EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is dated as of May 13, 1999 (the
"AGREEMENT"), by and among Guitar Center, Inc., a Delaware corporation
("PARENT"), EMIC Acquisition Corporation, a Delaware corporation ("SUB"),
Musician's Friend, Inc., a Delaware corporation (the "COMPANY"), and the
stockholders of the Company, each of whom is listed on Annex I hereto.
RECITALS:
A. The Boards of Directors of Parent, Sub and the Company have
determined that it is advisable and in the best interests of their respective
stockholders for Parent, Sub and the Company to enter into a business
combination upon the terms and subject to the conditions set forth herein.
B. In furtherance of such combination, the Boards of Directors of
Parent, Sub and the Company have each approved the merger of Sub with and into
the Company (the "MERGER"), upon the terms and subject to the conditions set
forth herein, in accordance with the applicable provisions of the Delaware
General Corporation Law (the "DGCL").
C. Parent, Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
and that the Merger qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations promulgated thereunder.
D. Parent, Sub and the Company further intend that the Merger qualify
for pooling of interests accounting treatment under Accounting Principles Board
Opinion No. 16 ("APB 16") and the applicable rules and regulations of the SEC
(as defined herein).
E. Pursuant to the Merger, each outstanding share of common stock, par
value $0.01 per share, of the Company (the "COMPANY STOCK") shall be converted
solely into the right to receive Parent Stock (as defined herein), upon the
terms and subject to the conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Sub, the Company and the Stockholders hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINED TERMS. As used herein, the terms below shall have
the following meanings:
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"AFFILIATE" of a Person means any other Person which, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"ANCILLARY AGREEMENTS" means the Escrow Agreement, the
Employment Agreements, the Registration Rights Agreement and all other
agreements required hereunder to consummate the Merger.
"ASSETS" means the right, title and interest of the Company in
its properties, assets and rights of any kind, whether tangible or intangible,
real or personal, including without limitation the right, title and interest in
the following:
(a) all Contracts and Contract Rights;
(b) all Fixtures and Equipment;
(c) all Inventory;
(d) all Books and Records;
(e) all Proprietary Rights;
(f) all Permits;
(g) all return and other rights under or pursuant to all
warranties, representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to such Person;
(h) all cash, accounts receivable, deposits and prepaid
expenses; and
(i) all goodwill.
"AVERAGE SHARE PRICE" means the average of the closing prices
of Parent Stock on the Nasdaq National Market as reported in the Wall Street
Journal for the thirty (30) Trading Days ending on the Trading Day immediately
prior to the Closing Date.
"BALANCE SHEET" means the balance sheet of the Company as of
the Balance Sheet Date.
"BALANCE SHEET DATE" means December 31, 1998.
"BENEFIT ARRANGEMENT" means any employment, consulting,
severance or other similar contract, arrangement or policy (written or oral) and
each plan, arrangement, program, agreement or commitment (written or oral)
providing for insurance coverage (including, without
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limitation, any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health or accident benefits (including, without limitation,
any "voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive compensation
or post-retirement insurance, compensation or benefits which (a) is not a
Welfare Plan, Pension Plan or Multiemployer Plan, (b) is entered into,
maintained, contributed to or required to be contributed to, as the case may
be, by the Company or any ERISA Affiliate or under which the Company or any
ERISA Affiliate may incur any liability, and (c) covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to their
relationship with such any entity).
"BOOKS AND RECORDS" means (a) all product, business and
marketing plans, sales and promotional literature and artwork relating to the
Assets or the Business, (b) all books, records, lists, ledgers, financial data,
files, reports, product and design manuals, plans, drawings, technical manuals
and operating records of every kind relating to the Assets or the Business
(including records and lists of customers, distributors, suppliers and
personnel) and (c) all telephone and fax numbers used in the Business, in each
case whether maintained as hard copy or stored in computer memory and whether
owned by the Company or its Affiliates.
"BUSINESS" means the business and operations of the Company,
consisting of its wholesale, retail, catalog and electronic commerce sales of
musical instruments and related products.
"CLOSING" has the meaning set forth in Section 2.1(b).
"CLOSING DATE" means the date of the Closing.
"CLOSING PRICE" means the Parent Stock on the Nasdaq National
Market as reported in the Wall St. Journal for the average of the "hi," "lo" and
"close" prices for the Closing Date.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY CONFIDENTIALITY AGREEMENT" means that certain
Confidentiality Agreement dated as of March 31, 1999 between Parent and the
Company relating to the delivery by the Company of confidential information to
Parent and its Representatives.
"COMPANY MATERIAL ADVERSE EFFECT" or "COMPANY MATERIAL ADVERSE
CHANGE" means a Material Adverse Effect with respect to the Company, the
Business or the Assets; PROVIDED, HOWEVER, that this definition shall exclude
the effect of (i) the continued operation of the Business in accordance with the
forecasts previously delivered by the Company to Parent as described in SCHEDULE
A or (ii) changes in national economic conditions or industry conditions
generally.
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"COMPANY OPTIONS" means options to purchase shares of Company
Stock issued by the Company pursuant to the Company Stock Option Plan.
"COMPANY STOCK OPTION PLAN" means the 1998 Stock Option Plan
of the Company.
"CONSENTS" means any and all Permits and any and all consents,
approvals or waivers from third parties that are required for the consummation
of the transactions contemplated by this Agreement.
"CONTRACT RIGHTS" means all rights and obligations under the
Contracts.
"CONTRACTS" means all agreements, contracts, leases (whether
for real or personal property), purchase orders, undertakings, covenants not to
compete, employment agreements, confidentiality agreements, licenses,
instruments, obligations and commitments to which the Company is a party or by
which the Company or any of the Assets are bound or affected, whether written or
oral.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement
dated as of December 31, 1997 between the Company and MFT.
"COURT ORDER" means any judgment, decision, consent decree,
injunction, ruling or order of any foreign, federal, state or local court or
governmental agency, department or authority that is binding on any Person or
its property under applicable law.
"DEFAULT" means (a) a breach of or default under any Contract,
(b) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract or (c)
the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"DEPOSITARY AGENT" means U.S. Trust Company National
Association, as depositary agent under the Escrow Agreement, or any alternative
or successor agent which (a) shall be designated by Parent and the Company if
designated prior to Closing and (b) shall be designated in accordance with the
terms of the Escrow Agreement if designated after Closing.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"EMPLOYEES" means all officers and directors of the Company
and all other Persons employed by the Company on a full or part-time basis
together with all persons retained as "independent contractors" as of the
relevant date.
"EMPLOYMENT AGREEMENTS" means the Amended and Restated
Employment Agreements to be entered into among the Company and each of Xxxxxx X.
Xxxxxxx, Xxxxx X.
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Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxx X. XxXxxxxxx and Xxxxx X. Xxxxxxx
contemporaneously with the execution of this Agreement to become effective at
the Effective Time.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, tax assessment, security interest, deed of trust, mortgage,
right-of-way, encroachment, building or use restriction, conditional sales
agreement, encumbrance or other right of third parties, whether voluntarily
incurred or arising by operation of law, and includes any agreement to give any
of the foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
"ENVIRONMENTAL CLAIMS" means all notices of violation, liens,
claims, demands, suits, or causes of action for any damage, including, without
limitation, personal injury, property damage (including, without limitation, any
depreciation or diminution of property values), lost use of property or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws. By way of example only (and not by way of
limitation), Environmental Claims include (i) violations of or obligations under
any contract related to Environmental Laws or Environmental Conditions between
the Company and any other person, (ii) actual or threatened damages to natural
resources, (iii) claims for nuisance or its statutory equivalent, (iv) claims
for the recovery of response costs, or administrative or judicial orders
directing the performance of investigations, responses or remedial actions under
any Environmental Laws, (v) requirements to implement "corrective action"
pursuant to any order or permit issued pursuant to the Resource Conservation and
Recovery Act, as amended, or similar provisions of applicable state law, (vi)
claims related to Environmental Laws or Environmental Conditions for
restitution, contribution, or indemnity, (vii) fines, penalties or liens of any
kind against property related to Environmental Laws or Environmental Conditions,
(viii) claims related to Environmental Laws or Environmental Conditions for
injunctive relief or other orders or notices of violation from federal, state or
local agencies or courts, and (ix) with regard to any present or former
employees, claims relating to exposure to or injury from Environmental
Conditions.
"ENVIRONMENTAL CONDITIONS" means the state of the environment,
including natural resources (E.G., flora and fauna), soil, surface water, ground
water, any present or potential drinking water supply, subsurface strata or
ambient air, relating to or arising out of the use, handling, storage,
treatment, recycling, generation, transportation, release, spilling, leaking,
pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposal, dumping or threatened release of Hazardous Substances by the Company
or any of its predecessors or successors in interest, or by its respective
agents, representatives, employees or independent contractors when acting in
such capacity on behalf of the Company. With respect to Environmental Claims by
third parties, Environmental Conditions also include the exposure of persons to
Hazardous Substances at the work place or the exposure of persons or property to
Hazardous Substances migrating from or otherwise emanating from or located on
property owned or occupied by the Company.
"ENVIRONMENTAL LAWS" means all applicable federal, state,
district and local laws, all rules or regulations promulgated thereunder, and
all orders, consent orders, judgments,
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notices, permits or demand letters issued, promulgated or entered pursuant
thereto, relating to pollution or protection of the environment (including,
without limitation, ambient air, surface water, ground water, land surface,
or subsurface strata), including, without limitation, (i) laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, industrial materials, wastes or other substances
into the environment and (ii) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recovery, transport or other handling of pollutants, contaminants,
chemicals, industrial materials, wastes or other substances. Environmental
Laws shall include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Toxic Substances Control Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act,
as amended ("RCRA"), the Clean Water Act, as amended, the Safe Drinking Water
Act, as amended, the Clean Air Act, as amended, the Occupational Safety and
Health Act, as amended, and all analogous laws promulgated or issued by any
state or other Governmental Authority.
"ENVIRONMENTAL REPORTS" means any and all written analyses,
summaries or explanations, in the possession or control of the Company, prepared
for the purpose of analyzing or assessing (a) any Environmental Conditions in,
on or about the properties of the Company (which shall, for purposes of this
Agreement, include the Medford Property) or (b) the Company's compliance with
Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any entity which is (or at any
relevant time was) a member of a "controlled group of corporations" with, under
"common control" with, or a member of an "affiliated service group" with, or
otherwise required to be aggregated with, the Company as set forth in Section
414(b), (c), (m) or (o) of the Code.
"ESCROW AGREEMENT" means the Escrow Agreement to be entered
into among Parent, the Company, the Depositary Agent and the Stockholders
substantially in the form of Exhibit A hereto.
"ESCROW SHARES" has the meaning set forth in Section 2.10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE RATIO" means the result of dividing the Number of
Parent Shares by the Number of the Company Shares.
"FACILITIES" means all plants, offices, manufacturing
facilities, stores, warehouses, administration buildings and all real property
and related facilities owned or leased by the Company (which for purposes of
this Agreement shall include the Medford Property as an owned Facility listed on
SCHEDULE 3.8(b)), all as identified or listed on SCHEDULE 3.8(b) and SCHEDULE
3.8(c).
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"FINANCIAL STATEMENTS" means (a) the balance sheets of the
Company (or its predecessor, as the case may be) as of December 31, 1998, 1997
and 1996 and the related statements of income, changes in stockholders' equity
and cash flows, of the Company for the years ended December 31, 1998 and 1997,
together in the case of 1996 and 1997, with the report of PricewaterhouseCoopers
LLP thereon, (b) the balance sheets of the Company as of March 31, 1999 and
March 31, 1998 and the related statements of income, changes in stockholders'
equity and cash flows, of the Company for the three (3) months then ended, and
(c) the balance sheets of MFT as of December 31, 1997 and 1996 and the related
statements of operations and changes in equity and cash flows of MFT for the
year ended December 31, 1997, together with the report of PricewaterhouseCoopers
LLP thereon.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, computer hardware, and other tangible personal property
owned by the Company, wherever located.
"FORMER PROPERTIES" means all plants, offices, manufacturing
facilities, stores, warehouses, administration buildings and all real property
and related facilities owned, leased or operated by the Company or any
predecessor prior to the date hereof, but excluding the Facilities.
"FUNDED DEBT OF THE COMPANY" means, without duplication, (a)
all obligations of the Company for borrowed money including, without limitation,
all obligations for accrued and unpaid interest thereon and any pre-payment
premiums or penalties (and associated expenses) with respect thereto, (b) any
reimbursement obligations of the Company in respect of any letters of credit,
(c) any capitalized lease obligations of the Company (as determined in
accordance with GAAP), (d) all obligations of the Company for the payment of
brokerage, investment banking, legal, accounting and similar fees and expenses
arising in connection with the transactions contemplated by this Agreement,
whether or not set forth on SCHEDULE 3.30, and (e) all guarantees issued by the
Company in respect of any obligations of any other Person (other than the
Company) of the type described in clauses (a) through (d), above, all of which
shall constitute obligations of the Company at Closing.
"FUNDED DEBT ADJUSTMENT" means the number of shares of Parent
Stock (which may be a positive or negative number of shares and which shall be
rounded to the nearest full number of shares) determined by (a) subtracting (i)
the Funded Debt of the Company as of the Effective Time from (ii) $17,000,000,
and (b) dividing the result by $20.00.
"GAAP" means generally accepted accounting principles as
applied in the United States.
"HAZARDOUS SUBSTANCES" means all pollutants, contaminants,
chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive,
toxic or otherwise hazardous substances or materials (whether solids, liquids or
gases) subject to regulation, control or remediation under Environmental Laws.
By way of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive
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materials, PCBs, pesticides, herbicides, asbestos, sludge, slag, acids,
metals, solvents and waste waters.
"HSR ACT" means the Xxxx Xxxxx Xxxxxx Antitrust Improvements
Act of 1976, as amended.
"INVENTORY" means all merchandise owned and intended for
resale.
"LIABILITY" means any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, whether accrued, absolute,
contingent, matured, unmatured, liquidated, unliquidated, known or unknown.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" or a
similar phrase means, with respect to any Person, (a) any material adverse
effect on or change with respect to (i) the business, operations, assets (taken
as a whole), liabilities (taken as a whole), condition (financial or otherwise),
results of operations or prospects, of such Person and its Subsidiaries, taken
as a whole, or (ii) the right or ability of such Person to consummate any of the
transactions contemplated hereby or (b) any event or condition which, with the
passage of time, the giving or receipt of notice or the occurrence or
nonoccurrence of any other circumstance, action or event, would reasonably be
expected to constitute a "Material Adverse Effect" on or "Material Adverse
Change" with respect to such Person.
"MEDFORD APPRAISED VALUE" means $1,750,000 less any transfer
taxes, title insurance fees or similar transaction costs related to the
contribution of the Medford Property to the Company pursuant to Section 5.15 to
the extent (but only the extent) any such transaction costs were borne by the
Company.
"MEDFORD PROPERTY" means that certain real property commonly
known as 000 Xxxxx Xxx, Xxxxxxx, Xxxxxx 00000 and all related improvements and
fixtures, as more fully described in Schedule 5.15.
"MEDFORD PROPERTY ADJUSTMENT" means the number of shares of
Parent Stock (rounded to the nearest full number of shares) determined by
dividing (a) the Medford Appraised Value by (b) $20.00, provided that the
Medford Property has been contributed to the Company in compliance with Section
5.15 of this Agreement prior to the Effective Time.
"MFT" means Musician's Friend Trust, an Oregon business trust.
"MULTIEMPLOYER PLAN" means any "multiemployer plan," as
defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, after September 25, 1980, maintained, administered,
contributed to or was required to contribute to, or under which the Company or
any ERISA Affiliate may incur any liability and (b) covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to their
relationship with any such entity).
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"NUMBER OF THE COMPANY SHARES" means the number of shares of
Company Stock issued and outstanding at the Effective Time.
"NUMBER OF PARENT SHARES" means 2,000,000 shares of Parent
Stock PLUS (a) the Funded Debt Adjustment (which may be a positive or negative
number of shares of Parent Stock), PLUS (b) the Medford Property Adjustment,
MINUS (c) the Option Adjustment.
"OPTION ADJUSTMENT" means the number of Parent Shares (rounded
to the nearest full number of shares) determined by (a) multiplying (1) the
number of Company Options outstanding at the Effective Time by (2) the Option
Exchange Ratio, (b) multiplying that result by the difference between (i) the
Closing Price and (ii) the Option Exercise Price AND (c) dividing the result by
the Closing Price if such calculation results in a positive number; if a
negative number, the Option Adjustment will be zero.
"OPTION EXCHANGE RATIO" means the amount determined in
accordance with the methodology attached as SCHEDULE 1.1 and the provisions of
Section 5.17.
"OPTION EXERCISE PRICE" means the weighted average per share
exercise price of all Company Options outstanding at the Effective Time, divided
by the Option Exchange Ratio.
"PARENT STOCK" means the common stock, par value $.01 per
share, of Parent.
"PENSION PLAN" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a) the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five (5) years prior to the Closing
Date, maintained, administered, contributed to or was required to contribute to,
or under which the Company or any ERISA Affiliate may incur any liability
(including, without limitation, any contingent liability) and (b) covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with any such entity).
"PERMITTED ENCUMBRANCES" means (a) statutory liens of
landlords, liens of carriers, warehousepersons, mechanics and materialpersons
incurred in the ordinary course of business for sums (i) not yet due and
payable, or (ii) being contested in good faith, if, in either such case, an
adequate reserve, shall have been made therefor in such Person's financial
statements, (b) liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other similar types of social security
programs or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance and return of
money bonds and similar obligations, in each case in the ordinary course of
business, consistent with past practice, (c) easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each case, which do
not interfere with the ordinary conduct of business of the Company and do not
materially detract from the value of the property upon which such encumbrance
exists, and (d) liens securing taxes, assessments and governmental charges not
yet delinquent; PROVIDED, HOWEVER, that in no event shall the term Permitted
Encumbrance include any Encumbrance of any sort whatsoever related directly or
indirectly to any MFT Tax Matter (as defined herein).
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"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary or desirable for
the past, present or anticipated conduct or operation of the Business or
ownership of the Assets of such Person.
"PERSON" means any person or entity, whether an individual,
trustee, corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.
"PROPRIETARY RIGHTS" means all (a) U.S. and foreign patents,
patent applications, patent disclosures and improvements thereto, including
xxxxx patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate names
and the goodwill associated therewith and registrations and applications for
registration thereof, (c) U.S. and foreign copyrights and registrations and
applications for registration thereof, (d) U.S. and foreign mask work rights and
registrations and applications for registration thereof, (e) Trade Secrets, (f)
URL registrations, (g) other proprietary rights, (h) copies and tangible
embodiments thereof (in whatever form or medium) and (i) licenses granting any
rights with respect to any of the foregoing.
"REGISTRATION RIGHTS AGREEMENT" means the Amended and Restated
Registration Rights Agreement to be entered into between Parent, the
Stockholders and the continuing parties to Parent's Registration Rights
Agreement, dated June 5, 1996, who continue to possess registrable securities
thereunder as of the Effective Time substantially in the form of EXHIBIT B
hereto.
"REGULATIONS" means any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency guidelines, and
orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation energy, motor
vehicle safety, public utility, zoning, building and health codes, Environmental
Laws, occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"RELATED PARTY" means (i) any of the Company's officers,
directors and stockholders, and any officers, directors, partners, associates or
relatives of such officers, directors and stockholders, (ii) any Person in which
the Company or any Stockholder or any Affiliate, associate or relative of any
such Person has any direct or indirect interest, and (iii) any direct or
indirect trustee or beneficiary of any Stockholder.
"REPRESENTATIVE" of any Person means any officer, director,
principal, attorney, accountant, agent, employee or other representative of such
Person.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
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"STOCKHOLDER" means each stockholder of the Company and
"STOCKHOLDERS" means all stockholders of the Company, in each case as determined
immediately prior to the Effective Time.
"STOCKHOLDER REPRESENTATIVE" means Xxxxxx X. Xxxxxxx.
"SUBSIDIARY" means, with respect to any Person, (a) any
corporation of which at least 50% of the securities or interests having, by
their terms, ordinary voting power to elect members to the board of directors,
or other persons performing similar functions with respect to such corporation,
is held, directly or indirectly, by such Person, (b) any partnership or limited
liability company of which (i) such Person is a general partner or managing
member or (ii) such person possesses a 50% or greater interest in the total
capital or total income of such partnership or limited liability company.
