ANNEX A
AGREEMENT
OF
REORGANIZATION AND MERGER
AMONG
ELECTRO SCIENTIFIC INDUSTRIES, INC.
AN OREGON CORPORATION,
APPLIED INTELLIGENT SYSTEMS, INC.
A MICHIGAN CORPORATION,
AND
ASTEROID MERGER CORP.,
AN OREGON CORPORATION.
September 29, 1997
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger................................................................2
1.2 Effect of Merger..........................................................2
1.2.1 The Surviving Corporation.......................................2
1.2.2 Directors and Officers..........................................3
1.3 Merger Consideration......................................................3
1.3.1 AISI Stock......................................................3
1.3.2 Stock Splits, Etc...............................................4
1.3.3 Merger Corp. Stock..............................................4
1.3.4 Options.........................................................5
1.4 Surrender and Cancellation of Certificates................................6
1.4.1 Surrender of Certificates.......................................6
1.4.2 Option Agreements...............................................7
1.4.3 No Fractional Shares............................................7
1.4.4 Cancellation....................................................8
1.4.5 Treasury Shares.................................................8
1.4.6 Escheat.........................................................8
1.4.7 Withholding Rights..............................................8
1.5 Dissenters' Rights........................................................9
1.5.1 Notice..........................................................9
1.5.2 Rights of Dissenting Shares.....................................9
1.6 Stock Transfer Books.....................................................10
1.7 Closing..................................................................10
1.8 Subsequent Actions.......................................................10
ARTICLE II
FURTHER AGREEMENTS
2.1 Noncompetition and Confidentiality Agreements............................11
2.2 Escrow Agreement.........................................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of AISI...................................12
3.1.1 Organization and Status........................................12
3.1.2 Capitalization.................................................12
3.1.3 Corporate Authority............................................13
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3.1.4 Governmental Filings...........................................14
3.1.5 Investments; Subsidiaries......................................14
3.1.6 No Adverse Consequences........................................14
3.1.7 Financial Statements...........................................15
3.1.8 Undisclosed Liabilities; Returns...............................15
3.1.9 Absence of Certain Changes or Events...........................16
3.1.10 Prohibited Payments.........................................18
3.1.11 Litigation..................................................18
3.1.12 Compliance with Laws; Judgments.............................18
3.1.13 Employment Matters..........................................19
3.1.13.1 Labor Matters..........................................19
3.1.13.2 Employee Benefits......................................19
3.1.13.3 Employment Agreements..................................21
3.1.13.4 Compensation...........................................21
3.1.13.5 Confidentiality and Inventions Agreements..............22
3.1.14 Title to and Condition of Real Property.....................22
3.1.15 Title to and Condition of Fixed Assets......................23
3.1.16 Intellectual Property.......................................23
3.1.17 Certain Contracts and Arrangements..........................24
3.1.18 Status of Contracts.........................................25
3.1.19 Insurance...................................................26
3.1.20 Permits and Licenses........................................26
3.1.21 Taxes.......................................................27
3.1.21.1 Returns................................................27
3.1.21.2 Taxes Paid or Reserved.................................28
3.1.21.3 Definition.............................................28
3.1.22 Related Party Interests.....................................29
3.1.23 No Powers of Attorney or Restrictions.......................29
3.1.24 Environmental Conditions....................................30
3.1.24.1 Compliance.............................................30
3.1.24.2 Hazardous Substances...................................30
3.1.24.3 Filings and Notices....................................31
3.1.24.4 Definitions............................................31
3.1.25 Consents and Approvals......................................32
3.1.26 Records.....................................................32
3.1.27 Receivables.................................................32
3.1.28 Bank Accounts...............................................32
3.1.29 Product Warranties..........................................33
3.1.30 Inventories.................................................33
3.1.31 Product Liability...........................................34
3.1.32 Backlog and Customer Information............................34
3.1.33 Accounting Controls.........................................34
3.1.34 Brokers and Finders.........................................34
3.1.35 Reliance....................................................35
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3.1.36 Accuracy of Representations and Warranties..................35
3.1.37 Prospectus/Information Statement............................35
3.1.38 Continuity of Business Enterprise...........................36
3.1.39 1998 Forecast...............................................36
3.2 Representations and Warranties of ESI....................................36
3.2.1 Organization and Status........................................36
3.2.2 Capitalization.................................................36
3.2.3 Corporate Authority............................................37
3.2.4 Governmental Filings...........................................37
3.2.5 SEC Reports and Financial Statements...........................37
3.2.6 Litigation.....................................................38
3.2.7 No Adverse Consequences........................................38
3.2.8 Brokers and Finders............................................38
3.2.9 Prospectus/Information Statement...............................39
3.3 Representations and Warranties Relating to Merger Corp...................39
3.3.1 Organization and Status........................................39
3.3.2 Capitalization.................................................39
3.3.3 Corporate Authority............................................40
3.3.4 Governmental Filings...........................................40
3.3.5 Litigation.....................................................40
3.3.6 No Operations..................................................40
ARTICLE IV
COVENANTS
4.1 Mutual Covenants.........................................................41
4.1.1 Consents and Approvals.........................................41
4.1.2 Best Efforts...................................................41
4.1.3 Publicity......................................................41
4.1.4 Confidentiality................................................41
4.2 Covenants of AISI........................................................41
4.2.1 Conduct of Business............................................42
4.2.2 Acquisition Proposals..........................................44
4.2.3 Investigations.................................................45
4.2.4 Antitrust Improvements Act.....................................45
4.2.5 AISI Shareholders Approval.....................................46
4.2.6 Information for Prospectus/Information Statement and Registration
Statement................................................................46
4.3 Covenants of ESI.........................................................46
4.3.1 Conduct of Business............................................47
4.3.2 Registration Statement.........................................47
4.3.3 Listing of ESI Common Stock....................................47
4.3.4 Antitrust Improvements Act.....................................47
4.3.5 Issuance of Certificates.......................................47
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4.3.6 Registration of Option Shares..................................48
4.3.7 Directors & Officers Insurance.................................48
4.4 Covenants of Merger Corp.................................................48
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties.............................49
5.1.1 Regulatory Approvals...........................................49
5.1.2 Litigation.....................................................49
5.1.3 Section 368(a)(2)(E) of the Code Requirement.........49
5.2 Conditions to the Obligations of AISI....................................50
5.2.1 Representations, Warranties and Covenants......................50
5.2.2 No Material Adverse Change.....................................51
5.2.3 Opinion of Counsel.............................................51
5.2.4 Registration of Securities; Listing............................51
5.2.5 Shareholders' Approval; Dissenters.............................51
5.2.6 Accountants Opinion............................................51
5.3 Conditions to the Obligations of ESI and Merger Corp.....................52
5.3.1 Representations, Warranties and Covenants......................52
5.3.2 Opinion of Counsel.............................................52
5.3.3 Consents and Approvals.........................................52
5.3.4 No Material Adverse Change; Completion of Inspection...........52
5.3.4.1 No Material Adverse Change...........................53
5.3.4.2 Completion of Investigation..........................53
5.3.5 Accountants Opinion............................................53
5.3.6 Registration of Securities; Listing............................53
5.3.7 Affiliate Representation Letters...............................54
5.3.8 Continuity of Interests Letter.................................54
5.3.9 Other Agreements...............................................54
5.3.10 Physical Count of Assets.......................................54
5.3.11 Tax Clearance Certificate......................................54
5.3.12 Related Party Agreements.......................................55
5.3.13 Confidentiality Agreements.....................................55
5.3.14 Updated Financial and Other Information........................55
5.3.15 Environmental Report...........................................55
5.3.16 Fairness Opinion...............................................55
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival.................................................................56
6.2 Scope of Indemnification.................................................56
6.3 Escrow...................................................................57
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6.4 Limitations............................................................57
6.4.1 Minor Claims.................................................57
6.4.2 Escrowed Property............................................57
6.5 Claim Procedure for Indemnification....................................58
6.5.1 Notice.......................................................58
6.5.2 Response to Third Party Claim................................58
6.5.3 Diligent Conduct.............................................58
ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent..........................................59
7.2 Termination by Either AISI or ESI......................................59
7.3 Effect of Termination and Abandonment..................................60
7.4 Termination Fees.......................................................60
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses....................................................62
8.2 Entire Agreement.......................................................62
8.3 Assignment.............................................................62
8.4 Binding Effect; No Third Party Benefit.................................62
8.5 Amendment and Modification.............................................63
8.6 Waiver of Conditions...................................................63
8.7 Counterparts...........................................................63
8.8 Captions...............................................................63
8.9 Subsidiary.............................................................63
8.10 Notices................................................................64
8.11 Choice of Law..........................................................65
8.12 Attorneys' Fees........................................................65
8.13 Separability...........................................................65
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EXHIBITS
A - Plan of Merger
B - Form of ESI Confidentiality Agreement
C - Form of Escrow Agreement
D - Form(s) of Confidentiality and Inventions Agreements
E - Form of Counsel Opinion for ESI
F - Form of Counsel Opinion for AISI
G - Form of Affiliate Representation Letter
H - Form of Continuity of Interests Letter
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SCHEDULES
Schedule Page
-------- ----
3.1 AISI Disclosure Schedule 12
3.1.2 AISI Shareholders and Option Holders 13
3.1.5 AISI Investments 14
3.1.13.2 Employee Benefits 19
3.1.13.3 Employment Manuals 21
3.1.13.4 Compensation 21
3.1.14 Leased Real Property 22
3.1.15 Tangible Personal Property 23
3.1.16 Intellectual Property 23
3.1.17 Other Agreements 24
3.1.19 Insurance Policies 26
3.1.20 Permits 26
3.1.21 Audits 27
3.1.22 Related Parties 29
3.1.28 Bank Accounts 32
3.1.29 Product Warranty 33
3.1.30 Inventory 33
3.1.32 Backlog 34
3.2 ESI Disclosure Schedule 36
5.3.7 Signatories to Affiliate Representation Letter 54
5.3.8 Signatories to Continuity of Interest Letter 54
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INDEX OF TERMS
Term Section Page
---- ------- ----
1998 Forecast Section 3.1.39 36
Acquisition Transaction Section 4.2.2 44
Agreement Preamble 1
AISI Preamble 1
AISI Common Stock Section 1.1 2
AISI Disclosure Schedule Section 3.1 12
AISI Stock Plans Section 3.1.2 13
Cash Election Shares Section 1.3.3(b) 4
Claim Notice Section 6.5.1 58
Closing Section 1.7 10
Closing Date Section 1.7 10
Code Recital B 1
Confidentiality Agreements Section 4.1.4 41
Contracts Section 3.1.18 25
Conversion Ratio Section 1.3 3
Current Balance Sheet Section 3.1.7 15
Damages Section 6.2 56
Disclosed Litigation Section 6.2 56
Dissenters' Rights Section 1.5.1 9
Dissenting Shareholder Section 1.5.2 9
Dissenting Shares Section 1.5.2 9
Effective Time Section 1.1 2
Environmental Law Section 3.1.24.4 31
ERISA Section 3.1.13.2 00
XXXXX Xxxxx Xxxxxxx 3.1.13.2 20
Escrow Agreement Section 2.2 10
Escrowed Property Section 6.3 57
ESI Preamble 1
ESI Common Stock Section 1.1 2
ESI Disclosure Schedule Section 3.2 36
ESI SEC Reports Section 3.2.5 38
Financial Statements Section 3.1.7 15
Governmental Entity Section 3.1.4 14
Hazardous Substance Section 3.1.24.4 31
HSR Filing Section 4.2.4 45
Indemnified Parties Section 6.2 56
Intellectual Property Section 3.1.16 23
Leased Real Property Section 3.1.14 22
MBCA Section 1.2.1 2
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INDEX OF TERMS (continued)
Term Section Page
---- ------- ----
Merger Section 1.1 2
Merger Consideration Section 1.3 3
Merger Corp. Preamble 1
OBCA Section 1.2 2
Permits Section 3.1.20 26
Policies Section 3.1.19 26
Previously Leased Real Property Section 3.1.14 22
Prospectus/Information Statement Section 4.2.5 46
Reserves or Reserved Section 3.1.8 15
Returns Section 3.1.21.1 27
SEC Section 3.2.5 38
Shareholder Representatives Section 2.2 11
Subsidiary Section 8.9 63
Surviving Corporation Section 1.2.1 2
Tangible Personal Property Section 3.1.15 23
Taxes Section 3.1.21.3 28
Third Party Claims Section 6.5.2 58
ix
AGREEMENT
OF
REORGANIZATION AND MERGER
THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered
into as of September 29, 1997 among Electro Scientific Industries, Inc., an
Oregon corporation ("ESI"), Applied Intelligent Systems, Inc., a Michigan
corporation ("AISI"), and Asteroid Merger Corp., an Oregon corporation ("Merger
Corp.").
