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AGREEMENT AND PLAN OF MERGER
AMONG
XXXXXXX & XXXXXX FLOORCOVERINGS, INC.,
MONTEREY MERGER COMPANY, INC.
AND
MONTEREY CARPETS, INC.
Dated as of June 4, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
1.1 Definitions.................................................... 1
ARTICLE II
THE MERGER
2.1 The Merger.................................................... 16
2.2 EffectivE Time................................................ 16
2.3 Effects of the Merger......................................... 17
2.4 Certificate of Incorporation and Bylaws....................... 17
2.5 Directors..................................................... 17
2.6 Officers...................................................... 17
2.7 Required Repayment of Company Debt............................ 17
2.8 Preferred Share Liquidation; Conversion of Common Shares and
Cancellation of Options....................................... 18
2.9 Conversion of Sub Common Stock................................ 19
2.10 Shareholders' Approval........................................ 19
2.11 Statement of Estimated Merger Consideration; Exchange of
Shares; Payment............................................... 20
2.12 Stock Options................................................. 26
2.13 Dissenting Shares............................................. 26
2.14 Closing....................................................... 27
2.15 Determination of the Merger Consideration..................... 27
2.16 Allocation of Merger Consideration............................ 34
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Qualification................................ 34
3.2 Capitalization of the Company; Validity of Shares; Voting
Trusts........................................................ 36
3.3 Authority Relative to this Agreement.......................... 37
3.4 Consents and Approvals........................................ 38
3.5 Non-Contravention............................................. 38
3.6 Environmental Matters......................................... 39
3.7 Licenses and Permits.......................................... 41
3.8 Compliance with Laws.......................................... 42
3.9 Financial Statements.......................................... 43
3.10 Absence of Changes............................................ 44
3.11 No Undisclosed Liabilities.................................... 50
3.12 Litigation.................................................... 51
3.13 Real Property................................................. 51
3.14 Personal Property............................................. 55
3.15 Inventory..................................................... 57
3.16 Sufficiency of assets......................................... 58
3.17 Books and Records............................................. 58
3.18 Intellectual Property......................................... 58
3.19 Contracts..................................................... 59
3.20 Insurance..................................................... 63
3.21 Accounts receivable........................................... 64
3.22 Labor matters................................................. 64
3.23 Employee Plans................................................ 67
3.24 Tax Matters................................................... 75
3.25 Transactions with Certain Persons............................. 77
3.26 Purchase Commitments and Outstanding Bids..................... 78
3.27 Customers..................................................... 78
3.28 Suppliers..................................................... 78
3.29 Warranties; Product Liability................................. 79
3.30 Banking Relationships......................................... 80
3.31 No Other Agreements to Sell the Assets or Stock of the Company 81
3.32 Prohibited Payments........................................... 81
3.33 Year 2000 Matters............................................. 82
3.34 Brokers....................................................... 82
3.35 Full Disclosure; No Other Representations..................... 82
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
4.1 Organization; Qualification................................... 83
4.2 Authority Relative to this Agreement.......................... 83
4.3 Consents and Approvals........................................ 84
4.4 Non-Contravention............................................. 85
4.5 Litigation.................................................... 85
4.6 Investment Intent............................................. 86
4.7 Adequate Funds................................................ 86
4.8 Brokers....................................................... 86
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business........................................... 86
5.2 Forbearances.................................................. 87
5.3 Negotiations with Others; Notification........................ 92
5.4 Investigation of Business and Properties...................... 94
5.5 Confidentiality............................................... 95
5.6 Books and Records............................................. 97
5.7 Expenses...................................................... 97
5.8 HSR Filings................................................... 97
5.9 No Disclosure; Public Announcements........................... 97
5.10 Efforts to Consummate......................................... 98
5.11 Indemnification of Officers and Directors..................... 99
5.12 Obligations of Merger Subsidiary.............................. 101
5.13 Related Party Accounts........................................ 101
5.14 Lender Releases............................................... 102
5.15 Closing Deliveries............................................ 102
5.16 Further Assurances............................................ 103
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER
6.1 Representations and Warranties................................ 104
6.2 Performance of this Agreement................................. 104
6.3 Consents and Approvals........................................ 105
6.4 Injunction, Litigation, etc................................... 105
6.5 Legislation................................................... 105
6.6 Proceedings................................................... 105
6.7 Resignations.................................................. 106
6.8 Opinion of Counsel............................................ 106
6.9 Closing Deliveries............................................ 106
6.10 Shareholder Approval; Dissenters Rights....................... 106
6.11 Material Adverse Change....................................... 107
6.12 Tax Matters................................................... 107
6.13 Noncompetition Agreements..................................... 107
6.14 Escrow Agreement.............................................. 107
6.15 HSR Act....................................................... 107
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
7.1 Representations and Warranties...................... 108
7.2 Performance of this Agreement....................... 108
7.3 Consents and Approvals.............................. 109
7.4 Injunction, Litigation, etc......................... 109
7.5 Legislation......................................... 109
7.6 Proceedings......................................... 109
7.7 Shareholder Approval................................ 109
7.8 Opinion of Counsel.................................. 110
7.9 Closing Deliveries.................................. 110
7.10 Escrow Agreement.................................... 110
7.11 Severance Agreements and Option Grants.............. 110
7.12 HSR Act............................................. 111
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1 Survival of Representations......................... 111
8.2 Indemnification by the Shareholders................. 113
8.3 Indemnification by Buyer............................ 115
8.4 Notice and Defense of Claims........................ 116
8.5 Limitations on Indemnification...................... 120
8.6 Calculation of Covered Liabilities.................. 123
8.7 Exclusive Remedy.................................... 124
8.8 No Right of Contribution............................ 125
8.9 Arbitration......................................... 125
ARTICLE IX
TERMINATION
9.1 Termination......................................... 126
9.2 Procedure: Effect of Termination.................... 126
ARTICLE X
GENERAL PROVISIONS
10.1 Notices............................................. 127
10.2 Interpretation..................................... 128
10.3 Shareholders' Representatives...................... 129
10.4 Entire Agreement................................... 130
10.5 No Third Party Beneficiaries....................... 131
10.6 Successors and Assigns............................. 131
10.7 Severability....................................... 132
10.8 Amendment.......................................... 132
10.9 Extension; Waiver.................................. 132
10.10 Disclosure Schedules............................... 133
10.11 Counterparts....................................... 133
10.12 Governing Law...................................... 133
EXHIBIT
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A Form of Escrow Agreement
B Certificate of Merger
C-1 Form of Letter of Transmittal (Preferred Shares)
C-2 Form of Letter of Transmittal (Common Shares)
D Form of Option Cancellation Agreement
E Indemnification Provisions
F Form of Opinion of Counsel for the Company and the Shareholders
G-1 Form of Confidentiality, Noncompetition and Nondisturbance Agreement
G-2 Form of Confidentiality, Noncompetition and Nondisturbance Agreement
G-3 Form of Confidentiality, Noncompetition and Nondisturbance Agreement
H Form of Opinion of Counsel for Buyer
J-1 Form of Option Grant Letter (Tier 1)
J-2 Form of Option Grant Letter (Tier 2)
SCHEDULES
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1.1(a) Permitted Encumbrances
1.1(b) Excluded Guaranty
1.1(c) Working Capital
2.7 Company Debt to be Repaid at Closing
3.1 Organization and Qualification
3.2 Capitalization
3.2(b) Chroma Partners
3.4 Consents and Approvals
3.5 Non-Contravention
3.6 Environmental Matters
3.7 Licenses and Permits
3.8 Compliance with Laws
3.10 Absence of Changes
3.11 Undisclosed Liabilities
3.12 Litigation
3.13(b) Owned Real Property
3.13(c) Leased Real Property
3.14(a) Personal Property
3.14(b) Owned Personal Property
3.14(c) Leased Personal Property
3.15 Inventory
3.18 Intellectual Property
3.19 Material Contracts
3.20 Insurance
3.21 Accounts Receivable
3.22(a) Employment Agreements
3.22(b) Grievances
3.22(c) Unfair Labor Practices
3.22(d) Affirmative Action Plans
3.22(e) Wages
3.22(f) Employment Practices
3.22(g) Osha
3.22(i) Employees
3.23 Employee Plans
3.23(b)(iv) Employment at Will
3.23(b)(xi) Acceleration of Rights
3.24 Tax Matters
3.25 Transactions with Certain Persons
3.27 Customers
3.28 Suppliers
3.29(a) Warranties
3.29(b) Product Liability
3.30 Banking Relationships
4.3 Consents and Approvals
5.2 Forbearances
6.10 Shareholder Approval
6.13 Noncompetition Agreements
8.2(a) Pro-Rata Share
8.2(a)(iv) Indemnified Matters
8.5 Allocable Share
10.2(a) Company's Executive Officers
10.2(b) Buyer's Executive Officers
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of June 4,
1999, is made among XXXXXXX & XXXXXX FLOORCOVERINGS, INC., a Delaware
corporation ("Buyer"), MONTEREY MERGER COMPANY, INC., a Delaware corporation and
a wholly-owned subsidiary of Buyer ("Sub"), and MONTEREY CARPETS, INC., a
Delaware corporation (the "Company").
RECITALS
A. This Agreement provides for the merger (the "Merger") of Sub into the
Company, with the Company as the surviving corporation in such merger, all in
accordance with the provisions of this Agreement. Upon consummation of the
Merger, the Company will be a wholly-owned subsidiary of Buyer.
B. The respective Boards of Directors of Buyer, Sub and the Company have
approved the Merger. The Company intends promptly to submit to its shareholders
the approval of the Merger and the approval and adoption of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Acquisition Price" means $50 million.
"Action" means any complaint, claim, prosecution, indictment, action,
suit, arbitration, investigation, governmental audit, inquiry or proceeding by
or before any Governmental Authority.
"Affiliate" of a Person means a Person who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person.
"Assets" means all of the right, title and interest of a Person in and
to all properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by such Person or in which such Person has
any interest whatsoever.
"Audited Company Financial Statements" has the meaning set forth in
Section 3.9(a).
"Audited Financial Statements" has the meaning set forth in Section
3.9(b).
"Benefit Arrangement" means any employment, consulting, severance or
other similar contract, arrangement or policy (written or oral) and each plan,
arrangement, program, agreement or commitment (written or oral) providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Internal Revenue
Code providing for the same or other benefits) or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not a Welfare Plan, Pension Plan or
Multiemployer Plan, (ii) is entered into, maintained, contributed to or required
to be contributed to, as the case may be, by the Company or any ERISA Affiliate
or under which the Company or any ERISA Affiliate may incur any liability, and
(iii) covers any employee or former
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employee of the Company or any ERISA Affiliate (with respect to their
relationship with such any entity).
"Books and Records" means all corporate and financial books and
records and all manufacturing, maintenance and sales records, including in each
case disk or tape files, printouts, runs or other computer-based books and
records and any interest in all computer programs required to access, and the
equipment containing all such computer-based information.
"Business" means the business conducted by the Company, its
Subsidiaries and Chroma, as the case may be, as of the date hereof.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Richmond, Virginia, Los Angeles, California or New
York, New York are authorized by Law to close.
"Buyer's Auditors" means Xxxxxx Xxxxxxxx LLP.
"Capitalized Leases" means any lease of which the Company or its
Subsidiaries is the lessee which is required to be capitalized on the balance
sheet in accordance with GAAP.
"Cash" means the amount of cash of the Company on hand, in banks or in
money market or other liquid investments in excess of the amount of checks
written but not cleared as of the Closing Date.
"Certificate" means a Common Share Certificate or Preferred Share
Certificate.
"Chroma" means Chroma Systems Partners, a California general
partnership.
"Closing" has the meaning set forth in Section 2.14.
"Closing Date" has the meaning set forth in Section 2.14.
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"Closing Date Working Capital" means the Working Capital of the
Company as of the close of business on the Business Day immediately preceding
the Closing Date determined in accordance with Schedule 1.1(c) pursuant to the
procedures set forth in Section 2.15.
"Common Share Certificate" has the meaning set forth in Section
2.11(c).
"Common Shares" means the outstanding shares of Common Stock, $.01 par
value, of the Company.
"Common Share Merger Consideration" means the amount by which the
Merger Consideration exceeds the Option Consideration.
"Company Debt" means the sum of (i) indebtedness for borrowed money
from third parties, including the HMD Note and the outstanding loan balance
under the SunTrust Bank Term Loan, but excluding advances on the factoring
agreement with SunTrust Bank (which shall be included in the calculation of
Working Capital), plus any accrued interest and, with respect to Company Debt to
be repaid as contemplated by Section 2.7, any associated prepayment or other
penalties or costs incurred in connection with the consummation of the
transactions contemplated hereby, (ii) guarantees (other than the guaranty set
forth on Schedule 1.1(b)) of indebtedness for borrowed money of any Person other
than a wholly-owned Subsidiary and (iii) the consolidated capitalized liability
of the Company and its Subsidiaries under Capitalized Leases; provided that, for
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purposes of determining the Estimated Merger Consideration and the Merger
Consideration, (A) there shall be subtracted from Company Debt the aggregate
exercise price of Executive Stock Options which are exercised by the holders
thereof on or after the date hereof and not later than the Closing Date (whether
paid in cash or by offset of Merger Consideration payable to such holders upon
consummation of the Merger against the amount due under promissory notes
delivered by such
4
holders in payment of the exercise price of such Executive Stock Options) and
(B) there shall be added to Company Debt any cash distributions not in the
ordinary course of business consistent with past practice received by the
Company or its Subsidiaries from Chroma on or after the date hereof.
"Contract" means any agreement, contract, lease, note, loan, evidence
of indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license, instrument,
obligation or commitment to which the Company, a Subsidiary or Chroma is a party
or which relates to the Business or any of the Assets of the Company, its
Subsidiaries or Chroma, whether oral or written, and which pursuant to its terms
has not expired, terminated or been fully performed by the parties thereto.
"Covered Liabilities" means any and all debts, losses, liabilities,
claims, fines, royalties, deficiencies, damages (including diminution in value),
Actions, obligations, payments (including those arising out of any demand,
assessment, settlement, judgment or compromise relating to any Action), costs
(including costs of mitigation) and expenses (including interest and penalties
due and payable with respect thereto and reasonable attorneys' and accountants'
fees and any other reasonable out-of-pocket expenses incurred in investigating,
preparing, defending, avoiding or settling any Action or in investigating,
preserving or enforcing another party's obligations hereunder), including any of
the foregoing arising under, out of or in connection with any Action, order or
consent decree of any Governmental Authority or award of any arbitrator of any
kind.
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" has the meaning set forth in Section 2.13.
"Effective Time" has the meaning set forth in Section 2.2.
5
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment,
conditional sales agreement or encumbrance, whether voluntarily incurred or
arising by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement.
"Environmental Laws" means all applicable federal, state, district and
local laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, Environmental Permits or demand letters
issued, promulgated or entered pursuant thereto by a Governmental Authority,
relating to pollution or protection of the environment (including ambient air,
surface water, ground water, land surface, or subsurface strata), including (i)
laws relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment and (ii) laws relating to the
identification, generation, manufacture, processing, distribution, use,
treatment, storage, disposal, recovery, transport or other handling of Hazardous
Substances, in each case as in effect on the Closing Date. By way of example
only, Environmental Laws include the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Toxic
Substances Control Act, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended ("RCRA"), the
Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean
Air Act, as amended, the Atomic Energy Act of 1954, as amended, the Occupational
Safety and
6
Health Act, as amended, and all analogous laws promulgated or issued by any
state or other Governmental Authority.
"Environmental Permits" means Licenses and Permits issued, promulgated
or entered pursuant to Environmental Laws.
"Environmental Reports" means any and all written analyses, summaries
or explanations, in the possession or control of the Company, its Subsidiaries
or Chroma, of (i) Hazardous Emissions, Handling Hazardous Substances or any
environmental conditions in, on or over the Facilities or (ii) the Company's,
its Subsidiaries' and Chroma's compliance with Environmental Laws.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, or otherwise
required to be aggregated with, any of the Company, its Subsidiaries or Chroma
as set forth in Section 414(b), (c), (m) or (o) of the Internal Revenue Code.
"Escrow Agent" means the Person appointed as the escrow agent under
the Escrow Agreement.
"Escrow Agreement" means the agreement entered into, by or on behalf
of the Shareholders, on the one hand, and Buyer, on the other hand,
substantially in the form of Exhibit A hereto.
7
"Escrow Fund" means, at any time, the amount held under the Escrow
Agreement at such time.
"Escrow Payment" means $6 million.
"Estimated Common Share Merger Consideration" has the meaning set
forth in Section 2.11(a).
"Estimated Merger Consideration" has the meaning set forth in Section
2.11(a).
"Estimated Unadjusted Merger Consideration" has the meaning set forth
in Section 2.11(a).
"Estimated Option Consideration" has the meaning set forth in Section
2.11(a).
"Excess Section 3.2 Liabilities" has the meaning set forth in Section
8.2(b).
"Executive Stock Options" means options to purchase in the aggregate
60,906 Common Shares of the Company issued pursuant to the Stock Option Plans.
"Facilities" means all plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and all real property owned or
leased by the Company, its Subsidiaries or Chroma on the Closing Date.
"Final Closing Date Adjustment Report" has the meaning set forth in
Section 2.15(c).
"Financial Statements" means the Audited Financial Statements and/or
the Interim Financial Statements as the context requires.
"Fixtures and Equipment" means all of the furniture, fixtures,
furnishings, machinery, equipment, spare parts, supplies, appliances, vehicles
and other tangible personal property, wherever located, including all warranty
rights with respect thereto.
8
"Fully Diluted Basis" means, as to the Common Shares, the number of
Common Shares that would be outstanding assuming exercise of all Executive Stock
Options that are outstanding at the time of determination, but excluding any
Common Shares held by the Company or any Subsidiary.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"General Escrow Fund" means the portion of the Escrow Fund, initially
funded with $5,000,000, held by the Escrow Agent pursuant to the Escrow
Agreement, to fund the obligations of the Shareholders for indemnification
pursuant to Section 8.2 hereof and the obligation to repay to Buyer all or a
portion of any Merger Consideration Overpayment.
"Governmental Authority" means any federal, state, local or foreign
court or tribunal, governmental, regulatory or administrative agency,
department, bureau, authority or commission or arbitral panel.
"Handling Hazardous Substances" has the meaning set forth in Section
3.6.
"Hazardous Emissions" has the meaning set forth in Section 3.6.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs, pesticides,
herbicides, asbestos, slag, acids, metals, solvents and waste waters.
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"HMD Note" means the promissory note dated January 1, 1997 in the
original principal amount of $1,210,667 issued by the Company to Xxxx, Xxxxxx &
Drufva II, L.P., the principal balance of which was $235,407.48 after giving to
the $33,692.64 principal payment on May 4, 1999.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"indemnified party" has the meaning set forth in Section 8.4.
"indemnifying party" has the meaning set forth in Section 8.4.
"Indemnifying Securityholder" has the meaning set forth in Section
8.2(a).
"Intellectual Property" means all trade names, trademarks and service
marks, patents, patent rights, copyrights, whether domestic or foreign, (as well
as applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and other industrial
and intellectual property rights.
"Interim Financial Statements" has the meaning set forth in Section
3.9(b).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Leased Real Property" has the meaning set forth in Section 3.13(c).
"Licenses and Permits" means all registrations, applications, filings,
certifications, licenses, permits, approvals, consents, qualifications,
authorizations and waivers of any Governmental Authority, but does not include
Environmental Permits.
"Material Adverse Effect" or "Material Adverse Change" means as to any
Person any material adverse effect on or material adverse change with respect to
(i) the business, operations, assets, liabilities, condition (financial or
otherwise), results of operations or prospects of such Person
10
and its Subsidiaries, taken as a whole, or (ii) the right or ability of such
Person or any of its Subsidiaries to consummate the transactions contemplated
hereby.
"Material Contracts" has the meaning set forth in Section 3.19.
"Merger" has the meaning set forth in the Recitals.
"Merger Consideration" means the dollar amount determined by adjusting
the Acquisition Price as follows:
(i) adding thereto the Working Capital Adjustment; and
(ii) subtracting therefrom the sum of (A) the aggregate amount of the
Company Debt on a consolidated basis, and without duplication, as of the
Closing Date and (B) the amount of the Preferred Share Liquidation Payment.
"Multiemployer Plan" means any "multiemployer plan," as defined in
Section 4001(a)(3) or 3(37) of ERISA, which (i) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (ii) covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with any such
entity).
"Option Consideration" means the amount that results from (i)
multiplying the aggregate number of Common Shares of the Company issuable on
exercise of the Executive Stock Options that are outstanding immediately prior
to the Effective Time (collectively the "Option Shares") by the Merger
Consideration Per Common Share (determined on a Fully Diluted Basis, as if all
of such Option Shares were outstanding at the Effective Time) and (ii)
subtracting from the resulting product thereof the aggregate sum of the exercise
prices that the Company would have
11
received had all of such Executive Stock Options been exercised for cash
immediately prior to the Effective Time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plans" means any "employee pension benefit plan" as defined
in Section 3(2) of ERISA (other than a Multiemployer Plan) which (i) the Company
or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability (including, without
limitation, any contingent liability) and (ii) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Permitted Encumbrances" means (i) statutory liens for current state
and local property taxes or assessments not yet due or delinquent; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Company; (iii) exceptions shown on the
title reports or surveys furnished by the Company to Buyer on or before the date
hereof and which do not materially affect the use, value, enjoyment, occupancy
or marketability of such property; (iv) liens or encumbrances set forth in
Schedule 1.1(a) hereto; and (v) such other recorded liens, imperfections in
title, charges, easements, restrictions and encumbrances which do not materially
affect the use, value, enjoyment, occupancy or marketability of such property.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or an agency or instrumentality thereof.
12
"Personal Property Leases" has the meaning set forth in
Sections 3.14(c).
"Personnel" of a corporation or other business entity means all
directors, officers and employees of such corporation or other business entity,
and of any Subsidiary thereof.
"Preferred Shares" means the outstanding shares of Series A Preferred
Stock, $.01 par value, of the Company.
"Preferred Share Certificate" has the meaning set forth in
Section 2.11(c).
"Preferred Share Liquidation Payment" means the product of $10.00
times the number of Preferred Shares issued and outstanding at the Effective
Time (other than Preferred Shares, if any, owned by Buyer, Sub, the Company or
any Subsidiary of the Company, Buyer or Sub), together with all accrued and
unpaid dividends thereon, all as set forth in Section 4 of Article 4 of the
Company's Certificate of Incorporation.
"Preliminary Adjustment Schedules" has the meaning set forth in
Section 2.15(a).
"Real Property Leases" has the meaning set forth in Sections 3.13(c).
"Scheduled Closing Date" has the meaning set forth in Section 2.14.
"Securities Act" has the meaning set forth in Section 3.2(a).
"Shareholders" means the Persons who are holders of Common Shares or
Executive Stock Options.
"Shareholders' Auditors" means such firm of independent certified
public accountants selected by the Shareholders' Representatives.
"Shareholders' Expenses" has the meaning set forth in Section 5.7.
"Shareholders' Representatives" has the meaning set forth in
Section 10.3.
13
"Special Escrow Fund" means the portion of the Escrow Fund, initially
funded with $1,000,000, held by the Escrow Agent pursuant to the Escrow
Agreement, to fund the obligations of the Shareholders for indemnification for
breach of the representations and warranties set forth in Section 3.2 hereof.
"Stock Option Plans" means the Incentive Stock Option, Nonqualified
Stock Option and Restricted Stock Purchase Plan - 1989 and the Incentive Stock
Option and Nonqualified Stock Option Plan - 1993 of the Company.
"Subsidiary" with respect to any Person, means any corporation or
other business entity, whether or not incorporated, of which at least 50% of the
securities or interests having, by their terms, ordinary voting power to elect
members of the Board of Directors, or other persons performing similar functions
with respect to such entity, is held directly or indirectly by such Person.
"Survival Period Termination Date" has the meaning set forth in
Section 8.1.
