EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
among
IBAH, INC.,
IBAH ACQUISITION COMPANY,
HGB, INC.
and
THE STOCKHOLDERS OF HGB, INC.
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AGREEMENT AND PLAN OF MERGER
among
IBAH, INC.,
IBAH ACQUISITION COMPANY,
HGB, INC.
and
THE STOCKHOLDERS OF HGB, INC.
Section Page
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1. Definitions........................................................... 1
2. The Merger............................................................ 7
3. Representations and Warranties of the Company.........................11
4. Representations and Warranties of the Buyer. .........................21
5. Post-Closing Covenants................................................25
6. Conditions Precedent to the Buyer Parties' Obligations................25
7. Conditions Precedent to the Company's Obligations.....................26
8. General...............................................................26
Exhibits
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A Certificate of Merger (Delaware)
B Certificate of Merger (New Jersey)
C Escrow Agreement
Schedules
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Schedule 2.5 -- Officers and Directors
Disclosure Schedule
AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER is made as of the 1st day of October 1996
by and among IBAH, Inc., a Delaware corporation (the "Buyer"), IBAH Acquisition
Company, a Delaware corporation and a wholly-owned subsidiary of the Buyer (the
"Acquisition Company" and, together with the Buyer, the "Buyer Parties"), HGB,
Inc., a New Jersey corporation (the "Company") and the stockholders of the
Company, each of whom is a signatory hereto (each a "Holder" and collectively,
the "Holders")
Background
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The Boards of Directors of the Company, the Buyer and the Acquisition
Company have approved a merger (the "Merger") of the Company with and into the
Acquisition Company in accordance with the Delaware General Corporation Law (the
"DGCL") and the New Jersey Corporation Law (the "NJCL"), on the terms and
conditions set forth herein.
WITNESSETH:
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In consideration of the mutual promises, representations and warranties,
covenants, payments and actions herein provided, the parties hereto, each
intending to be legally bound hereby, do agree as follows:
1. Definitions.
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For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined or referred to below (such terms as well as any
other terms defined elsewhere in this Agreement shall be equally applicable to
both singular and plural forms of the terms defined).
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Accounts Receivable" mean as of any date any trade accounts receivable
(billed and unbilled), notes receivable, bid or performance deposits made by the
Company, employee advances and other miscellaneous receivables.
"Affiliates" means, with respect to a particular Party, persons or entities
controlling, controlled by or under common control with that Party, as well as
any officers, directors and majority-owned entities of that Party and of its
other Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall be
deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Schedules hereto.
"Assets" means with respect to a particular Party all of the assets,
properties, goodwill and rights of every kind and description, real and
personal, tangible and intangible, wherever situated and whether or not
reflected in such Party's most recent Financial Statements, that are owned or
possessed by such Party.
"Balance Sheet Date" is defined in Section 3.5.
"Benefit Plan" means: (i) "employee benefit plan" as defined in Section
3(3) of ERISA, and (ii) supplemental retirement, bonus, deferred compensation,
severance, incentive plan, program or arrangement or other employee fringe
benefit plan, program or arrangement.
"Business" means with respect to a particular Party its entire business,
operations and facilities.
"Buyer Balance Sheet" is defined in Section 4.5.
"Buyer Common Shares" means shares of common stock, par value $.01 per
share, of the Buyer.
"Buyer Convertible Preferred Shares" is defined in Section 4.4.
"Buyer Disclosure Documents" is defined in Section 4.6.
"Buyer Financial Statements" is defined in Section 4.5.
"Buyer Indemnified Party" is defined in Section 8.9.
"Cash Ratio" is defined in Section 2.6(a).
"Certificates of Merger" is defined in Section 2.2.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim" is defined in Section 8.9.
"Closing" is defined in Section 2.8.
"Closing Date" is defined in Section 2.8.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined above in the preamble.
"Company Assets" means the Assets of the Company.
"Company Balance Sheet" is defined in Section 3.5.
"Company Business" means the Business of the Company.
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"Company Common Shares" means shares of common stock, without par value, of
the Company.
"Company Contracts" is defined in Section 3.16(b).
"Company Financial Statements" is defined in Section 3.5.
"Company's knowledge" or "knowledge of the Company" means the actual
knowledge of Xxxxxx X. Xxxxxxxx or Xxxxxxx X. Xxxx.
"Company Non-Real Estate Leases" is defined in Section 3.9.
"Company Real Estate Leases" is defined in Section 3.7.
"Company Real Property" is defined in Section 3.7.
"Confidential Information" means any confidential information or trade
secrets of the Company or the Buyer, as indicated by the context in which used,
including personnel information, know-how and other technical information,
customer lists, customer information and supplier information.
"Contract" means any written or oral contract, agreement, lease,
instrument, or other commitment that is binding on any person or its property
under applicable law.
"Converted Share" is defined in Section 2.6(a).
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"DGCL" is defined above in the Background section.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or right to receive damages or payment of
penalties.
"Disclosure Schedule" is defined in the introductory paragraph of
Section 3.
"Effective Time" is defined in Section 2.2.
"Employment Agreements" means the Employment Agreements between the Buyer
and each of Xxxxxx X. Xxxxxxxx and Xxxxxxx X. Xxxx.
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"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 3.15(b).
"Environmental Law" means all Laws and Court Orders relating to pollution
or protection of the environment as well as any principles of common law under
which a Party may be held liable for the release or discharge of any materials
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" is defined in Section 2.6(b).
"Escrow Shares" is defined in Section 2.6(b).
"GAAP" means generally accepted accounting principles.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous, liquid or
solid material or waste that may or could pose a hazard to the environment or
human health or safety including (i) any "hazardous substances" as defined by
the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)(S)9601 et seq., (ii) any "extremely hazardous substance,"
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"hazardous chemical," or "toxic chemical" as those terms are defined by the
federal Emergency Planning and Community Xxxxx-xx-Xxxx Xxx, 00 X.X.X. (X)(X)
00000 et seq., (iii) any "hazardous waste," as defined under the federal Solid
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Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S)6901 et seq., (iv) any "pollutant," as defined under the federal
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Water Pollution Control Act, 33 U.S.C. (S)(S)1251 et seq., as any of such laws
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in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any federal,
state or local governmental authorities concerning protection of the
environment.
"Holder" is defined above in the Preamble.
"Immaterial Lease" is defined in Section 3.9.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, any Software Products (including any related
source or object codes therefor or documentation relating thereto), trade
secrets, franchises, know-how, inventions and other intellectual property.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery,
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recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and price
and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business
of the Company or on the Business of the Buyer, as indicated by the context in
which used, including the Assets, financial condition, results of operations,
liquidity, products, competitive position, customers and customer relations
thereof.
"Merger" means the merger of the Company with and into the Acquisition
Company, with the Acquisition Company as the surviving corporation, in
accordance with the Transaction Documents.
"Merger Consideration" is defined in Section 2.6(a).
"Minor Contract" means any Contract under which the executory obligation of
a party involves an amount of less than $10,000.
"NJCL" is defined above in the Background section.
"Nasdaq National Market" means the Nasdaq National Market of The Nasdaq
Stock Market, Inc.
"No-Shop Agreement" means the agreement by and among the Buyer, the
Company, Xxxxxx X. Xxxxxxxx and Xxxxxxx X. Xxxx dated August 29, 1996.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Party" means the Company, the Buyer or the Acquisition Company.
"Patents" means all patents and patent applications.
"PBGC" is defined in Section 3.18(e).
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, between the Buyer and each of Xxxxxx X. Xxxxxxxx and
Xxxxxxx X. Xxxx.
