Exhibit 99.2
PURCHASE AGREEMENT
BY AND AMONG
KADANT INC.,
▇▇▇▇▇▇▇ ACQUISITION CORP.,
THE ▇▇▇▇▇▇▇ CORPORATION,
THE PRINCIPAL SHAREHOLDERS OF THE ▇▇▇▇▇▇▇ CORPORATION
IDENTIFIED ON THE SIGNATURE PAGES HERETO
AND
CERTAIN ADDITIONAL SELLING SHAREHOLDERS AND OPTION HOLDERS OF
THE ▇▇▇▇▇▇▇ CORPORATION WHO EXECUTE JOINDER
AGREEMENTS AFTER THE DATE OF THIS AGREEMENT
April 7, 2005
TABLE OF CONTENTS
Page
ARTICLE I THE PURCHASE............................................................................................1
1.1 Purchase of the Company Shares from the Selling Shareholders...............................1
1.2 Termination of Options.....................................................................1
1.3 Alternative Merger Provisions..............................................................2
1.4 Conversion of Shares in a Merger Transaction...............................................2
1.5 Treatment of Options in a Merger Transaction...............................................2
1.6 Preliminary Allocation of Transaction Consideration and Option Consideration...............3
1.7 The Closing................................................................................3
1.8 Actions at the Closing.....................................................................3
1.9 Further Assurances.........................................................................4
1.10 Adjustments Before and After the Closing..................................................5
1.11 Payments on Account of Adjustments........................................................7
1.12 Representatives...........................................................................7
1.13 Escrow...................................................................................10
1.14 Additional Consideration.................................................................10
1.15 Withholding Obligations..................................................................12
1.16 Articles of Incorporation and By-laws....................................................13
1.17 No Further Rights........................................................................13
1.18 Closing of Transfer Books................................................................13
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS.........................................13
2.1 Organization, Qualification and Corporate Power...........................................14
2.2 Capitalization............................................................................14
2.3 Authorization.............................................................................15
2.4 Noncontravention..........................................................................15
2.5 Subsidiaries..............................................................................16
2.6 Financial Statements......................................................................17
2.7 Absence of Certain Changes................................................................17
2.8 Undisclosed Liabilities...................................................................17
2.9 Tax Matters...............................................................................18
2.10 Assets...................................................................................19
2.11 Owned Real Property......................................................................20
2.12 Real Property Leases.....................................................................22
2.13 Intellectual Property....................................................................23
2.14 Inventory................................................................................25
2.15 Contracts................................................................................26
2.16 Accounts Receivable......................................................................28
2.17 Powers of Attorney.......................................................................28
2.18 Insurance................................................................................29
2.19 Litigation...............................................................................29
2.20 Warranties...............................................................................29
2.21 Employees................................................................................29
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2.22 Employee Benefits........................................................................31
2.23 Environmental Matters....................................................................35
2.24 Legal Compliance.........................................................................35
2.25 Customers and Suppliers..................................................................36
2.26 Permits..................................................................................36
2.27 Certain Business Relationships With Affiliates...........................................36
2.28 Brokers' Fees............................................................................36
2.29 Books and Records........................................................................36
2.30 Prepayments, Prebilled Invoices and Deposits.............................................37
2.31 Controls and Procedures..................................................................37
2.32 Certain Payments; Export Law Compliance..................................................38
2.33 Disclosure...............................................................................38
ARTICLE III REPRESENTATIONS OF THE SELLERS.......................................................................38
3.1 Title.....................................................................................38
3.2 Authority.................................................................................38
3.3 Regulatory Approvals......................................................................39
3.4 Brokers...................................................................................39
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY.............................39
4.1 Organization and Corporate Power..........................................................39
4.2 Authorization of Transaction..............................................................39
4.3 Noncontravention..........................................................................39
4.4 Broker's Fees.............................................................................40
4.5 Investment Representation.................................................................40
4.6 Disclosure................................................................................40
ARTICLE V COVENANTS..............................................................................................40
5.1 Closing Efforts...........................................................................40
5.2 Governmental and Third-Party Notices and Consents.........................................40
5.3 Shareholder and Option Holder Approval....................................................41
5.4 Operation of Business.....................................................................42
5.5 Access to Information.....................................................................45
5.6 Notice of Breaches........................................................................45
5.7 Exclusivity...............................................................................45
5.8 Expenses..................................................................................46
5.9 280G Covenant.............................................................................46
5.10 Environmental Remediation................................................................46
5.11 FIRPTA Notice............................................................................47
5.12 S-X Financial Statements.................................................................47
5.13 Title Insurance..........................................................................48
5.14 Forensic Accountant Report...............................................................48
ARTICLE VI CONDITIONS TO CONSUMMATION OF STOCK TRANSACTION AND MERGER TRANSACTION................................48
6.1 Conditions to Obligations of the Buyer and the Transitory Subsidiary......................48
6.2 Conditions to Obligations of the Sellers..................................................50
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ARTICLE VII INDEMNIFICATION......................................................................................52
7.1 Indemnification by the Sellers............................................................52
7.2 Indemnification by the Buyer..............................................................53
7.3 Indemnification Claims For Third Party Actions............................................53
7.4 Indemnification Claims For Other Matters..................................................58
7.5 Survival of Representations, Warranties and Indemnification Obligations...................60
7.6 Limitations...............................................................................61
ARTICLE VIII TAX MATTERS.........................................................................................65
8.1 Preparation and Filing of Tax Returns; Payment of Taxes...................................65
8.2 Tax Indemnification by the Sellers........................................................66
8.3 Allocation of Certain Taxes...............................................................67
8.4 Cooperation on Tax Matters................................................................67
8.5 Scope of Article VIII.....................................................................68
8.6 Extensions................................................................................68
8.7 Amendment of Prior Returns................................................................69
ARTICLE IX POST-CLOSING AGREEMENTS...............................................................................69
9.1 Proprietary Information...................................................................69
9.2 No Solicitation or Hiring of Former Employees.............................................69
9.3 Non Competition Agreement.................................................................69
9.4 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Consents...................................................................70
9.5 Brazil Matters............................................................................70
ARTICLE X TERMINATION............................................................................................70
10.1 Termination of Agreement.................................................................71
10.2 Effect of Termination....................................................................71
ARTICLE XI DEFINITIONS...........................................................................................71
ARTICLE XII MISCELLANEOUS........................................................................................87
12.1 Press Releases and Announcements.........................................................87
12.2 No Third Party Beneficiaries.............................................................87
12.3 Entire Agreement.........................................................................87
12.4 Succession and Assignment................................................................87
12.5 Counterparts and Facsimile Signature.....................................................88
12.6 Headings.................................................................................88
12.7 Notices..................................................................................88
12.8 Governing Law............................................................................89
12.9 Amendments and Waivers...................................................................89
12.10 Severability............................................................................90
12.11 Submission to Jurisdiction..............................................................90
12.12 Construction............................................................................90
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Joinder Agreement
Exhibit C - Form of Opinion of Counsel to the Company and the Representatives
Exhibit D - Form of Letter of Credit
Exhibit E - Form of Option Holder Note
Schedule I Company Shareholders and Option Holders
Schedule II Consideration Payable to Sellers
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Schedule III Customer Offerings
Schedule 1.10(a) Balance Sheet Requirements
Schedule 1.10(a)(i) Calculation of Target Amount
Schedule 1.10(a)(ii) August 2004 Balance Sheet
Schedule 5.10 Remediation Activities
Schedule 5.13 Title Insurance Amounts
Schedule 6.1(a)(ix) Required Resignations
Disclosure Schedule
Seller Disclosure Schedule
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PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is entered into as of April
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7, 2005, by and among Kadant Inc., a Delaware corporation (the "Buyer"), ▇▇▇▇▇▇▇
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Acquisition Corp., a Michigan corporation and a wholly-owned subsidiary of the
Buyer (the "Transitory Subsidiary"), The ▇▇▇▇▇▇▇ Corporation, a Michigan
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corporation (the "Company"), and the shareholders of the Company identified on
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the signature pages hereto (each, a "Principal Shareholder" and, collectively,
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the "Principal Shareholders"). The Buyer, the Transitory Subsidiary, the Company
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and the Principal Shareholders are sometimes referred to herein individually as
a "Party" and collectively as the "Parties."
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This Agreement contemplates the acquisition by the Buyer of all of the
Company Shares and the termination of all of the Options of the Company (the
"Stock Transaction"). In the event the conditions precedent to the Stock
Transaction set forth in Sections 6.1(a) and 6.2(a) of this Agreement have not
been satisfied and the Stock Transaction has not been consummated on or before
May 6, 2005, this Agreement provides, in the alternative, for the merger of the
Transitory Subsidiary into the Company (the "Merger Transaction"). In the case
of a Merger Transaction, this Agreement shall constitute a Plan of Merger under
the Michigan Business Corporation Act. In either the Stock Transaction or the
Merger Transaction, the shareholders of the Company and the Option Holders of
the Company will receive cash in exchange for their Company Shares and Options.
If the Stock Transaction is consummated, the provisions of this Agreement
pertaining exclusively to a Merger Transaction shall be void and of no further
force or effect.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties hereby agree as follows.
ARTICLE I
THE PURCHASE
1.1 Purchase of the Company Shares from the Selling Shareholders.
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Subject to and upon the terms and conditions of this Agreement, at the Closing
each Selling Shareholder shall sell, transfer, convey, assign and deliver to the
Buyer, and the Buyer shall purchase, acquire and accept from each Selling
Shareholder, for the Transaction Consideration, all of the Company Shares owned
by such Selling Shareholder, as set forth opposite such Selling Shareholder's
name on Schedule I, which has been Delivered to the Buyer in Writing.
1.2 Termination of Options. Subject to and upon the terms and
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conditions of this Agreement, at the Closing each Option held by each Option
Holder shall be terminated in consideration of a cash payment equal to the
Option Consideration. As a result of such termination of the Options, no Option
Holder shall have any right, title or interest in or to the Company or any
securities of the Company or the Buyer. The Company shall take all actions
necessary or appropriate so that, as of the Closing, (a) no options, warrants or
other rights to acquire any Company Shares or any securities, debt or other
rights convertible into or exchangeable or exercisable for shares of the
Company's capital stock are outstanding, (b) no person other than the holders of
the Company Shares and/or Options, prior to the Closing, shall have any right,
title or interest in or to the ownership of the Company or any securities issued
by the Company, (c) the Selling Shareholders and Options Holders shall, on and
after the Closing,
<
>have no right, title or interest in or to the Company or any securities of the
Company, other than the right to payments of cash or other consideration in the
manner described herein, and (d) no person holding Company Shares and/or Options
or rights to acquire Company Shares and/or Options shall by virtue of any such
securities have any right to acquire any securities of the Buyer.
1.3 Alternative Merger Provisions. In the event the conditions
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precedent to the Stock Transaction set forth in Sections 6.1(a) and 6.2(a) of
this Agreement have not been satisfied and the Stock Transaction has not been
consummated on or before May 6, 2005, then, upon and subject to the terms and
conditions of this Agreement, the Transitory Subsidiary shall merge with and
into the Company at the Effective Time. From and after the Effective Time, the
separate corporate existence of the Transitory Subsidiary shall cease and the
Company shall continue as the Surviving Corporation. The Merger shall have the
effects setforth in Section 724 of the Michigan Business Corporation Act.
1.4 Conversion of Shares in a Merger Transaction. In the event of a
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Merger Transaction, the following provisions shall apply:
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of any Party or the holder of any of the following
securities:
(i) Each Company Share issued and outstanding immediately
prior to the Effective Time and held by the Company Shareholders shall be
converted into the right to receive the Transaction Consideration; and
(ii) Each Company Share owned beneficially by the Buyer or the
Transitory Subsidiary shall be cancelled and retired without payment of any
consideration therefor.
(b) Each share of common stock, $0.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$0.01 par value per share, of the Surviving Corporation.
1.5 Treatment of Options in a Merger Transaction. In the event of a
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Merger Transaction, the Company shall cause each Option outstanding immediately
prior to the Effective Time and not previously exercised to be (a) terminated
upon the Effective Time; or (b) deemed cancelled and converted into the right to
receive the Option Consideration. The Company shall take all actions necessary
or appropriate so that, as of the Effective Time and as a result of the Merger,
(i) no options, warrants or other rights to acquire any Company Shares or any
securities, debt or other rights convertible into or exchangeable or exercisable
for shares of the Company's capital stock are outstanding, (ii) no person other
than the holders of the Company Shares and/or Options, prior to the Closing,
shall have any right, title or interest in or to the ownership of the Company or
the Surviving Corporation or any securities issued by the Company or the
Surviving Corporation, (iii) the holders of the Company Shares and holders of
Options shall, on and after the Closing, have no right, title or interest in or
to the Company or the Surviving Corporation or any securities of the Company or
the Surviving Corporation, other than the right to payments of cash or other
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consideration in the manner described herein, and (iv) no person holding Company
Shares and/or Options or rights to acquire Company Shares and/or Options shall
by virtue of any such securities have any right to acquire any securities of the
Buyer.
1.6 Preliminary Allocation of Transaction Consideration and Option
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Consideration. The Company has prepared and Delivered to the Buyer in Writing a
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Schedule II which is a preliminary summary of the allocation of the Transaction
Consideration to holders of Company Shares and the allocation of the Option
Consideration to the Option Holders in the event of a Merger Transaction. The
Parties acknowledge and agree that the Company and the Buyer will jointly amend
Schedule II as of the Closing to reflect (a) whether the Parties have proceeded
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with a Stock Transaction or a Merger Transaction, (b) the exercise of any
Options prior to Closing and (c) the allocation of proceeds to both holders of
Company Shares and holders of Options, in each case based on the total number of
Company Shares and Options outstanding at such time.
1.7 The Closing. The Closing shall take place at the offices of
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▇▇▇▇▇▇▇ & Boyn, LLP, Suite 400, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ at
10:00 a.m. local time on the Closing Date.
1.8 Actions at the Closing.
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(a) In the event of a Stock Transaction, at the Closing:
(i) the Company and the Sellers shall deliver to the Buyer the
various certificates, instruments and documents referred to in Section 6.1(a);
(ii) the Buyer shall deliver to the Representatives the
various certificates, instruments and documents referred to in Section 6.2(a);
(iii) each Selling Shareholder shall deliver to the Buyer
certificates evidencing the Company Shares owned by such Selling Shareholder
duly endorsed in blank or with stock powers duly executed by such Selling
Shareholder;
(iv) each Option Holder shall deliver to the Buyer for
termination the option agreements and other documentation evidencing the
Options held by such Option Holder;
(v) the Buyer shall deliver to the Representatives, for
distribution to the Selling Shareholders, an amount equal to the Transaction
Consideration multiplied by the number of Company Shares held by such Selling
Shareholders by wire transfer of immediately available funds to an account
designated by the Representatives;
(vi) the Buyer shall deliver to the Representatives, for
distribution to the Option Holders, the Aggregate Option Consideration payable
in accordance with Section 1.2 of this Agreement by wire transfer of immediately
available funds to an account designated by the Representatives; and
(vii) the Buyer, the Representatives and ▇.▇. ▇▇▇▇▇▇ Trust
Company, National Association (the "Escrow Agent") shall execute and deliver an
Escrow Agreement in the form attached hereto as Exhibit A (the "Escrow
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3
Agreement"), and the Buyer shall deposit with the Escrow Agent in accordance
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with Section 1.13 hereof the Original Escrow Deposit (the Original Escrow
Deposit, together with all amounts added thereto by the Buyer pursuant to
Sections 1.11, 1.14 and 7.6(g) of this Agreement and all accrued interest
thereon (the "Escrow Fund") and the Letter of Credit.
(b) In the event of a Merger Transaction, at the Closing:
(i) the Company and the Sellers shall deliver to the Buyer and
the Transitory Subsidiary the various certificates, instruments and documents
referred to in Section 6.1(b);
(ii) the Buyer and the Transitory Subsidiary shall deliver to
the Representatives the various certificates, instruments and documents referred
to in Section 6.2(b);
(iii) the Surviving Corporation shall file with the Secretary
of State of the State of Michigan the Certificate of Merger;
(iv) each Company Shareholder shall deliver to the Buyer for
cancellation the certificate(s) representing his, her or its Company Shares;
(v) the Buyer or the Surviving Corporation shall deliver to
the Representatives, for distribution to the Company Shareholders, an amount
equal to the Transaction Consideration multiplied by the number of Company
Shares held by such Company Shareholders by wire transfer of immediately
available funds to an account designated by the Representatives;
(vi) the Buyer or the Surviving Corporation shall deliver to
the Representatives, for distribution to the Option Holders, the Aggregate
Option Consideration payable in accordance with Section 1.5 of this Agreement
by wire transfer of immediately available funds to an account designated by the
Representatives; and
(vii) the Buyer, the Representatives and the Escrow Agent
shall execute and deliver the Escrow Agreement, and the Buyer shall (or shall
cause the Transitory Subsidiary to) deposit the Original Escrow Deposit and the
Letter of Credit with the Escrow Agent in accordance with Section 1.13 hereof.
1.9 Further Assurances. At any time and from time to time after the
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Closing, at the Buyer's request and without further consideration, each of the
Sellers shall promptly execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take all such other action as the
Buyer may reasonably request, to (a) transfer, convey and assign to the Buyer,
and to confirm the Buyer's title to, all of the Company Shares owned by the
Selling Shareholders, (b) confirm the termination of all of the Options owned by
the Option Holders, (c) put the Buyer in actual possession and operating control
of the assets, properties and business of the Company and the Subsidiaries and
(d) assist the Buyer in exercising all rights with respect thereto and to carry
out the purpose and intent of this Agreement. In the event of a Merger
Transaction the Surviving Corporation may, at any time from and after the
Effective Time, take any action, including executing and delivering any
4
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate and give effect to the Merger.
1.10 Adjustments Before and After the Closing. In either a Stock
----------------------------------------
Transaction or a Merger Transaction, the Base Purchase Price shall be subject to
adjustment as follows:
(a) Not later than ten (10) business days prior to the Closing
Date, the Company shall prepare and deliver to the Buyer (i) if the Closing
Date is on or before May 12, 2005, an audited balance sheet of the Company as of
December 31, 2004, or (ii) if the Closing Date is after May 12, 2005, an
unaudited balance sheet of the Company as of March 31, 2005 (as applicable, the
"Preliminary Closing Balance Sheet"). The Preliminary Closing Balance Sheet and
the calculation of the Net Asset Value shall be prepared in accordance with the
provisions relating to the preparation of the Closing Balance Sheet set forth in
this Section 1.10 and in accordance with the requirements set forth on Schedule
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1.10(a) attached hereto (the "Balance Sheet Requirements"). The Preliminary
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Closing Balance Sheet shall be accompanied by (i) all relevant backup materials
and schedules, in detail reasonably acceptable to the Buyer, (ii) a statement
setting forth the amount, if any, by which the estimated Net Asset Value (the
"Preliminary Net Asset Value") is greater than, or less than, the Target Amount
and (iii) a statement setting forth the calculations showing the basis for the
determination of such sums in calculating the Preliminary Net Asset Value. In
calculating the Preliminary Net Asset Value, the Preliminary Balance Sheet shall
include as liabilities the full amount of the transaction fees and expenses,
other than Public Company Fees, payable by the Company in connection with the
transactions contemplated by this Agreement, including legal and accounting
fees, to the extent such transaction fees and expenses have not been paid prior
to the date of the Preliminary Closing Balance Sheet. If the Preliminary Net
Asset Value on the Preliminary Closing Balance Sheet is (A) greater than the
Target Amount, then the difference shall be added to the Base Purchase Price, or
(B) less than the Target Amount, then the difference shall be deducted from the
Base Purchase Price (the Base Purchase Price, as so adjusted, is referred to as
the "Preliminary Base Purchase Price").
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(b) Not later than 90 calendar days after the Closing Date, the
Buyer shall deliver to the Representatives the Closing Balance Sheet. The
Closing Balance Sheet shall be prepared in accordance with (i) the Balance Sheet
Requirements and (ii) GAAP applied consistently with the Company's past
practices (to the extent such past practices are consistent with GAAP), except
that the Closing Balance Sheet may exclude all footnotes, shall be subject to
the adjustments set forth in this Section 1.10 (which shall be in addition to
and not in lieu of those required by GAAP) and shall be certified as such by the
Buyer. The Closing Balance Sheet delivered pursuant to this paragraph (b) shall
be accompanied by (A) all relevant backup materials and schedules, in detail
reasonably acceptable to the Representatives, (B) a statement setting forth the
amount, if any, by which the Net Asset Value is greater than, or less than, the
Preliminary Net Asset Value and (C) a statement setting forth the calculations
showing the basis for the determination of such sums in calculating the Net
Asset Value. The Buyer shall make such information, personnel and resources
available to the Representatives as may be reasonably necessary to enable the
Representatives to review the Closing Balance Sheet; provided that the Buyer
shall only be obligated to provide such information, personnel and resources
with reasonable prior notice and in such a manner so as not to interfere
unreasonably with the conduct of the Company's business.
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(c) In calculating the Net Asset Value, the Closing Balance Sheet
shall include as liabilities the full amount of the transaction fees and
expenses payable by the Company in connection with the transactions contemplated
by this Agreement, including legal and accounting fees, but excluding the Public
Company Fees, to the extent such transaction fees and expenses were not paid
prior to the Closing.
(d) In the event that the Representatives dispute the Closing
Balance Sheet or the calculation of the Closing Net Asset Value Adjustment,
the Representatives shall notify the Buyer in writing (the "Representatives
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Dispute Notice") of the amount, nature and basis of such dispute, within 30
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calendar days after delivery of the Closing Balance Sheet. In the event of such
a dispute, the Buyer and the Representatives shall first use their diligent good
faith efforts to resolve such dispute among themselves. If the Buyer and the
Representatives are unable to resolve the dispute within 30 calendar days after
delivery of the Representatives Dispute Notice then any remaining items in
dispute (the "Unresolved Objections") shall be submitted to the Detroit,
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Michigan office of KPMG LLP or, if such firm is unwilling or unable to serve in
such capacity, an independent nationally recognized accounting firm selected in
writing by the Representatives and the Buyer or, if the Representatives and the
Buyer fail or refuse to select such a firm within 10 calendar days after written
request therefor by the Representatives or the Buyer, such an independent
nationally recognized accounting firm shall be selected in accordance with the
rules of the Detroit, Michigan office of the AAA (the "Neutral Accountant").
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(e) The Buyer and the Representatives shall submit to the Neutral
Accountant, within 10 days after the date of the engagement of the Neutral
Accountant (as evidenced by the date of the engagement agreement), (i) copies of
the Preliminary Closing Balance Sheet, the Closing Balance Sheet, the Balance
Sheet Requirements and the Representatives Dispute Notice and (ii) a list of the
Unresolved Objections. Each of the Buyer and the Representatives shall submit to
the Neutral Accountant (with a copy delivered to the other Party on the same
day), within 30 days after the date of the engagement of the Neutral Accountant,
a memorandum (which may include supporting exhibits) setting forth their
respective positions on the Unresolved Objections. Each of the Buyer and the
Representatives may (but shall not be required to) submit to the Neutral
Accountant (with a copy delivered to the other Party on the same day), within 60
days after the date of the engagement of the Neutral Accountant, a memorandum
responding to the initial memorandum submitted to the Neutral Accountant by the
other Party. Unless requested by the Neutral Accountant in writing, neither the
Buyer nor the Representatives may present any additional information or
arguments to the Neutral Accountant, either orally or in writing; provided,
however, that each party shall have the right to respond to the Neutral
Accountant's requests directed to the other party.
(f) The Buyer and the Representatives shall instruct the Neutral
Accountant that (i) the scope of its review and authority shall be limited to
resolving the Unresolved Objections, (ii) in resolving the Unresolved
Objections, the Neutral Accountant shall accept each of the values set forth on
the Closing Balance Sheet unless the Representatives demonstrate that such value
is contrary to the requirements of the Closing Balance Sheet set forth in
Section 1.10(b) (in which case its resolution of each Unresolved Objection shall
consist of the determination of an appropriate value for each Closing Balance
Sheet item that is the subject of an Unresolved Objection, which value shall be
equal to one of, or between, the values proposed by the Buyer in the Closing
6
Balance Sheet and by the Representatives in the Representatives Dispute
Notice), and (iii) issue a ruling which sets forth the resolution of
each Unresolved Objection and includes a statement setting forth the Net Asset
Value, reflecting the Neutral Accountant's resolution of the Unresolved
Objections. All determinations pursuant to this paragraph (f) shall be in
writing and shall be delivered to the Buyer and the Representatives. The
determination of the Neutral Accountant as to the resolution of any dispute
shall be binding and conclusive upon all Parties. A judgment on the
determination made by the Neutral Accountant pursuant to this Section 1.10 may
be entered in and enforced by any court having jurisdiction thereover.
(g) The fees and expenses of the Neutral Accountant in connection
with the resolution of disputes pursuant to paragraphs (e) and (f) above shall
be shared equally by the Sellers, on the one hand, and the Buyer, on the other
hand; provided that if the Neutral Accountant determines that one such party has
adopted a position or positions with respect to the Closing Balance Sheet or the
calculation of the Closing Net Asset Value Adjustment that is frivolous or
clearly without merit, the Neutral Accountant may, in its discretion, assign a
greater portion of any such fees and expenses to such party.
