Exhibit 10.17
RECAPITALIZATION AGREEMENT
by and among
the New Investors listed herein,
CII Technologies, Inc.
and
the Redeeming Stockholders listed herein
August 4, 1997
TABLE OF CONTENTS
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Page
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ARTICLE I--DEFINITIONS............................................................................... 2
Section 1.1 Definitions........................................................................ 2
Section 1.2 Cross Reference..................................................................... 4
ARTICLE II--APPOINTMENT OF REPRESENTATIVES........................................................... 6
Section 2.1 Appointment of Redeeming Stockholders' Representatives............................. 6
Section 2.2 Appointment of New Investors' Representatives...................................... 7
ARTICLE III--THE RECAPITALIZATION.................................................................... 7
Section 3.1 Stock Split......................................................................... 7
Section 3.2 Purchase Transactions............................................................... 8
Section 3.3 Investment Transactions............................................................ 8
Section 3.4 The Redemption and Exchange Transactions........................................... 9
Section 3.5 Indebtedness Payment............................................................... 11
Section 3.6 Kilovac Payment.................................................................... 12
Section 3.7 Management Bonus Payment........................................................... 12
Section 3.8 Working Capital Adjustment......................................................... 12
Section 3.9 Closing............................................................................ 14
Section 3.10 Deliveries by Participating Stockholders to New Investors......................... 14
Section 3.11 Deliveries by Redeeming Stockholders to CII....................................... 14
Section 3.12 Deliveries by CII to New Investors................................................ 15
Section 3.13 Deliveries by CII to Redeeming Stockholders....................................... 15
Section 3.14 Deliveries by New Investors to CII................................................ 16
Section 3.15 Deliveries by New Investors to Participating Stockholders......................... 16
ARTICLE IV--ADDITIONAL AGREEMENTS.................................................................... 16
Section 4.1 Indemnification and Escrow Agreement............................................... 16
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF CII..................................................... 16
Section 5.1 Corporate Organization............................................................. 17
Section 5.2 Valid and Binding Agreements....................................................... 17
Section 5.3 No Violation....................................................................... 17
Section 5.4 Consents and Approvals............................................................. 18
Section 5.5 Capitalization..................................................................... 18
Section 5.6 Subsidiaries and Affiliates........................................................ 18
Section 5.7 Financial Statements............................................................... 19
Section 5.8 Absence of Undisclosed Liabilities................................................. 19
Section 5.9 Interim Operations and Absence of Certain Changes.................................. 19
Section 5.10 Taxes............................................................................. 21
Section 5.11 Employee Benefit Plans............................................................ 23
Section 5.12 Compliance with Law, etc.......................................................... 25
Section 5.13 Litigation; Claims................................................................ 25
Section 5.14 Contracts and Commitments......................................................... 25
Section 5.15 Intellectual Property Rights...................................................... 27
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Section 5.16 Liens............................................................................. 27
Section 5.17 Insurance......................................................................... 27
Section 5.18 Real Property..................................................................... 28
Section 5.19 Labor Disagreements............................................................... 29
Section 5.20 Environmental Matters............................................................. 29
Section 5.21 Employees......................................................................... 32
Section 5.22 Governmental Authorizations....................................................... 32
Section 5.23 Broker's or Finder's Fees......................................................... 32
Section 5.24 Certain Transactions.............................................................. 32
Section 5.25 Absence of Questionable Payments.................................................. 33
Section 5.26 Bank Accounts..................................................................... 33
Section 5.27 Assets............................................................................ 33
ARTICLE VI--REPRESENTATIONS AND WARRANTIES OF THE REDEEMING STOCKHOLDERS............................. 33
Section 6.1 Ownership of Stock and the Subordinated Notes...................................... 33
Section 6.2 Valid and Binding Agreements....................................................... 33
Section 6.3 Consents and Approvals............................................................. 34
ARTICLE VII--REPRESENTATIONS AND WARRANTIES OF NEW INVESTORS......................................... 34
Section 7.1 Corporate Organization............................................................. 34
Section 7.2 Valid and Binding Agreements....................................................... 34
Section 7.3 No Violation....................................................................... 34
Section 7.4 Consents and Approvals............................................................. 35
Section 7.5 Broker's or Finder's Fees.......................................................... 35
Section 7.6 Investment Representations.......................................................... 35
ARTICLE VIII--COVENANTS.............................................................................. 35
Section 8.1 Compliance with Law................................................................ 35
Section 8.2 Operation of Business Prior to Closing............................................. 35
Section 8.3 Access............................................................................. 38
Section 8.4 Certain Financial Information...................................................... 38
Section 8.5 Transfer of Restricted Securities................................................... 39
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW INVESTORS..................................... 40
Section 9.1 Representations and Warranties..................................................... 40
Section 9.2 Covenants, Agreements and Conditions............................................... 40
Section 9.3 No Material Adverse Change......................................................... 40
Section 9.4 Corporate Proceedings.............................................................. 40
Section 9.5 Proceedings........................................................................ 40
Section 9.6 Governmental Approvals............................................................. 40
Section 9.7 Insurance.......................................................................... 40
Section 9.8 Deliveries......................................................................... 41
Section 9.9 Customer Relationships............................................................. 41
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Section 9.10 Tax Status Certification.......................................................... 41
Section 9.11 Financing......................................................................... 41
Section 9.12 Management......................................................................... 41
Section 9.13 Releases and Confirmations........................................................ 41
Section 9.14 Third Party Consents.............................................................. 41
Section 9.15 Other Lien Releases............................................................... 41
Section 9.16 Legal Opinion..................................................................... 41
Section 9.17 Stock Split and Charter Amendment.................................................. 42
Section 9.18 Real Property..................................................................... 42
Section 9.19 Current Disputes................................................................... 42
ARTICLE X--CONDITIONS PRECEDENT TO OBLIGATIONS OF CIIAND THE REDEEMING STOCKHOLDERS.................. 42
Section 10.1 Representations and Warranties.................................................... 42
Section 10.2 Covenants, Agreements and Conditions.............................................. 42
Section 10.3 Proceedings....................................................................... 43
Section 10.4 Corporate Proceedings............................................................. 43
Section 10.5 Governmental Approvals............................................................ 43
Section 10.6 Deliveries........................................................................ 43
ARTICLE XI--OTHER MATTERS............................................................................ 43
Section 11.1 Confidentiality................................................................... 43
Section 11.2 Further Assurances................................................................ 43
ARTICLE XII--TERMINATION............................................................................. 44
Section 12.1 Methods of Termination............................................................ 44
Section 12.2 Procedure Upon Termination........................................................ 44
ARTICLE XIII--MISCELLANEOUS......................................................................... 44
Section 13.1 Survival of Representations, Warranties and Agreements............................ 44
Section 13.2 Service of Process................................................................ 45
Section 13.3 Notices........................................................................... 45
Section 13.4 Governing Law..................................................................... 46
Section 13.5 Modification; Waiver.............................................................. 46
Section 13.6 Entire Agreement.................................................................. 46
Section 13.7 Assignment; Successors and Assigns................................................ 46
Section 13.8 Public Announcements.............................................................. 47
Section 13.9 Severability...................................................................... 47
Section 13.10 No Third Party Beneficiary....................................................... 47
Section 13.11 Expenses......................................................................... 47
Section 13.12 Execution in Counterpart......................................................... 48
Section 13.13 Certain Assurances............................................................... 48
Section 13.14 Limitation of Liability.......................................................... 48
Section 13.15 Arbitration...................................................................... 49
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Section 13.16 Construction..................................................................... 49
Section 13.17 Specific Performance............................................................. 49
Section 13.18 Exclusivity...................................................................... 49
Section 13.19 Understanding Among New Investors................................................. 50
Exhibits and Schedules
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Exhibit A Indemnification and Escrow Agreement
Exhibit B Amended and Restated Certificate of Incorporation
Exhibit C Form of Junior Subordinated Promissory Note
Exhibit D Bank Deal Term Sheet
Exhibit E Notes Deal Term Sheet
Exhibit F Ownership of Stock and Subordinated Notes
Exhibit G Terms and Conditions of Management Equity Agreements
Exhibit H Legal Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Schedule of New Investors
Schedule of Redeeming Stockholders
Knowledge Schedule
Schedule 3.7 Working Capital Statement
Schedule 5.1 Good Standing
Schedule 5.5 Capitalization
Schedule 5.6 Subsidiaries and Affiliates
Schedule 5.7 Financial Statements (1995 and 1996)
Schedule 5.7A Interim Financial Statements
Schedule 5.8 Disclosed Liabilities
Schedule 5.9 Certain Changes
Schedule 5.10 Taxes
Schedule 5.11 Employee Benefit Plans
Schedule 5.13 Litigation
Schedule 5.14 Contracts and Commitments
Schedule 5.15 Intellectual Property
Schedule 5.16 Liens
Schedule 5.17 Insurance
Schedule 5.18 Real Property
Schedule 5.19 Labor Disagreements
Schedule 5.20 Environmental
Schedule 5.21 Employees
Schedule 5.22 Government Authorities
Schedule 5.24 Certain Transactions
Schedule 5.26 Bank Accounts
Schedule 6.1 Ownership of Stock and Subordinated Notes Exceptions
Schedule 8.2 Changes in Compensation
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RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (the "Agreement"), dated as of
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August 4, 1997, is made by and among the Persons identified on the Schedule of
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New Investors attached hereto (each individually, a "New Investor" and
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collectively, the "New Investors"), CII Technologies, Inc., a Delaware
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corporation ("CII"), and the Persons identified on the Schedule of Redeeming
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Stockholders attached hereto (each individually, a "Redeeming Stockholder" and
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collectively, the "Redeeming Stockholders").
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WITNESSETH:
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WHEREAS, the Redeeming Stockholders own in the aggregate all of the
issued and outstanding shares of capital stock of CII;
WHEREAS, CII owns all of the issued and outstanding shares of capital
stock of Communications Instruments, Inc., a North Carolina corporation
("Communications Instruments"); Communications Instruments presently owns 80% of
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the issued and outstanding shares of capital stock of Kilovac Corporation, a
California corporation ("Kilovac") and owns all of the issued and outstanding
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shares of capital stock of Electro-Mech S.A., a Mexican corporation
("Electromech"); and Kilovac owns all of the issued and outstanding shares of
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capital stock of Kilovac International Inc., a California corporation ("Kilovac
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International") and Kilovac International FSC Ltd., Inc., a Cayman Islands
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corporation ("FSC"); (CII, Communications Instruments, Kilovac, Electromech,
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Kilovac International, and FSC are sometimes hereinafter referred to
individually as a "Company" and collectively as the "Companies");
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WHEREAS, as of immediately prior to or at the same time as the
consummation of the transactions contemplated by this Agreement, CII or a
Subsidiary will have acquired all of the issued and outstanding shares of
capital stock Kilovac that Communications Instruments does not own as of the
date hereof;
WHEREAS, the Companies are engaged in the business of manufacturing
relays and solenoids having a headquarters in Fairview, North Carolina, and
manufacturing locations in Fairview, North Carolina; Asheville, North Carolina;
Mansfield, Ohio; Carpinteria, California; and Juarez, Mexico;
WHEREAS, CII desires to reconstitute its capital structure through the
redemption of certain of its outstanding securities and the issuance and sale of
certain new securities on and subject to the terms and subject to the conditions
set forth herein (the "Recapitalization");
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WHEREAS, the New Investors desire to acquire certain equity securities
from the Redeeming Stockholders and newly-issued securities of CII on the terms
and subject to the
conditions set forth herein and desire to make certain representations,
warranties and agreements in connection with the Recapitalization and also to
prescribe various conditions to the Recapitalization;
WHEREAS, the Redeeming Stockholders desire to sell certain of their
equity securities to the New Investors and to redeem certain of their equity
securities in CII on and subject to the terms and subject to the conditions set
forth herein and desire to make certain representations, warranties and
agreements in connection with the Recapitalization and also to prescribe various
conditions to the Recapitalization;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are to be made and performed by
the respective parties, it is hereby agreed as follows:
ARTICLE I--DEFINITIONS
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Section 1.1 Definitions.
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The following terms when used in this Agreement have the meanings set
forth below:
(a) "Affiliate" means any Person now or hereinafter controlling,
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controlled by or under common control with another Person.
(b) "Baseline Working Capital Amount" means $17,470,000.
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(c) "CHS" means Code, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ III, L.P., a Delaware
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limited partnership and one of the New Investors hereunder.
(t) "CII Common Stock" means the common stock of CII, par value
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$0.01 per share.
(u) "CII Preferred Stock" means the cumulative redeemable preferred
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stock of CII, par value $0.01 per share.
(d) "Common Stock Rollover Amount" means the aggregate value as of
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the Closing of the shares of CII Common Stock being retained by the Redeeming
Stockholders hereunder (i.e., those shares not being redeemed hereunder), as set
forth on the Schedule of Redeeming Stockholders attached hereto under the
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heading "Common Stock Rollover Amount."
(e) "Debt" means all indebtedness for borrowed money and obligations
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under capital leases, including outstanding principal and accrued interest and
any success fees, prepayment premiums or penalties payable with respect thereto,
of CII and the Subsidiaries owed as of the Closing Date, including the
outstanding principal and interest owed by CII at the Closing Date on the
Subordinated Notes and the Predecessor Subordinated Notes and the indebtedness
of CII and the Subsidiaries under the BOA Loan Agreement. Debt shall exclude
other indebtedness incurred in connection with the Recapitalization and the
other transactions related thereto.
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(f) "Escrow Agent" means the escrow agent selected by the parties to
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act pursuant to the Indemnification and Escrow Agreement.
(g) "Estimated Closing Common Value" means an amount in cash equal
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to (A) $113,750,000, (B) plus the excess of the Estimated Net Working Capital
Amount over the Baseline Working Capital Amount or minus the excess of the
Baseline Working Capital Amount over the Estimated Net Working Capital Amount,
(C) less the Indebtedness Payment, (D) less the Kilovac Payment, (E) less the
Debt, other than Debt included as part of the Indebtedness Payment or the
Kilovac Payment, (F) less the Management Bonus Payment, and (G) less the
Preferred Stock Amount.
(h) "GAAP" means generally accepted accounting principles of the
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United States, consistently applied.
(i) "Indemnification and Escrow Agreement" means an indemnification
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and escrow agreement substantially in the form attached hereto as Exhibit A.
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(j) "Knowledge" means, with respect to a given matter, the actual
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knowledge of any director or officer of CII or any general manager or controller
of any division of CII as listed on the Knowledge Schedule attached hereto,
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after due inquiry with respect thereto.
(k) "New Preferred Stock" means shares of CII's Series A Preferred
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Stock, par value $.01 per share, having the rights and preferences set forth in
Exhibit B attached hereto
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(l) "New Preferred Stock Rollover Amount" means the aggregate
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liquidation value of the shares of Preferred Stock being issued to the Redeeming
Stockholders hereunder, as set forth on the Schedule of Redeeming Stockholders
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attached hereto under the heading "New Preferred Stock Rollover Amount."
(m) "Person" means and includes an individual, a partnership, a joint
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venture, a limited liability company, a corporation or trust, an unincorporated
organization, a group or a government or other department or agency thereof, or
any other entity.
(n) "Predecessor Subordinated Notes" means the Subordinated
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Promissory Notes of CII in the original principal amounts of $1,750,000 due on
May 31, 2003 plus accrued and unpaid interest as of the Closing Date.
(o) "Preferred Stock Amount" means the aggregate amount payable
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pursuant to Section 3.4(a)(i) in respect of the CII Preferred Stock.
(p) "Restricted Securities" means (i) the New Securities issued
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hereunder, (ii) the Purchased Securities purchased hereunder, (iii) the CII
Common Stock retained by the Redeeming Stockholders as of immediately following
the Closing, (iv) the New Preferred Stock issued to the Participating
Stockholders hereunder, and (v) any securities issued with respect to the
securities referred to in clauses (i), (ii), (iii) and (iv) by way of a
conversion, stock dividend or stock split or in connection with a combination of
shares, refinancing, merger, consolidation or other
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reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act or become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certifi ▇▇▇▇▇ for them not bearing the
Securities Act legend set forth in Section 8.5 have been delivered by CII in
accordance with Section 8.5. Whenever any particular securities of CII cease to
be Restricted Securities, the holder thereof shall be entitled to receive from
CII, without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in Section 8.5.
(q) "Securities Act" means the Securities Act of 1933, as amended.
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(r) "Stock" means the CII Common Stock and CII Preferred Stock.
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(s) "Subordinated Notes" means the Subordinated Promissory Notes of
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CII in the original principal amounts of $4,000,000 and $1,700,000 due,
respectively, on May 31, 2003 and October 11, 2005 plus accrued and unpaid
interest as of the Closing Date.
(t) "Subsidiary" means, with respect to any Person, any corporation,
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limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by CII or one or more of the other
Subsidiaries of CII or a combination thereof, or (ii) if a limited liability
company, partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by CII or one or more Subsidiaries of CII or
a combination thereof. For purposes hereof, CII shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if CII shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity. Without limiting the generality of the foregoing, "Subsidiary" includes
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any of the business entities listed on Schedule 5.6.
