EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
DATED AS OF
APRIL 9, 2003
BY AND AMONG
WII HOLDINGS, INC.,
WOODCRAFT ACQUISITION SUBSIDIARY, INC.
AND
WOODCRAFT INDUSTRIES, INC.
TABLE OF CONTENTS
PREAMBLE....................................................................................................1
ARTICLE 1 - THE MERGER........................................................................................1
1.1 THE MERGER...........................................................................................1
1.2 EFFECTS OF THE MERGER................................................................................1
1.3 CLOSING..............................................................................................1
1.4 EFFECTIVE DATE AND TIME..............................................................................2
1.5 ARTICLES OF INCORPORATION............................................................................2
1.6 BYLAWS...............................................................................................2
1.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION......................................................2
1.8 EFFECT ON CAPITAL STOCK..............................................................................2
1.9 OPTIONS AND WARRANTS.................................................................................6
1.10 PAYMENT OF CASH FOR COMPANY SECURITIES...............................................................7
1.11 DISSENTING SHARES....................................................................................8
1.12 DEPOSIT TO ESCROW....................................................................................8
1.13 APPLICATION OF FUNDS.................................................................................8
1.14 NO FURTHER RIGHTS OR TRANSFERS.......................................................................8
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................................9
2.1 ORGANIZATION, STANDING AND POWER.....................................................................9
2.2 CAPITAL STRUCTURE...................................................................................10
2.3 SUBSIDIARIES........................................................................................11
2.4 AUTHORITY; NO CONFLICTS; CONSENTS AND APPROVALS.....................................................12
2.5 FINANCIAL STATEMENTS................................................................................12
2.6 ABSENCE OF UNDISCLOSED MATERIAL LIABILITIES.........................................................13
2.7 COMPLIANCE WITH LAWS; PERMITS AND LICENSES..........................................................13
2.8 LITIGATION..........................................................................................14
2.9 TAX MATTERS.........................................................................................14
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS................................................................16
2.11 VOTE REQUIRED.......................................................................................16
2.12 TITLE TO PROPERTIES, CONDITION AND SUFFICIENCY OF ASSETS............................................16
2.13 EMPLOYEES; LABOR MATTERS............................................................................17
2.14 EMPLOYEE BENEFIT PLANS..............................................................................18
2.15 INTELLECTUAL PROPERTY...............................................................................20
2.16 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS...........................................................20
2.17 BROKERS OR FINDERS..................................................................................21
2.18 INSURANCE POLICIES..................................................................................21
2.19 AFFILIATE TRANSACTIONS..............................................................................22
2.20 CONTRACTS AND COMMITMENTS...........................................................................22
2.21 PRODUCT WARRANTIES..................................................................................24
2.22 INVENTORY...........................................................................................23
2.23 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE............................................................24
2.24 CUSTOMERS AND DISTRIBUTORS..........................................................................24
2.25 ILLEGAL PAYMENTS....................................................................................24
2.26 NO OTHER REPRESENTATIONS OR WARRANTIES..............................................................25
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..........................................25
3.1 ORGANIZATION, STANDING AND POWER....................................................................26
3.2 AUTHORITY; NO CONFLICTS; CONSENTS AND APPROVALS.....................................................26
3.3 ACTIONS AND PROCEEDINGS.............................................................................26
3.4 BROKERS OR FINDERS..................................................................................26
3.5 MERGER SUB..........................................................................................26
3.6 NO OTHER REPRESENTATIONS AND WARRANTIES.............................................................26
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ARTICLE 4 - COVENANTS........................................................................................27
4.1 CONDUCT OF BUSINESS PENDING THE CLOSING.............................................................26
4.2 NO SOLICITATION.....................................................................................28
4.3 MEETING OF SHAREHOLDERS.............................................................................30
4.4 ACCESS TO INFORMATION...............................................................................29
4.5 XXXX-XXXXX-XXXXXX ACT...............................................................................30
4.6 CONFIDENTIALITY AGREEMENT...........................................................................30
4.7 DEPOSIT OF ESCROW FUNDS.............................................................................30
4.8 PAYMENT OF INDEBTEDNESS FOR BORROWED MONEY..........................................................31
4.9 REASONABLE EFFORTS..................................................................................31
4.10 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.................................................31
4.11 PUBLIC ANNOUNCEMENTS................................................................................32
ARTICLE 5 - CONDITIONS PRECEDENT.............................................................................32
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..........................................32
5.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO EFFECT THE MERGER.........................32
5.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER ..................................34
ARTICLE 6 - TERMINATION AND AMENDMENT........................................................................34
6.1 TERMINATION BY EITHER THE COMPANY OR PARENT.........................................................34
6.2 TERMINATION BY PARENT...............................................................................35
6.3 TERMINATION BY THE COMPANY..........................................................................35
6.4 EFFECT OF TERMINATION...............................................................................35
6.5 AMENDMENT...........................................................................................35
6.6 EXTENSION; WAIVER...................................................................................35
ARTICLE 7 - SURVIVAL, INDEMNIFICATION........................................................................36
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY, PARENT AND MERGER SUB....................35
7.2 INDEMNIFICATION BY THE COMPANY OR SELLING PARTIES...................................................35
7.3 INDEMNIFICATION BY PARENT AND MERGER SUB............................................................37
7.4 NOTICE OF THIRD-PARTY CLAIMS........................................................................36
7.5 DEFENSE OF THIRD-PARTY CLAIMS.......................................................................38
7.6 NOTICE OF OTHER CLAIMS..............................................................................38
7.7 ACCESS AND COOPERATION..............................................................................38
7.8 TERM OF INDEMNITIES.................................................................................39
7.9 LIMITATIONS ON LIABILITY............................................................................39
7.10 ESCROW AMOUNT AND TERM..............................................................................41
7.11 LIMITATION ON CONTRIBUTION..........................................................................40
ARTICLE 8 - GENERAL PROVISIONS...............................................................................41
8.1 EXPENSES............................................................................................41
8.2 NOTICES.............................................................................................41
8.3 INTERPRETATION......................................................................................43
8.4 SCHEDULES...........................................................................................43
8.5 COUNTERPARTS........................................................................................44
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; LIABILITY...........................................44
8.7 GOVERNING LAW.......................................................................................44
8.8 SEVERABILITY........................................................................................44
8.9 ASSIGNMENT..........................................................................................44
8.10 ENFORCEMENT.........................................................................................45
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EXHIBITS
EXHIBIT A - ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
EXHIBIT B - SAMPLE CALCULATION OF MERGER CONSIDERATION PER SHARE
EXHIBIT C - FORM OF ESCROW AGREEMENT
EXHIBIT D - [INTENTIONALLY OMITTED]
EXHIBIT E - REQUIRED THIRD PARTY CONSENTS
EXHIBIT F - FORM OF PUT/CALL AGREEMENT
EXHIBIT G - FORM OF OPINION OF COUNSEL
EXHIBIT H - FORM OF GENERAL RELEASE
EXHIBIT I - FORM OF NON-FOREIGN PERSON AFFIDAVIT
EXHIBIT J - FORM OF COLLATERAL ASSIGNMENT OF UNDERTAKINGS
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CROSS REFERENCES
SECTION
Aggregate Deductible............................................................7.9(b)(i)
Aggregate Merger Consideration..................................................1.8(e)(i)
Aggregate Option and Warrant Exercise Amount....................................1.8(e)(ii)
Aggregate Preferred Stock Merger Consideration..................................1.8(e)(iii)
Aggregate Shareholder Notes Payoff Amount.......................................1.8(e)(iv)
Agreement.......................................................................Preamble
Annual Financial Statements.....................................................2.5
Articles of Merger..............................................................1.4
Bonds...........................................................................1.8(e)(x)
Brentwood.......................................................................1.8(e)(x)
Cash Consideration per Share....................................................1.8(e)(v)
Certificate.....................................................................1.8(d)
Claim Notice....................................................................7.4(a)
Closing.........................................................................1.3
Closing Date....................................................................1.3
Code............................................................................2.9(a)
Common Stock....................................................................1.8(c)
Common Stock Certificate........................................................1.8(c)
Company.........................................................................Preamble
Company Benefit Arrangements....................................................2.14(d)
Company Disclosure Schedule.....................................................2
Company Employee Plans..........................................................2.14(a)
Company ERISA Affiliate.........................................................2.14(a)
Company Stock...................................................................1.8(b)
Company Tax Affiliate...........................................................2.9(a)
Company Tax Affiliates..........................................................2.9(a)
Company Tax Representations.....................................................7.1(a)(i)
Company Transaction Documents...................................................2.4(a)
Company Transaction Expenses....................................................1.8(e)(vi)
Company Voting Debt.............................................................2.2(d)
Confidentiality Agreement.......................................................4.6
Dissenting Shares...............................................................1.11
Effective Date..................................................................1.4
Effective Time..................................................................1.4
Environmental Laws..............................................................2.16(a)(i)
ERISA...........................................................................2.14(a)
Escrow Agent....................................................................1.12
Escrow Agreement................................................................1.12
Escrow Consideration per Share..................................................1.8(e)(vii)
Escrow Funds....................................................................1.8(e)(viii)
Expiration Date.................................................................7.9(d)(i)
Facility Leases.................................................................2.12(b)
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Fully Diluted Shares Outstanding................................................1.8(e)(ix)
GAAP............................................................................2.5
General Expiration Date.........................................................7.9(d)(ii)
Governmental Entity.............................................................2.4(c)
Hazardous Substance.............................................................2.16(a)(ii)
HSR Act.........................................................................2.4(c)
Indebtedness for Borrowed Money.................................................1.8(e)(x)
Indemnitee......................................................................7.9(d)(iii)
Indemnitor......................................................................7.9(d)(iv)
Intellectual Property...........................................................2.15(a)
Latest Balance Sheet............................................................2.5
Latest Balance Sheet Date.......................................................2.6
Latest Financial Statements.....................................................2.5
Liens...........................................................................2.2(c)
Loss, Losses....................................................................7.9(d)(v)
Loss Payment....................................................................7.11
MBCA............................................................................Recitals
Major Customers and Distributors................................................2.24
Management Shareholders.........................................................Recitals
Material Adverse Effect.........................................................2.1(b)
Merger..........................................................................Recitals
Merger Consideration per Share..................................................1.8(e)(xi)
Merger Sub......................................................................Preamble
Multiemployer Plan..............................................................2.14(b)
Net Merger Consideration........................................................1.8(e)(xii)
Non-Voting Common Stock.........................................................1.8(c)
Option..........................................................................1.9(a)
Option Consideration............................................................1.9(a)
Options.........................................................................1.9(a)
Option Plan.....................................................................1.9(a)
Ordinary Course.................................................................2.6
Organizational Documents........................................................2.1(c)
Parent..........................................................................Preamble
Parent/Merger Sub Transaction Documents.........................................3.2(a)
Permits.........................................................................2.7
Preferred Stock.................................................................1.8(d)
Preferred Stock Certificate.....................................................1.8(d)
Preferred Stock Merger Consideration per Share..................................1.8(d)
Primewood.......................................................................1.8(e)(x)
Purchase and Exchange Agreement.................................................Recitals
Real Property...................................................................2.12(a)
Requisite Shareholder Vote......................................................2.11
Sale Transaction................................................................4.2(a)
Scheduled Contracts.............................................................2.20(a)
Selling Parties.................................................................7.9(d)(vi)
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Selling Parties' Representative.................................................7.9(d)(vii)
Series A Preferred Stock........................................................1.8(d)
Series B Preferred Stock........................................................1.8(d)
Series C Preferred Stock........................................................1.8(d)
Shareholder Notes...............................................................1.8(e)(xiii)
Shareholder Support Agreement...................................................Recitals
Special Assessments.............................................................1.8(e)(x)
Special Meeting.................................................................6.1(d)
Subsidiary......................................................................2.1(d)
Surviving Corporation...........................................................1.1
Tax, Taxes, Taxable.............................................................2.9(a)
Tax Equalization Payments.......................................................1.8(e)(xiv)
Tax Expiration Date.............................................................7.9(d)(viii)
Tax Returns.....................................................................2.9(a)
Terminating Company Breach......................................................6.2(a)
Terminating Parent Breach.......................................................6.3(a)
Third Party Claims..............................................................7.9(d)(ix)
to the knowledge of the Company.................................................8.3
Unpaid Consulting and Noncompetition Fees.......................................1.8(e)(xv)
Unpaid Management Fees..........................................................1.8(e)(xvi)
Violation.......................................................................2.4(b)
Voting Common Stock.............................................................1.8(c)
Warrant Agreement...............................................................1.9(b)
Warrant Consideration...........................................................1.9(b)
Warrants........................................................................1.9(b)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 9, 2003 (this
"AGREEMENT"), is made and entered into by and among WII Holdings, Inc., a
Delaware corporation ("PARENT"), Woodcraft Acquisition Subsidiary, Inc., a
Minnesota corporation and a wholly owned subsidiary of Parent ("MERGER SUB"),
and Woodcraft Industries, Inc., a
Minnesota corporation (the "COMPANY").
WHEREAS, Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company (the "MERGER") in accordance with this
Agreement and the relevant provisions of the
Minnesota Business Corporation Act
(the "MBCA"), and the surviving corporation of the Merger shall be the Company;
WHEREAS, as of the dated hereof, certain executives of the Company (the
"MANAGEMENT SHAREHOLDERS") will enter into a Purchase and Exchange Agreement
(the "PURCHASE AND EXCHANGE AGREEMENT") with Parent and other parties identified
therein;
WHEREAS, as of the date hereof, Marathon Fund Limited Partnership III will
enter into a Shareholder Support Agreement with Parent and Merger Sub (the
"SHAREHOLDER SUPPORT AGREEMENT");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved this Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1. THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 1.4), Merger Sub
shall be merged with and into the Company. Following the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation (the "SURVIVING CORPORATION").
1.2. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the MBCA. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers, immunities and franchises of Merger
Sub and the Company shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of Merger Sub and the Company shall become
the debts, liabilities, obligations and duties of the Surviving Corporation.
1.3. CLOSING. The closing of the Merger (the "CLOSING") will take place
as soon as practicable, but no later than the fourth business day, after
satisfaction or waiver (as permitted by this Agreement and applicable law) of
the conditions (excluding conditions that, by their terms, cannot be satisfied
until the Closing) set forth in Article 5 (the "CLOSING DATE"), unless another
time or date is agreed to in writing by the parties hereto. The Closing shall be
held at the offices of Xxxxxxx
Procter LLP, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000, unless another
place is agreed to in writing by the parties hereto.
1.4. EFFECTIVE DATE AND TIME. Upon the Closing, the parties shall file
with the Secretary of State of the State of
Minnesota appropriate articles of
merger (the "ARTICLES OF MERGER") executed in accordance with the relevant
provisions of the MBCA. The Merger shall become effective as of the date and
time of such filings or such other time after such filings as the parties hereto
shall agree to in the Articles of Merger (the "EFFECTIVE TIME"). The date on
which the Effective Time shall occur is referred to as the "EFFECTIVE DATE."
1.5. ARTICLES OF INCORPORATION. At the Effective Time, the articles of
incorporation of the Company (as amended and restated in substantially the form
set forth in EXHIBIT A hereto) shall be the articles of incorporation of the
Surviving Corporation, until thereafter amended as provided by the MBCA and the
provisions of such articles of incorporation.
1.6. BYLAWS. At the Effective Time, the bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall become the bylaws of the
Surviving Corporation until thereafter amended as provided by the MBCA, the
provisions of the articles of incorporation of the Surviving Corporation and
such bylaws.
1.7. OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The officers of the
Company immediately prior to the Effective Time shall be, from and after the
Effective Time, the officers of the Surviving Corporation, until the earlier of
their resignation or removal or otherwise ceasing to be an officer. The
directors of Merger Sub immediately prior to the Effective Time shall be, from
and after the Effective Time, the directors of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
1.8. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Parent, Merger Sub or the
Company:
(a) CAPITAL STOCK OF MERGER SUB. Each share of capital stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
(b) CANCELLATION OF PARENT AND MERGER SUB-OWNED STOCK. Each share
of the capital stock of the Company (the "COMPANY STOCK") that is issued and
outstanding immediately prior to the Effective Time and owned by Parent or
Merger Sub or any other direct or indirect wholly owned subsidiary of Parent
shall be cancelled, extinguished and retired, and no payment of any
consideration shall be made with respect thereto.