(h) Immediately upon the expiration of the 30-day period for
giving the Representatives Dispute Notice if no such notice is given, or upon
notification by the Representatives to the Buyer that no such notice will be
given, or immediately upon the resolution of disputes, if any, pursuant to this
Section 1.10, the Preliminary Base Purchase Price shall be adjusted as follows
(as so adjusted, the "Adjusted Base Purchase Price"):
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(i) If the Closing Net Asset Value Adjustment is negative,
such deficiency shall be deducted from the Preliminary Base Purchase Price to
obtain the Adjusted Base Purchase Price;
(ii) If the Closing Net Asset Value Adjustment is zero, the
Adjusted Base Purchase Price shall be equal to the Preliminary Base Purchase
Price; and
(iii) If the Closing Net Asset Value Adjustment is positive,
such additional amount shall be added to the Preliminary Base Purchase Price to
obtain the Adjusted Base Purchase Price.
1.11 Payments on Account of Adjustments. The difference, if any,
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between the Adjusted Base Purchase Price and the Preliminary Base Purchase Price
shall be paid by (a) a payment from the Escrow Fund to the Buyer, in the case of
a deficiency pursuant to Section 1.10(h)(i) hereof, and (b) the payment by the
Buyer of (i) 12.5% of the amount of such surplus to the Escrow Fund and (ii)
87.5% of the amount of such surplus to the Representatives, for distribution to
the Selling Shareholders and the Option Holders, in the case of a surplus
pursuant to Section 1.10(h)(iii) hereof. Any such payment shall be made
immediately upon the expiration of the 30-day period for giving the
Representatives Dispute Notice, if no Representatives Dispute Notice is given,
or upon notification by the Representatives that no Representatives Dispute
Notice will be given, or immediately upon final resolution of any dispute in
connection with the determination of the Adjusted Base Purchase Price.
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1.12 Representatives.
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(a) In order to efficiently administer the transactions
contemplated hereby, including (i) the determination of the Net Asset Value and
Adjusted Base Purchase Price, (ii) the determination of the Revenue of the
Business Unit during the Earn-Out Period and the amount of Earn-Out
Consideration payable to the Sellers, (iii) the waiver of any condition to the
obligations of the Sellers to consummate the Stock Transaction contemplated
hereby, (iv) the waiver of any condition to the obligations of the Company
Shareholders to consummate the alternative Merger Transaction contemplated
hereby and (v) the defense and/or settlement of any claims for which any of the
Sellers may be required to indemnify the Buyer pursuant to Article VII or
Article VIII hereof, the Selling Shareholders, by their execution of or joinder
to this Agreement, the Option Holders, by their joinder to this Agreement or
acceptance of the Option Consideration, and, in the case of a Merger
Transaction, the Company Shareholders, by their approval of the Merger and the
adoption of this Agreement, hereby designate the Representatives as their
representatives. The Representatives from time to time hereunder shall make any
and all decisions in such capacity, and take or decline to take any action in
such capacity, by (and only by) majority consent of such persons.
(b) The Selling Shareholders, by their execution of or joinder to
this Agreement, the Option Holders, by their joinder to this Agreement or
acceptance of the Option Consideration, and, in the case of a Merger
Transaction, the Company Shareholders, by their approval of the Merger and the
adoption of this Agreement, hereby authorize the Representatives (i) to make all
decisions relating to the determination of the Net Asset Value and the Adjusted
Base Purchase Price, (ii) to make all decisions relating to the determination of
the Revenue of the Business Unit during the Earn-Out Period and the amount of
Earn-Out Consideration payable to the Sellers, (iii) to take all action
necessary in connection with the waiver of any condition to the obligations of
the Company or any of the Sellers to consummate the transactions contemplated
hereby, or the defense and/or settlement of any claims for which any of the
Sellers may be required to indemnify the Buyer pursuant to Article VII or
Article VIII hereof, (iv) to give and receive all notices required to be given
under the Agreement, (v) to disburse any funds received hereunder to the
applicable Sellers, (vi) to execute and deliver on behalf of the Sellers any
amendment or waiver hereto, (vii) to execute, deliver and perform the Escrow
Agreement in connection with the transactions contemplated hereby, (viii) to
withhold funds to pay Company or Seller related expenses and obligations, (ix)
to do each and every act and exercise any and all rights which any of the
Sellers are permitted or required to do or exercise under this Agreement, (x) to
resolve claims under the Escrow Agreement on behalf of the Sellers, and (xi) to
take any and all additional action as is contemplated to be taken by or on
behalf of any of the Sellers by the terms of this Agreement.
(c) In the event that a Representative becomes unable to perform
his responsibilities hereunder or resigns from such position, the remaining
Representatives shall appoint a replacement. In the event the remaining
Representatives fail to appoint a replacement within ten (10) days of the
vacancy or more than one of the Representatives become unable to perform his
responsibilities hereunder or resigns from such position, the Selling
Stockholders (acting by the vote of the Selling Stockholders who immediately
prior to the Closing held at least a majority of the outstanding voting Company
Shares) shall select the other representative(s) to fill the vacancies of the
Representatives and such substituted representatives shall be deemed to be
Representatives for all purposes of this Agreement and the documents delivered
pursuant hereto. The Representatives shall have the power to appoint up to two
(2) additional persons to serve as Representatives at any time, which
8
appointment shall be effective only after notice thereof has been provided to
the Selling Shareholders and the Buyer.
(d) All decisions and actions by majority action of the
Representatives, including without limitation any agreement between the
Representatives and the Buyer relating to (i) the determination of the Net Asset
Value and the Adjusted Base Purchase Price, (ii) the determination of the
Revenue of the Business Unit during the Earn-Out Period and the amount of
Earn-Out Consideration payable to the Sellers, or (iii) the defense or
settlement of any claims for which any of the Sellers may be required to
indemnify the Buyer pursuant to Article VII or Article VIII hereof, shall be
binding upon all of the Sellers, and no Seller shall have the right to object,
dissent, protest or otherwise contest the same.
(e) The Selling Shareholders, by their execution of or joinder to
this Agreement, the Option Holders, by their joinder to this Agreement or
acceptance of the Option Consideration, and, in the case of a Merger
Transaction, the Company Shareholders, by their approval of the Merger and the
adoption of this Agreement, agree that:
(i) the Buyer shall be able to rely conclusively on the
instructions and decisions of a majority of the Representatives as to (A) the
determination of the Net Asset Value and the Adjusted Base Purchase Price, (B)
the determination of the Revenue of the Business Unit during the Earn-Out Period
and the amount of Earn-Out Consideration payable to the Sellers, (C) the
settlement of any claims for indemnification by or against the Buyer pursuant to
Article VII or Article VIII hereof or (D) any other actions required or
permitted to be taken by the Representatives hereunder, and no party shall have
any cause of action against the Buyer for any action taken by the Buyer in
reliance upon the instructions or decisions of the Representatives;
(ii) all actions, decisions and instructions of the
Representatives shall be conclusive and binding upon all of the Sellers and no
Seller shall have any cause of action against the Representatives for any action
taken, decision made or instruction given by the Representatives under this
Agreement, except for fraud or willful breach of this Agreement by the
Representatives;
(iii) the provisions of this Section 1.12 are independent and
severable, are irrevocable and coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any Seller may have in connection
with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the
provisions of this Section 1.12 may be inadequate; therefore, the Buyer shall be
entitled to seek temporary and permanent injunctive relief without the necessity
of proving damages if the Buyer brings an action to enforce the provisions of
this Section 1.12; and
(v) the provisions of this Section 1.12 shall be binding upon
the executors, heirs, legal representatives, personal representatives,
successors and permitted assigns of each Seller, and any references in this
Agreement to a Seller shall mean and include the successors to the Seller's
rights hereunder, whether pursuant to testamentary disposition, the laws of
descent and distribution or otherwise.
9
1.13 Escrow.
------
(a) On the Closing Date, the Buyer shall deliver to the Escrow
Agent a wire transfer in the amount of the Original Escrow Deposit, which amount
shall be deemed withheld from the Transaction Consideration and the Aggregate
Option Consideration and shall be deposited with the Escrow Agent for the
purpose of securing the indemnification obligations of the Sellers set forth in
this Agreement and satisfying the adjustments to the Base Purchase Price set
forth in Sections 1.10 and 1.11 hereof. The Escrow Fund shall be deemed to have
been withheld from each Seller pro rata in the same proportion as the total
amount of Transaction Consideration and Option Consideration payable to such
Seller under this Agreement bears to the total amount of Transaction
Consideration and Option Consideration payable to all Sellers pursuant to this
Agreement. The Escrow Fund shall be held by the Escrow Agent under the Escrow
Agreement pursuant to the terms thereof. The Escrow Fund shall be held as a
trust fund and shall not be subject to any lien, attachment, trustee process or
any other judicial process of any creditor of any party, and shall be held and
disbursed solely for the purposes and in accordance with the terms of the Escrow
Agreement.
(b) On the Closing Date, the Buyer shall deliver to the Escrow
Agent the Letter of Credit. The Letter of Credit shall be increased or
decreased, as the case may be, in accordance with the provisions of the Escrow
Agreement. The Transaction Consideration and the Aggregate Option Consideration
otherwise payable at the Closing, and any adjustment thereto payable pursuant to
Section 1.11, shall be reduced by the amount of the Letter of Credit, as such
Letter of Credit may be amended in accordance with the provisions of this
Section 1.13(b) and the Escrow Agreement, and shall be deemed to have been
withheld from each Seller pro rata in the same proportion as the total amount of
Transaction Consideration and Option Consideration payable to such Seller under
this Agreement bears to the total amount of Transaction Consideration and Option
Consideration payable to all Sellers pursuant to this Agreement. The Letter of
Credit shall be held by the Escrow Agent under the Escrow Agreement pursuant to
the terms thereof. The Letter of Credit shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party, and shall be held and drawn upon solely for the purposes and in
accordance with the terms of the Escrow Agreement.
1.14 Additional Consideration.
------------------------
(a) If, during the Earn-Out Period, the Buyer achieves Revenue
from the Business Unit equal to or exceeding the Earn-Out Threshold, then,
subject to the provisions of this Section 1.14, the Sellers shall be entitled to
receive Earn-Out Consideration in accordance with the provisions of this Section
1.14. No Seller shall be permitted to assign such Seller's right to receive the
Earn-Out Consideration to any third party, except: (i) by operation of law, (ii)
to a trust in which the Seller is the grantor, the trustee and the primary
intervivos beneficiary, or (iii) upon the death of a Seller, pursuant to the
terms of such Seller's will, in each case to the extent permitted by applicable
securities laws.
(b) No later than the date that is 90 days after the end of the
Earn-Out Period, the Buyer shall prepare (or cause to be prepared) and deliver
to the Representatives a calculation of the Revenue for the Earn-Out Period and
a statement of the amount, if any, of the Earn-Out Consideration payable based
on such Revenue, together with such documentation, if any, as may be
10
reasonably necessary to enable the Representatives to assess such calculation.
After receipt from the Buyer of the calculation of the Revenue for the Earn-Out
Period, the Representatives shall have the right, at the expense of the Sellers
and upon not less than ten (10) days' prior notice to the Buyer, to meet with
the Buyer to discuss the Buyer's calculation and have reasonable access during
normal business hours to inspect the records and working papers relating to the
calculation of such Revenue, solely for the purpose of verifying the calculation
of the Revenue hereunder. Unless the Representatives challenge the Buyer's
determination of the Revenue by the delivery of an Earn-Out Dispute Notice
within 60 days after the Buyer's delivery of the calculation of the Revenue for
the Earn-Out Period, the Buyer's determination shall be conclusive and binding
for all purposes of this Agreement.
(c) In the event that the Representatives dispute the Buyer's
determination of the Revenue for the Earn-Out Period, the Representatives shall
so notify the Buyer by delivering an Earn-Out Dispute Notice to the Buyer within
the period provided in paragraph (b) above. In the event of such a dispute, the
Buyer and the Representatives shall first use diligent good faith efforts to
resolve such dispute among themselves. If they are unable to resolve the dispute
within thirty (30) days after the delivery of the Earn-Out Dispute Notice, then
the dispute shall be submitted to the Neutral Accountant for determination in
accordance with the following provisions:
(i) The Buyer and the Representatives shall submit to the
Neutral Accountant, within 10 days after the date of the engagement of the
Neutral Accountant (as evidenced by the date of the engagement letter), copies
of (A) the Buyer's calculation of the Revenue for the Earn-Out Period, (B) the
Earn-Out Dispute Notice and (C) a list of all unresolved objections raised by
the Representatives with respect to the calculation of the Revenue for the
Earn-Out Period (the "Unresolved Earn-Out Objections"). Each of the Buyer and
the Representatives shall submit to the Neutral Accountant (with a copy
delivered to the other Party on the same day), within 30 days after the date of
the engagement of the Neutral Accountant, a memorandum (which may include
supporting exhibits) setting forth their respective positions on the Unresolved
Earn-Out Objections. Each of the Buyer and the Representatives may (but shall
not be required to) submit to the Neutral Accountant (with a copy delivered to
the other Party on the same day), within 60 days after the date of the
engagement of the Neutral Accountant, a memorandum responding to the initial
memorandum submitted to the Neutral Accountant by the other Party. Unless
requested by the Neutral Accountant in writing, neither the Buyer nor the
Representatives may present any additional information or arguments to the
Neutral Accountant, either orally or in writing; provided, however, that each
party shall have the right to respond to the Neutral Accountant's requests
directed to the other party.
(ii) The Neutral Accountant shall prepare and distribute to
the parties a writing setting forth the Neutral Accountant's determination of
the Revenue for the Earn-Out Period and the Neutral Accountant's reasons
therefor. Any decision rendered by the Neutral Accountant shall be final,
conclusive and binding upon the parties, and judgment thereon may be entered and
enforced in any court of competent jurisdiction.
(iii) The Neutral Accountant shall have no power or authority
to (A) modify or disregard any provision of this Agreement, including the
provisions of this Section 1.14(c), or (B) address or resolve any issues other
than the Unresolved Earn-Out Objections.
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(iv) The fees and expenses of the Neutral Accountant in
connection with the resolution of disputes pursuant to this paragraph (c) shall
be shared equally by the Sellers on the one hand and the Buyer on the other
hand, provided that, if the Neutral Accountant determines that one party has
adopted a position or positions that is frivolous or clearly without merit, the
Neutral Accountant may, in its discretion, assign a greater portion of such fees
and expenses to such party.
(d) The Earn-Out Consideration, if any, payable pursuant to this
Section 1.14 shall be paid by the payment by the Buyer of (i) 12.5% of the
Earn-Out Consideration to the Escrow Fund and (ii) 87.5% of the Earn-Out
Consideration to the Representatives, for distribution to the Sellers. Any such
payment shall be made immediately upon the expiration of the 30-day period for
giving the Earn-Out Dispute Notice, if no Earn-Out Dispute Notice is given, or
upon notification by the Representatives that no Earn-Out Dispute Notice will be
given, or immediately upon final resolution of any dispute in connection with
the determination of the Earn-Out Consideration. Any and all Earn-Out
Consideration shall be distributed by the Representatives to each Seller pro
rata in the same proportion as the total amount of Transaction Consideration and
Option Consideration payable to such Seller under this Agreement bears to the
total amount of Transaction Consideration and Option Consideration payable to
all Sellers pursuant to this Agreement.
(e) The Sellers agree and acknowledge that the Buyer may make from
time to time such business decisions as it deems appropriate in the conduct of
the Business Unit's business, including actions that may have an impact on
Revenue, and the Sellers will have no right to claim any lost earn-out or other
damages as a result of such decisions so long as the actions were not taken by
the Buyer outside of the Ordinary Course of Business (except for any Permitted
Actions) or for the principal purpose of decreasing Revenue, in bad faith or for
the principal purpose of frustrating the provisions of this Section. If the
Buyer (i) takes any action outside of the Ordinary Course of Business (except
for any Permitted Actions), for the principal purpose of decreasing Revenue, in
bad faith or for the principal purpose of frustrating the provisions of this
Section, (ii) does not continue to offer turn-key projects (specifically
including any or all of installation work, engineering and ancillary products)
in the Ordinary Course of Business or (iii) implements any purchase accounting
measures as a result of the acquisition of the Company resulting in a reduction
of Revenue, then the Revenue during the Earn-out Period shall be calculated as
if such action had not been taken. If at any time prior to the Closing the
Sellers, the Company or any Subsidiary shall take any Prohibited Action, then
the Revenue during the Earn-out Period shall be calculated as if such Prohibited
Action had not been taken.
1.15 Withholding Obligations.
-----------------------
(a) The Buyer, the Company (in the case of a Stock Transaction)
and the Surviving Corporation (in the case of a Merger Transaction) shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to any provision of this Agreement to any Seller such amounts as the
Buyer, the Company (in the case of a Stock Transaction) or the Surviving
Corporation (in the case of a Merger Transaction) is required to deduct and
withhold with respect to the making of such payment under the Code, or any other
applicable U.S., state or foreign law, rule or regulation. The Buyer shall
identify the type and nature of the required withholding and the Company, with
the Buyer's and the Representatives' reasonable approval, shall calculate the
12
amount to be withheld. To the extent that amounts are so withheld by the Buyer,
the Company or the Surviving Corporation, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the applicable Sellers in respect of which such deduction and withholding was
made by the Buyer, the Company or the Surviving Corporation, as the case may be
The Buyer shall also have the right to collect Forms W-8 or W-9, or such other
forms relating to United States federal withholding obligations as may be
applicable, from the Sellers.
(b) Without limiting the foregoing, the Buyer, the Company (in the
case of a Stock Transaction) and the Surviving Corporation (in the case of a
Merger Transaction) shall be entitled to deduct and withhold (i) from any
payments to Option Holders, any withholding tax (on such payments or any deemed
payments under Section 409A of the Code) under Section 3402 or 3102 of the Code
or any corresponding state, or foreign law, rule or regulation and (ii) from
any payments to be made pursuant to this Agreement, any withholding tax under
Section 1445 of the Code if the Buyer does not receive the FIRPTA notice
provided for in Section 5.11.
1.16 Articles of Incorporation and By-laws. In the event of a Merger
-------------------------------------
Transaction:
(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Articles of
Incorporation of the Transitory Subsidiary immediately prior to the Effective
Time, except that (i) the name of the corporation set forth therein shall be
changed to the name of the Company and (ii) the identity of the incorporator
shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following
the Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.17 No Further Rights. In the event of a Merger Transaction, from and
-----------------
after the Effective Time, no Company Shares shall be deemed to be outstanding,
and holders of certificates formerly representing Company Shares shall cease to
have any rights with respect thereto except as provided herein or by law.
1.18 Closing of Transfer Books. In the event of a Merger Transaction,
-------------------------
at the Effective Time, the stock transfer books of the Company shall be closed
and no transfer of Company Shares shall thereafter be made. If, after the
Effective Time, certificates formerly representing Company Shares are presented
to the Buyer or the Surviving Corporation, they shall be cancelled and exchanged
for the applicable Transaction Consideration in accordance with Section 1.4,
subject to Sections 1.10 and 1.11.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
The Company and the Sellers jointly and severally represent and warrant
to the Buyer that, except as set forth in the Disclosure Schedule, the
statements contained in this Article II are true and correct as of the date of
this Agreement and will be true and correct as of the Closing as though made as
of the Closing, except to the extent such representations and warranties are
13
specifically made as of a particular date (in which case such representations
and warranties will be true and correct as of such date). The Sellers shall use
their best efforts to arrange the Disclosure Schedule in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained in
this Article II; provided that the disclosures in any section or paragraph of
the Disclosure Schedule shall qualify only (a) the corresponding section or
paragraph in this Article II and (b) other sections or paragraphs in this
Article II to the extent that it would be reasonably inferred from a reading of
the disclosure that such disclosure also qualifies or applies to such other
section or paragraph.
2.1 Organization, Qualification and Corporate Power. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan. The Company is duly qualified to conduct business and
is in good standing under the laws of each jurisdiction listed in Section 2.1 of
the Disclosure Schedule. No other jurisdiction has claimed, in writing or
otherwise, that the Company is required to qualify or otherwise be authorized to
do business as a foreign corporation therein. The Company has all requisite
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. The Company has furnished to the
Buyer complete and accurate copies of its articles of incorporation and by-laws,
each as amended to date. The Company is not in default under or in violation of
any provision of its articles of incorporation or by-laws.
2.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i)
One Hundred Thousand (100,000) shares of voting common stock, Ten Dollars
($10.00) par value per share, Thirty-six Thousand Four Hundred Sixty (36,460)
shares of which are issued and outstanding on the date of this Agreement, and
(ii) One Million Five Hundred Thousand (1,500,000) shares of Class B,
non-voting common stock, Ten Dollars ($10.00) par value per share, Five Hundred
Forty-Three Thousand Seventy (543,070) shares of which are issued and
outstanding on the date of this Agreement.
(b) The Company has Delivered to the Buyer in Writing a complete
and accurate list, as of the date of the Agreement, of the holders of Company
Shares, showing the number and class of shares held by each shareholder,
indicating all outstanding Company Shares that constitute restricted stock or
that are otherwise subject to a repurchase or redemption right, indicating the
name of the applicable shareholder, the vesting schedule (including any
acceleration provisions with respect thereto), and the repurchase price payable
by the Company. All of the issued and outstanding Company Shares have been and
on the Closing Date will be duly authorized, validly issued, fully paid,
nonassessable and, except as disclosed pursuant to a schedule Delivered to the
Buyer in Writing, free of all preemptive rights.
(c) There are no Company Stock Plans with respect to which there
are outstanding Options. The Company has Delivered to the Buyer in Writing a
complete and accurate list, as of the date of this Agreement, of all holders of
outstanding Options, indicating with respect to each Option the agreement under
which it was granted, the number of Company Shares subject to such Option, the
exercise price, the date of grant, and the vesting schedule (including any
acceleration provisions with respect thereto). The Company has provided to the
Buyer complete and accurate copies of all forms of stock option agreements
evidencing Options.
14
All of the Options will terminate and be of no further force or effect at or
immediately prior to the Closing, and none of the Company, the Buyer, or, in the
case of a Merger Transaction, the Transitory Subsidiary or the Surviving
Corporation shall, thereafter, have any liability or obligation to pay any
Transaction Consideration, Option Consideration or other amounts with respect
thereto other than as provided in Sections 1.2 or 1.5 hereof. All of the Company
Shares subject to Options will be, upon issuance pursuant to the exercise of
such instruments, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights.
(d) No subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding. The Company has no
obligation (contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right, or to issue or distribute to holders
of any shares of its capital stock any evidences of indebtedness or assets of
the Company. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any Company Shares or any interest therein
or to pay any dividend or to make any other distribution in respect thereof.
There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company.
(e) There is no agreement, written or oral, between the Company
and any holder of its securities, or, to the best of the Company's knowledge,
among any holders of its securities, relating to the sale or transfer (including
agreements relating to rights of first refusal, co-sale rights or "drag-along"
rights), registration under the Securities Act, or voting, of the capital stock
of the Company.
2.3 Authorization. The Company has all requisite power and authority
-------------
(corporate and other) to execute and deliver this Agreement and to perform the
Company's obligations hereunder. The execution and delivery by the Company of
this Agreement and the agreements provided for herein, and the performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate and other action on the part of the
Company. Without limiting the generality of the foregoing, the Board of
Directors of the Company, at a meeting duly called and held, by the unanimous
vote of all directors (a) adopted this Agreement in accordance with the
provisions of the Michigan Business Corporation Act, and (b) directed that this
Agreement be submitted to the shareholders of the Company for their approval and
resolved to recommend that the shareholders of the Company vote in favor of the
approval of this Agreement. This Agreement and each other agreement provided for
herein have been or will be as of the Closing Date duly and validly executed and
delivered by the Company and constitutes or will constitute a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
2.4 Noncontravention. Subject to compliance with applicable foreign
----------------
antitrust or trade regulation laws and, in the case of a Merger Transaction, the
filing of the Certificate of Merger as required by the Michigan Business
Corporation Act, neither the execution and delivery by the Company or any Seller
of this Agreement or any other agreement provided for herein, nor the
consummation by the Company or any Seller of the transactions contemplated
hereby or thereby, will (a) conflict with or violate any provision of the
Articles of Incorporation or By-laws of the Company or the charter, by-laws or
other organizational document of any Subsidiary, (b) require on the part of the
15
Company, any Subsidiary or any Seller any notice to or filing with, or any
permit, authorization, consent or approval of, any Governmental Entity, (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary is bound or to which any of their respective
assets is subject, (d) result in the imposition of any Security Interest upon
any assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their respective properties or assets. Except for consents
approvals, filings and notices required pursuant to any foreign antitrust or
trade regulation laws, Section 2.4 of the Disclosure Schedule sets forth a true,
correct and complete list of all consents and approvals of third parties and
Governmental Entities, and all filings and notices, that are required in
connection with the consummation by the Company and the Sellers of the
transactions contemplated by this Agreement.