"TAKEOVER STATUTE" means a "fair price," "moratorium,"
"control share acquisition" or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States.
"TAX RETURN" means any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) including information returns, and any
documents with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
"TAXES" means any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, estimated, excise,
value-added, real or personal property, sales, withholding, social security,
retirement, unemployment, disability occupation, worker's compensation, use,
service, license, utility, net worth, payroll, ad volarem, franchise and
transfer and recording, imposed by the Internal Revenue Service or any taxing
authority or jurisdiction (whether domestic or foreign, including any federal,
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a U.S. possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis and whether disputed or not;
and such term shall include any interest whether paid or received, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments.
"TO THE KNOWLEDGE" or "KNOWLEDGE" of a party (or similar
phrases) means to the extent of matters which are actually known by such party
and when used in respect of the Company, the term "to the knowledge" or
"knowledge" shall mean the matters actually known by each of Xxxxxx X. Xxxxxxx,
Xxxxx X. Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxx X. XxXxxxxxx and Xxxxx
X. Xxxxxxx and with respect to the Parent, shall mean the matters actually known
by each of Xxxxx Xxxxxx, Xxxxx Xxxxxxxxx, Xxxxx Xxxx and Xxxxx Xxxxxxx.
"TRADE SECRETS" means all trade secrets and confidential
business information (including ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, research and development information, software,
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drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans marketing mailing and e-mail lists,
and customer and supplier mailing and e-mail lists and information).
"TRADING DAY" means any day on which the Nasdaq National
Market is open and available for at least five (5) hours for the trading of
securities.
"TRANSMITTAL LETTER" has the meaning set forth in Section 2.7
hereof.
"WELFARE PLAN" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or under
which the Company or any ERISA Affiliate may incur any liability and (b) covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with any such entity).
1.2. INTERPRETATION PROVISIONS.
(a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The terms "include" and
"including" are not limiting and mean "including without limitation."
(b) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation.
(d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
(e) The parties participated jointly in the negotiation and
drafting of this Agreement and the language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent.
If an ambiguity or question of intent or interpretation arises, then this
Agreement will accordingly be construed as drafted jointly by the parties to
this Agreement, and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any of
the provisions of this Agreement.
(f) The annexes, schedules and exhibits to this Agreement are
a material part hereof and shall be treated as if fully incorporated into the
body of the Agreement.
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ARTICLE 2.
THE MERGER
2.1. THE MERGER.
(a) EFFECTIVE TIME. At the Effective Time (as defined in
Section 2.2 hereof), and upon the terms and subject to the conditions of this
Agreement and the DGCL, Sub shall be merged with and into the Company, the
separate corporate existence of Sub shall cease, and the Company shall continue
as the surviving corporation. The Company, as the surviving corporation after
the Merger, is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
(b) CLOSING. Unless this Agreement shall have been terminated
pursuant to Section 10.1, and subject to the satisfaction (or the extent
permitted, the waiver) of the conditions set forth in Articles 6 and 7, the
closing of the transactions contemplated by this Agreement (the "CLOSING") shall
take place (i) at the offices of Xxxxxx & Xxxxxxx, 000 Xxxxxxxxxxxx Xxxxx, Xxxxx
Xxxx, Xxxxxxxxxx 00000, as promptly as practicable (and in any event within five
(5) business days) after satisfaction (or the extent permitted, the waiver) of
the conditions set forth in Articles 6 and 7 or (ii) at such other time, date or
place as Parent and the Company may mutually agree.
2.2. EFFECTIVE TIME. As promptly as practicable after the satisfaction
(or the extent permitted, the waiver) of the conditions set forth in Articles 6
and 7, and provided that this Agreement has not been terminated pursuant to
Section 10.1, the parties hereto shall cause the Merger to be consummated by
executing and filing a certificate of merger as contemplated by the DGCL (the
"CERTIFICATE OF MERGER"), with the Secretary of State of Delaware as provided in
Section 251 of the DGCL. The Merger shall be effective at the time indicated in
such Certificate of Merger (the "EFFECTIVE TIME").
2.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL.
2.4. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation (except that Surviving Corporation shall be named and operate as
"Musician's Friend, Inc."), until duly amended in accordance with applicable
law.
(b) BYLAWS. At the Effective Time, the Bylaws of Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter duly amended in accordance with
applicable law, the Certificate of Incorporation of the Surviving Corporation
and such Bylaws.
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2.5. DIRECTORS AND OFFICERS. The directors of Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation and in accordance with
applicable law. Upon request of Parent, the Company shall cause each or any
director and officer of the Company to tender his or her resignation prior to
the Effective Time, with each such resignation to be effective as of the
Effective Time.
2.6. CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Sub, the Company or
any Stockholder:
(a) COMPANY STOCK. Subject to Section 2.6(f), each share of
Company Stock issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive, and become exchangeable for, such
number of validly issued, fully paid and nonassessable shares of Parent Stock as
equals the Exchange Ratio. The shares of Parent Stock issued in connection with
the Merger as a result of the conversions provided for in this Section 2.6(a)
are sometimes referred to herein as the "MERGER SHARES."
(b) OPTIONS. Each Company Option, whether vested or unvested,
to purchase shares of Company Stock which is outstanding and unexercised
immediately prior to the Effective Time shall cease to represent a right to
acquire shares of Company Stock and shall automatically become the right to
purchase the number of shares of Parent Stock into which the shares of Company
Stock subject to such Company Option would have been converted into at the
Effective Time by operation of Section 2.6(a) (rounded to the nearest full
number of shares of Parent Stock) for an exercise price equal to the result of
dividing the per share exercise price of such Company Option by the Exchange
Ratio (rounded to the nearest full cent). Notwithstanding the foregoing, the
number of and the per share exercise price of each Company Option which is an
"incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code, as
necessary in order for such Company Option to be an "incentive stock option."
Accordingly, with respect to any incentive stock options, fractional shares of
Parent Stock shall be rounded down to the nearest whole number of shares and,
where necessary, the per share exercise price shall be rounded up to the nearest
cent. Except for the adjustments provided for in this Section 2.6(b), the
Company Options shall continue to be governed by, and be subject to, the terms
of the Company option agreements and plan.
(c) NUMBER OF SHARES OF PARENT STOCK ISSUABLE. The number of
shares of Parent Stock to be issued in the Merger in exchange for the
acquisition by Parent of all outstanding shares of Company Stock, all other
capital stock of any class or series, and all outstanding options, warrants, or
other securities to acquire capital stock of the Company (other than the Company
Options) shall not exceed the Number of Parent Shares plus any shares of
14
Parent Stock issuable upon exercise of Company Stock Options assumed pursuant
to Section 2.6(b).
(d) SUB STOCK. Each share of common stock, par value $.01 per
share, of Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into and thereafter represent one (1)
validly issued, fully paid and nonassessable common share, par value $.01 per
share, of the Surviving Corporation, so that thereafter Parent will be the sole
and exclusive owner of the capital stock of the Surviving Corporation.
(e) CANCELLATION. Each share of Company Stock held in the
treasury of the Company immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof,
automatically cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
(f) FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Parent Stock shall be issued in connection with the Merger,
but in lieu thereof each Stockholder who would otherwise be entitled to receive
a fraction of a Merger Share shall receive from Parent an amount of cash equal
to the product of (i) the fraction of a share of a Merger Share to which such
holder would otherwise be entitled multiplied by (ii) the Average Share Price.
The fractional share determination shall be made individually for each
Stockholder after giving effect to the delivery of the Escrow Shares (as defined
below) to the Depositary Agent, it being recognized that, as provided in Section
2.10, only whole shares may be delivered to the Depositary Agent.
(g) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio and the
Option Exchange Ratio shall be equitably adjusted to reflect fully the effect of
any stock split, reverse split, stock combination, stock dividend,
reorganization, reclassification, recapitalization or other like change with
respect to Parent Stock or Company Stock after the date hereof and prior the
Effective Time.
2.7. SURRENDER OF CERTIFICATES.
(a) DISTRIBUTION OF TRANSMITTAL LETTER. As soon as practicable
after the Effective Time, Parent shall make available to each holder of Company
Stock a letter of transmittal in customary form (the "TRANSMITTAL LETTER") and
instructions for such holder's use in effecting the surrender of the certificate
or certificates evidencing Company Stock (the "CERTIFICATES") and the exercise
of the rights of such holder to obtain its Merger Shares.
(b) DELIVERY OF CERTIFICATES. At the Effective Time, Parent
shall make available, and each holder of Company Stock shall be entitled to
receive, upon surrender to Parent or its designated representative of any
Certificates for cancellation, together with a duly-executed and completed
Transmittal Letter, such number of shares of Parent Stock as equals such
holder's PRO RATA portion of the aggregate Merger Shares into which such Company
Stock shall have been converted in the Merger multiplied by 0.70; all remaining
Merger Shares (I.E., the remaining thirty percent (30%) of the Merger Shares
rounded to the nearest full share of Parent
15
Stock in the case of each former Company Stockholder) shall be delivered to
the Depositary Agent pursuant to Section 2.10.
(c) CANCELLATION OF COMPANY STOCK. Upon surrender of each
Certificate and delivery by Parent of the Merger Shares to be delivered in
exchange therefor, such Certificate shall forthwith be canceled. Until so
surrendered, each Certificate shall be deemed for all corporate purposes to
evidence only the right to receive upon such surrender the aggregate number of
Merger Shares into which the Company Stock represented thereby shall have been
converted in accordance with the terms and upon the conditions of this Agreement
(including, without limitation, the requirement that a portion of such Merger
Shares be deposited with the Depositary Agent).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF
COMPANY STOCK. No dividends or other distributions with respect to Parent Stock
declared or made after the Effective Time and with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, promptly following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Parent Stock issued in exchange therefor, without interest, at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time, if any, theretofore payable with respect to such
whole shares of Parent Stock.
2.8. NO FURTHER OWNERSHIP RIGHTS IN SHARES OF COMPANY STOCK. The shares
of Parent Stock delivered upon the surrender for exchange of Company Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Stock, and there
shall be no further registration of transfers of Company Stock which were
outstanding immediately prior to the Effective Time on the records of the
Surviving Corporation. If, after the Effective Time, the Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article 2.
2.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Stock as may
be required pursuant to Section 2.7; PROVIDED, HOWEVER, that Parent may, in its
sole discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Parent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
2.10. ESCROW OF MERGER SHARES. Notwithstanding the other provisions of
this Article 2, Parent shall deliver to the Depositary Agent that number of
shares of Parent Stock as equals (a) the Number of Parent Shares multiplied by
(b) 0.30, and rounded to a whole number of shares on a holder-by-holder basis
(the "ESCROW SHARES"). The Escrow Shares shall be withheld from the
16
Parent Stock otherwise deliverable to the Stockholders and shall constitute
two (2) separate escrows: (a) one-third of the Escrow Shares shall constitute
the "GENERAL ESCROW FUND" and the remaining two-thirds of the Escrow Shares
shall constitute the "TAX AUDIT ESCROW FUND," in each case rounded to the
nearest whole share. The Escrow Shares shall be deposited with the Depositary
Agent and disbursed in accordance with Section 9.4.
2.11. CERTAIN ACTIONS TO BE TAKEN WITH RESPECT TO THE FUNDED DEBT OF
THE COMPANY. On or before the date that is three (3) business days prior to the
date scheduled for the Closing, the Company will provide the Parent with a
written certificate executed by its Chief Executive Officer and President (the
"FUNDED DEBT NOTICE"), which certificate shall set forth (i) the payments
necessary to be made in order for the Funded Debt of the Company to be repaid in
full and retired as of the Effective Time of the Merger, (ii) the identity of
the Persons to receive such payments, and (iii) wire transfer instructions and
such other information necessary to affect such payments. Upon request, the
Company will provide reasonable documentary support for its calculations and
obtain pay-off letters from the lenders and vendors involved.
2.12. WORKING CAPITAL ADJUSTMENT.
(a) CALCULATION OF CLOSING DATE NET WORKING CAPITAL. As soon
as reasonably practicable following the Closing Date, and in any event within
forty-five (45) calendar days thereof, Parent shall cause to be prepared and
delivered to the Stockholder Representative (i) a balance sheet of the Company
("CLOSING BALANCE SHEET") as of the Closing Date which shall be audited by KPMG
Peat Marwick LLP ("KPMG"), together with the related audit report of such firm
(the "CLOSING BALANCE SHEET"), and (ii) a calculation of Net Working Capital (as
defined below) of the Company as determined from the Closing Balance Sheet
("CLOSING DATE NET WORKING CAPITAL"). The Closing Balance Sheet shall (i) be
prepared in accordance with GAAP (as applied in the Company's audited financial
statements for the year ended December 31, 1998), (ii) fairly present the
financial position of the Company as of the Closing and (iii) reflect all
liabilities of the Company which remain unpaid as of the Closing and are
required to be included on the balance sheet under GAAP. For the purpose hereof,
"NET WORKING CAPITAL" as of any date shall, subject to the adjustments and
conventions set forth in the last sentence of this Section 2.12(a), be
determined in accordance with GAAP, and shall mean (x) the current assets of the
Company as of such date, minus (y) the current liabilities (other than any
portion of Funded Debt of the Company which would otherwise be classified as a
current liability) of the Company as of such date; PROVIDED, HOWEVER, that no
Adjustment Amount (as defined herein) shall be made for any changes identified
on SCHEDULE 2.12(a). Notwithstanding any provision of this Agreement to the
contrary, in no event shall current assets include any deferred income tax asset
including, without limitation, any such deferred income tax asset related to
unrealized net operating loss carry forwards of the Company.
(b) RESOLUTION OF DISPUTES AS TO NET WORKING CAPITAL. Upon
delivery of the Closing Balance Sheet, Parent will provide the Stockholder
Representative and his accountants and other representatives full access to the
Company's records, and will use all commercially reasonable efforts to provide
the Stockholder Representative and his accountants and other representatives
access to KPMG and the work papers of KPMG, to the extent reasonably related
17
to the Stockholder Representative's evaluation of the Closing Balance Sheet
and the calculation of Closing Date Net Working Capital. If the Stockholder
Representative shall disagree with the calculation of Closing Date Net
Working Capital or any element of the Closing Balance Sheet relevant thereto,
he shall notify Parent of such disagreement in writing, setting forth in
detail the particulars of such disagreement, within thirty (30) days after
its receipt of the Closing Balance Sheet. In the event that the Stockholder
Representative does not provide such a notice of disagreement within such
thirty (30) day period, the Stockholder Representative shall be deemed to
have accepted the Closing Balance Sheet and the calculation of the Closing
Date Net Working Capital delivered by Parent, which shall be final, binding
and conclusive for all purposes hereunder. In the event any such notice of
disagreement is timely provided, Parent and the Stockholder Representative
shall use commercially reasonable efforts for a period of thirty (30) days
(or such longer period as they may mutually agree) to resolve any
disagreements with respect to the calculation of Closing Date Net Working
Capital. If, at the end of such period, they are unable to resolve such
disagreements, then an independent accounting firm of recognized national
standing mutually selected by Parent and the Stockholder Representative (the
"AUDITOR") shall resolve any remaining disagreements. The Auditor shall
determine as promptly as practicable whether the Closing Balance Sheet was
prepared in accordance with the standards set forth in Section 2.12(a) and
(only with respect to the remaining disagreements submitted to the Auditor)
whether and to what extent (if any) Closing Date Net Working Capital requires
adjustment. The Auditor shall promptly deliver to Parent and the Stockholder
Representative its determination in writing, which determination shall be
made subject to the definitions and principles set forth in this Agreement
and shall be (i) consistent with either the position of the Stockholder
Representative or Parent or (ii) between the positions of the Stockholder
Representative and Parent. The fees and expenses of the Auditor shall be paid
one-half by Parent and one-half by the Stockholders. The determination of the
Auditor shall be final, conclusive and binding on the parties. The date on
which Closing Date Net Working Capital is finally determined in accordance
with this Section 2.12(b) is hereinafter referred as to the "DETERMINATION
DATE."
(c) The Company represents to Parent that Closing Date Net
Working Capital will be not less than $13,950,000 (the "LOW ESTIMATE") nor more
than $16,950,000. If, but only if, Closing Date Net Working Capital is less than
the Low Estimate, there shall be calculated the "ADJUSTMENT AMOUNT," which may
only be a negative amount, equal to: (x) the Closing Date Net Working Capital
minus (y) the Low Estimate.
In the event of such a negative Adjustment Amount, then upon final
determination of the Adjustment Amount in accordance with Section 2.12(b)
hereof, each of Parent and the Stockholder Representative shall, within five
business days of the Determination Date, execute joint written instructions to
the Depositary Agent instructing the Depositary Agent to disburse to Parent from
the General Escrow Fund that number of shares of Parent Stock (rounded to the
nearest full number of shares) determined by dividing the Adjustment Amount by
the Closing Price (the "RECAPTURED SHARES"). The number of Recaptured Shares
shall not exceed the number of shares of Parent Stock originally comprising the
General Escrow Fund.
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2.13. TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
U.S. Treasury Regulations.
2.14. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent, Sub,
the Company and each Stockholder will take all such reasonable lawful action as
may be necessary or appropriate in order to effect the Merger in accordance with
this Agreement as promptly as practicable. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Parent with full right, title and
possession to all the property, rights, privileges, power and franchises of the
Company, the officers and directors of Sub, Parent and the Company immediately
prior to the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
As an inducement of Parent to enter into this Agreement, the Company
and each Stockholder hereby makes, subject to Section 9.5(c), jointly and
severally, as of the date hereof and as of the Closing Date, the following
representations and warranties to Parent, except as otherwise set forth in
written disclosure schedules (the "SCHEDULES") delivered to Parent prior to the
date hereof, a copy of which is attached hereto. The Schedules are numbered to
correspond to the various sections of this Article 3 setting forth certain
exceptions to the representations and warranties contained in this Article 3 and
certain other information called for by this Agreement. Unless otherwise
specified, no disclosure made in any particular Schedule shall be deemed made in
any other Schedule unless expressly made therein (by cross-reference or
otherwise) or the Schedules otherwise expressly and completely disclose the
specific exception. For purposes of this Article 3, the term "Company" shall
mean the Company and, as applicable, MFT as the predecessor to the Company.
3.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to conduct the
Business as it is presently being conducted and to own or lease, as applicable,
the Assets owned or leased by it. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law as a result of the conduct
of the Business or the ownership of its properties and where the failure to be
so qualified would have a Company Material Adverse Effect. Each jurisdiction in
which the Company is qualified to do business as a foreign corporation is set
forth in SCHEDULE 3.1.
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3.2. CAPITALIZATION OF THE COMPANY.
(a) AUTHORIZED CAPITALIZATION. As of the date of this
Agreement, the authorized capitalization of the Company consists of (i)
500,000 shares of Company Stock of which 100,000 shares are issued and
outstanding and (ii) 250,000 shares of preferred stock, par value $.01 per
share, none of which are issued and outstanding, and no additional shares of
capital stock of the Company will be issued after the date hereof except for
(i) shares to be issued in connection with the contribution of the Medford
Property to the Company in accordance with Section 5.15, (ii) shares to be
issued in connection with the Stockholder Note Conversion in accordance with
Section 5.16 and (iii) shares issued in respect of Company Options
outstanding on the date hereof. The Company has no other capital stock
authorized, issued or outstanding. ANNEX I sets forth the name of each holder
of shares of Company Stock, as well as the number of shares of Company Stock
held by each such holder.
(b) OPTIONS. As of the date of this Agreement, 25,000
shares of Company Stock are reserved for issuance upon the exercise of
outstanding Stockholder Company Options. SCHEDULE 3.2(b) sets forth the name
of each holder of Company Options, as well as the number of the Company
Options held by each such holder, the number of Company Shares for which each
such Company Option is exercisable, the date upon which each such Company
Option becomes exercisable and the price per share of Company Stock for which
each such Company Option is exercisable (without taking into account whether
or not such Company Option is in fact exercisable on the date hereof).
Attached as SCHEDULE 3.2(b) is a true and correct copy of the plan document
governing all Company Options, which contains the forms of option agreement
used in all cases.
(c) NO OTHER CAPITAL STOCK, OPTIONS, WARRANTS. Except for
the Company Options referred to above, there are no outstanding options,
warrants, convertible securities or rights of any kind to purchase or
otherwise acquire any shares of capital stock or other securities of the
Company. Except for the aggregate of 25,000 shares of Company Stock reserved
for issuance upon exercise of the Company Options, no shares of capital stock
of the Company are reserved for issuance.