(c) COMPANY COMMON STOCK. Each share of the Company's Common
Stock, $.01 par value per share (the "VOTING COMMON STOCK") and the Company's
Class A Non-Voting Common Stock, $.01 par value per share (the "NON-VOTING
COMMON STOCK" and together with the Voting Common Stock, the "COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled in accordance with Section 1.8(b) and any Dissenting
Shares (as defined in Section 1.11)) will, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive the Cash Consideration per Share (as defined below) and, subject to the
terms of Article 7, the Escrow Consideration per Share
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(as defined below) without any interest thereon. As of the Effective Time, all
such shares of Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a stock certificate which immediately prior to the Effective Time represented
any such shares of Common Stock (a "COMMON STOCK CERTIFICATE") shall cease to
have any rights with respect thereto, except the right to receive, upon the
surrender of such Common Stock Certificate as provided in Section 1.10, the Cash
Consideration per Share and, subject to the terms of Article 7, the Escrow
Consideration per Share.
(d) COMPANY PREFERRED STOCK. Each share of the Company's Series A
Preferred Stock, par value $.01 per share (the "SERIES A PREFERRED STOCK"), the
Company's Series B Preferred Stock, par value $.01 per share (the "SERIES B
PREFERRED STOCK") and the Company's Series C Preferred Stock, par value $.01 per
share (the "SERIES C PREFERRED STOCK", and together with the Series A Preferred
Stock and the Series B Preferred Stock, the "PREFERRED STOCK") issued and
outstanding immediately prior to the Effective Time (other than shares to be
cancelled in accordance with Section 1.8(b) and any Dissenting Shares (as
defined in Section 1.11)) will, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive $8.00
per share plus all accumulated and unpaid dividends on such share in cash (the
"PREFERRED STOCK MERGER CONSIDERATION PER SHARE") without any interest thereon.
As of the Effective Time, all such shares of Preferred Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a stock certificate which immediately prior to the
Effective Time represented any such shares of Preferred Stock (a "PREFERRED
STOCK CERTIFICATE" and, together with a Common Stock Certificate, a
"CERTIFICATE") shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such Preferred Stock Certificate as
provided in Section 1.10, the Preferred Stock Merger Consideration per Share.
(e) CERTAIN DEFINITIONS. For purposes of this Agreement:
(i) "AGGREGATE MERGER CONSIDERATION" shall mean
$145,000,000.
(ii) "AGGREGATE OPTION AND WARRANT EXERCISE AMOUNT" shall
mean an amount, as certified by the Secretary of the Company to the reasonable
satisfaction of Parent, equal to the aggregate exercise price of all Options and
Warrants (each as defined in Section 1.9), vested or unvested, outstanding
immediately prior to the Effective Time.
(iii) "AGGREGATE PREFERRED STOCK MERGER CONSIDERATION" shall
mean an amount, as certified by the Secretary of the Company to the reasonable
satisfaction of Parent, equal to the aggregate of the Preferred Stock Merger
Consideration per Share payable in accordance with Section 1.8(d) with respect
to shares of Preferred Stock issued and outstanding immediately prior to the
Effective Time.
(iv) "AGGREGATE SHAREHOLDER NOTES PAYOFF AMOUNT" shall mean
an amount, as certified by the Chief Financial Officer of the Company to the
reasonable satisfaction of Parent, of the aggregate outstanding principal and
accrued and unpaid interest due to the Company under the Shareholder Notes.
(v) "CASH CONSIDERATION PER SHARE" shall mean an amount
equal to the Merger Consideration per Share minus the Escrow Consideration per
Share as determined pursuant to this Section 1.8.
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(vi) "COMPANY TRANSACTION EXPENSES" shall mean the sum, as
certified by the Chief Financial Officer of the Company to the reasonable
satisfaction of Parent, of all unpaid legal, financial advisory, accounting and
other fees and expenses incurred by the Company in connection with the Merger
and the other transactions contemplated by this Agreement.
(vii) "ESCROW CONSIDERATION PER SHARE" shall mean an interest
in the Escrow Funds, rounded to six decimal places, equal to (A) $8,250,000,
divided by (B) the amount, by which, (y) Fully Diluted Shares Outstanding,
exceeds (z) the aggregate number of shares of issued and outstanding Common
Stock owned by Parent or Merger Sub immediately prior to the Effective Time
cancelled, extinguished and retired pursuant to Section 1.8(b).
(viii) "ESCROW FUNDS" shall mean $8,250,000.
(ix) "FULLY DILUTED SHARES OUTSTANDING" shall mean the sum,
as certified by the Secretary of the Company to the reasonable satisfaction of
Parent, of (A) the number of shares of Common Stock issued and outstanding
immediately prior to the Effective Time, plus (B) the number of shares of Common
Stock issuable upon exercise of all Options and Warrants ( each as defined in
Section 1.9), vested or unvested, outstanding immediately prior to the Effective
Time.
(x) "INDEBTEDNESS FOR BORROWED MONEY" shall mean an amount
equal to the sum, without duplication, of:
(A) the outstanding principal and accrued and unpaid
interest (as well as prepayment, breakage and similar charges payable) under
that certain Second Amended and Restated Credit Agreement, as amended from time
to time, dated July 31, 2002, among the Company,
PrimeWood, Inc. ("PRIMEWOOD"),
Brentwood Acquisition Corp. ("BRENTWOOD"), the Banks party thereto and U.S. Bank
National Association as a Bank and agent for the Banks and Antares Capital
Corporation, as a Bank and as co-agent for the Banks as set forth in payoff
letters from such institutions;
(B) the outstanding principal and accrued and unpaid
interest (as well as prepayment, breakage and similar charges payable) under
that certain Senior Subordinated Note, Preferred Stock and Warrant Purchase
Agreement, as amended from time to time, dated June 16, 1998 among the Company,
Primewood, Continental Illinois Venture Corporation, MIG Partners VII and
certain other parties as set forth in payoff letters from the holders of
indebtedness thereunder;
(C) the outstanding principal and accrued and unpaid
interest under that certain Subordinated Promissory Note, dated as of July 31,
2002, in the original principal amount of $2,150,000 made by Brentwood, as
maker, to Xxxxx X. Xxxxxxx, as payee, as set forth in a payoff letter from the
holder thereof;
(D) an amount equal to the outstanding principal of,
and accrued and unpaid interest on, the Industrial Development Revenue Bonds
(Woodcraft Industries, Inc. Project), Series 1995 issued by the City of Bowling
Green, Kentucky in the original principal amount of $6,900,000, as certified by
the Chief Financial Officer of the Company to the reasonable satisfaction of
Parent (the "BONDS");
(E) the amount of unpaid special real estate
assessments on the Company's property located at 000 Xxxxxxx Xxx. X.X., Xx.
Xxxxx, Xxxxxxxxx, as certified by the Chief
4
Financial Officer of the Company to the reasonable satisfaction of Parent (the
"SPECIAL ASSESSMENTS"); and
(F) any other indebtedness for money borrowed by the
Company or any Subsidiary of the Company, the carrying value of capital lease
obligations of the Company and its Subsidiaries set forth on the Latest Balance
Sheet as adjusted through the Closing Date, any indebtedness for money borrowed
that is secured by the assets of the Company or any Subsidiary of the Company,
indebtedness for borrowed money guaranteed in any manner by the Company or any
Subsidiary of the Company, and all accrued and unpaid interest or fees,
penalties or other amounts due with respect thereto.
(xi) "MERGER CONSIDERATION PER SHARE" shall mean an amount,
rounded to six decimal places, equal to Net Merger Consideration divided by
Fully Diluted Shares Outstanding. EXHIBIT B illustrates the calculation of
Merger Consideration per Share based on the capital structure of the Company as
of the date of this Agreement.
(xii) "NET MERGER CONSIDERATION" shall mean an amount equal
to (x) the sum of (A) Aggregate Merger Consideration, plus (B) Aggregate Option
and Warrant Exercise Amount, plus (C) the Aggregate Shareholder Notes Payoff
Amount minus (y) the sum of (A) Indebtedness for Borrowed Money immediately
prior to the Effective Time (after giving effect to any application of cash to
reduce such Indebtedness for Borrowed Money prior to the Effective Time), plus
(B) Company Transaction Expenses, plus (C) Unpaid Consulting and Noncompetition
Fees, plus (D) the Aggregate Preferred Stock Merger Consideration, plus (E)
Unpaid Management Fees, plus (F) the Tax Equalization Payments.
(xiii) "SHAREHOLDER NOTES" shall mean those certain four
Demand Promissory Notes, each dated February 28, 1996, made payable to the order
of WII Acquisition Corp., from each of Xxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxx
X. Xxxxxxx and Xxxxxx X. Xxxxxxx in the original principal amounts of $50,000,
$25,000, $50,000 and $37,500, respectively.
(xiv) "TAX EQUALIZATION PAYMENTS" shall mean an amount, as
certified by the Chief Financial Officer of the Company to the reasonable
satisfaction of Parent, equal to the sum of the tax equalization payments to be
made to certain shareholders of the Company in connection with the consummation
of the transactions contemplated by the Agreement as set forth in such Chief
Financial Officer certification.
(xv) "UNPAID CONSULTING AND NONCOMPETITION FEES" shall mean
an amount (which for purposes of this Agreement shall not be considered
Indebtedness for Borrowed Money), as certified by the Chief Financial Officer of
the Company to the reasonable satisfaction of Parent, equal to the sum of (A)
amounts unpaid by the Company under that certain Noncompetition and Proprietary
Information Agreement, dated as of June 16, 1998, between the Company, Primewood
and Xxxxxx X. Xxxxxx, plus (B) amounts unpaid by the Company under that certain
Consulting Agreement, dated as of June 16, 1998, between the Company and
PrimeBoard International, Inc.
(xvi) "UNPAID MANAGEMENT FEES" shall mean an amount, as
certified by the Chief Financial Officer of the Company to the reasonable
satisfaction of Parent, equal to fees unpaid by the Company under that certain
Management Services Agreement, dated as of February 28, 1996, as amended on May
10, 2002, between the Company and Xxxxxxx Xxxx Xxxxxxx & Xxxxxxxx Incorporated.
5
1.9 OPTIONS AND WARRANTS.
(a) OPTIONS. At the Effective Time, each option to acquire Common
Stock outstanding immediately prior to the Effective Time under the Company's
1998 Stock Option Plan (the "OPTION PLAN"), whether vested or unvested (each, an
"OPTION," collectively, the "OPTIONS"), shall automatically become cancelled and
extinguished and each holder of an Option shall only have the right to receive
(A) from the Surviving Corporation a cash payment (less applicable federal,
state and local withholding taxes) in an aggregate amount, rounded to the
nearest xxxxx, equal to the positive difference, if any, between (i) the Cash
Consideration per Share over (ii) the applicable exercise price per share of
Common Stock applicable to such Option for all shares of Common Stock covered by
such Option (the "OPTION CONSIDERATION") and (B) subject to the provisions of
Article 7, the Escrow Consideration per Share for all shares of Common Stock
covered by such Option if and when released pursuant to the terms of the Escrow
Agreement (as defined in Section 1.12). All payments with respect to the Option
Consideration shall be treated as compensation.
(b) WARRANTS. At the Effective Time, each warrant to acquire
Common Stock or any securities directly or indirectly convertible into or
exchangeable for Common Stock (the "WARRANTS") outstanding immediately prior to
the Effective Time under those certain warrant agreements described in SECTION
2.2(b) OF THE COMPANY DISCLOSURE SCHEDULE (each a "WARRANT AGREEMENT") shall
automatically become cancelled and extinguished and each holder thereof shall
only have the right to receive (A) from the Surviving Corporation a cash payment
(less applicable federal, state and local withholding taxes, if any) in an
aggregate amount, rounded to the nearest xxxxx, equal to the difference, if any,
between (i) the Cash Consideration per Share and (ii) the applicable exercise
price per share of the Common Stock applicable to such Warrant for all shares of
Common Stock subject to the Warrant (the "WARRANT CONSIDERATION") and (B)
subject to the provisions of Article 7, the Escrow Consideration per Share for
all shares of Common Stock subject to the Warrant if and when released pursuant
to the terms of the Escrow Agreement (as defined in Section 1.12).
(c) NOTICES. The Company shall use its reasonable best efforts
(including, without limitation, giving requisite notices to holders of Options
and Warrants advising them of such accelerated vesting and rights pursuant to
this Section 1.9) to fully advise holders of Options and Warrants of their
rights under this Agreement, the Options and the Warrants, to facilitate their
timely exercise of such rights and to effectuate the provisions of this Section
1.9. From and after the Effective Time, other than as expressly set forth in
this Section 1.9, no holder of an Option or a Warrant shall have any other
rights in respect thereof other than to receive payment for his, her or its
Options or Warrants as set forth in this Section 1.9, and the Company shall take
all necessary actions to terminate effective as of the Effective Time the
Company's Option Plan, stock option agreements and similar arrangements.
6
1.10 PAYMENT OF CASH FOR COMPANY SECURITIES.
(a) At the Effective Time, each holder of a Certificate or
Certificates representing shares of Common Stock or Preferred Stock extinguished
at the Effective Time may surrender such Certificate or Certificates to the
Company, to effect the exchange of such Certificate or Certificates on such
holder's behalf. Until so surrendered and exchanged, each outstanding
Certificate shall be deemed to represent and evidence only the right to receive
the Merger Consideration per Share or the Preferred Stock Merger Consideration
per Share, as the case may be, to be paid as set forth in this Section 1.10 and
until such surrender and exchange, no cash shall be paid to the holder of such
outstanding Certificate in respect thereof.
(b) At the Effective Time and after surrender to the Company of
any Common Stock Certificate, the Company shall distribute to the person in
whose name the Certificate shall have been registered, a check or wire transfer
in an amount, rounded to the nearest xxxxx, equal to (x) the Cash Consideration
per Share, multiplied by (y) the number of shares of Common Stock represented by
such Common Stock Certificate. The Company shall withhold from any distribution
hereunder to a maker of any of the Shareholder Notes the outstanding principal
balance and accrued and unpaid interest on such Shareholder Note. The holder of
such Common Stock Certificate shall, subject to the provisions of Article 7,
retain such person's right to receive the Escrow Consideration per Share if and
when released pursuant to the terms of the Escrow Agreement.
(c) At the Effective Time and after surrender to the Company of
any Preferred Stock Certificate, the Company shall distribute to the person in
whose name the Certificate shall have been registered, a check or wire transfer
in an amount, rounded to the nearest xxxxx, equal to (x) the Preferred Stock
Merger Consideration per Share, multiplied by (y) the number of shares of
Preferred Stock represented by such Preferred Stock Certificate.
(d) Promptly after the Effective Time, but in any event within 10
days of the Effective Date, the Company shall distribute to the person in whose
name an Option shall have been registered a check or wire transfer in an amount
equal to the Option Consideration, rounded to the nearest xxxxx, attributable to
such Option. Payment of this aggregate Option Consideration and the fulfillment
of the obligations contained herein by the Surviving Corporation and the Company
shall be in full satisfaction of all other rights pertaining to such Option,
except to the right to receive, subject to the provisions of Article 7, the
Escrow Consideration per Share if and when released pursuant to the terms of the
Escrow Agreement.
(e) At the Effective Time, the Company shall distribute to the
person in whose name a Warrant shall have been registered a check or wire
transfer in an amount equal to the Warrant Consideration, rounded to the nearest
xxxxx, attributable to such Warrant. Payment of this aggregate Warrant
Consideration and the fulfillment of the obligations contained herein by the
Surviving Corporation and the Company shall be in full satisfaction of all other
rights pertaining to such Warrant, except to the right to receive, subject to
the provisions of Article 7, the Escrow Consideration per Share if and when
released pursuant to the terms of the Escrow Agreement.
(f) If payment of cash is to be made to a person other than the
person in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition to such payment that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such payment shall pay to the Company
any transfer and
7
other taxes required by reason of such payment to such other person or shall
have established to the satisfaction of the Company that such tax either has
been paid or is not payable.