2.5 Subsidiaries.
------------
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the
name and entity type of each Subsidiary; (ii) the number and type of outstanding
equity securities of each Subsidiary and a list of the holders thereof; (iii)
the jurisdiction of organization of each Subsidiary; (iv) the names of the
officers and directors of each Subsidiary; and (v) the jurisdictions in which
each Subsidiary is qualified or holds licenses to do business as a foreign
corporation or other entity.
(b) Each Subsidiary is a corporation or limited liability company
duly organized, validly existing and, where applicable, in good standing under
the laws of the jurisdiction of its incorporation or formation, as the case may
be. Each Subsidiary is duly qualified to conduct business and, where applicable,
is in good standing in each jurisdiction listed in Section 2.5(b) of the
Disclosure Schedule. No other jurisdiction has claimed, in writing or otherwise,
that the Subsidiary is required to qualify or otherwise be authorized to do
business as a foreign corporation therein. Each Subsidiary has all requisite
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. The Company has delivered to the
Buyer complete and accurate copies of the articles of incorporation, by-laws or
other organizational documents of each Subsidiary. No Subsidiary is in default
under or in violation of any provision of its articles of incorporation, by-laws
or other organizational documents. All of the issued and outstanding shares of
capital stock or membership units, as the case may be, of each Subsidiary are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All shares or membership units of each Subsidiary that are
held of record or owned beneficially by either the Company or any Subsidiary are
held or owned free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), claims,
Security Interests, options, warrants, rights, contracts, calls, commitments,
equities and demands. There are no outstanding or authorized options, warrants,
rights, agreements or commitments to which the Company or any Subsidiary is a
party or which are binding on any of them providing for the issuance,
disposition or acquisition of any capital stock or membership units of any
Subsidiary. There are no outstanding stock appreciation, phantom stock or
16
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies or other agreements or understandings with respect to the voting of any
capital stock or membership units of any Subsidiary.
(c) The Company does not control directly or indirectly or have
any direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other domestic or foreign business association, organization or entity which is
not a Subsidiary.
2.6 Financial Statements.
--------------------
(a) The Company has provided to the Buyer the Financial
Statements.
(b) The Draft 2003 Financial Statements, the Draft 2004 Financial
Statements and the 2002 Audited Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, fairly present the consolidated financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries.
(c) The S-X Financial Statements will be prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
will fairly present the consolidated financial condition, results of operations
and cash flows of the Company and the Subsidiaries as of the respective dates
thereof and for the periods referred to therein and will be consistent with the
books and records of the Company and the Subsidiaries.
(d) Section 2.6(d) of the Disclosure Schedule lists, and the
Company has delivered to the Buyer copies of the documentation creating or
governing, all securitization transactions and "off-balance sheet arrangements"
(as defined in Item 303 (a)(4) of Regulation S-K of the Securities and Exchange
Commission) effected by the Company since January 1, 1998. Section 2.6(d) of the
Disclosure Schedule lists all non-audit services (excluding footnote detail)
performed by the Company's auditors for the Company since January 1, 2003.
2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet
--------------------------
Date, (a) there has occurred no event or development which, individually or in
the aggregate, has had, or, to the Knowledge of the Company, would reasonably be
expected to have in the future, a Company Material Adverse Effect, and (b)
except as otherwise disclosed in a schedule Delivered to the Buyer in Writing,
neither the Company nor any Subsidiary has taken any of the actions set forth in
paragraphs (a) through (q) of Section 5.4; provided, however, that the Company
has adopted, for all goods on LIFO, the Inventory Price Index Computation method
permitted by Section 472(f) of the Code and Treas. Reg. ss.1.472-8(e)(3).
2.8 Undisclosed Liabilities. None of the Company and its Subsidiaries
-----------------------
has any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), except for
(a) liabilities shown on the Most Recent Balance Sheet, a copy of which is
attached to Section 2.8 of the Disclosure Schedule, (b) liabilities which have
arisen since the Most Recent Balance Sheet Date in the Ordinary Course of
Business and which are similar in nature and amount to the liabilities which
17
arose during the comparable period of time in the immediately preceding fiscal
period and (c) contractual and other liabilities incurred in the Ordinary Course
of Business which are not required by GAAP to be reflected on a balance sheet
and that are not in the aggregate material.
2.9 Tax Matters.
-----------
(a) Each of the Company and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file. Neither the Company nor any
Subsidiary is or ever has been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined, unitary or similar
Tax Returns, other than a group of which only the Company and the Subsidiaries
are or were members. Each of the Company and the Subsidiaries has paid on a
timely basis all Taxes that were due and payable as shown on any Tax Return. All
unpaid Taxes of the Company and the Subsidiaries attributable to periods
commencing after the Most Recent Balance Sheet Date arose in the Ordinary Course
of Business and are similar in nature and amount to Taxes which arose during the
comparable period of time in the immediate preceding fiscal year. Neither the
Company nor any Subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including any affiliated group of corporations or
other entities that included the Company or any Subsidiary during a prior
period) other than the Company and the Subsidiaries.
(b) The Company has delivered or made available to the Buyer
complete and accurate copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company or any Subsidiary with respect to all taxable periods commencing on or
after January 1, 1998 (or such earlier taxable periods with respect to which the
applicable statute of limitations does not preclude the assessment of additional
Tax). The federal income Tax Returns of the Company and each domestic Subsidiary
have been audited by the Internal Revenue Service or are closed by the
applicable statute of limitations for all taxable years through the taxable year
specified in Section 2.9(b) of the Disclosure Schedule. The Company has
delivered or made available to the Buyer complete and accurate copies of all
other Tax Returns of the Company and the Subsidiaries together with all related
examination reports and statements of deficiency for all periods for which the
applicable period for the assessment of the Tax has not been closed by any
applicable statute of limitations. No examination or audit of any Tax Return of
the Company or any Subsidiary by any Governmental Entity is currently in
progress or, to the Knowledge of the Company, threatened or contemplated.
Neither the Company nor any Subsidiary has been informed by any jurisdiction
that the jurisdiction believes that the Company or any Subsidiary was required
to file any Tax Return that was not filed. Neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or deficiency.
(c) Neither the Company nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has ever been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii)
except as otherwise disclosed in a schedule Delivered to the Buyer in Writing,
has made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
18
"excess parachute payment" under Section 280G of the Code (determined without
regard to Section 280G(b)(4) of the Code); (iv) has any actual or potential
liability for any Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has ever been required to
make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or
Treasury Regulation Section 1.337(d)-2(b) which is not reflected in the books
and records of the Company or such Subsidiary.
(d) None of the assets of the Company or any Subsidiary: (i) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(ii) directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code.
(e) Neither the Company nor any Subsidiary is a party to a lease
that is treated as a "Section 467 rental agreement" within the meaning of
Section 467(d) of the Code.
(f) There are no adjustments under Section 481 of the Code (or any
similar adjustments under any provision of the Code or the corresponding
foreign, state or local Tax laws) that are required to be taken into account by
the Company or any Subsidiary in any period ending after the Closing Date by
reason of a change in method of accounting in any taxable period ending on or
before the Closing Date.
(g) There is no limitation on the utilization by the Company or
any Subsidiary of their net operating losses, built-in losses, Tax credits or
similar items under Sections 382, 383 or 384 of the Code or comparable
provisions of state, local or foreign law (other than any such limitation
arising as a result of the consummation of the transactions contemplated by this
Agreement).
(h) Neither the Company nor any Subsidiary has ever participated
in an international boycott as defined in Section 999 of the Code.
(i) Neither the Company nor any Subsidiary has distributed to its
shareholders or security holders stock or securities of a controlled
corporation, nor has stock or securities of the Company or any Subsidiary been
distributed, in a transaction to which Section 355 of the Code applies (i) in
the two years prior to the date of this Agreement or (ii) in a distribution that
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) that includes the
transactions contemplated by this Agreement.
(j) Section 2.9(j) of the Disclosure Schedule sets forth the
amount of any net operating loss, net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable contribution allocable to the
Company and its Subsidiaries as of the most recent practicable date.
2.10 Assets.
------
(a) The Company or the applicable Subsidiary is the true and
lawful owner, and has good title to, all of the assets (tangible or intangible)
purported to be owned by the Company or the Subsidiaries, free and clear of all
Security Interests. Each of the Company and the Subsidiaries owns or leases all
19
tangible personal property necessary for the conduct of its businesses as
presently conducted, which tangible personal property is reflected in the
Financial Statements (other than to the extent fully depreciated or disposed of
in the Ordinary Course of Business). The tangible personal property material to
the operation of the businesses of the Company and each Subsidiary is in good
condition and working order, has been maintained in accordance with normal
industry practice (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used. Neither the whole nor any portion of
the assets of the Company or any Subsidiary has been condemned, requisitioned or
otherwise taken by any public authority or pursuant to any power of eminent
domain, and no such condemnation, requisition or taking is, to the Knowledge of
the Company, threatened or contemplated.
(b) The information with respect to the fixed assets (within the
meaning of GAAP) and the other assets of a tangible nature of the Company and
the Subsidiaries set forth in Section 2.10(b) of the Disclosure Schedule is true
and correct.
(c) Each item of equipment, motor vehicle and other asset that the
Company or a Subsidiary has possession of pursuant to a lease agreement or other
similar contractual arrangement is in such condition that, upon its return to
its lessor or owner in its present condition at the end of the relevant lease
term or as otherwise contemplated by the applicable lease or contract, the
obligations of the Company or such Subsidiary to such lessor or owner will have
been discharged in full.
2.11 Owned Real Property. Section 2.11 of the Disclosure Schedule
-------------------
lists the property address, legal description and, where applicable, property
identification number, of all Owned Real Property. With respect to each piece of
Owned Real Property:
(a) the Company or a Subsidiary has good and clear record and
marketable title to such Owned Real Property, insurable, where applicable, by a
recognized national title insurance company at standard rates, free and clear of
any Security Interest, easement, encumbrance, environmental lien, environmental
use restrictions recorded in the real estate records of the county where such
Owned Real Property is located (but only as to the Owned Real Property in the
United States), covenant or other restriction, except for recorded easements,
covenants and other non-environmental restrictions which do not impair the uses,
occupancy or value of such Owned Real Property as currently used by the Company
or such Subsidiary;
(b) there are no pending or, to the Knowledge of the Company,
threatened (i) condemnation proceedings relating to such Owned Real Property,
(ii) litigation or administrative actions relating to such Owned Real Property,
or (iii) other matters which adversely affect the current use, occupancy or
value of such Owned Real Property, other than applicable laws, ordinances,
rules and regulations;
(c) to the Knowledge of the Company, with respect to each parcel
of Owned Real Property located in the United States: (i) the legal description
for such Owned Real Property contained in the deed thereof describes such Owned
Real Property fully and adequately, (ii) the buildings and improvements may be
used as of right under applicable zoning and land use laws for the current uses,
and such buildings and improvements are located within the boundary lines of the
described parcels of land, are not in violation of current setback requirements,
zoning laws and ordinances and do not encroach on any easement which may burden
20
the land, (iii) the land does not serve any adjoining property for any purpose
inconsistent with the use of the land, (iv) such Owned Real Property is not
located within any flood plain or subject to any similar type restriction for
which any permits or licenses necessary to the use thereof have not been
obtained and (v) consummation of the transactions contemplated by this Agreement
will not result in the termination of any variance or permit now existing with
respect to any Owned Real Property;
(d) with respect to each parcel of Owned Real Property located
outside the United States: (i) the legal description for such Owned Real
Property contained in the deed thereof describes such Owned Real Property fully
and adequately, (ii) the buildings and improvements may be used as of right
under applicable zoning and land use laws for the current uses, and such
buildings and improvements are located within the boundary lines of the
described parcels of land, are not in violation of current setback requirements,
zoning laws and ordinances and do not encroach on any easement which may burden
the land, (iii) the land does not serve any adjoining property for any purpose
inconsistent with the use of the land, (iv) such Owned Real Property is not
located within any flood plain or subject to any similar type restriction for
which any permits or licenses necessary to the use thereof have not been
obtained and (v) consummation of the transactions contemplated by this Agreement
will not result in the termination of any variance or permit now existing with
respect to any Owned Real Property;
(e) there are no leases, subleases, licenses or agreements,
written or oral, granting to any party or parties (other than the Company or a
Subsidiary) the right of use or occupancy of any portion of such Owned Real
Property;
(f) there are no outstanding options or rights of first refusal to
purchase such Owned Real Property, or any portion thereof or interest therein;
(g) all facilities located on such Owned Real Property are
supplied with utilities and other services necessary for the operation of such
facilities as currently operated, including gas, electricity, water, telephone,
sanitary sewer and storm sewer, all of which services are adequate for the
current uses of such Owned Real Property and in accordance with all applicable
laws, ordinances, rules and regulations and, to the Knowledge of the Company,
are provided via public roads or via permanent, irrevocable, appurtenant
easements benefiting such Owned Real Property;
(h) such Owned Real Property abuts on and has direct vehicular
access to a public road or access to a public road via a permanent, irrevocable,
appurtenant easement benefiting such property;
(i) neither the Company nor any Subsidiary has received notice of,
and to the Knowledge of the Company, there is no proposed or pending proceeding
to change or redefine the zoning classification of all or any portion of such
Owned Real Property;
(j) to the Knowledge of the Company, there are no physical or
mechanical defects in any of the improvements on such Owned Real Property which
would impair the current use or value of the Owned Real Property, and all such
improvements are in good operating condition and repair, subject to ordinary
wear and tear; and
21
(k) such Owned Real Property is an independent unit which does not
rely on any facilities (other than the facilities of public utility and water
companies) located on any other property not owned by the Company or a
Subsidiary (i) to fulfill any zoning, building code or other municipal or
governmental requirement, (ii) for structural support or the furnishing of any
essential building systems or utilities, including, but not limited to electric,
plumbing, mechanical, heating, ventilating, and air conditioning systems, or
(iii) to fulfill the requirements of any lease. No building or other improvement
not included in such Owned Real Property relies on any part of such Owned Real
Property to fulfill any zoning, building code or other municipal or governmental
requirement or for structural support or the furnishing of any essential
building systems or utilities. Such Owned Real Property is assessed by local
property assessors as a tax parcel or parcels separate from all other tax
parcels owned by any party other than the Company or any Subsidiary.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule
--------------------
lists all Leases and lists the term of such Lease, any extension and expansion
options, and the rent payable thereunder. The Company has delivered to the Buyer
complete and accurate copies of the Leases. With respect to each Lease:
(a) such Lease is legal, valid, binding, enforceable and in full
force and effect against the Company or the Subsidiary that is the party thereto
and, to the Knowledge of the Company, against each other party thereto;
(b) such Lease will continue to be legal, valid, binding,
enforceable and in full force and effect against the Company or the Subsidiary
that is the party thereto and, to the Knowledge of the Company, against each
other party thereto, immediately following the Closing in accordance with the
terms thereof as in effect immediately prior to the Closing;
(c) neither the Company nor any Subsidiary nor, to the Knowledge
of the Company, any other party to the Lease is in breach or violation of, or
default under, any such Lease, and no event has occurred, is pending or, to the
Knowledge of the Company, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Company
or any Subsidiary or, to the Knowledge of the Company, any other party under
such Lease;
(d) there are no disputes, oral agreements or forbearance programs
in effect as to such Lease;
(e) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are supplied
with utilities adequate for the operation of said facilities as conducted during
the period covered by the Financial Statements;
(g) the Company is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease which would reasonably be expected to impair the current uses or the
occupancy by the Company or a Subsidiary of the property subject thereto;
22
(h) no construction, alteration or other leasehold improvement
work with respect to the Lease remains to be paid for or performed by the
Company or any Subsidiary;
(i) neither the Company nor any Subsidiary is obligated to pay any
leasing or brokerage commission relating to such Lease and will not have any
obligation to pay any leasing or brokerage commission upon the renewal of the
Lease; and
(j) neither the Company nor any Subsidiary has any obligation
under any Lease to restore any property subject to any Lease at the end of the
respective Lease term.
2.13 Intellectual Property.
---------------------
(a) Company Owned Intellectual Property. The Company or a
-----------------------------------
Subsidiary is the sole and exclusive owner of all Company Owned Intellectual
Property, free and clear of any Security Interests. The Company and each
Subsidiary has taken reasonable measures to protect the proprietary nature of
each item of Company Owned Intellectual Property, and to maintain in confidence
all trade secrets and confidential information comprising a part thereof. No
other person or business entity has any joint ownership interest, royalty
interest, or license right to any of the Company Owned Intellectual Property,
and, to the Knowledge of the Company, no other person or business entity is
infringing, violating or misappropriating any of the Company Owned Intellectual
Property. Neither the Company nor any Subsidiary has acquired from third parties
(other than employees) any ownership interest in or to any Company Owned
Intellectual Property since January 1, 1995.
(b) Company Intellectual Property. The Company Intellectual
-----------------------------
Property constitutes all Intellectual Property (i) used in the operation of the
business of the Company or any Subsidiary or necessary for the operation of such
business as presently conducted by the Company and its Subsidiaries, (ii)
necessary to develop, test, modify, make, use, sell, have made, used and sold,
import, reproduce, market and distribute the Customer Offerings in the manner
currently done by the Company and its Subsidiaries, and (iii) necessary to
operate and use the Internal Systems as they are currently used by the Company
and its Subsidiaries. Each item of Company Intellectual Property will be owned
or available for use by the Company or the relevant Subsidiary immediately
following the Closing on substantially identical terms and conditions as it was
immediately prior to the Closing.
(c) Customer Offerings. Schedule 2.13(c) of the Disclosure
------------------
Schedule sets forth a true and complete list of all Customer Offerings. To the
Knowledge of the Company, none of the Customer Offerings, or the development,
manufacture, importation, marketing, sale, distribution, provision or use
thereof by the Company or any Subsidiary or any reseller, distributor, customer
or user thereof, or any other activity of the Company or any Subsidiary,
infringes, violates or constitutes a misappropriation of (or in the past
infringed, violated or constituted a misappropriation of) any Intellectual
Property rights of any other person or business entity. Neither the Company nor
any Subsidiary has received any complaint, claim or notice alleging any such
infringement, violation or misappropriation (including any notification that a
license under any patent is or may be required), and, to the Knowledge of the
Company, there is no basis for any such complaint, claim or notice. Neither the
Company nor any Subsidiary has agreed to indemnify any person against any
infringement, violation or misappropriation of any Intellectual Property rights
23
with respect to any Customer Offerings, other than as required by customers in
the Ordinary Course of Business pursuant to (i) the Company's standard terms and
conditions of sale, a copy of which has previously been delivered to the Buyer
and (ii) such customers' standard terms and conditions of sale, where the
aggregate liability of the Company and the Subsidiaries under all such standard
terms and conditions of sale does not exceed $250,000.
(d) Intellectual Property Registrations. Section 2.13(d) of the
-----------------------------------
Disclosure Schedule identifies each Intellectual Property Registration that is
registered or filed in the name of the Company or any Subsidiary, alone or
jointly with others, in each case enumerating specifically the applicable filing
or registration number, title, subject matter, jurisdiction in which the filing
was made or from which registration issued, date of filing or issuance, names of
current registered owners, and status of any required issuance, renewal,
maintenance or other payments. All assignments of Intellectual Property
Registrations have been properly executed and recorded. To the Knowledge of the
Company, all Intellectual Property Registrations are valid and enforceable and
all issuance, renewal, maintenance and other payments that are or have become
due with respect thereto have been timely paid by or on behalf of the Company
and each Subsidiary.
(e) Grant of Rights With Respect to Company Intellectual Property.
-------------------------------------------------------------
Section 2.13(e) of the Disclosure Schedule identifies each license, covenant or
other agreement in effect as of, or entered into on or after, January 1, 2000
pursuant to which the Company or any Subsidiary has assigned, transferred,
licensed, distributed or otherwise granted any right or access to any other
person or business entity, or covenanted not to assert any right, with respect
to any Company Intellectual Property other than (i) non-exclusive licenses
entered into with customers of the Company or any Subsidiary in the Ordinary
Course of Business and (ii) any agency, distributor, sales representative, or
similar agreements entered into in the Ordinary Course of Business which do not
transfer or license the right to manufacture any Company products.
(f) Company Licensed Intellectual Property. Section 2.13(f) of the
--------------------------------------
Disclosure Schedule identifies each item of Company Licensed Intellectual
Property that the Company or any Subsidiary currently licenses that is owned by
a party other than the Company or a Subsidiary, and the license agreement
pursuant to which the Company or any Subsidiary licenses such Intellectual
Property (other than commercially available, off-the-shelf software programs
that are part of the Internal Systems and are licensed by the Company pursuant
to standard "shrink-wrap" licenses which are not listed in Section 2.13(f) of
the Disclosure Schedule but with respect to which the representations set forth
in this Section 2.13(f) are true). Each license agreement referenced in clause
(f) and in Section 2.13(a) above is legal, valid, binding and enforceable
against the Company or the applicable Subsidiary, as the case may be, and, to
the Knowledge of the Company, against each other party thereto, except as
24
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally and by equitable principles, including those
limiting the availability of specific performance, injunctive relief and other
equitable remedies and those providing for equitable defenses, and is in full
force and effect. Each such license agreement will continue to be legal, valid,
binding and enforceable against the Company or such Subsidiary and, to the
Knowledge of the Company, each other party thereto, except as enforceability may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and by equitable principles, including those limiting the
availability of specific performance, injunctive relief and other equitable
remedies and those providing for equitable defenses, and will continue to be in
full force and effect, immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing. Neither the Company, any
Subsidiary, nor, to the Knowledge of the Company, any other party to such
license agreement is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder.
(g) DMS. The only Customer Offering that incorporates
---
the use of any Software is the DMS. None of the Software included in the DMS
includes "shareware", "freeware" or other code that was developed by or obtained
by the Company from third parties. Neither the Company nor any Subsidiary has
incorporated Open Source Materials into, or combined Open Source Materials with,
the DMS. "Open Source Materials" means all software or other material that is
distributed as "free software", "open source software" or under a similar
licensing or distribution model, including, but not limited to, the GNU General
Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public
License (MPL), BSD Licenses, the Artistic License, the Netscape Public License,
the Sun Community Source License (SCSL) the Sun Industry Standards License
(SISL) and the Apache License.
(h) Company Source Code. Neither the Company nor any Subsidiary
-------------------
has licensed, distributed or disclosed, and knows of no distribution or
disclosure by others (including its employees and contractors) of, the source
code for any Software included in the DMS ("Company Source Code") to any other
person or business entity, other than an implied license to any customer
purchasing such Customer Offering to use any Company Source Code in the
operation of such Customer Offering (subject to all use restrictions set forth
in the Company's standard terms and conditions of sale with respect to such
Customer Offering), and the Company and the Subsidiaries have taken reasonable
physical and electronic security measures to prevent disclosure of such Company
Source Code. No event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time, or both) will, or would
reasonably be expected to, nor will the consummation of the transactions
contemplated hereby, result in the disclosure or release of such Company Source
Code by the Company, any of its Subsidiaries or any escrow agent(s) or any other
person to any third party.
(i) Software. The Software included in the DMS and, to the
--------
Knowledge of the Company, the Internal Systems are free from significant defects
or programming errors and the Software included in the DMS conforms in all
material respects to the Documentation and specifications therefor. The Software
included in the DMS and, to the Knowledge of the Company, the Internal Systems
do not contain any disabling device, virus, worm, back door, Trojan horse or
other disruptive or malicious code that impairs their intended performance or
otherwise permit unauthorized access to, hampers, deletes or damages any
computer system, software, network or data.
2.14 Inventory. All inventory of the Company and the Subsidiaries
---------
reflected on the Most Recent Balance Sheet is of a quality that is usable and
saleable in the Ordinary Course of Business (without reference to time) and has
been priced and reflected on the Most Recent Balance Sheet in accordance with
25
the inventory policies set forth in Section 2.14 of the Disclosure Schedule. The
quantities of each type of inventory, whether raw materials, work-in-process or
finished goods, have been maintained at levels consistent with the past
practices of the Company and the Subsidiaries.