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Section 1.2 Cross Reference. The following terms are defined in the
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following Sections of this Agreement:
Term Section
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Agreement Preface
Arbiter Section 3.8(c)
Authorized Action Section 2.1
Balance Sheet Section 5.8
Bank Deal Term Sheet Section 3.3(a)
Bank Deal Section 3.3(a)
Bank Indebtedness Payment Section 3.5(a)(i)
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BOA Loan Agreement Section 9.13
BOA Section 9.13
CERCLA Section 5.20(a)
CERCLIS Section 5.20(a)(i)
CII Preface
CII Interim Financial Statements Section 5.7
CII Financial Statements Section 5.7
Closing Section 3.9
Closing Date Section 3.9
Communications Instruments Recitals
Company(ies) Recitals
December 31 Balance Sheet Section 5.7
Electromech Recitals
Environmental Laws Section 5.20(a)
equity security Section 5.5(b)
ERISA Section 5.11
Escrow Amount Section 3.4(d)
Estimated Working Capital Amount Section 3.4(b)
Final Working Capital Statement Section 3.8(a)(i)
FSC Recitals
Hazardous Material Section 5.20(a)
including Section 13.16
Indebtedness Payment Section 3.5(a)(i)
Investment Purchase Price Section 3.3(a)
Junior Note(s) Section 3.3(a)(ii)
Kilovac Recitals
Kilovac Payment Section 3.6
Kilovac International Recitals
Latest Balance Sheet Section 5.27
Leased Property Section 5.18(b)
Leases Section 5.18(b)
Liens Section 5.18(a)
Management Bonus Payment Section 3.8
Material Adverse Effect Section 5.4
Methodologies Section 3.8(b)
Methods Section 3.8(b)
Net Working Capital Amount Section 3.8(a)(ii)
New Securities Section 3.3(a)
New Preferred Stock Rollover Amount Section 3.4(c)
New Investor Authorized Action Section 2.1
New Investors(s) Preface
Notes Deal Term Sheet Section 3.3(a)
Notes Deal Section 3.3(a)
Owned Property Section 5.18(a)
Participating Stockholders Section 3.2
PCBs Section 5.20(k)(1)
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Pension Plans Section 5.11(c)(i)
Permitted Liens Section 9.18(a)
Plans Section 5.11(a)
Predecessor Subordinated Notes Indebtedness
Payment Section 3.5(a)(i)
Proprietary Rights Section 5.15
Purchased Securities Section 3.2(a)
Purchased Securities Purchase Price Section 3.2
Real Property Section 5.18(b)
Recapitalization Recitals
Redeemed Securities Section 3.4(a)
Redeeming Stockholders' Representatives Section 2.1
Redeeming Stockholder(s) Preface
Redemption Consideration Section 3.4(a)
Redemption Consideration Adjustment Section 3.8(d)
Special Provisions Section 13.14(a)
Split Factor Section 3.1
Stock Split Section 3.1
Subordinated Notes Indebtedness Payment Section 3.5(a)(i)
Tax Return Section 5.10(d)
Taxes Section 5.10(c)
Taxing Authority Section 5.10(a)
Working Capital Statement Section 3.8(b)
ARTICLE II--APPOINTMENT OF REPRESENTATIVES
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Section 2.1 Appointment of Redeeming Stockholders' Representatives.
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By their execution hereof the Redeeming Stockholders hereby make, constitute and
appoint ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ as their agents and
attorneys-in-fact (the "Redeeming Stockholders' Representatives"), acting alone
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or together, each with full power and authority (including power of
substitution), except as otherwise expressly provided in this Agreement, in the
name of and for and on behalf of the Redeeming Stockholders, or in each of his
own name as Redeeming Stockholders' Representative, to take all actions required
or permitted under this Agreement (including giving and receiving all
accountings, reports, notices and consents, contesting or compromising claims,
making distributions and establishing reserves for potential liabilities) and
the signing of the Indemnification and Escrow Agreement. The authority
conferred under this Section 2.1 shall be an agency coupled with an interest,
and all authority conferred hereby is irrevocable and not subject to termination
by the Redeeming Stockholders or any of them, or by operation of law, whether by
the death or incapacity of any Redeeming Stockholder, the termination of any
trust or estate or the occurrence of any other event. If any Redeeming
Stockholder should die or become incapacitated, if any trust or estate should
terminate or if any other such event should occur, any action taken by a
Redeeming Stockholders' Representative pursuant to this Section 2.1 shall be as
valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not a Redeeming Stockholders' Representative
or any other Person shall have received notice of such death, incapacity,
termination or other event. Any notice given to a Redeeming Stockholders'
Representative pursuant to Section 13.3 shall constitute effective notice
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to all Redeeming Stockholders, and any other party to this Agreement or any
other Person may rely on any notice, consent, election or other communication
received from a Redeeming Stockholders' Representative as if such notice,
consent, election or other communication had been received from all Redeeming
Stockholders. Each Redeeming Stockholder agrees that CII and each New Investor
shall be entitled to rely on any action taken by either Redeeming Stockholders'
Representative, on behalf of Redeeming Stockholders, pursuant to this Section
2.1 (each, an "Authorized Action"), and that each Authorized Action shall be
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binding on each Redeeming Stockholder as fully as if such Redeeming Stockholder
had taken such Authorized Action. In addition, Redeeming Stockholders hereby
agree that CII and the New Investors have no liability arising out of or in
connection with any Redeeming Stockholders' Representative's distribution or
failure to distribute any amounts hereunder received by such Redeeming
Stockholders' Representative to Redeeming Stockholders.
Section 2.2 Appointment of New Investors' Representatives. By their
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execution hereof the New Investors hereby make, constitute and appoint CHS as
their agent and attorney-in-fact, with full power and authority (including power
of substitution), except as otherwise expressly provided in this Agreement, in
the name of and for and on behalf of the New Investors, or in its own name as
representative for the New Investors, to take all actions required or permitted
under this Agreement (including giving and receiving all accountings, reports,
notices and consents, contesting or compromising claims, making distributions
and establishing reserves for potential liabilities) and the signing of the
Indemnification and Escrow Agreement. The authority conferred under this
Section 2.2 shall be an agency coupled with an interest, and all authority
conferred hereby is irrevocable and not subject to termination by the New
Investors or any of them, or by operation of law, whether by the death or
incapacity of any New Investor, the termination of any trust or estate or the
occurrence of any other event. If any New Investor should die or become
incapacitated, if any trust or estate should terminate or if any other such
event should occur, any action taken by CHS pursuant to this Section 2.2 shall
be as valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not CHS or any other Person shall have
received notice of such death, incapacity, termination or other event. Any
notice given to CHS pursuant to Section 13.3 shall constitute effective notice
to all New Investors, and any other party to this Agreement or any other Person
may rely on any notice, consent, election or other communication received from
CHS as if such notice, consent, election or other communication had been
received from all New Investors. Each New Investor agrees that CII and each
Redeeming Stockholder shall be entitled to rely on any action taken by CHS, on
behalf of New Investors, pursuant to this Section 2.2 (each, a "New Investor
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Authorized Action"), and that each New Investor Authorized Action shall be
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binding on each New Investor as fully as if such New Investor had taken such New
Investor Authorized Action. In addition, the New Investors hereby agree that
CII and the Redeeming Stockholders have no liability arising out of or in
connection with CHS' distribution or failure to distribute any amounts hereunder
received by CHS to the New Investors.
ARTICLE III--THE RECAPITALIZATION
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Section 3.1 Stock Split. Immediately prior to the consummation of
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the other transactions set forth below in this Article III, CII will, and the
Redeeming Stockholders will cause CII to, file with the Secretary of State of
the State of Delaware a certificate of amendment to CII's certificate of
incorporation providing for the conversion of each outstanding share of CII
Common Stock into a number of shares of CII Common Stock equal to the Split
Factor (the "Stock Split").
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The "Split Factor" means an amount equal to a fraction, (a) the numerator of
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which is the Estimated Closing Common Value divided by 10, and (b) the
denominator of which is 102,000. Unless otherwise indicated, all references in
this Agreement to numbers of shares of CII Common Stock assume and shall give
effect to the prior completion of the Stock Split. After the Closing, CII shall
pay all fees and taxes incurred by reason of the filings provided for in this
Section 3.1 (but such fees and expenses will not be included as accrued expenses
in calculating the Net Working Capital Amount).
Section 3.2 Purchase Transactions.
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(a) Purchase. On the basis of the representations, warranties,
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covenants and agreements herein and subject to the satisfaction or waiver of the
conditions set forth herein and the terms hereof, the Redeeming Stockholders who
have numbers other than zero set forth opposite their names under the heading
"Shares of Common Stock Retained" on the Schedule of Redeeming Stockholders
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attached hereto (the "Participating Stockholders") will sell to the New
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Investors, and the New Investors will purchase from the Participating
Stockholders, all shares of CII Common Stock held by the Participating
Stockholders (other than (i) the aggregate number of shares of CII Common Stock
set forth opposite the Participating Stockholders' names under the heading
"Shares of Common Stock Retained" on the Schedule of Redeeming Stockholders
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attached hereto, and (ii) a number of shares of CII Common Stock equal to 1/10
of the New Preferred Stock Rollover Amount), for a purchase price of $10.00 per
share (the "Purchased Securities"). The Purchased Securities will be purchased
--------------------
by the New Investors pro rata among the New Investors based on the amounts set
forth next to each New Investor's name under the heading "Total Purchase Price"
on the Schedule of New Investors attached hereto. The aggregate purchase price
-------------------------
for the Purchased Securities is hereinafter referred to collectively as the
"Purchased Securities Purchase Price."
------------------------------------
(b) Payment by New Investors. At the Closing, each New Investor
------------------------
shall pay to the account or accounts designated by a Redeeming Stockholders'
Representative, by wire transfer of immediately available funds, an amount equal
to such New Investor's pro rata share of the Purchased Securities Purchase Price
as determined pursuant to Section 3.2(a) above.
(c) Delivery of Certificates to New Investors. At the Closing, the
-----------------------------------------
Participating Stockholders will deliver to each New Investor stock certificates
evidencing the Purchased Securities to be purchased by such New Investor
hereunder, registered in such New Investor's name upon payment of such New
Investor's share of the Purchased Securities Purchase Price.
Section 3.3 Investment Transactions.
----------- -----------------------
(a) Investment. On the basis of the representations, warranties,
----------
covenants and agreements herein and subject to the satisfaction or waiver of the
conditions set forth herein and the terms hereof, CII will issue and sell to
each New Investor, and each New Investor will purchase from CII, the following
securities (the "New Securities"):
--------------
(i) the excess of (A) the number of shares of CII Common Stock
set forth opposite such New Investor's name under the heading "Common Stock
(Shares)" on the Schedule of New Investors attached hereto over (B) the
-------------------------
number of shares of CII Common
-8-
Stock purchased by such New Investor from the Participating Stockholders
pursuant to Section 3.2 above, for a cash purchase price of $10.00 per
share; and
(ii) a junior subordinated promissory note of CII substantially
in the form of Exhibit C attached hereto (each, a "Junior Note") in the
--------- -----------
principal amount set forth opposite such New Investor's name under the
heading "Junior Notes" on the Schedule of New Investors attached hereto for
-------------------------
a cash purchase price equal to the face amount of such Junior Note.
As further described on the Schedule of New Investors attached hereto, if the
-------------------------
financing contemplated by the secured bank facility term sheet to be delivered
by the New Investors to a Redeeming Stockholders' Representative on or before
August 12, 1997 and then attached hereto as Exhibit D (the "Bank Deal Term
--------- --------------
Sheet") is obtained on the terms described therein (the "Bank Deal"), the
------ ---------
aggregate consideration payable by the New Investors for the New Securities and
the Purchased Securities will be (i) $30,000,000 minus the sum of (A) the Common
Stock Rollover Amount and (B) the New Preferred Stock Rollover Amount. If the
financing contemplated by the unsecured note offering term sheet to be delivered
by the New Investors to a Redeeming Stockholders' Representative on or before
August 12, 1997 and then attached hereto as Exhibit E (the "Notes Deal Term
--------- ---------------
Sheet") is obtained on the terms described therein (the "Notes Deal"), the
----- ----------
aggregate consideration payable by the New Investors for the New Securities and
the Purchased Securities will be (i) $25,000,000 minus the sum of (A) the Common
Stock Rollover Amount and (B) the New Preferred Stock Rollover Amount. In
either case, the aggregate amount invested at the Closing by the New Investors
for the New Securities and the Purchased Securities is hereinafter referred to
collectively as the "Investment Purchase Price."
-------------------------
(b) Payment by New Investors. At the Closing, each New Investor
------------------------
shall pay to the account or accounts designated by CII, by wire transfer of
immediately available funds, the excess of (i) the amount set forth opposite
such New Investor's name under the heading "Total Purchase Price" on the
Schedule of New Investors attached hereto, over (ii) the amount such New
-------------------------
Investor paid to the Participating Stockholders pursuant to Section 3.2 above;
provided that the New Investors who are employed by CII or any of its
Subsidiaries may pay for up to $500,000 of their New Securities with promissory
notes in lieu of cash (as determined by CHS in its sole discretion).
(c) Delivery of Certificates to New Investors. At the Closing, CII
-----------------------------------------
will deliver to each New Investor (i) stock certificates evidencing the CII
Common Stock to be issued to such New Investor hereunder and (ii) the Junior
Note to be issued to such New Investor hereunder, registered in such New
Investor's name upon payment of such New Investor's share of the Investment
Purchase Price.
Section 3.4 The Redemption and Exchange Transactions.
----------- ----------------------------------------
(a) Redemption and Exchange. On the basis of the representations,
-----------------------
warranties, covenants and agreements herein and subject to the satisfaction or
waiver of the conditions set forth herein and the terms hereof, CII will redeem
and purchase from, or exchange with, each Redeeming Stockholder, and each
Redeeming Stockholder will sell to, or exchange with, CII, the following
securities (the "Redeemed Securities"):
-------------------
-9-
(i) all shares of CII Preferred Stock held by such Redeeming
Stockholder for a purchase price of $50.00 per share plus all dividends
which are accrued and unpaid on such share as of the Closing Date;
(ii) all shares of CII Common Stock held by such Redeeming
Stockholder (other than (A) the number of shares of CII Common Stock set
forth opposite such Redeeming Stockholder's name under the heading "Shares
of Common Stock Retained" on the Schedule of Redeeming Stockholders
----------------------------------
attached hereto, (B) the shares of CII Common Stock sold by the
Participating Stockholders to the New Investors pursuant to Section 3.2
above, and (C) the shares of CII Common Stock being exchanged for shares of
New Preferred Stock pursuant to Section 3.4(a)(iii) below), for a purchase
price of $10.00 per share; and
(iii) with respect to each Participating Stockholder, a number
of shares of CII Common Stock equal to 1/10 of the amount set forth
opposite such Redeeming Stockholder's name under the heading "New Preferred
Stock Rollover Amount" on the Schedule of Redeeming Stockholders attached
----------------------------------
hereto, in exchange for a number of shares of New Preferred Stock having an
aggregate liquidation value equal to the amount set forth opposite such
Participating Stockholder's name under the heading "New Preferred Stock
Rollover Amount" on the Schedule of Redeeming Stockholders attached hereto.
----------------------------------
The aggregate consideration payable by CII for the Redeemed Securities (the
"Redemption Consideration") will be the sum of (i) an amount of cash equal to
-------------------------
(A) $113,750,000, (B) plus the excess of the Net Working Capital Amount over the
Baseline Working Capital Amount or minus the excess of the Baseline Working
Capital Amount over the Net Working Capital Amount, (C) less the Indebtedness
Payment, (D) less the Kilovac Payment, (E) less the Debt, other than Debt
included as part of the Indebtedness Payment or the Kilovac Payment, (F) less
the Management Bonus Payment, (G) less the Common Stock Rollover Amount, (H)
less the New Preferred Stock Rollover Amount, and (I) less the Purchased
Securities Purchase Price, and (ii) shares of New Preferred Stock with an
aggregate liquidation preference equal to the New Preferred Stock Rollover
Amount. The cash portion of the Redemption Consideration is subject to
adjustment as provided in Section 3.8.
(b) Estimates of Other Amounts. Not later than three days before the
--------------------------
Closing, a Redeeming Stockholders' Representative, subject to CHS' reasonable
approval, shall provide CHS with a good faith estimate of the Net Working
Capital Amount (the "Estimated Net Working Capital Amount"), the Indebtedness
------------------------------------
Payment, the Kilovac Payment, the Debt, the Management Bonus Payment, and the
Preferred Stock Amount.
(c) Payment to Redeeming Stockholders. At the Closing, (i) CII shall
---------------------------------
deliver to each Redeeming Stockholder who is a Participating Stockholder stock
certificates evidencing the shares of New Preferred Stock to be acquired by such
Participating Stockholder having an aggregate liquidation value equal to the
amount set forth opposite such Participating Stockholder's name under the
heading "New Preferred Stock Rollover Amount" on the Schedule of Redeeming
---------------------
Stockholders attached hereto, registered in such Participating Stockholder's
------------
name and (ii) CII shall pay to the account or accounts designated by a Redeeming
Stockholders' Representative, by wire transfer of immediately available funds,
an amount in cash equal to (A) the Estimated Closing Common Value,
-10-
plus (B) the Preferred Stock Amount, less (C) the Common Stock Rollover Amount,
less (D) the New Preferred Stock Rollover Amount, less (E) the Purchased
Securities Purchase Price, and less (F) the Escrow Amount.
