AGREEMENT AND PLAN OF MERGER
BY AND AMONG
POWER-ONE, INC.,
POWER-ONE ACQUISITION CORP.
AND
HC POWER, INC.
FEBRUARY 11, 2000
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.....................................................................1
1.1 The Merger.....................................................................1
1.2 Effect on Capital Stock........................................................2
1.3 Surrender of Certificates......................................................4
1.4 No Further Ownership Rights in Seller Capital Stock............................6
1.5 Post-Closing Adjustment........................................................6
1.6 Lost, Stolen or Destroyed Certificates.........................................7
1.7 Tax and Accounting Consequences................................................8
1.8 Taking of Necessary Action: Further Action....................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER.......................................8
2.1 Organization And Related Matters...............................................8
2.2 Capitalization.................................................................8
2.3 Financial Statements; Changes; Contingencies...................................9
2.4 Taxes.........................................................................11
2.5 MaterialContracts.............................................................12
2.6 Title To Property; Condition Of Property; Leases..............................13
2.7 Intellectual Property.........................................................13
2.8 Corporate Authorization.......................................................13
2.9 Authorization.................................................................14
2.10 Non-contravention.............................................................14
2.11 Legal Proceedings.............................................................14
2.12 Insurance.....................................................................14
2.13 Compliance With Law...........................................................15
2.14 Employees.....................................................................15
2.15 Employee Benefits.............................................................15
2.16 No Brokers or Finders.........................................................17
2.17 Inventories...................................................................17
2.18 Customers.....................................................................17
2.19 Suppliers.....................................................................18
2.20 Product Warranties............................................................18
i
TABLE OF CONTENTS
(CONTINUED)
Page
----
2.21 Environmental Law Compliance..................................................18
2.22 Minute Books..................................................................19
2.23 Due Diligence Materials.......................................................19
2.24 Year 2000 Compliance..........................................................19
2.25 Related Party Transactions....................................................19
2.26 Pooling of Interests..........................................................20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER.......................................20
3.1 Organization And Related Matters..............................................20
3.2 Capitalization................................................................20
3.3 Corporate Authorization.......................................................21
3.4 Authorization.................................................................21
3.5 Non-contravention.............................................................21
3.6 Legal Proceedings.............................................................22
3.7 Compliance With Law...........................................................22
3.8 No Brokers Or Finders.........................................................22
3.9 Intellectual Property.........................................................22
3.10 SEC Documents.................................................................22
3.11 Due Diligence Materials.......................................................23
3.12 Pooling of Interests..........................................................23
ARTICLE IV CONDUCT BEFORE CLOSING........................................................23
4.1 Conduct of Seller.............................................................23
4.2 Conduct of Buyer..............................................................25
4.3 No Solicitation of Transactions...............................................25
4.4 Satisfaction of Bonuses for Tax Payment Obligations...........................25
ARTICLE V ADDITIONAL AGREEMENTS.........................................................26
5.1 Access........................................................................26
5.2 Notification of Certain Matters...............................................26
5.3 Permits and Approvals.........................................................27
5.4 Shareholder Meeting; Information Statement....................................27
ii
TABLE OF CONTENTS
(CONTINUED)
Page
----
5.5 Conditions....................................................................27
5.6 Pooling Accounting............................................................27
5.8 Reorganization................................................................27
5.9 Preliminary Closing Date Balance Sheet........................................27
ARTICLE VI CONDITIONS TO CLOSING.........................................................28
6.1 General Conditions............................................................28
6.2 Conditions to Obligations of Buyer............................................28
6.3 Conditions to Obligations of Seller...........................................30
ARTICLE VII TERMINATION OF OBLIGATIONS....................................................31
7.1 Termination of Agreement......................................................31
7.2 Effect of Termination.........................................................32
ARTICLE VIII INDEMNIFICATION...............................................................32
8.1 Escrow Fund...................................................................32
8.2 Obligations of Seller.........................................................32
8.3 Obligations of Buyer..........................................................33
8.4 Procedure.....................................................................33
ARTICLE IX MISCELLANEOUS.................................................................34
9.1 Survival of Representations and Warranties....................................34
9.2 Public Announcements..........................................................34
9.3 Confidentiality...............................................................34
9.4 Expenses......................................................................34
9.5 Representative................................................................34
9.6 Notices.......................................................................35
9.7 Further Assurances............................................................35
9.8 Sections and Other Headings...................................................36
9.9 Integrated Agreement..........................................................36
9.10 Assignment....................................................................36
9.11 Amendments; Waivers...........................................................36
iii
TABLE OF CONTENTS
(CONTINUED)
Page
----
9.12 Interpretation................................................................36
9.13 Counterparts..................................................................36
9.14 Headings; Exhibits............................................................36
9.15 Severability..................................................................37
9.16 Governing Law.................................................................37
9.17 Specific Performance..........................................................37
9.18 Arbitration...................................................................37
iv
AGREEMENT AND PLAN OF MERGER
This Agreement is entered into as of February 11, 2000
among POWER-ONE, INC., a Delaware corporation ("BUYER"), POWER-ONE
ACQUISITION CORP., a California corporation ("ACQUISITION CORP."), and HC
POWER, INC., a California corporation ("SELLER"). Certain capitalized terms
used in this Agreement are defined in the text or on EXHIBIT A.
RECITALS
A. The Boards of Directors of Seller, Buyer and Acquisition Corp.
believe it is in the best interests of their respective companies and the
shareholders of their respective companies that Seller and Acquisition Corp.
combine into a single company through the merger of Acquisition Corp. with and
into Seller (the "MERGER") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, the outstanding shares
of Seller's capital stock (collectively "SELLER CAPITAL STOCK") will be
exchanged for shares of Buyer's Common Stock ("BUYER COMMON STOCK"), as set
forth herein.
C. Seller, Buyer and Acquisition Corp. desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code, and to cause the
Merger to qualify as a reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
E. Concurrently with the execution of this Agreement, Xxxxxxx Xxxxxx,
Xxxxx Xxxxxx and Xxxxx Xxxxx will each deliver to Buyer an agreement in the form
of EXHIBIT B (as amended, supplemented or otherwise modified from time to time,
the "SUPPORT AGREEMENT") to vote his shares of Seller Capital Stock in favor of
the Merger, on the terms and subject to the conditions set forth in the Support
Agreement.
F. The parties intend to cause the Merger to be accounted for as a
pooling of interests.
The parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER.
(a) THE MERGER. At the Effective Time (as defined below) and subject to
and upon the terms and conditions of this Agreement, the Agreement of Merger
attached hereto
as EXHIBIT C (the "AGREEMENT OF MERGER") and the applicable provisions of the
California Corporations Code ("CALIFORNIA CODE"), Acquisition Corp. will be
merged with and into Seller, the separate corporate existence of Acquisition
Corp. will cease and Seller will continue as the surviving corporation. Seller
as the surviving corporation after the Merger is sometimes referred to in this
Agreement as the "SURVIVING CORPORATION."
(b) CLOSING EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "CLOSING") will take place as soon as
practicable after the satisfaction or waiver of each of the conditions set forth
in ARTICLE VI, but no later than February 29, 2000 (the "CLOSING DATE"). The
Closing will take place at the offices of O'Melveny & Xxxxx LLP, 1999 Avenue of
the Stars, 7th Floor in Los Angeles, California, or at such other location as
the parties agree. In connection with the Closing, the parties will cause the
Merger to be consummated by filing the Agreement of Merger, together with the
required officers' certificates, with the Secretary of State of the State of
California, in accordance with the relevant provisions of the California Code
(the time of such filing being the "EFFECTIVE TIME").
(c) EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger will be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of the California Code. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Seller and Acquisition Corp. will
vest in the Surviving Corporation, and all debts, liabilities and duties of
Seller and Acquisition Corp. will become the debts, liabilities and duties of
the Surviving Corporation.
(d) ARTICLES OF INCORPORATION; BYLAWS. The Articles of Incorporation
and bylaws of Acquisition Corp. in effect at the Effective Time will be the
Articles of Incorporation and bylaws of the Surviving Corporation until amended
in accordance with applicable Law. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law, (i) Xxxxxxx Xxxxxx, Xxxxx Xxxxxxx, Xx Xxxxxxx and Xxxx Xxxxxx
will be the directors of the Surviving Corporation and (ii) the officers of
Seller on the Closing Date will be the officers of the Surviving Corporation,
and Xxxxx Xxxxxxx, Xx Xxxxxxx and Xxxx Xxxxxx will be Vice Presidents of the
Surviving Corporation.
1.2 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Acquisition Corp., Seller or the holders of any of the
following securities at the Effective Time:
(a) CONVERSION OF SELLER CAPITAL STOCK. Each issued and outstanding
share of Seller Capital Stock (other than shares held by persons exercising
dissenter's rights in accordance with Section 13 of the California Code
("DISSENTING SHARES")) will be exchanged for a number of shares of Buyer Common
Stock at the exchange rate (the "EXCHANGE RATE"). The Exchange Rate will be
determined by the following formula:
X divided by Y
2
where:
(1) X equals $70 million decreased by the amount by which the
Working Capital of Seller on the Preliminary Closing Date Balance Sheet (after
(i) accruing all costs incurred by Seller in connection with the transactions
contemplated by this Agreement and (ii) adding back all expenses accrued for the
issuance of shares of Seller Capital Stock set forth on SECTION 4.4 of the
Seller Disclosure Schedule and related payroll Taxes) is less than $3,864,253;
and
(2) Y equals 1,781,670.
A portion of the shares of Buyer Common Stock to be issued
pursuant to this section will be deposited in an escrow account pursuant to
SECTIONS 1.3(i) and 8.1. Seller and Buyer agree that for purposes of determining
the Exchange Rate at the Closing, they will use the Preliminary Closing Date
Balance Sheet, and any adjustment to the Working Capital of Seller that is
reflected on the Final Balance Sheet in accordance with SECTION 1.5 will be
taken out of or added to the Escrow Shares in accordance with SECTION 1.5 and
the Escrow Agreement.
(b) CAPITAL STOCK OF ACQUISITION CORP. At the Effective Time, each
share of Common Stock of Acquisition Corp. ("ACQUISITION CORP. COMMON STOCK")
issued and outstanding immediately before the Effective Time will be converted
into and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation.
(c) FRACTIONAL SHARES. No fraction of a share of Buyer Common Stock
will be issued, but in lieu thereof each holder of shares of Seller Capital
Stock who would otherwise be entitled to a fraction of a share of Buyer Common
Stock (after aggregating all fractional shares of Buyer Common Stock to be
received by such holder) will receive from Buyer an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the Average Share Price. The fractional share interests of each shareholder
of Seller will be aggregated, so that no shareholder of Seller will receive cash
in respect of fractional share interests in an amount greater than the value of
the Average Share Price.
(d) DISSENTERS' RIGHTS. Dissenting Shares, if any, will not be
converted into Buyer Common Stock but will instead be converted into the right
to receive such consideration as may be determined to be due with respect to
such Dissenting Shares pursuant to the California Code. Seller will give Buyer
prompt notice of any demand received by Seller to require Seller to purchase
shares of Seller Capital Stock, and Buyer will have the right to direct and
participate in all negotiations and proceedings with respect to such demand.
Except with the prior written consent of Buyer, or as required under the
California Code, Seller will not voluntarily make any payment with respect to,
or settle or offer to settle, any such purchase demand. Each holder of
Dissenting Shares ("DISSENTING SHAREHOLDER") who, pursuant to the provisions of
the California Code, becomes entitled to payment of the fair value for shares of
Seller Capital Stock will receive payment therefor
3
(but only after the value therefor has been agreed upon or finally determined
pursuant to such provisions). If, after the Effective Time, any Dissenting
Shares lose their status as Dissenting Shares, Buyer will issue and deliver,
upon surrender by such shareholder of certificate or certificates representing
shares of Seller Capital Stock, the number of shares of Buyer Common Stock to
which such shareholder would otherwise be entitled under this ARTICLE I and the
Agreement of Merger less the number of shares allocable to such shareholder that
have been deposited in the Escrow Fund (as defined below) in respect of such
shares of Buyer Common Stock pursuant to SECTION 1.3(i) and SECTION 8.1.
(e) CERTIFICATE LEGENDS. The shares of Buyer Common Stock to be issued
pursuant to this ARTICLE I will not be registered and will be characterized as
"restricted securities" under the federal securities laws, and under such laws
such shares may be resold without registration under the Securities Act, only in
certain limited circumstances. Each certificate evidencing shares of Buyer
Common Stock to be issued pursuant to this ARTICLE I will bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF
LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
1.3 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Pillsbury Madison & Sutro LLP will act as exchange
agent (the "EXCHANGE AGENT") in the Merger.
