1
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN SUPERCONDUCTOR CORPORATION, ASC MERGER CORP.
AND
SUPERCONDUCTIVITY, INC.
March 7, 1997
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TABLE OF CONTENTS
Page
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ARTICLE I - THE MERGER
1.1 The Merger..................................................... 1
1.2 The Closing.................................................... 1
1.3 Actions at the Closing......................................... 2
1.4 Additional Action.............................................. 3
1.5 Conversion of Shares........................................... 3
1.6 Dissenting Shares.............................................. 4
1.7 Fractional Shares.............................................. 5
1.8 Escrow......................................................... 5
1.9 Options and Warrants........................................... 5
1.10 Certificate of Incorporation................................... 6
1.11 By-laws........................................................ 7
1.12 Directors and Officers......................................... 7
1.13 No Further Rights.............................................. 7
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
2.1 Organization, Qualification and
Corporate Power.............................................. 7
2.2 Capitalization................................................. 8
2.3 Authorization of Transaction................................... 9
2.4 Noncontravention............................................... 9
2.5 Subsidiaries................................................... 10
2.6 Financial Statements........................................... 11
2.7 Absence of Certain Changes..................................... 11
2.8 Undisclosed Liabilities........................................ 11
2.9 Tax Matters.................................................... 12
2.10 Assets......................................................... 13
2.11 Owned Real Property............................................ 13
2.12 Intellectual Property.......................................... 13
2.13 Inventory...................................................... 14
2.14 Real Property Leases........................................... 14
2.15 Contracts...................................................... 15
2.16 Accounts Receivable............................................ 16
2.17 Powers of Attorney............................................. 16
2.18 Insurance...................................................... 16
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2.19 Litigation..................................................... 17
2.20 Product Warranty............................................... 17
2.21 Employees...................................................... 17
2.22 Employee Benefits.............................................. 18
2.23 Environmental Matters.......................................... 20
2.24 Legal Compliance............................................... 21
2.25 Permits........................................................ 22
2.26 Certain Business Relationships With Affiliates................. 22
2.27 Brokers' Fees.................................................. 22
2.28 Books and Records.............................................. 22
2.29 Customers and Suppliers........................................ 22
2.30 Pooling........................................................ 23
2.31 Tax Matters.................................................... 23
2.32 Disclosure..................................................... 25
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
THE BUYER AND THE TRANSITORY SUBSIDIARY
3.1 Organization................................................... 25
3.2 Capitalization................................................. 26
3.3 Authorization of Transaction................................... 26
3.4 Noncontravention............................................... 26
3.5 Reports and Financial Statements............................... 27
3.6 Absence of Material Adverse Changes............................ 27
3.7 Litigation..................................................... 27
3.8 Legal Compliance............................................... 28
3.9 Operations of Transitory Subsidiary............................ 28
3.10 Tax Matters.................................................... 28
3.11 Disclosure..................................................... 30
ARTICLE IV - COVENANTS
4.1 Best Efforts................................................... 31
4.2 Notices and Consents........................................... 31
4.3 Company Stockholder Approval................................... 31
4.4 Cancellation and Exercise of Securities........................ 33
4.5 Exchange of Debentures......................................... 33
4.6 Operation of Business.......................................... 33
4.7 Full Access.................................................... 35
4.8 Notice of Breaches............................................. 36
4.9 Exclusivity.................................................... 36
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4.10 Pooling of Interests Accounting................................ 36
4.11 Listing of Merger Shares....................................... 37
4.12 Xxxxxx Arrangements............................................ 37
4.13 Intentionally Omitted.......................................... 37
4.14 Company Employees.............................................. 37
4.15 Indemnification of Directors and Officers...................... 37
4.16 Loan Agreement................................................. 38
ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations......................... 38
5.2 Conditions to Obligations of the Buyer
and the Transitory Subsidiary................................ 38
5.3 Conditions to Obligations of the Company....................... 40
ARTICLE VI - INDEMNIFICATION
6.1 Indemnification by the Indemnifying
Stockholders................................................. 42
6.2 Indemnification by the Buyer................................... 42
6.3 Method of Asserting Claims..................................... 42
6.4 Survival....................................................... 44
6.5 Limitations.................................................... 45
6.6 Indemnifying Debentureholders.................................. 45
ARTICLE VII - TERMINATION
7.1 Termination of Agreement....................................... 46
7.2 Effect of Termination.......................................... 46
ARTICLE VIII - DEFINITIONS
ARTICLE IX - MISCELLANEOUS
9.1 Press Releases and Announcements............................... 48
9.2 Entire Agreement............................................... 49
9.3 Succession and Assignment...................................... 49
9.4 Counterparts................................................... 49
9.5 Headings....................................................... 49
9.6 Notices........................................................ 49
9.7 Governing Law.................................................. 50
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9.8 Amendments and Waivers......................................... 50
9.9 Severability................................................... 51
9.10 Expenses....................................................... 51
Schedule 2.30 - Pooling Restrictions
Disclosure Schedule
Exhibit A - Buyer Note
Exhibit B - Registration Rights Agreement (Noteholders)
Exhibit C - Escrow Agreement
Exhibit D - Debentureholder Agreement
Exhibit E - Investment Representation Letter
Exhibit F - Affiliate Agreement
Exhibit G - Noncompetition Agreement (Employees)
Exhibit H - Noncompetition Agreement (Non-Employees)
Exhibit I - Estoppel Certificate
Exhibit J - Opinion of Xxxxxxx Xxxx & Friedrich
Exhibit K - Registration Rights Agreement (Stockholders)
Exhibit L - Opinion of Xxxx and Xxxx LLP
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AGREEMENT AND PLAN OF MERGER
Agreement entered into as of March 7, 1997 by and among American
Superconductor Corporation, a Delaware corporation (the "Buyer"), ASC Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of the Buyer (the
"Transitory Subsidiary"), and Superconductivity, Inc., a Delaware corporation
(the "Company"). The Buyer, the Transitory Subsidiary and the Company are
referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free (pursuant to Section 368 of the
Internal Revenue Code) merger of the Transitory Subsidiary into the Company. In
such merger, the stockholders of the Company will receive common stock of the
Buyer in exchange for their capital stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the Certificate of Merger prepared and executed
in accordance with the relevant provisions of the Delaware General Corporation
Law (the "Certificate of Merger") with the Secretary of State of the State of
Delaware. The Merger shall have the effects set forth in Section 259 of the
Delaware General Corporation Law.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx LLP
in Boston, Massachusetts, commencing at 9:00 a.m. local time on the date that is
two business days following the satisfaction (or waiver) of all of the
conditions set forth in Article V (other than the delivery of the closing
certificates and legal opinions) to the obligations of the Parties to consummate
the transactions contemplated hereby, or
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on such other date as is mutually agreeable to the Parties (the "Closing Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to
the Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) each holder of the outstanding 10% Subordinated
Convertible Debentures due January 31, 1998 of the Company (the "Debentures")
shall exchange the Debentures for promissory notes of the Buyer (the "Buyer
Notes") in substantially the form attached hereto as Exhibit A, in a principal
amount equal to the principal amount, plus all accrued and unpaid interest
through the Closing Date, of the Debentures for which the Buyer Notes are
exchanged, and the Buyer and the holders of the Debentures shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit B;
(d) the Company and the Transitory Subsidiary shall file with
the Secretary of State of the State of Delaware the Certificate of Merger;
(e) each of the stockholders of record of the Company
immediately prior to the Effective Time (the "Company Stockholders") shall
deliver to the Buyer the certificate(s) or instrument(s) representing his/her
Common Shares (as defined below);
(f) the Buyer shall deliver to each Company Stockholder
certificates for the Initial Shares (as defined in Section 1.5 below) into which
his/her Common Shares are converted in accordance with Section 1.5; and
(g) the Buyer, Xx. Xxxxxx X. Xxxx, Xx. and Xxxxxx X. Xxxxxxxx
(the "Indemnification Representatives") and State Street Bank and Trust Company
(the "Escrow Agent") shall execute and deliver the Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow Agreement") and the Buyer shall
deliver to the Escrow Agent a certificate for the Escrow Shares (as defined
below) being placed in escrow on the Closing Date pursuant to Section 1.8.
The Closing shall not be deemed to have occurred, and the Certificate of Merger
shall not be filed, unless and until all of the documents to be delivered
pursuant to this Section 1.3 have been so delivered.
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1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) Each share of common stock, $.01 par value per share, of
the Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares (as defined below) and Common
Shares held in the Company's treasury) shall be converted into and represent the
right to receive (subject to the provisions of Section 1.8) such number of
shares of common stock, $.01 par value per share, of the Buyer ("Buyer Common
Stock") as is equal to the Conversion Ratio. The "Conversion Ratio" shall be the
result obtained by dividing (x) $12.5 million (which represents $17.0 million
less agreed upon deductions for accrued liabilities of $4.5 million), minus the
Buyer Note Amount (as defined below) by (y) the higher of $9.925 (which
represents the average of the last reported sale prices per share of the Buyer
Common Stock on the Nasdaq National Market over the five trading days ending on
the second trading day prior to the date of this Agreement) or 85% of the
average of the last reported sale prices per share of the Buyer Common Stock on
the Nasdaq National Market over the five trading days ending on the second
trading day prior to the Closing Date, and then dividing such quotient by the
number of outstanding Common Shares immediately prior to the Effective Time. For
purposes of this Agreement, the "Buyer Note Amount" shall mean the aggregate
principal amount Buyer Notes issued in exchange for the Debentures pursuant to
Section 1.3(c).
(b) Company Stockholders shall be entitled to receive
immediately 90% of the shares of Buyer Common Stock into which their Common
Shares were converted pursuant to this Section 1.5 (the "Initial Shares"); the
remaining 10% of the shares of Buyer Common Stock into which Common Shares were
converted pursuant to this Section 1.5 (the "Escrow Shares") shall be deposited
in escrow pursuant to Section 1.8 and shall be held and disposed of in
accordance with the terms of the Escrow Agreement. The Initial Shares and the
Escrow Shares shall together be referred to herein as the "Merger Shares."
(c) Each Common Share held in the Company's treasury
immediately
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prior to the Effective Time shall be cancelled and retired without payment of
any consideration therefor.
(d) Each share of common stock, $.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Common Shares held as of the Effective Time by a Company Stockholder who has not
voted such Common Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the Delaware General Corporation Law
and not effectively withdrawn or forfeited prior to the Effective Time. If this
Agreement and the Merger were approved by a written consent of stockholders
pursuant to Section 228 of the Delaware General Corporation Law, any shares of
capital stock of the Company which were not voted in favor of the adoption of
this Agreement and the Merger in such written consent of stockholders shall be
considered "Dissenting Shares" until such time as the deadline for the demand of
appraisal rights pursuant to Section 262(d)(2) of the Delaware General
Corporation Law has passed without the holder of such shares submitting to the
Surviving Corporation a demand for appraisal of such shares or, if such a demand
was so submitted, until such demand has been effectively withdrawn or forfeited.
