1
EXHIBIT 2.1
2
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
VSI ENTERPRISES, INC., a Delaware corporation,
ETI ACQUISITION CO., a Delaware corporation,
EASTERN TELECOM, INC., a Rhode Island corporation,
and
XXXX X. XXXXX AND XXXXX X. XXXXX,
SHAREHOLDERS OF EASTERN TELECOM, INC.
_________________________
Dated as of October 1, 1996
_________________________
================================================================================
3
TABLE OF CONTENTS
Page
SECTION 1. DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger of ETI into the Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation and Bylaws; Directors and Officers . . . . . . . . . . . . . . . . . . . . . 2
1.5 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Closing of ETI's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Post-Closing Adjustment of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.11 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF ETI AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 6
2.1 Due Organization; No Subsidiaries; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Articles of Incorporation and Bylaws; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Bank Accounts; Receivables; Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.9 Proprietary Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.11 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.12 Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.13 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.15 Employee and Labor Matters; Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.17 Sale of Products; Performance of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.19 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.20 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.21 Authority; Binding Nature of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.22 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.23 Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.24 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VSI AND THE SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . 22
3.1 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Authority; Binding Nature of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Valid Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ii
4
3.4 Independent Investment Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Due Organization; Subsidiaries; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.6 Articles of Incorporation and Bylaws; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Capitalization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.9 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.10 Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.11 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.12 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.13 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.14 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.15 No Known Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.16 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4. CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1 Access and Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2 Operation of ETI's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.4 No Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1 Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4 Employment and Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 Information Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.8 ETI Shareholder Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.9 ETI Employee Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF VSI AND THE SUBSIDIARY . . . . . . . . . . . . . . . . . . . 32
6.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.4 Agreements and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.6 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.7 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 Completion of Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.9 Shareholder Investment Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ETI
AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
iii
5
7.4 Agreements and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.6 Completion of Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.8 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 Termination Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 9. INDEMNIFICATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2 Shareholders ' Indemnity Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Indemnity Agreement of VSI and the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . 38
9.4 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 10. REGISTRATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3 Preparation; Reasonable Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 11. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.6 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.9 Governing Law; Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.11 Remedies Cumulative; Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.15 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.16 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.17 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
iV
6
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Directors and officers of Surviving Corporation
Exhibit C - C-1 Form of Employment Agreement for Xxxx X. Xxxxx
C-2 Form of Noncompetition Agreement for Xxxx X. Xxxxx
C-3 Form of Employment Agreement for Xxxxx X. Xxxxx
C-4 Form of Noncompetition Agreement for Xxxxx X. Xxxxx
Exhibit D - Form of Release
Exhibit E - Persons to execute estoppel certificates
Exhibit F - Form of Shareholder Investment Certification
Exhibit G - Form of Escrow Agreement
** Exhibits and Schedules are not included with this filing. A copy of any
omitted exhibit or schedule will be furnished supplementally to the
Commission upon request. **
v
7
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of October 1, 1996, by and among: VSI ENTERPRISES, INC., a
Delaware corporation ("VSI"); ETI Acquisition Co., a Delaware corporation and a
wholly-owned subsidiary of VSI (the "Subsidiary"); EASTERN TELECOM, INC., a
Rhode Island corporation ("ETI"); and XXXX X. XXXXX and XXXXX X. XXXXX, the
shareholders of ETI (the "Shareholders"). Certain capitalized terms used in
this Agreement are defined in Exhibit A.
RECITALS
A. VSI, ETI and the Subsidiary intend to effect a merger of ETI into the
Subsidiary in accordance with this Agreement, the Rhode Island Business
Corporation Act and the Delaware General Corporation Law (the "Merger"). Upon
consummation of the Merger, ETI will cease to exist, and the Subsidiary will
continue to exist as the surviving corporation of the Merger.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. This Agreement has been adopted and approved by the respective boards
of directors of VSI, ETI and the Subsidiary.
D. The capitalization of ETI consists of 8,000 shares of the voting
common stock, no par value (the "ETI Common Stock").
E. Xxxx X. Xxxxx is the owner of 100 shares of ETI Common Stock, and
Xxxxx X. Xxxxx is the owner of 100 shares of ETI Common Stock, together
representing 100% of the issued and outstanding ETI Common Stock.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF ETI INTO THE SUBSIDIARY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), ETI shall be merged with and into the Subsidiary, and the
separate existence of ETI shall cease. The Subsidiary will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
8
1.2 EFFECT OF MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Rhode Island Business
Corporation Act and the Delaware General Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxx, Xxxxxxxx & Xxxxxxx, 0000 Xxxxxxxxx Xxxx, Xxxxx 0000, Xxxxxxx,
Xxxxxxx 00000, at 10:00 a.m. local time on October 1, 1996, or at such other
time and date during the period from October 1, 1996 through October 15, 1996,
as the parties shall designate (the "Scheduled Closing Time"). (The date on
which the Closing actually takes place is referred to in this Agreement as the
"Closing Date.") Contemporaneously with or as promptly as practicable after
the Closing, properly executed articles of merger for the merger of ETI into
the Subsidiary, conforming to the requirements of the Rhode Island Business
Corporation Act (the "Rhode Island Certificate of Merger") shall be filed with
the Secretary of State of the State of Rhode Island, and a properly executed
certificate of merger for the merger of ETI into the Subsidiary, conforming to
the requirements of the Delaware General Corporation Law (the "Delaware
Certificate of Merger"), shall be filed with the Secretary of State of the
State of Delaware. The Merger shall take effect at the time the Rhode Island
Certificate of Merger is filed with the Secretary of State of the State of
Rhode Island and the Delaware Certificate of Merger is filed with the Secretary
of State of the State of Delaware (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless the parties agree otherwise prior to the Effective Time:
(a) the Articles of Incorporation of the Subsidiary shall
continue as the Articles of Incorporation of the Surviving Corporation;
(b) the Bylaws of the Subsidiary shall continue as the Bylaws of
the Surviving Corporation;
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit B.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.7(b), at the Effective Time, by virtue
of the Merger and without any further action on the part of VSI, ETI, the
Subsidiary or any Shareholder, each share of ETI Common Stock outstanding
immediately prior to the Effective Time shall be canceled and retired and
converted into the right to receive a pro rata share of the aggregate Merger
Consideration described in Section 1.8, subject to the post-Closing adjustment
set forth in Section 1.9.
(b) If any shares of ETI Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any restricted stock purchase
agreement or other agreement with ETI, then the shares of VSI Common Stock
issued in exchange for such shares of ETI Common Stock will be unvested and
2
9
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of VSI Common Stock may
accordingly be marked with appropriate legends.
1.6 CLOSING OF ETI'S TRANSFER BOOKS. At the Effective Time, the
holders of certificates representing shares of ETI Common Stock that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as Shareholders of ETI, and the stock transfer books of ETI shall be
closed with respect to all shares of such ETI Common Stock outstanding
immediately prior to the Effective Time. No further transfer of any such
shares of ETI's capital stock shall be made on such stock transfer books after
the Effective Time. If, after the Effective Time, a valid certificate
previously representing any of such shares of ETI Common Stock (an "ETI Stock
Certificate") is presented to VSI, such ETI Stock Certificate shall be canceled
and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) At the Closing, each Shareholder shall surrender its
respective ETI Stock Certificate(s) to the Surviving Corporation, together with
such transmittal documents as the Surviving Corporation may reasonably require,
and the Surviving Corporation shall deliver, or cause VSI to deliver, to such
Shareholder such Shareholder's pro rata share of the aggregate Merger
Consideration to be paid at Closing pursuant to Section 1.8, subject to the
post-Closing adjustment set forth in Section 1.9.
(b) No fractional shares of VSI Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any Shareholder who would
otherwise be entitled to receive a fraction of a share of VSI Common Stock
(after aggregating all fractional shares of VSI Common Stock issuable to such
holder) shall, upon surrender of such Shareholder's ETI Stock Certificate(s),
be paid in cash at a rate of $3.00 per share in lieu of such fractional shares.
(c) Until surrendered as contemplated by this Section 1.7,
each ETI Stock Certificate shall be deemed, from and after the Effective Time,
to represent only the right to receive a pro rata share of the Merger
Consideration. If any ETI Stock Certificate shall have been lost, stolen or
destroyed, VSI may, in its discretion and as a condition precedent to the
issuance of any certificate representing VSI Common Stock, require the owner of
such lost, stolen or destroyed ETI Stock Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as VSI may reasonably direct) as
indemnity against any claim that may be made against VSI with respect to such
ETI Stock Certificate.
(d) The shares of VSI Common Stock to be issued in the Merger
shall be characterized as "restricted securities" for purposes of Rule 144
under the Securities Act, and each certificate representing any of such shares
shall bear a legend identical or similar in effect to the following legend
(together with any other legend or legends required by applicable state
securities laws or otherwise):
3
10
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(e) VSI shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder
of ETI Common Stock pursuant to this Agreement such amounts as VSI may be
required to deduct or withhold therefrom under the Code or under any provision
of state, local or foreign tax law. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would
otherwise have been paid.
(f) VSI shall not be liable to any holder or former holder of
ETI Common Stock for any shares of VSI Common Stock (or dividends or
distributions with respect thereto), or for any cash amounts, delivered to any
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 MERGER CONSIDERATION. The aggregate merger consideration to be
paid by VSI to the Shareholders in consideration of the Merger ("Merger
Consideration") shall be (i) $3,500,000, which shall be paid by VSI to the
Shareholders by cashier's check or wire transfer (receipt confirmed) to an
account or accounts designated by Shareholders of immediately available funds
on the Closing Date; and (ii) subject to the post-Closing adjustment set forth
in Section 1.9, 2,007,339 shares of VSI Common Stock. Of the 2,007,339 shares
of VSI Common Stock comprising a portion of the Merger Consideration, 1,807,339
shares will be delivered to the Shareholders upon the surrender of their
respective ETI Stock Certificate(s) at the Closing in accordance with Section
1.7, and 200,000 shares (the "Escrow Shares") shall be delivered into escrow
pursuant to the Escrow Agreement attached as Exhibit G hereto (the "Escrow
Agreement"). The Escrow Shares shall be subject to the post-Closing adjustment
of the Merger Consideration described in Section 1.9 as well as any claims of
VSI or the Surviving Corporation arising under Section 9.2.
1.9 POST-CLOSING ADJUSTMENT OF MERGER CONSIDERATION.
(a) As promptly as practicable following the Closing Date (and
in any case within 30 days thereafter), VSI shall prepare and VSI's accountants
shall review, at VSI's expense, a balance sheet of ETI as of the close of
business on the Closing Date (the "Closing Balance Sheet"). The Closing
Balance Sheet shall be prepared in accordance with GAAP and in the same manner
as the audited financial statements of ETI dated December 31, 1995 prepared by
Ernst & Young, L.L.P. The Shareholders shall provide full access to all
information reasonably available to Shareholders which is requested by VSI's
accountants for the audit of the Closing Balance Sheet. VSI's accountants
shall complete the review of the Closing Balance Sheet within 45 days following
the
4
11
Closing Date. VSI shall deliver the reviewed Closing Balance Sheet to the
Shareholders promptly upon its completion. The Shareholders and their
accountants shall be given full access upon request to all work papers or other
materials used by VSI and its accountants in the review of the Closing Balance
Sheet.