(b) BUYER TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Buyer will make available to the Exchange Agent for exchange in
accordance with this ARTICLE I through such reasonable procedures as Buyer may
adopt (i) the shares of Buyer Common Stock issuable pursuant to SECTION 1.2(a)
in exchange for shares of Seller Capital Stock outstanding immediately before
the Effective Time less the number of shares of Buyer Common Stock to be
deposited into an escrow fund (the "ESCROW FUND") pursuant to the requirements
of SECTION 8.1 and (ii) cash in an amount sufficient to permit payment of cash
in lieu of fractional shares pursuant to SECTION 1.2(c).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation will cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") that immediately before the
Effective Time represented outstanding shares of Seller Capital Stock, whose
shares were converted into the right to receive shares of Buyer Common Stock
(and cash in lieu of fractional shares) pursuant to SECTION 1.2(a), (i) a letter
of transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon receipt of the
Certificates by the Exchange
4
Agent, and will be in such form and have such other provisions as Buyer may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Buyer
Common Stock (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate will be entitled to receive
in exchange therefor a certificate representing the number of whole shares of
Buyer Common Stock less the number of shares of Buyer Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to SECTIONS 1.3(i)
and 8.1 and payment in lieu of fractional shares, which such holder has the
right to receive pursuant to SECTION 1.2(c), and the Certificate so surrendered
will forthwith be canceled. Until so surrendered, each outstanding Certificate
that, before the Effective Time, represented shares of Seller Capital Stock will
be deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the ownership of the number of full
shares of Buyer Common Stock into which such shares of Seller Capital Stock will
have been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with SECTION 1.2(c).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Buyer Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of Buyer Common Stock represented thereby until the
holder of record of such Certificate has surrendered such Certificate. Subject
to applicable Law, following surrender of any such Certificate, there will be
paid to the record holder of the certificates representing whole shares of Buyer
Common Stock issued in exchange therefor, without interest at the time of such
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions of
this SECTION 1.3(d)) with respect to such shares of Buyer Common Stock.
(e) TRANSFER OF OWNERSHIP. If any certificate for shares of Buyer
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the Person requesting such
exchange will have paid to Buyer or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Buyer Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Buyer or any
agent designated by it that such tax has been paid or is not payable.
(f) TERMINATION OF EXCHANGE. Any portion of the Exchange Fund that
remains undistributed to the shareholders of Seller one year after the Effective
Time will be delivered to Buyer, upon demand, and any shareholders of Seller who
have not previously complied with this SECTION 1.3 will thereafter look only to
Buyer for payment of their claim for Buyer Common Stock, cash for any fractional
shares and any dividends or distributions with respect to Buyer Common Stock.
5
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
SECTION 1.3, none of the Exchange Agent, the Surviving Corporation or any party
hereto will be liable to any Person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar Law.
(h) DISSENTING SHARES. The provisions of this SECTION 1.3 will also
apply to Dissenting Shares that lose their status as such, except that the
obligations of Buyer under this SECTION 1.3 will commence on the date of loss of
such status, and the holder of such shares will be entitled to receive in
exchange for such shares the number of shares of Buyer Common Stock to which
such holder is entitled pursuant to SECTION 1.2.
(i) ESCROW. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of SECTION 8.1, Buyer will
cause to be deposited with the Escrow Agent a certificate or certificates
representing 10% of the aggregate shares of Buyer Common Stock to be issued
pursuant to SECTION 1.2(a) that will be registered in the name of Escrow Agent
as nominee for the holders of Certificates canceled pursuant to this SECTION
1.3. Such shares will be beneficially owned by such holders and will be held in
escrow and will be available to compensate Buyer for certain damages as provided
in ARTICLE VIII. To the extent not used for such purposes, such shares will be
released, all as provided in the Escrow Agreement.
1.4 NO FURTHER OWNERSHIP RIGHTS IN SELLER CAPITAL STOCK. All shares of
Buyer Common Stock issued upon the surrender for exchange of shares of Seller
Capital Stock in accordance with the terms of this Agreement (including any cash
paid in lieu of fractional shares) will be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Seller Capital Stock,
and there will be no further registration of transfers on the records of the
Surviving Corporation of shares of Seller Capital Stock that were outstanding
immediately before the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
will be canceled and exchanged as provided in this ARTICLE I.
1.5 POST-CLOSING ADJUSTMENT . The number of Escrow Shares will be
subject to the following adjustment after the Closing in accordance with the
following procedure:
(a) Promptly after the Closing Date, Seller's independent auditors will
prepare and present to Buyer a balance sheet of the Business as of the Closing
Date (the "CLOSING DATE BALANCE SHEET" and as finally determined pursuant to
paragraph (d) below, the "FINAL BALANCE SHEET"). The Closing Date Balance Sheet
will be prepared in accordance with GAAP on a basis consistent with the Balance
Sheet and will be reviewed by Seller's independent auditors. The Representative
will deliver the Closing Date Balance Sheet to Buyer no later than 45 days after
the Closing Date.
(b) After the Closing Date, to prepare the Closing Date Balance Sheet,
Seller's independent auditors will have full access, at all reasonable times and
in a manner not disruptive of the ongoing operations of Buyer or the Surviving
Corporation, to the books, records and properties acquired by Buyer hereunder.
Buyer and its independent auditors
6
will have the right to review the work papers of Seller and its auditors
utilized in preparing the Closing Date Balance Sheet.
(c) If Buyer and Seller are unable to resolve any disagreement with
respect to the Closing Date Balance Sheet within 30 days after the
Representative receives a timely notice of disagreement, the items of
disagreement alone shall be promptly referred for final determination to one of
the "Big Five" accounting firms that does not have an existing relationship with
either Buyer or Seller, or if such firm is unable or unwilling to make such
final determination, to such other independent accounting firm as the parties
mutually designate. (The accounting firm making such determination is referred
to herein as the "INDEPENDENT ACCOUNTANTS").
(d) The Closing Date Balance Sheet will become the Final Balance Sheet
and will be deemed to be binding on Buyer and the Shareholders upon (i) Buyer's
failure to deliver to the Representative a notice of disagreement within 30 days
of its receipt of the Closing Date Balance Sheet, (ii) resolution of any
disagreement by mutual agreement of the parties after a timely notice of
disagreement has been delivered to the Representative, or (iii) notification by
the Independent Accountants of their final determination of the items of
disagreement submitted to them.
(e) If the amount of Working Capital reflected on the Final Balance
Sheet exceeds the Working Capital reflected on the Preliminary Closing Date
Balance Sheet, the Escrow Shares will be increased by such excess. In such
event, Buyer will deliver to the Escrow Agent a number of shares of Buyer Common
Stock equal to the amount of such excess divided by the Average Share Price up
to the amount of any deduction pursuant to SECTION 1.2(a)(1). If the Working
Capital reflected on the Final Balance Sheet, as finally determined, is less
than the Working Capital reflected on the Preliminary Closing Date Balance
Sheet, the Escrow Shares will be decreased by the amount of such difference
divided by the Average Share Price. No fractional shares will be deposited to or
distributed from the Escrow Fund, as the case may be. Any party who would
otherwise be entitled to .50 or more of a share will instead receive one full
share of Buyer Common Stock, and any party who would otherwise be entitled to
less than .50 of a share will instead receive no consideration in respect of
such fractional interest.
(f) The fees and disbursements of the Independent Accountants will be
borne equally, one-half by Buyer and one-half by the Shareholders. Fees and
disbursements to be borne by the Shareholders will be paid by the Escrow Agent
out of the Escrow Fund in an amount equal to the amount of such fees and
disbursements.
1.6 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates have been lost, stolen or destroyed, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof such shares of Buyer Common
Stock (and cash in lieu of fractional shares) as may be required pursuant to
SECTION 1.3; PROVIDED, HOWEVER, that Buyer may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as
7
indemnity against any claim that may be made against Buyer, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost stolen or destroyed.
1.7 TAX AND ACCOUNTING CONSEQUENCES. The parties intend that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code
and qualify for accounting treatment as a pooling of interests.
1.8 TAKING OF NECESSARY ACTION: FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Seller and Acquisition Corp., the officers and directors of
Seller and Acquisition Corp. are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants as follows:
2.1 ORGANIZATION AND RELATED MATTERS. Seller is a corporation duly
organized, validly existing and in good standing under the State of California.
Seller has no subsidiaries. Seller has all corporate power, Permits and
Approvals necessary to own its properties and assets and to carry on its
business as now conducted and is duly qualified or licensed to do business as a
foreign corporation in good standing in all jurisdictions in which the character
or the location of the assets owned or leased by it or the nature of the
business conducted by it requires licensing or qualification and where the
failure to be so licensed or qualified would have a material adverse effect on
the Business. SECTION 2.1 of the Seller Disclosure Schedule correctly lists the
current directors and executive officers of Seller. True, correct and complete
copies of the charter documents of Seller as in effect on the date hereof have
been delivered to Buyer. Seller is not a registered or reporting company under
the Exchange Act. Except as set forth on SECTION 2.1 of the Seller Disclosure
Schedule, Seller has no interest in any partnership, joint venture, limited
liability company or other entity.
2.2 CAPITALIZATION. The authorized capital stock of Seller consists of
3,000,000 shares of Common Stock. At the Closing Date, there will be outstanding
53,990 shares of Common Stock, after giving effect to the issuance of shares of
Seller Capital Stock contemplated by SECTION 4.4. All outstanding shares of
Seller Capital Stock have been duly authorized and validly issued and are fully
paid and non-assessable. Except as set forth in this Section and on SECTION 2.2
of the Seller Disclosure Schedule, there are no outstanding (i) shares of
capital stock or voting securities of Seller, (ii) securities of Seller
convertible into or exchangeable for shares of capital stock or voting
securities of Seller or (iii) options, warrants, restricted stock, other
stock-based compensation awards or other
8
rights to acquire from Seller or other obligation of Seller to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Seller. There are no outstanding
obligations of Seller to repurchase, redeem or otherwise acquire any securities
referred to in clauses (i), (ii) or (iii) above.
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Seller has delivered to Buyer balance sheets for Seller at
September 30, 1999, 1998, 1997, 1996 and 1995 and the related statements of
operations, changes in stockholder's equity and changes in financial position or
cash flow for the periods then ended (the "ANNUAL FINANCIAL STATEMENTS"). Such
Annual Financial Statements have been reviewed by Seller's independent
accountants. Except as set forth on SECTION 2.3 of the Seller Disclosure
Schedule, the Annual Financial Statements have been prepared in conformity with
GAAP applied on a consistent basis (except for changes, if any, required by GAAP
and disclosed therein). The statements of operations and cash flow included
within the Annual Financial Statements present fairly the results of operations
and cash flows of Seller for the respective periods covered, and the balance
sheets present fairly the financial condition of Seller as of their respective
dates. Since September 30, 1999, there has been no change in any of the
significant accounting policies, practices or procedures of Seller.
(b) Seller has delivered to Buyer a balance sheet for Seller at
December 31, 1999, and the related statements of operations for the periods then
ended (the "INTERIM FINANCIAL STATEMENTS"). Such Interim Financial Statements
have been certified by the chief financial officer of Seller. Except as set
forth on SECTION 2.3 of the Seller Disclosure Schedule, the Interim Financial
Statements have been prepared in conformity with GAAP applied on a consistent
basis except for changes, if any, required by GAAP and disclosed therein. The
statements of operations and cash flows included as part of the Interim
Financial Statements present fairly the results of operations and cash flows of
Seller for the respective periods covered, and the balance sheets present fairly
the financial condition of Seller as of their respective dates. The Interim
Financial Statements reflect all adjustments (which consist only of normal
recurring adjustments not material in amount and include estimated provisions
for year-end adjustments) necessary for a fair presentation. At the dates of
such balance sheets, Seller did not have any material liability (actual,
contingent or accrued) that, in accordance with GAAP applied on a consistent
basis, should have been shown or reflected therein but was not. The Annual
Financial Statements and the Interim Financial Statements are referred to
collectively herein as the "FINANCIAL STATEMENTS."