(g) No interest shall accrue or be payable with respect to any
amounts which a holder of shares of Common Stock, Preferred Stock, Options or
Warrants shall be so entitled to receive. The Company shall be authorized to pay
the cash attributable to any Certificate previously issued which has been lost
or destroyed, upon receipt of satisfactory evidence of ownership of the shares
of the securities represented thereby and of appropriate indemnification.
(h) The Company shall have received an IRS W-9 (or other
applicable form) executed by the recipient of the cash to be so distributed by
the Company pursuant to this Section 1.10 prior to the making of any such
distribution and shall withhold from any distribution any applicable federal,
state or local withholding taxes required to be withheld from such distribution.
1.11 DISSENTING SHARES. Notwithstanding Section 1.8 hereof, shares of the
Common Stock and shares of the Preferred Stock issued and outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has properly
demanded and perfected such holder's right to dissent from the Merger and to be
paid the fair value of such shares in accordance with Sections 302A.471 and
302A.473 of the MBCA (and who has neither effectively withdrawn nor lost his
right to dissent) ("DISSENTING SHARES"), shall not be converted into a right to
receive the Merger Consideration per Share or the Preferred Stock Merger
Consideration per Share, as the case may be, pursuant to Section 1.8, and the
holder thereof shall be entitled to only such rights as are granted by the MBCA.
If after the Effective Time such holder fails to perfect or withdraws or
otherwise loses his right to dissent, such shares of Common Stock and Preferred
Stock shall be treated as if they had been converted as of the Effective Time
into the right to receive the Merger Consideration per Share or the Preferred
Stock Merger Consideration per Share, as the case may be, as provided in Section
1.8, without interest thereon. The Company shall give Parent reasonably prompt
notice of any demands for payment received by the Company under Sections
302A.471 and 302A.473 of the MBCA, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
1.12 DEPOSIT TO ESCROW. At the Effective Time, Parent shall cause the
Escrow Funds to be deposited with an escrow agent reasonably acceptable to
Parent and the Selling Parties' Representative (the "ESCROW AGENT") under an
Escrow Agreement substantially in the form attached hereto as EXHIBIT C, but
including such changes as may be requested by the Escrow Agent relating to the
Escrow Agent's obligations, liabilities and responsibilities (the "ESCROW
AGREEMENT").
1.13 APPLICATION OF FUNDS. At the Effective Time, Parent shall pay or
cause the Company to pay in full (A) the Indebtedness for Borrowed Money of the
Company (other than with respect to the Bonds, the Special Assessments and the
capital lease obligations of the Company) in accordance with the written
instructions of the holders thereof, (B) the Tax Equalization Payments in
accordance with the written instruction of the Chief Financial Officer of the
Company, (C) the Unpaid Management Fees to Xxxxxxx Xxxx Xxxxxxx & Xxxxxxxx
Incorporated, and (D) the Company Transaction Expenses in accordance with the
written instructions of the Chief Financial Officer of the Company.
1.14 NO FURTHER RIGHTS OR TRANSFERS. At the Effective Time, all shares of
Company Stock issued and outstanding immediately prior to the Effective Time
shall be cancelled and cease to exist, and each holder of a Certificate or
Certificates that represented shares of Company Stock
8
issued and outstanding immediately prior to the Effective Time shall cease to
have any rights as a shareholder with respect to the shares of Company Stock
represented by such Certificate or Certificates, except for the right to
surrender such Certificate or Certificates in exchange for the payment provided
pursuant to Section 1.8 hereof or to preserve and perfect such holder's right to
receive payment for such holder's shares pursuant to Sections 302A.471 and
302A.473 of the MBCA and Section 1.11 hereof if such holder has validly
exercised and not withdrawn or lost such right, and no transfer of shares of
Company Stock issued and outstanding immediately prior to the Effective Time
shall be made on the stock transfer books of the Surviving Corporation.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except
as set forth in the disclosure schedule delivered by the Company to Parent on
the date hereof (the "COMPANY DISCLOSURE SCHEDULE"):
2.1 ORGANIZATION, STANDING AND POWER.
(a) The Company and each of its Subsidiaries is duly organized and
validly existing and in good standing under the laws of its jurisdiction of
organization and has all requisite corporate power and authority to own or lease
and operate its properties and assets, and to carry on its business as now
conducted. The Company and each of its Subsidiaries is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary except for such jurisdictions where the failure to be so qualified
would not reasonably be expected to have a Material Adverse Effect on the
Company.
(b) For purposes of this Agreement, "MATERIAL ADVERSE EFFECT"
means, with respect to any entity, any adverse change, circumstance or effect
that, individually or aggregated with other changes, circumstances and effects,
is materially adverse to the business, assets, liabilities, condition (financial
or otherwise), or results of operations of such entity and its Subsidiaries
taken as a whole; provided, however, that Material Adverse Effect shall not be
deemed to include, nor shall any of the following be considered when determining
if a Material Adverse Effect has occurred: (i) any change, circumstance or
effect relating to general economic or financial conditions or resulting from or
arising out of developments in credit, financial or securities markets,
including, without limitation, caused by acts of terrorism or war (whether or
not declared) (provided such change or effect does not affect the Company or the
Parent in a materially disproportionate manner to others in the industries in
which they respectively operate), (ii) any change, circumstance or effect
generally affecting the industries in which Parent or the Company, as the case
may be, operates, including, without limitation, caused by acts of terrorism or
war (whether or not declared) (provided such change or effect does not affect
the Company or the Parent in a materially disproportionate manner to others in
the industries in which they respectively operate), or (iii) any change,
circumstance or effect attributable to the announcement of this Agreement.
(c) The copies of the Organizational Documents, as amended to
date, of the Company and each Company Subsidiary previously furnished by the
Company to Parent are complete and correct and such instruments, as so amended,
are in full force and effect as of the date
9
hereof. For purposes of this Agreement, "ORGANIZATIONAL DOCUMENTS" means, with
respect to any entity, the certificate or articles of incorporation, bylaws
and/or other similar governing documents of such entity.
(d) For purposes of this Agreement, "SUBSIDIARY" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, (i) of which such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting and economic interests in such
partnership) or (ii) at least a majority of the securities or other interests of
which having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
2.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
14,986,875 shares comprised of the following:
(i) CLASSES OF COMPANY COMMON STOCK. The following classes
of Common Stock:
(1) 5,000,000 shares of Voting Common Stock, 979,500
of which are issued and outstanding, 803,125 of which are reserved for issuance
pursuant to outstanding Warrants and 14,250 of which are reserved for issuance
pursuant to outstanding Options described under SECTION 2.2(b) OF THE COMPANY
DISCLOSURE SCHEDULE as of the date of this Agreement;
(2) 600,000 shares of Non-Voting Common Stock,
85,348 of which are issued and outstanding and 472,542 of which are reserved for
issuance pursuant to outstanding Warrants described under SECTION 2.2(b) OF THE
COMPANY DISCLOSURE SCHEDULE as of the date of this Agreement;
(ii) SERIES OF COMPANY PREFERRED STOCK. The following
series of Preferred Stock:
(1) 750,000 shares of Series A Preferred Stock, all of
which are issued and outstanding as of the date of this Agreement;
(2) 803,125 shares of Series B Preferred Stock, all of
which are issued and outstanding as of the date of this Agreement;
(3) 1,000,000 shares of Series C Preferred Stock,
550,000 of which are issued and outstanding as of the date of this Agreement;
and
(4) 6,833,750 undesignated shares, none of which is
issued and outstanding.
As of the date of this Agreement, without giving effect to the transaction
contemplated by the Purchase and Exchange Agreement, the outstanding shares of
Company Stock are owned of record by the persons and in the amounts set forth in
SECTION 2.2(a) OF THE COMPANY DISCLOSURE SCHEDULE. All issued and outstanding
shares of the Company Stock are duly authorized, validly issued, fully paid and
nonassessable, and were not issued in violation of any preemptive rights or any
applicable
10
federal or state securities laws. No shares of Company Stock are held in the
treasury of the Company or by any Company Subsidiary. There are no outstanding
options, warrants or other rights (including preemptive rights) relating to the
issuance by the Company of any shares of its capital stock, including any right
of conversion or exchange under any outstanding security or other instrument
except for Warrants to purchase up to 803,125 shares of Voting Common Stock,
Warrants to purchase up to 472,542 shares of Non-Voting Common Stock, Options to
purchase up to 14,250 shares of Voting Common Stock under the 1998 Stock Option
Plan and as set forth in that certain Amended and Restated Shareholder
Agreement, dated June 16, 1998, among the Company and various holders of the
Company's securities, as amended.
(b) SECTION 2.2(b) OF THE COMPANY DISCLOSURE SCHEDULE sets forth a
complete and accurate list, as of the date of this Agreement, of (i) the holder
of each outstanding Option, the number and class of shares of Common Stock
issuable upon exercise of each Option and the exercise price and expiration date
thereof and (ii) the holder of each outstanding Warrant, indicating with respect
to each Warrant the Warrant Agreement or other document under which it was
granted, the number of shares of the Company's capital stock, and the class or
series of such shares, subject to such Warrant, the exercise price, the date of
issuance and the expiration date thereof.
(c) All of the issued and outstanding shares of capital stock of
each Company Subsidiary are duly authorized, validly issued, fully paid and
nonassessable and are owned directly or indirectly by the Company and are free
and clear of any liens, claims, pledges, encumbrances, restrictions, preemptive
rights or any other claims of any third party ("LIENS").
(d) No bonds, debentures, notes or other indebtedness of the
Company having, or convertible into other securities having, the right to vote
on any matters on which shareholders may vote ("COMPANY VOTING DEBT") are issued
or outstanding.
(e) Except as set forth in SECTION 2.2(e) OF THE COMPANY
DISCLOSURE SCHEDULE, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any Company Subsidiary is a party or by which any of them is bound
obligating the Company or any Company Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other securities of the Company or any Company Subsidiary or obligating the
Company or any Company Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or its Subsidiaries. Except for the Shareholder Support
Agreement and as set forth in SECTION 2.2(e) OF THE COMPANY DISCLOSURE SCHEDULE,
there is no voting trust or other agreement or understanding to which the
Company or any Company Subsidiary is a party or is bound, or, to the knowledge
of the Company, to which any shareholder of such entity is a party or is bound,
with respect to the voting of the capital stock or other voting securities of
the Company or any Company Subsidiary. The Company has the ability to effect any
action requiring the approval of the shareholders of any of its Subsidiaries and
to designate all of the members of the board of directors of each of its
Subsidiaries.
2.3 SUBSIDIARIES.
(a) SECTION 2.3(a) OF THE COMPANY DISCLOSURE SCHEDULE lists all
the Company's Subsidiaries, the states in which such Subsidiaries are organized
and qualified to do business, the
11
number and type of outstanding equity securities of each Company Subsidiary and
a list of the holders thereof.
(b) The copies of the Organizational Documents, as amended to
date, of all Subsidiaries of the Company previously furnished to Parent are true
and complete and such instruments, as so amended, are in full force and effect
as of the date hereof.
(c) Except for the stock of the Company's Subsidiaries owned by
the Company, neither the Company nor any Company Subsidiary owns any stock,
partnership interest, joint venture interest or any other security issued by any
other corporation, organization or entity, except readily marketable securities
owned by the Company or a Company Subsidiary in the ordinary course of business.
2.4 AUTHORITY; NO CONFLICTS; CONSENTS AND APPROVALS.
(a) AUTHORITY. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and any other agreement,
document or instrument to be executed by the Company in connection with the
Merger (the "COMPANY TRANSACTION DOCUMENTS") and, subject to obtaining the
necessary approval of its shareholders in accordance with the MBCA, to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Company Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company, subject in the case of the Merger to the approval and adoption
of this Agreement by the holders of a majority of the outstanding shares of
Voting Common Stock and Series B Preferred Stock in accordance with the MBCA.
This Agreement and the Company Transaction Documents have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company, enforceable against it in accordance with their terms.
(b) NO CONFLICTS. The execution and delivery of this Agreement and
the Company Transaction Documents by the Company does not, and the consummation
by the Company of the transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof will not, conflict with, or
result in any violation of, or constitute a default (with or without notice or
lapse of time, or both) under, or give to others a right of termination,
amendment, cancellation or acceleration of any material obligation or the loss
of a material benefit under, or result in the creation of a Lien on any assets
or properties of the Company or any Company Subsidiary pursuant to (any such
conflict, violation, default, right of termination, amendment, cancellation or
acceleration, loss or creation, a "VIOLATION"): (i) any provision of the
Organizational Documents of the Company or any Company Subsidiary or (ii) except
as disclosed in SECTION 2.4(b)(ii) OF THE COMPANY DISCLOSURE SCHEDULE, any loan
or credit agreement, note, mortgage, bond, indenture, lease, benefit plan or
other material agreement, obligation, instrument, permit, concession, franchise
or license binding upon or held by the Company or any Company Subsidiary or any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company, its Subsidiaries or their respective properties or assets.
(c) CONSENTS AND APPROVALS. No material consent, approval, order
or authorization of, or registration, declaration, notice to or filing with, any
domestic (federal, state or local), foreign or supranational court, commission,
governmental body, regulatory agency, administrative agency or other
governmental or regulatory authority or agency (a "GOVERNMENTAL
12
ENTITY") is required by or with respect to the Company or any Company Subsidiary
in connection with the execution and delivery of this Agreement and the Company
Transaction Documents by the Company or the consummation of the transactions
contemplated hereby or thereby except for (i) compliance with the provisions of
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), (ii) the filing and recordation of the appropriate merger documents as
required by the MBCA and (iii) compliance with Sections 302A.471 and 302A.473 of
the MBCA regarding dissenters' rights.
2.5 FINANCIAL STATEMENTS. Attached to SECTION 2.5 OF THE COMPANY
DISCLOSURE SCHEDULE are true and correct copies of (i) the audited consolidated
balance sheets of the Company as of December 31, 2002, 2001 and 2000 and the
audited consolidated statements of operations and comprehensive income,
shareholders' deficit and cash flows of the Company for each of the years ended
December 31, 2002, 2001, 2000, and 1999 (collectively, the "ANNUAL FINANCIAL
STATEMENTS"); and (ii) an unaudited consolidated balance sheet of the Company as
of February 28, 2003 (the "LATEST BALANCE SHEET") and the unaudited statement of
operations and comprehensive income and cash flows for the two-month period then
ended (collectively with the Latest Balance Sheet, the "LATEST FINANCIAL
STATEMENTS"). The Latest Financial Statements and the Annual Financial
Statements are based upon information contained in the books and records of the
Company and fairly present, in all material respects, the consolidated financial
position and consolidated results of operations and cash flows of the Company
and its Subsidiaries as of the respective dates or for the respective periods
set forth therein, all in conformity with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods indicated
subject, in the case of the Latest Financial Statements, to normal year-end
adjustments and the absence of notes (in either case which will be, individually
or in the aggregate, immaterial).
2.6 ABSENCE OF UNDISCLOSED MATERIAL LIABILITIES. None of the Company and
its Subsidiaries has any liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether known or
unknown, and regardless of when asserted) except for: (i) liabilities shown on
the Latest Balance Sheet, (ii) liabilities incurred since the date of the Latest
Balance Sheet (the "LATEST BALANCE SHEET DATE") in the Ordinary Course, (iii)
liabilities otherwise disclosed in the Company Disclosure Schedule, (iv)
liabilities to Parent and Merger Sub incurred pursuant to this Agreement or in
furtherance of the transactions contemplated under this Agreement, and (v)
liabilities that would not be required to be reflected or reserved against on a
balance sheet prepared in accordance with GAAP. For purposes of this Agreement,
"ORDINARY COURSE" means, with respect to any entity, any actions taken in the
regular and ordinary course of that entity's business, consistent in all
material respects with past practices.
