shares of the Company Capital Stock, as
reflected on the books and records of the Company as of the date
hereof, that have not exercised a statutory right to dissent from
the Merger in compliance with, and as required by, the laws of
the Organization State of the Company.
"S&P" means Standard and Poor's Rating Group.
"Stockholders" shall mean collectively the Selling
Stockholders and Dissenting Stockholders.
"Stockholders' Agent" has the meaning set forth in Section
13.01.
"Stockholder Indemnified Loss" has the meaning set forth in
Section 9.02(b).
"Subsidiary" or "Subsidiaries" of any specified Person means
any Entity or Entities, as the case may be, a majority of the
Capital Stock of which is or are at that time owned directly by
the specified Person.
"Supplemental Information" has the meaning set forth in
Section 6.07.
"Surviving Corporation" means the Entity to be designated in
the Certificate of Merger as the surviving corporation of the
Merger.
"Tax" or "Taxes" means all net or gross income, gross
receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum,
environmental, or other taxes, assessments, duties, fees, levies,
or other governmental charges or assessments of any nature
whatever imposed by any Governmental Requirement, whether
disputed or not, together with any interest, penalties, or
additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority having
or purporting to exercise jurisdiction with respect to any Tax.
"Territory" has the meaning set forth in Section 10.01(a).
"Third Party Claim" has the meaning set forth in Section
9.04(a).
"Third Party Claims Notice" has the meaning set forth in
Section 9.04(a).
"Threshold Amount" means one percent (1%) of the Transaction
Value.
"Transaction Documents" means this Merger Agreement, the
Employment Agreements, the Escrow Agreement, and the other
written agreements, documents, instruments, and certificates
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executed pursuant to or in connection with this Merger Agreement
or the Merger Transaction, including those specified in Article
VII to be delivered at or before the Closing Date, all as
amended, modified, or supplemented from time to time.
"Transaction Value" means the value expressed in dollars
resulting as (a) the product of (i) the aggregate number of
shares of IDG Common Stock to be delivered as part of the Merger
Consideration pursuant to Section 2.04 multiplied by (ii) the
Negotiation Period Average Price plus (b) the amount of the
Merger Consideration payable in cash as set forth in Section
2.04.
"Transfer Taxes" has the meaning set forth in Section 11.06.
"Welfare Plan" means an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means any corporation or other
Entity or Entities, as the case may be, all of the outstanding
Capital Stock of which, on a fully diluted basis, is owned,
directly by, or indirectly through another Wholly Owned
Subsidiary, by the Company.
1.02 OTHER DEFINITIONAL PROVISIONS. (a) Except as
otherwise specified herein, all references herein to any
Governmental Requirement defined or referred to herein, including
the Code, ERISA, the Exchange Act, and the Securities Act, shall
be deemed references to that Governmental Requirement or any
successor Governmental Requirement, as the same may have been
amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(b) When used in this Merger Agreement, the words
"herein", "hereof", and "hereunder" and words of similar import
shall refer to this Merger Agreement as a whole and not to any
provision of this Merger Agreement, and the words "Article",
"Section", "Annex", "Schedule", and "Exhibit" refer to Articles
and Sections of, and Annexes, Schedules, and Exhibits to this
Merger Agreement, unless otherwise specified.
(c) Whenever the context so requires, the singular
includes the plural and vice versa, and a reference to one gender
includes the other gender and the neuter.
(d) The word "including" (and, with correlative
meaning, the word "include") means that the generality of any
description preceding such word is not limited, and the words
"shall" and "will" are used interchangeably and have the same
meaning.
1.03 CAPTIONS. Captions to Articles, Sections, and
subsections of, and Annexes, Schedules, and Exhibits to, this
Merger Agreement or any Transaction Document are included for
convenience of reference only, and such captions shall not
constitute a part of this Merger Agreement or any Transaction
Document for any other purpose or in any way affect the meaning
or construction of any provision of this Merger Agreement or any
Transaction Document.
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ARTICLE II
THE MERGER AND RELATED AGREEMENTS
2.01 CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company and Newco will cause a Certificate
of Merger to be duly executed and delivered on or prior to the
Closing Date, to be filed with the Secretary of State of the
State of Georgia and, if required, in the appropriate filing
office of the Organization State of the Company.
2.02 THE EFFECTIVE TIME. The effective time of the Merger
(the "Effective Time") will be 10:00 a.m., Eastern Time, on the
Closing Date or such other time as may be specified in the
Certificate of Merger.
2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time:
(a) the Company will be merged with and into Newco in
accordance with the provisions of the GBCC and the laws of the
Organization State of the Company;
(b) the Company will cease to exist as a separate
legal entity;
(c) the articles of incorporation of Newco will remain
as the articles of incorporation of the Surviving Corporation;
(d) Newco, as the Surviving Corporation, will (i)
possess all of the properties, rights, privileges, immunities,
franchises and powers, and be subject to all the restrictions,
duties, liabilities, debts and obligations, of the Company, and
(ii) be governed by the laws of the State of Georgia;
(e) the Charter Documents of Newco will remain (until
changed in accordance with applicable law or their terms) as the
Charter Documents of the Surviving Corporation;
(f) the board of directors of the Surviving
Corporation will consist of the persons named in Annex 1, each of
whom will hold the office of director of the Surviving
Corporation subject to the provisions of the GBCC and other
applicable laws and the Charter Documents of the Surviving
Corporation; and
(g) the officers of the Surviving Corporation will be
as set forth in Annex 1, each of whom will serve in such office,
subject to the provisions of the GBCC and other applicable laws
and the Charter Documents of the Surviving Corporation, until
that person's successor is duly elected to, and, if necessary,
qualified for, that office.
2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. (a) As of the
Effective Time, as a result of the Merger and without any action
on the part of any of the Stockholders:
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(i) all of the shares of Company Capital Stock
issued and outstanding immediately prior to the Effective
Time will (A) be converted into the right to receive,
subject to the provisions of Sections 2.05, 2.06, and 2.09,
without interest, on surrender of the certificates
evidencing such shares, as set forth on Annex 2, (1) the
number of whole shares of IDG Common Stock calculated by
taking $5,000,000 divided by the Negotiation Period Average
Price plus any cash paid for fractional shares pursuant to
Section 2.06, and (2) $5,000,000 payable in immediately
available funds or by wire transfer (collectively, the
"Merger Consideration"), (B) cease to be outstanding, and
(C) be canceled and retired on the books of the Company;
(ii) each share of Company Capital Stock held in
the treasury of the Company or any Company Subsidiary will
(A) cease to be outstanding and (B) be canceled and retired;
and
(iii) each share of the Newco Common Stock
issued and outstanding immediately prior to the Effective
Time will remain one share of the common stock, par value
$.01 per share, of the Surviving Corporation, and
collectively will constitute all of the issued and
outstanding shares of the Capital Stock of the Surviving
Corporation.
(b) Each holder of a certificate representing shares
of Company Capital Stock immediately prior to the Effective Time
will, as of the Effective Time and thereafter, cease to have any
rights respecting those shares other than the right to receive,
subject to the provisions of Sections 2.05, 2.06, and 2.07(c),
without interest, the Merger Consideration.
2.05 DELIVERY, EXCHANGE, AND PAYMENT. (a) At or after the
Effective Time, each Selling Stockholder, upon surrender to IDG
(or any agent that may be appointed by IDG for purposes of this
Section 2.05) of any and all certificates representing the shares
of Company Capital Stock held by such Selling Stockholder, will
receive, subject to the provisions of Sections 2.05, 2.06, and
2.09, the Merger Consideration as set forth on Annex 2. Until
any certificate representing shares of Company Capital Stock has
been surrendered pursuant to this Section 2.05, that certificate
will, for all purposes, be deemed to evidence ownership of the
number of whole shares of IDG Common Stock included in the Merger
Consideration deliverable, subject to Section 2.09, in respect of
that certificate pursuant to Section 2.04. At the Closing, or
soon as reasonably practicable thereafter, but in no event later
than five business days after the Closing, IDG shall deliver the
shares of Common Stock representing the Merger Consideration to
the Selling Stockholders subject to the provisions of Sections
2.05, 2.06, and 2.09. All shares of IDG Common Stock issuable in
the Merger will be deemed for all purposes to have been issued by
IDG at the Effective Time. Notwithstanding the foregoing, the
Stockholders' Agent may, at the instruction of any of the Selling
Stockholders, surrender the shares of Company Capital Stock of
such Selling Stockholders to IDG and receive the Merger
Consideration on behalf of such Selling Stockholders, subject to
the provisions of Sections 2.05, 2.06, and 2.09.
(b) Each Selling Stockholder, or the Stockholders'
Agent, will deliver to IDG (or any agent that may be appointed by
IDG for purposes of this Section 2.05), on or before the Closing
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Date, the certificates representing shares of Company Capital
Stock owned by the Selling Stockholder, duly endorsed in blank,
or accompanied by duly executed stock powers in blank, and with
all necessary transfer taxes and other revenue stamps, acquired
at the Selling Stockholders' expense, affixed and canceled. Each
Selling Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance
respecting, or in the stock powers accompanying, the certificate
representing the shares of Company Capital Stock delivered by the
Selling Stockholders, or the Stockholders' Agent, as may be
requested by IDG.
(c) No dividends or other distributions declared or
earned after the Effective Time with respect to IDG Common Stock
and payable to the holders of record thereof after the Effective
Time will be paid to the holder of any unsurrendered certificate
representing shares of Company Capital Stock for which shares of
IDG Common Stock have been issued in the Merger, until such
certificate is surrendered as provided herein, but (i) on such
surrender, IDG will cause to be paid, to the Person in whose name
the certificate representing such shares of IDG Common Stock
shall then be issued, (1) the amount of dividends or other
distributions previously paid to any holders of IDG Common Stock
as of the record date with respect to such whole shares of IDG
Common Stock, or which have accrued, subsequent to the Effective
Time but prior to surrender, and (2) the amount of any cash
payable in lieu of fractional shares pursuant to Section 2.06,
and (ii) at the appropriate payment date or as soon as
practicable thereafter, IDG will cause to be paid to that Person
the amount of dividends or other distributions with a record
date, or which have been accrued, subsequent to the Effective
Time, (but which are not payable until a date subsequent to
surrender), which are payable with respect to such whole shares
of IDG Common Stock, subject in all cases to any applicable
escheat laws. No interest will be payable with respect to any
such dividends or other distributions on surrender of the
outstanding certificates.
(d) Each Dissenting Stockholder, in lieu of receiving
the Merger Consideration as set forth on Annex 2, shall receive
from the Company (or the Surviving Corporation) the payment in
respect of the shares of Company Capital Stock owned by such
Dissenting Shareholder that is required by, and in compliance
with, applicable law.
2.06 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of IDG Common Stock will be issued.
Any Selling Stockholder who otherwise would be entitled hereunder
to receive a fractional share of IDG Common Stock but for this
Section 2.06 will be entitled to receive, in lieu thereof, a cash
payment for and in the amount (rounded up to the nearest whole
cent) equal to that Selling Stockholder's fractional interest in
a share of IDG Common Stock multiplied by the Negotiating Period
Average Price.
2.07 GUARANTEED RECEIVABLES. The Selling Stockholders
hereby jointly and severally agree to the irrevocable guarantee
upon the terms and conditions set forth herein of the collection
in full, on or before the Receivables Determination Date, of the
net dollar amount of the receivables (i.e., gross receivables
less the allowance for doubtful accounts) set forth in Annex 3
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attached hereto (the "Guaranteed Receivables"), for the benefit
of the Surviving Corporation, and further agree to secure such
guarantee with the General Escrowed Merger Consideration (as
defined in Section 2.09 below). The obligations of the Selling
Stockholders under this paragraph shall be limited to such
Selling Stockholder's Pro Rata Share of the Transaction Value,
and shall expire and be of no further effect as to any Guaranteed
Receivables remaining uncollected as of the Receivables
Determination Date for which a claim has not been made by IDG
before 5:00 p.m., Eastern Time, on or before ten business days
after the Receivables Determination Date. For purposes of
determining whether any of the Guaranteed Receivables remain
uncollected at the Receivables Determination Date, reductions to
the Guaranteed Receivables resulting from the return of inventory
or other offsets (to the extent such offsets reduce any liability
of the Company) shall be considered a collection, and therefore
the Surviving Corporation shall have no claim against the Selling
Stockholders to the extent of such reduction or offset. Any
guaranteed receivables for which a claim is made under this
Section 2.07 shall be assigned to the Selling Stockholders who
shall be allowed to pursue collection of the same on their own
behalf and at their own expense. IDG and Newco shall provide
such cooperation and assistance to Selling Stockholders as
reasonable necessary to pursue such collections.
2.08 RESALE REGISTRATION STATEMENT. (a) IDG agrees to file
with the Securities and Exchange Commission (the "SEC") within 60
days of the Effective Time at IDG's sole cost and expense
(provided that all brokers commissions and discounts applicable
to any of the Selling Stockholders shall be borne by the Selling
Stockholders) a registration statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the
"1933 Act"), on Form S-1, or some other appropriate form, that
covers the resale by the Selling Stockholders of the shares of
IDG Common Stock to be delivered to them as Merger Consideration.
The Company and the Selling Stockholders agree to provide
reasonable assistance as necessary in the preparation and filing
of the Registration Statement and any amendment or supplement
thereto or to any prospectus therein, including, without
limitation, providing all material facts regarding the Company's
operations, business, assets, liabilities and personnel, together
with audited financial statements, all as may be required by the
Securities Act and the rules, regulations and practices of the
SEC, for inclusion in the Registration Statement or any amendment
or supplement.
2.09 ESTABLISHMENT OF ESCROW. On the Closing Date, an
aggregate of fifteen percent (15%) of the Merger Consideration
(the "General Escrowed Merger Consideration"), allocated among
the Selling Stockholders as set forth on Annex 2, shall be
deposited with the Escrow Agent to be held in escrow (the "Escrow
Account") pursuant to the Escrow Agreement for a period of up to
two years from the Closing Date, for the purpose of securing and
funding part of the obligations of the Selling Stockholders and
the Company to IDG and Newco that may arise pursuant to Section
2.07 and Article IX hereof. In addition, on the Closing Date, an
aggregate of $500,000 of the cash to be delivered to, and
received by, the Selling Stockholders as part of the Merger
Consideration (the "Tax Escrowed Merger Consideration"), as
allocated on Annex 2, shall be deposited with and held by the
Escrow Agent until the Tax Escrow Termination Date (as defined in
the Escrow Agreement) for the purpose of securing and funding the
obligations of the Selling Stockholders with respect to
accumulated earnings taxes for the Company's tax years 1994,
1995, 1996, and 1997, and any related penalties, interest, costs
and expenses, including attorneys and accountants fees (the
General Escrowed Merger Consideration and the Tax Escrowed Merger
Consideration shall collectively be referred to as the "Escrowed
Merger Consideration"). The Escrowed Merger Consideration shall
be held in the Escrow Account and disbursed in accordance with
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the terms of the Escrow Agreement. Notwithstanding the
foregoing, the respective Selling Stockholders as the legal
owners of any shares of IDG Common Stock included in the Escrowed
Merger Consideration, unless and until disposed of in accordance
with the terms of this Merger Agreement and the Escrow Agreement,
shall be entitled to exercise the voting rights and to receive
any dividends or other distributions declared and paid with
respect to such shares; provided, however, any shares of IDG
Common Stock issued with respect to the Escrowed Merger
Consideration as a result of a stock dividend, share exchange,
stock split, or other action in respect of IDG Common Stock,
shall be held in the Escrow Account as additional Escrowed Merger
Consideration.
2.10 ISSUANCE OF OPTIONS. Options covering a number of
shares equal to six percent (6%) of the IDG Common Stock issued
to the Selling Stockholders as Merger Consideration pursuant to
Section 2.04 will be made available for issuance to the Company's
key employees after the Closing (other than the Selling
Stockholders), as determined by the Company's president (or other
officer or director designated by the Company and acceptable to
IDG) in accordance with IDG's policies, and authorized and issued
under the terms of IDG's Stock Incentive Plan (the "Plan"). As
required by the terms of the Plan, issuance of these options
shall be subject to the prior approval of the Compensation
Committee of IDG's Board of Directors.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER
3.01 REPRESENTATIONS AND WARRANTIES OF EACH SELLING
STOCKHOLDER. Each Selling Stockholder represents and warrants to
IDG and Newco that, as applied solely to such Selling
Stockholder, all of the representations and warranties in this
Article III are, as of the date of this Merger Agreement, and as
amended or supplemented pursuant to Section 6.07, will be, on the
Closing Date, true and correct, and do not and will not contain
or omit any disclosure that has or will or could have a Material
Adverse Effect on the Company or on the Surviving Corporation or
IDG.
3.02 INVESTMENT INTENTIONS. (a) Each Selling Stockholder
(i) will be acquiring the shares of IDG Common Stock to be issued
pursuant to Section 2.04 to the Selling Stockholder solely for
such Selling Stockholder's account, for investment purposes only
and with no current intention or plan to distribute, sell, or
otherwise dispose of any of those shares in connection with any
distribution that is not made pursuant to the Registration
Statement or an applicable exemption under the Securities Act;
(ii) is not a party to any agreement or other arrangement for the
disposition of any shares of IDG Common Stock other than this
Merger Agreement; (iii) unless disclosed otherwise on Schedule
3.02, is an "accredited investor" as defined in Securities Act
Rule 501(a); (iv) (A) is able to bear the economic risks of an
investment in the IDG Common Stock acquired pursuant to this
Merger Agreement, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge and experience in financial
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and business matters that the Selling Stockholder is capable of
evaluating the merits and risks of the proposed investment in the
IDG Common Stock, (D) has had an adequate opportunity to ask
questions and receive answers from the officers of IDG concerning
any and all matters relating to the transactions contemplated
hereby, including the background and experience of the current
and proposed officers and directors of IDG, the plans for the
operations of the business of IDG, the business, operations, and
financial condition of IDG, and any plans of IDG for additional
acquisitions, and (E) has asked all questions of the nature
described in preceding clause (D), and all those questions have
been answered to such Selling Stockholder's satisfaction.