(c) Except as set forth on SECTION 2.3 of the Seller Disclosure
Schedule, since the Balance Sheet Date, whether or not in the ordinary course of
business, there has not been, occurred or arisen:
(i) any event, occurrence, development or state of
circumstances or facts that would, individually or in the
aggregate, have a material adverse effect on the Business;
9
(ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of Seller
Capital Stock, or any repurchase, redemption or other
acquisition by Seller of any outstanding shares of capital
stock or other securities of, or other ownership interests in,
Seller; provided that Seller may have declared aggregate
dividends with respect to its 1999 fiscal year and its current
fiscal year equal to approximately 45% of its estimated
taxable income in such years;
(iii) any incurrence, assumption or guarantee by Seller of any
material indebtedness for borrowed money;
(iv) any creation or other incurrence by Seller of any
Encumbrance on any material asset;
(v) any making of any material loan, advance or capital
contributions to or investment in any Person;
(vi) any damage, destruction or other casualty loss (whether
or not covered by insurance) materially affecting the
Business;
(vii) any transaction or commitment made, or any Contract
entered into by Seller involving the acquisition or
disposition of any material assets;
(viii) any strike or labor dispute, other than routine
individual grievances, or, to the Knowledge of Seller, any
activity or proceeding by a labor union or representative
thereof to organize any employees of Seller, which employees
were not subject to a collective bargaining agreement at the
Balance Sheet Date, or any material lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with
respect to such employees;
(ix) any Tax election, change in accounting method or any
settlement or compromise of any material Tax liability; or
(x) (i) any grant of any severance or termination pay to any
current or former employee, officer or director of Seller,
(ii) any increase in benefits payable under any existing
severance or termination pay policies or employment Contract,
(iii) the entering into of any employment, deferred
compensation or other similar Contract (or any amendment to
any such existing Contract) by Seller with any current or
former director, officer or employee of Seller, (iv) the
establishment, adoption or material amendment (except as
required by applicable Law) of any collective bargaining,
bonus, profit sharing, thrift, pension, retirement, deferred
compensation, compensation, stock option, restricted stock or
other benefit plan or arrangement covering any current or
former director, officer or employee of Seller or (v) any
increase in compensation, bonus or other benefits payable to
any current or former director, officer or employee of Seller.
10
(d) Seller has no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, probable of assertion
or not, except liabilities that (i) are reflected or disclosed in the Balance
Sheet, (ii) were incurred after the Balance Sheet Date in the ordinary course of
business or (iii) are set forth in SECTION 2.3(c) of the Seller Disclosure
Schedule.
2.4 TAXES.
Except as set forth on SECTION 2.4 of the Seller Disclosure Schedule:
(a) All Tax Returns required to be filed by or with respect to Seller
have been timely filed, and all such Tax Returns are complete and correct in all
material respects. Seller has paid all Taxes that are due from or with respect
to it for the periods covered by such Tax Returns and has made all required
estimated Tax payments sufficient to avoid any penalties for underpayment. The
accrual for Taxes in the Annual Financial Statements dated September 30, 1999 is
adequate to cover any and all unpaid Taxes (whether or not disputed and whether
or not due) of Seller with respect to all taxable periods ending on or before
September 30, 1999. Seller has not incurred any Taxes after September 30, 1999,
except for Taxes incurred in the ordinary course of business.
(b) (i) the Tax Returns referred to in clause (a) have not been
examined by the IRS or other appropriate Governmental Entity or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired, (ii) there is no audit, examination, suit, investigation or
similar proceeding pending, or, to the Knowledge of Seller, proposed or
threatened with respect to Taxes of Seller, and, to the Knowledge of Seller, no
basis exists therefor; and (iii) there are no outstanding waivers extending the
statutory period of limitation relating to the payment of Taxes due from Seller.
(c) SECTION 2.4 of the Seller Disclosure Schedule sets forth the amount
of net operating losses, net capital losses, foreign Tax credits and investment
and other Tax credits of Seller.
(d) No Closing Agreement pursuant to Section 7121 of the Code or any
similar provision of any state, local or foreign Law has been entered into by or
with respect to Seller which could reasonably be expected to have an effect on
Seller's liability for or reporting of Taxes in any period ending after the
Closing Date.
(e) All Taxes that Seller has been required by Law to withhold or to
collect for payment have been duly withheld and collected, and have been paid or
accrued, reserved against and added on the books of Seller. Seller has complied
in all material respects with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other third party.
11
(f) Seller is not liable for the Taxes of any Person, including as a
transferee, pursuant to Treasury Regulations Section 1.1502-6 or any analogous
provision of state, local or foreign Law, or as a result of any contractual
arrangement with any third party or any taxing authority.
(g) No consent to the application of Section 341(f)(2) of the Code (or
any similar state law provision) has been made or filed by or with respect to
Seller.
(h) There is no Contract by or with Seller covering any Person as to
which payment or vesting thereunder (including any payment or vesting as a
result of the Merger) could result in a nondeductible expense to Seller by
reason of Section 280(G) of the Code or an excise tax to the recipient of such
payment pursuant to Section 4999 of the Code.
(i) There are no liens for Taxes upon the assets of Seller, except for
liens relating to current Taxes not yet due and payable.
(j) Seller has never been a member of any group of corporations that
files or has filed Tax Returns on a combined, consolidated or unitary basis.
2.5 MATERIAL CONTRACTS. SECTION 2.5 of the Seller Disclosure Schedule
lists each Contract to which Seller is a party or to which Seller, or any of its
properties is subject or by which any thereof is bound that is deemed a Material
Contract under this Agreement. Unless otherwise so noted on SECTION 2.5 of the
Seller Disclosure Schedule, each such Contract was entered into in the ordinary
course of business. Each Contract that (a) after the Balance Sheet Date
obligates Seller to pay an amount of $100,000 or more, (b) has an unexpired term
as of the date of this Agreement in excess of one year, (c) represents a
Contract upon which the Business is substantially dependent or which is
otherwise material to the Business, (d) relates to indebtedness for money
borrowed or provides for an extension of credit other than consistent with
normal credit terms, (e) limits or restricts the ability of Seller to compete or
otherwise to conduct its business in any manner or place, (f) provides for a
guaranty or indemnity by Seller, (g) grants a power of attorney, agency or
similar authority to another Person, (h) contains a right or obligation of any
Associate, Affiliate, officer or director of Seller to Seller, (i) is an
employment contract, consulting agreement, shareholder agreement or voting
trust, or (j) was not made in the ordinary course of business, will be deemed to
be a Material Contract and has been identified on such SECTION 2.5. True copies
of the Material Contracts appearing on SECTION 2.5 of the Seller Disclosure
Schedule, including all amendments and supplements, and a written description of
the terms of any oral Material Contracts, have been delivered to Buyer. Each
Material Contract is valid and subsisting; Seller has duly performed all of its
obligations thereunder to the extent that such obligations to perform have
accrued; and no breach or default, alleged breach or default, or event which
would (with the passage of time, notice or both) constitute a material breach or
default thereunder by Seller or, to the Knowledge of Seller, any other party or
obligor with respect thereto, has occurred or as a result of this Agreement or
performance hereof will occur. Consummation of the transactions contemplated by
this Agreement will not (and will not give any Person a right to) terminate or
modify any rights of, or accelerate or augment any obligation of, Seller
12
under any of the Contracts on SCHEDULE 2.5 of the Seller Disclosure Schedule,
except as set forth in SECTION 2.5 of the Seller Disclosure Schedule.
2.6 TITLE TO PROPERTY; CONDITION OF PROPERTY; LEASES. Except as set
forth in SECTION 2.6 of the Seller Disclosure Schedule, Seller has good and
marketable title to all of its material assets free of Encumbrances. All
material tangible assets of Seller are in a good state of maintenance and repair
(except for ordinary wear and tear) and, assuming $1.1 million of capital
expenditures planned for calendar year 2000 are made, are adequate for the
Business to achieve sales of at least $60 million during calendar year 2000. All
leasehold properties held by Seller as lessee are held under valid, binding and
enforceable leases. To the Knowledge of Seller, there is no pending or
threatened Action that would materially interfere with the quiet enjoyment of
any such leasehold by Seller.
2.7 INTELLECTUAL PROPERTY. SECTION 2.7 of the Seller Disclosure
Schedule contains a complete and correct list of (i) all Intellectual Property
that is owned by Seller and primarily related to, used in, held for use in
connection with or necessary for the conduct of, or otherwise material to, the
Business, (ii) all Contracts pursuant to which Seller has licensed Intellectual
Property to, or the use of Intellectual Property is otherwise permitted by, any
other Person and (iii) all Contracts pursuant to which Seller has had
Intellectual Property licensed to it or has otherwise been permitted to use
Intellectual Property. Except as set forth on SECTION 2.7 of the Seller
Disclosure Schedule, (a) Seller has not assigned, hypothecated or otherwise
encumbered any Intellectual Property and (b) none of the licenses included in
the Intellectual Property of Seller purport to grant sole or exclusive licenses
to another Person, including sole or exclusive licenses limited to specific
fields of use. Except as set forth on SECTION 2.7 of the Seller Disclosure
Schedule, the patents owned by Seller are valid and enforceable, and any patent
issuing from patent applications of Seller will be valid and enforceable. Except
as set forth on SECTION 2.7 of the Seller Disclosure Schedule, Seller has no
Knowledge of any infringement by any other Person of any Intellectual Property
of Seller, and Seller has not entered into any agreement to indemnify any other
party against any charge of infringement of any Intellectual Property. Except as
set forth on SECTION 2.7 of the Seller Disclosure Schedule, Seller has not
violated and does not violate or infringe any Intellectual Property of any other
Person, and Seller has not received any communication alleging that it violates
or infringes the Intellectual Property of any other Person. Except as set forth
on SECTION 2.7 of the Seller Disclosure Schedule, Seller has not been sued for
infringing any Intellectual Property of another Person.
2.8 CORPORATE AUTHORIZATION. Seller has all requisite corporate power
and authority to execute, deliver and perform each Transaction Document to which
it is a party. The execution, delivery and performance of the Transaction
Documents to which Seller is a party have been duly authorized by all necessary
corporate action on the part of Seller subject only to the approval of the
Merger by Seller's shareholders as contemplated by SECTION 5.5. This Agreement
constitutes, and the other Transaction Documents to which Seller is a party,
when executed by Seller will constitute, the valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms.
The affirmative vote of the holders of a majority of the shares of Seller's
common stock in
13
accordance with SECTION 5.5 is the only vote of the holders of any of Seller's
capital stock necessary under the California Code to approve this Agreement and
the transactions contemplated hereby. Seller's Board of Directors has (i)
unanimously approved and adopted this Agreement and the Merger, (ii) determined
that in its opinion the Merger is in the best interests of the shareholders of
Seller and is on terms that are fair to such shareholders and (iii) recommended
that the shareholders of Seller approve this Agreement and the Merger.
2.9 AUTHORIZATION. The execution, delivery and performance by Seller of
the Transaction Documents to which Seller is a party and the consummation of the
transactions contemplated thereby require no action by or in respect of, or
filing with, any Governmental Entity except for (a) the filing of the Agreement
of Merger, together with the required officers' certificates, as provided in
SECTION 1.1, (b) filings required under Regulation D of the Securities Act and
Section 25103(h) of the California Code, (c) such filings as may be required
under the Xxxx-Xxxxx-Xxxxxx Act, and (d) any other filings and Approvals
described on SECTION 2.9 of the Seller Disclosure Schedule.
2.10 NON-CONTRAVENTION. The execution, delivery and performance by
Seller of the Transaction Documents to which Seller is a party and the
consummation by Seller of the transactions contemplated thereby do not and will
not (i) violate the Articles of Incorporation or bylaws of Seller, (ii) assuming
compliance with the matters referred to in SECTION 2.9 of the Seller Disclosure
Schedule, violate any applicable Law, (iii) require any consent or other action
by any Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Seller
or to a loss of any benefit to which Seller is entitled under any provision of
any Material Contract or any Permit or Approval affecting, or relating in any
way to, the Business or (iv) result in the creation or imposition of any
Encumbrance on any material asset of Seller except, in the case of clauses (ii),
(iii) and (iv), for such matters as would not, individually or in the aggregate,
have a material adverse effect on the Business or materially impair the ability
of Seller to consummate the transactions contemplated by this Agreement.
2.11 LEGAL PROCEEDINGS. No Order has been issued and no Action is
pending, or, to the Knowledge of Seller, threatened against or affecting Seller
or any of its properties or assets that individually or when aggregated with one
or more other Orders or Actions has or might reasonably be expected to have a
material adverse effect on (a) Seller, (b) the Business or (c) Seller's ability
to perform its obligations under the Transaction Documents or any aspect of the
transactions contemplated thereby. SECTION 2.11 of the Seller Disclosure
Schedule lists each Order or Action that involves a claim or potential claim of
aggregate liability in excess of $50,000 against, or that enjoins or compels or
seeks to enjoin or to compel any activity by, Seller. There is no matter as to
which Seller has received any notice, claim or assertion, or, to the Knowledge
of Seller, which otherwise has been threatened or is reasonably expected to be
threatened or initiated, against or affecting any director, officer, employee,
agent or representative of Seller or any other Person, nor to the Knowledge of
Seller is there any reasonable basis therefor, in connection with which any such
Person has or may reasonably be expected to have, any right to indemnification
by Seller.