(b) Within 15 days after receiving the Closing Balance Sheet,
the Shareholders shall deliver to VSI a detailed statement describing the
Shareholders' objections, if any, to the Closing Balance Sheet. If no
objections are delivered to VSI within such 15 day period, the Closing Balance
Sheet shall become final and binding upon the parties. If VSI does receive a
statement of objections from the Shareholders, the parties will endeavor to
reconcile any differences and agree upon a final Closing Balance Sheet. If the
parties are unable to agree upon a final Closing Balance Sheet within 15 days
following VSI's receipt of Shareholders' list of objections, at the request of
either party the outstanding matters shall be submitted for resolution by a
mutually acceptable nationally recognized independent certified public
accounting firm in the United States. If the parties are unable to agree upon
the selection of an accounting firm, each party will submit the name of one
firm having no prior or current relationship with such party and one of the two
firms shall be selected at random. Each of the parties shall bear one-half of
the fees and expenses of the accounting firm so selected. Such accounting firm
shall attempt to make a final determination of all issues and prepare a final
Closing Balance Sheet as promptly as practicable, and both parties agree to
cooperate fully with such accounting firm. The Closing Balance Sheet prepared
by such accounting firm shall be final and binding upon the parties.
(c) To the extent the amount of the shareholders' equity shown on
the Closing Balance Sheet is less than $897,000, the Shareholders shall, within
10 days following final determination of the Closing Balance Sheet pursuant to
subsection (b) above, deliver written instructions to the Escrow Agent to
distribute to VSI that number of Escrow Shares having a value, determined in
accordance with the Escrow Agreement, equal to the full amount by which the
shareholders' equity is less than $897,000 (determined as aforesaid).
(d) To the extent the amount of the shareholders' equity shown on
the Closing Balance Sheet is greater than $1,300,000, VSI shall, on the date
that is two years following final determination of the Closing Balance Sheet
pursuant to subsection (b) above, deliver to the Shareholders that number of
shares of VSI Common Stock having a value, determined as hereinafter provided,
equal to the full amount by which the shareholders' equity is greater than
$1,300,000 (determined as aforesaid). For purposes of this subsection (d), the
number of shares of VSI Common Stock to be delivered shall be determined by the
average of the closing bid price of VSI Common Stock for the ten trading days
immediately preceding the date of delivery. No fractional shares shall be
distributed.
(e) The obligation of the Shareholders to pay the post-Closing
adjustment of the Merger Consideration as described in this Section 1.9 shall
be a limited obligation of the Shareholders payable solely from, and only to
the extent of, the Escrow Shares held by the Escrow Agent.
5
12
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger
is intended to constitute a reorganization within the meaning of Section 368(a)
of the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.11 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by VSI to be necessary or desirable to carry out
the purposes of this Agreement or to vest VSI with full right, title and
possession of and to all rights and property of ETI, the officers and directors
of VSI shall be fully authorized (in the name of ETI and otherwise) to take
such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF ETI AND THE SHAREHOLDERS
ETI and the Shareholders, jointly and severally, represent
and warrant, to and for the benefit of VSI and the Subsidiary, as follows as of
the date hereof and as of the Closing Date:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) ETI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Rhode Island and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its
assets in the manner in which its assets are currently owned and used; and
(iii) to perform its obligations under all Contracts by which it is bound.
(b) ETI has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed
name, trade name or other name, other than the names set forth in part 2.1(b)
of the Disclosure Schedule.
(c) ETI is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on ETI. Except as otherwise noted in Part 2.1(c) of the Disclosure Schedule,
ETI is in good standing as a foreign corporation in each of the jurisdictions
identified in Part 2.1(c) of the Disclosure Schedule.
(d) Part 2.1(d) of the Disclosure Schedule accurately
sets forth (i) the names of the members of the ETI's board of directors, (ii)
the names of the members of each committee of ETI's board of directors, and
(iii) the names and titles of ETI's officers.
(e) ETI has no subsidiaries, and has never owned,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect interest of any nature in, any other Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. ETI has
delivered to VSI accurate and complete copies of: (i) ETI's articles of
incorporation and bylaws, including all amendments thereto; (ii) the stock
records of ETI; and (iii) the minutes and other records of the meetings and
6
13
other proceedings (including any actions taken by written consent or otherwise
without a meeting) of the shareholders of ETI, the board of directors of ETI
and all committees of the board of directors of ETI. There have been no
meetings or other proceedings or actions of the shareholders of ETI, the board
of directors of ETI or any committee of the board of directors of ETI, in which
transactions of a material nature were acted upon, that are not reflected in
such minutes or other records. There has not been any violation of any of the
provisions of ETI's articles of incorporation or bylaws or of any resolution
adopted by ETI's shareholders, ETI's board of directors or any committee of
ETI's board of directors. The stock records, minute books and other records of
ETI are accurate, up-to-date and complete in all material respects.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of ETI consists of 8,000
shares of common stock, no par value of which 200 shares have been issued and
are outstanding. There are no shares of capital stock held in ETI's treasury.
Part 2.3(a) of the Disclosure Schedule sets forth the names of ETI's
shareholders and the number of shares of ETI common stock owned of record by
each of such shareholders. All of the outstanding shares of ETI common stock
have been duly authorized and validly issued, and are fully paid and
non-assessable, and none of such shares is subject to any repurchase option or
restriction on transfer, except for restrictions set forth in Section 8.1 of
the Bylaws of ETI.
(b) There is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire, or
otherwise relating to, any shares of the capital stock or other securities of
ETI; (ii) outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the capital stock or other
securities of ETI; (iii) Contract under which ETI is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other
securities; or (iv) condition or circumstance that may give rise to or provide
a basis for the assertion of a claim by any Person to the effect that such
Person is entitled to acquire or receive any shares of capital stock or other
securities of ETI. ETI has never issued or granted any option, call, warrant
or right to acquire, or otherwise relating to, any shares of its capital stock
or other securities.
(c) All outstanding shares of ETI Common Stock have been
issued in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(d) ETI has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities.
2.4 FINANCIAL STATEMENTS.
(a) ETI has delivered to VSI the following financial
statements and notes (collectively, the "Company Financial Statements"):
7
14
(i) audited balance sheets of ETI as of December
31, 1995 and 1994 and the related statements of income of ETI for the
years then ended and the accompanying report of Ernst & Young LLP,
independent certified public accountants; and
(ii) unaudited, management-prepared balance sheet
of ETI as of August 31, 1996 (the unaudited balance sheet as of August
31, 1996 is hereinafter referred to as the "Unaudited Balance Sheet"),
and the related unaudited statements of income, statements of
shareholders' equity and statements of cash flows of ETI for the
eight-month periods then ended.
(b) The Company Financial Statements for the years ended
December 31, 1995 and 1994 which have been audited by Ernst & Young LLP have
been prepared in accordance with generally accepted accounting principles, are
accurate and complete in all material respects, and fairly present the financial
position of ETI as of the respective dates thereof and the results of operations
and cash flows of ETI for the periods covered thereby. The Company Financial
Statements for the eight-month period from January 1, 1996 through August 31,
1996, which have been prepared by management of ETI, have been prepared on an
accrual basis but not necessarily in accordance with generally accepted
accounting principles. The Company Financial Statements do not accrue any
liability for corporate income taxes since ETI has elected Subchapter "S" tax
status (see Notes to the December 31, 1995 audited financial statements of Ernst
& Young LLP). In addition, "accounts receivable" reflected in the Company
Financial Statements include aggregate commissions payable to ETI by all
customers (of ETI's customers, e.g., NYNEX) who have entered into purchase
agreements for products and services as of the date of such financial statements
whether or not such products and services have actually been installed or "cut-
over" by such date.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since August 31, 1996:
(a) there has not been any material adverse change in
ETI's business, condition, assets, liabilities, operations, or financial
performance, and, to the knowledge of ETI and the Shareholders, no event has
occurred that will, or could reasonably be expected to, have a Material Adverse
Effect on ETI;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of ETI's assets
(whether or not covered by insurance);
(c) ETI has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities except as disclosed in Part 2.5(c) of the
Disclosure Schedule;
(d) ETI has not sold, issued or authorized the issuance
of (i) any capital stock or other security, (ii) any option, call, warrant or
right to acquire, or otherwise relating to, any capital
8
15
stock or any other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) there has been no amendment to ETI's articles of
incorporation or bylaws, and ETI has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) ETI has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(g) ETI has not made any capital expenditure which, when
added to all other capital expenditures made by ETI since August 31, 1996,
exceeds $30,000 in the aggregate;
(h) ETI has not, except in the ordinary course of
business, (i) entered into or permitted any of the assets owned or used by it
to become bound by any Material Contract (as defined in Section 2.10(a)), or
(ii) amended or prematurely terminated, or waived any material right or remedy
under, any Material Contract to which it is or was party or under which it has
or has had any material rights or obligations;
(i) ETI has not, except in the ordinary course of
business, (i) acquired, leased or licensed any right or other asset from any
other Person, (ii) sold or otherwise disposed of, or leased or licensed, any
right or other asset to any other Person, or (iii) waived or relinquished any
right, except for immaterial rights or other immaterial assets acquired,
leased, licensed or disposed of in the ordinary course of business and
consistent with ETI's past practices;
(j) ETI has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable
or other indebtedness;
(k) ETI has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with ETI's past practices;
(l) ETI has not (i) lent money to any Person, or (ii)
incurred or guaranteed any indebtedness for borrowed money;
(m) ETI has not (i) established, adopted or amended any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or (iii) hired any new employee;
(n) ETI has not changed any of its methods of accounting
or accounting practices in any respect;
(o) ETI has not made any Tax election;
9
16
(p) ETI has not commenced or settled any Legal
Proceeding;
(q) ETI has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) ETI has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
2.5 TITLE TO ASSETS.
(a) ETI owns, and has good title to, all assets purported
to be owned by it, including: (i) all assets reflected on the Unaudited Balance
Sheet; (ii) all assets referred to in Parts 2.7(b), 2.8 and 2.9 of the
Disclosure Schedule and all of ETI's rights, if any, under the Contracts
identified in Part 2.10(a) of the Disclosure Schedule; and (iii) all other
assets reflected in ETI's books and records as being owned by ETI. Except as
set forth in Part 2.6(a) of the Disclosure Schedule, all of said assets are
owned by ETI free and clear of any liens or other Encumbrances, except for (i)
any lien for current taxes not yet due and payable, and (ii) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of ETI.
(b) Part 2.6(b) of the Disclosure Schedule identifies all
material assets that are being leased or licensed to ETI.
2.7 BANK ACCOUNTS; RECEIVABLES; CUSTOMERS.
(a) Part 2.7(a) of the Disclosure Schedule provides
accurate and complete information with respect to each account maintained by or
for the benefit of ETI at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides a
breakdown and aging of all accounts receivable, notes receivable and other
receivables of ETI as of August 31, 1996. Except as set forth in Part 2.7(b)
of the Disclosure Schedule, all existing accounts receivable of ETI (including
those accounts receivable reflected on the Unaudited Balance Sheet that have
not yet been collected and those accounts receivable that have arisen since
August 31, 1996 and have not yet been collected) (i) represent valid
obligations of customers of ETI arising from bona fide transactions entered
into in the ordinary course of business, and (ii) are current and, to the best
knowledge of ETI and the Shareholders, will be collected in full, without any
counterclaim or set off, when due.