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"Required Consents" is defined in Section 3.3.
"SEC" means the Securities and Exchange Commission.
"Securityholder Documents" is defined in Section 2.9(a).
"Share Ratio" is defined in Section 2.6(a).
"Surviving Corporation" is the Company at the Effective Time.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, capital, sales, use, ad valorem, value
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added, franchise, bank shares, withholding, payroll, employment, disability,
workers' compensation, excise, property, alternative or add-on minimum,
environmental or other taxes, assessments, duties, fees, levies or other
governmental charges of any nature whatever, whether disputed or not, together
with any interest, penalties, additions to tax or additional amounts with
respect thereto.
"Trademarks" means registered trademarks, registered service marks,
trademark and service xxxx applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Certificate of Merger,
the Escrow Agreement, the Employment Agreements and the Registration Rights
Agreement.
"Transactions" means the Merger and the other transactions contemplated by
the Transaction Documents.
"Welfare Plan" is defined in Section 3.20(g).
2. The Merger.
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2.1 The Merger. Upon the terms and subject to the conditions hereof, and
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in accordance with the relevant provisions of the DGCL and the NJCL, the Company
shall be merged with and into the Acquisition Company on the date hereof.
Following the Merger, the Acquisition Company shall continue as the surviving
corporation (the "Surviving Corporation") under the name IBAH Acquisition
Company and shall continue its existence under the laws of the State of
Delaware, and the separate corporate existence of the Company shall cease.
2.2 Effective Time. The Merger shall be consummated by filing with the
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Secretary of State of each of the State of Delaware and the State of New Jersey
certificates of merger in the forms attached hereto as Exhibit A and Exhibit B,
respectively (the "Certificates of Merger"), as is required by, and executed in
accordance with, the relevant provisions of the DGCL and the NJCL. The Merger
shall be effective at the time of such filing (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
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Section 259 of the DGCL and in Section 14A:10-6 of the NJCL.
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2.4 Certificate of Incorporation and Bylaws. The Certificate of
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Incorporation of the Acquisition Company shall be the Certificate of
Incorporation of the Surviving Corporation. The Bylaws of the Acquisition
Company shall be the Bylaws of the Surviving Corporation.
2.5 Directors and Officers. Schedule 2.5 sets forth the names of the
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Persons who shall be the directors and officers of the Surviving Corporation at
the Effective Time.
2.6 Conversion of Shares.
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(a) Each Company Common Share issued and outstanding immediately prior
to the Effective Time (such shares are referred to collectively herein as the
"Converted Shares") shall, by virtue of the Merger and without any action on the
part of the Holder (defined below) thereof, be converted into the right to
receive cash in the ratio of $436.6812 for each Converted Common Share, rounded
to the nearest whole dollar (the "Cash Ratio"), and Buyer Common Shares in the
ratio of 84.8409 Buyer Common Shares for each Converted Share, rounded to the
nearest whole share (the "Share Ratio") (the cash to be paid pursuant to the
Cash Ratio and the shares issuable pursuant to the Share Ratio are referred to
together as the "Merger Consideration"). Any Company Common Share held in the
treasury of the Company shall be canceled.
(b) The aggregate Merger Consideration will be payable upon the
surrender of the certificates and other documentation specified in Section 2.9.
As to each Holder who properly surrenders such certificates and other
documentation, the Buyer will pay to such Holder cash and issue to such Holder
Buyer Common Shares that represent such Holder's Merger Consideration, rounded
to the nearest whole dollar and whole share, respectively. Of the Buyer Common
Shares issued to such Holder, such Holder will deposit 14.706% of the aggregate
number of Buyer Common Shares issued to such Holder, rounded to the nearest
whole share, into an escrow account to be established pursuant to an escrow
agreement substantially in the form of Exhibit C (the "Escrow Agreement").
(Such shares deposited with the escrow agent on behalf of all such Holders are
referred to herein as the "Escrow Shares.") Except as provided in the Escrow
Agreement, the Escrow Shares will be delivered to the respective Holders on the
180th day after the first anniversary of the Closing Date.
(c) The Buyer shall take all steps necessary to provide the Surviving
Corporation with the Buyer Common Shares, as of the Effective Time, in an amount
sufficient to issue all of the shares contemplated by this Section 2.6 at the
Effective Time in accordance with Section 2.9.
2.7 Acquisition Company Capital Stock. Each share of capital stock of the
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Acquisition Company issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
Holder (defined below) thereof, remain as one share of common stock of the
Surviving Corporation.
2.8 Closing.
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(a) The closing (the "Closing") of the Transactions will be held at
10:00 a.m., local time, on the date hereof (the "Closing Date"), at the offices
of Xxxxxx, Xxxxx & Bockius
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LLP, One Xxxxx Square, Philadelphia, PA (or such other place as the parties may
agree). At the Closing, the respective designated parties thereto shall deliver
(i) the documents referred to in Sections 6 and 7, and (ii) the Certificate of
Merger, executed and otherwise prepared for filing. The Surviving Corporation
shall also deliver at the Closing the aggregate Merger Consideration that may be
issuable to all Holders upon delivery of the appropriate documents under Section
2.9.
(b) Contemporaneously with the Closing, the Surviving Corporation
shall deliver to the Secretary of State of each of the State of Delaware and the
State of New Jersey a duly executed and verified Certificate of Merger, as
required by the DGCL and the NJCL, and the parties shall take all such other and
further actions as may be required by applicable Law to make the Merger
effective upon the terms and subject to the conditions hereof.
2.9 Exchange of Converted Shares.
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(a) At and after the Effective Time, the Surviving Corporation shall
issue to each Holder, as of the Effective Time, who holds an outstanding
certificate or certificates that immediately prior to the Effective Time
represented Converted Shares (the "Certificates"), upon the Holder's delivery
of the respective Securityholder Documents (defined below), that number of
shares of Buyer Common Shares equal to the product of the number of Converted
Shares represented by such Certificate multiplied by the Share Ratio and that
amount of cash equal to the product of the number of Converted Shares
represented by such certificate multiplied by the Cash Ratio. The documents to
be delivered by Holders of Converted Shares at and after the Effective Time (the
"Securityholder Documents") shall be the Certificates representing the Converted
Shares and a duly executed letter of transmittal in the form provided by the
Buyer. The Securityholder Documents shall include such representations on the
part of each Holder as the Buyer may deem reasonably necessary in order to
qualify for the exemption from registration under the 1933 Act that is provided
by Regulation D promulgated thereunder. All such surrendered Certificates shall
be cancelled upon their delivery. Except as provided in Section 2.9(c), the
Surviving Corporation shall pay any transfer or similar taxes required by reason
of the exchange of Converted Shares.
(b) With respect to each Certificate not so surrendered at the
Closing, the Surviving Corporation shall promptly thereafter mail to the Holder
thereof, a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss of title to such Certificate shall pass, only upon
proper delivery of the Certificate and such letter of transmittal to the
Surviving Corporation) and instructions for delivering such Certificate in
exchange for payment of the Merger Consideration. Upon delivery to the Surviving
Corporation of such Certificate, together with such letter of transmittal, the
Holder of the Certificate shall be paid in exchange therefor cash and Buyer
Common Shares as calculated pursuant to Section 2.9(a) in an amount equal to the
product of the number of Converted Shares represented by such Certificate
multiplied by the Merger Consideration, and such Certificate shall then be
cancelled.