14
2.12 INSURANCE. Seller is, and at all times during the past two years
has been, insured with reputable insurers against all risks normally insured
against by companies in similar lines of business. SECTION 2.12 of the Seller
Disclosure Schedule lists all insurance policies that are material to the
Business and all claims under any insurance policies made since January 1, 1995.
All of the insurance policies listed on SECTION 2.12 of the Seller Disclosure
Schedule are in full force and effect. Seller is not in default under any such
policy.
2.13 COMPLIANCE WITH LAW. Seller is and has been in compliance with and
is not under investigation with respect to and has not been threatened to be
charged with or given notice of any violation of, any applicable Law, except
those where the violation would not have a material adverse effect on the
Business or on Seller's ability to consummate the transactions contemplated
hereby.
2.14 EMPLOYEES. Seller has no dispute existing, or to Seller's
Knowledge, threatened, involving strikes, work stoppages, slow downs or
lockouts. There are no grievance proceedings or claims of unfair labor practices
filed or, to Seller's Knowledge, threatened to be filed with the National Labor
Relations Board or any California state agency against Seller. There is no union
representation or organizing effort pending or, to Seller's Knowledge,
threatened against Seller. Seller has not agreed to recognize any union or other
collective bargaining unit. None of the key employees of Seller referred to in
SECTION 2.14 of the Seller Disclosure Schedule has indicated an intent to
terminate employment with Seller for any reason in the twelve (12) months
preceding the date of this Agreement.
2.15 EMPLOYEE BENEFITS.
(a) EMPLOYEE BENEFIT PLANS AND SIMILAR ARRANGEMENTS.
(1) Seller does not have any ERISA Affiliates. Except as set
forth in SECTION 2.15 of the Seller Disclosure Schedule, Seller has no employee
benefit plan, whether written or unwritten, to which Seller or any ERISA
Affiliate is or during the last five years has been a party or by which any of
them is or during the last five years has been bound, legally or otherwise,
including, (i) any profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (ii) any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including but not limited to benefits relating to
company automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, medical, dental, hospitalization, life insurance and other types of
insurance, or (iii) any other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA).
(2) Seller has delivered to Buyer true and complete copies of
all documents and summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
15
(3) There are no negotiations, demands or proposals that are
pending or have been made which concern matters now covered, or that would be
covered, by plans, agreements or arrangements of the type described in this
section.
(4) Seller is in compliance in all material respects with the
applicable provisions of ERISA (as amended through the date of this Agreement),
the regulations and published authorities thereunder, and all other Laws
applicable with respect to all such employee benefit plans, agreements and
arrangements. Seller has performed in all material respects all of its
obligations under all such plans, agreements and arrangements and all such
plans, agreements and arrangements have been operated in all material respects
in compliance with their terms. To the Knowledge of Seller, there are no Actions
(other than routine claims for benefits) pending or threatened against such
plans or their assets, or arising out of such plans, agreements or arrangements,
and, to the Knowledge of Seller, no facts exist which could give rise to any
such Actions.
(5) All obligations of Seller under each such plan agreement
and arrangement (i) that are due before the Closing Date have been paid or will
be paid before that time and (ii) that have accrued before the Closing Date have
been properly accrued.
(6) Seller may (except to the extent prohibited by Law) in any
manner and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate, modify or amend each such
plan or arrangement (or its participation therein) effective as of any date
before, on or after the Closing Date.
(7) Except as disclosed in SECTION 2.15 of the Seller
Disclosure Schedule, the consummation, announcement or other action relating to
the transactions contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any (i)
payment (whether of severance pay or otherwise) becoming due from Seller to any
officer, employee, former employee, director, or former director thereof or to
the trustee under any "rabbi trust" or similar arrangement, or (ii) benefit
under any such plan or arrangement being established, accelerated, vested or
payable.
(b) QUALIFIED PLANS.
(1) Seller's 401(k) plan (the "PLAN") is the only "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA and within
the meaning of Section 401(a) of the Code).
(2) The Plan has been duly authorized by the board of
directors of Seller. The Plan is qualified in form and operation under Section
401(a) of the Code, and each trust under the Plan is exempt from tax under
Section 501(a) of the Code. No event has occurred that will or could give rise
to disqualification or loss of tax-exempt status of the Plan or any such trust
under such sections. No event has occurred that will or could subject the Plan
to tax under Section 511 of the Code. No prohibited transaction (within
16
the meaning of Section 4975 of the Code) or party-in-interest transaction
(within the meaning of Section 406 of ERISA) has occurred with respect to the
Plan.
(3) Seller has delivered to Buyer for the Plan copies of the
following documents: (i) the Form 5500 filed for the 1998 Plan year, including
but not limited to all schedules thereto and financial statements with attached
opinions of independent accountants, (ii) the most recent determination letter
from the IRS, (iii) the statement of assets and liabilities of such plan as of
its most recent valuation date, and (iv) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such plan for the most recently ended plan year.
The financial statements so delivered fairly present the financial condition and
the results or operations of the Plan as of such dates, in accordance with GAAP.
(c) MULTIEMPLOYER PLANS. The Plan is not a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA). Seller has never contributed to or had
an obligation to contribute to any multiemployer plan.
(d) WELFARE PLANS. Except as required under Section 4980B of the Code,
Seller has no obligation to provide health benefits to any employee following
termination of employment.
(e) FINES AND PENALTIES. There has been no act or omission by Seller
that has given rise to or may give rise to fines, penalties, taxes, or related
charges under Section 502(c) or (i) or Section 4071 of ERISA or Chapter 43 of
the Code.
2.16 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Seller or any of its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this Agreement
is or will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement or such transactions.
2.17 INVENTORIES. Except as set forth in SECTION 2.17 of the Seller
Disclosure Schedule, all inventories of Seller are of good merchantable quality,
reasonably in balance, and salable or currently usable in the ordinary course of
business. The value of obsolete, damaged or excess inventory and of inventory
below standard quality has been written down on the Balance Sheet to
ascertainable market value, or adequate reserves described on the Balance Sheet
have been provided therefor, and the value at which inventories are carried
reflects the customary inventory valuation policy of Seller (which fairly
reflects the value of obsolete, spoiled or excess inventory) for stating
inventory, in accordance with GAAP.
2.18 CUSTOMERS. SECTION 2.18 of the Seller Disclosure Schedule lists
the names of, and describes all Contracts with and the appropriate percentage of
Business attributable to, the ten largest customers of the Business during the
fiscal year ended September 30, 1999 and the ten largest customers projected for
calendar year 2000. Seller has not
17
received any notice and has no Knowledge that (i) any of such customers has
ceased, or will cease, or has materially reduced or will materially reduce, the
use the products, goods or services of the Business, or (ii) any of such
customers has materially reduced or will materially reduce the price it will pay
for products, goods or services of the Business, including in each case after
the consummation of the transactions contemplated by this Agreement or (iii) it
will not obtain the projected purchases for calendar year 2000 shown opposite
each customer's name on SECTION 2.18 of the Seller Disclosure Schedule. To the
Knowledge of Seller, no customer of the Business listed on SECTION 2.18 of the
Seller Disclosure Schedule has threatened to take any action described in the
preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement.
2.19 SUPPLIERS. SECTION 2.19 of the Seller Disclosure Schedule lists
the ten most significant suppliers of the Business for the six months ended
December 31, 1999, and any sole-source suppliers of significant goods or
services (other than electricity, gas, telephone or water) to Seller with
respect to which alternative sources of supply are not readily available on
comparable terms and conditions. Seller has not experienced or been notified of
any shortage in goods or services provided by sole-source suppliers, which
shortage would have a material adverse effect on the Business or cause a
significant delay in any material product shipments by Seller. Seller has not
received any notice and has no reason to believe that there has been any
material adverse change in the price of raw materials, supplies, goods, services
or other merchandise provided by such suppliers or that such suppliers will not
continue to provide the Surviving Corporation with supplies at any time after
the Closing Date on terms and conditions similar to those used in their current
sales to the Business. To the Knowledge of Seller, no supplier listed on SECTION
2.19 has threatened to take any action described in the preceding sentence as a
result of the consummation of the transactions contemplated by this Agreement.
2.20 PRODUCT WARRANTIES. Except as set forth in SECTION 2.20 of the
Seller Disclosure Schedule: (a) there are no warranties express or implied,
written or oral, with respect to the products of the Business; (b) there are no
pending or threatened claims with respect to any such warranty; (c) except as
accrued on the balance sheet included within the Interim Financial Statements,
Seller has no liability with respect to any such warranty, whether known or
unknown, absolute, accrued, contingent or otherwise and whether due or to become
due; (d) no returns of any single product-line sold by Seller during the two
years preceding the date hereof have exceeded one percent (1%); (e) there have
been no product recalls or Actions pending or, to Seller's Knowledge, threatened
during such period relating to Seller's products, and (f) to Seller's Knowledge,
no customer of Seller that purchased $100,000 or more of products from Seller
during calendar year 1999 has experienced failures or serious product
performance defects greater than one percent (1%) for any product purchased from
Seller within the twenty-four months preceding the date of this Agreement.
Adequate reserves have been provided on the Balance Sheet for Seller's warranty
obligations.
18
2.21 ENVIRONMENTAL LAW COMPLIANCE. Except as set forth on SECTION 2.21
of the Seller Disclosure Schedule, there are no pending or, to Seller's
Knowledge, threatened claims, suits or proceedings arising out of or related to
any noncompliance with any Environmental Laws in connection with the Business.
Seller has complied and is in compliance with all Laws applicable to the
Business relating to environmental protection, including standards relating to
air, water, land and the generation, storage, transportation, treatment or
disposal of, Hazardous Substances (collectively, "ENVIRONMENTAL LAWS"), except
where non-compliance with any such Laws would not have a material adverse effect
on the Business. Seller has received all Permits relating to environmental
matters, including all air, water and waste permits and permits for emission
and/or disposal of solid, liquid and gaseous materials from its operations, and
Seller is operating the Business in conformance with such Permits. To Seller's
Knowledge, there is no place on Seller's properties where Hazardous Substances
have entered the air, soil or groundwater. Seller has not installed, used,
buried or removed any and, to Seller's Knowledge, there are no surface
impoundments, or underground tanks or vessels or sumps, drains or pipelines that
hold or have held Hazardous Substances on Seller's properties.
2.22 MINUTE BOOKS. The minute books of Seller accurately reflect all
material actions and proceedings taken to date by the Shareholders, Board of
Directors, and committees of Seller, and such minute books contain true and
complete copies of the charter documents of Seller and all related amendments.
The stock record book of Seller reflects accurately all transactions in its
capital stock of all classes.
2.23 DUE DILIGENCE MATERIALS. All documents, agreements and other
materials provided by Seller to Buyer or any representative of Buyer in
connection with the due diligence conducted in connection with the transactions
contemplated by this Agreement have been true, correct and complete originals or
copies of the documents, agreements and other materials purported to be provided
or to which access has been given.
2.24 YEAR 2000 COMPLIANCE. Seller has undertaken a concerted effort to
ensure that all of the computer software, computer firmware, computer hardware,
and other similar or related items of automated, computerized, and/or software
system(s) that are used or relied on by Seller in the conduct of its business
will continue to function properly, will generate correct data, and will provide
correct results when processing, providing and/or receiving (a) date-related
data into and between the years 1999 and 2000 and (b) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
Except as would not reasonably be expected, individually or in the aggregate, to
have a material adverse effect on the Business, Seller reasonably believes that
such effort has been successful.
2.25 RELATED PARTY TRANSACTIONS. Except as set forth on SECTION 2.25 of
the Seller Disclosure Schedule, no director or officer of Seller and no Person
related to any of them by consanguinity or marriage has any direct or indirect
interest in (i) any equipment or other property, real or personal, tangible or
intangible, including any item of intellectual property, used in connection with
or pertaining to the Business, or (ii) any creditor, supplier, customer,
manufacturer, agent, representative, or distributor of products of Seller;
19
PROVIDED, HOWEVER, that (A) no such director or officer or other Person will be
deemed to have such an interest solely by virtue of the ownership of less than
3% of the outstanding voting stock or debt securities of any publicly held
company, the stock or debt securities of which are traded on a recognized stock
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System, and (B) no such director or officer or other Person will be
deemed to have such an interest solely by virtue of the ownership by a
partnership in which he is a partner of less than 10% of the outstanding voting
stock or debt securities of any privately held company.