If a holder of Dissenting Shares withdraws or forfeits his or her appraisal
rights pursuant to Section 262 of the Delaware General Corporation Law or, in
the case of Dissenting Shares which are deemed to be such because the deadline
for submitting a demand for appraisal pursuant to Section 262(d)(2) of the
Delaware General Corporation Law has not yet passed, if a demand for appraisal
is not so submitted, such Dissenting Shares shall cease to be Dissenting Shares
for purposes of this Agreement. Dissenting Shares shall not be converted into or
represent the right to receive Merger Shares. If Dissenting Shares cease to be
Dissenting Shares, as provided above, then, upon the occurrence of such event,
(i) such shares shall thereupon be converted into and represent the right to
receive the Merger Shares issuable in respect of such shares pursuant to Section
1.5, and (ii) the Buyer shall deliver to such Company Stockholder a certificate
representing 90% of the Merger Shares into which such shares converted pursuant
to Section 1.5 (which shares shall be considered Initial Shares for all purposes
of this Agreement) and shall deliver to the Escrow Agent a certificate
representing the remaining 10% of the Merger Shares into which such shares
converted pursuant to Section 1.5 (which shares shall be considered Escrow
Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any
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written demands for appraisal of any Common Shares, withdrawals of such demands,
and any other instruments that relate to such demands received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the Delaware General Corporation Law. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Common Shares or offer to settle or
settle any such demands.
1.7 Fractional Shares. No certificates or script representing
fractional Initial Shares shall be issued to former Company Stockholders upon
the surrender for exchange of stock certificates formerly representing Common
Shares, and such former Company Stockholders shall not be entitled to any voting
rights, rights to receive any dividends or distributions or other rights as a
stockholder of the Buyer with respect to any fractional Initial Shares that
would otherwise be issued to such former Company Stockholders. In lieu of any
fractional Initial Shares that would otherwise be issued, each former Company
Stockholder that would have been entitled to receive a fractional Initial Share
shall, upon proper surrender of such person's certificates formerly representing
Common Shares, receive such whole number of Initial Shares as is equal to the
precise number of Initial Shares to which such person would be entitled, rounded
up or down to the nearest whole number (with a fractional interest equal to .5
rounded to the nearest odd number).
1.8 Escrow. On the Closing Date, the Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, for the purpose of securing the indemnification
obligations of the Company Stockholders set forth in this Agreement. The Escrow
Shares shall be held by the Escrow Agent under the Escrow Agreement pursuant to
the terms thereof. The Escrow Shares shall be held as a trust fund and shall not
be subject to any lien, attachment, trustee process or any other judicial
process of any creditor of any party, and shall be held and disbursed solely for
the purposes and in accordance with the terms of the Escrow Agreement. Each
Company Stockholder shall have rights to vote, to receive dividends or other
similar distributions and to receive a distribution of the Escrow Shares in the
manner and proportion provided for in Article VI and the Escrow Agreement.
1.9 Options and Warrants.
(a) As of the Effective Time, each option to purchase Common
Shares outstanding under the Company's 1988 Stock Option Plan (an "Option"),
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whether vested or unvested, shall be assumed by the Buyer, and shall be deemed
to constitute an option under the Buyer's 1996 Stock Incentive Plan to acquire,
on the same terms and conditions as were applicable under such Option at the
Effective Time, such number of shares of Buyer Common Stock as is equal to the
number of Common Shares subject to the unexercised portion of such Option
multiplied by the Conversion Ratio (with any fraction resulting from such
multiplication to be rounded down to the nearest whole number). The exercise
price per share of each such assumed Option shall be equal to the exercise price
of such Option immediately prior to the Effective Time, divided by the
Conversion Ratio. The term, exercisability, vesting schedule, and all of the
other terms of the Options shall otherwise remain unchanged.
(b) Within 15 days after the Closing Date, the Buyer shall
deliver to the holders of Options an appropriate notice setting forth such
holders' rights pursuant to such Options, as amended by this Section 1.9, and
the agreements evidencing such Options shall continue in effect on the same
terms and conditions (subject to the amendments provided for in this Section 1.9
and such notice).
(c) The Company shall obtain, prior to the Closing, the
consent from each holder of an Option to the amendment of such Option pursuant
to this Section 1.9 (unless such consent is not required under the terms of the
applicable agreement, instrument or plan).
(d) As of the Effective Time, the warrants issued to Xxxxxxx
Xxxxxxxxx and Xxxxx Xxxxx, each dated December 15, 1993 and covering 5,000
Common Shares shall be assumed by the Buyer in accordance with its terms and
shall be deemed to constitute a warrant to acquire, on the same terms and
conditions as were applicable under such warrant at the Effective Time, such
number of shares of Buyer Common Stock as is equal to the number of Common
Shares subject to the unexercised portion of such warrant multiplied by the
Conversion Ratio (with any fraction resulting from such multiplication to be
rounded to the nearest whole number). The exercise price per share of each such
assumed warrant shall be equal to the exercise price of such warrant immediately
prior to the Effective Time, divided by the Conversion Ratio. The other terms of
such warrants shall otherwise remain unchanged. Within 15 days after the Closing
Date, the Buyer shall deliver to the holders of such warrants an appropriate
notice setting forth such holders' rights pursuant to such warrants, as amended
by this Section 1.9, and the instruments evidencing such warrants shall continue
in effect on the same terms and conditions (subject to the amendments provided
for in this Section 1.9 and such notice).
1.10 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation shall be the same as the Certificate of Incorporation
of the Transitory Subsidiary immediately prior to the Effective Time, except
that the name of the corporation set forth therein shall be changed to the name
of the Company.
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1.11 By-laws. The By-laws of the Surviving Corporation shall be the
same as the By-laws of the Transitory Subsidiary immediately prior to the
Effective Time, except that the name of the corporation set forth therein shall
be changed to the name of the Company.
1.12 Directors and Officers. The directors of the Transitory Subsidiary
shall become the directors of the Surviving Corporation as of the Effective
Time. The officers of the Company shall remain as officers of the Surviving
Corporation after the Effective Time, retaining their respective positions,
except as specified by the Buyer pursuant to Section 5.2.
1.13 No Further Rights. From and after the Effective Time, no Common
Shares shall be deemed to be outstanding, and holders of certificates formerly
representing Common Shares shall cease to have any rights with respect thereto,
except as provided herein or by law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Disclosure Schedule"). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify other paragraphs in this
Article II only to the extent it is clear from a reading of the disclosure that
such disclosure is applicable to such other paragraphs. Any matter which is
accurately and adequately disclosed on the Disclosure Schedule as an exception
to the representations and warranties herein contained may not be used by the
Buyer as the basis for any claim for breach of a representation or warranty
under Article VI hereof. As used herein, the term "knowledge of the Company" or
any similar phrase shall mean the actual knowledge of any one or more of the
officers or directors of the Company.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its
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properties requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the assets, business,
financial condition or results of operations of the Company and the Subsidiaries
(as defined below), taken as a whole. The Company has all requisite corporate
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. True and complete copies of the
Company's Certificate of Incorporation and By-laws, each as amended and as in
effect on the date hereof, are set forth in Section 2.1 of the Disclosure
Schedule. The Company is not in default under or in violation of any provision
of its Certificate of Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the Company
consists of (a) 7,500,000 Common Shares, of which 496,136 shares are issued and
outstanding, and (b) 4,000,000 shares of Preferred Stock, $.01 par value per
share, of which 451,860 shares are designated as Series A Convertible Preferred
Stock (all of which are issued and outstanding), 472,250 shares are designated
as Series B Convertible Preferred Stock (all of which are issued and
outstanding), 500,067 shares are designated as Series C Convertible Preferred
Stock (all of which are issued and outstanding), 200,000 shares are designated
as Series D Convertible Preferred Stock (all of which are issued and
outstanding), 490,491 shares are designated as Series E Convertible Preferred
Stock (all of which are issued and outstanding), and 1,500,000 shares are
designated as Series F Convertible Preferred Stock (none of which are issued and
outstanding). The Disclosure Schedule sets forth a complete and accurate list of
(i) all stockholders of the Company, indicating the number of shares, and class
or series of stock, held by each stockholder and (for shares other than Common
Shares) the number of Common Shares into which such shares are convertible, (ii)
all holders of Options, including the number of Common Shares subject to each
Option and the exercise price per share of each Option, (iii) all holders of
Debentures, including the principal amount of and the amount of accrued interest
on the Debentures held by each such holder and (iv) all holders of any other
agreements or instruments evidencing the right to acquire shares of stock of the
Company (including without limitation warrants and convertible debentures), the
number of shares, and class or series of stock, covered by each such agreement
or instrument, and the exercise or conversion price of each such agreement or
instrument. All of the issued and outstanding shares of capital stock of the
Company are, and all shares that may be issued upon exercise or conversion of
Options will be, duly authorized, validly issued, fully paid, nonassessable
(except as provided in Wisconsin Statutes Section 180.0622) and free of all
preemptive rights. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company. There are no
agreements, voting trusts, proxies, or understandings with respect to the
voting, or registration under the Securities Act of 1933, as amended (the
"Securities Act"), of any shares of capital stock of the Company. All of the
issued and outstanding shares of capital stock of the Company were issued in
compliance with applicable federal and state securities laws.
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2.3 Authorization of Transaction. The Company has all requisite power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by the Company of this
Agreement and, subject to (i) the adoption of this Agreement and the approval of
the Merger (the "Merger Proposal") by a majority of the votes represented by the
outstanding shares of capital stock of the Company entitled to vote on this
Agreement and the Merger and (ii) the approval of the mandatory conversion of
all outstanding shares of Preferred Stock of the Company into Common Shares,
effective immediately prior to the Effective Time, pursuant to Section
B.6(a)(ii) of Article Fourth of the Company's Certificate of Incorporation (the
"Preferred Stock Conversion") by the holders of 75% of the outstanding shares of
Preferred Stock, the performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. The Board of Directors of the Company, at a meeting duly called and
held, has by the unanimous vote of all directors present (i) adopted this
Agreement in accordance with the provisions of the Delaware General Corporation
Law and approved the transactions contemplated by this Agreement, and (ii)
directed that the Merger Proposal and the Preferred Stock Conversion be
submitted to the stockholders of the Company for their adoption and approval and
resolved to recommend that stockholders of the Company vote in favor of the
adoption of this Agreement and the approval of the Merger. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2.4 Noncontravention. Subject to the filing of the Certificate of
Merger as required by the Delaware General Corporation Law, neither the
execution and delivery of this Agreement by the Company, nor the consummation by
the Company of the transactions contemplated hereby, will (a) conflict with or
violate any provision of the Certificate of Incorporation or By-laws of the
Company, (b) require on the part of the Company or any Subsidiary any filing
with, or any permit, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which
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the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of their assets is subject, (d) result in
the imposition of any Security Interest upon any assets of the Company or any
Subsidiary or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any Subsidiary or any of their properties
or assets. For purposes of this Agreement, "Subsidiary" means any corporation
with respect to which the Company, directly or indirectly, has the power to vote
or direct the voting of sufficient securities to elect a majority of the
directors. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge, or other lien (whether
arising by contract or by operation of law), other than (i) mechanic's,
materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice (including with respect to
frequency and amount) ("Ordinary Course of Business") of the Company and not
material to the Company.