RECITALS
A. The Boards of Directors of ESI and AISI have determined that it is in
the best interests of their respective shareholders for ESI to acquire AISI upon
the terms and subject to the conditions set forth herein.
B. It is intended that the Merger (as defined below) qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
In consideration of the mutual representations, warranties, covenants,
agreements and conditions contained herein, the parties agree as follows:
1
ARTICLE I
THE MERGER
1.1 THE MERGER. Pursuant to the laws of the States of Michigan and
Oregon, and subject to and in accordance with the terms and conditions of this
Agreement and the Plan of Merger attached hereto as EXHIBIT A, Merger Corp.
shall be merged with and into AISI, and the outstanding shares of AISI Common
Stock, no par value (the "AISI Common Stock") shall be converted into the right
to receive shares of ESI Common Stock, without par value (the "ESI Common
Stock"), in a transaction intended to qualify as a tax-free reorganization under
Section 368(a)(1)(A) and (a)(2)(E) of the Code. AISI and Merger Corp. shall
execute Articles of Merger, to be filed with the Secretaries of State of the
States of Michigan and Oregon on the Closing Date, as defined in Section 1.7, or
as soon thereafter as practicable. The merger of Merger Corp. with and into
AISI (the "Merger") shall take effect (the "Effective Time") upon the later of
the time when the Articles of Merger are duly filed with the Secretary of State
of the State of Michigan, and the time when the Articles of Merger are duly
filed with the Corporation Division of the Secretary of State of the State of
Oregon, or at such other time as the parties may agree upon in writing pursuant
to applicable law.
1.2 EFFECT OF MERGER.
1.2.1 THE SURVIVING CORPORATION. At the Effective Time,
Merger Corp. shall be merged with and into AISI in the manner and with the
effect provided by the Michigan Business Corporation Act (the "MBCA") and the
Oregon Business Corporation Act (the "OBCA"), the separate corporate existence
of Merger Corp. shall cease and AISI shall be the surviving corporation (the
"Surviving Corporation"). The outstanding shares of AISI Common
2
Stock shall be converted into shares of ESI Common Stock, and the outstanding
shares of capital stock of Merger Corp. shall be converted into shares of
capital stock of the Surviving Corporation, all on the basis, terms and
conditions described in Section 1.3.
1.2.2 DIRECTORS AND OFFICERS. At and as of the Effective
Time, the directors and officers of the Surviving Corporation shall be as
follows:
DIRECTORS
Xxxxxx X. XxxXxxxxxx
Xxxxx X. Xxxxxx
Xxxxx X. Xxxx
OFFICERS
Xxxxxx X. XxxXxxxxxx President and Chief Executive Officer
Xxxxx X. Xxxxxx Vice President and Chief Financial Officer
Xxxxx X. Xxxx Secretary
1.3 MERGER CONSIDERATION. Each share of AISI Common Stock
outstanding immediately before the Effective Time (excluding each Dissenting
Share as defined in Section 1.5.2) shall be converted into the right to receive
the number of shares of ESI Common Stock (the "Merger Consideration") that
corresponds to a ratio (the "Conversion Ratio") determined by dividing 1,400,000
by the sum of the total shares of AISI Common Stock outstanding on the Closing
Date PLUS the total number of AISI shares subject to the Options (as defined in
Section 1.3.4) on the Closing Date. The manner and basis of converting the
shares of AISI Common Stock shall be as follows:
1.3.1 AISI STOCK. Each share of AISI Common Stock which is
outstanding immediately before the Effective Time and which is not a Dissenting
Share shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to exist and be
3
converted into the right to receive the number of shares of ESI Common Stock
that corresponds to one MULTIPLIED BY the Conversion Ratio (I.E., 1 x Conversion
Ratio).
1.3.2 STOCK SPLITS, ETC. If, between the date of this
Agreement and the Effective Time, the outstanding shares of either AISI Common
Stock or ESI Common Stock shall have been changed into a different number of
shares or a different class by reason of any reclassification, combination,
recapitalization, stock split, stock dividend, subdivision, exchange of shares,
or other extraordinary transaction, the Conversion Ratio shall be adjusted
proportionately.
1.3.3 MERGER CORP. STOCK. Each share of Common Stock of
Merger Corp. 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, cease to exist and be converted into and become one share of common
stock of the Surviving Corporation. After the Effective Time, ESI, the sole
holder of shares of Merger Corp. common stock outstanding immediately prior to
the Effective Time, shall, upon surrender for cancellation of a certificate
representing such shares to the Surviving Corporation, be entitled to receive in
exchange therefore a certificate representing the number of shares of common
stock of the Surviving Corporation into which such shares of Merger Corp. common
stock have been converted pursuant to this Section 1.3.3. Until so surrendered,
the certificates which prior to the Merger represented shares of Merger Corp.
common stock shall be deemed, for all corporate purposes, including voting
entitlement, to evidence ownership of the shares of the Surviving Corporation
common stock into which such shares of Merger Corp. common stock shall have been
converted.
4
1.3.4 OPTIONS. Except as otherwise provided in this Section
1.3.4, the terms and provisions of the stock options (the "Options") held by
those AISI option holders identified in SCHEDULE 3.1.2 shall continue in full
force and effect following the Merger. By virtue of the Merger and at the
Effective Time, and without any further action on the part of any holder
thereof, each Option shall be assumed by ESI and shall be converted into an
option to purchase the whole number of shares of ESI Common Stock
corresponding to the number of shares of AISI Common Stock which the holder
of the Option would have been entitled to receive had such holder exercised
the Option in full immediately prior to the Effective Time (whether or not
such Option shall then have been exercisable), which number of shares shall
be equal to the product (rounded to the nearest whole number) of (x) the
number of shares of AISI Common Stock for which such Option is exercisable
MULTIPLIED BY (y) the Conversion Ratio. The exercise price per share shall
be redetermined by dividing the per share exercise price immediately prior to
the Effective Time by the Conversion Ratio. The term, exercisability,
vesting schedule, status as an "Incentive Stock Option" under Section 422 of
the Code, if applicable, and all other terms and conditions of the Options
will to the extent permitted by law and otherwise reasonably practicable be
unchanged; each Option which is an Incentive Stock Option shall be adjusted
in accordance with the requirements of Section 424(a) of the Code so as not
to constitute a modification, renewal or extension of the Option within the
meaning of Section 424(h) of the Code. Continuous employment with AISI
shall be credited to the optionee for purposes of determining the vesting of
the number of shares of ESI Common Stock subject to exercise under the
optionee's converted Option after the Effective Time.
5
1.4 SURRENDER AND CANCELLATION OF CERTIFICATES.
1.4.1 SURRENDER OF CERTIFICATES. After the Effective Time,
each holder of shares of AISI Common Stock outstanding immediately prior to
the Effective Time (other than Dissenting Shares), upon surrender to ESI or
its agent designated for such purpose of a certificate or certificates
representing such shares, along with a transmittal letter in the form
described below and stock powers duly endorsed in blank, shall be entitled to
receive (x) a certificate representing the number of shares of ESI Common
Stock into which such shares of AISI Common Stock shall have been converted
pursuant to the provisions of Section 1.3 LESS the number of such shares
determined to be Escrowed Property (as defined in Section 6.3) and (y)
subject to Section 6.3 and the provisions of the Escrow Agreement, a
certificate representing the shares of ESI Common Stock determined to be
Escrowed Property. If any certificate for shares of ESI Common Stock is to
be issued in a name other than that in which the certificate for AISI Common
Stock surrendered in exchange therefor is registered, it shall be a condition
of the issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and that the person
requesting such exchange pay to ESI or its agent designated for such purpose
any transfer or other taxes required, or establish to the satisfaction of ESI
or its agent that such tax has been paid or is not payable. If any holder of
AISI Common Stock canceled and retired in accordance with this Agreement is
unable to deliver a certificate or certificates representing such shares of
the holder, ESI, in the absence of actual notice that any shares theretofore
represented by any such certificate have been acquired by a bona fide
purchaser, shall deliver to such holder the number of shares of Common Stock
to which such holder is entitled in accordance with the provisions of this
Agreement upon the presentation of the following: (i) evidence
6
satisfactory to ESI (a) that such person is the owner of the shares
theretofore represented by each certificate claimed by him to be lost,
wrongfully taken or destroyed and (b) that he is the person who would be
entitled to present each such certificate for conversion pursuant to this
Agreement; and (ii) such security or indemnity as may be reasonably requested
by ESI to indemnify and hold ESI and the transfer agent harmless. Promptly
following the Closing, ESI's transfer agent shall deliver to AISI
shareholders (i) a form of transmittal letter to be signed by each AISI
shareholder providing for, among other things, transmittal of such
shareholder's shares of AISI Common Stock to ESI's transfer agent, agreement
to indemnification provisions contained in this Agreement, agreement to the
escrow of shares of ESI Common Stock on behalf of such shareholder, to the
extent provided for in Section 6.3, and the appointment of the Shareholder
Representatives (as defined in Section 2.2); and (ii) a form of stock power
to be endorsed in blank by each AISI Shareholder with respect to the shares
of ESI Common Stock escrowed on behalf of such shareholder.
1.4.2 OPTION AGREEMENTS. After the Effective Time, each
holder of an Option outstanding immediately prior to the Effective Time shall be
deemed to hold an option exercisable for ESI Common Stock in accordance with the
provisions of Section 1.3.4.
1.4.3 NO FRACTIONAL SHARES. No certificates or scrip
evidencing fractional shares of ESI Common Stock shall be issued in the Merger,
and such fractional share interests will not entitle the owner thereof to any
rights as a shareholder of ESI. In lieu of fractional shares, ESI shall pay
each holder of shares of AISI Common Stock who would otherwise have been
entitled to a fraction of a share of ESI Common Stock upon surrender of stock
certificates an amount of cash (without interest) determined by multiplying (a)
the Average Sale Price by (b) the
7
fractional share interest in ESI Common Stock to which such holder would
otherwise be entitled. The "Average Sale Price" shall mean the average of
the high and low prices of ESI Common Stock, as reported in THE WALL STREET
JOURNAL, for the trading day immediately preceding the Closing Date.
1.4.4 CANCELLATION. At the Effective Time, all shares of
AISI Common Stock outstanding immediately before the Effective Time shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously evidencing any such
shares shall thereafter represent only the right to receive the Merger
Consideration. The holders of such certificates previously evidencing such
shares of AISI Common Stock outstanding immediately before the Effective Time
shall cease to have any rights with respect to such shares of AISI Common
Stock, except for Dissenters Rights as provided in Section 1.5.
1.4.5 TREASURY SHARES. Each share of AISI Common Stock held
in the treasury of AISI immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no payment shall be
made with respect thereto.
1.4.6 ESCHEAT. Neither ESI nor Merger Corp. shall be liable
to any holder of shares of AISI Common Stock for any such shares of ESI Common
Stock (or dividends or distributions with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
1.4.7 WITHHOLDING RIGHTS. ESI shall be entitled to deduct
and withhold from the Merger Consideration such amounts as ESI is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law.
8
To the extent that amounts are so withheld by ESI, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid by
the holder of the shares of AISI Common Stock in respect of which such
deduction and withholding was made by ESI.
1.5 DISSENTERS' RIGHTS.
1.5.1 NOTICE. AISI shareholders desiring to dissent from
the Merger and obtain payment of the fair value of their shares of AISI
Common Stock immediately before the consummation of the Merger in lieu of the
Merger Consideration may exercise their dissenters' rights under the
provisions set forth at Sections 761 through 774 of the MBCA ("Dissenters'
Rights"). Consistent with Sections 764(2) and 766 of the MBCA, AISI shall
notify in writing each shareholder entitled to assert Dissenters' Rights that
action by written consent has been taken to approve the Merger and shall
provide each such shareholder the dissenters' notice described in Section 766
of the MBCA. The date specified in such notice for receipt by AISI of
payment demand from any shareholder exercising rights of dissent shall be the
earliest date permitted by Section 766(d) of the MBCA.
1.5.2 RIGHTS OF DISSENTING SHARES. Shares of AISI Common
Stock which are issued and outstanding as of the Effective Time and held by any
shareholder who has, in accordance with Section 767 of the MBCA, delivered a
payment demand accompanied by the required certification and deposit of shares
("Dissenting Shares") shall not be converted as described in Section 1.3 but
shall from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due under the MBCA. AISI shall give
ESI prompt notice upon receipt by AISI of any payment demand from any such
shareholder of AISI (a "Dissenting Shareholder"). AISI agrees that prior to the
Effective Time, it will not, except
9
with prior written consent of ESI, voluntarily make any payment with respect
to, or settle or offer to settle, any request pursuant to the exercise of
Dissenters' Rights. Each Dissenting Shareholder who becomes entitled,
pursuant to the MBCA, to payment for his Dissenting Shares shall receive
payment therefor in accordance with the MBCA. Notwithstanding the foregoing,
if any Dissenting Shareholder shall rescind, fail to perfect or otherwise
lose such rights either before or after the Effective Time, such
shareholder's shares of AISI Common Stock shall be converted into ESI Common
Stock or cash, as of the Effective Time, in accordance with the provisions of
Section 1.3.