2.26 POOLING OF INTERESTS. Neither Seller nor, to the Knowledge of
Seller, any of its directors, officers or shareholders has taken any action that
would make any of the statements on SECTION 2.26 of the Seller Disclosure
Schedule incorrect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as follows:
3.1 ORGANIZATION AND RELATED MATTERS. Buyer is a corporation duly
organized, validly existing and in good standing under the State of Delaware.
SECTION 3.1 of the Buyer Disclosure Schedule lists each Buyer Subsidiary and
correctly sets forth the capitalization of each Buyer Subsidiary. Each Buyer
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. Buyer and each
Buyer Subsidiary have all corporate power, Permits and Approvals necessary to
own their respective properties and assets and to carry on their respective
businesses as now conducted and are duly qualified or licensed to do business as
foreign corporations in good standing in all jurisdictions in which the
character or the location of the assets owned or leased by any of them or the
nature of the business conducted by any of them requires licensing or
qualification. SECTION 3.1 of the Buyer Disclosure Schedule correctly lists the
current directors and executive officers of Buyer and of each Buyer Subsidiary.
True, correct and complete copies of the respective charter documents of Buyer
and each Buyer Subsidiary as in effect on the date of this Agreement have been
delivered to Seller. Except as set forth on SECTION 3.1 of the Buyer Disclosure
Schedule, Buyer has no interest in any partnership, joint venture, limited
liability company or other entity. Acquisition Corp. is a California
Corporation, duly organized by Buyer for the purposes of the Merger and the
transactions contemplated by this Agreement. Acquisition Corp. has no employees,
liabilities, assets (other than cash received upon issuance of shares of common
stock of Acquisition Corp.) or contractual obligations, other than the
obligations created by this Agreement.
20
3.2 CAPITALIZATION. The authorized capital stock of Buyer consists of
60 million shares of common stock and 30 million shares of preferred stock. As
of January 31, 2000, there were outstanding 22,147,051 shares of Buyer Common
Stock, and there are no shares of Buyer's preferred stock outstanding. All
outstanding shares of Buyer Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable. Except as set forth on SECTION 3.2
of the Buyer Disclosure Schedule, Buyer owns all of the outstanding shares of
capital stock of each Buyer Subsidiary. Except as set forth in this Section and
on SECTION 3.2 of the Buyer Disclosure Schedule, as of January 31, 2000, there
were not outstanding any (i) shares of capital stock or voting securities of
Buyer, (ii) securities of Buyer convertible into or exchangeable for shares of
capital stock or voting securities of Buyer or (iii) options, warrants,
restricted stock, other stock-based compensation awards or other rights to
acquire from Buyer or other obligation of Buyer to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Buyer. There are no outstanding obligations of
Buyer or any Buyer Subsidiary to repurchase, redeem or otherwise acquire any
securities referred to in clauses (i), (ii) or (iii) above.
3.3 CORPORATE AUTHORIZATION. Buyer has all necessary corporate power
and authority to execute, deliver and perform each Transaction Document to which
it is a party. The execution, delivery and performance of the Transaction
Documents to which Buyer is a party have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement constitutes, and the other
Transaction Documents to which Buyer is a party, when executed by Buyer will
constitute, the valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their respective terms. Buyer's Board of Directors has
(i) unanimously approved and adopted this Agreement and the Merger, which
approval satisfies in full any applicable requirements of the Delaware General
Corporation Law, and (ii) determined that in its opinion the Merger is in the
best interests of the stockholders of Buyer.
3.4 AUTHORIZATION. The execution, delivery and performance by Buyer of
the Transaction Documents to which Buyer is a party and the consummation of the
transactions contemplated thereby require no action by or in respect of, or
filing with, any Governmental Entity except for (a) the filing of the Agreement
of Merger, together with the required officers' certificates, as provided in
SECTION 1.1, (b) filings required under Regulation D of the Securities Act and
Section 25103(h) of the California Code, (c) such filings as may be required
under the Xxxx-Xxxxx-Xxxxxx Act and (c) any other filings and Approvals
described on SECTION 3.4 of the Buyer Disclosure Schedule.
3.5 NON-CONTRAVENTION. The execution, delivery and performance by Buyer
of the Transaction Documents to which Buyer is a party and the consummation by
Buyer of the transactions contemplated thereby do not and will not (i) violate
the Certificate of Incorporation or bylaws of Buyer, (ii) assuming compliance
with the matters referred to in SECTION 3.4 of the Buyer Disclosure Schedule,
violate any applicable Law, (iii) require any consent or other action by any
Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Buyer or
to a loss of any benefit to which Buyer is entitled under any provision of any
Contract binding
21
upon Buyer or any Permit or Approval affecting, or relating in any way to, the
assets or business of Buyer or (iv) result in the creation or imposition of any
Encumbrance on any material asset of Buyer or any Buyer Subsidiary except, in
the case of clauses (ii), (iii) and (iv), for such matters as would not,
individually or in the aggregate, have a material adverse effect on Buyer or
materially impair the ability of Buyer to consummate the transactions
contemplated by this Agreement.
3.6 LEGAL PROCEEDINGS. No Order has been issued and no Action is
pending, or, to the Knowledge of Buyer, threatened against or affecting Buyer or
any Buyer Subsidiary or any of their respective properties or assets that
individually or when aggregated with one or more other Orders or Actions has or
might reasonably be expected to have a material adverse effect on (a) Buyer or
any Buyer Subsidiary or (b) Buyer's ability to perform the Transaction Documents
or any aspect of the transactions contemplated thereby. SECTION 3.6 of the Buyer
Disclosure Schedule lists each Order or Action that involves a claim or
potential claim of aggregate liability in excess of $50,000 against, or that
enjoins or compels or seeks to enjoin or to compel any activity by, Buyer or any
Buyer Subsidiary. There is no matter as to which Buyer or any Buyer Subsidiary
has received any notice, claim or assertion, or, to the Knowledge of Buyer,
which otherwise has been threatened or is reasonably expected to be threatened
or initiated, against or affecting any director, officer, employee, agent or
representative of Buyer, Buyer or any Buyer Subsidiary or any other Person, nor
to the Knowledge of Buyer is there any reasonable basis therefor, in connection
with which any such Person has or may reasonably be expected to have, any right
to indemnification by Buyer or any Buyer Subsidiary.
3.7 COMPLIANCE WITH LAW. Buyer and each Buyer Subsidiary are and have
been in compliance with and are not under investigation with respect to and have
not been threatened to be charged with or given notice of any violation of, any
applicable Law, except those where the violation would not have a material
adverse effect on Buyer or its ability to consummate the transactions
contemplated hereby.
3.8 NO BROKERS OR FINDERS. Other than Xxxxxxxx Inc., whose fee Buyer
will bear, no agent, broker, finder or investment or commercial banker, or other
Person or firms engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions.
3.9 INTELLECTUAL PROPERTY. Except as set forth on SECTION 3.9 of the
Buyer Disclosure Schedule, Buyer has no Knowledge of any infringement by any
other Person of any Intellectual Property of Buyer or any Buyer Subsidiary, and
none of Buyer or any Buyer Subsidiary has entered into any agreement to
indemnify any other party against any charge of infringement of any Intellectual
Property. Except as set forth on SECTION 3.9 of the Buyer Disclosure Schedule,
none of Buyer or any Buyer Subsidiary has violated or violates or infringes any
Intellectual Property of any other Person, and Buyer has not received any
communication alleging that Buyer or any Buyer Subsidiary violates or
22
infringes the Intellectual Property of any other Person. None of Buyer or any
Buyer Subsidiary has been sued for infringing any Intellectual Property of
another Person.
3.10 SEC DOCUMENTS. Buyer has filed all Buyer SEC Documents required to
be filed by it before the date of this Agreement. As of their respective dates,
the Buyer SEC Documents complied as to form in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Buyer SEC Documents, and none of the Buyer 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 light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Buyer SEC Document has been revised or
superseded by a later-filed Buyer SEC Document, filed and publicly available
before the date of this Agreement, as of the date of this Agreement, none of the
Buyer SEC Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Buyer included in the Buyer
SEC Documents complied as of their respective dates of filing with the SEC as to
form and substance in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. As of the date of this Agreement, except as set forth on SECTION 3.10
of the Buyer Disclosure Schedule, there are no material contracts that Buyer
expects to file as exhibits to its Annual Report on Form 10-K for the year ended
December 31, 1999.
3.11 DUE DILIGENCE MATERIALS. All documents, agreements and other
materials provided by Buyer to Seller or any representative of Seller in
connection with the due diligence conducted in connection with the transactions
contemplated by this Agreement have been true, correct and complete originals or
copies of the documents, agreements and other materials purported to be provided
or to which access has been given.
3.12 POOLING OF INTERESTS. Neither Buyer nor any Buyer Subsidiary nor,
to the Knowledge of Buyer, any of their respective directors, officers or
stockholders has taken any action that would interfere with Buyer's ability to
account for the Merger as a pooling of interests.
ARTICLE IV
CONDUCT BEFORE CLOSING
4.1 CONDUCT OF SELLER. From the date of this Agreement until the
Effective Time, except with the prior written consent of Buyer, Seller will
conduct its business in the ordinary course consistent with past practice,
including payment of accounts payable and collection of accounts receivable, and
will use its reasonable best efforts to preserve intact its business
organizations and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the
23
foregoing, from the date hereof until the Effective Time, except as consented to
by Buyer in writing, Seller will not:
(a) adopt or propose any changes in its charter documents or bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets or any capital stock or other securities of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets or
property except pursuant to existing Contracts;
(d) take any action that would make any representation and warranty of
Seller hereunder inaccurate at the Effective Time;
(e) enter into any licensing agreement, private label arrangement or
understanding or other similar arrangement with respect to any of Seller's
Intellectual Property;
(f) (i) grant any severance or termination pay to any current or former
employee, officer or director of Seller, (ii) increase benefits payable under
any existing severance or termination pay policies or employment contract, (iii)
enter into any employment, deferred compensation or other similar contract (or
any amendment to any such existing contract), (iv) establish, adopt or amend
(except as required by applicable Law) any collective bargaining, bonus, profit
sharing, thrift, pension, retirement, deferred compensation, compensation, stock
option, restricted stock or other benefit plan or arrangement, or (v) increase
compensation, bonus or other benefits payable to any current or former director,
officer or employee of Seller;
(g) issue any additional shares of capital stock, or issue, sell or
grant any option or right to acquire or otherwise dispose of or commit to
dispose of any of its authorized but unissued capital stock or other corporate
securities, except for the issuance of shares of Seller Capital Stock
contemplated by SECTION 4.4;
(h) declare or pay any dividends or make any other distribution in cash
or property on its capital stock or other equity interests; provided that Seller
may have declared aggregate dividends with respect to its 1999 fiscal year and
its current fiscal year equal to approximately 45% of its estimated taxable
income in such years;
(i) repurchase or redeem any shares of its capital stock or other
equity interests;
(j) grant any kind of Encumbrance with respect to any of its assets,
real or personal, tangible or intangible;
(k) amend any Tax Return, or make or change any Tax election or take
any Tax reporting position inconsistent with prior reporting practices;
24
(l) take any action that would interfere with Buyer's ability to
account for the Merger as a pooling of interests;
(m) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of Seller, guarantee any debt
securities of another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice, or (ii) make any loans, advances or capital contributions
to, or investments in, any other Person;
(n) make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $100,000 or, in the aggregate, are in
excess of $250,000;
(o) except in the ordinary course of business, modify, amend or
terminate any Material Contract to which Seller is a party or waive, release or
assign any material rights or claims;
(p) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting principles;
or
(q) agree or commit to do any of the foregoing.
4.2 CONDUCT OF BUYER. Except as contemplated by this Agreement, from
the date of this Agreement until the Effective Time, Buyer will conduct its
business in the ordinary course consistent with past practice and will use its
best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees.
4.3 NO SOLICITATION OF TRANSACTIONS. Seller will and will direct and
use its commercially reasonable efforts to cause its officers, directors,
employees, agents and representatives (including any investment banker,
attorney, financial advisor or accountant retained by it) not to initiate,
solicit or knowingly encourage, directly or indirectly (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or continue discussions or negotiations with any
Person in furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it to take any such action, and
Seller will notify Buyer of all inquiries or proposals that Seller may receive
relating to any of such matters and if such inquiry or proposal is in writing,
will deliver to Buyer a copy of such inquiry or proposal.
25
4.4 SATISFACTION OF BONUSES FOR TAX PAYMENT OBLIGATIONS. SECTION 4.4 of
the Seller Disclosure Schedule shows each employee entitled to a stock bonus
upon a sale of Seller and the number of shares issuable to such employee. Seller
will amend the agreements with the individuals listed on SECTION 4.4 of the
Seller Disclosure Schedule to provide that all obligations of Seller to pay
additional compensation with respect to such stock bonus will be satisfied by
the payment of shares of Seller's stock, rather than cash. The exact number of
shares to be issued to each employee in satisfaction of such tax obligation is
shown opposite such employee's name on SECTION 4.4 of the Seller Disclosure
Schedule. Such amendments shall provide that all additional shares issuable as a
result of the stock bonus or for taxes thereon will be issued on the Closing
Date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ACCESS.