(c) Part 2.7(c) of the Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person (e.g., NYNEX) that (together with
such Person's affiliates) accounted for more than $50,000 of the net revenues
of ETI in 1995 or 1996. ETI has not received any notice or other communication
10
17
indicating that any customer or other Person identified in Part 2.7(c) of the
Disclosure Schedule intends or expects to cease dealing with ETI or to reduce
the volume of business transacted by such Person with ETI below historical
levels.
(d) Part 2.7(d) of the Disclosure Schedule provides an
accurate and complete breakdown of all pending and unfilled orders received by
ETI for products, systems and services.
2.8 EQUIPMENT; LEASEHOLD.
(a) Part 2.8 of the Disclosure Schedule provides accurate
and complete information with respect to all material items of equipment,
fixtures, leasehold improvements and other tangible assets owned by or leased
to ETI. The assets identified in Part 2.8 of the Disclosure Schedule are
adequate for the uses to which they are being put, are in usable condition and
repair (ordinary wear and tear excepted) and are adequate for the conduct of
ETI's business in the manner in which such business is currently being
conducted.
(b) ETI does not own any real property or any interest in
real property, except for the leasehold(s) created under the real property
lease(s) identified in Part 2.10(a) of the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(1) of the Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset that has been registered,
recorded or filed with any Governmental Body or with respect to which an
application has been filed with any Governmental Body, (i) a brief description
of such Company Proprietary Asset, and (ii) the names of the jurisdictions
covered by the applicable registration, recordation, filing or application.
Part 2.9(a)(2) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by ETI. Part
2.9(a)(3) of the Disclosure Schedule identifies and provides a brief
description of each Company Proprietary Asset that is owned by any other Person
and that is licensed to or used by ETI (except for any Company Proprietary
Asset that is licensed to ETI under any third party software license generally
available to the public at a cost of less than $500), and identifies the
license agreement or other agreement under which such Company Proprietary Asset
is being licensed to or used by ETI. Except as set forth in Part 2.9(a)(4) of
the Disclosure Schedule, ETI has good, valid and marketable title to all of the
Proprietary Assets identified in Parts 2.9(a)(1) and 2.9(a)(2) of the
Disclosure Schedule, free and clear of all liens and other Encumbrances, and
has a valid right to use all Proprietary Assets identified in Part 2.9(a)(3) of
the Disclosure Schedule. Except as set forth in Part 2.9(a)(5) of the
Disclosure Schedule, ETI is not obligated to make any payment to any Person for
the use of any Company Proprietary Asset. Except as set forth in Part
2.9(a)(6) of the Disclosure Schedule, ETI is free to use, modify, copy,
distribute, sell, license or otherwise exploit each of the Company Proprietary
Assets on an exclusive basis.
(b) To the best knowledge of ETI and the Shareholders,
none of ETI's Proprietary Assets infringes or conflicts with any Proprietary
Asset owned or used by any other Person. To the
11
18
best knowledge of ETI and the Shareholders, (i) ETI is not infringing,
misappropriating or making any unlawful use of, and (ii) ETI has not at any
time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. To the best knowledge of ETI and the
Shareholders, no other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(c) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable ETI to conduct its business in the
manner in which such business has been conducted. Except as set forth in Part
2.9(c) of the Disclosure Schedule, (i) ETI has not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) ETI has not
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(d) Part 2.9(d) of the Disclosure Schedule sets forth all
current and former employees of ETI who have executed and delivered to ETI
written agreements (containing no exceptions to or exclusions from the scope of
their coverage) that are substantially identical to the form of non-competition
agreement attached to the Disclosure Schedule as Appendix 2.9. ETI has never
engaged or received services from any consultant or independent contractor in
connection with the design or development of any Proprietary Asset.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies
each Company Contract that constitutes a "Material Contract." For purposes of
this Agreement, each of the following shall be deemed to constitute a "Material
Contract":
(i) any Contract relating to the employment or
engagement of, or the performance of services by, any employee,
consultant or independent contractor;
(ii) any Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or
any Proprietary Asset;
(iii) any Contract imposing any restriction on
ETI's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other
Person, to sell any product or other asset to or perform any services
for any other Person or to transact business or deal in any other
manner with any other Person, or (C) to develop or distribute any
technology;
(iv) any Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
12
19
(v) any Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) any Contract creating or relating to the
creation of any Encumbrance with respect to any asset owned or used by
ETI;
(vii) any Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any
indemnity, any right of contribution or any surety arrangement;
(viii) any Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits,
losses, costs or liabilities;
(ix) any Contract relating to the purchase or sale
of any product or other asset by or to, or the performance of any
services by or for, any Related Party (as defined in Section 2.19);
(x) any Contract to which any Governmental Body
is a party or under which any Governmental Body has any rights or
obligations, or involving or directly or indirectly benefiting any
Governmental Body (including any subcontract or other Contract between
ETI and any contractor or subcontractor to any Governmental Body);
(xi) any Contract entered into outside the
ordinary course of business or inconsistent with ETI's past practices;
(xii) any Contract that has a term of more than 60
days and that may not be terminated by ETI (without penalty) within 60
days after the delivery of a termination notice by the Subject
Business; and
(xiii) any Contract that contemplates or involves
(A) the payment or delivery of cash or other consideration in an
amount or having a value in excess of $25,000 in the aggregate, or (B)
the performance of services having a value in excess of $25,000 in the
aggregate.
(b) ETI has delivered to VSI accurate and complete copies
of all written Contracts identified in Part 2.10(a) of the Disclosure Schedule,
including all amendments thereto. Each Contract identified in Part 2.10(a) of
the Disclosure Schedule is valid and in full force and effect, and is
enforceable by ETI in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Disclosure
Schedule:
(i) ETI has not violated or breached in any
material respect, or committed any material default under, any Company
Contract, and, to the best knowledge of ETI and
13
20
the Shareholders , no other Person has violated or breached in any
material respect, or committed any material default under, any Company
Contract;
(ii) to the best knowledge of ETI and the
Shareholders, except as disclosed in Part 2.22 of the Disclosure
Schedule with respect to the execution and performance of this
Agreement, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a material violation or
breach of any of the provisions of any Company Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
material Company Contract, (C) give any Person the right to accelerate
the maturity or performance of any Company Contract, or (D) give any
Person the right to cancel, terminate or modify any Company Contract.
(iii) since August 10, 1990, ETI has not received
any notice or other communication regarding (A) any actual or possible
violation or breach of, or default under, any Company Contract, or (B)
any actual or possible termination of any Company Contract; and
(iv) except as set forth in Part 2.10(d) of the
Disclosure Schedule, ETI has not expressly waived in writing any of
its material rights under any Contract.
(d) No Person is renegotiating, or has the right to
renegotiate, any amount paid or payable to ETI under any Company Contract or
any other term or provision of any Company Contract, except price negotiations
in the ordinary course of ETI's business, including but not limited to
negotiated commissions on large orders as disclosed in Part 2.10(d) of the
Disclosure Schedule.
(e) The Contracts identified in Part 2.10(a) of the
Disclosure Schedule collectively constitute all of the Material Contracts
necessary to enable ETI to conduct its business in the manner in which its
business is currently being conducted.
(f) Part 2.10(f) of the Disclosure Schedule identifies
and provides a brief description of each proposed Contract as to which any
pending bid, offer or proposal has been submitted or received by ETI.
2.11 LIABILITIES. ETI has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (i)
liabilities identified as such in the "liabilities" column of the Unaudited
Balance Sheet; (ii) accounts payable or accrued salaries that have been
incurred by ETI since August 31, 1996, in the ordinary course of business and
consistent with ETI's past practices; and (iii) the liabilities identified in
Part 2.11(a) of the Disclosure Schedule.
14
21
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. ETI is, and has at all
times since August 10, 1990 been, in compliance in all material respects with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have in any individual case or in
the aggregate, a Material Adverse Effect on ETI. Except as set forth in Part
2.12 of the Disclosure Schedule, since August 10, 1990, ETI has not received
any written notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure
Schedule identifies each material Governmental Authorization held by ETI, and
ETI has delivered to VSI accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable ETI to conduct its business in
the manner in which its business is currently being conducted and in the manner
in which its business is proposed to be conducted. ETI is, and at all times
since August 10, 1990 has been, in compliance with the material terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Disclosure Schedule. Since August 10, 1990, ETI has not received
any notice or other communication from any Governmental Body regarding (i) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf
of ETI with any Governmental Body with respect to any transaction occurring or
any taxable period ending on or before the Closing Date (the "Company Returns")
(i) have been or will be filed when due, and (ii) have been, or will be when
filed, accurately and completely prepared in compliance in all material
respects with all applicable Legal Requirements. All amounts shown on the
Company Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date. ETI has delivered to VSI accurate and
complete copies of all Company Returns filed since August 10, 1990.
(b) The Company Financial Statements accrue no
liabilities for Taxes with respect to all periods through the dates thereof.
(c) Each Company Return relating to income Taxes that has
been filed with respect to any period ended on or prior to August 10, 1990 has
either (i) been examined and audited by all relevant Governmental Bodies, or
(ii) by virtue of the expiration of the limitation period under applicable
Legal Requirements, is no longer subject to examination or audit by any
Governmental Body. Except as set forth in Part 2.14(c) of the Disclosure
Schedule, there has been no examination
15
22
or audit of any Company Return, and no such examination or audit has been
proposed or scheduled by any Governmental Body. ETI has delivered to VSI
accurate and complete copies of all audit reports and similar documents (to
which ETI has access) relating to the Company Returns. Except as set forth in
Part 2.14(c) of the Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of the Company Returns has been granted (by
ETI or any other Person), and no such extension or waiver has been requested
from ETI.
(d) Except as set forth in Part 2.14(d) of the Disclosure
Schedule, no claim or Legal Proceeding is pending or, to the best knowledge of
ETI and the Shareholders, has been threatened against or with respect to ETI in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by ETI. There are no liens for Taxes upon any of the assets of ETI, except
liens for current Taxes not yet due and payable. ETI has not entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the
Code. ETI has not been, and ETI will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant
to Section 481 of 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(e) Except as set forth in Part 2.14(e) of the Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of ETI that, considered individually or considered collectively with
any other such Contracts, will, or could reasonably be expected to, give rise
directly or indirectly to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code. ETI is not,
and has never been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule contains a
list of all salaried employees of ETI as of the date of this Agreement, and
correctly reflects their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions. ETI
is not a party to any collective bargaining contract or other Contract with a
labor union involving any of its employees.
(b) Part 2.15(b) of the Disclosure Schedule identifies
each employee of ETI who is not fully available to perform work because of
disability or other leave, and sets forth the basis of such leave and the
anticipated date of return to full service.
(c) Part 2.15(c) of the Disclosure Schedule identifies
each salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement (individually referred to as a "Plan"
and
16
23
collectively referred to as the "Plans") sponsored, maintained, contributed to
or required to be contributed to by ETI for the benefit of any current or
former employee of ETI.
(d) ETI does not maintain, sponsor or contribute to, and,
to the best of the knowledge of ETI and the Shareholders , ETI has not at any
time in the past maintained, sponsored or contributed to, any employee pension
benefit plan (as defined in Section 3(2)) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
employees or former employees of ETI (a "Pension Plan").
(e) ETI does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of ETI (a "Welfare Plan")
except for those Welfare Plans described in Part 2.15(e) of the Disclosure
Schedule, none of which is a multiemployer plan (within the meaning of Section
3(37) of ERISA).
