EXHIBIT 10.2
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NATURE VISION, INC.,
PHOTO CONTROL CORPORATION,
PC ACQUISITION, INC.,
XXXX XXXXXX (AS STOCKHOLDERS' REPRESENTATIVE)
AND
THE UNDERSIGNED STOCKHOLDERS
April 15, 2004
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TABLE OF CONTENTS
MERGER AGREEMENT AND PLAN OF REORGANIZATION
ARTICLE 1 THE MERGER........................................................25
1.1 The Merger..................................................25
1.2 Closing; Effective Time.....................................25
1.3 Effect of the Merger........................................25
1.4 Certificate of Incorporation; Bylaws........................25
1.5 Directors and Officers......................................26
1.6 Effect on Capital Stock.....................................26
1.7 Surrender of Certificates...................................30
1.8 No Further Ownership Rights in Target Capital Stock.........32
1.9 Lost, Stolen or Destroyed Certificates......................32
1.10 Tax and Accounting Consequences.............................32
1.11 Exemption from Registration.................................33
1.12 Taking of Necessary Action; Further Action..................33
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TARGET..........................33
2.1 Organization, Standing and Power............................33
2.2 Capital Structure...........................................33
2.3 Authority; Noncontravention.................................34
2.4 Financial Statements........................................34
2.5 Absence of Certain Changes..................................35
2.6 Absence of Undisclosed Liabilities..........................35
2.7 Accounts Receivable.........................................35
2.8 Litigation, Restrictions on Business Activities.............35
2.9 Minute Books................................................36
2.10 Governmental Authorization..................................36
2.11 Title to Property...........................................36
2.12 Intellectual Property.......................................36
2.13 Environmental Matters.......................................37
2.14 Taxes.......................................................37
2.15 Employee Benefit Plans......................................38
2.16 Employment Matters..........................................39
2.17 Related Party Transactions..................................39
2.18 Insurance...................................................40
2.19 Compliance with Laws........................................40
2.20 Real Property...............................................40
2.21 Brokers' and Finders' Fees..................................40
2.22 Vote Required...............................................40
2.23 Inventory...................................................40
2.24 Customers and Suppliers.....................................40
2.25 Material Contracts..........................................41
19
2.26 Complete Copies of Materials................................41
2.27 Representations Complete....................................41
2.28 Projections.................................................41
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.........42
3.1 Organization, Standing and Power............................42
3.2 Capitalization and Voting Rights............................42
3.3 Authority...................................................43
3.4 SEC Documents; Financial Statements.........................44
3.5 Financial Statements........................................44
3.6 Absence of Certain Changes..................................45
3.7 Absence of Undisclosed Liabilities..........................45
3.8 Accounts Receivable.........................................45
3.9 Litigation, Restrictions on Business Activities.............45
3.10 Minute Books................................................45
3.11 Governmental Authorization..................................45
3.12 Title to Property...........................................46
3.13 Intellectual Property.......................................46
3.14 Environmental Matters.......................................46
3.15 Taxes.......................................................46
3.16 Employee Benefit Plans......................................47
3.17 Employment Matters..........................................47
3.18 Related Party Transactions..................................48
3.19 Insurance...................................................49
3.20 Compliance with Laws........................................49
3.21 Real Property...............................................49
3.22 Brokers' and Finders' Fees..................................49
3.23 Inventory...................................................49
3.24 Customers and Suppliers.....................................49
3.25 Material Contracts..........................................49
3.26 Complete Copies of Materials................................50
3.27 Representations Complete....................................50
3.28 Projections.................................................50
ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME...............................51
4.1 Conduct of Business of Target...............................51
4.2 Target Notices..............................................54
4.3 Conduct of Business of Acquiror.............................54
4.4 Acquiror Notices............................................58
ARTICLE 5 ADDITIONAL AGREEMENTS.............................................58
5.1 No Solicitation.............................................58
5.2 Shareholders Meeting or Consent Solicitation................59
5.3 Access to Information.......................................60
5.4 Confidentiality.............................................60
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5.5 Public Disclosure...........................................60
5.6 Consents; Cooperation.......................................61
5.7 Update Disclosure; Breaches.................................61
5.8 Irrevocable Proxies.........................................61
5.9 Legal Requirements..........................................62
5.10 Tax-Free Reorganization.....................................62
5.11 Listing of Additional Shares................................62
5.12 Additional Agreements; Best Efforts.........................62
5.13 Employee Benefits...........................................62
5.14 Preparation of Tax Return...................................63
5.15 Sales, Transfer and Other Taxes.............................63
5.16 Royalty Payments............................................63
ARTICLE 6 CONDITIONS TO THE MERGER..........................................63
6.1 Conditions to Obligations of Each Party to Effect
the Merger..................................................63
6.2 Additional Conditions to Obligations of Target..............64
6.3 Additional Conditions to the Obligations of Acquiror........66
ARTICLE 7 TERMINATION, EXPENSES, AMENDMENT AND WAIVER.......................70
7.1 Termination.................................................70
7.2 Effect of Termination.......................................71
7.3 Expenses and Termination Fees...............................71
7.4 Amendment...................................................72
7.5 Extension; Waiver...........................................72
ARTICLE 8 INDEMNIFICATION...................................................72
8.1 Time Limitations............................................72
8.2 Amount Limitations..........................................73
8.3 Indemnification by Signing Stockholders.....................73
8.4 Indemnification by Acquiror.................................74
8.5 Matters Involving Third Parties.............................74
8.6 Escrow Fund.................................................76
8.7 Exclusive Remedy............................................76
8.8 Stockholders' Representative................................77
8.9 Actions of the Stockholders' Representative.................78
ARTICLE 9 GENERAL PROVISIONS................................................80
9.1 Notices.....................................................80
9.2 Interpretation..............................................81
9.3 Counterparts................................................81
9.4 Entire Agreement; No Third Party Beneficiaries..............81
9.5 Severability................................................81
9.6 Remedies Cumulative.........................................82
9.7 Governing Law...............................................82
9.8 Assignment..................................................82
9.9 Rules of Construction.......................................83
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9.10 Amendments and Waivers......................................83
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SCHEDULES
---------
Schedule 1.6(e) - Stock Options, Warrants, Convertible Debt
Schedule 6.3(o) - Release of Security Interests
Target Disclosure Schedule
Acquiror Disclosure Schedule
EXHIBITS
--------
Exhibit A - Articles of Merger
Exhibit B - Irrevocable Proxy
Exhibit C - Acquiror's Legal Opinion
Exhibit D - Target's Legal Opinion
Exhibit E - Target FIRPTA Notification Letter
Exhibit F - Escrow Agreement
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 15, 2004, by and among Photo Control Corporation, a
Minnesota corporation ("Acquiror"), PC Acquisition, Inc., a Minnesota
corporation ("Merger Sub"), Nature Vision, Inc., a Minnesota corporation
("Target"), the Stockholders' Representative ("Stockholders' Representative"),
and Xxxx Xxxxx and Xxxx Xxxxx (together with the Stockholders' Representative,
each a "Signing Stockholder" and, collectively, the "Signing Stockholders").
Target, Merger Sub, Acquiror, Stockholders' Representative and the Signing
Stockholders are referred to individually as a "Party" and collectively as the
"Parties."
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it
is in the best interests of their respective companies and the
shareholders and stockholders of their respective companies that Target
and Merger Sub combine into a single company through the statutory
merger of Merger Sub with and into Target (the "Merger") and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding share of
common stock of Target, $.01 par value ("Target Common Stock"), shall
be converted into shares of common stock of Acquiror, $.08 par value
("Acquiror Common Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to cause the Merger
to qualify as a tax free reorganization under the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
E. Concurrent with the execution of this Agreement and as an inducement to
Acquiror to enter into this Agreement, all of the Signing Stockholders
are delivering to Acquiror irrevocable proxies to vote the shares of
Target's Common Stock owned by such persons to approve the Merger and
against any competing proposals.
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AGREEMENT
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE 1
THE MERGER
----------
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the
Articles of Merger attached hereto as Exhibit A (the "Articles of
Merger") and the applicable provisions of the Minnesota Business
Corporation Act ("Minnesota Law"), Merger Sub shall be merged with and
into Target, the separate corporate existence of Merger Sub shall cease
and Target shall continue as the surviving corporation. Target as the
surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after
the satisfaction or waiver of each of the conditions set forth in
Article 6 or at such other time as the parties hereto agree (the date
on which the Closing shall occur, the "Closing Date"). The Closing
shall take place at the offices of Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx
P.A., or at such other location as the parties hereto agree. On the
Closing Date, the parties hereto shall cause the Merger to be
consummated by filing the Articles of Merger, together with the
required officers' certificates, with the Secretary of State of the
State of Minnesota, in accordance with the relevant provisions of
Minnesota Law (the time and date of such filing being the "Effective
Time" and the "Effective Date," respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of Minnesota Law. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Target shall
vest in the Surviving Corporation, and all debts, liabilities and
duties of Target shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Articles of Incorporation. At the Effective Time, the Articles
of Incorporation of Merger Sub, as in effect
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immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter
amended as provided by Minnesota Law and such Certificate of
Incorporation.
(b) Bylaws. The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of the Surviving Corporation
shall be the Stockholders' Representative and such other members as
designated by the Stockholders' Representative, to hold office until
such time as such directors resign, are removed or their respective
successors are duly elected or appointed and qualified. The officers of
the Surviving Corporation shall be as designated by the Stockholders'
Representative, to hold office until such time as such officers resign,
are removed or their respective successors are duly elected or
appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any action
on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) Conversion of Target Common Stock. The maximum number of
shares of Acquiror Common Stock to be issued or reserved for
issuance in exchange for the acquisition by Acquiror of all
outstanding Target Common Stock shall be 2,200,000 shares
subject to adjustment as set forth in Section 1.6(f) and
reduced as a result of (as adjusted and reduced, the "Total
Acquiror Shares"): (i) any Dissenting Shares (as defined
below) and (ii) any Stock Options (as defined in Section
1.6(e)). No adjustment shall be made in the number of shares
of Acquiror Common Stock issued in the Merger as a result of
(x) any increase or decrease in the market price of Acquiror
Common Stock prior to the Effective Time or (y) any cash
proceeds received by Target from the date hereof to the
Closing Date pursuant to the exercise of currently outstanding
options to purchase shares of Target Common Stock. Subject to
the terms and conditions of this Agreement and the Articles of
Merger as of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of
Target Common Stock, at the Effective Time, each share of
Target Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares to be cancelled
pursuant to Section 1.6(b) and shares, if any, held by persons
who have not voted such shares for approval of the Merger and
except respect to which such persons shall become entitled to
exercise dissenters' rights in
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accordance with the Minnesota Law, Sections 302A.471 and
302A.473 ("Dissenting Shares")) shall be cancelled and
extinguished and converted into and become the right to
receive .58137 shares of Acquiror Common Stock (the "Exchange
Ratio").
(b) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or
distribution of securities convertible into Acquiror Common
Stock or Target Common Stock), reorganization,
recapitalization or other like change with respect to Acquiror
Common Stock or Target Common Stock occurring after the date
hereof and prior to the Effective Time. The Exchange Ratio
shall also be adjusted to reflect the issuance of any shares
of Target Common Stock occurring after the date hereof and
prior to the Effective Time, other than issued pursuant to the
exercise of Stock Options.
