[FINAL 9/20/95]
ANNEX I
KILOVAC CORPORATION
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STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
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This STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") dated as
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of September 20, 1995 is made and entered into by and among COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), KILOVAC CORPORATION,
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a California corporation (the "Company"), and the shareholders and optionholders
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set forth in Schedule 1 (individually, a "Selling Shareholder" and collectively,
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the "Selling Shareholders").
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W I T N E S S E T H :
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WHEREAS, the Selling Shareholders collectively own, beneficially and of
record, an aggregate of 124,785 Class A Common Shares, no par value, of the
Company (the "Common Stock") after giving effect to the exercise of the
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outstanding options (the "Stock Options") exercisable into shares of Common
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Stock; and
WHEREAS, the Selling Shareholders intend to exercise all of the Stock
Options, and thereby purchase 72,490 shares of Common Stock for an aggregate
exercise price of $1,202,691.80; and
WHEREAS, Buyer desires that the Company purchase and Selling Shareholders
desire to sell to the Company an aggregate of 99,828 shares of Common Stock upon
the terms and conditions set forth herein;
WHEREAS, Buyer desires to purchase 99,828 newly issued shares of Common
Stock of the Company for consideration of $4,000,000.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
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PURCHASE AND SALE OF STOCK;
EXERCISE OF STOCK OPTIONS
1.1 PURCHASE AND SALE; AND EXERCISE OF STOCK OPTIONS.
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(a) On the Closing Date (as defined below) and subject to the terms and
conditions set forth in this Agreement, the Selling Shareholders shall, in
exchange for the consideration described in Section 1.3, (i) sell, assign,
transfer and deliver to Company 99,828 Shares (the "Sale Shares") free and clear
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of all options, pledges, security interests, liens or other encumbrances or
restrictions on voting or transfer (other than those restrictions contemplated
by this Agreement), (ii) deliver to Company certificates for the Sale Shares,
with appropriate share transfer forms attached, duly endorsed in blank, together
with evidence of payment of any applicable transfer taxes and (iii) take such
steps as may be necessary to cause the Company to cancel and redeem the Sale
Shares.
(b) As of the Closing Date and immediately prior to Closing, and without
any action on the part of the holders thereof after signing this Agreement, each
Stock Option shall be exercised and the shares of Common Stock issuable on
exercise shall be issued to such holder. There shall be deducted from the
aggregate proceeds payable to the holder of each Stock Option pursuant to the
purchase of the Sale Shares, the aggregate exercise price of all Stock Options
held by such Selling Shareholder, which deduction shall be in satisfaction of
the payment by such holder of the option exercise price with respect to the
Stock Options.
(c) The Company shall sell, assign, transfer and deliver to Buyer and
Buyer shall purchase 99,828 newly issued shares of Common Stock (the "New
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Shares"), free and clear of all options, pledges, security interests, liens or
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other restrictions on voting or transfer (other than those restrictions
contemplated by this Agreement), together with evidence of payment of any
applicable transfer tax in consideration of payment in the amount of $4,000,000
and Buyer shall made advances to Company in an aggregate amount not less than
$10,000,000.
1.2 CLOSING. The closing (the "Closing") of the transactions provided for
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in this Agreement shall be held at the offices of Bank of America Illinois, in
Chicago, Illinois (unless the parties hereto otherwise agree in writing) on the
Closing Date. The "Closing Date" shall mean October 11, 1995; provided,
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however, that if any of the conditions provided for in Article IV shall not have
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been waived or met by October 11, 1995, then either Buyer or Xxxxxxx Xxxxxxxx on
behalf of the Selling Shareholders shall be entitled to postpone the Closing
Date by written notice to the other party until three (3) business days after
such condition or conditions have been met or waived. The Closing Date shall
not be later than October 31, 1995, unless mutually agreed upon by Buyer and
Xxxxxxx Xxxxxxxx.
1.3 PURCHASE CONSIDERATIONS. The purchase considerations for the Sale
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Shares shall be the aggregate of the per share amounts set forth below, which
aggregate amount shall be subject to deduction for payment of certain expenses
in accordance with Section 1.5 of this Agreement:
(i) cash in the aggregate amount of $11,900,000, which equals
$131.2527 on a per share basis; provided that with respect to Sale Shares
issued on the exercise of Stock Options, the aggregate amount payable to
such Shareholder shall be reduced by the aggregate exercise price of all
Stock Options exercised by such Selling Shareholder as of the Closing Date
(the aggregate of all such cash consideration, the "Cash Consideration");
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(ii) a pro rata interest in the Escrow Fund (as defined in Section
1.4), calculated based on a total number of interests therein, which shall
be 99,828 (the aggregate of all such consideration, the "Escrow
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Consideration");
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(iii) a pro rata interest in the tax benefits payable to Selling
Shareholders in accordance with Section 1.6, calculated on the same basis
as set forth in Section 1.3(ii) (the aggregate of all such consideration,
the "Tax Benefits Consideration"); and
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(iv) one common share of Kilovac Development, Inc., a California
corporation ("Kilovac Development") and the owner of the Palm Avenue
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Property (as defined below) (such aggregate shares, the "Property
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Consideration").
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The Cash Consideration, the Escrow Consideration, the Tax Benefits Consideration
and the Property Consideration are referred to herein, collectively, as the
"Purchase Consideration."
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1.4 ESCROW FUND. On the Closing Date and subject to the terms and
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conditions set forth in this Agreement, in reliance on the representations,
warranties, covenants and agreements of the parties contained herein and in
consideration of the sale, assignment, transfer and delivery of the Sale Shares,
the Company shall deliver $500,000 to Bank of America, N.A. ("Escrow Agent") to
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be held pursuant to, and in all cases subject to, the Escrow Agreement
substantially in the form of Exhibit A hereto (the "Escrow Agreement") and the
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Paying Agent Agreement in the form of Exhibit B hereto (the "Paying Agent
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Agreement") delivered in connection with this Agreement; amounts so held from
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time to time are to be referred to therein as the "Escrow Fund."
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1.5 PAYMENT. (a) At or prior to the Closing, Buyer, the Company and the
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Selling Shareholders shall enter into the Paying Agent Agreement which, among
other things, designates the persons or entities selected by the Selling
Shareholders and approved by Buyer to act as paying agent, shareholder
representative and attorney-in-fact (the "Paying Agent") in connection with the
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transactions contemplated in this Agreement. At the Closing, upon the terms and
subject to the conditions of this Agreement and the Paying Agent Agreement,
Buyer shall deliver the Cash Consideration to the Paying Agent for the benefit
of the Selling Shareholders.
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(b) From the Cash Consideration, the Paying Agent shall first pay all fees
and expenses incurred by the Company or the Selling Shareholders in connection
with the transactions contemplated by this Agreement, all as approved by the
Paying Agent in accordance with the Paying Agent Agreement (the "Transaction
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Fees"). Thereafter, the Paying Agent shall disburse to each Selling Shareholder
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the amount due in such Selling Shareholder pursuant to Section 1.3 net of such
Selling Shareholder's pro rata share of the Transaction Fees.
1.6 CERTAIN TAX BENEFITS. Buyer agrees that the Selling Shareholders will
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receive cash payment from the Company, as described in this Section 1.6, for
certain tax benefits resulting from any deduction relating to the exercise or
sale of the Stock Options net of any income recognized by the Company resulting
from transactions contemplated herein other than any income recognized as a
result of any tax election made by Buyer or the Company after the Closing Date
(the "Deduction"). Such payment shall be made ratably to the Selling
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Shareholders as follows: (A) to the extent that the Deduction results in a net
operating loss for income tax purposes in the taxable year that includes the
Closing Date (the "Short Period") that may be carried back to prior taxable
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years, 100 percent of the benefit realized shall be paid to Paying Agent for the
benefit of Selling Shareholders when tax refunds are received by the Company as
a result of the carryback claims (net of any taxes caused by the refund of state
taxes); (B) to the extent that the Deduction results in a reduction of the tax
liability due for or a refund of taxes that would otherwise have been payable
with respect to the day to day sales and operations of the Company and its
Subsidiaries in the Short Period and not from other transactions or events
(including, without limitation, transactions not in the ordinary course of
business, any income resulting from transactions contemplated by this Agreement
and any income relating to prior periods), 100 percent of the benefit realized
shall be paid to Paying Agent for the benefit of Selling Shareholders (i) when
refunds of such taxes are received by the Company or (ii) when such taxes that
would otherwise be payable by the Company or the consolidated group which
includes Buyer and the Company are reduced; and (C) to the extent that the
Deduction results in a net operating loss generated in the taxable years ending
through the Closing Date that is carried forward to taxable years thereafter,
100 percent of the benefit realized by virtue of the net operating loss carry
forward for the fiscal year ending December 31, 1995 and 50 percent of such
benefit realized for fiscal years thereafter shall be paid to the Paying Agent
for the benefit of Selling Shareholders when such benefit is actually realized.
The Selling Shareholders agree to reimburse the Buyer and/or the Company for any
unearned payments made pursuant to this Section 1.6, subject to the limitations
of Section 6.2 hereof.
1.7 CONTINUING COMMON STOCK.
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1.7.1 Definitions. For purposes of this Section 1.7 the following
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terms shall have the meanings set forth below:
"ACQUISITION DEBT" shall mean the principal and accrued interest on any senior
bank financing actually obtained by Buyer specifically to finance the purchase
of the Sale Shares hereunder, whether such Acquisition Debt is a principal
obligation of Buyer or any of its parent or affiliate organizations, including
the Company. Acquisition Debt shall also include the principal and accrued
interest on any refinancing of the foregoing acquisition financing actually
obtained, to the extent utilized to payoff the principal amount initially
borrowed as Acquisition Debt, including accrued interest. Acquisition Debt shall
not include any amount borrowed by the Company, whether from any lending
institution or from Buyer or any affiliate of Buyer, to the extent the funds
obtained are utilized in the Company's ordinary business operations, and are not
used to reduce Acquisition Debt or to pay fees or other return to Buyer or its
affiliates.
"DEBT" with respect to any entity shall mean the gross amount of all
indebtedness for borrowed money of the subject entity reflected on its balance
sheet prepared on a consolidated basis with its subsidiaries as at the date of
the event causing such measurement.
"CONTINUING SHARES" shall mean the shares of Common Stock not transferred and
redeemed by the Company at the Closing Date.
"PREFERRED STOCK" with respect to any entity shall mean the sum of the accrued
but unpaid dividends and liquidation preference on any of the entity's stock
which has any preference with respect to dividends or liquidation proceeds.
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1.7.2 Share Sale Adjustment. On half of the Continuing Shares (the
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"ESCROWED CONTINUING SHARES"), together with stock assignments separate from
certificate with respect thereto duly executed by the respective Shareholders in
blank (the "ESCROWED STOCK POWERS") shall be placed in escrow with Xxxxx, Xxxxx
& Xxxxxxxxx (the "SHARE ESCROW HOLDER") to be held subject to the following. If
no SALE, IPO (each as defined below) or conversion pursuant to Subsection
1.7.5.2 (any of such events, a "LIQUIDITY EVENT") occurs prior to January 1,
1998 and CUMULATIVE 1997 EBITDA (as defined below) is not equal to or greater
than $6,342,700 (the "EBITDA TARGET"), the Purchase Consideration shall be
deemed to have been paid with respect to both the Escrowed Continuing Shares and
the Sale Shares, and Escrow Holder shall release the Escrowed Continuing Shares,
together with the Escrowed Stock Powers, to Buyer on account of the payment on
the Closing Date of the Purchase Consideration. If either (a) a Liquidity Event
occurs prior to January 1, 1998, or (b) Cumulative 1997 EBITDA is equal to or
exceeds the EBITDA Target, then there shall be no share adjustment and the
Escrowed Continuing Shares, together with the Escrowed Stock Powers, shall be
released by Escrow Agent for the benefit of the Shareholders and delivered by
Escrow Holder to the Paying Agent.