(d) VALID ISSUANCES. All outstanding shares of Company
Stock are, and any shares of Company Stock issued upon exercise of any
Company Option will be, validly issued, fully paid and non-assessable and not
subject to any preemptive rights created by statute, the Company's
Certificate of Incorporation or Bylaws, or any Contract. The Company Options
have been, and the shares of Company Stock have been or will be, issued in
compliance with all federal and state corporate and securities laws.
3.3. STOCKHOLDERS' AGREEMENTS, ETC. There are no stockholder
agreements, voting trusts, proxies or other agreements or understandings with
respect to or concerning the purchase, sale or voting of the capital stock of
the Company.
3.4. AUTHORIZATION. The Company has all necessary corporate or other
power and authority to enter into this Agreement and the Ancillary Agreements
to which the Company is a party and, has taken all corporate or other action
necessary to consummate the transactions
20
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement has been duly executed and delivered by the
Company, and this Agreement is, and upon execution and delivery each of the
Ancillary Agreements to which the Company is a party will be, a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
3.5. OFFICERS AND DIRECTORS. SCHEDULE 3.5 contains a true,
correct and complete list of all the officers and directors of the Company.
3.6. BANK ACCOUNTS. SCHEDULE 3.6 contains a list of all of the
Company's bank accounts, safe deposit boxes and persons authorized to draw
thereon or have access thereto.
3.7. SUBSIDIARIES, ETC. The Company does not own or hold any
equity interest of any kind in any other Person.
3.8. REAL PROPERTY.
(a) GENERAL. The Company owns or leases all real property
necessary for the conduct of its business as presently conducted.
(b) OWNED REAL PROPERTY. SCHEDULE 3.8(b) hereto sets forth
all Facilities owned by the Company or to be acquired by it prior to the
Effective Time (including, without limitation, the Medford Property as of the
date the fee title is acquired by the Company). With respect to each parcel
of owned real property, except as set forth on SCHEDULE 3.8(b), (i) the
Company has good and marketable fee simple title to such parcel of real
property, free and clear of any and all Encumbrances other than Permitted
Encumbrances, (ii) there are no Leases, subleases, licenses, options, rights,
concessions or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of such parcel of real
property, except for those which constitute a Permitted Encumbrance, (iii)
there are no outstanding options or rights of first refusal in favor of any
other party to purchase any such parcel of real property or any portion
thereof or interest therein, (iv) there are no parties (other than the
Company) who are in possession of or who are using any such parcel of real
property, except in connection with a Permitted Encumbrance, and (v) there is
no (A) pending or, to the knowledge of the Company, threatened condemnation
proceeding relating to such parcel of real property, (B) pending or, to the
knowledge of the Company, threatened Action relating to such parcel of real
property, or (C) other matter adversely affecting the current or currently
proposed use, occupancy or value of, such parcel of real property in any
material respect.
(c) LEASED REAL PROPERTY. SCHEDULE 3.8(c) sets forth all
Leases pursuant to which Facilities are leased by the Company (as lessee), true
and correct copies of which have been delivered to Parent. Such Leases
constitute all Leases, subleases or other occupancy agreements pursuant to which
the Company occupies or uses Facilities (excluding the Medford Property, which
is included in Section 3.8(b)). Except as set forth on SCHEDULE 3.8(c), Company
21
has good and valid leasehold title to, and enjoys peaceful and undisturbed
possession of, all leased property described in such Leases (the "LEASED
PROPERTY"), free and clear of any and all Encumbrances other than any
Permitted Encumbrances which would not permit the termination of the Lease
therefor by the lessor. With respect to each such parcel of Leased Property
(i) there are no pending or, to the knowledge of the Company, threatened
condemnation proceedings relating to, or any pending or, to the knowledge of
the Company, threatened Actions relating to, the Company's leasehold
interests in such Leased Property or any portion thereof, (ii) neither the
Company nor, to the knowledge of the Company, any third party has entered
into any sublease, license, option, right, concession or other agreement or
arrangement, written or oral, granting to any person the right to use or
occupy such Leased Property or any portion thereof or interest therein,
except in connection with a Permitted Encumbrance, and (iii) the Company has
not received notice of any pending or threatened special assessment relating
to such Leased Property or otherwise has any knowledge of any pending or
threatened special assessment relating thereto.
With respect to each Lease listed on SCHEDULE 3.8(c) and subject to
SCHEDULE 3.35, (i) there has been no material default under any such Lease by
the Company or, to the knowledge of the Company, by any other party, (ii) the
execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby will not cause a material default under any such Lease, (iii) such
Lease is a valid and binding obligation of the lessor, is in full force and
effect with respect to and is enforceable against the lessor in accordance
with its terms, except as the enforceability thereof may be limited by (1)
applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (iv) no action has been taken
by the Company, and no event has occurred which, with notice or lapse of time
or both, would permit termination, modification or acceleration by a party
thereto other than the Company without the consent of the Company under any
such Lease that is material to the Company, (v) no party has repudiated in
writing to the Company any term thereof or threatened in writing to the
Company to terminate, cancel or not renew any such Lease that is material to
the Company and (vi) the Company has not assigned, transferred, conveyed,
mortgaged or encumbered any interest therein or in any leased property
subject thereto (or any portion thereof).
3.9. PERSONAL PROPERTY.
(a) GENERAL. The Company owns or leases all personal
property Assets necessary for the conduct of its business as presently
conducted, and the personal property Assets (taken as a whole) are in such
operating condition and repair (subject to normal wear and tear) as is
necessary for the conduct of its business as presently conducted.
(b) OWNED PERSONAL PROPERTY. Except as set forth on
SCHEDULE 3.9(b), the Company has good and marketable title to all such
personal property owned by it, free and clear of any and all Encumbrances
other than Permitted Encumbrances. With respect to each such item of personal
property (i) there are no Leases, subleases, licenses, options, rights,
concessions or other agreements, written or oral, granting to any party or
parties the right of use of any portion of such item of personal property,
(ii) there are no outstanding options or rights of first
22
refusal in favor of any other party to purchase any such item of personal
property or any portion thereof or interest therein and (iii) there are no
parties (other than the Company) who are in possession of or who are using
any such item of personal property.
(c) LEASED PERSONAL PROPERTY. The Company has good and
valid leasehold title to all of such Fixtures and Equipment, vehicles and
other tangible personal property Assets leased by it from third parties, free
and clear of any and all Encumbrances other than Permitted Encumbrances which
would not permit the termination of the lease therefor by the lessor.
SCHEDULE 3.9(c) sets forth all Leases for personal property involving annual
payments in excess of $40,000, true and correct copies of which have been
delivered or made available to Parent.
With respect to each Lease listed on SCHEDULE 3.9(c), (i) there has
been no material default under such Lease by the Company or, to the knowledge
of the Company, by any other party, (ii) the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby will not
cause (with or without notice and with or without the passage of time) a
default under any such Lease, (iii) such Lease is a valid and binding
obligation of the applicable lessor, is in full force and effect and is
enforceable by the Company in accordance with its terms, except as the
enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or similar laws
in effect which affect the enforcement of creditors' rights generally or (2)
general principles of equity, whether considered in a proceeding at law or in
equity, (iv) no action has been taken by the Company and no event has
occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than by
the Company without the consent of the Company under any such Lease that is
material to the Company, (v) no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any such
Lease that is material to the Company and (vi) the Company has not assigned,
transferred, conveyed, mortgaged or encumbered any interest therein or in any
leased property subject thereto (or any portion thereof).
3.10. ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. The Company is in compliance with all
Environmental Laws, including, without limitation, all Permits required
thereunder to conduct their business as currently being conducted or proposed
to be conducted, except for such non-compliance as would not reasonably be
expected to result in a Company Material Adverse Effect. All such Permits are
listed on SCHEDULE 3.10(a). The Company has not received any notice to the
effect that, or otherwise has knowledge that, (i) it is not in compliance in
any material respect with, or is in violation of, any such Environmental Laws
or Permits required thereunder or (ii) any currently existing circumstances
are reasonably likely to result in a failure of the Company to comply with,
or a violation by the Company of, any such Environmental Laws or Permits
required thereunder. The Company at all times during the previous five (5)
years has been in compliance with all Environmental Laws, except for such
non-compliance as would not reasonably be expected to result in a Company
Material Adverse Effect.
23
(b) ENVIRONMENTAL CLAIMS. There are no existing or, to the
knowledge of the Company, potential Environmental Claims against the Company
that, individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect. The Company has not received any written
notification or otherwise has any knowledge, of any allegation of any actual, or
potential responsibility for, or any inquiry or investigation regarding, any
disposal, release or threatened release at any location of any Hazardous
Substance generated or transported by the Company.
(c) HAZARDOUS SUBSTANCES. No underground tank or other
underground storage receptacle for Hazardous Substances is currently located
on the Facilities, and there have been no releases of any Hazardous
Substances from any such underground tank or related piping and there have
been no releases (I.E., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping) of Hazardous Substances in quantities
exceeding the reportable quantities as defined under federal or state law on,
upon or into the Facilities other than those authorized by Environmental Laws
including, without limitation, the Permits required thereunder that,
individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect. In addition, to the knowledge of the
Company, there have been no such releases by predecessors of the Company and
no releases in quantities exceeding the reportable quantities as defined
under federal or state law on, upon, or into any real property in the
immediate vicinity of any of the real properties of the Company other than
those authorized by Environmental Laws which, through soil or ground water
contamination, may have come to be located on the properties of the Company.
(d) ENVIRONMENTAL INDEMNITIES. Except as set forth on
SCHEDULE 3.10(d), the Company is not a party, whether as a direct signatory
or as successor, assign or third-party beneficiary, or otherwise bound, to
any Lease or other Contract (excluding insurance policies disclosed on the
Schedules) under which the Company is obligated by or entitled to the
benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions.
(e) NO RELEASES. The Company has not released any other
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(f) ENVIRONMENTAL REPORTS. Complete and accurate copies of
the Environmental Reports, as well as all other written environmental
reports, audits or assessments which have been conducted, either by the
Company or any person engaged by the Company for such purpose, at any
facility owned or formerly owned by the Company have been made available to
Parent and a list of all such reports, audits and assessments is set forth on
SCHEDULE 3.10(f).
3.11. CONTRACTS.
(a) DISCLOSURE. SCHEDULE 3.11 sets forth a complete and
accurate list of all of the Contracts of the following categories:
24
(i) Contracts not made in the ordinary course of
business;
(ii) License agreements or royalty agreements,
whether the Company is the licensor or licensee thereunder (excluding
licenses that are commonly available on standard commercial terms, such as
software "shrink-wrap" licenses);
(iii) Confidentiality and non-disclosure
agreements (whether the Company is the beneficiary or the obligated party
thereunder);
(iv) Contracts or commitments involving future
expenditures or Liabilities, actual or potential, in excess of $40,000 after
the date hereof or otherwise material to the Business or the Assets;
(v) Contracts or commitments relating to
commission arrangements with others that are material to the Business;
(vi) Employment contracts, consulting contracts,
severance agreements, "stay-bonus" agreements and similar arrangements,
including Contracts (A) to employ or terminate executive officers or other
personnel and other contracts with present or former officers or directors of
the Company or (B) that will result in the payment by, or the creation of any
Liability of the Company, the Stockholders or Parent to pay any severance,
termination, "golden parachute," or other similar payments to any present or
former personnel following termination of employment or otherwise as a result
of the consummation of the transactions contemplated by this Agreement;
(vii) Indemnification agreements;
(viii) Promissory notes, loans, agreements,
indentures, evidences of indebtedness, letters of credit, guarantees, or
other instruments relating to an obligation to pay money, whether the Company
shall be the borrower, lender or guarantor thereunder (excluding credit
provided by the Company in the ordinary course of business to purchasers of
its products and obligations to pay vendors in the ordinary course of
business and consistent with past practice);
(ix) Contracts containing covenants limiting the
freedom of the Company, or any officer, director, Employee or Affiliate of the
Company, to engage in any line of business or compete with any Person that
relates directly or indirectly to the Business;
(x) Any Contract with the federal, state or local
government or any agency or department thereof;
(xi) Any Contract or other arrangement with a
Related Party;
(xii) Leases of real or personal property involving
annual payments of more than $40,000; and
25
(xiii) Any other Contract under which the
consequences of a default or termination would reasonably be expected to have a
Material Adverse Effect on the Company, individually or in the aggregate.
Complete and accurate copies of all of the Contracts listed on
SCHEDULE 3.11, including all amendments and supplements thereto, have been
made available to Parent. The Company has included as part of SCHEDULE 3.11 a
brief summary of the material terms of each oral Contract.
(b) ABSENCE OF DEFAULTS. Except as set forth on SCHEDULE
3.11(b), all of the Contracts are valid, binding and enforceable in
accordance with their terms with no existing (or to the knowledge of the
Company threatened) material Default or dispute. The Company has fulfilled,
or taken all action necessary to enable it to fulfill when due, all of its
material obligations under each of such Contracts. To the knowledge of the
Company, all parties to such Contracts have complied in all material respects
with the provisions thereof, no party is in material Default thereunder and
no notice of any claim of Default has been given to the Company or any of the
Stockholders.
(c) PRODUCT WARRANTY. The Company has not committed any
act, and there has been no omission, which may result in, and there has been
no occurrence which may give rise to, product liability or Liability for
breach of warranty (whether covered by insurance or not) on the part of the
Company, with respect to products designed, manufactured, assembled, sold,
repaired, maintained, delivered or installed or services rendered prior to or
on the Closing Date which could reasonably be expected to result in Liability
to the Company exceeding $100,000 in the aggregate.
3.12. NO CONFLICT OR VIOLATION; CONSENTS. Except as set forth on
SCHEDULE 3.12, none of the execution, delivery or performance of this
Agreement or any Ancillary Agreement, the consummation of the transactions
contemplated hereby or thereby, nor compliance by the Company or any
Stockholder with any of the provisions hereof or thereof, will (a) violate or
conflict with any provision of the governing documents of the Company or any
Stockholder, (b) violate, conflict with, or result in a breach of or
constitute a default (with or without notice or the passage of time) under,
or result in the termination of, or accelerate the performance required by,
or result in a right to terminate, accelerate, modify or cancel under, or
require a notice under, or result in the creation of any Encumbrance upon any
of its respective assets under, any Contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, security interest or other arrangement to
which the Company or any Stockholder is a party or by which the Company or
any Stockholder is bound or to which any of its respective assets are
subject, (c) violate any applicable Regulation or Court Order or (d) impose
any Encumbrance on any Assets or the Business. Except as set forth on
SCHEDULE 3.12, no notices to, declaration, filing or registration with,
approvals or Consents of, or assignments by, any Persons (including any
federal, state or local governmental or administrative authorities) are
necessary to be made or obtained by the Company or any Stockholder in
connection with the execution, delivery or performance of this Agreement or
any Ancillary Agreement to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
26
3.13. PERMITS. SCHEDULE 3.13 sets forth a complete list of all material
Permits, all of which are as of the date hereof, and will be as of the Closing
Date, in full force and effect. The Company and its predecessors have, and at
all times have had, all material Permits required under any applicable
Regulation in its operation of the Business or in its ownership of the Assets,
and owns or possesses such Permits free and clear of all Encumbrances. The
Company is not in default, nor, to the knowledge of the Company, has the Company
or any Stockholder received any notice of any claim of default, with respect to
any such Permit. Except as otherwise governed by law, all such Permits are
renewable by their terms or in the ordinary course of business without the need
to comply with any special qualification procedures or to pay any amounts other
than routine filing fees and, except as set forth on SCHEDULE 3.13, will not be
adversely affected by the completion of the transactions contemplated by this
Agreement or the Ancillary Agreements.
3.14. FINANCIAL STATEMENTS; BOOKS AND RECORDS.
(a) GENERAL. Except as contemplated by Schedule 2.12(a),
the Financial Statements are complete, are in accordance with the Company's
Books and Records and fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of the
dates and for the periods indicated thereby, in accordance with GAAP
consistently applied throughout the periods covered thereby (except as
otherwise expressly indicated in the notes to the Financial Statements and,
in the case of interim financial statements, for (i) the lack of footnotes
and (ii) year-end audit adjustments that are not material).
(b) INTERNAL CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed with management's authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's
authorization and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(c) BOOKS AND RECORDS. The Books and Records, in reasonable
detail, accurately and fairly reflect in all material respects the activities of
the Company and the Business and have been provided to Parent for its
inspection.
(d) ALL ACCOUNTS RECORDED. The Company has not engaged in
any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts or funds which have been and are
reflected in the normally maintained Books and Records.
(e) CORPORATE RECORDS. The stock records and minute books
of the Company and its predecessor that have been made available to Parent
fully reflect all minutes of meetings, resolutions and other material actions
and proceedings of its stockholders, trustees and board of directors and all
committees thereof, all issuances, transfers and redemptions of capital stock
of which the Company or the Stockholders are aware and contain true, correct
and complete copies
27
of their respective Certificate of Incorporation and Bylaws and all
amendments thereto through the date hereof.
3.15. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
SCHEDULE 3.15, since the Balance Sheet Date there has not been any:
(a) Company Material Adverse Change;
(b) failure to operate the Business in the ordinary course
so as to use all commercially reasonable efforts to preserve the Business
intact and to preserve the continued services of the Company's employees and
the goodwill of suppliers, customers and others having business relations
with the Company or its Representatives;
(c) resignation or termination of any officer, director or
manager, or any increase in the rate of compensation payable or to become
payable to any officer, director or manager or Representative of the Company
(other than general, regularly-scheduled reviews), including the making of
any loan to, or the payment, grant or accrual of any bonus, incentive
compensation, service award or other similar benefit to, any such Person, or
the addition to, modification of, or contribution to any Employee Plan (as
defined below);
(d) any payment, loan or advance of any amount to or in
respect of, or the sale, transfer or lease of any properties or the Assets
to, or entering into of any Contract with, any Related Party except regular
compensation to Employees;
(e) sale, assignment, license, transfer or Encumbrance of
any of the Assets, tangible or intangible, singly or in the aggregate, other
than sales of products and services in the ordinary course of business and
consistent with past practice;
(f) new Contracts, or extensions, modifications,
terminations or renewals thereof, except for Contracts entered into, modified
or terminated in the ordinary course of business and consistent with past
practice;
(g) actual or threatened termination of any material
customer account or group of accounts or actual or threatened material
reduction in purchases or royalties payable by any such customer or
occurrence of any event that is likely to result in any such termination or
reduction;
(h) disposition or lapsing of any Proprietary Rights of the
Company, in whole or in part, or any disclosure of any trade secret, process
or know-how to any Person not an Employee;
(i) change in accounting methods or practices by the
Company;
(j) revaluation by the Company of any of the Assets,
including writing off or establishing reserves with respect to inventory,
notes or accounts receivable (other than for which adequate reserves have
been previously established;
28
(k) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the Assets, the Business or the
prospects of the Company;
(l) declaration, setting aside or payment of any dividend
or distribution in respect of any capital stock of the Company or any
redemption, purchase or other acquisition of any equity securities of the
Company;
(m) issuance or reservation for issuance by the Company of,
or commitment of it to issue or reserve for issuance, any shares of capital
stock or other equity securities or obligations or securities convertible
into or exchangeable for shares of capital stock or other equity securities;
(n) increase, decrease or reclassification of the capital
stock of the Company;
(o) amendment of the Certificate of Incorporation or
Bylaws of the Company;
(p) capital expenditure or execution of any lease or any
incurring of liability therefor by the Company, involving payments or
obligations in excess of $40,000 in the aggregate;
(q) failure to pay any material obligation of the
Company when due;
(r) cancellation of any indebtedness or waiver of any
rights of substantial value to the Company, except in the ordinary course of
business and consistent with past practice;
(s) indebtedness incurred by the Company for borrowed money
or any commitment to borrow money entered into by the Company, or any loans
made or agreed to be made by the Company;
(t) liability incurred by the Company except in the
ordinary course of business and consistent with past practice, or any
increase or change in any assumptions underlying or methods of calculating
any bad debt, contingency or other reserves;
(u) payment, discharge or satisfaction of any Liabilities
of the Company other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of Liabilities
reflected or reserved against in the Financial Statements or incurred in the
ordinary course of business and consistent with past practice since the
Balance Sheet Date;
(v) acquisition of any equity interest in any other Person;
or
(w) agreement by the Company directly or indirectly to do
any of the foregoing.