2.5 Subsidiaries. Section 2.5 of the Disclosure Schedule sets forth for
each Subsidiary (a) its name and jurisdiction of incorporation, (b) the number
of issued and outstanding shares of each class of its capital stock, the names
of the holders thereof and the number of shares held by each such holder, and
(c) the names of its directors and officers. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the assets, business,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole. Each Subsidiary has all requisite corporate
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. Correct and complete copies of the
charter and By-laws of each Subsidiary, as amended to date, are included in
Section 2.5 of the Disclosure Schedule. No Subsidiary is in default under or in
violation of any provision of its charter or By-laws. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable (except as provided in Wisconsin
Statutes Section 180.0622) and free of preemptive rights. All shares of capital
stock of each Subsidiary are held of record and owned beneficially by either the
Company or another Subsidiary, and are held and owned free and clear of any
Security Interests. There are no outstanding or authorized options, warrants,
rights, agreements or commitments to which the Company or any Subsidiary is a
party or which are binding on any of them providing for the issuance,
disposition or acquisition of any capital stock of any Subsidiary. There are no
outstanding stock appreciation, phantom stock or similar
16
rights with respect to any Subsidiary. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of any capital
stock of any Subsidiary. The Company does not control directly or indirectly or
have any direct or indirect equity participation in any corporation,
partnership, trust, or other business association which is not a Subsidiary.
2.6 Financial Statements. The Company has provided to the Buyer its
audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows for each of the fiscal years ended December
31, 1994, 1995 and 1996. Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company and the
Subsidiaries as of the respective dates thereof and for the periods referred to
therein, and are consistent with the books and records of the Company and the
Subsidiaries.
2.7 Absence of Certain Changes. Since December 31, 1996, (a) there has
not been any material adverse change in the assets, business, financial
condition or results of operations of the Company and the Subsidiaries, taken as
a whole, nor has there occurred any event or development which could reasonably
be foreseen to result in such a material adverse change in the future, and (b)
neither the Company nor any Subsidiary has taken any of the actions set forth in
clauses (a) through (o) of Section 4.6.
2.8 Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liability except for (a) liabilities shown on the December
31, 1996 balance sheet referred to in clause (b) of Section 2.6 above (the
"December Balance Sheet"), (b) liabilities which have arisen since December 31,
1996 and which are similar in nature and amount to the liabilities which arose
during the comparable period of time in the immediately preceding fiscal period
and (c) contractual liabilities incurred in the Ordinary Course of Business
which are not required by GAAP to be reflected on a balance sheet. Without
limiting the generality of the foregoing, the Company has no liabilities
(whether accrued, contingent or otherwise) relating to the unsuccessful merger
transaction with Silcon Power Electronics A/S that are not fully reflected on
the December Balance Sheet.
17
2.9 Tax Matters.
(a) The Company and the Subsidiaries have filed all Tax
Returns (as defined below) required to be filed and all such Tax Returns were
correct and complete in all material respects. The Company and the Subsidiaries
have paid all Taxes (as defined below) due on or before the date hereof
(including any that are shown to be due on any such Tax Returns). The unpaid
Taxes of the Company and the Subsidiaries for tax periods through December 31,
1996 do not exceed the accruals and reserves for Taxes set forth on the December
Balance Sheet. Neither the Company nor any Subsidiary has any actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Company or any Subsidiary during a prior period) other than the Company and
the Subsidiaries. All Taxes that the Company or any Subsidiary is or was
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Entity. For
purposes of this Agreement, "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without limitation income,
gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, payroll,
unemployment insurance, social security, business license, occupation, business
organization, stamp, environmental and franchise taxes imposed by the United
States of America or any state, local or foreign government, or any agency
thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof. For purposes of this Agreement, "Tax Returns" means
all reports, returns, declarations, statements or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by any of the Company
or any Subsidiary since January 1, 1991. No federal income Tax Returns of the
Company have been audited by the Internal Revenue Service, but all such returns
are closed by the applicable statute of limitations for all taxable years
through 1990. No examination or audit of any Tax Returns of the Company or any
Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of the Company and the Subsidiaries, threatened or contemplated.
Neither the Company nor any Subsidiary has waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Internal Revenue Code
of 1986 (as amended, the "Code"), and none of the assets of the Company or the
Subsidiaries are subject to an election under Section 341(f) of the Code.
Neither the Company nor any Subsidiary has been a United States real property
holding corpora-
18
tion within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(l)(A)(ii) of the Code. Neither the Company
nor any Subsidiary is a party to any Tax allocation or sharing agreement.
(d) Neither the Company nor any Subsidiary is or has ever been
a member of an "affiliated group" of corporations (within the meaning of Section
1504 of the Code), other than a group of which only the Company and the
Subsidiaries are members. Neither the Company nor any Subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither the Company nor any
Subsidiary is or has been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2(b).
(e) The Company has not agreed to make, nor is it required to
make, any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise (except as may be required pursuant to the
Merger). The Company has not participated in an international boycott within the
meaning of Section 999 of the Code.
2.10 Assets. Each of the Company and the Subsidiaries owns or leases
all tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Such tangible assets are
free from material defects, have been maintained in accordance with normal
industry practice, and are in good operating condition and repair (subject to
normal wear and tear). No asset of the Company (tangible or intangible) is
subject to any Security Interest.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns
any real property.
2.12 Intellectual Property.
(a) Each of the Company and the Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks and copyrights, schematics,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material (collectively, "Intellectual
Property") that are or have been used to conduct its business as currently
conducted. Section 2.12 of the Disclosure Schedule lists (i) all patents and
patent applications and all trademarks, registered copyrights, trade names and
service marks which are owned by the Company or the
19
Subsidiaries, including the jurisdictions in which each such Intellectual
Property right has been issued or registered or in which any such application
for such issuance or registration has been filed, (ii) all material written
licenses, sublicenses and other agreements to which the Company or a Subsidiary
is a party and pursuant to which any person is authorized to use any
Intellectual Property rights, and (iii) all material written licenses,
sublicenses and other agreements as to which the Company or a Subsidiary is a
party and pursuant to which the Company or a Subsidiary is authorized to use any
third party patents, trademarks or copyrights, including software ("Third Party
Intellectual Property Rights") which are used in the business of the Company or
a Subsidiary or which form a part of any product or service of the Company or a
Subsidiary. Neither the Company nor any Subsidiary is a party to any oral
license, sublicense or agreement which, if reduced to written form, would be
required to be listed in Section 2.12 of the Disclosure Schedule under the terms
of this Section 2.12(a).
(b) Neither the Company nor any of the Subsidiaries has been
named in any suit, action or proceeding which involves a claim of infringement
of any Intellectual Property right of any third party. The business and
operations of the Company and the Subsidiaries do not infringe any Intellectual
Property right of any third party; and to the knowledge of the Company and the
Subsidiaries, the Intellectual Property rights of the Company and the
Subsidiaries are not being infringed by the business, operations or products of
any third party.
2.13 Inventory. All inventory of the Company and the Subsidiaries
consists of a quality and quantity usable in the Ordinary Course of Business.
All inventories not written-off or reserved against have been priced at cost on
a first-in, first-out basis.
2.14 Real Property Leases. Section 2.14 of the Disclosure Schedule
lists all real property leased or subleased to the Company or any Subsidiary and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder. Correct and complete copies of the leases and subleases (as
amended to date) are included in Section 2.14 of the Disclosure Schedule. With
respect to each lease and sublease listed in Section 2.14 of the Disclosure
Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(c) neither the Company or any Subsidiary nor, to the
knowledge of the Company, any other party to the lease or sublease is in breach
or default, and, to
20
the knowledge of the Company, no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(d) there are no material disputes, oral agreements or
forbearance programs in effect as to the lease or sublease; and
(e) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold.
2.15 Contracts. Section 2.15 of the Disclosure Schedule lists the
following written agreements to which the Company or any Subsidiary is a party:
(a) any written agreement (or group of related written
agreements) for the lease of personal property from or to third parties
providing for lease payments in excess of $15,000 per annum;
(b) any written agreement (or group of related written
agreements) for the purchase or sale of raw materials, commodities, supplies,
products or other personal property or for the furnishing or receipt of services
(i) which calls for performance over a period of more than one year, (ii) which
involves more than the sum of $15,000, or (iii) under which the Company or any
Subsidiary has agreed to purchase a minimum quantity of goods or services or has
agreed to purchase goods or services exclusively from a certain party;
(c) any written agreement establishing a partnership or joint
venture;
(d) any written agreement (or group of related written
agreements) under which it has created, incurred, assumed, or guaranteed (or may
create, incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $15,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(e) any written agreement concerning confidentiality or
noncompetition;
(f) any written agreement involving any affiliate (an
"Affiliate"), as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the
21
"Exchange Act"), of the Company; and
(g) any other written agreement under which the consequences
of a default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of the
Company or any Subsidiary.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.15 of the
Disclosure Schedule. With respect to each written arrangement so listed: (i) the
written arrangement is legal, valid, binding and enforceable and in full force
and effect; (ii) the written arrangement will continue to be legal, valid,
binding and enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
and (iii) neither the Company or any Subsidiary nor, to the knowledge of the
Company, any other party thereto is in breach or default, and, to the knowledge
of the Company, no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the written arrangement. Neither the Company nor any
Subsidiary is a party to any oral contract or other arrangement or commitment of
the nature described in this Section 2.15.
2.16 Accounts Receivable. All accounts receivable of the Company and
the Subsidiaries reflected on the December Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and collectible (within
90 days after the date on which it first became due and payable), net of the
applicable reserve for bad debts on the December Balance Sheet. All accounts
receivable reflected in the financial or accounting records of the Company that
have arisen since December 31, 1996 are valid receivables subject to no setoffs
or counterclaims and are collectible, net of a reserve for bad debts in an
amount proportionate to the reserve shown on the December Balance Sheet.
2.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary.
2.18 Insurance. Section 2.18 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including fire,
theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Company or any Subsidiary has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past three years:
(a) the name of the insurer, the name of the policyholder and
the name of each covered insured;
22
(b) the policy number and the period of coverage; and
(c) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage.
(i) To the knowledge of the Company, each such insurance policy is enforceable
and in full force and effect and will continue to be enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing; (ii) neither the Company nor any
Subsidiary is in breach or default (including with respect to the payment of
premiums or the giving of notices) under such policy, and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration, under such policy;
and (iii) neither the Company nor any Subsidiary has received any notice from
the insurer disclaiming coverage or reserving rights with respect to a
particular claim or such policy in general. The Company is covered by insurance
in scope and amount customary and reasonable for the business in which it is
engaged. The Subsidiary is not covered by insurance.
2.19 Litigation. Section 2.19 of the Disclosure Schedule identifies,
and contains a brief description of, (a) any unsatisfied judgement, order,
decree, stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of, in or before any court, Governmental
Entity or arbitrator to which the Company or any Subsidiary is a party or, to
the knowledge of the Company and the Subsidiaries, is threatened to be made a
party.
2.20 Product Warranty. No product manufactured, sold, leased, licensed
or delivered by the Company or any Subsidiary is subject to any guaranty,
warranty or other indemnity beyond the Company's standard warranty, which is set
forth in Section 2.20 of the Disclosure Schedule.
2.21 Employees. Section 2.21 of the Disclosure Schedule contains a list
of all employees of the Company and each Subsidiary, along with the position and
the annual rate of compensation of each such person. Each employee who has not
entered into the Company's standard form of confidentiality or assignment of
inventions agreement with the Company or a Subsidiary, a copy of which has
previously been delivered to the Buyer, is listed in Section 2.21 of the
Disclosure Schedule. To the knowledge of the Company and its Subsidiaries, no
key employee or group of employees has any plans to terminate employment with
the Company or
23
any Subsidiary. Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company and the Subsidiaries have no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company or any Subsidiary.