1.6 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of AISI shall be closed and there shall be no further registration of
transfers of shares of AISI Common Stock thereafter on the records of the AISI.
On or after the Effective Time, any certificates for AISI Common Stock presented
to ESI or its agent for any reason shall be converted into the Merger
Consideration.
1.7 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Stoel Rives LLP, 000 XX Xxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxxx, Xxxxxx 00000 on the Condition Completion Date (as hereinafter
defined), or on such other date and/or at such other place and time as AISI, ESI
and Merger Corp. may agree (the "Closing Date"). The "Condition Completion
Date" shall be the day on which the last of the conditions set forth in Article
V hereof shall have been fulfilled or waived (other than those conditions which,
by their terms, are to occur at Closing).
1.8 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or
10
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title
or interest in, to, or under any of the rights, properties or assets of AISI
or Merger Corp. acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of AISI or
Merger Corp. or otherwise, all such deeds, bills of sale, assignments and
assurances, and to take and do, in the name and on behalf of AISI or Merger
Corp, or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE II
FURTHER AGREEMENTS
2.1 NONCOMPETITION AND CONFIDENTIALITY AGREEMENTS. AISI shall cause
each of its employees who will become employees of the Surviving Corporation to
sign a noncompetition and confidentiality agreement (the "ESI Confidentiality
Agreement") substantially in the form of EXHIBIT B.
2.2 ESCROW AGREEMENT. Prior to or at the Closing, ESI, the three
representatives appointed to act for and on behalf of the AISI shareholders (the
"Shareholder Representatives"), and the AISI shareholders otherwise listed as
signatories thereto shall execute and deliver an Escrow Agreement ("Escrow
Agreement") substantially in the form attached as EXHIBIT C, and shall cause the
Escrow Agent, as such term is defined in the Escrow Agreement, to execute the
Escrow Agreement.
11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF AISI. AISI hereby
represents and warrants to ESI and Merger Corp. that, except as specifically
set forth in SCHEDULE 3.1 (the "AISI Disclosure Schedule") in a numbered
paragraph that corresponds to the section for which disclosure is made:
3.1.1 ORGANIZATION AND STATUS. AISI is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where its properties (whether owned,
leased or operated) or its business conducted require such qualification, except
where the failure to so qualify or be in good standing, when taken together
with all such failures, would not have a material adverse effect on AISI. AISI
has all requisite corporate power and authority to own, operate and lease its
property and to carry on its businesses as they are now being conducted. AISI
has delivered to ESI complete and accurate copies of the Amended and Restated
Articles of Incorporation ("Articles of Incorporation") and the Amended Bylaws
of AISI ("Bylaws"), each as amended to the date hereof.
3.1.2 CAPITALIZATION. AISI has authorized capital stock
consisting of 10,000,000 shares of AISI Common Stock, of which 3,581,391
shares were outstanding on June 30, 1997 and options to purchase 1,010,210
shares were outstanding on June 30, 1997 under grants made pursuant to AISI's
1989 Incentive Stock Option Plan, its 1991 Incentive Stock Option Plan, its
1992 Incentive Stock Option Plan, and its 1995 Incentive Stock Option Plan,
and the three non-qualified stock option agreements identified in SCHEDULE
3.1.2 (collectively, the "AISI
12
Stock Plans"). All of the outstanding shares of capital stock of AISI have
been duly authorized and are validly issued, fully paid and nonassessable,
and no shares were issued in violation of preemptive or similar rights of any
shareholder or in violation of any applicable securities laws. Except as set
forth above, there are no shares of capital stock of AISI authorized, issued
or outstanding, and, except for options granted pursuant to the AISI Stock
Plans, there are no preemptive rights or any outstanding subscriptions,
options, warrants, rights, convertible securities or other agreements or
commitments of AISI of any character relating to the issued or unissued
capital stock or other securities of AISI. There are no outstanding
obligations of AISI to repurchase, redeem or otherwise acquire any of its
outstanding shares of capital stock. The list of shareholders and option
holders attached hereto as SCHEDULE 3.1.2 sets forth a complete and accurate
list of the shareholders and option holders of AISI as of the date hereof,
indicating the number of shares of AISI Common Stock held by each
shareholder, or subject to options in the case of option holders, and the
percentage of the shares of all the AISI Common Stock outstanding represented
by the shares so held in the case of shareholders.
3.1.3 CORPORATE AUTHORITY. AISI has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized by the Board of Directors of
AISI, validly executed and delivered by AISI and, as of the Closing Date, will
have been duly and validly approved by the shareholders of AISI. This Agreement
constitutes the valid and binding obligation of AISI, enforceable in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that
13
the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought.
3.1.4 GOVERNMENTAL FILINGS. Other than (a) the filing of
Articles of Merger contemplated by Article I and (b) the HSR Filing described in
Section 4.2.4, no notices, reports or other filings are required to be made by
AISI with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by AISI from, any domestic or foreign
governmental or regulatory authority, agency, court, commission or other entity
("Governmental Entity") in connection with the execution and delivery of this
Agreement by AISI and the consummation by AISI of the transactions contemplated
hereby.
3.1.5 INVESTMENTS; SUBSIDIARIES. All direct or indirect
investments of AISI in any corporation, partnership, association, joint venture
or other entity are listed in SCHEDULE 3.1.5. AISI has no subsidiaries.
3.1.6 NO ADVERSE CONSEQUENCES. Neither the execution and
delivery of this Agreement by AISI nor the consummation of the transactions
contemplated by this Agreement will (a) result in the creation or imposition of
any lien, charge, encumbrance or restriction on any of the assets or properties
of AISI, (b) violate any provision of the Articles of Incorporation or Bylaws of
AISI, (c) violate any statute, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to AISI, or (d)
either alone or with the giving of notice or the passage of time or both,
conflict with, constitute grounds for termination of, accelerate the performance
required by, accelerate the maturity of any indebtedness or obligation under,
result in the breach of the terms, conditions or provisions of or constitute a
default under
14
any mortgage, deed of trust, indenture, note, bond, lease, license, permit or
other agreement, instrument or obligation to which AISI is a party or by
which it is bound.
3.1.7 FINANCIAL STATEMENTS. AISI has furnished to ESI an
audited balance sheet of AISI as of December 31, 1996, and the related
statements of income, stockholders' equity and cash flows for the period then
ended, and the unaudited balance sheet of AISI as of June 30, 1997 (the "Current
Balance Sheet") and the related statements of income and stockholders' equity
for the six months then ended, and the financial statements delivered at or
before the Closing pursuant to Section 5.3.16 (all such balance sheets and
statements collectively, the "Financial Statements"). The Financial Statements
are complete and accurate in all material respects and present fairly the
financial position and operating results of AISI as of the dates and for the
periods indicated therein, and have been prepared in accordance with generally
accepted accounting principles.
3.1.8 UNDISCLOSED LIABILITIES; RETURNS. Except for current
liabilities which were incurred after June 30, 1997 in the ordinary course of
business and of a type and in an amount both consistent with past practices and
not material (either individually or in the aggregate), AISI has no liability or
obligation (whether absolute, accrued, contingent or otherwise, and whether due
or to become due) which is not accrued, Reserved against, or identified in the
Current Balance Sheet. "Reserves" or "Reserved" in this Agreement shall mean
the aggregate amount of AISI reserves for the specific item or matter referred
to, as the context requires, PLUS the amount of the undifferentiated AISI
reserve recorded in AISI's general ledger Account No. 2390 as of June 30, 1997,
but only to the extent such reserves are not otherwise used in complying with
any other representation or warranty. There are no rights of return or other
agreements between AISI and any customer which would cause any sales reflected
in the Financial Statements
15
to fail to qualify as sales in accordance with generally accepted accounting
principles and AISI's revenue recognition policy as reflected in the
Financial Statements.
3.1.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December
31, 1996 there has not been:
(a) Any material adverse change in the business, results of
operations, financial condition, properties, assets or prospects of AISI;
(b) Any material damage, destruction, requisition, taking or
casualty loss, whether or not covered by insurance, of or to any of the assets
or properties of AISI;
(c) Any direct or indirect declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of the AISI Common Stock, or any direct or
indirect repurchase, redemption or other acquisition by AISI of any shares of
its stock;
(d) Other than as disclosed pursuant to Section 3.1.13.4, any
increase in the rate or terms of compensation payable or to become payable by
AISI to its directors, officers or employees; any change in the rate or terms of
any bonus, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any employees of AISI; any special bonus or
remuneration paid; any written employment contract executed or amended; or any
change in personnel policies;
(e) Any entry into any agreement, commitment or transaction
(including, without limitation, any license of intellectual property, any
borrowing, capital expenditure or capital financing, any purchase, acquisition,
sale or other disposition of assets (other than inventory in the ordinary course
of business), any lease or sublease, any guaranty, assumption or
16
endorsement of payment or performance of any loan or obligation of another,
or any amendment, modification or termination of any existing agreement,
commitment or transaction) by AISI as contemplated in this Agreement;
(f) Any change by AISI in accounting methods, principles or
practices;
(g) Any issuance or sale of any stock of AISI (other than
issuances pursuant to the exercise of options outstanding on June 30, 1997) or
any issuance or granting of any option, warrant or right to purchase any stock
of AISI (other than options granted under the AISI Stock Plans on or before June
30,1997) or any commitment to do any of the foregoing;
(h) Any amendment to the Articles of Incorporation or Bylaws of
AISI;
(i) Any conduct of business which is outside the ordinary course
of business or not substantially in the manner that AISI previously conducted
its business;
(j) Any encumbrance or consent to encumbrance of any property or
assets;
(k) Any pending or threatened labor disputes, organizational
activities or disturbances;
(l) Any indication from any customer of AISI which purchased
$500,000 or more of products or services from AISI in the year ended December
31, 1996 that such customer intends to, is desirous of, or is actively
considering terminating or reducing its purchases from AISI for any reason; or
(m) Any change not described above in the assets, liabilities,
licenses, permits or franchises of AISI, or in any agreement to which AISI is a
party or is bound, which, either individually or in the aggregate, has had or
reasonably could be expected to have a material
17
adverse effect on the business, results of operations, financial condition,
properties, assets or prospects of AISI.
3.1.10 PROHIBITED PAYMENTS. Neither AISI nor any shareholder,
officer, director or other person or entity has, directly or indirectly, on
behalf of or with respect to the business or operations of AISI, (a) made any
payment outside the ordinary course of business to any purchasing or selling
agent or person charged with similar duties of any entity to which AISI sells or
from which AISI buys products, for the purpose of influencing such agent or
person to buy products from or sell products to AISI; or (b) otherwise made or
received any payment that was not legal to make or receive under any applicable
law or regulation of the United States or any other country or territory; or (c)
engaged in any transaction, maintained any bank account, or used any corporate
funds or assets except for transactions, bank accounts, funds, and assets which
have been and are reflected in the normally maintained books and records of
AISI.
3.1.11 LITIGATION. No litigation, proceeding or governmental
investigation is pending or, to the knowledge of AISI, threatened against or
relating to AISI, its officers or directors in their capacities as such, or any
of AISI's properties or businesses.
3.1.12 COMPLIANCE WITH LAWS; JUDGMENTS. AISI has at all
relevant times conducted its business in compliance with the provisions of
its Articles of Incorporation, Bylaws, and all applicable laws, regulations
and standards, including without limitation the United States Export Control
Act and all applicable regulations promulgated by the U.S. Department of
Health and Human Services and the Federal Communications Commission and
foreign counterparts to such laws and regulations. AISI is not in violation
of any applicable laws or regulations, other than violations which
individually or in the aggregate do not, and, with the passage of time will
18
not, have a material adverse effect on its business, financial condition,
results of operations, properties, assets or prospects. AISI is not subject
to any outstanding judgment, order, writ, injunction or decree and has not
been charged with, or threatened with a charge of, a violation of any
provision of any applicable law or regulation.