1.7.2.1 Escrow Holder's Duties. Escrow Holder shall act
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solely on (i) the joint certification of Buyer and Shareholder Representative,
or (ii) the final determination of either the Company's accountant or an
arbitrator, each as certified by both Buyer and Shareholder Representative as
being final, or (a) the arbitrator's award or the order of a court with respect
to the arbitrators award.
1.7.2.2 Cumulative 1997 EBITDA. "CUMULATIVE 1997 EBITDA"
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shall mean the Company's cumulative earnings before interest, taxes,
depreciation and amortization for the fiscal years ended December 31, 1996 and
December 31, 1997 determined in accordance with generally accepted accounting
principles ("GAAP") applied in a manner consistent throughout all periods and in
accordance with the Company's financial statements for the three fiscal years
prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBITDA, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the Sale
Shares pursuant to this Agreement and (ii) no consolidated or consolidating
entries relating to any entity other than the existing subsidiaries of the
Company shall be given effect. Cumulative 1997 EBITDA shall be conclusively
presumed to be the amount agreed by both the Company and Shareholder
Representative in writing.
1.7.3 Purchase of Continuing Shares. Buyer shall purchase and redeem
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the Continuing Shares in accordance with the following:
1.7.3.1 Final Redemption. If the Continuing Shares are not
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earlier purchased and the purchase obligations are not earlier terminated on an
IPO as provided below, Buyer shall effective December 31, 2005 ("FINAL
REDEMPTION") purchase the Continuing Shares. The per share purchase price for
the Continuing Shares outstanding on such date shall equal the result of the
COMPANY REDEMPTION VALUE divided by the number of shares of Common Stock then
outstanding.
1.7.3.2 Early Redemption. If the Continuing Shares are not
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purchased prior to December 31, 2000 ("EARLY REDEMPTION") and the purchase
obligations are not earlier terminated on an IPO as provided below, Buyer shall
at the election of any Shareholder purchase the Continuing Shares owned by such
Shareholder. The per share purchase price payable with respect to the
Continuing Shares outstanding on such date shall equal the result of the COMPANY
REDEMPTION VALUE divided by the number of shares of Common Stock then
outstanding. The foregoing Shareholder election may be exercised by each
Shareholder only during the period commencing January 1, 2001 and continuing
until and including April 30, 2001, by giving written notice to Buyer or the
Company. The effective date of any such election by a Shareholder shall be
December 31, 2000.
1.7.3.3 Definitions. For purposes of this Subsection the
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following terms shall have the meanings set forth below:
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"COMPANY REDEMPTION EBIT" shall mean the Company's earnings before interest and
taxes for the fiscal year ending December 31, 2000 or December 31, 2005
(whichever is concurrent with Early Redemption or Final Redemption) determined
in accordance with GAAP applied in a manner consistent throughout all periods
and in accordance with the Company's financial statements for the three fiscal
years prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBIT, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the Sale
Shares and (ii) no consolidated or consolidating entities relating to any entity
other than the subsidiaries of the Company at the end of such measurement period
shall be given effect.
"COMPANY REDEMPTION VALUE" shall equal 5.75 times COMPANY REDEMPTION EBIT, minus
the Debt of the Company.
1.7.3.4 Buyer's Determination of Payment. Buyer's
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determination of the purchase price payable pursuant to this Subsection shall be
determined based on the audited financial statements of the Company and within
30 days following the Company's auditor's completion of its audit of the
Company's financial statements for such fiscal year and not later than March 31
of the following year.
1.7.3.5 Payment. The purchase price payable under Subsection
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1.7.3.1 shall be payable in cash within 10 days after final determination of the
amount payable and not later than May 31, 2006. The purchase price payable
under Subsection 1.7.3.2 shall be payable within 10 days after final
determination of the amount payable and not later than May 31, 2001. If such
payment would be prohibited under the Buyer's senior credit agreement or
California law, such payment shall be made as soon as practicable and shall bear
interest during the deferral at the rate of 8% per annum.
1.7.4 Purchase on a Sale. The closing of a sale (a "STOCK SALE") of
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greater than 50% of the outstanding common equity interests in the Company or
Buyer (or any affiliate of Buyer which includes as part of its consolidated
operations the business of the Company (a "SALE AFFILIATE")) and the sale (an
"ASSET SALE") of all or substantially all of the assets of the Company, Buyer or
Sale Affiliate, are referred to herein together as a "SALE." If a Sale occurs
prior to Buyer's purchase of the Continuing Shares in accordance with any of the
other provisions herein, effective as of the closing date with respect to such
Sale, holders of the Continuing Shares shall participate therein as set forth
below.
1.7.4.1 Sale of the Company. If the Sale is with respect to
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the Company, the holders of Continuing Shares shall be entitled to participate
in the Sale proceeds pari passu with other holders of equity interests in the
Company, and the Shareholders shall participate in such Sale pro rata with all
holders of Continuing Shares.
1.7.4.2 Sale of Buyer or Affiliate. If the Sale is with
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respect to Buyer or any Selling Affiliate (either, as appropriate, a "SELLER"),
the Continuing Shares shall be purchased for a per share purchase price payable
with respect to the Continuing Shares outstanding on such date equal to the
result of the COMPANY SALE VALUE divided by the number of shares of Common Stock
then outstanding. Payment for the Continuing Shares shall be in cash as the
closing of the Sale. At Buyer's election, payment for the Continuing Shares may
instead be made at the closing of the Sale with a proportionate payment of the
NET SALE CONSIDERATION, pari passu with all other recipients of such Net Sale
Consideration.
1.7.4.3 Definitions. For purposes of this Subsection the
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following terms shall have the meanings set forth below:
"COMPANY SALE VALUE" shall equal (a) COMPANY SALE EBIT times SALE MULTIPLE,
minus (b) Debt of the Company.
"COMPANY SALE EBIT" shall mean the Company's earnings before interest and taxes
for the four fiscal quarters preceding the closing date of the Sale determined
in accordance with GAAP applied in a manner consistent throughout all periods
and consistent between the Company and Seller. Further, in calculating EBIT,
(i) there shall be excluded
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all Buyer or corporate income and expense items allocated, assigned or charged
to the Company, including debt and related interest, overhead (other than sales
and marketing expenses and overhead directly related to the conduct of the
Company's business), and (ii) no consolidated or consolidating entries relating
to any entity other than the Company and subsidiaries of the Company at the time
of the Sale shall be given effect.
"NET SALE CONSIDERATION" shall mean the fair market value in cash of (a) all
consideration received in the Sale plus the value of all Debt of the Seller
assumed or taken subject to by the buyer plus the fair market value of (i) all
shares of the Seller not sold in a Stock Sale or (ii) all assets of the Seller
retained in any Asset Sale, minus (b) the reasonable costs and expenses of
consummating such Sale, without deduction for any fees or expenses paid to any
affiliate of Buyer.
"SALE MULTIPLE" shall equal the NET SALE CONSIDERATION divided by SELLER EBIT.
"SELLER EBIT" shall equal Seller's earnings before interest and taxes for the
four fiscal quarters preceding the closing date of the Sale determined in
accordance with GAAP applied in a manner consistent throughout all periods and
consistent between the Company and Seller. Further, in calculating EBIT, (i)
there shall be excluded all buyer or corporate income and expense items
allocated, assigned or charged to Seller, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly related
to the conduct of Seller's business), and (ii) no consolidated or consolidating
entries relating to any entity other than the Company and subsidiaries of Seller
at the time of the Sale shall be given effect.
"SELLER VALUE" shall equal (a) SELLER EBIT times SALES MULTIPLE, minus (b) the
Debt and Preferred Stock of Seller or Selling Affiliate (as appropriate).
1.7.4.4 Contingent Payment. If a Sale occurs prior to the end
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of the 30th full calendar month following the Closing Date, the Shareholders
shall be entitled to an additional payment as set forth below (the "CONTINGENT
SALE PAYMENT"). If no Sale occurs within such period, no Contingent Sale Payment
shall become due under this Subsection. On the occurrence of a Sale within such
period, Buyer shall pay to the Shareholders a Contingent Sale Payment in the per
share amount equal to the result of (1) the lesser of (i) the amount of
ACQUISITION DEBT then outstanding and (a) $5,000,000, divided by (b) the number
of shares of Common Stock outstanding.
1.7.4.5 Buyer's Determination of Payment. Buyer's
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determination of the purchase price payable pursuant to this Subsection shall be
determined based on the audited financial statements of the Company for the four
fiscal quarters immediately prior to the closing date of such sale and within 30
days following the Company's auditor's completion of its review of the final
quarterly financial statements of the Company for such fiscal quarters.
1.7.5 Registered Public Offering. The closing of a registered
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initial public offering of common equity of the Company or Buyer (or any
affiliate of Buyer which includes as part of its consolidated operations the
business of the Company (an "OFFERING AFFILIATE")) is referred to herein as an
"IPO." If an IPO occurs prior to Buyer's purchase of the Continuing Shares in
accordance with any of the foregoing, the Continuing Shares shall be eligible to
participate in such IPO as provided below.
1.7.5.1 IPO of the Company. If the IPO is with respect to
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common equity of the Company, the Continuing Shares shall be registered as part
of the offering pari passu with other holders of equity interests in the
Company, and the Selling Shareholders shall participate in such offering pro
rata with all holders of Common Stock. The Selling Shareholders shall also
participate in any secondary offering pari passu with all other holders of
unregistered Common Stock.
1.7.5.2 IPO by Buyer or Affiliate. As a condition to an IPO
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with respect to the common equity of Buyer or any Offering Affiliate (either, as
appropriate, "OFFEROR"), the Continuing Shares shall be exchanged for common
equity ("OFFEROR SHARES") of Offeror having the same rights, preferences and
privileges as the direct or indirect interests of the other common equity owners
of Buyer. The number of Offeror Shares for which the aggregate Continuing Shares
shall be exchanged shall be equal to the product of (a) (i) the proportion of
common equity of the Company represented by the Continuing Shares times (ii) the
result of Company IPO Value divided by Offeror IPO
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Value, multiplied by (b) the aggregate number of Offeror Shares which are to be
outstanding immediately prior to the IPO.
In an IPO of Offeror Shares, the Offeror Shares into which the Continuing Shares
are converted shall be registered as a part of the offering pari passu with
other holders of Offeror Shares, and the Shareholders shall participate in such
offering pro rata with all holders of Offeror Shares. The Selling Shareholders
shall also participate in any secondary offering pari passu with all other
holders of unregistered Offeror Shares.
1.7.5.3 Definitions. For purposes of this Subsection the
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following terms shall have the meanings set forth below:
"COMPANY IPO EBIT" shall mean the Company's earnings before interest and taxes
for the four fiscal quarters and consistent between the Company and Seller
preceding the closing date of the IPO determined in accordance with GAAP applied
in a manner consistent throughout all periods and consistent between the Company
and Seller. Further, in calculating EBIT, (i) there shall be excluded all Buyer
or corporate income and expense items allocated, assigned or charged to the
Company, including debt and related interest, overhead (other than sales and
marketing expenses and overhead directly related to the conduct of the Company's
business), and (ii) no consolidated or consolidating entries relating to any
entity other than the Company or subsidiaries of the Company at the time of the
IPO shall be given effect.