"Survival Period" has the meaning set forth in Section 8.1.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax Benefit" means the tax effect of any item of loss, deduction or
credit or any other item (including any increase in tax basis of Assets of the
Company, its Subsidiaries or Chroma) which decreases Taxes paid or payable.
"Tax Law" means the Internal Revenue Code, federal, state or local,
whether domestic or foreign, laws relating to Taxes and any regulations or
official administrative pronouncements released thereunder.
"Tax Loss" means the tax effect of any item (including any decrease in
tax basis of Assets of the Company, its Subsidiaries or Chroma) which increases
Taxes paid or payable.
14
"Tax Returns" means any and all returns, reports, declarations and
information statements with respect to Taxes required to be filed by or on
behalf of the Company, its Subsidiaries or Chroma with any Taxing Authority,
whether domestic or foreign, including consolidated, combined or unitary returns
and all amendments thereto.
"Taxes" means (i) all federal, state and local, whether domestic or
foreign, taxes or assessments, including those relating to income, gross
receipts, gross income, capital stock, franchise, profits, employees and
payroll, withholding, foreign withholding, social security, unemployment,
disability, license, real property, personal property, intangibles, stamp,
excise, sales, use, transfer, occupation, value added, ad valorem, customs
-- -------
duties, premium, windfall profits, environmental (including taxes under Section
59A of the Internal Revenue Code), alternative minimum or estimated taxes or
other similar tax, duty or governmental charge, together with any interest,
penalties or additions to tax or additional amounts with respect to the
foregoing, whether disputed or not and (ii) any obligations under any agreements
or arrangements with respect to any Taxes described in clause (i) hereof.
"Taxing Authority" means any Governmental Authority including social
security administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Taxes.
"Unadjusted Merger Consideration" has the meaning set forth in
Section 2.15(a).
"Unpaid Shareholders' Expenses" has the meaning set forth in
Section 5.7.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (i) any of the Company, its Subsidiaries or Chroma
or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or under which the Company,
15
its Subsidiaries or Chroma or any ERISA Affiliate may incur any liability and
(ii) covers any employee or former employee of the Company, its Subsidiaries or
Chroma or any ERISA Affiliate (with respect to their relationship with any such
entity).
"Working Capital" means the sum of the consolidated current assets of
the Company identified in Schedule 1.1(c) in excess of the sum of the
consolidated current liabilities of the Company identified in Schedule 1.1(c),
in each case determined in accordance with GAAP applied on a basis consistent
with the 1998 Audited Company Financial Statements.
"Working Capital Adjustment" means (i) if the Closing Date Working
Capital is more than $8,300,000, the amount of such difference expressed as a
positive number, (ii) if the Closing Date Working Capital is less than
$7,900,000, the amount of such difference expressed as a negative number or
(iii) if the Closing Date Working Capital is at least $7,900,000 but not more
than $8,300,000, zero ($0.00).
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the satisfaction or waiver,
if permissible, of the conditions hereof, and in accordance with the DGCL, at
the Effective Time, Sub shall be merged with and into the Company. Following
the Merger, the separate corporate existence of Sub shall cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall be governed by the DGCL.
2.2 Effective Time. On the Closing Date, the parties shall cause the
Merger to be consummated by causing a certificate of merger substantially in the
form of Exhibit B with respect to the Merger to be executed and filed with the
Secretary of State of the State of Delaware in
16
accordance with the relevant provisions of the DGCL. The Merger shall become
effective at the time of filing the certificate of merger with the Secretary of
State of the State of Delaware in accordance with the relevant provisions of the
DGCL (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
Sections 251 and 259 of the DGCL.
2.4 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended and restated in its entirety as set forth in the
Certificate of Merger upon the filing thereof pursuant to Section 2.14 hereof
and, as so amended, shall be the Certificate of Incorporation of the Surviving
Corporation. The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation.
2.5 Directors. The directors of Sub immediately prior to the Effective
Time shall be the initial directors of the Surviving Corporation and shall hold
office until their respective successors are duly elected and qualified, or
their earlier death, resignation or removal.
2.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
2.7 Required Repayment of Company Debt. At the Effective Time Buyer shall
provide the Surviving Corporation with the funds necessary, and shall cause the
Surviving Corporation, to repay in full the Company Debt set forth in Schedule
2.7.
17
2.8 Preferred Share Liquidation; Conversion of Common Shares and
Cancellation of Options.
(a) Each Preferred Share outstanding immediately prior to the
Effective Time (other than Preferred Shares, if any, owned by Buyer, Sub, the
Company or any Subsidiary of the Company, Buyer or Sub) shall, by virtue of the
Merger and Section 4(a)(2) of Article 4 of the Company's Certificate of
Incorporation as in effect on the date hereof, and without any action on the
part of the holder thereof, automatically be converted into the right to receive
the portion of the Preferred Share Liquidation Payment applicable to such
Preferred Share upon surrender of the certificate representing such Preferred
Share as provided in Section 4 of Article IV of the Company's Certificate of
Incorporation and in Section 2.11 hereof. At the Effective Time, and provided
that Buyer has paid or caused to be paid the Preferred Share Liquidation Payment
to the Shareholders' Representatives, all accruals of dividends on and all other
rights of holders of Preferred Shares as set forth in the Company's Certificate
of Incorporation shall cease and shall be of no further force and effect.
(b) Each Common Share outstanding immediately prior to the Effective
Time (other than Common Shares, if any, owned by Buyer, Sub, the Company or any
Subsidiary of the Company, Buyer or Sub, and Dissenting Shares, if any) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into the right to receive, in accordance
with Sections 2.11(c), 2.11(d) and 2.15, the Common Share Merger Consideration
divided by the aggregate number of Common Shares outstanding at the Effective
Time (other than any Common Shares purchasable on exercise of any Executive
Stock Options and Common Shares,
18
if any, owned by Buyer, Sub, the Company, or any Subsidiary of the Company,
Buyer or Sub) upon surrender of the certificate representing such Share as
provided in Section 2.11.
(c) Each Common Share and each Preferred Share, if any, owned by
Buyer, Sub, the Company or any Subsidiary of the Company, Buyer or Sub
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be canceled
and cease to exist at and after the Effective Time and no consideration shall be
paid with respect thereto.
(d) Each Executive Stock Option for which a Option Cancellation
Agreement has been executed and delivered either as of or immediately prior to
the Effective Time shall thereafter represent the right to receive the portion
of the Option Consideration allocable to the Executive Stock Options so canceled
by the holder thereof, which shall be paid in the manner and to the extent set
forth in Sections 2.11 and 2.15 of this Agreement.
2.9 Conversion of Sub Common Stock. Each share of common stock, par value
$.01 per share, of Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be converted into and thereafter represent one
validly issued, fully paid and nonassessable common share, par value $.01 per
share, of the Surviving Corporation, so that thereafter Buyer will be the sole
and exclusive owner of the outstanding capital stock of the Surviving
Corporation.
2.10 Shareholders' Approval. The Company, acting through its Board of
Directors (which shall have recommended approval of the Merger and approval and
adoption of this Agreement to its shareholders), shall, in accordance with
applicable law, use its best efforts to obtain the approval of the Merger and
the approval and adoption of this Agreement by its shareholders.
19
2.11 Statement of Estimated Merger Consideration; Exchange of Shares;
Payment.
(a) Not less than three days prior to the Closing Date, the Company
shall deliver to Buyer a statement signed by a vice president of the Company
setting forth in reasonable detail the calculation of the Company's estimate of
(i) the Working Capital Adjustment (the "Estimated Working Capital Adjustment"),
if any, and (ii) the Merger Consideration prior to application of the Working
Capital Adjustment (the "Estimated Unadjusted Merger Consideration"), which
calculations must, in each case, be acceptable to Buyer, acting reasonably and
without undue delay. The "Estimated Merger Consideration" means the Estimated
Unadjusted Merger Consideration plus the Estimated Working Capital Adjustment.
Such calculations also shall set forth the Company's calculation of the
adjustments to the Acquisition Price, as contemplated by the definition of
Merger Consideration, to arrive at the Estimated Merger Consideration, and the
respective portions of the Estimated Merger Consideration that will be payable
(i) to the holders of the outstanding Common Shares (the "Estimated Common Share
Merger Consideration") and (ii) the holders of the outstanding Executive Stock
Options (the "Estimated Option Consideration"), and the allocable portion of the
Escrow Payment to be deducted and withheld from the Estimated Option
Consideration and the Estimated Common Share Merger Consideration, as the case
may be.
(b) At the Effective Time, Buyer shall deposit or cause to be
deposited in immediately available funds (i) with the Escrow Agent, the Escrow
Payment to be held and disbursed in accordance with the terms of the Escrow
Agreement, and (ii) with the Shareholders' Representatives, an amount equal to
(A) the Preferred Share Liquidation Payment to be distributed to the holders of
Preferred Shares and (B) the difference between the Estimated Merger
Consideration and the Escrow Payment for disbursement to the respective holders
of the Common
20
Shares and the Executive Stock Options, in each case outstanding immediately
prior to the Effective Time, in the manner set forth below (such disbursement to
be the responsibility of the Shareholders' Representatives and not the Surviving
Corporation); provided that the portion of the Common Share Merger Consideration
--------
allocable to holders of Dissenting Shares, if any, shall be retained by the
Surviving Corporation and disbursed in accordance with Section 2.13 hereof. At
the time such deposits are made with the Shareholders' Representatives, the
Company shall deliver to Buyer and the Shareholders' Representatives a
certificate setting forth (i) the amount of the Preferred Share Liquidation
Payment and the amount thereof that is payable in respect of each Preferred
Share that was outstanding immediately prior to the Effective Time and the
identity of, and the number of Preferred Shares owned by, each holder of
Preferred Shares; (ii) the amount of the Estimated Common Share Merger
Consideration in excess of the pro-rata portion of the Escrow Payment allocable
to holders of Common Shares and the amount thereof that is payable in respect of
each Common Share that was outstanding immediately prior to the Effective Time,
and the identity of, and the number of Common Shares owned by, each holder of
Common Shares and (iii) the Estimated Option Consideration in excess of the pro-
rata portion of the Escrow Payment allocable to holders of Executive Stock
Options, and the amount thereof payable to each holder of Executive Stock
Options that were canceled as of the Effective Time in exchange for such Option
Consideration.
(c)
(i) Prior to the Effective Time, the Company shall hand deliver
or mail (A) to each holder of record of an outstanding certificate or
certificates representing any Preferred Shares or Common Shares a letter of
transmittal
21
substantially in the form of Exhibits C-1 and C-2 hereto, respectively,
and, (B) to the extent not theretofore exercised, to the holders of
Executive Stock Options an Option Cancellation Agreement substantially in
the form of Exhibit D hereto.
(ii) Subject to Section 2.11(d) hereof, upon the later of the
Effective Time and surrender to the Surviving Corporation of a certificate
(a "Preferred Share Certificate") which immediately prior to the Effective
Time represented Preferred Shares (other than Preferred Shares, if any,
owned by Buyer, Sub, the Company, or any Subsidiary of the Company, Buyer,
or Sub), together with such letter of transmittal duly executed, the holder
of such Preferred Share Certificate shall receive, in exchange therefor, an
amount, in immediately available funds, equal to the portion of the
Preferred Share Liquidation Payment applicable to the Preferred Shares
represented by such Preferred Share Certificate.
(iii) Subject to clause (v) of this Section 2.11(c) and to
Section 2.11(d) hereof, upon delivery to the Surviving Corporation of an
Option Cancellation Agreement for cancellation of the certificates,
instruments or documents which immediately prior to the Effective Time
represented an Executive Stock Option duly executed by the holder thereof,
such holder shall receive the portion of the Estimated Option Consideration
delivered to the Shareholders' Representatives for disbursement to the
holders of Executive Stock Options, which shall be determined by
multiplying the Fully-Diluted Estimated Merger Consideration Per Share (as
hereinafter defined) by the number of Common Shares that were issuable on
exercise of the holder's Executive Stock Options and subtracting from the
product thereof (A)
22
the aggregate of the sum of the exercise price of such holders Executive
Stock Options and (B) the pro-rata portion, determined on a Fully-Diluted
Basis, of the Escrow Payment allocable to such holder's canceled Executive
Stock Options. For purposes of this Agreement "Fully Diluted Estimated
Merger Consideration Per Share" shall be determined by (A) adding the
Estimated Merger Consideration and the aggregate sum of the exercise prices
of the outstanding Executive Stock Options, and (B) dividing that sum by
the number of Common Shares determined on a Fully Diluted Basis and "Fully
Diluted Merger Consideration Per Share" shall be determined in the same
manner, except that the Merger Consideration (as hereinabove defined) shall
be used in place of the Estimated Merger Consideration in such calculation.
(iv) Subject to clause (v) of this Section 2.11(c) and to
Section 2.11(d) hereof, upon the later of the Effective Time and surrender
to the Surviving Corporation of a certificate which immediately prior to
the Effective Time represented Common Shares (a "Common Share Certificate")
that are not Dissenting Shares, together with such letter of transmittal
duly executed, the holder of such Common Share Certificate shall receive,
in exchange therefor, an amount, in immediately available funds, equal to
the product of the number of Common Shares represented by such Common Share
Certificate multiplied by the Fully Diluted Merger Consideration Per Share
and subtracting therefrom the pro-rata portion, determined on a Fully-
Diluted Basis, of the Escrow Payment allocable to such holder's Common
Shares.
23
(v) No interest will be paid or accrued on any amount payable
upon the surrender or delivery of a Certificate or Option Cancellation
Agreement. 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 all transfer and other taxes required by reason of
the payment to a Person other than the registered holder of the Certificate
surrendered, or establish to the satisfaction of the Shareholders'
Representatives and Buyer that such tax has been paid or is not applicable,
or provide assurances satisfactory to the Shareholders' Representatives and
Buyer that any such tax will be paid by such Person. Until surrendered or
canceled, as the case may be, in accordance with the provisions of this
Section 2.11, each Certificate representing any Preferred Shares or Common
Shares (other than Certificates representing Preferred Shares or Common
Shares owned by Buyer, Sub, the Company or any Subsidiary of the Company,
Buyer or Sub and Dissenting Shares, if any) and each instrument evidencing
Executive Stock Options shall represent for all purposes only the right to
receive, as provided by this Agreement, the allocable portion of the
Preferred Share Liquidation Payment, Common Share Merger Consideration or
the Option Consideration, as the case may be, and shall have no other
rights. Any funds remaining with the Shareholders' Representatives one year
following the Effective Time as a result of the failure of any former
Preferred Shareholder, former Common Shareholder or former holder of
Executive Stock Options to have tendered their
24
Shares or Option Cancellation Agreements in accordance with the provisions
hereof, shall be returned to Buyer after which time such former
Shareholders of the Company or former holders of Executive Stock Options,
subject to applicable law, shall look only to Buyer for payment of the
Preferred Share Liquidation Payment, Common Share Merger Consideration or
the Option Consideration, as the case may be, without interest thereon, and
shall have no greater rights against Buyer than may be accorded to
unsecured creditors of the Surviving Corporation under Delaware law.
Notwithstanding anything to the contrary contained herein, neither the
Shareholders' Representatives nor any party hereto shall be liable to a
holder of Common Shares, Preferred Shares or Executive Stock Options for
any amount paid to a public official to the extent required pursuant to
applicable abandoned property, escheat or similar law.
(d) Notwithstanding anything to the contrary set forth herein, the
amount of Preferred Share Liquidation Payment to be paid upon surrender of a
Preferred Share Certificate and the portion of the Estimated Merger
Consideration to be received by each Shareholder upon surrender to Buyer or the
Surviving Corporation of a Common Share Certificate or Option Cancellation
Agreement and any other required documents, as provided in this Section 2.11,
shall be reduced by (i) the amount, if any, the Shareholders' Representatives
are required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code, or any provision of state, local or foreign Tax
law and (ii) as to holders of Common Shares or Executive Stock Options not
theretofore exercised, such Shareholder's allocable portion of (A) the Escrow
Payment (subject to the rights of such holders to receive disbursements of the
Escrow Fund to the
25
extent and upon the terms and conditions set forth in the Escrow Agreement) and
(B) any Unpaid Shareholders' Expenses.
2.12 Stock Options. Prior to the Effective Time, the Board of Directors of
the Company (or, if appropriate, any Committee thereof) shall adopt appropriate
resolutions and take all other actions necessary to provide for the
cancellation, effective at the Effective Time, of all the outstanding Executive
Stock Options theretofore granted which are not exercised prior to the Effective
Time in exchange for the right to receive, subject to Sections 2.11 and 2.15,
the Option Consideration under this Agreement, and the termination of the Stock
Option Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary as of the Effective Time.
2.13 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, holders of Common Shares who have properly exercised, perfected and
not subsequently withdrawn or lost their appraisal rights with respect thereto
in accordance with Section 262 of the DGCL or, if applicable, Section 1300 of
the California General Corporation Law ("CGCL") (the "Dissenting Shares") shall
not have any of such shares converted into the right to receive, or become
exchangeable for, their applicable portion of the Merger Consideration. The
holders of such Dissenting Shares shall be entitled to receive payment of the
fair value of such Dissenting Shares in accordance with the provisions of such
Section 262 of the DGCL or Section 1300 of the CGCL, as the case may be, unless
and until such holders fail to perfect or shall have effectively withdrawn or
lost their dissenters rights under Section 262 of the DGCL or Section 1300 of
the CGCL, as the case may be. If, after the Effective Time, any such holder of
Common Shares fails to perfect or shall have effectively withdrawn or lost such
right, each of such holder's Common Shares shall thereupon be
26
treated as if it had been converted into the right to receive, and become
exchangeable for, at the Effective Time, the applicable portion of the Common
Share Merger Consideration, without interest thereon, as provided in Section
2.11 hereof.
2.14 Closing. On the date which is the third Business Day after the
expiration or termination of the waiting period under the HSR Act (or such other
time as the parties may mutually agree) (the "Scheduled Closing Date"), a
closing (the "Closing") will be held at the offices of Xxxxxxxxx Xxxxx Xxxxxxx &
Xxxxx, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 (or such other
place as the parties may agree) for the purpose of confirming all of the
foregoing; provided, that until consummation of the Merger nothing in this
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Section 2.14 shall be deemed to affect the rights and obligations of the parties
under Article IX hereof. The date and time at which such Closing actually
occurs are herein referred to as the "Closing Date." On the Closing Date, the
Company and Sub shall execute in the manner required by the DGCL and deliver to
the Secretary of State of the State of Delaware a duly executed certificate of
merger, and the parties shall take such other and further actions as may be
required by law to make the Merger effective on the Closing Date.
2.15 Determination of the Merger Consideration.
(a) As promptly as practical, but in no event later than 60 days
after the Closing Date, Buyer shall prepare and deliver to the Shareholders'
Representatives (i) schedules showing the line items comprising the Working
Capital as of the close of business on the Business Day immediately preceding
the Closing Date and the Working Capital Adjustment, if any, and (ii) a schedule
setting forth the calculation of the Merger Consideration prior to application
of the Working Capital Adjustment (the "Unadjusted Merger Consideration"), in
each case, setting forth
27
in reasonable detail the data and calculations set forth therein, together with
a certification by the Buyer's Chief Financial Officer stating that, except as
otherwise contemplated by the definition of Working Capital, the foregoing
schedules have been prepared in conformity with GAAP applied on a basis
consistent with the basis on which the Audited Company Financial Statements for
the year ended July 31, 1998, and were prepared in conformity with the
provisions of this Agreement (collectively, the "Preliminary Adjustment
Schedules").
(b) The Shareholders' Representatives, the Shareholders' Auditors and
other representatives of the Shareholders shall have full access during normal
business hours to all books and records and employees of Buyer and the Company
pertaining or relevant to review the Preliminary Adjustment Schedules and the
resolution of any dispute with respect thereto, and shall be permitted to review
the work papers, if any, of the Company and the Buyer's Auditors relating
thereto. Unless the Shareholders' Representatives give written notice to Buyer
on or before the 30th day after the Shareholders' Representatives' receipt of
the Preliminary Adjustment Schedules, specifying in reasonable detail all
objections to any items in the Preliminary Adjustment Schedules and the basis
therefor, the Shareholders shall be deemed to have accepted and agreed to the
Preliminary Adjustment Schedules. If the Shareholders' Representatives so notify
Buyer of their objection to one or more items set forth in the Preliminary
Adjustment Schedules, the Shareholders' Representatives shall be deemed to have
accepted and agreed to the items set forth in the Preliminary Adjustment
Schedules that are not so specified in such notice to Buyer as having been
objected to. Buyer and the Shareholders' Representatives shall, during the 30
days following such notice (the "Resolution Period"), attempt to resolve their
differences by mutual agreement with respect to any disputed amounts and any
resolution by them as to any disputed amounts shall be final, binding and
28
conclusive. During the period of any dispute within the contemplation of this
Section 2.15, Buyer, the Buyer's Auditors and other representatives of Buyer
shall be permitted to review the work papers, if any, of the Shareholders'
Auditors relating to the Preliminary Adjustment Schedules. The Shareholders and
the Shareholders' Auditors and Buyer and the Buyer's Auditors shall cooperate
with each other in facilitating such review.
(c) If at the conclusion of the Resolution Period amounts remain in
dispute, then all amounts remaining in dispute shall be submitted, as soon as
practicable, to a mutually acceptable firm of independent public accountants of
recognized national standing (the "Neutral Auditors"). If Buyer and the
Shareholders' Representatives are unable to agree on the Neutral Auditors within
10 days after the expiration of the Resolution Period, Buyer and the
Shareholders' Representatives shall each have the right to request the American
Arbitration Association to appoint the Neutral Auditors who shall not have had a
material business relationship with Buyer, the Shareholders' Representatives or
any of their respective Affiliates within the past two years. The parties agree
to execute a reasonable engagement letter if requested by the Neutral Auditors.
The Neutral Auditors shall act as an arbitrator to determine only those issues
still in dispute and to determine the Merger Consideration based upon such
determinations of the issues in dispute together with those items which were
resolved pursuant to Section 2.15(b). The Neutral Auditors' determinations shall
be made within 45 days after their selection, shall be set forth in a written
statement delivered to Buyer and the Shareholders' Representatives and shall be
final, binding and conclusive. The term "Final Closing Date Adjustment Report,"
as used herein, means the definitive adjustment schedules agreed or deemed to
have been agreed by Buyer and the Shareholders' Representatives in accordance
with Section 2.15(b) or the definitive adjustment schedules resulting from the
determinations by the
29
Neutral Auditors in accordance with this Section 2.15(c) (in addition to those
items theretofore agreed by Buyer and the Shareholders' Representatives).
(d) Adjustment.
----------
(i) After the resolution of all disputes with respect to the
Final Closing Date Adjustment Report the parties shall determine (A) the
difference between the Estimated Unadjusted Merger Consideration and the
Unadjusted Merger Consideration and (B) the difference between the
Estimated Working Capital Adjustment and the Working Capital Adjustment. As
used herein, the following terms have the following meanings:
(A) "Unadjusted Merger Consideration Deficiency" means that
the Unadjusted Merger Consideration minus the Estimated Unadjusted
Merger Consideration is a positive number.
(B) "Unadjusted Merger Consideration Overpayment" means
that the Unadjusted Merger Consideration minus the Estimated
Unadjusted Merger Consideration is a negative number.
(C) "Working Capital Adjustment Deficiency" means that the
Working Capital Adjustment minus the Estimated Working Capital
Adjustment is a positive number.
(D) "Working Capital Adjustment Overpayment" means that the
Working Capital Adjustment minus the Estimated Working Capital
Adjustment is a negative number.
30
(ii) In the event that the sum of (A) Unadjusted Merger
Consideration as set forth in the Final Closing Date Adjustment Report
minus the Estimated Unadjusted Merger Consideration and (B) the Working
Capital Adjustment minus the Estimated Working Capital Adjustment is a
positive number (a "Merger Consideration Deficiency"), Buyer shall cause
the Company, promptly following resolution of any objections with respect
to the Preliminary Adjustment Schedules, pay to the Shareholders'
Representatives as agents on behalf of the Shareholders by wire transfer of
immediately available funds an amount equal to the Merger Consideration
Deficiency so determined plus Merger Consideration Interest (hereinafter
defined) applicable thereto.