2.7 COMPLIANCE WITH LAWS; PERMITS AND LICENSES. Except as set forth in
SECTION 2.7 OF THE COMPANY DISCLOSURE SCHEDULE, the Company and its Subsidiaries
hold all material permits, licenses, certificates, franchises, registrations,
variances, exemptions, orders and approvals of all Governmental Entities
("PERMITS") which are necessary to each of them to own, lease and operate its
properties or to carry on its business as now being conducted, and all such
Permits are in full force and effect. The Company and its Subsidiaries and the
Real Property (as defined in Section 2.12(a)) are in material compliance with
the terms of such Permits. Except as set forth in SECTION 2.7 OF THE COMPANY
DISCLOSURE SCHEDULE, the businesses of the Company and its Subsidiaries are not
being and have not been conducted in violation of any law, ordinance,
regulation, judgment, decree, injunction,
13
rule or order of any Governmental Entity, except for violations which would not
reasonably be expected to have a Material Adverse Effect on the Company.
2.8 LITIGATION. Except as set forth in SECTION 2.8 OF THE COMPANY
DISCLOSURE SCHEDULE, as of the date of this Agreement there is (i) no material
litigation, arbitration, grievance, claim, suit, action, investigation or
proceeding pending or, to the knowledge of the Company, threatened, against or
affecting the Company or any of its Subsidiaries or any of their respective
assets and (ii) no judgment, award, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
Subsidiaries. There is no material litigation, arbitration, grievance, claim,
suit, action, investigation or proceeding pending or, to the knowledge of the
Company, threatened, against or adversely affecting the Company or any of its
Subsidiaries or any of their respective assets and no judgment, award, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its Subsidiaries.
2.9 TAX MATTERS.
Except as set forth in SECTION 2.9 OF THE COMPANY DISCLOSURE SCHEDULE:
(a) Each of (x) the Company and (y) any Company Subsidiary and (z)
any consolidated, combined or unitary group of which the Company or any Company
Subsidiary is or was a member (each, a "COMPANY TAX AFFILIATE" and,
collectively, the "COMPANY TAX AFFILIATES"), and any Company Employee Plan (as
defined in Section 2.14 hereof), as the case may be, has: (i) timely filed (or
has had timely filed on its behalf) all material returns, estimated returns,
declarations, reports, estimates, information returns, and statements, including
any schedules thereto or other information ("TAX RETURNS"), required to be filed
or sent by it in respect of any "TAXES" (as defined below) and such Tax Returns
are true, correct and complete in all material respects; (ii) timely and
properly paid (or has had paid on its behalf) all Taxes due and payable whether
or not shown on such Tax Returns; (iii) properly reserved for Taxes on the
Latest Balance Sheet in accordance with GAAP and unpaid Taxes with respect to
periods ending on or before the Closing Date will not exceed that reserve as
adjusted for operations and transactions through the Closing Date in accordance
with the past custom and practice of the Company and the Company Subsidiaries
and Company Tax Affiliates; and (iv) complied in all material respects with all
applicable laws, rules, and regulations relating to the withholding of Taxes and
the payment thereof (including, without limitation, withholding of Taxes under
Sections 1441 and 1442 of the Internal Revenue Code of 1986, as amended (the
"CODE") or similar provisions under any foreign laws), and timely and properly
withheld from individual employee wages or payments to any independent
contractor, creditor, shareholder or other third party and paid over to the
proper Governmental Entities all amounts required to be so withheld and paid
under all applicable laws. For purposes of this Section 2.9, Company Subsidiary
will also include any entity in which the Company has any direct or indirect
ownership interest. None of the Company, any Company Subsidiary, or any Company
Tax Affiliate is the beneficiary of any extension of time within which to file
any Tax Return. For purposes of this Agreement, "TAX" (including, with
correlative meaning, the terms "TAXES" and "TAXABLE") means all federal, state,
local and foreign income, profits, franchise, gross receipts, assets, ad
valorem, premium, environmental, customs duty, capital stock, severance, stamp,
payroll, sales, transfer, employment, unemployment disability, unemployment
insurance, social security, business license, business organization, workers
compensation, profits, license, leased service, service use, occupation,
windfall profits, unemployment compensation, net worth, capital stock, gains,
real property, personal property, use, withholding, excise, production, value
added, occupancy,
14
registration, alternative or add-on minimum and other taxes, customs, duties,
charges, fees or levies or assessments of any nature whatsoever, together with
all interest, penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to tax.
(b) There are no material Liens for Taxes upon any assets of the
Company, of any Company Subsidiary or of any Company Tax Affiliate, except Liens
for Taxes not yet due and payable.
(c) No deficiency for any Taxes has been proposed, asserted or
assessed against the Company, any Company Subsidiary or any Company Tax
Affiliate that has not been resolved and paid in full. No waiver, extension or
comparable consent given by the Company, any Company Subsidiary or any Company
Tax Affiliate regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor is any request for any
such waiver or consent pending. There has been no tax audit or other
administrative proceeding or court proceeding with regard to any Taxes or Tax
Returns for any Taxable years of the Company, any Company Subsidiary or any
Company Tax Affiliate that are still subject to audit, nor is the Company, any
Company Subsidiary or any Company Tax Affiliate under Tax audit or other
proceeding, nor has there been any notice to the Company, any Company Subsidiary
or any Company Tax Affiliate by any taxing authority regarding any such Tax
audit or other such proceeding, or is any such Tax audit or other proceeding
threatened with regard to any Taxes or Tax Returns of the Company, any Company
Subsidiary or any Company Tax Affiliate.
(d) Neither the Company, any Company Subsidiary nor any Company
Tax Affiliate is a party to any agreement, contract or arrangement that would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code (or any corresponding
provision of state, local or foreign Tax law) and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by the Company, any Company Subsidiary, any Company Tax
Affiliate or the Surviving Corporation that are not deductible (in whole or in
part) under Section 280G of the Code or any corresponding provision of any
state, local or foreign Tax law).
(e) Neither the Company, any Company Subsidiary nor any Company
Tax Affiliate: (i) is a party to any agreement providing for the allocation or
sharing of Taxes; (ii) is required to include in income any adjustment by reason
of a voluntary change in accounting method initiated by the Company or any
Company Subsidiary; (iii) has filed a consent under Code Section 341(f)
concerning collapsible corporations or has any assets which are subject to an
election under Section 341(f) of the Code; (iv) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which is the Company); (v) has any liability for the
Taxes of any person (other than the Company or any Company Subsidiary) under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract or otherwise; or (vi)
has been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(f) The Company has delivered or made available to the Parent
complete and accurate copies of all Tax Returns of the Company and its
Subsidiaries together with all related examination reports and statements of
deficiency for all periods from and after December 31, 1996.
15
Neither the Company nor any of its Subsidiaries has been informed by any
jurisdiction that the jurisdiction believes that the Company, any Company
Subsidiary or any Company Tax Affiliate is required to file any Tax Return that
was not filed.
(g) Neither the Company, any Company Subsidiary nor any Company
Tax Affiliate will be required to include any material item of income in, or
exclude any material item of deduction from, taxable income for any taxable
period (or portions thereof) ending after the Closing Date as the result of any
(i) change in method of accounting for a taxable period ending on or prior to
the Closing Date; (ii) "closing agreement" as described in Code Section 7121 (or
any corresponding provision of state, local or foreign tax law) executed on or
prior to the Closing Date; (iii) intercompany transactions or any excess loss
account described in Treasury Regulations under Code Section 1502 (or any
corresponding provision of state, local or foreign Tax law); (iv) installment
sale or open transaction disposition made on or prior to the Closing Date; or
(v) prepaid amount received on or prior to the Closing Date.
(h) Neither the Company, any Company Subsidiary nor any Company
Tax Affiliate has distributed stock to another entity, or has had its stock
distributed to another entity or individual, in a transaction that was purported
or intended to be governed in whole or in part by Code Sections 355 or 361.
(i) Neither the Company, any Company Subsidiary nor any Company
Tax Affiliate has ever participated in any confidential corporate tax shelter
within the meaning of temporary Treasury Regulations Section 301.6111-2T(a)(2).
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 2002, other
than as specifically contemplated by this Agreement, the Company and its
Subsidiaries have conducted their respective businesses in the Ordinary Course
and there has not been (i) any condition, event or occurrence, whether or not
arising in the Ordinary Course, which has had or would reasonably be expected to
have a Material Adverse Effect on the Company ; or (ii) any action which, if it
had been taken after the date hereof, would have required Parent's consent under
Section 4.1 of this Agreement or would have been disclosed under Section 4.1 of
the Company Disclosure Schedule.
2.11 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the voting power of all shares of the Voting Common Stock and Series B Preferred
Stock, voting together as a single class (the "REQUISITE SHAREHOLDER VOTE"), is
the only vote of the holders of any class or series of the capital stock of the
Company necessary to approve this Agreement and the transactions contemplated
hereby.
2.12 TITLE TO PROPERTIES, CONDITION AND SUFFICIENCY OF ASSETS.
(a) SECTION 2.12(a) OF THE COMPANY DISCLOSURE SCHEDULE includes a
list of the real property owned, used or occupied by either the Company or any
Company Subsidiary (the "REAL PROPERTY"), its address and the name of the record
owner thereof. The Real Property has access, sufficient for the conduct of the
business of the Company or any Company Subsidiary as now conducted or as
presently proposed to be conducted, to public roads and to all utilities,
including electricity, potable water, natural gas and other utilities, used in
the operation of the business of the Company or any Company Subsidiary at that
location.
(b) The leases described in SECTION 2.12(a) OF THE COMPANY
DISCLOSURE SCHEDULE (the "FACILITY LEASES") are in full force and effect, and
the Company or a Company Subsidiary holds a
16
valid and existing leasehold interest under each of such leases. The Company has
delivered to Parent complete and accurate copies of each of the Facility Leases,
and none of the Facility Leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies delivered to Parent.
To the knowledge of the Company, no parties to the Facility Leases are in
material breach or default of such leases.
(c) The Company and its Subsidiaries have good and marketable
title to each parcel of Real Property identified in SECTION 2.12(a) OF THE
DISCLOSURE SCHEDULE as being owned by it and to each of the assets (tangible or
intangible) necessary for the conduct of the business of the Company and its
Subsidiaries as currently conducted, free and clear of all Liens, except for (i)
Liens for current taxes not yet due and payable, (ii) Liens imposed by law and
incurred in the Ordinary Course for obligations not yet due to carriers,
warehousemen, laborers and materialmen, (iii) Liens in respect of pledges or
deposits under workers' compensation laws and (iv) Liens set forth in SECTION
2.12(c) OF THE COMPANY DISCLOSURE SCHEDULE.
(d) (i) Except as set forth in SECTION 2.12(d)(i) OF THE COMPANY
DISCLOSURE SCHEDULE, to the knowledge of the Company, all of the buildings,
machinery, equipment and other tangible assets necessary for the conduct of the
business of the Company or its Subsidiaries are in good condition and repair,
and are adequate for the uses to which they are being put; (ii) there are no
defects in such assets or other conditions relating thereto which, in the
aggregate, materially adversely affect the operation of the Company as currently
being operated; and (iii) each of the Company and its Subsidiaries owns, or
leases under valid leases, all buildings, machinery, equipment and other
tangible assets necessary for the conduct of its business as currently being
conducted.
(e) Except as set forth in SECTION 2.12(e) OF THE COMPANY
DISCLOSURE SCHEDULE, neither the Company nor any Company Subsidiary is in
violation of any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties, except for such
violations which, individually or in the aggregate, will not or could not
reasonably be expected to have a Material Adverse Effect on the Company. Except
as set forth in SECTION 2.12(e) OF THE COMPANY DISCLOSURE SCHEDULE, neither the
Company nor any Company Subsidiary has received any notice of any such
violation, or the existence of any condemnation proceeding with respect to any
of the Real Property.
(f) Neither the Company nor any Company Subsidiary is obligated
under or bound by any agreement, option, right of first refusal, purchase
contract, or other contractual right to sell, lease or dispose of any Real
Property owned by it or any portions thereof or interests therein which
property, portions and interests, individually or in the aggregate, are material
to the conduct of the business of the Company or any Company Subsidiary as
currently conducted. Except as set forth in SECTION 2.12(f) OF THE COMPANY
DISCLOSURE SCHEDULE, the Real Property and the Facility Leases comprise all of
the real property used in the Company's and its Subsidiaries' businesses.
2.13 EMPLOYEES; LABOR MATTERS.
(a) The Company and each of its Subsidiaries are in compliance in
all material respects with applicable laws, ordinances, regulations, rules,
decrees, orders or judgments relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, health and
safety and collective bargaining. Except as set forth in SECTION 2.13(a) OF THE
COMPANY DISCLOSURE SCHEDULE, as of the date hereof, there are no workers'
compensation claims pending against the Company or any Company Subsidiary. There
are no workers' compensation claims
17
pending against the Company or any Company Subsidiary except for such claims
which, if determined adversely to the Company or a Company Subsidiary, would not
reasonably be expected to have a Material Adverse Effect on the Company. Except
as set forth in SECTION 2.13(a) OF THE COMPANY DISCLOSURE SCHEDULE, to the
knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company or any Company Subsidiary.
(b) Neither the Company nor any Company Subsidiary is a party to
any collective bargaining or other labor union contract and no collective
bargaining agreement is being negotiated by the Company or any Company
Subsidiary. There is no pending or, to the knowledge of the Company, threatened
labor dispute, strike, work stoppage, organizing activities, lockout or other
labor controversy involving the Company or any Company Subsidiary which would
reasonably be expected to materially interfere with the respective business
activities of the Company or any Company Subsidiary. Since December 31, 2002,
there has not been (i) any claim of unfair labor practices involving the Company
or any Company Subsidiary or (ii) any resignation, termination or removal of any
officer of the Company, loss of personnel of the Company or Company Subsidiary
or change in the conditions of employment of the Company's officers or any
Company Subsidiaries' officers, which with respect to clauses (i) and (ii) has
had or would reasonably be expected to have a Material Adverse Effect on the
Company.
(c) Except as set forth in SECTION 2.13(c) OF THE COMPANY
DISCLOSURE SCHEDULE, there is no pending or, to the knowledge of the Company,
threatened action, claim, complaint, arbitration, proceeding or investigation
against the Company or any Company Subsidiary by or before (or that could be
brought before) any court, governmental agency, administrative agency, board,
commission or arbitrator brought by or on behalf of any prospective, current or
former employee, labor organization or other representative of employees of the
Company or any Company Subsidiary which would reasonably be expected to have a
Material Adverse Effect on the Company.
2.14 EMPLOYEE BENEFIT PLANS.
(a) SECTION 2.14(a) OF THE COMPANY DISCLOSURE SCHEDULE discloses
each "employee benefit plan", as defined in Section 3(3) of Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), which (i) is subject to any
provision of ERISA, and (ii) is maintained, administered or contributed to by
the Company or any Company ERISA Affiliate (as defined below) and covers any
employee or former employee (or director or former director) of the Company or
any Company ERISA Affiliate or under which the Company or any Company ERISA
Affiliate has any liability. Such plans are hereinafter referred to collectively
as the "COMPANY EMPLOYEE PLANS." For purposes of this Section 2.14, "COMPANY
ERISA AFFILIATE" means any person that is treated as a single employer with the
Company under Section 414 of the Code.
(b) No Company Employee Plan constitutes a "multiemployer plan",
as defined in Section 3(37)(A) of ERISA (a "MULTIEMPLOYER PLAN"), and no Company
Employee Plan is maintained in connection with any trust described in Section
501(c)(9) of the Code. Neither the Company nor any Company ERISA Affiliate has
at any time within the last six years maintained, contributed or been obligated
to contribute to any Multiemployer Plan. No Company Employee Plan is subject to
Title IV of ERISA, Code Section 412 or ERISA Section 302. Neither the Company
nor any Company ERISA Affiliate has any outstanding liability under Title IV of
ERISA.
(c) Each Company pension, as defined in Section 3(2)(A) of ERISA,
or profit sharing plan which is intended to be qualified under Section 401(a) of
the Code is so qualified and
18
has been so qualified during the period from its adoption to date, and each
trust forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code. The Company has furnished to Parent copies of the most recent Internal
Revenue Service determination letters with respect to the Company pension plans
and profit sharing plans. Each Company Employee Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, which are applicable to such plans.