2.22 Employee Benefits.
(a) Section 2.22(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as defined below)
maintained, or contributed to, by the Company, any Subsidiary, or any ERISA
Affiliate (as defined below). For purposes of this Agreement, "Employee Benefit
Plan" means any "employee pension benefit plan" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and any
other written or oral plan, agreement or arrangement involving direct or
indirect compensation, including without limitation insurance coverage,
severance benefits, disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation. For purposes of this
Agreement, "ERISA Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(ii) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (iii) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the Code),
any of which includes the Company or a Subsidiary. Complete and accurate copies
of (i) all Employee Benefit Plans which have been reduced to writing, (ii)
written summaries of all unwritten Employee Benefit Plans, (iii) all related
trust agreements, insurance contracts and summary plan descriptions, and (iv)
all annual reports filed on IRS Form 5500, 5500C or 5500R (to the extent any
such reports were required) for the last five plan years for each Employee
Benefit Plan, have been delivered to the Buyer. Each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and each
of the Company, the Subsidiaries and the ERISA Affiliates has in all material
respects met its obligations with respect to each Employee Benefit Plan and has
made all required contributions thereto. The Company and all Employee Benefit
Plans are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder.
(b) There are no (i) suits, proceedings or other claims
(except claims for benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders), pending, or (ii) to the knowledge of the Company, investigations by any
Governmental Entity in process, against or involving, any Employee Benefit Plan
or asserting any rights or
24
claims to benefits under any Employee Benefit Plan that could give rise to any
material liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation thereof has
not been threatened, and no such Employee Benefit Plan has been amended since
the date of its most recent determination letter or application therefor in any
respect, and, to the knowledge of the Company, no act or omission has occurred,
that would adversely affect its qualification or materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of
the Code or Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multi-employer plan" (as defined
in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code and insurance conversion privileges under state law.
(g) No act or omission has occurred on the part of the Company
or, to the knowledge of the Company, on the part of any other party, and, to the
knowledge of the Company, no condition exists with respect to any Employee
Benefit Plan maintained by the Company, any Subsidiary or any ERISA Affiliate
that would subject the Company, any Subsidiary or any ERISA Affiliate to any
material fine, penalty, tax or liability of any kind imposed under ERISA or the
Code.
(h) No Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
25
(i) No Employee Benefit Plan by its terms prohibits the
Company from amending or terminating any such Employee Benefit Plan.
(j) Section 2.22(j) of the Disclosure Schedule discloses each:
(i) agreement with any director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may receive
payments from the Company or any Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person's "parachute payment" under Section 280G of the Code; and (iii) agreement
or plan binding the Company or any Subsidiary, including without limitation any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
2.23 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with
all applicable Environmental Laws (as defined below). There is no pending or, to
the knowledge of the Company and the Subsidiaries, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Company or any Subsidiary. For
purposes of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment or occupational health and safety, including without limitation any
statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of
26
employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Compensation, Liability and Response Act of
1980.
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility formerly or currently owned, operated or
controlled by the Company or a Subsidiary. Neither the Company nor any
Subsidiary has knowledge of any releases of Materials of Environmental Concern
at parcels of real property or facilities other than those owned, operated or
controlled by the Company or a Subsidiary that could reasonably be expected to
result in liability to the Company or a Subsidiary. For purposes of this
Agreement, "Materials of Environmental Concern" means any chemicals, pollutants
or contaminants, hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined under the federal
Resources Conservation and Recovery Act), toxic materials, oil or petroleum and
petroleum products, or any other material subject to regulation under any
Environmental Law.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule is
a list of all environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or a
Subsidiary (whether conducted by or on behalf of the Company or a Subsidiary or
a third party, and whether done at the initiative of the Company or a Subsidiary
or directed by a Governmental Entity or other third party) which the Company has
possession of or access to. Complete and accurate copies of each such report, or
the results of each such investigation or audit, have been provided to the
Buyer.
(d) Set forth in Section 2.23(d) of the Disclosure Schedule is
a list of all of the solid and hazardous waste transporters and treatment,
storage and disposal facilities that have been utilized by the Company or a
Subsidiary since January 1, 1991. The Company has no knowledge of any material
environmental liability of any such transporter or facility.
2.24 Legal Compliance. Each of the Company and the Subsidiaries, and
the conduct and operations of their respective businesses, are in compliance
with each law (including rules and regulations thereunder) of any federal,
state, local or foreign
27
government, or any Governmental Entity, which (a) affects or relates to this
Agreement or the transactions contemplated hereby or (b) is applicable to the
Company or such Subsidiary or business, except for any violation of or default
under a law referred to in clause (b) above which would not reasonably be
foreseen to result in a material adverse change in the assets, business,
financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole.
2.25 Permits. Section 2.25 of the Disclosure Schedule sets forth a list
of all permits, licenses, registrations, certificates, orders or approvals from
any Governmental Entity (including without limitation those issued or required
under Environmental Laws and those relating to the occupancy or use of owned or
leased real property) ("Permits") issued to or held by the Company or any
Subsidiary. Such listed Permits are the only Permits that are required for the
Company and the Subsidiaries to conduct their respective businesses as presently
conducted or as proposed to be conducted, except for those the absence of which
would not have any material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the Company and the
Subsidiaries. Each such Permit is in full force and effect and, to the best of
the knowledge of the Company or any Subsidiary, no suspension or cancellation of
such Permit is threatened. Each such Permit will continue in full force and
effect following the Closing.
2.26 Certain Business Relationships With Affiliates. Section 2.26 of
the Disclosure Schedule sets forth a list of the Affiliates of the Company. No
Affiliate of the Company or of any Subsidiary (a) owns any property or right,
tangible or intangible, which is used in the business of the Company or any
Subsidiary, (b) has any claim or cause of action against the Company or any
Subsidiary, or (c) owes any money to the Company or any Subsidiary. Section 2.26
of the Disclosure Schedule describes any transactions or relationships between
the Company and any Affiliate thereof which are reflected in the statements of
operations of the Company included in the Financial Statements.
2.27 Brokers' Fees. Neither the Company nor any Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement, other
than the obligation to X.X. Xxxxxx Securities Inc. ("X.X. Xxxxxx") described in
Section 2.27 of the Disclosure Schedule.
2.28 Books and Records. The minute books and other similar records of
the Company and each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting.
2.29 Customers and Suppliers. No purchase order or commitment of the
28
Company or any Subsidiary is, in the judgment of the Company, in excess of
normal requirements, nor, to the knowledge of the Company, are prices provided
therein in excess of current market prices for the products or services to be
provided there under. No material supplier of the Company or any Subsidiary has
indicated within the past year that it will stop, or decrease the rate of,
supplying materials, products or services to them and no material customer of
the Company or any Subsidiary has indicated within the past year that it will
stop, or decrease the rate of, buying, leasing or licensing products from them.
Section 2.29 of the Disclosure Schedule sets forth a list of (a) each customer
that accounted for more than 1% of the consolidated revenues of the Company
during the last full fiscal year or the nine months ended December 31, 1996 and
the amount of revenues accounted for by such customer during each such period
and (b) each supplier that is the sole supplier of any significant product or
component to the Company or a Subsidiary.
2.30 Pooling. To the best knowledge of the Company, neither the Company
nor any of its Affiliates has through the date of this Agreement taken or agreed
to take any action set forth on Schedule 2.30 attached hereto since March 31,
1994.
2.31 Tax Matters.
(a) The fair market value of the Merger Shares received by the
Company Stockholders will be approximately equal to the fair market value of the
Common Shares surrendered in the exchange therefor.
(b) Immediately following the Merger, the Surviving
Corporation will hold, to the knowledge of the Company, at least 90% of the fair
market value of the Company's net assets and at least 70% of the fair market
value of the Company's gross assets and at least 90% of the fair market value of
the Transitory Subsidiary's net assets and at least 70% of the fair market value
of the Transitory Subsidiary's gross assets held immediately prior to the
Effective Time. For purposes of this representation, amounts paid by the Company
to holders of Dissenting Shares, amounts paid by the Company of the Transitory
Subsidiary to stockholders who receive cash or other property in the Merger,
amounts used by the Company or the Transitory Subsidiary to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be included as assets of the Company or the
Transitory Subsidiary, respectively, immediately prior to the Effective Time.
For purposes of this representation, the value of the Merger Shares issued in
the Merger will not be included in the value of the Company's or the Transitory
Subsidiary's assets.
29
(c) Subject to Section 9.10 below, the Company and the Company
Stockholders will pay their respective expenses, if any, incurred in connection
with the transaction.
(d) There is no intercorporate indebtedness existing between
the Buyer and the Company or between the Transitory Subsidiary and the Company
that was issued, acquired, or will be settled at a discount.
(d) In the Merger, shares of stock of the Company representing
control of the Company, as defined in Section 368(c) of the Code, will be
exchanged solely for Buyer Common Stock. For purposes of this representation,
shares of stock of the Company exchanged for cash or other property originating
with the Buyer will be treated as outstanding stock of the Company on the date
of the Merger.
(e) At the Effective Time, the Company will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in the Company that, if
exercised or converted, would affect Buyer's acquisition of or retention of
control of the Company, as defined in Section 368(c) of the Code.
(f) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(g) None of the compensation received by any
shareholder-employee of the Company from the Company has been separate
consideration for, or allocable to, any of their shares of stock of the Company;
and none of the Merger Shares received by any shareholder-employee of the
Company will be separate consideration for, or allocable to, any employment
agreement.
(h) With respect to the Escrow Agreement:
(i) there is a valid business reason for
establishing the Escrow Agreement;
(ii) all cash dividends paid on the Escrow Shares
will be distributed currently to the Company
Stockholders;
(iii) all voting rights of the Escrow Shares will
exercisable by or on behalf of the Company
Stockholders pursuant to the terms of the
Escrow Agreement;
(iv) no Escrow Shares will be subject to
restrictions requiring their return to the
Buyer because of death, failure to continue
employment or similar circumstances;
30
(v) all Escrow Shares will be released from
escrow after one year from the date of this
Agreement except where there is a bona fide
dispute as to whom the stock should be
released to); and
(vi) Escrow Shares will be released from escrow
only pursuant to the terms of the Escrow
Agreement.
(i) In the event of a return of any or all of the Escrow
Shares to Buyer, such return will be based on the value of the Escrow Shares on
the date of this Agreement and the Company Stockholders will not have the right
to substitute other property for the Escrow Shares.
2.32 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered to or to be delivered
by or on behalf of the Company pursuant to this Agreement, and no other
statement made by the Company or any of its representatives in connection with
this Agreement, contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. Each of the Buyer and the Transitory
Subsidiary is duly qualified to conduct business and is in corporate and tax
good standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the assets, business, financial condition or results
of operations of the Buyer. Each of the Buyer and the Transitory Subsidiary has
all requisite corporate power and authority to carry on the businesses
31
in which it is engaged and to own and use the properties owned and used by it.
The Buyer has furnished to the Buyer true and complete copies of the Certificate
of Incorporation and By-laws, each as amended and as in effect on the date
hereof, of each of the Buyer and the Transitory Subsidiary. Neither the Buyer
nor the Transitory Subsidiary is in default under or in violation of any
provision of its Certificate of Incorporation or By-laws.