"COMPANY IPO VALUE" shall equal (a) COMPANY IPO EBIT times IPO MULTIPLE minus
(b) the Debt of the Company; provided, however, that during the period
continuing until the last day of the 30th full calendar month following the
Closing Date, the Debt of the Company as used in the foregoing calculation shall
not include the Acquisition Debt.
"IPO MULTIPLE" shall equal the result of multiplying (a) the number of shares of
Offeror common stock to be outstanding immediately prior to the IPO times (b)
the per share offering price as determined by the lead underwriter for the IPO
at the final pricing meeting prior to closing the IPO, and adding to the produce
(c) the Debt and Preferred Stock of Offeror, and subtracting from the product
(d) the estimated transaction fees to be incurred in connection with the IPO,
and dividing the amount thus determined by (e) Offeror IPO EBIT.
"OFFEROR IPO EBIT" shall equal Offeror's earnings before interest and taxes for
the four fiscal quarters preceding the closing date of the IPO determined in
accordance with GAAP applied in a manner consistent throughout all periods and
consistent between the Company and Seller. Further, in calculating EBIT, (i)
there shall be excluded all Buyer or corporate income and expense items
allocated, assigned or charged to Offeror, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly related
to the conduct of the Offeror's business), and (ii) no consolidated or
consolidating entires relating to any entity other than Offeror or subsidiaries
of Offeror at the time of the IPO shall be given effect.
"OFFEROR IPO VALUE" shall equal (a) Offeror IPO EBIT times IPO Multiple, minus
(b) the Debt and Preferred Stock of Offeror.
1.7.5.4 Manner of Exchange. If there is an exchange of
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Continuing Shares for Offeror Shares, such exchange shall be completed in
compliance with federal and state securities laws and Buyer shall use its best
efforts to cause such exchange to be completed in a manner that is tax free to
the Shareholders and Buyer. Further, following such exchange Buyer shall use its
best efforts to cause the Shareholders to be entitled to tack their holding
period for the Continuing Shares to their holding period for the Offeror Shares
for purposes of Rule 144 promulgated under the Securities Act of 1933 (the "33
ACT") or shall be entitled to sell such shares under the provisions of Rule 144
or Rule 145 without regard to holding period. Such efforts may include holding a
fairness hearing under Section 3(a)(10) of the 33 Act and seeking a "no-action"
letter in connection therewith.
1.7.5.5 Termination of Purchase Obligations. Upon an IPO in
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which the Continuing Shares or Offeror Shares received in exchange therefor are
registered and participate, all obligations of Buyer to purchase the Continuing
Shares shall terminate and be of no further force or effect.
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1.7.6 Right of Review. Cumulative 1997 EBITDA, together with all the
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other defined terms in this Section 1.7 involving calculation or determination
by buyer are referred to herein as the "DETERMINATION NUMBERS." With respect to
the Determination Numbers, Buyer shall, promptly upon computation, provide to
Shareholder Representative the amount determined by Buyer for such Determination
Number and a complete and accurate description of the calculations and
determinations made in connection therewith, including the amount and manner of
calculation of any numbers used in computing the Determination Numbers. In
addition, Buyer shall provide Shareholder Representative complete and accurate
copies of the Company's, and, where appropriate, Buyer's and any affiliate's
financial statements relevant in reviewing such calculations and determinations.
Examples of such calculations are appended to this Agreement as Schedule 2.
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Shareholder Representative shall also have the right, in person or by its agent,
to audit the relevant books and records of the Company, and where appropriate,
Buyer and its affiliates, with regard to such calculations and determinations.
Such right may be exercised by written request made within 60 days following
Shareholder Representative's receipt of Buyer's report of such Determination
Number and the foregoing description and financial statements.
1.7.6.1 Disputes. If Shareholder Representative disputes any
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Determination Number, and Shareholder Representative and Buyer are unable to
resolve their differences within 30 days following receipt by Buyer of a
statement from Shareholder Representative setting forth complete and accurate
descriptions of its differences with the calculations and determinations used in
computing a Determination Number, the amount of such Determination Number shall
be submitted to the Company's independent public accountants who shall confer
with Buyer and Shareholder Representative regarding all calculations and
determinations, and who shall thereafter render its determination made in
accordance with the provisions of this Section 1.7. Such determination shall be
final and binding on the parties, absent manifest error. Any claim of manifest
error shall be determined by arbitration in accordance with this Agreement.
1.7.6.2 No Separate Shareholder Right. No person entitled to
-----------------------------
payment in accordance with this Section 1.7 shall have any right to dispute the
Company's calculations or determinations, or review the Company's books and
records. Shareholder Representative is the sole representative of all such
persons in reviewing, challenging or confirming such determinations. Any
agreement of Shareholder Representative with Buyer resolving any Determination
Number or the amounts payable hereunder, and any determination of the
Shareholder Representative to acquiesce in, and any failure to appeal, any
determination by the Company, its independent public accountants or any
arbitrator, shall be final and binding on all persons entitled to receive
payments hereunder. The foregoing is a material and substantial consideration
to Buyer in entering into this agreement and providing for the purchase of the
Sale Shares and the Continuing Shares in accordance herewith. The separate
review of the matters subject hereof by the several Shareholders could result in
different Shareholders receiving different amounts and would result in a
substantial burden and inconvenience to Buyer and the Company in complying with
multiple review requests.
1.7.7 Anti-dilution. If there is any share dividend or stock split,
-------------
or any exchange or recapitalization or other occurrence affecting the Company's
Common Stock, the figures used in the calculations herein shall be adjusted to
eliminate the effect of such occurrence. The Company shall not issue any equity
interests so long as Buyer's obligations under this Section 1.7 are not
satisfied, unless such issuance enhances or does not dilute the value of the
Continuing Shares and Shareholder Representative approves such issuance in
writing prior to the effectiveness thereof.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES BY BUYER. Buyer represents and
---------------------------------------
warrants to, and agrees with, the Selling Shareholders as follows:
(a) Organization, etc. Buyer is a corporation duly organized,
-----------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own all of its
property and assets and to carry on its business as it is now being conducted.
Buyer is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property
-8-
makes such qualification necessary. The copies of the Certificate of
Incorporation and By-laws of Buyer, which have been delivered to the Company are
complete and correct, and such instruments, as so amended, are in full force and
effect.
(b) Authority Relative To Agreement. Buyer has the corporate power
-------------------------------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
have been duly authorized by all necessary corporate action or proceedings.
This Agreement has been duly executed and delivered by Buyer and is a valid and
binding agreement of Buyer, enforceable in accordance with its terms.
(c) Non-Contravention. The execution and delivery of this Agreement
-----------------
by Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby will not, (i) violate any provision of its Certificate of
Incorporation or By-Laws, or (ii) violate, or result with the giving of notice
or the lapse of time or both in a violation of, any provision of any mortgage,
lien, lease, agreement, license, instrument, law, ordinance, regulation, order,
arbitration award, judgment or decree to which Buyer or any of its properties or
assets (real, personal or missed, tangible or intangible) are bound, which, in
the case of clause (ii) above, would have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated herein.
(d) Consents, etc. As of the Closing Date, Buyer shall have obtained
--------------
all licenses, permits, consents, authorizations, orders or approvals of any
governmental commission, board or regulatory body necessary for its execution
and delivery of this Agreement and its consummation of the transactions
contemplated hereby.
2.2 REPRESENTATIONS AND WARRANTIES BY COMPANY. Except as set forth in the
-----------------------------------------
Disclosure Schedule dated as of the date hereof prepared by the Company and made
a part of this Agreement (the Disclosure Schedule"), the Paying Agent on behalf
-------------------
of the Selling Shareholders represents and warrants to, and agrees with, Buyer
as follows:
(a) Organization. The Company is a corporation duly organized,
-------------
validly existing and in good standing under the laws of the State of California,
with full corporate power and authority to own all of its properties and assets
and to carry on its business as it is now being conducted. The Company is duly
qualified or licensed to do business and is in good standing in the states in
which it has facilities and each other jurisdiction in which the nature of its
business or the character of its properties requires such qualification. The
copies of the Certificate of Incorporation and By-laws, as amended, of the
Company, which have been delivered to Buyer, are complete and correct, and such
instruments are in full force and effect.
(b) Capital Stock and Securities. The authorized capital stock of
----------------------------
the Company consists of 400,000 shares, consisting of (i) 200,000 shares of
Common Stock and (ii) 200,000 Series B Common Shares, no par value. As of the
Closing (after giving effect to the exercise of the Stock Options), 124,785
shares of the Common Stock will be issued and outstanding, all of which will be
owned, beneficially and of record, by the Selling Shareholders in the amounts
set forth on Schedule I attached hereto. Each share of capital stock of the
--------
Company is owned by the Selling Shareholders free and clear of any and all
liens, charges, pledges, security interests or other encumbrances of any kind.
Each outstanding share of capital stock of the Company is and shall be duly
authorized, validly issued, fully paid and nonassessable. Upon the consummation
of the purchase of the Sale Shares as contemplated by Sections 1.1 and 1.3, the
Company will acquire from the Selling Shareholders good and valid title to the
Sale Shares free and clear of any liens, claims, charges, pledges, options,
contractual restrictions of any kind or other legal or equitable encumbrances.
Except for Stock Options exercisable into 72,490 shares of Common Stock which
are held by the Selling Shareholders in the amounts set forth on Schedule I and
--------
which will be exercised pursuant to Article I, the Company does not have any
outstanding commitments to issue or sell any shares of its capital stock, or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from the Company any shares of its
capital stock, and no securities or obligations evidencing any such right are
outstanding. The Company does not have outstanding any other debt or equity
securities other than its Common Stock and existing indebtedness, which,
including the terms thereof, are fully described in the Disclosure Schedule.
-9-
(c) Subsidiaries. The Company does not have any Subsidiaries other
------------
than Kilovac Development and Kilovac International, Inc., a California
corporation. Set forth on the Disclosure Schedule is a correct and complete
list of the Subsidiaries, showing as to each, its name, its corporate,
partnership or joint venture form, the jurisdiction of its incorporation or
formation, the number of shares of stock of each class of each Subsidiary which
is outstanding and the number of such outstanding shares owned by each of the
Company and its Subsidiaries. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary has the corporate or other power and authority to
carry on its business as now being conducted and to own and lease its properties
and is duly qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary. All of the outstanding shares of capital stock of each
Subsidiary have been validly issued, are fully paid and non-assessable with no
personal liability attaching to the ownership thereof and are free and clear of
all liens. The Company is the sole beneficial owner of all the outstanding
shares of each Subsidiary which is a corporation other than such outstanding
shares. There are no outstanding rights, warrants, options or agreements with
respect to any such outstanding shares of Subsidiaries including, without
limitation, agreements granting to any person rights to acquire any capital
stock or agreements with respect to the voting thereof. Neither the Company nor
any of its Subsidiaries has any investment (whether equity, debt or other) in
any other person. The copies of the Certificate of Incorporation and By-laws,
as amended, of each Subsidiary, which have been delivered to Buyer, are complete
and correct, and such instruments are in full force and effect.
(d) Authority Relative to Agreement. The Company and each Selling
-------------------------------
Shareholder has the power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery by the Company and each Selling Shareholder of this Agreement and the
consummation by such parties of the transactions contemplated hereby have been
duly authorized by each such party. No other proceedings on the part of the
Company or any Selling Shareholder are necessary, and no vote or consent by the
shareholders of the Company is necessary, to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This agreement has been duly executed and delivered by the Company and
each Selling Shareholder and is a valid and binding agreement of each such
party, enforceable in accordance with its terms.