(c) Fractional Shares. No fraction of a share of Acquiror Common
Stock will be issued, but in lieu thereof each holder of
shares of Target Common Stock who would otherwise be entitled
to a fraction of a share of Acquiror Common Stock (after
aggregating all fractional shares of Acquiror Common Stock to
be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the
Closing Price. "Closing Price" means the average closing price
per share of Acquiror's Common Stock on the Nasdaq Small Cap
Market over the 30 day period preceding the Closing Date.
(d) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Common Stock but shall instead be
converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting Shares
pursuant to Minnesota Law. Target agrees that, except with the
prior written consent of Acquiror, or as required under
Minnesota Law, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such purchase
demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of Minnesota
law, becomes entitled to payment of the fair value for shares
of Target Common Stock shall receive payment therefor (but
only after the value therefor shall have been agreed upon or
finally determined pursuant to such provisions). If, after the
Effective Time, any Dissenting Shares shall
27
lose their status as Dissenting Shares, Acquiror shall issue
and deliver, upon surrender by such shareholder of certificate
or certificates representing shares of Target Common Stock,
the number of shares of Acquiror Common Stock to which such
shareholder would otherwise be entitled under this Section 1.6
and the Articles of Merger less the number of shares allocable
to such shareholder that have been or will be deposited in the
Escrow Fund (as defined below) in respect of such shares of
Acquiror Common Stock pursuant to Section 1.7 and Article 8.
(e) Stock Options, Warrants, Convertible Debt and Related Matters.
Schedule 1.6(e) sets forth each stock option, warrant and
convertible debt issued by Target and outstanding on the date
of this Agreement (collectively, the "Stock Options"),
including the number of shares of Target capital stock subject
to each such option, the exercise or vesting schedule, the
exercise price per share and the term of each such option,
whether or not fully exercisable. No additional Stock Options
will be granted by Target on or after the date hereof. On the
Closing Date, Target shall deliver to Acquiror an updated
Schedule 1.6(e) current as of such date to reflect the
exercise of any Stock Options. Prior to the Closing Date,
Target shall take all actions necessary so that effective as
of the Effective Time, Target shares shall no longer be
deliverable upon exercise thereof and in lieu of Target
shares, such Stock Options shall be exercisable for a number
of Acquiror shares equal to the number of Target shares
subject to such Stock Options multiplied by the Exchange
Ratio. The per share exercise price for each such Stock Option
shall be the current exercise price per Target share divided
by the Exchange Ratio. Effective as of the Effective Time,
Acquiror shall assume all obligations of Target with respect
to such Stock Options, as so modified. Promptly following the
Effective Time, Acquiror shall issue new option agreements,
warrants, or convertible debt instruments, as the case may be,
representing such Stock Options, as so modified.
(f) Total Acquirer Shares Adjustment.
(i) Within 7 days after the Closing Date, the
Stockholders' Representative will prepare and deliver
to Acquiror a draft balance sheet prepared in
accordance with generally accepted accounting
principles ("GAAP") (the "Draft Balance Sheet") for
the Surviving Corporation as of the close of business
on the Closing Date
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(determined on a pro forma basis as though the
Parties had not consummated the transactions
contemplated by this Agreement). The Stockholders'
Representative will make available to Acquiror and
its accountants the work papers and back-up materials
used in preparing the Draft Balance Sheet.
(ii) If Acquiror has any objections to the Draft Balance
Sheet, then it must deliver a detailed statement
describing its objections to Stockholders'
Representative within 2 days after receiving the
Draft Balance Sheet. Acquiror and the Stockholders'
Representative will use reasonable efforts to resolve
any such objections themselves through good faith
negotiation. If they do not obtain a final resolution
within 10 days after the Stockholders' Representative
has received the statement of objections, however,
Acquiror and the Stockholders' Representative will
select a mutually acceptable, nationally-recognized
accounting firm to resolve any remaining objections.
Acquiror will pay the costs and expenses of any
accounting firm so used. The determination made by
such accounting firm will be set forth in writing and
will be conclusive and binding upon the Parties. The
"Final Balance Sheet" means the Draft Balance Sheet
together with any revisions made pursuant to this
Section 1.6(f).
(iii) The Total Acquiror Shares shall be reduced by 1 share
of stock for each $1 that the Target's Net Asset
Value (as defined below) as of June 30, 2004 and set
forth on the Final Balance Sheet is less than
$1,150,000 (not including adjustments relating to the
grant of stock options). Acquiror will recover such
shares from the Escrow Shares held in the Escrow
Fund, provided, however, that such reductions shall
not exceed the total amount of the Escrow Shares held
in the Escrow Fund. For the purposes of this Section
1.6 "Target's Net Asset Value" means Target's total
assets less Target's total liabilities, both
determined in accordance with GAAP consistently
applied.
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1.7 Surrender of Certificates.
(a) Exchange Agent. Signature Stock Transfer, Inc. shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock. Promptly after the Effective
Time, Acquiror shall make available to the Exchange Agent for
exchange in accordance with this Article 1, through such
reasonable procedures as Acquiror may adopt, the Total
Acquiror Shares less the number of shares of Acquiror Common
Stock to be deposited into the Escrow Fund (as defined in
Section 8.6) pursuant to the requirements of Article 8.
(c) Exchange Procedures. Promptly after the Effective Time,
Acquiror shall cause to be mailed to each holder of record of
a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented
outstanding shares of Target Common Stock, whose shares were
converted into the right to receive shares of Acquiror Common
Stock (and cash in lieu of fractional shares) pursuant to
Section 1.6: (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form
and have such other provisions as Acquiror may reasonably
specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu
of fractional shares). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Acquiror, together with such
letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of
Acquiror Common Stock less the number of shares of Acquiror
Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article 8 and payment in lieu of
fractional shares which such holder has the right to receive
pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each
outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number
of full shares of Acquiror
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Common Stock into which such shares of Target Common Stock
shall have been so converted and the right to receive an
amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6. As soon as practicable
after the Effective Time, and subject to and in accordance
with the provisions of Section 8.6, Acquiror shall cause to be
delivered to the Escrow Agent (as defined in Section 8.6) a
certificate or certificates representing 10% of the Total
Acquiror Shares (the "Escrow Shares") which shall be
registered in the name of the Escrow Agent as nominee for the
holders of Certificates cancelled pursuant to this Section
1.7. Subject to the provisions of Section 8.8, the Escrow
Shares shall be beneficially owned by such holders and shall
be held in escrow and shall be available to compensate
Acquiror for certain damages as provided in Article 8. To the
extent not used for such purposes, the Escrow Shares shall be
released, all as provided in Article 8.
(d) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to Acquiror Common Stock
with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to
the shares of Acquiror Common Stock represented thereby until
the holder of record of such Certificate surrenders such
Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder
of the certificates representing whole shares of Acquiror
Common Stock issued in exchange therefor, without interest, at
the time of such surrender, the amount of any such dividends
or other distributions with a record date after the Effective
Time which would have been previously payable (but for the
provisions of this Section 1.7(d)) with respect to such shares
of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than
that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered is properly endorsed and
otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any
agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Acquiror
Common Stock in any name other than that of the registered
holder of the Certificate surrendered,
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or established to the satisfaction of Acquiror or any agent
designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, Acquiror, the
Surviving Corporation or any party hereto shall be liable to
any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as
such, except that the obligations of Acquiror under this
Section 1.7 shall commence on the date of loss of such status
and the holder of such shares shall be entitled to receive in
exchange for such shares the number of shares of Acquiror
Common Stock to which such holder is entitled pursuant to
Section 1.6.
1.8 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares
of Target Common Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such
shares of Target Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation
of shares of Target Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates
are presented to Acquiror for any reason, they shall be canceled and
exchanged as provided in this Article 1.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, such
shares of Acquiror Common Stock (and cash in lieu of fractional shares)
as may be required pursuant to Section 1.6; provided, however, that
Acquiror may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Acquiror, the
Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of
Section 368 of the
32
Code. No Party shall take any action which would, to such Party's
knowledge, cause the Merger to fail to qualify as a reorganization
within the meaning of Section 368 of the Code.
1.11 Registration of Acquiror Common Stock. The shares of Acquiror Common
Stock to be issued in connection with the Merger will be registered
under the Securities Act of 1933, as amended (the "Securities Act").
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Target, the
officers and directors of Target and Merger Sub are fully authorized in
the name of their respective corporations or otherwise to take, and
shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TARGET
----------------------------------------
Target and the Signing Stockholders, jointly and severally, represent
and warrant to Acquiror that the statements contained in this Article 2 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date, except as set forth in the attached disclosure
schedule accompanying this Agreement (the "Target Disclosure Schedule"). The
Target Disclosure Schedule will be arranged in paragraphs corresponding to the
sections contained in this Article 2.
2.1 Organization, Standing and Power. Target is a corporation, duly
incorporated, validly existing and in good standing under the laws of
the State of Minnesota. Target has full corporate power and authority
and all permits and licenses necessary to carry on the businesses in
which it is engaged and which it proposes to engage. There are no
outstanding powers of attorney executed on behalf of Target and Target
is not a guarantor of any other person or entity. Target has no
subsidiaries and does not own, directly or indirectly, any equity
interest in any entity.
2.2 Capital Structure. The authorized capital of Target consists of
10,000,000 shares of Target Common Stock, of which 3,076,500 shares are
issued and outstanding. All of the issued and outstanding shares have
been duly authorized, are validly issued, fully paid and nonassessable,
and are held of record as set forth in Schedule 2.2. There are no
outstanding or authorized option, warrant, purchase right, phantom
stock or other contracts or commitments that could
33
require the Company to issue, sell or otherwise cause to become
outstanding any of its capital stock other than pursuant to the
exercise of an option outstanding as of the date of this Agreement
under Target's Stock Option Plan ("Target Stock Option Plan").
2.3 Authority; Noncontravention.
(a) Each of Target and the Signing Stockholders has full power and
authority to enter into this Agreement and the ancillary
agreements hereto (collectively, the "Transaction Documents")
and to perform their obligations thereunder. The Transaction
Documents to which any of Target or the Signing Stockholders
is a party constitute valid and legally binding obligations of
each of Target and the Signing Stockholders, as applicable,
enforceable in accordance with their respective terms and
conditions.
(b) The execution and delivery of the Transaction Documents by
Target do not, and the consummation of the transactions
contemplated thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Target, as amended, or (ii) any
Target Material Contract (as defined in Section 2.25), permit,
concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to
Target or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any third person or
any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target in
connection with the execution and delivery of any of the
Transaction Documents or the consummation of the transactions
contemplated thereby.
2.4 Financial Statements. Target has delivered to Acquiror its audited
financial statements (balance sheet and statement of operations) for
the fiscal years ended December 31, 2002 and December 31, 2003 ("Most
Recent Target Fiscal Year End") and its unaudited financial statements
(balance sheet and
34
statement of operations) on a consolidated basis as at, and for the 2
month period ended February 29, 2004 ("Most Recent Target Fiscal Month
End") (collectively, the "Target Financial Statements"). The Target
Financial Statements have been prepared in accordance with GAAP (except
that the unaudited financial statements do not have notes thereto)
applied on a consistent basis throughout the periods indicated and with
each other. The Target Financial Statements fairly present the
financial condition and operating results of Target as of the dates,
and for the periods, indicated therein, subject, in the case of the
unaudited financing statements, to normal year-end audit adjustments
which are not material in the aggregate. Target maintains a standard
system of accounting established and administered in accordance with
GAAP. Target's Net Asset Value was greater than $1,400,000 as of
December 31, 2003.