3.2 Capitalization. The authorized capital stock of the Buyer consists
of 20,000,000 shares of Buyer Common Stock, of which 9,562,057 shares were
issued and outstanding as of December 31, 1996. All of the issued and
outstanding shares of Buyer Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. All of the Merger
Shares will be, when issued in accordance with this Agreement, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Buyer and the Transitory Subsidiary, the performance by
the Buyer and the Transitory Subsidiary of this Agreement and the consummation
by the Buyer and the Transitory Subsidiary of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Buyer and Transitory Subsidiary. This Agreement has been duly
and validly executed and delivered by the Buyer and the Transitory Subsidiary
and constitutes a valid and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, and
the filing of the Certificate of Merger as required by the Delaware General
Corporation Law, neither the execution and delivery of this Agreement by the
Buyer or the Transitory Subsidiary, nor the consummation by the Buyer or the
Transitory Subsidiary of the transactions contemplated hereby, will (a) conflict
or violate any provision of the Certificate of Incorporation or By-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or the
Transitory Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (c) conflict with, result in breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer or
Transitory Subsidiary is a party or by which either is bound or to which any of
their assets are subject, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation
32
applicable to the Buyer or the Transitory Subsidiary or any of their properties
or assets.
3.5 Reports and Financial Statements. The Buyer has previously
furnished to the Company complete and accurate copies, as amended or
supplemented, of its (a) Annual Report on Form 10-K for the fiscal years ended
March 31, 1994, 1995 and 1996, as filed with the Securities and Exchange
Commission (the "SEC"), and (b) all other reports filed by the Buyer under
Section 13 of the Exchange Act with the SEC since March 31, 1996 (such reports
are collectively referred to herein as the "Buyer Reports"). The Buyer Reports
constitute all of the documents required to be filed by the Buyer under Section
13 of the Exchange Act with the SEC since March 31, 1996. As of their respective
dates, the Buyer Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, (ii) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
3.6 Absence of Material Adverse Changes. Since December 31, 1996, there
has not been any material adverse change in the assets, business, financial
condition or results of operations of the Buyer, nor has there occurred any
event or development which could reasonably be foreseen to result in such a
material adverse change in the future.
3.7 Litigation. Neither the Buyer nor the Transitory Subsidiary is a
party to or, to the knowledge of the Buyer, is threatened to be made a party to
(a) any unsatisfied judgment, order, decree, stipulation or injunction or (b)
any claim, complaint, action, suit, proceeding, hearing or investigation of, in
or before any court, Governmental Entity or arbitrator which could reasonably be
foreseen to result in a material adverse change in the assets, business,
financial condition or results of operations of the Buyer.
33
3.8 Legal Compliance. The Buyer, and the conduct and operations of its
business, are in compliance with each law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Buyer or its
business, except for any violation of or default under a law referred to in
clause (b) above which would not reasonably be foreseen to result in a material
adverse change in the assets, business, financial condition or results of
operations of the Buyer.
3.9 Operations of Transitory Subsidiary. The Transitory Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement and has engaged in no activities or operations other than those
contemplated by this Agreement.
3.10 Tax Matters.
(a) The fair market value of the Merger Shares received by the
Company Stockholders will be approximately equal to the fair market value of the
Common Shares surrendered in the exchange therefor.
(b) Immediately following the Merger, the Surviving
Corporation will hold, to the knowledge of the Buyer, at least 90% of the fair
market value of the Company's net assets and at least 70% of the fair market
value of the Company's gross assets and at least 90% of the fair market value of
the Transitory Subsidiary's net assets and at least 70% of the fair market value
of the Transitory Subsidiary's gross assets held immediately prior to the
Effective Time. For purposes of this representation, amounts paid by the Company
to holders of Dissenting Shares, amounts paid by the Company of the Transitory
Subsidiary to stockholders who receive cash or other property in the Merger,
amounts used by the Company or the Transitory Subsidiary to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be included as assets of the Company or the
Transitory Subsidiary, respectively, immediately prior to the Effective Time.
For purposes of this representation, the value of the Merger Shares issued in
the Merger will not be included in the value of the Company's or the Transitory
Subsidiary's assets.
(c) Prior to the Merger, the Buyer will be in control of the
Transitory Subsidiary within the meaning of Section 368(c) of the Code.
(d) The Buyer has no plan or intention to cause the Company to
issue additional shares of its stock that would result in the Buyer losing
control of the Company within the meaning of Section 368(c) of the Code.
(e) The Buyer has no plan or intention to reacquire any of the
34
Merger Shares issued in the Merger (except possibly pursuant to the Escrow
Agreement).
(f) The Buyer has no plan or intention to liquidate the
Company; to merge the Company with or into another corporation; to sell or
otherwise dispose of the stock of the Company except for transfers of stock to
corporations controlled by Buyer; or to cause the Company to sell or otherwise
dispose of any of its assets or of any of the assets acquired from Transitory
Subsidiary, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by the Company.
(g) The Transitory Subsidiary will have no liabilities assumed
by the Company, and will not transfer to the Company as part of the Merger any
assets subject to liabilities.
(h) Following the Merger, the Company will continue its
historic business or use a significant portion of its historic business assets
in a business.
(i) Subject to Section 9.10 below, the Buyer and Transitory
Subsidiary will pay their respective expenses, if any, incurred in connection
with the transaction.
(j) There is no intercorporate indebtedness existing between
the Buyer and the Company or between the Transitory Subsidiary and the Company
that was issued, acquired, or will be settled at a discount.
(k) In the Merger, shares of stock of the Company representing
control of the Company, as defined in Section 368(c) of the Code, will be
exchanged solely for Buyer Common Stock. For purposes of this representation,
shares of stock of the Company exchanged for cash or other property originating
with the Buyer will be treated as outstanding stock of the Company on the date
of the Merger.
(l) The Buyer does not own, nor has it owned during the past
five years, any shares of stock of the Company.
(m) Neither the Buyer nor the Transitory Subsidiary are
investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(n) None of the compensation received by any
shareholder-employee
35
of the Company from the Buyer or the Surviving Corporation will be separate
consideration for, or allocable to, any of their shares of stock of the Company;
none of the Merger Shares received by any shareholder-employee of the Company
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid by the Buyer or the Surviving Corporation to any
shareholder-employee of the Company will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(o) With respect to the Escrow Agreement:
(i) there is a valid business reason for
establishing the Escrow Agreement;
(ii) the Escrow Shares will appear as issued and
outstanding on the balance sheet of the
Buyer and such stock will be, in fact,
legally outstanding under applicable state
law;
(iii) all cash dividends paid on the Escrow Shares
will be distributed currently to the Company
Stockholders;
(iv) all voting rights of the Escrow Shares will
exercisable by or on behalf of the Company
Stockholders pursuant to the terms of the
Escrow Agreement;
(v) no Escrow Shares will be subject to
restrictions requiring their return to the
Buyer because of death, failure to continue
employment or similar circumstances;
(vi) all Escrow Shares will be released from
escrow after one year from the date of this
Agreement (except where there is a bona fide
dispute as to whom the stock should be
released to); and
(vii) Escrow Shares will be released from escrow
only pursuant to the terms of the Escrow
Agreement.
(p) In the event of a return of any or all of the Escrow
Shares to Buyer, such return will be based on the value of the Escrow Shares at
the Effective Time of the Merger and the Company Stockholders will not have the
right to substitute other property for the Escrow Shares.
3.11 Disclosure. No representation or warranty by the Buyer contained
in this Agreement, and no statement contained in the any document, certificate
or other
36
instrument delivered to or to be delivered by or on behalf of the Buyer pursuant
to this Agreement (including without limitation the Buyer Reports), contains or
will contain any untrue statement of a material fact or omit or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the Merger as soon as practicable;
provided, however, that notwithstanding anything in this Agreement to the
contrary, the Buyer shall not be required to sell or dispose of or hold
separately (through a trust or otherwise) any assets or businesses of the Buyer
or its Affiliates. Without limiting the generality of the foregoing, each of the
Parties shall use its best efforts to cause the representations and warranties
made by it in this Agreement to continue to be true and correct in all material
respects as of the Closing Date.
4.2 Notices and Consents. The Company shall use its best efforts to
obtain, at its expense, all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to the Company in
connection with the transactions contemplated by this Agreement (including
without limitation those listed in Section 2.4 of the Disclosure Schedule).
4.3 Company Stockholder Approval.
(a) The Company shall, as soon as practicable, submit the
Merger Proposal and the Preferred Stock Conversion for adoption and approval by
the holders of capital stock of the Company, at a special meeting of
stockholders of the Company (the "Special Meeting") or pursuant to a written
consent of stockholders under Section 228 of the Delaware General Corporation
Law (the "Written Consent"), in accordance with the applicable requirements of
the Delaware General Corporation Law, any other applicable law and the
provisions of the Company's Certificate of Incorporation and By-laws. The
Company shall prepare and distribute to the stockholders of the Company,
simultaneously with the distribution of the notice of
37
the Special Meeting or the Written Consent, a proxy statement or information
statement (the "Disclosure Statement") which (A) summarizes the terms of this
Agreement and the Merger (including without limitation a summary of the
indemnification and escrow arrangements), (B) summarizes the Preferred Stock
Conversion, (C) includes all of the information required by Item 502(b)(2) of
Regulation D under the Securities Act, (D) includes a statement that the
adoption of this Agreement and the approval of the Merger shall constitute
approval of the placement of 10% of the Merger Shares in escrow pursuant to the
terms of the Escrow Agreement, the approval of the indemnity provisions of
Article VI, the appointment of the Indemnification Representatives as their
attorneys-in-fact and agents for purposes of Article VI and the Escrow
Agreement, and the taking by the Indemnification Representatives of any and all
actions and the making of any and all decisions required or permitted to be
taken or made by them under Article VI or the Escrow Agreement and (E) includes
a statement that appraisal rights are available for the shares of capital stock
of the Company pursuant to Section 262 of the Delaware General Corporation Law
and a copy of such Section 262. The Buyer shall assist and cooperate with the
Company in the preparation of the Disclosure Statement, including furnishing to
the Company such information as the Company shall reasonably request for
inclusion in the Disclosure Statement, including information about the Buyer and
the transaction contemplated hereby of the type required by Item 502(b)(2) of
Regulation D under the Securities Act; and the Company shall provide the Buyer
with the opportunity to review and comment upon the Disclosure Statement a
reasonable time in advance of its distribution. The Company shall ensure that
the Disclosure Statement does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading
(provided that the Company shall not be responsible for the accuracy or
completeness of any information furnished by the Buyer in writing for inclusion
in the Disclosure Statement). If the Merger Proposal is approved by a Written
Consent, the Company shall send, pursuant to Sections 228 and 262(d)(2) of the
Delaware General Corporation Law, a written notice to all holders of capital
stock of the Company who did not execute the Written Consent informing them that
this Agreement and the Merger were approved and adopted by the stockholders of
the Company and that appraisal rights are available for their shares of capital
stock of the Company pursuant to Section 262 of the Delaware General Corporation
Law (which notice shall include a copy of such Section 262); and shall inform
the Buyer of the date on which such notice was sent.
(b) The Company shall include in the Disclosure Statement the
recommendation of its Board of Directors that stockholders vote in favor of the
Merger Proposal and the Preferred Stock Conversion, and shall otherwise use its
best efforts to obtain the required stockholder approvals of such matters.