3.1.13 EMPLOYMENT MATTERS.
3.1.13.1 LABOR MATTERS. AISI is not a party or otherwise
subject to any collective bargaining or other agreement governing the wages,
hours or terms of employment of its employees. AISI is and has been in
compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and
has not been engaged in any unfair labor practice. There is no (a) unfair labor
practice complaint against AISI pending before the National Labor Relations
Board or any other Governmental Entity, (b) labor strike, slowdown or work
stoppage actually occurring or, to the knowledge of AISI, threatened against
AISI, (c) representation petition respecting the employees of AISI pending
before the National Labor Relations Board or similar agency, or (d) grievance or
any arbitration proceeding pending arising out of or under collective bargaining
agreements applicable to AISI. AISI has not experienced any primary work
stoppage or other organized work stoppage involving its employees in the past
two years. AISI is not aware of any labor strike, slowdown, or work stoppage
occurring or, to the knowledge of AISI, threatened against any of its principal
suppliers that might be expected to have a material adverse effect on the
business, financial condition, results of operations, properties, or assets of
AISI.
3.1.13.2 EMPLOYEE BENEFITS. SCHEDULE 3.1.13.2 lists all
pension, retirement, profit sharing, deferred compensation, bonus, commission,
incentive compensation
19
(including cash, stock and option plans or arrangements), life insurance,
health and disability insurance, hospitalization and all other employee
benefit plans or arrangements (including, without limitation, any contracts
or agreements with trustees, insurance companies or others relating to any
such employee benefit plans or arrangements) established or maintained by
AISI, and complete and accurate copies of all those plans or arrangements
have been provided to ESI. The employee pension benefit plans (within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) established and maintained by AISI that are
subject to ERISA (the "ERISA Plans") are listed separately as ERISA Plans on
SCHEDULE 3.1.13.2. The ERISA Plans comply in all material respects with the
applicable requirements of ERISA. AISI has received from the Internal
Revenue Service a favorable determination for each of the ERISA Plans and
their related trusts that each of the ERISA Plans is qualified under Section
401(a) of the Code and the related trust is tax-exempt under Section 501(a)
of the Code. There has been no event subsequent to that determination that
has adversely affected the tax qualified status of the ERISA Plans or the
exemption of the related trusts other than changes in the Code that are not
effective as of the Closing Date. None of the ERISA Plans, its related
trusts or any trustee, investment manager or administrator thereof has
engaged in a nonexempt "prohibited transaction," as such term is defined in
Section 406 of ERISA and Section 4975 of the Code. There are not and have not
been any excess deferrals or excess contributions under any ERISA Plan. Each
ERISA Plan is and has been operated and administered in conformity with the
requirements of all applicable laws and regulations, whether or not the ERISA
Plan documents have been amended to reflect such requirements. AISI has no
obligation of any kind (whether under the terms of the ERISA Plans or under
any understanding with employees) to make
20
payments under, or to pay contributions to, any plan, agreement or other
arrangement for deferred compensation of employees, whether or not tax
qualified, including, without limitation, a single employer tax qualified
plan, a tax qualified plan of a controlled group of corporations, a
multiemployer pension plan, a "defined benefit" plan, a nonqualified deferred
compensation plan, an individual employment or compensation agreement or a
commitment to provide medical benefits to retirees.
3.1.13.3 EMPLOYMENT AGREEMENTS. Each employee of AISI is
an "at-will" employee and there are no written employment, commission or
compensation agreements of any kind between AISI and any of its employees.
SCHEDULE 3.1.13.3 lists all AISI's employment or supervisory manuals, employment
or supervisory policies, and written information generally provided to employees
(such as applications or notices), and complete and accurate copies of those
manuals, policies and written information have been provided to ESI. AISI does
not have any agreements or understandings with its employees, including without
limitation any agreements or understandings regarding compensation of any
nature, severance payments or retirement benefits, except as reflected in the
items listed in SCHEDULES 3.1.13.2 and 3.1.13.4.
3.1.13.4 COMPENSATION. SCHEDULE 3.1.13.4 contains a
complete and accurate list of all current directors, officers, employees or
consultants of AISI, specifying their names and job designations, the total
amount paid or payable as cash and noncash compensation to each such person,
and the basis of such compensation, whether fixed or commission or a
combination thereof, and the total amount of accrued benefits (including
without limitation vacation, sick or wellness pay) for such persons as of
December 31, 1996 and as of August 31, 1997. Except as set forth in
SCHEDULES 3.1.13.2, 3.1.13.3 or the agreements described in Section
21
3.1.13.5, AISI is not a party to any employment contract or agreement and has
not made any other commitment entitling any employee to any payment in the
event of termination or resignation that would constitute a "parachute
payment" within the meaning of Section 280G of the Code or would in the
aggregate exceed 100 percent of such person's annual base cash compensation.
The provisions for wages and salaries accrued on the Current Balance Sheet
are adequate for salaries and wages, including accrued vacation pay and sick
or wellness pay, and AISI has accrued on its books and records all
obligations for wages and salaries and other compensation to its employees,
including but not limited to, vacation pay and sick or wellness pay, and all
commissions and other fees payable to agents, salesmen, and representatives.
3.1.13.5 CONFIDENTIALITY AND INVENTIONS AGREEMENTS. Each
employee or consultant of AISI has previously signed a confidentiality and
invention agreement in the form or forms attached hereto as EXHIBIT D.
3.1.14 TITLE TO AND CONDITION OF REAL PROPERTY. AISI does
not own any real property. SCHEDULE 3.1.14 contains a list of all real
property currently leased or occupied by AISI (the "Leased Real Property"),
including the dates of and parties to all leases and any amendments thereof
and a list of all real property previously leased or occupied by AISI (the
"Previously Leased Real Property"). To the knowledge of AISI, all Leased
Real Property (including improvements thereon) is in satisfactory condition
and repair consistent with its present use, and is available for immediate
use in the conduct of AISI's business. To the knowledge of AISI, neither the
operations of AISI on any Leased Real Property, nor any improvements on the
Leased Real Property, violates any applicable building or zoning code or
regulation of any governmental
22
authority having jurisdiction. The Leased Real Property includes all such
property necessary to conduct the business of AISI.
3.1.15 TITLE TO AND CONDITION OF FIXED ASSETS. SCHEDULE
3.1.15 contains a complete and accurate list of all tangible personal property
(excluding inventory) owned or leased by AISI (the "Tangible Personal
Property"), including the dates of and parties to all leases and any amendments
thereof. AISI has good and marketable title to all of the Tangible Personal
Property listed in SCHEDULE 3.1.15, free and clear of all liens, mortgages,
pledges, leases, restrictions and other claims and encumbrances of any nature
whatsoever. The Tangible Personal Property is in good operating condition and
repair (ordinary wear and tear excepted), is performing satisfactorily, and is
adequate for the conduct of the business of AISI. All Tangible Personal
Property and the state of maintenance thereof are in compliance with all
applicable laws and regulations.
3.1.16 INTELLECTUAL PROPERTY. AISI owns, or has a valid
license to use, all patents, trademarks, service marks, trade names,
copyrights, trade secrets, technology, know-how and other intellectual
property (the "Intellectual Property") necessary to or used in the conduct of
the business of AISI as now conducted and as proposed to be conducted.
SCHEDULE 3.1.16 contains a complete and accurate list of all patents, patent
applications, trademarks and service marks and related applications, trade
names and copyrights owned by or licensed to AISI. SCHEDULE 3.1.16 also
contains a description of all agreements or licenses relating to the
acquisition by or license to AISI of such Intellectual Property or under
which AISI has sold or granted a right to use any Intellectual Property. All
Intellectual Property owned by AISI is owned by it free and clear of all
liens, claims, encumbrances or adverse claims of any third party (other than
23
infringement claims). The conduct of AISI's business does not, to the knowledge
of AISI, conflict with or infringe upon any Intellectual Property rights of any
other person and no claims of conflict or infringement are pending or threatened
against AISI.
3.1.17 CERTAIN CONTRACTS AND ARRANGEMENTS. SCHEDULE 3.1.17,
which is organized by type of agreement, contains a complete and accurate list
of each of the following types of agreements or arrangements, including any
amendments thereto, to which AISI is a party or by which it is bound:
(a) any mortgage, note or other instrument or agreement relating
to the borrowing of money or the incurrence of indebtedness or the guaranty of
any obligation for the borrowing of money;
(b) any contract, agreement, purchase order or acknowledgment
form for the purchase, sale, lease or other disposition of equipment, products,
materials or capital assets, or for the performance of services (including
without limitation consulting services), with respect to which the annual
aggregate dollar amount either due to or payable by AISI exceeds $20,000;
(c) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements;
(d) contracts or agreements with agents, brokers, consignees,
sales representatives or distributors relating to the sale of products or
services;
(e) confidentiality or inventions assignment agreements with
parties other than employees of AISI; and
(f) any other contract, instrument, agreement or obligation not
described in any other Schedule which contains unfulfilled obligations, is not
terminable without payment of
24
premium or penalty upon 30 days' notice or less and the annual amount either
due to or payable by AISI exceeds $20,000 for any single contract or $50,000
in the aggregate.
3.1.18 STATUS OF CONTRACTS. Each of the contracts,
agreements, commitments and instruments listed on SCHEDULES 3.1.14, 3.1.15,
3.1.16, and 3.1.17 and the agreements described in Section 3.1.13.5
(collectively, the "Contracts") is in full force and effect and is valid,
binding and enforceable by AISI in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought. There is
no existing material default or violation by AISI under any Contract and no
event has occurred which (whether with or without notice, lapse of time or
both) would constitute a material default of AISI under any Contract. There
is no pending or threatened proceeding which would interfere with the quiet
enjoyment of any leasehold of which AISI is lessee or sublessee. All other
parties to the Contracts have consented or prior to the Closing will have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without modification of the
rights or obligations of AISI under any Contract. Complete and accurate
copies of all Contracts have been delivered to ESI. AISI is not aware of any
default by any other party to any Contract or of any event which (whether
with or without notice, lapse of time or both) would constitute a material
default by any other party with respect to obligations of that party under
any Contract, and, to the knowledge of AISI, there are no facts that exist
indicating that any of the Contracts may be totally or partially terminated
or suspended by the other parties. AISI has not granted any waiver or
forbearance
25
with respect to any of the Contracts. AISI is not a party to, or bound by,
any Contract that AISI can reasonably foresee will result in any material
loss to AISI upon the performance thereof (including any liability for
penalties or damages, whether liquidated, direct, indirect, incidental or
consequential).
3.1.19 INSURANCE. SCHEDULE 3.1.19 contains a complete and
accurate list of all policies of fire, liability, worker's compensation and
other forms of insurance insuring AISI, its officers or directors, its assets or
its operations (the "Policies"), setting forth the applicable deductible
amounts. All the Policies are valid, enforceable and in full force and effect,
all premiums with respect to the Policies covering all periods up to and
including the date as of which this representation is being made have been paid
and no notice of cancellation or termination has been received with respect to
any Policy. The Policies are sufficient for compliance with all requirements of
law and agreements to which AISI is a party and provide insurance for the risks
and in the amounts and types of coverage usually obtained by persons using or
holding similar properties in similar businesses. There have been no claims
made for insurance payment under any of the Policies in the three years
preceding the date of this Agreement. Complete and accurate copies of the
Policies and all endorsements thereto have been delivered to ESI. AISI has not
been refused any insurance coverage and no insurance coverage has been canceled
during the three years preceding the date of this Agreement.
3.1.20 PERMITS AND LICENSES. SCHEDULE 3.1.20 contains a
complete and accurate list of all governmental licenses, permits, franchises,
easements and authorizations (collectively, "Permits") held by AISI, listed by
governmental entity. AISI holds, and at all times has held, all material
Permits necessary for the lawful conduct of its business pursuant to all
applicable statutes,
26
laws, ordinances, rules and regulations of all governmental bodies, agencies
and other authorities having jurisdiction over it or any part of its
operations. AISI is in compliance with each of the terms of the Permits
listed on SCHEDULE 3.1.20, and there are no claims of violation by AISI of
any of such Permits except where any such failure so to comply or violation,
individually or in the aggregate with any other failures to comply or
violations, either with or without the giving of notice or the passage of
time or both, would not have a material adverse effect on the business,
results of operation, financial condition, properties, assets or prospects of
AISI. Complete and accurate copies of all Permits held by AISI have been
delivered to ESI. All governmental entities and agencies that have issued
any Permits to or with respect to AISI or its business have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transactions contemplated by this Agreement without
requiring modification of the rights or obligations of AISI under any of such
Permits.
3.1.21 TAXES.
3.1.21.1 RETURNS. AISI has filed on a timely basis all
federal, state, foreign and other returns, reports, forms, declarations and
information returns required to be filed by it with respect to Taxes (as
defined below) which relate to the business, results of operations, financial
condition, properties or assets of AISI (collectively, the "Returns") and has
paid on a timely basis all Taxes shown to be due on the Returns. AISI is not
part of an affiliated group of corporations that files or has the privilege
of filing consolidated tax returns pursuant to Section 1501 of the Code or
any similar provisions of state, local or foreign law, and AISI is not a
party to any tax-sharing or tax-allocation agreement. No extensions of time
have been requested for Returns which have not been filed except as set forth
on SCHEDULE 3.1.21. No Returns have been
27
examined by the applicable taxing authorities for all periods to and
including the fiscal year ended December 31, 1996 and, except as set forth on
SCHEDULE 3.1.21, AISI has not received any notice of audit and there are no
outstanding agreements or waivers extending the applicable statutory periods
of limitation for such Taxes for any period. All Returns filed are complete
and accurate in all respects and no additional Taxes are owed by AISI with
respect to the periods covered by the Returns. AISI has provided ESI with
complete and accurate copies of Returns for each of AISI's fiscal years 1991
through 1996 and the Forms 1139 related to any loss or credit or carryback
claim for those years.