(d) SECTION 2.14(d) OF THE COMPANY DISCLOSURE SCHEDULE lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not a Company Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by the
Company or any Company ERISA Affiliate and (iii) covers any employee or former
employee (or director or former director) of the Company or any Company ERISA
Affiliate. Such contracts, plans and arrangements as are described above, copies
and descriptions (including descriptions of the number and level of employees
covered thereby) of all of which have been made available or furnished
previously to Parent, are hereinafter referred to collectively as the "COMPANY
BENEFIT ARRANGEMENTS." Each Company Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Company Benefit Arrangement. Except as set forth in SECTION 2.14(d) OF THE
COMPANY DISCLOSURE SCHEDULE and except as provided by law, the employment of all
persons presently employed or retained by the Company or any Company Subsidiary
is terminable at will.
(e) Except as set forth in SECTION 2.14(e) OF THE COMPANY
DISCLOSURE SCHEDULE, the Company and the Company ERISA Affiliates have no
post-retirement health and medical benefits for retired employees. No condition
exists that would prevent the Company, Parent or any affiliate of Parent from
amending or terminating any Company Employee Plan or Company Benefit
Arrangement, other than any limitations imposed under ERISA or the Code.
(f) With respect to all Company Employee Plans and Company Benefit
Arrangements, (i) all insurance premiums which are due have been paid in full,
(ii) all contributions which are due have either been made or properly accrued
and reported on the Company's Latest Financial Statements, and (iii) all other
liabilities have been properly accrued and reported on the Company's Latest
Balance Sheet. No litigation or governmental administrative proceeding (other
than those relating to routine claims for benefits) is pending or, to the
knowledge of the Company, threatened with respect to any Company Employee Plan
or Company Benefit Arrangement which, if determined adversely to the Company,
would reasonably be expected to have a Material Adverse Effect on the Company.
(g) Except as set forth in SECTION 2.14(g) OF THE COMPANY
DISCLOSURE SCHEDULE, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
the Company or any Company Subsidiary under any Company Employee Plan or
19
Company Benefit Arrangement or otherwise from the Company or any Company
Subsidiary, (ii) increase any benefits otherwise payable under any Company
Employee Plan or Company Benefit Arrangement or (iii) result in any acceleration
of the time of payment or vesting of any such benefit.
2.15 INTELLECTUAL PROPERTY.
(a) The Company or one of its Subsidiaries owns, or has the
enforceable rights to use pursuant to written license agreements set forth on
SECTION 2.15(a)(i) OF THE COMPANY DISCLOSURE SCHEDULE, free and clear of all
liens, security interests or other encumbrances, all trademarks, tradenames,
service marks, Internet domain names, trade dress, patents, patent applications
or other applications for registration of intellectual property, copyrights,
technology, software, know-how, trade secrets and processes used by the Company
or any Company Subsidiary in their respective businesses as presently conducted
or necessary therefor (the "INTELLECTUAL PROPERTY"), except for those the
failure to own or have such legal right to use as would not reasonably be
expected to have a Material Adverse Effect on the Company. SECTION 2.15(a)(ii)
OF THE COMPANY DISCLOSURE SCHEDULE identifies all trademarks, tradenames,
service marks, patents, patent applications or other applications for
registration of intellectual property held by the Company.
(b) No claim has been asserted and is pending, or to the Company's
knowledge is threatened, by any person challenging the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, except for such matters as would not reasonably be expected to have a
Material Adverse Effect on the Company.
(c) The conduct of the Company's and its Subsidiaries' businesses
and their respective use of the Intellectual Property do not infringe on the
intellectual property or other rights of any person, except infringements that
would not reasonably be expected to have a Material Adverse Effect on the
Company.
(d) To the knowledge of the Company, no third party has infringed
any of the Intellectual Property, except for such infringements as would not
reasonably be expected to have a Material Adverse Effect on the Company.
(e) Except to the extent that it would not reasonably be expected
to have a Material Adverse Effect on the Company, the owners of any Intellectual
Property licensed to the Company have taken all reasonably necessary and
desirable actions to maintain and protect such Intellectual Property.
2.16 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) For purposes of this Agreement:
(i) "ENVIRONMENTAL LAWS" means any federal, state or local
law, regulation, order, decree, permit or authorization, the common law or any
agency requirement with force of law as enacted or amended prior to the date
hereof relating to the protection, pollution or restoration of the environment,
health or safety (in each case as relating to the environment) or natural
resources; including, without limitation, those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, control, cleanup,
release or threatened release of any Hazardous Substance.
(ii) "HAZARDOUS SUBSTANCE" means any chemicals, materials
or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous
20
materials," "hazardous constituents," "restricted hazardous materials,"
"extremely hazardous materials," "toxic substances," "contaminants,"
"pollutants," "toxic pollutants" or words of similar meaning and regulatory
effect under any applicable Environmental Law, including without limitation,
pesticides, petroleum products or by-products, asbestos or polychlorinated
biphenyls.
(b) Except as set forth in SECTION 2.16(b) OF THE COMPANY
DISCLOSURE SCHEDULE:
(i) The Company and its Subsidiaries are in compliance in
all material respects with applicable Environmental Laws.
(ii) To the knowledge of the Company, no property (including
buildings and any other structures) currently or formerly owned, used or
operated by the Company or any Company Subsidiary (or which the Company or any
Company Subsidiary would be deemed to have owned, used or operated under any
Environmental Law) has been contaminated with, or had any release or threat of
release of, any Hazardous Substance and no Hazardous Substances are present in,
on or under any such property in such form, quantity or substance so as to
create any liability for the Company or its Subsidiaries which would reasonably
be expected to have a Material Adverse Effect on the Company.
(iii) To the knowledge of the Company, neither the Company
nor any Company Subsidiary is subject to any material liability for any
Hazardous Substance disposal or contamination on any other third-party property.
(iv) There is no pending or, to the knowledge of the
Company, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding, or investigation, inquiry or request for
information by any Governmental Entity, relating to any Environmental Law
involving the Company or any Company Subsidiary.
(v) Neither the Company nor any of its Subsidiaries are
subject to or bound by any order, decree, injunction or other agreement with any
Governmental Entity or any third party in connection with any legal obligation
or liability relating to any Environmental Law.
(c) The Company has made available to Parent copies of all
environmental reports, studies, sampling data, correspondence, filings and other
environmental information in the Company's possession or reasonably available to
it, relating to the Company or any Company Subsidiary or any currently or
formerly owned, used or operated property.
2.17 BROKERS OR FINDERS. Except as set forth in SECTION 2.17 OF THE
COMPANY DISCLOSURE SCHEDULE, no agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company or any of its Subsidiaries.
2.18 INSURANCE POLICIES. SECTION 2.18 OF THE COMPANY DISCLOSURE SCHEDULE
contains a list of all insurance policies and bonds material to the business of
the Company and its Subsidiaries (including the Company Employee Plans and the
Company Benefit Arrangements). All of the Company's and its Subsidiaries'
insurance and umbrella policies insuring the Company and its Subsidiaries and
their directors, officers, agents, properties and businesses, are valid and in
full force and effect and without any premium past due, and there are no claims,
individually or in the aggregate, under such policies which are in excess of the
limitations of coverage set forth in such
21
policies. Neither the Company nor any Company Subsidiary has received notice of
default under, or intended cancellation or non-renewal of, any policies of
insurance or bonds which insure the properties, business, Company Employee
Plans, Company Benefit Arrangements or liability of the Company or any Company
Subsidiary. All insurance policies maintained by the Company and its
Subsidiaries will remain in full force and effect and may reasonably be expected
to be renewed on comparable terms following consummation of the transactions
contemplated by this Agreement (subject to such entities' continuing compliance
with the applicable terms thereof and any right of insurers to terminate without
cause).
2.19 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION 2.19 OF THE
COMPANY DISCLOSURE SCHEDULE, neither the Company nor any Company Subsidiary, nor
any shareholders, directors, officers, or employees of the Company or of any
Company Subsidiary or any of their spouses or any entity controlled by any one
or more of them (or controlling or under common control with any one or more of
them) is presently or has been since December 31, 2001 involved in any material
business arrangement or relationship with the Company or its Subsidiaries nor
does any such person own any material asset, tangible or intangible, which is
necessary to conduct the business of the Company or its Subsidiaries as
currently conducted. No affiliate of the Company or any Company Subsidiary has
any claim or cause of action against the Company or any Company Subsidiary, or
owes any money to, or is owed any money by, the Company or any Company
Subsidiary.
2.20 CONTRACTS AND COMMITMENTS.
(a) Except as disclosed in SECTION 2.20 OF THE COMPANY DISCLOSURE
SCHEDULE, neither the Company nor any Company Subsidiary is a party to any of
the following contracts, agreements or arrangements, whether written or oral
(the "SCHEDULED CONTRACTS"):
(i) pension, profit-sharing, retirement, hospitalization,
group insurance, medical expense reimbursement, death benefit, disability,
deferred compensation, fringe benefit, stock option, stock purchase, stock
bonus, incentive compensation, bonus, or any other employee benefit plan;
(ii) collective bargaining agreements or other contracts
with any labor union, or any contract, whether written or oral (excluding any
oral or written contract that is terminable-at-will under the laws of the
relevant jurisdiction without severance obligations), for the employment of any
officer, individual employee, or other person on a full-time, part-time,
consulting or other basis, or any agreement relating to loans to officers,
directors or affiliates;
(iii) contracts or agreements related to the voting of the
shares of the Company or any Company Subsidiary or the election of directors of
the Company or any Company Subsidiary;
(iv) agreements or indentures relating to the borrowing of
money or to the mortgaging, pledging or otherwise placing a lien on any asset or
group of assets of the Company or any Company Subsidiary or otherwise related to
any Indebtedness;
(v) guarantees of any obligation, except for guarantees of
the obligations of wholly owned Subsidiaries;
22
(vi) contracts or agreements (A) prohibiting it from freely
engaging or competing in any business anywhere in the world, or (B) entered
into, other than in the Ordinary Course, restricting the right of the Company or
any Company Subsidiary to use or disclose any information in its possession;
(vii) partnership, joint venture, or other similar contract
arrangements which involve the sharing of revenues, profits, losses, costs or
liabilities;
(viii) any contracts relating to the acquisition or
disposition of any business of the Company or a Company Subsidiary (whether by
merger, sale of stock, sale of assets or otherwise) under which the Company or a
Company Subsidiary has any outstanding obligations or liabilities;
(ix) warranty agreements;
(x) any license, distribution, development, purchase or
sale agreement or other similar agreement providing for the payment or receipt
of royalties or other compensation by the Company or any Company Subsidiary in
connection with any Intellectual Property Rights;
(xi) any other contract which creates future payment
obligations in excess of at least $50,000 in the aggregate in any calendar year
and which by its terms does not terminate or is not terminable without penalty
upon notice of 90 days or less;
(xii) any contract creating a future payment obligation to
the Company or any Company Subsidiary in excess of $50,000 in any calendar year;
(xiii) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company or any
Company Subsidiary to which the Company or a Company Subsidiary is a party
entered into since December 31, 1997, including, without limitation, any
agreement with any shareholder or former shareholder of the Company or any
Company Subsidiary which includes anti-dilution rights, registration rights,
voting arrangements, operating covenants or similar provisions;
(xiv) any royalty, dividend or similar arrangement based on
the revenues or profits of the Company or any Company Subsidiary or any contract
or agreement involving fixed price or fixed volume arrangements; and
(xv) any contract not entered into in the Ordinary Course.
(b) The Company has made available to Parent true and complete
copies of each of the Scheduled Contracts (or, if oral, a written summary of
such Scheduled Contracts).
(c) All of the Scheduled Contracts are valid, binding and
enforceable in accordance with their respective terms (assuming the other
parties thereto are bound) and are in full force and effect against the Company
or Company Subsidiary as the case may be and to the knowledge of the Company
against the other parties thereto, except to the extent they have previously
expired in accordance with their terms. As of the date of this Agreement, the
Company has no knowledge of any notice or threat to terminate any such Scheduled
Contracts. Neither the Company nor, to the knowledge of the Company, any other
party is in default in complying with the material provisions of any such
Scheduled Contract that is material to the business of the Company or any
Company Subsidiary as currently conducted and the Company does not have
knowledge of
23
any condition or event or fact that exists which, with notice, lapse of time or
both, could constitute a default thereunder on the part of the Company.
2.21 PRODUCT WARRANTIES. The products manufactured, sold, leased, and
delivered by the Company and its Subsidiaries have conformed in all material
respects with all applicable contractual commitments and all express and implied
warranties, and neither the Company nor any Company Subsidiary has any material
liability for replacement or repair thereof or other damages or liabilities in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Latest Balance Sheet as proportionately adjusted
for operations and transactions from the Latest Balance Sheet Date through the
Closing Date in accordance with the past custom and practice of the Company and
its Subsidiaries and in accordance with GAAP.
2.22 INVENTORY. The inventory of the Company and its Subsidiaries
consists of raw materials and supplies, manufactured and processed parts, work
in process, and finished goods, none of which is obsolete, damaged or defective,
subject to the reserve for inventory write-down on the Latest Balance Sheet as
adjusted for operations and transactions through the Closing Date. The values of
the inventories stated on the Latest Balance Sheet reflect the normal inventory
valuation policies of the Company and were determined in accordance with GAAP.
Purchase commitments for raw materials and parts are not in excess of normal
requirements and, to the Company's knowledge, none are at prices materially in
excess of current market prices.
24
2.23 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.
(a) All accounts receivable reflected in the books and records of
the Company and its Subsidiaries represent valid and enforceable obligations
arising from sales actually made or services actually performed in the Ordinary
Course subject to the reserve for bad debts on the Latest Balance Sheet as
adjusted for operations and transactions through the Closing Date in accordance
with past custom and with GAAP. Since December 31, 2002, the Company and its
Subsidiaries have collected their accounts receivable in the Ordinary Course and
in a manner which is consistent with their respective past practices. Except as
set forth in SECTION 2.23(a) OF THE COMPANY DISCLOSURE SCHEDULE, neither the
Company nor any of its Subsidiaries has any accounts receivable from any person
which is affiliated with it or any directors, officers, employees or
shareholders except for inter-company receivables.
(b) All accounts payable and notes payable of the Company and its
Subsidiaries arose in bona fide arm's length transactions in the Ordinary Course
and no such payable or note payable is delinquent in its payment. Since December
31, 2002, the Company and its Subsidiaries have paid their accounts payable in
the Ordinary Course and in a manner which is consistent with their respective
past practices. Neither the Company nor any of its Subsidiaries has any account
payable to any person which is affiliated with it or any directors, officers,
employees or shareholders.
2.24 CUSTOMERS AND DISTRIBUTORS. SECTION 2.24 OF THE COMPANY DISCLOSURE
SCHEDULE sets forth the name of each customer and distributor of the Company or
of a Company Subsidiary who accounted for more than five percent (5%) of the
consolidated revenues of the Company for each of the fiscal years ended December
31, 2001 and 2002 (the "MAJOR CUSTOMERS AND DISTRIBUTORS"). During the six
months prior to the date of this Agreement, except as set forth in SECTION 2.24
OF THE COMPANY DISCLOSURE SCHEDULE, none of the Major Customers and Distributors
has cancelled or otherwise terminated its relationship with the Company or any
Company Subsidiary or has materially decreased its usage or purchase of the
services or products of the Company or any Company Subsidiary. As of the date of
this Agreement, none of the Major Customers and Distributors has, to the
knowledge of the Company, any plan or intention to terminate, cancel or
otherwise materially and adversely modify its relationship with the Company or
any Company Subsidiary or its usage, purchase or distribution of the services or
products of the Company or any Company Subsidiary.
2.25 ILLEGAL PAYMENTS. Nether the Company nor any Company Subsidiary
nor, to the Company's knowledge, any of their affiliates has ever offered, made
or received on behalf of the Company or any Company Subsidiary any illegal
payment or contribution of any kind, directly or indirectly, including without
limitation, payments gifts or gratuities, to any person, entity, or United
States or foreign national, state or local government officials, employees or
agents or candidates therefor.