(b) The Selling Stockholder has no present plan,
intention, or arrangement to dispose of any of the IDG Common
Stock received in the Merger Transaction if such disposition
would reduce the fair value of the IDG Common Stock (with such
value measured as of the Closing Date) retained by the Selling
Stockholder to an amount less than 50% of the fair value of the
Company Capital Stock held by the Selling Stockholder immediately
before the consummation of the Merger Transaction.
3.03 OWNERSHIP AND STATUS OF THE COMPANY CAPITAL STOCK.
Each Selling Stockholder is the record and beneficial owner (or,
if the Selling Stockholder is a trust or the estate of a deceased
natural person, the legal owner) of the number of shares of the
Company Capital Stock set forth opposite the Selling
Stockholder's name in Schedule 3.03, free and clear of all Liens,
except for the Liens accurately set forth in Schedule 3.03, all
of which will be released at or before the Effective Time.
3.04 POWER OF THE SELLING STOCKHOLDER; APPROVAL OF THE
MERGER TRANSACTION. (a) Each Selling Stockholder has the full
power, legal capacity, and authority to execute and deliver this
Merger Agreement and each Transaction Document to which the
Selling Stockholder is a party and to perform the Selling
Stockholder's obligations in this Merger Agreement and in all
Transaction Documents to which the Selling Stockholder is a
party. This Merger Agreement constitutes, and each such
Transaction Document when executed in the Selling Stockholder's
individual or legal capacity and delivered by the Selling
Stockholder, or the Stockholders' Agent, will constitute the
legal, valid, and binding obligation of each respective Selling
Stockholder, enforceable against each Selling Stockholder in
accordance with its terms, except as that enforceability may be
(i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to
general principles of equity (regardless of whether that
enforceability is considered in a proceeding in equity or at
law). If the Selling Stockholder is an Entity, the Selling
Stockholder has obtained, in accordance with all applicable
Governmental Requirements and its Charter Documents, all
approvals and the taking of all actions necessary for the
authorization, execution, delivery, and performance by the
Selling Stockholder of this Merger Agreement and the Transaction
Documents to which the Selling Stockholder is a party. If the
Selling Stockholder is acting otherwise than in his individual
capacity (whether as an executor or a guardian or in any other
fiduciary or representative capacity), all actions on the part of
the Selling Stockholder and all other Persons (including any
court) necessary for the authorization, execution, delivery, and
performance by the Selling Stockholder of this Merger Agreement
and the Transaction Documents to which the Selling Stockholder is
a party have been duly taken and the transactions contemplated
herein have been duly authorized.
(b) The Selling Stockholder, acting in each capacity
in which he or it is entitled to vote to approve or disapprove
the consummation of the Merger Transaction, has voted all the
shares of Company Capital Stock owned by him or it in favor of
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the entering of this Merger Agreement and the consummation of the
Merger Transaction and the other transactions contemplated
hereby.
3.05 NO CONFLICTS OR LITIGATION. The execution, delivery,
and performance in accordance with their respective terms by the
Selling Stockholder of this Merger Agreement and the Transaction
Documents to which the Selling Stockholder is a party do not and
will not (a) violate or conflict with any Governmental
Requirement, (b) breach or constitute a default under any
agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder or any of the shares of
Company Capital Stock owned by the Selling Stockholder is bound,
(c) result in the creation or imposition of, or afford any Person
the right to obtain, any Lien upon any of the shares of Company
Capital Stock owned by the Selling Stockholder, or (d) if the
Selling Stockholder is an Entity, violate the Stockholder's
Charter Documents. No Litigation is pending or, to the knowledge
of the Selling Stockholder, threatened to which the Selling
Stockholder is or may become a party that (i) questions or
involves the validity or enforceability of any of the Selling
Stockholder's obligations under any Transaction Document or (ii)
seeks (or reasonably may be expected to seek) (A) to prevent or
delay the consummation by the Selling Stockholder of the
transactions contemplated by this Merger Agreement to be
consummated by the Selling Stockholder or (B) Damages in
connection with any consummation by the Selling Stockholder of
the transactions contemplated by this Merger Agreement.
3.06 NO BROKERS. Except as set forth on Schedule 3.06, the
Selling Stockholder has not, directly or indirectly, in
connection with this Merger Agreement or the transactions
contemplated hereby (a) employed any broker, finder, or agent or
(b) agreed to pay or incurred any obligation to pay any broker's
or finder's fee, any sales commission, or any similar form of
compensation.
3.07 PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the
rights of the Selling Stockholder to receive shares of IDG Common
Stock as a result of the Merger Transaction or to acquire IDG
Common Stock pursuant to any written option granted by IDG to the
Selling Stockholder separate and apart from this Merger
Agreement, the Selling Stockholder either (a) does not own or
otherwise have any statutory or contractual preemptive or other
right of any kind (including any right of first offer or refusal)
to acquire any shares of Company Capital Stock or IDG Common
Stock or (b) hereby irrevocably waives each right of that type
the Selling Stockholder does own or otherwise has.
3.08 CONTROL OF RELATED BUSINESSES. Except as accurately
set forth in Schedule 3.08, the Selling Stockholder is not, alone
or with one or more other Persons, the controlling Affiliate of,
or has an equity interest in, any Entity, business, or trade
(other than the Company and the Company Subsidiaries, if the
Stockholder is an Affiliate of the Company) that (a) is engaged
in any line of business that is the same as or similar to the
Business of the Company or IDG, or (b) is, or has within the
three-year period ending on the date of this Merger Agreement,
engaged in any transaction with the Company or any Company
Subsidiary.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
4.01 TRUTHFULNESS OF THE REPRESENTATIONS AND WARRANTIES BY
THE COMPANY AND EACH MANAGEMENT STOCKHOLDER. The Company and
each Management Stockholder, jointly and severally, represent and
warrant to IDG and Newco that all of the following
representations and warranties in this Article IV are, as of the
date of this Merger Agreement, and as amended or supplemented
pursuant to Section 6.07, will be, on the Closing Date, true and
correct, and except as disclosed in the Schedules do not and will
not contain any information, or omit any disclosure, that has or
will or could have a Material Adverse Effect on the Company or on
the Surviving Corporation or IDG.
4.02 ORGANIZATION AND CAPITALIZATION OF COMPANY. (a) The
Organization State of the Company is Kansas, and the Company (i)
is a corporation duly organized, validly existing, and in good
standing under the laws of that State, (ii) has all requisite
corporate power and authority under all applicable laws and its
Charter Documents to own or lease and to operate its properties
and to carry on its business as it is now conducted, and (iii) is
duly qualified and in good standing as a foreign corporation in
all jurisdictions in which it owns or leases property or in which
the carrying on of its business as now conducted so requires,
except where the failure to be so qualified, singularly or in the
aggregate, would not have a Material Adverse Effect.
(b) The authorized, issued, and outstanding Capital
Stock of the Company is as set forth on Schedule 4.02, and,
except as set forth in such Schedule, (i) no shares are held by
the Company as treasury shares, and (ii) no outstanding
Derivative Securities of the Company exist.
4.03 QUALIFICATION. Schedule 4.03 accurately lists all of
the jurisdictions in which the Company or any Company Subsidiary
is authorized or qualified to own, lease, or operate its
properties, or to carry on its business as now conducted, and
except as set forth on such Schedule 4.03, neither the Company
nor any Company Subsidiary owns, leases, or operates properties
or carries on any business that is Material to the Company in any
other jurisdiction.
4.04 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS. (a) Except for approval by the Stockholders,
the execution, delivery, and performance by the Company of this
Merger Agreement and each Transaction Document to which it is a
party, and the consummation of the Merger Transaction and the
other transactions contemplated hereby and thereby, are within
its corporate or other power under its Charter Documents and the
applicable Governmental Requirements of its Organization State
and have been duly authorized by all proceedings, including
actions permitted to be taken in lieu of proceedings, as
permitted under its Charter Documents and those Governmental
Requirements.
(b) This Merger Agreement has been, and each of the
Transaction Documents to which the Company is a party, when
executed and delivered to IDG or, if applicable, Newco (or, in
the case of a Certificate of Merger, the applicable Governmental
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Authorities) will have been, duly executed and delivered by the
Company and is, or when so executed and delivered will be, the
legal, valid, and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as that
enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors' rights generally and (ii) subject
to general principles of equity (regardless of whether that
enforceability is considered in a proceeding in equity or at
law).
(c) Except as set forth on Schedule 4.04(c), the execution,
delivery, and performance in accordance with their respective
terms by the Company of the Transaction Documents to which it is
a party does not and will not (i) violate, breach, or constitute
a default under (A) the Charter Documents of the Company or any
Company Subsidiary, (B) any Governmental Requirement applicable
to the Company or any Company Subsidiary, or (C) any Material
Agreement of the Company or any Company Subsidiary, (ii) result
in the acceleration or mandatory prepayment of any Indebtedness,
or any Guaranty not constituting Indebtedness, of the Company or
any Company Subsidiary, or afford any holder of any Indebtedness,
or any beneficiary of any Guaranty, the right to require the
Company or any Company Subsidiary to redeem, purchase, or
otherwise acquire, reacquire, or repay any Indebtedness, or to
perform any Guaranty, (iii) cause or result in the imposition of,
or afford any Person the right to obtain, any Lien upon any
property or assets of the Company or any Company Subsidiary (or
upon revenues, income, or profits of the Company or any Company
Subsidiary therefrom), or (iv) result in the revocation,
cancellation, suspension, or material modification, in any single
case or in the aggregate, of any Governmental Approval possessed
by the Company or any Company Subsidiary at the date hereof and
necessary for the ownership, lease, or operation of its
properties, or the uninterrupted carrying on of its business as
now conducted, including any necessary Governmental Approval
under each applicable Environmental Law.
(d) Except for (i) if applicable, the filing of
Certificates of Merger with the applicable Governmental
Authorities, (ii) as may be required by the HSR Act, or (iii) as
may be required by applicable state securities or blue sky laws,
no Governmental Approvals are required to be obtained, and no
reports or notices to, or filings with, any Governmental
Authority are required to be made by the Company or any Company
Subsidiary for the execution, delivery, or performance by the
Company of the Transaction Documents to which it is a party, the
enforcement against the Company of its obligations thereunder, or
the effectuation of the Merger Transaction and the other
transactions contemplated hereby and thereby.
4.05 CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The
Company has caused true, complete, and correct copies of the
Charter Documents, each as in effect on the date hereof, and the
minute books and similar corporate or other Entity records of the
Company and each Company Subsidiary to be delivered or otherwise
made available to IDG. Except as set forth on Schedule 4.05, no
breach or violation of the Charter Documents of the Company or
any Company Subsidiary has occurred and is continuing and
notwithstanding such disclosure, such breach or violation has not
had or reasonably would not be expected to have, a Material
Adverse Effect on the Company or on the Surviving Company or IDG.
4.06 NO DEFAULTS. Except as set forth on Schedule 4.06, no
condition or state of facts exists, or, with the giving of notice
or the lapse of time or both, would exist, that (a) entitles any
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holder of any outstanding Indebtedness, or any Guaranty not
constituting Indebtedness, of the Company or any Company
Subsidiary, or a representative of that holder, to accelerate the
maturity, or require a mandatory prepayment, of that Indebtedness
or Guaranty, or affords that holder or its representative, or any
beneficiary of that Guaranty, the right to require the Company or
any Company Subsidiary to redeem, purchase, or otherwise acquire,
reacquire, or repay any of that Indebtedness, or to perform that
Guaranty in whole or in part, (b) entitles any Person to obtain
any Lien (other than a Permitted Lien) upon any properties or
assets of the Company or any Company Subsidiary (or upon
revenues, income, or profits of any of the Company or any Company
Subsidiary therefrom), or (c) constitutes a violation or breach
of, or a default under, any Material Agreement of the Company or
any Company Subsidiary by the Company or any Company Subsidiary.
4.07 COMPANY SUBSIDIARIES. Schedule 4.07 either accurately
sets forth the form of organization, legal name, each assumed
name, and Organization State of each Company Subsidiary or
correctly states no Entity is a Company Subsidiary. Except as
accurately disclosed in Schedule 4.07, each Company Subsidiary is
a Wholly Owned Subsidiary. In the case of any Company Subsidiary
that is not a Wholly Owned Subsidiary, Schedule 4.07 accurately
sets forth, (a) the number of outstanding shares of Capital Stock
of the Company Subsidiary, (b) the Company's aggregate direct and
indirect ownership of those shares, and (c) the name and address
of record and percentage ownership of those shares of each holder
of record thereof other than the Company or a Company Subsidiary.
No Lien exists on any outstanding share of Capital Stock of any
Company Subsidiary that is owned directly or indirectly by the
Company other than the Liens, if any, described in Schedule 4.07,
all of which will be released at or before the Effective Time,
and Permitted Liens. Except as accurately set forth in
Schedule 4.07, the Company does not own, of record or
beneficially, directly or indirectly through any Person, and does
not control, directly or indirectly through any Person, or
otherwise, any Capital Stock or Derivative Securities of any
Entity other than a Company Subsidiary.
4.08 CAPITAL STOCK OF THE COMPANY AND THE COMPANY
SUBSIDIARIES. Except as set forth on Schedule 4.08, all of the
issued and outstanding shares of Capital Stock of the Company and
each Company Subsidiary have been duly authorized and validly
issued in accordance with the applicable Governmental
Requirements of their respective issuer's Organization State and
Charter Documents, and are fully paid and nonassessable. Neither
the Company nor any Company Subsidiary has issued or sold any
shares of its outstanding Capital Stock in breach or violation of
any applicable statutory or contractual preemptive rights, any
rights of first offer or refusal, of any Person, or the terms of
any of its Derivative Securities that were outstanding at the
time of such issuance. No Person has, other than solely by
reason of that Person's right, if any, to vote any of the shares
of the Capital Stock of the Company or any Company Subsidiary it
holds (to the extent those shares afford the holder thereof any
voting rights), any right to vote on any matter with the holders
of Capital Stock of the Company or any Company Subsidiary.
4.09 TRANSACTIONS IN CAPITAL STOCK. (a) Except as
accurately set forth in Schedule 4.09(a), the Company has no
obligation (contingent or otherwise) to purchase, redeem, or
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otherwise acquire or reacquire any of its equity securities or
any interests therein or to pay any dividend or make any
distribution in respect thereof; and (b) no transaction has been
effected since June 30, 1997, and no action in contemplation of
the transactions described in this Merger Agreement has been
taken, respecting the equity ownership of either the Company or
any Company Subsidiary, except as set forth in Schedule 4.09(b).
4.10 PREDECESSOR STATUS; ETC. Schedule 4.10 accurately
lists all of the legal and assumed names of all predecessor
companies of the Company, including the names of any Entities
from which the Company previously acquired material assets
(excluding assets acquired as inventory in the ordinary course of
business). Except as accurately disclosed in Schedule 4.10,
since January 23, 1984, and to the knowledge of the Selling
Stockholders prior to that date, the Company has not been a
Subsidiary or division of another Entity or a part of an
acquisition that later was rescinded.
4.11 RELATED PARTY AGREEMENTS. Except as set forth in
Schedule 4.11, each Related Party Agreement in effect on the date
hereof will have been terminated as of the Closing Date.
4.12 Litigation. Except as accurately disclosed in
Schedule 4.12, no Litigation is pending or, to the knowledge of
the Company and the Management Stockholders, threatened to which
the Company or any Company Subsidiary is or may become a party.
4.13 FINANCIAL STATEMENTS; DISCLOSURE. (a) The Financial
Statements (including in each case the related schedules and
notes) delivered to IDG present fairly, in all Material respects,
the consolidated financial position of the Company and the
Company Subsidiaries, if any, at the respective dates of the
balance sheets included therein, and the consolidated results of
their operations and their consolidated cash flows and
stockholders' or other owners' equity for the respective periods
set forth therein and have been prepared in accordance with GAAP
(as consistently applied by the Company) except that any
unaudited Financial Statements so delivered need not contain
footnotes required by GAAP or otherwise comply with GAAP as noted
therein and except as further set forth on Schedule 4.13. As of
the date of any balance sheet included in those Financial
Statements, neither the Company nor any Company Subsidiary had
any outstanding Indebtedness to any Person or any liabilities of
any kind (including contingent obligations, tax assessments, or
unusual forward or long-term commitments), or any unrealized or
anticipated loss, that in the aggregate were Material to the
Company other than those reflected in those Financial Statements
or in the notes related thereto and other than as disclosed in
Schedule 4.16(a), and since the Balance Sheet Date, no change has
occurred in the business, operations, properties or assets,
liabilities, condition (financial or other), results of
operations, or prospects of the Company or any Company Subsidiary
that could reasonably be expected, either alone or together with
all other such changes, to have a Material Adverse Effect on the
Company.
(b)(i) As of the date hereof, all Information that
has been made available to IDG by or on behalf of the Company or
any Company Subsidiary prior to the date of this Merger Agreement
in connection with the transactions contemplated hereby is, taken
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together, true and correct in all Material respects and does not
contain, to the knowledge of the Company or the Management
Stockholders, any untrue statement of a Material fact or omit to
state a Material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances
under which those statements were made, except where the failure
to do so would not have a Material Adverse Effect.