2.5 Absence of Certain Changes. Since the Most Recent Target Fiscal Year
End, there have been no changes in the assets, business, financial
condition, operations, results of operations or future prospects of
Target that individually or in the aggregate would have a Material
Adverse Effect (as defined in Section 9.2) on Target.
2.6 Absence of Undisclosed Liabilities. Target has no material obligations
or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth or adequately provided for
in the Target balance sheet for the period ended February 29, 2004
("Target Balance Sheet"), and (b) those incurred in the ordinary course
of business prior to the Most Recent Target Fiscal Month End and not
required to be set forth in the Financial Statements under GAAP. As of
the Most Recent Target Fiscal Year End, Target has no debt other than
trade payables and accruals arising in the ordinary course of business
and the debt totaling approximately $527,000 secured by Target Real
Property (as defined in Section 2.20) and 2 automobile loans.
2.7 Accounts Receivable. All material notes and accounts receivable of
Target are reflected properly on Target's books and records, are valid
receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set
forth on the Target Financial Statement (rather than in any of its
notes) for the fiscal year ended December 31, 2003, as adjusted for the
passage of time through the Closing Date in accordance with the past
custom and practice of Target.
2.8 Litigation, Restrictions on Business Activities. There is no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed, commenced
35
or, to the knowledge of Target, alleged against it. Target is not
operating under or subject to, or in default with respect to, any
order, writ, injunction or decree of any court or governmental agency.
There is no agreement or law binding upon Target, as opposed to the
application of such to those operating in the business industry
generally, that has or could reasonably be expected to have the effect
of prohibiting or impairing any current business practice of Target
with respect to its business.
2.9 Minute Books. The minute books of Target made available to Acquiror
contain a complete and accurate summary of all meetings of directors
and shareholders or actions by written consent since the time of
incorporation of Target through the date of this Agreement, and reflect
all transactions referred to in such minutes accurately in all material
respects.
2.10 Governmental Authorization. Target has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant,
or other authorization of a Governmental Entity (a) pursuant to which
Target currently operates or holds any interest in any of its
properties or (b) that is required for the operation of Target's
business or the holding of any such interest (collectively called
"Target Authorizations"), and all of such Target Authorizations are in
full force and effect.
2.11 Title to Property. Target has good and marketable title to all of its
properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or
which are reflected in the Target Balance Sheet or acquired after the
Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of in the ordinary course of
business since the Target Balance Sheet Date), or with respect to
leased properties and assets, valid leasehold interests therein, in
each case free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character ("Security Interests"), except
(i) the for Security Interests for current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of
the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and
(iii) Security Interests securing debt that are reflected on the Target
Balance Sheet. The plants, property and equipment of Target that are
used in the operations of its business are in good operating condition
and repair.
2.12 Intellectual Property. Target owns or has the right to use pursuant to
license, sublicense, agreement or permission all Intellectual Property
necessary for the operation of the
36
businesses of any of Target as presently conducted and as presently
proposed to be conducted ("Target Intellectual Property"). Each item of
Target Intellectual Property will be owned or available for use by
Surviving Corporation on identical terms and conditions immediately
after the Closing. Target has taken all necessary action to maintain
and protect each item of Target Intellectual Property that it owns or
uses. Target has not interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property rights
of any third party.
"Intellectual Property" means (A) inventions (whether or not
patentable); trade names, trade marks, service marks, logos and other
designations ("Marks"); works of authorship; mask works; data;
technology, know-how, trade secrets, ideas and information; designs;
formulas; algorithms; processes; schematics; computer software (in
source code and/or object code form); and all other intellectual and
industrial property of any sort and (B) patent rights; Xxxx rights;
copyrights; mask work rights; SUI GENERIS database rights; trade secret
rights; moral rights; and all other intellectual and industrial
property rights of any sort throughout the world, and all applications,
registrations, issuances and the like with respect thereto.
2.13 Environmental Matters. Target is and has at all times operated its
business in material compliance with all Environmental Laws and to the
best of Target's knowledge, no material expenditures are or will be
required in order to comply with such Environmental Laws.
"Environmental Laws" means all applicable statutes, rules, regulations,
ordinances, orders, decrees, judgments, permits, licenses, consents,
approvals, authorizations, and governmental requirements or directives
or other obligations lawfully imposed by governmental authority under
federal, state or local law pertaining to the protection of the
environment, protection of public health, protection of worker health
and safety, the treatment, emission and/or discharge of gaseous,
particulate and/or effluent pollutants, and/or the handling of
hazardous materials, including without limitation, the Clean Air Act,
42 X.X.X.xx. 7401, et seq., the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 X.X.X.xx. 9601, et seq., the
Federal Water Pollution Control Act, 33 X.X.X.xx. 1321, et seq., the
Hazardous Materials Transportation Act, 49 X.X.X.xx. 1801, et seq., the
Resource Conservation and Recovery Act, 42 X.X.X.xx. 6901, et seq., and
the Toxic Substances Control Act, 15 X.X.X.xx. 2601, et seq.
2.14 Taxes. Target has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in
37
all material respects. Target has paid all Taxes owed by Target,
whether or not disputed. True, correct and complete copies of all
federal and state Tax Returns filed by Target for the preceding 2
fiscal years have been delivered or made available to Acquiror. None of
Target's assets have a Security Interest that arose in connection with
the failure to pay any tax. Target has withheld and paid all taxes
required to have been withheld and paid in connection with amounts
owing to any employee, independent contractor, creditor, stockholder or
other third party. Target has not waived any statute of limitations or
agreed to any extension of time with respect to a tax assessment or
deficiency. No material Tax liability since December 31, 2003 has been
incurred by Target other than in the ordinary course of business.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code ss. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever, including any interest, penalty or addition,
whether disputed or not. "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating
to Taxes, including any schedule, attachment or amendment.
2.15 Employee Benefit Plans. Schedule 2.15 list all of Target's pension or
profit sharing plans, benefit plans including, without limitation, any
disability, medical, dental, workers compensation, health insurance,
life insurance, vacation, benefits plans, incentive plans, fringe
benefit plans and any other material plans, programs, agreements or
arrangements which provide benefits to any current or former employee
of Target (collectively, "Target Plans"). With respect to each Target
Plan that is an employee benefit plan (as defined in section 3(3) of
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
the requirements of ERISA applicable to such Target Plan have been
satisfied in all material respects. All the accrued obligations of
Target, whether arising by operation of law, by contract or by past
custom, for payments by Target to any 401k plan or other employee
benefit plan, trust or other funds or any governmental agency with
respect to unemployment compensation benefits, vacation and sick time
pay, social security benefits or any other benefits for employees of
Target shall have been paid prior to the Closing. All contributions,
premiums or other payments due from the Target to (or under) any Target
Plan have been fully paid or adequately provided for on the books and
financial statements of Target. All accruals (including,
38
where appropriate, proportional accruals for partial periods) have been
made in accordance with prior practices.
2.16 Employment Matters.
(a) Schedule 2.16 contains a description of any written or oral
employment agreements, labor agreements, consulting agreements
or termination or severance agreements to which Target is a
party.
(b) Target has complied in all respects with all Laws relating to
employment, including without limitation all Laws concerning
equal employment opportunity, nondiscrimination, leaves and
absences, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar Taxes,
occupational safety and health, and plant closing. To Target's
knowledge, no executive, key employee or group of employees
has any plans to terminate employment with Target. Target has
not experienced any strikes, grievances, claims of unfair
labor practices or other collective bargaining disputes.
Target has not committed any unfair labor practice. To
Target's knowledge, there are no organizational efforts
presently being made or threatened by or on behalf of any
labor union with respect to employees of Target.
(c) The consummation of the transactions contemplated herein will
not result in (i) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director
or independent contractor of Target may be entitled, (ii) the
forgiveness of any indebtedness of any employee, director or
independent contractor of Target or (iii) any cost becoming
due or accruing to Target or the Acquiror with respect to any
employee, director or independent contractor of Target.
2.17 Related Party Transactions. Schedule 2.17 lists all contracts and
agreements between Target, on one hand, and any of Target's
shareholders employees, officers, or directors or member of his or her
immediate family, on the other. All such contracts and agreements will,
except as noted on Schedule 2.17, be terminated immediately prior to
the Closing. None of Target's shareholders employees, officers, or
directors or member of his or her immediate family owns any asset,
tangible or intangible, that is used in the business of Target.
39
2.18 Insurance. Target's policies of fire, liability and other forms of
insurance covering Target are of the type, coverage and in such amounts
as are customary of Target's business, and are duly enforceable through
the Closing Date.
2.19 Compliance with Laws. Target has complied with, are not in violation
of, and have not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation
(collectively, "Laws") with respect to the conduct of its business, or
the ownership or operation of its business, except for such violations
or failures to comply as could not be reasonably expected to have a
Material Adverse Effect on Target.
2.20 Real Property. Target does not lease any real property. Schedule 2.20
lists and describes briefly all real property that Target owns ("Target
Real Property"). With respect to the Target Real Property: (a) Target
has good and marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant or other
restrictions, and there are no parties (other than Target) in
possession of or using the Target Real Property.
2.21 Brokers' and Finders' Fees. Neither Target nor any of the Signing
Stockholders has any liability to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated
by this Agreement for which Acquiror could become liable or obligated.
2.22 Vote Required. The affirmative vote of a majority of the holders of the
Target Common Stock outstanding on the record date set for the Target
Shareholders Meeting is the only vote of the holders of any of Target's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.23 Inventory. The material inventory of Target consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is merchantable and fit for the purpose
for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged or defective, subject only to the
reserve for inventory writedown as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of Target.
2.24 Customers and Suppliers. Schedule 2.24 lists (a) the 5 largest
customers and suppliers of Target for each of the two most recent
fiscal years and sets forth opposite the name of each such customer the
percentage of consolidated net sales and percentage of materials or
services attributable to such customer or supplier, respectively and
(b) any additional current customers and suppliers that Target
anticipates will be among the 4 largest customers and
40
suppliers for the current fiscal year. No customer or supplier listed
on Schedule 2.24 has indicated that it will stop, or decrease the rate
of, buying or supplying, as the case may be, materials, products or
services from Target.
2.25 Material Contracts. Schedule 2.25 lists all material contracts and
other agreements, whether written or oral, to which Target is a party
or by which it is bound (collectively, the "Target Material
Contracts"). Target has delivered to Acquiror a correct and complete
copy of each written agreement listed in Schedule 2.25 and a written
summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 2.25. With respect to each such agreement: (a)
the agreement is legal, valid, binding, enforceable and in full force
and effect; (b) the agreement will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (c)
no party is in breach or default; (d) no event has occurred that, with
notice or lapse of time, would constitute a breach or default, or
permit termination, modification or acceleration, under the agreement;
and (e) no party has repudiated any provision of the agreement.
2.26 Complete Copies of Materials. Target has delivered or made available
true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting
review of Target.
2.27 Representations Complete. None of the representations or warranties
made by Target or the Signing Stockholders herein or in any Schedule
hereto, including the Target Disclosure Schedule, or certificate
furnished by Target or the Signing Stockholders pursuant to this
Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state
any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made,
not misleading.