(d) Escrow Amount. At the Closing, CII shall deposit $5,000,000 (the
-------------
"Escrow Amount") with the Escrow Agent pursuant to the terms of the
-------------
Indemnification and Escrow Agreement.
(e) Delivery of Certificates by Redeeming Stockholders. At the
--------------------------------------------------
Closing, each Redeeming Stockholder will deliver to CII, free and clear of any
liens, options, claims or encumbrances, one or more certificates representing
the Redeemed Securities being redeemed from such Redeeming Stockholder, duly
endorsed in blank or accompanied by stock powers or other instruments of
transfer duly executed in blank, and bearing or accompanied by all requisite
stock transfer stamps.
Section 3.5 Indebtedness Payment.
----------- --------------------
(a) Definitions. For purposes of this Agreement, the following term
-----------
shall have the following meaning:
(i) "Indebtedness Payment" shall mean an amount equal to, as of
--------------------
the Closing Date, the then outstanding principal of, accrued and unpaid
interest on, any prepayment penalties or premiums on, and any other amounts
payable (including any success fee) with respect to, (A) all indebtedness
of CII and the Subsidiaries under the BOA Loan Agreement (the "Bank
----
Indebtedness Payment"), (B) all indebtedness of CII and the Subsidiaries
--------------------
under the Subordinated Notes (the "Subordinated Notes Indebtedness
-------------------------------
Payment") and (C) all indebtedness of CII and the Subsidiaries under the
--------
Predecessor Subordinated Notes (the "Predecessor Subordinated Notes
------------------------------
Indebtedness Payment"). The Indebtedness Payment shall exclude any
--------------------
indebtedness relating to the Recapitalization and any other transactions
related thereto.
(b) Indebtedness Payment. At the Closing, CII shall (or shall cause
--------------------
a Subsidiary to) (i) pay to BOA (for the benefit of the financial institutions
party to the BOA Loan Agreement), by wire transfer of immediately available
funds, an amount in cash equal to the Bank Indebtedness Payment, (ii) pay to an
account or accounts designated by a Redeeming Stockholders' Representative (for
the benefit of the holders of the Subordinated Notes), by wire transfer of
immediately available funds, an amount in cash equal to the Subordinated Notes
Indebtedness Payment, and (iii) pay to an account or accounts designated by a
Redeeming Stockholders' Representative (for the benefit of the holders of the
Predecessor Subordinated Notes), by wire transfer of immediately available
funds, an amount in cash equal to the Predecessor Subordinated Notes
Indebtedness Payment.
At the Closing, a Redeeming Stockholders' Representative shall deliver
to CII and the New Investors written statements from BOA, the holders of the
Subordinated Notes (or their representatives), and the holders of the
Predecessor Subordinated Notes (or their representatives), stating the amount
due, as of the Closing Date, for the Bank Indebtedness Payment, the
-11-
Subordinated Notes Indebtedness Payment, and the Predecessor Subordinated Notes
Indebtedness Payment, respectively.
Section 3.6 Kilovac Payment. At the Closing, CII shall (or shall
----------- ---------------
cause a Subsidiary to) pay to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as Stockholder Representative of
the minority shareholders of Kilovac Corporation, by wire transfer of
immediately available funds, an amount in cash equal to the amount due to the
minority shareholders of Kilovac Corporation (the "Kilovac Payment").
---------------
Section 3.7 Management Bonus Payment. At the Closing, CII shall (or
----------- ------------------------
shall cause a Subsidiary to) pay to the managers of CII and its Subsidiaries
listed on Schedule 5.9, by wire transfer of immediately available funds, an
------------
amount in cash equal to the amount set forth on Schedule 5.9 (the "Management
------------ ----------
Bonus Payment").
-------------
Section 3.8 Working Capital Adjustment.
----------- --------------------------
(a) Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
(i) "Final Working Capital Statement" shall mean the Working
-------------------------------
Capital Statement which has become conclusive and binding upon the parties
pursuant to Section 3.8(c).
(ii) "Net Working Capital Amount" shall mean CII's Included
--------------------------
Current Assets (as defined on Schedule 3.8) minus CII's Included Current
------------
Liabilities (as defined on Schedule 3.8), calculated on a consolidated
------------
basis as of the close of business on the day immediately preceding the
Closing Date, as finally determined on the Final Working Capital Statement.
(b) Working Capital Statement. Within 60 days following the Closing
-------------------------
Date, CHS shall prepare (or cause to be prepared), issue and deliver to a
Redeeming Stockholders' Representative a statement of the Net Working Capital
Amount (the "Working Capital Statement"), and the computation of the Redemption
-------------------------
Consideration Adjustment, as defined below. The Working Capital Statement shall
be prepared as set forth in Schedule 3.8 using the same accounting methods,
------------
policies, practices, principles and procedures (the "Methods"), with consistent
-------
classifications, judgments and valuation and estimation methodologies (the
"Methodologies"), that were used in the preparation of the December 31 Balance
--------------
Sheet (as defined in Section 5.7), except as otherwise provided on Schedule 3.8.
----------- ------------
(c) Dispute Procedures. The Working Capital Statement delivered by
------------------
CHS to a Redeeming Stockholders' Representative and the computation of the Net
Working Capital Amount and the Redemption Consideration Adjustment indicated
thereon shall be conclusive and binding upon the parties unless a Redeeming
Stockholders' Representative, within 30 days after delivery to a Redeeming
Stockholder's Representative of the Working Capital Statement, notify CHS in
writing that a Redeeming Stockholder's Representative disputes any of the
amounts set forth therein, specifying the nature of the dispute and the basis
therefor. The parties shall in good faith attempt to resolve any dispute, in
which event the Working Capital Statement and the computation of the
-12-
Net Working Capital Amount and the Redemption Consideration Adjustment, as
amended to the extent necessary to reflect the resolution of the dispute, shall
be conclusive and binding on the parties. If the parties do not reach agreement
resolving the dispute within 10 days after notice is given by a Redeeming
Stockholder's Representative to CHS pursuant to the second preceding sentence,
the parties shall submit the dispute to a partner at the accounting firm of
Price Waterhouse & Co. or if no partner of such firm will act, to a partner at
such other nationally recognized independent accounting firm mutually agreeable
to the parties, which shall not have a material relationship with any Redeeming
Stockholders' Representative or CHS or any of their respective Affiliates within
two years preceding the appointment (the "Arbiter"), for resolution. If the
-------
parties cannot agree on the selection of a partner at an independent accounting
firm to act as Arbiter, the parties shall request the American Arbitration
Association to appoint such a partner, and such appointment shall be conclusive
and binding on the parties. Promptly, but no later than 20 days after its
acceptance of his or her appointment as Arbiter, the Arbiter shall determine,
based solely on presentations by a Redeeming Stockholder's Representative and
CHS, and not by independent review, only those issues in dispute and shall
render a report as to the dispute and the resulting computation of the Net
Working Capital Amount and the Redemption Consideration Adjustment, if any,
which shall be conclusive and binding upon the parties. All proceedings
conducted by the Arbiter shall take place in the City of New York. In resolving
any disputed item, the Arbiter (x) shall be bound by the provisions of Section
3.8(b) and Schedule 3.8 and (y) may not assign a value to any item greater than
------------
the greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The fees, costs and
expenses of the Arbiter (i) shall be borne by a Redeeming Stockholder's
Representative in the proportion that the aggregate dollar amount of such
disputed items so submitted that are unsuccessfully disputed by a Redeeming
Stockholder's Representative (as finally determined by the Arbiter) bears to the
aggregate dollar amount of such items so submitted and (ii) shall be borne by
CII in the proportion that the aggregate dollar amount of such disputed items so
submitted that are successfully disputed by a Redeeming Stockholder's
Representative (as finally determined by the Arbiter) bears to the aggregate
dollar amount of such items so submitted. Whether any dispute is resolved by
agreement among the parties or by the Arbiter, changes to the Working Capital
Statement shall be made hereunder only for items as to which a Redeeming
Stockholder's Representative has taken exception as provided herein.
(d) Redemption Consideration Adjustment. The difference, if any,
-----------------------------------
between the Net Working Capital Amount and the Estimated Net Working Capital
Amount, whether a positive or a negative number, is herein referred to as the
"Redemption Consideration Adjustment." If the Net Working Capital Amount
-----------------------------------
exceeds the Estimated Net Working Capital Amount, the dollar amount of the
Redemption Consideration Adjustment shall be paid by CII to a Redeeming
Stockholder's Representative in accordance with the provisions of Section
3.8(e). If the Net Working Capital Amount is less than the Estimated Net
Working Capital Amount, the dollar amount of the Redemption Consideration
Adjustment shall be paid by a Redeeming Stockholder's Representative to CII in
accordance with the provisions of Section 3.8(e). To the extent the Redemption
Consideration is adjusted pursuant to Section 3.8, such adjustment will be
allocated on a dollar basis among the Redeeming Stockholders based on the number
of shares of CII Common Stock held by each Redeeming Stockholder as of
immediately prior to the Closing (rather than based on the number of shares of
CII Common Stock being redeemed from each Redeeming Stockholder at the Closing).
-13-
(e) Payment. Any amount payable as Redemption Consideration
-------
Adjustment shall be paid by wire transfer of immediately available funds to an
account designated in writing by a Redeeming Stockholders' Representative or
CII, as the case may be. Such payment shall be made on the third business day
following (i) the last day on which a Redeeming Stockholder's Representative
may, pursuant to the first sentence of Section 3.8(c), notify CHS that it
disputes any of the amounts set forth in the Working Capital Statement, if a
Redeeming Stockholder's Representative shall not notify CHS of any dispute, or
such earlier date as a Redeeming Stockholder's Representative shall advise CHS
of the absence of any dispute, or (ii) the date mutual agreement is reached as
to the amount of the Redemption Consideration Adjustment, if any, in the event
of a dispute that is settled by the parties without resort to the Arbiter, or
(iii) the date of receipt of the report of the Arbiter in the event of a dispute
which is settled by the Arbiter, as applicable.
(f) Access. Each party shall provide the other party and their
------
accountants full access to all relevant books and records and to employees of
CII and its Subsidiaries to the extent necessary for CHS to prepare (or cause to
be prepared) and a Redeeming Stockholder's Representative to review the Working
Capital Statement and in connection with any dispute or compromise with respect
to the Working Capital Statement.
Section 3.9 Closing. The closing of the transactions contemplated
----------- -------
hereby (the "Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
-------
Chicago, Illinois no later than September 30, 1997 or earlier at CHS' election
(the "Closing Date"); provided, however, that if any of the conditions set forth
------------
in Article IX and Article X hereof have not been waived or met by September 30,
1997 then either CHS or a Redeeming Stockholders' Representative shall be
entitled to postpone the Closing Date by written notice to the other party until
three (3) business days after such condition or conditions have been met or
waived. The Closing date shall not be later than September 30, 1997, unless
mutually agreed upon by CHS and a Redeeming Stockholders' Representative.
Section 3.10 Deliveries by Participating Stockholders to New
------------ -----------------------------------------------
Investors. At the Closing, the Participating Stockholders shall deliver the
---------
following items to the New Investors and other designated parties, as
applicable:
(a) Certificates representing the Purchased Securities, duly endorsed
or accompanied by stock powers duly executed in blank (with signatures
guaranteed by any national bank or trust company) and otherwise in form
acceptable for transfer on the books of CII, with all requisite stock transfer
tax stamps attached; and
(b) All other previously undelivered items required to be delivered
by the Participating Stockholders to the New Investors at or prior to the
Closing pursuant to this Agreement or otherwise required in connection herewith
unless waived in writing by CHS.
Section 3.11 Deliveries by Redeeming Stockholders to CII. At the
------------ -------------------------------------------
Closing, the Redeeming Stockholders shall deliver the following items to CII and
other designated parties, as applicable:
-14-
(a) Certificates representing the Redeemed Securities, duly endorsed
or accompanied by stock powers duly executed in blank (with signatures
guaranteed by any national bank or trust company) and otherwise in form
acceptable for transfer on the books of CII, with all requisite stock transfer
tax stamps attached;
(b) The Indemnification and Escrow Agreement referred to in Section
4.1, duly executed on behalf of the Redeeming Stockholders by a Redeeming
Stockholders' Representative; and
(c) All other previously undelivered items required to be delivered
by the Redeeming Stockholders at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by CHS.
Section 3.12 Deliveries by CII to New Investors. At the Closing,
------------ ----------------------------------
CII shall deliver the following items to CHS and other designated parties, as
applicable:
(a) The stock certificates and Junior Notes representing the New
Securities described in Section 3.3(c).
(b) The stock books, stock ledgers, minute books and corporate seal
of CII and its Subsidiaries and the stock certificates of CII's Subsidiaries;
(c) Certificates from appropriate authorities, dated as of or about
the Closing Date, as to the good standing, qualification to do business of, and
payment of taxes by CII and its Subsidiaries in each jurisdiction where they are
so qualified;
(d) The certificates referred to in Sections 9.1 and 9.2;
(e) The resignation of each director and officer of CII and its
Subsidiaries, as requested by CHS;
(f) Evidence of termination of (i) CII's management fee agreements
with Stonebridge Partners Management, L.P. and (ii) the subscription agreements
entered into between CII and each of the Redeeming Stockholders (other than CII
Associates, L.P.); and
(g) All other previously undelivered items required to be delivered
by CII to the New Investors at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by CHS.
Section 3.13 Deliveries by CII to Redeeming Stockholders. At the
------------ -------------------------------------------
Closing, CII shall deliver the following items to the Redeeming Stockholders,
the Escrow Agent and other designated parties, as applicable:
(a) Immediately available funds to make the payments as required in
Sections 3.4(c), 3.4(d), 3.5(b), 3.6 and 3.7;
-15-
(b) The shares of New Preferred Stock described in Section 3.4(c);
(c) The Indemnification and Escrow Agreement referred to in Section
4.1, duly executed by CII; and
(d) All other previously undelivered items required to be delivered by
CII to the Redeeming Stockholders at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived in writing
by a Redeeming Stockholders' Representative.
Section 3.14 Deliveries by New Investors to CII. At the Closing,
------------- ----------------------------------
each New Investor shall deliver the following items to CII and other designated
parties, as applicable:
(a) Immediately available funds to make the payment as required in
Section 3.3(b); subject to the proviso regarding promissory notes contained in
such Section; and
(b) All other previously undelivered items required to be delivered by
such New Investor to CII at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith unless waived in writing by CII.
Section 3.15 Deliveries by New Investors to Participating
------------ --------------------------------------------
Stockholders. At the Closing, each New Investor shall deliver the following
------------
items to the Participating Stockholders and other designated parties, as
applicable:
(a) Immediately available funds to make the payment as required in
Section 3.2(b); and
(b) All other previously undelivered items required to be delivered by
such New Investor to the Participating Stockholders at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith unless
waived in writing by a Redeeming Stockholders' Representative.
ARTICLE IV--ADDITIONAL AGREEMENTS
---------------------
Section 4.1 Indemnification and Escrow Agreement. At the Closing, a
----------- ------------------------------------
Redeeming Stockholders' Representative (acting on behalf of the Redeeming
Stockholders), CII, CHS (acting on behalf of the New Investors) and the Escrow
Agent will enter into the Indemnification and Escrow Agreement, pursuant to
which CII shall deliver the Escrow Amount to the Escrow Agent, to be held in
escrow as provided in the Indemnification and Escrow Agreement.
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF CII
-------------------------------------
CII hereby represents and warrants, as to itself and its Subsidiaries,
to the New Investors as follows, and the New Investors in agreeing to consummate
the transactions contemplated by this Agreement have relied upon such
representations and warranties, that:
-16-
Section 5.1 Corporate Organization.
----------- ----------------------
(a) CII is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as now being conducted.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation and each has
the requisite power and authority (corporate and other) to own, lease and
operate its properties and to carry on its business as now being conducted.
Each Subsidiary is qualified as a foreign jurisdiction and is in good standing
in each jurisdiction listed on Schedule 5.1 and there are no other jurisdictions
------------
in which the failure to be qualified or licensed as a foreign corporation could
have an adverse effect on CII or such Subsidiary.
(c) The copies of the certificate of incorporation and all amendments
thereto of CII and each Subsidiary as certified by the appropriate authorities
of its jurisdiction of incorporation, and the by-laws, as amended to date, of
CII and each Subsidiary, as certified by its secretary, which have heretofore
been delivered to CHS, are true, complete and correct copies of the certificate
of incorporation and by-laws of CII and such Subsidiary, as amended and in
effect on the date hereof, and will be true, complete and correct as of the
Closing Date.
(d) The minute books and records of CII and each Subsidiary, copies of
which have been delivered to CHS prior to the date hereof, are the original
minute books and records of CII and such Subsidiary; contain all proceedings of
CII's stockholders, the Board of Directors and any committees thereof with
respect to CII and such Subsidiary; and are true, correct and complete in all
material respects; and there have been no changes, alterations or additions
thereto which have not been furnished to counsel for CHS prior to the date
hereof.
