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Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MLC HOLDINGS, INC.
AND
MLC ACQUISITION CORP.
AND
EDUCATIONAL COMPUTER CONCEPTS, INC.
AND
THE STOCKHOLDERS OF EDUCATIONAL COMPUTER CONCEPTS, INC.
SEPTEMBER 29, 1997
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as
of this 29th day of September, 1997, by and among MLC Holdings, Inc., a Delaware
corporation ("MLC"), MLC Acquisition Corp., a Pennsylvania corporation and
wholly-owned subsidiary of MLC ("MAC"), and Educational Computer Concepts, Inc.
d/b/a ECC Integrated, Inc., a Pennsylvania corporation ("ECC"), and Xxxxxxx X.
Xxxxxx, Xxxxx X. Xxxxxxxxx, Xxxxxx Garnet, Xxxxx Xxxxxx, Xxxxxxx XxXxxxxxxxx
and Xxxxxxx XxXxxxx, the sole stockholders of ECC (collectively, the
"Stockholders"). MLC, MAC, ECC and the Stockholders are referred to
collectively herein as the "Parties" and individually as a "Party."
RECITALS:
WHEREAS, the Parties hereto desire to consummate a merger (the
"Merger") whereby MAC will be merged with and into ECC and ECC will be the
surviving corporation in the Merger, upon the terms and subject to the
conditions of this Agreement and in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended (the "Pennsylvania BCL"); and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"),
pursuant to which each issued and outstanding share of ECC common stock shall
be converted into the right to receive shares of MLC common stock.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE 1 DEFINITIONS
1.1 Terms Defined in this Agreement. As used in this Agreement,
the following terms shall have the respective meanings set forth below:
"AAA Account" has the meaning set forth in Section 4.2(c) below.
"Actual EBT" has the meaning set forth in Section 4.2(c) below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504, or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" has the meaning set forth in the preface above.
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"Articles of Merger" has the meaning set forth in Section 2.2 below.
"Average Share Price" has the meaning set forth in Section 4.2(b)
below.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the basis for any specified
consequence.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of ECC or MLC, if any, that is not already generally
available to the public.
"Disclosure Schedule" has the meaning set forth in the first paragraph
of Article 7 below.
"ECC" has the meaning set forth in the preface above.
"ECC Common Shares" means the shares of the common stock, no par value,
of ECC.
"ECC Common Share Certificates" has the meaning set forth in Section
4.1 below.
"Effective Time" has the meaning set forth in Section 2.2 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) tax-qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) tax-qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, including laws
relating to emissions, discharges, releases, or
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threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estimated Tax Liability" has the meaning set forth in Section 4.5
below.
"Extremely Hazardous Substance" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Tax Liability" has the meaning set forth in Section 4.5 below.
"Financial Statements" has the meaning set forth in Section 7.7 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies
and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means the collective knowledge of all of the Stockholders
and ECC after reasonable investigation. For the purposes of this Agreement,
the knowledge of one Stockholder shall be attributed to the other Stockholders
and ECC.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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"MAC" has the meaning set forth in the preface above.
"MAC Common Shares" shall mean the shares of common stock, par value
$0.01, of MAC.
"MLC" has the meaning set forth in the preface above.
"MLC Common Shares" shall mean the shares of common stock, par value
$0.01, of MLC.
"Material Adverse Effect" means, as to any Party, a material adverse
effect on the business, properties, operations, condition or future prospects
(financial or otherwise) of such Party.
"Merger" shall mean the merger of MAC with and into ECC in accordance
with the terms of this Agreement.
"Merger Consideration" has the meaning set forth in Section 4.2(b)
below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
7.7 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 7.7
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 7.7
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" or "Parties has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pennsylvania BCL" has the meaning set forth in the first paragraph of
the Recitals above.
"Permitted Distribution" has the meaning set forth in Section 4.5
below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
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"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 4.2(a) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Representative" has the meaning set forth in Section 12.3 below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Stockholders" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2.1 below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 12.4 below.
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ARTICLE 2
MERGER; EFFECTIVE TIME; CLOSING
2.1 Merger. Subject to the terms and conditions of this Agreement
and the Pennsylvania BCL, at the Effective Time, MAC and ECC shall consummate
the Merger in which (i) MAC shall be merged with and into ECC and the separate
corporate existence of MAC shall thereupon cease, (ii) ECC shall be the
successor or surviving corporation in the Merger and shall continue to be
governed by the laws of the Commonwealth of Pennsylvania and (iii) the separate
corporate existence of MAC with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger. The corporation
surviving the Merger is sometimes hereinafter referred to as the "Surviving
Corporation." The Merger shall have the effects set forth in the Pennsylvania
BCL.
2.2 Effective Time. On the Closing Date, subject to the terms and
conditions of this Agreement, MAC and ECC shall (i) cause to be executed an
Articles of Merger in the form required by the Pennsylvania BCL (the "Articles
of Merger"), and (ii) cause the Articles of Merger to be filed with the
Secretary of the Commonwealth of Pennsylvania as provided in the Pennsylvania
BCL. The Merger shall become effective at (i) such time as the Articles of
Merger has been duly filed with the Secretary of the Commonwealth of
Pennsylvania or (ii) such other time as is agreed upon by the Representative
and MLC and specified in the Articles of Merger. Such time is hereinafter
referred to as the "Effective Time."
2.3 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Shaw, Pittman,
Xxxxx & Xxxxxxxxxx, 0000 X Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, commencing at
9:00 a.m. local time on such date as within five (5) business days following
the fulfillment or waiver of the conditions set forth in Article 10 (other than
conditions which by their nature are intended to be fulfilled at the Closing)
or such other place or time or on such other date as MLC and the Representative
may agree or as may be necessary to permit the fulfillment or waiver of the
conditions set forth in Article 10 (the "Closing Date").
ARTICLE 3
ARTICLES OF INCORPORATION; BY-LAWS; AND
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
3.1 Articles of Incorporation. The articles of incorporation of ECC,
as in effect immediately prior to the Effective Time, shall be the articles of
incorporation of ECC until thereafter amended as provided therein and under the
Pennsylvania BCL.
3.2 By-Laws. The by-laws of ECC, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation.
3.3 Directors and Officers. The directors and officers of MAC
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation from and after the Effective Time until their
successors have been duly elected, appointed or qualified or until
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their earlier death, resignation or removal in accordance with the articles of
incorporation and by-laws of the Surviving Corporation. In addition to the
officers of the Surviving Corporation discussed above, Xxxxxxx X. Xxxxxx shall
be an officer of the Surviving Corporation holding the titles set forth in his
employment agreement more particularly described in Section 10.1(f) below.
ARTICLE 4
MERGER CONSIDERATION; PAYMENT OF MERGER CONSIDERATION
4.1 Merger Consideration; Conversion or Cancellation of ECC Common
Shares in Merger. At the Effective Time, by virtue of the Merger and without
any action by the Parties, (A) all of the outstanding ECC Common Shares (i)
shall be converted into the right to receive the Merger Consideration set forth
in Section 4.2(b), (ii) shall cease to be outstanding, and (iii) shall be
canceled and retired and shall cease to exist, and each Stockholder, as the
holder of certificates representing such ECC Common Shares (the "ECC Common
Share Certificates"), shall cease to have any rights with respect thereto,
except the right to receive Merger Consideration therefor upon the surrender of
such certificates in accordance with this Section 4.1 and cash in lieu of
fractional MLC Common Shares as set forth in Section 4.3, and (B) each
outstanding MAC Common Share shall be converted into one share of common stock
of the Surviving Corporation, as such shares of common stock are constituted
immediately following the Effective Time.