2.26 NO OTHER REPRESENTATIONS OR WARRANTIES. Except as expressly set
forth in this Agreement or in the Company Transaction Documents or any related
closing certificates, neither the Company, any Company Subsidiary, nor any other
person makes any representation or warranty, express or implied, at law or in
equity, with respect to either the Company, any of the assets, liabilities or
operations of the Company or any of its Subsidiaries or the business of the
Company or any of its Subsidiaries, including without limitation, with respect
to merchantability or fitness for any particular purpose, and any such
representations and warranties are hereby expressly disclaimed. Without limiting
the generality of the foregoing, Parent and Merger Sub acknowledge that they
have
25
not relied upon any representation, estimate, projection or statement made by or
on behalf of the Company as to the future profitability of the Company or the
business of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite corporate authority
to carry on its business as now being conducted and to own and use the
properties and assets owned and used by it. True and complete copies of the
Organizational Documents of the Parent and Merger Sub have been furnished by
Parent to the Company for inspection to the extent requested by the Company.
3.2 AUTHORITY; NO CONFLICTS; CONSENTS AND APPROVALS.
(a) AUTHORITY. Each of Parent and Merger Sub has all requisite
corporate power and corporate authority to execute and deliver this Agreement
and any other agreement, document or instrument to be executed by Parent or
Merger Sub in connection with the Merger (the "PARENT/MERGER SUB TRANSACTION
DOCUMENTS") and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Parent/Merger Sub
Transaction Documents by Parent and Merger Sub and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Merger Sub. This Agreement
has been duly executed and delivered by Parent and Merger Sub and (assuming the
due authorization and valid execution and delivery of this Agreement by the
Company) constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable against them in accordance with its terms.
(b) NO CONFLICTS. The execution and delivery of this Agreement and
the Parent/Merger Sub Transaction Documents by Parent and Merger Sub do not or
will not, as the case may be, and the consummation by Parent and Merger Sub of
the transactions contemplated hereby and thereby will not, result in any
Violation of: (i) any provision of the Organizational Documents of Parent and
Merger Sub or (ii) subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and filings referred to in
Section 3.2(c) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise or license binding upon or held by Parent or
Merger Sub or any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Merger Sub or their respective properties or
assets.
(c) CONSENTS AND APPROVALS. No material consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Merger Sub in
connection with the execution and delivery of this Agreement and the
Parent/Merger Sub Transaction Documents by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the transactions contemplated hereby and
thereby, except
26
for the consents, approvals, orders, authorizations, registrations, declarations
and filings required under or in relation to Section 2.4(c)(ii).
3.3 ACTIONS AND PROCEEDINGS. There are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
Parent or any of its Subsidiaries, or against or involving any of the present or
former directors, officers, employees, consultants, agents or shareholders of
Parent or any of its Subsidiaries, as such, or any of its or their properties,
assets or businesses that would materially impair the ability of Parent or
Merger Sub to perform their obligations hereunder. There are no actions, suits
or claims or legal, administrative or arbitration proceedings or investigations
pending or threatened against or involving Parent or any of its Subsidiaries or
any of its or their present or former directors, officers, employees,
consultants, agents or shareholders, as such, or any of its or their properties,
assets or business that, individually or in the aggregate, would materially
impair the ability of Parent or Merger Sub to perform their obligations
hereunder.
3.4 BROKERS OR FINDERS. Except for the payments described in Section 8.1
of this Agreement, no agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finder's fee or
any other similar commission or fee in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Merger Sub.
3.5 MERGER SUB. All of the outstanding capital stock of Merger Sub is
owned by Parent free and clear of any Liens. Since the date of its
incorporation, Merger Sub has not engaged in any business activities or
conducted any operations other than in connection with the transactions
contemplated hereby.
3.6 NO OTHER REPRESENTATIONS AND WARRANTIES. Except as expressly set
forth in this Agreement or in any other exhibits, certificates or statements
delivered in connection herewith by or on behalf of Parent or Merger Sub,
neither Parent nor Merger Sub, nor any other person makes any representation or
warranty, express or implied, at law or in equity, with respect to either Parent
or Merger Sub, any of the assets, liabilities or operations of Parent or Merger
Sub or the business of parent or Merger Sub, including without limitation, with
respect to merchantability or fitness for any particular purpose, and any such
representations and warranties are hereby expressly disclaimed. Without limiting
the generality of the foregoing, the Company acknowledges that it has not relied
upon any representation, estimate, projection or statement made by or on behalf
of the Parent or Mergers Sub as to the future profitability of the Company,
Parent or Merger Sub or any of their respective businesses.
ARTICLE 4
COVENANTS
4.1 CONDUCT OF BUSINESS PENDING THE CLOSING. During the period from the
date of this Agreement and continuing until the Effective Time (except as
otherwise expressly permitted by this Agreement, specifically disclosed in
SECTION 4.1 TO THE COMPANY DISCLOSURE SCHEDULE or to the extent that Parent
shall specifically consent in writing):
(a) The Company shall, and shall cause each of its Subsidiaries
to, carry on its business in the Ordinary Course.
27
(b) Without limiting the generality of Section 4.1(a), the Company
shall not, and shall not permit any of its Subsidiaries to):
(i) (A) declare, set aside or pay any dividends on, or make
other distributions in respect of any of its capital stock or otherwise make any
payments to its shareholders in their capacity as such, (B) 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 (C) purchase, redeem or otherwise acquire any shares of its
capital stock or any securities convertible into or exercisable for any shares
of its capital stock, or any rights, warrants or options to acquire any such
shares or other securities or amend any of the terms of (including the vesting
of) any Options or Warrants except in such manner as to permit or facilitate the
transactions contemplated by this Agreement;
(ii) issue, deliver or sell, pledge, dispose of or otherwise
encumber any shares of capital stock of any class or any securities convertible
into or exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing, other
than (A) the issuance of shares of the Common Stock upon the exercise of Options
outstanding on the date of this Agreement or (B) the issuance of shares of its
capital stock upon the exercise of the Warrants outstanding on the date of this
Agreement in accordance with their terms;
(iii) amend its Organizational Documents;
(iv) create, assume, or incur any Indebtedness for Borrowed
Money, guarantee any such Indebtedness for Borrowed Money or any loans, advances
or capital contributions to, or other investments in, any other person, other
than (A) borrowings under credit facilities existing on the date of this
Agreement, and (B) indebtedness, loans, advances, capital contributions and
investments between the Company and any of its wholly owned Subsidiaries or
between any of such wholly owned Subsidiaries;
(v) make capital expenditures or enter into binding
contracts to make capital expenditures in excess of $1,500,000;
(vi) sell, lease or otherwise dispose of or encumber
material properties or material assets of the Company or any of its Subsidiaries
other than inventory in the Ordinary Course, except Liens for Taxes not
currently due;
(vii) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take any position, make any election, or
adopt any method that is inconsistent with positions taken, elections made or
methods used in preparing or filing similar Tax Returns in prior periods;
(viii) enter into or adopt any, or amend any existing,
severance plan, agreement or arrangement or enter into or amend any Company
Employee Plan, Company Benefit Arrangement or employment or consulting
agreement, except as required by applicable law;
(ix) increase the compensation payable or to become payable
to its directors, officers or employees (except for increases in the Ordinary
Course in salaries or wages of employees of the Company or any of its
Subsidiaries) or, except as may be required by the terms of an employment
agreement or Company Benefit Arrangement, grant any severance or termination pay
to, or enter into or amend any employment, bonus or severance agreement with,
any director or
28
officer of the Company or any of its Subsidiaries, or establish, adopt, enter
into, or, except as may be required to comply with applicable law, amend in any
material respect or take action to enhance in any material respect or accelerate
any rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(x) make any change to accounting policies or procedures
(other than actions required to be taken by GAAP);
(xi) enter into or amend, modify, renew or terminate any
transaction or agreement involving any merger, consolidation, joint venture,
license agreement, partial or complete liquidation or dissolution,
reorganization, recapitalization, restructuring, or a purchase, sale, lease or
other acquisition or disposition of material assets of the Company, any Company
Subsidiary or any other persons;
(xii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than any payment, discharge or satisfaction in the Ordinary
Course;
(xiii) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement), other than settlements or
compromises or litigation where the amount paid (after giving effect to
insurance proceeds actually received) in settlement or compromise does not
exceed $50,000;
(xiv) enter into any transaction, contract or arrangement
with any affiliate, except as required under the present terms of any contract
or arrangement with any such affiliate in effect on the date of this Agreement;
(xv) enter into any other material agreement outside the
Ordinary Course;
(xvi) request or require any person to accelerate the payment
of the accounts receivable of the Company or any Company Subsidiary or factor
any accounts receivable of the Company or any Company Subsidiary;
(xvii) defer the payment of accounts payable of the Company or
any Company Subsidiary beyond the normal payment practices in the Ordinary
Course;
(xviii)enter into or amend any Scheduled Contract (except in
the Ordinary Course); or
(xix) agree, or commit to agree, to take any action not
permitted to be taken pursuant to this Section 4.1(b).
4.2 NO SOLICITATION.
(a) The Company shall, and shall instruct its officers, directors,
shareholders, employees or agents to, immediately terminate all discussions or
negotiations existing on the date hereof, if any, with any third party with
respect to, or any that could reasonably be expected to lead to or contemplate
the possibility of, a Sale Transaction. For purposes of this Agreement, the term
"SALE TRANSACTION" means any offer or proposal concerning any (i) merger,
consolidation or business combination transaction involving the Company or any
of its Subsidiaries, (ii) sale or other
29
disposition of assets of the Company or its Subsidiaries not in the Ordinary
Course, or (iii) issuance, sale, or other disposition of securities (or options,
rights or warrants to purchase, or securities convertible into or exchangeable
for, such securities) of the Company or any of its Subsidiaries.
(b) Until the Effective Time (or earlier termination of this
Agreement), the Company shall not, and shall instruct its respective officers,
directors, shareholders, employees and agents not to, (i) solicit, facilitate or
encourage any proposal with respect to a Sale Transaction, (ii) solicit the
employment of, or offer to employ, any employee of the Company and/or any
related entity with any other entity, (iii) enter into any discussions with any
person, or provide to any person any information, with respect to any proposal
with respect to a Sale Transaction or (iv) discuss or negotiate, or enter into
any sale or other agreement with respect to a Sale Transaction. Any failure by
the respective officers, directors, shareholders and agents of the Company to
follow the instructions of the Company under this Section 4.2(b) shall
constitute a breach by the Company of this Section 4.2(b).
4.3 MEETING OF SHAREHOLDERS. The Company shall, promptly after the date
of this Agreement, take all action necessary in accordance with the MBCA and its
articles of incorporation and bylaws to obtain approval, ratification and
consent by the shareholders of the Company of this Agreement and the related
plan of merger, and the Company shall consult with Parent in connection
therewith.
4.4 ACCESS TO INFORMATION. From the date hereof until the Effective
Time, the Company and the Company Subsidiaries will give Parent and its counsel,
financial advisors, auditors and other authorized representatives and its
financing sources full access to the offices, properties, books and records of
the Company and the Company Subsidiaries at reasonable times and upon reasonable
notice, and will instruct the employees, counsel, financial advisors and
auditors of the Company and the Company Subsidiaries to cooperate with Parent
and each such representative and financing source in all reasonable respects in
its investigation of the business of the Company. Parent and each such
representative and financing source will conduct such investigation in a manner
as not to unreasonably interfere with the operations of the Company and will
take all necessary precautions (including obtaining the written agreement of its
respective employees or representatives involved in such investigation) to
protect the confidentiality of any information of the Company disclosed to such
persons during such investigation.
4.5 XXXX-XXXXX-XXXXXX ACT. Within five business days after the date
hereof, each of the Company, Parent and Merger Sub will file any Notification
and Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, will exercise reasonable efforts to
obtain an early termination of the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary or advisable.
4.6 CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement between the
Company and Parent dated October 30, 2002 (the "CONFIDENTIALITY AGREEMENT")
shall remain in full force and effect until the Effective Time. Until the
Effective Time, the Company and Parent agree to comply with the terms of such
Confidentiality Agreement.
4.7 DEPOSIT OF ESCROW FUNDS. At the Effective Time, the Escrow Agreement
shall be executed and delivered by the parties thereto, and Parent shall deposit
with the Escrow Agent, by wire transfer of same day funds, the Escrow Funds. The
Escrow Funds shall remain deposited with
30
the Escrow Agent and shall be subject to and payable in accordance with the
terms of the Escrow Agreement and this Agreement.
4.8 PAYMENT OF INDEBTEDNESS FOR BORROWED MONEY. On the Closing Date, the
Company will provide to Parent customary pay-off letters in form reasonably
acceptable to Parent from all holders of Indebtedness for Borrowed Money (other
than with respect to the Bonds, the Special Assessments and the capital lease
obligations of the Company) outstanding immediately prior to the Effective Time.
At or immediately following the Effective Time, Parent and/or the Company (as
determined by Parent) shall deliver to all holders of Indebtedness for Borrowed
Money (other than with respect to the Bonds, the Special Assessments and the
capital lease obligations of the Company) an amount sufficient to repay all of
the Indebtedness for Borrowed Money (other than with respect to the Bonds, the
Special Assessments and the capital lease obligations of the Company)
outstanding immediately prior to the Effective Time, with the result that
immediately following the Effective Time there will be no further monetary
obligation of the Company with respect to any of the Indebtedness for Borrowed
Money (other than with respect to the Bonds, the Special Assessments and the
capital lease obligations of the Company) outstanding immediately prior to the
Effective Time. On the Closing Date, Parent and/or the Company (as determined by
Parent) shall also make payment of the Tax Equalization Payments, the Unpaid
Management Fees and the Company Transaction Expenses in accordance with Section
1.13.
4.9 REASONABLE EFFORTS. Subject to the other provisions of this
Agreement, the parties hereto shall each use their reasonable best efforts to
perform their obligations herein and to take, or cause to be taken or do, or
cause to be done, all things necessary, proper or advisable under applicable law
to obtain all regulatory approvals and satisfy all conditions to the obligations
of the parties under this Agreement and to cause the Merger and the other
transactions contemplated herein to be carried out promptly in accordance with
the terms hereof and shall cooperate fully with each other and their respective
officers, directors, employees, agents, counsel, accountants and other designees
in connection with any steps required to be taken as part of their respective
obligations under this Agreement. Parent and Merger Sub shall use their
commercially reasonable best efforts to cause the financing of the transactions
contemplated hereby to be fulfilled.
4.10 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) CONTINUATION OF ORGANIZATIONAL DOCUMENTS OBLIGATIONS. The
Company shall and, from and after the Effective Time until the sixth anniversary
of the Effective Time, the Surviving Corporation shall maintain the right to
indemnification and exculpation of officers and directors provided for in the
Organizational Documents of the Company as in effect on the date hereof, with
respect to indemnification and exculpation for acts and omissions occurring
prior to the Effective Time, including, without limitation, the transactions
contemplated by this Agreement.
(b) CONTINUATION OF DIRECTORS' AND OFFICERS' INSURANCE. Until the
third anniversary of the Effective Time, the Surviving Corporation shall
maintain officers' and directors' liability insurance covering the persons who
are presently covered by the Company's officers' and directors' liability
insurance policies (copies of which have heretofore been delivered to Parent)
with respect to actions and omissions occurring prior to the Effective Time, by
obtaining tail coverage of such existing insurance policies on terms which are
not less favorable than the terms of such current insurance in effect for the
Company on the date hereof and providing coverage only with respect to matters
occurring prior to the Effective Time, to the extent that such tail coverage can
be maintained
31
at an annual cost to the Surviving Corporation of not greater than 200% of the
annual premium for the Company's current insurance policies and, if such tail
coverage cannot be so maintained at such cost, providing as much of such
insurance as can be so maintained at a cost equal to 200% of the annual premium
for the Company's current insurance policies.
4.11 PUBLIC ANNOUNCEMENTS. Except as may be required by applicable law,
no party hereto shall make any press release or public announcement with respect
to this Agreement, the Merger or the transactions contemplated hereby without
the prior written consent of the other party hereto (which consent shall not be
unreasonably withheld or delayed).