(f) With respect to each Plan, ETI has delivered to VSI:
(i) an accurate and complete copy of such Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual
report (if required under ERISA) with respect to such Plan for each of
1994 and 1995;
(iii) an accurate and complete copy of (A) the most
recent summary plan description, together with each Summary of
Material Modifications (if required under ERISA) with respect to such
Plan, and (B) each material employee communication relating to such
Plan;
(iv) if such Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the
trust or other funding agreement (including all amendments thereto)
and accurate and complete copies of the most recent financial
statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements,
insurance contracts, minimum premium contracts, stop-loss agreements,
investment management agreements, subscription and participation
agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service
with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
17
24
(g) ETI is not required to be, and, to the best knowledge
of ETI and the Shareholders , ETI has never been required to be, treated as a
single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. ETI has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code.
To the best knowledge of ETI and the Shareholders , ETI has never made a
complete or partial withdrawal from a "multiemployer plan" (as defined in
Section 3(37) of ERISA) resulting in "withdrawal liability" (as defined in
Section 4201 of ERISA), without regard to subsequent reduction or waiver of
such liability under either Section 4207 or 4208 of ERISA.
(h) ETI does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable
law).
(i) No Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former
employee of ETI after any such employee's termination of service (other than
(i) benefit coverage mandated by applicable law, including coverage provided
pursuant to Section 4980B of the Code, (ii) deferred compensation benefits
accrued as liabilities on the Unaudited Balance Sheet, and (iii) benefits the
full cost of which are borne by current or former employees of ETI (or their
beneficiaries)).
(j) With respect to each of the Welfare Plans
constituting a group health plan within the meaning of Section 4980B(g)(2) of
the Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
(k) Each of the Plans has been operated and administered
in all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(l) Each of the Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and neither ETI, nor any of the Shareholders are
aware of any reason why any such determination letter should be revoked.
(m) Except as set forth in Part 2.15(m) of the Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any bonus payment, golden parachute payment,
severance payment or other payment to any current or former employee or
director of ETI (whether or not under any Plan), or materially increase the
benefits payable under any Plan, or result in any acceleration of the time of
payment or vesting of any such benefits.
(n) ETI is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, employee compensation, wages, bonuses and terms and
conditions of employment.
(o) ETI has good labor relations, and neither ETI nor any
of the Shareholders has any knowledge of any facts indicating that (i) the
consummation of the Merger or any of the
18
25
other transactions contemplated by this Agreement will have a material adverse
effect on ETI's labor relations, or (ii) any of ETI's employees intends to
terminate his or her employment with ETI.
2.16 ENVIRONMENTAL MATTERS. ETI is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
ETI possesses all permits and other Governmental Authorizations required under
applicable Environmental Laws, and ETI is and has at all times been in
compliance in all material respects with the terms and requirements of all such
Governmental Authorizations. ETI has not received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that ETI is not in compliance with any Environmental
Law, and, to the best of the knowledge of ETI and the Shareholders , there are
no circumstances that could reasonably be expected to prevent or interfere with
ETI's compliance with any Environmental Law in the future. To the best of the
knowledge of ETI and the Shareholders , no current or prior owner of any
property leased or controlled by ETI has received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that such current or prior owner or ETI is not or was
not in compliance with any Environmental Law. All Governmental Authorizations
currently held by ETI pursuant to Environmental Laws are identified in Part
2.16 of the Disclosure Schedule.
2.17 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) Other than normal cancellations, modifications and
returns for refunds in the ordinary course of business at levels consistent
with past experience under ETI's standard return policy, ETI will not incur or
otherwise become subject to any material liability arising from (i) any
product, system, program, Proprietary Asset or other asset designed, developed,
manufactured, assembled, sold, supplied, installed, repaired, licensed or made
available by ETI on or prior to the Closing Date, or (ii) any consulting
services, installation services, programming services, repair services,
maintenance services, training services, support services or other services
performed by ETI on or prior to the Closing Date.
(b) Except as set forth in Part 2.17(b) of the Disclosure
Schedule, no customer or other Person has, at any time since August 10, 1990,
asserted or threatened to assert any claim against ETI (other than claims that
have been resolved satisfactorily at no material cost to ETI) under or based
upon (i) any warranty provided by or on behalf of ETI, or (ii) any services
performed by ETI.
2.18 INSURANCE. Part 2.18 of the Disclosure Schedule provides
accurate and complete information with respect to each insurance policy
maintained by, at the expense of or for the benefit of ETI and with respect to
any claims made thereunder. ETI has delivered to VSI accurate and complete
copies of the insurance policies identified in Part 2.18 of the Disclosure
Schedule. Each of the insurance policies identified in Part 2.18 of the
Disclosure Schedule is in full force and effect. Since August 10, 1990, ETI
has not received any notice or other communication regarding any actual or
possible (a) cancellation or invalidation of any insurance policy, (b) refusal
of any coverage or rejection of any claim under any insurance policy, or (c)
material adjustment in the amount of the premiums payable with respect to any
insurance policy.
19
26
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19
of the Disclosure Schedule: (a) no Related Party has, and no Related Party has
at any time since August 10, 1990 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of ETI; (b) no
Related Party is, or has at any time since August 10, 1990 been, indebted to
ETI; (c) since August 10, 1990, no Related Party has entered into, or has had
any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving ETI; (d) no Related Party is
competing, or has at any time since August 10, 1990 competed, directly or
indirectly, with ETI; and (e) no Related Party has any claim or right against
ETI (other than rights to receive compensation for services performed as an
employee of ETI). For purposes of this Section 2.19, each of the following
shall be deemed to be a "Related Party": (i) each of the Shareholders; (ii)
each individual who is, or who has at any time since August 10, 1990 been, an
officer or director of ETI; (iii) each individual who is, or who at any time
since August 10, 1990 has been, a member of the immediate family of any of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust
or other Entity (other than ETI) in which any one of the individuals referred
to in clauses "(i)," "(ii)" and "(iii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.20(a) of the Disclosure
Schedule, there is no pending Legal Proceeding, and, to the best knowledge of
ETI and the Shareholders , no Person has threatened to commence any Legal
Proceeding: (i) that involves ETI or any of the material assets owned or used
by ETI; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of
the other transactions contemplated by this Agreement. To the best knowledge
of ETI and the Shareholders , except as set forth in Part 2.20(a) of the
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) Except as set forth in Part 2.20(b) of the Disclosure
Schedule, no Legal Proceeding has ever been commenced by, and no Legal
Proceeding has ever been pending against, ETI.
(c) There is no order, writ, injunction, judgment or
decree to which ETI, or any of the material assets owned or used by ETI, are
subject. Neither the Shareholders nor ETI is subject to any order, writ,
injunction, judgment or decree that relates to ETI's business or to any of the
assets owned or used by ETI. To the best knowledge of ETI and the
Shareholders, no officer or other employee of ETI is subject to any order,
writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to ETI's business.
20
27
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. The Shareholders and
ETI have the absolute and unrestricted right, power and authority to enter into
and to perform their respective obligations under this Agreement; and the
execution, delivery and performance by ETI of this Agreement has been duly
authorized by all necessary action on the part of ETI and its board of
directors and shareholders. This Agreement constitutes the legal, valid and
binding obligation of the Shareholders and ETI, enforceable against the
Shareholders and ETI in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22
of the Disclosure Schedule, neither (i) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (ii) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of
(i) any of the provisions of ETI's articles of incorporation or bylaws, or (ii)
any resolution adopted by ETI's shareholders, ETI's board of directors or any
committee of ETI's board of directors;
(b) contravene, conflict with or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any Legal Requirement or any order, writ, injunction,
judgment or decree to which ETI, or any of the assets owned or used by ETI, are
subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by ETI or that otherwise relates to ETI's business
or to any of the assets owned or used by ETI;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Company Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any Company Contract, (ii) accelerate the maturity or performance of any
Company Contract, or (iii) cancel, terminate or modify any Company Contract; or
(e) result in the imposition or creation of any lien or
other Encumbrance upon or with respect to any asset owned or used by ETI
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of ETI).
Except as set forth in Part 2.22 of the Disclosure Schedule, ETI is not and
will not be required to make any filing with or given any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
21
28
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.23 SOFTWARE. Part 2.23 of the Disclosure Schedule contains a
complete list of all computer software which is material to ETI's business and
which has been designed specifically for use or sale by ETI or as to which ETI
claims any proprietary rights (the "Software"). To the knowledge of ETI and
the Shareholders , ETI is not infringing or otherwise acting adversely to the
right of any party under or in respect to the Software. There is no claim for
damages or any proceeding pending, or to the knowledge of ETI and the
Shareholders threatened, with respect thereto, and ETI and Shareholders have
no knowledge that any third party is infringing or otherwise acting adversely
to the right of ETI under or in respect to any Software owned by ETI.
2.24 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not, and Shareholders' Closing Certificate (as defined in
Section 6.4(f)) will not, (i) contain any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained
herein and therein not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VSI AND THE SUBSIDIARY
VSI and the Subsidiary, jointly and severally, represent and
warrant to ETI and the Shareholders as follows:
3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) VSI has delivered to ETI accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a
form other than Form S-8) and definitive proxy statement filed by VSI with the
SEC between January 1, 1996 and the date of this Agreement (the "VSI SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the VSI SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the VSI SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in
the VSI SEC Documents: (i) accurate and complete in all respects and complied
as to form in all material respects with the published rules and regulations of
the SEC applicable thereto; (ii) were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered, except as may be indicated in the notes to such financial
statements and (in the case of unaudited statements) as permitted by Form 10-Q
of the SEC, and except that unaudited financial statements may not contain
footnotes and are subject to normal and recurring year-end audit
22
29
adjustments (which will not, individually or in the aggregate, be material in
magnitude); and (iii) fairly present the consolidated financial position of VSI
as of the respective dates thereof and the consolidated results of operations
of VSI for the periods covered thereby.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. VSI and the
Subsidiary each have the absolute and unrestricted right, power and authority
to perform their respective obligations under this Agreement; and the
execution, delivery and performance by VSI and the Subsidiary of this Agreement
have been duly authorized by all necessary action on the part of VSI and the
Subsidiary and their respective boards of directors. This Agreement shall
constitute the legal, valid and binding obligation of VSI and the Subsidiary,
enforceable against each of them in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief
of debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
3.3 VALID ISSUANCE. The VSI Common Stock to be issued as Merger
Consideration will, when issued in accordance with the provisions of this
Agreement, be validly issued, fully paid and nonassessable.
3.4 INDEPENDENT INVESTMENT DECISION. VSI acknowledges that it has
had full access to and the opportunity to review all information regarding ETI
referenced in this Agreement, and on the basis of such information has made an
independent review and investigation of the financial merits and risks of the
Merger and through such independent review and investigation has chosen to
cause the Subsidiary to merge with ETI, pursuant to the terms and conditions of
this Agreement; provided, however, that this representation shall in no way
limit or mitigate any liability of ETI or the Shareholders resulting from the
breach of any representation or warranty contained in Section 2 of this
Agreement or the obligation of ETI and the Shareholders to indemnify VSI
pursuant to Section 9 of this Agreement.
3.5 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) VSI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its
assets in the manner in which its assets are currently owned and used; and
(iii) to perform its obligations under this Agreement.