(iii) In the event that the sum of (A) the Unadjusted Merger
Consideration as set forth in the Final Closing Date Adjustment Report
minus the Estimated Unadjusted Merger Consideration and (B) the Working
Capital Adjustment minus the Estimated Working Capital Adjustment is a
negative number (a "Merger Consideration Overpayment"), the following shall
apply:
(A) In the event there is an Unadjusted Merger
Consideration Overpayment and there is a Working Capital Adjustment
Overpayment, the Escrow Agent shall, promptly following resolution of
any objections with respect to the Preliminary Adjustment Schedules,
pay to Buyer by wire transfer of immediately available funds an amount
equal to the lesser of (A) $150,000 and (B) the sum of the Working
Capital Adjustment Overpayment plus Merger Consideration Interest
applicable thereto, and the
31
Shareholders' Representatives as agents on behalf of the Shareholders,
and not in their individual capacities, shall promptly pay to Buyer by
wire transfer of immediately funds the amount of the sum of (1) the
Unadjusted Merger Consideration Overpayment plus Merger Consideration
Interest applicable thereto, (2) the amount if any by which the sum of
the Working Capital Adjustment Overpayment and Merger Consideration
Interest applicable thereto is in excess of $150,000.
(B) In the event there is an Unadjusted Merger
Consideration Overpayment and there is a Working Capital Adjustment
Deficiency, and the amount of the Unadjusted Merger Consideration
Overpayment exceeds the Working Capital Adjustment Deficiency, the
Shareholders' Representatives as agents on behalf of the Shareholders,
and not in their individual capacities, shall, promptly following
resolution of any objections with respect to the Preliminary
Adjustment Schedules, pay to Buyer by wire transfer of immediately
funds the amount equal to such excess together with Merger
Consideration Interest applicable to such amount.
(C) In the event that there is an Unadjusted Merger
Consideration Deficiency and a Working Capital Adjustment Overpayment
that exceeds the Unadjusted Merger Consideration Deficiency, the
Escrow Agent shall, promptly following resolution of any objections
with respect to the Preliminary Adjustment Schedules, pay to Buyer by
wire transfer of immediately available funds an amount equal to the
lesser of (1) such excess
32
together with the Merger Consideration Interest applicable thereto and
(2) $150,000, and the Shareholders' Representatives as agents on
behalf of the Shareholders, and not in their individual capacities,
shall promptly pay to Buyer by wire transfer of immediately funds the
amount that is equal to the amount, if any, by which the difference
between (3) the Working Capital Adjustment Overpayment plus Merger
Consideration Interest applicable thereto and (4) the Unadjusted
Merger Consideration Deficiency plus Merger Consideration Interest
applicable thereto is in excess of $150,000.
(e) Any Merger Consideration Deficiency or Merger Consideration
Overpayment shall be paid within five days after the determination thereof and
shall bear interest at the prime rate of Xxxxxx Guaranty Trust Company of New
York from time to time from (and including) the Closing Date to (and including)
the date immediately preceding the date of payment (as applicable, "Merger
Consideration Interest") which shall be paid as provided in Section 2.15(d).
(f) The fees and expenses of Buyer's Auditors incurred in connection
with the preparation of the Preliminary Adjustment Schedules and Final Closing
Date Adjustment Report shall be borne by the Surviving Corporation, and the fees
and expenses of Shareholders' Auditors incurred in connection with their review
of the Preliminary Adjustment Schedules and Final Closing Date Adjustment Report
shall be borne by the Shareholders. The fees and expenses of any Neutral
Auditors shall be borne by the Shareholders and Buyer in such amount(s) as shall
be determined by the Neutral Auditors based on the proportion that the aggregate
amount of disputed items submitted to the Neutral Auditors that is
unsuccessfully disputed by the Shareholders, on the one hand, or the Buyer, on
the other hand, as determined by the Neutral Auditors, bears to the total amount
of such
33
disputed items so submitted.
2.16 Allocation of Merger Consideration. The parties agree that no portion
of the Merger Consideration will be allocated to the Non-Competition Agreements
contemplated by Section 6.13 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Buyer to enter into this Agreement, the Company hereby
makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Buyer, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to Buyer prior to the
execution hereof, a copy of which is attached hereto. The Schedules are
numbered to correspond to the various sections of this Article III setting forth
certain exceptions to the representations and warranties contained in this
Article III and certain other information called for by this Agreement. Unless
otherwise specified, no disclosure made in any particular Schedule shall be
deemed made in any other Schedule unless expressly made therein (by cross-
reference or otherwise) unless, and only to the extent that, it would be fairly
understood on its face to contain information which also is applicable to the
representation and warranty to which such other Schedule relates.
The Company represents and warrants to Buyer the following:
3.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has corporate
power and authority to own or lease all of its respective properties and assets
and to carry on its business as it is presently being
34
conducted. The Company is duly qualified and in good standing to transact
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be in good standing or to be duly
qualified would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect on the Company. Each jurisdiction in which the
Company is qualified to do business is set forth in Schedule 3.1. The Company
has heretofore delivered to Buyer complete and correct copies of the Certificate
of Incorporation and Bylaws or equivalent organizational documents of the
Company as currently in effect.
(b) A complete list of the directors and officers of the Company and
Monterey Color Systems, Inc., and of the members of the management committee of
Chroma, is set forth in Schedule 3.1.
(c) Except for Monterey Color Systems, Inc., a California
corporation, the Company does not have, and has never had, any Subsidiary.
Monterey Color Systems, Inc. is duly qualified and in good standing to transact
business in California which is the only jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be in good
standing or to be duly qualified would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on the Company.
(d) Chroma is a duly organized and validly existing general
partnership under the laws of the State of California. The Company has
heretofore delivered to Buyer complete and correct copies of the partnership
agreement of Chroma as currently in effect.
35
3.2 Capitalization of the Company; Validity of Shares; Voting Trusts.
(a) The authorized capital stock of the Company and the amount of
such stock which is outstanding is set forth in Schedule 3.2. All of the
outstanding Common Shares and Preferred Shares (i) have been duly authorized,
are validly issued, fully paid and nonassessable, and were not issued in
violation of any preemptive rights, and (ii), except as set forth in Schedule
3.2, are owned of record by the Shareholders as set forth on Schedule 3.2, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and state securities
laws).
(b) Monterey Color Systems, Inc., holds beneficially and of record a
one-third general partnership interest in Chroma free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws and under the Chroma Partnership Agreement) and
Encumbrances. There is set forth on Schedule 3.2 the name and percentage
ownership interest of each of the other partners in Chroma.
(c) All of the outstanding shares of capital stock of each Subsidiary
are duly authorized, validly issued, fully paid and nonassessable. The Company
holds beneficially and of record all of the outstanding shares of capital stock
of each Subsidiary free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws) and
Encumbrances.
(d) Except as set forth in Schedule 3.2, (i) none of the Company, any
Subsidiary or Chroma has any commitment to issue or sell any shares of its
capital stock or partnership interests, or any securities or obligations
convertible into or exchangeable for, or giving any person any right to acquire
from the company, its Subsidiaries or Chroma, any shares of its capital stock or
36
partnership interests, and no such securities or obligations are outstanding and
(ii) there are no obligations or commitments of any kind for the repurchase,
redemption or other acquisition of any shares of capital stock or partnership
interests of the Company, its Subsidiaries or Chroma.
(e) Except as set forth in Schedule 3.2, none of the Company, any
Subsidiary or Chroma directly or indirectly owns any capital stock of or other
equity interest in any corporation, partnership or other entity or other Person.
(f) Except as set forth in Schedule 3.2, or with respect to Chroma,
in the Chroma Partnership Agreement, there are no shareholders agreements,
voting trusts, proxies or other agreements or understandings with respect to or
concerning the purchase, sale or voting of the capital stock of the Company or
any Subsidiary or the partnership interests of Chroma.
3.3 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Company, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by the Board of Directors of the Company and, except for obtaining
the requisite approval of the shareholders of the Company, no other corporate
proceedings on the part of the Company are necessary with respect thereto. This
Agreement has been duly executed and delivered by the Company and, assuming that
Buyer and Sub have duly authorized, executed and delivered this Agreement, this
Agreement constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be subject to or limited by (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium,
37
or other similar laws relating to or affecting rights of creditors and (ii)
general equitable principles, regardless whether the issue of enforceability is
considered in a proceeding in equity or at law.
3.4 Consents and Approvals. No consent, waiver, agreement, approval or
authorization of, or declaration, filing, notice or registration to or with, any
Governmental Authority is required to be made or obtained by the Company, its
Subsidiaries or Chroma in connection with the execution, delivery and
performance of this Agreement and the consummation by the Company of the
transactions contemplated hereby other than (i) filings required in connection
with or in compliance with the provisions of the HSR Act and (ii) those set
forth in Schedule 3.4. Except as set forth in Schedule 3.4, and except with
respect to the Company Debt listed in Schedule 2.7 which will be repaid in full
at Closing as permitted by the terms thereof, there is no requirement that any
party to any Material Contract, Material Lease or loan agreement to which the
Company, its Subsidiaries or Chroma is a party or by which any of them is bound,
consent to the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby.
3.5 Non-Contravention. The execution, delivery and performance by the
Company of this Agreement does not, and the consummation by the Company of the
transactions contemplated hereby will not (i) violate or result in a breach of
any provision of the Certificate or Articles of Incorporation, Bylaws or similar
organizational documents of the Company, its Subsidiaries or Chroma, (ii) except
as described in Schedule 3.5, conflict with, result in a breach of or result in
a default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions or provisions of any Material Contract
to which the Company, its Subsidiaries or Chroma are a party or by which the
Company, its Subsidiaries or Chroma are bound, or (iii) violate any order,
38
writ, injunction, decree, statute, rule or regulation applicable to the Company,
its Subsidiaries or Chroma or any of their Assets.
3.6 Environmental Matters.
(a) Except as set forth in Schedule 3.6, each of the Company, its
Subsidiaries and Chroma have obtained all Environmental Permits required to
conduct the business as it is presently being conducted, including those
relating to (i) emissions, discharges or threatened discharges of pollutants,
contaminants, hazardous or toxic substances or petroleum into the air, surface
water, ground water or the ocean, or on or into the land ("Hazardous Emissions")
and (ii) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, hazardous or toxic
substances, or petroleum ("Handling Hazardous Substances"), whether by the
Company, its Subsidiaries or Chroma or by a third party on their behalf.
Schedule 3.6 contains a complete and correct list of all such Environmental
Permits and their respective expiration dates. Except as set forth in Schedule
3.6, all such Environmental Permits are in full force and effect and will remain
in full force and effect at least until the Effective Time and will not be
terminated, rescinded or modified in a manner materially adverse to the
operations of the Company and its Subsidiaries taken as a whole, or Chroma by
consummation of the transactions contemplated hereby. The Company, its
Subsidiaries and Chroma are in compliance in all material respects with (i) all
of the terms and conditions set forth in such Environmental Permits and (ii) all
of the terms and conditions contained in or required of it by any Environmental
Law applicable to the Company, its Subsidiaries or Chroma, their Assets, or
their respective Business.
(b) Except as set forth in Schedule 3.6, (i) no underground storage
tank or underground storage receptacle for Hazardous Substances is located on
the Facilities, (ii) there have
39
been no releases of Hazardous Substances at the Facilities during the period the
Facilities have been owned or operated by the Company, its Subsidiaries or
Chroma, or to the knowledge of the Company, at any other time and (iii), to the
knowledge of the Company, no owners or operators of real property adjacent to
the Facilities have spilled, released or discharged any Hazardous Substances
onto such adjacent properties.
(c) Except as set forth in Schedule 3.6, no facts, conditions or
events exist which (i) interfere with, prevent, or, with the passage of time,
would reasonably be expected to interfere with or prevent continued compliance
in all material respects with any of the Environmental Permits or any
Environmental Law, (ii) would reasonably be expected to give rise to any
liability (whether based in contract, tort, implied or express warranty,
criminal or civil statute or otherwise) under any Environmental Law relating to
the Hazardous Emissions or Handling Hazardous Substances or (iii) obligate the
Company, its Subsidiaries or Chroma or, with the passage of time, would
reasonably be expected to cause the Company, its Subsidiaries or Chroma to be
obligated to clean up, remedy, xxxxx or otherwise restore to a former condition
("remediate"), by themselves or jointly with others, any contaminated surface
water, ground water, soil or any natural resources associated therewith either
on the Facilities or at any property owned by a third party, or in any building,
structural or insulation materials located on or in the Facilities that contain
greater than 1% asbestos, and none of the Company, its Subsidiaries or Chroma
has received any notice of such events or conditions, and the Company is not
aware of any such events or conditions.
(d) Schedule 3.6 contains a complete and correct list of all waste
disposal sites to which the Company, its Subsidiaries or Chroma has transported
or, to its knowledge, have caused to be transported, solid or hazardous waste
for purposes of disposal.
40
(e) To the knowledge of the Company, none of the Company, its
Subsidiaries or Chroma has released any other person from any claim or waived
any rights under any Environmental Law. None of the Company, its Subsidiaries or
Chroma has contractually indemnified any other person for any violation of
Environmental Laws related to the Facilities or any real property formerly owned
by the Company, its Subsidiaries or Chroma.
(f) There are no consent decrees, consent orders, judgments, judicial
or administrative orders or agreements (other than Environmental Permits) with
or liens by, any Governmental Authority relating to any Environmental Law which
regulate, obligate or bind the Company, its Subsidiaries or Chroma.
(g) True and correct copies of the Environmental Reports the Company,
its Subsidiaries or Chroma have been delivered to Buyer and a list of all such
Environmental Reports is set forth in Schedule 3.6.
(h) The Company, its Subsidiaries and Chroma has submitted on a
timely basis all applications for operating permits, if any, required pursuant
to Title V of the Clean Air Act.
3.7 Licenses and Permits. Except as set forth in Schedule 3.7, the
Company, its Subsidiaries and Chroma have all Licenses and Permits required to
conduct its respective Business as it is presently being conducted. Schedule 3.7
contains a complete and correct list of all such Licenses and Permits and their
respective expiration dates, all of which are in full force and effect and all
of which will remain in full force and effect at least until the Effective Time
and, except as set forth in Schedule 3.7, will not be terminated, rescinded or
modified in a manner materially adverse to the operations of the Company, its
Subsidiaries or Chroma by the consummation of the transactions contemplated
hereby. The Business of the Company, its Subsidiaries and Chroma has
41
been conducted in compliance in all material respects with such Licenses and
Permits. Since July 30, 1995, no notice of a violation of any such License or
Permit has been received by the Company, its Subsidiaries or Chroma or, to the
knowledge of the Company, recorded or published, and no proceeding is pending
or, to the knowledge of the Company threatened, to revoke or limit any of them.
The Company has no reason to believe that the Licenses or Permits in effect on
the date hereof will not be renewed or will be renewed with conditions that
materially affect the operation of the business of the Company, its Subsidiaries
and Chroma as currently conducted. The Company, its Subsidiaries and Chroma have
not received any written notice to the effect that, and the Company does not
have knowledge of, any currently existing circumstances that are likely to
result in, a failure of the Company, its Subsidiaries or Chroma to comply in any
material respect with or to be in a material violation of any such Licenses and
Permits.
3.8 Compliance with Laws. Except as set forth in Schedule 3.8, the
Company, its Subsidiaries and Chroma have not since July 30, 1995, violated, and
are in compliance with, (i) all applicable laws, statutes, ordinances,
regulations, rules, policies, guidelines and orders of every federal, state,
local or foreign government and every federal, state, local or foreign court or
other Governmental Authority and (ii) every judgment, decision, decree or order
of any court or governmental agency, department, authority or instrumentality
(collectively, "Laws"), relating to the Assets or the business or operations of
the Company, its Subsidiaries or Chroma, except to the extent that any such
violation or failure to comply is likely to result in Covered Liabilities of
less than $25,000 singly or $100,000 in the aggregate. The Company, its
Subsidiaries and Chroma have not received any written notice to the effect that,
nor does the Company have knowledge that, (i) the Company, its Subsidiaries and
Chroma are not currently in compliance with, or are in violation of,
42
any applicable Laws or (ii) any currently existing circumstances are reasonably
likely to result in a failure of the Company, its Subsidiaries or Chroma to
comply with, or a violation by the Company, its Subsidiaries or Chroma of, any
Laws, which such failure to comply or violation would be reasonably likely to
result in Covered Liabilities in excess of $25,000 singly or $100,000 in the
aggregate.
3.9 Financial Statements.
(a) Buyer has previously been furnished by the Company with true and
complete copies of (i) the audited consolidated financial statements, including
the notes thereto, of the Company for the three years ended July 31, 1998
(collectively, the "Audited Company Financial Statements") together with the
reports on such statements of the Company's independent certified public
accountants and (ii) management's unaudited consolidated financial statements
for the Company for the nine months ended April 30, 1999 (the "Interim Company
Financial Statements"). The Audited Company Financial Statements present fairly,
in all material respects, the consolidated financial position of the Company as
of such dates and the results of operations and cash flows for such periods and
have been prepared in accordance with GAAP. The Interim Company Financial
Statements present fairly the consolidated financial position of the Company as
of such date and the results of operations and cash flows for such period in
accordance with GAAP applied on a consistent basis, subject to changes resulting
from normal year-end audit adjustments and the absence of footnotes required by
GAAP.
(b) Buyer has previously been furnished by the Company with true and
complete copies of (i) the audited consolidated financial statements, including
the notes thereto, of Chroma for the three years ended December 31, 1998
(collectively, the "Audited Chroma Financial
43
Statements" and collectively with the Audited Company Financial Statements, the
"Audited Financial Statements") together with the reports on such statements of
Chroma's independent certified public accountants and (ii) management's
unaudited consolidated financial statements for Chroma for the three month
period ended March 31, 1999 (the "Interim Chroma Financial Statements" and
collectively with the Interim Company Financial Statements, the "Interim
Financial Statements"). The Audited Chroma Financial Statements present fairly,
in all material respects, the financial position of Chroma as of such dates and
the results of operations and cash flows for such periods in accordance with
GAAP. The Interim Chroma Financial Statements present fairly the financial
position of Chroma as of such date and the results of operations and cash flows
for such period and have been prepared in accordance with GAAP applied on a
consistent basis, subject to changes resulting from normal year-end audit
adjustments and the absence of footnotes required by GAAP.
(c) The Company, its Subsidiaries and Chroma maintain systems of
internal accounting controls sufficient to provide reasonable assurance that (i)
material transactions are executed in accordance with management's general or
specific authorizations, (ii) material transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.10 Absence of Changes. Except as set forth in Schedule 3.10, since April
30, 1999, (a) the businesses of the Company, its Subsidiaries and Chroma have
been operated in the ordinary
44
course consistent with past practices, (b) there has not been any Material
Adverse Change with respect to the Company, its Subsidiaries or Chroma, taken as
a whole and (c) to the knowledge of the Company, there has been no threatened
Material Adverse Change with respect to the Company, its Subsidiaries or Chroma,
taken as whole. Without limiting the generality of the foregoing, except as set
forth in Schedule 3.10 since July 31, 1998, the Company, its Subsidiaries and
Chroma have not:
(i) sold, assigned, leased or transferred any of the Assets
(material singly or in the aggregate to the Company, its Subsidiaries and
Chroma taken as a whole) of the Company, its Subsidiaries or Chroma, other
than Assets sold or disposed of in the ordinary course of business,
consistent with past practice, to persons who are not Affiliates of the
Company, its Subsidiaries or Chroma for fair consideration;
(ii) canceled or terminated, or amended, modified or waived any
material term of, any Material Contract to which it is a party or by which
it or any of the Assets is bound;
(iii) (A) increased the compensation payable or to become payable
to any of its directors or officers, (B) increased the base compensation
payable or to become payable to any of its Personnel (other than directors
or officers), except for normal periodic increases in such base
compensation (not exceeding, in each case, 5%) in the ordinary course of
business, consistent with past practice, (C) increased the sales commission
rate payable or to become payable to any of its Personnel, (D) granted,
made or accrued any loan, bonus, fee, incentive compensation (excluding
45
sales commissions), service award or other like benefit, contingently or
otherwise, to or for the benefit of any of its Personnel, except pursuant
to the Employee Plans set forth in Schedule 3.23, (E) adopted or amended
any Employee Plan (other than any option grants under any Employee Plan
referred to in clause (F) of this clause (iii)), other than (1)
contributions made in the ordinary course of business, consistent with past
practice or (2) the extension of coverage to any of its Personnel who
became eligible after the date of this Agreement, (F) granted any
additional stock options or performance unit grants or other interest under
any Employee Plan, (G) entered into any new employment or consulting
agreement or any written or oral termination, cancellation or amendment of
any such employment or consulting agreement to which it is a party (except
with respect to any employee at will without a written agreement), (H)
entered into any collective bargaining agreement or terminated or amended
any collective bargaining agreement to which it is a party or (I) with
respect to any Shareholder, any other Affiliate or any Affiliate of any
Shareholder, granted, made or accrued any payment or distribution or other
like benefit, contingently or otherwise, or otherwise transferred Assets,
including any payment of principal of or interest on any debt owed to any
such Shareholder or Affiliate, other than (1) any payments to such person
in the ordinary course of business in his capacity as an employee of the
Company, its Subsidiaries or Chroma, (2) any transactions between the
Company and Chroma, in the ordinary course of business and on an arms'
length basis and (3) scheduled principal and interest payments on
indebtedness reflected in the Interim Financial Statements;
46
(iv) made any capital expenditure or commitment to make any
capital expenditure except in accordance with the aggregate dollar limits
set forth in the 1999 capital expenditure plan of the Company, its
Subsidiaries and Chroma, true, correct and complete copies of which are set
forth in Schedule 3.10; provided that any capital expenditure commitment in
--------
excess of $100,000 shall be set forth in Schedule 3.10;
(v) executed or proposed in writing to execute (A) any Lease
for real property or (B) any Lease for personal property involving annual
payments in excess of $50,000;
(vi) made any material payments or given any other material
consideration to customers or suppliers, other than payments or
consideration made under, and in accordance with the terms of, Contracts in
effect on the date hereof or payment of accounts payable incurred in the
ordinary course of business or refunds and customary trade discounts in the
ordinary course of business consistent with past practice;
(vii) changed its accounting methods, principles or practices,
including any change in the application or interpretation of GAAP other
than as and to the extent required by GAAP;
(viii) suffered any damage, destruction or casualty loss (whether
or not covered by insurance) affecting its physical properties that
exceeded $25,000 in any one instance or $100,000 in the aggregate;
47
(ix) (A) issued or sold, or entered into any agreement
obligating it to issue or sell, (B) declared, set aside for payment or paid
dividends or distributions in respect of, or (C) directly or indirectly
redeemed, purchased or otherwise acquired, or split, combined, reclassified
or otherwise adjusted, any class or series of capital stock;
(x) (A) except for advances under the Factoring Agreement
dated January 26, 1995, as amended, between the Company and Trust Company
Bank, and indebtedness set forth in the Interim Company Financial
Statements, incurred any indebtedness for borrowed money or entered into
any commitment to borrow money or (B) incurred any obligations for any
performance bonds, payment bonds, bid bonds, surety bonds, letters of
credit, guarantees or similar instruments;
(xi) taken any action in anticipation of the execution of this
Agreement or the sale of the Business, or for any other reason, to delay or
defer expenses (including delay or postponement of capital expenditures or
the payment of accounts payable), liabilities or obligations of any kind
whatsoever or to accelerate any income, revenue, payment or similar item,
other than in the ordinary course of business consistent with past
practice;
(xii) paid, discharged or satisfied any material liability other
than any such payment, discharge or satisfaction in the ordinary course of
business, consistent with past practice, of (A) liabilities reflected or
reserved against on the balance sheet in the Audited Company Financial
Statements or on the balance sheet in the Interim Company Financial
Statements or incurred subsequent to April 30,
48
1999, in the ordinary course of business, consistent with past practice, or
(B) liabilities under, and in accordance with the terms of, any Material
Contracts, Licenses and Permits and other commitments set forth in the
Schedules or under Contracts (Material or other), Licenses and Permits and
other commitments which are not required to be disclosed in the Schedules;
(xiii) changed or amended its certificate or articles of
incorporation or bylaws or partnership agreement;
(xiv) (A) acquired (by merger, consolidation, acquisition of
stock, other securities or assets or otherwise), (B) made a capital
investment (whether through the acquisition of an equity interest, the
making of a loan or advance or otherwise) in or (C) guaranteed indebtedness
for borrowed money of, (1) any Person (other than a Subsidiary) or (2) any
portion of the assets of any Person that constitutes a division or
operating unit of any Person (other than a Subsidiary);
(xv) except for factoring of receivables in the ordinary
course of business consistent with past practice, mortgaged or pledged, or
otherwise made or suffered any Encumbrance (other than any Permitted
Encumbrance) on, any material Asset or group of Assets that are material in
the aggregate;
(xvi) revalued any of its Assets, including any write-off of
notes or accounts receivable or any increase in any reserve (other than in
the ordinary course of business consistent with past practice), involving
in excess of $25,000 individually or $100,000 in the aggregate (such
amounts to be calculated without netting any decrease);
49
(xvii) canceled, waived or released any right or claim (or
series of related rights or claims), other than as set forth in clause
(xvi), involving in excess of $25,000 individually or $100,000 in the
aggregate;
(xviii) made any material change in the policies or practices
relating to selling practices, returns, discounts or other terms of sale or
accounting therefor or in policies of employment; or
(xix) entered into any Contract to do any of the foregoing.