(a) Seller will make available for inspection by Buyer and its
representatives, during normal business hours and in a manner so as not to
interfere with normal business operations, all of Seller's records (including
Tax records), books of account, premises, Contracts and all other documents in
Seller's possession or control that are reasonably requested by Buyer and its
representatives to inspect and examine the business and affairs of Seller.
Seller will cause its managerial employees, counsel and regular independent
accountants to be available upon reasonable advance notice to answer questions
of Buyer and Buyer's representatives concerning the business and affairs of
Seller. Buyer and its representatives will treat and hold as confidential any
information they receive from Seller in the course of the reviews contemplated
by this SECTION 5.1. No examination by Buyer and its representatives will,
however, constitute a waiver or relinquishment by Buyer of its rights to rely on
Seller's covenants representations and warranties made herein or pursuant
hereto.
(b) Buyer will, and will cause the Buyer Subsidiaries to, make
available for inspection by Seller and its representatives, during normal
business hours and in a manner so as not to interfere with normal business
operations, those of Buyer's records, premises, Contracts and documents in
Buyer's possession or control that are reasonably requested by Seller and its
representatives to evaluate an investment in the Buyer Common Stock. Buyer will
cause its managerial employees, counsel and regular independent accountants to
be available upon reasonable advance notice to answer questions of Seller and
Seller's representatives concerning the business and affairs of Buyer. No
examination by Seller and its representatives will, however, constitute a waiver
or relinquishment by Seller of its rights to rely on Buyer's covenants,
representations and warranties made herein or pursuant hereto.
26
5.2 NOTIFICATION OF CERTAIN MATTERS.
(a) Seller will promptly notify Buyer of (i) any event of which Seller
obtains Knowledge that has had or might reasonably be expected to have a
material adverse effect on the Business or that if known as of the date of this
Agreement would be required to be disclosed to Buyer and (ii) any failure of
Seller to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
(b) Buyer will promptly notify Seller of (i) any event of which Buyer
obtains Knowledge that has had or might reasonably be expected to have a
material adverse effect on Buyer or that if known as of the date of this
Agreement would be required to be disclosed to Seller and (ii) any failure of
Buyer to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
5.3 PERMITS AND APPROVALS. Seller and Buyer will cooperate with each
other and use their best efforts to obtain (and will immediately prepare all
registrations, filings and applications, requests and notices preliminary to)
all Approvals and Permits that may be necessary or that may be reasonably
requested by the other party to consummate the transactions contemplated by this
Agreement, including under the Securities Act, state Blue Sky laws and the
Xxxx-Xxxxx-Xxxxxx Act.
5.4 SHAREHOLDER MEETING; INFORMATION STATEMENT. Seller will, in
accordance with applicable Law and the Articles of Incorporation and bylaws of
Seller and as soon as reasonably practicable, cause a meeting of its
shareholders to be duly called and held or obtain the necessary written consent
of its shareholders to approve and adopt this Agreement and the transactions
contemplated hereby. In connection with such meeting or written consent, as the
case may be, Seller will use all reasonable efforts to obtain the necessary
approvals by its shareholders of this Agreement and the transactions
contemplated hereby and otherwise comply with all legal requirements applicable
to such meeting or written consent, as the case may be. Seller will prepare and
deliver to the Shareholders an Information Statement describing the transactions
contemplated by this Agreement for the purpose of such meeting, and Buyer will
cooperate and provide all information reasonably requested by Seller in
preparing such Information Statement.
5.5 CONDITIONS. Seller will use its best efforts to take all actions
reasonably necessary or appropriate to cause each condition set forth in SECTION
6.2 to be fulfilled on or before the Closing, and Buyer will use its best
efforts to take all actions reasonably necessary or appropriate to cause each
condition set forth in SECTION 6.3 to be fulfilled on or before the Closing.
5.6 POOLING ACCOUNTING. Seller and Buyer will each use reasonable
commercial efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of Seller and Buyer
will use its best efforts to cause its Affiliates not to take any action that
would adversely affect the ability of Buyer to account for the business
combination to be effected by the Merger as a pooling of interest.
27
5.7 BLUE SKY LAWS. Buyer will take such steps as may be necessary to
comply with the securities and Blue Sky laws of all jurisdictions that are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. Seller will use its best efforts to assist Buyer as may be necessary to
comply with the securities and Blue Sky laws of all jurisdictions that are
applicable in connection with the issuance of Buyer Common Stock in connection
with the Merger.
5.8 REORGANIZATION. Seller and Buyer will each use its best efforts to
cause the business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code.
5.9 PRELIMINARY CLOSING DATE BALANCE SHEET. Seller will prepare and
deliver to Buyer at least two days before the Closing Date its best estimate of
Seller's balance sheet as of the Closing Date (the "PRELIMINARY CLOSING DATE
BALANCE SHEET") so that the parties may determine the Working Capital of Seller
to be used in making the adjustment described in SECTION 1.5. The PRELIMINARY
CLOSING DATE Balance Sheet will be prepared on a basis consistent with the
Balance Sheet.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 GENERAL CONDITIONS. The obligations of the parties to consummate
the Merger are subject to satisfaction of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement, including the appointment of
the Representative as provided in SECTION 9.6, must have been approved and
adopted by the requisite affirmative vote of the holders of Common Stock in
accordance with Seller's Articles of Incorporation and the California Code.
(b) GOVERNMENT APPROVALS. The parties shall have timely obtained from
each Governmental Entity all Permits and Approvals, if any, necessary for
consummation of, or in connection with, the Merger and the several transactions
contemplated hereby, including such approvals, waivers and consents as may be
required under the Securities Act, state Blue Sky laws, and the Xxxx-Xxxxx
Xxxxxx Act.
(c) TAX-FREE REORGANIZATION. Each of Buyer and Seller shall have
received substantially identical written opinions from their respective counsel
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, which opinions shall be in the form
attached hereto as EXHIBIT D. In rendering such opinions, counsel will be
entitled to rely upon representations of Buyer, Acquisition Corp. and Seller and
certain shareholders of Seller.
(d) NO RESTRAINING ACTION. No Action will have been instituted or
threatened against Buyer, any Buyer Subsidiary, Acquisition Corp. or Seller
before any Governmental Entity, seeking to restrain or prohibit the consummation
of the transactions contemplated hereby.
28
(e) MERGER. The Agreement of Merger shall have been filed with the
Secretary of State of the State of California.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. Unless waived, in whole or
part, in writing by Buyer, Buyer's obligations hereunder are subject, before or
at the Closing, to satisfaction of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller contained in ARTICLE II will be true at the Closing Date with the same
effect as though made at such time. Seller will have performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or before the Closing Date, and Seller will
have delivered to Buyer a certificate of Seller in form and substance
satisfactory to Buyer, dated the Closing Date and signed by its Chief Executive
Officer and Chief Financial Officer to such effect.
(b) MATERIAL ADVERSE CHANGE. There will not have been any material
adverse change in or affecting the Business since the Balance Sheet Date.
(c) OPINION OF COUNSEL. Buyer must have received from Pillsbury,
Madison & Sutro LLP, counsel to Seller, an opinion dated the Closing Date, in
form and substance satisfactory to Buyer, substantially as set forth on EXHIBIT
E.
(d) CORPORATE PROCEEDINGS. True and complete copies of all corporate
proceedings and documents effecting the authorization and approval of the
Transaction Documents and the transactions contemplated thereunder by Seller,
certified by the Chief Executive Officer and the Secretary of Seller will have
been furnished to Buyer.
(e) TRANSACTION DOCUMENTS. Seller will have executed and delivered the
Transaction Documents to which it is a party other than this Agreement.
(f) APPROVALS AND PERMITS. Seller must have obtained all Approvals and
Permits necessary to consummate the transactions contemplated hereby.
(g) INVESTMENT REPRESENTATION. Buyer shall have received a signed
Investor Representation Letter in substantially the form attached hereto as
EXHIBIT F from each of the Shareholders.
(h) SECURITIES LAW COMPLIANCE. Buyer shall be satisfied that the
transaction is exempt under Regulation D of the Securities Act.
(i) NON-COMPETE AGREEMENTS. Each of the Shareholders shall have
executed and delivered a non-competition agreement in the form of EXHIBIT G.
(j) SELLER AMENDMENTS. Seller will have delivered to Buyer executed
copies of the amended agreements contemplated by SECTION 4.4.
29
(k) WITHHOLDING AND PAYROLL TAXES. Each individual listed on SECTION
4.4 of the Seller Disclosure Schedule will have executed an agreement with
Seller in the form of EXHIBIT H requiring such individual to pay to Seller an
amount equal to the withholding and payroll taxes due on the issuance of all
shares to such individual shown on SECTION 4.4 of the Seller Disclosure
Schedule. Such payment will be made within 5 business days after the date on
which Buyer first files with the SEC a report under the Exchange Act containing
the combined results of operations for Seller and Buyer for a period of 30 days
(the "FILING DATE"). Such taxes will equal the number of the shares of Buyer
Common Stock issued to such individual in exchange for the aggregate shares of
Seller Capital Stock on SECTION 4.4 of the Seller Disclosure Schedule opposite
such individual's name multiplied by the Exchange Rate multiplied by the closing
price of Buyer Common Stock on the Filing Date multiplied by 35.45%.
(l) PREEMPTIVE RIGHTS WAIVER. Each of the Shareholders will have
executed and delivered a waiver of preemptive rights contained in Seller's
Articles of Incorporation with respect to the issuance of shares of Seller
Capital Stock contemplated by SECTION 4.4 and all prior issuances of Seller
Capital Stock.
(m) PHASE I ENVIRONMENTAL STUDY. Buyer will have received a Phase I
Environmental Report with respect to Seller's premises satisfactory to Buyer in
its sole discretion.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER. Unless waived, in whole or
part, in writing by Seller, Seller's obligations hereunder are subject, before
or at the Closing, to satisfaction of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in ARTICLE III will be true at the Closing Date with the same
effect as though made at such time. Buyer will have performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or before the Closing Date, and Buyer will
have delivered to Seller a certificate of Buyer in form and substance
satisfactory to Seller, dated the Closing Date and signed by its Chief Executive
Officer and Chief Financial Officer to such effect.
(b) TRANSACTION DOCUMENTS. Buyer must have executed and delivered the
Transaction Documents to which it is a party other than this Agreement.
(c) CORPORATE PROCEEDINGS. True and complete copies of all corporate
proceedings and documents effecting the authorization and approval of the
Transaction Documents and the transactions contemplated thereunder by Buyer,
certified by the Chief Executive Officer and the Secretary of Buyer, shall have
been furnished to Seller.
(d) REGISTRATION RIGHTS. Seller's shareholders and Buyer shall have
entered into a registration rights agreement in the form attached as EXHIBIT I
(the "REGISTRATION RIGHTS AGREEMENT").
30
(e) OPINION OF COUNSEL. Seller must have received from O'Melveny &
Xxxxx LLP, counsel to Buyer, an opinion dated the Closing Date, in form and
substance satisfactory to Seller, substantially as set forth on EXHIBIT J.
(f) STAY BONUSES. Buyer will have set aside $1,000,000 for stay bonuses
to certain employees of Seller payable to such employees on the one year
anniversary of the Closing Date. The recipients of such bonuses and bonus amount
for each recipient will be determined by Xxxxx Xxxxxxx and Xxxxxxx Xxxxxx.
(g) INDEMNIFICATION AGREEMENTS. Each of Xxxxxxx Xxxxxx, Xxxxx Xxxxx,
Xxxx Xxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxxx and Xxxxxxx Xxxxx will have received
indemnification agreements in form and substance similar to those between Buyer
and its executive officers.
(h) STOCK OPTIONS FOR SELLER EMPLOYEES. Buyer and Xxxxxxx Xxxxxx shall
have mutually agreed on the number of stock options to purchase Buyer Common
Stock, and the terms thereof, to be granted to the employees of the Surviving
Corporation under the Power-One, Inc. Amended and Restated 1996 Stock Option
Plan, as amended.
ARTICLE VII
TERMINATION OF OBLIGATIONS
7.1 TERMINATION OF AGREEMENT. Notwithstanding anything herein to the
contrary, this Agreement and the transactions contemplated by this Agreement
will terminate if the Closing does not occur on or before the close of business
on March 31, 2000, unless extended by mutual consent in writing of Buyer and
Seller, and otherwise may be terminated at any time before the Closing as
follows and in no other manner:
(a) MUTUAL CONSENT. By mutual consent in writing of Buyer and Seller.