4.2 Determination of Purchase Price and Merger Consideration;
Payment of Merger Consideration.
(a) The purchase price for the Merger payable by MAC and MLC shall be
$7,092,000, the ("Purchase Price").
(b) The Purchase Price will be payable in the form of MLC Common
Shares (the "Merger Consideration"). The number of MLC Common Shares
representing the Merger Consideration shall be determined by dividing the
Merger Consideration by the price of a MLC Common Share, rounded to the nearest
cent, which is the average closing price for a MLC Common Share as reported on
the Nasdaq National Market over the 15 trading days immediately preceding the
date prior to the Closing Date (the "Average Share Price").
(c) At the Closing, upon surrender to MLC of ECC Common Share
Certificates by the Stockholders for cancellation, together with any other
required documents, the Stockholders shall receive the Merger Consideration,
pro rata based on their relative equity interests in ECC as of the Closing
Date.
4.3 Fractional MLC Common Shares. No certificates representing
fractional MLC Common Shares shall be issued upon surrender of any ECC Common
Share Certificates. In lieu of any fractional MLC Common Shares, there shall
be paid to each holder of ECC Common Shares who otherwise would be entitled to
receive a fractional MLC Common Share an amount of cash (without interest)
determined by multiplying such fraction by the Average Share Price.
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4.4 Transfer of ECC Common Shares. No transfers of ECC Common Shares
shall be made on the stock transfer books of ECC after the date of this
Agreement, and each Stockholder agrees not to transfer any ECC Common Shares
after the date of this Agreement and before the Closing Date.
4.5 Certain Distributions. During the period from January 1, 1997
through the Closing Date (the "1997 Pre-Merger Period") the amount of cash
distributed by ECC to its Stockholders in the form of dividends or
distributions shall not exceed a total of $964,307 (the "Permitted
Distribution"), which amount is consistent with ECC's existing and historical
corporate policy. The Parties have agreed that $778,506 of the Permitted
Distribution (the "Estimated Tax Liability") represents amounts to satisfy the
Stockholders' income tax liability with respect to the premerger S corporation
income produced by ECC's operations during the 1997 Pre-Merger Period assuming
an individual tax rate of 41.9%. The Estimated Tax Liability is based on an
estimate of the premerger S corporation income for the 1997 Pre-Merger Period.
Within 45 days subsequent to the Closing, MLC shall prepare or have prepared an
income statement for the 1997 Pre-Merger Period, together with a calculation of
the Stockholders' tax liability (the "Final Tax Liability") based on the
earnings reflected therein using the assumed tax rate of 41.9%. In the event
the Final Tax Liability is higher than the Estimated Tax Liability, the
difference shall be paid to the Stockholders' and in the event the Final Tax
Liability is lower than the Estimated Tax Liability, then the difference shall
be refunded by the Stockholders to MLC. Such difference shall, in either
event, be paid in MLC Common Shares valued at the Average Share Price.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL STOCKHOLDERS
Each of the Stockholders, severally, but not jointly, represents and
warrants to MAC and MLC that the statements contained in this Article 5 are
correct and complete as of the date hereof with respect to himself:
5.1 Authorization of Transaction. Each of the Stockholders has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of each of the Stockholders, enforceable in accordance with its
terms and conditions. None of the Stockholders need give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement, except in connection with federal securities
laws and any applicable "Blue Sky" or state securities laws.
5.2 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any Stockholder is subject, or (B)
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement,
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contract, lease, license, instrument, or other arrangement to which the any
Stockholder is a party or by which he or she is bound or to which any of his or
her assets are subject.
5.3 Investment. Each of the Stockholders (A) understands that the
MLC Common Shares acquired by such Stockholder pursuant to this Agreement have
not been registered under the Securities Act, or under any state securities
laws, and are being exchanged in reliance upon federal and state exemptions for
transactions not involving a public offering, (B) is acquiring the MLC Common
Shares solely for his or her own account for investment purposes, and not with
a view towards the distribution thereof, (C) is a sophisticated investor with
knowledge and experience in business and financial matters, (D) has received
certain information concerning MLC, including, without limitation, (i) the
most recent annual report on Form 10-K, (ii) the three most recent quarterly
reports on Form 10-Q, (iii) any current reports on Form 8-K since December 31,
1996, in each case as filed by MLC under the Securities Exchange Act, and (iv)
the most recent annual report to stockholders of MLC, and has had the
opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding MLC Common Shares, and (E) is able
to bear the economic risk and lack of liquidity inherent in holding MLC Common
Shares which have not been registered under the Securities Act.
5.4 ECC Common Shares. Each of the Stockholders holds of record and
owns beneficially the number of ECC Common Shares set forth next to his name in
Section 7.2 of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. Except for the
agreements set forth on Section 5.4 of the Disclosure Schedule, none of the
Stockholders is a party to any option, warrant, purchase right, or other
contract or commitment that could require one or more Stockholders to sell,
transfer, or otherwise dispose of any ECC Common Shares (other than pursuant to
this Agreement) or is a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any of ECC Common Shares.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MAC AND MLC
MAC and MLC jointly and severally represent and warrant to the
Stockholders and ECC that the statements contained in this Article 6 are
correct and complete as of the date hereof:
6.1 Organization of MAC. MAC is a corporation duly organized,
validly existing, and in good standing under the laws of the Commonwealth of
Pennsylvania.
6.2 Organization of MLC. MLC is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
6.3 Capital Stock of MLC. The authorized capital stock of MLC
consists of 10,000,000 shares of common stock, $.01 par value (the "MLC Common
Shares"), of which 5,572,307 shares are outstanding as of July 31, 1997, and
2,000,000 shares of preferred stock, $.01 par value, of which no shares are
outstanding. Since July 31, 1997, MLC has not issued any
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shares of capital stock except pursuant to the exercise of options outstanding
on such date to purchase MLC Common Shares. All outstanding MLC Common Shares
are, and all MLC Common Shares issuable under stock option plans of MLC, will
be when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable. Except for the 400,000 MLC Common Shares
reserved for issuance pursuant to stock option plans of MLC which amount MLC is
currently seeking stockholder approval to increase, and except for a proposed
employee stock purchase plan for which MLC is currently seeking stockholder
approval, there are outstanding on the date hereof no options, warrants, calls,
rights, commitments or any other agreements of any character to which MLC is a
party or by which it may be bound, requiring it to issue, transfer, sell,
purchase, register, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for or evidencing the right
to subscribe for or acquire any shares of its capital stock.
6.4 Authorization for Common Stock. The Merger Consideration will,
when issued, be duly authorized, validly issued, fully paid and nonassessable,
and no stockholder of MLC will have any preemptive right or similar rights of
subscription or purchase in respect thereof. The Merger Consideration will,
subject to the accuracy of the Stockholders' representations contained in
Section 5.3 hereof, be exempt from registration under the Securities Act and
will be registered or exempt from registration under all applicable state
securities laws. The Share Consideration will, when issued, be approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
6.5 Authorization of Transaction. Each of MAC and MLC has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its respective obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of each of
MAC and MLC, enforceable in accordance with its terms and conditions. Neither
MAC nor MLC need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement, except in
connection with federal securities laws and any applicable "Blue Sky" or state
securities laws.
6.6 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either MAC or MLC is subject or any
provision of its articles of incorporation or by-laws or (B) result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which either MAC or MLC is a party or by which it is bound or to
which any of its assets is subject.