Section 5.2 Valid and Binding Agreements. CII has the full right,
----------- ----------------------------
capacity and power to enter into this Agreement. All necessary action on the
part of CII has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by CII, and constitutes valid and binding obligations,
enforceable against CII, in accordance with its terms, subject to bankruptcy,
insolvency, reorganization or similar laws relating to creditors' rights
generally.
Section 5.3 No Violation. Neither the execution and delivery of
----------- ------------
this Agreement nor the consummation of the transactions contemplated hereby nor
compliance by CII with any of the provisions hereof will (i) violate or conflict
with any provision of the certificate of incorporation or by-laws of CII, or any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to CII or its Subsidiaries, or (ii) violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or any
event which, with or without due notice or lapse of time, or both, would
constitute a default) under, or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon the Stock or any of the properties or
assets of CII or its Subsidiaries under any
-17-
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation of
CII or its Subsidiaries.
Section 5.4 Consents and Approvals. Except for consents, approvals
----------- ----------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, could not have a material adverse effect on
the business, condition or operations of CII or any Subsidiary (a "Material
--------
Adverse Effect"), no permit, consent, approval or authorization of, or
--------------
declaration, filing or registration with, any governmental or regulatory
authority (including any filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended) or third party is required to be made or
obtained by CII or its Subsidiaries in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, except for such approvals as will be obtained by the
Closing.
Section 5.5 Capitalization.
----------- --------------
(a) The authorized capital stock of CII consists of (i) 200,000 shares
of CII Common Stock, of which 102,000 shares are issued and outstanding and (ii)
100,000 shares of CII Preferred Stock, of which 80,000 shares are issued and
outstanding. The issued and outstanding Stock is duly authorized, validly
issued, fully paid and nonassessable, and none of the issued and outstanding
shares of Stock were issued in violation of the preemptive rights of any present
or former stockholder of CII.
(b) Except as set forth in Section 5.5(a) or Schedule 5.5, (i) there
------------
are no shares of capital stock or other equity securities (as the term "equity
security" is defined in the Securities Exchange Act of 1934, as amended) of CII
or its Subsidiaries outstanding, (ii) there are no outstanding subscriptions,
options, warrants or rights (contingent or otherwise) to purchase or acquire any
equity securities of CII or its Subsidiaries, (iii) no equity securities of CII
or its Subsidiaries are reserved for issuance for any purpose, and (iv) there
are no contracts, commitments, agreements, understandings, arrangements or
restrictions to which CII or its Subsidiaries are a party or by which CII or its
Subsidiaries are bound relating to any shares of the capital stock or other
equity securities of CII or its Subsidiaries (including the Stock), whether or
not outstanding.
Section 5.6 Subsidiaries and Affiliates.
----------- ---------------------------
(a) Except as set forth on Schedule 5.6, neither CII nor its
------------
Subsidiaries owns any capital stock or other equity securities of any other
corporation and has no other type of interest (whether ownership or other) in
any other corporation, partnership, joint venture or other business organization
or entity. The interests of CII and its Subsidiaries in any Person as set forth
on Schedule 5.6 are owned by CII or such Subsidiary free and clear of all liens,
------------
options, claims or encumbrances (including without limitation, rights of first
refusal or similar rights) with respect to the ownership thereof. Neither CII
nor its Subsidiaries is subject to any obligation or requirement to provide
funds for, or to make any investment (in the form of a loan, capital
contribution or otherwise) to or in, any Person, except as set forth on Schedule
--------
5.6.
---
(b) Except as set forth on Schedule 5.6, none of the Redeeming
------------
Stockholders or any of their Affiliates have any direct or indirect interest in
any Person that competes with, conducts
-18-
any business similar to, has any agreement or arrangement with or is involved in
any way with, the business conducted by CII or any of its Subsidiaries. None of
such Redeeming Stockholders nor any of their Affiliates have any direct or
indirect interest in any property used by, or relating to, the business of CII
or its Subsidiaries, except by virtue of ownership of the Stock.
Section 5.7 Financial Statements. The audited consolidated financial
----------- --------------------
statements of CII and its Subsidiaries for each of the two (2) years ended
December 31, 1995 and 1996, attached as Schedule 5.7 hereto (the "CII Financial
------------ -------------
Statements") present fairly, in all material respects, the consolidated
----------
financial position, results of operations and cash flows of CII and its
Subsidiaries, as of the statement dates and for the periods indicated, in
accordance with GAAP consistently applied among the periods indicated, except as
set forth in the footnotes thereto and Schedule 5.7 hereto. The audited
------------
consolidated balance sheet as of December 31, 1996 included in the CII Financial
Statements is referred to as the "December 31 Balance Sheet." Except as set
-------------------------
forth on Schedule 5.7A, the unaudited interim consolidated financial statements
-------------
of CII and its Subsidiaries for the six (6) months ended June 30, 1997, attached
as Schedule 5.7A hereto (the "CII Interim Financial Statements") (i) present
------------- --------------------------------
fairly, in all material respects, the consolidated financial position, results
of operations and cash flows of CII and its Subsidiaries, as of the statement
date and for the period indicated, subject to normal year-end adjustments and
except that such interim financial statements do not contain footnotes, and (ii)
have been prepared in accordance with CII's and its Subsidiaries' customary
procedures for the preparation of interim financial statements.
Section 5.8 Absence of Undisclosed Liabilities. Except as set forth
----------- ----------------------------------
on Schedule 5.8 or otherwise disclosed pursuant to this Agreement or the
------------
Schedules hereto, neither CII nor its Subsidiaries has any liability or
obligation of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise and whether due or to become due and regardless
of when asserted), including any guaranty with respect to any obligation, except
(a) such liabilities or obligations as are reflected in or reserved against in
the balance sheet which is a part of the CII Interim Financial Statements (the
"Balance Sheet") or in the Working Capital Statement, (b) obligations under
--------------
executory contracts and (c) such liabilities or obligations as have been
incurred in the ordinary course of business, consistent with past practice (none
of which is a liability resulting from breach of contract, tort, infringement,
claim or lawsuit except as reserved against in the Balance Sheet or the Working
Capital Statement) since March 31, 1997.
Section 5.9 Interim Operations and Absence of Certain Changes. Since
----------- -------------------------------------------------
January 1, 1997, except as set forth on Schedule 5.9, CII and its Subsidiaries
------------
have conducted their business in the ordinary course and consistent with past
practice, and neither CII nor its Subsidiaries:
(a) incurred any indebtedness or other liabilities (whether absolute,
accrued, contingent or otherwise) or guaranteed any such indebtedness, except in
the usual and ordinary course of its business, consistent with past practice;
(b) suffered any damage, destruction or loss of tangible assets,
whether or not covered by insurance, in excess of $50,000;
-19-
(c) suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate had or has a Material Adverse
Effect on CII or any of its Subsidiaries;
(d) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) except in each case in
the ordinary course of business;
(e) canceled any debts or waived any claims or rights of substantial
value, except in each case in the ordinary course of business;
(f) pledged or permitted the imposition of any lien on or sold,
assigned, transferred or otherwise disposed of any of its tangible assets,
except the sale of inventory in the ordinary course of business;
(g) sold, assigned or otherwise transferred any patents, trademarks,
trade names, copyrights, licenses or other intangible assets;
(h) made any change in any method of accounting or accounting
principle or practice;
(i) granted any general increase in the compensation payable or to
become payable to its officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment) or
any special increase in the compensation payable or to become payable to any
officer or employee, except for (i) normal merit and cost of living increases in
the ordinary course of business and in accordance with past practice, (ii)
increases pursuant to collective bargaining agreement and (iii) bonus agreements
for certain members of management set forth on Schedule 5.9;
------------
(j) declared, paid or set aside for payment any dividend or other
distribution on any shares of its capital stock;
(k) made any loans which in the aggregate exceed $5,000 to any
employee or made any loans to any stockholder, officer or director;
(l) made capital expenditures or commitments for same in excess of
$1,500,000 in the aggregate;
(m) sold, leased, transferred or assigned any of its tangible assets
in excess of $50,000 in the aggregate, other than inventory in the ordinary
course of business, consistent with past practice;
(n) accelerated, terminated, modified or canceled any agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses), other than in the ordinary course of business, consistent with
past practice;
-20-
(o) failed to make, or delayed in making, any item of capital
expenditure (or series of items of related capital expenditures) budgeted for
and approved, other than in the ordinary course of business, consistent with
past practice;
(p) canceled, compromised, waived or released any right or claim (or
series of related rights and claims), other than in the ordinary course of
business, consistent with past practice;
(q) issued, sold or otherwise disposed of any of its capital stock,
or granted any options, warrants or other rights to purchase or obtain
(including upon conversion, exchange or exercise) any of its capital stock other
than in connection with this Agreement; or
(r) agreed, whether in writing or otherwise, to take any action
described in this Section 5.9.
Section 5.10 Taxes.
------------ -----
(a) CII and each Subsidiary has timely filed with each appropriate
federal, state, local and foreign governmental entity or other authority
(individually or collectively, "Taxing Authority") all Tax Returns for the past
----------------
five (5) years required to be filed and has timely paid in full all Taxes, as
defined in Section 5.10(c), if any, shown to be due on such Tax Returns, or
otherwise has accrued for on its books and records or paid all other Taxes due,
and at the Closing Date shall have paid or accrued on its books and records for
all Taxes allocable to periods or portions thereof ending on or prior to the
Closing Date (whether or not shown on any Tax Return). All Tax Returns filed by
CII or its Subsidiaries are true, correct and complete in all material respects
and no other Taxes for the periods covered by such Tax Returns are required to
be paid that have not been reserved on the books of CII or its Subsidiaries.
There are no liens for Taxes upon CII or its Subsidiaries or their assets except
liens for current Taxes not yet due, except if contested in good faith and
reserved. CII has made available to the New Investors for inspection correct
and complete copies of all federal and state income Tax Returns, examination
reports by any Taxing Authority, and any statements of deficiencies assessed
against or agreed by CII or its Subsidiaries for all taxable periods ending
after December 31, 1994.
Except as set forth on Schedule 5.10, there has not been within the
-------------
past three (3) years an examination or notice of potential examination of the
Tax Returns of CII or its Subsidiaries by any Taxing Authority, and neither CII
nor its Subsidiaries has granted within the past three (3) years any waiver of
any statute of limitations with respect to, or any extension of a period for the
assessment of, any Taxes.
(b) All Taxes with respect to CII or its Subsidiaries that are
required to be withheld or collected have been duly withheld or collected and,
to the extent required, have been paid to the proper governmental authorities or
properly deposited as required by applicable laws.
(c) As used in this Agreement, "Tax" means any of the Taxes and
---
"Taxes" means, with respect to CII or its Subsidiaries, all income taxes
-----
(including any tax on or based upon net income, or gross income, or income as
specially defined, or earnings, or profits, or selected items
-21-
of income, earnings or profits) and all gross receipts, sales, use, ad valorem,
transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profit taxes,
alternative or add-on minimum taxes, custom duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any Taxing
Authority on CII or its Subsidiaries.
(d) As used in this Agreement, "Tax Return" is defined as any return,
----------
report, information return or other document {including any related or
supporting information) filed or required to be filed with any Taxing Authority
or other authority in connection with the determination, assessment or
collection of any Tax paid or payable by CII or its Subsidiaries or the
administration of any laws, regulations or administrative requirements relating
to any such Tax.
(e) No property owned by CII or any Subsidiary is property that
either CII or any such Subsidiary is or will be required to treat as being owned
by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" as
defined in Section 168(h) of the Code.
(f) Neither CII nor its Subsidiaries is and during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code has not been a United
States real property holding corporation as defined in Section 897(c)(2) of the
Code.
(g) Except as set forth on Schedule 5.10, neither CII nor its
-------------
Subsidiaries is now nor has ever been a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G of
the Code.
(h) Neither CII nor its Subsidiaries has filed a consent pursuant to
Section 341(f) of the Code nor has CII or its Subsidiaries agreed to have
Section 341(f)(2) of the Code apply to any disposition of a section (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by CII or any
Subsidiary.
(i) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries is an obligor on and none of their respective assets has been
financed directly or indirectly by any tax-exempt bonds.
(j) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries has executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any predecessor provision thereof or any similar
provision of state, local or foreign law that relates to the assets or
operations of CII or such Subsidiaries.
(k) Except as provided on Schedule 5.10, neither CII nor its
-------------
Subsidiaries will be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of (i) any change in method
of accounting for a taxable period ending on or prior to the Closing Date, (ii)
any deferred intercompany gain or any excess loss account described in Treasury
Regulations under Section 1502
-22-
of the Code (or any corresponding or similar provision or administrative rule of
federal, state, local or foreign income tax law) arising prior to the Closing
Date, or (iii) any installment sale made prior to the Closing Date.
Section 5.11 Employee Benefit Plans.
------------ ----------------------
(a) Schedule 5.11 is a true and complete list of all annuity, bonus,
-------------
cafeteria, stock option, stock purchase, profit sharing, savings, pension,
retirement, incentive, group insurance, disability, employee welfare, prepaid
legal, nonqualified deferred compensation including without limitation, excess
benefit plans, top-hat plans, deferred bonuses, rabbi trusts, secular trusts,
nonqualified annuity contracts, insurance arrangements, nonqualified stock
options, phantom stock plans, or golden parachute payments, or other similar
fringe benefit plans, and all other employee benefit funds or programs (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA")), covering employees, former employees or directors of CII or its
-----
Subsidiaries (the "Plans"). Except as set forth on Schedule 5.11, CII and its
----- -------------
Subsidiaries are not a party to any employee agreement, understanding, plan,
policy, procedure, pattern or practice, or other arrangement, whether written or
oral, which provides compensation or fringe benefits to its employees, and CII
and its Subsidiaries are in material compliance with their obligations under all
such Plans. Except for changes required by applicable law, there are no
negotiations, demands, commitments or proposals that are pending or that have
been made that concern matters now covered, or that would be covered by the type
of agreements described on Schedule 5.11 or this paragraph.
-------------
(b) With respect to each Plan listed on Schedule 5.11, true and
-------------
complete copies of (i) all Plan documents (including all amendments and
modifications thereof), and related agreements including without limitation, the
trust agreement and amendments thereto, insurance contracts and investment
management agreements; (ii) the last three filed Form 5500 annual reports and
Schedules A, B, C, P and/or SSA, as applicable, and Forms PBGC-1, if any; (iii)
summary plan descriptions; (iv) summary of material modifications, if any; (v)
the most recent auditor's report, and copies of any and all tax qualification
correspondence including without limitation, private letter rulings,
applications for determination and determination letters issued with respect to
the Plans; and (vi) the most recent annual and periodic accounting of related
Plan assets, have also been made available to the New Investors.
(c) With respect to the Plans listed on Schedule 5.11:
-------------
(i) The Plans have been and are in compliance with all applicable
laws, including ERISA and the Code, and each of the employee pension
benefit plans, within the meaning of Section 3(2) of ERISA (the "Pension
-------
Plans"), which are intended to be qualified under Section 401(a) of the
-----
Code have received a favorable determination letter from the IRS or a
request for such determination has been timely filed with the IRS (and to
the Knowledge of CII, nothing has occurred to cause the IRS to revoke such
determination and the IRS has not indicated any disapproval of any request
for such a determination);
-23-
(ii) Each Plan has been operated in accordance with its terms
and applicable law and all required filings that are due prior to the date
hereof, including without limitation, the Form 5500 annual reports, for all
Plans have been timely made;
(iii) No prohibited transactions, as defined by Section 406 of
ERISA or Section 4975 of the Code, have occurred with respect to any of the
Plans other than as covered by an exemption;
(iv) Neither CII nor its Subsidiaries has engaged in any
transaction in connection with which CII or such Subsidiary could be
subjected to a criminal or civil penalty under ERISA, the Code or other
applicable law;
(v) None of the Plans, nor any trust which serves as a funding
medium for any of such Plans, nor any issue relating thereto is currently
under examination by or pending before the IRS, the Department of Labor,
the PBGC or any court, other than applications for determinations pending
before the IRS;
(vi) Except as set forth on Schedule 5.11, none of the Pension
-------------
Plans is a defined benefit plan within the meaning of Section 3(35) of
ERISA or Section 414(j) of the Code;
(vii) Except as set forth on Schedule 5.11, none of the Plans is
-------------
a "multiemployer plan" as that term is defined in Section 3(37) of ERISA or
Section 411(f) of the Code, nor a plan maintained by more than one employer
(hereinafter referred to as a "multiple employer plan"), nor a single
employer plan under a multiple controlled group within the meaning of
Section 4063 of ERISA, and neither CII nor any entity required to be
aggregated with CII under Section 414(b), (c), (m), or (o) of the Code has
incurred any liability under Title IV of ERISA, including any withdrawal
liability with respect to any single employer plan, multiemployer or
multiple employer plan, which liability could constitute a liability of any
New Investor;
(viii) Except as set forth on Schedule 5.11, no benefit claims
-------------
(except those submitted in the ordinary course of administration of such
Plan) are currently pending against any Plan;
(ix) Except as set forth on Schedule 5.11, no Plan provides for
-------------
retiree medical or retiree life insurance benefits for former employees of
CII or its Subsidiaries (other than as required under Section 4980B of the
Code); and
(x) No Pension Plan has been terminated by CII or its
Subsidiaries.