(ii) All Information that is made available to IDG
by or on behalf of the Company or any Company Subsidiary
after the date hereof from time to time prior to the Closing
in connection with or pursuant to this Merger Agreement or
any Transaction Document will be, when made available and
taken together, true and correct in all Material respects
and will not contain any untrue statement of a Material fact
or omit to state a Material fact necessary in order to make
the statements contained therein not misleading in any
Material respect in light of the circumstances under which
those statements are made.
(iii) All financial budgets and projections
that have been or are hereafter from time to time prepared
by the Company or any of its Representatives and made
available to IDG pursuant to or in connection with this
Merger Agreement prior to the Closing have been and will be
prepared and furnished to IDG in good faith and were and
will be based on facts and assumptions that are believed by
the Management Stockholders to be reasonable in light of the
then current and foreseeable business conditions of the
Company and the Company Subsidiaries and represented and
will represent the Management Stockholders' good faith
estimate of the projected financial performance of the
Company and the Company Subsidiaries based on the
information available to the Management Stockholders at the
time so furnished.
4.14 COMPLIANCE WITH LAWS. (a) To the knowledge of the
Company and the Management Stockholders, (i) each of the Company
and the Company Subsidiaries possesses all necessary licenses,
permits, and similar Governmental Approvals required for the
conduct of its business; and (ii) each of the Company and the
Company Subsidiaries are in compliance in all Material respects
with the terms and conditions of all Governmental Approvals
necessary for the ownership or lease and the operation of its
properties (including all the facilities and sites it owns or
holds under any lease) and the carrying on of its business as now
conducted. To the knowledge of the Company and the Management
Stockholders, Schedule 4.14 includes a complete list of all the
Governmental Approvals possessed by the Company or any Company
Subsidiary necessary for the continued uninterrupted operation of
the Company and each Company Subsidiary as they are presently
operated. To the knowledge of the Company and the Management
Stockholders, all the Governmental Approvals so listed are valid,
and, except as accurately disclosed in Schedule 4.14(a), neither
the Company nor any Company Subsidiary has received any notice
from any Governmental Authority of its intention to cancel,
terminate, or not renew any of those Governmental Approvals.
(b) Except as accurately disclosed in
Schedule 4.14(b), (i) to the knowledge of the Company and the
Management Stockholders, the Company and each Company Subsidiary
has been and continues to be in compliance in all Material
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respects with all Governmental Requirements applicable to it or
any of its presently or previously owned or operated properties
(including all the facilities and sites now or previously owned
or held by it under any lease), businesses, or operations,
including all applicable Governmental Requirements under ERISA
and Environmental Laws, and (ii)(A) neither the Company nor any
Company Subsidiary has received any notice from any Governmental
Authority that asserts, or raises the possibility of assertion
of, any noncompliance with any of those Governmental Requirements
and (B) to the knowledge of the Company and the Management
Stockholders, no condition or state of facts exists that would
provide a valid basis for any such assertion.
4.15 CERTAIN ENVIRONMENTAL MATTERS. Since January 23, 1984,
and to the knowledge of the Selling Stockholders prior to that
date, (a) except as accurately disclosed in Schedule 4.15(a), the
Company and each Company Subsidiary have complied, and remain in
compliance in all Material respects, with the provisions of all
Environmental Laws applicable to any of them or any of their
respective presently owned or operated facilities, sites, or
other properties, businesses, and operations; (b) except as
accurately disclosed in Schedule 4.15(b), no Hazardous Substances
have been disposed of or released at, from, in, or on any site
owned or operated by the Company or any Company Subsidiary in
violation of applicable Environmental Laws; (c) except as
accurately disclosed in Schedule 4.15(c), neither the Company nor
any Company Subsidiary (or any agent or contractor of either) has
transported or arranged for the transportation of any Hazardous
Substances to, or disposed or arranged for the disposition of any
Hazardous Substances at, any off-site location that could lead to
any claim against the Company, any Company Subsidiary, IDG, or
any Affiliate or Subsidiary of IDG, as a potentially responsible
party or otherwise, for any clean-up costs, remedial work, damage
to natural resources, personal injury, or property damage,
including any claim under Environmental Laws; and (d) except as
accurately disclosed in Schedule 4.15(d), no storage tanks
existed or exist on or under any of the properties owned, leased,
or operated by the Company or any Company Subsidiary from which
any Hazardous Substances could have been released into the
surrounding environment. The Company has provided IDG with
copies (or if not available, accurate written summaries) of all
environmental investigations, studies, audits, reviews,
inspections, and other analyses conducted by or on behalf, or
which otherwise are in the possession, of the Company or any
Company Subsidiary respecting any facility, site, or other
property presently owned, leased, or operated by the Company or
any Company Subsidiary.
4.16 LIABILITIES AND OBLIGATIONS. Schedule 4.16(a)
accurately lists all present liabilities, of every kind,
character, and description and whether accrued, absolute, fixed,
contingent, or otherwise, of the Company and the Company
Subsidiaries (a) (i) that exceed or reasonably could be expected
to exceed $10,000 and (ii) (A) that had been incurred prior to
the Balance Sheet Date, but are not reflected on the Balance
Sheet, (B) Schedule 4.16(b) accurately lists such liabilities
that were incurred after the Balance Sheet Date other than in the
ordinary course of business, and consistent with the past
practices, of that Entity, and (b) Schedule 4.16(c) discloses
each of the Company and the Company Subsidiaries' outstanding
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secured and unsecured Guaranties entered by the Company or any
Company Subsidiary and, for each of those Guaranties, whether any
Stockholder or Related Person or Affiliate of any Stockholder is
a Person whose obligation is covered by that Guaranty.
Schedules 4.16(a) and (b) also accurately list and describe, for
each of the items listed under clauses (a) and (b) of this
Section, (i) if that item is secured by any property or asset of
the Company or any Company Subsidiary, the nature of that
security, and (ii) if that item is covered in whole or in part by
a Guaranty of any Stockholder or any Related Person or Affiliate
of any Stockholder, the name and address of the guarantor.
4.17 RECEIVABLES. Except as accurately set forth in
Schedule 4.17, and subject to the provisions of Section 2.07, all
of the accounts and notes or other advances receivable of the
Company and the Company Subsidiaries reflected on the Balance
Sheet were collected, or are collectible, in the respective
amounts so reflected, net of the reserves, if any, reflected in
the Balance Sheet. Annex 3 is a complete, accurate, and detailed
list with respect to all receivables of the Company that had not
been collected as of, and were reflected on, the Balance Sheet
Date.
4.18 OWNED AND LEASED REAL PROPERTIES. (a) Schedule 4.18(a)
accurately lists and correctly describes in all Material respects
(i) all real properties owned or leased by the Company or any
Company Subsidiary and, for each of those properties, the address
thereof, the type and square footage of each structure located
thereon, and the use thereof in the business of the Company or
the Company Subsidiary, (ii) whether each such property was or
is currently owned by any Stockholder or any Related Person or
Affiliate of any Stockholder (other than the Company or any
Company Subsidiary), and (iii) with respect to any leased
property, the expiration date of the lease.
(b) The Company has provided IDG with true, complete,
and correct copies of all title reports and insurance policies
owned or in the possession of the Company or any Company
Subsidiary relating to any of the real properties listed as being
owned in Schedule 4.18(a). Except as accurately set forth in
Schedule 4.18(b) or those reports and policies, and except for
Permitted Liens, the Company or a Company Subsidiary owns in fee,
and has good, valid, and marketable title to each property listed
in Schedule 4.18 as being owned, free and clear of all Liens.
(c) The Company has provided IDG with true, complete,
and correct copies of all leases under which the Company or a
Company Subsidiary is leasing each of the properties listed in
Schedule 4.18(a) as being leased and, except as accurately set
forth in Schedule 4.18(c), (i) each of those leases is, to the
knowledge of the Company and the Management Stockholders, valid
and binding on the lessor party thereto, and (ii) the lessee
party thereto has not sublet any of the leased space to any
Person other than the Company or a Company Subsidiary.
(d) Except as accurately set forth in Schedule
4.18(d), the fixed assets of the Company or any Company
Subsidiary are located at one or more of the real properties
listed in Schedule 4.18 and all of the real property is well-
maintained and adequate for the purposes for which it is
presently being used or held for use, ordinary wear and tear
excepted.
4.19 OWNED AND LEASED PROPERTY, PLANT, AND EQUIPMENT.
(a) Schedule 4.19(a) is an accurate and complete list, in all
Material respects, of all of the Property, Plant, and Equipment
owned or leased by the Company or any Company Subsidiary, which
list states, in each case, to the knowledge of the Company or the
Selling Stockholders whether such properties were previously or
presently owned, as the case may be, by any Stockholder or any
Related Person or Affiliate of any Stockholder (other than the
Company or any Company Subsidiaries).
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(b) Except as accurately set forth in
Schedule 4.19(b), the Company or a Company Subsidiary has good,
valid, and marketable title to each property listed as being
owned, free and clear of all Liens, except for Permitted Liens.
(c) The Company has provided IDG with true, complete,
and correct copies of all leases under which the Company or a
Company Subsidiary is leasing the Property, Plant, and Equipment
listed in Schedule 4.19(a) as being leased, and (i) all leases
referred to in Schedule 4.19(a) are, to the knowledge of the
Company and the Management Stockholders, valid and binding on the
lessor party thereto, and (ii) the lessee party thereto has not
sublet any of the leased property to any Person other than the
Company or a Company Subsidiary, except as set forth in Schedule
4.19(c).
(d) Except as accurately set forth in
Schedule 4.19(d), all of the Property, Plant, and Equipment
listed therein are in good working order and condition, ordinary
wear and tear excepted, and adequate for the purposes for which
they presently are being used or held for use.
4.20 PROPRIETARY RIGHTS. Except as accurately set forth in
Schedule 4.20, the Company or a Company Subsidiary owns or has
the legal right to use all Proprietary Rights that are necessary
to the conduct of its business as now conducted, in each case
free of any claims or infringements known to the Company or any
Management Stockholder. Schedule 4.20 accurately lists these
Proprietary Rights and indicates those owned by the Company or
any Company Subsidiary and, for those not listed as so owned, the
agreement or other arrangement pursuant to which the Company or
any Company Subsidiary is entitled to possess and use such
Proprietary Rights. Except as accurately set forth in
Schedule 4.20, (a) no consent of any Person will be required for
the use of any of these Proprietary Rights by IDG or the
Surviving Corporation following the Effective Time, and (b) no
governmental registration of any of these Proprietary Rights has
lapsed or expired or been canceled, abandoned, opposed, or the
subject of any reexamination request.
4.21 TITLE TO OTHER PROPERTIES. The Company or a Company
Subsidiary has good and valid title to, or holds under a lease
valid and binding on the lessor party thereto, all its tangible
personal properties and assets (other than Property, Plant, and
Equipment) that individually is, or in the aggregate are,
Material to the Company.
4.22 COMMITMENTS. (a) The Schedules indicated below are
complete and accurate lists of each of the following (each a
"Company Commitment") to which the Company or a Company
Subsidiary is a party or by which any of their properties are
bound and that presently remain executory in whole or in any
part:
(i) each partnership, joint venture, or cost-
sharing agreement (Schedule 4.22(a)(i));
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(ii) each guaranty or suretyship, indemnification
or contribution agreement, or performance bond (Schedule
4.22(a)(ii));
(iii) each instrument, agreement, or other
obligation evidencing or relating to Indebtedness or to
money lent or to be lent to another Person (Schedule
4.22(a)(iii));
(iv) each contract to purchase or sell real
property or any Material Property, Plant, and Equipment
(Schedule 4.22(iv));
(v) each agreement with dealers or sales or
commission agents, public relations or advertising agencies,
accountants, or attorneys (other than in connection with
this Merger Agreement and the transactions contemplated
hereby) involving total payments within any 12-month period
in excess of $10,000 and that is not terminable without
penalty and on no more than 30 days' prior notice (Schedule
4.22(a)(v));
(vi) each Related Party Agreement involving total
payments within any 12-month period in excess of $10,000 and
that is not terminable without penalty on no more than 30
days' prior notice (Schedule 4.22(a)(vi));
(vii) each agreement for the acquisition or
provision of services, supplies, equipment, inventory,
fixtures, or other property involving more than $10,000 in
the aggregate (Schedule 4.22(a)(vii));
(viii) each contract containing any
noncompetition agreement, covenant, or undertaking (Schedule
4.22(a)(viii));
(ix) each agreement providing for the purchase
from a supplier of all or substantially all the requirements
of the Company or any Company Subsidiary of a particular
product or service (Schedule 4.22(a)(ix)); or
(x) each other agreement or commitment not made
in the ordinary course of business, or that is Material to
the Company, its Business or assets (Schedule 4.22(a)(x)).
True, correct, and complete copies of all written Company
Commitments, have heretofore been delivered or made available to
IDG, and true, correct, and complete written descriptions of all
oral Company Commitments have been disclosed on the Schedules set
forth above.
(b) Except as accurately set forth in Schedule
4.22(b), (i) there are no existing or asserted defaults, events
of default, or events, occurrences, acts, or omissions that, with
the giving of notice or lapse of time or both, would constitute
defaults or events of default by the Company or any Company
Subsidiary or, to the knowledge of the Company or the Management
Stockholders, any other party thereto under any Company
-30-
Commitment; (ii) no penalties have been incurred, nor are there
any amendments pending, with respect to any of the Company
Commitments that are Material to the Company. The Company
Commitments are in full force and effect and are valid and
enforceable obligations of the Company or the Company
Subsidiaries that are parties thereto and, to the knowledge of
the Company or the Management Stockholders, the other parties
thereto in accordance with their respective terms; and (iii) no
defenses, off-sets, or counterclaims have been asserted or, to
the knowledge of the Company or the Management Stockholders, can
be made by any party thereto (other than by the Company or a
Company Subsidiary), nor has the Company or a Company Subsidiary,
as the case may be, waived any rights thereunder, except as
accurately described in Schedule 4.22(b)(i).
(c) Except as accurately disclosed in Schedule 4.22(c)
or as contemplated hereby or by any Transaction Document to which
the Company or any Company Subsidiary or Management Stockholder
is a party, (i) neither the Company nor any Company Subsidiary or
Management Stockholder has received notice of any plan or
intention of any other party to any Company Commitment to
exercise any right to cancel or terminate any Company Commitment,
and neither the Company nor any Company Subsidiary or Management
Stockholder knows of any condition or state of facts that would
justify the exercise of such a right; and (ii) neither the
Company nor any Company Subsidiary or Management Stockholder
currently contemplates, or has reason to believe any other Person
currently contemplates, any amendment or change to any Company
Commitment.
4.23 CAPITAL EXPENDITURES. Schedule 4.23 accurately sets
forth the detail and total amount of capital expenditures
currently budgeted to be incurred by the Company or any Company
Subsidiary during the balance of the Company's current fiscal
year. Except as accurately set forth in Schedule 4.23, to the
knowledge of the Company or the Management Stockholders, no
condition or state of facts exists that will cause the total
capital expenditures of the Company or any Company Subsidiary for
Property, Plant, and Equipment during the next three fiscal years
to exceed by a Material amount the amount budgeted for capital
expenditures of that type by the Company or any Company
Subsidiary for the current fiscal year in order to maintain the
types and levels of sales and services the Company and the
Company Subsidiaries presently provide.
4.24 INVENTORIES. Except as accurately set forth in
Schedule 4.24(a), (a) all inventories, net of reserves determined
in accordance with GAAP (as consistently applied by the Company
and subject to exceptions noted in Section 4.13), of the Company
and each Company Subsidiary that are classified as such on the
Balance Sheet are, to the knowledge of the Company or the
Management Stockholders, merchantable and salable or usable in
the ordinary course of business of the Company or the Company
Subsidiaries; (b) the inventories reflected in the Financial
Statements, as at the Balance Sheet Date (i) were reasonable in
relation to the then existing circumstances of the Company and
the Company Subsidiaries on a consolidated basis and classified
as current assets in accordance with GAAP, (ii) were consistently
reflected with past practices, and (iii) fairly reflect the
-31-
average inventory levels maintained during the 12-month period
ended on that date; and (c) neither the Company nor any Company
Subsidiary depends on any single vendor for a Material portion of
its inventories, the loss of business with which could have a
Material Adverse Effect on the Company, or during the past five
years has had difficulty, Material to the Company, in obtaining
its inventories. Set forth in Schedule 4.24(b) is a complete and
accurate list of all items of inventory of the Company and any
Company Subsidiary that has been held by the Company or any such
Company Subsidiary for one year or more prior to the April 30,
1998, or that is being held by the Company or any Company
Subsidiary in a quantity that exceeds the amount of such item
sold by the Company and any Company Subsidiaries during the 12
months immediately preceding the May 15, 1998 and is not covered
by a customer's order for purchase within the next 12 months (the
"Designated Inventory").
4.25 INSURANCE. Except as indicated on Schedule 4.25(a),
Schedule 4.25(a) sets forth a list of all insurance policies
carried by the Company or any Company Subsidiary; and Schedule
4.25(b) sets forth an accurate list of all insurance loss runs
and worker's compensation claims received for the most recently
ended three policy years to the extent reasonably available.
True, complete, and correct copies of all insurance policies
carried by the Company or any Company Subsidiary that are
presently in effect have been provided to IDG, and all such
insurance policies have been issued by insurers of recognized
responsibility and currently are, and will remain without
interruption through the Closing Date, in full force and effect.
No insurance carried by the Company or any Company Subsidiary has
been canceled by the insurer during the past five years, and
neither the Company nor any Company Subsidiary has ever been
denied insurance coverage in any regard or to any degree during
the past five years. Neither the Company nor any Company
Subsidiary or Management Stockholder has received any notice or
other communication from any issuer of any such insurance policy
of any Material increase in any deductibles, retained amounts, or
premiums payable thereunder, and, to the knowledge of the Company
or the Management Stockholders, no such increase in deductibles,
retainages, or premiums is threatened.