2.28 Projections. Target and the Signing Stockholders each acknowledge and
agree that neither Acquiror nor Merger Sub makes any representations or
warranties (express, implied, at common law, statutory or otherwise)
with respect to the accuracy or completeness of any projections,
financial or otherwise, now, previously or hereafter made available to
any of Target and the Signing Stockholders in connection with this
Agreement. Target and the Signing Stockholders each acknowledge and
agree that each has fully conducted and is relying exclusively upon (a)
Acquiror's and Merger Sub's representations and warranties contained in
Section 3 of
41
this Agreement and (b) its own inspections and investigation as to the
condition and suitability of the business, assets, real and personal
properties, Liabilities, results of operations, condition (financial or
otherwise) and prospects of Acquiror or Merger Sub.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
---------------------------------------------------------
Acquiror and Merger Sub, jointly and severally, represent and warrant
to Target and Signing Stockholders that the statements contained in this Article
3 are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date, except as set forth in the attached
disclosure schedule accompanying this Agreement (the "Acquiror Disclosure
Schedule"). The Acquiror Disclosure Schedule will be arranged in paragraphs
corresponding to the sections contained in this Article 3.
3.1 Organization, Standing and Power. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Acquiror and
Merger Sub has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the
failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror and Merger Sub, respectively. Acquiror has
delivered a true and correct copy of the Certificate of Incorporation
and Bylaws or other charter documents, as applicable, of Acquiror and
Merger Sub, each as amended to date, to Target.
3.2 Capitalization and Voting Rights.
(a) As of the Closing Date, except as set forth on the Acquiror
Disclosure Schedule, the authorized capital of Acquiror will
consist of 50,000,000 shares of Acquiror Common Stock, of
which 1,720,163 shares are issued and outstanding.
(b) The outstanding shares of Acquiror Common Stock are all duly
and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act
of 1933, as amended (the "Act") and any relevant state
securities laws, or pursuant to valid exemptions therefrom.
(c) As of the Closing Date, except as set forth on the Acquiror
Disclosure Schedule, Acquiror is not
42
required to issue more than 243,001 shares of Acquiror Common
Stock pursuant to: (i) any options outstanding as of the
Closing Date under Acquiror's stock option plan, (ii) warrants
for Acquiror Common Stock, and (iii) Acquiror's convertible
debt. Acquiror has reserved an additional 71,572 shares of
Acquiror Common Stock for purchase upon exercise of options to
be granted in the future under Acquiror's stock option plan.
Acquiror is not a party or subject to any agreement or
understanding, and, to the best of Acquiror's knowledge, there
is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director
of Acquiror.
3.3 Authority.
(a) Each of Acquiror and Merger Sub has full power and authority
to enter into the Transaction Documents and to perform their
obligations thereunder. The Transaction Documents to which
either Acquiror or Merger Sub is a party constitute valid and
legally binding obligations of each of Acquiror and Merger
Sub, as applicable, enforceable in accordance with their
respective terms and conditions.
(b) The execution and delivery of the Transaction Documents do
not, and the consummation of the transactions contemplated
thereby will not, conflict with, or result in any violation
of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under
(i) any provision of the Certificate of Incorporation or
Bylaws of Acquiror or Merger Sub, as amended, or (ii) any
Acquiror Material Contract (as defined in Section 3.25)
permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable
to Acquiror or Merger Sub or their properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Acquiror or Merger
Sub in connection with the execution and delivery of the
Transaction Documents by Acquiror or the consummation by
Acquiror of the transactions contemplated thereby.
43
3.4 SEC Documents; Financial Statements. Acquiror has furnished to Target a
true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other
filing filed with the SEC by Acquiror since January 1, 2003, and, prior
to the Effective Time, Acquiror will have furnished Target with true
and complete copies of any additional documents filed with the SEC by
Acquiror prior to the Effective Time (collectively, the "Acquiror SEC
Documents"). In addition, Acquiror has made available to Target all
exhibits to the Acquiror SEC Documents filed prior to the date hereof,
and will promptly make available to Target all exhibits to any
additional Acquiror SEC Documents filed prior to the Effective Time.
All documents required to be filed as exhibits to the Target SEC
Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those which have expired
in accordance with their terms, and Acquiror is not in default
thereunder. As of their respective filing dates, the Acquiror SEC
Documents complied in all material respects with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the Securities Act, and none of the Acquiror SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a
subsequently filed Acquiror SEC Document.
3.5 Financial Statements. Acquiror has delivered to Target its audited
financial statements (balance sheet and statement of operations) for
the fiscal years ended December 31, 2001, December 31, 2002 and
December 31, 2003 ("Most Recent Acquiror Fiscal Year End") and its
unaudited financial statements (balance sheet and statement of
operations) on a consolidated basis as at, and for the 2 month period
ended February 29, 2004 ("Most Recent Acquiror Fiscal Month End")
(collectively, the "Acquiror Financial Statements"). The Acquiror
Financial Statements have been prepared in accordance with GAAP (except
that the unaudited financial statements do not have notes thereto)
applied on a consistent basis throughout the periods indicated and with
each other. The Acquiror Financial Statements fairly present the
financial condition and operating results of Acquiror as of the dates,
and for the periods, indicated therein, subject, in the case of the
unaudited financing statements, to normal year-end audit adjustments
which are not material in the aggregate. Acquiror maintains a standard
system of accounting established and administered in accordance with
GAAP.
44
3.6 Absence of Certain Changes. Since the Most Recent Acquiror Fiscal Year
End, there have been no changes in the assets, business, financial
condition, operations, results of operations or future prospects of
Acquiror that individually or in the aggregate would have a Material
Adverse Effect on Acquiror.
3.7 Absence of Undisclosed Liabilities. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided
for in the Acquiror balance sheet for the period ended February 29,
2004 ("Acquiror Balance Sheet"), and (ii) those incurred in the
ordinary course of business prior to the Most Recent Fiscal Month End
and not required to be set forth in the Acquiror Financial Statements
under GAAP.
3.8 Accounts Receivable. All material notes and accounts receivable of
Acquiror are reflected properly on Acquiror's books and records, are
valid receivables subject to no setoffs or counterclaims, are current
and collectible, and will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts
set forth on the Acquiror Financial Statement (rather than in any of
its notes) for the fiscal year ended December 31, 2003, as adjusted for
the passage of time through the Closing Date in accordance with the
past custom and practice of Acquiror.
3.9 Litigation, Restrictions on Business Activities. There is no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed, commenced or, to the knowledge of
Target, alleged against it. Target is not operating under or subject
to, or in default with respect to, any order, writ, injunction or
decree of any court or governmental agency. There is no agreement or
law binding upon Target, as opposed to the application of such to those
operating in the business industry generally, that has or could
reasonably be expected to have the effect of prohibiting or impairing
any current business practice of Target with respect to its business.
3.10 Minute Books. The minute books of Acquiror made available to Target
contain a complete and accurate summary of all meetings of directors
and shareholders or actions by written consent since the time of
incorporation of Acquiror through the date of this Agreement, and
reflect all transactions referred to in such minutes accurately in all
material respects.
3.11 Governmental Authorization. Acquiror has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant,
or other authorization of a Governmental Entity (a) pursuant to which
Acquiror currently operates or holds any interest in any of its
properties or
45
(b) that is required for the operation of Acquiror's business or the
holding of any such interest (collectively called "Acquiror
Authorizations"), and all of such authorizations are in full force and
effect.
3.12 Title to Property. Acquiror has good and marketable title to all of its
properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or
which are reflected in the Acquiror Balance Sheet or acquired after the
date of the Acquiror Balance Sheet (except properties, interests in
properties and assets sold or otherwise disposed of in the ordinary
course of business since the Acquiror Balance Sheet Date), or with
respect to leased properties and assets, valid leasehold interests
therein, in each case free and clear of all Security Interests, except
(i) the for Security Interests for current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of
the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and
(iii) Security Interests securing debt that are reflected on the
Acquiror Balance Sheet. The plants, property and equipment of Acquiror
that are used in the operations of its business are in good operating
condition and repair.
3.13 Intellectual Property. Acquiror owns or has the right to use pursuant
to license, sublicense, agreement or permission all Intellectual
Property necessary for the operation of the businesses of any of
Acquiror as presently conducted and as presently proposed to be
conducted ("Acquiror Intellectual Property"). Each item of Acquiror
Intellectual Property will be owned or available for use by Acquiror on
identical terms and conditions immediately after the Closing. Acquiror
has taken all necessary action to maintain and protect each item of
Acquiror Intellectual Property that it owns or uses. Acquiror has not
interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of any third party.
3.14 Environmental Matters. Acquiror is and has at all times operated its
business in material compliance with all Environmental Laws and to the
best of Acquiror's knowledge, no material expenditures are or will be
required in order to comply with such Environmental Laws.
3.15 Taxes. Acquiror has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all material
respects. Acquiror has paid all Taxes owed by Acquiror, whether or not
disputed. True,
46
correct and complete copies of all federal and state Tax Returns filed
by Acquiror for the preceding 2 fiscal years have been delivered or
made available to Target. None of Acquiror's assets have a Security
Interest that arose in connection with the failure to pay any tax.
Acquiror has withheld and paid all taxes required to have been withheld
and paid in connection with amounts owing to any employee, independent
contractor, creditor, stockholder or other third party. Acquiror has
not waived any statute of limitations or agreed to any extension of
time with respect to a tax assessment or deficiency. No material Tax
liability since December 31, 2003 has been incurred by Acquiror other
than in the ordinary course of business.
3.16 Employee Benefit Plans. Schedule 3.16 list all of Acquiror's pension or
profit sharing plans, benefit plans including, without limitation, any
disability, medical, dental, workers compensation, health insurance,
life insurance, vacation, benefits plans, incentive plans, fringe
benefit plans and any other material plans, programs, agreements or
arrangements which provide benefits to any current or former employee
of Acquiror (collectively, "Acquiror Plans"). With respect to each
Acquiror Plan that is an employee benefit plan (as defined in section
3(3) of ERISA), the requirements of ERISA applicable to such Acquiror
Plan have been satisfied in all material respects. All the accrued
obligations of Acquiror, whether arising by operation of law, by
contract or by past custom, for payments by Acquiror to any 401k plan
or other employee benefit plan, trust or other funds or any
governmental agency with respect to unemployment compensation benefits,
vacation and sick time pay, social security benefits or any other
benefits for employees of Acquiror shall have been paid prior to the
Closing. All contributions, premiums or other payments due from the
Acquiror to (or under) any Acquiror Plan have been fully paid or
adequately provided for on the books and financial statements of
Acquiror. All accruals (including, where appropriate, proportional
accruals for partial periods) have been made in accordance with prior
practices.
3.17 Employment Matters.
(a) Schedule 3.17 contains a description of any written or oral
employment agreements, labor agreements, consulting agreements
or termination or severance agreements to which Acquiror is a
party.
(b) Acquiror has complied in all respects with all Laws relating
to employment, including without limitation
47
all Laws concerning equal employment opportunity,
nondiscrimination, leaves and absences, immigration, wages,
hours, benefits, collective bargaining, the payment of social
security and similar Taxes, occupational safety and health,
and plant closing. To Acquiror's knowledge, no executive, key
employee or group of employees has any plans to terminate
employment with Acquiror. Acquiror has not experienced any
strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. Acquiror has not committed any
unfair labor practice. To Acquiror's knowledge, there are no
organizational efforts presently being made or threatened by
or on behalf of any labor union with respect to employees of
Acquiror.