2.15 Contracts.
---------
(a) Section 2.15(a) of the Disclosure Schedule lists the following
written agreements to which the Company or any Subsidiary is a party and which
by its terms provides for any remaining or continuing right or obligation of the
Company or any Subsidiary:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties involving aggregate payments
in excess of $50,000;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one year, other than (I)
agreements to maintain the pricing of spare parts beyond the Company's stated
pricing period where the aggregate pricing differential with respect to all such
agreements will not exceed $250,000, and (II) other agreements arising in the
Ordinary Course of Business where the remaining performance obligations,
individually or in the aggregate, are less than $250,000, (B) which involves
more than the sum of $250,000, or (C) in which the Company or any Subsidiary (I)
has granted manufacturing rights, "most favored nation" pricing provisions or
exclusive marketing or distribution rights relating to any services, products or
territory, (II) has agreed to purchase a minimum quantity of goods or services,
other than agreements entered into in the Ordinary Course of Business involving,
individually or in the aggregate, less than $250,000 or (III) has agreed to
purchase goods or services exclusively from a certain party;
(iii) any agreement concerning the establishment or operation
of a partnership, joint venture or limited liability company;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness (including capitalized lease obligations) or
under which it has imposed (or may impose) a Security Interest on any of its
assets, tangible or intangible;
(v) except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, any agreement for the disposition of any significant
portion of the assets or business of the Company or any Subsidiary (other than
sales of products in the Ordinary Course of Business) or any agreement for the
acquisition of the assets or business of any other entity (other than purchases
of inventory or components in the Ordinary Course of Business);
(vi) any agreement concerning confidentiality, noncompetition
or non-solicitation (other than confidentiality agreements with customers,
suppliers or employees of the Company or any Subsidiary set forth in the
Company's or any such Subsidiary's standard terms and conditions of sale or
standard form of employment agreement, copies of which have previously been
delivered to the Buyer);
26
(vii) except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, any employment or consulting agreement with any individual
who is an employee or consultant of the Company or any Subsidiary other than (A)
employment agreements in the form of the Company's or any such Subsidiary's
standard form employment agreements, copies of which have been provided to the
Buyer, and (B) standard terms of employment in foreign jurisdictions reflecting
solely terms required by applicable law;
(viii) except as otherwise disclosed in a schedule Delivered
to the Buyer in Writing, any agreement not otherwise set forth in Section
2.15(a) of the Disclosure Schedule involving any current or former officer,
director or shareholder of the Company or any Affiliate thereof, excluding
employee benefit plans and stock option agreements, true and complete copies of
which have been provided to the Buyer;
(ix) any agreement not otherwise set forth in Section 2.15(a)
of the Disclosure Schedule, excluding employee benefit plans and stock option
agreements, true and complete copies of which have been provided to the Buyer,
under which the consequences of a default or termination could have a Company
Material Adverse Effect;
(x) any agency, distributor, sales representative, franchise
or similar agreements to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound other than agency, distributor,
sales representative, franchise or similar agreements on the Company's or any
such Subsidiary's standard form, copies of which have been provided to the Buyer
and a list of which agreements, setting forth the parties thereto and the
jurisdictions covered thereby, is set forth in Section 2.15(a)(x) of the
Disclosure Schedule;
(xi) any agreement which contains any provisions requiring the
Company or any Subsidiary to indemnify any other party (excluding indemnities
contained in agreements for the purchase, sale or license of products or
services entered into in the Ordinary Course of Business); and
(xii) any other agreement (or group of related agreements) not
otherwise set forth in Section 2.15(a) of the Disclosure Schedule either
involving more than $250,000 or not entered into in the Ordinary Course of
Business.
(b) The Company has delivered to the Buyer (in hard copy or
compact disk format) a complete and accurate copy of each agreement listed in
Section 2.13 or Section 2.15 of the Disclosure Schedule (as amended to date).
With respect to each agreement so listed: (i) the agreement is legal, valid,
binding and enforceable and in full force and effect against the Company or the
Subsidiary that is the party thereto and, to the Knowledge of the Company,
against each other party thereto, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally and by
equitable principles, including those limiting the availability of specific
performance, injunctive relief and other equitable remedies and those providing
for equitable defenses; (ii) the agreement will continue to be legal, valid,
binding and enforceable and in full force and effect against the Company or the
Subsidiary that is the party thereto and, to the Knowledge of the Company,
against each other party thereto, immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing,
27
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and by equitable principles,
including those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses;
and (iii) neither the Company nor any Subsidiary nor, to the Knowledge of the
Company, any other party, is in breach or violation of, or default under, any
such agreement, and no event has occurred, is pending or, to the Knowledge of
the Company, is threatened, which, after the giving of notice, with lapse of
time, or otherwise, would constitute a breach or default by the Company or any
Subsidiary or, to the Knowledge of the Company, any other party under such
agreement.
(c) Neither the Company nor any Subsidiary is a party to any oral
contract, agreement or other arrangement which is enforceable against the
Company or any Subsidiary and, if reduced to written form, would be required to
be listed in Section 2.15(a) of the Disclosure Schedule under the terms of
Section 2.15(a). Neither the Company nor any Subsidiary is a party to any
written or oral arrangement (i) to perform services or sell products which is
expected to be performed at, or to result in, a negative Gross Margin, other
than those orders which have been accepted by the Company in the Ordinary Course
of Business for strategic reasons, which, alone or in the aggregate, do not
involve a negative Gross Margin in excess of $50,000, or (ii) for which the
customer has already been billed or paid that have not been fully accounted for
on the Most Recent Balance Sheet. Neither the Company nor any Subsidiary is
restricted by any agreement from carrying on business anywhere in the world.
2.16 Accounts Receivable.
-------------------
(a) All accounts receivable of the Company and the Subsidiaries
reflected on the December 31, 2004 consolidated balance sheet to be included in
the S-X Financial Statements (the "December 31, 2004 Balance Sheet") (other than
those paid since such date) will be valid receivables subject to no setoffs or
counterclaims and will be current and collectible (within the applicable
Collection Period). A complete and accurate list of the accounts receivable of
the Company and its Subsidiaries as of the Most Recent Balance Sheet Date,
showing the aging thereof, is included in Section 2.16 of the Disclosure
Schedule. All accounts receivable of the Company and the Subsidiaries that have
arisen since the Most Recent Balance Sheet Date are valid receivables subject to
no setoffs or counterclaims and are collectible (within the applicable
Collection Period). Neither the Company nor any Subsidiary has received any
written notice from an account debtor stating that any account receivable in an
amount in excess of $50,000 is subject to any contest, claim or setoff by such
account debtor.
(b) IPMT has not transferred or otherwise disposed of any account
receivable or other assets of IPMT to any party other than the Company or any
Subsidiary.
2.17 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or any Subsidiary, other than powers of
attorney delivered to the Company's or a Subsidiary's foreign counsel in the
Ordinary Course of Business and which are terminable at any time at the election
of the Company or such Subsidiary.
28
2.18 Insurance. Section 2.18 of the Disclosure Schedule lists each
---------
insurance policy (including fire, theft, casualty, comprehensive general
liability, workers compensation, business interruption, environmental, product
liability and automobile insurance policies and bond and surety arrangements) to
which the Company or any Subsidiary is a party, a named insured or otherwise
the beneficiary of coverage, all of which are in full force and effect. Such
insurance policies are of the type and in amounts customarily carried by
organizations conducting businesses or owning assets similar to those of the
Company and the Subsidiaries. There is no claim pending under any such policy as
to which coverage has been questioned, denied or disputed by the underwriter of
such policy. All premiums due and payable under all such policies have been
paid, neither the Company nor any Subsidiary will be liable for retroactive
premiums or similar payments, and the Company and each Subsidiary is otherwise
in compliance with the terms of such policies. The Company has no knowledge of
any threatened termination of, or premium increase with respect to, any such
policy. Each such policy will continue to be enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing. Section 2.18 of the Disclosure
Schedule identifies all claims asserted by the Company or any Subsidiary
pursuant to any insurance policy since January 1, 2001 and describes the nature
and status of each such claim.
2.19 Litigation. Section 2.19 of the Disclosure Schedule identifies and
----------
contains a brief description of (i) any unsatisfied judgment, order, decree,
stipulation or injunction, and (ii) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental Entity or by a
private party or before any arbitrator to which the Company or any Subsidiary is
a party or, to the Knowledge of the Company, is threatened to be made a party.
None of the complaints, actions, suits, proceedings, hearings and investigations
set forth in Section 2.19(a) of the Disclosure Schedule, individually or
collectively, could have a Company Material Adverse Effect. Neither the Company
nor any Subsidiary is in default with respect to any judgment, order, decree,
stipulation or injunction applicable to the Company or any Subsidiary.
2.20 Warranties. No service or product provided, manufactured, sold,
----------
leased, licensed or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of return, right of credit or other indemnity other
than (i) warranties arising by operation of law, (ii) warranties for the sale of
products for a price of less than $10,000 on the customer's standard form
purchase order, (iii) the Company's or the applicable Subsidiary's standard
express written warranty and standard terms and conditions of sale or lease, all
of which are set forth in Section 2.20 of the Disclosure Schedule, (iv)
manufacturers' warranties for which neither the Company nor any Subsidiary has
any liability and (v) other warranties required by customers in the Ordinary
Course of Business which, individually or in the aggregate, are not material.
Section 2.20 of the Disclosure Schedule sets forth the aggregate expenses
incurred by the Company and the Subsidiaries in fulfilling their obligations
under their guaranty, warranty, right of return and indemnity provisions during
each of the fiscal years and the interim period covered by the Financial
Statements; and the Company does not know of any reason why such expenses should
significantly increase as a percentage of sales in the future.
2.21 Employees.
---------
(a) The Company has provided the Buyer with a complete and
accurate list of all employees, officers and directors of the Company and each
Subsidiary whose annual rate of compensation (salary and bonus) exceeds
29
$150,000 per year, along with the position and the annual rate of compensation
of each such person. Section 2.21(a) of the Disclosure Schedule (I) lists (i)
each current employee of the Company or any Subsidiary and (ii) each former
employee of the Company or any Subsidiary employed during the past three (3)
years and (II) indicates for each such employee listed in clauses (i) and (ii)
(A) such employee's job description, (B) whether such employee has entered into
one of the Company's standard forms of confidentiality, non-competition and
assignment of inventions or similar type agreement with the Company or such
Subsidiary, copies of the forms of which have previously been delivered to the
Buyer, and (C) if such employee has entered into any such standard form
agreement, which of such standard form agreements has been entered into by such
employee. All of the agreements referenced in the preceding sentence will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and by equitable principles, including those limiting the
availability of specific performance, injunctive relief and other equitable
remedies and those providing for equitable defenses. The Company has provided
the Buyer with a complete and accurate list of all employees of the Company or
any Subsidiary employed in the United States who are not citizens of the
United States. To the Knowledge of the Company, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound
by any collective bargaining agreement with any labor organization and neither
the Company nor any Subsidiary is responsible or liable for any claim, demand,
grievance or arbitration award arising out of or alleging the Company's or any
such Subsidiary's noncompliance with any collective bargaining agreement.
(c) Neither the Company nor any Subsidiary is liable for any claim
of unfair labor practices, including, but not limited to, any claim that the
Company or any Subsidiary failed to fulfill any bargaining obligation it may
have with regard to any aspect of the transactions contemplated by this
Agreement or their effects upon the Company's or such Subsidiary's employees.
(d) The Company and each relevant Subsidiary has fulfilled all of
its employee consultation rights and obligations under applicable law in all
relevant jurisdictions in connection with the transactions contemplated by this
Agreement, including but not limited to any obligations under the Netherlands
Works Council Act.
(e) Neither the Company nor any Subsidiary is liable for any plant
closing or mass layoff law such as the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. 2101 et seq.
(f) Neither the Company nor any Subsidiary has experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
30
behalf of any labor union with respect to employees of the Company or any
Subsidiary who are not currently represented by a labor union.
(g) None of the Company, any Subsidiary, any of the Principal
Shareholders, any director, officer or other key employee of the Company, or any
Affiliate of any of the foregoing, has any existing undisclosed contractual
relationship with the Company or any Subsidiary or owns, directly or, to the
Knowledge of the Company, indirectly, individually or collectively, any interest
in any entity which is in a business similar or competitive to the business of
the Company or any Subsidiary.
(h) Each employee of the Company or any Subsidiary who is
providing services in the United States is a citizen, permanent resident of the
United States or holds a temporary work authorization ("Work Permit"), including
H-1B, TN, ▇-▇, ▇-▇, ▇-▇, ▇-▇ or J-1 visa status or Employment Authorization
Document ("EAD") work authorizations. With respect to each Work Permit, all of
the information that the Company or any Subsidiary provided to the Department of
Labor ("DOL") and the United States Citizenship and Immigration Service
("USCIS") in the applications for such Work Permit was, to the Knowledge of the
Company, true and complete at the time of filing such applications. The Company
or the applicable Subsidiary received the appropriate notice of approval or
other evidence of authorized employment from the INS, the DOL, the Department of
State or other relevant Governmental Entity with respect to each such Work
Permit. Neither the Company nor any Subsidiary has received any notice from the
INS or any other Governmental Entity that any Work Permit has been revoked.
There is no action pending or, to the Knowledge of the Company, threatened to
revoke or adversely modify the terms of any of the Work Permits.
(i) The Company and each applicable Subsidiary has obtained the
necessary prevailing wage documentation for each H-1B worker and has paid and
continues to pay each H-1B worker the prevailing wage according to the
regulations of the DOL. The Company and each applicable Subsidiary has complied
with all terms of the Labor Condition Applications for all H-1B workers and has
maintained all documentation required by the DOL regulations. The Company has
provided the Buyer with a written statement which summarizes the compliance of
the Company and each such Subsidiary with the DOL regulations governing labor
condition applications.
2.22 Employee Benefits.
-----------------
(a) Section 2.22(a) of the Disclosure Schedule contains a complete
and accurate list of all Company Plans other than Mandatory Plans. Complete and
accurate copies of (i) all Company Plans, other than Mandatory Plans, which have
been reduced to writing, together with all amendments thereto, (ii) written
summaries of all unwritten Company Plans, other than Mandatory Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions,
(iv) all employee handbooks, employment manuals and policies, and (v) all annual
reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all
plan financial statements for the last five plan years for each Company Plan,
other than Mandatory Plans, have been delivered to the Buyer. None of the
Company or any Subsidiary has or has ever had any ERISA Affiliate other than the
Company or another Subsidiary.
31
(b) Each Company Plan has been administered in accordance with its
terms and the Company and each of the Subsidiaries has met its obligations with
respect to each Company Plan and has timely made all required contributions
thereto. The Company, each Subsidiary and each Company Plan, other than
Mandatory Plans, are in compliance with the currently applicable provisions of
ERISA and the Code and the regulations thereunder (including Section 4980B of
the Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and
Section 701 et seq. of ERISA). All filings and reports as to each Company Plan,
other than Mandatory Plans, required to have been submitted to the Internal
Revenue Service or to the United States Department of Labor have been timely
submitted.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Company Plans and proceedings with
respect to qualified domestic relations orders) against or involving any Company
Plan or asserting any rights or claims to benefits under any Company Plan that
could give rise to any liability. No Company Plan is or within the last three
calendar years has been the subject of, or has received notice that it is the
subject of, examination by a government agency or a participant in a government
sponsored amnesty, voluntary compliance or similar program.
(d) All the Company Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Company Plans are qualified and the
plans and the trusts related thereto are exempt from federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, no such determination
letter has been revoked and, to the Knowledge of the Company, revocation has not
been threatened, and no such Company Plan has been amended since the date of its
most recent determination letter or application therefor in any respect, and no
act or omission has occurred, that would adversely affect its qualification or
increase its cost. There has been no termination or partial termination of such
a Company Plan. Each Company Plan which is required to satisfy Section 401(k)(3)
or Section 401(m)(2) of the Code has been tested for compliance with, and
satisfies the requirements of Section 401(k)(3) and Section 401(m)(2) of the
Code for each plan year ending prior to the Closing Date. Each Company Plan that
provides for compliance with Section 404(c) of ERISA or is intended to comply
with such provision, so complies.
(e) Neither the Company nor any Subsidiary has ever maintained or
contributed to an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA. At no time has the Company or any Subsidiary been obligated
to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) No Company Plan has assets that include securities issued by
the Company.
(g) With respect to the Company Plans, there are no benefit
obligations for which contributions have not been made or properly accrued and
there are no benefit obligations which have not been accounted for by reserves,
or otherwise properly footnoted in accordance with GAAP, on the Financial
Statements. The assets of each Company Plan which is funded are reported at
their fair market value on the books and records of such Employee Benefit Plan.
There are no unfunded obligations under any Company Plan providing benefits
after termination of employment to any employee of the Company or any Subsidiary
(or to any beneficiary of any such employee), including but not limited to
retiree health coverage and deferred compensation, but excluding continuation of
32
health coverage required to be continued under Section 4980B of the Code or
other applicable law and insurance conversion privileges under state law, but
only to the extent that such continuation of coverage is provided solely at the
participant's or beneficiary's expense.
(h) No act or omission has occurred and no condition exists with
respect to any Company Plan that would subject the Buyer, the Company, any
Subsidiary, or any plan participant to (i) any fine, penalty, Tax or liability
of any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer or
service provider with respect to any Company Plan, nor will the transactions
contemplated by this Agreement give rise to any such liability.
(i) No Company Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(j) Each Company Plan, other than any Mandatory Plan, is amendable
and terminable unilaterally by the Company or a Subsidiary at any time without
liability or expense to the Company, any such Subsidiary or such Company Plan as
a result thereof (other than for benefits accrued through the date of
termination or amendment and reasonable administrative expenses related to such
termination or amendment) and, except for Mandatory Plans, no Company Plan, plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company or any Subsidiary from amending or terminating any such Company Plan, or
in any way limit such action.
(k) Except as otherwise disclosed in a schedule Delivered to the
Buyer in Writing, Section 2.22(k) of the Disclosure Schedule discloses each: (i)
agreement with any shareholder, director, executive officer or other key
employee of the Company or any Subsidiary (but excluding, in the case of clauses
(A) and (B), employment agreements in the form of the Company's or any
Subsidiary's standard form employment agreements, copies of which have been
provided to the Buyer and the agreements set forth in Section 2.15(a)(vii) of
the Disclosure Schedule) (A) the benefits of which are contingent, or the terms
of which are altered, upon the occurrence of a transaction involving the Company
or any Subsidiary of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee (excluding such
benefits as are required by law); (ii) agreement, plan or arrangement under
which any person may receive payments from the Company or any Subsidiary that
may be subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including any stock option plan, stock appreciation right plan, restricted stock
plan, stock purchase plan, severance benefit plan or Company Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
33
(l) Each individual who has received compensation for the
performance of services on behalf of the Company or any Subsidiary has been
properly classified as an employee or independent contractor in accordance with
applicable law.
(m) Section 2.22(m) of the Disclosure Schedule sets forth the
policy of the Company and any Subsidiary with respect to accrued vacation,
accrued sick time and earned time off and the amount of such liabilities as of
the Most Recent Balance Sheet Date will be accurately reflected on the December
31, 2004 Balance Sheet.
(n) Except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, Section 2.22(n) of the Disclosure Schedule sets forth all
Company Plans that establish an obligation for the payment of bonuses to
employees of the Company or any Subsidiary. Except as set forth in Section
2.22(n) of the Disclosure Schedule, the Company and its Subsidiaries have no
other bonus obligations to any such employees. The amount of all bonus
obligations earned by such employees with respect to periods through the Closing
Date shall be fully accrued for on the Closing Balance Sheet.
(o) Except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, there are no loans or extensions of credit from the
Company or any Subsidiary to any current employee of or independent contractor
to the Company or any Subsidiary, other than (i) those loans and extensions of
credit which have previously been disclosed in a schedule Delivered to the Buyer
in Writing and (ii) de minimus advances to employees for travel expenses
incurred in the Ordinary Course of Business.
(p) There are no loans or extensions of credit from the
Company or any Subsidiary to any former employee of or independent contractor to
the Company or any Subsidiary.
(q) Except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, there is no plan or commitment, whether legally binding or
not, to create any additional Company Plans or to modify any existing Company
Plans with respect to employees of the Company or any Subsidiary.
(r) Except as otherwise disclosed in a schedule Delivered to
the Buyer in Writing, there is no corporate-owned life insurance (COLI),
split-dollar life insurance policy or any other life insurance policy on the
life of any employee of the Company or any Subsidiary or on any Company
Shareholder.
(s) All premiums that have fallen due in respect of the
Company's or any Subsidiary's foreign pension schemes have been paid or are
adequately provided for on the Most Recent Balance Sheet. Neither the Company
nor any of the Subsidiaries have any obligation with respect to such pensions,
whether or not conditional or contingent, including but not limited to
back-service obligations, which are not fully funded or adequately provided for
on the Most Recent Balance Sheet.
(t) Any "nonqualified deferred compensation plan" (within the
meaning of Section 409A of the Code) to which the Company or any Subsidiary is a
party complies with the requirements of paragraphs (2), (3) and (4) of Section
409A(a) of the Code by its terms and has been operated in accordance with such
34
requirements. No event has occurred that would be treated by Section 409A(b)
of the Code as a transfer of property for purposes of Section 83 of the Code.
2.23 Environmental Matters.
---------------------
(a) Each of the Company and the Subsidiaries has complied and is
in compliance with all applicable Environmental Laws.
(b) Neither the Company nor any Subsidiary has any liabilities or
obligations arising from the release or threat of release by the Company or any
Subsidiary of any Materials of Environmental Concern into the environment, and
there has been no release or threat of release of any Materials of Environmental
Concern at any parcel of real property or any facility formerly or currently
owned, leased, operated or controlled by the Company or any Subsidiary in
violation of any Environmental Law in effect as of the Closing Date that would
result in the imposition, or would permit the imposition, of any fine, penalty,
enforcement action or remediation obligation on the Company or any Subsidiary
or, following the Closing, the Buyer or (in the event of a Merger Transaction)
the Surviving Corporation.
(c) There is no pending or, to the Knowledge of the Company,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request by
any Governmental Entity, relating to any Environmental Law involving the Company
or any Subsidiary, any Owned Real Property or any real property formerly or
currently leased by the Company or any Subsidiary.
(d) Neither the Company nor any Subsidiary is a party to or bound
by any court order, administrative order, consent order or other agreement
between the Company or any Subsidiary and any Governmental Entity entered into
in connection with any legal obligation or liability arising under any
Environmental Law.
(e) Set forth in Section 2.23 of the Disclosure Schedule is a list
of all: (i) final Phase I or Phase II environmental site assessment reports,
limited environmental compliance reviews and environmental regulatory compliance
summaries with respect to premises currently owned, leased or operated by the
Company or a Subsidiary, and (ii) documents (whether in hard copy or electronic
form) that contain any environmental reports, investigations and audits with
respect to properties formerly owned, operated, or leased by the Company or a
Subsidiary (whether conducted by or on behalf of the Company or a Subsidiary or
a third party, and whether done at the initiative of the Company or a Subsidiary
or directed by a Governmental Entity or other third party) which the Company or
any Subsidiary has possession of or access to. A complete and accurate copy of
each such document or report listed in Section 2.23 of the Disclosure Schedule
has been provided to the Buyer.
(f) The Company is not aware of any environmental liability on the
part of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any Subsidiary.
2.24 Legal Compliance. The Company and each Subsidiary is currently
----------------
conducting, and has at all times since January 1, 2001 conducted, its business
in compliance with each applicable law (including rules and regulations
35
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity. Since January 1, 1999, neither the Company nor any
Subsidiary has received any notice or communication from any Governmental Entity
alleging noncompliance with any applicable law, rule or regulation which has not
been resolved to the satisfaction of such Governmental Entity.
2.25 Customers and Suppliers. Section 2.25 of the Disclosure Schedule
-----------------------
sets forth a list of (a) each customer of the Company or any Subsidiary that
accounted for more than 5% of the Company's consolidated revenues during the
last full fiscal year or the interim period through the Most Recent Balance
Sheet Date and the amount of revenues accounted for by such customer during each
such period and (b) each supplier that is the sole supplier of any significant
product or service to the Company or a Subsidiary. No significant customer or
supplier of the Company or any Subsidiary has notified the Company or any
Subsidiary within the past year that it will stop, or decrease the rate of,
buying materials, products or services or supplying materials, products or
services, as applicable, to the Company or any Subsidiary. No purchase order or
commitment of the Company or any Subsidiary of $50,000 or more is in excess of
normal requirements, nor are prices provided therein in excess of current market
prices for the products or services to be provided thereunder.
2.26 Permits. The Company and each Subsidiary holds all Permits that
-------
are required for the Company and the Subsidiaries to conduct their respective
businesses as presently conducted. Each such Permit is in full force and effect;
the Company or the applicable Subsidiary is in compliance with the terms of each
such Permit; and, to the Knowledge of the Company (a) no suspension or
cancellation of such Permit is threatened and (b) there is no basis for
believing that such Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect immediately following the Closing.
2.27 Certain Business Relationships With Affiliates. No Principal
----------------------------------------------
Shareholder or Affiliate of the Company, any Subsidiary or any Principal
Shareholder (a) owns any property or right, tangible or intangible, which is
used in the business of the Company or any Subsidiary, (b) has any claim or
cause of action against the Company or any Subsidiary, (c) except as otherwise
disclosed in a schedule Delivered to the Buyer in Writing, owes any money to, or
is owed any money by, the Company or any Subsidiary other than for salary and
benefits obligations arising in the Ordinary Course of Business, or (d) is a
party to any contract or other arrangement (written or oral) with the Company or
any Subsidiary other than any contract listed in Sections 2.15(a)(vii) or
(viii), Section 2.21 or Section 2.22 of the Disclosure Schedule. Section 2.27 of
the Disclosure Schedule describes any transactions or relationships between the
Company or a Subsidiary and any Affiliate thereof which occurred or have existed
since January 1, 2001.
2.28 Brokers' Fees. Neither the Company, any Subsidiary nor any of the
-------------
Sellers has any liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions contemplated by this
Agreement.