Notwithstanding the foregoing, the Company shall not be required to include such
a recommendation of its Board of Directors in the Disclosure Statement if the
38
Company's Board of Directors reasonably concludes, based upon advice of counsel,
that its fiduciary duties prevent it from making such a recommendation.
(c) Each of the stockholders of the Company executing this
Agreement under the heading "Stockholders" on the signature pages hereto (the
"Principal Stockholders") agrees to vote all shares of capital stock of the
Company that are beneficially owned by it, or for which it has voting authority,
in favor of the Merger Proposal and the Preferred Stock Conversion.
4.4 Cancellation and Exercise of Securities.
(a) The Company shall use its best efforts to cause all
warrants to purchase Common Shares (other than the warrants described in Section
1.9(d)) to be exercised in accordance with their terms prior to the Effective
Time (which exercise may be effected pursuant to a "cashless" exercise whereby
the exercise price for the Common Shares being purchased is paid by the
cancellation of a portion of the warrant having an economic value equal to such
exercise price).
(b) The Company shall use its best efforts to cause all
agreements or instruments evidencing the right to acquire shares of stock of the
Company (excluding Options, Debentures and the warrants described in Section
1.9(d) and paragraph (a) above) to be terminated as of the Effective Time.
(c) Each of the Principal Stockholders agrees to exercise
prior to the Effective Time any warrants held by it in accordance with paragraph
(a) above and to terminate as of the Effective Time all agreements or
instruments held by it evidencing the right to acquire shares of stock of the
Company (excluding Options, Debentures and the warrants described in Section
1.9(d) and paragraph (a) above).
4.5 Exchange of Debentures. The Company shall use its best efforts to
cause the holders of all outstanding Debentures (other than the Principal
Stockholders executing this Agreement) to enter into an agreement, substantially
in the form attached hereto as Exhibit D (the "Debentureholder Agreement"),
pursuant to which they agree (i) to exchange, at the Closing, the Debentures for
Buyer Notes in accordance with Section 1.3(c) hereof and (ii) to indemnify the
Buyer in accordance with the terms, and subject to the limits, set forth in
Article VI hereof.
4.6 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
39
Company shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use all reasonable efforts
to: (w) preserve intact its current business organization; (x) keep its physical
assets in good working condition; (y) keep available the services of its current
officers and employees; and (z) preserve its relationships with customers,
suppliers and others having business dealings with it, all to the end that its
goodwill and ongoing business shall not be impaired in any material respect.
Without limiting the generality of the foregoing, prior to the Effective Time,
neither the Company nor any Subsidiary shall, without the written consent of the
Buyer:
(a) issue, sell, deliver, or agree or commit to issue, sell or
deliver, or redeem or repurchase, any stock of any class or any other securities
or any rights, warrants or options to acquire any such stock or other securities
(except pursuant to (i) the exercise of Options outstanding on the date hereof,
provided that the Company shall use reasonable efforts to dissuade employees
from exercising Options, (ii) the conversion of Preferred Stock into Common
Shares and (iii) the exercise of warrants pursuant to Section 4.4(a)), or amend
any of the terms of any such Options, agreements or instruments relating to the
acquisition of any capital stock of the Company;
(b) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) create, incur or assume any debt for borrowed money not
currently outstanding (including obligations in respect of capital leases),
except pursuant to the Loan Agreement (as defined in Section 4.16); assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity; or
make any loans, advances or capital contributions to, or investments in, any
other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.22(j) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course
40
of Business;
(f) amend its Certificate of Incorporation or By-laws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest (other than the grant of a
Security Interest to the Buyer in connection with the Loan Agreement);
(j) sell, assign, transfer or license any Intellectual
Property, other than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess
of $15,000 per item;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied;
(n) take any of the actions set forth in Section 2.30 of the
Disclosure Schedule that would jeopardize the treatment of the Merger as a
"pooling of interests" for accounting purposes; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
4.7 Full Access. The Company shall (and shall cause each Subsidiary to)
permit representatives of the Buyer to have full access (at all reasonable
times, and in
41
a manner so as not to interfere with the normal business operations of the
Company and the Subsidiaries) to all premises, properties, financial and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company and each Subsidiary. The Buyer shall permit
representatives of the Company to have reasonable access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Buyer) to such premises, properties, financial and accounting
records, contracts, other records and documents, and personnel, of or pertaining
to the Buyer as may be necessary for the Company to complete its due diligence
in connection with the transaction contemplated by this Agreement. The Parties
acknowledge the continued effectiveness of the Confidentiality Agreement between
the Buyer and the Company dated October 7, 1996 (the "Confidentiality
Agreement").
4.8 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Disclosure Schedule) inaccurate or incomplete in any material respect, or (b)
constitute or result in a breach by the Company of, or a failure by the Company
to comply with, any agreement or covenant in this Agreement applicable to such
party. The Buyer or the Transitory Subsidiary shall promptly deliver to the
Company written notice of any event or development that would (i) render any
statement, representation or warranty of the Buyer or the Transitory Subsidiary
in this Agreement inaccurate or incomplete in any material respect, or (ii)
constitute or result in a breach by the Buyer or the Transitory Subsidiary of,
or a failure by the Buyer or the Transitory Subsidiary to comply with, any
agreement or covenant in this Agreement applicable to such party. No such
disclosure shall be deemed to avoid or cure any such misrepresentation or
breach.
4.9 Exclusivity. Neither the Company nor any Principal Stockholder
shall, and the Company shall use its best efforts to cause its Affiliates and
each of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (a) encourage, solicit, initiate, engage or participate
in discussions or negotiations with any person or entity (other than the Buyer)
concerning any merger, consolidation, sale of material assets, sale of stock, or
other business combination involving the Company, any Subsidiary or any division
of the Company or any Subsidiary or (b) provide any non-public information
concerning the business, properties or assets of the Company or any Subsidiary
to any person or entity (other than the Buyer). The Company shall immediately
notify the Buyer of, and shall disclose to the Buyer all details of, any
inquiries or proposals of the nature described in the first sentence of this
Section 4.9.
4.10 Pooling of Interests Accounting.
(a) The Company shall use all reasonable efforts to ensure
that neither
42
the Company, any Subsidiary nor any Affiliate of the Company takes any action
set forth on Schedule 2.30 attached hereto.
(b) The Buyer shall use all reasonable efforts to ensure that
neither the Buyer, the Transitory Subsidiary nor any Affiliate of the Buyer
takes any action that would prevent the Buyer from accounting for the Merger as
a "pooling of interests".
4.11 Listing of Merger Shares. The Buyer shall list the Merger Shares
on the Nasdaq National Market.
4.12 Xxxxxx Arrangements. Xxxx X. Xxxxxx (a) shall continue to serve as
the President of the Company immediately following the Closing and (b) for so
long as he holds such position, shall receive an annual salary commensurate with
such position and shall be eligible for annual cash bonuses and other incentive
compensation made available by the Buyer to its executives, to the extent his
position, salary, performance and other qualifications entitle him to such
bonuses and compensation.
4.13 [Intentionally omitted.]
4.14 Company Employees. Effective as of the Effective Time, each
employee of the Company shall continue to be an employee of the Company, on an
at-will basis and upon the terms and conditions in effect immediately prior to
the Effective Time. Effective as of the Closing and subject to Section 1.9
hereof, employees of the Company shall either be entitled to participate in the
employee benefit plans and programs of the Company or of the Buyer, to the
extent their position, salary and other qualifications makes them eligible to
participate, and shall be given service credit for the purposes of such plans
and policies for the length of time they were employed by the Company.
4.15 Indemnification of Directors and Officers. To the fullest extent
permitted or required under Delaware law, the Surviving Corporation and the
Buyer shall indemnify each individual who is or was a director of the Company
immediately prior to the Effective Time (for purposes of this Section 4.15, a
"Director") and each individual who is or was an officer of the Company
immediately prior to the Effective Time (for purposes of this Section 4.15, an
"Officer") against all Losses (as defined
43
below) incurred by or on behalf of the Director or Officer in connection with a
Proceeding (as defined below) arising out of or relating directly or indirectly
to this Agreement in which the Director or Officer is a Party (as defined below)
because he or she is or was a Director or Officer. An Officer or Director shall
promptly notify the Buyer of the commencement or written threat of any
Proceeding for which he or she is entitled to indemnification under this Section
4.15, such Officer or Director shall permit the Buyer to assume control of the
defense of such Proceeding with counsel reasonably satisfactory to such Officer
or Director. No such Officer or Director shall agree to any settlement of any
such Proceeding without the prior written consent of the Buyer, which shall not
be unreasonably withheld. The Buyer shall not agree to any settlement of any
such Proceeding without the prior written consent of the Officer or Director
that is a Party to such Proceeding, which shall not be unreasonably withheld.
For purposes of this Section 4.15, (i) "Loss" shall mean any and all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such
Proceeding; (ii) "Party" shall mean an individual who was or is, or who is
threatened to be made, a named defendant or respondent in a Proceeding; and
(iii) "Proceeding" shall mean any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or other
proceeding, whether formal or informal and which is brought by or in the right
of the Company or by any other person.
4.16 Loan Agreement. Upon the request of the Company, the Buyer and the
Company shall use good faith efforts to execute a Loan and Security Agreement
and appropriate related documentation (the "Loan Agreement") for a secured
$500,000 line of credit from the Buyer to the Company upon the terms described
in the letter agreement dated January 14, 1997, as amended, among the Buyer, the
Company and certain stockholders of the Company (the "Letter Agreement").