3.16. LIABILITIES. The Company has no Liabilities or obligations
(absolute, accrued, contingent or otherwise) except (i) Liabilities which are
reflected and properly reserved against in the Financial Statements, (ii)
Liabilities incurred in the ordinary course of business and
29
consistent with past practice since the Balance Sheet Date and (iii)
Liabilities arising under the Contracts (other than obligations which are
required to be reflected on a balance sheet prepared in accordance with GAAP)
set forth on SCHEDULE 3.11 or Liabilities which are not required to be
disclosed on such Schedule and which have arisen or been incurred in the
ordinary course of business. None of the Liabilities described in this
Section 3.16 relates to any breach of Contract, breach of warranty, tort,
infringement or violation of law or arose out of any action, order writ,
injunction, judgment or decree outstanding or claim, suit, litigation,
proceeding, investigation or dispute (collectively, "ACTIONS").
3.17. LITIGATION. Except as set forth on SCHEDULE 3.17 or SCHEDULE
3.23, there is no Action, pending or, to the knowledge of the Company or any
Stockholder, threatened or anticipated (i) against, relating to or affecting
the Company, any of the Assets or any of their respective officers and
directors as such, (ii) which seeks to enjoin or obtain damages in respect of
the transactions contemplated hereby or by the Ancillary Agreements or (iii)
with respect to which there is a reasonable likelihood of a determination
which would prevent the Company or any of the Stockholders from consummating
the transactions contemplated hereby. None of the Actions, if adversely
determined against any Stockholder, the Company, their respective directors
or officers, or any other Person could reasonably be expected to result in a
loss to the Company, individually or in the aggregate, in excess of $100,000.
To the knowledge of the Company or any Stockholder, there is no basis for any
Action, which if adversely determined against any Stockholder, the Company,
its directors or officers, or any other Person could reasonably be expected
to result in a loss to the Company, individually or in the aggregate, in
excess of $100,000. There are presently no outstanding judgments, decrees or
orders of any court or any governmental or administrative agency against or
affecting the Company, the Business or any of the Assets. SCHEDULE 3.17
contains a complete and accurate description of all Actions since December
31, 1994 to which the Company or any predecessor of the Company has been a
party or which relate to any of the Assets or the Company's officers or
directors as such, or any such Actions which were settled prior to the
institution of formal proceedings, other than Actions brought by the Company
for collection of monies owed in the ordinary course of business.
3.18. LABOR MATTERS.
(a) GENERAL. The Company is not a party to any labor
agreement with respect to its Employees with any labor organization, group or
association and has not experienced any attempt by organized labor or its
representatives to make the Company conform to demands of organized labor
relating to its Employees or to enter into a binding agreement with organized
labor that would cover the Employees of the Company. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any other governmental agency arising out of the
Company's activities, and neither the Company nor any Stockholder has any
knowledge of any facts or information which would give rise thereto; there is
no labor strike or labor disturbance pending or threatened against the
Company nor is any grievance currently being asserted against it; and the
Company has not experienced a work stoppage or other labor difficulty. There
are no material controversies pending or, to the knowledge of the Company or
any Stockholder, threatened between the Company and its
31
Employees, and neither the Company nor any Stockholder is aware of any facts
which could reasonably result in any such controversy.
(b) COMPLIANCE. The Company is in material compliance with
all applicable Regulations respecting employment practices, terms and
conditions of employment, wages and hours, equal employment opportunity, and
the payment of social security and similar taxes and is not engaged in any
unfair labor practice. The Company is not liable for any claims for past due
wages or any penalties for failure to comply with any of the foregoing.
(c) SEVERANCE OBLIGATIONS. Except as set forth on SCHEDULE
3.18(c), the Company has not entered into any severance, "stay-bonus" or
similar arrangement in respect of any present or former Employee that will
result in any obligation (absolute or contingent) of Parent or the Company to
make any payment to any present or former Employee following termination of
employment or upon consummation of the transactions contemplated by this
Agreement (whether or not employment is continued for any specified period
after the Effective Time). Except as set forth on SCHEDULE 3.18(c), neither
the execution and delivery of this Agreement or any Ancillary Agreement nor
the consummation of the transactions contemplated hereby or thereby will
result in the acceleration or vesting of any other rights of any Person to
benefits under any Employee Plans.
(d) HIGHLY COMPENSATED EMPLOYEES. Attached hereto as
SCHEDULE 3.18(d) is a list of the names of all present Employees with total
compensation expected to exceed $100,000 in 1999 and their current
compensation payable by the Company. Notwithstanding any provision of this
Agreement or any Schedule to the contrary, the Company represents that from
and after the Effective Time no benefit or other compensation is payable to
any Person identified on SCHEDULE 3.18(d) upon the voluntary resignation of
such Person from employment with Parent or the Company as a result of the
occurrence of the Effective Time.
3.19. EMPLOYEE BENEFIT PLANS. SCHEDULE 3.19 contains a complete list
of Employee Plans which cover or have covered employees of the Company or any
predecessor (with respect to their relationship with the Company or any
predecessor). True and complete copies of each of the following documents
have been delivered by the Company to Parent: (i) Employee Plan (and, if
applicable, related trust agreements, annuity contracts or other funding
instruments) which covers or has covered employees of the Company (with
respect to their relationship with the Company) and all amendments thereto,
all summary plan descriptions, summary of material modifications (as defined
in ERISA) and all written interpretations and descriptions thereof which the
Company generally has distributed to participants therein, the number of and
a general description of the level of employees covered by each Benefit
Arrangement and a complete description of any Employee Plan which is not in
writing, (ii) the most recent determination letter issued by the Internal
Revenue Service and any opinion letter issued by the Department of Labor with
respect to each Pension Plan and each voluntary employees' beneficiary
association as defined under Section 501(c)(9) of the Code (other than a
Multiemployer Plan) which covers or has covered employees of the Company
(with respect to their relationship with the Company), (iii) for the three
(3) most recent plan years, Annual Reports on Form 5500 Series required to be
filed with any governmental agency for each Pension Plan or Welfare Plan
which covers or has
31
covered employees of the Company (with respect to their relationship with the
Company), (iv) all actuarial reports prepared for the last three (3) plan
years for each Pension Plan which covers or has covered employees of the
Company (with respect to their relationship with the Company), (v) a
description of complete age, salary, service and related data as of the last
day of the last plan year for employees and former employees of the Company,
and (vi) a description setting forth the amount of any liability of the
Company as of the Closing Date for payments more than thirty (30) calendar
days past due with respect to any Welfare Plan.
(i) PENSION PLANS.
(A) No Pension Plan is subject to the
minimum funding requirements of ERISA. As of the last day of the last plan
year of each Pension Plan and as of the Closing Date, the "amount of unfunded
benefit liabilities" as defined in Section 4001(a)(18) of ERISA (but
excluding from the definition of "current value" of "assets" of such Pension
Plan, accrued but unpaid contributions) did not and will not exceed zero.
Neither the Company nor any ERISA Affiliate has engaged in, or is a successor
or parent corporation to an entity that has engaged in, a transaction
described in Section 4069 of ERISA. Neither the Company nor any ERISA
Affiliate has, at any time, (1) ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, (2) withdrawn
as a substantial employer so as to become subject to the provisions of
Section 4063 of ERISA, or (3) ceased making contributions on or before the
Closing Date to any Pension Plan subject to Section 4064(a) of ERISA to which
the Company or any ERISA Affiliate made contributions during the six (6)
years prior to the Closing Date.
(B) No "accumulated funding deficiency" (for
which an excise tax is due or would
be due in the absence of a waiver) as defined in Section 412 of the Code or as
defined in Section 302(a)(2) of ERISA, whichever may apply, has been incurred
with respect to any Pension Plan with respect to any plan year, whether or not
waived. Neither the Company nor any ERISA Affiliate has failed to pay when due
any "required installment," within the meaning of Section 412(m) of the Code and
Section 302(e) of ERISA, whichever may apply, with respect to any Pension Plan.
Neither the Company nor any ERISA Affiliate is subject to any lien imposed under
Section 412(n) of the Code or Section 302(f) of ERISA, whichever may apply, with
respect to any Pension Plan. Neither the Company nor any ERISA Affiliate has any
liability for unpaid contributions with respect to any Pension Plan.
(C) Neither the Company nor any ERISA
Affiliate is required to provide security to a Pension Plan which covers or
has covered employees or former employees of the Company or a Subsidiary
under Section 401(a)(29) of the Code.
(D) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) which has been operated as a qualified plan
(1) has received a favorable determination letter from the Internal Revenue
Service stating that such Pension Plan and each related trust is qualified
and tax-exempt
32
under the provisions of Code Sections 401(a) (or 403(a), as appropriate) and
501(a) and (2) has been so qualified during the period from its adoption to
date.
(E) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) currently complies in all material respects
and has been maintained in compliance in all material respects with its terms
and, both as to form and in operation, with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to
such plans, including, without limitation, ERISA and the Code.
(ii) MULTIEMPLOYER PLANS. Neither the Company nor
any ERISA Affiliate has any liability with respect to a Multiemployer Plan,
and no liability will arise or be imposed on the Company or any ERISA
Affiliate under, or with respect to, any Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) currently complies in all material respects
and has been maintained in compliance in all material respects with its terms
and, both as to form and operation, with the requirements prescribed by any
and all statutes, orders, rules and regulations which are applicable to such
Welfare Plan, including, without limitation, ERISA and the Code.
(B) Except as required by Section 4980B of
the Code or Part 6 of Title 1, Subtitle B of ERISA, none of the Company, any
ERISA Affiliate or any Welfare Plan has any present or future obligation to
make any payment to, or with respect to any present or former employee of the
Company or any ERISA Affiliate pursuant to, any retiree medical benefit plan,
or other retiree Welfare Plan, and no condition exists which would prevent
the Company or an ERISA Affiliate from amending or terminating any such
benefit plan or such Welfare Plan.
(C) Each Welfare Plan which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) and which is a "group health plan," as defined
in Section 607(1) of ERISA, presently complies in all material respects with
and has been operated in compliance in all material respects with provisions
of Part 6 of Title I, Subtitle B of ERISA and Sections 162(k) and 4980B of
the Code at all times.
(D) Neither the Company nor any ERISA
Affiliate has, at any time, maintained, contributed to or had any obligation
to maintain or contribute to any Welfare Plan that is a "multiemployer plan,"
as defined in Section 3(37) of ERISA.
(E) The insurance policies or other funding
instruments, if any, for each Welfare Plan provide coverage for each
employee, consultant, independent contractor or retiree of the Company or any
of its Subsidiaries (and, if applicable, their respective dependents)
33
who has been advised by the Company, whether through an Employee Plan or
otherwise, that he or she is covered by such Welfare Plan.
(iv) BENEFIT ARRANGEMENTS. Each Benefit
Arrangement which covers or has covered employees or former employees of the
Company (with respect to their relationship to the Company) presently
complies and has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Benefit
Arrangement, including, without limitation, the Code. Except as provided by
law or in any employment agreement set forth on SCHEDULE 3.19, the employment
of all persons presently employed or retained by the Company is terminable at
will.
(v) UNRELATED BUSINESS TAXABLE INCOME; UNPAID
CONTRIBUTIONS. No Employee Plan (or trust or other funding vehicle pursuant
thereto) has incurred any liability under Code Section 511. Neither the
Company nor any ERISA Affiliate has any liability for unpaid contributions
under Section 515 of ERISA with respect to any Employee Plan.
(vi) DEDUCTIBILITY OF PAYMENTS. There is no
contract, agreement, plan or arrangement covering any employee or former
employee of the Company (with respect to such employee's relationship with
the Company) that, individually or collectively, requires the payment by the
Company of any amount (i) that is not deductible under Section 162(a)(1) or
404 of the Code or (ii) that is an "excess parachute payment" pursuant to
Section 280G of the Code.
(vii) FIDUCIARY DUTIES AND PROHIBITED
TRANSACTIONS. Neither the Company nor any plan fiduciary of any Welfare Plan
or Pension Plan which covers or has covered employees or former employees of
the Company or any ERISA affiliate has engaged in, or has any liability in
respect of, any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA so as to create any liability of the
Company or any of its Subsidiaries or any Employee Plan. The Company has not
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any Welfare Plan or Pension Plan, and the Company and its
Subsidiaries have not been assessed any civil penalty under Section 502(l) of
ERISA.
(viii) LITIGATION. There is no action, order,
writ, injunction, judgment or decree outstanding or claim (other than routine
claims for benefits), suit, litigation, proceeding, arbitration proceeding,
governmental audit or investigation relating to or seeking benefits under any
Employee Plan that is pending or, to the knowledge of the Company,
anticipated or threatened against the Company, any ERISA Affiliate or any
Employee Plan.
(ix) NO AMENDMENTS. Neither the Company nor any
ERISA Affiliate has announced to employees, former employees, consultants or
directors an intention to create, or otherwise created, a legally binding
commitment to adopt any additional Employee Plan which is intended to cover
employees or former employees of the Company (with respect to their
relationship with the Company) or to amend or modify any existing Employee
Plan which covers
34
or has covered employees or former employees of the Company or any of its
Subsidiaries (with respect to their relationship with the Company or any of
its Subsidiaries).
(x) UNPAID CONTRIBUTIONS. Neither the Company
nor any ERISA Affiliate has any liability for unpaid contributions under Section
515 of ERISA with respect to any Pension Plan, Multiemployer Plan or Welfare
Plan.
(xi) INSURANCE CONTRACTS. No Employee Plan
(other than a "multiemployer plan," as defined in Section 3(37) of ERISA)
holds as an asset of any Employee Plan any interest in any annuity contract,
guaranteed investment contract or any other investment or insurance contract
issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings.
(xii) NO ACCELERATION OR CREATION OF RIGHTS.
Except as set forth on SCHEDULE 3.18(c), neither the execution and delivery
of this Agreement or the Ancillary Agreements by the Company nor the
consummation of the transactions contemplated hereby or the related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan (including, without limitation,
the acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration
or creation of any rights under any severance, parachute or change in control
agreement).
(xiii) NO OTHER MATERIAL LIABILITY. No event
has occurred in connection with which the Company, any ERISA Affiliate or any
Employee Plan, directly or indirectly, could be subject to any material
liability (A) under any statute, regulation or governmental order relating to
any Employee Plan or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
3.20. TRANSACTIONS WITH RELATED PARTIES. Except for employment
agreements and other compensation arrangements disclosed on SCHEDULE 3.20, no
Related Party has (a) borrowed or loaned money or other property to the
Company which has not been repaid or returned, (b) any contractual
relationship or other claims, express or implied, of any kind whatsoever
against the Company or (c) any interest in any property used by the Company.
3.21. COMPLIANCE WITH LAW. The Company and its predecessors have
conducted the Business in compliance with all applicable Regulations and
Court Orders, except as would not reasonably be expected to cause a Company
Material Adverse Effect. Neither the Company nor any Stockholder has received
any notice to the effect that, or has otherwise been advised that, the
Company or any predecessor is not in compliance with any such Regulations or
Court Orders, and none of the Company, any predecessor or any Stockholder has
any reason to anticipate that any existing circumstances are likely to result
in any material violation of any of the foregoing.
35
3.22. INTELLECTUAL PROPERTY.
(a) GENERAL. SCHEDULE 3.22(a) sets forth with respect to
Proprietary Rights of the Company: (i) for each trademark, tradename or
service xxxx, whether or not registered, the date first used, the application
serial number or registration number, the class of goods covered, the nature
of the goods or services, the countries in which the names or xxxx is used
and the expiration date for each country in which a trademark has been
registered, (ii) for each copyright for which registration has been sought,
whether or not registered, the date of creation and first publication of the
work, the number and date of registration for each country in which a
copyright application has been registered, (iii) for each mask work (if any),
whether or not registered, the date of first commercial exploitation and if
registered, the registration number and date of registration, (iv) a
description of all Trade Secrets that are material to the Business and (v)
all such Proprietary Rights in the form of licenses. True and correct copies
of all Proprietary Rights (including all pending applications, application
related documents and materials and written materials relating to Trade
Secrets) owned, controlled or used by or on behalf of the Company or in which
the Company has any interest whatsoever have been provided or made available
to Parent.
(b) ADEQUACY. The Proprietary Rights of the Company are all
those necessary for the normal conduct of the Business as presently conducted
and as presently contemplated, including the design, manufacture and sale of
all products currently under development, planned for development or in
production.
(c) ROYALTIES AND LICENSES. Except as set forth on SCHEDULE
3.22(c), the Company has no obligation to compensate any Person for the use
of any of its Proprietary Rights nor has the Company granted to any Person
any license, option or other rights to use in any manner any of its
Proprietary Rights, whether requiring the payment of royalties or not.
(d) OWNERSHIP. The Company owns or has a valid right to use
its Proprietary Rights, and such Proprietary Rights will not cease to be
valid rights of the Company by reason of the execution, delivery and
performance of this Agreement or the Ancillary Agreements or the consummation
of the transactions contemplated hereby or thereby.
(e) ABSENCE OF CLAIMS. Except as set forth in SCHEDULE
3.17, none of the Company or any Stockholder (A) has received any notice
alleging, or otherwise has knowledge of facts that might give rise to,
invalidity with respect to any of the Proprietary Rights of the Company or
(B) has received any notice of alleged infringement of any rights of others
due to any activity by the Company. To the knowledge of the Company or any
Stockholder, the Company's use of its Proprietary Rights in its past, current
and planned products do not and would not infringe upon or otherwise violate
the valid rights of any third party anywhere in the world. No other Person
(i) has notified the Company or any Stockholder that it is claiming any
ownership of or right to use any of the Company's Proprietary Rights or (ii)
to the knowledge of the Company or any Stockholder, is infringing upon any
such Proprietary Rights in any way.
(f) PROTECTION OF PROPRIETARY RIGHTS. All of the pending
applications for the Company's Proprietary Rights have been duly filed and
all other actions to protect such
36
Proprietary Rights have been taken. The Company has taken reasonable steps
necessary or appropriate (including, entering into appropriate
confidentiality and nondisclosure agreements with officers, directors,
subcontractors, Employees, licensees and customers in connection with the
Assets or the Business) to safeguard and maintain the secrecy and
confidentiality of, and the proprietary rights in, the Proprietary Rights
that are material to the Business. None of the Company or any Stockholder has
knowledge of any breach of any such confidentiality or nondisclosure
agreement by any party thereto.
3.23. TAX MATTERS.
(a) FILING OF TAX RETURNS. The Company has timely filed
with the appropriate taxing authorities all Tax Returns required to be filed
through the date hereof. The Tax Returns filed are complete and accurate.
Except as set forth on SCHEDULE 3.23(a), the Company has not requested any
extension of time within which to file any Tax Return. The Company has
delivered to Parent complete and accurate copies of federal, state and local
Tax Returns of the Company and its predecessors for the years ended December
31, 1998, 1997, 1996 and 1995.
(b) PAYMENT OF TAXES. All Taxes due from the Company, or
for which it could under any circumstances be liable, in respect of periods
(or portions thereof) beginning before the Closing Date have been timely paid
or an adequate reserve (in conformity with GAAP) has been established
therefor, as set forth in the Financial Statements, and the Company has no
Liability for Taxes in excess of the amounts so paid or reserves so
established. Except as set forth on SCHEDULE 3.23, all Taxes that the Company
or its predecessors is required by law to withhold or collect have been duly
withheld or collected and have been timely paid over to the appropriate
governmental authorities to the extent due and payable.
(c) AUDITS, INVESTIGATIONS OR CLAIMS. No deficiencies for
Taxes of the Company have been claimed, proposed or assessed by any taxing or
other governmental authority. Except as set forth on SCHEDULE 3.23, there are
no pending or, to the knowledge of the Company or any Stockholder, threatened
audits, assessments or other Actions for or relating to any Liability in
respect of Taxes of the Company or any Stockholder, and there are no matters
under discussion with any governmental authorities, or known to the Company
or any Stockholder, with respect to Taxes that are likely to result in an
additional Liability for Taxes. Audits of federal, state and local Tax
Returns by the relevant taxing authorities have been completed for the
periods set forth on SCHEDULE 3.23 and, except as set forth in such Schedule,
neither the Company, any predecessor or any Stockholder has been notified
that any taxing authority intends to audit a Tax Return for any other period.