(e) Non-Contravention. The consummation of the transactions
-----------------
contemplated hereby will not violate any provision of the Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries, or violate,
or result with the giving of notice or the lapse of time or both in a violation
of, any provision of any mortgage, lien, lease, agreement, license,
instruments, law, ordinance, regulation, order, arbitration award, judgment or
decree to which the Company, any of its Subsidiaries or any of their properties
or assets (real, person or mixed, tangible) are bound.
(f) Consents, etc. As of the Closing Date, the Company and the
--------------
Selling Shareholders shall have obtained all licenses, permits, consents,
authorizations, orders or approvals of any governmental commission, board or
regulatory body, if any, necessary for the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(g) Financial Statements. The Company and the Selling Shareholders
--------------------
have heretofore delivered to Buyer the audited consolidated financial statements
of the Company and its subsidiaries for the fiscal years ended December 31,
1990, 1991, 1992, 1993 and 1994 and the unaudited unconsolidated financial
statements of the Company and its subsidiaries for the 6 periods ended June 16,
1995 including their balance sheets as of each such date and the related
statements of income, cash flow, and shareholders' equity for each of the
respective periods then ended (the "Financial Statements"). Except as noted
--------------------
therein, such Financial Statements have been prepared from the books and records
of the Company and its subsidiaries, and are in accordance with generally
accepted accounting principles consistently applied throughout the periods
covered thereby, and fairly present the financial condition, results of
operations, and cash flows of the Company and its subsidiaries as of the
respective dates and for the respective periods thereof except in the case of
the June 16, 1995 Financial Statements footnotes have been omitted and it is
subject to normal year-end adjustments (which adjustments, individually or in
the aggregate, will not be material).
-10-
The December 31, 1994 balance sheet delivered as part of the Financial
Statements is referred to as the "Balance Sheet" and the June 16, 1995 balance
sheet delivered as part of the Financial Statements is referred to as the
"Interim Balance Sheet".
(h) Government Authorizations and Compliance with Laws. The business
--------------------------------------------------
of the Company and its Subsidiaries has been operated in material compliance
with all laws, ordinances, regulations and orders, of all governmental entities,
domestic or foreign. The Company and its Subsidiaries have all material
permits, certificates, licenses, approvals and other authorizations required in
connection with the operation of their business. No notice has been received by
the Company or any of its Subsidiaries and, to the Company's knowledge after due
inquiry, no investigation or review is pending or threatened by any governmental
entity with respect to (i) any alleged violation by the Company or any of its
Subsidiaries of any law, ordinance, regulation, order, policy or guideline of
any governmental entity, or (ii) any alleged failure to have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of the Company and its
Subsidiaries. As used in this Agreement, "Company's knowledge after due
inquiry" shall mean the knowledge of Xxxxxxx Xxxxxxxx, Xxxx Xxxxxxx, Xxx
XxXxxxxxx, Xxxxxx Xxxxxx and Xxx XxXxxxxxxx, after inquiry by them of the
Company's officer level employees having responsibility for matters in the
subject area of the statement made and review of the Company's records with
respect to such subject matter.
(i) Tax Matters. All federal, state, local and foreign tax returns
-----------
and tax reports required to be filed by or with respect to the Company or its
Subsidiaries have been duly filed. All taxes (including interest, penalties and
related costs) with respect to the Company and its Subsidiaries for all taxable
periods ending on or prior to the Closing Date have been paid, except (a) to the
extent of reserves for taxes (other than deferred taxes) reflected on the
Interim Balance Sheet less payments of such taxes on or prior to the Closing
Date and (b) for such taxes (other than deferred taxes) properly accruable by
the Company and its Subsidiaries for the period beginning immediately following
the date of the Interim Balance Sheet and ending on the Closing Date buy only to
the extent that such taxes arise in the ordinary course of the operations of the
Company and its Subsidiaries occurring during such period (and not taxes arising
from other transactions or events, including, without limitation, any taxes on
income resulting from transactions contemplated by this Agreement and any taxes
relating to prior periods); provided, however, that the reserve set forth in
--------
clause (a) above and the accrual for taxes set forth in clause (b) above shall
be reduced for the tax effect of any deductions relating to the exercise or
cancellation of the Stock Options. No issues have been raised, either orally or
in writing, (and are currently pending) by any foreign, federal, state or local
taxing authority in connection with any of the returns or reports referred to in
this Section 2.2(i). No waivers of statutes of limitations as to any tax
matters are currently in effect with respect to the Company or its Subsidiaries.
All tax returns filed by the Company and its Subsidiaries were true
and correct in all material respects as of the date on which they were filed.
Complete copies of all federal, state and local income tax returns for the
Company and its Subsidiaries that have been filed with respect to taxable
periods for which the statute of limitations period has not run have been
delivered to Buyer. The Company has provided to Buyer all revenue agent's
reports and other written assertions by governmental authorities of deficiencies
or other liabilities for taxes of the Company and its Subsidiaries with respect
to past periods for which the statute of limitations period has not run. All
amounts required to be collected or withheld by the Company and its Subsidiaries
with respect to taxes have been duly collected or withheld and any such amounts
that are required to be remitted to any taxing authority have been duly
remitted.
No extension of time within which to file any tax return that related
to the Company and its Subsidiaries has been requested, which return has not
since been filed. There are no tax rulings, requests for rulings, or closing
agreements to which the Company or its Subsidiaries is a party r is subject
which could affect the liability for taxes for any period after the Closing
Date. All federal income tax returns of the Company and its Subsidiaries with
respect to taxable periods through the year ended December 31, 1991, have been
examined and closed or are returns with respect to which the applicable statute
of limitations period has expired without extension or waiver. No power of
attorney has been granted by the Company or its Subsidiaries with respect to any
matter relating to taxes of the Company and its Subsidiaries which is currently
in force.
-11-
The Company and its Subsidiaries have not filed a consent under
Section 341(f) of the Code or any comparable provision of state revenue
statutes. The Company and its Subsidiaries have made all payments of estimated
taxes required to be made under Section 6655 of the Code and any comparable
provisions of state, local or foreign law. Any adjustment of taxes of the
Company and its Subsidiaries made by the Internal Revenue Service in any
examination which is required to be reported to the appropriate state, local or
foreign taxing authorities has been reported, and any additional taxes due with
respect thereto have been paid.
The Company and its Subsidiaries have not agreed or are not required
to include in income any adjustment pursuant to Section 481(a) of the Code (or
similar provisions of other law or regulations) by reason of a change in
accounting method. No excess loss accounts exist with respect to the Company or
any Subsidiary. There is no deferred gain or loss arising from deferred
intercompany transactions between the Company and its Subsidiaries. The Company
or its Subsidiaries are not a party to any agreement that would result by its
terms in the payment of a non-deductible "excess parachute payment" within the
meaning of Section 280G of the Code. The amount of deferred tax assets
reflected on the Balance Sheet and the Interim Balance Sheet are determined in
accordance with GAAP, subject to year end adjustments.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, unemployment, Social Security,
personal property, occupancy or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon, is referred to as a "tax."
(j) Title to Properties; Absence of Liens and Encumbrances, etc. The
------------------------------------------------------------
Company and its Subsidiaries have good and marketable title to all of the
properties and other assets (real, personal and mixed, tangible and intangible)
reflected in the Balance Sheet or acquired after the date thereof (except for
properties and assets sold or otherwise disposed of since December 31, 1994 in
the ordinary and usual course of business and the real property located at 000
Xxxx Xxxxxx (the "Palm Avenue Property"), free and clear of any and all liens,
--------------------
charges, pledges, mortgages, security interests or other encumbrances of any
kind ("Liens"). Except for those properties or assets acquired since December
-----
31, 1994, all properties and assets (real, personal and mixed, tangible and
intangible) used in the business of the Company and its Subsidiaries are
reflected in the Balance Sheet in the manner and to the extent required by
generally accepted accounting principles.
(k) Material Agreements. The Disclosure Schedule lists every
-------------------
material agreement to which the Company or any of its Subsidiaries is a party or
by which it or any of their properties or assets (real, personal or mixed,
tangible or intangible) is bound which is to be performed in whole or in part
after the Closing Date. Solely for the purpose of this Section 2.2(k), the term
"material agreement" shall mean any single agreement or lease, including
------------------
agreements with respect to notes receivable, pursuant to which any party thereto
is obligated after the date hereof to make payments aggregating more than
$100,000. There is no default, nor will any default occur hereafter, as a result
of the consummation of the transactions contemplated hereby or otherwise, in any
obligation to be performed by any party to any material agreement to which the
Company or any of its Subsidiaries is a party or by which it or any of its
properties or assets (real, personal or mixed, tangible or intangible) is bound.
Each agreement listed in the Disclosure Schedule is valid and binding in
accordance with its terms. Other than this Agreement, there are no agreements or
options to sell or lease any of the properties or assets (real, personal, or
mixed, tangible or intangible) of the Company or any of its Subsidiaries except
in the ordinary and usual course of its business. The Company has delivered to
Buyer true and complete copies of all agreements listed in the Disclosure
Schedule, including supporting documentation.
(l) Litigation. (i) There is no claim, action, suit or proceeding
----------
pending or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets (real,
personal or mixed, tangible or intangible) or which seeks to prohibit, restrict
or delay consummation of the transactions contemplated by this Agreement or any
of the conditions to consummation of the transactions contemplated by this
Agreement, nor is there any judgement, decree, injunction, ruling award or other
of any court, governmental department, commission, agency or instrumentality or
arbitrator outstanding or, to the Company's knowledge after due inquiry,
threatened against the Company, any of its Subsidiaries or any of their
properties or assets (real, personal or mixed, tangible or intangible); and (ii)
neither the Company, any of its Subsidiaries nor any of their officers or, to
the
-12-
Company's knowledge, employees is currently charged with, or to the Company's
knowledge is currently under investigation with respect to, any violation of any
provision of any federal, state, foreign or other applicable law or
administrative regulation in respect of the business of the Company and its
Subsidiaries.
(m) Employee Benefit Plans. The Disclosure Schedule contains a
----------------------
complete list of "Plans" consisting of each:
-----
(1) "employee welfare benefit plan", as defined in Section 3(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), to which
-----
the Company or any of its Subsidiaries contributes or is required to
contribute, including each multi-employer welfare plan ("Welfare Plan"),
------------
and sets forth the amount of any liability of the Company or its
Subsidiaries for payments more than thirty days past due with respect to
each Welfare Plan as of the Closing Date;
(2) "multi-employer pension plan," as defined in Section 3(37)
of ERISA, to which the Company (or any entity which is a member of a
"controlled group of corporations" with or is under "common control" with
the Company as defined in Section 414(b) or (c) of the Internal Revenue
Code of 1986 as amended ("Code") ("Common Control Entity")) has contributed
---- ---------------------
or been obligated to contribute at any time after September 25, 1980
("Multi-employer Plan").
-------------------
(3) "employee pension benefit plan," as defined in Section 3(2)
of ERISA, (other than a Multi-employer Plan) to which the Company or any
Common Control Equity contributes or is required to contribute ("Pension
-------
Plan"); and
----
(4) deferred compensation plan, bonus plan, stock option plan,
employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment, other than normal payroll practices
and policies concerning holidays, vacations and salary continuation during
short absences for illness or other reasons, maintained by the Company or
its Subsidiaries.