4.26 EMPLOYEE MATTERS. (a) CASH COMPENSATION.
Schedule 4.26(a) accurately lists the names, titles, and rates of
annual Cash Compensation, at the Balance Sheet Date and at the
date hereof (and the portions thereof attributable to salary or
the equivalent, fixed bonuses, discretionary bonuses, and other
Cash Compensation, respectively) of all employees (including all
employees who are officers or directors), nonemployee officers,
nonemployee directors, and key consultants and independent
contractors of the Company or any Company Subsidiary that have
been paid during the past fiscal year, or reasonably expect to be
paid during the current fiscal year, aggregate compensation in
excess of $50,000.
(b) ENGAGEMENT AND NON-COMPETITION AGREEMENTS.
Schedule 4.26(b) accurately lists all Engagement and Non-
Competition Agreements remaining executory in whole or in part on
the date hereof, and the Company has provided IDG with true,
complete, and correct copies of all such Engagement and Non-
Competition Agreements. Neither the Company nor any Company
Subsidiary is a party to any oral Engagement and Non-Competition
Agreement with any Person.
(c) OTHER COMPENSATION PLANS. Schedule 4.26(c)
accurately lists all Other Compensation Plans either in effect at
the date hereof or to become effective after the date hereof. The
Company has provided IDG with a true, correct, and complete copy
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of each of those Other Compensation Plans that is in writing and
an accurate description of each of those Other Compensation Plans
that are oral. Except as accurately set forth in
Schedule 4.26(c), each of the Other Compensation Plans, may be
unilaterally amended or terminated by the Company or any Company
Subsidiary without liability to any of them, except as to
benefits accrued thereunder prior to any such amendment or
termination.
(d) ERISA BENEFIT PLANS. Schedule 4.26(d) accurately
lists each ERISA Benefit Plan maintained by, sponsored in whole
or in part by, or contributed to by, the Company, any Company
Subsidiary or any ERISA Affiliate currently, or at any time
during the six-year period ending on the date hereof, under which
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate,
including, but not limited to, all pension, retirement, profit
sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive
plans, medical, vision, dental or other health plans, life
insurance plans, and all other employee benefit plans or fringe
benefit plans. Schedule 4.26(d) classifies each of the ERISA
Benefit Plans as an ERISA Pension Benefit Plan or a Welfare Plan.
The Company has provided IDG with a true, correct, and complete
copy of each ERISA Benefit Plan, all related trust agreements and
amendments, actuarial reports and valuations for the most recent
three years, summary plan descriptions, prospectuses, annual
report form 5500s or similar forms (and attachments thereto) for
the most recent three years, all Internal Revenue Service
determination letters, and any related documents requested by
IDG.
(e) EMPLOYEE POLICIES AND PROCEDURES.
Schedule 4.26(e) accurately lists all Employee Policies and
Procedures. The Company has provided IDG with a copy of all
written Employee Policies and Procedures and a written
description of all Material unwritten Employee Policies and
Procedures.
(f) UNWRITTEN AMENDMENTS. Except as accurately
described in Schedule 4.26(f), no Material unwritten amendments
have been made, whether by oral communication, pattern of conduct
or otherwise, with respect to any of the Employment Agreements,
Other Compensation Plans, ERISA Benefit Plans, or Employee
Policies and Procedures.
(g) LABOR COMPLIANCE. To the knowledge of the Company
or the Management Stockholders, the Company and each Company
Subsidiary has been and is in compliance with all applicable
Governmental Requirements respecting employment and employment
practices, terms and conditions of employment, and wages and
hours, and neither the Company nor any Company Subsidiary is
liable for any arrears of wages or penalties for failure to
comply with any of the foregoing. Neither the Company nor any
Company Subsidiary has engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, sexual
orientation, national origin, age, disability, or handicap in its
employment conditions or practices. Except as accurately set
forth in Schedule 4.26(g), there are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, sexual
orientation, national origin, age, disability, or handicap
-33-
discrimination charges or complaints pending or, to the knowledge
of the Company, threatened against the Company or any Company
Subsidiary before any Governmental Authority (nor, to the
knowledge of the Company or the Management Stockholders, does any
valid basis therefor exist) or (ii) existing or, to the knowledge
of the Company or the Management Stockholders, threatened labor
strikes, disputes, grievances, controversies, or other labor
troubles affecting the Company or any Company Subsidiary (nor, to
the knowledge of the Company or the Management Stockholders, does
any valid basis therefor exist).
(h) UNIONS. Since January 23, 1984, and to the
knowledge of the Selling Stockholders prior to that date, except
as set forth in Schedule 4.26(h), neither the Company nor any
Company Subsidiary or ERISA Affiliate has ever been a party to
any agreement with any union, labor organization, or collective
bargaining unit. No employees of the Company or any Company
Subsidiary are represented by any union, labor organization, or
collective bargaining unit. Except as accurately set forth in
Schedule 4.26(h), to the knowledge of the Company or the
Management Stockholders, none of the employees of the Company or
any Company Subsidiary has threatened to organize or join a
union, labor organization, or collective bargaining unit.
(i) NO UNAUTHORIZED ALIENS. All employees of the
Company or any Company Subsidiary are citizens of, or are
authorized in accordance with federal immigration laws to be
employed in, the United States.
(j) CHANGE OF CONTROL BENEFITS. Except as accurately
set forth in Schedule 4.26(j), neither the execution and delivery
of this Merger Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden
parachute, or otherwise) becoming due to any director or any
employee from the Company or any Company Subsidiary under any
ERISA Benefit Plan, Other Compensation Plan or otherwise, (ii)
increase any benefits otherwise payable under any ERISA Benefit
Plan or Other Compensation Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such
benefit. Neither the Company nor any Company Subsidiary, or any
ERISA Affiliate, is obligated, contingently or otherwise, under
any agreement to pay any amount that would be treated as a
"parachute payment," as defined in Section 280G(b) of the
Internal Revenue Code (determined without regard to Section
280G(b)(2)(A)(ii) of the Internal Revenue Code).
(k) RETIREES. Except as accurately set forth in
Schedule 4.26(k), neither the Company nor any Company Subsidiary
has any obligation or commitment to provide medical, dental, or
life insurance benefits to or on behalf of any of its employees
who may retire or any of its former employees who have retired,
except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the
applicable parallel provisions of ERISA.
4.27 COMPLIANCE WITH ERISA, ETC. (a) COMPLIANCE. Except as
set forth on Schedule 4.27(a), each of the ERISA Benefit Plans
and Other Compensation Plans (i) is in Material compliance with
all applicable provisions of ERISA, the Code, and all other
applicable Governmental Requirements, (ii) has been administered,
operated and managed in accordance with its governing documents,
and (iii) has timely filed or distributed all reports and other
documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including
annual reports, summary annual reports (form 5500s), summary plan
descriptions, actuarial reports, PBGC-1 Forms, or returns).
-34-
(b) QUALIFICATION. Except as accurately set forth on
Schedule 4.27(b), all ERISA Pension Benefit Plans that are
intended to be qualified under Section 401(a) of the Code (the
"Qualified Plans") are so qualified and have received a favorable
determination letter from the IRS, and the Company or any
Management Stockholders is not aware of any circumstances likely
to result in the revocation of any such favorable determination
letter. To the extent that any Qualified Plans have not been
amended to comply with applicable Governmental Requirements, the
remedial amendment period permitting retroactive amendment of
these Qualified Plans has not expired and will not expire within
120 days after the Effective Time.
(c) NO DEFINED BENEFIT PLANS. Neither the Company nor
any Company Subsidiary, or any ERISA Affiliate, maintains, or
within the past six years has maintained, an ERISA Pension
Benefit Plan that is or was a "defined benefit plan" subject to
Title IV of ERISA.
(d) NO PROHIBITED TRANSACTIONS, ETC. Except as set
forth on Schedule 4.27(d), with respect to each ERISA Benefit
Plan, neither such plan, nor any trustee, administrator,
fiduciary, agent or employee thereof, and none of the
Stockholders, nor the Company or any Company Subsidiary has
engaged in any Prohibited Transaction with respect to such ERISA
Benefit Plan. With respect to each ERISA Pension Benefit Plan
(i) all minimum funding standards required by law with respect to
funding of benefits payable or to be payable under such plan have
been met; (ii) there is no accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(a) of
ERISA; and (iii) there have been no terminations, partial
terminations, or discontinuances of contributions without a
determination by the IRS that such action does not adversely
affect the tax-qualified status of that plan.
(e) COBRA. With respect to ERISA Benefit Plans
qualifying as "group health plans" under Section 4980B of the
Code or Section 607(l) or 609 of ERISA and related regulations
(relating to the benefit continuation rights imposed by "COBRA"
or qualified medical child support orders), the Company, each
Company Subsidiary, and the Stockholders have complied (and at
the Effective Time will have complied) in all Material respects
with all reporting, disclosure, notice, election and other
benefit continuation and coverage requirements imposed thereunder
as and when applicable to those plans, and neither the Company
nor any Company Subsidiary has incurred (or will incur) any
direct or indirect liability or is (or will be) subject to any
loss, assessment, excise tax penalty, loss of federal income tax
deduction or other sanction, arising on account of or in respect
of any direct or indirect failure by the Company, any Company
Subsidiary or any Stockholder, at any time prior to the Effective
Time, to comply with any such federal or state benefit
continuation or coverage requirement.
(f) FINANCIAL DISCLOSURE. The Company and each
Company Subsidiary have made, and as of the Effective Date will
have made or accrued, all payments and contributions required, or
reasonably expected to be required, to be made under the
provisions of each ERISA Benefit Plan or Other Compensation Plan,
or required to be made under applicable laws, rules and
regulations, with respect to any period prior to the Effective
-35-
Date, such amounts to be determined using the ongoing actuarial
and funding assumptions of such plan. The Financial Statements
and the Balance Sheet reflect the approximate total pension,
medical and other benefit liability for all ERISA Benefit Plans
and Other Compensation Plans, and no Material funding changes or
irregularities are reflected thereon which would cause such
statements to be not representative of prior periods.
(g) MULTIEMPLOYER PLANS. Except as set forth in
Schedule 4.27(g), neither the Company nor any Company Subsidiary,
and no ERISA Affiliate of any of them, is, or at any time during
the six-year period ended on the date hereof was, obligated to
contribute to a Multiemployer Plan. Neither the Company nor any
Company Subsidiary, and no ERISA Affiliate of any of them, has
taken, or intends to take, any action and no event has occurred
which has resulted or could reasonably be expected to result in
withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan.
(h) CLAIMS AND LITIGATION. Except as accurately set
forth in Schedule 4.27(h), no Litigation or claims (other than
routine claims for benefits) are pending or, to the knowledge of
the Company or the Management Stockholders, threatened against,
or with respect to, any of the ERISA Benefit Plans or Other
Compensation Plans or with respect to any fiduciary,
administrator, sponsor (in their capacities as such), or any
party-in-interest thereof.
(i) EXCISE TAXES, DAMAGES AND PENALTIES. Except as set
forth on Schedule 4.27(i), with respect to any ERISA Benefit Plan
or Other Compensation Plan, no act, omission or transaction has
occurred which would result in the imposition on the Company or
any Company Subsidiary of (i) breach of fiduciary duty liability
damages under Section 409 of ERISA, (ii) a civil penalty assessed
pursuant to subsection (c), (i) or (l) of Section 502 of ERISA,
or (iii) any excise tax under applicable provisions of the Code.
(j) VEBA WELFARE TRUST. Any trust which is intended
to be exempt from federal income taxation pursuant to Section
501(c)(9) of the Code, satisfies the requirements of that section
and has received a favorable determination letter from the IRS
regarding that exempt status and has not, since receipt of the
most recent favorable determination letter, been amended or
operated in a way that would adversely affect that exempt status.
(k) AMENDMENTS AND TERMINATION. Except as set forth
in Schedule 4.27(k), the Company and each Company Subsidiary have
the right to amend, modify, or terminate any ERISA Benefit Plan
or Other Compensation Plan without incurring any liability
thereunder, except as to any benefits accrued prior to such
amendment, modification, or termination. Prior to the Effective
Date, the Company and each Company Subsidiary agree not to amend
or modify any ERISA Benefit Plan or Other Compensation Plan or
take any other action which results in an increase in liability
under such ERISA Benefit Plan or Other Compensation Plan. To the
extent IDG adopts or continues any ERISA Benefit Plan or Other
Compensation Plan, nothing contained in this Merger Agreement
limits or restricts IDG's right to amend, modify, or terminate
any of such plans in such manner as IDG deems appropriate
4.28 TAXES. (a) Each of the following representations and
warranties in this Section 4.28 is qualified to the extent set
forth in Schedule 4.28.
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(b) All Returns required to be filed with respect to
any Tax for which the Company or any Company Subsidiary is liable
have been duly and timely filed with the appropriate Taxing
Authority. All such Returns were correct and complete in all
Material respects, and each Tax shown to be payable on each such
Return has been paid. Each Tax payable by the Company or any
Company Subsidiary by assessment has been timely paid in the
amount assessed, and adequate reserves have been established on
the consolidated books of the Company or the Company Subsidiary
for all Taxes for which the Company or any Company Subsidiary is
liable, but the payment of which is not yet due. Neither the
Company nor any Company Subsidiary is, or ever has been, liable
for any Tax payable by reason of the income or property of a
Person other than the Company or a Company Subsidiary. The
Company and each Company Subsidiary has timely filed true,
correct and complete declarations of estimated Tax in each
jurisdiction in which any such declaration is required to be
filed by it. No Liens for Taxes exist upon the assets of the
Company or any Company Subsidiary except Liens for Taxes which
are not yet due. Neither the Company nor any Company Subsidiary
is, or ever has been, subject to Tax in any jurisdiction outside
of the United States. No Litigation with respect to any Tax for
which the Company or any Company Subsidiary is asserted to be
liable is pending or, to the knowledge of the Company or any of
the Management Stockholders, threatened and no basis which the
Company or any of the Management Stockholders believes to be
valid exists on which any claim for any such Tax can be asserted
against the Company or any Company Subsidiary. There are no
requests for rulings or determinations in respect of any taxes
pending between the Company or any Company Subsidiary and any
Taxing Authority. No extension of any period during which any
Tax may be assessed or collected and for which the Company or any
Company Subsidiary is or may be liable has been granted to any
Taxing Authority. Neither the Company nor any Company Subsidiary
is or has been a party to any tax allocation or sharing
agreement. All amounts required to be withheld by the Company or
any Company Subsidiary and paid to governmental agencies for
income, social security, unemployment insurance, sales, excise,
use and other Taxes have been collected or withheld and paid to
the proper Taxing Authority. The Company and each Company
Subsidiary have made all deposits required by law to be made with
respect to employees' withholding and other employment taxes.
(c) Neither the Company nor any Stockholder is a
"foreign person", as that term is referred to in Section
1445(f)(3) of the Code.
(d) The Company has not filed a consent pursuant to
Section 341(f) of the Code or any comparable provision of any
other tax statute and has not agreed to have Section 341(f)(2) of
the Code or any comparable provision of any other tax statute
apply to any disposition of an asset. The Company has not made,
is not obligated to make, and is not a party to any agreement
that could require it to make any payment that is not deductible
under Section 280G of the Code. No asset of the Company or of
any Company Subsidiary is subject to any provision of applicable
law which eliminates or reduces the allowance for depreciation or
amortization in respect of that asset below the allowance
generally available to an asset of its type. No accounting
method changes of the Company or of any Company Subsidiary exist
or are proposed or threatened which could give rise to an
adjustment under Section 481 of the Code.
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4.29 GOVERNMENT CONTRACTS. Except as accurately set forth
in Schedule 4.29, neither the Company nor any Company Subsidiary
is a party to any governmental contract subject to price
redetermination or renegotiation.
4.30 ABSENCE OF CHANGES. Since the Balance Sheet Date,
except as accurately set forth in Schedule 4.30, none of the
following has occurred with respect to the Company or any Company
Subsidiary:
(a) any circumstance, condition, event, or state of
facts (either singularly or in the aggregate), other than
conditions affecting the industrial distribution business in
general, that has caused, is causing, or will cause a Material
Adverse Effect on the Company;
(b) any change in its authorized or outstanding
Capital Stock or Derivative Securities;
(c) any Restricted Payment, except any declaration or
payment of dividends by any Company Subsidiary solely to the
Company;
(d) any increase in, or any commitment or promise to
increase, the rates of Cash Compensation, or the amounts or other
benefits paid or payable under any Company ERISA Pension Plan or
Other Compensation Plan, except for ordinary and customary
bonuses and salary increases for employees (other than the
Stockholders or an Immediate Family Member) at the times and in
the amounts consistent with its past practice;
(e) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character, that
will, or could reasonably expect to, have a Material Adverse
Effect on the Company or on the Surviving Corporation;
(f) any distribution, sale, or transfer of, or any
Company Commitment to distribute, sell, or transfer, any of its
assets or properties of any kind that singularly is, or in the
aggregate are, Material to the Company, other than distributions,
sales, or transfers in the ordinary course of its business and
consistent with its past practices to Persons other than the
Stockholders or an Immediate Family Member or Affiliates;
(g) any cancellation of, or agreement to cancel, any
Indebtedness, obligation, or other liability owing to it,
including any Indebtedness, obligation, or other liability of any
Stockholder or any Related Person or Affiliate thereof;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of
its assets, property, or rights or requiring consent of any
Person to the transfer and assignment of any such assets,
property, or rights;
(i) any purchase or acquisition of, or agreement,
plan, or arrangement to purchase or acquire, any property,
rights, or assets, or the entering of any other transaction,
outside of the ordinary course of its business consistent with
its past practices;
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(j) any waiver of any of its rights or claims that
singularly is, or in the aggregate are, Material to the Company;
(k) any Indebtedness incurred by it or any Guaranty
not constituting its Indebtedness, or any Company Commitment to
incur any Indebtedness or any such Guaranty;
(l) any investment in the Capital Stock, Derivative
Securities, or Indebtedness of any Person, other than a Permitted
Investment;
(m) except in accordance with the Company's
consolidated capital expenditure budget for the Company's current
fiscal year, any capital expenditure or series of related capital
expenditures by the Company and the Company Subsidiaries
collectively in excess of $50,000, or commitments by the Company
and the Company Subsidiaries to make capital expenditures
aggregating in excess of $50,000; or
(n) any cancellation or termination of a Material
Agreement of the Company.