Except as set forth on SCHEDULE 3.23, no extension of a statute of
limitations relating to Taxes is in effect with respect to the Company or any
predecessor.
(d) LIEN. There are no Encumbrances for Taxes on any of
the Assets or any shares of Company Stock.
(e) TAX ELECTIONS. All elections with respect to Taxes
affecting the Company, or the Assets, as of the date hereof are set forth on
SCHEDULE 3.23. The Company has not (i) consented at any time under Section
341(f)(1) of the Code to have the provisions of Section
37
341(f)(2) of the Code apply to any disposition of any Assets; (ii) agreed, or
is required, to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise; (iii) made an election,
or is required, to treat any Asset as owned by another Person pursuant to the
provisions of Section 168(f) of the Code or as tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of the
Code; (iv) acquired and does not own any assets that directly or indirectly
secure any debt the interest on which is tax exempt under Section 103(a) of
the Code; or (v) made any of the foregoing elections or is required to apply
any of the foregoing rules under any comparable state or local Tax provision.
(f) PRIOR AFFILIATED GROUPS. The Company is not and has
never been a member of an affiliated group of corporations within the meaning
of Section 1504 of the Code or any group that has filed a combined
consolidated or unitary state or local return.
(g) TAX SHARING AGREEMENTS. There are no Tax-sharing
agreements or similar arrangements (including indemnity arrangements) with
respect to or involving the Company, the Assets or the Business and, after
the Closing Date, none of the Company, the Assets or the Business shall be
bound by any such Tax-sharing agreements or similar arrangements or have any
Liability thereunder for amounts due in respect of periods prior to the
Closing Date.
(h) PARTNERSHIPS. The Company has no interest in nor is it
subject to any joint venture, partnership, or other arrangement or contract
which is treated as a partnership for federal income tax purposes.
(i) NO WITHHOLDING. The transaction contemplated herein is
not subject to the tax withholding provisions of Section 3406 of the Code, or
of Subchapter A of Chapter 3 of the Code or of any other provision of law.
(j) PREDECESSOR. The Contribution Agreement constitutes the
valid and legal obligation of MFT, enforceable by the Company in accordance
with its terms, and has not been amended or modified in any manner. The
Company has taken no action, directly or indirectly, to assume any of the
"Excluded Liabilities" (as defined in the Contribution Agreement).
(k) USRPC. The Company is not and has not been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in section
897(c)(1)(A)(ii) of the Code.
(l) OTHER ENTITY LIABILITY. The Company does not have any
Liability for the Taxes of any Person (other than Taxes of the Company
(without regard to the activities of any predecessor)) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract or otherwise.
(m) CORRESPONDENCE. SCHEDULE 3.23(m) includes all
correspondence to or from MFT or its beneficiaries or Affiliates (or their
respective Representatives) on the one hand and the Internal Revenue Service
("IRS") or any state Tax authority on the other hand from and after the
delivery by the IRS of its audit report dated July 15, 1998 (including such
report).
38
3.24. INSURANCE. SCHEDULE 3.24 contains a complete and accurate list
of all policies or binders of insurance (showing as to each policy or binder
the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided and any
pending claims thereunder) of which the Company is the owner, insured or
beneficiary. All of such policies are sufficient for (i) compliance with all
Regulations and all of the Contracts, (ii) covering all reasonably
foreseeable damage to and liabilities or contingencies relating to the
Company's conduct of the Business and (iii) providing replacement cost
insurance coverage for all of the Assets, Fixtures and Equipment and all
leasehold improvements. The Company is not in default under any of such
policies or binders, and has not failed to give any notice or to present any
material claim under any such policy or binder in a due and timely fashion.
There are no facts known to the Company or any Stockholder upon which an
insurer might be justified in reducing or denying coverage or increasing
premiums on existing policies or binders. There are no outstanding unpaid
claims under any such policies or binders. Such policies and binders are in
full force and effect on the date hereof and shall be kept in full force and
effect by the Company through the Closing Date.
3.25. ACCOUNTS RECEIVABLE. Except as contemplated by SCHEDULE
2.12(a), the accounts and notes receivable reflected in the Balance Sheet,
and all accounts or notes receivable arising since the Balance Sheet Date,
represent bona fide claims against debtors for sales, services performed or
other charges arising on or before the date of recording thereof, and all the
goods delivered and services performed which gave rise to said accounts were
delivered or performed in accordance with the applicable orders, Contracts or
customer requirements.
3.26. INVENTORY. Except as contemplated by SCHEDULE 2.12(a), the
value at which the Inventory is shown on March 31, 1999 has been determined
in accordance with the normal valuation policy of the Company, consistently
applied and in accordance with GAAP. The Inventory and the specific items
acquired or manufactured subsequent to March 31, 1999, consists only of items
of quality and quantity commercially usable and salable in the ordinary
course of business, except for any items of obsolete material or material
below standard quality, all of which have been written down to net realizable
market value, or for which adequate reserves have been provided, and the
present quantity of all Inventory is reasonable in the present circumstances
of the Business. SCHEDULE 3.26 contains a complete and accurate list of all
Inventory as of March 31, 1999 and the addresses at which the Inventory is
located.
3.27. PURCHASE COMMITMENTS AND OUTSTANDING BIDS. As of the date of
this Agreement, the aggregate of all Contracts for the purchase of Inventory
by the Company, other than in the ordinary course of business, does not
exceed $40,000. No outstanding purchase or outstanding lease commitment of
the Company presently is in excess of the normal, ordinary and usual
requirements of the Business or was made at any price in excess of the now
current market price or contains terms and conditions more onerous than those
usual and customary in the Company's business. There are outstanding no
pending obligations to lease real property in addition to those identified on
SCHEDULE 3.8(c).
3.28. SUPPLIERS. SCHEDULE 3.28 sets forth a complete and accurate
list of the names and addresses of the ten (10) suppliers with the greatest
dollar volume of sales to the Company
39
during the last fiscal year and during the last fiscal quarter, showing the
approximate total purchases in dollars by the Company from each such supplier
during such fiscal year. Since the Balance Sheet Date, there has been no
Company Material Adverse Change in the business relationship of the Company
with any supplier named on SCHEDULE 3.28. The Company has not received any
written communication from any supplier named on SCHEDULE 3.28 of any
intention to return, terminate or materially reduce purchases from or
supplies to the Company.
3.29. YEAR 2000 PROBLEM. On the basis of a reasonable review and
assessment undertaken by the Company of the Company's computer applications,
the Company reasonably believes that the "YEAR 2000 PROBLEM" (that is, the
risk that computer applications used by any person may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior
to and any date after December 31, 1999) will not result in a Company
Material Adverse Effect. So long as the Company follows the plan attached
hereto as SCHEDULE 3.29, a Year 2000 Problem will not result in Damages for
which indemnification may be sought under Article 9.
3.30. BROKERS; TRANSACTION COSTS. Except as set forth on SCHEDULE
3.30, neither the Company nor any Stockholder has entered into or will enter
into any contract, agreement, arrangement or understanding with any Person
which will result in the obligation of Parent, the Company or any of the
Stockholders to pay any finder's fee, brokerage commission, legal,
accounting, or similar payment in connection with the transactions
contemplated hereby. All of the items included on SCHEDULE 3.30 will also be
included on the Funded Debt Notice.
3.31. NO OTHER AGREEMENTS TO SELL THE COMPANY OR THE ASSETS. Neither
the Company nor any Stockholder has any legal obligation, absolute or
contingent, to any other Person to sell the Assets (other than Inventory in
the ordinary course of business) or to sell any capital stock of the Company
or to effect any merger, consolidation or other reorganization of the Company
or to enter into any agreement with respect thereto, except pursuant to this
Agreement.
3.32. FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any
predecessor, nor to the knowledge of the Company, any agent, employee or
other Person associated with or acting on behalf of the Company or any
predecessor has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other similar unlawful payment.
3.33. POOLING OF INTERESTS. Neither the Company nor any of its
directors, officers or Stockholders has taken any action which, to their
knowledge, would reasonably be expected to preclude Parent's ability to
account for the Merger as a pooling of interests pursuant to APB 16 and the
applicable rules and regulations of the SEC.
3.34. FINANCIAL PROJECTIONS; OPERATING PLAN. The Company has made
available to Parent certain financial projections with respect to the
Business which projections were prepared for internal use only. The Company
makes no representation or warranty regarding the accuracy of
40
such projections or as to whether such projections will be achieved, except
that the Company represents and warrants that such projections were prepared
in good faith and are based on assumptions believed by it to be reasonable as
of the date of this Agreement.
3.35. APPROVALS. SCHEDULE 3.35 contains a list of all material
approvals or consents relating to the business conducted by the Company which
are required to be given to or obtained by the Company from any Person in
connection with the consummation of the transactions contemplated by this
Agreement.
3.36. TAKEOVER STATUTES. No Takeover Statute applicable to the
Company is applicable to the Merger or the transactions contemplated hereby.
3.37. MATERIAL MISSTATEMENTS OR OMISSIONS. To the knowledge of the
Company, no representations or warranties by the Company or any Stockholder
in this Agreement or any Ancillary Agreement to which it is a party or in any
document, written information, exhibit, statement, certificate or schedule
heretofore or hereinafter furnished by the Company or such Stockholder or any
of its Representatives to Parent or Sub pursuant hereto, or in connection
with the transactions contemplated by this Agreement or by such Ancillary
Agreements contains or will contain any untrue statement of a material fact,
or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading.
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
As an inducement of Parent to enter into this Agreement, each
Stockholder, severally, and not jointly, represents and warrants with respect
to itself only to Parent and Sub as follows, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct:
3A.1 AUTHORIZATION. Each Stockholder has all necessary power and
authority to enter into this Agreement and the Ancillary Agreements to which
it is a party and has taken all actions necessary to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement has been duly executed and delivered
by each Stockholder and is, and upon the execution and delivery thereof each
Ancillary Agreement to which it is a party will be, a valid and binding
obligation of each Stockholder, enforceable against each Stockholder in
accordance with its terms, except that enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors or (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
3A.2 NO CONFLICT OR VIOLATION; CONSENTS. None of the execution,
delivery or performance of this Agreement or any Ancillary Agreement, the
consummation of the transactions contemplated hereby or thereby, nor
compliance by any Stockholder with any of the provisions hereof or thereof,
will (a) violate or conflict with any provision of the governing documents of
any Stockholder, (b) violate, conflict with, or result in a breach of or
constitute a default (with or
41
without notice of passage of time) under, or result in the termination of, or
accelerate the performance required by, or result in a right to terminate,
accelerate, modify or cancel under, or require a notice under, or result in
the creation of any Encumbrance upon any of its respective assets under, any
Contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness,
security interest or other arrangement to which any Stockholder is a party or
by which any Stockholder is bound or to which any of its assets are subject
or (c) violate any applicable Regulation or Court Order. Except as set forth
on SCHEDULE 3A.2, no notices to, declaration, filing or registration with,
approvals or Consents of, or assignments by, any Persons (including any
federal, state or local governmental or administrative authorities) are
necessary to be made or obtained by any Stockholder in connection with the
execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.
3A.3 OWNERSHIP OF COMPANY STOCK; TITLE. The number of shares of
Company Stock held by each Stockholder are accurately set forth on ANNEX I
and all of such shares of Company Stock are lawfully owned of record and,
except as set forth on SCHEDULE 3A.3, beneficially owned by such Stockholder,
free and clear of any Encumbrances. Except as set forth on SCHEDULE 3A.3, the
Company Shares held by such Stockholder are not subject to any stockholder
agreement, voting trust, proxy or other agreement or understanding with
respect to or concerning the purchase, sale or voting of such company stock.
Upon the acquisition in the Merger by Parent of the shares of Company Stock
presently held by such Stockholder, Parent shall acquire good title to such
shares of company stock, free and clear of all Encumbrances, other than any
Encumbrances created by the Parent or Sub.
3A.4 SECURITIES LAWS REPRESENTATIONS. Each Stockholder, severally
and not jointly, represents as follows with respect to the Merger Shares to
be acquired by it in connection with the Merger:
(a) Such Stockholder is an "accredited investor" as such
term is defined in Rule 501(a) promulgated under the Securities Act.
(b) Such Stockholder is receiving the Merger Shares
acquired by it for investment for its own account and not with a view to, or
for resale in connection with, the distribution or other disposition thereof,
other than as contemplated hereby.
(c) Such Stockholder has been given the opportunity to
obtain any information or documents relating to, and to ask questions and
receive answers about, Parent and the business and prospects of Parent which
it deems necessary to evaluate the merits and risks related to its investment
in such shares and to verify the information received, and such Stockholder's
knowledge and experience in financial and business matters are such that it
is capable of evaluating the merits and risks of its receipt of such shares.
Without limiting the generality of the foregoing, each Stockholder
acknowledges that it has received and reviewed copies of (i) Parent's Annual
Report on Form 10-K for the year ended December 31, 1998, (ii) Parent's Proxy
Statement on Schedule 14A for the Annual Meeting of Stockholders held
42
Xxxxx 00, 0000, (xxx) the press release announcing Parent's first quarter
results dated April 27, 1999 and (iv) Parent's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(d) Such Stockholder's financial condition is such that it
can afford to bear the economic risk of holding the Merger Shares acquired by
it for an indefinite period of time and has adequate means for providing for
such Stockholder's current needs and contingencies and to suffer a complete
loss of its investment in such Merger Shares.
(e) All information that such Stockholder has provided to
Parent concerning itself and its financial position is correct and complete
in all material respects.
(f) Such Stockholder has been advised that (i) Parent's
issuance of such Merger Shares to the Stockholder will not have been
registered under the Securities Act, (ii) such shares may need to be held
indefinitely, and such Stockholder must continue to bear the economic risk of
the investment in such shares unless they are subsequently registered under
the Securities Act or an exemption from such registration is available, (iii)
there may not be a public market for such shares, (iv) when and if such
shares may be disposed of without registration in reliance on Rule 144
promulgated under the Securities Act, such disposition can be made only in
limited amounts in accordance with the terms and conditions of such Rule, (v)
if the Rule 144 exemption is not available, public sale without registration
will require compliance with an exemption under the Securities Act and (vi) a
restrictive legend in the following form shall be placed on the certificates
representing such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE "STATE
ACTS"), HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE
ACTS OR EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
(INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTION AFFORDED
BY RULE 144). UNLESS WAIVED BY GUITAR CENTER, INC. GUITAR CENTER, INC.
SHALL BE FURNISHED WITH AN OPINION OF COUNSEL IN FORM REASONABLY
SATISFACTORY TO IT OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM
SUCH REGISTRATION AND QUALIFICATION AS A PRECONDITION TO ANY SUCH
TRANSFER.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
As an inducement of the Company and each of the Stockholders to
enter into this Agreement, except as set forth on the Parent Schedule of
Exceptions attached to this Agreement,
43
Parent represents and warrants to the Company and the Stockholders as
follows, which representations and warranties are, as of the date hereof, and
will be, as of the Closing Date, true and correct:
4.1. ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Parent
has full corporate power and authority to conduct its business as it is
presently being conducted. Parent is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law as a result of the
conduct of its business or the ownership of its properties and where the
failure to be so qualified would have a Material Adverse Effect on Parent.
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware. Sub has not engaged in any business
(other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation.
4.2. CAPITALIZATION.
(a) Parent has authorized under its Certificate of
Incorporation 55,000,000 shares of Parent Stock and 5,000,000 shares of
preferred stock, par value $.01 per share of which, as of April 28, 1999,
20,112,012 shares of Parent Stock and no shares of preferred stock were
issued and outstanding. Parent has no other stock authorized, issued or
outstanding.
(b) There are (i) 2,235,000 shares of Parent Stock reserved
for issuance upon the exercise of options granted or available for grant
under Parent's 1997 Equity Participation Plan, (ii) 703,290 shares reserved
for issuance upon the exercise of options granted under Parent's 1996
Performance Stock Option Plan and (iii) 795,970 shares reserved for issuance
upon the exercise of options granted under management stock option agreements
entered into by Parent (collectively, the "PARENT OPTIONS").
(c) Except for the Parent Options, there are no outstanding
options, warrants, convertible securities or rights of any kind to purchase
or otherwise acquire any shares of capital stock or other securities of
Parent. Except as set forth above, no shares of capital stock of Parent are
reserved for issuance.
(d) All outstanding shares of Parent Stock issued or to be
issued upon exercise of any of the Parent Options will be validly issued,
fully paid and non-assessable and not subject to any preemptive rights
created by statute, Parent's Certificate of Incorporation or Bylaws or any
Contract.
(e) Other than the transactions contemplated by this
Agreement, there is no outstanding vote, plan or pending proposal for any
redemption of stock of Parent or any merger or consolidation of Parent with
or into any other entity.
(f) The Merger Shares to be issued pursuant to the terms of
this Agreement have been duly authorized and, when issued in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable.
Assuming that the representations of each Stockholder set
44
forth in Article 3A are true and correct, issuance of the Merger Shares is
exempt from registration under the Securities Act.
(g) The authorized capital stock of Sub consists of 1,000
shares of common stock, par value $.01 per share, of which 100 shares are
issued and outstanding. All of such outstanding shares are owned by Parent
and are validly issued, fully paid and non-assessable.
4.3. AUTHORIZATION. Each of Parent and Sub has all necessary
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party and has taken all action necessary to
consummate the transactions contemplated hereby and thereby and to perform
its respective obligations hereunder and thereunder. This Agreement has been
duly executed and delivered by each Parent and Sub, and this Agreement is,
and upon execution and delivery each of the Ancillary Agreements to which
each of Parent and Sub is a party will be, a valid and binding obligation of
each of Parent and Sub enforceable against each of Parent and Sub in
accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.4. NO CONFLICT OR VIOLATION; CONSENTS. Except as set forth on
SCHEDULE 4.4 and except as would not result in a Material Adverse Effect on
Parent, none of the execution, delivery or performance of this Agreement or
any Ancillary Agreement, the consummation of the transactions contemplated
hereby or thereby, nor compliance by Parent or Sub with any of the provisions
hereof or thereof, will (a) violate or conflict with any provision of
Parent's or Sub's governing documents to the extent applicable, (b) violate,
conflict with, or result in a breach of or constitute a default (with or
without notice of passage of time) under, or result in the termination of, or
accelerate the performance required by, or result in a right to terminate,
accelerate, modify or cancel under, or require a notice under, or result in
the creation of any Encumbrance upon any of its assets under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money, instrument of indebtedness, security interest
or other arrangement to which Parent or Sub is a party or by which Parent or
Sub is bound or to which any of their respective assets are subject, (c)
violate any Regulation or Court Order applicable to Parent or Sub or (d)
impose any Encumbrance on any assets of Parent or Sub. Except as set forth on
SCHEDULE 4.4, no notices to, declaration, filing or registration with,
approvals or Consents of, or assignments by, any Persons (including any
federal, state or local governmental or administrative authorities) are
necessary to be made or obtained by Parent or Sub in connection with the
execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.
4.5. REPORTS AND FINANCIAL STATEMENTS. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act, and has previously provided or made available to the Company
true and complete copies of all reports filed by Parent with the SEC since
January 1, 1999 (the "SEC REPORTS"). Such SEC Reports, as of their respective
dates, complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act, as the case may be, and none of such
SEC Reports, as of its
45
date, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Parent, including the notes
thereto, included in the SEC Reports have been prepared in accordance with
GAAP consistently applied (except as otherwise stated in the footnotes to the
financial statements) and fairly present in all material respects the
consolidated financial condition of Parent as at the dates thereof and
consolidated results of operations and cash flows for the periods then ended.
4.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set
forth in the SEC Reports or in Parent's press release dated April 27, 1999
relating to its financial results for the quarter ended March 31, 1999, since
March 31, 1999, there has not been any fact, event, circumstance or change
affecting or relating to Parent which has had or is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on the
Parent, or (B) the likelihood of Parent to consummate the Merger and the
other transactions contemplated by this Agreement (a "PARENT MATERIAL ADVERSE
EFFECT"); PROVIDED, HOWEVER, that a Parent Material Adverse Effect shall not
include any adverse effect following the date of this Agreement which is
solely attributable to (i) the announcement or pendency of the transactions
contemplated by this Agreement or (ii) changes in national economic
conditions or industry conditions generally.
4.7. DISCLOSURE. No representation, warranty or other statement by
Parent herein contains an untrue statement of a material fact, or omits to
state a material fact necessary to make the statements contained herein not
misleading.