(c) The consummation of the transactions contemplated herein will
not result in (i) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director
or independent contractor of Acquiror may be entitled, (ii)
the forgiveness of any indebtedness of any employee, director
or independent contractor of Acquiror or (iii) any cost
becoming due or accruing to Acquiror or Target with respect to
any employee, director or independent contractor of Acquiror.
3.18 Related Party Transactions. Schedule 3.18 lists all contracts and
agreements between Acquiror, on one hand, and any of Acquiror's
shareholders employees, officers, or directors of Acquiror or member of
his or her immediate family, on the other. All such contracts and
agreements will, except as noted on Schedule 3.18, be terminated
immediately prior to the Closing. None of Acquiror's shareholders
employees, officers, or directors of Acquiror or member of his or her
immediate family owns any asset, tangible or intangible, that is used
in the business of Acquiror.
48
3.19 Insurance. Acquiror's policies of fire, liability and other forms of
insurance covering Acquiror are of the type, coverage and in such
amounts as are customary of Acquiror's business, and are duly
enforceable through the Closing Date.
3.20 Compliance with Laws. Acquiror has complied with, are not in violation
of, and have not received any notices of violation with respect to, any
Laws with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to
comply as could not be reasonably expected to have a Material Adverse
Effect on Acquiror.
3.21 Real Property. Acquiror does not lease any real property. Schedule 3.21
lists and describes briefly all real property that Acquiror owns
("Acquiror Real Property"). With respect to the Acquiror Real Property:
(a) Acquiror has good and marketable title to the parcel of real
property, free and clear of any Security Interest, easement, covenant
or other restrictions, and there are no parties (other than Acquiror)
in possession of or using the Acquiror Real Property.
3.22 Brokers' and Finders' Fees. Acquiror has no liability to pay any fees
or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Target or Signing
Stockholders could become liable or obligated.
3.23 Inventory. The material inventory of Acquiror consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is merchantable and fit for the purpose
for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged or defective, subject only to the
reserve for inventory writedown as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of Acquiror.
3.24 Customers and Suppliers. Schedule 3.24 lists (a) the 10 largest
customers and suppliers of Acquiror for each of the two most recent
fiscal years and sets forth opposite the name of each such customer the
percentage of consolidated net sales and percentage of materials or
services attributable to such customer or supplier, respectively and
(b) any additional current customers and suppliers that Acquiror
anticipates will be among the 10 largest customers and suppliers for
the current fiscal year. No customer or supplier listed on Schedule
3.24 has indicated that it will stop, or decrease the rate of, buying
or supplying, as the case may be, materials, products or services from
Acquiror.
3.25 Material Contracts. Schedule 3.25 lists all material contracts and
other agreements, whether written or oral, to
49
which Acquiror is a party or by which it is bound (collectively, the
"Acquiror Material Contracts"). Acquiror has delivered to Target a
correct and complete copy of each written agreement listed in Schedule
3.25 and a written summary setting forth the terms and conditions of
each oral agreement referred to in Schedule 3.25. With respect to each
such agreement: (a) the agreement is legal, valid, binding, enforceable
and in full force and effect; (b) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby; (c) no party is in breach or default; (d) no event
has occurred that, with notice or lapse of time, would constitute a
breach or default, or permit termination, modification or acceleration,
under the agreement; and (e) no party has repudiated any provision of
the agreement.
3.26 Complete Copies of Materials. Acquiror has delivered or made available
true and complete copies of each document which has been requested by
Target or its counsel in connection with their legal and accounting
review of Acquiror.
3.27 Representations Complete. None of the representations or warranties
made by Acquiror herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror
pursuant to this Agreement, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3.28 Projections. Acquiror and Merger Sub each acknowledge and agree that
neither Target nor the Signing Stockholders makes any representations
or warranties (express, implied, at common law, statutory or otherwise)
with respect to the accuracy or completeness of any projections,
financial or otherwise, now, previously or hereafter made available to
Acquiror and Merger Sub in connection with this Agreement. Acquiror and
Merger Sub each acknowledge and agree that each has fully conducted and
is relying exclusively upon (a) the Target's and Signing Stockholder's
representations and warranties contained in Section 2 of this Agreement
and (b) their own inspections and investigation as to the condition and
suitability of the business, assets, real and personal properties,
Liabilities, results of operations, condition (financial or otherwise)
and prospects of Target.
50
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to Section 7.1 or the Effective Time, Target agrees
(except to the extent expressly contemplated by this Agreement or as
consented to in writing by the Acquiror), to carry on its business in
the usual, regular and ordinary course in substantially the same manner
as heretofore conducted. Target further agrees to (i) pay debts and
Taxes when due subject to good faith disputes over such debts or Taxes,
(ii) subject to Acquiror's consent to the filing of material Tax
Returns if applicable, to pay or perform other obligations when due,
and (iii) to use all reasonable efforts consistent with past practice
and policies to preserve intact its present business organizations,
keep available the services of its present officers and key employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, to
the end that its goodwill and ongoing businesses shall be unimpaired at
the Effective Time. Target agrees to promptly notify Acquiror of any
event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material
Adverse Effect on Target. Without limiting the foregoing, except as
expressly contemplated by this Agreement, Target shall not, cause or
permit any of the following without the prior written consent of
Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash,
stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital
stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in
connection with any termination of service to it;
(c) Material Contracts. Enter into any material contract,
agreement, license or commitment, or violate, amend or
otherwise modify or waive any of
51
the terms of any of its material contracts, agreements or
licenses other than in the ordinary course of business
consistent with past practice;
(d) Stock Option Plans, etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights
granted under its stock plans or authorize cash payments in
exchange for any options or other rights granted under any of
such plans; or
(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such
shares or other convertible securities, other than the
issuance of shares of Target Common Stock pursuant to the
exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to or license any person or
entity or otherwise extend, amend or modify any rights to its
Intellectual Property other than the grant of nonexclusive
licenses in the ordinary course of business consistent with
past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing,
manufacturing or other exclusive rights of any type or scope
with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material,
individually or in the aggregate, to its business;
(i) Indebtedness. Incur or commit to incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of
others;
(j) Leases. Enter into any operating lease requiring payments in
excess of $5,000 per year;
52
(k) Payment of Obligations. Pay, discharge or satisfy in an amount
in excess of $10,000 individually or $25,000 in the aggregate,
any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise) arising other
than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(l) Capital Expenditures. Incur or commit to incur any capital
expenditures in excess of $10,000 in the aggregate;
(m) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of
business;
(o) Employee Benefits; Severance. Take any of the following
actions: (i) increase or agree to increase the compensation
payable or to become payable to its officers or employees,
except for increases in salary or wages of nonofficer
employees in the ordinary course of business and in accordance
with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance
agreements with, any officer or employee, (iii) enter into any
collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any respect any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement
for the benefit of any directors, officers or employees;
provided, however, that the foregoing provisions of this
subsection shall not apply to any amendments to employee
benefit plans described in ERISA Section 3(3) that may be
required by law;
(p) Lawsuits. Commence a lawsuit or arbitration proceeding other
than (i) for the routine collection of bills, or (ii) for a
breach of this Agreement;
53
(q) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually
or in the aggregate, to such entity's business;
(r) Taxes. Make any material tax election other than in the
ordinary course of business and consistent with past practice,
change any material tax election, adopt any tax accounting
method other than in the ordinary course of business and
consistent with past practice, change any tax accounting
method, file any tax return (other than any estimated tax
returns, immaterial information returns, payroll tax returns
or sales tax returns) or any amendment to a tax return, enter
into any closing agreement, settle any Tax claim or assessment
or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of
any of the foregoing actions;
(s) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course
of business; or
(t) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (s) above, or
any action which would make any of its representations or
warranties contained in this Agreement untrue or incorrect or
prevent it from performing or cause it not to perform its
covenants hereunder.
4.2 Target Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective
bargaining unit representing any group of employees of Target, and any
applicable government authority under the National Labor Relations Act,
the Code, the COBRA, and other applicable law in connection with the
transactions provided for in this Agreement.
4.3 Conduct of Business of Acquiror. During the period from the date of
this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to Section 7.1 or the Effective Time, Acquiror
agrees (except to the extent expressly contemplated by this Agreement
or as consented to in writing by the Target), to carry on its business
in the
54
usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Acquiror further agrees to (i) pay debts and
Taxes when due subject to good faith disputes over such debts or Taxes,
(ii) subject to Target's consent to the filing of material Tax Returns
if applicable, to pay or perform other obligations when due, and (iii)
to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organizations, keep
available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, to
the end that its goodwill and ongoing businesses shall be unimpaired at
the Effective Time. Acquiror agrees to promptly notify Target of any
event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material
Adverse Effect on Acquiror. Without limiting the foregoing, except as
expressly contemplated by this Agreement, Acquiror shall not, cause or
permit any of the following without the prior written consent of
Target:
(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Except as set forth on
Section 3.2 of the Acquiror Disclosure Schedule, declare or
pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants
in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it;
(c) Material Contracts. Enter into any material contract,
agreement, license or commitment, or violate, amend or
otherwise modify or waive any of the terms of any of its
material contracts, agreements or licenses other than in the
ordinary course of business consistent with past practice;
(d) Stock Option Plans, etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights
granted under its stock plans or
55
authorize cash payments in exchange for any options or other
rights granted under any of such plans; or
(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such
shares or other convertible securities, other than the
issuance of shares of Acquiror Common Stock pursuant to the
exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to or license any person or
entity or otherwise extend, amend or modify any rights to its
Intellectual Property other than the grant of nonexclusive
licenses in the ordinary course of business consistent with
past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing,
manufacturing or other exclusive rights of any type or scope
with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material,
individually or in the aggregate, to its business;
(i) Indebtedness. Incur or commit to incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of
others;
(j) Leases. Enter into any operating lease requiring payments in
excess of $5,000 per year;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount
in excess of $10,000 individually or $25,000 in the aggregate,
any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise) arising other
than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities
56
reflected or reserved against in the Acquiror Financial
Statements;
(l) Capital Expenditures. Incur or commit to incur any capital
expenditures in excess of $10,000 in the aggregate;
(m) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of
business;
(o) Employee Benefits; Severance. Take any of the following
actions: (i) increase or agree to increase the compensation
payable or to become payable to its officers or employees,
except for increases in salary or wages of nonofficer
employees in the ordinary course of business and in accordance
with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance
agreements with, any officer or employee, (iii) enter into any
collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any respect any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement
for the benefit of any directors, officers or employees;
provided, however, that the foregoing provisions of this
subsection shall not apply to any amendments to employee
benefit plans described in ERISA Section 3(3) that may be
required by law;
(p) Lawsuits. Commence a lawsuit or arbitration proceeding other
than (i) for the routine collection of bills, or (ii) for a
breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually
or in the aggregate, to such entity's business;
57
(r) Taxes. Make any material tax election other than in the
ordinary course of business and consistent with past practice,
change any material tax election, adopt any tax accounting
method other than in the ordinary course of business and
consistent with past practice, change any tax accounting
method, file any tax return (other than any estimated tax
returns, immaterial information returns, payroll tax returns
or sales tax returns) or any amendment to a tax return, enter
into any closing agreement, settle any Tax claim or assessment
or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of
any of the foregoing actions;
(s) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course
of business; or
(t) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (s) above, or
any action which would make any of its representations or
warranties contained in this Agreement untrue or incorrect or
prevent it from performing or cause it not to perform its
covenants hereunder.