(c) No interest will be paid or accrued on the amounts payable upon
the surrender of the Securityholder Documents. If payment is to be made to a
Person other than the Person in whose name a Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or similar
taxes
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required by reason of the payment to a Person other than the Holder of the
Certificate surrendered or shall establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 2.9, each Certificate shall
represent for all purposes, the right to receive payment of the amounts
specified in Section 2.6 in respect of such Converted Shares.
(d) Any portion of the Buyer Common Shares deposited with the Exchange
Agent (other than the Escrow Shares) that remain undistributed to the Holders of
Converted Shares for six months after the Effective Time shall be delivered to
the Surviving Corporation, upon demand, and any Holder of Converted Shares who
has not theretofore complied with this Section 2.9 shall thereafter look only to
the Surviving Corporation for payment of the sums to which such Holder is
entitled pursuant to this Agreement.
(e) Neither the Buyer nor the Surviving Corporation shall be liable to
any Holder of Converted Shares for any cash or Buyer Common Shares delivered by
the Exchange Agent or the Surviving Corporation in good faith to a public
official pursuant to an applicable abandoned property, escheat or similar law.
(f) None of the Buyer Common Shares issued in connection with the
Merger will be registered under the 1933 Act except to the extent registered
under Section 5.1. Except for (i) transactions specifically provided for in the
Registration Rights Agreement, or (ii) bona fide gifts for estate planning
purposes, provided that the donee or donees thereof agree to be bound by a lock-
up provision substantially similar to this provision, none of the Buyer Common
Shares may be transferred in any manner for a period of 180 days after the
Closing and may be transferred thereafter only if registered under the 1933 Act
or if an exemption from such registration is available. Each certificate for
such Buyer Common Shares shall bear a legend describing the foregoing
restrictions.
2.10 No Further Transfer of Shares. After the Effective Time, there shall
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be no transfers of Converted Shares that were outstanding immediately prior to
the Effective Time on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged as provided in
this Section 2. At the Effective Time, the stock ledger of the Company shall be
closed.
2.11 Post-Closing Adjustment to Merger Consideration. As soon as
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practicable following the Closing Date (but in no event more than 30 days after
the Closing Date), the Buyer shall prepare a final balance sheet of the Company
as of the date hereof (the "Final Closing Balance Sheet"). In the event that
the amount of stockholders' equity calculated on an accrual basis for a
Subchapter S corporation in conformity with GAAP and reflected on the Final
Closing Balance Sheet exceeds $1,100,000, the Buyer shall pay to the Holders of
the Company the amount of such excess. Such amount per Converted Share shall be
paid to each Holder in cash, or at the election of the Holder, in Buyer Common
Shares, as calculated pro rata based upon the number of Converted Shares held by
such Holder and, in the case of a payment in Buyer Common Shares, a value per
share of $6.25. In the event that the amount of stockholders' equity calculated
in conformity with GAAP and reflected on the Final Closing Balance Sheet is less
than $850,000, each Holder of Converted Shares of the Company shall pay his pro
rata portion of such
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deficiency calculated based upon the percentage of the outstanding Converted
Shares owned by such Holder immediately prior to the Effective Time. Payment by
any Party pursuant to this Section 2.12 shall be made not later than 45 days
after the Closing Date.
3. Representations and Warranties of the Company.
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The Company represents and warrants to the Buyer and the Acquisition
Company as follows, except to the extent specified on the disclosure schedule
that the Company has provided to the Buyer on the date hereof (the "Disclosure
Schedule"):
3.1 Corporate Status. The Company is a corporation duly organized,
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validly existing and in good standing under the laws of the State of New Jersey
and is qualified to do business as a foreign corporation in any jurisdiction
where it is required to be so qualified except where the failure to so qualify
would not have a Material Adverse Effect. The Charter Documents and bylaws of
the Company that have been delivered to the Buyer as of the date hereof are
effective under applicable Laws and are current, correct and complete.
3.2 Authorization. The Company has the requisite corporate power and
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authority to own its Assets and to carry on its Business. The Company has the
requisite corporate power and authority to execute and deliver the Transaction
Documents to which it is a party and to perform the Transactions performed or to
be performed by it. Such execution, delivery and performance by the Company
have been duly authorized by all necessary corporate action. Each Transaction
Document executed and delivered by the Company has been duly executed and
delivered by such Party and constitutes a valid and binding obligation of such
Party, enforceable against such Party in accordance with its terms.
3.3 Consents and Approvals. Except for any consents specified in the
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Disclosure Schedule (the "Required Consents"), neither the execution and
delivery by the Company of the Transaction Documents to which it is a party, nor
the performance of the Transactions performed or to be performed by the Company,
require any filing, consent or approval, constitute a Default or cause any
payment obligation to arise under (a) any Law or Court Order to which the
Company is subject, (b) the Charter Documents or bylaws of the Company or (c)
any Contract, Governmental Permit or other document to which the Company is a
party or by which the properties or other assets of the Company may be subject.
3.4 Capitalization and Stock Ownership. The total authorized capital
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stock of the Company consists of 40,000 Company Common Shares, of which 32,060
shares are issued and outstanding on the date hereof. There are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Company. All of the
Company Common Shares are duly and validly authorized and issued, fully paid and
non-assessable. The Disclosure Schedule lists all of the record owners of the
Company Common Stock.
3.5 Financial Statements. The Company has delivered to the Buyer correct
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and complete copies of unaudited monthly financial statements for the Company
consisting of a balance sheet as of the end of each month from July 1996 through
August 1996 and the related
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statements of income and cash flows for the periods then ended. The Company has
also delivered to the Buyer correct and complete copies of unaudited financial
statements consisting of a balance sheet of the Company as of June 30, 1996 and
December 31, 1993, 1994 and 1995 and the related statements of income for the
period then ended. All such financial statements are referred to herein
collectively as the "Company Financial Statements." The Company Financial
Statements are consistent in all material respects with the books and records of
the Company, and there have not been or will not be any material transactions
that have not been or will not be recorded in the accounting records underlying
such Financial Statements. Except as otherwise described on the Disclosure
Schedule, the Company Financial Statements have been prepared in accordance with
GAAP, consistently applied, and the Company Financial Statements present fairly
the financial position and assets and liabilities of the Company as of the dates
thereof, and the results of its operations for the periods then ended, subject
to normal recurring year-end adjustments and the absence of notes. The Company's
balance sheet as of August 31, 1996 that is included in the Company Financial
Statements is referred to herein as the "Company Balance Sheet," and the date
thereof is referred to as the "Balance Sheet Date."
3.6 Title to Assets and Related Matters. The Company has good and
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marketable title to, valid leasehold interests in or valid licenses to use, all
of the Company Assets, free from any Encumbrances except those specified in the
Disclosure Schedule. The use of the Company Assets is not subject to any
Encumbrances (other than those specified in the preceding sentence), and such
use does not materially encroach on the property or rights of anyone else. All
Company Real Property (defined below) and tangible personal property included in
the Company Assets are suitable for the purposes for which they are used, in
good working condition, reasonable wear and tear excepted, and are free from any
known defects, except such minor defects that would not have a Material Adverse
Effect.
3.7 Real Property. The Disclosure Schedule describes all real estate used
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in the operation of the Company Business as well as any other real estate that
is in the possession of or leased by Company and the improvements (including
buildings and other structures) located on such real estate (collectively, the
"Company Real Property"), and lists any leases under which any such Company Real
Property is possessed (the "Company Real Estate Leases"). The Company does not
have any ownership interest in any real property. The Disclosure Schedule also
describes any other real estate previously owned, leased or otherwise operated
by the Company or any predecessor thereof and the time periods of any such
ownership, lease or operation. To the Company's knowledge, all of the Company
Real Property (a) is usable in the ordinary course of business and (b) conforms
in all material respects with any applicable Laws relating to its construction,
use and operation. The Company Real Property complies with applicable zoning
Laws. To the Company's knowledge, the Company or the landlord of any Company
Real Property leased by the Company has obtained all licenses and rights-of-way
from governmental entities or private parties that are necessary to ensure
vehicular and pedestrian ingress and egress to and from the Company Real
Property.