2.29 Books and Records. The minute books and other similar records of
-----------------
the Company and each Subsidiary contain complete and accurate records of all
actions taken at any meetings of the Company's or such Subsidiary's
shareholders, Board of Directors or any committee thereof and of all written
36
consents executed in lieu of the holding of any such meeting. The accounting and
financial books and records of the Company and each Subsidiary accurately
reflect the assets, liabilities and business of the Company or such Subsidiary
and have been maintained in accordance with good business and bookkeeping
practices. Section 2.29 of the Disclosure Schedule contains a list of all bank
accounts and safe deposit boxes of the Company and the Subsidiaries and the
names of persons having signature authority with respect thereto or access
thereto.
2.30 Prepayments, Prebilled Invoices and Deposits.
--------------------------------------------
(a) Section 2.30(a) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits in excess of $100,000 each that
have been received by the Company or any Subsidiary as of the date of this
Agreement from customers for products to be shipped, or services to be
performed, after the Closing Date, and (ii) with respect to each such
prepayment, prebilled invoice or deposit, (A) the party and contract credited,
(B) the date received or invoiced, (C) the products and/or services to be
delivered and (D) the conditions for the return of such prepayment, prebilled
invoice or deposit. All such prepayments, prebilled invoices and deposits are
properly accrued for on the Most Recent Balance Sheet, and will be properly
accrued for on the Closing Balance Sheet, in accordance with GAAP applied on a
consistent basis with the past practice of the Company and its Subsidiaries.
(b) Section 2.30(b) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits in excess of $100,000 each that
have been made or paid by the Company or any Subsidiary as of the date of this
Agreement for products to be purchased, services to be performed or other
benefits to be received after the Closing Date, and (ii) with respect to each
such prepayment, prebilled invoice or deposit, (A) the party to whom such
prepayment, prebilled invoice or deposit was made or paid, (B) the date made or
paid, (C) the products and/or services to be delivered and (D) the conditions
for the return of such prepayment, prebilled invoice or deposit. All such
prepayments, prebilled invoices and deposits are properly accrued for on the
Most Recent Balance Sheet, and will be properly accrued for on the Closing
Balance Sheet, in accordance with GAAP applied on a consistent basis with the
past practice of the Company and its Subsidiaries.
2.31 Controls and Procedures.
-----------------------
(a) The Company and its Subsidiaries maintain accurate books and
records reflecting their respective assets and liabilities and maintain
reasonable and adequate internal accounting controls for a privately held
company which provide assurance that (i) transactions are executed with
management's authorization, (ii) transactions are recorded as necessary to
permit preparation of the financial statements of the Company and its
Subsidiaries and to maintain accountability for the Company's and the
Subsidiaries' assets, (iii) access to assets of the Company and its Subsidiaries
is permitted only in accordance with management's authorization, and (iv)
accounts, notes and other receivables and inventory were recorded accurately,
and reasonable and adequate procedures are implemented to effect the collection
thereof on a current and timely basis.
37
(b) The Company has delivered to the Buyer true and complete
copies of all written policies, manuals and other documents promulgating
disclosure controls and procedures concerning the Company or any of its
Subsidiaries.
2.32 Certain Payments; Export Law Compliance. Neither the Company nor
---------------------------------------
any Subsidiary nor any of their respective directors, officers, agents or
employees or any other person acting for or on behalf of the Company or any
Subsidiary has, directly or indirectly, at any time used funds, in connection
with the business of the Company or any Subsidiary, for any illegal purpose or
in violation of any law, including, without limitation, the making of any
unlawful payment, contribution, bribe or kickback to any person affiliated with
any political party or government. Neither the Company nor any Subsidiary has
violated any law concerning the export or re-export of any products or services
or the prohibited boycott of any country.
2.33 Disclosure. No representation or warranty by the Company contained
----------
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company or any Seller pursuant to this Agreement, contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading. To the Knowledge of the Company, the Company and the Sellers have
disclosed to the Buyer all material information relating to the business of the
Company and its Subsidiaries or the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS OF THE SELLERS
Each of the Sellers severally represents and warrants to the Buyer
that, except as set forth in the Seller Disclosure Schedule, the statements
contained in this Article III are true and correct as of the date of this
Agreement and will be true and correct as of the Closing as though made as of
the Closing. The Sellers shall use their best efforts to arrange the Seller
Disclosure Schedule in sections and paragraphs corresponding to the numbered and
lettered sections and paragraphs contained in this Article III; provided that
the disclosures in any section or paragraph of the Seller Disclosure Schedule
shall qualify only (a) the corresponding section or paragraph in this Article
III and (b) other sections or paragraphs in this Article III to the extent that
it would be reasonably inferred from a reading of the disclosure that such
disclosure also qualifies or applies to such other section or paragraph.
3.1 Title. Such Seller has good and marketable title to (a) the
-----
Company Shares which are to be transferred to the Buyer by such Seller pursuant
hereto and (b) the Options held by such Seller which are to be terminated
hereunder, as the case may be, in each case, free and clear of any and all
Security Interests, covenants, conditions, restrictions, voting trust
arrangements, options and adverse claims or rights whatsoever. Each Seller has
Delivered to the Buyer in Writing or in a Joinder Agreement a true and correct
description of all Company Shares owned by such Seller and all Options held by
such Seller.
3.2 Authority. Such Seller has all requisite power and authority
---------
(corporate, trust, limited liability company, partnership and other) to execute
and deliver this Agreement and to perform its obligations hereunder. The
38
execution and delivery by such Seller of this Agreement and the agreements
provided for herein, and the consummation and performance by such Seller of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate, trust, limited liability company,
partnership and other action on the part of such Seller. This Agreement and all
other agreements provided for herein have been or will be as of the Closing Date
duly and validly executed and delivered by such Seller and constitutes or will
constitute a valid and binding obligation of such Seller, enforceable against
such Seller in accordance with its terms.
3.3 Regulatory Approvals. Such Seller is not a party to, subject to or
--------------------
bound by any agreement or any judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would prevent the execution
or delivery of this Agreement by such Seller, the transfer, conveyance and sale
of the Company Shares to be sold by such Seller to the Buyer pursuant to the
terms hereof or the termination of any Options held by such Seller.
3.4 Brokers. Such Seller has no liability or obligation to pay any
-------
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary (in the case of a
Merger Transaction) represents and warrants to the Company and the Sellers that
the statements contained in this Article IV are true and correct as of the date
of this Agreement and will be true and correct as of the Closing as though made
as of the Closing.
4.1 Organization and Corporate Power. Each of the Buyer and the
--------------------------------
Transitory Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation. The Buyer has
all requisite power and authority (corporate and other) to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
4.2 Authorization of Transaction. Each of the Buyer and the Transitory
----------------------------
Subsidiary has all requisite power and authority (corporate and other) to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery by the Buyer and the Transitory Subsidiary of this
Agreement and the consummation by the Buyer and the Transitory Subsidiary of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Buyer and
Transitory Subsidiary, respectively. This Agreement has been duly and validly
executed and delivered by the Buyer and the Transitory Subsidiary and
constitutes a valid and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its terms.
4.3 Noncontravention. Subject to compliance with applicable foreign
----------------
antitrust or trade regulation laws and, in the case of a Merger Transaction, the
filing of the Certificate of Merger as required by the Michigan Business
Corporation Act, neither the execution and delivery by the Buyer or the
Transitory Subsidiary of this Agreement or any other agreement provided for
39
herein, nor the consummation by the Buyer or the Transitory Subsidiary of the
transactions contemplated hereby or thereby, will (a) conflict with or violate
any provision of the charter, articles of incorporation or By-laws of the Buyer
or the Transitory Subsidiary, as the case may be, (b) require on the part of the
Buyer or the Transitory Subsidiary any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other arrangement to
which the Buyer or the Transitory Subsidiary is a party or by which either is
bound or to which any of their assets are subject, or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Buyer or
the Transitory Subsidiary or any of their properties or assets.
4.4 Broker's Fees. The Buyer has no liability or obligation to pay an
-------------
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.5 Investment Representation. In the case of a Stock Transaction, the
-------------------------
Buyer is acquiring the Company Shares held by the Selling Shareholders for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
agreements contemplated herein, the Buyer has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or commitment
providing for the disposition thereof. The Buyer has sufficient knowledge and
experience in business and financial matters to enable the Buyer to understand
the risks and merits associated with participation in transactions of the type
contemplated by this Agreement.
4.6 Disclosure. No representation or warranty by the Buyer contained
----------
in this Agreement, and no statement contained in any other document, certificate
or other instrument delivered or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE V
COVENANTS
5.1 Closing Efforts. Each of the Parties shall use its Reasonable Best
---------------
Efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement, including using
its or his Reasonable Best Efforts to ensure that (a) its or his representations
and warranties remain true and correct through the Closing Date and (b) the
conditions to the obligations of the other Parties to consummate the
transactions contemplated by this Agreement are satisfied.
40
5.2 Governmental and Third-Party Notices and Consents.
-------------------------------------------------
(a) Each Party shall use its Reasonable Best Efforts to obtain, at
its expense, all waivers, permits, consents, approvals or other authorizations
from Governmental Entities, and to effect all registrations, filings and notices
with or to Governmental Entities, as may be required for such Party to
consummate the transactions contemplated by this Agreement and to otherwise
comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, each of the Parties shall promptly
file any applications it may be required to file under any applicable foreign
antitrust or trade regulation law, shall use its Reasonable Best Efforts to
obtain an early termination of the applicable waiting period, and shall make any
further filings or information submissions pursuant thereto that may be
necessary, proper or advisable; provided, however, that notwithstanding anything
to the contrary in this Agreement, the Buyer shall not be obligated to sell or
dispose of or hold separately (through a trust or otherwise) any assets or
businesses of the Buyer or its Affiliates. The Parties will work together to
identify all waivers, permits, consents, approvals or other authorizations from
Governmental Entities that are required under any applicable foreign antitrust
or trade regulation law by either Party to consummate the transactions
contemplated by this Agreement and to otherwise comply with all applicable
foreign antitrust or trade regulation laws and regulations in connection
therewith.
(b) The Company, the Selling Shareholders and the Option Holders
party hereto shall use their Reasonable Best Efforts to obtain, at their
expense, all such waivers, consents or approvals from third parties, and to give
all such notices to third parties, as are listed or required to be listed in the
Disclosure Schedule.
5.3 Shareholder and Option Holder Approval.
--------------------------------------
(a) The Company and the Principal Shareholders shall use their
Reasonable Best Efforts to cause all of the other Company Shareholders and all
of the Option Holders to execute a Joinder Agreement in the form attached hereto
as Exhibit B (a "Joinder Agreement") pursuant to which (i) each such Company
Shareholder agrees to become a Selling Shareholder for purposes of this
Agreement (whereupon such Company Shareholder shall be deemed to be (A) a
"Selling Shareholder" hereunder and (B) a "Party" to and "Seller" under this
Agreement) and (ii) each such Option Holder agrees to the termination of the
Options held by such Option Holder in accordance with this Agreement (whereupon
such Option Holder shall deemed to be a "Party" to and "Seller" under this
Agreement). The Company and the Principal Shareholders shall also use their
Reasonable Best Efforts to cause the Company to obtain, as promptly as
practicable, the Requisite Shareholder Approval, either at a special meeting of
shareholders or pursuant to a written shareholder consent, all in accordance
with the applicable requirements of the Michigan Business Corporation Act.
(b) In connection with obtaining Joinder Agreements and the
Requisite Shareholder Approval, on March 23, 2005, the Company sent to the
Option Holders a notice of the termination of all unexercised Options in the
form previously Delivered to the Buyer in Writing (the "Option Notice"). The
Company shall also provide (i) to the Buyer, no later than April 10, 2005, a
draft of the Notice and the Disclosure Statement, which shall include a summary
and a complete copy of this Agreement (which summary shall include a summary of
the terms relating to the indemnification obligations of the Sellers, the escrow
arrangements, the authority of the Representatives, the tax consequences of the
transactions contemplated by this Agreement and a statement that the
41
execution of a Joinder Agreement and the approval of this Agreement by the
shareholders of the Company and the Option Holders shall constitute approval of
such terms), (ii) to its shareholders, no later than April 19, 2005, the final
version of the Notice, if applicable, and the Disclosure Statement and (iii) to
the Option Holders, no later than April 19, 2005, the Disclosure Statement. The
Buyer agrees to cooperate with the Company in the preparation of the Disclosure
Statement. The Company agrees not to distribute the Disclosure Statement until
the Buyer has had a reasonable opportunity to review and comment thereon and the
Disclosure Statement has been approved by the Buyer (which approval may not be
unreasonably withheld, conditioned or delayed). If the Requisite Shareholder
Approval is obtained by means of a written consent, the Company shall send (or
include in the Disclosure Statement), pursuant to Section 407 of the Michigan
Business Corporation Act, a written notice to all shareholders of the Company
that did not execute such written consent informing them that this Agreement was
approved by the shareholders of the Company, and shall promptly inform the Buyer
of the date on which such notice was sent.
(c) The Company, acting through its Board of Directors, shall
include in the Disclosure Statement the unanimous recommendation of its Board of
Directors that the shareholders of the Company and the Option Holders enter into
the Joinder Agreement and that the shareholders of the Company vote in favor of
the adoption of this Agreement and the approval of the Merger.
(d) The Company shall ensure that the Disclosure Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information concerning the Buyer or the Transitory Subsidiary furnished by the
Buyer in writing for inclusion in the Disclosure Statement).
(e) The Buyer shall ensure that any information furnished by the
Buyer to the Company in writing for inclusion in the Disclosure Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(f) Each of the Principal Shareholders agrees (i) to vote (or to
provide written consent with respect to) all Company Shares that are
beneficially owned by him, her or it in favor of the adoption of this Agreement
and the approval of the Merger and (ii) not to vote (or provide written consent
with respect to) any Company Shares in favor of any other acquisition (whether
by way of merger, consolidation, share exchange, stock purchase, asset purchase
or otherwise) of all or a majority of the outstanding capital stock or assets of
the Company.
5.4 Operation of Business. Except as expressly contemplated by this
---------------------
Agreement, during the period from the date of this Agreement to the Closing or
the earlier termination of this Agreement in accordance with Article X hereof
(the "Pre-Closing Period"), the Company shall (and shall cause each Subsidiary
to) conduct its operations only in the Ordinary Course of Business and in
compliance with all applicable U.S. federal, foreign, regional, state,
provincial, county and local laws and regulations and, to the extent consistent
therewith, use its Reasonable Best Efforts to preserve intact its current
42
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it. Without limiting the generality of the foregoing, during the Pre-Closing
Period, the Company shall not (and shall cause each Subsidiary not to), without
the written consent of the Buyer:
(a) issue or sell any stock or other securities of the Company or
any Subsidiary or any options, warrants or rights to acquire any such stock or
other securities (except pursuant to the exercise of Options outstanding on the
date hereof), or amend any of the terms of (including the vesting of) any
Options or restricted stock agreements, or repurchase or redeem any stock or
other securities of the Company (except from former employees, directors or
onsultants in accordance with agreements in place as of the date of this
Agreement and providing for the repurchase of shares at their original issuance
price in connection with any termination of employment with or services to the
Company or any Subsidiary);
(b) split, combine or reclassify any shares of its capital stock;
or declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, other than payment of a cash dividend on the Company Shares at such times
and in such amounts as are consistent with the past practice of the Company;
(c) create, incur, assume, cancel or compromise any indebtedness
(including obligations in respect of capital leases) owed to or by the Company
or any Subsidiary other than the creation, incurrence, assumption, cancellation
or compromise of trade indebtedness in the Ordinary Course of Business; assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity;
make any loans, advances or capital contributions to, or investments in, any
other person or entity; or waive or release any right material to the Company or
any Subsidiary; provided, however, that the Company shall be permitted to make
loans to Option Holders to allow such Option Holders to exercise their Options,
which loans shall be (i) evidenced by a promissory note from such Option Holder
in the form attached hereto as Exhibit E and (ii) due and payable in full from
the proceeds of the Closing otherwise payable to such Option Holder;
(d) enter into, adopt or (except as required by applicable law)
amend any Employee Benefit Plan, or enter into, adopt or amend any employment or
severance agreement or arrangement of the type described in Section 2.22(k) or
(except for normal increases in the Ordinary Course of Business for employees
who are not Affiliates) increase in any manner the compensation or fringe
benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any bonus or other
benefit to its directors, officers or employees (except for existing payment
obligations listed in Section 2.22(k) or (n) of the Disclosure Schedule) or hire
any new officers or (except in the Ordinary Course of Business) any new
employees or consultants;
(e) acquire, sell, lease, license, transfer or dispose of any
assets or property (including any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
43
(f) mortgage or pledge any of its property or assets or subject
any such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(h) amend its charter, articles of incorporation, by-laws or other
organizational documents;
(i) sell, assign, transfer, license or sublicense any Intellectual
Property, other than pursuant to licenses with customers or suppliers entered
into in the Ordinary Course of Business;
(j) change the nature or scope of its business being carried on as
of the date of this Agreement or commence any new business not being ancillary
or incidental to such business or take any action to alter its organizational or
management structure;
(k) change its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in GAAP, or make any
new elections, or changes to any current elections, with respect to Taxes;
(l) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any contract or agreement of a nature required to be listed in Section
2.12, Section 2.13 or Section 2.15 of the Disclosure Schedule;
(m) make or commit to make any capital expenditure in excess of
$50,000 per item or $250,000 in the aggregate;
(n) institute or settle any Legal Proceeding;
(o) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Stock
Transaction or the Merger Transaction set forth in Article VI not being
satisfied;
(p) fail to take any action necessary to preserve the validity of
any Intellectual Property or Permit; or
(q) agree in writing or otherwise to take any of the foregoing
actions.
In addition, during the Pre-Closing Period, the Company shall (i)
accept customer orders in the Ordinary Course of Business, (ii) not take any
action outside of the Ordinary Course of Business designed to increase Revenue
during the Earn-Out Period ("Prohibited Actions") such as, by way of example and
not limitation, delaying shipments of any Customer Offerings that would normally
be shipped prior to the commencement of the Earn-Out Period or booking any
Customer Offerings outside of the Ordinary Course of Business and (iii)
cooperate with the Buyer in communicating with suppliers and customers to the
44
extent reasonably required to effectuate the transactions contemplated by this
Agreement.
5.5 Access to Information. During the Pre-Closing Period, the Company
---------------------
and the Principal Shareholders shall afford the officers, attorneys, accountants
and other authorized representatives of the Buyer free and full access upon
reasonable notice and during normal business hours to all personnel, offices,
properties, books and records of the Company and its Subsidiaries, so that the
Buyer may have full opportunity to make such investigation as it shall desire to
make of the management, business, properties and affairs of the Company and the
Subsidiaries, and the Buyer shall be permitted to make abstracts from, or copies
of, all such books and records. The Principal Shareholders and the Company shall
furnish to the Buyer such financial and operating data and other information as
to the business of the Company and the Subsidiaries as the Buyer shall
reasonably request.
5.6 Notice of Breaches. During the Pre-Closing Period, the Company,
------------------
the Selling Shareholders and the Option Holders shall promptly deliver to the
Buyer supplemental information concerning events or circumstances occurring
subsequent to the date hereof which would render any representation, warranty
or statement of the Company, the Selling Shareholders or the Option Holders in
this Agreement or the Disclosure Schedule inaccurate or incomplete in any
material respect at any time after the date of this Agreement until the Closing.
No such supplemental information shall be deemed to avoid or cure any
misrepresentation or breach of warranty or constitute an amendment of any
representation, warranty or statement in this Agreement or the Disclosure
Schedule; provided that if (a) such supplemental information relates to an event
or circumstance occurring subsequent to the date hereof (without breach of
Section 5.4 or Section 5.7), (b) such supplemental information is accompanied by
a written statement from the Representatives, on behalf of the Sellers,
informing the Buyer of their belief that the Buyer is entitled to terminate this
Agreement in accordance with the provisions of Section 10.1(b) as a result of
such supplemental information (which statement shall be binding on the Sellers)
and (c) the Buyer would, in fact, have the right to terminate this Agreement
pursuant to Section 10.1(b) as a result of the information so disclosed and it
does not exercise such right prior to the Closing, then such supplemental
information shall constitute an amendment of the representation, warranty or
statement to which it relates for purpose of Article VII of this Agreement such
that the Buyer shall not be entitled to indemnification with respect to such
matter to the extent of the information so disclosed; provided, further, that if
such supplemental information is provided to the Buyer less than two (2) full
business days prior to the scheduled Closing Date, then the Closing Date shall
be deferred by two (2) business days to provide the Buyer with sufficient time
to evaluate such information.
5.7 Exclusivity.
-----------
(a) During the Pre-Closing Period, neither the Company nor any of
the Selling Shareholders shall, and the Company shall require each of its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate any
inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any acquisition, equity or debt financing, joint venture, merger,
reorganization, consolidation, recapitalization, business combination,
liquidation, dissolution, share exchange, sale of stock, sale of material assets
or similar business transaction involving the Company, any Subsidiary or any
45
division of the Company, (ii) furnish any information concerning the business,
properties or assets of the Company, any Subsidiary, any division of the Company
or the Company Shares to any party (other than the Buyer) or (iii) engage in
negotiations or enter into any agreement with any party (other than the Buyer)
concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company and the Shareholders are terminating such discussions
or negotiations. If the Company or any of the Selling Shareholders receives any
inquiry, proposal or offer of the nature described in paragraph (a) above, the
Company shall, within one business day after such receipt, notify the Buyer of
such inquiry, proposal or offer, including the identity of the other party and
the terms of such inquiry, proposal or offer.
5.8 Expenses. Except as otherwise expressly provided herein, the Buyer
--------
will pay all fees and expenses (including legal and accounting fees and
expenses) incurred by it in connection with the transactions contemplated hereby
and the Company will pay all fees and expenses incurred by the Company in
connection with the transactions contemplated hereby, which fees and expenses
shall be reserved and provided for on the Closing Balance Sheet, with any
amounts in excess thereof being paid for by the Sellers; provided, however,
that any Public Company Expenses for which an invoice or ▇▇▇▇ has been received
prior to the Closing and which has been recorded or paid by the Company shall be
reserved or provided for as a receivable from the Buyer on the Closing Balance
Sheet. Expenses incurred by the Company after the Closing associated with
bringing the Company into compliance with the record keeping and documentation
requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 will be paid for by the Company,
the Buyer or the Surviving Corporation; provided that nothing set forth in this
Section 5.8 shall relieve the Sellers from any indemnification obligation
pursuant to Section 7.1 of this Agreement. Each Seller shall be responsible for
payment of all sales or transfer Taxes (including real property transfer Taxes)
arising out of the conveyance of the Company Shares owned by such Seller.
5.9 280G Covenant. Prior to the Closing Date, the Company shall submit
-------------
to a shareholder vote the right of any "disqualified individual" (as defined in
Section 280G(c) of the Code) to receive an amount of payments contingent on the
consummation of the transactions contemplated by this Agreement (within the
meaning of Section 280G(b)(2)(i) of the Code) to the extent necessary so that no
payment received by such "disqualified individual" would be a "parachute
payment" under Section 280G(b) of the Code (determined without regard to Section
280G(b)(4) of the Code), in a manner that satisfies the shareholder approval
requirements for the small business corporation exemption of Section 280G(b)(5)
of the Code and regulations promulgated thereunder. Such vote shall establish
the "disqualified individual's" right to the payment or other compensation. In
addition, before the vote is submitted to shareholders, the Company shall
provide adequate disclosure to Company Shareholders that hold voting Company
Shares of all material facts concerning all payments that, but for such vote,
could be deemed "parachute payments" to a "disqualified individual" under
Section 280G of the Code in a manner that satisfies Section 280G(b)(5)(B)(ii) of
the Code and regulations promulgated thereunder.
46
5.10 Environmental Remediation.
-------------------------
(a) Prior to the Closing Date, the Company shall commence and
diligently prosecute the environmental remediation activities set forth on
Schedule 5.10 attached hereto (the "Remediation Activities"). After the Closing
Date, the Buyer shall cause the Company (in the case of a Stock Transaction) or
the Surviving Corporation (in the case of a Merger Transaction) to complete the
Remediation Activities. The Remediation Activities shall be undertaken in a good
and workmanlike manner in compliance with all applicable laws.
(b) If the actual cost of completing the Remediation Activities
exceeds the sum of (i) the reserve therefor set forth on the Closing Balance
Sheet and (ii) any fines or penalties assessed by any Governmental Entity with
respect to any violation of any Environmental Law associated with the matters
giving rise to the Remediation Activities, the total amount of such excess shall
be paid to the Buyer from the Escrow Fund.
(c) If the actual cost of completing the Remediation Activities is
less than the sum of (i) the reserve therefor set forth on the Closing Balance
Sheet and (ii) any fines or penalties assessed by any Governmental Entity with
respect to any violation of any Environmental Law associated with the matters
giving rise to the Remediation Activities, the amount of such savings shall be
paid by the Buyer to the Representatives for distribution to the Selling
Shareholders and Option Holders.