6.7 Brokers' Fees. Neither MAC nor MLC has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
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6.8 Nasdaq National Market. MLC is in compliance in all material
respects with its Nasdaq National Market Listing Agreement.
6.9 Disclosure. MLC is in compliance in all material respects with
its obligation under the Securities Exchange Act to publicly disclose material
information in a timely fashion.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES CONCERNING ECC
The Stockholders and ECC represent and warrant to MAC and MLC that the
statements contained in this Article 7 are correct and complete as of the date
hereof, except as set forth in the disclosure schedule delivered by the
Stockholders and ECC to MAC and MLC on the date hereof (the "Disclosure
Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article 7.
7.1 Organization, Qualification, and Corporate Power. ECC is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Pennsylvania. ECC is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to so qualify or obtain
authorization would not have a Material Adverse Effect on ECC. Except as set
forth in Section 7.1(a) of the Disclosure Schedule, ECC has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Section 7.1(b) of the Disclosure Schedule
lists the directors and officers of ECC. The Stockholders have delivered to MAC
and MLC correct and complete copies of the articles of incorporation and
by-laws of ECC (as amended to date). The minute books (containing the records
of meetings of the stockholders, the board of directors, and any committees of
the board of directors), the stock certificate books, and the stock record
books of ECC are correct and complete. ECC is not in default under or in
violation of any provision of its articles of incorporation or by-laws.
7.2 Capitalization. The entire authorized capital stock of ECC (the
"ECC Common Shares") consists of 3,000 shares of common stock, no par value, of
which 536 shares are issued and outstanding. A total of ten (10) ECC Common
Shares are held in treasury. All of the issued and outstanding ECC Common
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective Stockholders as set
forth in Section 7.2 of the Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
ECC to issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock,
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profit participation, or similar rights with respect to ECC. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of ECC Common Shares.
7.3 Authorization of Transaction. ECC has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of ECC, enforceable in accordance with
its terms and conditions. ECC is not required give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement, except in connection with federal securities
laws and any applicable "Blue Sky" or state securities laws.
7.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which ECC is subject or any provision of the
charter or bylaws of ECC or (ii) result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
ECC is a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its assets).
7.5 Title to Assets. ECC has good title to, or a valid leasehold
interest in, the properties and assets used by it, located on its premises, or
shown on the Most Recent Balance Sheet or acquired after the date thereof, free
and clear of all Security Interests, except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
7.6 Subsidiaries. ECC does not have any Subsidiaries, operating or
otherwise.
7.7 Financial Statements. ECC has delivered (collectively, the
"Financial Statements") to MLC its (i) balance sheets and statements of income,
changes in stockholders' equity, and cash flow as of and for the fiscal years
ended December 31, 1995, and December 31, 1996 (the "Most Recent Fiscal Year
End") which have been reviewed by Xxxxxxx and Company, Inc.; and (ii) unaudited
balance sheets and statements of income, changes in stockholders' equity, and
cash flow (the "Most Recent Financial Statements") as of and for the seven
months ended July 31, 1997 (the "Most Recent Fiscal Month End"). The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of ECC as of such dates and the results
of operations of ECC for such periods, and are consistent with the books and
records of ECC (which books and records are correct and complete in all
material respects)
7.8 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Effect in the
business, financial condition,
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14
operations, results of operations, or future prospects of ECC. Without limiting
the generality of the foregoing, since that date:
(a) ECC has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(b) ECC has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
either involving more than $25,000 or outside the Ordinary Course of Business;
(c) no party (including ECC) has accelerated, terminated, modified,
or canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) to which ECC is a party or by
which it is bound;
(d) ECC has not imposed any Security Interest upon any of its assets,
tangible or intangible;
(e) ECC has not made any capital expenditure (or series of related
capital expenditures) either involving more than $25,000 or outside the
Ordinary Course of Business;
(f) ECC has not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions;
(g) ECC has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation;
(h) ECC has not delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of Business;
(i) ECC has not canceled, compromised, waived, or released any right
or claim (or series of related rights and claims) outside the Ordinary Course
of Business;
(j) ECC has not granted any license or sublicense of any rights under
or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the articles of
incorporation or by-laws of ECC;
(l) ECC has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
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15
(m) except for the Permitted Distribution to the Stockholders, ECC
has not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(n) ECC has not experienced any material damage, destruction, or loss
(whether or not covered by insurance) to its property;
(o) ECC has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
(p) ECC has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any such
existing contract or agreement;
(q) ECC has not granted any increase in the base compensation of any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(r) ECC has not adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan, contract, or commitment
for the benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(s) ECC has not made any other change in employment terms for any of
its directors, officers, and employees outside the Ordinary Course of Business
or in the terms of its agreements with any independent contractors;
(t) ECC has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
(u) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving ECC; and
(v) ECC is not under any legal obligation, whether written or oral,
to do any of the foregoing.
7.9 Undisclosed Liabilities. ECC does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to
any Liability), except for (i) Liabilities set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities
which have arisen after the Most Recent Fiscal Month End in the Ordinary Course
of Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
7.10 Legal Compliance. ECC has complied in all material respects with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies
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16
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply.
7.11 Tax Matters.
(a) ECC has filed all Tax Returns that it was required to file,
including, without limitation, any Tax Returns required to be filed with any
state. All such Tax Returns were correct and complete in all respects. All
Taxes owed by ECC (whether or not shown on any Tax Return) have been paid. ECC
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where ECC does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of ECC
that arose in connection with any failure (or alleged failure) to pay any Tax.
(b) ECC has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) No Stockholder expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of ECC either (A) claimed or raised by
any authority in writing or (B) as to which any of the Stockholders has
Knowledge. Section 7.11(c) of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect to ECC for taxable
periods ended on or after December 31, 1991, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Stockholders have delivered to MAC and MLC correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by ECC since December
31, 1991.
(d) ECC has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) ECC has not filed a consent under Code Section 341(f) concerning
collapsible corporations. ECC has not made any payments, is not obligated to
make any payments, or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. ECC has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). ECC
has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Section 6662. ECC is not a party to any Tax
allocation or sharing agreement. ECC (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was ECC) or (B) has any Liability for the
Taxes of any Person (other than ECC) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
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17
(f) ECC has been a subchapter S corporation for federal income taxes
since January 24, 1986 and has made all requisite filings under the Code.
7.12 Real Property. Section 7.12(a) of the Disclosure Schedule lists
and describes briefly all real property owned, leased or subleased to ECC. The
Stockholders have delivered to MAC and MLC correct and complete copies of the
leases and subleases listed in Section 7.12(b) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section
7.12(b) of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(b) no consent is required with respect to any lease or sublease as a
result of this Agreement, and the actions contemplated by this Agreement will
not result in the change of any terms of any lease or sublease or otherwise
affect the ongoing validity of any lease or sublease;
(c) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(d) no party to the lease or sublease has repudiated any provision
thereof;
(e) there are no disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(f) with respect to each sublease, the representations and warranties
set forth in subsections (a) through (e) above are true and correct with
respect to the underlying lease;
(g) ECC has not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold or subleasehold;
(h) all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits) required
by ECC in connection with the operation thereof and have been operated and
maintained by ECC in accordance with applicable laws, rules, and regulations;
and
(i) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities.
7.13 Intellectual Property.
(a) ECC owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property used in the operation of the
businesses of ECC as presently conducted. Each item of Intellectual Property
owned or used by ECC immediately prior to the Closing hereunder will be owned
or available for use by the Surviving Corporation on identical
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terms and conditions immediately subsequent to the Closing hereunder. ECC has
taken all necessary action to maintain and protect each item of Intellectual
Property that it owns or uses.