(b) VSI has the following subsidiaries:
Videoconferencing Systems, Inc., a Delaware corporation; VSI Solutions, Inc., a
Delaware corporation; VSI Network Services, Inc., a Delaware corporation;
Videoconferencing Systems Limited, a United Kingdom corporation;
Videoconferencing Systems N.V., a Belgium corporation; and ETI Acquisition Co.
3.6 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. VSI has
delivered to ETI accurate and complete copies of VSI's certificate of
incorporation and bylaws, including all amendments thereto. There has not been
any violation of any of the provisions of VSI's certificate of incorporation or
bylaws.
23
30
3.7 CAPITALIZATION, ETC.
(a) The authorized capital stock of VSI consists of
46,000,000 shares of common stock, $.00025 par value, of which 34,525,506
shares have been issued and are outstanding, and 800,000 shares of preferred
stock, of which none have been issued and are outstanding. All of the
outstanding shares of VSI common stock have been duly authorized and validly
issued, and are fully paid and non-assessable.
(b) All outstanding shares of VSI common stock have been
issued in compliance with all applicable securities laws and other applicable
Legal Requirements.
3.8 ABSENCE OF CHANGES. Except as disclosed in the VSI
Information Statement, since June 30, 1996:
(a) there has not been any material adverse change in
VSI's business, condition, assets, liabilities, operations, financial
performance or prospects no event has occurred that will, or could reasonably
be expected to, have a Material Adverse Effect on VSI;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of VSI's assets
(whether or not covered by insurance);
(c) VSI has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) VSI has not sold, issued or authorized the issuance
of (i) any capital stock or other security, (ii) any option, call, warrant or
right to acquire, or otherwise relating to, any capital stock or any other
security, or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) there has been no amendment to VSI's certificate of
incorporation or bylaws, and VSI has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) VSI has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(g) VSI has not made any capital expenditure which, when
added to all other capital expenditures made by VSI since June 30, 1996,
exceeds $100,000 in the aggregate;
(h) VSI has not, except in the ordinary course of
business, (i) entered into or permitted any of the assets owned or used by it
to become bound by any Material Contract (as defined in Section 2.10(a)), or
(ii) amended or prematurely terminated, or waived any material right
24
31
or remedy under, any Material Contract to which it is or was party or under
which it has or has had any material rights or obligations;
(i) VSI has not, except in the ordinary course of
business, (i) acquired, leased or licensed any right or other asset from any
other Person, (ii) sold or otherwise disposed of, or leased or licensed, any
right or other asset to any other Person, or (iii) waived or relinquished any
right, except for immaterial rights or other immaterial assets acquired,
leased, licensed or disposed of in the ordinary course of business and
consistent with VSI's past practices;
(j) except in the ordinary course of business, VSI has
not written off as uncollectible, or established any extraordinary reserve with
respect to, any account receivable or other indebtedness;
(k) VSI has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with VSI's past practices;
(l) VSI has not (i) lent money to any Person, or (ii)
incurred or guaranteed any indebtedness for borrowed money;
(m) VSI has not (i) established, adopted or amended any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or (iii) hired any new employee having a base
annual salary in excess of $75,000;
(n) VSI has not changed any of its methods of accounting
or accounting practices in any respect;
(o) VSI has not made any Tax election;
(p) VSI has not commenced or settled any Legal
Proceeding;
(q) VSI has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) VSI has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
3.9 LIABILITIES. VSI has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (i)
liabilities identified as such in the VSI SEC Documents; and (ii) accounts
payable or accrued
25
32
salaries that have been incurred by VSI since June 30, 1996, in the ordinary
course of business and consistent with VSI's past practices.
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS. VSI is in compliance with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have in any individual case or in
the aggregate, a Material Adverse Effect on VSI. VSI has not received any
written notice or other communication from any Governmental Body regarding any
actual or possible violation of, or failure to comply with, any Legal
Requirement.
3.11 GOVERNMENTAL AUTHORIZATIONS. VSI holds all Governmental
Authorizations necessary to enable VSI to conduct its business in the manner in
which its business is currently being conducted, and all such Governmental
Authorizations are valid and in full force and effect. VSI is in compliance
with the material terms and requirements of such Governmental Authorizations.
Since June 30, 1996, VSI has not received any notice or other communication
from any Governmental Body regarding (i) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (ii) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Authorization.
3.12 RELATED PARTY TRANSACTIONS. Except as set forth in the VSI
SEC Documents: (a) no Related Party has, and no Related Party has at any time
since June 30, 1996 had, any direct or indirect interest in any material asset
used in or otherwise relating to the business of VSI; (b) no Related Party is,
or has at any time since June 30, 1996 been, indebted to VSI; (c) since June
30, 1996, no Related Party has entered into, or has had any direct or indirect
financial interest in, any material Contract, transaction or business dealing
involving VSI; (d) no Related Party is competing, or has at any time since June
30, 1996 competed, directly or indirectly, with VSI; and (e) no Related Party
has any claim or right against VSI (other than rights to receive compensation
for services performed as an employee of VSI). For purposes of this Section
3.12, each of the following shall be deemed to be a "Related Party": (i) each
holder of 5% or more of VSI Common Stock; (ii) each individual who is, or who
has at any time since June 30, 1996 been, an officer or director of VSI; (iii)
each individual who is, or who at any time since June 30, 1996 has been, a
member of the immediate family of any of the individuals referred to in clauses
"(i)" and "(ii)" above; and (iv) any trust or other Entity (other than VSI) in
which any one of the individuals referred to in clauses "(i)," "(ii)" and
"(iii)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest.
3.13 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in the VSI SEC Documents, there
is no pending Legal Proceeding, and, to the best of the knowledge of VSI, no
Person has threatened to commence any Legal Proceeding: (i) that involves VSI
or any of the material assets owned or used by VSI; or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or any of the other transactions contemplated by
this Agreement. To the best knowledge of VSI, no event has occurred, and no
claim, dispute or other condition or
26
33
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) There is no order, writ, injunction, judgment or
decree to which VSI, or any of the material assets owned or used by VSI, are
subject. VSI is not subject to any order, writ, injunction, judgment or decree
that relates to VSI's business or to any of the assets owned or used by VSI.
To the best knowledge of VSI, no officer or other employee of VSI is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or practice
relating to VSI's business.
3.14 NON-CONTRAVENTION; CONSENTS. Except as set forth in the VSI
SEC Documents, neither (i) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor
(ii) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of
(i) any of the provisions of VSI's certificate of incorporation or bylaws, or
(ii) any resolution adopted by VSI's shareholders, VSI's board of directors or
any committee of VSI's board of directors;
(b) contravene, conflict with or result in a violation
of, or give any Governmental Body or other Person the right to challenge any of
the transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any Legal Requirement or any order, writ, injunction,
judgment or decree to which VSI, or any of the assets owned or used by VSI, are
subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by VSI or that otherwise relates to VSI's business
or to any of the assets owned or used by VSI;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any material
contract, or give any Person the right to (i) declare a default or exercise any
remedy under any material contract, (ii) accelerate the maturity or performance
of any material contract, or (iii) cancel, terminate or modify any material
contract; or
(e) result in the imposition or creation of any lien or
other Encumbrance upon or with respect to any asset owned or used by VSI
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of VSI).
VSI is not and will not be required to make any filing with or given any notice
to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
27
34
3.15 NO KNOWN BREACH. VSI has reviewed the warranties and
representations of ETI contained in Section 2 and the Disclosure Schedule and
knows of (i) no breach of any representation, warranty or covenant made by ETI
and/or the Shareholders and (ii) no occurrence, event, condition, document,
instrument or other matter regarding ETI and/or the Shareholders which has not
been disclosed and which, by such non-disclosure, would constitute a breach of
this Agreement.
3.16 FULL DISCLOSURE. This Agreement and the VSI SEC Documents do
not, and VSI's Closing Certificate (as defined in Section 7.4(d)) will not, (i)
contain any representation, warranty or information that is false or misleading
with respect to any material fact, or (ii) omit to state any material fact
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein not false or misleading.
SECTION 4. CERTAIN COVENANTS
4.1 ACCESS AND INVESTIGATION. During the period from the date of
this Agreement through the Effective Time (the "Pre-Closing Period"), each
party hereto shall, and shall cause its Representatives to: (a) provide the
other party hereto and its Representatives with reasonable access to its
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to such
party; and (b) provide such party's Representatives with such copies of the
existing books, records, Tax Returns, work papers and other documents and
information relating to such party, and with such additional financial,
operating and other data and information regarding such party, as the other
party may reasonably request.
4.2 OPERATION OF ETI'S BUSINESS. During the Pre-Closing Period,
unless VSI otherwise consents in writing, which consent shall not be
unreasonably withheld or delayed:
(a) ETI shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) ETI shall use reasonable efforts to preserve intact
its current business organizations, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with ETI;
(c) ETI shall keep in full force all insurance policies
identified in Part 2.18 of the Disclosure Schedule;
(d) ETI shall cause its officers to report regularly to
VSI concerning the status of ETI's business;
(e) Subject to the limitation set forth in Section 2.24,
ETI shall not declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of
28
35
capital stock or other securities;
(f) ETI shall not sell, issue or authorize the issuance
of (i) any capital stock or other security, (ii) any option, call, warrant or
right to acquire, or relating to, any capital stock or other security, or (iii)
any instrument convertible into or exchangeable for any capital stock or other
security;
(g) neither ETI, nor any of the Shareholders, shall amend
or permit the adoption of any amendment to ETI's articles of incorporation or
bylaws, or effect or permit ETI to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(h) ETI shall not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(i) ETI shall not make any capital expenditure, except
for capital expenditures that, when added to all other capital expenditures
made on behalf of ETI during the Pre-Closing Period, do not exceed $10,000 in
the aggregate;
(j) ETI shall not (i) enter into or become bound by, or
permit any of the assets owned or used by it to become bound by, any Material
Contract, or (ii) amend or prematurely terminate, or waive any material right
or remedy under, any Material Contract;
(k) ETI shall not, other than in the ordinary course of
business consistent with past practice (i) acquire, lease or license any right
or other asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any right or other asset to any other Person, or (iii) waive
or relinquish any right, except for immaterial assets acquired, leased,
licensed or disposed of by ETI pursuant to Contracts that are not Material
Contracts;
(l) ETI shall not (i) lend money to any Person, or (ii)
incur or guarantee any indebtedness, except that ETI may make routine
borrowings in the ordinary course of business under its respective existing
lines of credit;
(m) ETI shall not (i) establish, adopt or amend any
Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or (iii) hire any new employee whose
aggregate annual base compensation (excluding commissions and bonuses) is
expected to exceed $60,000;
(n) ETI shall not change any of its methods of accounting
or accounting practices in any respect;
(o) ETI shall not make any Tax election;
29
36
(p) ETI shall not commence or settle any Legal
Proceeding;
(q) ETI shall not enter into any material transaction or
take any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) ETI shall not agree or commit to take any of the
actions described in clauses "(e)" through "(q)" of this Section 4.2.