(d) There have been no failures to comply with the continuation
coverage provisions required by Sections 601-608 of ERISA and Section 4980B of
the Code under any Plan.
(e) There are no employee benefit plans which cover employees of CII
or its Subsidiaries which are required to comply with the provisions of any
foreign law.
-24-
(f) An appropriate third party has valued each share of Kilovac
Corporation common stock held by the Kilovac Corporation Employee Stock Bonus
Plan ("ESBP") and has delivered a fairness opinion to the trustee of the ESBP.
----
The ESBP has been maintained and administered (including, but not limited to,
the sale of shares of Kilovac Corporation common stock to CII or a Subsidiary)
in accordance with all applicable laws, including without limitation, the Code,
ERISA and state and federal securities laws and the terms of the ESBP and the
trust established thereunder.
Section 5.12 Compliance with Law, etc. CII and its Subsidiaries
------------ -------------------------
have been, are and on the Closing Date will continue to be in compliance with
all applicable laws, rules, regulations, orders, ordinances, judgments and
decrees of all governmental authorities.
Section 5.13 Litigation; Claims. Schedule 5.13 hereto contains a
------------ ------------------ -------------
complete and accurate list of (a) all claims, actions, suits, proceedings or
investigations pending or (to the knowledge of CII after due investigation)
threatened by or against CII or its Subsidiaries, and (a) all judgments,
decrees, arbitration awards, agreements or orders binding upon CII or its
Subsidiaries. Except as set forth on Schedule 5.13, no material claims,
-------------
including without limitation, product liability claims, have been asserted
against CII or its Subsidiaries during the past three (3) years and neither CII
nor its Subsidiaries is aware or has any reason to be aware of any basis for any
material action, proceeding or investigation involving CII or its Subsidiaries,
other than as set forth on Schedule 5.13.
-------------
Section 5.14 Contracts and Commitments. Except as contemplated by
------------ -------------------------
this Agreement or as set forth on the attached Schedule 5.14, neither CII nor
-------------
any Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan or arrangement, or any collective
bargaining agreement or any other contract with any labor union, or severance
agreements, programs, policies or arrangements;
(b) contract for the employment of any officer, individual employee
or other Person on a full-time, part-time, consulting or other basis providing
annual compensation in excess of $100,000 or contract relating to loans to
officers, directors or affiliates;
(c) contract under which CII or any Subsidiary has advanced or loaned
any other Person amounts in the aggregate exceeding $50,000;
(d) agreement or indenture relating to borrowed money or other
indebtedness or the mortgaging, pledging or otherwise placing a lien on any
material asset or material group of assets of CII and its Subsidiaries;
(e) guarantee of any obligation (other than by CII of a Subsidiary's
debts or a guarantee by a Subsidiary of CII's debts or another Subsidiary's
debts);
-25-
(f) lease or agreement under which CII or any Subsidiary is lessee of
or holds or operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $50,000;
(g) lease or agreement under which CII or any Subsidiary is lessor of
or permits any third party to hold or operate any property, real or personal,
owned or controlled by CII or any Subsidiary;
(h) contract or group of related contracts, excluding all purchase
orders, with the same party or group of affiliated parties the performance of
which involves consideration in excess of $50,000;
(i) assignment, license, indemnification or agreement with respect to
any intangible property (including, without limitation, any material
intellectual property), excluding purchase orders;
(j) warranty agreement with respect to its services rendered or its
products sold or leased;
(k) sales, distribution or franchise agreement;
(l) contract, agreement or other arrangement with any officer,
director, stockholder, employee or affiliate, or any affiliate of any officer,
director, stockholder or employee;
(m) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world;
(n) agreement with a term of more than six months which is not
terminable by CII or any Subsidiary upon less than 30 days notice without
penalty; or
(o) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $50,000 annually.
All of the contracts, agreements and instruments set forth on the
Schedule 5.14 are valid, binding and enforceable in accordance with their
-------------
respective terms in all material respects. CII and each Subsidiary have
materially performed all obligations required to be performed by them and are
not in material default under or in material breach of nor in receipt of any
claim of material default or breach under any contract, agreement or instrument
to which CII or any Subsidiary is subject; no event has occurred which with the
passage of time or the giving of notice or both would result in a material
default, breach or event of noncompliance by CII or any Subsidiary under any
contract, agreement or instrument to which CII or any Subsidiary is subject;
neither CII nor any Subsidiary has Knowledge of any breach or anticipated breach
by the other parties to any contract, agreement, instrument or commitment to
which it is a party; and neither CII nor any Subsidiary is a party to any
materially adverse contract or commitment.
-26-
The New Investors have been given access to a true and correct copy of
each of the written instruments, plans, contracts and agreements and an accurate
description of each of the oral arrangements, contracts and agreements which are
referred to on the Schedule 5.14, together with all amendments, waivers or other
-------------
changes thereto.
Section 5.15 Intellectual Property Rights. Schedule 5.15 contains a
------------ ---------------------------- -------------
correct and complete list of the following assets and related matters: (a) all
trademarks, service marks, trade names, patents, copyrights, royalty rights,
logos, applications therefor and registrations thereof owned or used (pursuant
to license agreements or otherwise) by CII or its Subsidiaries (collectively,
the "Proprietary Rights"), and in the case of any such Proprietary Rights that
------------------
are so owned, the jurisdictions in or by which such assets or any of them have
been registered, filed or issued and (b) all contracts, agreements or
understandings pursuant to which CII or its Subsidiaries has authorized any
Person to use any of the Proprietary Rights as so owned. CII and each Subsidiary
own or possess all Proprietary Rights that are required to conduct their
businesses as now conducted without conflict with the rights of others. Except
as set forth on Schedule 5.15, CII or its Subsidiaries have the exclusive right
-------------
to use the Proprietary Rights (including applications for any of the foregoing)
and all patent disclosures and inventions, trade dress, corporate names and
registrations and applications for registration thereof together with all of the
goodwill associated therewith, copyrightable works, mask works and registrations
and applications for registration thereof, computer software, data, data bases
and documentation thereof, trade secrets and other confidential information
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information used in connection with their businesses, and
the consummation of the transactions contemplated hereby will not alter or
impair any such rights; and no claims have been asserted by any Person to the
use of any of the foregoing, or challenging or questioning the validity or
effectiveness of any such license or agreement, and there is no basis for any
such claim. To the Knowledge of CII after due investigation, neither CII, its
Subsidiaries, nor any of their representatives or agents have committed any
inequitable conduct or fraud that may affect the validity or enforceability of
the Proprietary Rights.
Section 5.16 Liens. Except as set forth on Schedule 5.16, none of
------------ ----- -------------
the properties or assets, whether real, personal or mixed, or tangible or
intangible, owned or leased by CII or its Subsidiaries is subject to any
mortgage, lien, encumbrance, pledge, restriction, conditional sale, or other
security interest, except for (a) liens for taxes and assessments or
governmental charges or levies not at the time due (so long as accrued on CII's
books and records) or in respect of which the validity thereof shall currently
be contested in good faith by appropriate proceedings; and (b) liens in respect
of pledges or deposits under workmen's compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent or are
being contested in good faith by appropriate proceedings.
Section 5.17 Insurance. All insurance policies and fidelity bonds
------------ ---------
relating to the assets of CII and its Subsidiaries, including summary
descriptions and the termination dates thereof, are set forth on Schedule 5.17.
-------------
Except as set forth on Schedule 5.17, neither CII nor any Subsidiary has had
-------------
coverage limited by any insurance carrier to which it has applied for insurance
or with which it has carried insurance, during the last two (2) years. If CII
or any Subsidiary receive, prior to the
-27-
Closing, any notice of cancellation or other termination of any such policies
presently in effect, CII or any such Subsidiary will use their best efforts to
replace such policies not later than a date prior to the effective date of any
such cancellation or other termination with policies providing substantially the
same coverage.
Section 5.18 Real Property.
------------ -------------
(a) Attached as Schedule 5.18(a) is the address and legal
----------------
description of each parcel of real property owned by CII or any of its
Subsidiaries (the "Owned Property"). CII or its applicable Subsidiary has good
--------------
and marketable title in and to all of the Owned Property subject to no leases,
liens, encroachments, encumbrances or other defects in title (collectively,
"Liens"), except as described on such Schedule.
-----
(b) Attached as Schedule 5.18(b) is a list of all leases, subleases
----------------
and other occupancy agreements, including all amendments, extensions and other
modifications (the "Leases") for real property (the "Leased Property," and
------ ---------------
collectively with the Owned Property, the "Real Property") to which CII or any
-------------
of its Subsidiaries is a party. CII or its applicable Subsidiary has a good and
valid leasehold interest in and to all of the Leased Property, subject to no
Liens except as described in Schedule 5.18(b). Each Lease is in full force and
----------------
effect. There exists no default under any Lease. CII has previously delivered
to CHS true and complete copies of all the Leases. Except as described on
Schedule 5.18(b), no consent, waiver, approval or authorization is required from
----------------
the landlord under any Lease as a result of the execution of this Agreement or
the consummation of the transactions contemplated hereby.
(c) The Real Property constitutes all of the real property owned or
leased in connection with the business of CII and its Subsidiaries. Other than
CII and its Subsidiaries, there are no parties in possession or parties having
any current or future right to occupy any of the Real Property. The Real
Property is in good condition and repair, reasonable wear and tear excepted, and
is sufficient for the conduct of the business of CII and its Subsidiaries as
currently conducted thereon. The Real Property and all plants, buildings and
improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations in all material respects. There
are no pending or, to the Knowledge of CII after due investigation, threatened
requests, applications or proceedings to alter or restrict any zoning or other
use restriction applicable to the Real Property that would interfere with the
conduct of the business of CII or its Subsidiaries or the use of their assets
consistent with past practice. All easements, permits, licenses and other
approvals necessary to the current occupancy and use of the Real Property by CII
and its Subsidiaries have been obtained, are in full force and effect and have
not been violated. There exists no violation of any covenant, condition,
restriction, easement, agreement or order which will have a material adverse
affect on any portion of the Real Property. All improvements located on the
Real Property have direct access to a public road adjoining such Real Property
(except where the failure to have such direct access could not reasonably be
expected to have a Material Adverse Effect on CII or any Subsidiary), and no
notice has been received by CII or any subsidiary relating to the termination or
impairment of such access. No such improvements or accessways encroach on land
not included in the Real Property and no such improvement is dependent for its
access, operation or utility on any land, building or other improvement not
included in the Real Property (except where such encroachments or dependence
could not reasonably be expected to have a Material
-28-
Adverse Effect on CII or any Subsidiary). There is no pending or, to the
knowledge of CII or its Subsidiaries after due investigation, any threatened
condemnation, eminent domain, litigation or other proceedings affecting any
portion of the Real Property.
(d) There are no outstanding options or rights of first refusal with
respect to the purchase or use of any of the Owned Property, any portion thereof
or interest therein, except as set forth on Schedule 5.18(d). Neither CII nor
----------------
any of its Subsidiaries is obligated to purchase or lease any real property,
except as set forth on Schedule 5.18(d).
----------------
Section 5.19 Labor Disagreements. Except as set forth on Schedule
------------ ------------------- --------
5.19, within the last three (3) years CII and its Subsidiaries have not
----
experienced any labor disputes or any work stoppage or slowdowns due to labor
disagreements. Except as set forth on Schedule 5.19, (a) CII and its
-------------
Subsidiaries are in compliance with all applicable laws respecting employment,
sex and racial discrimination and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
(b) there is no unfair labor practice charge or complaint against CII and its
Subsidiaries, or (to the Knowledge of CII after due investigation) threatened
before the National Labor Relations Board or any foreign authority; (c) there is
no labor strike, dispute, request for representation, slowdown or stoppage
actually pending or (to the Knowledge of CII after due investigation) threatened
against or affecting CII and its Subsidiaries; (d) no question concerning
representation has been raised or is (to the Knowledge of CII after due
investigation) threatened respecting the employees of CII and its Subsidiaries;
(e) no grievance that might have an adverse effect on CII or any Subsidiary, nor
any arbitration proceeding arising out of or under any collective bargaining
agreement, is pending and no claims therefor exist; and (f) no collective
bargaining agreement that is binding on CII or its Subsidiaries that restricts
it from relocating, closing or contracting any of its operations.
Section 5.20 Environmental Matters.
------------ ---------------------
(a) As used in this Agreement "Hazardous Material" shall mean: (i)
------------------
any "hazardous substance" as now defined pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42
------
O.S.C. 5 9601(14); (ii) any "pollutant or contaminant" as defined in 42 U.S.C.
9601(33); (iii) any material now defined as "hazardous waste" pursuant to 40
C.F.R. Part 261; (iv) any petroleum, including crude oil and any fraction
thereof; (v) natural or synthetic gas usable for fuel; (vi) any "hazardous
chemical" as defined pursuant to 29 C.F.R. Part 1910; (vii) any asbestos,
polychlorinated biphenyl (PCB), or isomer of dioxin, or any material or thing
containing or composed of such substance or substances; and (viii) any other
substance, regardless of physical form, that is subject to any past or present
federal, state or local governmental statute, requirement, rule of liability or
standard of conduct relating to the protection of human health, plant life,
animal life, natural resources or property from the presence in the environment
of any solid, liquid, gas, odor or any form of energy, from whatever source.
(b) Except as set forth on Schedule 5.20, there is no Hazardous
-------------
Material at, under or on any properties owned, leased, operated or controlled by
CII or any Subsidiary where such in each case could have a Material Adverse
Effect on CII or any Subsidiary. Neither CII, its Subsidiaries nor any of their
respective predecessors in interest has manufactured, processed,
-29-
distributed, used, treated, stored, disposed of, transported or handled any such
Hazardous Material, where such in each case could have a Material Adverse Effect
on CII or any Subsidiary.
(c) Except as set forth on Schedule 5.20, there is no ambient air,
-------------
surface water, groundwater or land contamination within, under, originating from
or relating to any real property interest or other location geologically or
hydrologically connected to such properties owned, operated or controlled by
CII, its Subsidiaries or their respective predecessors in interest on none of
such properties has been used for the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Material where such in each case could have a Material Adverse Effect on CII or
any Subsidiary.
(d) Except as indicated on Schedule 5.20, neither CII, its
-------------
Subsidiaries, nor their respective predecessors in interest has any obligation
or liability, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, imposed or based upon any provision under any foreign,
federal, state or local law, rule, or regulation or common law, or under any
code, order, decree, judgment or injunction applicable to CII, its Subsidiaries
or their respective predecessors in interest or any notice, or request for
information issued, promulgated, approved or entered thereunder, or under the
common law, or any tort, nuisance or absolute liability theory, relating to
public health or safety, worker health or safety, or pollution, damage to or
protection of the environment including without limitation, laws relating to
emissions, discharges, releases or threatened releases of Hazardous Material
into the environment (including without limitation, ambient air, surface water,
groundwater, land surface or surface), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, generation, disposal,
transport or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes (hereinafter collectively referred to as
"Environmental Laws") where such obligation or liability in each case could have
------------------
a Material Adverse Effect on CII or any Subsidiary.
(e) Except as indicated on Schedule 5.20, there are no specific
-------------
facts or circumstances that would indicate (i) that CII or its Subsidiaries are
not, or CII or its Subsidiaries will not be prior to the Closing, in compliance
with the Environmental Laws and with the provisions of the Federal Occupational
Safety and Health Act, or (ii) that operation of CII's or any Subsidiary's
business and plant locations gives rise to any liability to any Person,
contingent or otherwise, under the Environmental Laws.
(f) Except as indicated on Schedule 5.20, CII and each Subsidiary
-------------
possess and are in compliance with all permits, licenses, certificates,
franchises and other authorizations relating to the Environmental Laws necessary
to conduct its business or required by environmental regulations.
(g) Except as indicated on Schedule 5.20, no claims have been made
-------------
against CII, its Subsidiaries or their respective predecessors in interest
during the past three (3) years (except minor claims, all of which have been
resolved without material fines or penalties) and no presently outstanding
citations or notices have been issued against CII or any Subsidiary under the
Environmental Laws where such could have a Material Adverse Effect on CII or any
Subsidiary, including without limitation, any such obligation or liability
relating to or arising out of or attributable, in whole or in part, to:
-30-
(i) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Material by CII,
its Subsidiaries or their respective predecessors in interest, or any of
CII's, its Subsidiaries' or their respective employees, agents or
representatives in connection with or in any way arising from or relating
to CII, its Subsidiaries or their respective predecessors in interest or
any of their respective properties; or
(ii) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Material by any
other Person at, on or under any real property owned, leased, operated or
controlled by CII or its Subsidiaries where such activity in each case
could have a Material Adverse Effect on CII or any Subsidiary.