(b) ECC has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and none of the Stockholders and the directors and officers (and
employees with responsibility for Intellectual Property matters) of ECC has
ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that ECC must license or refrain from using any Intellectual Property rights of
any third party). No third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of ECC.
(c) ECC has no patent or registration which has been issued to ECC
with respect to any of its Intellectual Property.
(d) Section 7.13(d) of the Disclosure Schedule identifies each
item of Intellectual Property owned by ECC or each item of Intellectual
Property that any third party owns and that ECC uses pursuant to license,
sublicense, agreement, or permission. The Stockholders have delivered to MAC
and MLC correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date).
(e) Nothing will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its business as presently
conducted.
7.14 Tangible Assets. ECC owns or leases all buildings, machinery,
equipment, and other tangible assets used in the conduct of its business as
presently conducted and as presently proposed to be conducted. Each such
tangible asset is free from all defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used. The Most Recent Balance Sheet sets
forth all of the assets necessary to conduct ECC' business as it is currently
being conducted and as it is contemplated to be conducted in the future.
7.15 Contracts. Section 7.15 of the Disclosure Schedule lists the
following contracts and other agreements to which ECC is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $25,000 per annum;
(b) any agreement concerning a partnership or joint venture;
(c) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
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(d) any agreement concerning confidentiality or noncompetition;
(e) any agreement with any of the Stockholders and their Affiliates
(other than ECC);
(f) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(g) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $30,000 or providing severance benefits;
(h) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course of
Business;
(i) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect.
The Stockholders have delivered to MAC and MLC a correct and complete copy of
each written agreement listed in Section 7.15 of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 7.15 of the Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
7.16 Notes and Accounts Receivable. All notes and accounts receivable
of ECC are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, and are current and collectible in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of ECC.
7.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of ECC.
7.18 Insurance. Section 7.18 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which ECC has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past five
years: (i) the name, address, and telephone number of the agent; (ii) the name
of the insurer, the name of the policyholder, and the name of each covered
insured; (iii) the policy
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number and the period of coverage; (iv) the scope (including an indication of
whether the coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are calculated
and operate) of coverage; and (v) a description of any retroactive premium
adjustments or other loss-sharing arrangements. With respect to each such
insurance policy: (A) the policy is legal, valid, binding, enforceable, and in
full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither ECC nor
any other party to the policy is in breach or default (including with respect
to the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the
policy; and (D) no party to the policy has repudiated any provision thereof.
ECC has been covered during the past five years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 7.18 of the Disclosure Schedule
describes any self-insurance arrangements affecting ECC.
7.19 Litigation. Section 7.19 of the Disclosure Schedule sets forth
each instance in which ECC (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None
of the actions, suits, proceedings, hearings, and investigations set forth in
Section 7.19 of the Disclosure Schedule could result in any Material Adverse
Effect on ECC. None of the Stockholders has any Basis to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or
threatened against ECC.
7.20 Officers, Directors and Employees. All officers, directors and
employees of ECC are listed by title or position in the Disclosure Schedule.
No officer, director, employee or stockholder of ECC is entitled to any
indemnification from ECC, has any substantial financial interest, direct or
indirect, in any supplier, customer, lessor or lessee of ECC, is indebted to
ECC on account of loans or advances of any kind, or has in his possession or
under his control any property or assets belonging to ECC. All transactions,
commitments, contracts and agreements between ECC and any supplier, customer or
any other business entity in which any officer, director, employee or
stockholder of ECC has a financial interest are on arms-length terms and at
reasonable market prices. To the Knowledge of the Stockholders and ECC, no
executive, key employee, or group of employees currently has any plans to
terminate employment with ECC or as a result of this Agreement. ECC has not
committed any unfair labor practice. None of the Stockholders or ECC has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of ECC.
7.21 Employee Benefits.
(a) Section 7.21 of the Disclosure Schedule lists each Employee
Benefit Plan that ECC maintains or to which ECC contributes.
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(b) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(c) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, and Summary Plan Descriptions) have been filed
or distributed appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title 1 of ERISA and of Code
Section 4980B have been met with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of ECC. All premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(e) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Section
401(a) and has received, within the last two years, a favorable determination
letter from the Internal Revenue Service.
(f) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan),
subject to Title IV of ERISA, equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension Benefit
Plan terminating on the date for determination.
(g) The Stockholders have delivered to MAC and MLC correct and
complete copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(h) With respect to each Employee Benefit Plan that ECC maintains or
ever has maintained or to which it contributes, ever has contributed, or ever
has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan), subject to Title IV of ERISA,
has been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or threatened.
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(ii) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or threatened. None
of the Stockholders has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(iii) ECC has not incurred, and none of the Stockholders and the
directors and officers (and employees with responsibility for employee benefits
matters) of ECC has any Basis to expect that ECC or the Surviving Corporation
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(i) ECC does not contribute to, ever has contributed to, or ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan.
(j) ECC does not maintain or ever has maintained or contributes, ever
has contributed, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Code Section
4980B).
7.22 Guaranties. ECC is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person.
7.23 Environment, Health, and Safety.
(a) ECC has complied with all Environmental, Health, and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against it alleging any
failure so to comply. Without limiting the generality of the preceding
sentence, ECC has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety Laws.
(b) ECC does not have any Liability and has not handled or disposed
of any substance, arranged for the disposal of any substance, exposed any
employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could form the Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against ECC giving rise to any Liability for damage
to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
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(c) All properties and equipment used in the business of ECC has been
free of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
7.24 Customers. The names and addresses of all customers of ECC
during fiscal year 1996 and all customers known as of the Closing Date who will
be customers during fiscal 1997 are listed in the Disclosure Schedule. All
contracts and agreements with such customers are valid, effective and
enforceable and the Disclosure Schedule sets forth all customers who have
account balances that are in excess of 90 days past due. ECC knows of no
written or oral communication, fact, event or action which exists or has
occurred within 120 days prior to the date of this Agreement which would
indicate that any of the following shall terminate or materially reduce its
business with ECC:
(i) any current customer of ECC which accounted for over 1% of
total net sales of ECC for its most recently completed fiscal year; or
(ii) any current supplier to ECC of items essential to the
conduct of the business, which items cannot be replaced at comparable cost and
the loss of which would have an Material Adverse Effect on ECC.
Since the Most Recent Balance Sheet Date, (A) ECC has retained all
sales personnel employed in connection with the operation of the business and
(B) no customer (or group of customers) purchasing in the aggregate of $25,000
in products and services on a yearly basis has terminated its relationship with
ECC.
7.25 Related Party Agreements. The Disclosure Schedule sets forth all
indebtedness to ECC of the Stockholders or the officers, directors or employees
of ECC. All of such indebtedness has been or will be repaid on or before the
Closing Date. All credit cards issued for the account of ECC shall be canceled
prior to the Closing Date and, upon cancellation, paid in full by the
Stockholders.. The Disclosure Schedule sets forth all agreements between (i)
ECC and its employees and (ii) ECC and the Stockholders.
7.26 Product Liability. ECC has no liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against ECC giving rise to any liability)
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by ECC.
7.27 Bank Accounts. The Disclosure Schedule sets forth all bank
accounts and marketable securities (both debt and equity) of ECC.
7.28 Change in Control. ECC is not a party to any contract or
arrangement, which contains a "change in control," "potential change in
control" or similar provision, and the consummation of the Merger shall not
(either alone or upon the occurrence of additional acts or events) result in
any payment or payments becoming due from ECC to any person or give any person
the right to terminate or alter the provisions of any agreement to which ECC is
a party.