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, each party shall
promptly notify the other parties in writing of:
(i) the discovery by such party of any event,
condition, fact or circumstance that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes an
inaccuracy in or breach of any representation or warranty made by such
party in this Agreement;
(ii) any event, condition, fact or circumstance
that occurs, arises or exists after the date of this Agreement and
that would cause or constitute an inaccuracy in or breach of any
representation or warranty made by such party in this Agreement if (A)
such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
such party; and
(iv) any event, condition, fact or circumstance
that would make the timely satisfaction of any of the conditions set
forth in Section 6 or Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance
would require such a change assuming the Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then ETI or the Shareholders shall promptly deliver to
VSI an update to the Disclosure Schedule specifying such change. No such
update shall be deemed to supplement or amend the Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by ETI or any of the Shareholders in this Agreement, or (ii)
determining whether any of the conditions set forth in Section 6 has been
satisfied.
4.4 NO NEGOTIATION. During the Pre-Closing Period, neither ETI
nor any of the Shareholders shall, directly or indirectly:
30
37
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any Person (other than VSI) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or
enter into any agreement with, or provide any non-public information to, any
Person (other than VSI) relating to or in connection with a possible
Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer
from any Person (other than VSI) relating to a possible Acquisition
Transaction.
ETI shall promptly notify VSI in writing of any inquiry, proposal or offer
relating to a possible Acquisition Transaction that is received by ETI or any
of the Shareholders during the Pre-Closing Period.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions
contemplated by this Agreement, and (b) shall use his, its or their best
efforts to obtain each Consent (if any) required to be obtained (pursuant to
any applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by
this Agreement. ETI shall promptly deliver to VSI a copy of each such filing
made, each such notice given and each such Consent obtained by ETI during the
Pre-Closing Period. VSI shall promptly deliver to ETI a copy of each such
filing made, each such notice given and each such Consent obtained by VSI
during the Pre-Closing Period.
5.2 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) no
party shall issue any press release or make any public statement regarding this
Agreement or the Merger, or regarding any of the other transactions
contemplated by this Agreement, without the prior written consent of the other
party; provided, however, that with respect to any press release or public
statement regarding the Merger that VSI reasonably believes to be required by
any Legal Requirement, VSI may issue such press release or public statement
after consultation with ETI.
5.3 BEST EFFORTS. During the Pre-Closing Period, (a) ETI and the
Shareholders shall use their reasonable best efforts to cause the conditions
set forth in Section 6 to be satisfied on a timely basis, and (b) VSI shall use
its reasonable best efforts to cause the conditions set forth in Section 7 to
be satisfied on a timely basis.
5.4 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. At the Closing,
Xxxx X. Xxxxx shall execute and deliver to VSI an Employment Agreement in the
form of Exhibit C-1 and a Noncompetition Agreement in the form of Exhibit C-2,
and Xxxxx X. Xxxxx shall execute and deliver to VSI an Employment Agreement in
the form of Exhibit C-3 and a Noncompetition Agreement in the form of Exhibit
C-4.
31
38
5.5 RELEASE. At the Closing, each of the Shareholders shall
execute and deliver to VSI a Release in the form of Exhibit D (the "Release").
5.6 ESCROW AGREEMENT. At the Closing, VSI and the Shareholders
shall execute and deliver the Escrow Agreement.
5.7 INFORMATION STATEMENT. As promptly as practicable after the
execution of this Agreement, VSI and ETI shall jointly prepare an Information
Statement relating to the approval of the Merger by the ETI shareholders (the
"Information Statement").
5.8 ETI SHAREHOLDER CONSENT. The Shareholders shall, in
accordance with the articles of incorporation and bylaws of ETI and the
applicable requirements of the Rhode Island Business Corporation Act, take
action by written consent as promptly as practicable to approve the Merger and
this Agreement ("ETI Shareholders' Consent"). ETI shall cause a copy of the
Information Statement to be delivered to each shareholder of ETI. As promptly
as practicable after the delivery of copies of the Information Statement to all
shareholders, ETI shall use its best efforts to cause each of such shareholders
to execute and deliver to VSI a Shareholder Investment Certification in the
form of Exhibit F.
5.9 ETI EMPLOYEE OPTIONS. As promptly as practicable after the
Effective Date, and in no event later than October 31, 1996, VSI will issue
non-qualified options to not more than 13 current employees of ETI, who shall
be designated by the shareholders in writing to VSI, to purchase an aggregate
of 127,754 shares of VSI Common Stock at an exercise price of $.00025 per
share. Said options shall expire December 31, 2001. The recipients of said
options shall be granted "piggyback" registration rights with respect to the
VSI Common Stock to be issued upon the exercise of said options.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF VSI AND THE SUBSIDIARY
The obligations of VSI and the Subsidiary to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction or waiver, at or prior to the Closing, of each of
the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by ETI and the Shareholders in this Agreement and in each of
the other agreements and instruments delivered to VSI in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement, and shall be accurate in all
respects as of the Scheduled Closing Time as if made at the Scheduled Closing
Time (without giving effect to any update to the Disclosure Schedule).
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that
ETI or any of the Shareholders is required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
respects.
32
39
6.3 CONSENTS. All Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in Part 2.22 of the Disclosure Schedule)
shall have been obtained and shall be in full force and effect.
6.4 AGREEMENTS AND DOCUMENTS. VSI shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) the Employment Agreements and the Noncompetition
Agreements referred to in Section 5.4 executed by Xxxx X. Xxxxx and Xxxxx X.
Xxxxx;
(b) a Release, executed by each of the Shareholders ;
(c) the Escrow Agreement, executed by each of the
Shareholders;
(d) estoppel certificates, each dated as of a date not
more than five days prior to the Closing Date and satisfactory in form and
content to VSI, executed by the Persons identified on Exhibit E and by such
other Persons as VSI may reasonably specify;
(e) a legal opinion of Xxxxx & Xxxxxxx, dated as of the
Closing Date, satisfactory in form and substance to VSI and its counsel;
(f) a certificate executed by ETI and the Shareholders
and containing the representation and warranty of ETI and each Principal
Shareholder that each of the representations and warranties set forth in
Section 2 is accurate in all material respects as of the Closing Date as if
made on the Closing Date and that the conditions set forth in Sections 6.1,
6.2, 6.3, 6.4 and 6.5 have been duly satisfied (the "ETI and Shareholders '
Closing Certificate"); and
(g) a waiver, executed by ETI and the Shareholders, of
the provisions of Article VIII of the bylaws of ETI.
6.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in ETI's business, condition, assets, liabilities, operations,
financial performance or prospects since the date of this Agreement.
6.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.7 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by the Shareholders of any material right
pertaining to their ownership of VSI Common Stock.
33
40
6.8 COMPLETION OF DUE DILIGENCE. VSI shall have completed its due
diligence investigation of ETI and shall have been satisfied with the results
thereof.
6.9 SHAREHOLDER INVESTMENT CERTIFICATIONS. Shareholder Investment
Certifications in the form of Exhibit F executed by each of the Shareholders of
ETI shall have been delivered to VSI.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ETI AND THE
SHAREHOLDERS.
The obligations of ETI and the Shareholders to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by VSI and the Subsidiary in this Agreement and in each of the
other agreements and instruments delivered to ETI in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement, and shall be accurate in all
respects as of the Scheduled Closing Time as if made at the Scheduled Closing
Time.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that VSI is required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all respects.
7.3 CONSENTS. All Consents required to be obtained in connection
with the merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
7.4 AGREEMENTS AND DOCUMENTS.
(a) VSI and the Shareholders shall have entered into the
Employment Agreements described in Section 6.4(a);
(b) VSI shall have entered into the Escrow Agreement;
(c) ETI and the Shareholders shall have received a legal
opinion of Xxxxx, Xxxxxxxx & Xxxxxxx in form and substance satisfactory to ETI,
the Shareholders and their counsel; and
(d) ETI and the Shareholders shall have received a
certificate executed by VSI and the Subsidiary, and containing the
representation and warranty of VSI and the Subsidiary that each of the
representations and warranties set forth in Section 3 are accurate in all
material respects as of the Closing Date as if made on the Closing Date and
that the conditions set forth in Sections 7.1, 7.2, 7.3 and 7.4 have been duly
satisfied (the "VSI Closing Certificate").
34
41
7.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
by ETI shall have been issued by any court of competent jurisdiction and remain
in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by ETI illegal.
7.6 COMPLETION OF DUE DILIGENCE. ETI shall have completed its due
diligence investigation of VSI and shall have been satisfied with the results
thereof.
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in VSI's business, condition, assets, liabilities, operations,
financial performance or prospects since the date of this Agreement.
7.8 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by VSI of any material right pertaining to this
Agreement.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to
the Closing:
(a) by VSI if VSI reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of VSI to comply with or
perform any covenant or obligation of VSI set forth in this Agreement);
(b) by ETI if ETI reasonably determines that the timely
satisfaction of any condition set forth in Section 7 has become impossible
(other than as a result of any failure on the part of ETI or any of the
Shareholders to comply with or perform any covenant or obligation set forth in
this Agreement);
(c) by VSI at or after the Scheduled Closing Time if any
condition set forth in Section 6 has not been satisfied by the Scheduled
Closing Time;
(d) by ETI at or after the Scheduled Closing Time if any
condition set forth in Section 7 has not been satisfied by the Scheduled
Closing Time;
(e) by VSI if the Closing has not taken place on or
before October 15, 1996 (other than as a result of any failure on the part of
VSI to comply with or perform any covenant or obligation of VSI set forth in
this Agreement);
(f) by ETI if the Closing has not taken place on or
before October 15, 1996 (other than as a result of the failure on the part of
ETI or any of the Shareholders to comply with or perform any covenant or
obligation set forth in this Agreement or in any other agreement or instrument
delivered to VSI);
35
42
(g) by ETI if the average closing bid price of VSI Common
Stock for the ten trading days prior to the Closing Date is less than $1.93; or
(h) by the mutual consent of VSI and ETI.
8.2 TERMINATION PROCEDURES. If VSI wishes to terminate this
Agreement pursuant to Section 8.1(a), Section 8.1(c) or Section 8.1(e), VSI
shall deliver to ETI a written notice stating that VSI is terminating this
Agreement and setting forth a brief description of the basis on which VSI is
terminating this Agreement. If ETI wishes to terminate this Agreement pursuant
to Section 8.1(b), Section 8.1(d), Section 8.1(f) or Section 8.1(g), ETI shall
deliver to VSI a written notice stating that ETI is terminating this Agreement
and setting forth a brief description of the basis on which ETI is terminating
this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.1, all obligations of the parties under this Agreement
shall terminate and this Agreement shall be of no further effect.
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of ETI, the Shareholders, VSI and the
Subsidiary contained in this Agreement shall survive the Closing and shall
continue for a period of nine months following the Closing Date; except that
representations and warranties contained in Sections 2.3 and 2.6(a)(i) (with
respect to computers, furniture and equipment) shall survive until expiration
of the applicable statutes of limitation for breach of such representations and
warranties. The expiration of any representation or warranty shall not affect
any party's right to claim indemnification for a breach of such representation
or warranty, provided such party gives notice of such claim in accordance with
the provisions of this Section 9 prior to the expiration of such representation
or warranty.