ARTICLE 5.
ACTIONS BY THE COMPANY, THE STOCKHOLDERS
AND PARENT PRIOR TO THE CLOSING
The Company, the Stockholders, Parent and Sub, each as indicated
below, covenant as follows for the period from the date hereof through the
Closing Date:
5.1. CONDUCT OF BUSINESS. From the date hereof through the Closing,
the Company and the Stockholders shall, except as otherwise expressly
contemplated by this Agreement, or as consented to by Parent in writing,
operate the Business solely in the ordinary course of business and in
accordance with past practice and will not, in any event, take any action
inconsistent with this Agreement, the Ancillary Agreements or the
consummation of the Closing. Without limiting the generality of the
foregoing, the Company shall not and the Stockholders shall not cause the
Company to, except as specifically contemplated by this Agreement or as
consented to by Parent in writing:
(a) incur any indebtedness for borrowed money, or assume,
guarantee, endorse (other than endorsements for deposit or collection in the
ordinary course of business), or otherwise become responsible for obligations
of any other Person in excess of $40,000;
(b) issue (except pursuant to Company Options outstanding
on the date of this Agreement and disclosed on SCHEDULE 3.2(b)) or commit to
issue any shares of its capital stock or
46
any other securities or any securities convertible into shares of its capital
stock or any other securities, including, without limitation, any options to
acquire capital stock;
(c) declare, pay or incur any obligation to pay any
dividend on its capital stock or declare, make or incur any obligation to
make any distribution or redemption with respect to capital stock;
(d) make any change to the Company's Certificate of
Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets or
sell, transfer, license or otherwise dispose of any Assets except for the
sale of inventory to customers in the ordinary course of business and
consistent with past practice;
(f) cancel, release or assign any indebtedness owed to
it or any claims or rights held by it;
(g) make any investment or commitment of a capital nature
either by purchase of stock or securities, contributions to capital, property
transfer or otherwise, or by the purchase of any property or assets of any
other Person in excess of $40,000;
(h) terminate any material Contract or make any change in
any material Contract;
(i) enter into or modify any employment Contract, (ii) pay
any compensation to or for any Employee, officer or director other than in
the ordinary course of business and pursuant to existing employment
arrangements, (iii) pay or agree to pay any bonus, incentive compensation,
service award, severance, "stay bonus" or other like benefit, (iv) enter into
or modify any other Employee Plan, or (v) modify the Company Stock Option
Plan;
(j) enter into or modify any Contract or other arrangement
with a Related Party;
(k) [intentionally omitted];
(l) make any change in any method of accounting or
accounting practice;
(m) fail to comply with all Regulations applicable to the
Assets (except as would not reasonably be expected to result in a Company
Material Adverse Effect) and the Business consistent with past practices;
(n) fail to use its commercially reasonable efforts to (i)
maintain the Business, (ii) retain the Employees so that such Employees will
remain available to the Surviving Corporation on and after the Closing Date,
(iii) maintain existing relationships with material suppliers and customers
and others having business dealings with Parent and (iv) otherwise to
preserve the goodwill of the Business so that such relationships and goodwill
will be preserved on and after the Closing Date;
47
(o) make or change any election in respect of Taxes, adopt
or change any material accounting method in respect of Taxes, enter into any
tax allocation agreement, tax sharing agreement, tax indemnity agreement or
closing agreement, settle or compromise any claim, notice, audit report or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(p) commence any Action or other legal proceeding;
(q) do any other act which would cause any representation
or warranty of the Company or Stockholders in this Agreement to be or become
untrue in any material respect or that is not in the ordinary course of
business consistent with past practice; or
(r) directly or indirectly take, agree to take or otherwise
permit to occur any of the actions described in Sections 5.1(a) through
5.1(q).
5.2. ACCESS BY PARENT. Subject to the Confidentiality Agreement,
from the date hereof through the Closing Date, the Company shall, and shall
cause the Company's officers, Employees and Representatives to, afford the
Representatives of the Parent and those of its lenders access upon reasonable
notice and at all reasonable times to its Business for the purpose of
inspecting the same, and to its officers, Employees and Representatives,
properties, Books and Records, Contracts and other Assets, and shall furnish
Parent and its Representatives and those of its lenders, upon reasonable
notice and in a timely manner, all financial, operating and other data and
information as Parent or its affiliates, through their respective
Representatives, may reasonably request.
5.3. NOTIFICATION OF CERTAIN MATTERS. The Company and the
Stockholders shall give prompt notice to Parent of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty of the Company or any Stockholder
contained in this Agreement to be untrue or inaccurate in any material
respect and (ii) any material failure of the Company or any Stockholder to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; PROVIDED, HOWEVER, that such disclosure
shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition. The Company and the
Stockholders shall promptly notify Parent of any Default, the threat or
commencement of any Action, or any development that occurs before the Closing
that could reasonably be expected to result in a Company Material Adverse
Effect.
5.4. NO MERGERS, CONSOLIDATIONS, SALE OF STOCK, ETC. Neither the
Company nor any Stockholder will, directly or indirectly, through any
Representative or otherwise, (a) solicit any inquiries or proposals or enter
into or continue any discussions, negotiations or agreements relating to (i)
the sale or exchange of the Company's capital stock, (ii) the merger of the
Company with, or the direct or indirect disposition of a significant amount
of the Assets or the Business to, any Person other than Parent or (iii) the
licensing of the Company's Proprietary Rights to any Person or (b) provide
any assistance or any information to or otherwise cooperate with any Person
in connection with any such inquiry, proposal or transaction. Without
limiting the foregoing, the Company will cause Xxxxxxx Xxxxx & Company LLC to
immediately terminate
48
all efforts to solicit a transaction. The Company and the Stockholders hereby
represent that neither the Company nor any Stockholder is now engaged in
discussions or negotiations with any party other than Parent with respect to
any transaction of the kind described in clauses (a) (i) through (a) (iii) of
the preceding sentence (a "PROPOSED ACQUISITION TRANSACTION"). The Company
and each Stockholder agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which any of
them is a party. The Company and the Stockholders shall (w) immediately
notify Parent (orally and in writing) if any offer is made, any discussions
or negotiations are sought to be initiated, any inquiry, proposal or contact
is made or any information is requested with respect to any Proposed
Acquisition Transaction, (x) promptly notify Parent of the terms of any
proposal which it may receive in respect of any such Proposed Acquisition
Transaction, including, without limitation, the identity of the prospective
purchaser or soliciting party, (y) promptly provide Parent with a copy of any
such offer, if written, or a written summary (in reasonable detail) of such
offer, if not in writing, and (z) keep Parent informed of the status of such
offer and the offeror's efforts and activities with respect thereto.
5.5. POOLING ACCOUNTING TREATMENT.
(a) Set forth on SCHEDULE 5.5 is a list of all Persons who
are, in the Company's reasonable judgment after consultation with outside
counsel, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations (including, without limitation, SEC Accounting
Releases 130 and 135). The Company and the Stockholders shall cause each such
Person to deliver to Parent and Sub on or prior to the Closing Date a written
agreement substantially in the form attached hereto as Exhibit C (an
"AFFILIATE LETTER").
(b) The Company and the Stockholders shall use diligent
efforts in good faith to cause the transactions contemplated by this
Agreement to be accounted for as a pooling of interests under APB 16 and
applicable SEC rules and regulations, and to have such accounting treatment
accepted by the Company's independent public accountants, by independent
Parent's independent public accountants, and by the SEC, respectively. The
Company and each Stockholder agree that none of them will knowingly take any
action that would cause such accounting treatment not to be obtained.
5.6. COMPANY STOCKHOLDER APPROVAL. The Company agrees that it will
submit to the Stockholders a unanimous written consent in lieu of a meeting
of such Stockholders (the "STOCKHOLDER CONSENT") in substantially the form
attached hereto as EXHIBIT D, (a) approving the execution, delivery and
performance by the Company of this Agreement and each of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated hereby and thereby and (b) expressly waiving any dissenters'
appraisal or similar remedy available under the DGCL or other applicable law.
Each Stockholder agrees that, immediately following the execution and
delivery of this Agreement, it will execute and deliver to the Company, with
a copy to Parent, a counterpart to the Stockholder Consent dated as of the
date hereof, which Stockholder Consent upon delivery will become irrevocable.
49
5.7. BOARD OBSERVER RIGHTS. From the date hereof to the first to
occur of (a) the Effective Time or (b) the termination of this Agreement in
accordance with Section 10.1, Parent will be invited to have a representative
of Parent attend all meetings of the Company's Board of Directors and any
board committees as an observer and to receive copies of all materials and
communications provided to the Company's Board of Directors and board
committees when so distributed, all of which materials will be delivered
subject to the Confidentiality Agreement. Parent's representatives will not
be excluded from any portion of such meetings or discussions except only for
those portions (i) in which the Company's position on issues with Parent is
considered, (ii) in which the Company's counsel communicates with the
Company's Board of Directors on matters where Parent's attendance might
jeopardize the maintenance of the corporate attorney-client privilege for the
Company and (iii) in which, in the good faith judgment of counsel to the
Company, participation by Parent is not appropriate under applicable law,
including, but not limited to, portions involving data which is not
appropriate for dissemination to Parent under applicable antitrust or trade
regulation laws.
5.8. FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.9. NASDAQ NATIONAL MARKET LISTING OF ADDITIONAL SHARES
APPLICATION. Parent shall use its commercially reasonable efforts to cause
the Merger Shares to be authorized for listing on the Nasdaq National Market,
subject to official notice of issuance.
5.10. COMPANY'S AUDITORS. The Company will use commercially
reasonable efforts to cause its management and the Company's independent
accountants, PricewaterhouseCoopers LLP, to facilitate on a timely basis (i)
the preparation of financial statements (including pro forma financial
statements if required) as required by Parent to comply with applicable SEC
regulations and (ii) the review of any Company or predecessor audit work
papers, including, as applicable, the review of selected interim financial
statements and data.
5.11. CLOSING DATE. Each party to this Agreement shall use all
reasonable commercial efforts to cause the Closing to occur on or before May
28, 1999.
5.12. TAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
the Company will grant such approvals and take such actions as are necessary
so that the transactions contemplated hereby may be consummated as promptly
as practicable on the terms contemplated hereby and otherwise act to
eliminate the effects of any Takeover Statute on any of the transactions
contemplated hereby.
5.13. ADDITIONAL AFFILIATE LETTERS. The Company agrees that if any
Person would have been a Company Affiliate or had such Person been a
stockholder of the Company, the Company shall cause such person to execute
and deliver to the Company a Company Affiliate Letter in accordance with
Section 5.5 promptly upon such Person attaining such status.
50
5.14. COMPANY AUDITED FINANCIALS. The Company will use its
commercially reasonable efforts to prepare and deliver to Parent within
twenty (20) days of the Closing Date (i) the Company Financial Statements for
the year ended December 31, 1998 along with the opinion of
PricewaterhouseCoopers LLP (the "COMPANY AUDITED FINANCIALS") and (ii) a
schedule summarizing the adjustments made to the Company Financials for the
period ended December 31, 1998 as previously provided to Parent (which will
be prepared on a basis consistent in all material respects with the Financial
Statements and, except as contemplated by SCHEDULE 2.12(a), will not differ
materially from those financial statements without Parent's written consent)
in order to arrive at the Company Audited Financials. The Company Audited
Financials will be provided to Parent in draft form and Parent shall have an
opportunity to ask questions and receive responses from senior management of
the Company regarding such financial statements before they are finalized.
5.15. MEDFORD PROPERTY CONTRIBUTION. Prior to the Effective Time,
The Eiger Mountain Real Estate Trust and The Promise Land Real Estate
Development Trust shall contribute to the Company a fee simple interest in
the Medford Property, free and clear of any Encumbrances or liabilities
whatsoever including, without limitation, indebtedness for borrowed money,
except for Permitted Encumbrances not material to the value or use of the
property. All expenses (including, for example, property taxes and
insurance), will be prorated to the date of contribution. Upon request, the
present owner of the Medford Property will at its expense provide to Parent a
"Phase I" environmental report in form and substance acceptable to Parent in
its sole discretion. The form of deed and conveyance documents, title
insurance and exceptions thereto shall be in customary form and satisfactory
to Parent in its reasonable discretion, such approval to be evidenced if and
when granted by the written approval of the General Counsel of Parent. The
sole consideration to be paid by the Company in connection with the
contribution of the Medford Property will be shares of Company Stock. Any
transfer taxes, title insurance fees or similar costs shall be borne solely
by the present owners of the Medford Property.
5.16. STOCKHOLDER NOTE CONVERSION. Prior to the Effective Time, all
indebtedness of the Company due to the noteholders as identified on SCHEDULE
5.16 (including any related accrued and unpaid interest, premium, costs or
other obligations under the respective promissory notes) shall be contributed
to the Company solely in consideration for the issuance to such persons of
shares of Company Stock as set forth on such schedule (the "STOCKHOLDER NOTE
CONVERSION"). The shares of Company Stock to be issued in the Stockholder
Note Conversion will have a fair market value, on the date of conversion, of
not less than the aggregate principal amount, accrued but unpaid interest,
premium, fees and costs payable to the holders under all such contributed
indebtedness and the Company will provide Parent with documentary evidence
which supports such determination in form and substance satisfactory to
Parent. The Company and the Stockholders represent that all indebtedness of
the Company for borrowed money due to any Related Party of the Company is
identified on SCHEDULE 5.16.
5.17. TREATMENT OF COMPANY OPTIONS; CALCULATION OF OPTION EXCHANGE
RATIO. The parties agree that the Option Exchange Ratio shall be calculated
consistent with the methodology set forth in SCHEDULE 1.1. The Chief
Financial Officer of Parent and the Chief Executive Officer of the Company
will meet no later than the day before the Closing Date to update the
estimates
51
contained in SCHEDULE 1.1 and update the assumed price of Parent Stock to the
closing price of Parent Stock on Nasdaq as of the day prior to the Closing
Date and thereby arrive at the Option Exchange Ratio, which shall be
reflected in a certificate signed by the Chief Financial Officer of Parent
and the Chief Executive Officer of the Company, which shall be final and
binding for all purposes of this Agreement. In the event the parties cannot
agree, the determination of the Option Exchange Ratio shall be submitted to
arbitration pursuant to Section 10.12 and the termination date set forth in
Section 10.1(a)(ii) shall be tolled pending such determination. The parties
acknowledge that this methodology contemplates that no change in the Exchange
Ratio or Option Exchange Ratio will result due to the Medford Property
Contribution contemplated by Section 5.15.
5.18. FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree, in each case both before and
after the Closing, (i) to use all commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements,
(ii) to use their respective commercially reasonable efforts to cause the
Merger to qualify, and will not take any actions which to their knowledge
could reasonably be expected to prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368(a) of the Code or for the
pooling of interests method of accounting under XXX 00, (xxx) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder and thereunder and (iv) to cooperate with each other in connection
with the foregoing. Without limiting the foregoing, the parties agree to use
their respective reasonable commercial efforts (A) to obtain any necessary
Consents (including, without limitation, all filings required to be made
under the HSR Act with respect to this Agreement and the transactions
contemplated hereby) (B) to give all notices to, and make all registrations
and filings with third parties, including submissions of information
requested by governmental authorities and (C) to fulfill all other conditions
to this Agreement. Notwithstanding the foregoing, (y) no amendment or
modification shall be made to any Contract to obtain any required Consent
without the prior written consent of Parent and (z) no party hereto or any of
their respective Affiliates shall be required to sell, transfer, divest or
otherwise dispose of any of its respective business, assets or properties in
connection with this Agreement or any of the transactions contemplated
hereby. Parent agrees to use all commercially reasonable efforts to obtain
from its existing bank lender the financing referred to in Section 7.11. Each
party shall deliver customary closing certificates and representations for
the purpose of facilitating delivery of the opinions of counsel and the
outside independent accountants contemplated by this Agreement.
ARTICLE 6.
CONDITIONS TO THE COMPANY'S AND THE STOCKHOLDERS' OBLIGATIONS
The obligations of the Company and the Stockholders to effect the
Merger and complete the related transactions contemplated by this Agreement
are subject, in the discretion of the Company and the Stockholders, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
52
6.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
and warranties of Parent and Sub contained in this Agreement shall be true
and correct in all material respects (without regard to any materiality
qualifier contained therein) at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and
Parent and Sub shall have performed in all material respects all agreements
and covenants required hereby to be performed by it prior to or at the
Closing Date (without regard to any materiality qualifier contained therein).
There shall be delivered to the Company and Stockholders a certificate of
Parent and Sub signed by their President and Chief Financial Officer to the
foregoing effect ("PARENT CLOSING CERTIFICATE").
6.2. CONSENTS. All Consents, approvals and waivers from governmental
authorities necessary to permit consummation of the Merger as contemplated
hereby shall have been obtained and all approvals required under any
Regulations to permit Parent and Sub to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements (including,
without limitation, the expiration or termination of the waiting period under
the HSR Act) shall have been obtained.
6.3. NO COURT ORDERS. There shall not be any Regulation or Court
Order that makes the transactions contemplated hereby and by the Ancillary
Agreements illegal or otherwise prohibited.
6.4. CLOSING DOCUMENTS. Parent shall have delivered to the
Stockholders the documents and other items described in Section 8.2 and such
other documents and items as the Company or the Stockholders may reasonably
require.
6.5. OPINION OF COUNSEL. Stockholders shall have received an opinion
of Xxxxxx & Xxxxxxx, counsel to Parent and Sub, dated as of the Closing, in
customary form and reasonably acceptable to the Company, and a tax opinion of
Pillsbury Madison & Sutro LLP, counsel to the Company and the Stockholders,
dated as of the Closing, in customary form and reasonably acceptable to the
Company, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
6.6. MATERIAL ADVERSE CHANGE. There shall not have been any
Parent Material Adverse Change.
ARTICLE 7.
CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS
The obligations of Parent and Sub to effect the Merger and complete
the related transactions contemplated by this Agreement are subject, in the
discretion of Parent, to the satisfaction, on or prior to the Closing Date,
of each of the following conditions:
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
and warranties of the Company and each Stockholder contained in this
Agreement shall be true and correct in all material respects (without regard
to any materiality qualifier contained therein) at and as of the
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Closing Date as if such representations and warranties were made at and as of
the Closing Date, and the Company and each of the Stockholders shall have
performed in all material respects all agreements and covenants required
hereby to be performed prior to or at the Closing Date (without regard to any
materiality qualifier contained therein). There shall be delivered to Parent
a certificate of the Company signed by its Chief Executive Officer and its
President (the "COMPANY CLOSING CERTIFICATE") and each Stockholder to the
foregoing effect (each, a "STOCKHOLDER'S CLOSING CERTIFICATE").
7.2. CONSENTS. All Consents, approvals and waivers from governmental
authorities and other parties (but excluding required Consents of Company any
vendors) necessary to permit consummation of the Merger as contemplated
hereby and by the Ancillary Agreements and for the operation of the Business
after the Closing (including all required third party consents under the
Contracts) shall have been obtained. Parent shall be satisfied that all
approvals required under any Regulations to permit the Company and the
Stockholders to carry out the transactions contemplated by this Agreement and
the Ancillary Agreements (including, without limitation, the expiration or
termination of the waiting period under the HSR Act) shall have been obtained.
7.3. NO ACTIONS OR COURT ORDERS. No Action by any court,
governmental authority or other Person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby and by the Ancillary Agreements. There shall not be any
Regulation or Court Order that makes the acquisition of the Company stock
contemplated hereby illegal or otherwise prohibited or that otherwise may
have a Company Material Adverse Effect.
7.4. CLOSING DOCUMENTS. The Company and/or the Stockholders, as the
case may be, shall have delivered to Parent the documents and other items
described in Section 8.1 and such other documents and items as Parent may
reasonably require.
7.5. EXEMPTION UNDER FEDERAL AND STATE SECURITIES LAWS. Parent shall
be satisfied in its reasonable discretion that the issuance of shares of
Parent Stock in the Merger will not violate any federal or state securities
laws.
7.6. STOCKHOLDER CONSENT. The Stockholders shall have unanimously
executed the Stockholder Consent and the Company shall have taken all further
actions related to the due authorization of the Merger as may be required
under the DGCL including, without limitation, the valid waiver of any right
to assert dissenters' or similar rights under the DGCL or other applicable
law.