3.8 Certain Personal Property. The Disclosure Schedule describes all
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items of tangible personal property that were included in the Company Balance
Sheet at a carrying value of at least $10,000. Except as specified in the
Disclosure Schedule, since the Balance Sheet Date, the Company has not acquired
any items of tangible personal property that have a carrying value in excess of
$10,000, or an aggregate carrying value of $100,000. All of such personal
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property included in the Disclosure Schedule is usable in the ordinary course of
business, and to the Company's knowledge, all such personal property included in
the Disclosure Schedule conforms in all material respects with any applicable
Laws relating to its construction, use and operation. Except for those items
subject to the Company Non-Real Estate Leases (defined below), no Person other
than the Company owns any vehicles, equipment or other tangible assets located
on the Company Real Property that have been used in the Company Business or that
are necessary for the operation of the Company Business.
3.9 Non-Real Estate Leases. The Disclosure Schedule lists all assets and
----------------------
property (other than Company Real Property) that are possessed by the Company
under an existing lease, including all trucks, automobiles, machinery,
equipment, furniture and computers, except for any lease under which the
aggregate annual payments are less than $25,000 (each, an "Immaterial Lease").
The Disclosure Schedule also lists the leases under which such assets and
property listed in the Disclosure Schedule are possessed. All of such leases
(excluding Immaterial Leases) are referred to herein as the "Company Non-Real
Estate Leases."
3.10 Accounts Receivable. The Accounts Receivable included in the
-------------------
Company Assets are bona fide Accounts Receivable created in the ordinary course
of business. Except as otherwise described on the Disclosure Schedule, the
Company does not know of any facts or circumstances (other than general economic
conditions) that are likely to result in the uncollectability of such Accounts
Receivable.
3.11 Intentionally Omitted
---------------------
3.12 Liabilities. The Company does not have any Liabilities, except (a)
-----------
as specified in the Disclosure Schedule, (b) as contemplated by the Company
Balance Sheet (except as heretofore paid or discharged), or (c) Liabilities
under any Contracts included in the Company Assets that are specifically
disclosed in the Disclosure Schedule (or not required to be disclosed because of
the term or amount involved) that were not required under GAAP to have been
specifically disclosed or reserved for on the Company Balance Sheet.
3.13 Taxes. Except as set forth in the Disclosure Schedule, the Company
-----
has duly filed all returns for Taxes that are required to be filed and has paid
all material Taxes shown as being due pursuant to such returns or pursuant to
any assessment received; all material Taxes that the Company has been required
by Law to withhold or to collect have been duly withheld and collected and have
been paid over to the proper governmental authorities or are properly held by
the Company for such payment; and there are no proceedings or other actions, nor
is there any basis for any proceedings or other actions, for the assessment and
collection of material additional Taxes of any kind with respect to the Company
for any period for which returns have or should have been filed.
3.14 Subsidiaries. Except as set forth in the Disclosure Schedule, the
------------
Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, partnership, limited liability
company, trust, joint venture or other legal entity.
3.15 Legal Proceedings and Compliance with Law.
-----------------------------------------
-12-
(a) Except as set forth in the Disclosure Schedule, there is no
Litigation that is pending or, to the Company's knowledge, threatened against
the Company. There has been no Default under any Laws applicable to the Company,
including Laws relating to pollution or protection of the environment, except
for any Defaults that would not have a Material Adverse Effect, and the Company
has not received any notices from any governmental entity regarding any alleged
Defaults under any Laws. There has been no Default with respect to any Court
Order applicable to the Company.
(b) Without limiting the generality of Section 3.15(a), to the Company's
knowledge, there has not been any material Environmental Condition (i) at the
premises at which the Company Business has been conducted, (ii) at any property
owned, leased or operated at any time by the Company, any Person controlled by
the Company or any predecessor of any of them, or (iii) at any property at which
wastes have been deposited or disposed by or at the behest or direction of any
of the foregoing, nor has the Company received written notice of any such
Environmental Condition. "Environmental Condition" means any condition or
circumstance, including the presence of Hazardous Substances, whether created by
the Company or any third party, at or relating to any such property or premises
that (i) requires abatement or correction under an Environmental Law, (ii) gives
rise to any civil or criminal liability on the part of the Company under an
Environmental Law, or (iii) has created a public or private nuisance.
(c) The Company has delivered to the Buyer complete copies of any written
reports, studies or assessments in the possession or control of the Company that
relate to any Environmental Condition and to the Company Business or any Company
Assets.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) the Company has obtained and is in full compliance with all
Governmental Permits, all of which are listed in the Disclosure Schedule along
with their respective expiration dates, that are required for the complete
operation of the Company Business as currently operated, (ii) all of such
Governmental Permits are currently valid and in full force and (iii) the Company
has filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. To the Company's knowledge, no revocation,
cancellation or withdrawal thereof has been threatened.
3.16 Contracts.
---------
(a) The Disclosure Schedule lists all Contracts of the following types to
which the Company is a party or by which it is bound, except for Minor
Contracts:
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of the Company or
any Affiliate thereof.
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any Asset from or the
performance of services by a third party, in excess of $25,000 in any
individual case;
-13-
(iii) Contracts to sell or supply products or to perform services
that involve an amount in excess of $25,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any
asset that involve an amount in excess of $25,000 in any individual
case;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners, stockholders or Affiliates of the Company or any members of
their immediate families), agreements or arrangements for a line of
credit or for a guarantee of, or other undertaking in connection with,
the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than Minor Contracts and those
described in any of (i) through (vi) above) not made in the ordinary
course of business.
(b) The Contracts listed in the Disclosure Schedule and the Contracts
excluded from the Disclosure Schedule based on the term or amount thereof are
referred to herein as the "Company Contracts." The Company is not in Default
under any Company Contracts (including any Company Real Estate Leases and
Company Non-Real Estate Leases), which Default could result in a Liability on
the part of the Company in excess of $25,000 in any individual case, and the
aggregate Liabilities that could result from all such Defaults do not exceed
$50,000. The Company has not received any communication from, or given any
communication to, any other party indicating that the Company or such other
party, as the case may be, is in Default under any Company Contract where such
Default could have a Material Adverse Effect. To the knowledge of the Company,
none of the other parties in any such Company Contract is in Default thereunder.
3.17 Insurance. The Disclosure Schedule lists all policies or binders of
---------
insurance held by or on behalf of the Company, specifying with respect to each
policy the insurer, the amount of the coverage, the type of insurance, the risks
insured, the expiration date, the policy number and any pending claims
thereunder. There is no Default with respect to any such policy or binder, nor
has there been any failure to give any notice or present any claim under any
such policy or binder in a timely fashion or in the manner or detail required by
the policy or binder, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect. There is no
notice of nonrenewal or cancellation with respect to, or disallowance of any
claim under, any such policy or binder that has been received by the Company,
except for any of the foregoing that would not, individually or in the
aggregate, have a Material Adverse Effect.