4.4 Acquiror Notices. Acquiror shall give all notices and other information
required to be given to the employees of Acquiror, any collective
bargaining unit representing any group of employees of Acquiror, and
any applicable government authority under the National Labor Relations
Act, the Code, the COBRA, and other applicable law in connection with
the transactions provided for in this Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
---------------------
5.1 No Solicitation.
(a) Target will not: (i) solicit, initiate or encourage the
submission of any proposal or offer relating to the
acquisition of any capital stock or other voting securities,
or any substantial portion of the assets, of Target (including
any acquisition structured as a merger, consolidation or share
exchange), or (ii) participate in any discussions or
negotiations regarding, furnish any information, assist or
58
participate in, or facilitate in any other manner any effort
or attempt to do or seek any of the activities under Section
5.1(a)(i) of this Agreement. Target will notify Acquiror
immediately if any third-party makes any proposal, offer,
inquiry or contact in this regard.
(b) Acquiror will not: (i) solicit, initiate or encourage the
submission of any proposal or offer relating to the
acquisition of any capital stock or other voting securities,
or any substantial portion of the assets, of Acquiror
(including any acquisition structured as a merger,
consolidation or share exchange), or (ii) participate in any
discussions or negotiations regarding, furnish any
information, assist or participate in, or facilitate in any
other manner any effort or attempt to do or seek any of the
activities under Section 5.2(b)(i) of this Agreement. Provided
however, that prior to obtaining the approval of Acquiror's
shareholders with respect to merger, Acquiror may take any of
the actions described in Sections 5.2(b)(i) and (ii) above in
response to a bona fide written unsolicited acquisition
proposal if, but only if, such person has submitted an
unsolicited acquisition proposal which did not result from a
violation of Acquiror's obligations under Sections 5.2(b)(i)
and (ii). Acquiror will notify Target immediately if any
third-party makes any proposal, offer, inquiry or contact in
this regard. If Acquiror's board of directors determines that
such acquisition proposal constitutes a proposal superior to
the terms of the Merger, Target shall be immediately notified
of such determination. If such a determination is made,
Acquiror's board of directors may approve or recommend the
such acquisition proposal and may enter into an agreement
regarding such acquisition proposal provided that Acquiror's
board of directors has determined in good faith, that taking
such action is required in order for the members of Acquiror's
board of directors to comply with their fiduciary duties to
Acquiror's shareholders under applicable law and this
Agreement has been terminated in accordance with Section
7.1(g).
5.2 Shareholders Meeting or Consent Solicitation. Target shall promptly
after the date hereof take all actions necessary to call a meeting of
its shareholders to be held for the purpose of voting upon this
Agreement and the Merger. Target will, through its Board of Directors,
recommend to its shareholders approval of such matters as soon as
59
practicable after the date hereof. Target shall use all reasonable
efforts to solicit from its shareholders proxies or consents in favor
of such matters. Neither Target nor any of the Signing Stockholders
shall take any action, directly or indirectly, to cause or promote any
Target shareholder to exercise dissenters' rights in accordance with
the Minnesota Law, Sections 302A.471 and 302A.473.
5.3 Access to Information.
(a) Target will permit representatives of Acquiror to have full
access, at all reasonable times, and in a manner so as not to
interfere with the normal business operations of Target, to
all premises, properties, personnel, books, records (including
Tax records), contracts and documents of or pertaining to
Target. Acquiror will permit representatives of Target to have
full access, at all reasonable times, and in a manner so as
not to interfere with the normal business operations of
Acquiror, to all premises, properties, personnel, books,
records (including Tax records), contracts and documents of or
pertaining to Acquiror.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to
modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the
Merger.
5.4 Confidentiality. Any information concerning the business and affairs of
Target that is not already generally available to the public is
considered to be confidential information (the "Target Confidential
Information"). The Signing Stockholders will treat and hold as such all
of the Target Confidential Information and refrain from using any of
the Target Confidential Information except in connection with this
Agreement and the transactions contemplated by this Agreement or with
the written consent of Acquiror.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement and
except as may be required by Acquiror to comply with the rules and
regulations of the SEC or any obligations pursuant to any listing
agreement with any national securities exchange or with the NASD,
Acquiror and Target shall consult with each other before issuing any
press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in
response to an inquiry) regarding the terms of this Agreement and the
transactions contemplated hereby, and neither shall issue any such
press release or make any such statement or disclosure without the
prior
60
approval of the other (which approval shall not be unreasonably
withheld). All nonpublic information provided by Acquiror and Target
will not be disclosed by either party or their representatives to any
third party (other than accountants, counsel and authorized
representatives of each party) without the prior written consent of the
other, except as may be required by law.
5.6 Consents; Cooperation. Each of Acquiror and Target shall promptly apply
for or otherwise seek, and use its best efforts to obtain, all consents
and approvals required to be obtained by it for the consummation of the
Merger and shall use its best efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection
with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to any federal or state
antitrust or fair trade law.
5.7 Update Disclosure; Breaches. From and after the date of this Agreement
until the Effective Time, Target shall promptly notify Acquiror, by
written update to its Disclosure Schedule, of (i) the occurrence or
nonoccurrence of any event which would be likely to cause any condition
to the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied, or
(ii) the failure of Target to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to
the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied. The
delivery of any notice pursuant to this Section 5.7 shall not cure any
breach of any representation or warranty requiring disclosure of such
matter prior to the date of this Agreement or otherwise limit or affect
the remedies available hereunder to the party receiving such notice,
provided that such party, within 10 days after receipt of such notice,
advises the other party of its objection to the matter disclosed in
such notice and the nature of such objection.
5.8 Irrevocable Proxies. Each of the Signing Stockholders shall execute and
deliver to Acquiror an Irrevocable Proxy substantially in the form of
Exhibit B attached hereto concurrently with the execution of this
Agreement with each such proxy, if not terminated sooner, terminating
on December 31, 2004.
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5.9 Legal Requirements. Each of Acquiror and Target will, and will cause
their respective subsidiaries to, take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated
by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and
will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration
or filing with, any Governmental Entity or other person, required to be
obtained or made in connection with the taking of any action
contemplated by this Agreement.
5.10 Tax-Free Reorganization. Neither Target, Acquiror nor Sub will, either
before or after consummation of the Merger, take any action which, to
the knowledge of such party, would cause the Merger to fail to
constitute a "reorganization" within the meaning of Code Section 368.
5.11 Listing of Additional Shares. Prior to the Effective Time, Acquiror
shall file with Nasdaq a Notification Form for Listing of Additional
Shares with respect to the Total Acquiror Shares.
5.12 Additional Agreements; Best Efforts. Each of the parties agrees to use
their best efforts to take, or cause to be taken, all action 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 by this Agreement, subject to the appropriate
vote of shareholders of Target described in Section 5.2, including
cooperating fully with the other party, including by provision of
information. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of
either of the constituent corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary
action.
5.13 Employee Benefits. Acquiror shall take such reasonable actions, to the
extent permitted by Acquiror's benefits program, as are necessary to
allow eligible employees of Target to participate in the benefit
programs of Acquiror, or alternative benefits programs in the aggregate
substantially comparable to those applicable to employees of Acquiror
on similar terms, as soon as practicable after the Effective Time of
the Merger. For purposes of satisfying
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the terms and conditions of such programs, to the extent permitted by
Acquiror's benefit programs, Acquiror shall use reasonable efforts to
give full credit for eligibility or vesting for each participant's
period of service with Target.
5.14 Preparation of Tax Return. Acquiror agrees to cause Surviving
Corporation to timely prepare federal and state tax returns for the
Target's tax year ending as a result of the Merger. Acquiror agrees to
provide the Stockholders' Representative (as defined in Section 8.8) an
opportunity to review and comment upon such returns prior to filing.
Acquiror agrees not to cause Surviving Corporation to amend the federal
and state tax returns of Target without the consent of Stockholders'
Representative.
5.15 Sales, Transfer and Other Taxes. Any sales, transfer, purchase, use,
real estate, excise or other Taxes (excluding income Taxes) that may be
payable by reason of the sale, transfer or conveyance of the Total
Acquiror Shares will be paid by the Signing Stockholders.
5.16 Royalty Payments. Prior to the Closing Date, all royalty payments
payable to Xxxx Xxxxxx from Target shall have been terminated. Neither
Acquiror nor the Surviving Corporation shall have any liability to Xxxx
Xxxxxx for any such royalty payments.
ARTICLE 6
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate
and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time
of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing
the consummation of the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any
63
action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger,
which makes the consummation of the Merger illegal. In the
event an injunction or other order shall have been issued,
each party agrees to use its reasonable diligent efforts to
have such injunction or other order lifted.
(b) Governmental Approval. Acquiror and Target shall have timely
obtained from each Governmental Entity all approvals, waivers
and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions
contemplated hereby.
(c) Listing of Additional Shares. The filing with the Nasdaq
National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Acquiror
Common Stock issuable upon conversion of the Target Common
Stock in the Merger and upon exercise of the options under the
Target Stock Option Plan assumed by Acquiror shall have been
made.
(d) Approval of Acquiror's Shareholders. This Agreement and the
Merger shall have been approved and adopted by the holders of
at least a majority of the oustanding shares of Acquiror
Common Stock outstanding as of the record date set for the
Acquiror's shareholders meeting or solicitation of shareholder
consents.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to
the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Acquiror and Merger Sub in
this Agreement shall be true and correct in all material
respects (except for such representations and warranties that
are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as
though such representations and warranties were made on and as
of such time and (ii) Acquiror and Merger Sub shall have
performed and complied in all material respects with all
covenants, obligations
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and conditions of this Agreement required to be performed and
complied with by them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with
a certificate executed on behalf of Acquiror by a duly
authorized officer stating that the conditions set forth in
Section 6.2(a) have been fulfilled.
(c) Third Party Consents. Target shall have been furnished with
evidence satisfactory to it of the consent or approval of
those persons whose consent or approval shall be required in
connection with the Merger set forth on Schedule 2.3.
(d) Legal Opinion. Target shall have received a legal opinion from
Acquiror's legal counsel substantially in the form attached as
Exhibit C hereto.
(e) Resignation of Directors. Each of the directors of Acquiror
designated by Target shall resign their office effective
immediately following the Closing. The remaining directors of
Acquiror will elect replacements, effective immediately
following the Closing, for each of the resigning directors,
with such replacements, and the class in which each
replacement shall be placed, to be designated by Target. The
Stockholders' Representative shall name a replacement for any
such replacement directors designated by Target that for any
reason cannot serve on Acquiror's Board of Directors upon the
consummation of the Merger.
(f) Xxxxxxx Investment. Effective as of the Closing, Xxxxxxx X.
Xxxxxxx shall purchase that number of whole shares of Acquiror
Common Stock for an aggregate purchase price of approximately
$1,000,000 at a price per share equal to the lower of the (a)
70% of the average closing price per share of Acquiror's
Common Stock on the Nasdaq Small Cap Market over the 30
calendar day period preceding the date hereof and (b) 70% of
the average closing price per share of Acquiror's Common Stock
on the Nasdaq Small Cap Market over the 30 calendar day period
preceding the day prior to the Closing Date; provided that the
price per share shall not be lower than $1.53. The
Stockholders' Representative shall have been delivered an
irrevocable proxy terminating after 2 years to vote such
shares of Acquiror Common Stock.