7.7. TAX MATTERS.
(a) No new elections with respect to Taxes, or changes in
current elections with respect to Taxes, affecting the Company shall have
been made after the date of this Agreement without the prior written consent
of Parent, which consent shall not be unreasonably withheld.
(b) The Stockholders and the Company shall have provided
Parent with (i) all forms, certificates and/or other instruments required to
pay the transfer and recording taxes and
54
charges arising from the transactions contemplated by this Agreement,
together with evidence satisfactory to Parent that such transfer taxes and
charges have been paid by the Company or the Stockholders, and (ii) a
clearance certificate or similar document(s) which may be required by any
state taxing authority to relieve Parent of any obligation to withhold any
portion of the payments to the Stockholders pursuant to this Agreement.
(c) The Stockholders and the Company shall use all
commercially reasonable efforts to obtain from the IRS, and deliver to
Parent, official, plain English, transcripts for both MFT and the Company (i)
covering all taxable years or periods of MFT and the Company from and
including 1994 through the date of issuance of such transcripts (which date
shall be no earlier than two weeks prior to the Closing Date); and (ii)
reflecting that no unpaid assessments have been made by the IRS against MFT
or the Company, as the case may be, as of the date of issuance of such
transcripts.
7.8. OPINION OF COUNSEL. Parent shall have received an opinion of
Pillsbury Madison & Sutro LLP, counsel to the Company, dated as of the
Closing, in customary form and reasonably acceptable to Parent, and a tax
opinion of Xxxxxx & Xxxxxxx, counsel to Parent, dated as of Closing, in
customary form and reasonably acceptable to the Company, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code.
7.9. EMPLOYMENT AGREEMENTS. Each of the persons listed on SCHEDULE
7.9 shall have executed and delivered to Parent an Employment Agreement and
such Employment Agreement shall be in full force and effect.
7.10. STOCKHOLDER EXECUTION OF MERGER AGREEMENT. Each Stockholder
shall have duly executed and delivered a counterpart of this Agreement.
7.11. BANK FINANCING. Parent shall have arranged for bank financing
on terms satisfactory to it in its sole discretion in an amount and on the
terms deemed necessary by it to refinance the existing indebtedness of Parent
and the Company (including all Funded Debt of the Company) and provide for
the continuing needs of the combined business.
7.12. FIRPTA COMPLIANCE. The statement in the form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3) shall be executed and delivered.
7.13. RELATED AGREEMENT. Parent, MFT and the other parties
identified therein shall have entered into the related agreement in the form
previously agreed.
7.14. POOLING LETTERS. Parent shall have received a letter (a
"POOLING LETTER") from each of the Company's independent certified public
accountants, PricewaterhouseCoopers LLP, and Parent's independent certified
public accountants, KPMG Peat Marwick LLP, dated the Closing Date,
satisfactory to Parent in its sole discretion, to the effect the business
combination contemplated by this Agreement and the Ancillary Agreements
qualifies as a pooling of interests under APB 16 and the applicable rules and
regulations of the SEC.
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7.15. MATERIAL ADVERSE CHANGE. There shall not have been any
Company Material Adverse Change.
ARTICLE 8.
CLOSING
On the Closing Date at the Closing Place:
8.1. DELIVERIES BY THE COMPANY AND THE STOCKHOLDERS TO PARENT. The
Company and each Stockholder, as applicable, shall deliver (or cause to be
delivered) to Parent:
(a) the Ancillary Agreements, duly executed by each
party thereto other than Parent and Sub;
(b) any Consents required to be obtained by the Company or
the Stockholders;
(c) the Company Closing Certificate and each of the
Stockholder's Closing Certificates;
(d) an opinion of Pillsbury Madison & Sutro LLP, counsel to
the Company and the Stockholders, dated as of the Closing Date, as provided
for in Section 7.8;
(e) an affidavit, stating, under penalty of perjury, each
Stockholder's U.S. taxpayer identification number and that the transferor is
not a foreign person, pursuant to Section 1445(b)(2) of the Code;
(f) a fully executed Affiliate Letter from each of the
Persons identified on SCHEDULE 5.5 hereof;
(g) a Pooling Letter dated the Closing Date, from the
Company's independent certified public accountants, PricewaterhouseCoopers
LLP, which shall be satisfactory to Parent in its sole discretion;
(h) the Stockholder Consent, duly executed by each of the
Stockholders; and
(i) all share certificates representing the shares of
Company Stock to be canceled in connection with the Merger.
8.2. DELIVERIES BY PARENT TO THE STOCKHOLDERS. Parent shall
deliver to the Stockholders:
(a) the Ancillary Agreements to which Parent or Sub is a
party, duly executed by them;
(b) any Consents required to be obtained by Parent;
(c) the Parent Closing Certificate;
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(d) an opinion of Xxxxxx & Xxxxxxx, counsel to Parent and
Sub, dated as of the Closing Date, as provided for in Section 6.5;
(e) the Merger Shares to be issued to the Stockholders and
the Depositary Agent as provided for herein.
ARTICLE 9.
INDEMNIFICATION
9.1. SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in
this Agreement, any schedule or in any certificate or instrument of
conveyance delivered by or on behalf of the parties pursuant to this
Agreement or in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by such party hereunder. The
representations and warranties contained herein shall survive the Closing
Date (and claims based upon or arising out of such representations and
warranties, as well as any claims based upon or arising out of any covenants
and agreements herein or made hereunder, may be asserted at any time before
the date which shall be) until the first anniversary of the execution of this
Agreement; PROVIDED, HOWEVER, (a) the Company's and the Stockholders'
representations and warranties in Section 3.23 (Taxes) shall survive the
Closing until the later to occur of (i) the fifth anniversary of the
execution of this Agreement and (ii) expiration of all relevant statutes of
limitation (including any extensions thereof) and (b) the Stockholders'
representations and warranties set forth in Article 3A (Stockholders'
Ownership of Stock) shall survive the Closing Date in perpetuity. No
investigation made by any of the parties hereto (whether prior to, on or
after the Closing Date) shall in any way limit the representations and
warranties of the parties. On the Closing Date all representations and
warranties contained in this Agreement and made by the Company and the
Stockholders shall expire as to the Company and thereafter will be deemed to
have been made exclusively by the Stockholders. The termination of the
representations and warranties provided herein shall not affect the rights of
a party in respect of any claim made by such party in a writing received by
the other party prior to the expiration of the applicable survival period
provided herein.
9.2. INDEMNIFICATION.
(a) GENERAL.
(i) Subsequent to the Closing, the holders immediately
prior to the Effective Time of shares of Company Stock shall, subject to
Section 9.5(c), jointly and severally, indemnify Parent, its Affiliates, and
each of their respective, officers, directors, employees, stockholders and
agents ("PARENT INDEMNIFIED PARTIES") against, and hold each of the Parent
Indemnified Parties harmless from, any damage, claim, loss, cost, Tax,
Liability or expense, including without limitation, interest, penalties,
reasonable attorneys' fees and expenses of investigation, diminution of
value, response action, removal action or remedial action (collectively
"DAMAGES") incurred by any such Parent Indemnified Party, that are incident
to, arise out of, in connection with, or related to, the breach of any
warranty, representation,
57
covenant or agreement of the Company or any such holder contained in this
Agreement or any schedule hereto or in any certificate or instrument of
conveyance (including, without limitation, any Transmittal Letter) delivered
by or on behalf of the Company or any such holder pursuant to this Agreement
or in connection with the transactions contemplated hereby, other than any
warranty or representation contained in Article 3A of this Agreement.
(ii) Subsequent to the Closing, each holder
immediately prior to the Effective Time of the Company Stock shall, severally
and not jointly, indemnify the Parent Indemnified Parties against, and hold
each of the Parent Indemnified Parties harmless from, any Damages incurred by
such Parent Indemnified Party, that are incident to, arise out of, in
connection with, or related to, the breach of any warranty or
representation of such holder contained in Article 3A of this Agreement, or any
warranty or representation of substantially similar subject matter to those
contained in Section 3A of this Agreement that are contained in any schedule
hereto or in any certificate or instrument of conveyance (including, without
limitation, any Transmittal letter) delivered by or on behalf of such holder
pursuant to this Agreement or in connection with the transactions contemplated
hereby.
(iii) Subsequent to the Closing, Parent shall
indemnify the holders immediately prior to the Effective Time of Company
Stock, their Affiliates, and each of their respective partners, officers,
directors, employees, stockholders and agents, as the case may be
("STOCKHOLDER INDEMNIFIED PARTIES"), against, and hold each of the
Stockholder Indemnified Parties harmless from, any Damages incurred by such
Stockholder Indemnified Party, that are incident to, arise out of, in
connection with, or related to, whether directly or indirectly, the breach of
any warranty, representation, covenant or agreement of Parent or Sub
contained in this Agreement, any schedule or in any certificate or instrument
of conveyance delivered by or on behalf of Parent or Sub pursuant to this
Agreement or in connection with the transactions contemplated hereby.
The term "Damages" as used in this Section 9.2 is not limited to
matters asserted by third parties against Stockholder Indemnified Parties or
Parent Indemnified Parties, but includes Damages incurred or sustained by
such persons in the absence of third party claims. The right to obtain
indemnification provided in this Section 9.2(a) is in addition to any other
remedy at contract or in the law (but without duplication of recovery) and it
is expressly agreed that it shall not limit in any way the right of the
Surviving Corporation to enforce the Contribution Agreement.
(b) PROCEDURE FOR CLAIMS.
If a claim for Damages (a "CLAIM") is to be made by a
person entitled to indemnification hereunder, the person claiming such
indemnification (the "INDEMNIFIED PARTY") shall give written notice (a "CLAIM
NOTICE") to the indemnifying person (the "INDEMNIFYING PARTY") promptly after
the Indemnified Party becomes aware of any fact, condition or event which may
give rise to Damages for which indemnification may be sought under this
Section 9.2 PROVIDED, that if the Indemnified Party is a Stockholder
Indemnified Party, such Claim Notice shall only be valid if it is delivered
by the Stockholder Representative; and PROVIDED FURTHER, that
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if the Indemnified Party is a Parent Indemnified Party, such Claim Notice
shall be valid if it is delivered to the Stockholder Representative. The
failure of any Indemnified Party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except and only to the extent
that, the Indemnifying Party demonstrates actual material damage caused by
such failure, and then only to the extent thereof. In the case of a Claim
involving the assertion of a claim by a third party (whether pursuant to a
lawsuit, other legal action or otherwise, a "THIRD-PARTY CLAIM"), if the
Indemnifying Party shall acknowledge in writing to the Indemnified Party that
the Indemnifying Party shall be obligated to indemnify the Indemnified Party
under the terms of its indemnity hereunder in connection with such
Third-Party Claim, then (A) the Indemnifying Party shall be entitled and, if
it so elects, shall be obligated at its own cost, risk and expense, (1) to
take control of the defense and investigation of such Third-Party Claim and
(2) to pursue the defense thereof in good faith by appropriate actions or
proceedings promptly taken or instituted and diligently pursued, including,
without limitation, to employ and engage attorneys of its own choice
reasonably acceptable to the Indemnified Party to handle and defend the same,
and (B) the Indemnifying Party shall be entitled (but not obligated), if it
so elects, to compromise or settle such claim, which compromise or settlement
shall be made only with the written consent of the Indemnified Party, such
consent not to be unreasonably withheld. In the event the Indemnifying Party
elects to assume control of the defense and investigation of such lawsuit or
other legal action in accordance with this Section 9.2(b), the Indemnified
Party may, at its own cost and expense, participate in the investigation,
trial and defense of such Third-Party Claim; PROVIDED that, if the named
persons to a lawsuit or other legal action include both the Indemnifying
Party and the Indemnified Party and the Indemnified Party has been advised in
writing by counsel that there may be one or more legal defenses available to
such Indemnified Party that are different from or additional to those
available to the Indemnifying Party, the Indemnified Party shall be entitled,
at the Indemnifying Party's cost, risk and expense, to retain one firm of
separate counsel of its own choosing. If the Indemnifying Party fails to
assume the defense of such Third-Party Claim in accordance with this Section
9.2 within ten (10) calendar days after receipt of the Claim Notice, the
Indemnified Party against which such Third-Party Claim has been asserted
shall (upon delivering notice to such effect to the Indemnifying Party) have
the right to undertake, at the Indemnifying Party's cost, risk and expense,
the defense, compromise and settlement of such Third-Party Claim on behalf of
and for the account of the Indemnifying Party; PROVIDED that such Third-Party
Claim shall not be compromised or settled without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. In the
event the Indemnifying Party assumes the defense of the claim, the
Indemnifying Party shall keep the Indemnified Party reasonably informed of
the progress of any such defense, compromise or settlement, and in the event
the Indemnified Party assumes the defense of the claim, the Indemnified Party
shall keep the Indemnifying Party reasonably informed of the progress of any
such defense, compromise or settlement. The Indemnifying Party shall be
liable for any settlement of any Third-Party Claim effected pursuant to and
in accordance with this Section 9.2 and for any final judgment (subject to
any right of appeal), and the Indemnifying Party agrees to indemnify and hold
harmless each Indemnified Party from and against any and all Damages by
reason of such settlement or judgment.
9.3. NO RIGHT OF CONTRIBUTION. After the Closing, no Stockholder
shall have any right of contribution against the Surviving Corporation for
any breach of any representation, warranty,
59
covenant or agreement of the Company. The Stockholders and Parent shall be
entitled to specific performance and injunctive relief, without posting bond
or other security, for the purpose of asserting their respective rights under
this Article 9. The remedies described in this Section 9 shall be in addition
to, and not in lieu of, any other remedies at law or in equity that the
parties may elect to pursue, but without duplication of recovery.
9.4. ESCROW OF MERGER SHARES.
(a) ESTABLISHMENT OF THE ESCROW FUNDS. As soon as
practicable after the Effective Time, the Escrow Shares (consisting of the
General Escrow Fund and the Tax Audit Escrow Fund), without any act of any
Stockholder, will be deposited by Parent with the Depositary Agent, such
deposit to be governed by the terms set forth herein and at Parent's sole
cost and expense. The portion of the Escrow Shares contributed on behalf of
each Stockholder shall be in proportion to the aggregate number of shares of
Parent Stock which such holder would otherwise be entitled under Section 2.6.
Notwithstanding the references in this Agreement to the "escrow" and the
Escrow Shares, the parties acknowledge and agree that the Depositary Agent is
acting as a depository and not as an escrow agent pursuant to this Article 9.
(b) RECOURSE TO THE ESCROW SHARES.
(i) The General Escrow Shares shall be available to
compensate each Parent Indemnified Party for (i) all Damages (whether or not
involving a Third Party Claim), incurred or sustained by such Parent
Indemnified Party as a result of any inaccuracy or breach of any
representation, warranty, covenant or agreement of the Company or any
Stockholder contained herein or in any instrument delivered by the Company or
any Stockholder pursuant to this Agreement which survived the Effective Time
in accordance with this Agreement; PROVIDED, HOWEVER, that any such claim
against the General Escrow Fund shall be subject to the limitations set forth
in Section 9.5(a) and (ii) for any negative Adjustment Amount. Parent, Merger
Sub and the Company each acknowledge that any such Damages or negative
Adjustment Amount, if any, would relate to unresolved contingencies existing
at the Effective Time, which if resolved at the Effective Time would have led
to a reduction in the aggregate Merger consideration to be paid to the
Stockholders.
(ii) The Tax Audit Escrow Fund shall be available to
compensate a Parent Indemnified Party solely for any Damages (whether or not
involving a Third Party Claim) incurred or sustained by such Parent
Indemnified Party, directly or indirectly, as a result of or arising out of,
directly or indirectly, Tax issues raised in connection with the
restructuring of Musician's Friend, Inc. and Semita Corporation into MFT, the
operations, income, distributions and Tax Returns of MFT and related entities
subsequent to that restructuring, the transfer of assets and liabilities by
MFT to the Company, or the IRS audit reports dated July 15, 1998 (covering
MFT's taxable year ended December 31, 1994) and October 21, 1998 (covering
MFT's taxable years ended December 31, 1995 and December 31, 1996), together
with any amendments thereto or any existing or future IRS, state or local
claims, notices or reports addressing the same or similar tax issues (the
"MFT TAX MATTERS"). The Parent Stock held in the Tax Audit Escrow Fund may,
at the written direction of the Stockholder Representative (as defined
below), be sold
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provided that, to the satisfaction of Parent: (1) the shares are sold to an
unrelated third party solely for cash representing fair market value for the
shares sold; (2) the proceeds of the sale (net only of reasonable, actual
brokerage or similar sales commissions paid to an unrelated third party) are
deposited with the Depositary Agent and become part of the Tax Audit Escrow
Fund; and (3) the sale of shares of Parent Stock is made in compliance with
all applicable legal requirements. At all times up and until the closing of
any such sale of shares of Parent Stock those shares shall remain in the sole
control of the Depositary Agent. No Person shall have any authority to direct
the sale of the shares in the Tax Audit Escrow Fund other than the
Stockholder Representative.
(iii) Recourse for Damages related to MFT Tax Matters
may be sought from either the General Escrow Fund or the Tax Audit Escrow
Fund at the discretion of the Parent Indemnified Party, but without
duplication of recovery.
(c) ESCROW PERIODS; DISTRIBUTION OF ESCROW SHARES AND CASH
UPON TERMINATION OF ESCROW PERIOD.
(i) Subject to the following requirements, the General
Escrow Fund shall be in existence immediately following the Effective Time
and shall terminate at 5:00 p.m., Pacific Time, on the first to occur of (1)
the publication by Parent of its audited financial statements accompanied by
the audit report of its independent accountants for the year ended December
31, 1999 or (2) the first anniversary of the Closing Date (the period of time
from the Effective Time through and including such termination date is
referred to herein as the "GENERAL ESCROW PERIOD"); and all shares of Parent
Stock remaining in the General Escrow Fund shall be distributed as set forth
in the last sentence of this Section 9.4(c)(i); PROVIDED, HOWEVER, that the
General Escrow Period shall not terminate with respect to such amount (or
some portion thereof) that is necessary in the reasonable judgment of Parent,
subject to the objection of the Stockholder Representative and the subsequent
arbitration of the matter in the manner as provided in this Agreement, to
satisfy any unsatisfied written claims under this Article 9 concerning facts
and circumstances existing prior to the termination of such General Escrow
Period which claims are specified in any Officer's Certificate delivered to
the Depositary Agent prior to termination of such General Escrow Period. As
soon as all such claims, if any, have been resolved, the Depositary Agent
shall deliver to the Stockholder Representative for distribution to the
Stockholders immediately prior to the Effective Time the remaining portion of
the General Escrow Fund not required to satisfy such claims. Parent shall use
its commercially reasonable efforts to have such shares delivered within five
(5) business days.
(ii) Subject to the following requirements, the Tax
Audit Escrow Fund shall be in existence immediately following the Effective
Time and shall terminate at the first to occur of (1) 5:00 p.m., Pacific
Time, on the fifth anniversary of the Closing Date and (2) such time as the
MFT Tax Matters and all related appeals are finally completed and it shall
have been conclusively determined that no Parent Indemnified Party
(including, without limitation, Parent and the Surviving Corporation) has any
remaining unpaid Liability with respect to the matters covered by the MFT Tax
Matters (the period of time from the Effective Time through and including
such termination date is referred to herein as the "TAX ESCROW PERIOD"); and
all shares
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of Parent Stock and cash (if any) remaining in the Tax Audit Escrow Fund
shall be distributed as set forth in the last sentence of this Section
9.4(c)(ii). As soon as all such claims, if any, have been resolved or the Tax
Escrow Period shall have expired, the Depositary Agent shall deliver to the
Stockholder Representative for distribution to the Stockholders immediately
prior to the Effective Time the remaining portion of the Tax Audit Escrow
Fund not required to satisfy such claims. Parent shall use its commercially
reasonable efforts to have such shares and cash (if any) delivered within
five (5) business days.
(d) PROTECTION OF ESCROW FUNDS. The Depositary Agent shall
hold and safeguard the Escrow Shares (and any cash proceeds) during the
respective Escrow periods, shall treat each such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Shares (and any cash proceeds) only
in accordance with the terms hereof.