ARTICLE 5
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of Parent, Merger Sub and the Company to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement shall have been approved
by the requisite vote of the holders of Voting Common Stock and Series B
Preferred Stock;
(b) HSR ACT. Any waiting period applicable to the Merger under the
HSR Act (including any extension thereof) shall have expired or been terminated;
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
a United States federal or state court of competent jurisdiction shall be in
effect and have the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger;
(d) STATUTES. There shall not be in effect any statute,
regulation, order, decree or judgment of any Governmental Entity which makes
illegal or enjoins or prevents the consummation of the transactions contemplated
by this Agreement; and
(e) ESCROW AGREEMENT. The Escrow Agreement shall have been
executed and delivered by the Company, the Selling Parties (as defined in
Section 7.9(d)), the Selling Parties' Representative (as defined in Section
7.9(d)) and the Escrow Agent.
5.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO EFFECT THE
MERGER. The respective obligations of Parent and Merger Sub to effect the Merger
are subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of the Company set forth in Article 2 of this Agreement shall be true
and correct in all material respects (other than representations and warranties
that are qualified by their terms as to materiality or Material Adverse Effect,
which representations and warranties shall be true and correct in all respects)
on and as of the Closing Date as if made on and as of such date (other than
those representations and warranties that address matters as of a particular
date which shall be true and correct as of the date referred to therein);
32
(b) PERFORMANCE. The Company shall have performed all obligations
and complied in all material respects with all agreements or covenants to be
performed or complied with by it under this Agreement;
(c) CONSENTS. The Company shall have obtained or caused to be
obtained, each consent or approval required to complete the Merger or triggered
by the Merger under the contracts listed on EXHIBIT E hereto;
(d) XXXXXXX COUNTY STEAM CORP. The Company shall have entered into
that certain Put/Call Agreement in substantially the form of EXHIBIT F with
respect to the outstanding capital stock of Xxxxxxx County Steam Corp., a
Minnesota corporation, with the shareholders thereof;
(e) COMPANY DELIVERIES. The Company shall have delivered to
Parent: (i) certified copies of resolutions of the board of directors of the
Company authorizing the execution of this Agreement and the Company Transaction
Documents to which the Company is a party; (ii) certificates issued by the
appropriate Secretary of State certifying that the Company and each of its
Subsidiaries is in good standing in such state as of the most recent practicable
date; (iii) copies of all actions by written consent or minutes of shareholders
meetings of the Company adopting this Agreement and approving the Merger; (iv) a
certificate of the Secretary of the Company certifying that the resolutions
referenced in paragraphs (i) and (iii) above, as applicable, are in full force
and effect and have not been amended or modified, and that the officers of such
corporation are those persons named in the certificate; (v) a certificate of the
Secretary of the Company certifying as to the satisfaction of the conditions in
Section 5.1(a) and Sections 5.2(a), (b), (c) and (d); (vi) an opinion from
Xxxxxx, Xxxxxxxx and Xxxxxx, P.A., counsel to the Company and the Sellers, in
substantially the form of EXHIBIT G hereto; (vii) the payoff letters
contemplated by Section 4.8; (viii) consents or waivers required as a result of
the Merger with respect to the contracts listed in EXHIBIT E; and (ix) such
other customary documents, instruments or certificates as shall be reasonably
requested by the Parent and as shall be consistent with the terms of this
Agreement;
(f) RELEASES. Each of Marathon Fund Limited Partnership III,
Continental Illinois Venture Corporation and Sankaty High Yield Asset Partners,
L.P. shall have executed and delivered to the Company a release in the form of
EXHIBIT H;
(g) DIRECTOR RESIGNATIONS. All of the Directors of the Company and
its Subsidiaries shall have resigned;
(h) DISSENTING SHARES. There shall be no Dissenting Shares;
(i) FIRPTA. The Company, on behalf of each shareholder who is not
a "United States Person," within the meaning of Section 7701(a)(30) of the Code,
shall deliver to the Parent a statement (conforming to the requirements under
Section 1.897-2(h)(1)(i) of the United States Treasury Regulations) addressed to
the Parent that the Company stock held or beneficially owned by such shareholder
as of the date of Closing is not a "United States real property interest" within
the meaning of Section 897(c) of the Code and the United States Treasury
Regulations thereunder and, on behalf of each shareholder who is a "United
States Person" within the meaning of Section 7701(a)(30) of the Code, shall
deliver to the Parent a "Non-Foreign Person Affidavit", as provided pursuant to
Section 1445 of the Code in the form attached hereto as EXHIBIT I;
(j) PURCHASE AND EXCHANGE AGREEMENT. The Management Shareholders
shall have performed their respective obligations under the Purchase and
Exchange Agreement; and
33
(k) EXECUTIVES. Xxxx Xxxxxxxxxxx and four of the following six
executives of the Company shall be employed by the Company or a Company
Subsidiary: Xxxx Xxxxxx, Xxxx Xxxxx, Xxxx Xxxxxx, Xxxx XxXxxxxxxx, Xxxxxx Xxxxxx
and Xxxx Xxxxx.
5.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER.
The obligations of the Company to effect the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Parent and Merger Sub set forth in Article 3 of this Agreement shall
be true and correct in all material respects (other than representations and
warranties that are qualified by their terms as to materiality or Material
Adverse Effect, which representations and warranties shall be true and correct
in all respects) on and as of the Closing Date as if made on and as of such date
(other than those representations and warranties that address matters as of a
particular date which shall be true and correct as of the date referred to
therein;
(b) PERFORMANCE. Parent and Merger Sub shall have performed all
obligations and complied in all material respects with all agreements or
covenants to be performed or complied with by them under this Agreement; and
(c) PARENT DELIVERIES. Parent shall have delivered to the Company:
(i) certified copies of resolutions of the boards of directors of Parent and
Merger Sub authorizing the execution of this Agreement and the Parent/Merger Sub
Transaction Documents to which they are a party together with certificates of
the Secretaries of each of Parent and Merger Sub that such resolutions are in
full force and effect and have not been amended or modified; (ii) a certificate
of the Secretary of Parent certifying as to the satisfaction of the conditions
in Section 5.3(a) and (b); and (iii) such other customary documents, instruments
or certificates as shall be reasonably requested by the Company and as shall be
consistent with the terms of this Agreement.
ARTICLE 6
TERMINATION AND AMENDMENT
6.1 TERMINATION BY EITHER THE COMPANY OR PARENT. This Agreement may be
terminated at any time prior to the Effective Time by either the Company or
Parent, whether before or after adoption of this Agreement by the Company's
shareholders:
(a) by the mutual written consent of Parent and the Company, by
action of their respective boards of directors;
(b) if any United States federal or state Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and nonappealable; PROVIDED, HOWEVER, that the party
seeking to terminate this Agreement shall have used its commercially reasonable
efforts to remove or lift such order, decree, ruling or other action;
(c) if the Merger has not been consummated by April 11, 2003,
provided that the party seeking to exercise such right is not then in breach in
any material respect of any of its obligations under this Agreement; and
34
(d) if, at a duly held shareholders meeting of the Company or any
adjournment thereof at which this Agreement and the Merger are voted upon (the
"SPECIAL MEETING"), the Requisite Shareholder Vote shall not have been obtained.
6.2 TERMINATION BY PARENT. This Agreement may also be terminated by
Parent at any time prior to the Effective Time:
(a) if (i) any covenant or agreement of the Company contained in
this Agreement shall be materially breached, or (ii) the Company shall be in
breach of any of its representations and warranties contained in this Agreement
such that the condition set forth in Section 5.2(a) would not be satisfied
(each, a "TERMINATING COMPANY BREACH"); and
(b) such Terminating Company Breach shall not have been cured by
the Company within thirty (30) days of receipt of written notice of such
Terminating Company Breach.
6.3 TERMINATION BY THE COMPANY. This Agreement may also be terminated
by the Company at any time prior to the Effective Time:
(a) if (i) any covenant or agreement of the Parent or Merger Sub
contained in this Agreement shall be materially breached, or (ii) Parent and
Merger Sub shall be in breach of any of their representations and warranties
contained in this Agreement such that the condition set forth in Section 5.3(a)
would not be satisfied (each, a "TERMINATING PARENT BREACH"); and
(b) such Terminating Parent Breach shall not have been cured by
Parent or Merger Sub within thirty (30) days of receipt of written notice of
such Terminating Parent Breach.
6.4 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either the
Company or Parent as provided in this Article 6, written notice shall
immediately be given by the other party and this Agreement shall forthwith
become void, the Merger shall be abandoned and there shall be no liability or
obligation on the part of Parent, Merger Sub or the Company or their respective
officers, directors, shareholders, affiliates, representatives, agents,
employees or advisors, except, with respect to Parent, Merger Sub and the
Company, (i) with respect to Section 4.6, this Section 6.4, Article 7 and
Article 8, and (ii) with respect to any liabilities or damages incurred or
suffered by a party as a result of the willful breach by the other party or
parties of this Agreement.
6.5 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective boards of directors, at any time
before or after adoption of this Agreement by the Company's shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
6.6 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective boards of
directors, 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 contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions 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 a written instrument signed on behalf of such party. No delay on
the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power
35
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. Unless otherwise
provided, the rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which the parties hereto may otherwise have
at law or in equity. The failure of any party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
ARTICLE 7
SURVIVAL, INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY, PARENT
AND MERGER SUB.
(a) Except as provided in paragraph (c) below:
(i) the representations and warranties of the Company set
forth in this Agreement (other than those representations and warranties of the
Company set forth in Section 2.9 of this Agreement (the "COMPANY TAX
REPRESENTATIONS")), any Company Transaction Document, and in any related closing
certificate furnished in connection herewith shall survive the Closing Date but
shall expire on the General Expiration Date (as defined in Section 7.9(d)); and
(ii) the Company Tax Representations shall survive the
Closing Date but shall expire on the Tax Expiration Date applicable to the
matters set forth therein.
(b) Except as provided in paragraph (c) below, the representations
and warranties of Parent and Merger Sub set forth in this Agreement and in any
related agreement, or in any certificate, furnished in connection herewith shall
survive until the General Expiration Date.
(c) Notwithstanding paragraphs (a) and (b) above, any
representation or warranty in respect of which indemnity may be sought under
Article 7, and the indemnity with respect thereto, shall survive the applicable
Expiration Date (as defined in Section 7.9(d)) if notice of the inaccuracy or
breach or potential inaccuracy or breach thereof giving rise to such right or
potential right of indemnity shall have been given to the party against whom
such indemnity may be sought prior to the Expiration Date.
7.2 INDEMNIFICATION BY THE COMPANY OR SELLING PARTIES. The Company and
its successors and assigns, if the Closing shall not occur, and the Selling
Parties (as defined in Section 7.9(d)) and each of their successors and assigns
(solely through the Escrow Funds as set forth in Section 7.10), if the Closing
shall occur, shall indemnify, defend, reimburse and hold harmless Parent and the
Surviving Corporation and each of their respective permitted successors and
assigns from and against any and all Losses (as defined in Section 7.9(d))
resulting from or relating to (a) any breach of any representation or warranty
of the Company contained in this Agreement, any Company Transaction Document or
any related closing certificate including, without limitation, the certificates
of the Chief Financial Officer of the Company delivered at Closing with respect
to Net Merger Consideration, Aggregate Option and Warrant Exercise Amount,
Aggregate Preferred Stock Merger Consideration, Cash Consideration per Share,
Company Transaction Expenses, Fully Diluted Shares Outstanding, Indebtedness for
Borrowed Money, Merger Consideration per Share, Tax Equalization
36
Payments, Unpaid Consulting and Noncompetition Fees and Unpaid Management Fees,
or (b) the breach or failure to perform by the Company of any of its covenants
or agreements set forth in this Agreement required to be performed before the
Effective Time, in the case of each of (a) and (b) however, excluding (i) those
breaches or failures of representations, warranties, covenants or agreements
(other than breaches or failures of the Company Tax Representations), if any,
with respect to which any Selling Party can establish that Parent or Merger Sub
had actual knowledge at the time of execution of this Agreement and (ii) those
breaches or failures of representations, warranties, covenants or agreements
(other than breaches or failures of the Company Tax Representations), if any,
which caused the conditions set forth in Sections 5.2(a) or 5.2(b) of this
Agreement not to be satisfied at the Effective Time and with respect to which
any Selling Party can establish that Parent or Merger Sub had actual knowledge
at the Effective Time.
7.3 INDEMNIFICATION BY PARENT AND MERGER SUB. Parent and Merger Sub
shall indemnify, defend, reimburse and hold harmless the Company and its
permitted successors and assigns, if the Closing shall not occur, and the
Selling Parties and their successors and assigns, if the Closing shall occur,
from and against any and all Losses resulting from or relating to (a) any breach
of any representation or warranty of Parent or Merger Sub contained in this
Agreement or (b) the breach or failure to perform by Parent or Merger Sub of any
of Parent's or Merger Sub's covenants or agreements set forth in this Agreement;
in the case of both (a) and (b), however, excluding (i) those breaches or
failures of representations, warranties, covenants or agreements (if any) with
respect to which Parent can establish that the Company had actual knowledge at
the time of execution of this Agreement and (ii) those breaches or failures of
representations, warranties, covenants or agreements (if any) which caused the
conditions set forth in Sections 5.3(a) or 5.3(b) of this Agreement not to be
satisfied at the Effective Time and with respect to which Parent can establish
the Company had actual knowledge at the Effective Time.
7.4 NOTICE OF THIRD-PARTY CLAIMS. In no case shall any Indemnitor (as
defined in Section 7.9(d)) under this Agreement be liable with respect to any
Third-Party Claim (as defined in Section 7.9(d)) against any Indemnitee (as
defined in Section 7.9(d)) unless the Indemnitee shall have delivered to the
Indemnitor a Claim Notice and the following conditions are satisfied:
(a) TIMELY DELIVERY OF CLAIM NOTICE. Except as provided in
paragraphs (b) and (c) of this Section 7.4, and subject to Section 7.8 below, no
right to indemnification under this Article 7 shall be available to the
Indemnitee with respect to a Third-Party Claim unless the Indemnitee shall have
delivered to the Indemnitor, with a copy to the Escrow Agent, promptly upon
receiving notice of any action, lawsuit, proceeding or claim against it, a
notice ("CLAIM NOTICE") describing in reasonable detail the facts giving rise to
such Third-Party Claim and stating that the Indemnitee intends to seek
indemnification for such Third-Party Claim from the Indemnitor pursuant to this
Article 7.
(b) LATE DELIVERY OF CLAIM NOTICE. If, in the case of a
Third-Party Claim, a Claim Notice is not given promptly to the Indemnitor, the
Indemnitee shall nevertheless be entitled to be indemnified under this Article 7
except to the extent (but only to the extent) that the Indemnitor has been
actually prejudiced by such time elapsed.
(c) PAID OR SETTLED CLAIMS. If a Claim Notice is not given by the
Indemnitee prior to the payment or settlement by the Indemnitee of a Third-Party
Claim, the Indemnitee shall only be
37
entitled to be indemnified under this Article 7 to the extent (and only to the
extent) that the Indemnitee can establish that the Indemnitor has not been
prejudiced by such payment or settlement.
7.5 DEFENSE OF THIRD-PARTY CLAIMS. Upon receipt of a Claim Notice from
an Indemnitee with respect to any Third-Party Claim, the Indemnitor may assume
the defense thereof with counsel reasonably satisfactory to such Indemnitee and
the Indemnitee shall cooperate in all reasonable respects in such defense. The
Indemnitee shall at all times have the right to employ separate counsel in any
action or claim and to participate in or undertake and control the defense
thereof, provided that the fees and expenses of counsel employed by the
Indemnitee shall be at the expense of the Indemnitor only if such counsel is
retained pursuant to the following sentence or if the employment of such counsel
has been specifically authorized by the Indemnitor. The Indemnitee shall have
the right to control the defense of the claim at the expense of the Indemnitor
with counsel of its choosing reasonably satisfactory to the Indemnitor, if (i)
the Indemnitor does not notify the Indemnitee within thirty (30) days after
receipt of the Claim Notice that the Indemnitor elects to undertake the defense
thereof; (ii) the Indemnitor failed or is failing to prosecute or defend
vigorously such claim; or (iii) the Indemnitee is advised by counsel that there
is an actual conflict of interest between the Indemnitor and Indemnitee. If the
Indemnitor has assumed control over the defense of a claim from the Indemnitee,
the Indemnitee shall have the right to settle any such claim over the objection
of the Indemnitor only if the Indemnitee waives any right to indemnity therefor.