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(g) Amendment to Articles of Incorporation. Acquiror shallhave
amended its Articles of Incorporation to authorize the
issuance of up to 50,000,000 shares of capital stock of
Acquiror.
(h) Escrow Agreement. Target shall have received an copy duly
executed by Escrow Agent and Acquiror of the Escrow Agrement
substantially in the form attached as Exhibit F hereto.
(i) Name Change. Acquiror shall have amended its Articles of
Incorporation to change its name to a name designated by
Target.
(j) Delivery of Certain Documents. At the Closing, Acquiror shall
have delivered to Target all of the following:
(i) Copies of all third party and governmental consents
and approvals referenced in Sections 6.1(c) and
6.2(c) above;
(ii) A copy of the Articles of Incorporation of Acquiror,
certified by the Secretary of State of the State of
Minnesota, and a Certificate of Good Standing from
the Secretary of State of the State of Minnesota
evidencing the good standing of Acquiror, each dated
as of a recent date; and
(iii) Such other certificates, documents and instruments as
Acquiror reasonably requests relating to the
transactions contemplated hereby.
6.3 Additional Conditions to the Obligations of Acquiror. The obligations
of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions,
any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Target in this Agreement
shall be true and correct in all material respects (except for
such representations and warranties that are qualified by
their terms by a reference to materiality which
representations and
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warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations
and warranties were made on and as of such time and (ii)
Target shall have performed and complied in all material
respects with all covenants, obligations and conditions of
this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) Certificate of Acquiror. Acquiror shall have been provided
with a certificate executed on behalf of Target by a duly
authorized officer stating that the conditions set forth in
Section 6.3(a) have been fulfilled.
(c) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of
those persons whose consent or approval shall be required in
connection with the Merger set forth on Schedule 2.3.
(d) Injunctions or Restraints on Merger and Conduct of Business.
No proceeding brought by any administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, seeking to prevent the consummation of
the Merger shall be pending. In addition, no temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal or regulatory restraint provision limiting or
restricting Acquiror's conduct or operation of the business of
Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or
foreign, seeking the foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal opinion
from Target's legal counsel, in substantially the form
attached hereto as Exhibit D.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or
prospects of Target.
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(g) FIRPTA Certificate. Target shall, prior to the Closing Date,
provide Acquiror with a properly executed FIRPTA Notification
Letter, substantially in the form of Exhibit E.
(h) Resignation of Directors. The directors of Target in office
immediately prior to the Effective Time shall have resigned as
directors of Target effective as of the Effective Time.
(i) Proprietary Information and Inventions Agreements. All of the
employees of Target shall have entered into a Proprietary
Information and Inventions Agreements in a form reasonably
acceptable to Acquiror.
(j) Tax Free Transaction. The Merger shall qualify as a "tax free
transaction" in accordance with Section 368 of the Code, as
amended, and the Treasury Regulations thereunder.
(k) Employee Benefits Plans. Target shall terminate its Employee
Benefits Plans set forth on Schedule 2.15 effective as of a
date prior to the Closing and shall take all necessary steps
to effect such termination following the Closing, in
compliance with the requirements of ERISA.
(l) Zernov Employment Agreement. Xxxx Xxxxxx shall have entered
into an Employment Agreement in a form mutually acceptable to
Acquiror and Xxxx Xxxxxx.
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(m) Technology Assignment Agreement. All current and former
employees and consultants of Target shall have assigned all
right, title and interest in and to any Target Intellectual
Property to Target.
(n) Delivery of Certain Documents. At the Closing, Target shall
have delivered to Acquiror all of the following:
(i) Copies of all third party and governmental consents
and approvals referenced in Sections 6.1(c) and
6.3(c) above;
(ii) Target's minute books, stock transfer records,
corporate seal and other materials relating to
Target's corporate administration;
(iii) A copy of the Articles of Incorporation of Target,
certified by the Secretary of State of the State of
Minnesota, and a Certificate of Good Standing from
the Secretary of State of the State of Minnesota
evidencing the good standing of Target, each dated as
of a recent date; and
(iv) Such other certificates, documents and instruments as
Acquiror reasonably requests relating to the
transactions contemplated hereby.
(o) Release of Security Interests. Target shall have obtained
UCC-3 Releases or similar termination statements with respect
to all security interests set forth on Schedule 6.3(o).
(p) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the holders of at least 98% of
the shares of Target Common Stock outstanding as of the record
date set for the Target Shareholders Meeting or solicitation
of shareholder consents.
(q) Escrow Agreement. Acquiror shall have received an copy duly
executed by Escrow Agent, Target and the Signing Stockholders
of the Escrow Agrement substantially in the form attached as
Exhibit F hereto.
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ARTICLE 7
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
-------------------------------------------
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger
by the shareholders of Target, this Agreement may be terminated:
(a) by mutual written consent duly authorized by the Board of
Directors of Acquiror and Target;
(b) By either Acquiror or Target, if the Closing shall not have
occurred on or before December 31, 2004 (provided, a later
date may be agreed upon in writing by the parties hereto, and
provided further that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party
whose action or failure to act has been the cause or resulted
in the failure of the Merger to occur on or before such date
and such action or failure to act constitutes a breach of this
Agreement);
(c) by Acquiror, if (i) Target shall breach any representation,
warranty, obligation or agreement hereunder and such breach
shall not have been cured within five (5) days following
receipt by Target by written notice from Acquiror of such
breach, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c) shall not be available to
Acquiror where Acquiror is at that time in material breach of
this Agreement, or (ii) the Board of Directors of Target shall
have withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Acquiror or
shall have resolved to do any of the foregoing;
(d) by Target, if (i) Acquiror shall breach any representation,
warranty, obligation or agreement hereunder and such breach
shall not have been cured within five (5) days following
receipt by Acquiror of written notice from Target of such
breach, provided that the right to terminate this Agreement by
Target under this Section 7.1(d) shall not be available to
Target where Target is at that time in material breach of this
Agreement, or (ii) the Board of Directors of Acquiror shall
have withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Target or shall
have resolved to do any of the foregoing;
70
(e) by Acquiror if any permanent injunction or other order of a
court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable;
(f) by Target if any permanent injunction or other order of a
court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable; or
(g) by Acquiror, if Acquiror enters into a definitive agreement
for a superior proposal as described in Section 5.1(b) and has
otherwise complied with all provisions of Section 5.1(b),
provided, however, that Acquiror shall pay to Target, within
30 days of such termination by Acquiror, a termination fee of
$125,000 and shall reimburse Target for reasonably incurred
expenses (including without limitation attorneys' fees and
accounting fees) up to a maximum of $100,000.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become null and
void and there shall be no liability or obligation on the part of any
of the Signing Stockholders, or Acquiror or Target or their respective
officers, directors, shareholders or affiliates, except to the extent
that such termination results from the breach by such party of any of
its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses and Termination Fees) and this
Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement, and except that if either Party commits
a breach of this Agreement prior to such termination, the other Party
will be entitled to the remedy of specific performance in addition to
any and all other available legal or equitable remedies (including,
without limitation, damages).
7.3 Expenses and Termination Fees. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and
legal counsel) shall be paid by the party incurring such expense. If
Target has paid or pays any such fees and/or expenses incurred by the
Signing Stockholders, then the Signing Stockholders shall reimburse
Target or the Surviving Corporation for the amounts so paid; PROVIDED,
HOWEVER, that such payment shall, if not promptly paid by the Signing
Stockholders, be subject to recovery from the Escrow Shares in
accordance with the provisions of
71
Article 8 hereof. If the Surviving Corporation receives any invoices
for amounts incurred by the Signing Stockholders and the Closing has
occurred, the Surviving Corporation may pay such fees, and the Signing
Stockholders shall reimburse the Surviving Corporation for the amounts
so paid; PROVIDED, HOWEVER, that such payment shall, if not promptly
reimbursed by the Signing Stockholders, be subject to recovery from the
Escrow Shares in accordance with the provisions of Article 8 hereof.
7.4 Amendment. This Agreement may be amended at any time prior to the
Effective Date upon the written consent of each of the parties hereto;
provided that an amendment made subsequent to adoption of the Agreement
by the shareholders of Target shall not (i) alter or change the amount
or kind of consideration to be received on conversion of the Target
Common Stock, (ii) alter or change any term of the Articles of
Incorporation of the Surviving Corporation to be effected by the
Merger, or (iii) alter or change any of the terms and conditions of the
Agreement if such alteration or change would adversely affect the
holders of Target Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Time Limitations. A claim for indemnification pursuant to Section
8.3(b) must be made in writing to the Stockholders' Representative on
or before the third anniversary of the Closing Date, other than with
respect to claims based on a breach of the representations and
warranties set forth in Sections 2.13 and 2.14, which must be made in
writing to the Stockholders' Representative within 30 days after the
expiration of the applicable statute of limitations relating to the
matters covered by such representations and warranties. A claim for
indemnification pursuant to Section 8.4(b) must be made in writing to
Acquiror on or before the on or before the third anniversary of the
Closing Date, other than with respect to claims based on a breach of
72
the representations and warranties set forth in Sections 3.14 and 3.15,
which must be made in writing to the Acquiror within 30 days after the
expiration of the applicable statute of limitations relating to the
matters covered by such representations and warranties. Notwithstanding
the foregoing or any other provision to the contrary contained herein,
there will be no time limitation regarding claims (a) based on a breach
of the representations and warranties set forth in Sections 2.3, 2.11,
3.3 and 3.12 or (b) for indemnification brought pursuant to Sections
8.3(a) or 8.4(a).
8.2 Amount Limitations. No indemnification claim may be asserted by either
Party pursuant to Sections 8.3 or 8.4 until such Party has suffered
Losses (as defined below) in excess of $75,000 (after which point such
Party will only be entitled to indemnification from and against such
further Losses). Each Party's obligation to indemnify the other
pursuant to Sections 8.3 or 8.4 will be limited to, and capped at an
amount equal to the Purchase Price (after which point such Party will
have no obligation to indemnify from and against any further Losses).
The Parties will make appropriate adjustments for actual Tax benefits
and for proceeds actually received pursuant to insurance and
third-party indemnification in determining Losses for purposes of this
Article 8.
8.3 Indemnification by Signing Stockholders. Notwithstanding any
investigation conducted before or after the Closing Date, and
notwithstanding any actual or implied knowledge or notice of any facts
or circumstances which Acquiror may have as a result of such
investigation or otherwise, and subject to the limitations provided in
Sections 8.1 and 8.2, the Signing Stockholders, jointly and severally,
will indemnify, defend and hold harmless Acquiror and the Surviving
Corporation (and each of their former, present and future officers,
directors, employees, agents, shareholders, members, contractors,
subcontractors, licensees, invitees, attorneys and all of their heirs
and representatives), and each of their successors and assigns from and
against all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, Taxes, Security Interests,
losses, expenses and fees, including all litigation costs and
reasonable attorneys' fees and expenses ("Losses") (excluding
incidental and consequential damages) caused by or arising out of:
73
(a) Any breach or default in the performance by any of Target or
Signing Stockholders of any covenant or agreement of any of
Target or Signing Stockholders contained in this Agreement; or
(b) Any breach of any warranty or representation made by any of
Target or Signing Stockholders herein or in any schedule or
exhibit hereto, or in any certificate or other instrument
delivered by or on behalf of any of Target or Signing
Stockholders pursuant hereto.