3.11 No Undisclosed Liabilities. The Company, its Subsidiaries and Chroma
do not have any material liabilities, obligations or commitments of any nature,
whether known or unknown, absolute, accrued or contingent and whether due or to
become due, except (i) as and to the extent set forth in the balance sheet
included in the Audited Financial Statements or the Interim Financial Statements
or specifically disclosed in the notes thereto, (ii) liabilities and obligations
incurred after April 30, 1999 and to and including the date hereof in the
ordinary course of business, (iii) liabilities which would have been disclosed
in the Schedules with respect to another representation or warranty but which
were not disclosed because the specific dollar thresholds set forth in such
representation and warranty did not require disclosure, (iv) liabilities which
are not a breach of the representations and warranties in the other Sections of
this Article III because of "knowledge" or "materiality" qualifications set
forth therein, but would have constituted a breach of such representations and
warranties if the "knowledge" or "materiality" qualifications were not contained
therein and (v) liabilities set forth in Schedule 3.11 or in any other Schedule.
Except as set forth in Schedule 3.11, none of the material liabilities described
in clause (ii) of this Section 3.11 relates to any breach of Material Contract,
breach of warranty (in which the liability is reasonably expected to exceed
50
$25,000 individually or $100,000 in the aggregate), infringement or violation of
law or arose out of any Action.
3.12 Litigation. Except as set forth in Schedule 3.12, there is no
outstanding order, writ, injunction, judgment or decree by any court or
Governmental Authority or any Action that either is pending or, to the knowledge
of the Company, threatened against the Company, any Subsidiary or Chroma (i)
that relates to or affects (A) the Company, its Subsidiaries or Chroma, their
business or operations or their Assets, (B) any director, officer or shareholder
of the Company, its Subsidiaries or Chroma in his capacity as such or (C) any
Employee Plan of the Company, its Subsidiaries or Chroma, (ii) that relates to
the transactions contemplated hereby, (iii) that involves the risk of criminal
liability or (iv) in which the Company, its Subsidiaries or Chroma are a
plaintiff (including any derivative suits brought by or on behalf of the
Company, its Subsidiaries or Chroma), and the Company does not have knowledge of
any event or development that is reasonably expected to result in any such
Action. There are no unsatisfied judgments or awards against the Company, its
Subsidiaries or Chroma or their respective business or Assets. To the knowledge
of the Company, except as set forth in Schedule 3.12, none of the Actions listed
in Schedule 3.12, if adversely determined, would reasonably be expected to have
a Material Adverse Effect on the Company, individually or in the aggregate.
3.13 Real Property.
(a) General. The Company, its Subsidiaries and Chroma own or lease
-------
all real property used in the conduct of their respective businesses as
presently conducted.
(b) Owned Real Property. Schedule 3.13(b) sets forth all
-------------------
Facilities owned by the Company, its Subsidiaries or Chroma. With respect to
each parcel of owned real property, except
51
as set forth in Schedule 3.13(b), (i) either the Company, its Subsidiaries or
Chroma have good and marketable fee simple title to such parcel of real
property, free and clear of any and all Encumbrances other than Permitted
Encumbrances, (ii) there are no leases, subleases, licenses, options, rights,
concessions or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of such parcel of owned
real property, (iii) there are no outstanding options or rights of first refusal
in favor of any other party to purchase any such parcel of owned real property
or any portion thereof or interest therein, (iv) there are no parties (other
than the Company, its Subsidiaries and Chroma, and their Personnel in their
capacity as such) who are in possession of or who are using any such parcel of
owned real property, (v) each such parcel of owned real property abuts on or has
direct, permanent vehicular access to a public road and (vi) there is no (A)
pending or, to the knowledge of the Company, threatened condemnation proceeding
relating to such parcel of owned real property, (B) pending or, to the knowledge
of the Company, threatened Action relating to such parcel of owned real property
or (C) to the knowledge of the Company, other matter that is reasonably likely
to affect materially and adversely the current use, occupancy or value of such
parcel of owned real property. Each owned Facility is supplied with utilities
necessary for the operation of such Facility as currently operated. The Company,
its Subsidiaries and Chroma do not hold any option, right of first refusal or
similar right to purchase any additional parcel of real property or any portion
thereof or interest therein.
(c) Leased Real Property.
--------------------
(i) Schedule 3.13(c) sets forth all leases ("Real Property
Leases") pursuant to which Facilities are leased by the Company, its
Subsidiaries or Chroma (as lessee), true and correct copies of which have
been delivered to Buyer. Such Real
52
Property Leases constitute all leases, subleases or other occupancy
agreements pursuant to which the Company, its Subsidiaries or Chroma
occupies or uses such Facilities. The Company, its Subsidiaries or Chroma,
as the case may be, has a good and valid leasehold interest in, and enjoys
peaceful and undisturbed possession of, all leased property described in
such Real Property Leases (the "Leased Real Property"), free and clear of
any and all Encumbrances other than any Permitted Encumbrances and the
restrictions set forth in such Real Property Leases. With respect to each
such parcel of Leased Real Property (A) to the knowledge of the Company,
there are no pending or threatened condemnation proceedings or Actions
relating to such Leased Real Property, (B) none of the Company, its
Subsidiaries or Chroma nor, to the knowledge of the Company, any third
party has entered into any sublease, license, option, right, concession or
other agreement or arrangement, written or oral, granting to any Person
(other than the Company, its Subsidiaries and Chroma) the right to use or
occupy such Leased Real Property or any portion thereof or interest therein
and (C) to the knowledge of the Company, there is no pending or threatened
material special assessment relating to such Leased Real Property which the
Company, its Subsidiaries or Chroma would be obligated to pay. Each leased
Facility is supplied with utilities necessary for the operation of such
Facility as currently operated.
(ii) With respect to each such Real Property Lease listed
Schedule 3.13(c), except as set forth in such Schedule, (A) there has been
no material default under any such Real Property Lease by the Company, its
Subsidiaries or Chroma or,
53
to the knowledge of the Company, by any other party thereto, (B) the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not cause a material default
under any such Real Property Lease, (C) such Real Property Lease is a valid
and binding obligation of the Company, its Subsidiaries or Chroma or, to
the knowledge of the Company, by any other party thereto, is in full force
and effect with respect to the Company, its Subsidiaries or Chroma or, to
the knowledge of the Company, by any other party thereto and is enforceable
against the Company, its Subsidiaries or Chroma or, to the knowledge of the
Company, by any other party thereto in accordance with its terms, except as
the enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or similar
laws in effect which affect the enforcement of creditors' rights generally
or (2) general principles of equity, whether considered in a proceeding at
law or in equity, (D) no action has been taken by the Company, its
Subsidiaries or Chroma for which any of them would have material liability
and, to the knowledge of the Company, no event has occurred which, with
notice or lapse of time or both, would permit termination, modification or
acceleration by a party thereto other than the Company, its Subsidiaries
and Chroma, without the consent of the Company, its Subsidiaries or Chroma,
under any such Real Property Lease that is material to the Company and its
Subsidiaries, taken as a whole, (E) to the knowledge of the Company, no
party has repudiated in writing any material term thereof or threatened in
writing to terminate, cancel or not renew any such Real Property Lease that
is material to the Company
54
and its Subsidiaries, taken as a whole and (F), except as set forth in
Schedule 3.13(c), none of the Company, its Subsidiaries or Chroma nor
Chroma has assigned, transferred, conveyed, mortgaged or encumbered any
interest in any such Real Property Lease or in any Leased Real Property
subject thereto (or any portion thereof).
3.14 Personal Property.
(a) General. Schedule 3.14(a) identifies all Fixtures and
-------
Equipment and other similar tangible personal property Assets with a book value
of at least $25,000 owned or leased by the Company, its Subsidiaries or Chroma
as of April 30, 1999.
(b) Owned Personal Property. Except as set forth in Schedule
-----------------------
3.14(b), the Company, its Subsidiaries and Chroma owns all such personal
property owned by them as shown in Schedule 3.14(a), free and clear of any and
all Encumbrances other than Permitted Encumbrances. With respect to each such
item of owned personal property (i) there are no leases, subleases, licenses,
options, rights, concessions or other agreements, written or oral, granting to
any Person (other than the Company, its Subsidiaries or Chroma) the right of use
of any portion of such item of owned personal property, (ii) there are no
outstanding options or rights of first refusal in favor of any other party to
purchase any such item of owned personal property or any portion thereof or
interest therein and (iii) there are no parties (other than the Company, its
Subsidiaries and Chroma, and their Personnel in their capacity as such) who are
in possession of or who are using any such item of personal property that is
material to the conduct of the Company's Business.
55
(c) Leased Personal Property.
------------------------
(i) Except as set forth in Schedule 3.14(c), the Company, its
Subsidiaries and Chroma, as the case may be, has a good and valid leasehold
interest in all of such Fixtures and Equipment that are leased by it from
third parties that are used or held for use in the operation of its
respective business as currently conducted, free and clear of any and all
Encumbrances other than Permitted Encumbrances. Schedule 3.14(c) sets forth
a listing of all Leases for personal property ("Personal Property Lease")
involving annual payments in excess of $25,000, true and correct copies of
which have been delivered to Buyer.
(ii) With respect to each such Personal Property Lease listed in
Schedule 3.14(c), except as set forth in such Schedule, (A) there has been
no material default under any such Personal Property Lease by the Company,
its Subsidiaries or Chroma or, to the knowledge of the Company, by any
other party thereto, (B) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not cause a material default under any such Personal Property Lease, (C)
such Personal Property Lease is a valid and binding obligation of the
Company, its Subsidiaries or Chroma or, to the knowledge of the Company, of
any other party thereto, is in full force and effect with respect to the
Company, its Subsidiaries or Chroma or, to the knowledge of the Company,
with respect to any other party thereto and is enforceable against the
Company, its Subsidiaries or Chroma or, to the knowledge of the Company,
against any other party thereto in accordance with its terms, except as the
enforceability thereof may be
56
limited by (1) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which
affect the enforcement of creditors' rights generally or (2) general
principles of equity, whether considered in a proceeding at law or in
equity, (D) no action has been taken by the Company, its Subsidiaries or
Chroma and, to the knowledge of the Company, no event has occurred which,
with notice or lapse of time or both, would permit termination,
modification or acceleration by a party thereto other than the Company, its
Subsidiaries or Chroma, without the consent of the Company, its
Subsidiaries or Chroma, under any such Personal Property Lease that is
material to the Company, (E) to the knowledge of the Company, no party has
repudiated in writing or threatened in writing to terminate, cancel or not
renew any such Personal Property Lease that is material to the Company and
(F) except as set forth in Schedule 3.14(c), none of the Company, its
Subsidiaries or Chroma has assigned, transferred, conveyed, mortgaged or
encumbered any interest therein or in any leased Personal Property subject
thereto (or any portion thereof).
(iii) Maintenance. The Fixtures and Equipment owned or leased by
-----------
the Company, its Subsidiaries or Chroma are in good operating condition and
repair, ordinary wear and tear excepted, and are useable in the ordinary
course of the Business as it is presently being conducted.
3.15 Inventory. The inventories of raw materials, work-in-process and
finished goods, and stores, supplies and spare parts, wherever located, which
are owned by the Company, its Subsidiaries or Chroma and are used or held for
use in the ordinary course of their respective
57
businesses (the "Inventory") (i) is usable or saleable in the ordinary course of
business, except to the extent of reserves for obsolescence and other inventory
reserves recorded in Financial Statements delivered to Buyer, (ii) is sufficient
but not excessive in kind or amount for the conduct of the Business taken as a
whole as it is presently being conducted and (iii) is carried on the books of
the Company, its Subsidiaries or Chroma at an amount which reflects valuations
not in excess of the lower of cost or market determined in accordance with GAAP
applied on a consistent basis. Schedule 3.15 sets forth a list of locations of
Inventory not located on the owned Real Property or on real estate subject to a
Lease.
3.16 Sufficiency of Assets. The Assets constitute all of the properties
and assets used or held for use in connection with, necessary for or material to
the Business.
3.17 Books and Records. The Company, its Subsidiaries and Chroma have
made and kept Books and Records which, in reasonable detail, accurately and
fairly reflect the activities of the Company, its Subsidiaries and Chroma in all
material respects. The minute books of the Company and its Subsidiaries are
true, correct and complete in all material respects and contain copies of the
minutes and records of, and accurately and adequately reflect in all material
respects, all meetings and actions taken by written consent of the board of
directors, committees of the board of directors and shareholders of the Company
and its Subsidiaries. The copies of the stock record books and the stock
certificate books of the Company and its Subsidiaries are true, correct and
complete and accurately reflect all transactions in connection with the
Company's and its Subsidiaries, as the case may be, capital stock through and
including the date hereof.
3.18 Intellectual Property. sSchedule 3.18 sets forth a complete and
correct list of all Intellectual Property that is used in connection with
the Business. The Company has delivered to
58
Buyer true, correct and complete copies of each registration, application or
other material document relating to the Intellectual Property listed or required
to be listed in Schedule 3.18. The Company, its Subsidiaries or Chroma, as the
case may be, owns, or possesses adequate and enforceable licenses or other
rights to use, all Intellectual Property set forth in Schedule 3.18, and, except
as set forth in such Schedule, such ownership and licenses will not cease to be
valid and in full force and effect in any material respect by reason of the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. There is no Action pending or, to the
knowledge of the Company, threatened, against the Company, its Subsidiaries or
Chroma asserting that the Company's, its Subsidiaries' or Chroma's use of any
Intellectual Property infringes the rights of any third party or otherwise
contesting their rights with respect to any Intellectual Property and no third
party has given written notice to the Company, its Subsidiaries or Chroma that
such third party is claiming ownership of or right to use any Intellectual
Property listed or required to be listed in Schedule 3.18, and, to the knowledge
of the Company (i) there are no grounds for any such assertion and (ii) no third
party is infringing upon the rights of the Company, its Subsidiaries or Chroma
in the Intellectual Property listed or required to be listed in Schedule 3.18 in
a manner which would reasonably be expected to have a Material Adverse Effect on
the Company.
3.19 Contracts.
(a) Schedule 3.19 sets forth a complete and accurate list of all
Contracts in the following categories (each, a "Material Contract") as of the
date hereof (except to the extent that any such category specifies a different
date, in which case such corresponding list is made as of such specified date):
59
(i) each Contract (or group of related Contracts) for the
furnishing of services by the Company, its Subsidiaries or Chroma involving
annual revenues of more than $50,000 to the Company, its Subsidiaries or
Chroma, excluding any open purchase order, or groups of related open
purchase orders, from customers of less than $400,000;
(ii) each Contract (or group of related Contracts) concerning a
partnership or joint venture with, or any other investment in (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise), any other Person;
(iii) each Contract (or group of related Contracts) (A) under
which the Company, its Subsidiaries or Chroma has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness for borrowed money, (B) constituting a Capital Lease
obligation, (C) under which the Company, its Subsidiaries or Chroma has
granted an Encumbrance other than a Permitted Encumbrance on any of their
Assets or (D) under which the Company, its Subsidiaries or Chroma have
incurred any material obligations for any performance bonds, payment bonds,
bid bonds, surety bonds, letters of credit, guarantees or similar
instruments;
(iv) each Contract (or group of related Contracts) concerning
confidentiality regarding the Intellectual Property listed or required to
be listed in Schedule 3.18;
60
(v) each Contract (or group of related Contracts), including
open purchase orders or groups of related open purchase orders, for the
purchase or sale of raw materials, commodities, supplies, products or other
property providing for payments in excess of $250,000 over the life of such
Contract (or group of related Contracts);
(vi) each Contract (or group of related Contracts) providing
for payments in excess of $250,000 over the life of such Contract (or group
of related Contracts), except for such Contracts that are cancelable on not
more than 30 days' notice by the Company, its Subsidiaries or Chroma
without substantial penalty or substantial increased cost;
(vii) each distribution, franchise, license, commission,
consulting, agency or advertising Contract related to the Assets or the
Business of the Company, its Subsidiaries or Chroma involving annual
payments in excess of $25,000, except for such Contracts that are
cancelable on not more than 30 days' notice by the Company, its
Subsidiaries or Chroma without substantial penalty or substantial increased
cost;
(viii) each Contract (or group of related Contracts) of the
Company, its Subsidiaries or Chroma containing covenants restraining or
limiting the freedom of the Company, its Subsidiaries or Chroma, or to the
knowledge of the Company any of their respective officers, to engage in any
line of business or compete with any Person including by restraining or
limiting the right to solicit customers;
61
(ix) each Contract (or group of related Contracts) with the
United States, state or local government or any agency or department
thereof providing for payments in excess of $100,000 over the life of such
Contract (or group of related Contracts);
(x) each other Contract (or group of related Contracts) not
entered into in the ordinary course of business, consistent with past
practice; and
(xi) each Contract (or group of related Contracts), other than
any Contract covered by any other clause of this Section 3.19, the
consequences of a default or termination of which would reasonably be
expected to have a Material Adverse Effect on the Company;
The Company has delivered to Buyer a true and correct copy of each written
Contract listed in Schedule 3.19 and has included as part of Schedule 3.19 a
brief summary of the material terms of each material oral Contract.
(b) With respect to each Material Contract set forth or described in
Schedule 3.19, except as set forth in that Schedule, (i) there is no material
default under any such Material Contract by the Company, its Subsidiaries or
Chroma party thereto or, to the knowledge of the Company, by any other party to
any such Material Contract, (ii) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
cause a material default under any such Contract; (iii) such Material Contract
is a valid and binding obligation of the Company, its Subsidiaries or Chroma
party thereto, is in full force and effect with respect to the Company, its
Subsidiaries or Chroma, and is enforceable against the Company, its Subsidiaries
or Chroma party thereto in accordance with its terms, except as the
62
enforceability thereof may be limited by (A) applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance or similar laws in effect
which affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in equity;
(iv) no action has been taken by the Company, its Subsidiaries or Chroma and, to
the knowledge of the Company, no event has occurred which, with notice or lapse
of time or both, would permit termination, material modification or acceleration
by a party thereto other than the Company, its Subsidiaries or Chroma under any
such Contract; and (v) to the knowledge of the Company, no party has repudiated
any material term thereof or threatened to terminate, cancel or not renew any
such Contract.
3.20 Insurance. Schedule 3.20 contains a complete and accurate list of all
policies or binders for business interruption, fire, liability, title, worker's
compensation, product liability, errors and omissions and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration date, annual premium and a general description of
the coverage provided) maintained by the Company, its Subsidiaries or Chroma.
Such insurance provides, and during its term has provided, coverage to the
extent and in the manner (i) which the Company believes is adequate for the
Company, its Subsidiaries and Chroma and their respective Assets, businesses and
operations, and the risks insured against in connection therewith and (ii) as
may be or may have been required by law and by any and all material Contracts to
which the Company, its Subsidiaries or Chroma are or have been a party. The
Company, its Subsidiaries and Chroma are not in material default under any of
such policies or binders and the Company, its Subsidiaries and Chroma have not
since July 30, 1995, failed to give any notice or to present any material claim
under any such policy or binder in a due and timely fashion. Since July 30,
1995, no insurer has refused,
63
denied or disputed coverage of any material claim made thereunder. No insurer
has advised the Company, its Subsidiaries or Chroma that it intends to reduce
coverage or increase any premium in any material respect or fail to renew any
existing policy or binder. All such policies and binders are in full force and
effect on the date hereof and shall be kept in full force and effect through the
Effective Time.
3.21 Accounts Receivable. The accounts receivable reflected in the
Interim Company Financial Statements and those acquired by the Company
subsequent to April 30, 1999, but prior to the Closing (and not collected prior
to Closing), have or will have arisen in the ordinary course of business.
3.22 Labor Matters.
(a) Schedule 3.22(a) includes a complete list of all written, and
description of all oral, employment contracts, personnel policies, employment
practices, supervisors' manuals, commission, and any other material arrangements
applicable to any employee or former employee or any beneficiary or dependent
thereof, whether or not written, whether or not deemed terminable at will or
legally enforceable, and whether covering one person or more than one person,
entered into, issued, adopted, or followed by the Company, its Subsidiaries or
Chroma, other than an arrangement listed below in Schedule 3.23(a) as an
Employee Benefit Plan. For purposes of this Section 3.22, the terms "employee"
or "employees" shall be considered to include individuals rendering personal
services to the Company, its Subsidiaries or Chroma as independent contractors.
(b) Schedule 3.22(b) identifies all written and describes, to the
knowledge of the Company all unwritten, grievances or complaints filed or
submitted since July 30, 1995, by any employee or applicant for employment
against the Company, its Subsidiaries or Chroma or, to the
64
knowledge of the Company, against their respective employees relative to the
Business whether pursuant to a collective bargaining agreement, a formal or
informal grievance procedure afforded employees, or otherwise, including without
limitation, any claims of sexual, racial or other harassment, discriminatory
treatment, breach of collective bargaining agreement, material breach of
contract, or material violation of policy.
(c) Schedule 3.22(c) identifies all unfair labor practice charges,
union organizing efforts, union certifications, bargaining unit definitions,
demands for recognition or collective bargaining, strikes or work stoppages,
union election results, National Labor Relations Board proceedings or related
court cases relating to or affecting any employees of the Company, its
Subsidiaries or Chroma since July 30, 1995.
(d) Schedule 3.22(d) identifies all affirmative action plans, audits,
conciliation agreements, Office of Federal Contract Compliance charges or
proceedings, Equal Employment Opportunity Commission employment charges or
proceedings, state or local unfair employment practice charges or proceedings,
or any written or, to the knowledge of the Company unwritten, claims of
discrimination, unequal pay, or retaliation relating to any current or former
employee or applicant for employment of the Company, its Subsidiaries or Chroma
since July 30, 1995.
(e) Schedule 3.22(e) identifies and describes all pending or former
state or federal wage and hour, wage payment, or other wage related
investigations, claims, or proceedings, any other local, state or federal
investigations, claims, or proceedings related to any current or former
practice, current or former employee, or applicant for employment of the
Company, its Subsidiaries or Chroma since July 30, 1995.
65
(f) Schedule 3.22(f) identifies and describes all pending or former
Actions not expressly identified in previous schedules under this Section 3.22
which relate to current or former employment practices, current or former
employees, or applicants for employment of the Company, its Subsidiaries or
Chroma, including without limitation, claims relating to the Family and Medical
Leave Act, immigration law compliance, the Worker Adjustment and Retraining
Notification Act, wrongful discharge, tortious interference, intentional
infliction of emotional distress, or any other claim raised by or on behalf of a
current or former employee or applicant for employment since July 30, 1995.