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger are subject to the satisfaction of the
following condition:
(a) stockholder approval of both the Merger Proposal and the
Preferred Stock Conversion, as required under the Delaware General Corporation
Law and the applicable provisions of the Company's Certificate of Incorporation
and By-laws, shall have been obtained.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction, or the waiver by the
Buyer, of the following additional conditions:
44
(a) the number of Dissenting Shares shall not exceed 5% of the
number of outstanding Common Shares as of the Effective Time;
(b) the Company and the Subsidiaries shall have obtained all
of the waivers, permits, consents, approvals or other authorizations, and
effected all of the registrations, filings and notices, referred to in Section
4.2 except for any whose absence does not have and may not reasonably be
foreseen to have a material adverse effect on the assets, business, financial
condition or results of operations of the Company and the Subsidiaries, taken as
a whole;
(c) the representations and warranties of the Company set
forth in Article II shall be true and correct in all material respects when made
on the date hereof;
(d) the Company shall have performed or complied with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time, except when any such failure to
perform or comply would not result in a material adverse change in the assets,
business, financial condition or results of operation of the Company or the
Subsidiaries, taken as a whole;
(e) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent or invalidate
consummation of the merger or (ii) affect adversely the right of the Buyer to
own, operate or control any of the assets and operations of the Surviving
Corporation and the Subsidiaries following the Merger, and no such judgment,
order, decree, stipulation or injunction shall be in effect;
(f) all outstanding shares of Preferred Stock of the Company
shall have been converted into Common Shares;
(g) all of the warrants to purchase Common Shares described in
Section 4.4(a) shall have been exercised in accordance with Section 4.4(a) and
all agreements or instruments evidencing the right to acquire shares of stock of
the Company (excluding Options, Debentures and the warrants described in Section
1.9(d) and Section 4.4(a)) shall have been terminated as of the Effective Time
in accordance with Section 4.4(b);
45
(h) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate to the effect that each of the conditions
specified in clause (a) of Section 5.1 and clauses (a) through (g) of this
Section 5.2 is satisfied;
(i) the holders of all outstanding Debentures shall have
executed and delivered to the Buyer the Debentureholder Agreement;
(j) each of the Company Stockholders and X.X. Xxxxxx, if it is
to receive any Merger Shares, shall have executed and delivered to the Buyer an
Investment Representation Letter in the form attached hereto as Exhibit E, there
shall be no more than 35 Company Stockholders who are not Accredited Investors
(as such term is defined in Rule 501(a) of Regulation D under the Securities
Act) immediately prior to the Effective Time, and the Buyer shall be reasonably
satisfied that each Company Stockholder (either alone or with a purchaser
representative) has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of the
acquisition of the Merger Shares pursuant to the Merger;
(k) each Affiliate of the Company shall have executed and
delivered to the Buyer an Affiliate Agreement in the form attached hereto as
Exhibit F;
(l) Xxxx X. Xxxxxx and Xxxxxx Xxxxxxx shall have executed and
delivered to the Buyer a Noncompetition Agreement in the form attached hereto as
Exhibit G, and each person who is currently a director of the Company and each
person or entity that currently holds Preferred Stock of the Company (other than
Xerox Corporation) shall have executed and delivered to the Buyer a
Noncompetition Agreement in the form attached hereto as Exhibit H;
(m) the Buyer shall have received an estoppel certificate from
the landlord of the Company's Middleton, Wisconsin facility in substantially the
form attached hereto as Exhibit I;
(n) the Buyer and the Transitory Subsidiary shall have
received the resignations, effective as of the Effective Time, of each director
and officer of the Company and the Subsidiaries specified by the Buyer in
writing at least five business days prior to the Closing; and
(o) the Buyer and the Transitory Subsidiary shall have
received from Xxxxxxx Xxxx & Friedrich an opinion with respect to the matters
set forth in Exhibit J attached hereto, addressed to the Buyer and the
Transitory Subsidiary and dated as of the Closing Date.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction, or the waiver
by
46
the Company, of the following additional conditions:
(a) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III shall be true and correct in all
material respects when made on the date hereof;
(b) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time,
except when any such failure to perform or comply would not result in a material
adverse change in the assets, business, financial condition or results of
operation of the Buyer or the Transitory Subsidiary;
(c) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an unfavorable judgment,
order, decree, stipulation or injunction would prevent or invalidate
consummation of the Merger, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(d) the Buyer shall have entered into a significant strategic
alliance with a third party (it being agreed that the Company may not waive this
condition prior to April 7, 1997);
(e) neither the Buyer nor the Transitory Subsidiary shall be
the subject of a petition for reorganization or liquidation under the federal
bankruptcy laws or under state insolvency laws, nor shall either the Buyer or
the Transitory Subsidiary have made an assignment for the benefit of creditors,
nor shall any similar act or event of bankruptcy have occurred;
(f) the Buyer shall have delivered to the Company a
certificate to the effect that each of the conditions specified in clauses (a)
through (e) of this Section 5.3 is satisfied;
(g) the Buyer shall have entered into a Registration Rights
Agreement in the form attached hereto as Exhibit K with the Company
Stockholders; and
(h) the Company shall have received from Xxxx and Xxxx LLP an
opinion with respect to the matters set forth in Exhibit L attached hereto,
addressed to the Company and dated as of the Closing Date.
47
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Indemnifying Stockholders. The Company
Stockholders receiving Merger Shares pursuant to the Merger (the "Indemnifying
Stockholders") shall, subject to the limitations set forth in Section 6.5,
indemnify the Buyer in respect of, and hold the Buyer harmless against, any and
all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators, fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) ("Damages") incurred or suffered by the Buyer,
the Surviving Corporation or any Affiliate thereof resulting from, relating to
or constituting:
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in this Agreement or
in the Certificate delivered pursuant to Section 5.2(h);
(b) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, based upon any rights as a stockholder
(other than the right of the stockholders listed in Section 2.2 of the
Disclosure Schedule to receive the Merger Shares pursuant to this Agreement or
to appraisal rights under the applicable provisions of the Delaware General
Corporation Law), including claims based on preemptive rights, rights to notice
or to vote or claims that shares were wrongfully repurchased by the Company; or
(c) expenses or liabilities related to this Agreement in
excess of the amounts set forth in Section 9.10.
6.2 Indemnification by the Buyer. The Buyer shall, subject to the
limitations set forth in Section 6.5, indemnify the Indemnifying Stockholders in
respect of and hold the Indemnifying Stockholders harmless against any and all
Damages incurred or suffered by the Indemnifying Stockholders resulting from,
relating to or constituting any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of the Buyer contained in this Agreement or
in the Certificate to be delivered by the Buyer pursuant to Section 5.3(f).
6.3 Method of Asserting Claims.
(a) A party entitled to indemnification under this Article VI
(which,
48
in the case of a claim by one or more Indemnifying Stockholders, shall be
deemed, solely for the purposes of this Section 6.3, to be the Indemnification
Representatives) (an "Indemnified Party") that wishes to assert a claim for
indemnification under this Article VI shall deliver to the party from whom
indemnification is sought (which, in the case of a claim by the Buyer, shall be
deemed, solely for the purposes of this Section 6.3, to be the Indemnification
Representatives) (the "Indemnifying Party") a written notice (a "Claim Notice")
which contains (i) a description and the amount (the "Claimed Amount") of any
Damages incurred by the Indemnified Party, (ii) a statement that the Indemnified
Party is entitled to indemnification under this Article VI for such Damages and
a reasonable explanation of the basis therefor, and (iii) a demand for payment
in the amount of such Damages. Within 20 days after delivery of a Claim Notice,
the Indemnifying Party shall deliver to the Indemnified Party a written notice
(the "Response Notice") in which the Indemnifying Party shall: (i) agree that
the Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response Notice shall be accompanied by a payment by the Indemnifying
Party to the Indemnified Party of the Claimed Amount, by check or by wire
transfer), (ii) agree that the Indemnified Party is entitled to receive part,
but not all, of the Claimed Amount (the "Agreed Amount") (in which case the
Response Notice shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Agreed Amount, by check or by wire transfer) or
(iii) contest that the Indemnified Party is entitled to receive any of the
Claimed Amount. The Indemnifying Party may contest that the Indemnified Party is
entitled to receive all or any portion of the Claimed Amount only based upon a
good faith belief that all or such portion of the Claimed Amount does not
constitute Damages for which the Indemnified Party is entitled to
indemnification under this Article VI. If the Indemnifying Party in the Response
Notice contests the payment of all or part of the Claimed Amount, the
Indemnifying Party and the Indemnified Party shall use good faith efforts to
resolve such dispute. If such dispute is not resolved within 60 days following
the delivery by the Indemnifying Party of the Response Notice, the Indemnifying
Party and the Indemnified Party shall have the right to submit such dispute to
such dispute resolution service as may be agreed by them or to pursue the matter
in a court of competent jurisdiction. Notwithstanding the foregoing, for
indemnification claims made pursuant to the Escrow Agreement, the procedural
provisions of Section 4 of the Escrow Agreement shall also apply to making and
resolution of such indemnification claim (and, to the extent inconsistent with
the provisions of this Section 6.3(a), the provisions of Section 4 of the Escrow
Agreement shall control).
(b) If a third party asserts that the Buyer or the Surviving
49
Corporation is liable to such third party for a monetary or other obligation
which may constitute or result in Damages for which the Buyer may be entitled to
indemnification pursuant to this Article VI, and the Buyer reasonably determines
that it has a valid business reason to fulfill such obligation, then (i) the
Buyer shall be entitled to satisfy such obligation, without prior notice to or
consent from the Indemnification Representatives, (ii) the Buyer may make a
claim for indemnification pursuant to this Article VI, and (iii) the Buyer shall
be reimbursed, in accordance with the provisions of this Article VI and/or the
Escrow Agreement, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnification Representatives to dispute the Buyer's entitlement to
indemnification and/or the amount of claimed Damages under the terms of this
Article VI).
(c) In the event that a Claim Notice relates to the
commencement of any action, suit or proceeding for a third party claim for which
indemnification pursuant to this Article VI is sought, the Indemnifying Party
may, within 20 days after delivery of such Claim Notice, upon written notice
thereof to the Indemnified Party, assume control of the defense of such action,
suit or proceeding with counsel reasonably satisfactory to the Indemnified
Party, provided the Indemnifying Party acknowledges in writing to the
Indemnified Party that any damages, fines, costs or other liabilities that may
be assessed against the Indemnified Party in connection with such action, suit
or proceeding constitute Damages for which the Indemnified Party shall be
entitled to indemnification pursuant to this Article VI. If the Indemnifying
Party does not so assume control of such defense, the Indemnified Party shall
control such defense. The party or parties not controlling such defense may
participate therein at its own expense; provided that if the Indemnifying Party
assumes control of such defense and the Indemnified Party reasonably concludes
that the Indemnifying Party and the Indemnified Party have conflicting interests
or different defenses available with respect to such action, suit or proceeding,
the reasonable fees and expenses of counsel to the Indemnified Party shall be
considered "Damages" for purposes of this Agreement. The party or parties
controlling such defense shall keep the other party or parties advised of the
status of such action, suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the other party or parties with
respect thereto. The Indemnified Party shall not agree to any settlement of such
action, suit or proceeding without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld. The Indemnifying Party shall
not agree to any settlement of such action, suit or proceeding without the prior
written consent of the Indemnified Party, which shall not be unreasonably
withheld.
6.4 Survival. The representations and warranties of the Parties set
forth in this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby and continue until one year after the date of
this Agreement. If a Claim Notice is properly given before expiration of such
period, then
50
(notwithstanding the expiration of such time period) the representation or
warranty applicable to such claim shall survive until, but only for purposes of,
the resolution of such claim.
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein (except as
provided in Section 9.10), (i) the aggregate liability of the Indemnifying
Stockholders to the Buyer for Damages under this Article VI shall be limited to
the Escrow Shares held pursuant to the Escrow Agreement and the amounts
recoverable pursuant to the set-off provisions of the Buyer Notes, (ii) the
Indemnifying Stockholders shall be liable to the Buyer under this Article VI
only (A) for Damages which exceed $15,000 in any one instance and (B) for that
portion of the aggregate Damages which exceeds $250,000, and (iii) the Buyer
shall recover any Damages to which it is entitled under this Article VI only as
follows: it shall recover a portion of such Damages pursuant to the Escrow
Agreement equal to the result obtained by dividing (x) $12.5 million minus the
Buyer Note Amount by (y) $12.5 million and a portion of such Damages pursuant to
the hold-back provisions of the Buyer Notes equal to the result obtained by
dividing (x) the Buyer Note Amount by (y) $12.5 million, and the amount of
Damages to be held back under the Buyer Notes shall be held back under all of
the Buyer Notes, pro rata based upon the principal amount of each Buyer Note.
(b) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Buyer to the Indemnifying Stockholders for Damages
under this Article VI shall be limited to $1,250,000 and (ii) the Buyer shall be
liable to the Indemnifying Stockholders under this Article VI only (A) for
Damages which exceed $15,000 in any one instance and (B) for that portion of the
aggregate Damages which exceeds $250,000.