Acquiror shall recoup all of its Losses first from the Escrow Fund and
then directly from the Signing Stockholders.
8.4 Indemnification by Acquiror. Notwithstanding any investigation
conducted before or after the Closing Date, and notwithstanding any
actual or implied knowledge or notice of any facts or circumstances
which Acquiror may have as a result of such investigation or otherwise,
and subject to the limitations provided in Sections 8.1 and 8.2,
Acquiror will indemnify and hold harmless all Target Shareholders
immediately prior to Closing (and all of their heirs and
representatives), but not including the Dissenting Shareholders, from
and against any Losses (excluding incidental and consequential damages)
caused by or arising out of:
(a) Any breach or default in the performance by Acquiror of any
covenant or agreement of Acquiror contained in this Agreement;
or
(b) Any breach of warranty or representation made by Acquiror
herein or in any schedule or exhibit hereto, or in any
certificate or other instrument delivered by or on behalf of
Acquiror pursuant hereto.
8.5 Matters Involving Third Parties.
(a) If any third party notifies any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim")
that may give rise to a claim for indemnification against any
other Party (the "Indemnifying Party") under this Article 8,
then the Indemnified Party will promptly notify each
Indemnifying Party in writing. Delay on the part of the
Indemnified Party in notifying any Indemnifying Party will not
relieve the Indemnifying Party from their obligation unless
(and then solely to the extent) the Indemnifying Party is
prejudiced.
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(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Party
so long as (i) the Indemnifying Party notifies the Indemnified
Party in writing within 15 days after the Indemnified Party
has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from
and against the entirety of any Losses the Indemnified Party
may suffer resulting from, arising out of, relating to, in the
nature of or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that
the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its
indemnification obligations, (iii) the Third Party Claim
involves only money damages and does not seek an injunction or
other equitable relief, (iv) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party,
and (v) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8.5(b), (i)
the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the
Third Party Claim, (ii) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld
unreasonably), and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(d) If any of the conditions in Section 8.5(b) is not or is no
longer satisfied, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter
into any settlement with respect to, the Third Party Claim in
any manner it reasonably may deem appropriate (and the
Indemnified Party need
75
not consult with, or obtain any consent from, any Indemnifying
Party), (ii) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (iii) the Indemnifying
Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Article 8.
8.6 Escrow Fund. As security for the indemnity provided for in Section 8.3,
10% of the Total Acquiror Shares issuable pursuant to Section 1.6(a)
shall be deposited by Acquiror in an escrow account with a mutually
acceptable person or institution as Escrow Agent (the "Escrow Agent"),
as of the Closing Date, such deposit to constitute an escrow fund (the
"Escrow Fund") to be governed by the terms set forth in this Agreement
and the provisions of an Escrow Agreement to be entered into between
the Escrow Agent and the Parties, provided, that the term of the Escrow
Agreement shall be for a period of 24 months following the Closing
Date. The Escrow Fund shall be allocated among the former Target
Shareholders on a pro-rata basis in accordance with the number of
shares of Target Common Stock held by the former Target Shareholders at
the Effective Time (excluding for purposes of this calculation any
Dissenting Shares). Upon compliance with the terms hereof and subject
to the provisions of this Article 8, Acquiror and the Surviving
Corporation shall be entitled to obtain indemnity from the Escrow Fund
for Losses covered by the indemnity provided for in Section 8.3.
8.7 Exclusive Remedy. In the absence of fraud the right of the Parties to
assert indemnification claims and receive indemnity payments under this
Agreement is the sole and exclusive right and remedy exercisable by the
Parties with respect to any Losses arising out of any breach by any
Party of any representation, warranty, covenant or agreement of such
Party set forth in this Agreement or otherwise relating to this
Agreement and the contemplated transactions. No Party will have any
other remedy (statutory, equitable, common law or otherwise) against
any other Party with respect to such matters, and all such other
remedies are hereby waived. Without limiting the foregoing, each of the
Parties acknowledges and agrees that it will not have any remedy after
the Closing for any breach of any representation, warranty, covenant or
agreement set forth in
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this Agreement, except as expressly provided in this Article 8.
8.8 Stockholders' Representative.
(a) Xxxx Xxxxxx shall be constituted and appointed as agent
("Stockholders' Representative") for and on behalf of the
Target shareholders to give and receive notices and
communications, to authorize delivery to Acquiror of the
Acquiror Common Stock or other property from the Escrow Fund
in satisfaction of claims by Acquiror, to object to such
deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in
the judgment of the Stockholders' Representative for the
accomplishment of the foregoing. Such agency may be changed by
the holders of a majority in interest of the Escrow Fund from
time to time upon not less than 10 days' prior written notice
to Acquiror. The Stockholders' Representative may resign upon
30 days notice to the parties to this Agreement and the former
Target Shareholders. No bond shall be required of the
Stockholders' Representative, and the Stockholders'
Representative shall receive no compensation for his services.
Notices or communications to or from the Stockholders'
Representative shall constitute notice to or from each of the
Target shareholders. If Xxxx Xxxxxx is unable to serve as
Stockholders' Representative then, subject to the terms and
conditions of this Agreement, Xxxx Xxxxx shall serve as
Stockholders' Representative. If Xxxx Xxxxx is unable to serve
as Stockholders' Representative, then, subject to the terms
and conditions of this Agreement, Xxxx Xxxxx shall serve as
Stockholders' Representative.
(b) The Stockholders' Representative shall not be liable for any
act done or omitted hereunder as Stockholders' Representative
while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice
of counsel shall be conclusive evidence of such good faith.
The Target shareholders shall severally indemnify the
Stockholders' Representative and hold him harmless against any
loss, liability or expense incurred without gross negligence
or bad faith on the part of the Stockholders' Representative
and arising
77
out of or in connection with the acceptance or administration
of his duties hereunder.
(c) The Stockholders' Representative shall have reasonable access
to information about Target and the reasonable assistance of
Target's officers and employees for purposes of performing its
duties and exercising its rights hereunder, provided that the
Stockholders' Representative shall treat confidentially and
not disclose any nonpublic information from or about Target to
anyone (except on a need to know basis to individuals who
agree to treat such information confidentially).
(d) Each of the Target shareholders hereby irrevocably appoints
the Stockholders' Representative as his, her or its true and
lawful attorney-in-fact and proxy, with full power of
substitution for and in his name, to vote and otherwise act
with respect to all of his, hers or its shares of capital
stock of the Acquiror held in the Escrow Fund, at any meetings
of stockholders of the Acquiror (or by written action in lieu
thereof) and at any other time such shares are required to or
may be voted or acted upon.
(e) It is understood and agreed that the appointment and proxy
granted by the each shareholder in Section 8.8(d) above is
irrevocable and is coupled with an interest within the meaning
of Minn. Stat. ss. 302A.449. The proxy granted in Section
8.8(d) above will not terminate by operation of law, or by
death, bankruptcy or adjudication of incompetence or insanity
of any Target shareholder or the occurrence of any other event
except upon the distribution of such shares to the Target
shareholders and then only with respect to such shares
distributed. All shares remaining in the Escrow Fund shall
remain subject to the proxy granted in Section 8.8(d) above.
8.9 Actions of the Stockholders' Representative. A decision, act, consent
or instruction of the Stockholders' Representative shall constitute a
decision of all Target shareholders for whom shares of Acquiror Common
Stock otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each such Target
shareholder, and the Escrow Agent and Acquiror may rely upon any
decision, act, consent or instruction of the Stockholders'
Representative as being the decision, act, consent or instruction of
each and every such Target
78
shareholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Stockholders'
Representative.
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ARTICLE 9
GENERAL PROVISIONS
------------------
9.1 Notices. Any notice, offer, request, demand, claim or other
communication provided for by this Agreement must be in writing and
will be deemed given or delivered when delivered by hand, transmitted
by facsimile or three days after the day when deposited in the United
States mail, certified or registered, return receipt requested, postage
prepaid and properly addressed to the intended recipient as set forth
below:
if to Acquiror or Merger Sub, to:
Photo Control Corporation
0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: President
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Plant Xxxxx
500 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: X.X. Xxxxxxxx
Facsimile No.: (000) 000-0000
if to Target or Stockholders' Representative, to:
Nature Vision, Inc.
000 0xx Xxxxxx XX
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx & Xxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
Any Party may send any notice, request, demand, claim or other
communication to the intended recipient at the address set forth above
using any other means, but no such notice, request, demand, claim or
other communication will be deemed
80
to have been duly given unless and until it actually is received by the
intended recipient.
9.2 Interpretation. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the
words "without limitation." In this Agreement, any reference to any
event, change, condition or effect being "material" with respect to any
entity or group of entities means any material event, change, condition
or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group
of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any
event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible
assets), liabilities, business, operations or results of operations of
such entity and its subsidiaries, taken as a whole. In this Agreement,
any reference to a party's "knowledge" means such party's actual
knowledge after due and diligent inquiry of officers, directors and
other employees of such party and its subsidiaries reasonably believed
to have knowledge of such matters. The table of contents and headings
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed by facsimile and in one or
more counterparts, each of which will be deemed an original but all of
which together will constitute one and the same instrument.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement, the
other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant
hereto, including the Exhibits, the Schedules, including the Target
Disclosure Schedule and the Acquiror Disclosure Schedule (a) constitute
the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject
matter hereof; (b) are not intended to confer upon any other person any
rights or remedies hereunder, except for the rights of the Target
Shareholders and optionholders to receive the consideration set forth
in Article 1 of this Agreement.
9.5 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal,
81
void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable
provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement will be governed by and construed in
accordance with the domestic laws of the State of Minnesota without
giving effect to any choice or conflict of law provision or rule. Each
of the Parties submits to the jurisdiction of any state or federal
court sitting in Hennepin County, Minnesota, in any action or
proceeding arising out of or relating to this Agreement and agrees that
all claims in respect of the action or proceeding may be heard and
determined there. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other
Party. Each Party agrees that a final judgment in any action or
proceeding so brought will be conclusive and may be enforced by suit on
the judgment or in any other manner provided by law or in equity.
9.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and
permitted assigns.
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9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of
any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against
the party drafting such agreement or document.
9.10 Amendments and Waivers. No amendment of any provision of this Agreement
will be valid unless the same is in writing and signed by the Parties.
No waiver by any Party of any default, misrepresentation or breach of
warranty or covenant under this Agreement, whether intentional or not,
will be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant under this
Agreement.
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized and the Stockholders' Representative and the Signing
Stockholders have executed this Agreement, all as of the date first written
above.
"ACQUIROR":
PHOTO CONTROL CORPORATION "STOCKHOLDERS' REPRESENTATIVE"
s/s: Xxxxxx Xxxxxxx s/s: Xxxx Xxxxxx
----------------------------- ------------------------------
By: By:
----------------------------- ------------------------------
Its: President
--------- "SIGNING STOCKHOLDERS"
"MERGER SUB" s/s: Xxxx Xxxxx
------------------------------
PC ACQUISITION, INC.: By:
------------------------------
s/s: Xxxxxx Xxxxxxx s/s: Xxxx Xxxxx
----------------------------- ------------------------------
By: By:
----------------------------- ------------------------------
Its: President
---------
"TARGET":
NATURE VISION, INC.
s/s: Xxxx Xxxxxx
-----------------------------
By:
-----------------------------
Its: President
---------
84