(b) CONDITIONS TO BUYER'S PERFORMANCE NOT MET. By Buyer by written
notice to Seller if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the transactions contemplated by this Agreement as set forth
in SECTION 6.1 OR 6.2.
(c) CONDITIONS TO SELLER'S PERFORMANCE NOT MET. By Seller by written
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in SECTION 6.1 OR 6.3.
(d) INACCURATE INFORMATION. By Buyer if any material information
(whether or not in writing) delivered by or on behalf of Seller to Buyer is
inaccurate or incomplete in any material respect. By Seller if any material
information (whether or not in writing) delivered by or on behalf of Buyer to
Seller is inaccurate or incomplete in any material respect.
31
(e) XXXX-XXXXX-XXXXXX. By Buyer if Buyer receives a request for further
information under the Xxxx-Xxxxx-Xxxxxx Act from either the FTC or Department of
Justice, and Buyer believes, based on advice from its counsel, that such request
for additional information will likely result in a challenge by the FTC or
Department of Justice of the transactions contemplated by this Agreement.
(f) MATERIAL BREACH. By Buyer or Seller if there has been a material
misrepresentation or other material breach by the other party in its
representations, warranties and covenants set forth herein; provided, however,
that if such breach is susceptible to cure, the breaching party will have ten
business days after receiving notice from the other party of its intention to
terminate this Agreement if such breach continues in which to cure such breach.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
SECTION 7.1, all further obligations of the parties under this Agreement will
terminate without further liability of any party to another; provided that the
obligations of the parties contained in SECTION 9.3 and SECTION 9.5 will survive
any such termination. A termination under SECTION 7.1 will not relieve any party
of any liability for a breach of, or for any misrepresentation under this
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
ARTICLE VIII
INDEMNIFICATION
8.1 ESCROW FUND. As soon as practicable after the Effective Time, 10%
of the aggregate shares of Buyer Common Stock to be issued pursuant to SECTION
1.2 (a) (the "ESCROW SHARES") will be registered in the name of, and deposited
with, Union Bank of California, N.A (or such other institution as may be
selected by Buyer with the reasonable consent of the Representative) as escrow
agent (the "ESCROW AGENT"), such deposit to constitute the Escrow Fund and to be
governed by the terms set forth in the Escrow Agreement attached as EXHIBIT K
(the "ESCROW AGREEMENT"). The Escrow Fund will be available to compensate Buyer
pursuant to the indemnification obligations of Seller.
8.2 OBLIGATIONS OF SELLER. Seller will indemnify and hold harmless
Buyer and each Buyer Subsidiary, and their respective directors, officers,
employees, Affiliates, agents and assigns from and against any and all Losses of
Buyer or any Buyer Subsidiary, directly or indirectly, as a result of, or based
upon or arising from (a) any inaccuracy in or breach or nonperformance of any of
the representations, warranties, covenants or agreements made by Seller in or
pursuant to this Agreement; or (b) any third party claims or demand regarding
the conduct of the Business before the Closing, whether asserted before or after
the Closing. All amounts owed by Seller to Buyer will be paid out of the Escrow
Fund in accordance with the Escrow Agreement. Notwithstanding anything herein to
the contrary, Seller will not be liable to indemnify any Person (i) until the
total amount of all Indemnifiable Claims exceeds $500,000; provided, however,
that if said sum of $500,000
32
is exceeded Seller's obligation to Buyer hereunder will include payment of said
$500,000, as well as the excess over that amount, or (ii) for aggregate
Indemnifiable Claims in excess of the amount of the Escrow Fund.
8.3 OBLIGATIONS OF BUYER. Buyer will indemnify and hold harmless the
Shareholders from and against any Losses of the Shareholders, directly or
indirectly, as a result of, or based upon or arising from, any inaccuracy in or
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by Buyer in or pursuant to this Agreement. Any payments made by
Buyer to the Shareholders in respect of Losses incurred by the Shareholders
pursuant to this SECTION 8.3 will be paid in shares of Buyer Common Stock. For
purposes of determining the number of shares of Buyer Common Stock to be
delivered to the Shareholders pursuant to this SECTION 8.3, the price per share
of Buyer Common Stock will be the average closing price of the Buyer Common
Stock (as quoted on Nasdaq) during the ten trading days ending two days before
the day upon which any such payment is required to be made.
8.4 PROCEDURE.
(a) Any party seeking indemnification with respect to any Loss will
give notice to the party required to provide indemnity hereunder on or before
the date specified in SECTION 9.1. The Representative will act on behalf of
Shareholders for all purposes under this ARTICLE VIII in accordance with SECTION
9.6.
(b) If any claim, demand or liability is asserted by any third party
against any Indemnified Party, the Indemnifying Party will upon the written
request of the Indemnified Party, defend any Actions brought against the
Indemnified Party in respect of matters embraced by the indemnity with counsel
satisfactory to the Indemnified Party, but the Indemnified Party will have the
right to conduct and control the defense, compromise or settlement of any
Indemnifiable Claim if the Indemnified Party chooses to do so, on behalf of and
for the account and risk of the Indemnifying Party who will be bound by the
result so obtained to the extent provided herein, provided, however, that no
Indemnifiable Claim shall be settled by an Indemnified Party unless the
Indemnifying Party shall consent thereto, which consent shall not be
unreasonably withheld or delayed. If, after a request to defend any Action, the
Indemnifying Party neglects to defend the Indemnified Party, a recovery against
the latter suffered by it in good faith, is conclusive in its favor against the
Indemnifying Party, provided however that, if the Indemnifying Party has not
received reasonable notice of the Action against the Indemnified Party, or is
not allowed to control its defense, judgment against the Indemnified Party is
only presumptive evidence against the Indemnifying Party. Each party hereto, to
the extent that it is or becomes an Indemnifying Party, hereby stipulates that a
judgment against the Indemnified Party will be conclusive upon the Indemnifying
Party. The parties will cooperate in the defense of all third party claims,
which may give rise to Indemnifiable Claims hereunder. In connection with the
defense of any claim, each party will make available to the party controlling
such defense, any books, records or other documents within its control that are
reasonably requested in the course of such defense.
33
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and agreements contained in this Agreement will survive the Closing
until the date on which Buyer files with the SEC its first Annual Report on Form
10-K that includes consolidated financial statements of Buyer and Seller.
9.2 PUBLIC ANNOUNCEMENTS. Buyer and Seller will consult with each other
before issuing any press releases or making any public statement with respect to
this Agreement or the transactions contemplated hereby and will mutually agree
on the substance of any such press release or public statement.
9.3 CONFIDENTIALITY. All information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) will be kept
confidential by such other party and its representatives and will not be used by
any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, or as may otherwise be required by Law or (iv) to
the extent such duty as to confidentiality is waived in writing by the other
party. If this Agreement is terminated, each party will use all reasonable
efforts to return upon written request from the other party all documents (and
reproductions thereof) received by it or its representatives from such other
party (and, in the case of reproductions, all such reproductions made by the
receiving party) that include information not within the exceptions contained in
the first sentence of this SECTION 8.3, unless the recipients provide assurances
reasonably satisfactory to the requesting party that such documents have been
destroyed.
9.4 EXPENSES. Except as otherwise provided herein, each of the parties
will bear all expenses incurred by it in connection with this Agreement and in
the consummation of the transactions contemplated hereby and in preparation
therefor.
9.5 REPRESENTATIVE. Seller and the Shareholders, by virtue of their
approval of this Agreement, will be deemed to have irrevocably constituted and
appointed, the Representative, effective as of the Effective Time, as their true
and lawful agent and attorney-in-fact to enter into any agreement in connection
with the transactions contemplated by this Agreement or any transactions
contemplated by the Escrow Agreement, to exercise all or any of the powers,
authority and discretion conferred on him under either this Agreement or the
Escrow Agreement, to waive any terms and conditions of any such agreement, to
give and receive notices on their behalf and to be their exclusive
representative with respect to any Action arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any Action for which Buyer or
Acquisition Corp. may be entitled to indemnification and the Representative
agrees to act as, and to undertake the duties and
34
responsibilities of , such agent and attorney-in-fact. This power of attorney is
coupled with an interest and is irrevocable. The Representative will not be
liable for any action taken or not taken by him in connection with his
obligations under this Agreement in the absence of his own gross negligence or
willful misconduct. If the Representative shall be unable or unwilling to serve
in such capacity, his successor, who will serve and exercise the powers of the
Representative hereunder, will be named by those persons holding a majority of
the shares of Seller Capital Stock.
9.6 NOTICES. All notices (including other communications required or
permitted) under this Agreement must be in writing and must be delivered: (a) in
person; (b) by registered, express or certified mail, postage prepaid, return
receipt requested; (c) by a generally recognized courier or messenger service
that provides written acknowledgement of receipt by the addressee; or (d) by
facsimile or other generally accepted means of electronic transmission with a
verification of delivery. Notices are deemed delivered at the earlier of the
date such notice is actually received by a party or two days after such notice
is given. Notices to Seller must be given at the addresses below, but any party
may furnish, from time to time, other addresses for notices to it.
If to Buyer, at: with a copy to:
000 Xxxxx Xxxxx X'Xxxxxxx & Xxxxx XXX
Xxxxxxxxx, XX 00000 1999 Avenue of the Stars
Attn: Xxxxxx X. Xxxxxxx Suite 700
Telephone: (000) 000-0000 Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000 Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
If to Seller, at: with a copy to:
0000 Xxxxx Xxxxxxx Xxxxxxxxx Xxxxxxx & Sutro LLP
Xxxxxx, Xxxxxxxxxx 00000 000 Xxxx Xxxxxx Xxxxx, 0xx Xxxxx
Attn: Xxxxxxx X. Xxxxxx Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Telecopier: (000) 000-0000 Telecopier: (000) 000-0000
Attn: Xxxxxxxxxxx X. Xxxxxx, Esq.
The addresses to which notices or demands are to be given may be
changed from time to time by notice served as provided above. Delivery of notice
to the copied parties above is not notice to Buyer or Seller, as the case may
be.
9.7 FURTHER ASSURANCES. Seller will, upon the request of Buyer, from
time to time execute and deliver such additional certificates, agreements and
other documents and take such other actions as Buyer reasonably requests, to
render effective the transactions contemplated hereby.
35
9.8 SECTIONS AND OTHER HEADINGS. Sections or other headings contained
in this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement.
9.9 INTEGRATED AGREEMENT. This Agreement and the exhibits and schedules
hereto constitute the entire agreement between the parties hereto, and no
agreements, understandings, restrictions, warranties or representations exist
between the parties other than those set forth herein or provided for herein.
9.10 ASSIGNMENT. No party to this Agreement may assign this Agreement
without the prior consent of the other parties to this Agreement, except that
Buyer can assign this Agreement without the prior written consent of any other
party in connection with the sale of all or substantially all of the assets or
stock of Buyer or in connection with the merger, consolidation or similar
reorganization of Buyer.
9.11 AMENDMENTS; WAIVERS. All parties must approve any amendment to
this Agreement. Any waiver of any right or remedy requires the consent of the
party waiving it. Every amendment or waiver must be in writing and designated as
an amendment or waiver, as appropriate. No failure by any party to insist on the
strict performance of any provision of this Agreement, or to exercise any right
or remedy, will be deemed a waiver of such performance, right or remedy, or of
any other provision of this Agreement.
9.12 INTERPRETATION. If any claim is made by a party relating to any
conflict, omission or ambiguity in the provisions of this Agreement, no
presumption or burden of proof or persuasion will be implied because this
Agreement was prepared by or at the request of any party or its counsel. The
parties waive any statute or rule of Law to the contrary. Unless the context
otherwise requires: (i) a term has the meaning assigned to it; (ii) "or" is not
exclusive; (iii) words in the singular include the plural, and words in the
plural include the singular; (iv) "herein," "hereof" and other words of similar
import refer to this Agreement as a whole and not to any particular Section,
Subsection, paragraph, clause, or other subdivision; (v) all references to
"Section," "Schedule" or "Exhibit" refer to the particular Section, Schedule or
Exhibit in or attached to this Agreement; and (vi) "including" and "includes,"
when following any general provision, sentence, clause, statement, term or
matter, will be deemed to be followed by ", but not limited to," and ", but is
not limited to," respectively.
9.13 COUNTERPARTS. This Agreement is being signed in several
counterparts. Each of them is an original, and all of them constitute one
agreement.
9.14 HEADINGS; EXHIBITS. The headings in this Agreement are only for
convenience and ease of reference and are not to be considered in construction
or interpretation. All exhibits, schedules and appendices attached to this
Agreement are incorporated herein.