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7.29 Inventory. The inventory of ECC is in good and marketable
condition and is capable of being sold in the ordinary course of business
without discounts to the FIFO purchase cost at which such inventory is recorded
on the books and records of ECC.
7.30 Brokers' Fees. The Disclosure Schedule sets forth any Liability
or obligation of ECC to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
7.31 Disclosure. The representations and warranties contained in this
Article 7 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 7 not misleading.
ARTICLE 8
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
8.1 General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Article 10 below).
8.2 Notices and Consents. ECC shall give any notices to third parties
and shall use its reasonable best efforts to obtain any third party consents
that MAC and MLC may reasonably request in connection with the matters referred
to in Section 7.3 above. Each of the Parties shall give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 5.1, Section
6.4, and Section 7.3 above.
8.3 Maintenance of Business; Prohibited Acts. During the period from
the date of this Agreement to the Effective Time, the Stockholders will not,
and will not cause ECC to, take any action that adversely affects the ability
of ECC (i) to pursue its business in the ordinary course, (ii) to seek to
preserve intact its current business organizations (iii) to keep available the
service of its current officers and employees and (iv) preserve its
relationships with customers, suppliers and others having business dealings
with it; and the Stockholders will not allow ECC to, without MLC's prior
written consent:
(a) issue, deliver, sell, dispose of, pledge or otherwise encumber,
or authorize or propose the issuance, delivery, sale, disposition or pledge or
other encumbrances of (i) any additional shares of its capital stock of any
class (including ECC Common Shares), or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for any shares of
its capital stock, or any rights, warrants, options, calls, commitments or any
other agreements of any character to purchase or acquire any shares of its
capital stock or any other securities or rights convertible into, exchangeable
for or evidencing the right to subscribe for any
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shares of its capital stock, or (ii) any other securities in respect of, in
lieu of or in substitution for ECC Common Shares outstanding on the date
hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including ECC
Common Shares);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or otherwise make any payments to the Stockholders in their capacities as
stockholders of ECC; provided, however, that nothing shall prohibit: the
payment of any ordinary distribution or dividend in respect of its capital
stock consistent with Section 4.5 hereof;
(d) (i) grant any increases in the compensation of any of its
directors, officers or executives or grant any increases in compensation to any
of its employees, (ii) pay or agree to pay any pension retirement allowance or
other employee benefit not required or contemplated by any Employee Benefit
Plan as in effect on the date hereof to any such director, officer or employee,
whether, past or present, (iii) enter into any new or amend any existing
employment or severance agreement with any such director, officer or employee,
except as approved by MLC in its sole discretion, (iv) pay or agree to pay any
bonus to any director, officer or employee (whether in the form of cash,
capital stock or otherwise), or (v) except as may be required to comply with
applicable law, amend any existing, or become obligated under any new Employee
Benefit Plan, except in the case of (i) through (v) inclusive, under and
pursuant to the employment agreements referred to in Section 10.1(f);
(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
(other than the Merger);
(f) make any acquisition, by means of merger, consolidation or
otherwise, of any direct or indirect ownership interest in or assets comprising
any business enterprise or operation;
(g) adopt any amendments to its articles of incorporation or by-laws;
(h) incur any indebtedness for borrowed money or guarantee such
indebtedness or agree to become contingently liable, by guaranty or otherwise,
for the obligations or indebtedness of any other person or make any loans,
advances or capital contributions to, or investments in, any other corporation,
any partnership or other legal entity or to any other persons, except for bank
deposits and other investments in marketable securities and cash equivalents
made in the ordinary course of its business;
(i) engage in the conduct of any business the nature of which is
materially different from the business in which ECC is currently engaged;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of ECC;
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26
(k) forgive any indebtedness owed to ECC or convert or contribute by
way of capital contribution any such indebtedness owed;
(l) authorize or enter into any agreement providing for management
services to be provided by ECC to any third-party or an increase in management
fees paid by any third-party under existing management agreements;
(m) mortgage, pledge, encumber, sell, lease or transfer any material
assets of ECC except with the prior written consent of MLC or as contemplated
by this Agreement,
(n) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing; or
(o) perform any act or omit to take any action that would make any of
the representations made above inaccurate or materially misleading as of the
Effective Time.
8.4 Full Access. ECC shall permit representatives of MAC and MLC to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of ECC to all premises,
properties, personnel, books, records (including Tax records), contracts, and
documents of or pertaining to ECC.
8.5 Notice of Developments. Each of the Stockholders and ECC shall
give prompt written notice to MAC and MLC of any material adverse development
causing a breach of any of the representations and warranties in Article 7
above. Each Party will give prompt written notice to the others of any material
adverse development causing a breach of any of his own representations and
warranties in Articles 5 and 6 above. No disclosure by any Party pursuant to
this Section 8.5, however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
8.6 Tax Matters. Each of the Stockholders, ECC and MLC agrees to
report the Merger on all Tax Returns and, if applicable, other filings as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code to the
extent permitted by law.
8.7 Reorganization. From and after the date hereof and prior to the
Effective Time, except for the transactions contemplated or permitted herein,
none of ECC, the Stockholders or MLC shall knowingly take any action that would
be inconsistent with the representations and warranties made by it herein,
including, but not limited to, knowingly taking any action, or knowingly
failing to take any action, that is known to cause disqualification of the
Merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
8.8 ECC Stockholder Approval. Each of the Stockholders hereby agrees
to vote, at the ECC Stockholders Meeting, the ECC Common Shares owned by such
Stockholder in favor of the Agreement and the transactions contemplated hereby.
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8.9 Exclusivity. None of the Stockholders or ECC shall (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting securities or
any substantial portion of the assets of ECC (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. None of the
Stockholders shall vote their ECC Common Shares in favor of any such
acquisition structured as a merger, consolidation, or share exchange. The
Stockholders and ECC shall notify MLC immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
8.10 Pooling of Interests. None of the Stockholders, ECC, MAC or MLC
shall take any action which would prevent the transactions contemplated by this
Agreement from being accounted for as a pooling of interests for financial
reporting purposes.
ARTICLE 9
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
9.1 General. In the event that at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Article 12 below). The Stockholders acknowledge and agree that
from and after the Closing, the Surviving Corporation and MLC will be entitled
to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to ECC.
9.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving ECC, each of the other Parties will cooperate
with him and his counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article 12
below).
9.3 Transition. None of the Stockholders will take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of ECC from
maintaining the same business relationships with the Surviving Corporation
after the Closing as it maintained with ECC prior to the Closing.