9.2 SHAREHOLDERS' INDEMNITY AGREEMENT.
(a) Subject to the limitations of paragraphs (b), (c),(d)
and (e) of this Section, the Shareholders, jointly and severally, shall defend,
indemnify and hold harmless VSI and the Surviving Corporation (and their
respective directors, officers, employees, agents, affiliates, successors and
assigns) from and against any and all direct or indirect requests, demands,
claims, payments, defenses, obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, actions, liens, causes of action, suits,
proceedings, judgments, losses, Damages (including without limitation punitive,
exemplary or consequential damages, lost income and profits, interruptions of
business), liabilities, costs, and expenses of any kind (including without
limitation (i) interest, penalties and reasonable attorneys' fees and expenses,
(ii) reasonable attorneys' fees and expenses necessary to enforce their rights
to indemnification hereunder, and (iii) consultants' fees and other costs of
defending any claim hereunder), whether accrued, absolute, contingent, known,
unknown, or otherwise as of the Closing Date or thereafter asserted against,
imposed upon or incurred by XXX,
00
00
the Surviving Corporation or any of their respective directors, officers,
employees, agents, affiliates, successors or assigns (a "Loss of VSI") by
reason of, resulting from, arising out of, based upon, awarded or asserted
against or otherwise in respect of:
(i) any period or periods of ETI ending prior to
the Closing and which involve any claims against VSI, ETI, the
Surviving Corporation or their respective properties or assets,
relating to actions or inactions of ETI or its respective officers,
directors, shareholders, employees or agents prior to Closing, or the
operation of the business of ETI prior to the Closing unless such
liability was disclosed on the Financial Statements or in this
Agreement or Disclosure Schedule;
(ii) any breach of any representation and warranty
contained in this Agreement or any misrepresentation in or omission on
the part of ETI or the Shareholders contained in any certificate
furnished or to be furnished to VSI by ETI or the Shareholders
pursuant to this Agreement;
(iii) any breach or nonfulfillment (unless waived)
on the Part of ETI or the Shareholders of any covenant contained in
this Agreement;
(iv) the failure of ETI or the Shareholders to
obtain, prior to the Closing Date, any consents, approvals and waivers
of governmental agencies or entities, lessors, landlords, suppliers,
and other third parties as may be necessary to permit the consummation
of the Merger and to permit the Surviving Corporation to continue to
operate the business of ETI in the manner presently conducted after
the Closing Date, unless VSI is expressly notified in writing of such
failure prior to Closing and elects to consummate the Closing
notwithstanding such notification, in which case such failure shall
not subject ETI or the Shareholders to any liability whatsoever under
this Agreement or otherwise; and
(v) any federal, state, local or foreign taxes,
including any interest and penalties thereon, due from ETI or the
Shareholders with respect to any period prior to the Closing Date,
other than amounts accrued therefor on the Financial Statements.
(b) Notwithstanding anything to the contrary set forth in
this Agreement or any Exhibit, Schedule or related agreement, no amounts of
indemnity shall be payable in the case of a claim pursuant to this Section 9.2
or otherwise related to, arising from or in respect of this Agreement unless
and until the party or parties to be indemnified by Shareholders hereunder have
suffered, incurred, sustained or become subject to Losses of VSI in excess of
$100,000, in which event the indemnified parties shall be entitled to claim
indemnity only for the amount of such Losses of VSI in excess of $100,000.
(c) The obligations of Shareholders under this Section
9.2 with respect to a claim for indemnity for a misrepresentation or breach of
warranty by Shareholders contained in Section 2.3 or Section 2.6(a)(i) (as such
warranty relates to computers, furniture and equipment) shall be limited to the
Merger Consideration.
37
44
(d) The indemnity obligations of Shareholders under this
Section 9.2 with respect to all claims other than a claim of misrepresentation
or breach of warranty by Shareholders contained in Section 2.3 or Section
2.6(a)(i) (as such warranty relates to computers, furniture and equipment)
shall be limited recourse obligations of the Shareholders payable solely from,
and only to the extent of, the Escrow Shares held by the Escrow Agent pursuant
to the Escrow Agreement.
(e) Notwithstanding anything to the contrary set forth in
this Agreement, the Exhibits and Schedules hereto, or any certificate or
agreement executed and delivered in connection herewith or therewith
(collectively, the "Documents"), the sole and exclusive remedy, at law and/or
in equity, of VSI, the Subsidiary and any indemnitee, stockholder, officer,
director or agent of VSI and/or the Subsidiary, against the Shareholders, their
successors and assigns, for breach of any representation, warranty and/or
covenant or obligations of ETI and/or the Shareholders contained in any of the
Documents shall be the right to claim indemnification from the Shareholders
under Section 9.2 of this Agreement subject to the threshold and limitations
set forth in subsections 9.2(b), 9.2(c) and 9.2(d) hereof, respectively.
9.3 INDEMNITY AGREEMENT OF VSI AND THE SURVIVING CORPORATION. VSI
and the Surviving Corporation shall indemnify and hold harmless the
Shareholders (and their respective successors and assigns) from and against
any and all direct or indirect requests, demands, claims, payments, defenses,
obligations, recoveries, deficiencies, fines, penalties, interest, assessments,
actions, liens, causes of action, suits, proceedings, judgments, losses,
Damages (including without limitation punitive, exemplary or consequential
damages and lost income and profits and interruptions of business),
liabilities, costs, and expenses of any kind (including without limitation (i)
interest, penalties and reasonable attorneys' fees and expenses, (ii)
attorneys' fees and expenses necessary to enforce their rights to
indemnification hereunder, and (iii) consultants' fees and other costs of
defending or investigating any claim hereunder, and interest on any amount
payable as a result of the foregoing) whether accrued, absolute, contingent,
known, unknown or otherwise as of the Closing Date or thereafter asserted
against, imposed upon or incurred by Shareholders or its respective
representatives or assigns, (a "Loss of Shareholders") by reason of, resulting
from, arising out of, based upon, awarded or asserted against in respect of or
otherwise in respect of:
(a) any period or periods of VSI and the Surviving
Corporation beginning after the Closing and which involve any claims against
the Shareholders or their respective assets relating to actions or inactions
of VSI or the Surviving Corporation or their respective officers, directors,
shareholders, employees or agents after the Closing, or the operation of VSI or
the Surviving Corporation after the Closing (except to the extent any of the
foregoing arise from the acts or omissions of the Shareholders); and
(b) any breach of any representation and warranty or
nonfulfillment of any covenant or agreement on the part of VSI or the
Subsidiary contained in this Agreement, or any misrepresentation in or omission
from or nonfulfillment of any covenant on the part of the VSI or the Subsidiary
contained in any certificate furnished or to be furnished to the Shareholders
by VSI or the Subsidiary pursuant to this Agreement.
38
45
(c) the failure of VSI or the Subsidiary to obtain, prior
to the Closing Date, any consents, approvals and waivers of governmental
agencies or entities, lessors, landlords, suppliers, and other third parties as
may be necessary to permit the consummation of the Merger and to permit the
Surviving Corporation to continue to operate the business of ETI in the manner
presently conducted after the Closing Date, unless ETI is expressly notified in
writing of such failure prior to Closing and elects to consummate the Closing
notwithstanding such notification in which case such failure shall not subject
VSI or the Subsidiary to any liability whatsoever under this Agreement or
otherwise.
9.4 INDEMNIFICATION PROCEDURE.
(a) Upon obtaining knowledge thereof, the party to be
indemnified hereunder (the "Indemnitee") shall promptly notify the indemnifying
party hereunder (the "Indemnitor") in writing of any damage, claim, loss,
liability or expense or other matter which the Indemnitee has determined has
given or could give rise to a claim for which indemnification rights are
granted hereunder (such written notice referred to as the "Notice of Claim").
The Notice of Claim shall specify, in all reasonable detail, the nature and
estimated amount of any such claim giving rise to a right of indemnification,
to the extent the same can reasonably be estimated. Any failure on the part of
an Indemnitee to give timely notice to the Indemnitor of a claim shall not
affect the right of the Indemnitee to obtain indemnification from the
Indemnitor with respect to such claim unless the Indemnitor is actually harmed
by such failure to notify, and only to the extent of such actual harm.
(b) With respect to any matter set forth in a Notice of
Claim relating to a third party claim the Indemnitor shall defend, in good
faith and at its expense, any such claim or demand, and the Indemnitee, at its
expense, shall have the right to participate in the defense of any such third
party claim. So long as Indemnitor is defending, in good faith, any such third
party claim, the Indemnitee shall not settle or compromise such third party
claim. The Indemnitee shall make available to the Indemnitor or its
representatives all records and other materials reasonably required by them for
use in contesting any third party claim and shall cooperate fully with the
Indemnitor in the defense of all such claims. If the Indemnitor does not
defend any such third party claim or if the Indemnitor does not provide the
Indemnitee with prompt and reasonable assurances that the Indemnitor will
satisfy the third party claim, the Indemnitee may, at its option, elect to
defend any such third party claim, at the Indemnitor's expense. An Indemnitor
may not settle or compromise any claim without obtaining a full and
unconditional release of the Indemnitee, unless the Indemnitee consents in
writing to such settlement or compromise. Notwithstanding the foregoing, if
there is a reasonable probability that a third party claim for which the Buyer
has indemnification rights against Seller hereunder will materially and
adversely affect Buyer or the Company other than as a result of money damages
or other payments, Buyer shall be entitled to conduct the defense of such claim
at Sellers' expense.
39
46
SECTION 10. REGISTRATION OF SHARES
10.1 REGISTRATION. VSI will use its best efforts to effect the
registration under the Securities Act of the VSI Common Stock constituting a
portion of the Merger Consideration (the "Registrable Securities") promptly
after the Closing Date. In that regard, VSI will:
(a) prepare and file with the SEC a registration
statement on or before November 15, 1996, on any form that VSI is eligible to
use, such form to be selected by VSI after consultation with counsel, with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective on or before December 31, 1996. If,
for any reason, VSI fails to cause a registration statement with the SEC to
become effective on or before December 31, 1996, the Shareholders shall have
the right to demand, not more than twice, registration of their respective
Registrable Securities. Upon receipt of any such demand, VSI shall, as
promptly as practicable prepare and file with the SEC a registration statement
sufficient to permit the public offering of the Registrable Securities and will
use its best efforts through its officers, directors, auditors, and counsel, in
all matters necessary or advisable, to cause such registration statement to
become effective as promptly as practicable; provided, however, VSI shall only
be obligated to file two such registrations for all of the Registrable
Securities;
(b) if, at any time after December 31, 1996, VSI shall
file a registration statement (other than on Form S-4 or Form S-8, or any
successor form) with respect to its Common Stock with the SEC while the
Shareholders own any shares of such Registrable Securities, VSI shall give the
Shareholders at least thirty (30) days prior written notice of the filing of
the proposed registration statement, which notice shall set forth the intended
method of disposition of the securities proposed to be registered. If
requested by the Shareholders in writing within fifteen (15) days after receipt
of any such notice, VSI shall use its best efforts to register or qualify the
Registrable Securities concurrently with the registration of such other
securities, all to the extent required to permit the public offering or sale of
the Registrable Securities through the facilities of the over-the-counter or
appropriate stock exchange market. Notwithstanding the foregoing, if, in the
case of an underwritten offering by VSI, the managing underwriter of such
offering shall advise VSI in writing that, in its opinion, the distribution of
all or a portion of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by VSI would
materially adversely affect the distribution of such securities by VSI, then
VSI shall promptly furnish the Shareholders with a copy of such opinion and may
require, by written notice to the Shareholders accompanying such opinion, that
the distribution of all or a specified portion of such Registrable Securities
be excluded from such distribution;
(c) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities and other securities covered
by such registration statement until the earlier of such time as all of such
Registrable Securities and securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such registration statement or the expiration of one hundred twenty (120)
days
40
47
after such registration statement becomes effective; and will furnish, upon
request, to each such seller prior to the filing thereof a copy of any
amendment or supplement to such registration statement or prospectus and shall
not file any such amendment or supplement to which any such seller shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
of the rules or regulations thereunder;
(d) furnish to each seller of such Registrable Securities
and such number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents, if any,
incorporated by reference in such registration statement or prospectus, and
such other documents, as such seller may reasonably request;
(e) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of the states of the
United States as each seller shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and do any and all other acts and things which may
be necessary or advisable to enable such seller to consummate the disposition
in such jurisdictions of its Registrable Securities covered by such
registration statement, except that VSI shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subsection
(e) be obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent general service of process in any such
jurisdiction;
(f) upon request, furnish to each seller of Registrable
Securities a signed counterpart, addressed to such seller, of (i) an opinion of
counsel for VSI, dated the effective date of such registration statement, and
(ii) a "comfort" letter, dated the effective date of such registration
statement, signed by the independent public accountants who have certified
VSI's financial statements included in such registration statement, covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities;
(g) immediately notify each seller of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, which
untrue statement or omission requires amendment of the registration statement
or supplementation of the prospectus, and at the request of any such seller,
prepare and furnish to such
41
48
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing; provided, however, that each
holder of Registrable Securities registered pursuant to such registration
statement agrees that he or it will not sell any Registrable Securities
pursuant to such registration statement during the time that VSI is preparing
and filing with the SEC a supplement to or an amendment of such prospectus or
registration statement.