4.31 BANK RELATIONS; POWERS OF ATTORNEY. The Company has
provided IDG with Schedule 4.31, which sets forth:
(a) the name of each financial institution with which
the Company or any Company Subsidiary has borrowing or investment
arrangements, deposit or checking accounts, or safe deposit
boxes;
(b) the types of those arrangements and accounts,
including, as applicable, names in which accounts or boxes are
held, the account or box numbers, and the name of each Person
authorized to draw thereon or have access thereto; and
(c) the name of each Person holding a general or
special power of attorney from the Company or any Company
Subsidiary and a description of the terms of each such power.
4.32 RELATIONS WITH GOVERNMENTS, ETC. Neither the Company
nor any Company Subsidiary has made, offered, or agreed to offer
anything of value to any governmental official, political party,
or candidate for government office that would cause the Company
or any Company Subsidiary to be in violation of the Foreign
Corrupt Practices Act of 1977 or any Governmental Requirement to
a similar effect.
4.33 FINANCIAL CONDITION. As of the Balance Sheet Date the
following financial conditions of the Company determined under
GAAP (as consistently applied by the Company and subject to the
exceptions noted in Section 4.13) are accurate: (i) net sales
for the Company's fiscal year ended April 30, 1997 are not less
than $14,655,000 and for the ten month period ended at the
Balance Sheet Date are not less than $13,810,000; (ii) earnings
before interest, taxes, depreciation, and amortization adjusted
to reflect the add-back of those non-recurring costs that are
specified on Schedule 4.33 attached hereto ("Adjusted EBITDA"),
for the Company's fiscal year ended April 30, 1997 are not less
than $1,153,000 (approximately 7.9% of sales for such fiscal
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year), and Adjusted EBITDA for the Company's ten-month period
ended at the Balance Sheet Date, are not less than $1,371,000
(approximately 9.9% of sales for such ten-month period)
determined prior to distributions of life insurance, the expenses
allowed by Section 11.06, and any adjustments for GAAP variances
disclosed in Schedule 4.13; (iii) the Company's net worth as of
the Balance Sheet Date and as of the Closing was, is, and will be
not less than $3,254,000, determined prior to distributions of
life insurance, distributions of the S Corporation Tax Amount,
and expenses allowed by Section 11.06, and any adjustments for
GAAP variances disclosed in Schedule 4.13; and (iv) the sum of
the Company's total outstanding long-term and short-term
indebtedness to banks, affiliates, and other financial
institutions and creditors as of the Closing (in each case
including the current portions of such indebtedness, but
excluding trade payable and other ordinary course accounts
payable) shall not be greater than $200,000 excluding accrued
interest not yet due and payable and proposed tax deficiencies
disclosed on Schedule 4.28.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO
5.01 REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO. IDG
and Newco, jointly and severally, represent and warrant to the
Company and each Selling Stockholder that all of the following
representations and warranties in this Article V are, as of the
date of this Merger Agreement, and will be, on the Closing Date,
true and correct.
5.02 ORGANIZATION AND CAPITAL STOCK OF NEWCO. (a) Newco is
a corporation duly organized, validly existing, and in good
standing under the laws of the State of Georgia; (b) the
authorized Capital Stock of Newco is comprised of 1,000 shares of
Newco Common Stock, 100 shares of which are issued and
outstanding and owned of record and beneficially by IDG; (c) no
Derivative Securities of Newco are outstanding; (d) Newco has
been organized for the sole purpose of participating in the
Merger and has not, and will not, engage in any activities other
than those necessary to effectuate the Merger; and (e) the Newco
Common Stock has been duly authorized and issued in accordance
with the GBCC and its Charter Documents, and is fully paid and
non-assessable.
5.03 ORGANIZATION; POWER. IDG is a corporation duly
organized, validly existing, and in good standing under the laws
of the State of Delaware, and has all requisite corporate power
and authority under the laws of its Organization State and its
Charter Documents to own or lease and to operate its properties
presently and following the Effective Time and to carry on its
business as now conducted and as proposed to be conducted
following the Effective Time.
5.04 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS. (a) The execution, delivery, and performance
by each of IDG and Newco of this Merger Agreement and each
Transaction Document to which it is a party, and the consummation
of the Merger Transaction and the other transactions contemplated
hereby and thereby, are within its corporate power under its
Charter Documents and the applicable Governmental Requirements of
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its Organization State, and has been duly authorized by all
proceedings, including actions permitted to be taken in lieu of
proceedings, as may be required under its Charter Documents and
the applicable Governmental Requirements of its Organization
State.
(b) This Merger Agreement has been, and each of the
Transaction Documents to which either of IDG and Newco is a
party, when executed and delivered to the other parties thereto
(or, if applicable, in the case of the Certificates of Merger,
the applicable Governmental Authorities), will have been, duly
executed and delivered by it and is, or when so executed and
delivered will be, its legal, valid, and binding obligation,
enforceable against it in accordance with its terms, except as
that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
laws affecting the enforcement of creditors' rights generally and
(ii) subject to general principles of equity (regardless of
whether that enforceability is considered in a proceeding in
equity or at law).
(c) The execution, delivery, and performance in
accordance with their respective terms by each of IDG and Newco
of the Transaction Documents to which it is a party have not and
will not (i) violate, breach, or constitute a default under (A)
its Charter Documents, (B) any Governmental Requirement
applicable to it, or (C) any of its Material Agreements, (ii)
result in the acceleration or mandatory prepayment of any
Indebtedness, or any Guaranty not constituting Indebtedness, of
IDG or Newco or afford any holder of any of that Indebtedness, or
any beneficiary of any Guaranty, the right to require it to
redeem, purchase, or otherwise acquire, reacquire, or repay any
of that Indebtedness, or to perform any Guaranty, (iii) cause or
result in the imposition of, or afford any Person the right to
obtain, any Lien upon any property or assets of IDG or Newco (or
upon any revenues, income, or profits of IDG therefrom), or (iv)
result in the revocation, cancellation, suspension, or Material
modification, singularly or in the aggregate, of any Governmental
Approval possessed by IDG or Newco at the date hereof and
necessary for the ownership, lease, or operation of its
properties or the carrying on of its business as now conducted,
including any necessary Governmental Approval under each
applicable Environmental Law.
(d) Except for (i) if applicable, the filing of the
Certificates of Merger with the applicable Governmental
Authorities, (ii) filings of the Registration Statement under the
Securities Act and the SEC order declaring the Registration
Statement effective under the Securities Act, (iii) as may be
required by the HSR Act, or (iv) as may be required by applicable
state securities or blue sky laws, no Governmental Approvals are
required to be obtained, and no reports or notices to or filings
with any Governmental Authority are required to be made, by IDG
or Newco for the execution, delivery, or performance by IDG or
Newco of the Transaction Documents to which it is a party, the
enforcement against IDG or Newco, as the case may be, of its
obligations thereunder, or the consummation of the Merger
Transaction and the other transactions contemplated thereby.
5.05 CHARTER DOCUMENTS. IDG has delivered to the Company
true, complete, and correct copies of the Charter Documents of
each of IDG and Newco. No breach or violation of any Charter
Document of IDG or Newco has occurred or is continuing.
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5.06 CAPITAL STOCK OF IDG. (a) The authorized Capital
Stock of IDG consists of (i) 50,000,000 shares of IDG Common
Stock and (ii) 10,000,000 shares of preferred stock, $.10 par
value per share; as of March 31, 1998, 7,801,348 shares of IDG
Common Stock were issued and outstanding and no shares of the IDG
preferred stock were issued or outstanding, and IDG has reserved
for issuance pursuant to compensation plans or the exercise of
Derivative Securities 1,000,000 shares of IDG Common Stock.
(b) All shares of IDG Common Stock outstanding, and
all shares of IDG Common Stock to be issued pursuant to Section
2.04, when issued, (i) have been or will be duly authorized and
validly issued in accordance with the Organization State of IDG
and its Charter Documents and (ii) will be fully paid and
nonassessable. None of the shares of IDG Common Stock to be
issued pursuant to Section 2.04, will, when issued, be issued in
breach or violation of (i) any applicable statutory or
contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person
or (ii) the terms of any Derivative Securities.
5.07 FINANCIAL STATEMENTS OF IDG. IDG has previously
furnished to the Company a true and complete copy of IDG's
financial statements included in its Prospectus dated September
31, 1997 and such other documents publicly filed with the SEC
since that date (collectively, the "SEC Documents"). Except as
stated therein, the financial statements contained in the SEC
Documents have been prepared in conformity with GAAP,
consistently applied, and present fairly the consolidated
financial position of IDG or its predecessors, as the case may
be, at the dates indicated, and the consolidated results of
operations and changes in cash flow position for each of the
periods indicated.
5.08 ABSENCE OF UNDISCLOSED LIABILITIES. Except as fully
reflected in the financial statements contained in SEC Documents
or in Schedule 5.08 hereto, IDG has no knowledge of any Material
liabilities of any kind of IDG, other than those incurred in
connection with this Merger Agreement and the transactions
contemplated hereby, or incurred in the ordinary course of
business since December 31, 1997, none of which have,
individually or in the aggregate, materially and adversely
affected the business, assets, results of operations, financial
condition, or prospects of IDG. IDG is not in default with
respect to any term or condition of any Material Indebtedness;
and no notice has been given by any holder of any debt claiming
that any default or breach exists that has not been remedied by
IDG or waived in writing by such holder.
5.09 SECURITIES FILINGS. Each registration statement, proxy
statement, or report filed and not withdrawn by IDG with the SEC
under the Securities Act or the Exchange Act did not, on the date
of effectiveness in the case of each such registration statement,
or on the later of the date of filing of each such report or any
subsequent amendment thereof in the case of each such report, or
on the date of mailing in the case of each such proxy or
information statement, contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
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the circumstances under which they were made, not misleading.
Copies of each such registration statement, report, and proxy
statement have been furnished or made available to the Company by
IDG, and such copies are accurate and complete copies thereof
(excluding exhibits). IDG has filed all documents required to be
filed by it with the SEC pursuant to Section 13 and 14(a) of the
Exchange Act, and all such documents complied in all material
respects as to form with applicable requirements of law.
5.10 COMPLIANCE WITH LAWS; NO LITIGATION. Each of IDG and
Newco is in compliance with all Material Governmental
Requirements applicable to it, and no Litigation is pending or,
to the knowledge of IDG or Newco, threatened to which IDG or any
IDG Subsidiary is or may become a party that (a) questions or
involves the validity or enforceability of any obligation of IDG
or Newco under any Transaction Document, (b) seeks (or reasonably
may be expected to seek) (i) to prevent or delay consummation by
IDG or Newco of the transactions contemplated by this Merger
Agreement to be consummated by it, or (ii) Damages from IDG or
Newco in connection with any such consummation.
5.11 NO BROKERS. Except with respect to the retention and
remuneration of the Xxxxx Xxxxx Company, IDG has not, directly or
indirectly, in connection with this Merger Agreement or the
transactions contemplated hereby, (a) employed any broker,
finder, or agent or (b) agreed to pay or incurred any obligation
to pay any broker's or finder's fee, any sales commission, or any
similar form of compensation.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
6.01 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From the
date hereof until the Closing Date, the Company will (i) afford
to the Representatives of IDG reasonable access to all of the key
employees, sites, properties, and books and records of the
Company and any Company Subsidiary, (ii) provide IDG with such
additional financial and operational data and other information
relating to the business and properties of the Company and the
Company Subsidiaries as IDG may from time to time reasonably
request, and (iii) cooperate with IDG and its Representatives in
the preparation of any documents or other material that may be
required in connection with any Transaction Documents. Each
party to this Merger Agreement will treat all Confidential
Information obtained by them in connection with the negotiation
and performance of this Merger Agreement as confidential in
accordance with the provisions of Section 11.13.
(b) Each of the Company and the Selling Stockholders
will use their best efforts to secure, as soon as practicable
after the date hereof, all approvals or consents of third Persons
as may be necessary to consummate the transactions contemplated
hereby.
(c) From the date hereof until the Closing Date, IDG
will (i) afford to the Representatives of the Company reasonable
access to the sites, properties, and books and records of IDG,
(ii) provide the Company with such additional financial and
operational data and other information relating to the business
and properties of IDG as the Company may from time to time
reasonably request, and (iii) cooperate with the Company and the
Selling Stockholders and their respective Representatives in the
preparation of any documents or other material that may be
required in connection with any Transaction Documents.
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(d) If this Merger Agreement is terminated pursuant to
Section 12.01, IDG promptly will return to the Company upon
request all written Confidential Information of the Company or
any Company Subsidiary that it then possesses or has under its
control.
6.02 CONDUCT OF BUSINESS PENDING CLOSING. From the date
hereof until the Effective Time, except as set forth in
Schedule 6.02, the Company will, and will cause each Company
Subsidiary to:
(a) carry on their businesses in substantially the
same manner as they have heretofore and not introduce any
material new method of management, operation or accounting;
(b) maintain their properties and facilities,
including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(c) perform all their obligations under agreements
relating to or affecting their assets, properties, and other
rights;
(d) keep in full force and effect without interruption
all their present insurance policies or other comparable
insurance coverage;
(e) use reasonable commercial efforts to (i) maintain
and preserve their business organizations intact, (ii) retain
their present employees, and (iii) maintain their relationships
with suppliers, customers, and others having business relations
with them;
(f) comply with all applicable Governmental
Requirements; and
(g) except as required or expressly permitted by this
Merger Agreement, maintain the instruments and agreements
governing their outstanding Indebtedness and Material Agreements
on their present terms and not enter into new or amended
Indebtedness or instruments or agreements other than in the
ordinary course of business consistent with past practices,
without the prior written consent of IDG (which consent will not
be unreasonably withheld).
6.03 PROHIBITED ACTIVITIES. Except as set forth on Schedule
6.03, from the date hereof until the Effective Time, without the
prior written consent of IDG or unless as required or expressly
permitted by this Merger Agreement, the Company and the
Management Stockholders will not, and will not permit any Company
Subsidiary to:
(a) make any change in its Charter Documents;
(b) issue or repurchase any of its Capital Stock or
issue or otherwise create any Derivative Securities;
(c) make any Restricted Payment;
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(d) make any investments, other than Permitted
Investments, in the Capital Stock, Derivative Securities, or
Indebtedness of any Person;
(e) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures in
a single transaction or a series of related transactions
involving an aggregate amount of more than $50,000 other than in
the ordinary course of its business and consistent with its past
practice;
(f) increase or commit or promise to increase the Cash
Compensation payable or to become payable to any officer,
director, stockholder, employee or agent, consultant, or
independent contractor of the Company or any Company Subsidiary
or make any discretionary bonus or management fee payment to any
such Person, except bonuses or salary increases to employees
(other than the Stockholders or an Immediate Family Member) at
the times and in the amounts consistent with its past practice;
(g) create, assume, or permit to be created or imposed
any Liens (other than Permitted Liens) upon any of its assets or
properties, whether now owned or hereafter acquired, except for
purchase money Liens incurred in connection with the acquisition
of equipment acquired in the ordinary course of business
consistent with past practices, and necessary or desirable for
the conduct of the business of the Company or any Company
Subsidiary;
(h) (i) adopt, establish, amend, or terminate any
ERISA Employee Benefit Plan, or any Other Compensation Plan or
Employee Policies and Procedures, or (ii) take any discretionary
action, or omit to take any contractually required action, if
that action or omission could either (A) deplete the assets of
any ERISA Employee Benefit Plan or any Other Compensation Plan or
(B) increase the liabilities or obligations under any such plan;
(i) sell, assign, lease, or otherwise transfer or
dispose of any of its owned or leased property (whether real or
personal, tangible or intangible) or equipment (A) to any Related
Person or (B) to any Person other than in the ordinary course of
its business and consistent with its past practice;
(j) negotiate for the acquisition of any business or
the start-up of any new business;
(k) merge, consolidate, or effect a share exchange
with, or agree to merge, consolidate, or effect a share exchange
with, any other Entity;
(l) sell, transfer, or otherwise convey or dispose of
any Company Capital Stock;
(m) waive any of its material rights or claims,
provided that it may negotiate and adjust bills in the course of
good faith disputes with customers in a manner consistent with
past practices, but such adjustments will not be deemed to be
included in Schedule 4.17 unless specifically listed in the
Supplemental Information;
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(n) commit a material breach of or amend or terminate
any Material Agreement of the Company or any of its Governmental
Approvals; or
(o) enter into any other transaction (i) outside the
ordinary course of its business and consistent with its past
practice or (ii) prohibited hereby.