(n) Pension Plans. The funding method used in connection with each
-------------
Pension Plan which is subject to the minimum funding requirements of ERISA is
acceptable and the actuarial assumptions used in connection with funding each
such plan, in the aggregate, are reasonable. The assets of each Pension Plan
are sufficient to discharge all liabilities under such plan, on an ongoing basis
and on a termination basis, and there is no "accumulated funding deficiency," as
defined in Section 302(a)(2) of ERISA, with respect to any plan year of any such
plan. Neither the Company nor any Common Control Entity has any liability for
unpaid contributions with respect to any Pension Plan.
(1) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under the
provisions of Code Sections 401(a) (or 403(a) as appropriate) and 501(a).
(2) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument complies currently, and has complied
at all times in the past, both as to form and in operation, with the
provisions of applicable Federal law, including the Code and ERISA.
(3) The Company have paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit Guaranty
Corporation ("PBGV") with respect to each Pension Plan for each plan year
----
thereof for which such premiums are required. There has been no
"reportable event" (as defined in Section 4043(b) of ERISA and the PBGC
regulations under such Section) with respect to any Pension Plan. No
liability to the PBGC has been incurred by the Company or any Common
Control Entity on account of the termination of any Pension Plan. No
filing has been made by the Company or any Common Control Entity with PBGC,
and no proceeding
-13-
has been commenced by the PBGC, to terminate any Pension Plan. Neither the
Company nor any Commons Control Entity has, at any time, (a) ceased
operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, (b) withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA, or (c) 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 Commons
Control Entity made contributions during the five years prior to the
Closing Date.
(o) Multi-employer Plans. Neither the Company nor any Common Control
--------------------
Entity has, at any time, withdrawn from a Multi-employer Plan in a "complete
withdrawal" or a "partial withdrawal" as defined in ERISA Sections 4203 and
4205, respectively.
(p) Prohibited Transactions. Neither the Company, any of its
-----------------------
Subsidiaries nor, to the Company's knowledge after due inquiry, any plan
fiduciary of any Welfare Plan or Pension Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited transaction," as
defined in Section 4975(c)(1) of the Code, for which no exemption exists under
Section 4975(c)(2) or 4975(d) of the Code.
(q) Copies of Relevant Plan Documents. True and complete copies of
---------------------------------
each of the following documents have been delivered by the Company to Buyer"
(i) each Welfare Plan and each Pension Plan, related trust agreements, annuity
contracts or other funding instruments, (ii) each plan, agreement, arrangement
and commitment referred to in Sections 2.2(m) and (n), and complete descriptions
of any such plan which is not in writing, (iii) the most recent determination
letter issued by the Internal Revenue Service with respect to each Pension Plan,
(iv) Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Welfare Plan and each Pension Plan for the two most
recent plan years and (v) all actuarial reports prepared for the last three
years for each Pension Plan.
(r) Validity and Enforceability of Plans. Each Welfare Plan, Pension
------------------------------------
Plan, related trust agreement, annuity contract or other funding instrument and
each plan, agreement, arrangement and commitment referred to in Section 2.2(m)
and (n) is legally valid and binding and in full force and effect.
(s) Payments to Retirees. Neither the Company, any of its
--------------------
Subsidiaries nor any Welfare Plan has any obligation to make any payment to or
with respect to any former or current employee of the Company pursuant to any
retiree medical benefit or other Welfare Plan.
(t) Litigation Under Plans. Neither the Company, any of its
----------------------
Subsidiaries nor any Plan is a party to any litigation relating to, or seeking
benefits under, any Plan.
(u) Employment Agreements. Neither the Company, nor any of its
---------------------
Subsidiaries is a party to any employment, severance or similar agreements.
(v) Change in Control Provisions. Neither the Company, nor any of
----------------------------
its Subsidiaries is a party to any agreement which contains any provision
pursuant to which the Company or any of its Subsidiaries will be obligated to
make any payment as a result of the transactions contemplated hereby.
(w) Labor Matters. There are no controversies pending between the
-------------
Company and its Subsidiaries and any of their employees or officers. Neither
the Company, nor any of its Subsidiaries is subject to any collective agreements
and, to the Company's knowledge after due inquiry, there is no current prospect
for any union election.
(x) Employees. The Disclosure Schedule contains a true and complete
---------
list of all the employees of the Company and its Subsidiaries, their ages, pay
levels and length of service.
-14-
(y) Absence of Certain Changes or Events. Since December 31, 1994
------------------------------------
there has not been (i) any change, or any development involving a prospective
change, which, individually or in the aggregate, has had or could have a
material adverse effect ("Material Adverse Effect") on the financial condition,
-----------------------
business, operations, or prospects of the Company and its Subsidiaries taken as
a whole; (ii) any damage, destruction or other loss with respect to property
owned by the Company or any of its Subsidiaries, whether or not covered by
insurance, or any strike, work stoppage or slowdown or other labor trouble
involving the Company or any of its Subsidiaries; (iii) any direct or indirect
redemption, purchase or other acquisition by the Company or any of its
Subsidiaries of any shares of the capital stock of the Company or any of its
Subsidiaries; (iv) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, capital stock or property); or (v) the entry by
the Company or any of its Subsidiaries into any commitment or transaction which
is not in the ordinary course of business.
(z) Absence of Undisclosed Liabilities and Agreements. Except as
-------------------------------------------------
specifically provided for in the Balance Sheet, the Company and its Subsidiaries
(i) did not have, as of December 31, 1994, any material debts, liabilities or
obligations, whether accrued, absolute, contingent or otherwise and whether due
or to become due (including, without limitation, any liabilities resulting from
the failure to comply with any law applicable to the Company, any of its
Subsidiaries or to the conduct of their business (ii) have not incurred, since
December 31, 1994, any such debts, liabilities or obligations other than in the
ordinary and usual course of their business, (iii) are not a party to any
material agreement which contains unusual or burdensome terms and conditions, or
(iv) except in connection with the transactions contemplated in this Agreement,
has not, since December 31, 1994, conducted their business otherwise than in the
ordinary and usual course.
(aa) Insurance. The Company and its Subsidiaries have insurance
---------
policies in full force and effect which provide for coverages which are normal
in both amount and scope for the business conducted by the Company and its
Subsidiaries. The current insurance coverage of the Company and its
Subsidiaries is as described in the Disclosure Schedule.
(bb) Payments. The Company and its Subsidiaries have not,
--------
directly or indirectly, paid or delivered any fees, commissions or other sums of
money or items of property however characterized to any finders, agents,
customers, government officials or other parties, in the United States or in any
other country, which in any manner are related to the business or operations of
the Company and its Subsidiaries, and which have been illegal under any federal,
state or local laws of the United States or any other country or territory
having jurisdiction over the Company or any of its Subsidiaries. The Company and
its Subsidiaries have not participated, directly or indirectly, in any boycotts
or similar practices.
(cc) Renegotiation. The Company and its Subsidiaries are not
-------------
subject to renegotiation, redetermination or excess profit recovery with respect
to any fiscal year by reason of U.S. Government contracts performed by them.
(dd) Inventories. All inventories carried by the Company and its
-----------
Subsidiaries as of June 16, 1995 and reflected on the Interim Balance Sheet, are
valued at the lower of cost or market on a first-in-first-out basis consistent
with generally accepted accounting principles. For this purpose, the lower of
cost or market shall be determined on an item by item rather than an aggregate
basis. Except to the extent of inventory reserves reflected in the Interim
Balance Sheet, the items included in said inventories are normal items of
inventory carried by the Company and its Subsidiaries, and are current, suitable
and merchantable for the filling of orders in the normal course of business, and
are not obsolete, damaged, defective or slow moving.
(ee) Products Liability. There are no facts or the occurrence of
------------------
any event known or which reasonably should be known to the Company or the
Selling Shareholders forming the basis for any claim against the Company or any
of its Subsidiaries for products liability, whether in tort or strict liability
or on account of any express or implied warranty.
(ff) Notes and Accounts Receivable and Liabilities. Each of the
---------------------------------------------
material liabilities of the Company and its Subsidiaries as of December 31, 1994
and June 16, 1995 is reflected or reserved for on the Balance
-15-
Sheet and the Interim Balance Sheet, respectively, and the amounts so reflected
or reserved are true and correct according to GAAP. Notes and accounts
receivable will be fully collectible, except to the extent of reserves for
doubtful accounts reflected in the Interim Balance Sheet.
(gg) Proprietary Rights. The proprietary rights listed in the
------------------
Disclosure Schedule are all those used in the business of the Company and its
Subsidiaries. To the knowledge of the Company after due inquiry, the Company's
and its Subsidiaries' use of such Proprietary Rights is not infringing upon or
otherwise violating the rights of any third party in or to such proprietary
rights, and no proceedings have been instituted against or notices received by
the Company or any of its Subsidiaries that are presently outstanding alleging
that the Company's or any Subsidiary's use of such Proprietary Rights infringes
upon or otherwise violates any rights of a third party in or to such Proprietary
Rights.
(hh) Books of Account. The books of account of the Company and its
----------------
Subsidiaries have and will adequately reflect all of their respective items of
income and expense and all of their assets, liabilities and accruals, in
accordance with generally accepted accounting principles.
(ii) Purchase Commitment and Outstanding Bids. As of the date
----------------------------------------
of this Agreement and as of the Closing Date, there are no claims against the
Company or any of its Subsidiaries to return in excess of an aggregate of
$50,000 by reason of alleged over-shipments, defective merchandise or otherwise,
or of merchandise in the hands of customers under an understanding that such
merchandise would be returnable. No outstanding purchase or outstanding lease
commitment of the Company or any of its Subsidiaries presently is in excess of
the normal, ordinary and usual requirements of its business or contains terms
and conditions more onerous than those usual and customary in the business of
the Company and its Subsidiaries.
(jj) Customers and Suppliers. The Disclosure Schedule contains a
-----------------------
complete and accurate list of (i) the 10 largest customers of the Company and
its Subsidiaries in terms of revenues during the Company's last fiscal year,
showing the approximate total sales to each such customer during such fiscal
year; (ii) the 10 largest suppliers of the Company and its Subsidiaries in terms
of purchases during the Company's last fiscal year, showing the approximate
total purchases from each such supplier during such fiscal year. Since December
31, 1994, to the Company's knowledge after due inquiry, there has been no
adverse change in the business relationship of the Company and its Subsidiaries
with any customer or supplier named in the Disclosure Schedule.
(kk) Permits. The Disclosure Schedule contains a complete and
-------
accurate list of all permits held by the Company or any of its Subsidiaries or
for which the Company or any Subsidiary has applied, which are the only material
permits necessary for or used by the Company and its Subsidiaries to carry on
their business as presently conducted.
(ll) Environmental Matters. (1) The Company and each of its
---------------------
Subsidiaries is in compliance in all material respects with all applicable
Environmental Laws, and for the past five years has been in such compliance; and
the Company and each Selling Shareholder have no reason to believe that
circumstances exist which could prevent or interfere with continued compliance
in all material respects by the Company and each of its Subsidiaries with all
applicable Environmental Laws after the Closing Date.
(2) The Company and its Subsidiaries hold all material
Environmental Permits necessary to conduct their operations as they are
currently conducted; the Disclosure Schedule includes a true and complete
list of all such Environmental Permits and their expiration dates, and the
Company and the Selling Shareholders have no reason to believe that such
permits (A) will not be renewed, or (B) will be renewed under terms that
could reasonably be expected to have an adverse effect on the Company and
its Subsidiaries.
(3) There are no Materials of Environmental Concern present
at, and no Materials of Environmental Concern are or have been in any way
released or threatened to be released from, any Kilovac Property, former
Kilovac Property, or as a result of present or former operations
-16-
of the Company or any of its Subsidiaries or any predecessor entity
(including without limitation the disposal of Materials of Environmental
Concern at any location other than a Kilovac Property or former Kilovac
Property), that could reasonably be expected to be in material violation of
or otherwise to give rise to material liability of the Company or any of
its Subsidiaries under any Environmental Law.