(d) On the first anniversary of the Closing Date, the Buyer and
the Representatives shall make a good faith determination of the actual costs
incurred for those Remediation Activities that have been completed on or prior
to such date. In the event the aggregate net costs incurred with respect thereto
are less than the aggregate budgeted amounts therefor set forth on Schedule
5.10, then the Buyer shall promptly pay the Representatives, for distribution to
the Selling Shareholders and Option Holders, the amount of such savings for such
completed items. Notwithstanding the foregoing, the Buyer shall be permitted to
reduce such payment by the amount, if any, by which the average of (i) the
Buyer's reasonable estimate of the costs of completing the remaining Remediation
Activities not completed by the first anniversary of the Closing Date obtained
from an independent, reliable third party, and (Y) the Representative's
reasonable estimate of the costs of completing such remaining Remediation
Activities obtained from an independent, reliable third party, exceeds the
remaining budget therefor set forth on Schedule 5.10. The Representatives and
the Buyer shall each have the right to dispute the other party's estimate of
such cost of completing the remaining Remediation Activities in accordance with
the procedures set forth in Section 7.4(e) of this Agreement.
5.11 FIRPTA Notice. Prior to the Closing, the Company shall deliver to
-------------
the Buyer and to the Internal Revenue Service a notice that the Company Shares
are not "U.S. real property interests" in accordance with the Treasury
Regulations under Sections 897 and 1445 of the Code. If the Buyer does not
receive the notice described above on or before the Closing Date, the Buyer, the
Company (in the case of a Stock Transaction) or the Surviving Corporation (in
the case of a Merger Transaction) shall be permitted to withhold from the
payments to be made pursuant to this Agreement any required withholding tax
under Section 1445 of the Code.
5.12 S-X Financial Statements. The Company shall deliver to the Buyer,
------------------------
not later than three (3) business days prior to the Closing, (a) financial
statements for the Company and its Subsidiaries which satisfy the Buyer's
financial statement reporting obligations with respect to the acquisition
47
of the Company and its Subsidiaries under Regulation S-X of the SEC (the "S-X
Financial Statements"), including without limitation (i) audited consolidated
balance sheets and statements of income, changes in shareholders' equity and
cash flows of the Company as of and for the fiscal years ended December 31, 2003
and December 31, 2004, as certified without qualification by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
("▇▇▇▇▇ ▇▇▇▇▇▇▇▇"), the Company's independent public accountants, and (ii) if
required by Regulation S-X, the unaudited consolidated balance sheet and
statements of income, changes in shareholders' equity and cash flows of the
Company as of and for the fiscal quarter ended March 31, 2005, reviewed by ▇▇▇▇▇
▇▇▇▇▇▇▇▇ in accordance with Statement of Accounting Standards No. 100, and (b) a
consent of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to the inclusion of its reports regarding the S-X
Financial Statements in the Buyer's 8-K filing with the SEC with respect to the
transactions contemplated by this Agreement. The Sellers shall also provide to
the Buyer the footnote detail for all non-audit services listed in Section
2.6(d) of the Disclosure Schedule (the "Footnote Detail").
5.13 Title Insurance. Prior to the Closing, the Company shall, at the
---------------
Company's cost and expense, procure with respect to each parcel of Owned Real
Property located in the United States an ALTA Owner's policy of Title Insurance
Form B-1987 (or equivalent policy reasonably acceptable to the Buyer if the real
property is located in a state in which an ALTA Owner's policy of Title
Insurance Form B-1987 is not available) issued by a title insurer reasonably
satisfactory to the Buyer, in the amounts set forth on Schedule 5.13 hereto,
insuring title to such real property to be in the Company or the applicable
Subsidiary as of the Closing (subject only to the title exceptions described in
Section 2.11 of the Disclosure Schedule). Each such title insurance policy shall
(a) insure title to the real property and all recorded easements benefiting such
real property and (b) contain a "non-imputation" endorsement to the effect that
title defects known to the officers, directors, and stockholders of the owner
prior to the Closing shall not be deemed "facts known to the insured" for
purposes of the policy.
5.14 Forensic Accountant Report. The Company has engaged SBV Forensics,
--------------------------
BV of Rotterdam, Netherlands to investigate and prepare a report (the "Forensic
Accountant Report") with respect to the matters disclosed in Section 2.31 of the
Disclosure Schedule and any matters related thereto or arising therefrom. The
Company shall fully cooperate with such forensic accountant in connection with
such investigation and shall deliver a copy of the Forensic Accountant Report to
the Buyer promptly after receipt thereof.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF STOCK TRANSACTION AND MERGER TRANSACTION
6.1 Conditions to Obligations of the Buyer and the Transitory
----------------------------------------------------------
Subsidiary.
----------
(a) The obligation of the Buyer to consummate the Stock
Transaction is subject to the satisfaction of the following conditions
precedent, each of which may be waived in writing in the sole discretion of the
Buyer:
(i) all applicable pre-closing waiting periods (and any
extensions thereof) under applicable foreign antitrust or trade regulation laws
shall have expired or otherwise been terminated;
48
(ii) in the reasonable determination of the Buyer, since the
date of this Agreement (A) there shall have occurred no change, event,
circumstance or development that, individually or in the aggregate with any
other such change, event, circumstance or development, has had, or is reasonably
likely to have, a Company Material Adverse Effect and (B) there shall have
occurred no material disruption in the public or private debt financing markets;
(iii) all of the Company Shareholders other than the Principal
Shareholders and all of the Option Holders shall have executed and delivered
Joinder Agreements to the Buyer, which Joinder Agreements shall be in full force
and effect as of the Closing Date;
(iv) the Company, the Subsidiaries and the Sellers shall have
obtained at their own expense (and shall have provided copies thereof to the
Buyer) all of the waivers, permits, consents, approvals or other authorizations,
and effected all of the registrations, filings and notices, which are (A)
necessary for the consummation of the transactions contemplated by the Agreement
or (B) material to the conduct of the Company's and the Subsidiaries' respective
businesses;
(v) the representations and warranties of the Company and the
Sellers set forth in this Agreement shall be true and correct in all material
respects when made as of the date of this Agreement and as of the Closing as
though made as of the Closing, except to the extent such representations and
warranties are specifically made as of a particular date (in which case such
representations and warranties shall be true and correct in all material
respects as of such date);
(vi) the Company and the Sellers shall have performed or
complied with its or his agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Closing;
(vii) no Legal Proceeding shall be pending or threatened
wherein an unfavorable judgment, order, decree, stipulation or injunction would
(A) prevent consummation of the transactions contemplated by this Agreement,
(B) cause the transactions contemplated by this Agreement to be rescinded
following consummation or (C) have, individually or in the aggregate, a Company
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(viii) the Company and the Representatives shall have
delivered to the Buyer the Company Certificate;
(ix) the Buyer shall have received copies of the resignations,
effective as of the Closing, of each director and officer of the Company and the
Subsidiaries listed on Schedule 6.1(a)(ix);
(x) the Buyer shall have received a counterpart of the Escrow
Agreement executed by the Escrow Agent and the Representatives;
(xi) the Buyer shall have received (A) from ▇▇▇▇▇▇▇ & Boyn,
LLP, counsel to the Company and the Representatives, an opinion in the form
attached hereto as Exhibit C, addressed to the Buyer and dated as of the
---------
49
Closing Date and (B) with respect to any Subsidiary not organized under the laws
of Michigan, an opinion in form and substance reasonably acceptable to the Buyer
of other counsel to the Company and the Representatives reasonably acceptable to
the Buyer, which opinion shall be addressed to the Buyer, dated as of the
Closing Date and address the matters indicated in Exhibit C as being applicable
to such Subsidiary;
(xii) the Buyer shall have received the Forensic Accountant
Report and shall be satisfied with the results of the investigation of the
matters reported therein;
(xiii) the Buyer shall have received the S-X Financial
Statements and the Footnote Detail;
(xiv) the Buyer shall have received bank financing of not less
than $55,000,000 on terms and conditions satisfactory to the Buyer in its
reasonable discretion and shall have provided the Representatives with a copy of
a firm commitment for said bank financing by no later than 30 business days
after the Buyer's receipt of the Company's audited consolidated balance sheet
and statements of income, changes in shareholders' equity and cash flows as of
and for the fiscal year ended December 31, 2003; and
(xv) the Buyer shall have received such other customary
certificates and instruments (including certificates of good standing of the
Company and the Subsidiaries in their respective jurisdictions of organization
and the various foreign jurisdictions in which they are qualified, certified
charter documents, certificates as to the incumbency of officers and the
adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing.
(b) The Parties intend to consummate the Merger Transaction only
if the conditions precedent to the consummation of the Stock Transaction have
not been satisfied and the Stock Transaction has not been consummated on or
before May 6, 2005. The obligation of each of the Buyer and the Transitory
Subsidiary to consummate the Merger Transaction is subject to the satisfaction
of the following conditions precedent, each of which may be waived in writing in
the sole discretion of the Buyer:
(i) the conditions set forth in Sections 6.1(a)(i) and (ii)
and (iv) through (xv) shall have been satisfied; and
(ii) the Buyer shall have received evidence that this
Agreement and the Merger have received the Requisite Shareholder Approval.
6.2 Conditions to Obligations of the Sellers.
----------------------------------------
(a) The obligation of the Company and the Sellers to consummate
the Stock Transaction is subject to the satisfaction of the following conditions
precedent, each of which may be waived in writing in the sole discretion of the
Company and the Representatives:
(i) all applicable pre-closing waiting periods (and any
extensions thereof) under applicable foreign antitrust or trade regulation laws
shall have expired or otherwise been terminated;
50
(ii) all of the Company Shareholders, other than the Principal
Shareholders, and all of the Option Holders shall have executed and delivered
Joinder Agreements to the Buyer, which Joinder Agreements shall be in full force
and effect as of the Closing Date;
(iii) the representations and warranties of the Buyer set
forth in this Agreement shall be true and correct in all material respects when
made as of the date of this Agreement and as of the Closing as though made as of
the Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties shall be true and correct in all material respects as of such
date);
(iv) the Buyer shall have performed or complied with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Closing;
(v) the Buyer shall have delivered to the Representatives the
Buyer Certificate;
(vi) the Representatives shall have received a counterpart of
the Escrow Agreement executed by the Buyer and the Escrow Agent;
(vii) the Representatives shall have received evidence of
delivery of the Original Escrow Deposit and the Letter of Credit to the Escrow
Agent; and
(viii) the Representatives shall have received such other
customary certificates and instruments (including certificates of good standing
of the Buyer in its jurisdiction of organization, certified charter documents,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as they shall reasonably request in connection with the Closing.
(b) The obligation of the Company and the Sellers to consummate
the Merger Transaction is subject to the satisfaction of the following
conditions precedent, each of which may be waived in writing in the sole
discretion of the Company and the Representatives:
(i) the conditions set forth in Sections 6.2(a)(i) and (iii)
through (viii) shall have been satisfied;
(ii) the representations and warranties of the Transitory
Subsidiary set forth in this Agreement shall be true and correct in all material
respects when made as of the date of this Agreement and as of the Closing as
though made as of the Closing, except to the extent such representations and
warranties are specifically made as of a particular date (in which case such
representations and warranties shall be true and correct in all material
respects as of such date);
(iii) the Transitory Subsidiary shall have performed or
complied with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Closing; and
<
51
> (iv) the Representatives shall have received such other
certificates and instruments (including certificates of good standing of the
Transitory Subsidiary in its jurisdiction of organization, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as they shall reasonably request in connection with the
Closing.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by the Sellers.
------------------------------
(a) The Sellers, jointly and severally, shall indemnify the Buyer
in respect of, and hold it harmless against, any and all Damages and claims for
Damages incurred or suffered by the Company, the Surviving Corporation (in the
case of a Merger Transaction), the Buyer or any Affiliate thereof resulting
from, relating to or constituting:
(i) any breach, as of the date of this Agreement or as of the
Closing Date, of any representation or warranty of the Company or any Seller
contained in (A) Article II of this Agreement (Representations and Warranties of
the Company), (B) any Joinder Agreement or (C) the Company Certificate;
(ii) except as provided in Section 7.1(b)(iii) below, any
failure to perform any covenant or agreement of the Company or any Seller
contained in this Agreement or any agreement or instrument furnished by the
Company or any Seller to the Buyer pursuant to this Agreement;
(iii) any claim by a shareholder or former shareholder of the
Company, or any other person or entity, seeking to assert, or based upon: (A)
ownership or rights to ownership of any shares of stock of the Company; (B) any
rights of a shareholder (other than the right to receive the Transaction
Consideration pursuant to this Agreement), including any option, preemptive
rights or rights to notice or to vote; (C) any rights under the articles of
incorporation, by-laws or comparable organizational documents of the Company;
(D) any claim that his, her or its shares were wrongfully repurchased by the
Company; or (E) any rescission or similar rights arising out of acts or
omissions of the Sellers or the Company prior to Closing under applicable
federal, state or foreign securities or other law with regard to any of the
Company Shares;
(iv) any Asbestos Claim;
(v) the Netherlands Product Liability Claim;
(vi) any Brazil Matters Claim;
(vii) any claim by a shareholder or former shareholder of the
Company, or any option holder or former option holder of the Company, seeking to
assert, or based upon, any written shareholder agreement with the Company in
effect on or prior to the Closing Date, or alleging a breach of fiduciary duty
or any similar claim arising out of acts or omissions of the Company or any
member of the Company's board of directors on or prior to the Closing Date;
52
(viii) any failure, for any period ending on or prior to the
Closing Date, by the Company or any Subsidiary to be qualified or otherwise
authorized to conduct business under the laws of any jurisdiction where such
qualification or authorization was required;
(ix) any Company Warranty Obligations with respect to products
or goods sold or manufactured (but excluding, in the case of manufactured
products, any components manufactured by the Company or any Subsidiary prior to
Closing that are assembled by the Buyer, the Company or any Subsidiary following
the Closing into a larger assembly) by the Company or any Subsidiary prior to
the Closing Date in excess of the reserve established by the Company on the
Closing Balance Sheet;
(x) any Product Liability Claim (other than any Asbestos Claim
or the Netherlands Product Liability Claim, which shall be the subject of
indemnification pursuant to the provisions of Sections 7.1(a)(iv) and (v)
above)) or
(xi) any Swiss Sale Claim.
(b) Each Seller, severally and not jointly, shall indemnify the
Buyer in respect of, and hold it harmless against, any and all Damages and
claims for Damages incurred or suffered by the Company, the Surviving
Corporation (in the case of a Merger Transaction), the Buyer or any Affiliate
thereof resulting from, relating to or constituting:
(i) any breach, as of the date of this Agreement or as of the
Closing Date, of any representation or warranty of such Seller contained in
Article III of this Agreement (Representations of the Sellers);
(ii) any failure of such Seller to have good, valid and
marketable title to the issued and outstanding Company Shares or Options issued
in the name of such Seller, free and clear of all Security Interests; and
(iii) any failure by such Seller to perform any covenant set
forth in Sections 9.2 or 9.3 of this Agreement.
7.2 Indemnification by the Buyer. The Buyer shall indemnify the
----------------------------
Sellers in respect of, and hold them harmless against, any and all Damages and
claims for Damages incurred or suffered by the Sellers resulting from, relating
to or constituting:
(a) any breach, as of the date of this Agreement or as of the
Closing Date, of any representation or warranty of the Buyer or, in the case of
a Merger Transaction, the Transitory Subsidiary contained in this Agreement or
the Buyer Certificate; or
(b) any failure to perform any covenant or agreement of the Buyer
or, in the case of a Merger Transaction, the Transitory Subsidiary contained in
this Agreement or any agreement or instrument furnished by the Buyer or, in the
case of a Merger Transaction, the Transitory Subsidiary to the Company pursuant
to this Agreement.
53
7.3 Indemnification Claims For Third Party Actions.
----------------------------------------------
(a) An Indemnified Party seeking indemnification for any Third
Party Action shall give written notification to the Indemnifying Party of the
commencement of such Third Party Action and shall provide a Claim Notice to the
Indemnifying Party within the applicable survival period identified in Section
7.5. Such notification shall be given within 20 days after receipt by the
Indemnified Party of notice of such Third Party Action, and shall describe in
reasonable detail (to the extent then known by the Indemnified Party) the facts
constituting the basis for such Third Party Action and the amount of the claimed
damages. No delay or failure on the part of the Indemnified Party in so
notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such delay or failure. The Indemnified
Party shall provide the Indemnifying Party with a copy of the complaint or other
written notice of the claim from the third party claimant to the Indemnified
Party, along with reasonable access to such additional information that is in
the control or possession of the Indemnified Party relating to the Third Party
Action as the Indemnifying Party may reasonably request for the purpose of
assisting the Indemnifying Party in determining whether to assume control of the
defense of such Third Party Action in accordance with the provisions of Section
7.3(c) below.
(b) In the case of any Third Party Action commenced prior to the
Closing Date for which a notice and a claim for coverage has previously been
provided to the applicable insurer (an "Existing Insured Claim"), the
Indemnified Party shall not withdraw such notice or claim without the prior
written consent of the Indemnifying Party. In the case of any Third Party Action
(i) relating to any Product Liability Claim or Asbestos Claim or (ii) where the
Damages are reasonably expected to be in excess of $50,000 (any such claim in
clause (i) or (ii) a "Required Insured Claim"), the Indemnified Party shall
notify the applicable insurance carrier of the commencement of such Third
Party Action and shall make a claim for coverage with respect thereto under such
policy. In the case of any other Third Party Action not involving a Product
Liability Claim or an Asbestos Claim and where the Damages are not reasonably
expected to be in excess of $50,000, the Indemnified Party shall be obligated to
notify any applicable insurer of the commencement of such Third Party Action and
make a claim for coverage with respect thereto under such policy to the extent
such action would be consistent with the Indemnified Party's past practice for
similar claims and without regard to the availability of indemnification under
this Article VII (a "Customary Insured Claim").
In the case of any Existing Insured Claim, Required Insured Claim or
Customary Insured Claim (each, an "Insured Claim"), the Indemnified Party shall
reasonably cooperate with any insurer of the Indemnified Party or any of its
subsidiaries (including, without limitation, the Company, the Surviving
Corporation or any Subsidiary) involved in such Insured Claim and shall respond
to all information requests reasonably made by the insurer in connection with
the Insured Claim. The Indemnified Party will keep the Indemnifying Party
advised of the status of any insurance availability and recovery for the Insured
Claim and will provide the Indemnifying Party with copies of any substantive
correspondence received by the Indemnified Party from the insurer with respect
to the recovery of insurance for such Insured Claim.
In no event shall the Indemnified Party be obligated to take any action
other than as set forth in the preceding two paragraphs with respect to any such
Insured Claim; provided, however, that if:
54
(i) the Indemnified Party recovers any Damages from the
Indemnifying Party (including, without limitation, from the Escrow Fund) under
this Agreement with respect to any Insured Claim with respect to which an
insurance claim has been filed by the Indemnified Party but with respect to
which no insurance recovery has been obtained and for which the Indemnified
Party does not elect to further pursue such claim, or
(ii) the Indemnifying Party agrees that any damages, fines,
costs or other liabilities that may be assessed against the Indemnified Party in
connection with such Insured Claim constitute Damages for which the Indemnified
Party shall be indemnified pursuant to this Article VII, subject to the
limitations on indemnification set forth in Section 7.6,
then, in either such case, at the request of the Indemnifying Party, the
Indemnified Party shall assign its claim against the insurer and its right to
any insurance recovery with respect to such Insured Claim to the Indemnifying
Party in accordance with, and to the extent provided in, Section 7.6(l). In the
event any claim against the insurer or any right to recover insurance with
respect to any Insured Claim is not assignable by the Indemnified Party (a
"Non-Assignable Insurance Claim"), then, if the Indemnifying Party has a
reasonable belief that the decision of the insurance company should be
challenged, the Indemnified Party shall reasonably cooperate, at the sole cost
and expense of the Indemnifying Party, in the pursuit of such Non-Assignable
Insurance Claim; provided that the Indemnifying Party promptly reimburses the
Indemnified Party for all such costs and expenses including, without limitation,
pursuant to Section 7.3(g).
(c) The Indemnifying Party shall be deemed to have disputed that
any damages, fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such Third Party Action constitute Damages
for which the Indemnified Party shall be indemnified pursuant to this Article
VII, unless and until the Indemnifying Party shall deliver to the Indemnified
Party a Third Party Action Response, in which the Indemnifying Party agrees that
any damages, fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such Third Party Action constitute Damages
for which the Indemnified Party shall be indemnified pursuant to this Article
VII, subject to the limitations on indemnification set forth in Section 7.6. Any
such dispute shall be resolved in accordance with the provisions of Section 7.4.
(d) Except as hereinafter provided, the Indemnified Party shall
control the defense of any Third Party Action with counsel approved by the
Indemnifying Party, which approval shall not be unreasonably withheld or delayed
Notwithstanding the foregoing, the Indemnifying Party shall be permitted to
assume control of such defense at any time (i) if it sends a written notice to
the Indemnified Party to the effect that (A) the Indemnifying Party irrevocably
elects to assume control of the defense of such Third Party Action and (B) any
damages, fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such Third Party Action, including, without
limitation, costs, expenses and other liabilities incurred by the Indemnified
Party in connection with the defense of such Third Party Action through the date
of such notice, constitute Damages for which the Indemnified Party shall be
indemnified pursuant to this Article VII, subject, however, to the limitations
on indemnification set forth in Section 7.6 and (ii) provided that the
Indemnifying Party may only assume control of such defense if:
55
(X) in the case where such Third Party Action contains any ad
damnum, such ad damnum is less than or equal to the amount of Damages for which
the Indemnifying Party is liable under this Article VII;
(Y) in the case where such Third Party Action does not contain
any ad damnum, the Indemnified Party reasonably determines, based upon
estimates, where available, of independent third party experts (such as
insurers, actuaries, and the defense counsel directly involved in defending the
claim), that the amount of any Damages reasonably expected to be incurred by the
Indemnified Party with respect to such Third Party Action is less than or equal
to the amount of Damages for which the Indemnifying Party is liable under this
Article VII (with the Indemnified Party hereby agreeing to make a request for,
and to provide the Indemnifying Party reasonable access to, estimates from such
third party experts upon the reasonable request of the Indemnifying Party, with
any dispute between the Indemnified Party and the Indemnifying Party with
respect to any such determination to be resolved in accordance with the
provisions of Section 7.4); and
(Z) such Third Party Action does not at any time involve
criminal liability or a claim for equitable relief against the Indemnified
Party.
(e) The Controlling Party shall conduct the defense of any Third
Party Action in good faith. The Non-controlling Party may participate in such
defense at its own expense. The Controlling Party shall keep the Non-controlling
Party advised of the status of such Third Party Action, shall provide copies of
any pleadings and other documentation that the Non-controlling Party may
reasonably request from time to time, and shall consider in good faith
recommendations made by the Non-controlling Party with respect thereto. Each
party shall furnish the other party with such information as it may have with
respect to such Third Party Action (including copies of any summons, complaint
or other pleading which may have been served on such party and any written
claim, demand, invoice, billing or other document evidencing or asserting the
same) and shall otherwise cooperate with and assist the Controlling Party in the
defense of such Third Party Action.
(f) With respect to any Third Party Actions pending against the
Company or any Subsidiary on Closing Date, (i) the Sellers hereby agree that
such Third Party Actions constitute matters for which the Buyer shall be
entitled to indemnification pursuant to this Article VII and (ii) the Buyer
shall continue the defense of such Third Party Action with the current counsel
handling such defense, or such other counsel as may be reasonably approved by
the Representatives, subject to the right of the Representatives to assume the
defense of such claim in accordance with, and subject to the limitations of, the
provisions of this Section 7.3.
(g) The reasonable fees and expenses of counsel to the Indemnified
Party with respect to a Third Party Action shall be considered Damages for
purposes of this Agreement if (i) the Indemnified Party is the Controlling Party
pursuant to the terms of this Section 7.3 or (ii) the Indemnifying Party assumes
control of such defense and the Indemnified Party reasonably concludes that the
Indemnifying Party and the Indemnified Party have interests that conflict or
different defenses available with respect to such Third Party Action that the
Indemnifying Party is not willing or is not able to assert on behalf of the
Indemnified Party. In the case (I) where the Sellers are both the Indemnifying
Party and the Controlling Party, or (II) the Indemnified Party pursues a
56
Non-Assignable Insurance Claim in accordance with, and subject to the
limitations set forth in, Section 7.3(b), then the Representatives shall be
permitted (A) to recover the reasonable fees and expenses of counsel incurred in
the defense of any Third Party Action or (B) to recover the reasonable fees and
expenses of counsel to the Indemnified Party incurred in the pursuit of a
Non-Assignable Insurance Claim and actually paid to the Indemnified Party in
accordance with the provisions of Section 7.3(b), in each case within 18 months
after the Closing from the Escrow Fund; provided, however, that in no event
shall the aggregate recovery by the Representatives from the Escrow Fund with
respect to all such costs under clauses (A) and (B) exceed $1,000,000.
(h) The Controlling Party shall not agree to any settlement of, or
the entry of any judgment arising from, any Third Party Action without the prior
written consent of the Non-controlling Party, which shall not be unreasonably
withheld, conditioned or delayed; provided that where the Indemnifying Party is
the Controlling Party, the consent of the Indemnified Party shall not be
required if such settlement or entry of judgment only requires the payment of
money damages and provides no other relief, the Indemnifying Party agrees in
writing to pay any such damages payable pursuant to such settlement or judgment
and such settlement or judgment includes a complete release of the Indemnified
Party from further liability.