6.04 NO SHOP; RELEASE OF DIRECTORS. (a) The Company and
the Selling Stockholders agree that, from the date hereof and
until the first to occur of the Effective Time or the termination
of this Merger Agreement in accordance with Article XII, neither
the Company nor any Selling Stockholder, nor any officer or
director thereto shall, and the Company and each Selling
Stockholder will direct and use their best efforts to cause each
of their respective Representatives not to, (i) initiate,
solicit, or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including
any proposal or offer to the Stockholders) with respect to a
merger, acquisition, consolidation, or similar transaction
involving, or any purchase of all or any significant portion of
the assets or any equity securities of, the Company or any
Company Subsidiary (any such proposal or offer being an
"Acquisition Proposal"), (ii) engage in any activities,
discussions, or negotiations concerning, or provide any
Confidential Information respecting, the Company or any Company
Subsidiary, or IDG or any IDG Subsidiary to, or have any
discussions with, any Person relating to an Acquisition Proposal,
or (iii) otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. The Company and each Selling
Stockholder will immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any
Persons conducted heretofore with respect to any of the
foregoing, and each will take the steps necessary to inform the
Persons referred to in the first sentence of this Section 6.04(a)
of the obligations undertaken in this Section 6.04(a), and will
notify IDG immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such
discussions or negotiations are sought to be initiated or
continued with, the Company or any Selling Stockholder (including
the detail of any such discussions or negotiations).
(b) Each of the Company and the Selling Stockholders
hereby (i) waives every right, if any, the Governmental
Requirements of the Company's Organization State afford the
Company or the Selling Stockholders to require the Company's
directors, in the exercise of their fiduciary duties in their
capacity as such, to engage in any of the activities prohibited
by this Section 6.04 and (ii) releases each such person from any
and all liability he or she might otherwise have to the Company
or any Stockholder but for this release.
6.05 NOTICE TO BARGAINING AGENTS. Prior to the Closing
Date, the Company will, if applicable, (a) satisfy any
requirement for notice of the transactions contemplated by this
Merger Agreement under any applicable collective bargaining
agreement and (b) provide IDG with proof that any required notice
has been sent.
6.06 NOTIFICATION OF CERTAIN MATTERS. The Selling
Stockholders and the Company shall give prompt notice to IDG of
(a) the existence or occurrence of each condition or any facts
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that will or reasonably could be expected to cause any
representation or warranty of the Company or any Selling
Stockholder contained herein to be untrue or incorrect in any
material respect at or prior to the Closing or on the Closing
Date and (b) any Material failure of any Selling Stockholder or
the Company to comply with or satisfy any covenant, condition, or
agreement to be complied with or satisfied by that Person
hereunder. IDG shall give prompt notice to the Company of the
existence or occurrence of each condition or any facts that will
or reasonably could be expected to cause any representation or
warranty of IDG or, if applicable, Newco, contained herein to be
untrue or inaccurate at or prior to the Closing or on the Closing
Date, any Material failure of IDG or, if applicable, Newco to
comply with or satisfy any covenant, condition, or agreement to
be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 6.06 shall not be deemed to
modify the representations or warranties herein of the party
delivering that notice, or any other party (which modification
may be made only pursuant to Section 6.07), modify the conditions
set forth in Article VII, or limit or otherwise affect the
remedies available hereunder to the party receiving that notice.
6.07 SUPPLEMENTAL INFORMATION. The Company and each of the
Selling Stockholders agree that, with respect to the
representations and warranties of that party contained in this
Merger Agreement, that party will have the continuing obligation
until the Closing Date to provide IDG promptly with such
additional supplemental Information (the "Supplemental
Information"), in the form of (a) amendments to then existing
Schedules to the Disclosure Statement or (b) additional Schedules
to the Disclosure Statement, as would be necessary, in the light
of the circumstances, conditions, events, and any facts then
known to such party, to make each of those representations and
warranties true and correct as of the Closing Date. For purposes
of determining whether the conditions to the obligations of IDG
and, if applicable, Newco, that are specified in Sections 7.04
have been satisfied, the Disclosure Statement as of the Closing
Date shall be deemed to be the Disclosure Statement as of the
date hereof as amended or supplemented by the Supplemental
Information provided to IDG prior to the Closing pursuant to this
Section 6.07; provided, however, that if the Supplemental
Information so provided discloses the existence of circumstances,
conditions, events, or any facts that, in any combination
thereof, have had a Material Adverse Effect on the Company that
was not reflected in the determination of the Transaction Value,
or in the sole judgment of IDG (which shall be conclusive for
purposes of this Section 6.07 and Article XII, but not for any
purpose of Article IX), are having or will have a Material
Adverse Effect on the Company or the Surviving Corporation, as
the case may be, then IDG will be entitled either to terminate
this Merger Agreement pursuant to Section 12.01(a)(iii),
renegotiate the Merger Consideration with the Selling
Stockholders, or waive the Material Adverse Effect disclosed in
the Supplemental Information and close the transaction.
6.08 ADDITIONAL FINANCIAL STATEMENTS. The Company will
furnish to IDG (a) as soon as available and in any event within
20 days after the end of each calendar month that ends prior to
the Closing Date, an unaudited balance sheet of the Company,
consolidated with any Company Subsidiary (as may be required
under GAAP), as of the end of each month and the related
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consolidated statements of income or operations, cash flows and
stockholders' or other owners' equity for that month and for the
period of the Company's fiscal year ended with that month, in
each case (i) setting forth in comparative form the figures for
the corresponding portion of the Company's previous fiscal year
and (ii) prepared in accordance with GAAP (as consistently
applied by the Company and subject to the exceptions noted in
Section 4.13) (A) throughout the periods indicated (excepting
footnotes) and (B) with the basis on which the Initial Financial
Statements and the Balance Sheet were prepared; and (b) if
requested by IDG, and promptly following any such request, such
summary consolidated operating or other financial information of
the Company and the Company Subsidiaries as of the end of either
the first or second fiscal month in any of the Company's fiscal
quarters as IDG may request.
6.09 TERMINATION OF PLANS. If requested by IDG, the Company
will, or will cause the applicable Company Subsidiary to, if
permitted by all applicable Governmental Requirements to do so,
terminate each agreement or plan identified in Schedule 4.26(c)
or (d) as a "Plan To Be Terminated" prior to the Effective Time.
6.10 DISPOSITION OF UNWANTED ASSETS. At or prior to the
Closing, the Company will make all arrangements and take all such
actions as are necessary and satisfactory to IDG to dispose of,
prior to the Effective Time, those assets of it or any Company
Subsidiary that are listed in Schedule 6.10.
6.11 HSR ACT MATTERS. If IDG shall determine that filings
pursuant to and under the HSR Act are necessary or appropriate in
connection with the effectuation of the Merger Transaction, and
shall advise the Company in writing of that determination, the
Company and the Management Stockholders will promptly compile and
file under the HSR Act such information respecting it as the HSR
Act requires of Company or the Stockholders, and the expiration
or termination of the applicable waiting period and any extension
thereof under the HSR Act shall be deemed a condition precedent
to the Closing.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING
7.01 THE CLOSING AND CERTAIN ACTIONS. The consummation of
the transactions contemplated by this Merger Agreement (the
"Closing") shall take place at the offices of Xxxxxxxxxx Xxxxxxxx
LLP, 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx 00000 at
10:00 a.m., Eastern Time, on May 29, 1998, or at such other time
or date as IDG and the Company shall specify (the "Closing
Date"). Not later than two (2) business days before such
scheduled Closing Date, the parties hereto agree to take all
actions that are reasonable and necessary as may be requested by
IDG to (i) effect the Merger Transaction, including, but not
limited to, if applicable, (A) the execution of a Certificate of
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Merger (1) meeting the requirements of the GBCC and the law of
the Organization State of the Company and (2) providing that such
merger will become effective on the Closing Date and (B) the
preparations for filing of that Certificate with the Secretary of
State of Georgia and with the appropriate filing authority in the
Organization State of the Company, (ii) verify the location of
the certificates evidencing the outstanding shares of Company
Capital Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements set forth in Sections 7.02 and 7.03 to which the
obligations of the parties to effect the Merger Transaction and
the other transactions contemplated hereby are conditioned (all
such actions are referred to as the "Pre-Closing"). The actions
taken as part of the Pre-Closing will not include either the
completion of the Merger Transaction (but, if applicable, may
include the preliminary filing of the Certificate of Merger, with
specification for a delayed Effective Time) or the delivery of
the Merger Consideration pursuant to Section 2.05. Thereafter,
on the Closing Date, the Merger Transaction will become effective
pursuant to Section 2.02.
7.02 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY AT THE
CLOSING. The obligation of each party hereto to take the actions
contemplated to be taken by that party at the Closing is subject
to the satisfaction of each of the following conditions on or
prior to the Closing Date:
(a) NO LITIGATION. No Litigation shall be pending on
the Closing Date to restrain, prohibit, or otherwise materially
interfere with, or to obtain Material Damages or other relief
from IDG or, if applicable, Newco in connection with the
consummation of the Merger Transaction;
(b) GOVERNMENTAL APPROVALS. All Governmental
Approvals (other than the acceptance for filing of the
Certificates of Merger, if applicable) required to be obtained by
the Company, the Selling Stockholders, IDG, or, if applicable,
Newco in connection with the consummation of the Merger
Transaction shall have been obtained, except for those that would
not have a Material Adverse Effect if not obtained;
(c) SHAREHOLDER APPROVAL. The Merger Agreement and
the transactions contemplated herein shall have been approved by
the shareholders of the Company in compliance with the laws of
the Organization State and Charter Documents of the Company.
(d) BOARD APPROVAL. The Merger Agreement and the
transactions contemplated herein shall have been approved by the
Board of Directors of IDG in compliance with the laws of
Delaware.
(e) FINANCIAL CONDITION. To the extent that from the
end of the Company's most recent fiscal year through the Closing,
the amount of the Company's retained earnings is reduced (as a
result of losses, dividends or distributions, or otherwise),
other than as a result of distributions of life insurance,
distributions of the S Corporation Tax Amount, expenses allowed
by Section 11.06, and any adjustments for GAAP variances
disclosed in Schedule 4.13, the Merger Consideration shall be
subject to a downward adjustment in an agreed upon amount or, at
the option of IDG or the Company, this Merger Agreement may be
terminated pursuant to Section 12.01.
7.03 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
SELLING STOCKHOLDERS. The obligations of the Company and each
Selling Stockholder with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction, or the
written waiver by the Company and the Selling Stockholders, or
the Stockholders' Agent on behalf of each Selling Stockholder,
pursuant to Section 11.04, on or before the Closing Date of, in
addition to the conditions specified in Section 7.02, all of the
following conditions:
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(a) REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of IDG and, if applicable, Newco
in Article V shall be true and correct in all Material respects
as of the Closing Date as though made as of and at that time;
(b) DELIVERY OF DOCUMENTS. IDG shall have delivered
to the Company:
(i) an IDG officer's certificate respecting the
truthfulness of the representations and warranties of IDG
and, if applicable, Newco in Article V and compliance with
the covenants of IDG and, if applicable, Newco in Article
VI, and elsewhere in the Merger Agreement and otherwise in
the form thereof attached as an exhibit to the Closing
Memorandum;
(ii) opinions dated the Closing Date and addressed
to the Company and the Selling Stockholders from Counsel for
IDG and, if applicable, Newco substantially in the forms
thereof attached as exhibits to the Closing Memorandum;
(iii) a certificate of the secretary or any
assistant secretary of IDG in the form thereof (without
attachments thereto) attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (A) the
Charter Documents of IDG and Newco (certified by the
appropriate officer of the Organization State of IDG or
Newco in the case of the certificates of incorporation
included therein); (B) the resolutions of the boards of
directors of IDG and Newco respecting the approval of the
entering and delivery of this Merger Agreement and the
Transaction Documents and the consummation of the
transactions contemplated hereby and thereby; (C) a
certificate respecting the incumbency and true signatures of
the IDG and Newco officers who executed this Merger
Agreement or will execute any of the Transaction Documents
on behalf of IDG and Newco, respectively; and (D) a specimen
certificate evidencing shares of IDG Common Stock;
(iv) certificates, dated as of a Current Date,
duly issued by the appropriate officer of the Organization
State of IDG or, if applicable, Newco, showing IDG or Newco
to be in good standing and authorized to do business in that
State; and
(v) an executed original of the Transaction
Documents, as appropriate.
7.04 CONDITIONS TO THE OBLIGATIONS OF IDG AND NEWCO. The
obligations of IDG and, if applicable, Newco with respect to
actions to be taken by them at or before the Closing are subject
to the satisfaction, or written waiver by IDG pursuant to Section
11.04, on or before the Closing Date of, in addition to the
conditions specified in Section 7.02, all of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES.
(i) Except as set forth in Section 7.04(a)(ii)
below, all the representations and warranties of the
Stockholders and the Company in Articles III and IV shall be
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true and correct in all Material respects as of the Closing
Date as though made as of and at that time;
(ii) The representations and warranties of the
Selling Stockholders and the Company in Section 4.33 shall
be true and correct in all respects as of the Closing Date
as though made as of and at that time.
(b) DELIVERY OF DOCUMENTS. The Selling Stockholders
and the Company, as applicable, shall have delivered to IDG:
(i) a Company officer's certificate, signed by an
executive officer of the Company, respecting the
truthfulness of the representations and warranties of the
Company in Article IV and compliance with the covenants of
the Company in Article VI and elsewhere in the Merger
Agreement, and otherwise substantially in the form thereof
attached as an exhibit to the Closing Memorandum;
(ii) opinions dated the Closing Date and addressed
to IDG from Counsel for the Company and the Selling
Stockholders substantially in the form thereof attached as
exhibits to the Closing Memorandum;
(iii) a certificate of the secretary or any
assistant secretary of the Company in the form thereof
(without attachments thereto) attached as an exhibit to the
Closing Memorandum and respecting, and to which is attached,
(A) the Charter Documents of the Company and each Company
Subsidiary; (B) the resolutions of the board of directors of
the Company respecting the approval of the entering and
delivery of this Merger Agreement and the Transaction
Documents and the consummation of the transactions
contemplated hereby and thereby; and (C) a certificate
respecting the incumbency and true signatures of the Company
officers who executed this Merger Agreement or will execute
any of the Transaction Documents on behalf of the Company;
(iv) from each Selling Stockholder, an executed
certificate respecting the truthfulness of the
representations and warranties of the respective Selling
Stockholder in Article III and compliance with the covenants
of the Selling Stockholder in the Merger Agreement in
substantially the form thereof attached as an exhibit to the
Closing Memorandum;
(v) for the Company and each Company Subsidiary,
a certificate, dated as of a Current Date, duly issued by
the appropriate Governmental Authorities in its Organization
State and, unless waived by IDG, in each other jurisdiction
listed for it in Schedule 4.03, showing it to be in good
standing and authorized to do business in its Organization
State and those other jurisdictions and that all state
franchise and/or income tax returns and taxes due by it in
its Organization State and those other jurisdictions for all
periods prior to the Closing have been filed and paid; and
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(vi) an executed original of each of the
Transaction Documents, as appropriate.
(c) TERMINATION OF EMPLOYMENT AGREEMENTS. IDG shall
have received confirmation that any employment agreement between
the Company and any Selling Stockholder has been terminated prior
to the Closing.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
8.01 DISCLOSURE. If, subsequent to the Closing, any Selling
Stockholder becomes aware of any fact or circumstance that would
have changed a representation or warranty of the Company or any
Selling Stockholder in this Merger Agreement or would affect any
document delivered pursuant hereto in any Material respect, that
Selling Stockholder will promptly give notice of that fact or
circumstance to IDG.
8.02 PREPARATION AND FILING OF TAX RETURNS. Each party
hereto will, and will cause its Affiliates to, provide to each of
the other parties hereto such cooperation and information as any
of them reasonably may request in filing any Return, amended
Return, or claim for refund, in determining a liability for
Taxes, or a right to a refund of Taxes or in conducting any audit
or other proceeding in respect of Taxes. This cooperation and
information shall include providing copies of all relevant
portions of the relevant Returns, together with such accompanying
schedules and work papers, documents relating to rulings or other
determinations by Taxing Authorities, and records concerning the
ownership and Tax bases of property as are relevant that a party
possesses. Each party will make its employees, if any,
reasonably available on a mutually convenient basis at its cost
to provide an explanation of any documents or information so
provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Merger Agreement shall bear all
costs attributable to the preparation and filing of those
Returns.
8.03 REMOVAL OF GUARANTIES. IDG will use its best efforts
to cause any stockholder guaranties listed in Schedule 8.03 to be
terminated within 60 days following the Effective Date.
ARTICLE IX
INDEMNIFICATION
9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
provisions of this Merger Agreement will survive the Closing and
the Effective Time indefinitely notwithstanding any investigation
at any time made by or on behalf of any party hereto or the
provision of any Supplemental Information pursuant to Section
6.07, provided that the representations and warranties set forth
in Articles III, IV, and V, and in any certificate delivered in
connection herewith with respect to any of those representations
and warranties will terminate and expire on the second
anniversary of the Effective Time, except as follows: (a) the
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representations and warranties that relate expressly or by
necessary implication to Taxes, ERISA or other employment or
labor matters, or the Governmental Requirements referred to in
clause (iii) of Section 9.02(a) will survive until the expiration
of the applicable statutes of limitations (including all periods
of extension and tolling); (b) the representations and warranties
that relate expressly or by necessary implication to the
environment or Environmental Laws will survive for a period of
seven years from the Effective Time, provided, however, that the
representation and warranties of Section 4.15(c) shall survive
indefinitely; and (c) the representations and warranties that
relate to the Guaranteed Receivables in Sections 2.07 and 4.17
shall survive only the Receivables Determination Date. After a
representation and warranty has terminated and expired, no
indemnification will or may be sought pursuant to this Article IX
on the basis of that representation and warranty, unless prior to
such termination and expiration a claim therefor had been
presented in writing by the Person seeking indemnification
pursuant to this Article IX on the basis of that representation
and warranty.
9.02 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES.