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9.4 Confidentiality. Each of the Stockholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to MLC or destroy, at the request and option of MLC, all tangible
embodiments (and all copies) of the Confidential Information which are in his
possession. In the event that any of the Stockholders is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, the Stockholders will notify
MLC promptly of the request or requirement so that MLC may seek an appropriate
protective order or waive compliance with the provisions of this Section 9.4.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Stockholders is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
then the Stockholders may disclose the Confidential Information to such
tribunal; provided, however, that the disclosing Stockholder shall use his best
efforts to obtain, at the request of MLC, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as MLC shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
9.5 Covenant Not to Compete. After the Closing Date, the
Stockholders will not engage directly or indirectly in any business that the
Surviving Corporation or MLC conducts as of the Closing Date including, without
limitation, computer equipment and peripheral leasing and financing, computer
equipment resales and servicing (the "Non-Compete Covenant") for the term and
in the geographic area set forth below. The term and geographic proximity of
the Non-Compete Covenant shall be as follows: four years and nationally for
Xxxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxxxx and Xxxxxx Xxxxx; two years and within a
radius of 100 miles from ECC's current place of business for Xxxxxxx
XxXxxxxxxxx; one year and within a radius of 100 miles from ECC's current place
of business for Xxxxx Xxxxxx; and six months and within a radius of 75 miles
from ECC's current place of business for Xxxxxxx XxXxxxx. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section 9.5 is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
9.6 Non-Solicitation. For a period of seven years from and after the
Closing Date, each Stockholder and any entity controlled by any Stockholder or
with which any Stockholder is associated (as the terms "control" and
"associate" are defined under the Securities Exchange Act) shall not, directly
or indirectly, (i) solicit, interfere with, induce or entice away any person or
entity that is or was a client, customer or agent of ECC or any Affiliate
during the twenty-four (24) month period prior to the date hereof, or (ii) in
any manner persuade or attempt to persuade any such person or entity (A) to
discontinue a business relationship with ECC or the Surviving
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Corporation or such Affiliate, or (B) to enter into a business relationship
with any other entity or person which would be detrimental to ECC or the
Surviving Corporation in any respect.
9.7 MLC Common Shares. Each certificate issued to the Stockholders
representing the MLC Common Shares will be imprinted with a legend
substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), IN
RELIANCE UPON THE EXEMPTION FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE 1933 ACT AND REGULATION D OF THE RULES AND REGULATIONS
PROMULGATED UNDER THE 1933 ACT, AND IN RELIANCE UPON THE REPRESENTATION
BY THE HOLDER THAT THEY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO RESALE OR FURTHER DISTRIBUTION. SUCH SHARES MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, HYPOTHECATED, NOR
WILL ANY ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF
BY THE ISSUER FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH SHARES
SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION SHALL BE ESTABLISHED TO THE REASONABLE SATISFACTION OF
COUNSEL OF THE ISSUER.
Each Stockholder desiring to transfer any of the MLC Common Shares received in
connection with the Merger, other than in a registered offering or pursuant to
a sale which counsel for MLC confirms is in compliance with Rule 144 of the
Securities Act, must first furnish MLC with (i) a written opinion satisfactory
to MLC in form and substance from counsel reasonably satisfactory to MLC to the
effect that such Stockholder may transfer the MLC Common Shares as desired
without registration under the Securities Act and (ii) a written undertaking
executed by the desired transferee reasonably satisfactory to MLC in form and
substance agreeing to be bound by the restrictions on transfer contained
herein.
9.8 Pooling of Interests. None of the Stockholders or MLC shall take
any action which would prevent the transactions contemplated by this Agreement
from being accounted for as a pooling of interests for financial reporting
purposes.
9.9 Continuity of Interest. The Stockholders as a group shall not
dispose of any of the MLC Common Shares received in the transaction in a manner
that would cause the transaction to violate the continuity of stockholder
interest requirement set forth in Treas. Reg. Section 1.368-1(b). Any
Stockholder wishing to dispose of any MLC Common Shares received in the
transaction shall provide MLC written notice, not less than 15 days prior to
the intended date of disposition, specifying the number of shares which such
Stockholder proposes to dispose of and an opinion of counsel reasonably
satisfactory to MLC that such transfer or disposition will not violate the
continuity of stockholder interest requirement set forth in Treas. Reg. Section
1.368-1(b).
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9.10 Listing. MLC shall use its best efforts to effect, at or before
the issuance of any MLC Common Shares issued as Merger Consideration pursuant
to Article 4, authorization for listing or quotation of such MLC Common Shares
on the Nasdaq National Market, subject to official notice of issuance.
9.11 Termination of Personal Guarantees. MLC shall use its best
efforts to cause the termination of any personal guarantees of the Stockholders
relating to the business of ECC within 30 days after the Closing Date and from
the Closing Date until such time as the personal guarantees are terminated, MLC
agrees to indemnify the Stockholders against any personal liability arising
from such personal guarantees.
ARTICLE 10
CONDITIONS TO OBLIGATION TO CLOSE
10.1 Conditions to Each Party's Obligation. The respective
obligations of MLC, MAC, ECC and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or prior to the Closing Date of each of the following conditions, which
conditions may be waived upon the written consent of MLC and the Stockholders:
(a) MAC and MLC Board Approval. The Boards of Directors of MAC and
MLC shall have approved the Merger in accordance with applicable law and
approved the issuance of the Merger Consideration pursuant to the terms of this
Agreement.
(b) ECC Board and Stockholder Approval. The Board of Directors of
ECC and the Stockholders shall have approved the Merger in accordance with
applicable law.
(c) Governmental Approvals. The Parties shall have received all
other authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 5.1, Section 6.4, and Section 7.3 above.
(d) No Injunction or Proceedings. There shall not be in effect any
action, suit, or proceeding pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge that would, in the
reasonable judgment of MLC or ECC, (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of MLC to own the capital stock of the Surviving
Corporation, or (D) affect adversely the right of the Surviving Corporation to
own its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge is in effect).
(e) No Suspension of Trading, Etc. At the Effective Time, there
shall be no suspension of trading in MLC Common Shares on the Nasdaq National
Market, declaration of a banking moratorium by federal or state authorities or
any suspension of payments by banks in the United States (whether mandatory or
not) or of the extension of credit by lending institutions
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in the United States, or commencement of war or other international, armed
hostility or national calamity directly or indirectly involving the United
States, which war, hostility or calamity (or any material acceleration or
worsening thereof), in the sole judgment of MLC, would have a Material Adverse
Effect on ECC or, in the sole judgment of the Stockholders, would have a
Material Adverse Effect on MLC.
(f) Employment Agreements. Xxxxxxx X. Xxxxxx shall have entered into
an employment agreement with MLC in substantially the form attach hereto as
Exhibit A.
(g) Escrow Agreement. MLC and the Stockholders shall have executed
and delivered counterparts of the Escrow Agreement in the form attached hereto
as Exhibit B, together with any counterparts signed by the Escrow Agent and
blank stock powers executed by each of the Stockholders with respect to the MLC
Common Shares to be held in the Escrow Deposit.
10.2 Conditions to Obligation of MAC and MLC. The obligations of MAC
and MLC to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(a) the Stockholders and ECC shall have delivered to MAC and MLC a
certificate to the effect that:
(i) the representations and warranties set forth in Article 5
and Article 7 above are true and correct in all material respects at and as of
the Closing Date;
(ii) the Stockholders and ECC have performed and complied with
all of their covenants hereunder in all material respects at and as of the
Closing Date;
(iii) ECC has procured all of the third party consents specified
in Sections 7.3 and 7.4 above; and
(iv) no action, suit, or proceeding is pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge that would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of MLC to
own the capital stock of the Surviving Corporation, or (D) affect adversely the
right of the Surviving Corporation to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
is in effect);
(b) MAC and MLC shall have received an opinion dated as of the
Closing Date from Binder, Xxxxx & Xxxxxxx, P.C., counsel to the Stockholders
and ECC, addressed and in form satisfactory to MAC and MLC;
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(c) MAC and MLC shall have received an opinion dated as of the
Closing Date from Xxxxxxx and Company, Inc. certified public accountants and
independent accountants for the Stockholders and ECC, addressed to MAC and MLC,
that Xxxxxxx and Company, Inc. is not aware of any circumstance related to ECC
that would prohibit the Merger from being accounted for as a pooling of
interests for financial reporting purposes;
(d) MAC and MLC shall have received an opinion dated as of the
Closing Date from Deloitte & Touche LLP, certified public accountants and
independent accountants for MAC and MLC, addressed to MAC and MLC, to the
effect that the Merger shall be accounted for as a pooling of interests for
financial reporting purposes;
(e) MLC shall have received the resignations, effective as of the
Closing, of each director and officer of ECC, other than those officers
specified in Section 3.3 who shall continue as officers of the Surviving
Corporation;
(f) MLC shall have received satisfactory evidence that all bonus
plans under which officers, directors or employees of ECC are beneficiaries
have been terminated as of the Closing Date;
(g) As of the Closing Date, there has been no event shall have
occurred and no circumstance shall exist that has or could have a Material
Adverse Effect on ECC; and
(h) MLC shall have received a satisfactory pooling letter form each
of the Stockholders. MLC may waive any condition specified in this Section
10.2 if it executes a writing so stating at or prior to the Closing.