(d) Except with respect to claims based on fraud, the rights
of the Indemnified Parties under this Article VI, the Escrow Agreement and the
set-off provisions of the Buyer Notes shall be the exclusive remedy of the
Indemnified Parties with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement. No Indemnifying Stockholder shall have
any right of contribution against the Company with respect to any breach by the
Company of any of its representations, warranties, covenants or agreements.
6.6 Indemnifying Debentureholders. The Buyer and the Company
51
acknowledge that it is contemplated that holders of the Debentures will enter
into a separate agreement pursuant to which such Debentureholders agree to
indemnify the Buyer in accordance with the terms, and subject to the limits, set
forth in this Article VI as if they were Indemnifying Stockholders.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective Time as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach, and the Company may
terminate this Agreement by giving written notice to the Buyer in the event the
Buyer or the Transitory Subsidiary is in breach, of any material representation,
warranty or covenant contained in this Agreement, and any such breach is not
remedied within 10 days of delivery of written notice thereof;
(c) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before April
30, 1997 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the Buyer
or the Transitory Subsidiary of any representation, warranty or covenant
contained in this Agreement); or
(d) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before April 30, 1997 by reason of the failure of any condition
precedent under Section 5.1 or 5.3 hereof (unless the failure results primarily
from a breach by the Company of any representation, warranty or covenant
contained in this Agreement).
7.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement prior to its termination).
52
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined
terms is defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Affiliate 2.15(f)
Agreed Amount 6.3(a)
Buyer Introduction
Buyer Common Stock 1.5(a)
Buyer Note Amount 1.5(a)
Buyer Notes 1.3(c)
Buyer Reports 3.5
Certificate of Merger 1.1
Claim Notice 6.3(a)
Claimed Amount 6.3(a)
Closing 1.2
Closing Date 1.2
Code 2.9(c)
Common Shares 1.5(a)
Company Introduction
Company Stockholder 1.3(e)
Confidentiality Agreement 4.7
Conversion Ratio 1.5(a)
Damages 6.1
Debentureholder Agreement 4.5
Debentures 1.3(c)
December Balance Sheet 2.8
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.22(a)
Environmental Law 2.23(a)
ERISA 2.22(a)
ERISA Affiliate 2.22(a)
Escrow Agreement 1.3(g)
Escrow Agent 1.3(g)
53
Escrow Shares 1.5(b)
Financial Statements 2.6
Exchange Act 2.15(f)
GAAP 2.6
Governmental Entity 2.4
Indemnification Representatives 1.3(g)
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Indemnifying Stockholders 6.1
Initial Shares 1.5(b)
Intellectual Property 2.12(a)
X.X. Xxxxxx 2.27
Knowledge Article II
Letter Agreement 4.16
Loan Agreement 4.16
Materials of Environmental Concern 2.23(b)
Merger 1.1
Merger Proposal 2.3
Merger Shares 1.5(b)
Option 1.9(a)
Ordinary Course of Business 2.4
Party Introduction
Permit 2.25
Preferred Stock Conversion 2.3
Principal Stockholders 4.3(s)
Response Notice 6.3(a)
SEC 3.5
Securities Act 2.2
Security Interest 2.4
Special Meeting 4.3(a)
Subsidiary 2.4
Surviving Corporation 1.1
Taxes 2.9(a)
Tax Returns 2.9(a)
Third Party Intellectual Property Rights 2.12(a)
Transitory Subsidiary Introduction
Written Consent 4.3(a)
ARTICLE VII
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or make any public disclosure relating to the subject matter of this
Agreement
54
without the prior written approval of the other Parties; provided, however, that
the Buyer may make any public disclosure it believes in good faith is required
by applicable federal securities laws or Nasdaq Stock Market rules (in which
case the Buyer shall so notify the Company, and discuss the nature and scope of
such disclosure with the Company, prior to making such disclosure).
9.2 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations among the Parties, written
or oral, that may have related to the subject matter hereof, including without
limitation the Letter Agreement, but excluding the Confidentiality Agreement
(which shall remain in effect).
9.3 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties; provided that (i) the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer and
(ii) the Company Stockholders may, in connection with the transfer, if any, to
X.X. Xxxxxx of a portion of the Merger Shares (or the right to receive a portion
of the Merger Shares), assign to X.X. Xxxxxx any rights under this Agreement
insofar as they relate to the Merger Shares, if any, so transferred to X.X.
Xxxxxx. This Agreement shall not confer any rights or remedies upon any person
other than the Parties and their respective successors and permitted assigns.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.5 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight
55
courier service, in each case to the intended recipient as set forth below:
If to the Company: Copy to:
------------------ --------
Superconductivity, Inc. Xxxxxxx Xxxx & Xxxxxxxxx
0000 Xxxxx Xxxxx Xxx Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000 Xxxxxxx, XX 00000-0000
Attn: President Attn: Xxx X. Xxxxxxxxx, Esq.
If to the Buyer or the
Transitory Subsidiary: Copy to:
---------------------- --------
American Superconductor Xxxx and Xxxx LLP
Corporation 00 Xxxxx Xxxxxx
Xxx Xxxxxxxxxx Xxxx Xxxxxx, XX 00000
Westborough Technology Drive Attn: Xxxxxxx X. Xxxxxxx, Esq.
Xxxxxxxxxxx, XX 00000
Attn: Chief Financial Officer
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts.
9.8 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; provided,
however, that any amendment effected subsequent to stockholder approval of this
Agreement and the Merger shall be subject to any restrictions contained in the
Delaware General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
56
9.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforce ability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
9.10 Expenses. Except as set forth in the Escrow Agreement, each of the
Parties and the Company Stockholders shall bear its own costs and expenses
(including legal and accounting fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby; provided, however, that
if the Merger is consummated, the Company and the Subsidiaries shall not incur
(i) legal and accounting fees and expenses in connection with the Merger in
excess of an aggregate of $175,000, or (ii) liabilities of the Company to X.X.
Xxxxxx in excess of $1,250,000 plus liabilities accrued through December 31,
1996 in the amount of approximately $513,517.41; and any fees, expenses or
liabilities incurred by the Company or the Subsidiaries in excess of such
amounts shall be recovered by the Buyer pursuant to Article VI without regard to
the provisions of Section 6.5(a).
57
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
AMERICAN SUPERCONDUCTOR CORPORATION
By: /s/ Ramesh Ratan
--------------------------------
Title: Executive Vice President and
-----------------------------
Chief Financial Officer
ASC MERGER CORP.
By: /s/ Ramesh Ratan
--------------------------------
Title: Treasurer
-----------------------------
SUPERCONDUCTIVITY, INC.
By: /s/ Xxxx X. Xxxxxx
--------------------------------
Title: President
-----------------------------
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
/s/ Ramesh Ratan
-----------------------------------
Ramesh Ratan
Secretary
[To be completed after stockholder vote]
The undersigned, being the duly elected Secretary of the Company,
hereby
58
certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Company entitled
to vote on this Agreement.
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Secretary
The following Principal Stockholders and holders of the Debentures
hereby execute this Agreement for the limited purpose of agreeing to and
becoming bound by the provisions of Section 1.3(c), Section 4.3(c), Section
4.4(b), Section 4.9, Section 5.2(g), Section 5.2(i) and Article VI hereof.
STOCKHOLDERS
ADWEST LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation, its
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------
Xxxxxx X. Xxxxxxxx
Managing Director, North
America
ADHILL LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation, its
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------
59
Xxxxxx X. Xxxxxxxx
Managing Director, North
America
WORLD TECHNOLOGY LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation, its
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------------
Xxxxxx X. Xxxxxxxx
Managing Director, North America
ADVENT FUTURE LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation, its
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxxxx
Managing Director, North America
ADVENT PERFORMANCE MATERIALS
LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation, its
General Partner
60
By: /s/ Xxxxxx X. Xxxxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxxxx
Managing Director, North America
ADVENT INTERNATIONAL INVESTORS
L.P.
By: Advent International Corporation its
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxxxx
Managing Director, North America
UVCC FUND I
By: ARETE VENTURE MANAGEMENT
ASSOCIATES L.P., Managing General
Partner
By: ARETE VENTURES LIMITED
PARTNERSHIP, General Partner
By: ARETE VENTURES, INC., General
Partner
By: /s/ Xxxxxx X. Xxxx, Xx.
--------------------------------------
Xxxxxx X. Xxxx, Xx.
President
UVCC FUND II
By: ARETE VENTURE MANAGEMENT
ASSOCIATES II LIMITED
61
PARTNERSHIP, Managing General
Partner
By: ARETE VENTURES, INC., General
Partner
By: /s/ Xxxxxx X. Xxxx, Xx.
--------------------------------------
Xxxxxx X. Xxxx, Xx.
President
UVCC I PARALLEL FUND, L.P.
By: ARETE VENTURES, X.X. XX, General
Partner
By: ARETE VENTURES, INC.
By: /s/ Xxxxxx X. Xxxx, Xx.
--------------------------------------
Xxxxxx X. Xxxx, Xx.
President
MID-AMERICAN CAPITAL COMPANY
By: /s/ Xxxxxx Xxxxxxx
--------------------------------------
Xxxxxx Xxxxxxx
Vice President
M&I VENTURES CORPORATION
By: /s/ Xxxx Xxxxxx
--------------------------------------
Xxxx Xxxxxx
President
MATERIA VENTURES I, L.P.
By: Materia Ventures Associates L.P., its
62
General Partner
By: /s/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxxx
Managing General Partner
XXXXXX XXXXXXXXX PARTNERS II, L.P.
By: Xxxxxxxxx & Associates, its General
Partner
By: /s/ Xxxxx X. Xxxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxxx
Managing General Partner
XEROX CORPORATION
By: Xxxxxxx Bridge Partners, Inc.
By: /s/ Xxx Xxxxx
-------------------------------------------
Xxx Xxxxx
Managing Director and Secretary
RWBCO II PARTNERS' FUND LIMITED
PARTNERSHIP
By: XXXXXX X. XXXXX & CO.
INCORPORATED
By: /s/ Xxxxx Xxxxxxx
-----------------------------------------
XXXXX CAPITAL PARTNER'S LIMITED
PARTNERSHIP
By: XXXXXX X. XXXXX & CO. INCORPORATED,
General Partner
63
By: /s/ Xxxxx Xxxxxxx
----------------------------
/s/ Xxxx Xxxxxx
-------------------------------
Xxxx Xxxxxx
/s/ Xxxxxxxx Xxxxx
-------------------------------
Xxxxxxxx Xxxxx
/s/ Xxxxxx Xxxxxxx
-------------------------------
Xxxxxx Xxxxxxx
64
Schedule 2.30
Pooling Restrictions
- Dispositions by the stockholders of stock of the Company, except as
described in Section 2.2 of the Disclosure Schedule.
- The payment by the Company of dividends or other distributions on the
Common Stock, except as described in Section 2.2 of the Disclosure
Schedule.
- The establishment by the Company of any employee stock program (other
than its option plan).
- Any changes, including changes in the voting rights, in any of the
equity interests of the Company, including any options, warrants, other
common stock derivatives or other equity instruments, except as
described in Section 2.2 of the Disclosure Schedule.
- Any issuances of equity interests of the Company, including common
stock, options, warrants, other common stock derivatives or other
equity instruments, except as described in Section 2.2 of the
Disclosure Schedule.
- Any transaction by the Company out of the ordinary course of its
business that significantly changes the assets and liabilities of the
Company.