(g) Schedule 3.22(g) identifies all pending or former Occupational
Health and Safety Act or state occupational safety and health citations,
charges, lawsuits, inspections, investigations, claims, and proceedings, all
current, former, or suspected claims for unsafe or unhealthy working conditions,
including without limitation claims for exposure to asbestos, carcinogenic
substances, or other workplace risks since July 30, 1995.
(h) All policies and practices of the Company, its Subsidiaries or
Chroma are in all material respects in compliance with, and have been
administered in all material respects in compliance with, all applicable
requirements of law, including but not limited to federal, state, or local laws
relating to employment, including without limitation, laws relating to wrongful
discharge, breach of express or implied contract, fraud, misrepresentation,
defamation, or liability in tort, duties to prevent, disclose, warn or remedy
unhealthy or unsafe workplace conditions, Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act, the Americans with Disabilities
Act, the Fair Labor Standards Act, ERISA, COBRA, the Family and Medical Leave
Act, the Occupational Safety and Health Act, the Worker Adjustment and
Retraining Notification Act,
66
workers compensation statutes, and other federal, state or local regulations,
rules, statutes, or ordinances relating to employees or employment.
(i) Schedule 3.22(i) sets forth a true and complete list of all
employees to whom the Company, its Subsidiaries or Chroma is paying compensation
in excess of $50,000 per year, disability, xxxxxxx'x compensation and/or pension
benefits, and sets forth the current annual rate of compensation for each such
employee together with bonuses and incentives.
3.23 Employee Plans.
(a) Schedule 3.23 contains a complete list of Employee Plans. True
and complete copies of each of the following documents have been delivered to
Buyer: (i) each Employee Plan (and, if applicable, related trust agreements)
which covers employees of the Company, its Subsidiaries or Chroma (with respect
to their relationship with the Company, its Subsidiaries or Chroma) and all
amendments thereto, all summary plan descriptions, summary of material
modifications (as defined in ERISA), annuity contracts or other funding
instruments, the number of and a general description of the level of employees
covered by each Benefit Arrangement and a complete description of any Employee
Plan which is not in writing, (ii) the most recent determination letter issued
by the Internal Revenue Service and any opinion letter issued by the Department
of Labor with respect to each Pension Plan and each voluntary employees'
beneficiary association as defined under Section 501(c)(9) of the Internal
Revenue Code which covers or has covered employees of the Company, its
Subsidiaries or Chroma (with respect to their relationship with the Company, its
Subsidiaries or Chroma), (iii) for the three most recent plan years, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Pension Plan or Welfare Plan which covers or has covered employees of
the Company, its Subsidiaries or
67
Chroma (with respect to their relationship with the Company, its Subsidiaries or
Chroma), (iv) all actuarial reports prepared for the last three plan years for
each Pension Plan which covers or has covered employees of the Company, its
Subsidiaries or Chroma (with respect to their relationship with the Company, its
Subsidiaries or Chroma), and (v) a description setting forth the amount of any
liability of the Company, its Subsidiaries or Chroma as of the Closing Date for
payments more than thirty (30) calendar days past due with respect to each
Welfare Plan which covers or has covered employees or former employees of the
Company, its Subsidiaries or Chroma.
(b)
(i) Pension Plans.
-------------
(A) No Pension Plan is subject to the minimum funding
requirements of part 3 of Title I of ERISA or Section 412 of the
Internal Revenue Code. No Pension Plan is subject to Title IV of
ERISA. None of the Company, its Subsidiaries or Chroma or any ERISA
Affiliate is subject to any liability under Title IV of ERISA, nor do
any circumstances exist that would reasonably be expected to give rise
to any such liability.
(B) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company, its Subsidiaries
or Chroma (with respect to their relationship with the Company, its
Subsidiaries or Chroma) which has been operated as a qualified plan
(1) has received a favorable determination letter from the Internal
Revenue Service relating to such Pension Plan's stating that such
Pension Plan and each related trust is
68
qualified and tax-exempt under the provisions of Internal Revenue Code
Sections 401(a) and 501(a) and (2) has been so qualified during the
period from its adoption to the date of such determination letter. To
the knowledge of the Company, no event or condition exists or has
occurred that could adversely affect such qualified and tax-exempt
status.
(C) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company, its Subsidiaries
or Chroma (with respect to their relationship with the Company, its
Subsidiaries or Chroma) currently complies in all material respects
and has been maintained in compliance in all material respects with
its terms and, both as to form and in operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such plans, including ERISA and the Internal
Revenue Code.
(ii) Multiemployer Plans. None of the Company, its Subsidiaries
-------------------
or Chroma nor any ERISA Affiliate has any liability with respect to a
Multiemployer Plan, and no liability will arise or be imposed on the
Company, its Subsidiaries or Chroma or any ERISA Affiliate under, or with
respect to, any Multiemployer Plan.
(iii) Welfare Plans
-------------
(A) Each Welfare Plan which covers or has covered,
employees or former employees of the Company, its Subsidiaries or
Chroma (with respect to their relationship with the Company, its
Subsidiaries or
69
Chroma) currently complies in all material respects and has been
maintained in compliance in all material respects with its terms and,
both as to form and operation, with the requirements prescribed by any
and all statutes, orders, rules and regulations which are applicable
to such Welfare Plan, including ERISA and the Internal Revenue Code.
(B) Except as required by Section 4980B of the Internal
Revenue Code or Part 6 of Title 1, Subtitle B of ERISA, or as set
forth in Schedule 3.23, none of the Company, its Subsidiaries or
Chroma, any ERISA Affiliate or any Welfare Plan has any obligation to
make any material payment to, or with respect to any present or former
employee of the Company, its Subsidiaries or Chroma or any ERISA
Affiliate pursuant to, any retiree medical benefit plan, or other
retiree Welfare Plan, and, to the knowledge of the Company, no
condition exists which would prevent the Company, its Subsidiaries or
Chroma or an ERISA Affiliate from amending or terminating any such
benefit plan or such Welfare Plan.
(C) Each Welfare Plan which covers or has covered employees
or former employees of the Company, its Subsidiaries or Chroma (with
respect to their relationship with the Company, its Subsidiaries or
Chroma) and which is a "group health plan," as defined in Section
607(1) of ERISA, presently complies in all material respects with and
has been operated in compliance in all material respects with
provisions of Part 6 of
70
Title I, Subtitle B of ERISA and Sections 162(k) and 4980B of the
Internal Revenue Code at all times.
(D) None of the Company, its Subsidiaries or Chroma nor
any ERISA Affiliate has maintained, contributed to or had any
obligation to maintain or contribute to any Welfare Plan that is a
Multiemployer Plan.
(iv) Benefit Arrangements. Each Benefit Arrangement presently
--------------------
complies in all material respects and has been maintained in compliance in
all material respects with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations which are applicable
to such Benefit Arrangement, including the Internal Revenue Code. Except
as provided by law, or in any employment agreement set forth in Schedule
3.23, the employment of all persons presently employed or retained by the
Company, its Subsidiaries or Chroma is terminable at will.
(v) Unrelated Business Taxable Income; Unpaid Contributions. No
-------------------------------------------------------
Employee Plan (or trust or other funding vehicle pursuant thereto) has
incurred any liability under Section 511 of the Internal Revenue Code.
None of the Company, its Subsidiaries or Chroma nor any ERISA Affiliate has
any liability for unpaid contributions under Section 515 of ERISA with
respect to any Employee Plan.
(vi) Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the
Company, its Subsidiaries or Chroma (with respect to such employee's
relationship with the Company, its Subsidiaries or Chroma) that,
individually or collectively, requires the
71
payment by the Company, its Subsidiaries or Chroma of any amount (i) that
is not deductible under Section 162(a)(1) or 404 of the Internal Revenue
Code or (ii) that is an "excess parachute payment" pursuant to Section 280G
of the Internal Revenue Code.
(vii) Fiduciary Duties and Prohibited Transactions. None of the
--------------------------------------------
Company, its Subsidiaries or Chroma or any plan fiduciary of any Welfare
Plan or Pension Plan which covers has covered, employees or former
employees of the Company, its Subsidiaries or Chroma has engaged in, or has
any liability in respect of, any transaction in violation of Sections 404
or 406 of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Internal Revenue Code, for which no exemption exists
under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Internal
Revenue Code, or has otherwise violated the provisions of Part 4 of Title
I, Subtitle B of ERISA so as to create any liability of the Company, its
Subsidiaries or Chroma or any Employee Plan. The Company, its Subsidiaries
and Chroma have not participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension
Plan, and the Company, its Subsidiaries and Chroma have not been assessed
any civil penalty under Section 502(l) of ERISA.
(viii) Litigation. Other than benefit claims or appeals in the
----------
ordinary course of the operation or administration of the Employee Plans,
there is no Action, order, writ, injunction, judgment or decree outstanding
or, to the knowledge of the Company, any governmental audit or
investigation, relating to or seeking benefits
72
under any Employee Plan that is pending or, to the knowledge of the
Company, threatened against the Company, its Subsidiaries or Chroma, any
ERISA Affiliate or any Employee Plan.
(ix) No Amendments. Neither the Company nor any ERISA Affiliate
-------------
has announced to employees, former employees or directors an intention to
create, or otherwise created, a legally binding commitment to adopt any
additional Employee Plan which is intended to cover employees or former
employees of the Company, its Subsidiaries or Chroma (with respect to their
relationship with the Company, its Subsidiaries or Chroma) or to amend or
modify in any material respect any existing Employee Plan which covers or
has covered employees or former employees of the Company, its Subsidiaries
or Chroma (with respect to their relationship with the Company, its
Subsidiaries or Chroma).
(x) Insurance Contracts. None of the Company, its Subsidiaries
-------------------
or Chroma or any Employee Plan holds as an asset of any Employee Plan any
interest in any annuity contract, guaranteed investment contract or any
other investment or insurance contract issued by an insurance company that,
to the knowledge of the Company, is the subject of bankruptcy,
conservatorship or rehabilitation proceedings.
(xi) No Acceleration or Creation of Rights. Except as set forth
-------------------------------------
in Schedule 3.23, neither the execution and delivery of this Agreement by
Company nor the consummation of the transactions contemplated hereby will
result in the acceleration or creation of any rights of any person to
benefits under any Employee
73
Plan (including the acceleration of the vesting or exerciseability of any
stock options (other than as permitted by this Agreement), the acceleration
of the vesting of any restricted stock, the acceleration of the accrual or
vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement).
(xii) No Other Material Liability. To the knowledge of the
---------------------------
Company, no event has occurred in connection with which the Company, its
Subsidiaries, Chroma or any Employee Plan would reasonably be expected to
be subject to any material liability (A) under any statute, regulation or
governmental order relating to any Employee Plan or (B) pursuant to any
obligation of the Company, its Subsidiaries or Chroma to indemnify any
person against liability incurred under any such statute, regulation or
order as they relate to the Employee Plans.
(xiii) Severance Agreements. The Company, its Subsidiaries and
--------------------
Chroma are not a party to any severance, termination, "golden parachute" or
similar arrangement in respect of any of their Personnel that will result
in any obligation (absolute or contingent) of the Company, its Subsidiaries
or Chroma or Buyer after the Closing to make any payment to any of such
Personnel following the consummation of the transactions contemplated by
this Agreement or termination of employment, whether before or after the
Closing.
74
3.24 Tax Matters.
(a) Filing of Tax Returns. The Company, its Subsidiaries and Chroma
---------------------
have timely filed with the appropriate taxing authorities all Tax Returns
(including information returns and other material information) in respect of
Taxes required to be filed through the date hereof and will timely file any such
Tax Return required to be filed on or prior to the Closing Date. All such Tax
Returns are complete and accurate in all material respects. Excepts as set forth
in Schedule 3.24, none of the Company, its Subsidiaries or Chroma has currently
outstanding any request for any extension of time within which to file Tax
Returns in respect of any Taxes. The Company has delivered to Buyer complete and
accurate copies of the federal, state and local income Tax Returns for the years
1994, 1995, 1996, 1997 and 1998.
(b) Payment of Taxes. All Taxes for which the Company, its
----------------
Subsidiaries or Chroma is or will be liable in respect of periods (or portions
thereof) ending on or before the Closing Date, have been timely paid, or a
reserve adequate in accordance with GAAP has been established therefor, as set
forth in the Audited Financial Statements or the Interim Financial Statements or
will be set forth as a current liability in the Closing Date Working Capital as
the same may be finally determined pursuant to Section 2.15 hereof.
(c) Audits, Investigations or Claims. No substantial deficiencies
--------------------------------
for Taxes have been claimed, proposed or assessed in writing by any Taxing
Authority against the Company, its Subsidiaries or Chroma which have not been
paid or reserved in the Financial Statements. There are no pending or, to the
knowledge of the Company, threatened audits, investigations or claims for or
relating to any liability in respect of Taxes that in the reasonable judgment of
the Company are likely to result in an additional amount of Taxes, and there are
no matters under discussion with any
75
Taxing Authority with respect to Taxes that in the reasonable judgment of the
Company is likely to result in an additional liability for Taxes to the Company,
its Subsidiaries or Chroma. Audits of federal, state, and local returns for
income Taxes by the relevant taxing or other governmental authorities have been
completed for the periods set forth in Schedule 3.24 and the Company, its
Subsidiaries and Chroma have not been notified in writing that any Taxing
Authority intends to audit a Return for Taxes for any other period. No extension
of a statute of limitations relating to Taxes is in effect with respect to the
Company, its Subsidiaries or Chroma. Except as set forth in Schedule 3.24, no
power of attorney has been executed by the Company, its Subsidiaries or Chroma
with respect to any matters relating to Taxes which is currently in force.
(d) Encumbrances. There are no Encumbrances for Taxes (other than
------------
current taxes not yet due and payable) on the Assets of the Company, its
Subsidiaries or Chroma.
(e) Safe Harbor Lease Property. None of the Assets is property that
--------------------------
(i) is required to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f)(8) of the
Internal Revenue Code, (ii) directly or indirectly secures any debt the interest
on which is tax-exempt under Section 103(a) of the Internal Revenue Code or
(iii) is "tax-exempt use property" within the meaning of Section 168(h) of the
Internal Revenue Code.
(f) Tax Election. All elections with respect to Taxes having a
------------
material effect on the Company, its Subsidiaries or Chroma as of the date hereof
are set forth in Schedule 3.24. The Company, its Subsidiaries and Chroma have
not consented at any time to have the provisions of Section 341(f)(2) of the
Internal Revenue Code (or similar provisions under state or local law) apply to
any disposition of their Assets. The Company, its Subsidiaries and Chroma have
not agreed to
76
make, and are not required to make, any adjustment under Section 481(a) of the
Internal Revenue Code (or similar provisions under state or local law) by reason
of a change in accounting method or otherwise.
(g) Tax Sharing Agreements. There are no tax sharing agreements or
----------------------
similar arrangements (whether written or unwritten and including Treasury
Regulation Section 1.1502-6) with respect to or involving the Company, its
Subsidiaries or Chroma pursuant to which the Company, its Subsidiaries or Chroma
may be liable for Taxes of another Person.
3.25 Transactions with Certain Persons. Except as disclosed in
Schedule 3.25, (i) no officer, director or Shareholder of the Company or, to the
knowledge of the Company, any member of any such Person's immediate family, is
currently, or since July 30, 1995 has been, a party to any transaction,
arrangement or relationship with the Company, its Subsidiaries or Chroma and
(ii) no employee or, to the knowledge of the Company, any member of any such
Person's immediate family, is currently, or since July 30, 1995 has been, a
party to any material transaction, arrangement or relationship with the Company,
its Subsidiaries or Chroma, including (in the case of both clause (i) and clause
(ii)) any Contract or Lease (A) providing for the furnishing of services by, (B)
providing for the rental of real or personal property from, or (C) otherwise
requiring payments to (other than (1) dividends or distributions to any
shareholder of the Company in his or her capacity as such or (2) compensation
and benefits for services as officers, directors or employees of the Company,
its Subsidiaries or Chroma) any such Person or, to the knowledge of the Company,
any corporation, partnership, trust or other entity in which any such Person has
an interest as an officer, director, trustee or partner, or as the holder of
more than 10% of such entity's equity securities. The only Contracts, Leases,
arrangements, relationships or other items listed in Schedule 3.25 that will
remain
77
in place after the Closing or with respect to which the Company, its
Subsidiaries or Chroma will have any ongoing obligations or duties are those
items which are explicitly identified in Schedule 3.25 as remaining in place or
having ongoing obligations or duties.
3.26 Purchase Commitments and Outstanding Bids. No outstanding purchase
order or commitment or outstanding lease commitment of the Company, its
subsidiaries or Chroma that is material in amount presently is materially in
excess of the normal, ordinary and usual requirements of the businesses of the
Company, its Subsidiaries and Chroma or was made at any price materially in
excess of the market price in effect at the time such purchase order, commitment
or lease commitment was made. There is no outstanding bid, proposal or proposed
Contract which will or would, if accepted, reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate, on the Company and
its Subsidiaries, taken as a whole, or Chroma..
3.27 Customers. Schedule 3.27 sets forth for each of the fiscal years
1997, 1998 and 1999, the name and address of each of the ten largest customers
of the Company and the five largest customers of Chroma based on the aggregate
value of goods and services ordered during such period and the amount each such
customer was invoiced during each such period. Except as set forth in Schedule
3.27, none of the Company, its Subsidiaries or Chroma has received any notice
and does it have any reason to believe that any of the customers listed in
Schedule 3.27 (i) has ceased, or will cease to, use goods or services of the
Company, its Subsidiaries or Chroma, or (ii) has substantially reduced, or will
substantially reduce, the use of the goods or services of the Company, its
Subsidiaries or Chroma.
3.28 Suppliers. Schedule 3.28 sets forth for each of the fiscal years
1997, 1998 and 1999, the name and address of each of the five largest suppliers
of each of the Company and Chroma based
78
on the aggregate value of raw materials, supplies, merchandise and other goods
and services ordered by the Company and Chroma during such period, and the
amount each such supplier invoiced the Company of Chroma during each such
period. Except as set forth in Schedule 3.28, none of the Company, its
Subsidiaries or Chroma has received any notice and nor does it have any reason
to believe that there has been any material adverse change in the Company's, its
Subsidiaries' or Chroma's relations with its suppliers, including in the price
of such raw materials, supplies, merchandise or other goods and services, or
that any such supplier will not sell raw materials, supplies, merchandise or
other goods and services to the Company, its Subsidiaries or Chroma after the
Closing on terms and conditions similar to those used in its current sales to
the Company, its Subsidiaries and Chroma.
3.26 Warranties; Product Liability.
(a) Except as set forth in Schedule 3.29(a), there are no express
warranties contained in any contract or agreement relating to goods and services
of the Company, its Subsidiaries or Chroma.
(b) There are no pending, or to the knowledge of the Company
threatened, material claims, individually or in the aggregate, against the
Company, its Subsidiaries or Chroma for material compensation or penalties by
reason of production or distribution errors, alleged under shipments, defective
product or otherwise or of product in the hands of customers under an
understanding that such product would be returnable. Except as set forth in
Schedule 3.29(b), the Company, its Subsidiaries and Chroma do not have, nor does
the Company know or have reason to believe that there is any basis for alleging,
any material liability, damage, loss, cost or expense as a result of any failure
to meet any specification with respect thereto, defect or other deficiency
79
(whether of design, materials, workmanship, labeling, instructions or otherwise)
("Material Product Liability") with respect to any product sold or services
rendered by or on behalf of the Company, its Subsidiaries or Chroma, whether
such Product Liability is incurred by reason of express warranty (including any
warranty of merchantability or fitness), any doctrine of common law (tort,
contract or other), any statutory provision or otherwise and irrespective of
whether such Material Product Liability is covered by insurance. Except as set
forth in Schedule 3.29(b), (i) no product sold by the Company, its Subsidiaries
or Chroma and (ii) to the knowledge of the Company, no product produced for the
Company, its Subsidiaries or Chroma by any third party, has been recalled or
subject to a post-sale warning ("Recall") voluntary or involuntarily since July
30, 1995, no Recall is being considered or investigated by the Company, its
Subsidiaries or Chroma, and no Recall has been requested or ordered in writing
by any Governmental Authority or consumer group. Schedule 3.29(b) sets forth for
each of the fiscal years 1997, 1998 and 1999, and the current fiscal year, the
aggregate amount of claims submitted in writing, or to the knowledge of the
Company submitted orally, by customers that any item sold by the Company, its
Subsidiaries or Chroma failed to meet any specification with respect thereto or
was otherwise defective, and a list of all such claims (showing customer, nature
of claim and amount) that had not been fully resolved as of the date of this
Agreement.
3.30 Banking Relationships. Schedule 3.30 sets forth a complete and
accurate description in all material respects of all arrangements that the
Company, its Subsidiaries or Chroma have with any banks, savings and loan
associations or other financial institutions providing for any accounts,
including checking accounts, cash contribution accounts, safe deposit boxes,
borrowing arrangements, certificates of deposit or otherwise, indicating in each
case account numbers, if
80
applicable, and the person or persons authorized to act or sign on behalf of the
Company, its Subsidiaries or Chroma in respect of any of the foregoing. Except
as set forth in Schedule 3.30, no person holds any power of attorney or similar
authority from the Company, its Subsidiaries or Chroma with respect to any such
accounts.
3.31 No Other Agreements to Sell the Assets or Stock of the Company. Other
than sales of inventory or product in the ordinary course of business,
consistent with past practice, none of the Company, its Subsidiaries or Chroma
has any legal obligation, absolute or contingent, to any other person or firm to
(i) sell or effect a sale of all or substantially all of their Assets, (ii) sell
or effect a sale of all or substantially all of the capital stock or partnership
interests of the Company, its Subsidiaries or Chroma, (iii) effect any merger,
consolidation or other reorganization of the Company, its Subsidiaries or Chroma
or (iv) enter into any Contract or cause the entering into a Contract with
respect to any of the foregoing.
3.32 Prohibited Payments. None of the Company, its Subsidiaries or Chroma
has, directly or indirectly, (i) made or agreed to make any contribution,
payment or gift to any government official, employee or agent where either the
contribution, payment or gift or the purpose thereof was illegal under the laws
of any federal, state, local or foreign jurisdiction, (ii) established or
maintained any unrecorded fund or asset for any purpose or made any false
entries on the Books and Records for any reason, (iii) made or agreed to make
any contribution, or reimbursed any political gift or contribution made by any
other Person, to any candidate for federal, state, local or foreign public
office except where the contribution, gift or reimbursement was permitted by
applicable law or (iv) paid or delivered any fee, commission or any other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party, in the
81
United States or any other country, which in any manner relates to the Assets,
business or operations of the Company, its Subsidiaries or Chroma, which the
Company knows or has reason to believe to have been illegal under any federal,
state or local laws (or any rules or regulations thereunder) of the United
States or any other country having jurisdiction.
3.33 Year 2000 Matters. Each of the Company and its Subsidiaries and, to
the knowledge of the Company, Chroma has initiated a review and assessment of
all areas within their operations that would reasonably be expected to be
materially adversely affected by the inability of computer hardware and software
systems used by the Company, its Subsidiaries and Chroma to recognize and
perform properly date-sensitive functions involving any date after December 31,
1999 ("Year 2000 Computer System Issues"). Except as set forth in Schedule 3.33,
the Company and its Subsidiaries and, to the knowledge of the Company, Chroma
have all systems and software solutions which the Company believes are necessary
or appropriate to address and accommodate Year 2000 Computer Systems Issues as
they relate to the computer systems operated by the Company, its Subsidiaries or
Chroma.
3.34 Brokers. Except for SunTrust Equitable Securities Corporation, no
broker, finder or investment banker is entitled to any fee or commission for
services rendered on behalf of the Company in connection with the transactions
contemplated by this agreement. If the transactions contemplated by this
Agreement are consummated, the Shareholders will be solely responsible for the
fees and expenses of SunTrust Equitable Securities Corporation.