-14-
3.18 Intellectual Property.
---------------------
(a) The Company does not currently use nor has it previously used in the
development, production or marketing of its products and services any
Copyrights, Patents or Trademarks except for those listed in the Disclosure
Schedule. To the Company's knowledge, the Company owns or has the lawful right
to use all material Intellectual Property that has been used in the operation of
the Company Business, in the ordinary course or otherwise. To the Company's
knowledge, all of the Intellectual Property listed in the Disclosure Schedule is
owned by the Company, free and clear of any Encumbrances, or used pursuant to an
agreement that is described in the Disclosure Schedule. To the Company's
knowledge, the Company has not infringed upon or unlawfully or wrongfully used
any Intellectual Property rights owned or claimed by another Person. The
Company is not in Default, nor has it received any notice of any claim of
infringement or any other claim or proceeding, with respect to any such
Intellectual Property. Except for any rights under written licenses or other
written Contracts, no current or former employee of the Company and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, and including any right to royalties or other
compensation, in any of the Intellectual Property.
(b) Except as listed on the Disclosure Schedule, all officers of the
Company and all employees and consultants of the Company have executed a
nondisclosure agreement (a "Confidentiality Agreement"). Furthermore, the
persons listed on the Disclosure Schedule have executed non-competition
agreements in a form acceptable to the Company. To the Company's knowledge, (i)
none of the Confidential Information has been used, divulged or appropriated (A)
for the benefit of any Person other than the Company or (B) otherwise to the
detriment of the Company, (ii) except as specified on the Disclosure Schedule,
none of such employees or consultants of the Company is subject to any
contractual or legal restrictions that might interfere with the use of his best
efforts to promote the interests of the Company, (iii) no employee or consultant
of the Company has used any other Person's trade secrets or other information
that is confidential in the course of his or her work with respect to the
Company Business, and (iv) no employee or consultant of the Company is, or is
currently expected to be, in Default under any term of any employment contract,
agreement or arrangement relating to the Intellectual Property, or any
Confidentiality Agreement or any other Contract or any restrictive covenant
relating to the Intellectual Property, or the development or exploitation
thereof.
3.19 Employees and Contractors. The Company is not (a) a party to,
-------------------------
involved in or, to the Company's knowledge, threatened by, any labor dispute or
unfair labor practice charge, or (b) currently negotiating any collective
bargaining agreement. The Company has not experienced during the last three
years any work stoppage. The Company has delivered to the Buyer a complete and
correct list of the names and salaries, bonus and other cash compensation of all
employees (including officers) of the Company. The Disclosure Schedule lists
all independent contractors engaged by the Company in the past three years
("Contractors"). Except as listed on the Disclosure Schedule, none of the
Contractors listed on the Disclosure Schedule are, or at the time of engagement
with the Company were, "employees" of the Company for purposes of ERISA or the
Code.
-15-
3.20 ERISA.
-----
(a) The Disclosure Schedule contains a complete list of all Benefit Plans
sponsored or maintained by the Company or under which the Company is obligated.
The Company has delivered to the Buyer (i) accurate and complete copies of all
such Benefit Plan documents and all other material documents relating thereto,
including (if applicable) all summary plan descriptions, summary annual reports
and insurance contracts, (ii) accurate and complete detailed summaries of all
unwritten Benefit Plans, (iii) accurate and complete copies of the most recent
financial statements and actuarial reports with respect to all such Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared and (iv) accurate and complete copies of all annual reports for
all such Benefit Plans (for which annual reports are required) prepared within
the last three years. Each such Benefit Plan providing benefits that are funded
through a policy of insurance is indicated by the word "insured" placed by the
listing of the Benefit Plan in the Disclosure Schedule.
(b) All such Benefit Plans conform (and at all times have conformed) in
all material respects to, and are being administered and operated (and have at
all time been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all such Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject the Company to any material penalty or tax imposed
under the Code or ERISA.
(c) Except as is set forth in the Disclosure Schedule, any such Benefit
Plan that is intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained remains
in effect and has not been revoked, and with respect to any application that is
pending, the Company has no reason to suspect that such application for
determination will be denied. Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely such qualification
or exemption, or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any such
Benefit Plan.
(d) The Company does not sponsor a defined benefit plan subject to Title
IV of ERISA, nor does it have a current or contingent obligation to contribute
to any multiemployer plan (as defined in Section 3(37) of ERISA). The Company
does not have any liability with respect to any employee benefit plan (as
defined in Section 3(3) of ERISA) other than with respect to such Benefit Plans.
(e) There are no pending or, to the knowledge of the Company, threatened
claims by or on behalf of any such Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any such Benefit Plans, alleging any
breach of fiduciary duty on the part of the Company or any of its officers,
directors or employees under ERISA or any other applicable regulations, or
claiming benefit payments (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of the Company, any basis for such
claim. The
-16-
Benefit Plans are not the subject of any pending (or to the knowledge of the
Company, any threatened) investigation or audit by the Internal Revenue Service,
the Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC").
(f) The Company has timely made all required contributions under such
Benefit Plans including the payment of any premiums payable to the PBGC and
other insurance premiums.
(g) With respect to any such Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan")
and except as specified in the Disclosure Schedule, (i) each Welfare Plan for
which contributions are claimed by the Company as deductions under any provision
of the Code is in material compliance with all applicable requirements
pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan, there
is no disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the Code,
(iii) any Benefit Plan that is a group health plan (within the meaning of
Section 4980B(g)(2) of the Code) complies, and in each and every case has
complied, with all of the applicable material requirements of Section 4980B of
the Code, ERISA, Title XXII of the Public Health Service Act and the Social
Security Act, and (iv) all Welfare Plans may be amended or terminated at any
time on or after the Closing Date. Except as specified in the Disclosure
Schedule, no Benefit Plan provides any health, life or other welfare coverage to
employees of the Company beyond termination of their employment with the Company
by reason of retirement or otherwise, other than coverage as may be required
under Section 4980B of the Code or Part 6 of ERISA, or under the continuation of
coverage provisions of the laws of any state or locality.
3.21 Corporate Records. The minute books of the Company contain complete,
-----------------
correct and current copies of their respective Charter Documents and bylaws and
of all minutes of meetings, resolutions and other proceedings of its Board of
Directors and stockholders. The stock record books of the Company are complete,
correct and current.
3.22 Absence of Certain Changes. Except as contemplated by this Agreement
--------------------------
or as disclosed in the Disclosure Schedule, since the Balance Sheet Date, the
Company has conducted the Company Business in the ordinary course and there has
not been with respect to the Company Business:
(a) any change that has had or is reasonably likely to have a
Material Adverse Effect;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-
officer employees made in the ordinary course of business, nor any other
change in any employment or consulting arrangement;
-17-
(d) any sale, assignment or transfer of Assets, or any additions to
or transactions involving any Assets, other than those made in the
ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of the Company.
3.23 Previous Sales; Warranties. The Company has not breached any express
--------------------------
or implied warranties in connection with the sale or distribution of goods or
the performance of services, except for breaches that, individually and in the
aggregate, would not have a Material Adverse Effect.
3.24 Customers and Suppliers. The Company has used its reasonable
-----------------------
business efforts to maintain and currently maintains, good working relationships
with all of its customers. The Disclosure Schedule contains a list of the names
of each of the ten customers that, in the aggregate, for the three years ending
December 31, 1993, 1994 and 1995, were the largest dollar volume customers of
products or services, or both, sold by the Company. Except as specified in the
Disclosure Schedule, none of such customers has given the Company notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with the Company. The Disclosure Schedule also contains a list of
the names of each of the ten suppliers that, in the aggregate, for the three
years ending December 31, 1993, 1994 and 1995, were the largest dollar volume
suppliers of products or services, or both, purchased by the Company. Except as
specified in the Disclosure Schedule, none of such suppliers has given the
Company notice terminating, cancelling or threatening to terminate or cancel any
Contract or relationship with the Company.