(h) Except as indicated on Schedule 5.20, CII and each Subsidiary
-------------
have not been subject to any civil, criminal or administrative action, suit,
claim, hearing, notice of violation, investigation, inquiry or proceeding for
failure to comply with, or received notice of any violation or potential
liability under the Environmental Laws where such could have a Material Adverse
Effect on CII or any Subsidiary, nor is CII or its Subsidiaries aware of any
information, whether or not confirmed or reported, which could give rise to any
such potential liability.
(i) Except as indicated on Schedule 5.20, no real property, site or
-------------
facility (as defined in CERCLA, 42 U.S.C. (S) 9601(9)) of CII or any Subsidiary
is (i) listed or proposed for listing on the National Priority List or (ii)
listed on the Comprehensive Environmental Response, Compensation, Liability
Information System List ("CERCLIS") promulgated pursuant to CERCLA, or any
-------
comparable list maintained by any foreign, state or local government authority.
(j) Except as indicated on Schedule 5.20, there are no underground
-------------
storage tanks at any real property, site or facility (as defined in CERCLA) of
CII or any Subsidiary and CII further warrants and represents that any prior use
and operation of underground storage tanks has been in compliance with all
Environmental Laws.
(k) Except as indicated on Schedule 5.20, CII has made available to
-------------
CHS true, complete and correct copies of results of any reports, studies,
analyses, tests or monitoring in the possession of or initiated by CII or any
Subsidiary pertaining to the existence of Hazardous Material and any other
environmental concerns relating to any of its facilities, or sites or real
property owned, leased, operated, used or controlled by CII, its Subsidiaries or
any of their respective predecessors in interest, or concerning compliance with
or liability under the Environmental Laws.
(l) Except as indicated on Schedule 5.20, there are no
-------------
polychlorinated biphenyls ("PCBs") in or at any premises owned, leased, operated
----
or controlled by CII or any Subsidiary and CII further warrants and represents
that any prior use, handling, storage, transport or disposal of PCBs has been in
compliance with all Environmental Laws.
(m) Except as indicated on Schedule 5.20, CII has removed all
-------------
asbestos and asbestos containing materials from the properties and assets owned,
leased, operated or controlled by CII or its Subsidiaries, and CII further
warrants and represents that the facilities on such
-31-
properties comply with the Environmental Laws including but not limited to,
Occupational Safety and Health Act regulations with respect to ambient air
exposure to asbestos.
(n) Except as indicated on Schedule 5.20, CII and each Subsidiary do
-------------
not have any liability of any other person or entity pursuant to any of the
Environmental Laws, except as reserved for on the December 31 Balance Sheet.
Section 5.21 Employees. Schedule 5.21 sets forth a complete and
------------ --------- -------------
accurate list of all employees of CII and its Subsidiaries with an annual salary
of $75,000 or greater showing for each: name, current job title or description,
current salary level (including any bonus or deferred compensation arrangements)
and any bonus, commission or other remuneration paid during fiscal 1996, and
describing any existing contractual arrangement with such employee.
Section 5.22 Governmental Authorizations.
------------ ---------------------------
(a) CII and each Subsidiary have all licenses, permits or other
authorizations from governmental, regulatory or administrative agencies or
authorities required for the production and sale of their products and the
conduct of their business, each of which will be in full force and effect on the
Closing Date.
(b) Schedule 5.22 hereto sets forth a list of each such license,
-------------
permit or authorization held by CII and each Subsidiary. Except as specified on
Schedule 5.22, no registrations, filings, applications, notices, transfers,
-------------
consents, approvals, orders, qualifications, waivers or other actions of any
kind are required by virtue of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby (1) to avoid the loss
of any permit, license or other governmental, regulatory or administrative
authorization or the violation, breach or termination of, or any default under,
or the creation of encumbrances on the assets of CII or any Subsidiary, pursuant
to the terms of, any law, regulation, order or other requirement of law, or (11)
to enable CII to continue the operation of the business of CII and each
Subsidiary as presently conducted.
Section 5.23 Broker's or Finder's Fees. No agent, broker, investment
------------ -------------------------
banker, Person or firm acting on behalf of CII or under the authority of CII or
any Stockholder, except ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co., is or will be entitled to
any broker's or finder's fee or any other commission or similar fee directly or
indirectly from CII in connection with any of the transactions contemplated
hereby.
Section 5.24 Certain Transactions. Except as set forth on Schedule
------------ -------------------- --------
5.24, none of the Redeeming Stockholders or the directors or officers of CII or
----
any Subsidiary is currently a party to any transaction with CII or any
Subsidiary (other than for services as employees, officers and directors or as
investors), including without limitation any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any such Person, or to or from any corporation, partnership, trust
or other entity in which any such Person owns in excess of five percent (5%) of
the outstanding equity interest.
-32-
Section 5.25 Absence of Questionable Payments. Neither CII nor any
------------ --------------------------------
Subsidiary nor any director, officer, agent, employee or other Person acting on
their behalf has (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended, or any other
applicable foreign, federal or state law; or (ii) accepted or received any
unlawful contributions, payments, expenditures or gifts.
Section 5.26 Bank Accounts. Schedule 5.26 list all of the bank
------------ ------------- -------------
accounts and signatories thereto of CII and each of its Subsidiaries.
Section 5.27 Assets. CII and each Subsidiary have title to, or a
------------ ------
valid leasehold interest in, the properties and assets used by them and shown on
the Balance Sheet or acquired thereafter, free and clear of all liens, except
for properties and assets disposed of in the ordinary course of business since
the date of the Balance Sheet and except for liens disclosed on the Balance
Sheet (including any notes thereto) and liens for current taxes not yet due and
payable. CII's and each Subsidiary's buildings, equipment and other tangible
assets are in good operating condition in all material respects and are fit for
use in the ordinary course of CII's business. CII and each Subsidiary own, or
have a valid leasehold interest in, the assets necessary for the conduct of
their respective businesses as presently conducted.
ARTICLE VI--REPRESENTATIONS AND
-------------------
WARRANTIES OF THE REDEEMING STOCKHOLDERS
----------------------------------------
The Redeeming Stockholders, individually and not jointly and
severally, represent and warrant to CII and the New Investors, and CII and the
New Investors in agreeing to consummate the transactions contemplated by this
Agreement have relied upon such representations and warranties, that:
Section 6.1 Ownership of Stock and the Subordinated Notes. Except
----------- ---------------------------------------------
as set forth on Schedule 6.1, each Redeeming Stockholder is the owner,
------------
beneficially and of record, of the shares of Stock and Subordinated Notes set
forth opposite his or its name on Exhibit F, free and clear of any pledge, lien,
---------
security interest, option, charge, right of first refusal, encumbrance, claim or
equity of any kind.
Section 6.2 Valid and Binding Agreements. Each Redeeming Stockholder
----------- ----------------------------
has the full right, capacity and power to enter into this Agreement and the
Indemnification and Escrow Agreement. All necessary partnership action on the
part of CII Associates, L.P. has been taken to authorize the execution and
delivery of this Agreement and the Indemnification and Escrow Agreement, the
performance of its obligations hereunder and thereunder and the consummation of
the transactions contemplated hereby and thereby. This Agreement has been, and
as of the Closing Date, the Indemnification and Escrow Agreement will have been,
duly and validly executed and delivered by such Redeeming Stockholders, and will
constitute valid and binding obligations, enforceable against such Redeeming
Stockholders, in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization or similar laws relating to creditors' rights
generally.
-33-
Section 6.3 Consents and Approvals. Except for consents, approvals
-----------------------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, would not have a Material Adverse Effect on
any Redeeming Stockholders, no permit, consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority or third party is required to be made or obtained by any such
Redeeming Stockholders in connection with the execution, delivery and
performance of this Agreement or the Indemnification and Escrow Agreement or the
consummation of the transactions contemplated hereby or thereby.
ARTICLE VII--REPRESENTATIONS AND WARRANTIES OF NEW INVESTORS
-----------------------------------------------
The New Investors, jointly and severally, represent and warrant to CII
and the Redeeming Stockholders, and CII and the Redeeming Stockholders in
agreeing to consummate the transactions contemplated by this Agreement have
relied upon such representations and warranties, that:
Section 7.1 Corporate Organization. If such New Investor is an
----------- ----------------------
entity, it is duly authorized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
Section 7.2 Valid and Binding Agreements. Such New Investor has the
----------- ----------------------------
full right, capacity and power to enter into this Agreement and the
Indemnification and Escrow Agreement. All necessary action on the part of such
New Investor has been taken to authorize the execution and delivery of this
Agreement and the Indemnification and Escrow Agreement, the performance of his
or its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby. This Agreement has been, and as
of the Closing Date, the Indemnification and Escrow Agreement will have been
duly and validly executed and delivered by such New Investor and will constitute
valid and binding agreements of such New Investor, enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, reorganization
or similar laws or equitable principles relating to creditors' rights generally.
Section 7.3 No Violation. Neither the execution and delivery of
------------ ------------
this Agreement and the Indemnification and Escrow Agreement nor the consummation
of the transactions contemplated hereby or thereby nor compliance by such New
Investor with any of the provisions hereof or thereof will (i) violate or
conflict with any provision of the certificate of incorporation or by-laws (or
equivalent governing documents) of such New Investor (if such New Investor is an
entity) or any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to such New Investor, or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or any event which, with or without due notice or lapse of time, or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon the stock or any of the
properties or assets of such New Investor under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument of such New Investor.
-34-
Section 7.4 Consents and Approvals. Except for consents, approvals
----------- ----------------------
or authorizations which, if not received, or declarations, filings or
registrations which, if not made, would not have a material adverse effect on
such New Investor, no permit, consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority or third party is required to be made or obtained by such New Investor
in connection with the execution, delivery and performance of this Agreement or
the Indemnification and Escrow Agreement or the consummation of the transactions
contemplated hereby or thereby.
Section 7.5 Broker's or Finder's Fees. No agent, broker, investment
----------- -------------------------
banker, Person or firm acting on behalf of such New Investor or under the
authority of such New Investor, except Richland ▇▇▇▇▇▇ & Company, is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from such New Investor in connection with any of the
transactions contemplated hereby.
Section 7.6 Investment Representations. Each New Investor (a)
----------- --------------------------
understands that the New Securities and Purchased Securities have not been
registered under the Securities Act, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (b) is acquiring the New
Securities and Purchased Securities solely for its own account for investment
purposes, and not with a view to the distribution thereof, and (c) is an
accredited investor pursuant to set forth in Regulation D promulgated under the
Securities Act or is a sophisticated investor with knowledge and experience in
business and financial matters; provided that, nothing contained herein shall
prevent any New Investor or subsequent holder of Restricted Securities from
transferring such securities in compliance with the provisions of Section 8.5.
ARTICLE VIII--COVENANTS
---------
Section 8.1 Compliance with Law. From the date hereof through the
----------- -------------------
Closing Date, CII and each Subsidiary will promptly comply in all material
respects with all laws and regulations (including without limitation benefits)
applicable to CII's and each Subsidiary's business and all laws and regulations
with which compliance is required for the valid consummation of the transactions
contemplated hereby and will promptly notify CHS of any legal, administrative or
other proceedings, investigations, inquiries, complaints, notices of violation
or other asserted claims, judgments, injunctions or restrictions, pending,
outstanding or, to the Knowledge of CII after due investigation, threatened or
contemplated, which could materially affect CII's or any Subsidiary's business.
Section 8.2 Operation of Business Prior to Closing. During the
----------- --------------------------------------
period from the date hereof through the Closing Date, CII agrees as to CII and
each Subsidiary that (except as expressly contemplated or permitted by this
Agreement or to the extent that CHS shall otherwise consent):
(a) CII and each Subsidiary shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers
and
-35-
others having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Closing Date.
(b) CII and each Subsidiary shall not amend or propose to amend its
certificate of incorporation or by-laws.
(c) Except as set forth on Schedule 8.2, CII and each Subsidiary
------------
shall not: (i) increase the compensation payable or to become payable to its
officers or employees, except for customary year-end cash bonuses consistent
with past practice as to the amount and category of employees, increases in
salaries and wages of employees consistent with past practice, or grant any
severance or termination pay to or enter into any employment or severance
agreement with any of its directors, officers or other employees; (ii) except as
otherwise contemplated by this Agreement, establish, adopt, enter into or make
any new grants or awards under or amend any employee benefit plan or other
arrangement, plan or policy between CII and one or more of its directors,
officers or employees; or (iii) except as otherwise contemplated by this
Agreement, establish, adopt, enter into or amend any Plan.
(d) CII and each Subsidiary shall not settle or compromise any
material claims or litigation or, except in the ordinary and usual course of
business, modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims.
(e) CII and each Subsidiary shall not permit any material insurance
policy to be canceled or terminated without notice to CHS, except in the
ordinary and usual course of business.
(f) CII shall not fail to confer on a regular and frequent basis
with one or more representatives of CHS to report material operational matters
and the general status of ongoing operations.
(g) CII and each Subsidiary shall not commit a breach of, or default
under, any material contract, agreement, license or instrument to which it is a
party or to which any of its assets may be subject, or violate any applicable
law, regulation, ordinance, order, injunction or decree or any other requirement
of any governmental body or court, relating to its assets or business if such
breach, default or violation is reasonably likely to result in a Material
Adverse Effect on CII or any Subsidiary.
(h) CII and each Subsidiary shall not, except in the ordinary course
of business, (i) factor, discount or otherwise accept less than full payment
with regard to its accounts receivable or other amounts due, (ii) delay payment
on, or otherwise alter the payment terms of, its accounts payable, (iii) sell
any inventory at less than fair market value or make any bulk sale of such
inventory or (iv) fail to make, or delay in making, any item of capital
expenditure (or series of related items of capital expenditures) budgeted for
and approved.
(i) CII shall not, except as expressly permitted by this Agreement,
take, or cause any Subsidiary to take, any action that would or is reasonably
likely to result in any of its representations and warranties set forth in this
Agreement being untrue in any material respect, or in any of the conditions in
this Agreement set forth in Article IX not being satisfied.
-36-
(j) CII and each Subsidiary shall not (i) authorize capital
expenditures in excess of $150,000 or make any acquisition of, or investment in,
assets or stock of any other Person; (ii) acquire (by Recapitalization,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof; (iii) assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person, or make any loans or advances; (iv) enter into any
material contract or agreement other than in the ordinary course of business; or
(v) enter into or amend in any respect any material contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
Section 5.2(j).
(k) CII and each Subsidiary shall not issue, sell, pledge, lease,
dispose of, encumber, or authorize the issuance, sale, pledge, lease,
disposition or encumbrance of, (A) any shares of capital stock of any class, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest, or (B) any
assets that are material, alone or in the aggregate, to CII or any Subsidiary
except for the sale of products in the ordinary course of business and
consistent with past practice other than as required by the Stock Subscription
and Purchase Agreement, as amended to date, among CII, Kilovac Corporation and
the stockholders of Kilovac.
(l) CII and each Subsidiary shall not make any tax election or
settle or compromise any material federal, state, local or foreign income tax
liability.
(m) CII and each Subsidiary shall not (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock,
(ii) split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) repurchase or otherwise
acquire any shares of its capital stock.
(n) CII and each Subsidiary shall not incur or assume any
indebtedness or other liabilities (whether absolute, accrued, contingent or
otherwise) or guarantee any indebtedness or commitments for the same, except
liabilities (other than indebtedness or guarantees of indebtedness) in the usual
and ordinary course of its business, and in amounts and on terms consistent with
past practice.
(o) Except in the ordinary course of business and as contemplated by
the Closing, CII and each Subsidiary shall not pay, loan or advance any amount
to, or sell, transfer or lease any property or asset to, or enter into any
agreement or arrangement with, any of its stockholders, officers, employees or
directors.
(p) CII and each Subsidiary shall not enter into any employment
agreement, sales agency agreement or other contract for the performance of
personal services which is not terminable without liability upon no more than
thirty (30) days' notice or grant any increase in the rate of compensation or in
the benefits payable or to become payable to any officer or other employee or to
any agent or consultant over the levels in effect on the date hereof other than
normal merit increases of officers and employees or increases required by
applicable law.
-37-
(q) CII and each Subsidiary shall maintain its real and personal
properties in as good a state of operating condition and repair as they are on
the date of this Agreement, except for ordinary wear and tear.
(r) CII and each Subsidiary shall not terminate or modify any
leases, contracts, governmental licenses, permits, or other authorizations or
agreements affecting its real and/or personal properties or the operation
thereof or enter into any additional lease or contract of any nature affecting
such properties or the operation thereof.
(s) Except as contemplated by the Closing, no liens, encumbrances,
obligations or liabilities relating to CII or any Subsidiary, whether absolute
or contingent (including litigation claims), shall be discharged, satisfied or
paid, other than liabilities shown on the CII Financial Statements or the CII
Interim Financial Statements and liabilities incurred after the date thereof in
the ordinary course of business and in normal amounts, and no such discharge,
satisfaction or payment shall be effected other than in accordance with the
ordinary payment terms relating to the liability discharged, satisfied or paid.
(t) Neither CII nor any Subsidiary shall make any change in any
method of accounting or accounting principles or practices.