3.35 Full Disclosure; No Other Representations. To the knowledge of the
Company, none of the representations and warranties of the Company in this
Article III (as modified by the information set forth in the Schedules
applicable thereto) contains any untrue statement of a material
82
fact or omits to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
As an inducement to the Company to enter into this Agreement, Buyer and Sub
hereby make, as of the date hereof and as of the Closing Date, the following
representations and warranties to the Company, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to the Company prior to
the execution hereof, a copy of which is attached hereto. The Schedules are
numbered to correspond to the various sections of this Article IV setting forth
certain exceptions to the representations and warranties contained in this
Article IV and certain other information called for by this Agreement. Unless
otherwise specified, no disclosure made in any particular Schedule shall be
deemed made in any other Schedule unless expressly made therein (by cross-
reference or otherwise) unless, and only to the extent that, it would be fairly
understood on its face to contain information which also is applicable to the
representation and warranty to which such other Schedule relates..
Buyer and Sub represent and warrant to the Company the following:
4.1 Organization; Qualification. Each of Buyer and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power and authority to own all of its
properties and assets and to carry on its business as it is presently being
conducted.
4.2 Authority Relative to this Agreement. Each of Buyer and Sub has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the
83
transactions contemplated hereby and to perform its obligations hereunder and
thereunder. The execution and delivery by Buyer and Sub of this Agreement and
the consummation by them of the transactions contemplated hereby have been duly
authorized by the Boards of Directors of Buyer and Sub and no other corporate
proceedings on the part of Buyer or Sub are necessary with respect thereto. This
Agreement has been duly executed and delivered by Buyer and Sub and, assuming
that the Company has duly authorized, executed and delivered this Agreement,
this Agreement constitutes a valid and binding obligation of Buyer and Sub,
enforceable against Buyer and Sub in accordance with its terms except as such
enforceability may be limited by (1) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally or (2) general principles of equity (regardless
whether enforceability is considered in a proceeding at law or in equity).
4.3 Consents and Approvals. No consent, waiver, agreement, approval or
authorization of, or declaration, filing, notice or registration to or with, any
Governmental Authority is required to be made or obtained by Buyer or Sub in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby other than (i) filings
required in connection with or in compliance with the provisions of the HSR Act
or (ii) those set forth in Schedule 4.3. There is no requirement that any party
to any agreement, contract, lease, note, loan, evidence of indebtedness,
purchase order, letter of credit, franchise agreement, undertaking, covenant not
to compete, employment agreement, license, instrument, obligation, commitment or
purchase and sales order to which Buyer or any of its Subsidiaries is a party or
by which any of them is bound, consent to the execution and delivery of this
Agreement by the Buyer or Sub or the consummation of the transactions
contemplated hereby, except for such consents the
84
failure of which to obtain, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Buyer.
4.4 Non-Contravention. The execution, delivery and performance by Buyer
and Sub of this Agreement do not, and the consummation by Buyer and Sub of the
transactions contemplated hereby will not (i) violate or result in a breach of
any provision of the Certificate of Incorporation or Bylaws Buyer or Sub, (ii)
result in a breach of or result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which Buyer or Sub is a party or by which
Buyer or Sub is bound, or (iii) violate in any material respect any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer or Sub
excluding from the foregoing clauses (ii) and (iii) such requirements, defaults,
breaches, rights or violations (A) that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Buyer or
(B) that become applicable as a result of (1) the business or activities in
which the Company, its Subsidiaries and Chroma or any of their Affiliates is
engaged, or (2) any acts or omissions by, or facts pertaining to, the Company,
Chroma or any of their Affiliates.
4.5 Litigation. There is no Action pending or, to the knowledge of Buyer,
threatened (a) against Buyer or any of its Affiliates with respect to which
there is a reasonable likelihood of a determination which would reasonably be
expected to have a material adverse effect on the ability of Buyer to consummate
the transactions contemplated hereby or (b) which seeks to enjoin or prevent, or
questions the validity or legality of, the consummation of the transactions
contemplated hereby.
85
4.6 Investment Intent. In consummating the Merger, Buyer is acquiring the
outstanding shares of the Company for investment and not with a view to resale
and distribution thereof and understands and agrees that the transferability of
such shares is restricted under the Securities Act and may not be sold or
otherwise transferred unless such sale or other transfer is registered under the
Securities Act or is exempt from the registration provisions thereof.
4.7 Adequate Funds. On the Closing Date Buyer will have the funds needed
to pay (i) the Company Debt set forth in Schedule 2.7, including the HMD Debt,
(ii) the Preferred Share Liquidation Payment, (iii) the Common Share Merger
Consideration and (iv) the Option Consideration.
4.8 Brokers. No broker, finder or investment banker is entitled to any
fee or commission from Buyer for services rendered on behalf of Buyer in
connection with transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. From the date hereof and until the Closing, the
Company will conduct the Business only in the ordinary and usual course and in a
manner consistent with past practices; maintain in good repair, at its expense,
all of its material structures and Equipment; pay accounts payable and other
obligations on or before the date set forth for payment in the invoice; and use
its reasonable best efforts (i) to preserve intact the present business
organization and operations of the Business, (ii) to keep available the services
of its officers, employees, representatives, agents and consultants, and (iii)
to preserve its relationships with licensors, suppliers, dealers, customers and
others having business relationships with it. Notwithstanding the foregoing or
anything to the
86
contrary contained elsewhere in this Agreement, the Company shall be entitled to
apply Cash, not required for its ordinary course operations (including the
payment of accounts payable and other ordinary course obligations in the
ordinary course of business consistent with past practice), to reduce or prepay
outstanding Company Debt. The Company's management will meet with Buyer on a
regular and frequent basis to discuss the general status of the ongoing
operations of the Business and any material issues relating to the conduct
thereof. The Company will give prompt notice to Buyer of (i) any material change
in the normal conduct of its business or operations, (ii) the threat or
initiation of any material litigation against the Company, its Subsidiaries or
Chroma, (iii) the initiation, to the knowledge of the Company, of any
investigation of its business by any party, whether private or governmental,
(iv) the occurrence or non-occurrence of any event which would be reasonably
likely to cause the Company to believe that any representation or warranty of
the Company herein to be untrue or inaccurate in any material respect, or the
failure of the Company to comply, in any material respect, with or satisfy any
covenant, agreement or the inability to satisfy any condition to be complied
with or satisfied by it hereunder, (v) the giving of notice by any other partner
in Chroma of termination or prospective termination of its interest in Chroma
and (vi) any material budget revisions approved by the Board of Directors of the
Company, and will keep Buyer fully informed of material developments with
respect to such events and afford Buyer's representatives access to all
materials in their possession relating thereto.
5.2 Forbearances. Except as contemplated by this Agreement or as set
forth on Schedule 5.2, the Company will not take any of the following actions,
and as a partner in Chroma, shall not give approval of the taking of any such
actions by Chroma, from the date hereof until the earlier of
87
(a) the Effective Time or (b) termination under Article IX, without the written
consent of Buyer which shall not be unreasonably withheld:
(i) sell, assign, lease or transfer any of the Assets that are
material singly or in the aggregate to the Company, its Subsidiaries and
Chroma taken as a whole, other than Assets sold or disposed of in the
ordinary course of business, consistent with past practice, to persons who
are not Affiliates of the Company, its Subsidiaries or Chroma for fair
consideration;
(ii) cancel or terminate, or amend, modify or waive any
material term of, any Material Contract to which it is a party or by which
it or any of the Assets is bound;
(iii) (A) increase the compensation payable or to become payable
to any of its directors or officers, (B) increase the base compensation
payable or to become payable to any of its Personnel (other than directors
or officers), except for normal periodic increases in such base
compensation (not exceeding, in each case, 5%) in the ordinary course of
business, consistent with past practice, (C) increase the sales commission
rate payable or to become payable to any of its Personnel, (D) grant, make
or accrue any loan, bonus, fee, incentive compensation (excluding sales
commissions), service award or other like benefit, contingently or
otherwise, to or for the benefit of any of its Personnel, except pursuant
to the Employee Plans set forth in Schedule 3.23, (E) adopt or amend any
Employee Plan (other than any option grants under any Employee Plan
referred to in clause (F) of this clause (iii)), other than (1)
contributions made in the ordinary course of business, consistent with past
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practice or (2) the extension of coverage to any of its Personnel who
became eligible after the date of this Agreement, (F) grant any additional
stock options or performance unit grants or other interest under any
Employee Plan, (G) enter into any new employment or consulting agreement or
any written or oral termination, cancellation or amendment of any such
employment or consulting agreement to which it is a party (except with
respect to any employee at will without a written agreement), (H) enter
into any collective bargaining agreement or terminate or amend any
collective bargaining agreement to which it is a party or (I) with respect
to any Shareholder, any other Affiliate or any Affiliate of any
Shareholder, grant, make or accrue any payment or distribution or other
like benefit, contingently or otherwise, or otherwise transfer Assets,
including any payment of principal of or interest on any debt owed to any
such Shareholder or Affiliate, other than (1) any payments to such person
in the ordinary course of business in his capacity as an employee or a
director or independent contractor of the Company, its Subsidiaries or
Chroma, (2) any transactions between the Company and Chroma, in the
ordinary course of business and on an arms' length basis and (3) principal
and interest payments on indebtedness reflected in the Interim Financial
Statements;
(iv) make any capital expenditure or commitment to make any
capital expenditure except in accordance with the aggregate dollar limits
set forth in the 1999 capital expenditure plan of the Company, its
Subsidiaries and Chroma, true, correct and complete copies of which are set
forth in Schedule 3.10;
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(v) execute or propose in writing to execute (A) any Lease
for real property or (B) any Lease for personal property involving annual
payments in excess of $50,000;
(vi) make any material payments or give any other material
consideration to customers or suppliers, other than (A) payments or
consideration made under, and in accordance with the terms of, Contracts in
effect on the date hereof, (B) trade discounts and rebates in the ordinary
course of business consistent with past practice or (C) payment of accounts
payable incurred in the ordinary course of business;
(vii) change its accounting methods, principles or practices,
including any change in the application or interpretation of GAAP other
than as and to the extent required by GAAP;
(viii) (A) issue or sell, or enter into any agreement obligating
it to issue or sell, (B) declare, set aside for payment or pay dividends or
distributions in respect of, or (C) other than as contemplated by Article
II of this Agreement with respect to the outstanding Preferred Shares and
Executive Stock Options, directly or indirectly redeem, purchase or
otherwise acquire, or split, combine, reclassify or otherwise adjust, any
class or series of capital stock;
(ix) (A)except for advances under the Factoring Agreement
dated January 26, 1995, as amended, between the Company and Trust Company
Bank, incur any indebtedness for borrowed money or enter into any
commitment to borrow
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money or (B) incur any obligations for any performance bonds, payment
bonds, bid bonds, surety bonds, letters of credit, guarantees or similar
instruments;
(x) take any action in anticipation of the sale of the
Business or for any other reason to delay or defer expenses (including
delay or postponement of capital expenditures or the payment of accounts
payable), liabilities or obligations of any kind whatsoever or to
accelerate any income, revenue, payment or similar item, other than in the
ordinary course of business consistent with past practice;
(xi) pay, discharge or satisfy any material liability other
than (A) any such payment, discharge or satisfaction in the ordinary course
of business, consistent with past practice, of liabilities under, and in
accordance with the terms of, any Contracts, Licenses and Permits and other
commitments set forth in the Schedules or under Contracts (Material or
other), Licenses and Permits and other commitments which are not required
to be disclosed in the Schedules and (B) payments or prepayments, whether
or not in the ordinary course of business, of principal and interest in
respect of Company Debt;
(xii) change or amend its certificate or articles of
incorporation or bylaws or agree to any amendments to the Chroma
partnership agreement;
(xiii) (A) acquire (by merger, consolidation, acquisition of
stock, other securities or assets or otherwise), (B) make a capital
investment (whether through the acquisition of an equity interest, the
making of a loan or advance or otherwise) in or (C) guarantee indebtedness
for borrowed money of, (1) any Person
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(other than a Subsidiary) or (2) any portion of the assets of any Person
that constitutes a division or operating unit of any Person (other than a
Subsidiary);
(xiv) except for the factoring of receivables in the ordinary
course of business consistent with past practice, mortgage or pledge, or
otherwise make any Encumbrance (other than any Permitted Encumbrance) on,
any material Asset or group of Assets that are material in the aggregate;
(xv) revalue any of its Assets, including any write-off of
notes or accounts receivable or any increase in any reserve (other than in
the ordinary course of business consistent with past practice), involving
in excess of $25,000 individually or $100,000 in the aggregate (such
amounts to be calculated without netting any decrease);
(xvi) cancel, waive or release any right or claim (or series
of related rights or claims), other than as set forth in clause (xv),
involving in excess of $25,000 individually or $100,000 in the aggregate;
(xvii) make any material change in the policies or practices
relating to selling practices, returns, discounts or other terms of sale or
accounting therefor or in policies of employment except as and to the
extent required by Law; or
(xviii) enter into any Contract to do any of the foregoing.
5.3 Negotiations with Others; Notification.
(a) No Solicitation. From the date hereof until the earlier of (i)
---------------
the Effective Time or (ii) termination of this Agreement under Article IX, the
Company shall not, and shall cause each of its Subsidiaries and shall instruct
each of their respective representatives (including investment
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bankers, attorneys and accountants) not to, directly or indirectly, enter into,
solicit, initiate, conduct or continue any discussions or negotiations with, or
encourage or respond to any inquiries or proposals by, or provide any
information to, or otherwise cooperate in any other way with, any Person or
group, other than Buyer and its representatives, concerning any sale of all or
any substantial portion of the Assets or the Business of, or of any shares of
capital stock or other securities of, the Company, its Subsidiaries or Chroma,
or any merger, consolidation, recapitalization, liquidation, dissolution or
similar transaction involving the Company, its Subsidiaries or Chroma (each such
transaction being referred to herein as a "Proposed Acquisition Transaction").
The Company hereby represents that the Company is not presently engaged in
discussions or negotiations with any party other than Buyer with respect to any
Proposed Acquisition Transaction. The Company agrees not to, and to cause each
of its Subsidiaries not to, release any third party from, or waive any provision
of, any confidentiality or standstill agreement to which any of them is a party.
(b) Notification. The Company shall (i) immediately notify Buyer
------------
(orally and in writing) if any offer is made, any discussions or negotiations
are sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Proposed Acquisition Transaction,
(ii) promptly notify Buyer of the terms of any proposal which it may receive in
respect of any such Proposed Acquisition Transaction, including the identity of
the prospective purchaser or soliciting party, (iii) promptly provide Buyer with
a copy of any such offer, if written, or a written summary (in reasonable
detail) of such offer, if not in writing, and (iv) keep Buyer informed of the
status of such offer and the offeror's efforts and activities with respect
thereto.
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5.4 Investigation of Business and Properties. From the date hereof until
the earlier of (i) the Effective Time or (ii) termination under Article IX, the
Company will, and will, to the extent that it is able, cause Chroma to, afford
Buyer, any financial institution providing financing to Buyer, and their
respective attorneys, accountants, financial advisors and other representatives,
reasonable access during regular business hours upon reasonable notice, to make
such reasonable inspection of the Assets, business and operations of the
Company, its Subsidiaries and, to the extent it is able without causing the pre-
mature disclosure of the transactions contemplated hereby, of Chroma and to
inspect and make copies of Contracts, Books and Records and all other documents
and information reasonably requested by Buyer and related to the operations and
business of the Company, its Subsidiaries and Chroma, including historical
financial information concerning the business of the Company, its Subsidiaries
and Chroma and to meet with designated Personnel of the Company and its
Subsidiaries and/or their respective representatives; provided that any such
--------
access shall be conducted in such a manner as not to interfere unreasonably with
the operation of the Business; provided further, that no disclosure to Buyer,
-------- -------
its counsel, accountants or other representatives after the date hereof shall be
deemed to be a reduction of, or otherwise affect, the representations and
warranties of the Company set forth in this Agreement. The Company shall furnish
to Buyer promptly upon request (i) all additional documents and information
reasonably requested by Buyer with respect to the affairs of the Company and its
Subsidiaries and, to the extent it is reasonably able, with respect to the
affairs of Chroma and (ii) access during regular business hours to the Personnel
of the Company and its Subsidiaries, and to the extent it is able, of Chroma,
and to the Company's accountants and counsel as Buyer, or its counsel or
accountants, may from time to time reasonably request and the Company shall
instruct its Personnel, accountants and
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counsel to cooperate with Buyer, and to provide such documents and information
as Buyer and its representatives may reasonably request; provided that Buyer
--------
shall execute and deliver to such counsel and accountants such consents and
waivers as are customary in connection in providing such documents and
information; provided further that nothing herein shall obligate the Company to
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disclose matters which would constitute a waiver of any attorney-client
privilege so long as the Company gives notice to Buyer of the information or
documents as to which such privilege is being claimed and enters in joint
defense and other agreements with Buyer's counsel to enable the disclosure of
such material to the fullest extent possible without effecting such waiver.
5.5 Confidentiality.
(a) The provisions of the letter agreements dated January 7, 1998
and July 30, 1998, between Buyer and the Company (collectively, the "Buyer
Confidentiality Letter") are hereby incorporated herein by reference. Unless and
until the Closing has been consummated, Buyer shall hold, and shall cause its
counsel, accountants and other representatives to hold, in confidence all, and
shall refrain from using, and shall cause its counsel, accountants and other
representatives to refrain from using (except in furtherance of the consummation
of the transactions contemplated hereby) any, confidential data and information
relating to the Company, its Subsidiaries and Chroma made available to Buyer,
together with all analyses, compilations, studies and other documents and
records prepared by Buyer or any of its representatives which contain or
otherwise reflect or are generated from such information, as set forth in the
Buyer Confidentiality Letter. If the transactions contemplated by this Agreement
are not consummated, Buyer agrees to keep confidential all, and to make no use
whatsoever of any of the, data and information relating to the Company, its
Subsidiaries and Chroma or the Business, and upon written request of the
Company, to return or
95
cause to be returned to the Company all written materials and all copies that
contain any such confidential data or to certify to the Company that such
materials have been destroyed. Notwithstanding the foregoing, but subject to the
Buyer Confidentiality Letter, Buyer may disclose this Agreement and the
information and data in Buyer's possession in connection therewith (i) to the
lenders (and their counsel) under Buyer's existing credit agreement, (ii) to the
investment bankers (and their counsel) in connection with any offering of
securities by Buyer and (iii) subject to the provisions of the Buyer
Confidentiality Letter, to the extent such disclosure is required by law.
(b) The Company shall hold, and shall cause its counsel, accountants
and other representatives to hold, in confidence all, and shall refrain from
using, and shall cause its counsel, accountants and other representatives to
refrain from using (except in furtherance of the consummation of the
transactions contemplated hereby) any, confidential data and information
relating to Buyer made available to the Company, together with all analyses,
compilations, studies and other documents and records prepared by the Company or
any of its representatives which contain or otherwise reflect or are generated
from such information, in the same manner and to the same degree as provided for
Buyer in the Buyer Confidentiality Letter. If the transactions contemplated by
this Agreement are not consummated, the Company agrees to keep confidential all,
and to make no use whatsoever of any of the, data and information relating to
Buyer, and upon written request of Buyer, to return or cause to be returned to
Buyer all written materials and all copies that contain any such confidential
data or to certify to Buyer that such materials have been destroyed.
Notwithstanding the foregoing, subject to the limitations set forth in the Buyer
Confidentiality Letter, the Company may disclose this Agreement and the
information and data in the Company's possession in connection therewith to the
extent such disclosure is required by law.
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5.6 Books and Records. If the transactions contemplated hereby are
consummated, Buyer shall retain all of the Books and Records of the Company for
a period of seven years after the Effective Time or such longer time as may be
required by law, and shall make them available upon reasonable notice for review
and copying by former Shareholders in connection with the preparation of their
Tax Returns and Tax audits.
5.7 Expenses. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses;
provided that in the event the Merger is consummated, the fees and expenses of
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SunTrust Equitable Securities Corporation, the Shareholders' Auditors and
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx with respect to this Agreement and the
transactions contemplated hereby (the "Shareholders' Expenses") which are not
paid by the Company before the Closing Date shall be the responsibility of the
Shareholders and are referred to herein as "Unpaid Shareholders' Expenses;"
provided further that the fees and expenses of attorneys and accountants engaged
-------- -------
by a Shareholder to represent such Shareholder's personal interest shall be the
responsibility of such Shareholder; provided further that Buyer shall pay the
-------- -------
filing fees required under the HSR Act.
5.8 HSR Filings. The Company and Buyer will each file, or cause to be
filed, within five Business Days of the date hereof, with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, pursuant to the HSR Act, all requisite documents and
notifications in connection with the transactions contemplated by this
Agreement.
5.9 No Disclosure; Public Announcements. Prior to Closing, without the
prior written consent of the other party, (i) except to the extent required by
law, neither party will, and each party
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will direct its directors, officers, employees, representatives and advisors not
to, disclose to any other Person (except to the lenders (and their counsel)
under Buyer's existing credit agreement) the fact that discussions or
negotiations are taking place concerning the transactions contemplated hereby or
the existence of this Agreement or any of the terms, conditions or other facts
with respect thereto and (ii) except for filings required by law, neither party
will issue any press release or otherwise make any public statements with
respect to this Agreement and the transactions contemplated hereby.
5.10 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as practicable,
the transactions contemplated hereby, including the obtaining of all necessary
consents, waivers, authorizations, orders and approvals of third parties,
whether private or governmental, required of it to enable it to satisfy the
conditions precedent to the transactions contemplated by this Agreement. Each
party agrees to cooperate fully with the other party in assisting it to comply
with this Section 5.10. Without limiting the generality of the foregoing, each
party hereto shall defend and cooperate with each other party in defending any
legal proceedings, whether judicial or administrative and whether brought
derivatively or on behalf of third parties, challenging this Agreement or the
consummation of the transactions contemplated hereby. No consideration, whether
such consideration shall consist of the payment of money or shall take any other
form, for any such consent, waiver or agreement necessary to the consummation of
the transactions contemplated hereby shall be given or promised by the Company
without the prior written approval of Buyer. Notwithstanding the foregoing,
nothing contained herein shall require
98
(i) any party hereto or any of their respective Affiliates to sell, transfer,
divest or otherwise dispose of any of its respective business, assets or
properties in connection with this Agreement or any of the transactions
contemplated hereby or (ii) any party hereto to initiate any litigation, make
any substantial payment or incur any material economic burden (including as a
result of any divestiture), except for payments a party presently is
contractually obligated to make, to obtain any consent, waiver, authorization,
order or approval.
5.11 Indemnification of Officers and Directors.
(a) From and after the Effective Time, Buyer shall cause the
Surviving Corporation to, and the Surviving Corporation shall, comply fully and
faithfully and on a prompt and timely basis with all of the obligations and
covenants of the Surviving Corporation under Article VI of the Bylaws of the
Company, a copy of which is attached hereto as Exhibit E. Without limiting the
foregoing, such obligations and covenants shall apply to the actions taken by
the Indemnified Officers and Directors (as hereinafter defined) in their
capacity as officers and directors of the Company (and not in their capacity as
Shareholders of the Company) in approving and executing, and recommending to
Shareholders that they approve, this Agreement and the additional agreements
entered into by the Company pursuant hereto and effectuating the consummation by
the Company of the transactions contemplated hereby and thereby.
(b) The Surviving Corporation shall not, except as otherwise required
by applicable law, for a period commencing at the Effective Time and continuing
until the sixth anniversary thereof, amend, modify, rescind or revoke in a
manner which would affect adversely the rights of the officers and directors of
the Company under the provisions of Article 7 of the
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Certificate of Incorporation of the Company or Article VI of the Bylaws of the
Company, as in effect on the date hereof.
(c) For a period of four years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Buyer may substitute therefor policies issued by insurers
of comparable financial strength and integrity or of at least the same coverage
and amounts containing terms and conditions which are no less advantageous in
any material respect to the Persons entitled to be indemnified pursuant to
Article VI of the Bylaws of the Company (collectively, the "Indemnified Officers
and Directors") with respect to matters arising at or before the Effective Time;
provided that Buyer shall not be required to pay an annual premium for such
--------
insurance in excess of 150% of the last annual premium paid by the Company prior
to the date hereof, but in such case shall purchase as much coverage as possible
for such amount.