3.25 Finder's Fees. Except as set forth on the Disclosure Schedule, no
-------------
Person retained by the Company is or will be entitled to any commission or
finder's or similar fee in connection with the Transactions.
3.26 Additional Information. The Disclosure Schedule accurately lists the
----------------------
following:
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking,
saving or otherwise), lock box or safe deposit box, and the account
numbers and names of Persons having signing authority or other access
thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney from the
Company and a summary statement of the terms thereof; and
-18-
(e) all names under which the Company has conducted any part of its
Business or which it has otherwise used at any time during the past five
years.
3.27 Accuracy of Information. No representation or warranty by the
-----------------------
Company in any Transaction Document, and no information contained therein or in
the Company Financial Statements (considered together with Section 3.5 of the
Disclosure Schedule), by or on behalf of the Company in connection with the
Transactions, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which such statements
were made.
3.28 Investment. Each Holder (A) understands that the Buyer Common Shares
----------
have not been, and will not be, registered under the 1933 Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (B) is
acquiring the Buyer Common Shares solely for his or its own account for
investment purposes, and not with a view to the distribution thereof, (C) is a
sophisticated investor with knowledge and experience in business and financial
matters, (D) has received certain information concerning the Buyer and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Buyer Common Shares, (E) is
able to bear the economic risk and lack of liquidity inherent in holding the
Buyer Common Shares, and (F) in the case of Xxxxxx Xxxxxxxx and Xxxxxxx Xxxx, is
an Accredited Investor as defined in Rule 501 promulgated under the 1933 Act.
3.29 Xxxx-Xxxxx-Xxxxxx Act. Neither (i) the Company nor (ii) Xxxxxx
---------------------
Hardardt, considered together with all entities "controlled" (as defined below)
by Xx. Xxxxxxxx, has (x) annual net sales exceeding $100 million as of the last
annual statement of income and expense, or (y) gross assets exceeding $100
million in value as of the Closing Date. "Control" means, in the case of a
partnership, having the right to 50% or more of the profits of the partnership
or having the right in the event of dissolution of the partnership to 50% or
more of the assets, or, in the case of a corporation, holding 50% or more of the
voting securities or the right to appoint 50% or more of the board of directors.
4. Representations and Warranties of the Buyer.
-------------------------------------------
The Buyer hereby represents and warrants to the Company as follows:
4.1 Corporate Status. The Buyer and the Acquisition Company are
----------------
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and are qualified to do business as foreign
corporations in any jurisdiction where they are required to be so qualified
except where the failure to so qualify would not have a Material Adverse Effect.
The Charter Documents and bylaws of the Buyer that have been delivered to the
Company as of the date hereof are effective under applicable Laws and are
current, correct and complete.
4.2 Authorization. Each of the Buyer Parties has the requisite power and
-------------
authority to own its Assets and to carry on its Business. Each of the Buyer
Parties has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions
performed or to be performed by it. Such execution, delivery and performance by
each Buyer Party have been duly authorized by all necessary corporate action,
-19-
including approval by the Buyer as the sole stockholder of the Acquisition
Company. Each Transaction Document executed and delivered by any Buyer Party
has been duly executed and delivered by such Party and constitutes a valid and
binding obligation of such Party, enforceable against such Buyer Party in
accordance with its terms.
4.3 Consents and Approvals. Except for the actions related to the
----------------------
registration and qualification of the Buyer Common Shares issuable in connection
with the Merger as contemplated by Section 6.2 and the listing of such Buyer
Common Shares on the Nasdaq National Market, neither the execution and delivery
by any Buyer Party of the Transaction Documents to which it is a party, nor the
performance of the Transactions performed or to be performed by any Buyer Party,
require any filing, consent or approval, constitute a Default or cause any
payment obligation to arise under (a) any Law or Court Order to which any Buyer
Party is subject, (b) the Charter Documents or bylaws of any Buyer Party or (c)
any Contract, Governmental Permit or other document to which any Buyer Party is
a party or by which the properties or other assets of any Buyer Party may be
subject.
4.4 Capitalization and Stock Ownership. The total authorized capital
----------------------------------
stock of the Buyer consists of (a) 50,000,000 Buyer Common Shares, of which
18,499,288 shares are issued and outstanding on the date hereof, and (b)
2,000,000 shares of Preferred Stock, par value $0.01 per share, of which 999,554
shares have been designated Series A Convertible Preferred Stock (the "Buyer
Convertible Preferred Shares"). Of such authorized Preferred Stock, 749,665
Buyer Convertible Preferred Shares are issued and outstanding on the date
hereof. Except as described in the Buyer Disclosure Documents, there are no
existing options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Buyer. All of the
Buyer Common Shares issuable in connection with the Merger will be, when issued
in accordance with the terms thereof, duly and validly authorized and issued,
fully paid and non-assessable.
4.5 Financial Statements. The Buyer has delivered to the Company correct
--------------------
and complete copies of unaudited quarterly consolidated financial statements for
the Buyer consisting of a consolidated balance sheet as of the end of June 30,
1996 and the related consolidated statements of income and cash flows for the
quarterly periods then ended. The Company has also delivered to the Buyer
correct and complete copies of consolidated financial statements consisting of a
consolidated balance sheet of the Buyer as of December 31, 1993, 1994 and 1995
and the related statements of income for the fiscal years then ended, all of
which were audited by Xxxxxx Xxxxxxxx LLP, independent public accountants. All
such unaudited and audited financial statements are referred to herein
collectively as the "Buyer Financial Statements." The Buyer Financial Statements
are consistent in all material respects with the books and records of the Buyer,
have been prepared in accordance with GAAP consistently applied, and present
fairly the financial position and assets and liabilities of the Buyer as of the
dates thereof, and the results of its operations for the periods then ended,
subject to normal recurring year-end adjustments and the absence of notes in the
case of unaudited Buyer Financial Statements. The balance sheet of the Buyer as
of June 30, 1996 that is included in the Buyer Financial Statements is referred
to herein as the "Buyer Balance Sheet."
4.6 Buyer Disclosure Documents. The Buyer has filed all required forms,
--------------------------
reports, statements, schedules and other documents with the SEC since the date
when it became subject
-20-
to the reporting requirements under the 1934 Act (collectively, the "Buyer
Disclosure Documents"). The Buyer has furnished to the Company its Registration
Statement on Form S-2, as amended, and the final prospectus dated April 16, 1995
and Exhibits with respect to such Registration Statement, as well as the Buyer's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and its
Quarterly Reports on Form 10-Q for the periods ending March 31, 1996 and June
30, 1996, all of which are part of the Buyer Disclosure Documents. Each of such
Buyer Disclosure Documents, at the time it was filed, complied in all material
respects with all applicable requirements of the 1933 Act and the 1934 Act, and
with the forms, rules and regulations of the SEC promulgated thereunder, and did
not contain at the time filed any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
4.7 Liabilities. The Buyer does not have any Liabilities, except (a) as
-----------
described in the Buyer Disclosure Documents, (b) as contemplated by the Buyer
Balance Sheet (except as heretofore paid or discharged), (c) Liabilities
incurred in the ordinary course since the Balance Sheet Date that, individually
or in the aggregate, are not material to the Buyer's Business, or (d)
Liabilities under any Contracts included in the Buyer's Assets that were not
required under GAAP to have been specifically disclosed or reserved for on the
Buyer's Balance Sheet.