36
9.15 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be adjusted rather than voided, if
possible, to achieve the intent of the parties to the extent possible. In any
event, all other provisions of this Agreement will be deemed valid and
enforceable to the extent possible.
9.16 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal Laws of the State of California (without reference
to its rules as to conflicts of Law).
9.17 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur if any provision of this Agreement was not performed in accordance
with the terms hereof and that the parties will be entitled to specific
performance of the terms hereof in addition to any other remedy to which they
are entitled at law or equity.
9.18 ARBITRATION.
(a) All disputes of any nature (whether sounding in contract or in
tort) arising out of or relating to this Agreement must be initiated, maintained
and determined exclusively by binding arbitration in the County of Orange, State
of California, pursuant to SECTION 9.18(c). Each party agrees irrevocably to
submit itself, in any suit to confirm the judgment or finding of such
arbitrator, to the jurisdiction for the United States District Court for the
Central District of California and the jurisdiction of any court of the State of
California located in Los Angeles County and waives any and all objections to
jurisdiction that it may have under the laws of the State of California or the
United States.
(b) In case of a dispute, any party may commence the arbitration by
giving written notice to the other pursuant to SECTION 9.6. The Arbitrator (as
defined below) will be a retired judge of the United States District Court for
the Central District of California or of the Superior Court of the State of
California in and for the County of Orange. The arbitration proceeding will be
conducted by means of a reference pursuant to California Code of Civil Procedure
Section 638(1). Within 10 business days after receipt of the notice requesting
arbitration, the parties will attempt in good faith to agree upon the arbitrator
to whom the dispute will be referred and on a joint statement of contentions.
Unless agreement as to an Arbitrator is theretofore reached, within 10 business
days after receipt of the notice requesting arbitration, each party will submit
the names of three (3) retired judges who have served at least five (5) years as
trial judges in the Superior Court of the State of California or in the United
States District Court. Either party may then file a petition seeking the
appointment by the presiding Judge of the Superior Court of one of the persons
so named as "referee" in accordance with said Code of Civil Procedure 638(1),
which petition will recite in a clear and meaningful manner the factual basis of
the controversy between the parties and the issues to be submitted to the
referee for decision. Each party hereby consents to the jurisdiction of the
Superior Court in and for the County of Los Angeles for such action and agrees
that service of process will be deemed completed when a notice similarly sent
would be deemed received under SECTION 9.6.
37
(c) The hearing before the arbitrator will be held within thirty (30)
days after the parties reach agreement as to the identity of the arbitrator (or
within thirty (30) days after the appointment by the court) (as finally
determined pursuant to this SECTION 9.18, the "ARBITRATOR"). Unless more
extensive discovery is expressly permitted by the Arbitrator, each party has
only the right to one document production request, may serve but one set of
interrogatories and is only entitled to depose those witnesses which the
Arbitrator expressly permits, it being the intention of the parties to minimize
discovery procedures and to hold the hearing on an expedited basis. The
Arbitrator shall establish the discovery schedule promptly following submission
of the joint statement of intentions (or the filing of the answer to the
petition), to which such schedule will be strictly adhered. All decisions of the
Arbitrator will be in writing and will not be subject to appeal. The Arbitrator
will make all substantive rulings in accordance with California law and will
have authority equal to that of a Superior Court Judge to grant equitable relief
in an action pending in Los Angeles Superior Court in which all parties have
appeared. The Arbitrator shall use its best efforts to hear the dispute on
consecutive days and to render a decision and award within thirty (30) days.
Unless otherwise agreed to by the parties to the dispute being arbitrated, a
court reporter shall be present at and record the proceedings of the hearing.
All motions will be heard at the time of the hearing. The Arbitrator will
determine which rules of evidence, and which procedural rules, will apply. In
the absence of a determination thereof by the Arbitrator, the rules of the
American Arbitration Association, not inconsistent with this Section, will apply
to the conduct of the proceeding.
(d) All disputing parties will share the fees and costs of the
Arbitrator equally. The Arbitrator will award legal fees, disbursements and
other expenses to the prevailing party or parties for such amounts as determined
by the Arbitrator to be appropriate. Judgment upon the Arbitrator's award may be
entered as if after trial in accordance with California law. Should a party fail
to pay fees as required, the other party may advance the same and will be
entitled to a judgment from the Arbitrator in the amount of such fees plus
interest at the prime rate as determined by the Bank of America. Any award
issued by the Arbitrator will bear interest at the judgment rate in effect in
the State of California from the date determined by the Arbitrator.
38
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
POWER-ONE, INC.
By:
---------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Chairman and Chief Executive Officer
POWER-ONE ACQUISITION CORP.
By:
---------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Chief Executive Officer
HC POWER, INC.
By:
---------------------------------------------
Name: Xxxxxxx Xxxxxx
Its: Chief Executive Officer
S-1
EXHIBIT A
"ACQUISITION CORP." has the meaning set forth in the
introduction to this Agreement.
"ACQUISITION CORP. COMMON STOCK" has the meaning set forth in
SECTION 1.2(b).
"ACTION" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"AGREEMENT" means this Agreement by and among Buyer,
Acquisition Corp. and Seller as it may be amended, supplemented or modified from
time to time.
"AGREEMENT OF MERGER" has the meaning set forth in SECTION
1.1(a).
"ANNUAL FINANCIAL STATEMENTS" has the meaning set forth in
SECTION 2.3(a).
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"ARBITRATOR" has the meaning set forth in SECTION 9.18(c).
"ASSOCIATE" of a Person means:
(i) a corporation or organization (other than a party
to this Agreement) of which such Person is an officer or partner or, directly or
indirectly, beneficially owns 10% or more of any class of equity securities;
(ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar capacity; and
(iii) any relative or spouse of such Person or any
relative of such spouse who has the same home as such person or who is a
director or officer of Seller or any of its Affiliates.
"AVERAGE SHARE PRICE" means $33 per share of Buyer Common
Stock.
A-1
"BALANCE SHEET" means the Seller's balance sheet as of
September 30, 1999 included within the Annual Financial Statements.
"BALANCE SHEET DATE" means September 30, 1999.
"BUSINESS" means the business of Seller and will be deemed to
include any of the following incidents of such business: income, cash flow,
operations, condition (financial or other), assets/properties, anticipated
revenues/income and liabilities.
"BUYER COMMON STOCK" has the meaning set forth in the
recitals.
"BUYER DISCLOSURE SCHEDULE" means the disclosure schedule
dated, and delivered by Seller to Buyer on, the date of this Agreement. The
Sections of the Disclosure Schedule will be numbered to correspond to the
applicable Section of this Agreement and, together with all matters under such
heading, will be deemed to qualify ONLY that section unless it is manifestly
evident from such disclosure that it qualifies another section, in which case it
will be deemed to qualify such other section.
"BUYER SEC DOCUMENTS" means all required reports, schedules,
forms, statements and other documents filed with the SEC since September 30,
1997.
"BUYER SUBSIDIARY" means International Power Devices, Inc.,
Xxxxxxx Holding AG, Power-Electronics, Inc. and Poder Uno de Mexico, S.A. de
C.V.
"CALIFORNIA CODE" has the meaning set forth in SECTION 1.1(a).
"CERTIFICATES" has the meaning set forth in SECTION 1.3(c).
"CLOSING" has the meaning set forth in SECTION 1.1(b).
"CLOSING DATE" has the meaning set forth in SECTION 1.1(b).
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
SECTION 1.5(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPETING TRANSACTION" means (i) any merger, consolidation,
share exchange, business combination or other similar transaction involving
Seller, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of Seller, taken as a whole, in a
single transaction or a series of transactions, other than in the ordinary
course of business, (iii) any Person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as defined in Section
13(d) of the Exchange Act) having been formed that beneficially owns or has the
right to acquire beneficial ownership of, 10% or more of the Seller Capital
Stock or (iv) any public announcement of a proposal, plan or intent to do any of
the foregoing or any agreement to engage in any of the foregoing other than any
transaction contemplated in this Agreement.
A-2
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing, to which Seller is a party.
"DISSENTING SHARES" has the meaning set forth in SECTION
1.2(a).
"DISSENTING SHAREHOLDER" has the meaning set forth in SECTION
1.2(d).
"EFFECTIVE TIME" has the meaning set forth in SECTION 1.1(b).
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"ENVIRONMENTAL LAWS" has the meaning set forth in SECTION
2.21.
"ERISA AFFILIATE" means (i) any corporation which is a member
of a group of corporations of which Seller is a member and which is a controlled
group of corporations within the meaning of Section 414(b) of the Code; (ii) any
trade or business (whether or not incorporated) which is a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code of which Seller is a member; and (iii) a member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Code of which
Seller, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member.
"ESCROW AGENT" has the meaning set forth in SECTION 8.1.
"ESCROW AGREEMENT" has the meaning set forth in SECTION 8.1.
"ESCROW FUND" has the meaning set forth in SECTION 1.3(b).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" has the meaning set forth in SECTION 1.3(a).
"EXCHANGE FUND" means the shares of Buyer Common Stock and
cash delivered to the Exchange Agent pursuant to SECTION 1.3(b).
"EXCHANGE RATE" has the meaning set forth in SECTION 1.2(a).
"FILING DATE" has the meaning set forth in SECTION 6.2(j).
"FINAL BALANCE SHEET" has the meaning set forth in SECTION
1.5(a).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION
2.3(b).
A-3
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOVERNMENTAL ENTITY" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"XXXX-XXXXX-XXXXXX ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"HAZARDOUS SUBSTANCE" means (but is not limited to) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement.
"INDEMNIFIED PARTY" means the party entitled to indemnity
under this Agreement.
"INDEMNIFYING PARTY" means the party obligated to provide
indemnification under this Agreement.
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in
"SECTION 1.5(c)".
"INTELLECTUAL PROPERTY" means any trade secret, secret process
or other confidential information or know-how and any brand name, copyright,
patent, service xxxx, trademark, tradename, and all registrations or
applications for registration of any of the foregoing.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in
SECTION 2.3(b).
"IRS" means the Internal Revenue Service or any successor
entity.
"KNOWLEDGE" with respect to Seller means the actual knowledge
of Xxxxxxx Xxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxx, Xxxxxxx Xxxxx,
Xxxxxx Xxxxxxxxx, Xxxxxx Xxxx, Xxxxx Xxxxx, Xxxx Xxxxx, Xxxxx Xxxxxxxx and Xxxx
Xxxxx after conducting a reasonable investigation of the subject matter thereof,
and "KNOWLEDGE" with respect to Buyer means the actual knowledge of the
executive officers of Buyer after conducting a reasonable investigation of the
subject matter thereof.
A-4
"LAW" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including interest or other carrying costs, penalties, legal, accounting and
other professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified person.
"MATERIAL" means an amount, which individually is in excess of
$100,000 or, in the aggregate with other individual amounts, is in excess of
$250,000.
"MATERIAL CONTRACT" means any Contract material to the
Business as of or after the date hereof and includes but is not limited to those
contracts deemed material by SECTION 2.5.
"MERGER" has the meaning set forth in SECTION 1.1(a).
"NASDAQ" means the National Association of Securities Dealers,
Inc. Automated Quotations System.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERMIT" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PRELIMINARY CLOSING DATE BALANCE SHEET" has the meaning set
forth in SECTION 5.9.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in
SECTION 6.3(d).
"REPRESENTATIVE" means Xxxxxxx X. Xxxxxx.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" is defined in the introduction to this Agreement.
"SELLER CAPITAL STOCK" has the meaning set forth in the
recitals.
A-5
"SELLER DISCLOSURE SCHEDULE" means the disclosure schedule
dated, and delivered by Seller to Buyer on, the date of this Agreement. The
Sections of the Seller Disclosure Schedule will be numbered to correspond to the
applicable Section of this Agreement and, together with all matter under such
heading, will be deemed to qualify ONLY to that section unless it is manifestly
evident from such disclosure that it qualifies another section, in which case it
will be deemed to qualify such other section.
"SHAREHOLDERS" means the holders of the Seller Capital Stock
at the Effective Time.
"SUPPORT AGREEMENT" is defined in the recitals.
"SURVIVING CORPORATION" has the meaning set forth in SECTION
1.1(a).
"TAX" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property, transfer,
gross receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof, and any Loss in connection with the
determination, settlement or litigation of any Tax liability.
"TAX RETURN" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Seller.
"TRANSACTION DOCUMENTS" means this Agreement, the Escrow
Agreement, the Registration Rights Agreement and the Agreement of Merger.
"WORKING CAPITAL" means total current assets of Seller minus
total current liabilities of Seller.
A-6