(a) Subject to the provisions of Sections 9.01 and 9.06, the
Selling Stockholders covenant and agree that they, jointly and
severally, will indemnify each Seller Indemnified Party against,
and hold each Seller Indemnified Party harmless from and in
respect of, all Damages Claims that arise from, are based on, or
relate or otherwise are attributable to (i) any breach of the
representations and warranties of the Management Stockholders or
the Company set forth in Article IV or in certificates delivered
in connection herewith, except for any breach of a representation
or warranty relating to matters covered by an indemnity agreement
from Newco with any of the Selling Stockholders, (ii) any
nonfulfillment of any covenant or agreement on the part of the
Management Stockholders or the Company under this Merger
Agreement, (iii) any liability under the Securities Act, the
Exchange Act, or other applicable Governmental Requirement that
arises out of or is based on (A) any untrue statement or alleged
untrue statement of a Material fact relating to the Company, any
Company Subsidiary, or any Stockholder that is (1) provided to
IDG or its counsel by the Company or the Selling Stockholders,
and (2) contained in the Registration Statement, or any
prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or (B) any omission or alleged omission to
state therein a Material fact relating to the Company, any
Company Subsidiary, or the Stockholders required to be stated
therein or necessary to make the statements therein not
misleading, and not provided to IDG or its counsel by the Company
or the Selling Stockholders (each such Damages Claim being a
"Seller Indemnified Loss").
(b) Subject to the provisions of Section 9.06, each
Selling Stockholder, severally and not jointly with any other
Person, covenants and agrees that he will indemnify each Seller
Indemnified Party against, and hold each Seller Indemnified Party
harmless from and in respect of, all Damages Claims that arise
from, are based on, or relate or otherwise are attributable to
(i) any breach of the representations and warranties of that
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Selling Stockholder, solely as to that Selling Stockholder, set
forth in Article III or in certificates delivered by that Selling
Stockholder and relating to those representations and warranties,
(ii) any nonfulfillment of any several, and not joint and
several, agreement on the part of that Selling Stockholder under
this Merger Agreement, or (iii) any liability under the
Securities Act, the Exchange Act, or other applicable
Governmental Requirement that arises out of or is based on (A)
any untrue statement or alleged untrue statement of a Material
fact relating solely to that Selling Stockholder that is (1)
provided to IDG or its counsel by that Selling Stockholder and
(2) contained in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement
thereto, or (B) any omission or alleged omission to state therein
a Material fact relating solely to that Selling Stockholder
required to be stated therein or necessary to make the statements
therein not misleading, and not provided to IDG or its counsel by
that Selling Stockholder (each such Damages Claim being a
"Stockholder Indemnified Loss").
9.03 INDEMNIFICATION OF IDG INDEMNIFIED PARTIES. IDG
covenants and agrees that it will indemnify each IDG Indemnified
Party against, and hold each IDG Indemnified Party harmless from
and in respect of, all Damages Claims that arise from, are based
on, or relate or otherwise are attributable to (i) any breach by
IDG or, if applicable, Newco of its representations and
warranties set forth herein or in its certificates delivered to
the Company or the Selling Stockholders in connection herewith,
(ii) any nonfulfillment of any covenant or agreement on the part
of IDG or, if applicable, Newco under this Merger Agreement (each
such Damages Claim being an "IDG Indemnified Loss"); or (iii) any
liability under the Securities Act, the Exchange Act, or other
applicable Governmental Requirement that arises out of or is
based on (A) any untrue statement or alleged untrue statement of
a Material fact relating to IDG or any IDG Subsidiary (other than
the Company prior to the Effective Time) contained in the
Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (B) any
omission or alleged omission to state therein a Material fact
relating to IDG any IDG Subsidiary (other than the Company prior
to the Effective Time) required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made.
9.04 CONDITIONS OF INDEMNIFICATION. All claims for
indemnification under this Merger Agreement shall be asserted and
resolved as follows in this Section 9.04.
(a) A party claiming indemnification under this Merger
Agreement (an "Indemnified Party") shall promptly (i) notify the
party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a
right of indemnification under this Merger Agreement (ii)
transmit to the Indemnifying Party a written notice ("Third Party
Claims Notice") describing in reasonable detail the nature of the
Third Party Claim, a copy of all papers served with respect to
that claim (if any), an estimate of the amount of Damages
attributable to the Third Party Claim to the extent feasible
(which estimate shall not be conclusive of the final amount of
such claim), and the basis for the Indemnified Party's request
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for indemnification under this Merger Agreement, and (iii) if the
Third Party Claim may create a Seller Indemnified Loss or a
Stockholder Indemnified Loss, notify the Escrow Agent as required
in the Escrow Agreement of such potential claim. Except as set
forth in Section 9.01, the failure to promptly deliver a Third
Party Claims Notice shall not relieve the Indemnifying Party of
its obligations to the Indemnified Party with respect to the
related Third Party Claim, except to the extent that the
resulting delay is materially prejudicial to the defense of that
claim. Within 15 days after receipt of any Third Party Claims
Notice (the "Election Period"), the Indemnifying Party shall
notify the Indemnified Party whether the Indemnifying Party
disputes its potential liability to the Indemnified Party under
this Article IX with respect to that Third Party Claim and, if
the Indemnifying Party does not dispute its potential liability
to the Indemnified Party with respect to that Third Party Claim,
whether the Indemnifying Party desires, at the sole cost and
expense of the Indemnifying Party, to defend the Indemnified
Party against that Third Party Claim.
(b) If the Indemnifying Party does not dispute its
potential liability to the Indemnified Party and notifies the
Indemnified Party within the Election Period that the
Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to
defend, at its sole cost and expense, that Third Party Claim by
all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party
in accordance with this Section 9.04(b) and the Indemnified Party
will furnish the Indemnifying Party with all information in its
possession with respect to that Third Party Claim and otherwise
cooperate with the Indemnifying Party in the defense of that
Third Party Claim; provided, however, that the Indemnifying Party
shall not enter into any settlement with respect to any Third
Party Claim that purports to limit the activities of, or
otherwise restricts in any way, any Indemnified Party or any
Affiliate of any Indemnified Party without the prior consent of
that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is
hereby authorized, at the sole cost and expense of the
Indemnifying Party, to file, during the Election Period, any
motion, answer, or other pleadings that the Indemnified Party
shall deem necessary or appropriate to protect its interests.
The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 9.04(b) and will bear
its own costs and expenses with respect to that participation;
provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party, and the Indemnified Party has
been advised by counsel that there may be one or more legal
defenses available to it that are different from or additional to
those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the
Indemnifying Party, and, on its written notification of that
employment, the Indemnifying Party shall not have the right to
assume or continue the defense of such action on behalf of the
Indemnified Party.
(c) If the Indemnifying Party (i) within the Election
Period (1) disputes its potential liability to the Indemnified
Party under this Article IX, (2) elects not to defend the
Indemnified Party pursuant to Section 9.04(a) or (3) fails to
notify the Indemnified Party that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 9.04(b) or
(ii) elects to defend the Indemnified Party pursuant to Section
9.04(b) but fails to prosecute diligently and promptly or
otherwise dispose of or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be
promptly and vigorously prosecuted by the Indemnified Party to a
final conclusion or settled. The Indemnified Party shall have
full control of such defense and proceedings. Notwithstanding
the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article IX and if such dispute is
resolved in favor of the Indemnifying Party, the Indemnifying
Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9.04 or of
the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the
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Indemnifying Party in full for all reasonable costs and expenses
of such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9.04(c), and the
Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
(d) If any Indemnified Party has a claim against any
Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying
Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the
amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final
amount of such claim), and the basis of the Indemnified Party's
request for indemnification under this Merger Agreement. If the
Indemnifying Party does not notify the Indemnified Party within
15 business days from its receipt of the Indemnity Notice that
the Indemnifying Party disputes such claim, the claim specified
by the Indemnified Party in the Indemnity Notice shall
conclusively be deemed a liability of the Indemnifying Party
hereunder.
(e) Any dispute, controversy, difference or claim
arising out of, relating to or in connection with this Merger
Agreement, any transaction hereunder or breach hereof shall be
finally settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in
effect by one arbiter appointed in accordance with such rules.
The arbiter's award shall be final and binding. Judgment upon
the award rendered by the arbiter may be entered in any court
having jurisdiction thereof. The arbitration shall take place in
Wichita, Kansas, or such other place as the parties may agree.
The arbiter's award shall include (i) a provision that the
prevailing party in such arbitration shall recover its costs of
the arbitration and reasonable attorneys' fees from the other
party, and (ii) the amount of such costs and fees.
Notwithstanding anything in this Section to the contrary, either
party may, if it believes that it requires or is entitled to
injunctive relief, file a civil action in any court having
jurisdiction seeking injunctive relief. Any dispute regarding a
claim to or demand for monetary damages shall, however, be
governed exclusively by the provisions for arbitration set forth
in this subsection (e).
(f) Payments of all amounts owing by an Indemnifying
Party pursuant to this Article IX relating to a Third Party Claim
shall be made within 30 days after the latest of (i) the
settlement of that Third Party Claim, (ii) the expiration of the
period for appeal of a final adjudication of that Third Party
Claim, or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Merger Agreement. Payments of all
amounts owing by an Indemnifying Party pursuant to Section
9.04(d) shall be made within 30 days after the later of (i) the
expiration of the Indemnity Notice period or (ii) the expiration
of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under
this Merger Agreement. The procedure set forth herein for
resolution and payment of any claim shall be in addition to, and
not in lieu of, any rights of the parties set forth in the Escrow
Agreement.
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9.05 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Merger Agreement shall not be exclusive of any other rights or
remedies available to one party against the other, either at law
or in equity.
9.06 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding
the provisions of Section 9.02, no Selling Stockholder shall be
required to pay any indemnification under Section 9.02(a) or
9.02(b) until the aggregate liability of the Selling Stockholders
in respect of all Seller Indemnified Losses and Stockholder
Indemnified Losses exceeds, and only to the extent the aggregate
amount does exceed, the Threshold Amount; provided, however, that
the Threshold Amount shall not apply with respect to a Claim
based upon a breach of the representation made in Section 4.33
hereof, or to any Claim based upon any tax liability of the
Company under section 1374 of the Code related to the
distribution of life insurance to the Selling Stockholders, or
for any Claim based on accumulated earnings taxes owed by the
Company for the years 1994, 1995, 1996 and 1997 and any related
penalties, interests, costs and expenses. In no event shall (i)
the aggregate of (A) the joint and several liability of the
Selling Stockholders under Section 9.02(a), and (B) the several
liability of the Selling Stockholders under Section 9.02(b),
exceed the Transaction Value and (ii) the aggregate liability of
any Selling Stockholder exceed that Selling Stockholder's Pro
Rata Share of the Transaction Value. For purposes of determining
the amount of any Seller Indemnified Loss or Stockholder
Indemnified Loss, no effect will be given to any resulting Tax
benefit to any Seller Indemnified Party.
(b) Notwithstanding the provisions of Section 9.03,
IDG shall not be required to pay any indemnification to any of
the IDG Indemnified Parties until the aggregate liability of IDG
in respect of all IDG Indemnified Losses, exceeds, and only to
the extent the aggregate amount does exceed, the Threshold
Amount. In no event shall IDG be liable under this Merger
Agreement, including Section 9.03, for any amount in excess of
the Transaction Value. For purposes of determining the amount of
IDG Indemnified Losses, no effect will be given to any resulting
Tax benefit to any IDG Indemnified Party.
9.07 SPECIAL INDEMNIFICATION CONSIDERATIONS REGARDING
SELLING STOCKHOLDERS. Subject to the limitations of Section
9.06(a), and notwithstanding any of the other provisions set
forth in this Article IX, IDG shall first seek to recover, and,
each Selling Stockholder hereby expressly authorizes and permits
IDG to set-off any Seller Indemnified Loss or Stockholder
Indemnified Loss, whether such liability is joint or several,
against the Escrowed Merger Consideration according to the terms
and conditions set forth in the Escrow Agreement. If the Merger
is consummated, each Selling Stockholder hereby waives any rights
of contribution or subrogation that they each may have against
the Company with respect to any indemnification claim raised by a
Seller Indemnified Party.
ARTICLE X
LIMITATIONS ON COMPETITION
10.01 PROHIBITED ACTIVITIES. Each Management
Stockholder and each Selling Stockholder owning five percent or
more of the Company Capital Stock (each a "Covenanting
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Stockholder") agrees severally, but not jointly with any other
Person, that he or she will not, during the period beginning on
the date hereof and ending on the third anniversary of the
Closing Date, directly or indirectly, for any reason, for his or
her own account, or on behalf of, or together with, any other
Person except for, and on behalf of, the Company or any Company
Subsidiary:
(a) be engaged as an officer or director or in any
other managerial or sales capacity or as an owner, co-owner or
other investor of or in, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative
or distributor of any kind, in a business that sells any products
or provides any services in competition with the Company, any
Company Subsidiary, or IDG or any Subsidiary of IDG (IDG and its
Subsidiaries collectively being "IDG" for purposes of this
Article X) within a radius of 100 miles of each location in which
any of the Company or any Company Subsidiary or IDG was engaged
in the Business on the date hereof or on the Closing Date (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time
employed by the Company, any Company Subsidiary, or IDG in any
managerial or sales capacity with the purpose or intent of
attracting that person from the employ of the Company, any
Company Subsidiary, or IDG;
(c) call on any Person who at that time is, or at any
time within one year prior to that time was, a customer of the
Company, any Company Subsidiary, or IDG within the Territory, of
whom the Covenanting Stockholder had knowledge, and contact with,
that customer relationship, for the purpose of soliciting or
selling any product or service in competition with the Company,
any Company Subsidiary, or IDG within the Territory; or
(d) call on any IDG Acquisition Candidate, with the
knowledge of that Person's status as an IDG Acquisition
Candidate, for the purpose of acquiring that Person or arranging
the acquisition of that Person by any Person other than IDG.
Notwithstanding the foregoing, any Covenanting Stockholder
may own and hold as a passive investment up to one percent (1%)
of the outstanding Capital Stock of a competing Entity if that
class of Capital Stock is listed for trading or quotation on a
national or regional stock exchange registered with the SEC or on
The Nasdaq Stock Market.
10.02 DAMAGES. Because of the difficulty in measuring
the economic losses that may be incurred by IDG as a result of
any breach by a Covenanting Stockholder of his or her covenants
in Section 10.01, and because of the immediate and irreparable
damage that could be caused to IDG for which it would have no
other adequate remedy, each Covenanting Stockholder agrees that
IDG may enforce the provisions of Section 10.01 by any equitable
or legal means, including seeking an appropriate injunction or
restraining order against that Covenanting Stockholder if a
breach of any of those provisions occurs.
10.03 REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint
on the Covenanting Stockholders in light of the activities and
Business of the Company on the date hereof, the current business
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plans of IDG as a result of its proposed acquisitions of the
Company and other similarly positioned companies, and the
consideration to be received by each Covenanting Stockholder from
IDG as a result of the Merger.
10.04 SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of
any specific covenant in this Article X is not intended by any
party hereto to, and shall not, affect the provisions of any
other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time, or territorial
restrictions set forth in Section 10.01 are unreasonable as
applied to any Covenanting Stockholder, the parties hereto,
including that Covenanting Stockholder, acknowledge their mutual
intention and agreement that those restrictions be enforced to
the fullest extent the court deems reasonable, and thereby shall
be reformed to that extent as applied to that Covenanting
Stockholder or any other Covenanting Stockholder similarly
situated.
10.05 INDEPENDENT COVENANT. All of the covenants in
this Article X are intended by each party hereto to be, and shall
be construed as, an agreement independent of any other provision
in this Merger Agreement, and the existence of any claim or cause
of action of any Covenanting Stockholder against IDG, whether
predicated on this Merger Agreement or otherwise, shall not
constitute a defense to the enforcement by IDG of any covenant in
this Article X. It is specifically agreed that the period
specified in Section 10.01 shall be computed in the case of each
Covenanting Stockholder by excluding from that computation any
time during which that Covenanting Stockholder is in violation of
any provision of Section 10.01. The covenants contained in this
Article X shall not be affected by any breach of any other
provision hereof by any party hereto.
10.06 MATERIALITY. The Company and each Covenanting
Stockholder, severally and not jointly with any other Person,
hereby agree that this Article X is a material and substantial
part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
11.01 RESTRICTIONS ON TRANSFER OF IDG COMMON STOCK. (a)
Each Selling Stockholder, severally and not jointly with any
other Person, (i) acknowledges that the shares of IDG Common
Stock to be delivered to that Selling Stockholder, or the
Stockholders' Agent, as the case may be, pursuant to Section 2.04
have not been registered under the Securities Act, and therefore
may not be resold by that Selling Stockholder without being in
compliance with the Securities Act or an exemption thereof, until
such time as the Registration Statement becomes effective and
(ii) covenants that none of the shares of IDG Common Stock issued
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to that Selling Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, transferred or otherwise disposed of
except upon full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All
certificates evidencing shares of IDG Common Stock issued
pursuant to Section 2.04 will bear substantially the following
legend:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS, HAVE BEEN ISSUED PURSUANT
TO AND UNDER ONE OR MORE EXEMPTIONS THERETO, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, OR
DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
In addition, certificates evidencing shares of IDG Common Stock
issued pursuant to Section 2.04 to each Selling Stockholder will
bear any legend required by the securities or blue sky laws of
the state in which that Stockholder resides.