Any shares of Parent Stock or other equity equivalent securities
issued or distributed by Parent ("NEW SHARES") in respect of Parent Stock in
the General Escrow Fund or the Tax Audit Escrow Fund (the "ESCROW FUNDS")
which have not been released from such Escrow Fund shall be added to the
appropriate Escrow Fund(s). New Shares issued in respect of shares of Parent
Stock which have been released from an Escrow Fund shall not be added to such
Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Stock shall not be added to an Escrow Fund but shall be
distributed to the record holders of the Parent Stock on the record date set
for any such dividend. Each Stockholder immediately prior to the Effective
Time shall have voting rights with respect to the shares of Parent Stock
contributed to any Escrow Fund by such Stockholder (and on any voting
securities added to any Escrow Fund in respect of such shares of Parent
Stock).
(e) CLAIMS UPON ESCROW FUNDS. Upon receipt by the
Depositary Agent at any time on or before the last day of the General Escrow
Period or the Tax Escrow Period, as the case may be, of a certificate signed
by any officer of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that a
Parent Indemnified Party has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue Damages as a result of any
inaccuracy or breach of any representation, warranty, covenant or agreement
of the Company contained herein or in any instrument delivered pursuant to
this Agreement, a negative Adjustment Amount, or Damages related to the MFT
Tax Matters, as the case may be, and (B) specifying in reasonable detail the
individual items of Damages included in the amount so stated, the date each
such item was paid or properly accrued, or the basis for such anticipated
liability, the Depositary Agent shall, subject to the provisions of Section
9.4(f) hereof, deliver to Parent out of the appropriate Escrow Fund(s), as
promptly as practicable, shares of Parent Stock and/or cash held in the
applicable Escrow Fund in an amount equal to such Damages.
For the purposes of determining the number of shares of Parent Stock
to be delivered to a Parent Indemnified Party out of an Escrow Fund pursuant
to Section 9.4(e), the shares of Parent Stock shall be valued at the Closing
Price. In the event an Escrow Fund also contains cash, the election to
receive cash or Parent Stock shall be made by the Parent Indemnified Party
entitled to receive Damages.
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(f) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Depositary Agent, a duplicate copy of such
certificate shall be delivered to the Stockholder Representative and for a
period of thirty (30) days after such delivery, the Depositary Agent shall
make no delivery to Parent of any Escrow Shares pursuant to Section 9.4(e)
hereof unless the Depositary Agent shall have received written authorization
from the Stockholder Representative to make such delivery. After the
expiration of such thirty (30) day period, the Depositary Agent shall make
delivery of shares of Parent Stock from the appropriate Escrow Fund in
accordance with Section 9.4(e) hereof, PROVIDED that no such payment or
delivery may be made if the Stockholder Representative shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Depositary Agent prior to the
expiration of such thirty (30) day period; PROVIDED, FURTHER, that no such
right to object shall be available to the Stockholder Representative in the
case of a negative Adjustment Amount determined in accordance with the
procedures established in Section 2.12.
(g) RESOLUTION OF CONFLICTS; ARBITRATION. In case the
Stockholder Representative shall object in writing to any claim or claims
made in any Officer's Certificate, the Stockholder Representative and Parent
shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Stockholder
Representative and Parent should so agree, joint written instructions setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Depositary Agent. The Depositary Agent shall be entitled
to rely on any such instructions and distribute shares of Parent Stock from
an Escrow Fund in accordance with the terms thereof. If no such agreement can
be reached after good faith negotiation, either Parent or the Stockholder
Representative may demand arbitration of the dispute pursuant to Section
10.12, unless the amount of the damage or loss is at issue in a pending
Action or Proceeding involving a Third Party Claim, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration.
9.5. THRESHOLD; LIMITATIONS ON INDEMNITY.
(a) The Parent Indemnified Parties shall not be entitled to
recover for any Damages from the General Escrow Fund until such time as the
Damages claimed by the Parent Indemnified Parties in the aggregate exceed
$150,000 (the "DAMAGE THRESHOLD"), at which time the Parent Indemnified
Parties shall be entitled to be indemnified against and compensated and
reimbursed for all such Damages, including the initial $150,000 thereof. No
Damage Threshold shall apply in the case of (1) a negative Adjustment Amount,
(2) a claim against the General Escrow Fund or the Tax Audit Escrow Fund
related to MFT Tax Matters, or (3) a claim related to a breach of Section
3.18(d).
(b) The Stockholder Indemnified Parties shall not be
entitled to recover for any Damages until such time as the Damages claimed by
the Stockholder Indemnified Parties in the aggregate exceed the Damage
Threshold, at which time the Stockholder Indemnified Parties shall be
entitled to be indemnified against and compensated and reimbursed for all
such Damages, including the initial $150,000 thereof.
63
(c) Notwithstanding any provision of this Agreement to the
contrary, to the extent any Parent Indemnified Party seeks to recover any
Damages in excess of the amount contained in the applicable Escrow Fund, such
liability shall be borne by the Stockholders severally in proportion to the
proportionate ownership of the Company Stock immediately prior to the
Effective Time, and not jointly.
9.6. STOCKHOLDER REPRESENTATIVE; POWER OF ATTORNEY.
(a) STOCKHOLDER REPRESENTATIVE. In the event that the
Merger is approved by the Stockholders, effective upon such vote, and without
further act of any Stockholder, Xxxxxx X. Xxxxxxx shall be appointed as agent
and attorney-in-fact (the "STOCKHOLDER REPRESENTATIVE") for each Stockholder,
to give and receive notices and communications, to authorize delivery to
Parent of shares of Parent Stock from an Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the
Stockholder Representative for the accomplishment of the foregoing. Such
agency may be changed by the Stockholders from time to time upon not less
than thirty (30) days prior written notice to Parent; PROVIDED, HOWEVER, that
the Stockholder Representative may not be removed unless holders of a
two-thirds interest in all shares held in both Escrow Funds agree to such
removal and to the identity of the substituted Stockholder Representative.
Any vacancy in the position of Stockholder Representative may be filled by
approval of the holders of a majority in interest of all shares held in both
Escrow Funds. No bond shall be required of the Stockholder Representative,
and the Stockholder Representative shall not receive compensation for his
services. Notices or communications to or from the Stockholder Representative
shall constitute notice to or from each of the Stockholders.
(b) EXCULPATION. The Stockholder Representative shall not
be liable for any act done or omitted hereunder as Stockholder Representative
while acting in good faith and in the exercise of reasonable judgment.
(c) ACTIONS OF THE STOCKHOLDER REPRESENTATIVE. A decision,
act, consent or instruction of the Stockholder Representative shall
constitute a decision for all of the Stockholders for whom a portion of the
Escrow Shares otherwise issuable to them are deposited in an Escrow Fund, and
shall be final, binding and conclusive upon each of such Stockholders, and
the Depositary Agent and Parent may rely exclusively upon any such decision,
act, consent or instruction of the Stockholder Representative as being the
decision, act, consent or instruction of every such Stockholder. The
Depositary Agent and Parent are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Representative.
64
ARTICLE 10.
MISCELLANEOUS
10.1. TERMINATION.
(a) This Agreement may be terminated at any time prior to
Closing:
(i) By the written agreement of Parent and the Company;
(ii) By Parent or the Company if the Closing shall not
have occurred on or before July 31, 1999, other than due to a breach of this
Agreement by the party seeking to terminate;
(iii) By Parent if there is a material breach of any
representation or warranty set forth in Article 3 or 3A or any covenant or
agreement to be complied with or performed by the Company or any Stockholder
pursuant to the terms of this Agreement and such breach persists for fourteen
(14) days or more after notice is given, so long as any such breach is not
caused by the action or inaction of Parent or Sub; or
(v) By the Company if there is a material breach of any
representation or warranty set forth in Article 4 hereof or of any covenant
or agreement to be complied with or performed by Parent or Sub pursuant to
the terms of this Agreement and such breach persists for fourteen (14) days
or more after notice is given, so long as any such breach is not caused by
the action or inaction of the Company or any of the Stockholders.
(b) In the event of termination of this Agreement:
(i) The provisions of the Confidentiality
Agreement shall continue in full force and effect; and
(ii) No party hereto shall have any liability to any
other party to this Agreement, except for any willful breach of, or knowing
misrepresentation made in, this Agreement occurring prior to the formal
termination of this Agreement.
10.2. ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company or any Stockholder
without the prior written consent of Parent, or by Parent or Sub without the
prior written consent of the Company.
10.3. NOTICES. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to
the other shall be in writing and delivered in person or by courier,
telegraphed, telexed, sent by facsimile transmission, sent via overnight
delivery service or mailed by registered or certified mail (such notice to be
effective upon receipt), as follows:
If to a Stockholder, to the address of such Stockholder as set forth
on Annex 1 hereto.
65
If prior to the Closing, to the Company:
Musician's Friend, Inc.
000 Xxxxx Xxxxx
Xxxxxxx, Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx,
Chief Executive Officer
Fax: (000) 000-0000
With a copy to:
Pillsbury Madison & Sutro LLP
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Fax: (000) 000-0000
If to the Stockholder Representative:
Xxxxxx X. Xxxxxxx
Musician's Friend, Inc.
000 Xxxxx Xxxxx
Xxxxxxx, Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx,
Chief Executive Officer
Fax: (000) 000-0000
With a copy to:
Pillsbury Madison & Sutro LLP
000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Fax: (000) 000-0000
66
If to Parent or Sub or, if after the Closing, to the Surviving
Corporation:
Guitar Center, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Chief Executive Officer
Fax: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxx
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
or to such other place and with such other copies as any party may designate
as to itself by written notice to the others.
10.4. CHOICE OF LAW. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of New York, except with respect to matters of law concerning the
internal corporate affairs or capital stock of the Company, which shall be
governed by the laws of the State of Delaware.
10.5. REPRESENTATION BY COUNSEL. Each party hereto represents and
agrees with each other that it has been represented by or had the opportunity
to be represented by, independent counsel of its own choosing, and that it
has had the full right and opportunity to consult with its respective
attorney(s), that to the extent, if any, that it desired, it availed itself
of this right and opportunity, that it or its authorized officers (as the
case may be) have carefully read and fully understand this Agreement in its
entirety and have had it fully explained to them by such party's respective
counsel, that each is fully aware of the contents thereof and its meaning,
intent and legal effect, and that it or its authorized officer (as the case
may be) is competent to execute this Agreement and has executed this
Agreement free from coercion, duress or undue influence..
10.6. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with all exhibits and schedules hereto, and the Confidentiality
Agreement, constitute the entire agreement among the parties pertaining to
the subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties. No
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
67
10.7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8. INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
10.9. EXPENSES. Except as otherwise provided in this Agreement,
Parent will be liable for its and Sub's expenses, and the Stockholders will
be liable for the Company's and the Stockholders' expenses, incurred in
connection with the negotiation, preparation, execution and performance of
this Agreement.
10.10. PUBLICITY. Except as required by law or on advice of counsel,
neither party shall issue any press release or make any public statement
regarding the transactions contemplated hereby without the prior approval of
the other parties, and the parties hereto shall issue a mutually acceptable
press release as soon as practicable after the date hereof and after the
Closing Date. Notwithstanding the foregoing, Parent shall be permitted to
make any public statement without obtaining the consent of any other party
hereto if (i) the disclosure is required by law or the requirements of the
Nasdaq National Market and (ii) Parent has first used its reasonable efforts
to consult with (but not to obtain the consent of) the other parties about
the form and substance of such disclosure.
10.11. NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement, including, without limitation, by way of
subrogation, except as specifically set forth in Article 9 hereof.
10.12. DISPUTE RESOLUTION. The parties hereby agree that, in order
to obtain prompt and expeditious resolution of any disputes under this
Agreement, each claim, dispute or controversy of whatever nature, arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this Agreement or the transactions contemplated hereby, including
without limitation any claim based on contract, tort or statute, or the
arbitrability of any claim hereunder (an "ARBITRABLE CLAIM"), shall be
settled by final and binding arbitration conducted in San Francisco,
California. All such Arbitrable Claims shall be settled by three (3)
arbitrators in accordance with the Commercial Arbitration Rules then in
effect of the American Arbitration Association. Such arbitrators shall be
provided through the JAMS Endispute ("JAMS") by mutual agreement of the
parties; PROVIDED, that, absent such agreement, the arbitrators shall be
appointed by JAMS. In either event, such arbitrators may not have any
preexisting, direct or indirect relationship with any party to the dispute.
EACH PARTY HERETO EXPRESSLY CONSENTS TO, AND WAIVES ANY FUTURE OBJECTION TO,
SUCH FORUM AND ARBITRATION RULES. Judgment upon any award may be entered by
any state or federal court having jurisdiction thereof. Except as required by
law (including, without limitation, the rules and regulations of the SEC and
the
68
Nasdaq Stock Market if applicable), neither party nor the arbitrators shall
disclose the existence, content, or results of any arbitration hereunder
without the prior written consent of all parties. Except as provided herein,
the Federal Arbitration Act shall govern the interpretation, enforcement and
all proceeding pursuant to this section.
Adherence to this dispute resolution process shall not limit the
right of the parties hereto to obtain any provisional remedy, including
without limitation, injunctive or similar relief, from any court of competent
jurisdiction as may be necessary to protect their respective rights and
interests pending arbitration. NOTWITHSTANDING THE FOREGOING SENTENCE, THIS
DISPUTE RESOLUTION PROCEDURE IS INTENDED TO BE THE EXCLUSIVE METHOD OF
RESOLVING ANY ARBITRABLE CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT.
The arbitration procedures shall follow the substantive law of the State of
New York, including the provisions of statutory law dealing with arbitration,
as it may exist at the time of the demand for arbitration, insofar as said
provisions are not in conflict with this Agreement and specifically excepting
therefrom sections of any such statute dealing with discovery and sections
requiring notice of the hearing date by registered or certified mail. The
arbitrators shall determine the prevailing party and shall include in their
award that party's reasonable attorneys' fees and costs.
10.13. WAIVER OF JURY TRIAL. CONSISTENT WITH THE INTENTION OF
SECTION 10.12, EACH SIGNATORY TO THIS AGREEMENT HEREBY WAIVES ITS RESPECTIVE
RIGHT TO A JURY TRIAL OF ANY PERMITTED CLAIM OR CAUSE OF ACTION ARISING OUT
OF THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY
DEALINGS BETWEEN ANY OF THE SIGNATORIES HERETO RELATING TO THE SUBJECT MATTER
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. The scope
of this waiver is intended to be all encompassing of any and all disputes
that may be filed in any court and that relate the subject matter of this
agreement or any of the transactions contemplated hereby, including, without
limitation, contract claims, tort claims, and all other common law and
statutory claims. This waiver is irrevocable, meaning that it may not be
modified either orally or in writing, and this waiver shall apply to any
subsequent amendments, supplements or other modifications to this agreement,
any of the transactions contemplated hereby or to any other document or
agreement relating to the transactions contemplated hereby.
10.14. SERVICE OF PROCESS; CONSENT TO JURISDICTION.
(a) SERVICE OF PROCESS. EACH OF THE PARTIES HERETO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY PROCESS, PLEADING, NOTICES OR
OTHER PAPERS BY THE MAILING OF COPIES THEREOF BY REGISTERED, CERTIFIED OR
FIRST CLASS MAIL, POSTAGE PREPAID, TO SUCH PARTY AT SUCH PARTY'S ADDRESS SET
FORTH HEREIN, OR BY ANY OTHER METHOD PROVIDED OR PERMITTED UNDER CALIFORNIA
LAW.
(b) CONSENT AND JURISDICTION. EACH PARTY HERETO IRREVOCABLY
AND UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL
PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA OR, IF SUCH COURT DOES
NOT HAVE JURISDICTION OR WILL
69
NOT ACCEPT JURISDICTION, IN ANY COURT OF GENERAL JURISDICTION IN THE COUNTY
OF SAN FRANCISCO, CALIFORNIA; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION
WHICH SUCH PARTY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY SUCH COURT.
10.15. ATTORNEY FEES. If any party to this Agreement brings an
action to enforce its rights under this Agreement in accordance with the
provisions hereof, the prevailing party shall be entitled to recover its
actual out-of-pocket costs and expenses, including without limitation
reasonable attorneys' fees reasonably incurred in connection with such
action, including any appeal of such action.
* * * * * *
70
IN WITNESS WHEREOF, each party hereto has executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer
thereunto duly authorized, as of the day and year first above written.
GUITAR CENTER, INC.
a Delaware corporation
By:___________________________________
Xxxxx Xxxxxx
Chief Executive Officer
EMIC ACQUISITION CORPORATION
a Delaware corporation
By:___________________________________
Xxxxx Xxxxxx
Chief Executive Officer
MUSICIAN'S FRIEND, INC.
a Delaware corporation
By:___________________________________
Xxxxxx X. Xxxxxxx
Chief Executive Officer
IN HIS CAPACITY AS THE
STOCKHOLDER REPRESENTATIVE:
_________________________________
Xxxxxx X. Xxxxxxx
S-1
THE STOCKHOLDERS
AMAZING GRACE FOUNDATION
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
By:_______________________________
XxXxxx X. Xxxxxxx
Trustee
THE EMMANUEL FOUNDATION
By:_______________________________
Xxxxx X. Xxxxxxx
Trustee
By:_______________________________
Xxxxxxxx Xxxxxxx
Trustee
MIDAS TOUCH INVESTMENTS TRUST
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
By:_______________________________
XxXxxx X. Xxxxxxx
Trustee
S-2
STERLING INVESTMENTS TRUST
By:_______________________________
Xxxxx X. Xxxxxxx
Trustee
By:_______________________________
Xxxxxxxx Xxxxxxx
Trustee
SYRINGA INVESTMENTS TRUST
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
EIGER MOUNTAIN REAL ESTATE TRUST
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
By:_______________________________
XxXxxx X. Xxxxxxx
Trustee
S-3
PROMISE LAND REAL ESTATE DEVELOPMENT TRUST
By:_______________________________
Xxxxx X. Xxxxxxx
Trustee
By:_______________________________
Xxxxxxxx Xxxxxxx
Trustee
S-4
MUSICIAN'S FRIEND TRUST
By:_______________________________
Xxxxxx X. Xxxxxxx
Trustee
By:_______________________________
XxXxxx X. Xxxxxxx
Trustee
By:_______________________________
Xxxxx X. Xxxxxxx
Trustee
S-5
CORRECTION TO MERGER AGREEMENT
We, the undersigned parties to the foregoing Agreement and Plan of
Merger, acknowledge an error in the text of the agreement and agree that
Section 10.14, which provides for consent to jurisdiction in the "United
States District Court for the Central District of California" should instead
provide for consent to jurisdiction in the "United States District Court for
the Northern District of California."
GUITAR CENTER, INC.
a Delaware corporation
By:___________________________________
Xxxxx Xxxxxx
Chief Executive Officer
EMIC ACQUISITION CORPORATION
a Delaware corporation
By:___________________________________
Xxxxx Xxxxxx
Chief Executive Officer
MUSICIAN'S FRIEND, INC.
a Delaware corporation
By:___________________________________
Xxxxxx X. Xxxxxxx
Chief Executive Officer
IN HIS CAPACITY AS THE
STOCKHOLDER REPRESENTATIVE:
___________________________________
Xxxxxx X. Xxxxxxx
THE STOCKHOLDERS
AMAZING GRACE FOUNDATION
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
By:__________________________________
XxXxxx X. Xxxxxxx
Trustee
THE EMMANUEL FOUNDATION
By:__________________________________
Xxxxx X. Xxxxxxx
Trustee
By:__________________________________
Xxxxxxxx Xxxxxxx
Trustee
MIDAS TOUCH INVESTMENTS TRUST
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
By:__________________________________
XxXxxx X. Xxxxxxx
Trustee
S-2
STERLING INVESTMENTS TRUST
By:__________________________________
Xxxxx X. Xxxxxxx
Trustee
By:__________________________________
Xxxxxxxx Xxxxxxx
Trustee
SYRINGA INVESTMENTS TRUST
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
EIGER MOUNTAIN REAL ESTATE TRUST
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
By:__________________________________
XxXxxx X. Xxxxxxx
Trustee
S-3
PROMISE LAND REAL ESTATE DEVELOPMENT TRUST
By:__________________________________
Xxxxx X. Xxxxxxx
Trustee
By:__________________________________
Xxxxxxxx Xxxxxxx
Trustee
MUSICIAN'S FRIEND TRUST
By:__________________________________
Xxxxxx X. Xxxxxxx
Trustee
By:__________________________________
XxXxxx X. Xxxxxxx
Trustee
By:__________________________________
Xxxxx X. Xxxxxxx
Trustee
S-4