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first month of the first fiscal quarter after
the effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act;
(i) provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(j) use its best efforts to list all Common Stock covered
by such registration statement on each securities exchange on which any of the
VSI Common Stock is then listed or, if VSI Common Stock is not then quoted on
NASDAQ or listed on any national securities exchange, use its best efforts to
have such VSI Common Stock covered by such registration statement quoted on
NASDAQ or, at the option of VSI, listed on a national securities exchange.
VSI may require each seller of Registrable Securities as to which any
registration is being effected to furnish VSI such information regarding such
seller and the distribution of such securities as VSI may from time to time
reasonably request in writing and as shall be required by law or by the SEC in
connection therewith.
10.2 EXPENSES. Except as otherwise required by applicable law, VSI
will pay all registration expenses in connection with the registration of the
Registrable Securities pursuant to Section 10.1.
10.3 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of the registration statement registering Registrable
Securities under the Securities Act, VSI will give the holders of Registrable
Securities on whose behalf such Registrable Securities are to be so registered,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the SEC and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of VSI with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary in the opinion of such holders and such underwriters or
their respective counsel, to conduct a
42
49
reasonable investigation within the meaning of the Securities Act. To minimize
disruption and expense to VSI during the course of the registration process,
sellers of Registrable Securities to be covered by any such registration
statement shall coordinate their investigation and due diligence efforts
hereunder and, to the extent practicable, will act through a single set of
counsel and a single set of accountants.
10.4 INDEMNIFICATION.
(a) Indemnification by VSI. VSI will, and hereby does,
indemnify and hold harmless in the case of any registration statement filed
pursuant to Section 10.1, the seller of any Registrable Securities covered by
such registration statement, its directors, trustees and officers, against any
losses, claims, damages, liabilities or expenses, joint or several, to which
such seller or any such director or officer may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and VSI will reimburse such seller, and each such director,
trustee and officer, for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that VSI shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or expense
(or action or proceeding in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to VSI through an instrument duly
executed by such seller or any such director, trustee or officer, specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, trustee or officer, and shall
survive the transfer of such securities by such seller. VSI shall agree to
make provision for contribution relating to such indemnity as shall be
reasonably requested by any seller of Registrable Securities.
(b) Indemnification by the Sellers. VSI may require, as
a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 10.1, that VSI shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as
set forth in subdivision (a) of this section 10.4) VSI, each director of VSI,
each officer of VSI who shall sign such registration statement and each other
person, if any, who controls VSI within the meaning of the Securities Act, with
respect to any statement in or omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus included
therein, or any amendment or supplement thereto, if such statement or omission
was made in reliance upon and in conformity with written information furnished
to VSI through an instrument only executed by such seller
43
50
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of VSI or any such
director, officer or controlling person and shall survive the transfer of such
securities by such seller.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this section
10.4, such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 10.4. In case
any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonable satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this Section 10.4 (with
appropriate modifications) shall be given by VSI and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification
required by this Section 10.4 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills
are received or expense, loss, damage or liability is incurred.
10.5 SURVIVAL. VSI's obligations under this Section 10 shall
survive the termination of the parties' representations and warranties pursuant
to Section 9.1 hereof.
SECTION 11. MISCELLANEOUS PROVISIONS
11.1 FURTHER ASSURANCES. Each party hereto shall execute and cause
to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the transactions contemplated by this
Agreement.
44
51
11.2 FEES AND EXPENSES. Subject to Section 9, all fees, costs and
expenses (including legal fees and accounting fees) that have been incurred or
that are incurred in the future by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) any
investigation and review conducted by such party of the other parties' business
(and the furnishing of information in connection with such investigation and
review), (b) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule) and all agreements, certificates, opinions
and other instruments and documents delivered or to be delivered in connection
with the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of any Consent required to be obtained in connection with any of such
transactions, and (d) the consummation of the Merger shall be paid: (i) by
VSI, if incurred by VSI or the Subsidiary; and (ii) by the Shareholders , if
incurred by ETI or the Shareholders; provided, however that VSI will pay
one-half of ETI's fee to the Geneva Group not to exceed $172,500.
11.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
11.4 NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the
other parties hereto):
if to VSI:
VSI Enterprises, Inc.
0000 Xxxxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attn: B.R. Xxxxxx, President and Chief Operating Officer
Facsimile: (000) 000-0000
with a copy to:
Xxxxx, Xxxxxxxx & Xxxxxxx
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
45
52
if to ETI:
Eastern Telecom, Inc.
000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxx Xxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx
000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
if to any of the Shareholders :
Xxxx X. Xxxxx
00 Xxxx Xxxxx Xxxxx
Xxxxxxxxx, Xxxxx Xxxxxx 00000
Xxxxx X. Xxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxxxx 00000
11.5 CONFIDENTIALITY. On and at all times after the Closing Date,
ETI and each Shareholder shall keep confidential, and shall not use or disclose
to any other Person, any non-public document or other non-public information in
ETI's or such Shareholder's possession that relates to the business of ETI or
the Subsidiary.
11.6 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
11.7 HEADINGS. The bold-faced Section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
46
53
11.9 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of Georgia
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating
to this Agreement or the enforcement of any provision of this Agreement may be
brought to or otherwise commenced in any state or federal court located in New
York, New York. Each party to this Agreement:
(i) expressly and irrevocably consents and
submits to the jurisdiction of each state and federal court located in
New York, New York (and each appellate court located in the State of
Georgia) in connection with any such legal proceeding;
(ii) agrees that each state and federal court
located in New York, New York shall be deemed to be a convenient
forum; and
(iii) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any
state or federal court located in New York, New York, any claim that
such party is not subject personally to the jurisdiction of such
court, that such legal proceeding has been brought in an inconvenient
forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may not be enforced
in or by such court.
11.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
ETI and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); VSI and its successors and assigns (if any).
This Agreement shall inure to the benefit of ETI, the Shareholders, VSI, and
the respective successors, heirs personal representatives and assigns (if any)
of the foregoing. Following the Merger, VSI may freely assign any or all of
its rights (but not its obligations) under this Agreement (including its
indemnification rights under Section 9), in whole or in part, to any other
Person without obtaining the consent or approval of any other party hereto or
of any other Person.
11.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to
this Agreement, such other party shall be entitled (in addition to any other
remedy that may be available to it) to (a) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (b) an injunction restraining such
breach or threatened breach.
47
54
11.12 WAIVER.
(a) No failure on the part of any party to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the
part of any party in exercising any power, right, privilege or remedy under
this Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No party shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
11.13 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
11.14 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable, shall
not be impaired or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by law.
11.15 PARTIES IN INTEREST. Except for the provisions of Section 9,
none of the provisions of this Agreement is intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors, heirs, personal representatives and assigns (if any).
11.16 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
11.17 CONSTRUCTION
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
48
55
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
The parties hereto have caused this Agreement to be executed and
delivered as of the date first above written.
"VSI"
VSI ENTERPRISES, INC.,
a Delaware corporation
By: /s/ B.R. Xxxxxx
--------------------------------------------
B. R. Xxxxxx, President and Chief Operating
Officer
"SUBSIDIARY"
ETI ACQUISITION CO.,
a Delaware corporation
By: /s/ B.R. Xxxxxx
--------------------------------------------
B. R. Xxxxxx, President
"ETI"
EASTERN TELECOM, INC.
a Rhode Island corporation
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------
Xxxxx X. Xxxxx, President
49
56
"SHAREHOLDERS"
/s/ Xxxx X. Xxxxx (SEAL)
------------------------------------
Xxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx (SEAL)
------------------------------------
Xxxxx X. Xxxxx
50
57
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all
or a material portion of ETI's business or assets;
(b) the issuance, disposition or acquisition of (i) any
capital stock or other equity security of ETI or VSI, as the case may
be; (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire, or otherwise relating to, any
capital stock or other equity security of ETI or VSI, as the case may
be; or (iii) any security, instrument or obligation that is or may
become convertible into or exchangeable for any capital stock or other
equity security of ETI or VSI, as the case may be; or
(c) any merger, consolidation, business combination,
share exchange, reorganization or similar transaction involving ETI or
VSI, as the case may be.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger
and Reorganization to which this Exhibit A is attached (including the
Disclosure Schedule), as it may be amended from time to time.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which ETI is a party; (b) by which ETI or any of its assets are or may become
bound or under which ETI has, or may become subject to, any obligation; or (c)
under which ETI has or may acquire any right or interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to ETI or otherwise used by ETI.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
X-0
00
XXXXXXXXXX XXXXXXXX. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to VSI on behalf of ETI and
the Shareholders .
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature (including any
restriction on the voting of any security), any restriction of any nature
(including any restriction on the voting of any security, any restriction on
the transfer of any security or other asset, any restriction on the receipt of
any income derived from any asset, any restriction on the use of any asset and
any restriction on the possession, exercise or transfer of any other attribute
of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement; or (b) right under any Contract with any
Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city, local or other political subdivision.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by
A-2
59
or before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitute, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed
to have a "Material Adverse Effect" on ETI if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement or in the
Shareholders' Closing Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) would have a material adverse effect on
ETI's business, condition, assets, liabilities, operations, or financial
performance.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
asbestos, PCBs, petroleum and petroleum products and any other substance that
is now or in the future regulated by any Environmental Law or that is otherwise
a danger to health, reproduction or the environment.)
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service xxxx (whether
registered or unregistered), service xxxx application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or
other intellectual property right or intangible asset; or (b) right to use or
exploit any of the foregoing.
REPRESENTATIVES "Representatives" shall mean officers, directors,
employees, agents, attorneys, accounts, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of
1933, as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise
tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise
tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any
A-3
60
fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
A-4