(4) No reports of any kind have been made to or required by
any Governmental Authority pursuant to any Environmental Law concerning
spills or any other releases of any kind at, or in any way from, any
Kilovac Property, former Kilovac Property, or as a result of present or
former operations of the Company or any of its Subsidiaries or any
predecessor entity, for which spills, releases, or reports thereof the
Company or any of its Subsidiaries may be liable under any Environmental
Law; true and complete copies of all written reports concerning such spills
and other releases have been provided or made available to Buyer.
(5) None of the following are or have been on, under, in or at
any Kilovac Property, or to the Company's knowledge after due inquiry, any
former Kilovac Property: (A) underground or above aground storage tanks
containing Materials of Environmental Concern; (B) polychlorinated
biphenyls; (C) asbestos or asbestos-containing materials; (D) septic tanks,
septic fields, dry-xxxxx, or similar structures; (E) lagoons or
impoundments; or other bodies of water to which Materials of Environmental
Concern may have been discharged; (F) landfills or dumping areas; or
similar locations where Materials of Environmental Concern may have been
placed.
(6) Neither the Company nor any of its Subsidiaries has
received any Environmental Claim, and to Company's knowledge after due
inquiry, no Environmental Claim has been threatened against the Company or
any of its Subsidiaries by any person.
(7) Neither the Company nor any of its Subsidiaries has
entered into, agreed to, nor is the Company or any of its Subsidiaries
otherwise subject to any judgement, decree, order or similar requirement
under any Environmental Law, nor to the Company's knowledge after due
inquiry is any such judgment, decree, order or requirement being negotiated
that may obligate or affect the Company or any of its Subsidiaries.
(8) Neither the Company nor any of its Subsidiaries has
assumed or retained, contractually or by operation of law, any liabilities
or obligations of other persons, contingent or otherwise, in connection
with any Environmental Law.
(9) There are no past or present actions, activities, events,
conditions or circumstances, including without limitation the release,
threatened release, emission, discharge, generation, treatment, storage or
disposal of Materials of Environmental Concern, that could reasonably be
expected to give rise to any material liability or obligation of the
Company or any of its Subsidiaries under any Environmental Laws. None of
the matters set forth on the Disclosure Schedule, or any aggregation
thereof, could reasonably be expected to have a Material Adverse Effect.
(10) True and complete copies of all reports, studies,
assessments, audits, and similar documents in the possession or control of
the Company, any of its Subsidiaries or any Selling Shareholder that
address any issues of actual or potential noncompliance in any material
respect with, or actual or potential material liability under, any
Environmental Laws that may affect the Company or any of its Subsidiaries
have been provided to Buyer prior to the signing hereof.
(11) As used in this Section 2.2(al):
-17-
"Environmental Claim" means any written or oral notice, claim,
-------------------
demand, action, suit, compliant, proceeding or other communication by any
person alleging liability or potential liability (including without
limitation liability or potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resource damages,
property damage, personal injury, fines or penalties) arising out of,
relating to, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Materials of Environmental
Concern at any location, (ii) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or Environmental
Permit, or (iii) otherwise relating to obligations or liabilities under any
Environmental Law.
"Environmental Laws" means all foreign (to the extent
------------------
applicable), federal, state and local statutes, rules, regulations,
ordinances, orders, judgements, decrees and common law relating in any
manner to contamination, pollution, or protection of human health or the
environment, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, the Solid Waste Disposal Act, the
Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the
Endangered Species Act, the National Environmental Protection Act, the
Occupational Safety and Health Act, the Emergency Planning and Community-
Right-to-Know Act, the Safe Drinking Water Act, all as amended, and similar
laws of any other Governmental Authority.
"Environmental Permits" means all permits, licenses,
---------------------
registrations and other governmental authorizations or exemptions required
under Environmental Laws.
"Materials of Environmental Concern" refers to any waste,
----------------------------------
pollutant, contaminant or other substance of any kind (including without
limitation odors, radioactivity, and electromagnetic fields) regulated by
or under, or which may otherwise give rise to liability under, any
Environmental Law.
"Kilovac Property" means all real property in which the Company
----------------
or any of its Subsidiaries have any legal interest, including without
limitation a leasehold interest, and any equipment or other property owned
or leased by the Company or any of its Subsidiaries.
(mm) Transactions with Certain Persons. Neither any officer,
---------------------------------
director, shareholder or employee of the Company and its Subsidiaries nor any
member of any such person's immediately family is presently a party to any
material transaction with the Company or any of its Subsidiaries relating to the
business of the Company and its Subsidiaries, including without limitation, any
contract, agreement or other arrangement (i) providing for the furnishing of
material service by (other than for services as officers, directors or employees
of the Company and its Subsidiaries), (ii) providing for the rental of material
real or personal property from, or (iii) otherwise requiring material payments
to (other than for services as officers, directors or employees of the Company
and is Subsidiaries) any such person or corporation, partnership, trust or other
entity in which any such person has a substantial interest as shareholder,
officer, director, trustee or partner.
(nn) Information. The Company and the Selling Shareholders have
-----------
furnished and will continue to furnish to Buyer detailed information with
respect to the assets, earnings, and business of the Company and its
Subsidiaries, and acknowledge that Buyer has relied and will rely thereon in
entering into this Agreement and consummating the transaction contemplated by
this Agreement. No such information, the preparation of which was under the
Company's and any Selling Shareholder's direct control, as it has been corrected
from time to time by the Company or Selling Shareholders, contains an untrue
statement of material fact or omits 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.
ARTICLE III
-----------
PURCHASE AND SALE OF STOCK;
-18-
3.1 CONDUCT OF THE COMPANY. During the period from the date hereof to the
----------------------
Closing Date:
(a) Operations in the Ordinary Course of Business. Except as contemplated
---------------------------------------------
by this Agreement, the Company and its Subsidiaries shall, and the Selling
Shareholders shall cause the Company and its Subsidiaries to, conduct their
business operations according to the ordinary and usual course of business and
will use their best efforts (i) to preserve intact their business organization;
(ii) to maintain their books and records in accordance with past practices;
(iii) to keep available the services of their officers and employees; and (iv)
to maintain satisfactory relationships with licensors, suppliers, distributors,
customers and others having business relationships with them. The Company and
the Selling Shareholders shall confer with Buyer or its representatives to keep
it informed with respect to operational matters of a material nature and to
report the general status of the ongoing operations of the business of the
Company and its Subsidiaries.
(b) Forbearances by the Company. Except as contemplated by this
---------------------------
Agreement, the Company and its Subsidiaries will not, and the Selling
Shareholders will not permit the Company and its Subsidiaries to, without the
prior written consent of Buyer:
(1) incur any indebtedness for borrowed money, except in the
ordinary course of business consistent with past practice in an amount not
to exceed $100,000;
(2) assume, guarantee, endorse or otherwise become responsible
for the obligations of, or make any loans or advances to, any other
individual, firm or corporation;
(3) make any direct or indirect redemption, purchase or other
acquisition of any shares of its capital stock or declare, set aside or pay
any dividend or distribution (whether in cash, capital stock or property)
other than the dividend or distribution to the Company's shareholders of
the shares of Kilovac Development, any dividends to the Company from any of
its Subsidiaries and the repurchase of Common Stock held by Xxxxxxx Edict
or Xxxxxx Xxxxxxx for an amount not to exceed $85,000 in the aggregate;
(4) mortgage, pledge or otherwise encumber any of its
properties or assets (other than the pledge of after acquired property as
security for indebtedness under the Bank of America Loan Agreement);
(5) sell, lease, transfer or dispose of any of its properties
or assets (other than the shares of Kilovac Development waive or release
any rights of material value, or cancel, compromise, release or assign any
indebtedness owed to it or any claims held by it except for sales of
inventory in the ordinary and usual course of business and consistent with
past practice;
(6) except for capital expenditures not to exceed $20,000 or
items included in the capital budget included in the Disclosure Schedule,
make any investment or expenditure of a capital nature either by purchase
of stock or securities, contributions to capital, property transfers or
otherwise, or by the purchase of any property or assets of any other
individual, firm or corporation;
(7) enter into any transaction other than in the ordinary and
usual course of its business and consistent with past practice;
(8) enter into or terminate any agreement, plan or lease, or
make any change in any of its agreements, plans or leases;
(9) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated or any of the coverage
thereunder to lapse;
(10) enter into any collective bargaining agreements;
-19-
(11) increase in any manner the compensation, enumeration or
fringe benefits of any of its officers or employees (other than increases
in the hourly compensation of non-officer employees in the ordinary course
of business consistent with past practice) or pay or agree to pay any
pension, retirement allowance, or other benefit not required by any
existing employee benefit plan to any such officers or employees, commit
itself so any employment agreement or employee benefit plan with or for the
benefit of any of its officers or employees or any other person, or alter,
amend, terminate in whole or in part, or curtail or permanently discontinue
distributions to, any pension plan or any other employee benefit plan;
(12) issue any shares of capital stock or issue any warrants,
options, calls, subscriptions, or other agreements or commitments
obligating it to issue shares of capital stock;
(13) enter into an agreement to do any of the things described
in clauses (1) through (12) of this Section 3.1; or
(14) take any action which would render inaccurate any
representation and warranty made herein.
3.2 REGULATORY CONSENTS, AUTHORIZATIONS, ETC. Each party hereto will use
-----------------------------------------
its best efforts to obtain all consents, authorizations, orders and approvals
of, and make all filings and registrations with, any governmental commission,
board or other regulatory body or any other person required for or in connection
with the consummation of the transactions contemplated hereby and will cooperate
fully with the other parties in assisting them to obtain such approvals and to
make such filings and registrations. No party hereto will take or omit to take
any action for the purpose of delaying, impairing or impeding the receipt of any
required consent, authorization, order or approval or the making of any required
filing or registration.
3.3 INVESTIGATION BY BUYER. Prior to the Closing Date, Buyer may make or
----------------------
cause to be made such investigation of the business, properties, assets and
liabilities of the Company and its financial and legal conditions as Buyer deems
necessary or advisable to familiarize itself therewith, provided that such
--------
investigation shall not unreasonably interfere with the normal operations of the
Company. Such investigation may include, without limitation, an examination and
valuation of inventory by Buyer's accountants and an appraisal of all assets of
the Company. Prior to the Closing Date, upon reasonable prior notice, the
Company and the Selling Shareholders agree to permit Buyer and its authorized
representatives, or cause them to be permitted, to have full access to the
premises, books and records, officers, employees, and independent accountants
(including the independent accountant's work-papers) of the Company at
reasonable hours, and prior to the Closing Date the officers of the Company
shall furnish Buyer with such financial and operating data and other information
with respect to the business, properties and assets of the Company as Buyer
shall from time to time reasonably request. No investigation by Buyer
heretofore or hereafter made shall affect the representations and warranties of
the Company contained herein. Prior to the Closing Date, or in the event this
Agreement is terminated, Buyer shall not use any information relating to the
Company obtained by it from the Company or the Selling Shareholders pursuant to
this Section 3.3, which is not otherwise publicly available, for any purpose
unrelated to the consummation of the transactions contemplated hereby, and prior
to such Closing Date, Buyer will not disclose any such information to any
person, unless and until such time as such information is otherwise publicly
available or as Buyer is advised by counsel that such information is required by
law to be disclosed. In the event this Agreement is terminated, Buyer agrees to
keep confidential all information it has obtained concerning the Company under
the terms of this Agreement for a five-year period and to return promptly, if so
requested by the Company, every document furnished to Buyer by the Company and
the Selling Shareholders, in connection with the transactions contemplated
hereby, and any copies thereof Buyer may have made, and to use its best efforts
to cause its representatives to whom such documents were furnished promptly to
return such documents, and any copies thereof any of them may have made.