(d) Article VI of the Bylaws of the Company shall constitute a
contract between the Surviving Corporation and each of the Indemnified Directors
and Directors and the contractual obligations thereunder and those contained in
paragraphs (a), (b) and (c) and this paragraph (d) of this Section 5.11 shall
survive the Merger and are intended to be for the benefit of, and shall be
enforceable by, each Indemnified Officer and Director, his heirs and his
personal representatives and shall be binding on all successors and assigns of
Buyer, the Company and the Surviving Corporation. In the event that the
Surviving Corporation or any of its successors or assigns (i) consolidates or
merges into any other Person and shall not be the continuing or surviving
corporation or entity in such consolidation or merger, or (ii) sells or
otherwise transfers all or substantially all of its assets to any other Person,
including Buyer, then, in any such case, proper provision shall be made so that
100
the successors and assigns of the Surviving Corporation or the entity acquiring
such assets (as the case may be), assume the obligations of the Surviving
Corporation set forth in this Section 5.11, without thereby releasing the
Surviving Corporation from such obligations.
(e) If there is any conflict between the provisions of Section 8.1
of this Agreement and any of the provisions of this Section 5.11, in each case,
as such provisions relate to survival of covenants, the provisions of this
Section 5.11 and not the provisions of Section 8.1 shall govern.
5.12 Obligations of Merger Subsidiary. Buyer will take all action
necessary to cause Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth herein.
5.13 Related Party Accounts. Contemporaneously with the Closing, except
for (i) the HMD Note which shall be paid as set forth in Schedule 2.7, (ii) the
Option Consideration which shall be paid pursuant to Section 2.11 and (iii)
compensation payable to officers and employees of the Company, its Subsidiaries
or Chroma in the ordinary course of business and not in violation of Section 5.2
hereof, the Shareholders and their Affiliates (other than the Company, its
Subsidiaries or Chroma), on the one hand, and the Company, its Subsidiaries or
Chroma, on the other hand, shall have canceled and forgiven (without recourse),
as between the Shareholders and their Affiliates (other than the Company, its
Subsidiaries or Chroma), on the one hand, and the Company, its Subsidiaries or
Chroma, on the other hand, all amounts with respect to amounts (i) due by a
Shareholder and its Affiliates (other than the Company, its Subsidiaries or
Chroma), on the one hand, to the Company, its Subsidiaries or Chroma, on the
other hand, or (ii) due by the Company, its Subsidiaries or Chroma, on the one
hand, to Shareholders and their Affiliates (other than the
101
Company, its Subsidiaries or Chroma), on the other hand. Any liability for Taxes
arising from such cancellation and forgiveness of such amounts shall be the
responsibility of the Shareholders.
5.14 Lender Releases. Following the Closing, the Shareholders'
Representatives shall, for the account and at the expense of the Shareholders
use commercially reasonable efforts to obtain (to the extent not theretofore
obtained by the Company) from the appropriate parties an acknowledgment of
payment and release and other evidence reasonably satisfactory to Buyer of
termination, cancellation and extinguishment, and delivery to the Company, of
all instruments evidencing Company Debt repaid in connection with Closing as
contemplated by Section 2.7 (collectively, "Debt Instruments") and the release
all Encumbrances in connection therewith (and shall, if necessary or advisable,
use commercially reasonable efforts to obtain a reconveyance of all Assets or
property the ownership of interests in which was transferred as security for
such debt). The Surviving Corporation shall provide such assistance to the
Shareholders' Representatives as they may reasonably request.
5.15 Closing Deliveries.
(a) At the Closing, the Company shall deliver to Buyer:
(i) a copy of the certificate of incorporation of the Company
and all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware or other appropriate governmental
official;
(ii) a certificate of the appropriate Secretary of State or other
appropriate governmental official certifying the good standing of the
Company in Delaware, California and all other states where it is qualified
to do business;
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(iii) physical possession of all original minute books,
corporate seals and stock records of the Company;
(iv) physical possession of all Books and Records (other
than those covered by clause (iii) above), Licenses and Permits, policies,
Contracts, plans or other instruments of the Company, its Subsidiaries and
Chroma that are in the possession of the Company, its Subsidiaries or
Chroma, all such materials to be deemed delivered to Buyer if they are
present at any of the Facilities; and
(v) all other documents and certificates required to be
delivered by the Company at or prior to the Closing pursuant to the terms
of this Agreement.
(b) At the Closing, Buyer shall deliver to the Shareholders'
Representatives:
(i) a copy of the certificate of incorporation of Buyer and
Sub and all amendments thereto, each certified as of a recent date by the
Secretary of State of its state of incorporation;
(ii) a certificate of the appropriate Secretary of State or
other appropriate governmental official certifying the good standing of the
Buyer and Sub in Delaware; and
(iii) all other documents and certificates required to be
delivered by Buyer at or prior to the Closing pursuant to the terms of this
Agreement.
5.1 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation shall, except to the extent any such
document is required to be, and is in fact, executed, by the Shareholders'
Representatives, be authorized to execute and deliver, in the name and on behalf
of the Company or Sub, any deeds, bills of sale, assignments or assurances and
103
to take and do, in the name and on behalf of the Company and Sub, any other
actions to vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all rights, properties or Assets of the Company acquired or
to be acquired as a result of, or in connection with, the Merger.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions contemplated by this
Agreement shall be subject, in the sole discretion of Buyer, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Buyer in accordance with Section 10.9:
6.1 Representations and Warranties. The representations and warranties of
the Company contained in Article III hereof shall be true and correct as of the
date of this Agreement and as of the Closing Date; provided that this condition
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precedent shall be deemed to have been satisfied if the failure of any such
representations and warranties (without giving effect to any qualifications as
to materiality, "Material Adverse Effect" and similar terms and phrases
contained therein) to be true and correct individually or in the aggregate has
not resulted in or constituted, and would not reasonably be expected to have, a
Material Adverse Effect on the Company, on the Company's ability to consummate
the Merger or on Buyer if it were to consummate the Merger; provided further
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that to the extent that any such representations and warranties were made as of
a specified date, such representations and warranties shall continue on the
Closing Date to have been true as of such specified date..
6.2 Performance of this Agreement. The Company shall have performed in
all material respects all covenants and agreements required by this Agreement to
be performed by it prior to or
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on the Closing Date; provided that this condition shall be deemed to be
--------
satisfied notwithstanding a breach of any such covenants or agreements if such
breach or breaches, individually or in the aggregate, have not resulted in or
constituted, and would not reasonably be expected to have, a Material Adverse
Effect on the Company, on the Company's ability to consummate the Merger or on
Buyer if it were to consummate the Merger.
6.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications, waivers and Licenses and
Permits listed in Schedule 3.4 and Environmental Permits listed in Schedule
3.6(a) to the extent necessary to effect the Merger shall have been filed, made
or obtained and all waiting periods specified by law with respect thereto shall
have expired or been terminated.
6.4 Injunction, Litigation, etc. No Actions by any Governmental Authority
or any other Person shall have been instituted or threatened for the purpose of
enjoining or preventing, or which question the validity or legality of, the
transactions contemplated hereby and which could reasonably be expected to
damage Buyer materially or impair Buyer's ability to own and control the Company
if the transactions contemplated hereby are consummated.
6.5 Legislation. No statute, rule or regulation shall have been enacted
which prohibits or is reasonably expected to prohibit, restrict or materially
delay the consummation of the transactions contemplated by this Agreement.
6.6 Proceedings. All corporate proceedings of the Company that are
required in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to Buyer and its counsel.
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6.7 Resignations. Each of the directors of the Company shall have
submitted resignations effective as of the Closing.
6.8 Opinion of Counsel. The Company shall have delivered to Buyer an
opinion of Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx, counsel for the Company and the
Shareholders, dated as of the Closing Date, substantially with respect to the
matters set forth in Exhibit F attached hereto.
6.9 Closing Deliveries. Buyer shall have received, at or prior to the
Closing, the following:
(i) a certificate executed by the Secretary of the Company
certifying as of the Closing Date (A) a true and correct copy of the
certificate of incorporation of the Company and the partnership agreement
of Chroma, (B) a true and correct copy of the bylaws of the Company, (C) a
true and correct copy of the resolutions of the board of directors of the
Company authorizing the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby and (D) incumbency matters; and
(ii) a certificate executed by the President and the Chief
Financial Officer of the Company in their capacities as such certifying
that, as of the Closing Date, the conditions set forth in Sections 6.1,
6.2, 6.3, 6.10 and 6.11 have been satisfied.
6.10 Shareholder Approval; Dissenters Rights. The Merger shall have been
approved by the affirmative vote of at least 92% of the voting power of each
class of voting securities of the Company entitled to vote on the Merger. Buyer
shall have received evidence, in form and substance reasonably satisfactory to
it, including delivery of executed letters of transmittal and Option
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Cancellation Agreements from the Shareholders listed in Schedule 6.10, that the
number of Dissenting Shares shall constitute no greater than nine percent (9%)
of the total number of Common Shares outstanding immediately prior to the
Effective Time.
6.11 Material Adverse Change. Since April 30, 1999, there shall not have
been any Material Adverse Change with respect to the Company, its Subsidiaries
and Chroma, taken as a whole, and there shall not be any material liability not
shown in the Interim Financial Statements or otherwise disclosed herein.
6.12 Tax Matters. The Company shall have provided Buyer with a statement
the form of which has been supplied by Buyer to the Company and prepared in
accordance with Section 1445 of the Internal Revenue Code and Treasury
Regulations thereunder certifying that the Company is not, and was not at any
time after January 1, 1993, a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Internal Revenue Code.
6.13 Noncompetition Agreements. The Persons set forth in Schedule 6.13
shall have executed and delivered to Buyer confidentiality, noncompetition and
nondisturbance agreements substantially in the form of Exhibit G-1, G-2 or G-3
hereto, as applicable.
6.14 Escrow Agreement. The Shareholders' Representatives shall have
executed and delivered to Buyer the Escrow Agreement in substantially in the
form of Exhibit A hereto.
6.15 HSR Act. All filings to be made by the Company under the HSR Act
with respect to this Agreement and the transactions contemplated hereby shall
have been made and the applicable waiting period, including all extensions
thereof, under the HSR Act shall have expired or been terminated.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to consummate the transactions contemplated
by this Agreement shall be subject, in the sole discretion of the Company, to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by the Company in accordance with Section
10.9.
7.1 Representations and Warranties. The representations and warranties of
Buyer contained in Article IV hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date; provided
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that this condition precedent shall be deemed to have been satisfied if the
failure of any such representations and warranties (without giving effect to any
qualifications as to materiality, "Material Adverse Effect" and similar terms
and phrases contained therein) to be true and correct individually or in the
aggregate has not resulted in or constituted, and would not reasonably be
expected to have, a Material Adverse Effect on the Company or on the Company's
ability to consummate the Merger; provided further that to the extent that any
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such representations and warranties were made as of a specified date, such
representations and warranties shall continue on the Closing Date to have been
true as of such specified date.
7.2 Performance of this Agreement. Buyer shall have performed in all
material respects all covenants and agreements required by this Agreement to be
performed by it prior to or on the Closing Date; provided that this condition
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shall be deemed to be satisfied notwithstanding a breach of any such covenants
or agreements if such breach or breaches, individually or in the aggregate, have
not resulted in or constituted, and would not reasonably be expected to have, a
Material Adverse Effect on the Company, on the Company's ability to consummate
the Merger; provided that,
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notwithstanding the foregoing, this condition precedent shall not be deemed to
have been satisfied if there occurs any failure by Buyer or the Surviving
Corporation to comply with any of their respective payment obligations under
Article II that are required to be performed on or before the Closing Date..
7.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 4.3 to the extent necessary to effect the Merger shall have been filed,
made or obtained and all waiting periods specified by law with respect thereto
shall have expired or been terminated.
7.4 Injunction, Litigation, etc. No Actions by any Governmental Authority
or any other Person shall have been instituted or threatened for the purpose of
enjoining or preventing, or which question the validity or legality of, the
transactions contemplated hereby and which could reasonably be expected to
damage the Shareholders materially if the transactions contemplated hereby are
consummated.
7.5 Legislation. No statute, rule or regulation shall have been enacted
which prohibits or is reasonably expected to prohibit, restrict or materially
delay the consummation of the transactions contemplated this Agreement.
7.6 Proceedings. All corporate proceedings of Buyer and Sub that are
required in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to the Company and its
counsel.
7.7 Shareholder Approval. This Agreement and the Merger shall have been
authorized and approved by the requisite affirmative vote of the shareholders of
the Company in accordance with applicable law.
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7.8 Opinion of Counsel. Buyer shall have delivered to the Company an
opinion of McGuire, Woods, Battle & Xxxxxx LLP, counsel for Buyer, dated as of
the Closing Date, substantially with respect to the matters set forth in Exhibit
H attached hereto.
7.9 Closing Deliveries. The Shareholders' Representatives shall have
received, at or prior to the Closing, the following:
(i) a certificate executed by the Secretary of Buyer and
Sub, in his capacity as such, certifying as of the Closing Date (i) a true
and correct copy of the certificate of incorporation of the Buyer and Sub,
(ii) a true and correct copy of the Bylaws of the Buyer and Sub, (iii) a
true and correct copy of the resolutions of the board of directors of Buyer
and Sub authorizing the execution, delivery and performance of this
Agreement by Buyer and Sub and the consummation of the transactions
contemplated hereby and (iv) incumbency matters; and
(ii) a certificate executed by a Vice President of Buyer and
Sub certifying that, as of the Closing Date, the conditions set forth in
Sections 7.1, 7.2, and 7.3 with respect to the Buyer and Sub have been
satisfied.
7.10 Escrow Agreement. Buyer shall have executed and delivered to the
Shareholders' Representatives the Escrow Agreement substantially in the form of
Exhibit A
7.11 Severance Agreements and Option Grants. Buyer shall have executed and
delivered to Xxxxx X. Xxxxx and Xxxx X. Xxxxxxx Xxxxxxxxx Agreement and option
grant letters, substantially in the form of Exhibits I, J-1 and J-2 hereto and
the confidentiality, noncompetition and nondisturbance agreement with Xxxxx
Xxxxx substantially in the form of Exhibit G-3 hereto.
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7.12 HSR Act. All filings to be made under the HSR Act with respect to
this Agreement and the transactions contemplated hereby shall have been made and
the applicable waiting period, including all extensions thereof, under the HSR
Act shall have expired or been terminated.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1 Survival of Representations. The representations and warranties of
the Company contained in this Agreement (as modified by the applicable Schedules
hereto) or any certificate or instrument delivered at the Closing pursuant
hereto, and the indemnification rights of Buyer and the other Buyer Indemnified
Parties (as hereinafter defined), will survive until the first anniversary of
the Closing Date; provided that (i) the representations and warranties contained
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in Section 3.2, and the indemnification rights of Buyer and the other Buyer
Indemnified Parties in respect of any breach of Section 3.2, shall survive the
Closing until the tenth anniversary of the Closing Date, (ii) the
representations and warranties contained in Section 3.6, and the indemnification
rights of Buyer and the other Buyer Indemnified Parties in respect of any breach
of Section 3.6, shall survive until the third anniversary of the Closing Date,
(iii) the representations and warranties in Sections 3.23 and 3.24, and the
indemnification rights of Buyer and the other Buyer Indemnified Parties in
respect of any breach of Sections 3.23 and 3.24, shall survive until the fourth
anniversary of the Closing Date. Each of the respective foregoing time periods
shall sometimes be referred to as a "Survival Period" and the last day of each
of such Survival Periods shall sometimes be referred to hereinafter as a
"Survival Period Termination Date;" provided that the Survival Period and the
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Survival Period Termination Date with respect to claims for indemnification
pursuant to Sections 8.2(a)(ii),
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8.2(a)(iii) and, except with respect to breach by Buyer or the Surviving
Corporation with respect to payment of the Merger Consideration or any Merger
Consideration Deficiency, with respect to which the Survival Period and Survival
Period Termination Date shall be four years and the fourth anniversary of the
Closing Date, respectively, Section 8.3 shall be one year and the first
anniversary of the Closing Date, respectively, and the respective
indemnification rights of each of the parties entitled to indemnification under
this Article VIII with respect to such claims also shall terminate on the
applicable Survival Period Termination Date. Notwithstanding the foregoing, if a
Person entitled to indemnification under this Article VIII (an "indemnified
party") has submitted a Claims Notice (as hereinafter defined), in accordance
with the provisions of this Article VIII on or before the Survival Period
Termination Date applicable to the claims made in the Claims Notice (the
"Indemnification Claims"), then, such indemnified party's right to be
indemnified, in accordance with the terms and subject to the limitations
hereinafter set forth in this Article VIII, in respect of the Indemnification
Claims contained in such Claims Notice shall survive the expiration of such
applicable Survival Period and shall continue until such Indemnification Claims
are finally resolved in accordance with the procedures set forth in this Article
VIII. For purposes of this Article VIII, a "Claims Notice" shall mean a written
notice, executed by or on behalf of an indemnified party, that (i) states that
it is being delivered pursuant to Article VIII of this Agreement, (ii) contains
a description, in reasonable detail, of the event or circumstance and the nature
of the breach which the indemnified party believes entitles such indemnified
party to be indemnified under the applicable provisions of this Article VIII,
and (iii) states whether or not the amount of the Covered Liabilities incurred
or paid, or anticipated to be incurred or paid, by the indemnified party as a
result of such
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event or circumstance are at such time dterminable and, if so, the indemnified
party's estimate of the amount thereof.
8.2 Indemnification by the Shareholders.
(a) Subject to the limitations contained in Section 8.2(b) and
elsewhere in this Article VIII, each Shareholder and each holder of Executive
Stock Options (collectively, the "Indemnifying Securityholders" and,
individually, an "Indemnifying Securityholder"), severally and not jointly, will
indemnify and hold harmless, Buyer, its subsidiaries, Affiliates, each of their
respective partners, directors, officers, employees and agents, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Buyer Indemnified Parties") from and against, or pay or reimburse in the
manner set forth in Section 8.2(b) the Buyer Indemnified Parties for, such
Indemnifying Securityholders' Pro-Rata Share (as set forth in Schedule 8.2(a))
of, any and all Covered Liabilities actually incurred or paid by the Buyer
Indemnified Parties as a result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by the Company in this Agreement or in any
document delivered at the Closing pursuant hereto (as the same has been
modified by disclosure in the applicable Schedules); provided that for
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purposes of determining whether an inaccuracy, omission or breach has
occurred and the amount of Covered Liabilities arising therefrom any
materiality, material adverse effect, substantial compliance or similar
exception or qualification contained in or otherwise applicable to such
representation or warranty shall be disregarded;
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(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of the Company contained in this Agreement;
(iii) any liability or obligation, whether civil or criminal,
arising out of or related to any Action required to be set forth in
Schedule 3.12, but which is not set forth therein; and
(iv) the matters set forth in Schedule 8.2(a)(iv);
provided a Buyer Claims Notice with respect to any such Buyer Claim is given to
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the Shareholders' Representatives on or prior to the Survival Period Termination
Date applicable to the subject matter of such Buyer Claims Notice.
(b) Notwithstanding the foregoing, except for common law fraud, (i)
Buyer Claims pursuant to Section 8.2(a) (other than with respect to the
representations and warranties set forth in Sections 3.2) shall be settled
solely and exclusively by adjustment to the Merger Consideration out of the
General Escrow Fund in accordance with the terms of the Escrow Agreement and
(ii) Buyer Claims with respect to a breach of the representations and warranties
set forth in Section 3.2 shall, if and to the extent there are sufficient funds
in the Special Escrow Fund, be settled by adjustment of the Merger Consideration
out of the Special Escrow Fund; provided that, if and to the extent that the
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aggregate sum of the Covered Liabilities arising out of or related to breaches
of the representations and warranties in Section 3.2 exceed the amount of the
monies available for payment to the Buyer Indemnified Parties out of the Special
Escrow Fund, each Indemnifying Securityholder, severally and not jointly, shall
indemnify and hold harmless the Buyer Indemnified Parties from and against such
Indemnifying Securityholder's Allocable Share (as set forth in Schedule 8.5) of
such excess (the "Excess Section 3.2 Liabilities"); provided further that
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nothing herein shall preclude the Buyer Indemnified Parties from making Buyer
Claims for and recovering indemnification for breach of the representations and
warranties set forth in Section 3.2 from the General Escrow Fund in accordance
with the Escrow Agreement.
(c) The claims for indemnity by Buyer Indemnified Parties pursuant to
this Section 8.2 are referred to as "Buyer Claims." The indemnity provided for
in this Section 8.2 is not limited to matters asserted by third parties against
any Buyer Indemnified Party, but includes Covered Liabilities actually incurred
or sustained by any Buyer Indemnified Party in the absence of third party
claims.
8.3 Indemnification by Buyer.
(a) Subject to the limitations set forth in this Article VIII, Buyer
will indemnify and hold harmless the Shareholders, their Affiliates, each of
their respective partners, directors, officers, employees and agents, and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Shareholder Indemnified Parties") from and against, and pay
or reimburse the Shareholder Indemnified Parties for, any and all Covered
Liabilities actually incurred or paid by the Shareholder Indemnified Parties as
a result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by Buyer in this Agreement or in any
document delivered at the Closing pursuant hereto (as the same has been
modified by disclosure in the applicable Schedules); provided that for
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purposes of determining whether an inaccuracy, omission or breach has
occurred and the amount of Covered Liabilities arising therefrom any
materiality, material adverse effect, substantial compliance or
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similar exception or qualification contained in or otherwise applicable to
such representation or warranty shall be disregarded; and
(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of Buyer contained in this Agreement;
provided a Shareholder Claims Notice with respect to any such Shareholder
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Claim is given to Buyer on or prior to the Survival Period Termination Date
applicable to the subject matter of such Shareholder Claims Notice.
(b) The claims for indemnity by Shareholder Indemnified Parties
pursuant to this Section 8.3 are referred to as "Shareholder Claims." The
indemnity provided for in this Section 8.3 is not limited to matters asserted by
third parties against any Shareholder Indemnified Party, but includes Covered
Liabilities actually incurred or sustained by any Shareholder Indemnified Party
in the absence of third-party claims.
8.4 Notice and Defense of Claims.
(a) Whenever a claim shall arise for indemnification hereunder (an
"Indemnification Claim"), the party seeking indemnification (an "indemnified
party") shall give a reasonably prompt Claims Notice to the party from whom
indemnification is sought (an "indemnifying party"); provided that failure of an
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indemnified party to give prompt written notice of any Claim shall not release,
waive or otherwise affect an indemnifying party's obligations with respect
thereto except to the extent that the indemnifying party is materially and
adversely affected in its ability to defend against such Indemnification Claim.
(b) Upon receipt of a Claims Notice from an indemnified party, the
indemnifying party shall have thirty days (the "Contest Period") to contest the
Indemnification Claims contained
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in such Claims Notice, including the amount of the Covered Liabilities alleged
in such Claims Notice, to have been incurred by the indemnified parties, by
delivery to the indemnified party during the Contest Period of a written notice
(a "Contest Notice") specifying the reasons or bases, in reasonable detail, for
the objections of the indemnifying party to the Indemnification Claims contained
in such Claims Notice, and if any such objection relates to the amount of the
Covered Liabilities asserted therein, the amount, if any, which the indemnifying
party believes is due the indemnified parties in respect thereof.
(c) If no such Contest Notice is given within the applicable 30-day
Contest Period, then, the Covered Liabilities that were the subject of the
Claims Notice shall be deemed, for purposes hereof, to have been established
and, if after application of the Deductible (if applicable to such
Indemnification Claim), any amount is due any of the indemnified parties in
respect thereof, such amount shall become payable to the indemnified parties as
provided in Section 8.2 or 8.3, as the case may be.
(d) If, on the other hand, the indemnifying party delivers a Contest
Notice within the applicable 30-day Contest Period, then, the indemnifying
parties and the indemnified parties shall thereafter attempt in good faith to
resolve their dispute by mutual agreement. If they are unable to do so within
the immediately succeeding thirty days, the indemnified parties shall be
entitled to seek resolution of the Indemnification Claim through either
arbitration pursuant to Section 8.9 or legal proceedings.