Section 8.3 Access. Prior to the Closing Date, CII shall provide the
----------- ------
New Investors and their representatives with full access to, and will make
available for inspection and review, all properties, personnel, books, records
and accounts of CII and its Subsidiaries in order that each New Investor may
have full opportunity to make such investigation as each shall desire to make of
the affairs of CII and its Subsidiaries. It is understood that the New
Investors shall be permitted to maintain personnel on the premises of CII and
its Subsidiaries during customary business hours to observe all aspects of the
operations of CII and its Subsidiaries and to confer with their management,
attorneys and other third parties reasonably requested for verification of any
information obtained pursuant to such observations. CII also consents to the
examination by Ernst & Young of workpapers and other records of its accountants
pertaining to CII and its Subsidiaries.
Section 8.4 Certain Financial Information. In connection with the
----------- -----------------------------
Notes Deal, CII shall use its reasonable best efforts to furnish to the New
Investors on a timely basis, or cause CII's independent accountants to furnish
to the New Investors on a timely basis, (a) audited financial statements for CII
for the years ended December 31, 1996, 1995 and 1994 and, to the extent
necessary in connection with the Notes Deal, unaudited interim financial
statements for CII for any interim financial reporting period ending on or prior
to the Closing, each of which shall be prepared in accordance with the
requirements of Regulation S-X of the Securities Act, and (b) the consent of
CII's independent accountants to the use of their reports thereon. All expenses
and liabilities in connection with the preparation of such financial statements
and such filing shall be responsibility of CII (but such expenses and
liabilities will not be included as accrued expenses in calculating the Net
Working Capital Amount).
-38-
Section 8.5 Transfer of Restricted Securities.
----------- ---------------------------------
(a) Restricted Securities are transferable only pursuant to (i)
public offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A
of the Securities and Exchange Commission (or any similar rule or rules then in
force) if such rule is available and (iii) subject to the conditions specified
in Section 8.5(b) below, any other legally available means of transfer.
(b) In connection with the transfer of any Restricted Securities
(other than a transfer described in clauses (i) or (ii) of Section 8.5(a)
above), the holder thereof shall deliver written notice to CII describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
counsel which (to the reasonable satisfaction of CII) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities
delivers to CII an opinion of counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act, CII
shall promptly upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
Section 8.5(e). If CII is not required to deliver new certificates for such
Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to CII in
writing its agreement to be bound by the conditions contained in this Section
8.5(b) and Section 8.5(e) below.
(c) Upon the request of any party, CII shall promptly supply to such
party or its prospective transferees all information regarding CII required to
be delivered in connection with a transfer pursuant to Rule 144A of the
Securities and Exchange Commission.
(d) If any Restricted Securities become eligible for sale pursuant to
Rule 144(k), CII shall, upon the request of the holder of such Restricted
Securities, remove the legend set forth in Section 8.5(e) below from the
certificates for such Restricted Securities.
(e) Each certificate or instrument representing Restricted Securities
shall be imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON [INSERT CLOSING DATE] AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY STATE SECURITIES LAWS. THE TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE RECAPITALIZATION
AGREEMENT, DATED OF AUGUST 4, 1997, AS AMENDED AND
MODIFIED FROM TIME TO TIME, BY AND AMONG THE ISSUER AND
CERTAIN INVESTORS, AND THE ISSUER RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED
BY THE ISSUER TO THE
-39-
HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW INVESTORS
----------------------------------------------------
All obligations of the New Investors that are to be discharged under
this Agreement at the Closing are subject to CII's and the Redeeming
Stockholders' fulfillment, at the Closing or effective as of the Closing Date,
of each of the following conditions (unless expressly waived in writing by CHS
at any time at or prior to the Closing) and CII and each Redeeming Stockholder
shall use their reasonable efforts to cause each of such conditions to be
satisfied:
Section 9.1 Representations and Warranties. On the Closing Date,
----------- ------------------------------
the representations and warranties of CII and the Redeeming Stockholders set
forth in Articles V and VI of this Agreement shall be true and correct in all
material respects as though such representations and warranties had been made by
CII and the Redeeming Stockholders on and as of the Closing Date and the New
Investors shall have received at the Closing a certificate, dated the Closing
Date, signed by the President or a Vice President of CII to such effect.
Section 9.2 Covenants, Agreements and Conditions. CII and the
----------- ------------------------------------
Redeeming Stockholders shall have materially performed and complied with all
covenants, agreements and conditions contained in this Agreement required to be
performed by CII on or prior to the Closing Date, and the New Investors shall
have received at the Closing a certificate, dated the Closing Date, signed by
the President or a Vice President of CII to such effect.
Section 9.3 No Material Adverse Change. During the period from the
----------- --------------------------
date hereof through the Closing Date, there shall not have been any material
adverse change in the business, condition or operations of CII or any
Subsidiary.
Section 9.4 Corporate Proceedings. All corporate and other
----------- ---------------------
proceedings to be taken and all consents to be obtained in connection with the
transactions contemplated by this Agreement by CII and the Redeeming
Stockholders and all documents incident thereto shall be reasonably satisfactory
in form and substance to CHS and its counsel, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, each of whom
shall have received all such originals or certified or other copies of such
documents as either may reasonably request.
Section 9.5 Proceedings. No action or proceeding shall be pending
----------- -----------
or threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 9.6 Governmental Approvals. There shall have been received
----------- ----------------------
all necessary governmental consents or authorizations required in connection
with the transactions contemplated hereby.
Section 9.7 Insurance. CII shall have maintained in full force and
----------- ---------
effect the insurance coverage described on Schedule 5.17 hereto or policies
-------------
providing substantially equivalent coverage.
-40-
Section 9.8 Deliveries. CII shall have delivered to the New
----------- ----------
Investors and other designated parties, as applicable, the items referred to in
Section 3.10.
Section 9.9 Customer Relationships. Since the date of the CII
----------- ----------------------
Interim Financial Statements, CII's and its Subsidiaries' relationships with its
customers shall not have undergone a material adverse change, as determined by
CHS in its reasonable discretion.
Section 9.10 Tax Status Certification. The New Investors shall have
------------ ------------------------
received a certificate, signed by an authorized officer of CII and dated within
15 days of Closing, pursuant to Section 1445(b) of the Code and Treasury
Regulation Section 1.897-2 to the effect that CII is not a "United States real
property holding corporation" as defined in Section 897 of the Code.
Section 9.11 Financing. The New Investors shall have obtained on
------------ ---------
behalf of CII all of the debt and equity financing required in order to
consummate the transactions contemplated hereby, and to fund the working capital
requirements of CII and its Subsidiaries after the Closing, all on terms and
conditions which, in the case of the Bank Deal, are no worse to CII and its
Affiliates than the terms and conditions set forth on the Bank Deal Term Sheet,
and in the case of the Notes Deal, are no worse to CII and its Affiliates than
the terms and conditions set forth on the Notes Deal Term Sheet.
Section 9.12 Management. CII, the New Investors and members of CII's
------------ ----------
senior management team will have entered into equity agreements and arrangements
on terms and conditions which are no worse to CII and the New Investors than the
terms and conditions set forth on the term sheet to be delivered by the New
Investors to a Redeeming Stockholders' Representative on or before August 8,
1997 and then attached hereto as Exhibit G (the "Management Term Sheet").
--------- ---------------------
Section 9.13 Releases and Confirmations. Simultaneous with the
------------ --------------------------
Closing, CII shall have received releases of all liens and encumbrances held by
Bank of America, Illinois ("BOA") on CII's and its Subsidiaries' real and
---
personal property and confirmation from BOA that all amounts owed under the Loan
Agreement as amended to date between BOA and Communications Instruments, Inc.
(the "BOA Loan Agreement") have been paid in full.
------------------
Section 9.14 Third Party Consents. All consents by third parties
------------ --------------------
that are required for the consummation of the transactions contemplated hereby
or that are required in order to prevent a breach of, a default under, a
termination or modification of, or any acceleration of, any obligations under
any material contract to which CII or any of its Subsidiaries is a party shall
have been obtained, all on terms reasonably satisfactory to the CHS.
Section 9.15 Other Lien Releases. Payoff letters with respect to all
------------ -------------------
Debt outstanding as of the Closing and releases of any and all related liens
(including appropriate UCC termination statements) held by third parties against
property of CII and its Subsidiaries shall have been obtained.
Section 9.16 Legal Opinion. The New Investors shall have received an
------------ -------------
opinion, dated the Closing Date, of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to CII
and the Redeeming Stockholders, substantially in the form of Exhibit H attached
---------
hereto.
-41-
Section 9.17 Stock Split and Charter Amendment. CII's certificate of
------------ ---------------------------------
incorporation shall have been amended to include the provisions set forth in
Exhibit B hereto and to effectuate the Stock Split, shall be in full force and
---------
effect under the laws of the State of Delaware as of the Closing as so amended,
and shall not have been further amended or modified.
Section 9.18 Real Property.
------------ -------------
(a) With respect to each material Lease, CII shall have received an
estoppel, consent and nondisturbance agreement in form and substance reasonably
satisfactory to CII's lenders.
(b) The New Investors shall have received from each of CII, its
Subsidiaries and the Redeeming Stockholders an affidavit (1) stating that such
party is not a "foreign person", as defined in Section 1445(f)(3) of the
Internal Revenue Code, (2) setting forth such party's taxpayer identification
number, and (3) granting the New Investors permission to furnish a copy of such
affidavit to the Internal Revenue Service.
Section 9.19 Current Disputes. CHS shall be reasonably satisfied
------------ ----------------
with the status of the disputes between CII and Metric Systems Corporation, CII
and GEC Marconi, and CII and ECC (each of which is referenced on Schedule 5.13)
-------------
the amounts accrued on CII's books and records with respect to such disputes,
which accruals will be taken into account in the calculation of the Net Working
Capital Amount.
ARTICLE X--CONDITIONS PRECEDENT TO OBLIGATIONS OF CII
------------------------------------------
AND THE REDEEMING STOCKHOLDERS
------------------------------
All obligations of CII and the Redeeming Stockholders that are to be
discharged under this Agreement at the Closing are subject to the New Investors'
fulfillment at the Closing or effective as of the Closing Date of each of the
following conditions (unless expressly waived in writing by CII at any time at
or prior to the Closing) and the New Investors shall use their reasonable
efforts to cause each of such conditions to be satisfied:
Section 10.1 Representations and Warranties. On the Closing Date,
------------ ------------------------------
the representations and warranties of the New Investors set forth in Article VII
of this Agreement shall be true and correct in all material respects as though
such representations and warranties had been made on and as of the Closing Date,
and CII shall have received at the Closing a certificate, dated the Closing
Date, signed by the New Investors to such effect.
Section 10.2 Covenants, Agreements and Conditions. The New
------------ ------------------------------------
Investors shall have performed and complied in all material respects with all
covenants, agreements and conditions contained in this Agreement required to be
performed by them on or prior to the Closing Date, and CII shall have received
at the Closing a certificate, dated the Closing Date, signed by the New
Investors to such effect.
-42-
Section 10.3 Proceedings. No action or proceeding shall be pending
------------ -----------
or threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 10.4 Corporate Proceedings. All corporate and other
------------ ---------------------
proceedings to be taken and all consents to be obtained in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to CII and its counsel,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, each of whom shall have received all such originals
or certified or other copies of such documents as either may reasonably request.
Section 10.5 Governmental Approvals. There shall have been received
------------ ----------------------
all necessary governmental consents or authorizations required in connection
with the transactions contemplated hereby.
Section 10.6 Deliveries. CII shall have delivered to the Redeeming
------------ ----------
Stockholders, the Escrow Agent and other designated parties, as applicable, the
items referred to in Section 3.13.
ARTICLE XI--OTHER MATTERS
-------------
Section 11.1 Confidentiality.
------------ ---------------
(a) From and until the Closing and, in the event this Agreement is
terminated before the Closing, from and after the date of such termination, each
party hereto and his, her or its respective accountants, attorneys, employees
and other agents, will keep confidential all information, oral and written,
obtained from any other party hereto or its Affiliates and refrain from using in
any manner all information set forth above not otherwise publicly available.
(b) The Redeeming Stockholders agree that, except in the ordinary
course of business of CII and any Subsidiaries, at all times from and after the
Closing Date, they shall keep secret and retain in strictest confidence, and
shall not use for their benefit or for the benefit of others, confidential
information with respect to CII and its Subsidiaries, including but not limited
to, "know-how," trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans other than any of the foregoing which
are in the public domain (except through conduct of any such Stockholder which
violates this Section 11.1) prior to any disclosure by such Redeeming
Stockholders.
Section 11.2 Further Assurances. Each party hereto shall cooperate
------------ ------------------
with the others, and execute and deliver, or cause to be executed and delivered,
all such other instruments, including instruments of conveyance, assignment and
transfer, and take all such other actions as may be reasonably requested by the
other parties hereto from time to time, consistent with the terms of this
Agreement, to effectuate the purposes and provisions of this Agreement.
-43-
ARTICLE XII--TERMINATION
-----------
Section 12.1 Methods of Termination. This Agreement may be
------------ ----------------------
terminated at any time prior to the Closing, notwithstanding stockholder
approval:
(a) by the mutual consent of CHS and CII;
(b) by CII at any time after August 12, 1997 if (i) neither the Bank
Deal Term Sheet nor the Notes Deal Term Sheet has been delivered to a Redeeming
Stockholders' Representative on or prior to such date or (ii) the Management
Term Sheet has not been delivered to a Redeeming Stockholders' Representative on
or prior to such date;
(c) by CHS at any time after September 30, 1997 if any of the
conditions provided for in Article IX of this Agreement shall not have been met
prior to such date or at any earlier date specified in such Article;
(d) by CII at any time after September 30, 1997 if any of the
conditions provided for in Article X of this Agreement shall not have been met
prior to such date or at any earlier date specified in such Article; or
(e) at any time prior to the Closing by either CII or CHS if the
Recapitalization shall not have been consummated by September 30, 1997.
Section 12.2 Procedure Upon Termination. In the event of
------------ --------------------------
termination by CHS, CII, or both, pursuant to this Article XII, written notice
thereof shall promptly be given to the other party or parties and the
obligations of the New Investors, the Redeeming Stockholders and CII under this
Agreement shall, except as set forth below, terminate without further action.
Upon any such termination:
(a) each party will redeliver all documents, workpapers and other
materials of the other party or parties relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party or parties furnishing the same;
(b) all information received by any of the parties shall be kept
confidential in accordance with Section 11.1; and
(c) no party shall have any liability or further obligation to any
other party, except for such legal and equitable rights and remedies as any
party may have under this Agreement or otherwise, by reason of any breach or
violation of this Agreement by the other party.
ARTICLE XIII--MISCELLANEOUS
-------------
Section 13.1 Survival of Representations, Warranties and Agreements.
------------ ------------------------------------------------------
All representations and warranties of the New Investors, CII and the Redeeming
Stockholders contained in Articles V, VI and VII herein and in any certificate
executed and delivered by any New Investor
-44-
or CII in connection with this Agreement shall survive the Closing Date (and
shall not be affected by any examination made for or on behalf of any party, the
knowledge of such party or the acceptance of any certificate or opinion) and
shall terminate and expire on the first anniversary of the date hereof;
provided, however, the representations contained in Sections 5.10 and 5.20 shall
-------- -------
survive the Closing Date and terminate and expire three (3) years thereafter,
and the representations contained in the Special Provisions (as hereinafter
defined) and the first two sentences of Section 7.2 shall survive forever.
Notwithstanding any implication to the contrary contained in this Agreement, so
long as notice of a claim is provided before the applicable termination date (if
any) (but subject to any other limitations set forth in this Agreement), the
party providing such notice shall be entitled to indemnification with respect to
the matters which are the subject of such claim.
Section 13.2 Service of Process. Service of process on CII, the
------------ ------------------
Redeeming Stockholders or the New Investors for any claim, legal action or
proceeding under this Agreement may be made in the manner set forth in Section
13.3.
Section 13.3 Notices. All notices, requests, consents and other
------------ -------
communications hereunder shall be deemed given if delivered personally
(including by courier), telecopied (which is confirmed) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses or to other such addresses as may be furnished in writing by one party
to the others:
(a) if to CII (prior to Closing):
c/o Stonebridge Partners
Westchester Financial Center
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
(b) if to any Redeeming Stockholder:
c/o CII Associates, L.P.
Westchester Financial Center
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
with a copy to:
-▇▇-
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
(c) if to CII (after the Closing) or if to any New Investor:
c/o Code, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Perl, Esquire
Section 13.4 Governing Law. This Agreement shall be governed by, and
------------ -------------
construed in accordance with, the laws of the State of New York, without regard
to such jurisdiction's conflicts of laws principles.
Section 13.5 Modification; Waiver. This Agreement shall not be
------------ --------------------
altered or otherwise amended except pursuant to an instrument in writing signed
by CHS, CII and a Redeeming Stockholders' Representative. Any party may waive
any misrepresentation by any other party, or any breach of warranty by, or
failure to perform any covenant, obligation or agreement of, any other party,
provided that mere inaction or failure to exercise any right, remedy or option
--------
under this Agreement, or delaying in exercising the same, will not operate as
nor shall be construed as a waiver, and no waiver will be effective unless set
forth in writing and only to the extent specifically stated therein.