3.4 EXPENSES. Subject to Section 3.7, the Selling Shareholders joint and
--------
severally agree to pay all of the fees, costs and expenses of the Selling
Shareholders, and Buyer agrees to pay all of the fees, costs and expenses of
Buyer, (including, without limitation, those of advisors, financial advisors,
lawyers or accountants) incurred in
-20-
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
3.5 NEGOTIATIONS WITH OTHERS. During the period from the date of this
------------------------
Agreement to the Closing Date, or until this Agreement is terminated in
accordance with the provisions of Article V, if it is so terminated, the
Company, the Selling Shareholders and their agents shall not, directly or
indirectly, without the prior written consent of Buyer, solicit or initiate
discussions or engage in negotiations with, or provide any information other
than publicly available information to, or authorize any financial advisor or
other person to solicit or initiate discussions or engage in negotiations with,
or provide any information to, any corporation, partnership, person or other
entity or group (other than Buyer) concerning any possible proposal regarding a
sale of shares of capital stock of, or a merger, consolidation, sale of assets
or other similar transaction involving the Company, and the Company and the
Selling Shareholders will promptly notify Buyer if any such discussions or
negotiations are sought to be initiated with, any such information is requested
from, or any such proposal or possible proposal is received by the Company, the
Selling Shareholders and/or their agents.
3.6 PUBLICITY. Until the Closing Date, each party hereto agrees not to
---------
issue any press release or to otherwise make any public statement with respect
to the transactions contemplated hereby except as may be required by law, in
which event such press release or public statement shall be made only after
consultation with the Company or Buyer, as the case may be; then and thereafter
no such public announcement shall be made without the consent, which shall not
be unreasonably withheld, of the Company (in the case of releases or statements
issued or made by Buyer) or Buyer (in the case of releases or statements issued
or made by the Company or the Selling Shareholders).
3.7 ENVIRONMENTAL AUDIT. If required by any prospective provider of
-------------------
financing for the transactions contemplated by this Agreement, the parties
hereto agree that Buyer may have a Phase II environmental audit (the
"Environmental Audit") completed prior to Closing at the Company's facilities.
--------------------
The environmental consultant shall be chosen by Buyer. The Company shall have
the right to approve each phase of the Environmental Audit, which approval shall
not be unreasonably withheld. The fees, costs and expenses relating to the
Environmental Audit shall be borne as follows: (x) the first $10,000 by the
Selling Shareholders, (y) the next $10,000 by Buyer and (z) any balance in
excess of $20,000 equally by the Selling Shareholders and Buyer.
3.8 KILOVAC DEVELOPMENT. Prior to the Closing, the Company shall (i)
-------------------
cause Kilovac Development to assign and transfer to the Company all of its
material assets other than the Palm Avenue Property, if any, and (ii) cancel any
intercompany debt of Kilovac Development to the Company and (iii) contribute
funds to Kilovac Development sufficient to discharge any third party
indebtedness and the guarantee by the Company thereof in an amount not to exceed
$230,000.
3.9 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
---------------------
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby as soon as
reasonably practicable hereinafter.
ARTICLE IV
----------
CONDITIONS TO THE CLOSING
4.1 CONDITIONS TO THE CLOSING RELATING TO BUYER. Consummation of the
-------------------------------------------
transaction contemplated hereby is subject to the fulfillment to the reasonable
satisfaction of Buyer, prior to or at the Closing Date, of each of the following
conditions.
(a) Regulatory Consents, Authorizations, etc. All consents,
-----------------------------------------
authorizations, orders and approvals of, and filings and registrations with any
governmental commission, board or other regulatory body or any other person
which are required, prior to the Closing Date, for or in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto and the Company of the transactions contemplated hereby, or which are
required
-21-
in order to avoid violation or termination of any agreement listed in the
Disclosure Schedule, shall have been obtained or made.
(b) Representations and Warranties. The representations and warranties of
------------------------------
the Company and the Selling Shareholders contained in this Agreement are true
and correct in all material respects at and as of the Closing Date, except for
changes contemplated by this Agreement, with the same force and effect as if
made at and as of the Closing Date; and the Selling Shareholders and the Company
shall have performed or complied in all material aspects with all agreements and
covenants required by this Agreement to be performed or complied with by them at
or prior to the Closing Date.
(c) Certificate. Each of the Selling Shareholders who is a member of the
-----------
Board of Directors of the Company shall have delivered to Buyer certificates to
the effect that (i) he is familiar with the provisions of this Agreement and
(ii) the conditions specified in Sections 4.1(a) and (b) have, to his knowledge
after inquiry of the Company's officer level employees having responsibility for
matters in the subject area of the condition to be satisfied and review of the
Company's records with respect to such subject matter, been satisfied.
(d) Litigation; Other Events. No action, suit or proceeding shall have
-------------------------
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the conditions to
the transactions contemplated herein, or seeks damages as a result of the
consummation of the transactions contemplated herein, or speaks to the conduct
of the business of the Company after the Closing Date.
(e) Financing. Buyer shall have completed arrangements, on terms and
---------
conditions reasonably satisfactory to it, for the financing of a portion of the
purchase price and the ongoing working capital requirements of the Company.
(f) Environmental Audit. If required pursuant to Section 3.7, Buyer shall
-------------------
have completed the Environmental Audit and the results of such audit shall be
satisfactory to it.
(g) Existing Indebtedness. Bank of America shall have released and
---------------------
discharged its lien securing the outstanding indebtedness against payment by
Buyer of the outstanding balance of such indebtedness without premium or
penalty. On the Closing Date, the aggregate outstanding indebtedness of the
Company and its Subsidiaries shall not exceed $430,000.
(h) Related Agreements. The Escrow Agreement, the Paying Agent Agreement
------------------
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and C
-------------------
hereto.
------
(i) Legal Opinion. Buyer shall have received a legal opinion, dated as of
-------------
the Closing Date, from Xxxxx, Xxxxx & Xxxxxxxxx, special counsel to the Company,
in the form of Exhibit D hereto.
---------
4.2 CONDITIONS TO THE CLOSING RELATED TO THE COMPANY AND THE SELLING
----------------------------------------------------------------
SHAREHOLDERS. Consummation of the transaction contemplated hereby is subject to
------------
the fulfillment to the reasonable satisfaction of the Company and the Selling
Shareholders, prior to or at the Closing Date, of each of the following
conditions
(a) Regulatory Consents, Authorizations, etc. All consents,
-----------------------------------------
authorizations, orders and approvals of, and filings and registrations with any
governmental commission, board or other regulatory body or any other person
which are required, prior to the Closing Date, for or in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto and the Company of the transactions contemplated hereby, or which are
required in order to avoid violation or termination of any agreement listed in
the Disclosure Schedule, shall have been obtained or made.
(b) Representations and Warranties. The representations and warranties of
------------------------------
Buyer contained in this Agreement are true and correct in all material respects
on the date hereof and shall also be true and correct in all material respects
at and as of the Closing Date, except for changes contemplated by this
Agreement, with the same force and
-22-
effect as if made at and as of the Closing Date; and Buyer shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date.
(c) Certificate. Buyer shall have delivered to the Selling Shareholders a
-----------
certificate, dated as of the Closing Date, of the Chairman of the Board and
Chief Executive Officer of Buyer to the effect that (i) he is familiar with the
provisions of this Agreement and (ii) the conditions specified in Sections
4.2(a) and (b) have, to his knowledge after due inquiry, been satisfied.
(d) Litigation; Other Events. No action, suit or proceeding shall have
-------------------------
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the conditions to
the transactions contemplated herein, or seeks damages as a result of the
consummation of the transactions contemplated herein, or speaks to the conduct
of the business of the Company after the Closing Date.
(e) Related Agreements. The Escrow Agreement, the Paying Agent Agreement
------------------
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and C
-------------------
hereto.
------
ARTICLE V
---------
TERMINATION
5.1 TERMINATION. This Agreement may be terminated by:
-----------
(1) By mutual action of the Company and Buyer;
(2) By the Company, if any of the conditions set forth in
Section 4.2 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) by Buyer on or before the
Closing Date; or
(3) By Buyer, if any of the conditions set forth in Section
4.1 shall not have been complied with or performed and such noncompliance
or nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by the Company and the Selling Shareholders
on or before the Closing Date.
5.2 EFFECTS OF TERMINATION. In the event of the termination of this
----------------------
Agreement, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto or their
respective stockholders or directors or officers in respect thereof, except for
the obligations of the parties hereto in the last two sentences of Section 3.3
and the Confidentiality Agreement (as defined below), and except that nothing
herein will relieve any party from liability for any breach of this Agreement
prior to such termination.
ARTICLE VI
----------
INDEMNITY
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES INDEMNITY. The
----------------------------------------------------
representations, warranties, agreements and covenants by the Company and Selling
Shareholders (other than the agreements and covenants set forth in Article VII)
shall survive until the 12 month anniversary of the Closing Date, except that
the representations, warranties, agreements and covenants of the Company and the
Selling Shareholders contained in (i) Section 2.2(al) shall survive until the 24
month anniversary of the Closing Date and (ii) Section 2.2(i) shall survive
indefinitely.
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6.2 INDEMNITY. Subject to said applicable survival periods, the
---------
Shareholders agree to indemnify Buyer, the Company and/or their Affiliates for
any and all claims, demands, losses, costs, charges, expenses, obligations,
liabilities, actions, suits, damages, judgments, and deficiencies, including
interest and penalties, reasonable counsels' fees and all reasonable amounts
paid in settlement of any claim, action, or suit (collectively referred to as
"Claim") which may be sustained, suffered or incurred by Buyer, the Company
------
and/or their Affiliates and arising out of or by reason of any breaches of the
representations, warranties, agreements and covenants of the Company or the
Selling Shareholders contained herein; provided, that, (i) the obligations of
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the Selling Shareholders under this Section 6.2 relating to taxes shall be
limited to the Escrowed Funds and the setoff of any amounts then due to the
Selling Shareholders under this Agreement and (ii) all other obligations of the
Selling Shareholders under this Section 6.2 shall be limited to the Escrowed
Funds. Each of the Selling Shareholders agrees that Buyer, the Company and/or
their Affiliates will have the rights to setoff the amounts referred to in the
preceding proviso.
6.3 COOPERATION. The term "Claims" as used in this Article is not limited
-----------
to matters asserted by third parties against Buyer and/or the Company. Claims
does not include any damages for which the Company receives insurance
reimbursement. In the event a claim is asserted by any third party against
Buyer and/or the Company, it shall notify Selling Shareholders of such Claim by
giving to Selling Shareholders written notice, and shall give Selling
Shareholders and their counsel access to any and all such files, records and
other documents as may be necessary to enable Selling Shareholders to
investigate or participate in the defense against such Claim (but at the cost
and expense of such Selling Shareholders) and Buyer shall otherwise cooperate in
connection therewith and shall not assume a position contrary to that of Selling
Shareholders with respect to all such third party Claims.