(i) Notwithstanding the other provisions of this Section 7.3, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VII, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VII, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article
VII, for any such Damages which the Indemnified Party proves, by a preponderance
of the evidence, it is entitled to recover pursuant to this Article VII (subject
to the right of the Indemnifying Party to dispute the Indemnified Party's
entitlement to indemnification, the reasonableness of the amount the Indemnified
Party expended to satisfy such obligation, or the amount, if any, for which it
is entitled to indemnification, under the terms of this Article VII). In the
event the Indemnified Party takes any action under this Section 7.3(i), the
Indemnified Party shall use reasonable efforts to preserve the evidence of the
Damages giving rise to such claim for indemnification.
(j) For purposes of Sections 7.3, 7.4 and the second and third s
entences of Section 7.5, (i) if any of the Sellers comprise the Indemnifying
Party, any references to the Indemnifying Party (except provisions relating to
an obligation to make any payments) shall be deemed to refer to the
Representatives, and (ii) if any of the Sellers comprise the Indemnified Party,
any references to the Indemnified Party (except provisions relating to an
obligation to make or a right to receive any payments) shall be deemed to refer
to the Representatives. The Representatives shall have full power and authority
on behalf of each Seller to take any and all actions on behalf of, execute any
and all instruments on behalf of, and execute or waive any and all rights of,
the Sellers under this Article VII. The Representatives shall have no liability
to any Seller for any action taken or omitted on behalf of the Sellers pursuant
to this Article VII.
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(k) Any dispute between the parties arising out of the provisions
of this Section 7.3 shall be resolved in accordance with the provisions of
Section 7.4.
7.4 Indemnification Claims For Other Matters.
----------------------------------------
(a) In the case of any claim for indemnification under this
Article VII that does not involve a Third Party Action (including, without
limitation, any dispute between the Parties about whether the Indemnified Party
is entitled to indemnification with respect to any Third Party Action asserted
by the Indemnified Party under Section 7.3(a)), the Indemnified Party shall
deliver a Claim Notice to the Indemnifying Party within the applicable survival
period identified in Section 7.5.
(b) The Indemnified Party shall provide the Indemnifying Party
with reasonable access to such additional information that is in the control or
possession of the Indemnified Party as the Indemnifying Party may reasonably
request for the purpose of assisting the Indemnifying Party in determining its
obligations to provide indemnification under this Agreement, provided that the
Indemnified Party shall only be obligated to provide such additional information
that (i) would be discoverable under the Federal Rules in any Dispute and (ii)
would be relevant to evaluating such Claim Notice. Such additional information
shall include, without limitation, in the case of an environmental claim,
reasonable access to any property owned by the Indemnified Party or any of its
Affiliates which is the subject of a claim for the purpose of conducting an
inspection and if necessary, testing of the site (such inspection and testing to
be conducted in a manner which does not unreasonably interfere with the normal
operations of such site), and copies of any reports related to the environmental
claim.
(c) Within 45 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a Response, in which
the Indemnifying Party shall:
(i) admit that the Indemnified Party is entitled to receive
all of the Claimed Amount (in which case the Response shall be accompanied by
(A) in the case where the Sellers comprise the Indemnifying Party and the Escrow
Fund has not been distributed to the Sellers, an irrevocable instruction from
the Representatives to the Escrow Agent to pay the Claimed Amount to the Buyer
from the Escrow Fund (subject to the limitations of Section 7.6) or (B) in the
case where the Buyer is the Indemnifying Party, payment by the Buyer to the
Representatives, for distribution to the Sellers, of the Claimed Amount (subject
to the limitations of Section 7.6), by check or by wire transfer);
(ii) admit that the Indemnified Party is entitled to receive
the Agreed Amount (in which case the Response shall be accompanied by (A) in the
case where the Sellers comprise the Indemnifying Party and the Escrow Fund has
not been distributed to the Sellers, an irrevocable instruction from the
Representatives to the Escrow Agent to pay the Agreed Amount to the Buyer from
the Escrow Fund (subject to the limitations of Section 7.6) or (B) in the case
where the Buyer is the Indemnifying Party, payment by the Buyer to the
Representatives, for distribution to the Sellers, of the Agreed Amount (subject
to the limitations of Section 7.6), by check or by wire transfer); or
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(iii) dispute that the Indemnified Party is entitled to
receive any of the Claimed Amount.
The Indemnifying Party may contest the payment of all or a portion of the
Claimed Amount only based upon a good faith belief that all or such portion of
the Claimed Amount does not constitute Damages for which the Indemnified Party
is entitled to indemnification under this Article VII. If no Response is
delivered by the Indemnifying Party within such 45-day period, the Indemnifying
Party shall be deemed to have disputed that the Claimed Amount is owed to the
Indemnified Party. Acceptance by the Indemnified Party of partial payment of any
Claimed Amount shall be without prejudice to the Indemnified Party's right to
claim the balance of any such Claimed Amount.
(d) During the 60-day period following (i) the delivery of a
Response that reflects a Dispute or (ii) the expiration of the 45-day period set
forth in Section 7.3(c) in the event no Response is received by the Indemnifying
Party to the Claim Notice, the Indemnifying Party and the Indemnified Party
shall use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the Indemnified
Party shall discuss in good faith the submission of the Dispute to binding
arbitration or mediation, and if the Indemnifying Party and the Indemnified
Party agree in writing to submit the Dispute to such arbitration or mediation,
then the provisions of Section 7.4(e) shall become effective with respect to
such Dispute. The provisions of this Section 7.4(d) shall not obligate the
Indemnifying Party and the Indemnified Party to submit to arbitration, mediation
or any other alternative dispute resolution procedure with respect to any
Dispute, and in the absence of an agreement by the Indemnifying Party and the
Indemnified Party to arbitrate a Dispute, such Dispute shall be resolved in a
state or federal court sitting in the State of Michigan, in accordance with
Section 12.11.
(e) If, as set forth in Section 7.4(d), the Indemnified Party and
the Indemnifying Party agree to submit any Dispute to binding arbitration or
mediation, the arbitration or mediation shall be conducted by a single
arbitrator (the "Arbitrator") or mediator (the "Mediator"), as the case may be,
mutually acceptable to the parties in Southfield, Michigan in accordance with
the Commercial Rules in effect from time to time and the following provisions:
(i) In the event of any conflict between the Commercial Rules
in effect from time to time and the provisions of this Agreement, the provisions
of this Agreement shall prevail and be controlling;
(ii) Either party shall commence the arbitration or mediation
by filing a written submission with the Southfield, Michigan office of the AAA
in accordance with Commercial Rule 5 (or any successor provision), or by
delivery of a Notice of Dispute meeting the requirements of Commercial Rule 5 to
the other party;
(iii) Depositions and other discovery shall be conducted
pursuant to the applicable U.S. federal rules relating to discovery (the
"Federal Rules"), except that (A) discovery shall be permitted to commence
immediately, (B) the parties shall not be subject to the additional requirements
imposed by Rule 26(d) or (f) of the Federal Rules and (C) the Arbitrator or
Mediator shall establish such additional discovery procedures as the Arbitrator
or Mediator shall reasonably deem appropriate;
59
(iv) Not later than 30 days after the conclusion of the
arbitration or mediation hearing, the Arbitrator or Mediator, as the case may
be, shall prepare and distribute to the parties a writing setting forth the
award and the Arbitrator's or Mediator's reasons therefor. Any award rendered by
the Arbitrator or Mediator shall be final, conclusive and binding upon the
parties, and judgment thereon may be entered and enforced in any court of
competent jurisdiction (subject to Section 12.11);
(v) No Arbitrator or Mediator shall have any power or
authority, under the Commercial Rules or otherwise, to (x) modify or disregard
any provision of this Agreement, including the provisions of this Section
7.4(e), or (y) address or resolve any issue not submitted by the parties; and
(vi) In connection with any arbitration or mediation
proceeding pursuant to this Agreement, each party shall bear its own costs and
expenses, except that the fees and costs of the AAA and the Arbitrator or
Mediator, as the case may be, the costs and expenses of obtaining the facility
where the arbitration or mediation hearing is held, and such other costs and
expenses as the Arbitrator or Mediator may determine to be directly related to
the conduct of the arbitration or mediation and appropriately borne jointly by
the parties (which shall not include any party's attorneys' fees or costs,
witness fees (if any), costs of investigation and similar expenses) shall be
shared equally by the Indemnified Party and the Indemnifying Party.
7.5 Survival of Representations, Warranties and Indemnification
-----------------------------------------------------------
Obligations.
-----------
(a) Unless otherwise specified in this Section 7.5, all provisions
of this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby and shall continue in full force and effect in
accordance with their terms.
(b) Except for (i) the Excluded Matters, (ii) the indemnification
obligations set forth in Section 7.1(a)(vi) and Section 7.1(a)(vii), and (iii)
the representations and warranties set forth in Section 2.23 (Environmental
Matters), all representations and warranties and all indemnification obligations
set forth in this Agreement shall expire on the date 18 months following the
Closing Date.
(c) All representations and warranties and all indemnification
obligations set forth in this Agreement with respect to the Excluded Matters
shall survive the Closing until the expiration of all applicable statutes of
limitation.
(d) All indemnification obligations set forth in Section
7.1(a)(vi) and Section 7.1(a)(vii) and the representations and warranties set
forth in Section 2.23 (Environmental Matters) and all related indemnification
obligations set forth in this Agreement shall expire on the date three (3) years
following the Closing Date.
(e) If an Indemnified Party delivers to an Indemnifying Party,
before expiration of a representation, warranty or other indemnification
obligation, a Claim Notice based upon a breach of such representation or
warranty or arising out of such other indemnification obligation, then the
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applicable representation, warranty or other indemnification obligation shall
survive until, but only for purposes of, the resolution of any claims arising
from or related to the matter covered by such notice.
(f) If the legal proceeding or written claim with respect to
which a Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party.
(g) The rights to indemnification set forth in this Article VII
shall not be affected by (i) any investigation conducted by or on behalf of an
Indemnified Party or any knowledge acquired (or capable of being acquired) by
an Indemnified Party, whether before or after the date of this Agreement or the
Closing Date, with respect to the inaccuracy or noncompliance with any
representation, warranty, covenant or obligation which is the subject of
indemnification hereunder, or (ii) except as contemplated by Section 5.6 hereof,
any waiver by an Indemnified Party of any closing condition relating to the
accuracy of representations and warranties or the performance of or compliance
with agreements and covenants.
(h) Within ten (10) days after the 18 month anniversary of the
Closing Date, the Buyer shall deliver to the Representatives and the Escrow
Agent a notice of the Buyer's good faith estimate of the appropriate Retained
Amount (the "Escrow Retention Notice"). Within 60 days after delivery of the
Escrow Retention Notice, the Representatives shall provide the Buyer with the
Representatives' good faith estimate of the appropriate Retained Amount (the
"Escrow Retention Response"). Unless disputed in the manner set forth below, the
Retained Amount shall be the average of the amount set forth in the Buyer's
Escrow Retention Notice and the amount set forth in the Representatives' Escrow
Retention Response. Each party shall have the right to dispute the other party's
estimate of the Retained Amount by notice given to the Escrow Agent and the
other party within 60 days after delivery of the Retention Escrow Response. If
the Buyer and the Representatives are unable to resolve the dispute within 60
calendar days after delivery of the Representatives' Escrow Retention Response,
such dispute shall be resolved in accordance with the provisions of Section 7.4.
(i) The estimates and reports referenced in Section 7.5(h) and
subsection (Y) of Section 7.3(d) shall be obtained and used solely for the
purpose of the settlement of disputed matters between the parties, will not
constitute an admission of liability by either party, will not constitute an
admission of any fact to any third party, and will be denominated as
"Confidential Settlement Documentation" which is not admissible for any other
purpose or in any other proceeding, except as expressly set forth in this
Agreement or as may be required by law.
7.6 Limitations.
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(a) Notwithstanding anything to the contrary herein:
(i) the aggregate liability of the Sellers for Damages under
this Article VII shall not exceed the Escrow Fund; and
(ii) the Sellers shall not be liable under Sections 7.1(a)(i),
7.1(a)(iv) (but only with respect to Asbestos Claims made after the Closing
Date), 7.1(a)(viii), 7.1(a) (ix), 7.1(a)(x) or 7.1(b)(i) unless and until the
aggregate Damages for which they would otherwise be liable under Sections
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7.1(a)(i), 7.1(a)(iv) (but only with respect to Asbestos Claims made after the
Closing Date), 7.1(a)(viii), 7.1(a)(ix), 7.1(a)(x) and 7.1(b)(i) exceed $500,000
(the "Basket") (at which point the Sellers shall become liable for the aggregate
Damages under Sections 7.1(a)(i), 7.1(a)(iv) (but only with respect to Asbestos
Claims made after the Closing Date), 7.1(a)(viii), 7.1(a)(ix), 7.1(a)(x) and
7.1(b)(i) in excess of the Basket);
provided that (A) the limitations set forth in clauses (i) and (ii) above shall
not apply to the Excluded Matters and (B) the limitations set forth in clause
(ii) above shall not apply to a claim under Section 7.1(a)(i) arising out of a
breach of the representations and warranties set forth in Section 2.16(b)
(Accounts Receivable of IPMT) or 2.22(p) (Loans to Former Employees). In no
event shall the aggregate liability of any Seller for Damages under this Article
VII exceed, in the case of a Selling Shareholder or a Company Shareholder, the
total Transaction Consideration received by such Selling Shareholder or Company
Shareholder or, in the case of an Option Holder, the total Option Consideration
received by such Option Holder.
(b) Notwithstanding anything to the contrary herein, except as
otherwise provided in this Section 7.6 and except for claims based on fraud or
knowing misrepresentation, (i) the aggregate liability of the Buyer for Damages
under this Article VII shall not exceed the amount of the Escrow Fund, and (ii)
the Buyer shall not be liable under Section 7.2(a) unless and until the
aggregate Damages for which it would otherwise be liable under Section 7.2(a)
exceed the Basket (at which point the Buyer shall become liable for the
aggregate Damages under Section 7.2(a) in excess of the Basket); provided that
the limitations set forth in this sentence shall not apply to a claim pursuant
to (A) Section 7.2(a) relating to a breach of the representations and warranties
set forth in Sections 4.1 or 4.2 or (B) Section 1.10 or 1.11.
(c) In the case of any claim under Section 7.1(a)(ix), the
Indemnified Parties' Damages shall be based upon the amount the Company or the
applicable Subsidiary, as the case may be, is obligated to pay or the costs the
Company or the applicable Subsidiary is required to incur in accordance with the
Company Warranty Obligations, and shall not reflect amounts incurred as an
accommodation to the applicable customer.
(d) Except with respect to claims based on fraud or knowing
misrepresentation or as provided in Article VIII hereof, after the Closing, the
rights of the Indemnified Parties under this Article VII shall be the exclusive
remedy of the Indemnified Parties with respect to claims resulting from or
relating to any misrepresentation, breach of warranty or failure to perform any
covenant or agreement contained in this Agreement. The Buyer further
acknowledges that, except with respect to claims based on fraud or knowing
misrepresentation, (i) the potential liability of the Sellers under or in
connection with this Agreement will be limited as provided in this Agreement and
(ii) no Seller will be deemed to have made any representation or warranty,
expressed or implied, except as otherwise may be expressly set forth herein.
(e) The Escrow Fund is intended to secure the indemnification
obligations of the Sellers under this Agreement. Except for the Excluded Matters
and except for the Buyer's right to reduce the amount of the Letter of Credit in
satisfaction of claims for indemnification for Tax related matters under Article
VIII of this Agreement in accordance with the provisions of the Escrow
Agreement, the Escrow Fund shall be the exclusive means for the Buyer to collect
62
any Damages for which it is entitled to indemnification under this Article VII.
The Buyer shall not attempt to collect any Damages directly from any Seller
unless there are no remaining funds in the Escrow Fund pursuant to the Escrow
Agreement. Each Seller shall be severally, and not jointly and severally, liable
for any such Damages in excess of the Escrow Fund.
(f) For 18 months after the Closing Date, the Buyer shall use
commercially reasonable efforts to cause the Company or the Surviving
Corporation, as the case may be, to maintain or be named as an insured under a
product liability insurance policy providing coverage substantially similar to
that carried by the Buyer as of the date of this Agreement, with such changes in
coverage, policy limits and deductibles as the Buyer shall reasonably determine
to be appropriate from time to time based upon the availability or cost of such
insurance and changes in the nature and condition of the business of the Buyer
and its subsidiaries, taken as a whole.
(g) The amount of any Damages payable under Article VII by the
Indemnifying Party shall be net of amounts actually recovered under applicable
insurance policies or from any other third party with indemnification
obligations or from any other person responsible therefor. If an Indemnified
Party receives any amounts under applicable insurance policies or from any other
third party with indemnification obligations or from any other person alleged to
be responsible for any Damages subsequent to an indemnification payment by any
Indemnifying Party, and provided the Indemnified Party has collected all sums
due from the Indemnifying Party, then the amount of Damages to be recovered by
the Indemnified Party shall be recalculated, taking into account the limitations
of this Section 7.6, as if the such insurance proceeds or other payments had
been made prior to the collection of any Damages under this Agreement and any
excess Damages previously collected after such recalculation shall be repaid to
the Indemnifying Party (or, in the case of Damages collected from the Escrow
Fund, returned to the Escrow Fund) and, if applicable, the Basket shall be
appropriately restored; provided, however, that where the Buyer is the
Indemnified Party, any such amounts collected after the 18 month anniversary of
the Closing Date shall be paid to the Representatives for distribution to the
Sellers. Notwithstanding the foregoing or anything to the contrary set forth
herein, in no event shall an Indemnified Party be required to pursue any third
party (other than insurers in accordance with, and to the extent provided in,
Section 7.3(a)) with indemnification obligations or any other person responsible
therefor in order to seek indemnification under this Article VII.
(h) The amount of Damages for which the Buyer is entitled to
indemnification pursuant to Section 7.1(a) shall be calculated net of any
accruals or reserves specifically made therefor on the Closing Balance Sheet. If
the Buyer (i) makes a claim for indemnification pursuant to Section 7.1(a) of
this Agreement as a result of a breach of the representations and warranties set
forth in Section 2.16 of this Agreement, (ii) recovers any Damages from the
Escrow Fund with respect to such claim and (iii) subsequently collects any
account receivable which gave rise to such Damages within 18 months after the
Closing Date (the amount of such accounts receivable so collected being referred
to as an "Accounts Receivable Reimbursement"), the Buyer shall deposit such
Accounts Receivable Reimbursement in the Escrow Fund to be held as a part
thereof in accordance with the Escrow Agreement. The Buyer shall use such
efforts to collect any such accounts receivable that gave rise to such Damages
as have been employed by the Company prior to the Closing Date for similar
receivables.
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(i) The amount of Damages recoverable by any Seller under this
Article VII with respect to an indemnity claim shall be reduced by the amount of
any Tax savings Actually Realized by such Seller for the Tax year in which such
Damages are incurred, which are clearly attributable to the Damages to which
such indemnity claim relates, net of (i) any reasonable costs or expenses
incurred by the Seller in connection with Actually Realizing such amount, (ii)
any increased Tax liability which may result from the receipt of the indemnity
payment relating to such Damages and (iii) any reduction in or offset to any
other Tax savings or benefit otherwise available to such Seller.
(j) If, during the Tax Recovery Period, the Buyer or any Buyer Tax
Subsidiary shall Actually Realize any Net Tax Savings with respect to any
indemnity claim under this Article VII for which the Buyer has previously
recovered any Damages from the Escrow Fund, then the amount of Damages to be
recovered by the Indemnified Party shall be recalculated, taking into account
the limitations of this Section 7.6, as if the Net Tax Savings had been realized
prior to the collection of any Damages under this Agreement and any excess
Damages previously collected after such recalculation shall be returned to the
Escrow Fund and, if applicable, the Basket shall be appropriately restored;
provided, however, that any Net Tax Savings Actually Realized during the Tax
Recovery Period by the Buyer or any Buyer Tax Subsidiary after the 18 month
anniversary of the Closing Date shall be paid by the Buyer to the
Representatives for distribution to the Sellers.
(k) No Company Shareholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements;
provided, however, this provision is not intended to affect the indemnification
rights of the Sellers under Section 7.2.
(l) If the Buyer, the Company or (in the event of a Merger
Transaction) the Surviving Corporation is indemnified for any Damages pursuant
to this Agreement with respect to any third-party claim or with respect to any
claim against the Sellers that gives rise to a third-party claim, then the
Sellers will, to the extent permitted by law and the provisions of any
applicable agreement, be subrogated to all rights and remedies of the Buyer, the
Company or the Surviving Corporation, as the case may be, against such third
party, and the Buyer, the Company and (in the event of a Merger Transaction) the
Surviving Corporation, as the case may be, will execute such assignments of
claim as may reasonably be necessary and otherwise reasonably cooperate with and
assist the Sellers in asserting such rights and remedies against any such third
party at the Sellers' sole cost and expense; provided, however, that such
assignments of claims may provide that the assignor's assignment is limited to
the extent permitted by law and the provisions of any applicable agreement.
Notwithstanding the foregoing, in no event shall the Sellers be permitted to
bring any such subrogation claim against (i) any customer or carbon supplier of
the Company, any Subsidiary or (in the event of a Merger Transaction) the
Surviving Corporation without the Buyer's prior written consent, which consent
shall not be unreasonably withheld, or (ii) any joint venture partner of the
Company, any Subsidiary or (in the event of a Merger Transaction) the Surviving
Corporation. In no event shall the Buyer, the Company or the Surviving
Corporation be required to commence any action or be the named plaintiff in any
such subrogation claim.
64
ARTICLE VIII
TAX MATTERS
8.1 Preparation and Filing of Tax Returns; Payment of Taxes.
-------------------------------------------------------
(a) The Representatives shall cause to be prepared and timely
filed all Tax Returns of the Company and the Subsidiaries required to be filed
(taking into account extensions) prior to the Closing Date.
(b) The Buyer shall cause the Company or the Surviving
Corporation, as the case may be, to engage ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to prepare the
Company's income Tax Returns for any period ending (or deemed pursuant to
Section 8.3(b) to end) on or before the Closing Date, including the Stub Period
Tax Return. The Buyer shall prepare and timely file or shall cause to be
prepared and timely filed all other Tax Returns with respect to the Company and
the Subsidiaries or in respect of their respective businesses, assets or
operations. The Buyer shall make all payments required with respect to any such
Tax Returns; provided, however, that the Sellers shall promptly reimburse the
Buyer to the extent any payment the Buyer is required to make relates to the
operations of the Company or any Subsidiary for any period ending (or deemed
pursuant to Section 8.3(b) to end) on or before the Closing Date to the extent
such portion of the payment exceeds the amount of the accruals and reserves for
Taxes (excluding accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the Closing Balance
Sheet.
(c) Any Tax Return to be prepared and filed by the Buyer for
taxable periods beginning before the Closing Date shall be prepared on a basis
consistent with the last previous similar Tax Return, and the Buyer shall
consult with the Representatives concerning each such Tax Return and report all
items with respect to the portion of the period ending on the Closing Date in
accordance with the instructions of the Representatives to the extent such
reporting is allowable without significant risk of the imposition of penalties
or additions to Tax as jointly determined by the Buyer and the Representatives
in consultation with their respective tax advisors. Any dispute related to such
filing shall be resolved by the Tax Arbitrator in accordance with the procedures
set forth in Section 7.4(e) of this Agreement and the Tax Arbitrator's decisions
will be binding on the Parties. The Buyer shall cause the Surviving Corporation
to provide the Representatives with a copy of each such proposed Tax Return (and
such additional information regarding such Tax Return as may reasonably be
requested by the Representatives) at least 45 days prior to the filing of such
Tax Return, except that (i) in the case of a Tax Return relating to a monthly
taxable period, the copy shall be provided to the Representatives at least 10
days prior to the filing of such Tax Return and (ii) in the case of a Tax Return
due within 90 days following the Closing Date, the copy shall be provided to the
Representatives in such shorter period of time prior to filing as the Buyer
shall reasonably determine to be practicable.
(d) In the event that the Sellers have paid to the Buyer any
amount pursuant to their indemnification obligation pursuant to Section 8.2
hereof as a result of the Buyer or any Buyer Tax Subsidiary having incurred any
Tax liability for any period ending (or deemed pursuant to Section 8.3(b) to
end) on or prior to the Closing Date in excess of the reserve for Taxes set
forth on the Closing Balance Sheet (a "Company Tax Liability") and within five
(5) years after the Closing Date the Buyer or any Buyer Tax Subsidiary shall
receive (i) an actual reduction on any Tax Return for income Taxes otherwise
65
payable in respect of the matters giving rise to the Company Tax Liability or
(ii) any refund of income Taxes previously paid in respect of the matters giving
rise to the Company Tax Liability, the Buyer shall pay to the Representatives,
for distribution to the Sellers, as the case may be, the lesser of (A) the
amount of such indemnification payment previously made by the Sellers and (B)
either (I) the amount of such reduction in future income Taxes or (II) the
amount of any such Tax refund, in each case within fifteen (15) days after the
Buyer or such Buyer Tax Subsidiary actually realizes the benefit of such
reduction in income Taxes on a Tax Return or receives such Tax refund.