Section 13.6 Entire Agreement. This Agreement and any other
------------ ----------------
agreements or certificates delivered pursuant hereto constitute the entire
agreement of the parties hereto with respect to the matters contemplated hereby
and supersede all previous written or oral negotiations, commitments,
representations and agreements.
Section 13.7 Assignment; Successors and Assigns.
----------- ----------------------------------
(a) By Redeeming Stockholders. This Agreement may not be assigned by
-------------------------
the Redeeming Stockholders without the prior written consent of CHS.
(b) By New Investors. Prior to the Closing Date, this Agreement may
----------------
not be assigned by any New Investor without the prior written consent of CII and
a Redeeming Stockholders' Representative; provided that CHS shall have the
right, in its sole discretion, to assign
-46-
its right (but not its obligation) to purchase up to 15% of the New Securities
and Purchased Securities to one or more employees, consultants, advisors or
other coinvestors of CHS or CII, and each such assignee will be deemed to be a
New Investor for all purposes hereunder; provided further that the New Investors
may assign their rights (but not their obligations) under this Agreement for
collateral security purposes to any lender providing financing to the New
Investors, CII, or any of CII's Subsidiaries and any such lender may exercise
all of the rights and remedies of the New Investors hereunder. After the
Closing, this Agreement may not be assigned by any New Investor without the
prior written consent of CHS.
(c) By CII. Prior to the Closing Date, this Agreement may not be
------
assigned by CII without the prior written consent of CHS and a Redeeming
Stockholders' Representative; provided that CII may assign its rights (but not
its obligations) under this Agreement for collateral security purposes to any
lender providing financing to the New Investors, CII, or any of CII's
Subsidiaries and any such lender may exercise all of the rights and remedies of
CII hereunder.
(d) General. All covenants, representations, warranties and
-------
agreements of the parties contained herein shall be binding upon and inure to
the benefit of their respective successors and permitted assigns.
Section 13.8 Public Announcements. Prior to the Closing, no public
------------ --------------------
announcement of the transactions contemplated hereby or of the terms hereof
shall be made by the parties to this Agreement without the written consent, such
consent not to be unreasonably withheld or delayed, of CHS, CII and a Redeeming
Stockholders' Representative, except to the extent required by law.
Section 13.9 Severability. The provisions of this Agreement are
------------ ------------
severable, and in the event that any one or more provisions are deemed illegal
or unenforceable, the remaining provisions shall remain in full force and
effect.
Section 13.10 No Third Party Beneficiary. This Agreement is intended
------------- --------------------------
and agreed to be solely for the benefit of the parties hereto and their
investors, and no other party shall accrue any benefit, claim or right of any
kind whatsoever pursuant to, under, by or through this Agreement.
Section 13.11 Expenses. Except as otherwise expressly provided
------------- --------
herein, each party to this Agreement will pay his, her or its own expenses in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated
herein; provided that all sales and other transfer taxes and the like arising
from the Recapitalization shall be paid by CII (but such fees and expenses will
not be included as accrued expenses in calculating the Net Working Capital
Amount). All fees and expenses of Richland, ▇▇▇▇▇▇ & Company, 9330 Sears Tower,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ shall be paid by CII (but such fees
and expenses will not be included as accrued expenses in calculating the Net
Working Capital Amount). All fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
Co., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ shall be paid by the Redeeming
Stockholders. To the extent CII or any of its Subsidiaries is liable as of the
Closing to pay the expenses of the Redeeming Stockholders in connection with the
transactions contemplated by this Agreement (other than expenses of the New
Investors) which expenses are not paid directly by the Redeeming Stockholders,
such accrued expenses shall be taken into account as reductions in the Net
Working
-▇▇-
▇▇▇▇▇▇▇ ▇▇▇▇▇▇. To the extent CII or any of its Subsidiaries is liable as of
the Closing to pay the expenses of the New Investors in connection with the
transactions contemplated by this Agreement (other than expenses of the
Redeeming Stockholders) which expenses are not paid directly by the New
Investors, such accrued expenses shall not be taken into account as reductions
in the Net Working Capital Amount.
Section 13.12 Execution in Counterpart. This Agreement may be
------------- ------------------------
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same instrument.
Section 13.13 Certain Assurances. By their signature below, the
------------- ------------------
Redeeming Stockholders agree to take any and all action required of such
Redeeming Stockholders pursuant to this Agreement, to vote in favor of the
Recapitalization and to use their best efforts to cause the Recapitalization to
occur.
Section 13.14 Limitation of Liability.
------------- -----------------------
(a) Recovery by the New Investors and CII for Losses (as defined in
the Indemnification and Escrow Agreement) pursuant to (x) breaches of
representations or warranties contained in this Agreement, except the first two
sentences of Section 5.2, Sections 5.5, 5.6, 6.1 and the first two sentences of
Section 6.2 (the "Special Provisions"), and (y) unintentional breaches of
------------------
covenants contained Sections 8.1, 8.2, 8.3 or 8.4, shall be limited to (i)
$5,000,000 for the period from the Closing Date to the first anniversary
thereof, (ii) $3,000,000 for the period from the first anniversary of the
Closing Date to the second anniversary of the Closing Date and (iii) $1,000,000
for the period from the second anniversary of the Closing Date to the third
anniversary of the Closing Date. The New Investors and CII may only assert a
claim for a breach of representation or warranty contained in this Agreement
(other than the Special Provisions) or for an unintentional breach of a covenant
contained Sections 8.1, 8.2, 8.3 or 8.4 if aggregate Losses (net of insurance
recoveries, including title insurance, and tax benefits actually received, and
increased by increased insurance premiums actually paid and in the case of a
Loss relating to additional taxes, reduced by the present value of future tax
benefits related thereto) exceed $500,000 and then only for the amount in excess
of $500,000. Except with respect to the representations and warranties
contained in Sections 5.7 and 5.9(c), Losses that give rise to an
indemnification claim shall not be limited by any warranty in this Agreement
that is limited by materiality or Material Adverse Effect (i.e., the existence
or magnitude of a breach of representation, warranty, covenant or agreement
shall be determined without regard for any qualifications in the text of such
representation, warranty, covenant or agreement to the words "materiality,"
"Material Adverse Effect" or terms of similar import). No Loss that would give
rise to an indemnification claim will be reimbursable to the extent provision
therefor shall have been made in the form of a liability, a reserve or a
provision on the Working Capital Statement.
(b) From and after the Closing, the sole recourse and exclusive
remedy of the New Investors and CII pursuant to this Agreement (other than the
Special Provisions) shall be to assert a claim for indemnification under the
Indemnification and Escrow Agreement.
-48-
(c) Amounts paid to or on behalf of Redeeming Stockholders, New
Investors or CII as indemnification shall be treated as adjustments to the
Redemption Consideration.
(d) Effective upon the Closing, each Redeeming Stockholder hereby
discharges CII and its Subsidiaries from any and all liabilities and obligations
to such Redeeming Stockholder in his capacity as Redeeming Stockholder
hereunder, as a stockholder, officer or director of CII or its Subsidiaries or
otherwise in respect of rights of contribution or indemnification other than
compensation as an employee of CII or its Subsidiaries and other than in
connection with the Recapitalization effected hereby.
(e) In no event shall CII or its Subsidiaries have any liability
whatsoever for any breaches of the representations, warranties, agreements or
covenants of CII, and the Redeeming Stockholders shall in no event seek
contribution from CII or any Subsidiary for any such breaches or in respect of
any other payments required to be made by the Redeeming Stockholders pursuant to
this Agreement or the Indemnification and Escrow Agreement.
Section 13.15 Arbitration. Except as provided in Section 3.8, any
------------- -----------
party shall have the right to submit any dispute, controversy or claim arising
out of this Agreement to neutral binding arbitration in Chicago, Illinois. The
matter shall be heard before a single partner of Price, Waterhouse & Co. in
Chicago, Illinois. Any party requesting arbitration shall give notice to the
other party stating the issue to be resolved. The decision of the arbitrator
shall be based solely upon the written submission to the arbitrator and shall be
final and binding on both parties, with each party or parties bearing its own
costs and expenses with respect to the dispute. Each party hereby consents to
the entry of a judgment in any court of competent jurisdiction enforcing any
arbitration decision made in accordance herewith.
Section 13.16 Construction. Any reference to any federal, state,
------------- ------------
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
---------
that each representation, warranty, and covenant contained herein shall have
independent significance.
Section 13.17 Specific Performance. Each Redeeming Stockholder
------------- --------------------
acknowledges that CII's business is unique and recognizes and affirms that in
the event of a breach of this Agreement by such Redeeming Stockholder, money
damages may be inadequate and the New Investors may have no adequate remedy at
law. Accordingly, each Redeeming Stockholder agrees that the New Investors
shall have the right, in addition to any other rights and remedies existing in
its favor, to enforce its rights in an arbitration applying for specific
performance.
Section 13.18 Exclusivity. Until this Agreement is terminated by its
------------- -----------
terms, neither CII nor any Redeeming Stockholder (and neither CII nor any
Redeeming Stockholder shall cause or permit any agent or any other Person acting
on behalf of any Redeeming Stockholder, CII, or its affiliates to), (a) solicit,
initiate or encourage the submission of any proposal or offer from any Person
(including any of them) relating to any (i) liquidation, dissolution or
recapitalization of, (ii) merger or consolidation with or into, (iii)
acquisition or purchase of assets of or any equity interest in or (iv) similar
transaction or business combination involving CII or (b) participate in any
-49-
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any other Person to do or seek any of the foregoing. CII and each
Redeeming Stockholder agrees that it will discontinue immediately any
negotiations or discussion with respect to any of the foregoing. Until this
Agreement is terminated by its terms, the Redeeming Stockholders and CII shall
notify the CHS immediately if any Person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
Section 13.19 Understanding Among New Investors. The determination of
------------- ---------------------------------
each New Investor to purchase the New Securities and Purchased Securities
pursuant to this Agreement has been made by such New Investor independent of any
other New Investor and independent of any statements or opinions as to the
advisability of such purchase or as to the properties, business, prospects or
condition (financial or otherwise) of CII and its Subsidiaries which may have
been made or given by any other New Investor or by any agent or employee of any
other New Investor. In addition, it is acknowledged by each of the other New
Investors that CHS has not acted as an agent of such New Investor in connection
with making its investment hereunder and that, except as provided in Section
2.2, CHS shall not be acting as an agent of such New Investor in connection with
monitoring its investment hereunder.
* * * * *
-50-
IN WITNESS WHEREOF, the parties hereto have caused this
Recapitalization Agreement to be duly executed as of the date above written:
New Investors
-------------
CODE, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ III, L.P.
By: CHS Management III, L.P.
Its: General Partner
By: Code, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
Inc.
Its: General Partner
By:___________________________________
Name:
Title:
CII
---
CII TECHNOLOGIES, INC.
By:____________________________________
Name:
Title:
[CONTINUATION OF SIGNATURE PAGE TO RECAPITALIZATION AGREEMENT]
Redeeming Stockholders
----------------------
CII ASSOCIATES, L.P.
By:_______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
General Partner
__________________________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
__________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
__________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇ ▇▇▇▇▇▇
__________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
__________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇
__________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
__________________________________
G. ▇▇▇ ▇▇▇▇▇▇
Schedule of New Investors
-------------------------
Bank Deal Notes Deal
------------------------------------------------- ----------------------------------------------
Common Stock Common Stock
---------------------- -------------------
Total Total
Purchase Purchase
New Investor Shares Price Junior Notes Price Shares Price Junior Notes Price
--------------------------------- --------- ----------- ------------ ----------- -------- --------- ------------ ----------
Code ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ III, L.P. 1,093,200 $10,932,000 $16,398,000 $27,330,000 893,200 $8,932,000 $13,398,000 22,330,000
--------------------------------- --------- ----------- ------------ ----------- -------- ---------- ------------ ----------
TOTAL 1,093,200 $10,932,000 $16,398,000 $27,330,000 893,200 $8,932,000 $13,398,000 22,330,000
SCHEDULE OF REDEEMING STOCKHOLDERS
----------------------------------
SHARES OF COMMON COMMON NEW SHARES OF COMMON
SHARES OF PREFERRED STOCK HELD PERCENTAGE COMMON STOCK PREFERRED STOCK STOCK RETAINED
REDEEMING STOCKHOLDER STOCK HELD (BEFORE SPLIT) INTEREST ROLLOVER AMOUNT ROLLOVER AMOUNT (AFTER SPLIT)
----------------------- ------------------- ---------------- ----------- ----------------- ----------------- ----------------
CII ASSOCIATES, L.P. 80,000 86,000 84.31% $ 0 $ 0 0
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 0 500 0.49% 56,000 84,000 5,600
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 0 166.6 0.16% 24,000 36,000 2,400
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 0 3,000 2.94% 400,000 600,000 40,000
▇▇▇▇ ▇▇▇▇▇▇▇▇ 0 3,000 2.94% 0 0 0
▇▇▇▇ ▇▇▇▇▇▇ 0 1,000 0.98% 0 0 0
▇▇▇▇▇ ▇▇▇▇▇▇▇ 0 1,000 0.98% 88,000 132,000 8,800
▇▇▇▇ ▇. ▇▇▇▇▇▇ 0 166.6 0.16% 60,000 90,000 6,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 0 166.8 0.16% 20,000 30,000 2,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 0 3,000 2.94% 220,000 330,000 22,000
G. ▇▇▇ ▇▇▇▇▇▇ 0 4,000 3.92% 200,000 300,000 20,000
----------------------- ------------------- ---------------- ----------- ----------------- ----------------- ----------------
TOTAL 80,000 102,000 100.00% $1,068,000 $1,602,000 106,800
SCHEDULE 3.8
WORKING CAPITAL STATEMENT
Included Current Assets
-----------------------
Accounts Receivable XXX
Inventory XXX
Less: Inventory Fair Market Value Adjustment-▇▇▇▇▇▇▇ XXX XXX
---
Other Current Assets XXX
Less: CII Guardian Receivable XXX
Deposit-▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ XXX
Metric Advance, Net of Reserve XXX XXX
---
Total Included Current Assets (A) XXX
---
Included Current Liabilities
----------------------------
Accounts Payable XXX
Accrued Expenses XXX
Less: ELMS Reserve XXX
IPO Expense Reserve XXX
Accrued Interest XXX
Accrued Dividends XXX XXX
--- ---
Total Included Current Liabilities (B) XXX
---
Net Working Capital Amount XXX
Estimated Net Working Capital Amount XXX
---
Redemption Consideration Adjustment XXX
---
The Working Capital Statement amounts for Accounts Receivable, Other
Current Assets, Accounts Payable and Accrued Expenses shall be determined
using the same Methods and Methodologies (as defined in Section 3.8(b))
used to determine the corresponding amounts in the December 31 Balance
Sheet referred to in Section 5.7, except that accruals for vacations,
holidays, unemployment insurance and payroll related taxes shall be
computed using the Methods and Methodologies used to determine such amounts
in the Balance Sheet referred to in Section 5.8. The Working Capital
Statement amount for Inventory shall be determined using the same Methods
and Methodologies used to determine Inventory in the December 31 Balance
Sheet, including the same procedures used to determine Inventory quantities
whether it be through physical count, perpetual inventory records or other
methods. The amounts deducted from the above captions, as indicated in the
above table, shall be determined from the books and records of CII and its
Subsidiaries. The amounts required
to settle the disputes referenced in Section 9.19 above will be included in
the Working Capital Statement as an Accrued Expense. The amount to be paid
by CII with respect to the ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ obligations will be included
in the Working Capital Statement as an Accrued Expense. The Working Capital
Statement shall not include any amounts for deferred taxes; however, any
income tax benefits relating to expenses incurred by CII or any Subsidiary
(other than expenses of the New Investors) as a result of the transactions
contemplated by this Agreement which are deductible by CII, whether
realized and paid prior to or following the Closing, are to be recognized
in the Working Capital Statement either as a reduction in Income Taxes
Payable, which is included in Accrued Expenses in the above table, or as an
Income Taxes Receivable, which is included in Other Current Assets in the
above table. In preparing the Working Capital Statement, there shall not be
included any indebtedness for borrowed money or capital lease obligations,
or any accrued and unpaid interest, prepayment penalties, premiums, or
other amounts (including the success fee) payable with respect thereto, or
any amounts which are included as part of or contemplated by the
Indebtedness Payment, The Kilovac Payment, the Debt or the Management Bonus
Payment, provided, however, that any income tax benefits related to such
payments shall be reflected in the Working Capital Statement as either a
reduction in Income Taxes Payable, which is included in Accrued Expenses in
the above table, or as Income Taxes Receivable, which is included in Other
Current Assets in the above table. There shall not be included in the
Working Capital Statement any liabilities or reserves for the Fairview
facility environmental remediation matters or for fees and expenses or
Richland, ▇▇▇▇▇▇ & Company or for any other expenses incurred by CII or any
Subsidiary for (or on behalf of) the New Investors. Income tax benefits and
liabilities included in the Working Capital Statement pursuant to this
paragraph shall be computed as if CII's tax year actually ended on the
Closing Date and shall include any tax benefits or liabilities from losses
which could be carried back to earlier periods if CII's tax year actually
ended on the Closing Date.