ARTICLE VII
-----------
CERTAIN POST-CLOSING AGREEMENTS
7.1 NONCOMPETE. Each of Xxx XxXxxxxxx, Xxxxxx Xxxxxx, Xxx XxXxxxxxxx
----------
and Xxxx Xxxxxxx agree on behalf of himself and his Affiliates that he will not
anywhere in the State of California, including all the counties listed on
Schedule 2 hereto, or anywhere else at any time for three years after the date
----------
hereof and Xxxxxxx Xxxxxxxx agrees on behalf of himself and his Affiliates that
he will not anywhere in the State of California, including all the counties
listed on Schedule 2 hereto, or anywhere else at any time for five years after
----------
the date hereof, except with the express prior written consent of Buyer: (a)
directly or indirectly, engage in any Competitive Business (meaning, any
business engaged in by the Company as of the Closing Date), whether such
engagement shall be as an owner, partner agent, consultant or shareholder
(except as the holder of not more than five percent (5%) of the outstanding
shares of a corporation whose stock is listed on any national or regional
securities exchange or reported by the National Association of Securities
Dealers Automated Quotations System or any successor thereto); (b) directly or
indirectly solicit, divert or accept business from or otherwise take away or
interfere with any customer of Buyer, the Company or their Affiliates engaged in
any Competitive Business, including without limitation any person who was a
customer or whose business was being pursued by Buyer, the Company or their
Affiliates prior to the date hereof; or (c) directly or indirectly, accept
employment with, be employed by or be a principal of any business or enterprise
operating within the United States of America which then employs or has as a
principal or holder of any interest therein (except as the holder of not more
than one percent (1%) of the outstanding shares of a corporation whose shares
are publicly traded) any individual who was previously employed in a managerial
or consultant position with Buyer, the Company or any of their Affiliates,
provided however, that this prohibition shall not be applicable if such business
-------- -------
or enterprise is not a Competitive Business. The Company and each of the
individuals subject to this Section acknowledge that the Company's products are
sold and used in each county in the State of California.
7.2 NONDISCLOSURE. Each of the Selling Shareholders, agree that, for a
-------------
period of seven years following the Closing Date, except as required by law or
by the order of any court or government agency or in the performance of his
duties as an employee of the Company or its Subsidiaries, he shall keep secret
and retain in strictest confidence and shall not, except with the express prior
written consent of Buyer, directly or indirectly disclose, communicate or
divulge to any person, or use for the benefit of any person, any Proprietary
Information (meaning, all information or data with respect to the conduct or
details of the business of the Company including, without limitation, methods of
operation, customers and customer lists, details of contracts with customers,
consultants, suppliers or employees,
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products, proposed products, former products, proposed, pending or completed
acquisitions of any company, division, product line or other business unit,
prices and pricing policies, fees, costs, plans, designs, technology,
inventions, trade secrets, know-how, software, marketing methods, policies,
plans, personnel, suppliers, competitors, markets or other specialized
information or proprietary matters of the business of the Company). The
restriction contained in the preceding sentence shall not apply to any
Proprietary Information that (i) is a matter of public knowledge on the date of
this Agreement or (ii) becomes a matter of public knowledge after the date of
this Agreement from another source which is under no known obligation of
confidentiality to Buyer or its Affiliates.
7.3 ANTI-DILUTION, In the event of the issuance, sale, grant or
-------------
distribution by the Company to Buyer or any of its Affiliates of any shares of
Common Stock, the Selling Shareholders shall be entitled to participate in such
issuance, sale, grant or distribution on a pro rata basis, and on the same terms
and conditions, so that following such issuance, sale, grant or distribution
each Selling Shareholder will, if such Selling Shareholder has elected to
purchase or otherwise receive the shares to be issued, sold, granted or
distributed, have the same percentage of the Common Stock ownership of the
Company as such Selling Shareholder had prior to such issuance, sale, grant or
distribution. This Section 7.3 shall not apply to registered public offerings.
7.4 CONTRIBUTIONS TO ESBP. Each of the parties hereto agrees and
---------------------
acknowledges that neither Buyer nor the Company shall have any obligation to
make any contributions to the Kilovac Corporation Employee Stock Bonus Plan (the
"ESBP") after the Closing Date.
----
7.5 ADDITIONAL RESTRICTIONS. Except with the prior written approval of
-----------------------
the Paying Agent, after the Closing Date and until a Liquidity Event, the
Company;
(a) shall not issue any additional shares of capital stock of the Company;
(b) shall not amend the charter or by-laws of the Company or any of its
subsidiaries,
(c) shall not effect the voluntary liquidation, dissolution or winding up
of the Company or any of its subsidiaries, or the sale, lease or exchange of all
or substantially all of the assets, property or business of the Company or any
of its subsidiaries, or the merger or consolidation of the Company with or into
any other corporation (except a wholly-owned subsidiary of the Company),
(d) shall not incur any indebtedness for borrowed money, except (i)
pursuant to financing arrangements entered into in connection with the Closing
between Buyer and Bank of America, N.A. (and any extensions thereof), and (ii)
other indebtedness incurred in the ordinary course of business, consistent with
past practice,
(e) shall not guaranty any indebtedness of any person or entity other than
financing arrangements entered into in connection with the Closing between Buyer
and Bank of America, N.A. (and any extensions thereof),
(f) shall not make any acquisition or disposition of securities other than
as a result of the reorganization of a debtor of the Company or a business or
line of business or line of business in a single transaction or a series of
related transactions.
(g) shall not repurchase or redeem any capital stock of the Company or any
of its subsidiaries.
(h) shall not declare or pay any dividends or distributions on Common
Stock (except as specifically provided herein).
(i) shall not make any initial public offering of shares of common stock
of the Company or of any of its subsidiaries or grant any registration rights
with respect to common stock of the Company or of any of its subsidiaries,
(j) shall not create or dissolve any subsidiary of the Company, or
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(k) shall not adopt or amend any personnel policies or personnel plans of
the Company or any of its subsidiaries, including those relating to compensation
or benefits.
(l) shall not enter into, or be a party to, any transaction with Buyer or
any affiliate of Buyer, except in the ordinary course of business and upon fair
and reasonable arms-length terms, which are no less favorable to the Company
than would be obtained in an arm's length transaction with an unaffiliated third
party.
(m) shall in reduction of intercompany advances to the Company, deliver
all excess cash of the Company to Buyer, and borrow all working capital needs
from Buyer and the terms of intercompany advances in favor of the Company shall
be subject to only the charges and interest as applicable on Buyer's senior
credit accommodations.
(n) shall, until satisfaction of all obligations of Buyer and the Company
with respect to the Continuing Shares, be operated, and Buyer shall so cause the
Company to be operated as a separate subsidiary or division in a manner to
permit the computation and verification of the Determination Numbers.
7.6 RESTRICTIONS ON TRANSFER.
------------------------
(a) Subject to paragraph (b) below, commencing on the Closing Date and
ending on December 31, 2005, no Selling Shareholder shall sell, transfer, pledge
or otherwise encumber any of his or her shares of Common Stock. Subject to
paragraph (b) below, any shares during such period shall be null and void.
(b) Any Selling Shareholder may at any time transfer to another Selling
Shareholder or by devise effective upon his or her death or by gift any or all
of his or her Continuing Shares to the heirs or beneficiaries of such Selling
Shareholder's estate (or of the estate of a family member of such Selling
Shareholder) (or their respective guardians, custodians or one or more trusts,
partnerships, corporations or similar entities principally for the benefit of
such spouse or children), provided however, that such transferee continues to be
-------- -------
bound by the terms of this Agreement in the event of any such transfer by a
Selling Shareholder to more than one person or entity, all of such persons or
entities shall collectively have right equal to the rights of such respective
Selling Shareholder under this Agreement.
ARTICLE VII
-----------
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication required or permitted
-------
hereunder shall be sufficiently given if delivered personally or sent by
telecopy (receipt confirmed by telephone) or by registered or certified mail,
postage prepaid, addressed as follows:
If to Buyer: Communications Instruments, Inc.
c/o Stonebridge Partners
Westchester Financial Center
00 Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx, Xx. Telecopy
No.: (000)000-0000
Telephone No.: (000) 000-0000
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with a copy to: Simson Thacher & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Company
or the Selling
Shareholders: Kilovac Corporation
X.X. Xxx 0000
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Telecopy No.: (000) 000-0000
Telephone No.: (000) 000-0000
(following closing, notices to the Company shall
also be sent to Buyer)
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with a copy to: Xxxxx, Xxxxx & Xxxxxxxxx
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: R. Xxxxxxx Xxxx, Esq.
Telecopy No.: (000) 000-0000
Telephone No.: (000) 000-0000
or such other person or address as shall be furnished in writing by any party to
the other parties prior to the giving of the applicable notice or communication,
and such notice or communication shall be deemed to have been given ten (10)
days after mailed, or in the case of personal delivery or Telecopy, upon receipt
of transmission.
8.2 FINANCIAL ADVISORS AND BROKERS. Other than ING Capital, the Company
------------------------------
and the Selling Shareholders represent and warrant, jointly and severally, that
no investment banker, broker or finder is entitled to any financial advisory,
brokerage or finder's fee or other similar payment from the Company based on
agreements, arrangements or undertakings made by it or any of its respective
directors, officers or employees in connection with the transactions
contemplated hereby.
8.3 COUNTERPARTS. This Agreement shall be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 DISCLOSURE SCHEDULE. The Disclosure Schedule is an integral part of
-------------------
this Agreement.
8.5 HEADINGS. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
8.6 EXHIBITS. The attached Exhibits are an integral part of this
--------
Agreement.
8.7 MISCELLANEOUS. This Agreement (including the Schedules and Exhibits
-------------
hereto and the Disclosure Schedule) (a) constitutes (together with that certain
letter agreement, dated June 5, 1995, between Stonebridge Partners and ING
Capital (the "Confidentiality Agreement") the entire Agreement and understanding
-------------------------
and supersedes all prior agreements and understandings, both written and oral,
among the parties hereto with respect to the subject matter hereof, (b) is not
intended to confer upon any other person any rights or remedies hereunder, (c)
shall not be assigned, by operation of law or otherwise, and (d) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the State of California. If there is a conflict between the
provisions of the Confidentiality Agreement and this Agreement, the provisions
of the Confidentiality Agreement shall control.
8.8 ARBITRATION. Any party shall have the right to submit any dispute
-----------
arising out of this Agreement to neutral binding arbitration in the City of Los
Angeles with a partner of Price Waterhouse, L.L.P. In the event of arbitration,
the matter shall be heard before a single arbitrator and all submissions shall
be made in writing. Any party requesting arbitration shall give notice to the
other party stating the issue to be resolved. The decision of the arbitrator
shall be final and binding on both parties, with each party or parties bearing
its own costs and expenses with respect to the dispute. Each party hereby
consents to the entry of a judgment in any court of competent jurisdiction
enforcing any arbitration decision made in accordance herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written:
COMMUNICATIONS INSTRUMENTS, INC.
Attest_____________________ By_____________________________
Xxxxxxx Xxxxx,
Its Director
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XXXXXXX XXXXXXXXXXX
Attest_____________________ By________________________________________
Xxxxxxx Xxxxxxxx,
Its President
SELLING SHAREHOLDERS
Witness
__________________________________________
XXXXXXX X. XXXXXXXX, Trustee of
the KILOVAC CORPORATION EMPLOYEE
STOCK BONUS PLAN
Witness
__________________________________________
XXXXXXX X. XXXXXXXX, as Trustee of
the XXXXXXXX CHARITABLE REMAINDER
UNITRUST
Witness
__________________________________________
XXXXX XXXXX, as Trustee of
XXXX XXXXXXXX TRUST
Witness
__________________________________________
XXXXXXX X. XXXXXXXX
Witness
__________________________________________
XXX XXXXXXXX
Witness
__________________________________________
XXX XXXXXXXXX
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