3.1.21.2 TAXES PAID OR RESERVED. The Reserves reflected in
the Current Balance Sheet are adequate for payment of Taxes in respect of
periods ending on or before the date of the Current Balance Sheet. All reserves
for Taxes have been determined in accordance with generally accepted accounting
principles consistently applied throughout the periods involved and with prior
periods. All Taxes which AISI has been required to collect or withhold have
been withheld or collected and, to the extent required, have been paid to the
proper taxing authority. AISI has not elected to be treated as a consenting
corporation pursuant to Section 341(f) of the Code.
3.1.21.3 DEFINITION. The term "Taxes" shall mean all
federal, state, local or foreign taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, premium, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated severance, stamp,
occupation, property or other taxes, fees, assessments or charges of any kind
28
whatsoever, together with any interest and any penalties (including penalties
for failure to file in accordance with applicable information reporting
requirements), and additions to tax.
3.1.22 RELATED PARTY INTERESTS. Except as listed in SCHEDULE
3.1.22, no shareholder, officer or director of AISI (or any entity owned or
controlled by one or more of such parties) (a) has any interest in any property,
real or personal, tangible or intangible, used in or pertaining to AISI's
business, (b) is indebted to AISI, or (c) has any material financial interest,
direct or indirect, in any supplier or customer of, or other outside business
which has significant transactions with AISI. True and complete copies of all
agreements listed on SCHEDULE 3.1.22 have been provided to ESI. AISI is not
indebted to any of its shareholders, directors or officers (or any entity owned
or controlled by one or more of such parties) except for amounts due under
normal salary arrangements and for reimbursement of ordinary business expenses.
The consummation of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any act or event, or with the lapse of
time, or both) result in any payment (severance or other) becoming due from AISI
to any of its shareholders, officers, directors or employees (or any entity
owned or controlled by one or more of such parties).
3.1.23 NO POWERS OF ATTORNEY OR RESTRICTIONS. No power of
attorney or similar authorization given by AISI is presently in effect or
outstanding. No contract or agreement to which AISI is a party or is bound
or to which any of its properties or assets is subject limits the freedom of
AISI to compete in any line of business or with any person. None of the
employees of AISI is obligated under any contract (including licenses,
covenants or commitments of any nature), or subject to any judgment, decree
or order of any court or administrative agency, that
29
would interfere with the use of his or her best efforts to promote the
interests of AISI or that would conflict with the business of AISI as now
conducted or proposed to be conducted.
3.1.24 ENVIRONMENTAL CONDITIONS.
3.1.24.1 COMPLIANCE. The business and assets of AISI,
including without limitation the Leased Real Property and the Previously Leased
Real Property (during the period of AISI's use only), are and have been in
compliance with all Environmental Laws and all Permits required under any
Environmental Law are listed separately in SCHEDULE 3.1.20. There are no
pending or, to the knowledge of AISI, threatened claims, actions or proceedings
against AISI under any Environmental Law or related Permit. All wastes
generated in connection with AISI's business are and have been transported and
disposed of off-site in compliance with all Environmental Laws, and true and
correct logs of such transportation and disposal have been made available to
ESI.
3.1.24.2 HAZARDOUS SUBSTANCES. No Hazardous Substance
has been disposed of, spilled, leaked or otherwise released on, in, under or
from the Leased Real Property or the Previously Leased Real Property (during
the period of AISI's use only) or has otherwise come to be located in the
soil or water (including surface and ground water) on or under the Leased
Real Property or the Previously Leased Real Property (during the period of
AISI's use only). None of the assets of AISI or the improvements on the
Leased Real Property or the Previously Leased Real Property (attributable to
AISI) have incorporated into them any asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls (including in any electrical
transformer or capacitor located on such property), or any other Hazardous
Substance which is prohibited, restricted or regulated when present in
buildings, structures, fixtures or equipment.
30
No Hazardous Substance is or has been generated, manufactured, treated,
stored, transported, used or otherwise handled on the Leased Real Property or
the Previously Leased Real Property (during the period of AISI's use only) or
in connection with the business of AISI. There are no underground storage
tanks on the Real Property (whether or not regulated and whether or not out
of service, closed or decommissioned), other than a septic tank previously
used only for sanitary waste, the use of which has been discontinued in
compliance with Michigan law.
3.1.24.3 FILINGS AND NOTICES. AISI has timely filed all
required reports, obtained all required approvals and permits, and generated and
maintained all required data, documentation and records under all applicable
Environmental Laws. All notifications required by any Environmental Law in
respect of any discharge, release or emission, including any notices required to
be provided under applicable Michigan law, if any, have been made within the
time prescribed by such Environmental Law, and copies of all such notifications
have been provided to ESI. No part of the Leased Real Property or, to the
knowledge of AISI, the Previously Leased Real Property is listed as a site
contaminated by Hazardous Substances pursuant to any Environmental Law.
3.1.24.4 DEFINITIONS. As used in this Agreement, (a)
"Environmental Law" means any federal, state, foreign or local statute,
ordinance or regulation pertaining to the protection of human health or the
environment and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such statutes, ordinances or
regulations, and (b) "Hazardous Substance" means any hazardous, toxic,
radioactive or infectious substance, material or waste as defined, listed or
regulated under any Environmental Law, and includes without limitation
radioactive material.
31
3.1.25 CONSENTS AND APPROVALS. Except as set forth in
Sections 3.1.4 and 5.2.5, no consent, approval, or authorization of, or filing
or registration with, any court, regulatory authority, governmental body, or any
other entity or person not a party to this Agreement is required to be obtained
by AISI for the consummation of the transactions described in this Agreement.
3.1.26 RECORDS. The books of account, minute books, stock
certificate books and stock transfer ledgers of AISI are complete and accurate
in all material respects, and there has been no transaction involving the
business or stock ownership of AISI, or action of AISI's board of directors or
shareholders, which properly should have been set forth therein and which has
not been accurately so set forth. Complete and accurate copies of such books,
records and ledgers have been made available to ESI.
3.1.27 RECEIVABLES. Each of the receivables of AISI
(including accounts receivable, loans receivable and advances) that is
reflected in the Current Balance Sheet, and each of the receivables that has
arisen since that date, has arisen only from bona fide transactions in the
ordinary course of AISI's business and shall be fully collected when due, or
in the case of each account receivable, within 90 days after it arose,
without resort to litigation and without offset or counterclaim, except to
the extent of the normal allowance for doubtful accounts with respect to
accounts receivable, consistent with AISI's prior practices, as reflected in
the Current Balance Sheet.
3.1.28 BANK ACCOUNTS. SCHEDULE 3.1.28 contains a complete and
accurate list of all the banks or other financial institutions at which AISI
maintains accounts or safe deposit boxes, together with numbers of such accounts
and boxes and the names of the persons authorized
32
to draw thereon or permitted access thereto. All cash in such accounts is
held in demand deposits and is not subject to any restriction or limitation
as to withdrawal.
3.1.29 PRODUCT WARRANTIES. SCHEDULE 3.1.29 contains AISI's
standard form of product warranty, infringement indemnity and limitation of
liability provisions and a copy of each negotiated warranty, indemnity and
limitations provision that differs materially from the standard form. AISI has
not undertaken any performance obligations or made any warranties or guarantees
with respect to its products other than those disclosed in SCHEDULE 3.1.29, or
sold any products or services without the limitation of liability provisions
disclosed in SCHEDULE 3.1.29. The aggregate cost to AISI to comply with its
product warranties has not and is not anticipated to exceed 2.0 percent of total
revenue, as reported in AISI's audited financial statements, for any fiscal
year. All products under warranty as of the date of this Agreement, serviced,
distributed or sold by AISI, and the delivery thereof, have been in conformity
with AISI's warranty commitments.
3.1.30 INVENTORIES. SCHEDULE 3.1.30 contains a true and
complete list and summary of all inventory of AISI as of June 30, 1997. All
inventories, whether finished goods, work in process or raw materials,
reflected on the Current Balance Sheet or thereafter acquired, are all items
of a quality usable or saleable in the ordinary and usual course of AISI's
business, except for inventory items that have been written down to an amount
not in excess of realizable market value or for which adequate Reserves or
allowances have been provided on the Current Balance Sheet. The values at
which inventories are carried reflect an inventory valuation policy
consistent with AISI's past practice and in accordance with generally
accepted accounting principles. AISI has good and marketable title to all
its inventories, free and clear of all liens,
33
mortgages, pledges, leases, restrictions and other claims and encumbrances of
any nature whatsoever.
3.1.31 PRODUCT LIABILITY. AISI has not recalled any products
manufactured, serviced, distributed, leased, or sold by AISI, and there is no
reasonable basis known to AISI for any such recall on or after the Closing Date.
3.1.32 BACKLOG AND CUSTOMER INFORMATION. SCHEDULE 3.1.32
shows (a) the aggregate backlog, including sales price, product cost and gross
margin, and the backlog by customer and product, for AISI as of August 31, 1997
and (b) a list of the top ten AISI customers for each of the last two fiscal
years, with aggregate annual revenue for each customer for each year.
3.1.33 ACCOUNTING CONTROLS. AISI maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets,
(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 existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
3.1.34 BROKERS AND FINDERS. AISI has not incurred any
liability for any brokerage or investment banking fees, commissions or finders'
fees in connection with the Merger.
34
3.1.35 RELIANCE. AISI recognizes and agrees that,
notwithstanding any investigation by ESI, ESI is relying upon the
representations and warranties made by AISI in this Agreement.
3.1.36 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of
the representations or warranties of AISI contained in this Agreement contains
or will contain any untrue statement of any material fact or omits or misstates
a material fact necessary to make the statements contained in this Agreement not
misleading. AISI knows of no fact that has resulted or that, in the reasonable
judgment of AISI may result, in any material adverse change in AISI's business,
results of operation, financial condition, properties, assets or prospects that
has not been set forth in this Agreement.
3.1.37 PROSPECTUS/INFORMATION STATEMENT. The information
provided in writing by AISI (or its representatives) regarding AISI specifically
to be contained in the Prospectus/Information Statement (as defined in Section
4.2.5) to be mailed to shareholders of AISI pursuant to Section 4.2.5 hereof and
such AISI information supplemented or reviewed by AISI (or its representatives)
without objection prior to the mailing of such Prospectus/Information Statement,
will be correct in all material respects and will not omit any material fact
required to be stated therein or necessary in order to make the statements
therein
35
not misleading; provided, however, that no representation is made by AISI with
respect to information supplied by ESI specifically for inclusion therein or
relating to and reviewed by ESI (or its representatives) without objection.
AISI will promptly inform ESI of the happening of any event prior to the
Effective Time which would render such information regarding AISI, incorrect in
any material respect or require the amendment of the Prospectus/Information
Statement.
3.1.38 CONTINUITY OF BUSINESS ENTERPRISE. AISI operates at
least one significant historic business line, or owns at least a significant
portion of its historic business assets, in each case within the meaning of
Treasury Regulation Section 1.368-1(d).
3.1.39 1998 FORECAST. The AISI 1998 forecast dated September
19, 1997 (the "1998 Forecast") provided to ESI was prepared by AISI in good
faith, is based on reasonable assumptions and represents AISI's best estimate of
its future results. To the best of AISI's knowledge, no assumption underlying
the 1998 Forecast has changed.
3.2 REPRESENTATIONS AND WARRANTIES OF ESI. ESI hereby represents and
warrants to AISI that, except as specifically set forth in SCHEDULE 3.2 (the
"ESI Disclosure Schedule") in a numbered paragraph that corresponds to the
section for which disclosure is made:
3.2.1 ORGANIZATION AND STATUS. Each of ESI and its
subsidiaries is a corporation duly organized and validly existing under the laws
of its jurisdiction of incorporation and is duly qualified and in good standing
as a foreign corporation in each jurisdiction where the properties owned, leased
or operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in good standing, when taken together with
all such failures, would not have a material adverse effect on ESI. Each of ESI
and its
36
subsidiaries has all requisite corporate power and authority to own, operate and
lease its property and to carry on its businesses as they are now being
conducted.