So long as the Indemnitor is controlling defense of any Third-Party Claim in
accordance with the terms hereof, the Indemnitee agrees that Indemnitor shall
have full and complete control over the conduct of such proceeding, except that
the Indemnitor shall obtain the prior written consent of the Indemnitee (such
consent not to be unreasonably withheld or delayed) before entering into any
settlement of a claim or ceasing to defend such claim if, pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
will be imposed against the Indemnitee or if such settlement does not expressly
and unconditionally release the Indemnitee from all liabilities and obligations
with respect to such claim without prejudice.
7.6 NOTICE OF OTHER CLAIMS. In the event any Indemnitee should have a
claim against any Indemnitor hereunder that does not involve a Third-Party Claim
being asserted against or sought to be collected from the Indemnitee, the
Indemnitee shall notify the Indemnitor, with a copy to the Escrow Agent, with
reasonable promptness of such claim by the Indemnitee, specifying the nature of
and specific basis for such claim and the amount or the estimated amount of such
claim. The Indemnitor shall remit payment for the amount of such claim upon
receipt of an invoice therefor, or in the event of a dispute, the Indemnitee and
the Indemnitor shall proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations, such dispute shall be
resolved in accordance with Section 8.10 hereof.
7.7 ACCESS AND COOPERATION. After the Closing Date, Parent and the
Surviving Corporation, on the one hand, and the Selling Parties, on the other
hand, shall each cooperate fully with the other as to all claims for
indemnification hereunder, shall make available to the other as reasonably
requested all information, books, records and documents that may be potentially
relevant to any and all claims and shall preserve all such information, books,
records and documents until the termination of any claim. Parent and the
Surviving Corporation, on the one hand, and the Selling Parties, on the other
hand, shall each also make available to the other, as reasonably requested, its
personnel, agents and other representatives who are responsible for preparing or
maintaining
38
information, books, records or other documents, or who may have particular
knowledge with respect to any claim.
7.8 TERM OF INDEMNITIES. Except as hereinafter expressly provided, the
right to indemnification under Section 7.2 shall expire on the applicable
Expiration Date; provided, however, that such limitation shall not be applicable
to an indemnification claim for which a Claim Notice was given on or before such
Expiration Date. Any such pending claim shall survive in respect of that claim
until the final determination or settlement of that claim.
7.9 LIMITATIONS ON LIABILITY.
(a) REMEDIES EXCLUSIVE. Except as specifically provided for in the
last sentence of this Section 7.9(a), each of the Parent, Merger Sub and the
Selling Parties acknowledges and agrees that, should the Closing occur, the sole
and exclusive remedy of each party hereto against any other party hereto with
respect to any and all claims arising out of this Agreement shall be pursuant to
the indemnification provisions set forth in this Article 7. Without limiting the
generality of the foregoing, and except for common law fraud or intentional
misrepresentation, (i) Parent, Merger Sub and the Surviving Corporation shall
have no recourse against the Company's officers, directors or agents with
respect to any claims arising out of this Agreement other than in their
capacities as Selling Parties otherwise entitled to receive distributions from
the Escrow Funds under the Escrow Agreement, and (ii) indemnification owing from
any Selling Party who is or was an officer or director of the Company shall not
be deemed for any purpose to be a claim covered by indemnification owing to such
officer or director by the Company under any law, by-law or agreement
whatsoever. This Section 7.9(a) shall not apply to limit any claims based upon
common law fraud or intentional misrepresentation or claims for specific
performance.
(b) DEDUCTIBLE.
(i) Except as provided in paragraph (b)(ii) below, no claim
for indemnification under Section 7.2 shall be made by Parent or the Surviving
Corporation unless and until the aggregate amount of all Losses for which claims
are allowed under Section 7.2 suffered by the Parent and/or the Surviving
Corporation exceeds $1,000,000 (the "AGGREGATE DEDUCTIBLE"), and then only to
the extent the aggregate amount of all such Losses exceeds the Aggregate
Deductible. In addition, in determining whether a breach of any representation
or warranty or covenant has occurred for purposes of this paragraph (b)(i) and
for purposes of determining the amount of any Losses, any materiality or
Material Adverse Effect qualification in any such representation or warranty or
covenant shall be ignored and given no effect.
(ii) Paragraph 7.9(b)(i) above shall not apply to limit any
indemnification claim by Parent or the Surviving Corporation in respect of any
breach of any Company Tax Representation or any representation or warranty
included in any of Sections 2.1 (Organization, Standing and Power), 2.2 (Capital
Structure), 2.4 (Authority; No Conflicts; Consents and Approvals), 2.17 (Brokers
or Finders), or 2.19 (Affiliate Transactions).
(iii) Except as provided in paragraph (b)(iv) below, no claim
for indemnification under Section 7.3 shall be made by the Company or the
Selling Parties unless and until the aggregate amount of all Losses for which
claims are allowed under Section 7.2 suffered by the Company and/or the Selling
Parties exceeds the Aggregate Deductible, and then only to the extent the
aggregate amount of all such Losses exceeds the Aggregate Deductible. In
addition, in
39
determining whether a breach of any representation or warranty or covenant has
occurred for purposes of this paragraph (b)(iii) and for purposes of determining
the amount of any Losses, any materiality or Material Adverse Effect
qualification in any such representation or warranty or covenant shall be
ignored and given no effect.
(iv) Paragraph 7.9(b)(iii) above shall not apply to limit
any indemnification claim by the Company or a Selling Party in respect of any
breach of any representation or warranty included in any of Sections 3.1
(Organization, Standing and Power), 3.2 (Authority, No Conflicts, Consents and
Approvals), or 3.5 (Brokers or Finders).
(c) LIABILITY LIMITED TO ESCROW FUNDS. Parent and the Surviving
Corporation shall have recourse only against the undisbursed Escrow Funds with
respect to any Losses, in accordance with the terms of the Escrow Agreement. The
Selling Parties shall have no liability separate from, or in addition to, the
Escrow Funds, except as to the matters described in the last sentence of Section
7.9(a). Parent and Merger Sub acknowledge and agree that the Escrow Funds may be
insufficient in amount to fully compensate Parent and the Surviving Corporation
with respect to any Losses.
(d) CERTAIN DEFINITIONS. For purposes of this Agreement:
(i) "EXPIRATION DATE" shall mean the General Expiration
Date or the Tax Expiration Date, as applicable.
(ii) "GENERAL EXPIRATION DATE" shall mean April 1, 2004.
(iii) "INDEMNITEE" shall mean any person who may be entitled
to seek indemnification pursuant to the provisions of Sections 7.2 or 7.3 hereof
(or, for purposes of notice and administration only, the Selling Parties'
Representative (or its designee) in the case of indemnification owing to the
Selling Parties).
(iv) "INDEMNITOR" shall mean any person who may be obligated
to provide indemnification pursuant to Sections 7.2 or 7.3 hereof (or, for
purposes of notice and administration only, the Selling Parties' Representative
(or its designee) in the case of indemnification to be provided by the Selling
Parties).
(v) "LOSS(ES)" shall mean any and all demands, claims,
payments, obligations, actions or causes of action, assessments, losses,
judgments, liabilities, damages (but excluding incidental, special,
consequential, exemplary, punitive and similar damages), Taxes, costs, penalties
and expenses paid or incurred, including without limitation any legal or other
expenses reasonably incurred in connection with investigating or defending any
claims or actions and all amounts paid in settlement of claims or actions
settled in accordance with Section 7.5 hereof. The amount of any Losses for
which indemnification is provided under Article 7 shall be net of any amounts
actually recovered (net of any retrospective premium adjustment paid or payable
as a result of such Loss) by the Indemnitee under insurance policies with
respect thereto (and thus any such amounts shall not be included in calculating
the deductible set forth in Section 7.9(b)).
(vi) "SELLING PARTIES" shall mean the holders of the Common
Stock, the holders of the Warrants and the holders of the Company Options.
(vii) "SELLING PARTIES' REPRESENTATIVE" shall mean either of
Xxxxxxx X. Xxxxxxx and Xxxxxxx X. Israel, and each of them acting alone, with
full power of substitution and re-substitution,
40
acting on behalf of the Selling Parties under this Agreement as and to the
extent contemplated by the Selling Parties Agreement dated this date by and
among the Selling Parties and Messrs. Xxxxxxx and Israel. "Selling Parties'
Representative" shall also include any person appointed to succeed or replace
either of Messrs. Xxxxxxx or Israel pursuant to such Selling Parties Agreement.
(viii) "TAX EXPIRATION DATE" shall mean, with respect to the
Company Tax Representations, the date upon which the statute of limitations (as
the same may be extended from time to time), if any, applicable to the matters
set forth in the Company Tax Representations expires.
(ix) "THIRD PARTY CLAIMS" shall mean any and all Losses
which arise out of or result from (i) any claims or actions asserted against an
Indemnitee by a third party, (ii) any rights of a third party asserted against
an Indemnitee, or (iii) any liabilities of, or amounts payable by an Indemnitee
to a third party arising in respect of, claims, actions and rights referred to
in the foregoing clauses (i) or (ii).
7.10 ESCROW AMOUNT AND TERM. At the Effective Time, the Parent shall
deposit the Escrow Funds with the Escrow Agent under the Escrow Agreement. The
Escrow Funds shall remain deposited with the Escrow Agent and shall be subject
to and payable in accordance with the terms of the Escrow Agreement and this
Agreement.
7.11 LIMITATION ON CONTRIBUTION. If, following the Closing, any claim
is made by any Selling Party, or otherwise becomes due from any Selling Party,
pursuant to Article 7 in respect of any Losses (a "LOSS PAYMENT"), such Selling
Party shall have no rights against the Company, or any director, officer or
employee thereof (in their capacity as such), whether by reason of contribution,
indemnification, subrogation or otherwise, in respect of any such Loss Payment,
and shall not take any action against the Company or any such person with
respect thereto.
ARTICLE 8
GENERAL PROVISIONS
8.1 EXPENSES. All expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses; provided that: (a) the Company Transaction
Expenses shall be deducted from the Aggregate Merger Consideration as
contemplated in Article 1; and (b) if the Closing occurs, the Company shall (i)
reimburse the Parent, Merger Sub, Xxxxxxx Capital III, L.P. and Strategic Fund
Entrepreneur III, L.P. for all fees, costs and expenses incurred by them in
connection with the transactions contemplated by this Agreement, including,
without limitation, fees and expenses of their attorneys, accountants, advisors,
representatives, affiliates and agents and (ii) pay a transaction fee in the
amount of $2,900,000 to Xxxxxxx Brothers Management Corp.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, (b) on the first business day following the date of dispatch if
delivered by a nationally recognized next-day courier service, (c) on the third
business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid or (d) if sent by
facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is
41
confirmed by telephone. All notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
if to Parent or Merger Sub:
c/o Behrman Capital III L.P.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 000000
Attention: Xxxxxx X. Xxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Procter LLP
00 Xxxxx Xxxxxx
Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, P.C.
Facsimile: (000) 000-0000
if to the Company:
Woodcraft Industries, Inc.
000 Xxxxxxx Xxxxxx XX
Xx. Xxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
with copies to:
c/o Goldner Xxxx Xxxxxxx & Xxxxxxxx Incorporated
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
and
42
Xxxxxx, Xxxxxxxx and Xxxxxx, P.A.
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
8.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, cross references 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. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrase "TO THE KNOWLEDGE OF THE COMPANY" or
any similar phrase shall mean the actual knowledge of one or more of the
following executive officers of the Company: Xxxx Xxxxxxxxxxx (President and
CEO), Xxxx Xxxx (Vice President, Sales and Marketing), Xxxx Xxxxx (Vice
President, Primewood Operations), Xxxxxx Xxxxxxx (Director of Human Resources),
Xxxx Xxxxxx (Chief Financial Officer), Xxxx Xxxxxxxx (Information Systems
Manager), Xxxxxx Xxxxxxx (Vice President and Chief Financial Officer,
Brentwood), Xxxx Xxxxx (Procurement Manager) and Xxxxx Xxxxxxx (President,
Brentwood). The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the content requires otherwise. It is understood and agreed
that neither the specifications of any dollar amount in this Agreement nor the
inclusion of any specific item in the Schedules or Exhibits is intended to imply
that such amounts or higher or lower amounts, or the items so included or other
items, are or are not material, and neither party shall use the fact of setting
of such amounts or the fact of the inclusion of such item in the Schedules or
Exhibits in any dispute or controversy between the parties as to whether any
obligation, item or matter is or is not material for purposes hereof.
8.4 SCHEDULES.
(a) Matters reflected in the Company Disclosure Schedule are not
necessarily limited to matters required by this Agreement to be reflected in the
Company Disclosure Schedule. Such additional matters are set forth for
informational purposes and do not necessarily include other matters of a similar
nature.
(b) A disclosure made by the Company in any Section of this
Agreement or any Section of the Company Disclosure Schedule that is sufficient
on its face to reasonably inform the Parent of information required to be
disclosed in another Section of the Company Disclosure Schedule in order to
avoid a misrepresentation thereunder shall be deemed, for all purposes of this
Agreement, to have been made with respect to such other Section of the Company
Disclosure Schedule. In no event shall the mere listing in a Section of the
Company Disclosure Schedule (or the mere provision by the Company to the Parent
of a copy) of a document or other item be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the
43
representation or warranty has to do with the existence of the document or other
item itself, or unless the listing of a document or item in a Section of the
Company Disclosure Schedule otherwise reasonably informs the Parent of an
exception to such representation or warranty).
8.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts (including by means of telecopied signature pages), all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that both parties need not sign the same
counterpart.
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; LIABILITY.
(a) This Agreement (including the Schedules and Exhibits)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, other than the Confidentiality Agreement, which shall
survive the execution and delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, other than
Section 4.10 (which is intended to be for the benefit of the persons covered
thereby and may be enforced by such persons).
(c) Except with respect to the Selling Parties as provided in
Article 7 hereof, or in the case of fraud or intentional misrepresentation, no
affiliate, officer, director or shareholder of any party hereto shall have any
liability hereunder.
8.7 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of
Minnesota, without regard to the laws
that might be applicable under conflicts of laws principles.
8.8 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible. Any provision of this Agreement held invalid or unenforceable
only in part, degree or certain jurisdictions will remain in full force and
effect to the extent not held invalid or unenforceable. To the extent permitted
by applicable law, each party waives any provision of law which renders any
provision of this Agreement invalid, illegal or unenforceable in any respect.
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void; provided, however, that
each of Parent, Merger Sub, the Company and the Surviving Corporation may
collaterally assign its rights and remedies hereunder and under the other
Company Transaction Documents and Parent/Merger Sub
44
Transaction Documents to which it is a party or under which it has rights
pursuant to an assignment substantially in the form of EXHIBIT J hereto to any
lender that is providing financing to Parent, Merger Sub, or the Company in
connection with the consummation of the Merger to secure the repayment of such
financing or any replacement thereof without any additional prior consent or
notice. 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 assigns.
8.10 ENFORCEMENT.
(a) The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. Each party shall be entitled to injunctive
relief to prevent any breach of this Agreement and to enforce this Agreement
specifically in any court of the State of
Minnesota or any court of the United
States located in the State of
Minnesota.
(b) In addition, each party hereby:
(i) submits itself to the personal jurisdiction of (A) the
courts of the State of
Minnesota; and (B) the United States District Court for
the District of
Minnesota with respect to any dispute arising out of this
Agreement or any transaction contemplated hereby to the extent such courts would
have subject matter jurisdiction with respect to such dispute;
(ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction or venue by motion or other request for leave from any
such court; and
(iii) agrees that it will not bring any action relating to
this Agreement (or any transactions contemplated by this Agreement) in any court
other than the courts referred to above.
* * * * *
45
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of date first written above.
WII HOLDINGS, INC., a Delaware corporation
By: /s/ Xxxxxx X. Xxxxx
---------------------
Name: Xxxxxx X. Xxxxx
Title: President
WOODCRAFT ACQUISITION SUBSIDIARY, INC.,
a Minnesota corporation
By: /s/ Xxxxxx X. Xxxxx
---------------------
Name: Xxxxxx X. Xxxxx
Title: President
WOODCRAFT INDUSTRIES, INC., a Minnesota corporation
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Chairman
46