4.8 No Acquisition Company Assets, Liabilities or Business. Except for
------------------------------------------------------
any rights and Liabilities that the Acquisition Company may have with respect to
this Agreement, the Acquisition Company does not have any Assets or Liabilities,
nor has the Acquisition Company conducted any Business other in connection with
the Transactions.
4.9 Finder's Fees. Except as set forth on the Disclosure Schedule, no
-------------
Person retained by the Buyer is or will be entitled to any commission or
finder's or similar fee in connection with the Transactions.
4.10 Accuracy of Information. No representation or warranty by the Buyer
-----------------------
in any Transaction Document, and no information contained therein or in the
Company Financial Statements by or on behalf of the Buyer to the Company in
connection with the Transactions, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which such statements were made.
4.11 Environmental. Except as otherwise disclosed in the Buyer's filings
-------------
under the 1933 Act or the 1934 Act, to the Buyer's knowledge, there has not been
any material Environmental Condition (i) at the premises at which the Buyer's
business has been conducted, (ii) at any property owned, leased or operated at
any time by the Buyer, any Person controlled by the Buyer or any predecessor of
any of them, or (iii) at any property at which wastes have been deposited or
disposed by or at the behest or direction of any of the foregoing, nor has the
Buyer received written notice of any such Environmental Condition.
4.12 Xxxx-Xxxxx-Xxxxxx Act. Neither (i) the Buyer nor (ii) the
---------------------
Acquisition Company has (x) annual net sales exceeding $100 million as of the
last annual statement of income and expense, or (y) gross assets exceeding $100
million in value as of the Closing Date. There is no
-21-
shareholder who has "control" (as defined below) over either party. "Control"
means, holding 50% or more of the voting securities or the right to appoint 50%
or more of the board of directors.
5. Post-Closing Covenants.
----------------------
5.1 Registration; Lockup. The Buyer will register under the 1933 Act for
--------------------
resale by the Holders by the 180th day after the Closing the Buyer Common Shares
issued in connection with the Merger.
5.2 Board Position. As soon as practicable after the Closing, the Board
--------------
of Directors of the Buyer will offer to Xxxxxx X. Xxxxxxxx a seat on the Buyer's
Board of Directors for a term equal to the time remaining in the term of the
class in which the director's seat that is offered to Xx. Xxxxxxxx is classified
and, prior to the expiration of such period remaining in her initial term, the
Board of Directors will nominate Xx. Xxxxxxxx for re-election to the Board of
Directors upon expiration of such initial term.
5.3 Current Employment Agreements. Except in the case of the Company's
-----------------------------
employment agreements with Xx. Xxxxxxxx and Xx. Xxxx, all rights and obligations
to which will terminate upon the execution of the Employment Agreements, the
Buyer will continue to employ the persons listed on the Disclosure Schedule
pursuant to the terms and conditions of the employment agreements described on
the Disclosure Schedule (copies of which have been delivered to the Buyer by the
Company), provided, however, that such terms are commercially reasonable.
5.4 Consents to Assignment of Contracts. If any Required Consent or
-----------------------------------
approval in respect of, or a novation of, a Contract shall not have been
obtained on or before the Closing Date, and the Closing occurs, to the extent
lawful, practicable and reasonable under the circumstances, each Holder, at the
request and under the direction of the Buyer, shall use all commercially
reasonable efforts, including the obtaining of any such necessary consent or
approval after the Closing, to assure that the rights under such Contracts shall
be preserved for the benefit of the Buyer or the Acquisition Company.
5.5 Employee Benefits.
-----------------
(a) The Buyer Parties will continue in effect all Benefit Plans sponsored
or maintained by the Company (the "Company Benefit Plans") after the Closing and
will not terminate a Company Benefit Plan before the earliest to occur of the
following events with respect to such Benefit Plan: (i) the end of the current
Benefit Plan year, (ii) the expiration of an insurance policy constituting part
of, or providing benefits under, the Benefit Plan, (iii) December 31, 1996 and
(iv) the commencement of coverage of persons employed by the Company on the
Closing Date in a comparable Benefit Plan sponsored or maintained by the Buyer
(a "Buyer Benefit Plan").
(b) To the extent permitted by ERISA, an employee's service with the
Company prior to the Closing Date which is recognized under a Company Benefit
Plan will be recognized under the comparable Buyer Benefit Plan for purposes of
participation, vesting, eligibility and satisfying
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any waiting period. To the extent permitted by ERISA, the Buyer will cause the
pre-existing condition restrictions or waiting periods under such Buyer Benefit
Plan to be waived to the extent necessary to provide immediate coverage for
former employees of the Company following the termination of coverage under a
comparable Company Benefit Plan.
5.6 Maintaining Surviving Corporation. The Buyer will maintain control
---------------------------------
(as defined in Section 368(c) of the Code) of the Surviving Corporation, and
will not terminate, merge out of existence, liquidate or dissolve the Surviving
Corporation, or transfer all or substantially all of the assets of the Surviving
Corporation, other than in the ordinary course of business, for a period of two
years following the Closing.
6. Conditions Precedent to the Buyer Parties' Obligations.
------------------------------------------------------
All obligations of the Buyer and the Acquisition Company to be performed
on the Closing Date shall be subject to the satisfaction (or waiver by the Buyer
or the Acquisition Company), prior thereto, of the following conditions:
6.1 Representations True at Closing. The representations and warranties
-------------------------------
of the Company set forth in this Agreement shall be true and correct in all
material respects, on and as of the Effective Time, except for such inaccuracies
or breaches of warranty as would not, individually or in the aggregate, have a
Material Adverse Effect.
6.2 Litigation Affecting Closing. No Court Order shall have been issued
----------------------------
or entered that prohibits consummation of the Merger.
6.3 Regulatory Compliance and Approvals. All governmental consents and
-----------------------------------
approvals legally required for the consummation of the Merger and the
Transactions shall have been obtained and be in effect at the Effective Time on
terms and conditions that would not have a Material Adverse Effect on the
Surviving Corporation.
6.4 Certificates. The Company shall have delivered a certificate of the
------------
chief executive officer of the Company to the effect that the conditions set
forth in Section 6.1 have been satisfied.
6.5 Opinion of Counsel to the Company. O'Melveny & Xxxxx LLP, counsel to
---------------------------------
the Company, shall have delivered to the Buyer their opinion, dated the Closing
Date, with respect to those matters reasonably requested by the Buyer.
6.6 Stockholder Approval. This Agreement and the Transactions shall have
--------------------
been unanimously approved and adopted by the Holders of the Company prior to the
Closing Date.
6.7 No Regulatory Action. No action shall have been taken, and no
--------------------
statute, rule or law shall have been enacted, by any state, federal or foreign
government or governmental agency which would prevent the consummation of the
Merger.
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6.8 Transaction Agreements. The Company and the shareholders of the
----------------------
Company shall have executed each of the Escrow Agreement, Registration Rights
Agreement and the Employment Agreements, as appropriate.
7. Conditions Precedent to the Company's Obligations.
-------------------------------------------------
All obligations of the Company to be performed on the Closing Date shall
be subject to the satisfaction (or waiver by the Company), prior thereto, of
each of the following conditions:
7.1 Representations True at Closing. The representations and warranties
-------------------------------
of the Buyer Parties set forth in this Agreement shall be true and correct in
all material respects, on and as of the Effective Time, except for such
inaccuracies or breaches of warranty as would not, individually or in the
aggregate, have a Material Adverse Effect.