3.2.2 CAPITALIZATION. ESI has authorized capital stock
consisting of 40,000,000 shares of Common Stock, without par value, of which
9,853,000 shares were outstanding on July 15, 1997 and 1,000,000 shares of
Preferred Stock, of which no shares were outstanding on July 15, 1997. All of
the outstanding shares of capital stock of ESI have been duly authorized and are
validly issued, fully paid and nonassessable, and no shares were issued in
violation of preemptive or similar rights of any shareholder. Except under the
terms of the various ESI employee or director benefit plans, or as disclosed in
the ESI SEC Reports (defined in Section 3.2.5) there are no subscriptions,
options, warrants, rights, convertible securities or other agreements or
commitments of any character obligating ESI to issue any shares of capital
stock.
3.2.3 CORPORATE AUTHORITY. ESI has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized by the Board of Directors of ESI
and duly and validly executed and delivered by ESI. This Agreement constitutes
the valid and binding obligation of ESI, enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
37
3.2.4 GOVERNMENTAL FILINGS. Other than the filing of (a)
Articles of Merger contemplated by Article I, (b) the HSR Filing described in
Section 4.2.4, and (c) the Registration Statement described in Section 4.3.2, no
notices, reports or other filings are required to be made by ESI with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by ESI from, any Governmental Entity in connection with the execution
and delivery of this Agreement by ESI and the consummation by ESI of the
transactions contemplated hereby.
3.2.5 SEC REPORTS AND FINANCIAL STATEMENTS. ESI has
heretofore furnished AISI with complete copies of all registration statements,
reports and proxy statements, including amendments thereto, filed with the
Securities and Exchange Commission (the "SEC") since May 31, 1997 and prior to
the date of this Agreement (collectively, the "ESI SEC Reports").
3.2.6 LITIGATION. Except as set forth in the ESI SEC
Reports, no litigation, proceeding or governmental investigation is pending or,
to the knowledge of ESI, threatened against or relating to ESI, its officers or
directors in their capacities as such or any of its subsidiaries, or their
respective properties or businesses.
3.2.7 NO ADVERSE CONSEQUENCES. Neither the execution and
delivery of this Agreement by ESI nor the consummation of the transactions
contemplated by this Agreement will (a) result in the creation or imposition of
any lien, charge, encumbrance or restriction on any of the assets or properties
of ESI or any subsidiary, (b) violate any provision of the Articles of
Incorporation or Bylaws of ESI or any subsidiary, (c) to the knowledge of ESI,
violate any statute, judgment, order, injunction, decree, rule, regulation or
ruling of any governmental authority applicable to ESI or any subsidiary, or (d)
either alone or with the giving of notice or
38
the passage of time or both, conflict with, constitute grounds for termination
of, accelerate the performance required by, accelerate the maturity of any
indebtedness or obligation under, result in the breach of the terms, conditions
or provisions of or constitute a default under any mortgage, deed of trust,
indenture, note, bond, lease, license, permit or other agreement, instrument or
obligation to which either ESI or any subsidiary is a party or by which any of
them is bound.
3.2.8 BROKERS AND FINDERS. Neither ESI nor any of its
subsidiaries has incurred any liability for any brokerage or investment banking
fees, commissions or finders' fees in connection with the Merger.
3.2.9 PROSPECTUS/INFORMATION STATEMENT. The information
regarding ESI contained in the Prospectus/Information Statement (as defined in
Section 4.2.5) to be mailed to AISI shareholders pursuant to Section 4.2.5 will
be correct in all material respects and will not omit any material fact required
to be stated therein or necessary in order to make the statement therein not
misleading; provided, however, that no representation or warranty is made hereby
with respect to information contained in such Prospectus/Information Statement
which is furnished in writing by AISI (or its representatives) expressly for use
in such Prospectus/Information Statement or information relating to AISI which
is reviewed by AISI with the knowledge that it will be so used and without
objecting to such use. ESI will promptly inform AISI of the happening of any
event prior to the Effective Time which would render such information regarding
ESI incorrect in any material respect or require the amendment of the
Prospectus/Information Statement.
39
3.3 REPRESENTATIONS AND WARRANTIES RELATING TO MERGER CORP. ESI and
Merger Corp. hereby represent and warrant to AISI that:
3.3.1 ORGANIZATION AND STATUS. Merger Corp. is a corporation
duly organized and validly existing under the laws of the State of Oregon.
Merger Corp. does not own any properties (other than the initial cash
subscription for shares) nor has it commenced any business or operations.
3.3.2 CAPITALIZATION. Merger Corp. has an authorized capital
stock consisting of 100 shares of Common Stock, of which 100 shares were issued
and outstanding on the date of this Agreement. All of the issued and
outstanding shares of capital stock of Merging Corp are owned by ESI.
3.3.3 CORPORATE AUTHORITY. Merger Corp. has the corporate
power and authority and has taken all corporate action necessary to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Agreement has been duly and validly authorized by the Board of Directors and
sole shareholder of Merger Corp., duly and validly executed and delivered by
Merger Corp. and constitutes the valid and binding obligation of Merger Corp.,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
3.3.4 GOVERNMENTAL FILINGS. Other than (a) the filing of
Articles of Merger contemplated by Article I and (b) the HSR Filing described in
Section 4.2.4, no notices, reports
40
or other filings are required to be made by Merger Corp. with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by Merger Corp. from, any Governmental Entity in connection with the
execution and delivery of this Agreement by Merger Corp. and the consummation by
Merger Corp. of the transactions contemplated hereby.
3.3.5 LITIGATION. No litigation, proceeding or governmental
investigation is pending or, to the knowledge of Merger Corp., threatened
against or relating to Merger Corp., or its officers or directors in their
capacities as such.
3.3.6 NO OPERATIONS. Merger Corp. has not conducted active
operations and has no assets or liabilities other than in accordance with this
Agreement.
ARTICLE IV
COVENANTS
4.1 MUTUAL COVENANTS. AISI and ESI mutually covenant and agree as
follows:
4.1.1 CONSENTS AND APPROVALS. AISI and ESI each will use its
reasonable best efforts to secure, and ESI will cause Merger Corp. to use its
reasonable best efforts to secure, all consents, approvals, licenses or permits
which may be required in connection with the Merger, and each will cooperate
with the other to secure all such consents, approvals, licenses or permits in a
form mutually satisfactory to AISI and ESI.
4.1.2 BEST EFFORTS. Subject to the terms of this Agreement,
AISI and ESI each will use its reasonable best efforts, and ESI will cause
Merger Corp. to use its reasonable best efforts, to effectuate the transactions
contemplated hereby and to fulfill the conditions of their respective
obligations under this Agreement.
4.1.3 PUBLICITY. Except as required by law, no party will
issue any press releases or otherwise make any public statements with respect to
the transactions contemplated hereby without the prior written consent of ESI
and AISI, in each case not to be unreasonably withheld.
4.1.4 CONFIDENTIALITY. The provisions of the Confidentiality
Agreements dated December 7, 1995 (in favor of AISI) and March 1, 1996 (in favor
of ESI) (collectively, the "Confidentiality Agreements") shall apply to all
"Confidential Information" (as defined in the Confidentiality Agreements)
obtained by any party pursuant to this Agreement.
4.2 COVENANTS OF AISI. AISI covenants and agrees as follows:
41
4.2.1 CONDUCT OF BUSINESS. Prior to the Effective Time, AISI
will carry on its business in the ordinary and usual manner and maintain its
existing relationships with suppliers, customers, employees and business
associates, and will not, without the prior written consent of ESI:
(a) amend its Articles of Incorporation or Bylaws;
(b) enter into any new agreements respecting an increase in
compensation or benefits payable to its officers or employees, except that AISI
may enter into indemnification agreements with its officers and directors on
terms consistent with the provisions of AISI's Articles of Incorporation and
Bylaws;
(c) split, combine, reclassify any of the outstanding
shares of its capital stock or otherwise change its authorized capitalization;
(d) declare, set aside or pay any dividends payable in
cash, stock or property with respect to shares of its capital stock;
(e) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of its capital stock of any class other than pursuant to exercise of
outstanding stock options outstanding on June 30, 1997;
(f) redeem, purchase or otherwise acquire any shares of its
capital stock, merge into or consolidate with any other corporation or permit
any other corporation to merge into or consolidate with it, liquidate or sell or
dispose of any of its assets, or close any plant or business operation;
42
(g) except for short-term indebtedness and indebtedness
incurred pursuant to AISI's revolving credit agreement and renewals,
replacements and amendments thereof not in excess of the current maximum under
such credit agreement incurred in the ordinary course of business, incur, assume
or guarantee any indebtedness, or modify or repay any existing indebtedness;
(h) enter into any transaction, make any commitment
(whether or not subject to the approval of the Board of Directors of AISI) or
modify any Contracts, except as otherwise contemplated or permitted by this
Agreement, or take or omit to take any action which could be reasonably
anticipated to have a material adverse effect on the business, properties,
financial condition or results of operations of AISI;
(i) transfer, lease, license, guarantee, sell, mortgage,
pledge, or dispose of, any property or assets (including without limitation any
intellectual property), encumber any property or assets or incur or modify any
liability, other than the sale of inventory in the ordinary and usual course of
business;
(j) authorize capital expenditures other than in the
ordinary course of business, form any subsidiary, or make any acquisition of, or
investment in, assets or stock of any other person or entity;
(k) make any tax election;
(l) permit any insurance policy naming it as a beneficiary
or a loss payable payee to be canceled, terminated or renewed without prior
notice to ESI;
43
(m) change its method of accounting as in effect at
December 31, 1996, except as required by changes in generally accepted
accounting principles as concurred with by the AISI's independent auditors, or
change its fiscal year;
(n) conduct any transactions which, in the opinion of ESI
or Xxxxxx Xxxxxxxx LLP, could disqualify the Merger for pooling of interests
accounting; or
(o) authorize or enter into an agreement to do any of the
actions referred to in paragraphs (a) through (n) above.
4.2.2 ACQUISITION PROPOSALS. Unless and until this
Agreement shall have been terminated pursuant to Section 7.1 or Section 7.2,
AISI shall not directly, or indirectly through any officer, director, agent,
employee or representative (i) encourage, initiate or solicit, on or after
the date hereof, any inquiries or the submission of any proposals or offers
from any person relating to any merger, consolidation, sale of all or
substantially all of its assets or similar business transaction involving
AISI (each, an "Acquisition Transaction"); (ii) participate in any
negotiations regarding, furnish to any other person any information with
respect to, or otherwise assist or participate in, any attempt by any third
party to propose or offer any Acquisition Transaction; (iii) enter into or
execute any agreement relating to an Acquisition Transaction; or (iv) make or
authorize any public statement, recommendation or solicitation in support of
any Acquisition Transaction or any proposal or offer relating to an
Acquisition Transaction, in each case other than with respect to the Merger.
Notwithstanding the foregoing, nothing contained herein shall prohibit AISI
from taking the actions described above in connection with an unsolicited
third-party proposal or offer of an Acquisition Transaction if and to the
extent that (a) the Board of Directors of AISI determines in good faith, upon
advice of legal counsel, that such action is required for the
44
directors of AISI to fulfill their fiduciary duties and obligations under
Michigan law and (b) prior to furnishing such information to or entering into
discussions or negotiations with such third-party, AISI provides immediate
written notice to ESI of such proposal or offer and, to the extent not
inconsistent with the fiduciary duties of AISI's officers and directors,
provides material information concerning such proposal or offer (including
proposed terms and the identity of the person or entity making such proposal
or offer) and thereafter continues to cooperate with ESI by informing ESI of
additional material facts as they arise and furnishing to ESI any additional
information furnished in connection with such proposal or offer.
4.2.3 INVESTIGATIONS. AISI agrees to give ESI and its
representatives and agents full access to all its premises, books and records
and agreements and files and to cause its officers of AISI to furnish ESI
with such financial and operating data and other information with respect to
its business and properties as ESI shall from time to time request. Without
limitation of the foregoing, AISI shall permit ESI to conduct an operations
review at the plant level during which ESI shall have access to the plant
managers, sales and marketing managers, finance officers, and technology,
environmental and human resource managers of each AISI operating facility.
Any such investigations (a) shall be conducted in such manner as not to
interfere unreasonably with the operation of AISI's business; and (b) shall
not diminish any of the representations and warranties hereunder.
4.2.4 ANTITRUST IMPROVEMENTS ACT. AISI will timely and
promptly make all filings which are required under the Antitrust Improvements
Act of 1976, as amended (the "HSR Filing"). AISI will furnish to ESI such
information and assistance as ESI may request in connection with its
preparation of filings or submissions to any governmental agency, including,
45
without limitation, the HSR Filing. AISI will supply ESI with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between AISI or its representatives, on the one hand, and
the Federal Trade Commission, the Antitrust Division of the United States
Department of Justice or any other governmental agency or authority or
members of their respective staffs, on the other hand, with respect to this
Agreement or the transaction contemplated hereby.