10.3 Conditions to Obligation of the Stockholders and ECC. The
obligation of the Stockholders and ECC to consummate the transactions to be
performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
(a) MAC and MLC shall have delivered to Stockholders and ECC a
certificate to the effect that:
(i) the representations and warranties set forth in Article 6
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) MAC and MLC shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing; and
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
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Agreement or (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(b) MLC shall have delivered to the Stockholders the Merger
Consideration pursuant to Section 4.2; and
(c) the Stockholders shall have received an opinion dated as of the
Closing Date from Shaw, Pittman, Xxxxx & Xxxxxxxxxx, counsel to MAC and MLC,
addressed and in form satisfactory to the Stockholders.
The Stockholders may waive any condition specified in this Section 10.3 if they
execute a writing so stating at or prior to the Closing.
ARTICLE 11
TERMINATION
11.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by the Stockholders or the sole stockholder of MAC,
respectively, by the mutual written consent of MLC and the Representative .
11.2 Termination by Either MLC or ECC. This Agreement may be
terminated and the Merger may be abandoned (a) by action of the Board of
Directors of MLC in the event of a failure of a condition to the obligations of
MLC or MAC set forth in Section 10.2 of this Agreement; (b) by majority vote of
the Stockholders in the event of a failure of a condition to the obligations of
the Stockholders or ECC set forth in Section 10.3 of this Agreement; (c) by MLC
in its sole discretion in the event that the Average Share Price is less than
$8.00; (d) if a United States federal or state court of competent jurisdiction
or United States federal or state governmental agency shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such other, decree, ruling or other action shall have become
final and non-appealable; or (e) the Effective Time has not occurred by
September 30, 1997; and provided, in the case of a termination pursuant to
clause (a), (b) or (e) above, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
referred to in said clause.
11.3 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article 11, no party hereto (or any of its directors or officers) shall have
any liability or further obligation to any other party to this Agreement,
except that nothing herein will relieve any party from liability for any breach
of this Agreement.
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ARTICLE 12
INDEMNIFICATION
12.1 Indemnity Obligations of the Stockholders. Subject to Section
12.5 and Section 12.6, each of the Stockholders hereby jointly and severally
agrees to indemnify and hold MLC and MAC harmless from, and to reimburse MLC
and MAC for, any MLC Indemnity Claims arising under the terms and conditions of
this Agreement. For purposes of this Agreement, the term "MLC Indemnity Claim"
shall mean any loss, damage, deficiency, claim, liability, obligation, suit,
action, fee, cost or expense of any nature whatsoever resulting from (i) any
breach of any representation and warranty of the Stockholders or ECC which is
contained in this Agreement or any Schedule, Exhibit or certificate delivered
pursuant thereto; (ii) any breach or non-fulfillment of, or any failure to
perform, any of the covenants, agreements or undertakings of the Stockholders
or ECC which are contained in or made pursuant to this Agreement; and (iii)
all interest, penalties and costs and expenses (including, without limitation,
all reasonable fees and disbursements of counsel) arising out of or related to
any indemnification made under this Section 12.1.
12.2 Indemnity Obligations of MLC and MAC. MLC and MAC hereby jointly
and severally agree to indemnify and hold each of the Stockholders harmless
from, and to reimburse each of the Stockholders for, any Stockholder Indemnity
Claims arising under the terms and conditions of this Agreement. For purposes
of this Agreement, the term "Stockholder Indemnity Claim" shall mean any loss,
damage, deficiency, claim, liability, suit, action, fee, cost or expense of any
nature whatsoever incurred by the Stockholders resulting from (i) any breach of
any representation and warranty of MLC or MAC which is contained in this
Agreement or any Schedule, Exhibit or certificate delivered pursuant thereto;
(ii) any breach or non-fulfillment of, or failure to perform, any of the
covenants, agreements or undertakings of MLC or MAC which are contained in or
made pursuant to the terms and conditions of this Agreement; and (iii) all
interest, penalties, costs and expenses (including, without limitation, all
reasonable fees and disbursements of counsel) arising out of or related to any
indemnification made under this Section 12.2.
12.3 Appointment of Representative. Each of the Stockholders hereby
appoints Xxxxxxx X. Xxxxxx as its exclusive agent to act on its behalf with
respect to any and all Stockholder Indemnity Claims and any and all MLC
Indemnity Claims arising under this Agreement or such other representative as
may be hereafter appointed by a majority in interest of the Stockholders. Such
agent is hereinafter referred to as the "Representative." The Representative
shall take, and the Stockholders agree that the Representative shall take, any
and all actions which the Representative believes are necessary or appropriate
under this Agreement for and on behalf of the Stockholders, as fully as if such
parties were acting on their own behalf, including, without limitation,
asserting Stockholder Indemnity Claims against MLC, defending all MLC Indemnity
Claims, consenting to, compromising or settling all Stockholder Indemnity
Claims and MLC Indemnity Claims, conducting negotiations with MLC and its
representatives regarding such claims, dealing with MLC and the Escrow Agent
under the Escrow Agreement referred to in Section 12.6(a) below with respect to
all matters arising under the Escrow Agreement, taking any and all other
actions specified in or contemplated by this Agreement and engaging counsel,
accountants or other representatives in connection with the foregoing matters.
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MLC shall have the right to rely upon all actions taken or omitted to be taken
by the Representative pursuant to this Agreement, all of which actions or
omissions shall be legally binding upon the Stockholders. The Representative,
acting pursuant to this Section 12.3, shall not be liable to any other
Stockholder for any act or omission, except in connection with any act or
omission that was the result of the Representative's bad faith or gross
negligence.
12.4 Notification of Claims. Subject to the provisions of Section
12.5 and Section 12.6, in the event of the occurrence of an event which any
party asserts constitutes a MLC Indemnity Claim or a Stockholder Indemnity
Claim, as applicable, such party shall provide the indemnifying party with
prompt notice of such event and shall otherwise make available to the
indemnifying party all relevant information which is material to the claim and
which is in the possession of the indemnified party. If such event involves
the claim of any third party (a "Third-Party Claim"), the indemnifying party
shall have the right to elect to join in the defense, settlement, adjustment or
compromise of any such Third-Party Claim, and to employ counsel to assist such
indemnifying party in connection with the handling of such claim, at the sole
expense of the indemnifying party, and no such claim shall be settled, adjusted
or compromised, or the defense thereof terminated, without the prior consent of
the indemnifying party unless and until the indemnifying party shall have
failed, after the lapse of a reasonable period of time, but in no event more
than 30 days after written notice to it of the Third-Party Claim, to join in
the defense, settlement, adjustment or compromise of the same. An indemnified
party's failure to give timely notice or to furnish the indemnifying party with
any relevant data and documents in connection with any Third-Party Claim shall
not constitute a defense (in part or in whole) to any claim for indemnification
by such party, except and only to the extent that such failure shall result in
any material prejudice to the indemnifying party. If so desired by any
indemnifying party, such party may elect, at such party's sole expense, to
assume control of the defense, settlement, adjustment or compromise of any
Third-Party Claim, with counsel reasonably acceptable to the indemnified
parties, insofar as such claim relates to the liability of the indemnifying
party, provided that such indemnifying party shall obtain the consent of all
indemnified parties before entering into any settlement, adjustment or
compromise of such claims, or ceasing to defend against such claims, if as a
result thereof, or pursuant thereto, there would be imposed on an indemnified
party any material liability or obligation not covered by the indemnity
obligations of the indemnifying parties under this Agreement (including,
without limitation, any injunctive relief or other remedy). In connection with
any Third-Party Claim, the indemnified party, or the indemnifying party if it
has assumed the defense of such claim pursuant to the preceding sentence, shall
diligently pursue the defense of such Third-Party Claim.