(b) During the period commencing on the Closing Date and
ending on December 31, 1999 (the "Restricted Period"), no Selling
Stockholder voluntarily will: (i) sell, assign, exchange,
transfer, or otherwise dispose of (A) any shares of IDG Common
Stock received by any Selling Stockholder in the Merger or (B)
any interest in (including any option to buy or sell unless such
option is not exercisable until after expiration of the
Restricted Period) any of those shares of IDG Common Stock, in
whole or in part, and IDG will have no obligation to, and shall
not, treat any such attempted transfer as effective for any
purpose; or (ii) engage in any transaction, whether or not with
respect to any shares of IDG Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of
owning the shares of IDG Common Stock acquired pursuant to
Section 2.04 (including, for example, engaging in put, call,
short-sale, straddle or similar market transactions); provided,
however, that this Section 11.01 shall not restrict any transfer
of IDG Common Stock acquired by a Selling Stockholder pursuant to
Section 2.04 to any of that Selling Stockholder's Related Persons
who agree in writing to be bound by the provisions of this
Section 11.01. The certificates evidencing the shares of IDG
Common Stock delivered to each Selling Stockholder, or the
Stockholders' Agent as the case may be, pursuant to Section 2.05
will bear a legend substantially in the form set forth below and
containing such other information as IDG may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION DATED JUNE __, 1998 AMONG
THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF, AND
THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
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DURING THE PERIOD COMMENCING ON THE DATE HEREOF AND
ENDING ON DECEMBER 31, 0000 (XXX "XXXXXXXXXX XXXXXX").
XX THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE EXPIRATION OF THE RESTRICTED
PERIOD.
The Selling Stockholders acknowledge that IDG shall be entitled
to place stop order instructions with its transfer agent in order
to prevent the transfer of any of the IDG Common Stock issued in
this transaction in violation of the provisions set forth above.
11.02 BROKERS AND AGENTS. The Company and the Selling
Stockholders jointly and severally represent and warrant to IDG
and Newco that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent
in connection with the transactions contemplated hereby, and
agree, without regard to the Threshold Amount limitations set
forth in Article IX, to indemnify IDG and Newco against all
Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised
payment by the Company.
11.03 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Merger Agreement and the rights of the parties hereunder may not
be assigned (except by operation of law) and shall be binding on
and inure to the benefit of the parties hereto, the successors of
IDG and Newco, and the heirs and legal representatives of the
Selling Stockholders (and, in the case of any trust, the
successor trustees of that trust). Neither this Merger Agreement
nor any other Transaction Document is intended, or shall be
construed, deemed, or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or
thereunder, except as provided in Section 6.04(b) or Article IX,
or as otherwise expressly provided herein or therein.
11.04 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Merger
Agreement and the documents delivered pursuant hereto constitute
the entire agreement and understanding among the Selling
Stockholders, the Company, Newco, and IDG and supersede all prior
agreements and understandings, both written and oral, relating to
the subject matter of this Merger Agreement. This Merger
Agreement may be amended, modified, or supplemented, and any
right hereunder may be waived, if, but only if, that amendment,
modification, supplement, or waiver is in writing and signed by
the party to be bound thereby, and in the case of each Selling
Stockholder, the Stockholders' Agent or such Selling Stockholder.
The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any
other term or condition hereof.
11.05 COUNTERPARTS. This Merger Agreement may be
executed in multiple counterparts, each of which will be an
original, but all of which together will constitute one and the
same instrument.
11.06 EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) IDG will pay (i) the
fees, expenses, and disbursements of IDG and Newco and their
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Representatives that are incurred in connection with the subject
matter of this Merger Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of
and compliance with all conditions to be performed by IDG and
Newco under this Merger Agreement, including the costs of
preparing the Registration Statement, (b) the Company will pay
(i) all sales, use, transfer, and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby, and (ii) all other fees,
expenses, and disbursements of the Company or the Stockholders
(including fees and expenses of accountants, attorneys, and other
professionals) that are incurred in connection with the subject
matter of this Merger Agreement on or before the Closing Date not
to exceed a total of $30,000, and (c) the Stockholders will pay
from personal funds, and not from funds of the Company or any
Company Subsidiary, (i) all Transfer Taxes incurred in connection
with the transactions contemplated hereby, and (ii) all other
fees, expenses, and disbursements of the Company or the
Stockholders (including fees and expenses of accountants,
attorneys, and other professionals) that are incurred in
connection with the subject matter of this Merger Agreement on or
before the Closing Date, which, in the aggregate, are in excess
of $30,000. The Selling Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In
addition, each Selling Stockholder acknowledges that he or she,
and not the Company or IDG or the Surviving Corporation, will be
responsible for and pay all Taxes, if any, due upon receipt of
the consideration payable to that Stockholder pursuant to the
Merger Transaction.
11.07 NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be
delivered and received (a) if personally delivered or, if
delivered by telegram, facsimile, or courier service, when
actually received by the party to whom notice is sent (or upon
confirmation of receipt received by the sender), or (b) if
delivered by mail (whether actually received or not), at the
close of business on the third business day next following the
day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the
address of such party set forth below (or at such other address
as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to IDG or Newco:
Industrial Distribution Group, Inc.
0000 Xxxxx Xxxxx
Xxxxxx, Xxxxxxx 00000
Attn.: Chief Executive Officer
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with copies (which shall not constitute notice for
purposes of this Merger Agreement) to:
Xxxxxxxxxx Xxxxxxxx LLP
0000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attn.: W. Xxxxx Xxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
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(ii) if to a Selling Stockholder, to the address
set forth with respect to such Selling Stockholder in Annex 2;
and
(iii) if to the Company:
X.X. Supply, Inc.
0000 X. Xxxxx
Xxxxxxx, Xxxxxx 00000-0000
Attn: Xxxxx X. Xxxxxxxxx, President
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with copies (which shall not constitute notice for
purposes of this Merger Agreement) to:
Bever, Dye, Mustard & Xxxxx, X.X.
000 X. Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
11.08 GOVERNING LAW. This Merger Agreement and the
rights and obligations of the parties hereto shall be governed
by, and construed and enforced in accordance with, the
substantive laws of the state of Delaware without regard to the
conflicts of law provisions thereof.
11.09 EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise
of any right, power, or remedy accruing to any party hereto as a
result of any breach or default hereunder by any other party
hereto shall impair any such right, power, or remedy, nor shall
it be construed, deemed, or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar
breach or default occurring later; nor shall any waiver of any
single breach or default be construed, deemed, or interpreted as
a waiver of any other breach or default hereunder occurring
before or after that waiver.
11.10 TIME. Time is of the essence in the performance
of this Merger Agreement in all respects.
11.11 REFORMATION AND SEVERABILITY. If any provision of
this Merger Agreement is invalid, illegal, or unenforceable, that
provision shall, to the extent possible, be modified in such
manner as to be valid, legal, and enforceable and so as to most
nearly retain the intent of the parties hereto as expressed
herein, and if such a modification is not possible, that
provision shall be severed from this Merger Agreement, and in
either case the validity, legality, and enforceability of the
remaining provisions of this Merger Agreement shall not in any
way be affected or impaired thereby.
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11.12 REMEDIES CUMULATIVE. No right, remedy, or
election given by any term of this Merger Agreement shall be
deemed exclusive, but each shall be cumulative with all other
rights, remedies, and elections available at law or in equity.
11.13 TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each
of the parties to this Merger Agreement, severally and not
jointly with any other Person, acknowledges that it, he or she
has or may have had in the past, and in the future may have,
access to Confidential Information of the Company and its
Subsidiaries, and IDG and its Subsidiaries. Each of the parties
to this Merger Agreement, severally and not jointly with any
other Person, agrees that it, he or she will keep confidential
all such Confidential Information and, except with the specific
prior written consent of the other parties hereto, will not
disclose such Confidential Information to any Person except: (i)
Representatives of the other parties hereto, (ii) its or their
own Representatives, provided that such Representatives (other
than counsel) agree to the confidentiality provisions of this
Section 11.13. Confidential Information shall not include (A)
such information that becomes known to the public generally
through no fault of any of the parties, (B) information required
to be disclosed by law or the order of any Governmental Authority
under color of law, provided that prior to disclosing any
information pursuant to this clause (B), each party shall, if
possible, give prior written notice thereof to the other parties
and provide the other parties with the opportunity to contest
such disclosure, or (C) such information that the disclosing
party reasonably believes the disclosure of which is required in
connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any
party of the provisions of this Section 11.13 with respect to any
Confidential Information, the other parties shall be entitled to
an injunction restraining such Selling Stockholder from
disclosing, in whole or in part, that Confidential Information.
Nothing herein shall be construed as prohibiting any party from
pursuing any other remedy available at law or in equity for such
breach or threatened breach, including the recovery of Damages.
(b) Because of the difficulty of measuring the
economic loss that may be incurred by any party as a result of
the breach of the covenants in Section 11.13(a), and because of
the immediate and irreparable damage that would be caused to any
party for which it or they would have no other adequate remedy,
each of the Company and the Selling Stockholders agrees that
other party may enforce the provisions of Section 11.13(a) by
injunctions and restraining orders against each of them who
breaches any of those provisions.
(c) The obligations of the parties set forth in
Section 6.01(d) are incorporated in this Section 11.13 by this
reference.
(d) The obligations of the parties under this Section
11.13 shall survive the termination of this Merger Agreement.
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11.14 RESTRICTION ON TRADING. The Company and the
Stockholders agree that they will not trade (or cause or
encourage any third party to trade), and will use their
respective best efforts to assure that none of the Company
Representatives will trade (or cause or encourage any third party
to trade), in the IDG Common Stock (or securities convertible
into or exercisable for shares of IDG Common Stock), while in
possession of any material non-public information concerning IDG.
ARTICLE XII
TERMINATION
12.01 TERMINATION OF THIS MERGER AGREEMENT. (a) This
Merger Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of IDG and the
Company;
(ii) by the Selling Stockholders and the Company,
on the one hand, or by IDG, on the other hand, if the
conditions to Closing in Section 7 have not either been
satisfied or waived and the transactions contemplated by
this Merger Agreement to take place at the Closing shall not
have been consummated by May 29, 1998, unless the failure of
such transactions to be consummated results from the willful
failure of the party (or in the case of the Selling
Stockholders and the Company, any of them) seeking to
terminate this Merger Agreement to perform or adhere to any
agreement required hereby to be performed or adhered to by
such party prior to or at the Closing or on the Closing
Date;
(iii) by the Selling Stockholders and the
Company, on the one hand, or by IDG, on the other hand, if a
material breach or default shall be made by the other party
(or in the case of the Selling Stockholders and the Company,
any of them) in the observance or in the due and timely
performance of any of the covenants, agreements, or
conditions contained herein and such breach or default shall
not have been cured by the breaching or defaulting party or
parties within ten (10) days after notice of such breach or
default is provided thereto; or
(iv) by IDG if it is entitled to do so as provided
in Section 6.07.
(b) If this Merger Agreement is terminated pursuant to
this Section 12.01, the Merger will be deemed for all purposes to
have been abandoned and of no force or effect. If this Merger
Agreement is terminated pursuant to this Section 12.01 after the
Certificate of Merger has been filed with the Secretary of State
of the State of Georgia and the appropriate filing office of the
Organization State of the Company, IDG will take all actions that
Counsel for the Company and the Selling Stockholders advise IDG
are required by the applicable laws of the State of Georgia and
the Organization State of the Company in order to rescind the
Merger.
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12.02 LIABILITIES IN EVENT OF TERMINATION. If this
Merger Agreement is terminated pursuant to Section 12.01, there
shall be no liability or obligation on the part of any party
hereto except (a) as provided in Section 11.06 and (b) to the
extent that such liability is based on the breach by that party
of any of its representations, warranties, or covenants set forth
in this Merger Agreement.
ARTICLE XIII
POWER OF ATTORNEY
13.01 APPOINTMENT OF STOCKHOLDERS' AGENT. The Selling
Stockholders, and each of them, hereby irrevocably constitute and
appoint Xxxxx X. Xxxxxxxxx with an address at 0000 X. Xxxxxxxx,
Xxxxxxx, Xxxxxx, 00000 (the "Stockholders' Agent") as their
agent and attorney-in-fact to modify, amend, or otherwise change
this Merger Agreement, or any of its terms or provisions
(including modifications, amendments, or changes subsequent to
Closing), to take all actions and to execute all documents
(including all actions and documents required under Article VII
hereof) necessary or desirable to consummate the transactions
contemplated by this Merger Agreement, to tender their shares of
Company Capital Stock pursuant to this Merger Agreement and to
accept the Merger Consideration in connection therewith and to
take all actions, to execute all documents that may be necessary
or desirable in connection therewith (including, without
limitation, delivery of the certificates for their shares of
Company Capital Stock and execution of such powers of attorney or
other instruments as may be necessary to comply with this Merger
Agreement), to give and receive consents and all notices
hereunder, to negotiate and settle claims for indemnification
under Article IX hereof, and to perform any other act arising
under or pertaining to this Merger Agreement and the transactions
contemplated hereby. The Selling Stockholders, and each of them,
agree that service of process upon the Stockholders' Agent in any
action or proceeding arising under or pertaining to this Merger
Agreement shall be deemed to be valid service of process upon the
Selling Stockholders, and any claim by IDG or Newco against the
Selling Stockholders, or any of them, in respect to this Merger
Agreement may be asserted against, and settled with, said
Stockholders' Agent. The Stockholders' Agent shall be deemed to
have accepted the appointment herein upon his execution of this
Merger Agreement.
13.02 LIABILITY OF AGENT. Nothing contained herein
shall be deemed to make the Stockholders' Agent personally liable
to the Selling Stockholders because of service in his capacity as
agent and attorney-in-fact. In performing any of his duties
hereunder, the Stockholders' Agent shall not incur any liability
to the Selling Stockholders for losses, damages, liabilities, or
expenses, except for his own willful or intentional default.
13.03 SUCCESSION. In the event of the death,
disability, incompetency, or resignation of the original
Stockholders' Agent, the successor agent shall be Xxxxx
Xxxxxxxxx, 0000 Xxxxxxxxx Xxxx, Xxxxxx, Xxxxxx 00000. In the
event of the death, disability, incompetency, or resignation of
any successor Stockholders' Agent, the Selling Stockholders
shall, within 30 days after notice from IDG, designate a
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successor Stockholders' Agent, determined by simple majority
vote, who shall have all of the rights, powers, and authority
conferred, and limitation on personal liability provided, by this
Article XIII, and if the Stockholders fail to designate such
successor Stockholders' Agent within such period, IDG may
petition a court of appropriate jurisdiction for appointment of a
successor Stockholders' Agent.
13.04 IRREVOCABLE; BINDING ON SUCCESSORS, ETC. It is
expressly understood and agreed that the power of attorney and
agency created by this Article XIII is coupled with an interest
of the respective parties hereto and shall be binding and
enforceable on and against the respective heirs, personal
representatives, successors and assigns of the Selling
Stockholders, and each of them, and the same shall not be revoked
or terminated by the death, disability, bankruptcy, or
incompetency of the Selling Stockholders, or any of them, but
shall continue to be binding and enforceable by the Stockholders'
Agent, IDG, and Newco, and their respective successors and on and
against the heirs, personal representatives, and successors and
assigns of the Stockholders in the manner provided herein.
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IN WITNESS WHEREOF, the parties hereto have executed this
Merger Agreement as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP,
INC.,
By: /s/ Xxxxxxxx X. Xxxxx
Xxxxxxxx X. Xxxxx
President and Chief
Operating Officer
LDS ACQUISITION COMPANY, INC.
By: /s/ Xxxxxxxx X. Xxxxx
Xxxxxxxx X. Xxxxx
President
X.X. SUPPLY, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
Xxxxx X. Xxxxxxxxx
President
[signatures continued on following page]
-00-
XXXXXXX XXXXXXXXXXXX:
/s/ Xxxxx X. Xxxxxxxxx
Xxxxx X. Xxxxxxxxx
/s/ Xxxxx Xxxxxxxxx
Xxxxx X. Xxxxxxxxx
/s/ Xxx Xxxxxxxx
Xxxxxx X. Xxxxxxxx
/s/ Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
-69-
ANNEX 1
INITIAL DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
INITIAL DIRECTORS
Xxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxx
Xxxxxxxx X. Xxxxx
INITIAL OFFICERS
President . . . . . . . . . Xxxxx X. Xxxxxxxxx
Vice President . . . . . . . Xxxxxxxx X. Xxxxx
Secretary . . . . . . . . . Xxxxxx X. Xxxxxxxx
Treasurer . . . . . . . . . Xxxxx X. Xxxxxxxxx
Assistant Secretary . . . . Xxxx X. Xxxxxx
Assistant Treasurer . . . . Xxxx X. Xxxxxx
ANNEX 2
MERGER CONSIDERATION
NUMBER
OF IDG SHARES SHARES CASH CASH CASH
COMPANY PRO ALLOCATED SHARES TO BE TO BE PLACED IN PLACED IN
NAME AND ADDRESS SHARES RATA UPON PLACED DELIVERED DELIVERED GENERAL TAX
OF STOCKHOLDER HELD SHARE MERGER IN ESCROW ESCROW ESCROW
--------------------- -------- -------- --------- --------- --------- ------------- -------- --------
A fraction expressed as a percentage, the numerator of which is the number
of shares of outstanding Company Common Stock owned by such Person, and
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders.
(F2) Cash delivered includes cash paid in lieu of fractional shares. Cash paid
in lieu of fractional shares has been calculated assumingh a share price
of $18.4785 per share.
/TABLE
ANNEX 3
GUARANTEED RECEIVABLES
Total Net Accounts Receivables as of February 28, 1998 equals
$1,549,857.57, a true and correct detailed listing of which has
been provided to IDG and is bound under separate cover.
ANNEX 4
MANAGEMENT STOCKHOLDERS
Xxxxx X. Xxxxxxxxx
Xxxxx Xxxxxxxxx
Xxx Xxxxxxxx
Xxxx X. Xxxxxxxx
EXHIBIT A
[FORM OF EMPLOYMENT AGREEMENT]
EXHIBIT B
[FORM OF ESCROW AGREEMENT]