4.2.5 AISI SHAREHOLDERS APPROVAL. AISI shall obtain by
written consent of at least a majority of the holders of AISI Common Stock,
approval of this Agreement, approval of the Merger and the other transactions
contemplated hereunder, and appointment of the Shareholder Representatives.
Upon receipt from ESI of a master copy of the Prospectus/Information
Statement relating to this Agreement ("Prospectus/Information Statement") in
the form declared effective by the Securities and Exchange Commission, AISI
will immediately cause a copy of the Prospectus/Information Statement to be
distributed to each of its shareholders, together with (i) a copy of the
written consent to the Merger by the holders of at least a majority of the
outstanding shares of AISI's common stock, and (ii) the Dissenters' Rights
notice required by Section 766 of the MBCA to be delivered to any shareholder
who did not execute the written consent.
4.2.6 INFORMATION FOR PROSPECTUS/INFORMATION STATEMENT AND
REGISTRATION STATEMENT. AISI will promptly provide to ESI for inclusion within
the Prospectus/Information Statement and in the Registration Statement described
in Section 4.3.2, in form reasonably satisfactory to ESI, such information
concerning AISI's operations, capitalization, technology and share ownership,
and such other information as ESI may reasonably request.
4.3 COVENANTS OF ESI. ESI covenants and agrees as follows:
46
4.3.1 CONDUCT OF BUSINESS. Prior to the Effective Time, ESI
will not take or omit to take any action which could be reasonably anticipated
to have a material adverse effect on the business, properties, financial
condition or results of operations of ESI.
4.3.2 REGISTRATION STATEMENT. ESI will promptly file with
the Securities and Exchange Commission a Registration Statement complying in all
respects with Form S-4 for the purpose of registering the ESI Common Stock into
which the AISI Common Stock will be converted pursuant to Section 1.3, and ESI
will use its best efforts to cause such Registration Statement to be declared
effective.
4.3.3 LISTING OF ESI COMMON STOCK. ESI will promptly list
the shares of ESI Common Stock into which the AISI Common Stock will be
converted pursuant to the provisions of this Agreement in the Nasdaq National
Market System.
4.3.4 ANTITRUST IMPROVEMENTS ACT. ESI will timely and
promptly make its HSR Filing. ESI will furnish to AISI such information and
assistance as AISI may request in connection with its preparation of filings
or submissions to any governmental agency, including, without limitation, any
HSR Filing under the provisions of the Antitrust Improvements Act. ESI will
supply AISI with copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof) between it or its
representatives, on the one hand, and the Federal Trade Commission, the
Antitrust Division of the United States Department of Justice or any other
governmental agency or authority or members of their respective staffs, on
the other hand, with respect to this Agreement or the transactions
contemplated hereby.
4.3.5 ISSUANCE OF CERTIFICATES. After the Effective Time,
ESI shall issue and deliver, or shall cause to be issued and delivered, in
accordance with the provisions of Article I
47
hereto, stock certificates representing the number of shares of ESI Common
Stock to be issued in the Merger.
4.3.6 REGISTRATION OF OPTION SHARES. ESI shall use its
best efforts to cause the shares of ESI Common Stock issuable upon exercise
of the Options (assumed pursuant to Section 1.3.4 of this Agreement) to be
issued pursuant to a then effective registration statement or otherwise to be
registered after the Effective Time on SEC Form S-8, filed no later than 30
days after the Effective Time, and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements for
so long as such assumed Options remain outstanding.
4.3.7 DIRECTORS & OFFICERS INSURANCE. For a period of at
least two years following the Effective Time, ESI shall, or shall cause the
Surviving Corporation to, continue in effect the directors and officers
insurance policies currently maintained by AISI (or substitute policies with
substantially the same coverage and terms); provided that each AISI officer
and director covered by such policies represents and warrants that such
person has no knowledge of any claims covered by such policies. It is
intended that such insurance shall be the primary source of funding AISI's
obligation to indemnify its directors and officers against liability arising
from acts in their official capacities prior to the Effective Time.
4.4 COVENANTS OF MERGER CORP. Merger Corp. covenants and agrees
that, except as is contemplated by this Agreement, prior to the Effective Time,
Merger Corp. will not engage in any business activities or liquidate, merge into
or consolidate with any other corporation or permit any other corporation to
merge into or consolidate with it; or increase its authorized capital stock; or
issue options, rights or warrants to purchase any of its capital stock.
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ARTICLE V
CONDITIONS
5.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The obligations of
AISI, ESI and Merger Corp. to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.1.1 REGULATORY APPROVALS. The parties shall have made all
filings and received all approvals of any governmental or regulatory agency of
competent jurisdiction necessary in order to consummate the Merger, including
without limitation, expiration or termination of the waiting period for the HSR
Filing, and each of such approvals shall be in full force and effect at the
Closing and not subject to any condition which requires the taking or refraining
from taking of any action which would have a material adverse effect on AISI or
on ESI and its subsidiaries.
5.1.2 LITIGATION. There shall not be in effect any order,
decree or injunction of a Federal or State court of competent jurisdiction
restraining, enjoining or prohibiting the consummation of the transactions
contemplated by this Agreement (each party agreeing to use its best efforts,
including appeals to higher courts, to have any such non-final, appealable
order, decree or injunction set aside or lifted), and no action shall have
been taken, and no statute, rule or regulation shall have been enacted, by
any state or federal government or governmental agency in the United States
which would prevent the consummation of the Merger.
5.1.3 SECTION 368(a)(2)(E) OF THE CODE REQUIREMENT. The
parties will be satisfied that AISI will hold, after the Merger at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Merger Corp.
49
immediately prior to the Merger and will retain at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by AISI immediately prior to the
Merger. For purposes of this condition, amounts paid by AISI to dissenters,
amounts paid by AISI to its shareholders who receive cash or other property,
assets of AISI used to pay its reorganization expenses, and all redemptions
and distributions (except for normal dividends) made by AISI immediately
preceding the Merger, will be included as assets of AISI held immediately
prior to the Merger.
5.2 CONDITIONS TO THE OBLIGATIONS OF AISI. The obligations of AISI
to consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or before the Closing of each of the following conditions:
5.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of ESI and Merger Corp. contained in this
Agreement shall be correct (a) at the date of this Agreement and (b) as of the
Closing, with the same effect as though made on and as of such date, except for
representations and warranties made as of a specific date, which representations
and warranties need only be true and correct as of such date and for changes
specifically contemplated by this Agreement, and ESI and Merger Corp. shall have
performed all of their respective covenants and obligations hereunder to be
performed as of the Closing. AISI shall have received at the Closing
certificates to the foregoing effect, dated the Closing Date, and executed on
behalf of ESI by an executive officer of ESI and on behalf of Merger Corp. by an
executive officer of Merger Corp. For purposes of affirming the accuracy of the
representations and warranties of ESI made as of the Closing, the term "ESI SEC
Reports" shall be deemed to include all registration statements, reports and
proxy and information statements, including all
50
amendments thereto, filed by ESI with the SEC after the date of this
Agreement and prior to Closing.
5.2.2 NO MATERIAL ADVERSE CHANGE. Since May 31, 1997 there
shall have been no material adverse change, or discovery of a condition or
occurrence of an event which has resulted or reasonably can be expected to
result in a material adverse change, in the business, properties, financial
condition or results of operations of ESI and its subsidiaries taken as a whole,
other than changes permitted or contemplated by this Agreement.
5.2.3 OPINION OF COUNSEL. AISI shall have received from
Stoel Rives LLP, counsel to ESI, an opinion dated the Closing Date
substantially in the form of EXHIBIT E attached hereto.
5.2.4 REGISTRATION OF SECURITIES; LISTING. The shares of ESI
Common Stock to be issued by ESI pursuant to this Agreement shall have been
registered under the Securities Act of 1933, as amended, and listed in the
Nasdaq National Market System.
5.2.5 SHAREHOLDERS' APPROVAL; DISSENTERS. In accordance
with applicable provisions of the MBCA and the Articles of Incorporation and
Bylaws of AISI, the holders of at least a majority of the issued and
outstanding shares of Common Stock of AISI shall have approved this Agreement
and the Agreement of Merger and the condition set forth in Section 5.3.7
shall have been satisfied.
5.2.6 ACCOUNTANTS OPINION. The condition set forth in
Section 5.3.5 shall have been satisfied.
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5.3 CONDITIONS TO THE OBLIGATIONS OF ESI AND MERGER CORP. The
obligations of ESI and Merger Corp. to consummate the transactions contemplated
by this Agreement are subject to the fulfillment at or before the Closing of
each of the following conditions:
5.3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of AISI contained in this Agreement shall be
correct (a) at the date of this Agreement and (b) as of the Closing Date, with
the same effect as though made on and as of such date, except for
representations and warranties made as of a specific date which representations
and warranties need only be true and correct as of such date and for changes
specifically contemplated by this Agreement and AISI shall have performed in all
material respects all of its covenants and obligations hereunder to be performed
as of the Closing. ESI shall have received at the Closing a certificate to the
foregoing effect, dated the Closing Date, and executed on behalf of AISI by an
executive officer of AISI.
5.3.2 OPINION OF COUNSEL. ESI shall have received from
Xxxxxx & XxXxxxxx, A Legal Professional Association ("Xxxxxx & XxXxxxxx"),
counsel to AISI, an opinion dated the Closing Date substantially in the form
of EXHIBIT F attached hereto. ESI also shall have received from Xxxxxx &
XxXxxxxx an opinion satisfactory to ESI and its counsel that the Merger will
be tax free pursuant to Section 368 of the Code.
5.3.3 CONSENTS AND APPROVALS. All nongovernmental consents
and approvals required to be obtained by AISI for consummation of the Merger
shall have been obtained, other than those which, if not obtained, would not,
either singly or in the aggregate, have a material adverse effect on AISI.
5.3.4 NO MATERIAL ADVERSE CHANGE; COMPLETION OF INSPECTION.
52
5.3.4.1 NO MATERIAL ADVERSE CHANGE. Since June 30,
1997 there shall have been no material adverse change, or discovery of a
condition or occurrence of an event which has resulted or reasonably can be
expected to result in such change, in the business, properties, financial
condition or results of operations of AISI, other than changes permitted
under or contemplated by this Agreement.
5.3.4.2 COMPLETION OF INVESTIGATION. ESI shall have
completed to its satisfaction its investigation of AISI's business, including
without limitation, the investigation referred to in Section 4.2.3, and such
investigation shall have not revealed (1) any facts or circumstances (including
those arising as a result of the acquisition contemplated hereby) that ESI
believes are reasonably likely to have a material adverse effect on the
business, properties, financial condition, or results of operations of AISI or
the 1998 Forecast, or (2) any facts or circumstances (including those arising as
a result of the acquisition contemplated hereby) indicating that the Merger is
reasonably likely to dilute ESI's earnings per share for its fiscal quarter
ending November 30, 1997 or its fiscal quarter ending February 28, 1998 or
its fiscal year ending May 31, 1998.
5.3.5 ACCOUNTANTS OPINION. ESI and AISI shall have received
an opinion of Xxxxxx Xxxxxxxx LLP in form satisfactory to ESI and AISI that the
Merger may be accounted for as a pooling of interests.
5.3.6 REGISTRATION OF SECURITIES; LISTING. The shares of ESI
Common Stock to be issued by ESI pursuant to this Agreement shall have been
registered under the Securities Act of 1933, as amended, and under the
securities laws of such states as counsel for ESI shall deem necessary or
exemptions from such state registration or qualification shall have been
determined by such counsel to be available, and shall have been listed in the
Nasdaq National Market System.
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5.3.7 AFFILIATE REPRESENTATION LETTERS. ESI shall have
received from each of the persons or entities listed on SCHEDULE 5.3.7 a duly
executed representation letter, substantially in the form of EXHIBIT G,
containing certain representations and warranties with respect to the ownership
of capital stock of AISI by such person or entity and certain representations,
warranties, covenants and acknowledgments with respect to the shares of ESI
Common Stock to be acquired hereby and the transfer of such shares.
5.3.8 CONTINUITY OF INTERESTS LETTER. ESI shall have
received from each of the persons or entities listed on SCHEDULE 5.3.8 a duly
executed representation letter, substantially in the form of EXHIBIT H,
containing certain representations and warranties with respect to the ownership
of capital stock of AISI by such person or entity and certain representations,
warranties, covenants and acknowledgments with respect to the shares of ESI
Common Stock to be acquired hereby and the transfer of such shares.
5.3.9 OTHER AGREEMENTS. The ESI Confidentiality Agreement
and the Escrow Agreement to be delivered under Article II shall have been signed
and delivered by the parties to such agreements other than ESI or Merger Corp.