12.5 Survival. All representations and warranties, and, except as
otherwise provided in this Agreement, all covenants and agreements of the
parties contained in or made pursuant to this Agreement, and the rights of the
parties to seek indemnification with respect thereto, shall survive the
Closing. Such representations and warranties, and the rights of the parties to
seek indemnification with respect thereto, shall expire on the earlier of (i)
the date of issuance of the report of MLC's independent accountants with
respect to the audited consolidated financial statements of MLC for the fiscal
year ending March 31, 1998 or (ii) the first anniversary of the Closing Date.
No claim shall be made after the applicable survival period.
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12.6 Escrow.
(a) The Stockholders shall deposit into escrow, with the Escrow Agent
named in the Escrow Agreement, such number of MLC Common Shares issued in
connection with the Merger having an aggregate value (based on the Average
Share Price) of ten percent of the Merger Consideration (such deposit being
referred to as the "Escrow Deposit"). Until such time as the aggregate amount
of MLC Indemnity Claims which have been definitively resolved to be payable in
favor of MLC or MAC shall equal or exceed the amount of the Deemed Escrow Value
(as hereinafter defined), all MLC Indemnity Claims shall be satisfied first out
of the MLC Common Shares held in the Escrow Deposit, as further provided under
the terms of the Escrow Agreement. For purposes hereof, all MLC Common Shares
returned to MLC in settlement of any MLC Indemnity Claims under the Escrow
Agreement shall be valued at the Average Share Price. At such time as the
aggregate amount of MLC Indemnity Claims which have been definitively resolved
to be payable in favor of MLC or MAC shall exceed the Deemed Escrow Value, each
of the Stockholders shall thereafter be jointly and severally liable to MLC or
MAC for such claims. To the extent not inconsistent with pooling of interests
restrictions, the liability of the Stockholders for payable MLC Indemnity
Claims in excess of the Deemed Escrow Value may be satisfied, at the election
of each Stockholder, through (i) the delivery of MLC Common Shares to MLC, such
shares to be valued at the Average Share Price, (ii) the payment of cash or
(iii) any combination of such MLC Common Shares valued at the Average Share
Price and cash. With respect to any MLC Common Shares to be returned to the
MLC by the Stockholders in settlement of MLC Indemnity Claims pursuant to this
Section 12.6, any dividends previously paid in respect of such returned MLC
Common Shares (whether paid in cash, MLC Common Shares or other property) shall
also be returned to MLC, provided that the value of such dividends shall not be
taken into account for purposes of determining the value of such returned MLC
Common Shares, as contemplated under paragraph 47g of Accounting Principles
Board Opinion No. 16 (Interpretation No. 121).
(b) For purposes of this Agreement, the term "Deemed Escrow Value"
shall mean the value of the MLC Common Shares to be transferred by the
Stockholders into the Escrow Deposit, determined by multiplying such number of
MLC Common Shares times the Average Share Price.
12.7 MLC Payment of Stockholder Indemnity Claims. Notwithstanding
anything to the contrary herein, any liability of MAC and MLC under this
Agreement for Stockholder Indemnity Claims (other than pursuant to item (iii)
of Section 12.2) shall be satisfied solely through the issuance of additional
MLC Common Shares, such additional MLC Common Shares to be valued at the
Average Share Price and to be issued on a pro rata basis to the Stockholders
based on their relative equity interests in ECC immediately prior to the
consummation of the Merger.
ARTICLE 13
MISCELLANEOUS
13.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the
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Closing without the prior written approval of MLC and the Representative;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Parties prior to making the
disclosure).
13.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
13.3 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
13.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his rights, interests, or obligations hereunder without the prior
written approval of MLC and the Representative; provided, however, that MLC may
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases MLC nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
13.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
13.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to ECC or the Stockholders:
Educational Computer Concepts, Inc.
000 Xxxxxx Xxxxx
XXX 000
Xxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx, President
Telecopy: (000) 000-0000
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38
With copy to:
Binder, Xxxxx & Xxxxxxx, P.C.
00 Xxxxxx Xxxxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000
If to MLC and MAC:
Xxxxxxx X. Xxxxxxxxx
Secretary and Treasurer
MLC Holdings, Inc.
00000 Xxxxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx
Telecopy: (000) 000-0000
With copy to:
Shaw, Pittman, Xxxxx & Xxxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxx X. XxXxxxxx, Esq.
Telecopy: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
13.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by MLC
and the Representative. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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39
13.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
13.11 Expenses. Each of the Parties will bear his, her or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Stockholders
agree that ECC has not borne or will bear any of the Stockholders' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
13.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
13.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
13.14 Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 13.15 below), in addition to any other remedy to which they
may be entitled, at law or in equity.
13.15 Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of Delaware or
the Commonwealth of Virginia, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court.
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40
13.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
MLC:
MLC HOLDINGS, INC.
By:
----------------------------------------
Its:
----------------------------------------
MAC:
MLC ACQUISITION CORP.
By:
-----------------------------------------
Its:
-----------------------------------------
ECC:
EDUCATIONAL COMPUTER CONCEPTS, INC.
By:
-----------------------------------------
Its:
-----------------------------------------
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41
STOCKHOLDERS:
---------------------------------------------
Xxxxxxx X. Xxxxxx
---------------------------------------------
Xxxxx X. Xxxxxxxxx
---------------------------------------------
Xxxxxx Xxxxx
---------------------------------------------
Xxxxx Xxxxxx
---------------------------------------------
Xxxxxxx XxXxxxxxxxx
---------------------------------------------
Xxxxxxx XxXxxxx
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42
CLOSING CERTIFICATE
This Closing Certificate is being entered into in connection with that
certain Agreement and Plan of Merger dated as of September 29, 1997 ("Merger
Agreement") by and among MLC Holdings, Inc. ("MLC") a Delaware corporation, MLC
Acquisition Corp., a Pennsylvania corporation, and Educational Computer
Concepts, Inc. ("ECC"), a Pennsylvania corporation and Xxxxxxx X. Xxxxxx, as
the representative ("Representative") of the shareholders of ECC (the
"Shareholders"). The undersigned hereby acknowledge and agree that "Average
Share Price" for purposes of calculating the number of shares of common stock
of MLC to be issued in the Merger contemplated in the Merger Agreement shall be
$14.21, as calculated in the attached schedule and that Section 4.2(b) of the
Merger Agreement is amended accordingly.
DATED: September 29, 1997
MLC HOLDINGS, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MLC ACQUISITION CORP.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EDUCATIONAL COMPUTER CONCEPTS,
INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
REPRESENTATIVE
------------------------------------------
Xxxxxxx X. Xxxxxx