(e) In the case of a claim involving the assertion of a claim by a
third party (whether pursuant to an Action or otherwise, a "Third-Party Claim"),
if the indemnifying party shall acknowledge in writing to the indemnified party
that the indemnifying party shall be obligated to
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indemnify the indemnified party under the terms of its indemnity hereunder in
connection with such Third-Party Claim, then (i) the indemnifying party shall be
entitled and, if it so elects, shall be obligated at its own cost, risk and
expense, (A) to take control of the defense and investigation of such Third-
Party Claim and (B) to pursue the defense thereof in good faith by appropriate
actions or proceedings promptly taken or instituted and diligently pursued,
including to employ and engage attorneys of its own choice reasonably acceptable
to the indemnified party to handle and defend the same, which acceptance shall
not be unreasonably withheld or delayed, and (ii) the indemnifying party shall
be entitled (but not obligated), if it so elects, to compromise or settle such
claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld
or delayed. In the event the indemnifying party elects to assume control of the
defense and investigation of such lawsuit or other legal action in accordance
with this Section 8.4(e), the indemnified party may, at its own cost and
expense, participate in the investigation, trial and defense of such Third-Party
Claim; provided that, in the event (i) the indemnified party is a Buyer
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Indemnified Party and the amount of the Indemnification Claim exceeds an amount
equal to (A) the amount remaining in the Escrow Fund minus (B) the amount of all
unresolved or unpaid Indemnification Claims pursuant to Section 8.2, or (ii) the
indemnifying party and the indemnified party have been advised in writing by
counsel that an ethical conflict might arise if the indemnifying party's counsel
were to represent the indemnified parties, the indemnified party shall be
entitled to take control of the investigation and defense of the Third-Party
Claim, including to employ and engage attorneys of its own choosing, then,
subject to the limitations contained in Section 8.5 hereof, the reasonable fees
and disbursements of which shall be paid by the indemnifying parties. If the
indemnifying party fails to assume the defense of such Third-Party Claim in
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accordance with this Section 8.4(e) within 10 calendar days after receipt of the
notice of such Third Party Claim, the indemnified party against which such
Third-Party Claim has been asserted shall (upon delivering notice to such effect
to the indemnifying party) have the right to undertake, at the indemnifying
party's cost, risk and expense, the defense, compromise and settlement of such
Third-Party Claim on behalf of and for the account of the indemnifying party;
provided that such Third-Party Claim shall not be compromised or settled without
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the written consent of the indemnifying party, which consent shall not be
unreasonably withheld or delayed. In the event the indemnifying party assumes
the defense of the Third Party Claim, the indemnifying party shall keep the
indemnified party reasonably informed of the progress of any such defense,
compromise or settlement, and in the event the indemnified party assumes the
defense of the Third Party Claim, the indemnified party shall keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. Subject to the limitations set forth in this Article
VIII, the indemnifying party shall be liable for any settlement of any Third-
Party Claim effected pursuant to and in accordance with this Section 8.4(e) and
for any final judgment (subject to any right of appeal), and the indemnifying
party agrees to indemnify and hold harmless each indemnified party from and
against any and all Covered Liabilities by reason of such settlement or
judgment.
(f) If Covered Liabilities are paid or incurred by the indemnified
party, the indemnified party shall be reimbursed within 20 days after the latest
of (i) the delivery of the Claim Notice, (ii) the date such Covered Liability is
paid or incurred and (iii) if the right of the indemnified party to
indemnification is contested, the date as of which it is finally determined that
the indemnified party is entitled to be indemnified. Any reimbursement not paid
within the 20-day period set forth in clause (i) or (ii), as applicable, of the
preceding sentence shall bear interest at the
119
prime rate of Xxxxxx Guaranty Trust Company of New York from time to time from
the end of such applicable 20 day period until the date of payment.
(g) The provisions of this Section 8.4 shall be subject to the
provisions of Section 10.3 hereof regarding the duties and authority of the
Shareholders' Representative.
(h) Notwithstanding anything herein to the contrary, in the event
that prior to the second anniversary of the Closing Date, the exposure to
Covered Liabilities arising out or relating to the matters set forth under the
caption "3.24(a) and (b)" in Schedule 3.24 have not been resolved and settled,
Buyer shall be entitled to pursue the resolution and settlement thereof in such
manner as it, in its reasonable discretion, shall determine. In that event,
Buyer shall keep the Shareholders' Representatives informed of the material
actions Buyer is taking with respect to such resolution and settlement and the
Shareholders' Representatives shall have the right to participate (but not
control) such resolution and settlement for the benefit and at the sole expense
of the Indemnifying Securityholders.
8.5 Limitations on Indemnification.
(a) Notwithstanding any other provision of this Article VIII, (i) the
Buyer Indemnified Parties shall not be entitled to any indemnification payments
from the Escrow Fund pursuant to Section 8.2(a)(i) unless and until the
aggregate amount of the Covered Liabilities, determined in the manner set forth
in Section 8.6 hereof, exceeds $500,000 (the "Deductible") and the amount of any
indemnification payments to which the Buyer Indemnified Parties shall be
entitled shall be limited to the amount of such Covered Liabilities that exceed
such Deductible and (ii) the maximum aggregate amount for which the Buyer
Indemnified Parties shall be entitled to indemnification under Section 8.2(a)
shall be the lesser of (A) $5,000,000 or (B) the amount in the
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General Escrow Fund at the time Buyer Indemnified Parties become entitled to
recover any such Covered Liabilities therefrom (whether due to prior payments of
Covered Liabilities or distributions of amounts from the Escrow Fund to the
Shareholders' Representatives as agents for the Shareholders pursuant to Section
6 of the Escrow Agreement) and no Shareholder shall have any personal liability
to Buyer or any other Buyer Indemnified Party because the amounts available in
the General Escrow Fund are not sufficient to pay any Covered Liabilities.
Notwithstanding the foregoing, (A) the limitations set forth in clause (i) of
this Section 8.5(a) shall not apply to liability for a breach of the
representations or warranties in Section 3.2, 3.24 and 3.34 (except that with
respect to matters relating to sales and use Taxes, as to which the Deductible
shall be $250,000 (the "Sales Tax Deductible"), which shall be calculated
without regard to the provisions of Section 8.6(b) hereof, it being understood
that (1) the Buyer Indemnified Parties shall be entitled to indemnification for
Covered Liabilities relating to sales and use Taxes in excess of the Sales Tax
Deductible, which excess amount shall be computed giving effect to Section
8.6(b) hereof and (2) the amount equal to the Sales Tax Deductible after giving
effect to Section 8.6(b) shall be included in Covered Liabilities for purposes
of determining whether the Deductible has been satisfied, and determining the
aggregate amount of Covered Liabilities for all other purposes of this Article
VIII) and (B) the limitations set forth in clause (ii) of this Section 8.5(a)
shall not apply to the breach of the representations and warranties set forth in
Section 3.2; provided further that notwithstanding anything to the contrary
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contained in Section 8.2(a)(i) or elsewhere in Article VIII, Covered Liabilities
arising from the breach of any representation and warranty set forth in Article
III shall not be charged against or applied to reduce the Deductible and shall
not constitute Covered Liabilities for which Buyer or the Buyer Indemnified
Parties shall have any right to indemnification or recovery,
121
whether under this Article VIII or otherwise, if the Covered Liabilities arising
out of such breach are less than whichever of the following is applicable: (1)
$25,000 individually or $100,000 in the aggregate (the "Base Threshold Amounts")
if either no dollar threshold is applicable to such representation or warranty
or, although a dollar threshold is made applicable thereto, the amount thereof
is less than either or both of the Base Threshold Amounts, and (2) the amount of
the dollar thresholds contained in the Section of Article III that is made
applicable to such representation and warranty, if and to the extent such dollar
threshold or thresholds exceed either of the corresponding Base Threshold
Amounts, it being understood that in the event an applicable Base Threshold
Amount is exceeded the full amount of such Covered Liabilities shall be taken
into account to reduce the Deductible and shall, subject to satisfaction of the
Deductible, constitute Covered Liabilities for which Buyer and the Buyer
Indemnified Parties shall be entitled to indemnification; provided further that
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the maximum aggregate amount of the Indemnification Payments which shall be
recoverable by the Buyer Indemnified Parties from any Indemnifying
Securityholder in respect of any and all Excess Section 3.2 Liabilities shall in
no event exceed such Indemnifying Securityholder's Allocable Share (as set forth
in Schedule 8.5) of the aggregate of the Common Share Merger Consideration and
the Option Consideration minus such Indemnifying Securityholder's Pro-Rata Share
of the Indemnification Payments made from the Escrow Fund; provided further that
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the limitations set forth in this Section 8.5(a) shall not apply to liability
for a breach of by the Shareholders or the Shareholders' Representatives with
respect to payment of any Unpaid Shareholders' Expenses or any Merger
Consideration Overpayment.
(b) Notwithstanding any other provision of this Article VIII, (i) the
Shareholder Indemnified Parties shall not be entitled to indemnification
pursuant to Section 8.3(a) unless and
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until the aggregate amount of the Covered Liabilities, determined in the manner
set forth in Section 8.6 hereof, exceeds $500,000 (the "Deductible") and the
amount of any indemnification payments to which the Shareholder Indemnified
Parties shall be entitled shall be limited to the amount of such Covered
Liabilities that exceed such Deductible and (ii) the maximum aggregate amount
for which the Shareholder Indemnified Parties shall be entitled to
indemnification under Section 8.3(a) shall be $5,000,000; provided that the
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limitations set forth in this Section 8.5(b) shall not apply to liability for a
breach by Buyer or the Surviving Corporation with respect to payment of the
Merger Consideration or any Merger Consideration Deficiency or the
representation and warranty of Buyer set forth in Section 4.8 or Covered
Liabilities incurred as a result of any failure by Buyer to pay Buyer Expenses
pursuant to Section 5.7.
8.6 Calculation of Covered Liabilities.
(a) Insurance Proceeds. To the extent that any Buyer Claim or
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Shareholder Claim is covered by insurance or right to indemnification from a
third party held by such Buyer Indemnified Party or Shareholder Indemnified
Party, such indemnified party shall be entitled to indemnification pursuant to
Section 8.2 or 8.3, as applicable, only with respect to the amount of the
Covered Liabilities that are in excess of the cash proceeds received by such
indemnified party pursuant to such insurance or right to indemnification from a
third party. If such indemnified party receives such cash insurance or third
party indemnification proceeds prior to the time such Claim is paid, then the
amount payable by the indemnifying party pursuant to such Claim shall be reduced
by the amount of such proceeds. If such indemnified party receives such cash
insurance proceeds after such Claim has been paid, then upon the receipt by the
indemnified party of any cash proceeds pursuant to such insurance up to the
amount of Covered Liabilities incurred by such indemnified party with respect to
such Claim, such
123
indemnified party must repay any portion of such amount which was previously
paid by the indemnifying party to such indemnified party in satisfaction of such
Claim.
(b) Effect of Taxes. The amount of any indemnity payments for Covered
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Liabilities under Section 8.2 or 8.3 shall be (i) decreased to reflect the
actual Tax Benefit, if any, to the indemnified party resulting from the Covered
Liabilities giving rise to such indemnity payments and (ii) increased to reflect
the actual Tax Loss, if any, payable by such indemnified party as a result of
the receipt of such Covered Liabilities (but only in any instance in which it is
determined that the receipt of such Covered Liabilities by Buyer or any of the
Buyer Indemnified Parties does not constitute an adjustment to the Merger
Consideration, as hereinafter provided), in each case subject to the limitations
on indemnification contained in this Article VIII. In either case, the amount
shall be determined by the indemnified party taking into account only the
taxable period in which such indemnity payment accrues (and prior periods) and
not any subsequent periods. If an indemnity payment is made prior to the filing
of relevant Tax returns, the amount shall be determined on an estimated basis.
Proper adjustments shall be made if the actual Tax Benefit or actual Tax Loss
differ from the estimated amount. Any indemnity payment made pursuant to Section
8.2 or 8.3 shall be treated by Buyer and the Company as an adjustment to the
Merger Consideration.
(c) Effect of Reserves. The amount of any Covered Liability shall be
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reduced by the amount, if any, of reserves for such Covered Liability shown as a
current liability in calculating the Closing Date Working Capital in accordance
with Schedule 1.1(c) pursuant to Section 2.15.
8.7 Exclusive Remedy. Except for Covered Liabilities arising out of
common law fraud, the parties hereto acknowledge and agree that in the event the
Closing occurs, the indemnification provisions in this Article VIII shall be the
exclusive remedy of the Buyer Indemnified Parties and the
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Shareholder Indemnified Parties with respect to any and all Buyer Claims and
Shareholder Claims, as the case may be. With respect to Covered Liabilities
arising out of common law fraud, (i) the right of a party to be indemnified and
held harmless pursuant to the indemnification provisions in this Agreement shall
be in addition to and cumulative of any other remedy of such party at law or in
equity with respect to such fraud and (ii) no such party shall, by exercising
any remedy available to it under this Article VIII, be deemed to have elected
such remedy exclusively or to have waived any other remedy, whether at law or in
equity, available to it with respect to Covered Liabilities arising out of
common law fraud.
8.8 No Right of Contribution. After the Closing, the Company shall have
no liability to indemnify either Buyer or the Shareholders on account of the
breach of any representation or warranty or the nonfulfillment of any covenant
or agreement of the Company contained in this Agreement; and the Shareholders
shall have no right of contribution against the Company with respect thereto.
8.9 Arbitration. Any disputes, controversies or claims between the
indemnified parties and the indemnifying parties regarding the indemnification
obligations under this Agreement or the Security holder Indemnification
Agreements (collectively, "Disputes"), that are not resolved by mutual agreement
of the parties may, in the sole discretion of the indemnified party, be
submitted to binding arbitration in accordance with the rules of the American
Arbitration Association (the "Association") in Chicago, Illinois. In such
event, the Association will use a panel of three (3) arbitrators to review the
Dispute in question in accordance with the Association's commercial arbitration
rules, and in accordance with then existing statutes of the State of Delaware.
Each party shall select one arbitrator from a listing of available arbitrators
furnished by the Association and those two arbitrators shall select the third;
provided that if any party fails to select an arbitrator within fifteen (15)
--------
days after the submission of such listing of available arbitrators, the
Association shall select an arbitrator for such party. Any decision concurred
in
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by at least two of the three arbitrators shall be binding on the parties. The
foregoing arbitration agreement shall be specifically enforceable and judgment
upon any award rendered by arbitration may be entered in any court having
jurisdiction. Each party agrees, and the Indemnifying Securityholders shall
agree in the letters of transmittal, to submit to and not to contest the
jurisdiction of the Association or the venue of any such arbitration and to
accept service of process by certified or registered mail, return receipt
requested.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing whether before or after approval by the shareholders of the Company
and without further shareholder action:
(i) by the mutual written consent of the Company and Buyer;
(ii) by Buyer, if any event occurs which renders impossible
satisfaction of one or more of the conditions set forth in Article VI
hereof, which condition or conditions are not waived by Buyer;
(iii) by the Company, if any event occurs which renders
impossible satisfaction of one or more of the conditions set forth in
Article VII hereof, which condition or conditions are not waived by the
Company; or
(iv) by the Company or Buyer if the Closing has not occurred by
11:59 p.m. july 15, 1999.
9.2 Procedure: Effect of Termination. If this Agreement is terminated
as provided in Section 9.1, written notice thereof shall forthwith be given by
the terminating party to the other party, and
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this Agreement shall thereupon terminate and become void and of no further force
and effect and there shall be no further liability or obligation on the part of
either party hereto except for the obligations under Sections 5.5, 5.7 and 9.1;
provided that termination of this Agreement by Buyer or the Company pursuant to
--------
clause (ii) or (iii) of section 9.1, respectively, shall not relieve the
defaulting or breaching party (the "Breaching Party"), whether or not it is the
terminating party, of liability for damages actually incurred by the other party
as a result of an intentional material breach of this Agreement by the Breaching
Party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
(a) If to the Company to:
Monterey Carpets, Inc.
0000 X. Xxxxx Xxxxxx
Xxxxx Xxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx
Facsimile No.:
with a copy to:
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxx X. Xxxxxxx
Facsimile No.: 000-000-0000
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(b) If to Buyer to:
Xxxxxxx & Xxxxxx Floorcoverings, Inc.
000 Xxxxx Xxxxxxxxxx Xxxxxxxxx
Xxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
with a copy to:
McGuire, Woods, Battle & Xxxxxx LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
If given personally or by documented courier or delivery service, or transmitted
by facsimile, a notice shall be deemed to have been given when it is received.
If given by mail, it shall be deemed to have been given on the third business
day following the day on which it was posted.
10.2 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." As used
herein, "knowledge of the Company" and similar phrases shall mean the actual
knowledge of the executive officers of the Company identified on Schedule
10.2(a) hereto after inquiry of other Personnel of the Company, its Subsidiaries
or Chroma who would reasonably be expected to have the relevant information, and
"knowledge of Buyer" and similar phrases shall mean the actual knowledge of the
executive officers of Buyer identified on Schedule 10.2(b) hereto after inquiry
of other Personnel of Buyer and its Subsidiaries who would reasonably be
expected to have the relevant
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information. All accounting terms not defined in this Agreement shall have the
meaning determined by GAAP. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
10.3 Shareholders' Representatives. Xxxxxx X. Xxxx, Xxxxx X. Xxxxx and
Xxxx X. Xxxxxxx shall be the designated representatives of the Shareholders (the
"Shareholders' Representatives") with authority to make all decisions and
determinations and to take all actions following consummation of the Merger
required or permitted hereunder on behalf of the Shareholders (provided that
nothing herein shall preclude the Shareholders' Representatives from consulting
with the Shareholders before making such decisions and determinations and taking
such actions), and any such action, decision or determination so made or taken
shall be deemed the action, decision or determination of the Shareholders, and
any notice, document, certificate or information required to be given to any
Shareholder shall be deemed so given if given to the Shareholders'
Representatives at Monterey Carpets, Inc., 0000 X. Xxxxx Xxxxxx, Xxxxx Xxx,
Xxxxxxxxxx 00000, and in the manner set forth in Section 10.2. Buyer shall have
the absolute right and authority to rely upon the acts taken or omitted to be
taken by any one or more of the Shareholders' Representatives on behalf of
Shareholders, and Buyer shall have no duty to inquire as to the acts and
omissions of the Shareholders' Representatives. All deliveries by Buyer to the
Shareholders' Representatives shall be deemed deliveries to Shareholders. Buyer
shall not have any liability with respect to any aspect of the distribution or
communication of such deliveries between the Shareholders' Representatives and
any Shareholder or among Shareholders and any disclosure made in writing to the
Shareholders' Representatives by or on behalf of Buyer shall be deemed to be a
disclosure made to each Shareholder. In the event all such Shareholders'
Representatives refuse to, or are no longer capable of, serving as a
Shareholders' Representatives hereunder, the Shareholders shall promptly appoint
a successor Shareholders' Representatives who shall thereafter be a successor
Shareholders' Representative hereunder.
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The Company shall use its reasonable best efforts to cause each Shareholders'
Representative to execute an acknowledgment and acceptance of its designation as
a Shareholders' Representatives and of its authority under this Agreement
(including, without limitation, Article VIII hereof). Such acknowledgment and
acceptance shall be reasonably satisfactory to Buyer. The appointment of the
Shareholders' Representatives shall require the approval of the Shareholders. In
order to induce the Shareholders' Representatives to become and act in the
capacity of Shareholders' Representatives, Buyer, on behalf of itself, the
Surviving Corporation and the other Buyer Indemnified Parties, expressly agrees
that none of the Shareholders' Representatives, in their capacities as
Shareholders Representatives, shall have any liability whatsoever to Buyer, the
Surviving Corporation or any of the other Buyer Indemnified Parties for, and
none of the Buyer, the Surviving Corporation or any of the other Buyer
Indemnified Parties shall bring any Action against any of the Shareholders'
Representatives, in their capacities as such in order to assert or recover, (i)
any Covered Liabilities due any of Buyer, Surviving Corporation or any of the
other Buyer Indemnified Parties by the Indemnifying Securityholders (although
nothing in this Section 10.3 is intended to or shall limit their liability for
Covered Liabilities in their capacity as Indemnifying Securityholders pursuant
to the provisions of Article VIII), and (ii) any liability of any kind or nature
whatsoever arising out of any acts or omissions that the Shareholders'
Representatives, or any of them, may commit in their capacities as Shareholders'
Representatives, other than due to willful and knowing misconduct by them.
10.4 Entire Agreement. This Agreement, together with the Buyer
Confidentiality Letter and the Company Confidentiality Letter, and the Schedules
and Exhibits hereto, contains the entire agreement among the parties with
respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein; provided
--------
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that the forms of agreements and opinions attached hereto as Exhibits or
Schedules shall be superseded by the copies of such agreements and opinions
executed and delivered by the respective parties thereto, the execution and
delivery of such agreements and opinions by the parties thereto to be conclusive
evidence of such parties' approval of any change or modification therein.
10.5 No Third Party Beneficiaries. Except as set forth in Article VIII and
Section 5.11, nothing in this Agreement (whether expresses or implied) is
intended to confer upon any person other than the parties hereto and their
respective permitted successors and assigns, any rights or remedies under or by
reason of this Agreement nor is anything in this Agreement intended to relieve
or discharge the liability of any party hereto, nor shall any provision hereof
give any person any right of subrogation against, or action over against any
party.
10.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided that no party hereto will assign its rights or delegate its
--------
obligations under this Agreement without the express prior written consent of
each other party hereto, except that Buyer may assign its right, title and
interest under this Agreement to a wholly-owned Subsidiary and Buyer may assign
it rights under this Agreement to any institutional lender to Buyer as security
for obligations to such lender in respect of the financing arrangements entered
into in connection with the transactions contemplated hereby and any
refinancings, extensions, refundings or renewals thereof and to any acquiror (by
purchase, merger or otherwise) of substantially all of the assets or capital
stock of Buyer or the Company that expressly agrees to assume any then remaining
obligations of Buyer hereunder; provided, that in the event of such assignment,
--------
Buyer shall not be released from any obligations under this Agreement.
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10.7 Severability. In the event that this Agreement or any other
instrument referred to herein, or any of their respective provisions, or the
performance of any such provision, is found to be invalid, illegal or
unenforceable under applicable law now or hereafter in effect, the parties shall
be excused from performance of such portions of this Agreement as shall be found
to be invalid, illegal or unenforceable under the applicable laws or regulations
without, to the maximum extent permitted by law, affecting the validity of the
remaining provisions of the Agreement. Should any method of termination of this
Agreement or a portion thereof be found to be invalid, illegal or unenforceable,
such method shall be reformed to comply with the requirements of applicable law
so as, to the greatest extent possible, to allow termination by that method.
Nothing herein shall be construed as a waiver of any party's right to challenge
the validity of such law.
10.8 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto, but only by an instrument in writing signed by
each of the parties hereto.
10.9 Extension; Waiver. At any time prior to the Closing either party to
this Agreement may (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive a breach of a representation
or warranty of the other party hereto, or (iii) waive compliance by the other
party hereto with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in a written
instrument signed by the party giving the extension or waiver. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
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10.10 Disclosure Schedules. Certain of the representations and warranties
set forth in this Agreement contemplate that there may be attached schedules
setting forth information that might be "material" or have a "Material Adverse
Effect on the Company." The Company may, at its option, include in such
schedules items that are not material or are not likely to have a Material
Adverse Effect on the Company in order to avoid any misunderstanding, and any
such inclusion shall not be deemed to be an acknowledgment or representation
that such items are material or would have a Material Adverse Effect on the
Company, to establish any standard of materiality or Material Adverse Effect on
the Company, or to define further the meaning of such terms for purposes of this
Agreement
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware without regard to any laws or regulations
relating to choice of laws (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed and their corporate seals to be hereto affixed and attested by their
duly authorized officers.
XXXXXXX & XXXXXX FLOORCOVERINGS, INC.
By:________________________________
Title:_____________________________
MONTEREY MERGER COMPANY, INC.
By:________________________________
Title:_____________________________
MONTEREY CARPETS, INC.
By:_________________________________
Title:______________________________
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