5.3.10 PHYSICAL COUNT OF ASSETS. At a mutually agreeable time,
a physical count of all AISI tangible assets shall have been conducted to the
reasonable satisfaction of ESI and the aggregate value of the tangible assets
shown by such count shall not be less than the value for such assets reflected
on the AISI books and records as of the date of such count.
5.3.11 TAX CLEARANCE CERTIFICATE. AISI shall deliver to ESI a
tax clearance certificate from the applicable agencies of the State of Michigan.
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5.3.12 RELATED PARTY AGREEMENTS. All agreements or
arrangements described on SCHEDULE 3.1.22 (Related Parties), if requested by
ESI, shall have been terminated or amended to the reasonable satisfaction of
ESI.
5.3.13 CONFIDENTIALITY AGREEMENTS. All employees of AISI
shall have signed a confidentiality and inventions assignment agreement in a
form reasonably satisfactory to ESI, as provided in Section 2.1.
5.3.14 UPDATED FINANCIAL AND OTHER INFORMATION. ESI shall
have received (a) the unaudited balance sheet of AISI and the related statements
of income and stockholder's equity for the most recent accounting period of AISI
ended prior to the Closing Date, and (b) schedules of accounts receivable
(including an aging analysis), inventories (organized by category), and backlog
(by customer and product), in each case as of immediately prior to Closing and
in each case with an officer's certificate as to accuracy and completeness of
such schedule.
5.3.15 ENVIRONMENTAL REPORT. ESI shall have received a
Phase I environmental audit report with respect to the Leased Real Property,
prepared by an environmental audit firm selected by ESI, the results of which
audit shall be reasonably satisfactory to ESI.
5.3.16 FAIRNESS OPINION. ESI shall have received from Alex.
Xxxxx & Sons an opinion that the Conversion Ratio is fair, from a financial
point of view, to the holders of ESI Common Stock.
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ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 SURVIVAL. All representations and warranties of any party
contained in this Agreement shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, but
shall be extinguished and be of no further force or effect nine months after the
Closing Date, except with respect to any claim for which a Claim Notice (as
defined in Section 6.4) is delivered pursuant to Section 6.4 prior to the
expiration of the nine-month period. No Claim Notice shall be effective if
delivered after the time periods referred to above in this Section 6.1.
6.2 SCOPE OF INDEMNIFICATION. From and after the Effective Time
and subject to the limitations of this Article VI, each AISI shareholder
will, pro rata and to the extent of his, her or its ESI Common Stock
delivered to the Escrow Agent pursuant to Section 6.3, indemnify and hold
harmless ESI, Merger Corp. and the Surviving Corporation and their respective
officers, directors and shareholders (collectively, the "Indemnified
Parties") from, for and against any (a) losses, costs, expenses, damages and
liabilities, including reasonable attorneys' fees (collectively, "Damages"),
incurred by an Indemnified Party by reason of or arising out of any
inaccuracy in any representation or warranty or the breach of any covenant of
AISI made in this Agreement, and (b) Damages (excluding, in this instance,
attorneys fees) incurred by an Indemnified Party in connection with the
prosecution, defense of counterclaim or settlement of the litigation
described in Section 3.1.11 of the Disclosure Schedule (the "Disclosed
Litigation").
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6.3 ESCROW. On the Closing Date, ESI shall, on behalf of each of the
AISI shareholders, deliver to the Escrow Agent 10 percent of such AISI
shareholder's shares of the ESI Common Stock to be received by such AISI
shareholder pursuant to Section 1.3, provided, that, the shares to be delivered
on behalf of each AISI shareholder shall be rounded downward to the nearest
whole share of ESI Common Stock (such deposited shares shall be referred to as
the "Escrowed Property"). The Escrowed Property will be deposited with the
Escrow Agent pursuant to the terms of the Escrow Agreement. The escrow and the
Escrow Agreement shall terminate and the Escrowed Property shall be distributed
to the former AISI shareholders at the earliest time provided for in the Escrow
Agreement, but not later than the first anniversary of the Closing Date.
6.4 LIMITATIONS. The liability of the AISI shareholders pursuant to
Section 6.2 shall be subject to the following limitations:
6.4.1 MINOR CLAIMS. The AISI shareholders shall not have any
liability or indemnity obligation under Section 6.2 with respect to the first
$100,000 of Damages of the Indemnified Parties. In addition, to the extent not
applied to any specific item or matter, the Reserves will be generally available
to satisfy any liability of AISI in connection with any representation, warranty
or covenant of AISI set forth in this Agreement other than the representations
regarding taxes in Section 3.1.21.
6.4.2 ESCROWED PROPERTY. The indemnity obligation of the
AISI shareholders under Section 6.2 shall be satisfied exclusively out of the
Escrowed Property in accordance with the Escrow Agreement.
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6.5 CLAIM PROCEDURE FOR INDEMNIFICATION. The obligations and
liabilities of the AISI shareholders in connection with claims for
indemnification for Damages by an Indemnified Party shall be subject to the
following terms and conditions:
6.5.1 NOTICE. The Indemnified Party shall give written
notice to the Shareholder Representatives and the Escrow Agent of its claim for
indemnification as promptly as practicable whenever the Indemnified Party shall
have determined that there are facts or circumstances which entitle ESI to
indemnification under this Article VI; provided, however, that the failure to
give a timely notice of a claim for indemnification shall not diminish the
indemnification obligations hereunder except to the extent that the delay in
giving such notice materially adversely affects the ability of the Shareholder
Representatives to mitigate Damages with respect to any claim. The notice
("Claim Notice") shall set forth in reasonable detail the basis for the claim,
the nature of the Damages and the amount thereof, to the extent known.
6.5.2 RESPONSE TO THIRD PARTY CLAIM. If the Claim Notice
states that a claim has been asserted by a third party against the Indemnified
Party (a "Third Party Claim"), ESI shall undertake, conduct and control,
through counsel of its choosing, the good faith settlement or defense of the
Third Party Claim and the Disclosed Litigation.
6.5.3 DILIGENT CONDUCT. If, within five days after
receipt by ESI from the Shareholder Representatives of written notice that
ESI is not diligently conducting the defense or attempted settlement in good
faith, ESI does not provide reasonably sufficient evidence to the Shareholder
Representatives that ESI is diligently conducting the defense or attempting
settlement
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in good faith, the Shareholder Representatives shall thereafter have the
right to contest, settle or compromise the Third Party Claim.
ARTICLE VII
TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of AISI and ESI.
7.2 TERMINATION BY EITHER AISI OR ESI. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by ESI or AISI if the Merger shall not have become effective
on or prior to November 1, 1997, provided, however, that the right to terminate
this Agreement pursuant to this Section 7.2(a) shall not be available to any
party whose breach of this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date;
(b) by ESI or AISI if the requisite approval of the Merger by the
shareholders of AISI shall not have been obtained by November 1, 1997;
(c) by ESI or AISI if any court of competent jurisdiction in the
United States or any state shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment or decree shall have become
final and nonappealable;
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(d) by ESI if the AISI Board of Directors shall have withdrawn or
modified in a manner adverse to ESI approval of the Merger, this Agreement or
the transactions contemplated hereby;
(e) by ESI if AISI or any of the persons or entities described in
Section 4.2.2 of this Agreement shall have taken any of the actions that would
be proscribed by Section 4.2.2, other than actions taken in the exercise of the
fiduciary duties of AISI's Board of Directors and satisfying all the conditions
of Section 4.2.2; or
(f) by AISI if the Board of Directors of AISI determines in good
faith, upon advice of legal counsel, that such termination of this Agreement is
required for the directors of AISI to fulfill their fiduciary duties and
obligations under Michigan law.
7.3 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article VII, (i) this Agreement immediately will become void and of no effect,
except that Sections 4.1.4, 7.3, 7.4 and 8.1 will survive the event of
termination; and (ii) no party hereto (or any of its directors of officers)
shall have any liability or further obligation to any other party to this
Agreement, except as provided in Section 7.4 of this Agreement.
7.4 TERMINATION FEES AND EXPENSES.
(a) AISI agrees to pay ESI (provided that ESI is not then in
material breach of any representation, warranty, covenant or agreement contained
in this Agreement) promptly upon the termination of this Agreement (or such
later date as may apply in the case of (iii) below)
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by wire transfer, the sum of $3 Million in immediately available funds in the
event that any of the following shall have occurred:
(i) this Agreement shall have been terminated pursuant to
Section 7.2(b) hereof on the basis of failure of approval of the
Merger by the AISI shareholders;
(ii) this Agreement shall have been terminated pursuant to
Section 7.2(d) or Section 7.2(e) hereof; or
(iii) AISI shall have terminated the Agreement pursuant to
Section 7.2(f) hereof and shall have agreed to an Acquisition
Transaction which results in a change in the beneficial owners of more
than fifty percent (50%) of the voting power of the capital stock of
AISI within one year after termination of this Agreement with any
person other than ESI or any of its affiliates.
(b) ESI agrees to pay AISI (provided that AISI is not then in
material breach of any representation, warranty, covenant or agreement contained
in this Agreement) promptly upon the termination of this Agreement by wire
transfer, the sum of $3 Million in immediately available funds in the event this
Agreement shall have been terminated by ESI (other than pursuant to Section 7.1
and 7.2) and all conditions to the obligations of ESI and Merger Corp. in
Sections 5.1 and 5.3 have been fulfilled.
(c) The right to the payment of the fees set forth in this
Section 7.3 shall be the exclusive remedy at law or in equity to which ESI or
AISI shall be entitled upon termination of this Agreement under the conditions
described in Section 7.3; provided, however, nothing in
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Sections 7.2 or 7.3 of this Agreement shall be deemed to limit a party's
remedies in the event of breach of this Agreement by the other party.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 PAYMENT OF EXPENSES. Other than in the event of breach of this
Agreement by the other party, and except as provided in Section 7.3, each party
shall be responsible for the costs and expenses incurred by it in connection
with the transactions contemplated by this Agreement. The fees to be paid in
the circumstances described in Section 7.3 are intended by the parties to
compensate for expenses and other damages incurred by the party entitled to the
fee. Other than in the circumstances described in Section 7.3, nothing in this
Agreement is meant to limit the right of a non-breaching party to obtain
reimbursement of expenses and other damages, including attorneys fees, incurred
as a result breach of this Agreement by the other party.
8.2 ENTIRE AGREEMENT. This Agreement, including the schedules and
the exhibits hereto, and the Confidentiality Agreements constitute the entire
agreement between the parties hereto and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
8.3 ASSIGNMENT. This Agreement shall not be assignable by any of the
parties hereto without the prior written consent of each of ESI and AISI.
8.4 BINDING EFFECT; NO THIRD PARTY BENEFIT. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns, subject to the restrictions on assignment
contained in Section 8.3. Nothing express or implied in
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this Agreement is intended or shall be construed to confer upon or give to a
person, firm or corporation other than the parties hereto any rights or
remedies under or by reason of this Agreement or any transaction contemplated
hereby.
8.5 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented at any time prior to or at
the Closing, whether before or after the votes of shareholders of AISI, by
written agreement executed and delivered by the duly authorized officers of AISI
and ESI.
8.6 WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law; PROVIDED, HOWEVER, that any waiver by a party must be in
writing.
8.7 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
8.8 CAPTIONS. The article, section and paragraph captions herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
8.9 SUBSIDIARY. When a reference is made in this Agreement to a
subsidiary of a party, the term "subsidiary" means any corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or others performing
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similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its subsidiaries, or by such party and one or more of its
subsidiaries.
8.10 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or facsimile (in each case with evidence of confirmed transmission) as
follows:
If to AISI, to it at:
0000 Xxxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxx 00000
Attention: President
Fax: (000) 000-0000
with copies to:
Xxxxxx & XxXxxxxx
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxx, Xxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
If to ESI or Merger Corp., to it at:
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: President and Chief
Executive Officer
Fax: (000) 000-0000
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with copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers and communications shall
be deemed to have been received on the date of delivery or on the third business
day after the mailing thereof.
8.11 CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon, exclusive of choice of law
rules, except that the provisions of this Agreement relating to the Merger shall
also be governed by the merger provisions of the MBCA.
8.12 ATTORNEYS' FEES. If suit or action is filed by any party to
enforce the provisions of this Agreement or otherwise with respect to the
subject matter of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees as fixed by final order of the trial court
and, if any appeal is taken from the decision of the trial court, reasonable
attorneys' fees as fixed by final order of the appellate court.
8.13 SEPARABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this
65
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first hereinabove written.
Electro Scientific Industries, Inc.
By
-----------------------------------------------
Name:
Title:
Applied Intelligent Systems, Inc.
By
-----------------------------------------------
Name:
Title:
Asteroid Merger Corp.
By
-----------------------------------------------
Name:
Title:
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