7.2 Litigation Affecting Closing. No Court Order shall have been issued
----------------------------
or entered that would be violated by the completion of the Transactions.
7.3 Regulatory Compliance and Approvals. All governmental consents and
-----------------------------------
approvals legally required for the consummation of the Merger and the
Transactions shall have been obtained and be in effect at the Effective Time on
terms and conditions that would not have a Material Adverse Effect on the
Surviving Corporation.
7.4 Certificates. The Buyer shall have delivered a certificate of the
------------
chief executive officer of the Buyer to the effect that the conditions set in
Section 7.1 have been satisfied.
7.5 Opinion of Counsel to the Buyer Parties. The general counsel to the
---------------------------------------
Buyer Parties shall have delivered to the Company her opinion, dated the Closing
Date, with respect to those matters reasonably requested by the Company.
7.6 Stockholder Approval. This Agreement and the Transactions shall have
--------------------
been approved and adopted by the requisite vote of the stockholders of the
Acquisition Company pursuant to the DGCL.
7.7 No Regulatory Action. No action shall have been taken, and no
--------------------
statute, rule or law shall have been enacted, by any state, federal or foreign
government or governmental agency that would prevent the consummation of the
Merger.
7.8 Transaction Agreements. The Buyer shall have executed the Escrow
----------------------
Agreement, the Registration Rights Agreement and the Employment Agreements.
8. General.
-------
8.1 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Delaware.
8.2 Further Assurances. The parties hereto shall execute and deliver any
------------------
and all documents and take such other actions as may be necessary to complete
the Transactions.
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8.3 Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto and their respective successors and assigns; provided, however, that this
Agreement and all rights hereunder may not be assigned by any party hereto
without the written consent of the other parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person other than the Buyer
Parties and the Company Parties any rights or remedies of any nature whatsoever.
8.4 Waiver of Conditions. Any party hereto may waive any condition
--------------------
provided in this Agreement for its benefit.
8.5 Exhibits. All of the Exhibits attached to this Agreement and the
--------
Disclosure Schedule are hereby incorporated herein and made a part hereof.
8.6 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the Transactions shall be paid by the party incurring such costs
and expenses. The Buyer shall pay all costs and expenses related to the audit
of the Company.
8.7 Entire Agreement. This Agreement, the No-Shop Agreement and the
----------------
other Transaction Documents contain the entire agreement among the parties
hereto, and there are no agreements, representations or warranties which are not
set forth in such documents. All prior negotiations, agreements and
understandings are superseded hereby. This Agreement may not be amended or
revised except by a writing signed by all parties hereto.
8.8 Notices. Any notice, authorization, request or demand required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given on the earlier of the date when received at, or the fifth day
after the date when sent by registered or certified mail to, the respective
addresses or telecopy numbers specified for the parties below, or with regard to
the Holders, to the addresses set forth on the signature page to this Agreement.
TO THE BUYER OR THE ACQUISITION COMPANY:
Xxxx Xxxxxxxxxxxxx
General Counsel
IBAH, Inc.
Four Valley Square
000 Xxxxxxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxxxx 00000
Fax: 000-000-0000
With a copy to:
Xxxxxx Xxxxxxxxx
Xxxxxx, Xxxxx & Bockius LLP
0000 Xxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Fax: 000-000-0000
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TO THE COMPANY:
Xxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxx
HGB, Inc.
Xxx Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
With a copy to:
Xxxxxxx X. Xxxxxxx, Esq.
O'Melveny & Xxxxx LLP
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
8.9 Indemnification.
---------------
(a) The Holders of Converted Shares immediately prior to the Effective
Time shall jointly and severally indemnify and hold the Buyer and any of its
successors, assigns, officers, directors, employees, stockholders, agents and
affiliates (each, a "Buyer Indemnified Party") safe and harmless from and
against any and all liability, loss, cost or expense (including without
limitation reasonable attorneys fees, the cost and expenses reasonably incurred
in investigating, preparing, defending against, or prosecuting any litigation,
claim, action, suit, proceedings, or demand, including in connection with the
enforcement of this right of indemnification) which are suffered, sustained,
incurred or required to be paid by any Buyer Indemnified Party and which are
caused by any breach of a representation or warranty by the Company under this
Agreement or by the Company's or any Holder's failure to perform any of their
respective covenants, obligations and undertakings under this Agreement (a
"Claim").
(b) Notwithstanding anything to the contrary contained herein, the
Holders' obligations to indemnify the Buyer Indemnified Parties hereunder shall
be limited to Claims that in the aggregate exceed $50,000 (the "Deductible"),
and then only to the extent of such excess, but that in the aggregate do not
exceed $2.5 million. The calculation of the Deductible shall include Claims for
damages incurred by a Buyer Indemnified Party for which the Buyer Indemnified
Party would have been entitled to claim indemnification hereunder with respect
to a breach of representation or warranty but for such representation or
warranty being qualified by materiality, the knowledge of a particular party, or
related exceptions.
(c) In the case of a claim against the Holders that may be covered at
least in part by the Escrow Shares, the Buyer shall pursue such claim in
accordance with the Escrow Agreement. In the case of a claim against the
Holders after the expiration of the Escrow Agreement, the Buyer may pursue
whatever legal remedies may be available for recovery for the Claim from the
Holders.
8.10 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the parties in this Agreement and the covenants of the parties in
this agreement shall survive
-26-
the Closing and continue in full force and effect (i) for the period of the
applicable statute of limitations with regard to Claims relating to the
representations and warranties regarding the treatment of persons as Contractors
by the Company for tax, ERISA and Benefit Plan purposes that are contained in
Section 3.13 and Section 3.19, (ii) until the 180th day after the first
anniversary of the Closing Date with regard to all other representations and
warranties and covenants contained herein, and (iii) for a period of two years
with respect to the covenant made in Section 5.6.
8.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above.
Each such copy shall be deemed an orig inal, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
8.12 Amendment. This Agreement may be amended by the Boards of Directors
---------
of the parties hereto at any time prior to the filing of the Certificate of
Merger, and any such amendment shall be by a written instrument signed by the
parties hereto; provided, however, that this Agreement may only be amended
without approval of the stockholders of the Company and the Acquisition Company
to the extent permitted by applicable law.
8.13 Interpretation.
--------------
Unless the context of this Agreement clearly requires otherwise, (a) "or"
has the inclusive meaning frequently identified with the phrase "and/or," (b)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (c) references to one gender include all genders. The
section and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this Agreement
or the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
-27-
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
IBAH, INC.
By: /s/ Xxxxxxxxx X. Xxxxxxx
----------------------------
IBAH ACQUISITION COMPANY
By: /s/ Xxxxxxxxx X. Xxxxxxx
----------------------------
HGB, INC.
By: /s/ X. Xxxxxxxx
----------------------------
HOLDERS:
/s/ X. Xxxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxxx
Address:
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/s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Address: 00 Xxxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
/s/ Xxxxx Xxxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxxx
Address: 0000 Xxxx Xxxxxxx Xxxx
Xxxxxx, XX 00000
/s/ Xxxxx Xxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxx
Address: 00 Xxxxxx Xxxxxx
Xxxxxxxxxxxxx, XX 00000
/s/ Xxxx Xxxxxxx
-----------------------------------
Name: Xxxx Xxxxxxx
Address: 00 Xxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
S-2
The Schedules to this agreement have been omitted intentionally. The
Disclosure Schedule contains certain exceptions and additional information
related to the representations and warranties contained in this agreement. The
Company will furnish supplementally a copy of the omitted schedules to the
Commission upon request.