8.2 Tax Indemnification by the Sellers.
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(a) The Sellers shall indemnify the Buyer, the Company, the
Subsidiaries and the Surviving Corporation in respect of, and hold the Buyer,
the Company, the Subsidiaries and the Surviving Corporation harmless, on an
after-Tax basis, against the following; provided that (I) all amounts determined
under this Section 8.2(a) shall be determined without regard to any federal
income Tax deductions as a result of the net operating loss under Section 172(c)
of the Code for the short taxable year ending on the Closing Date and (II) in no
event shall the amount of net operating loss under clause (I) exceed the amount
of the Extraordinary Expenses:
(i) any and all Damages and claims for Damages incurred or
suffered by any of them as a result of or relating to the calculation or payment
(including without limitation any errors in the calculation or failure to make
any payment) of any amounts required to be withheld with respect to any amount
payable under this Agreement, including any amounts required to be withheld from
any Option Holder and/or paid or payable to any Governmental Entity in respect
of the exercise of any Options and the payment of the Option Consideration in
accordance with the provisions of Section 1.15 (the "Option Obligations");
(ii) any and all Damages and claims for Damages resulting
from, relating to, or constituting a breach of any representation contained in
Section 2.9 hereof;
(iii) the failure to perform any covenant or agreement set
forth in this Article VIII;
(iv) without duplication, the following Taxes with respect to
the Surviving Corporation, the Company and the Subsidiaries: (A) any and all
Taxes due and payable by the Surviving Corporation, the Company or the
Subsidiaries for any taxable period that ends (or is deemed pursuant to Section
8.3(b) to end) on or before the Closing Date in excess of any accruals for Tax
liabilities on the Closing Balance Sheet; (B) any liability of such entities for
Taxes of other entities whether pursuant to Treasury Regulation Section 1.1502-6
(or comparable or similar provision under state, local or foreign law), as
transferee or successor or pursuant to any contractual obligation for any period
that ends (or is deemed pursuant to Section 8.3(b) to end) on or before the
Closing Date; and (C) any sales, use, transfer, stamp, conveyance, value added,
recording, registration, documentary, filing or other similar Taxes and fees,
whether levied on the Buyer, the Sellers, the Company, the Subsidiaries or any
of their respective Affiliates, resulting from the Stock Transaction, the Merger
Transaction or otherwise on account of this Agreement or the transactions
contemplated hereby;
66
(v) any and all Damages and claims for Damages incurred or
suffered by the Buyer, the Company, the Subsidiaries and the Surviving
Corporation in respect of any error in any Tax Return filed by the Company or
any Subsidiary prior to the Closing Date or any failure of any Tax Return filed
by the Company or any Subsidiary prior to the Closing Date to be complete; and
(vi) any and all Damages and claims for Damages incurred or
suffered by the Buyer, the Company, the Subsidiaries and the Surviving
Corporation in respect of any failure by the Company or any Subsidiary to
properly withhold, collect or pay any Taxes required by law to have been
withheld, collected or paid prior to the Closing Date.
(b) The following provisions shall apply with respect to the
Sellers' obligations to indemnify the Buyer, the Company, the Subsidiaries and
the Surviving Corporation in respect of the Option Obligations. The applicable
indemnified party shall first use reasonable efforts to collect any Option
Obligations from the responsible Option Holder. If after the use of such
reasonable efforts such indemnified party has not collected such amount from the
responsible Option Holder within 90 days after demand therefor, such indemnified
party shall be entitled to collect such amount from the portion of the Escrow
Fund deemed to have been withheld from the Option Consideration contributed by
such Option Holder to the Escrow Fund or, if such Option Holder's share of the
Escrow Fund is insufficient to pay such amount, from the other Sellers'
respective shares of the Escrow Fund on a joint and several basis or, if the
Escrow Fund is insufficient to pay such amount, then from the Sellers directly
on a several, and not joint and several, basis. No Option Holder shall be liable
for any penalty or interest (but will be liable for any Tax) due as a result of
an error by the Buyer in the identification or payment of the required Tax
withholding obligation.
8.3 Allocation of Certain Taxes.
---------------------------
(a) If the Surviving Corporation, the Company or any Subsidiary is
permitted, but not required, under applicable foreign, state or local Tax laws
to treat the Closing Date as the last day of a taxable period, such day shall be
treated as the last day of a taxable period.
(b) Any Taxes for a taxable period beginning before the Closing
Date and ending after the Closing Date with respect to the Surviving
Corporation, the Company and/or any Subsidiary shall be apportioned for purposes
of Sections 2.9 and 8.2 between the portion of the period ending on the Closing
Date and the portion of the period commencing on the day immediately following
the Closing Date based on the actual operations of the Surviving Corporation,
the Company and/or the Subsidiary, as the case may be, during such portions of
the periods, and each such portion of such period shall be deemed to be a
taxable period (whether or not it is in fact a taxable period). For purposes of
computing the Taxes attributable to the two portions of a taxable period
pursuant to this Section 8.3(b), the amount of any item that is taken into
account only once for each taxable period (e.g., the benefit of graduated tax
rates, exemption amounts, etc.) shall be allocated between the two portions of
the period in proportion to the number of days in each portion.
67
8.4 Cooperation on Tax Matters.
--------------------------
(a) The Buyer and the Representatives and their respective
Affiliates shall cooperate in (i) the preparation of all Tax Returns for any Tax
periods and (ii) the conduct of any Tax Proceeding, for which one party could
reasonably require the assistance of the other party in obtaining any necessary
information. Such cooperation shall include, but not be limited to, furnishing
prior years' Tax Returns or return preparation packages illustrating previous
reporting practices or containing historical information relevant to the
preparation of such Tax Returns, and furnishing such other information within
such party's possession requested by the other party as is relevant to the
preparation of the Tax Returns or the conduct of the Tax Proceeding. Such
cooperation and information also shall include without limitation promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any Governmental Entity which relate to the Surviving
Corporation, the Company or any Subsidiary, and providing copies of all relevant
Tax Returns, together with accompanying schedules and related work papers,
documents relating to rulings or other determinations by any Governmental Entity
and records concerning the ownership and tax basis of property, which the
requested party may possess.
(b) The Buyer shall control any Tax Proceeding with respect to the
Surviving Corporation, the Company or any Subsidiary; provided that, with
respect to any item the adjustment of which would adversely affect any Seller,
the Buyer shall consult with the Representatives and except as hereinafter
provided shall not settle any such issue without the consent of the
Representatives (which consent shall not be unreasonably withheld, conditioned
or delayed). No such consent shall be required in any matter pertaining to (i)
solely non-monetary claims or (ii) claims that are both monetary and
non-monetary. Where such consent is required and is withheld by the
Representatives, the Sellers may continue or initiate any further Tax Proceeding
at their own expense. In controlling any Tax Proceeding, the Buyer shall act in
a manner which would be reasonable in the case of a Person that owned the
Company or any Subsidiary before the Closing Date. Any dispute related to any
such Tax Proceeding or the settlement thereof pursuant to this Section 8.4
(including, without limitation, the reasonableness of the Buyer's actions in
accordance with this Section 8.4 in connection with any such settlement) shall
be resolved by the Tax Arbitrator in accordance with the procedures set forth in
Section 7.4(e) of this Agreement and the Tax Arbitrator's decisions will be
binding on the Parties.
8.5 Scope of Article VIII. Any claim by any Party relating to a breach
---------------------
by another Party of their obligations under this Article VIII shall be pursued
in accordance with the procedures for indemnification claims, and shall
otherwise be subject to the terms and conditions, set forth in Article VII.
Notwithstanding the foregoing or any other term or condition of Article VII, (a)
claims for a breach of an obligation under this Article VIII may be made by a
Party any time prior the expiration of the statute of limitations applicable to
the Tax matter to which the claim relates and (b) to the extent there is any
inconsistency between the terms of Article VII and this Article VIII with
respect to the allocation of responsibility between the Sellers and the Buyer
for Taxes, the provisions of this Article VIII shall govern.
8.6 Extensions. After Closing, neither the Buyer, the Company, any
----------
Subsidiary, or the Surviving Corporation shall agree to an extension of the
statute of limitations for Tax claims for any taxable period that ended on or
before the Closing Date and for which the Sellers will be required to provide
indemnity under this Agreement, without first consulting with and obtaining the
consent of the Representatives, which consent will not be unreasonably withheld,
conditioned or delayed.
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8.7 Amendment of Prior Returns. After the Closing, none of the Buyer,
--------------------------
the Company or the Surviving Corporation, as the case may be, will file or amend
the Tax Returns of the Company for any Tax periods ending on or prior to
Closing, without first providing a copy of the proposed amendment, which shall
include supporting documentation, to the Representatives, giving the
Representatives a reasonable opportunity to review the proposed amendment, and
obtaining the prior written consent of the Representatives to file the
amendment, which consent will not be unreasonably withheld, conditioned, or
delayed. Any dispute between the Parties related to such filing shall be
resolved by the Tax Arbitrator in accordance with the procedures set forth in
Section 7.4(e) of this Agreement and the Tax Arbitrator's decisions will be
binding on the Parties.
ARTICLE IX
POST-CLOSING AGREEMENTS
9.1 Proprietary Information.
-----------------------
(a) Each of the Sellers and each of their respective Affiliates
shall hold in confidence all knowledge and information of a secret or
confidential nature with respect to the business of the Company and its
Subsidiaries and shall not disclose, publish or make use of the same without the
consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Sellers.
(b) Each Seller agrees that the remedy at law for any breach of
this Section 9.1 would be inadequate and that the Buyer or the Surviving
Corporation shall be entitled to injunctive relief in addition to any other
remedy it may have upon breach of any provision of this Section 9.1.
9.2 No Solicitation or Hiring of Former Employees. Except as provided
---------------------------------------------
by law, during the period commencing on the Closing Date and ending on the third
anniversary of the Closing Date, no Seller shall directly or indirectly recruit,
solicit or induce any person who was an employee or subcontractor of the Buyer,
the Company or any of their respective subsidiaries on the date hereof or the
Closing Date to terminate his or her employment with, or otherwise cease their
relationship with, the Buyer (or the Surviving Corporation or any of their
respective subsidiaries, as the case may be) or to become an employee of such
Seller or Affiliate thereof. In addition, no Seller shall directly or indirectly
hire or employ or use in any subcontracting arrangement any present or former
employee of the Buyer, the Surviving Corporation, the Company or any of their
respective subsidiaries for a period of one year from the Closing without the
prior written consent of an authorized executive officer of the Buyer.
9.3 Non Competition Agreement.
-------------------------
(a) During the period commencing on the Closing Date and ending on
the third anniversary of the Closing Date, no Seller shall (other than in his or
her capacity as an employee of the Buyer, the Surviving Corporation, the Company
or any of their respective subsidiaries) directly or indirectly, whether as a
partner, officer, director, employee, shareholder, joint venturer, member,
investor (other than as the holder of not more than five percent (5%) of the
total outstanding stock of a publicly-held company) or otherwise:
69
(i) engage in, operate or establish any aspect of the business
of the Company or its Subsidiaries as such business has been conducted by the
Company or such Subsidiaries, or, if such Seller becomes an employee of the
Buyer, the business of the Buyer, in any county in any state of the United
States of America or anywhere else in the world where the Company or any
Subsidiary has conducted business; or
(ii) solicit, divert or take away, or attempt to solicit,
divert or take away, the business or patronage of any individual, corporation or
other entity which was or is a prospective client, customer or account of the
Surviving Corporation, the Company, the Buyer or any of their respective
subsidiaries on the Closing Date, or had been a client, customer or account of
the Surviving Corporation, the Company or the Buyer or any of their respective
subsidiaries within a period of two years prior to the Closing Date.
(b) The Buyer and the Non-Competition Parties agree that the
duration and geographic scope of the non-competition provision set forth in this
Section 9.3 are reasonable. In the event that any court of competent
jurisdiction determines that the scope, duration or the geographic limits, or
any of them, are unreasonable and that such provision is to that extent
unenforceable, the Buyer and the Non-Competition Parties agree that the
provision shall remain in full force and effect for the greatest time period and
in the greatest area and broadest scope that would not render it unenforceable.
The Buyer and the Non-Competition Parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one for each and
every jurisdiction in each and every country, state or province where this
provision is intended to be effective. The Non-Competition Parties agree that
damages may be an inadequate remedy for any breach of this provision and that
the Buyer shall, whether or not it is pursuing any potential remedies at law, be
entitled to seek equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision.
9.4 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Consents. After the Closing, the Sellers shall, at
-----------------------
the Buyer's request and expense, use Reasonable Best Efforts to assist the Buyer
from time to time in obtaining the consent from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to incorporation
of the reports on the S-X Financial Statements into the Buyer's SEC filings.
Without limitation of the foregoing, each of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ shall execute and deliver from time to time such representation letters
as ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ may reasonably request in connection therewith.
9.5 Brazil Matters. For a period of 12 months after the Closing, each
--------------
of (a) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and (b) the individuals who are members of the Company's
board of directors as of the date hereof shall, at the Buyer's request and
expense, use Reasonable Best Efforts to assist the Buyer in the attempted
settlement and resolution of all Brazil Matters Claims.
70
ARTICLE X
TERMINATION
10.1 Termination of Agreement. The Parties may terminate this Agreement
------------------------
prior to the Closing (whether before or after Requisite Shareholder Approval),
as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company or any Seller is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (vi) or (vii) of Section 6.1(a) not to
be satisfied and (ii) is not cured within 15 days following delivery by the
Buyer to the Company of written notice of such breach;
(c) the Representatives or the Company may terminate this
Agreement by giving written notice to the Buyer in the event the Buyer or the
Transitory Subsidiary is in breach of any representation, warranty or covenant
contained in this Agreement, and such breach, individually or in combination
with any other such breach, (i) would cause the conditions set forth in clauses
(iii) or (iv) of Section 6.2(a) not to be satisfied and (ii) is not cured within
15 days following delivery by the Company to the Buyer of written notice of such
breach;
(d) the Buyer may terminate this Agreement by giving written
notice to the other Parties at any time after the shareholders of the Company
have voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Shareholder Approval;
(e) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before
September 1, 2005 by reason of the failure of any condition precedent under
Section 6.1 (unless the failure results primarily from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty or covenant contained
in this Agreement); or
(f) the Representatives or Company may terminate this Agreement by
giving written notice to the Buyer and the Transitory Subsidiary if the Closing
shall not have occurred on or before September 1, 2005 by reason of the failure
of any condition precedent under Section 6.2 (unless the failure results
primarily from a breach by the Company or any Seller of any representation,
warranty or covenant contained in this Agreement).
10.2 Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section 10.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for willful or knowing breaches of this Agreement or for
breaches of Section 5.7- Exclusivity).
ARTICLE XI
DEFINITIONS
For purposes of this Agreement, each of the following terms shall have
the meaning set forth below.
"AAA" shall mean the American Arbitration Association.
---
71
"Accounts Receivable Reimbursement" shall have the meaning set forth in
---------------------------------
Section 7.6(h).
"Actually Realize" shall mean, with respect to any Net Tax Savings, an
----------------
actual reduction on any Tax Return of Taxes otherwise payable or a refund of
Taxes previously paid by the Buyer or any Buyer Tax Subsidiary as a result of
the Damages giving rise to such Net Tax Savings during the Tax Recovery Period.
"Adjusted Base Purchase Price" shall have the meaning set forth in
----------------------------
Section 1.10(h).
"Affiliate" shall mean any person that directly, or indirectly through
---------
one or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
"Aggregate Option Consideration" shall mean the aggregate amount of the
------------------------------
Option Consideration payable to all Option Holders under this Agreement.
"Agreed Amount" shall mean part, but not all, of the Claimed Amount.
-------------
"Agreement" shall have the meaning set forth in the first paragraph of
---------
this Agreement.
"Arbitrator" shall have the meaning set forth in Section 7.4(e).
----------
"Asbestos Claim" shall mean the claims set forth as items No. 1 and 2
--------------
in Section 2.19(a) of the Disclosure Schedule and any other claim commenced
against the Company, any Subsidiary, the Buyer or (in the event of a Merger
Transaction) the Surviving Corporation within 18 months after the Closing Date
arising out of or relating to the use or exposure to asbestos containing
material prior to the Closing Date.
"Balance Sheet Requirements" has the meaning set forth in Section
--------------------------
1.10(a).
"Base Purchase Price" shall mean One Hundred Two Million Dollars
-------------------
($102,000,000).
"Basket" shall have the meaning set forth in Section 7.6(a)(ii).
------
"Brazil Matters Claim" shall mean any claim (other than a claim caused
--------------------
by an act or omission of the Buyer, the Company or any Subsidiary inconsistent
in any material respect with the Company's or any such Subsidiary's practices at
any time prior to Closing (but excluding, for purposes of this parenthetical,
any acts or omissions required to comply with applicable law or the terms of any
agreement of the Company or any Subsidiary in effect on the Closing Date))
arising out of or relating to (a) the purchase of any of the assets from ▇▇▇▇▇▇▇
do Brazil Metalurgia Ltda., ▇▇▇▇▇▇▇ do Brazil Engenharia Sistemas Importacao e
Exportacao Ltda., JohnBra Equipamento Industrial Ltda., Eyasi River Comercio e
Servicos Ltda., Lake Ngemi Comercio e Servicos Ltda. or Hightech Industries,
Ltd. ("Hightech") (collectively, the "▇▇▇▇▇▇▇▇ Companies") or Aldo ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇ ▇▇▇▇▇▇▇▇"), (b) any allegation of successor liability as
successor to any of the ▇▇▇▇▇▇▇▇ Companies or ▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ interest as the
managing partner of any of the ▇▇▇▇▇▇▇▇ Companies, (c) any increase in the
amounts the Company or any Subsidiary is required to pay ▇▇▇▇ ▇▇▇▇▇▇▇▇ or the
▇▇▇▇▇▇▇▇ Companies in excess of the amounts set forth in the Memorandum of
72
Understanding dated as of August 17, 2001, which describes, among other things,
payments to be made by the Company (i) to Hightech for services rendered and
(ii) to ▇▇▇▇ ▇▇▇▇▇▇▇▇ and certain of the ▇▇▇▇▇▇▇▇ Companies in connection with
the sale of assets to The ▇▇▇▇▇▇▇ Corporation Latin America, S.A., including any
increased amounts payable as a result of any settlement following the Closing of
the disputes described in Section 2.19 of the Disclosure Schedule, and (d) the
agreements or arrangements between the Company or any Subsidiary, on the one
hand, and each of Innovative Paper Machine Technology Inc., a Michigan
corporation, and ▇▇▇▇▇ ▇▇▇▇▇▇ Monroe, on the other hand, during any period
beginning prior to the Closing Date and ending six (6) months after the Closing
Date; provided, however, that all claims for Tax matters related to the matters
described in this clause (d) shall be governed by the provisions of Article VIII
of this Agreement and shall not constitute a Brazil Matters Claim.
"Business Unit" shall mean that portion of the business and operations
-------------
of the branch, division or operating unit of the Buyer representing the business
and operations of the Company and its Subsidiaries as in existence at Closing.
"Buyer" shall have the meaning set forth in the first paragraph of this
-----
Agreement.
"Buyer Certificate" shall mean a certificate delivered by the Buyer
-----------------
(without qualification as to knowledge, materiality or otherwise), signed by an
officer of the Buyer, to the effect that each of the conditions specified in
clauses (iii) and (iv) of Section 6.2 (a) is satisfied in all respects.
"Buyer Tax Subsidiary" shall mean any subsidiary of the Buyer whose Tax
--------------------
Returns are consolidated with the Tax Returns of the Buyer for United States
income Tax purposes.
"CERCLA" shall mean the federal Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended.
"Certificate of Merger" shall mean the certificate of merger or other
---------------------
appropriate documents prepared and executed in accordance with Section 707 of
the Michigan Business Corporation Act.
"Claim Notice" shall mean written notification which contains (a) a
------------
description of the Damages incurred or reasonably expected to be incurred by the
Indemnified Party and the Claimed Amount of such Damages, to the extent then
known and (b) a statement that the Indemnified Party is entitled to
indemnification under Article VII for such Damages and a reasonable explanation
of the basis therefor.
"Claimed Amount" shall mean the amount of any Damages incurred or
--------------
reasonably expected to be incurred by an Indemnified Party.
"Closing" shall mean the closing of the Stock Transaction or the Merger
-------
Transaction contemplated by this Agreement.
"Closing Balance Sheet" shall mean the consolidated balance sheet of
---------------------
the Company as of the Closing Date prepared in accordance with the provisions of
Section 1.10 hereof.
73
"Closing Date" shall mean the date that is five (5) business days after
------------
the satisfaction or waiver of all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (excluding the
delivery at the Closing of any of the documents set forth in Article VI), or
such other date as may be mutually agreeable to the Parties; provided, however,
that (i) if the Closing Date hereunder would be scheduled to occur during the
last fifteen (15) days of any calendar quarter, (A) the Parties shall use
Reasonable Best Efforts to pre-close the transactions contemplated hereby during
such fifteen (15) day period but (B) the actual Closing Date shall occur on the
first (1st) business day of the following calendar quarter and (ii) in no event
shall the Closing occur prior to May 9, 2005.
"Closing Net Asset Value Adjustment" shall mean the amount of the
----------------------------------
difference between the Net Asset Value on the Closing Balance Sheet and the
Preliminary Net Asset Value, as it may be adjusted pursuant to the resolution of
any disputes resolved pursuant to Section 1.10(d). The Closing Net Asset Value
Adjustment shall be expressed as a positive number if the Net Asset Value on the
Closing Balance Sheet is greater than the Preliminary Net Asset Value and as a
negative number if the Net Asset Value on the Closing Balance Sheet is less than
the Preliminary Net Asset Value.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Collection Period" shall mean, with respect to the accounts receivable
-----------------
of the Company and the Subsidiaries, the later to occur of (a) 90 days after the
due date set forth on the applicable invoice and (b) in cases where the
applicable invoice contains no such due date, 90 days after the date of the
applicable invoice.
"Commercial Rules" shall mean the Commercial Arbitration or Mediation
----------------
Rules of the AAA.
"Company" shall have the meaning set forth in the first paragraph of
-------
this Agreement.
"Company Certificate" shall mean a certificate delivered by the Company
-------------------
and the Sellers (without qualification as to knowledge or materiality or
otherwise), signed on behalf of each Seller by the Representatives and on behalf
of the Company by the President and the Chief Financial Officer of the Company,
to the effect that each of the conditions specified in clauses (iii) through
(vii) of Section 6.1(a) is satisfied in all respects.
"Company Intellectual Property" shall mean the Company Owned
-----------------------------
Intellectual Property and the Company Licensed Intellectual Property.
"Company Licensed Intellectual Property" shall mean all Intellectual
--------------------------------------
Property that is licensed to the Company or any Subsidiary by any third party.
"Company Material Adverse Effect" shall mean any material adverse
-------------------------------
change, event, circumstance or development with respect to, or material adverse
effect on, (a) the business, assets, liabilities, capitalization, prospects,
condition (financial or other) or results of operations of the Company and the
Subsidiaries, taken as a whole, or (b) the ability of the Buyer to operate the
business of the Company and each of the Subsidiaries immediately after the
Closing. For the avoidance of doubt, the parties agree that the terms
"material," "materially" and "materiality" as used in this Agreement with an
initial lower case "m" shall have their respective customary and ordinary
meanings, without regard to the meaning ascribed to Company Material Adverse
Effect.
74
"Company Owned Intellectual Property" shall mean all Intellectual
-----------------------------------
Property owned or purported to be owned by the Company or any Subsidiary in
whole or in part.
"Company Plan" shall mean any Employee Benefit Plan maintained, or
------------
contributed to, by the Company or any Subsidiary.
"Company Shares" shall mean (a) the shares of voting common stock,
--------------
$10.00 par value per share, of the Company and (b) the shares of non-voting
common stock, $10.00 par value per share, of the Company.
"Company Source Code" shall have the meaning set forth in Section
-------------------
2.13(h).
"Company Stock Plan" shall mean any stock option plan or other stock or
------------------
equity-related plan of the Company.
"Company Shareholders" shall mean the Principal Shareholders and each
--------------------
other shareholder of the Company.
"Company Warranty Obligations" shall mean any liability or obligation
----------------------------
with respect to the repair, rework, replacement or return of, or any claim for
breach of warranty in respect of or refund of the purchase price of, any
products or goods of the Company arising under (i) the Company's or any
Subsidiary's standard written warranty policy as in effect from time to time,
(ii) any other written warranty provided to any customer or (iii) any implied
warranty arising under applicable law.
"Controlling Party" shall mean the party controlling the defense of any
-----------------
Third Party Action.
"Customary Insured Claim" shall have the meaning set forth in Section
-----------------------
7.3(b).
"Customer Offerings" shall mean those products and services of the
------------------
Company set forth on Schedule III attached hereto.
"Damages" shall mean any and all debts, obligations and other
-------
liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to become due or otherwise), diminution in
value, monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including amounts paid in settlement,
interest, reasonable court costs, costs of investigators, reasonable fees and
expenses of attorneys, accountants, financial advisors and other experts, and
other reasonable expenses of litigation), other than those costs and expenses of
arbitration of a Dispute which are to be shared equally by the Indemnified Party
and the Indemnifying Party as set forth in Section 7.4(e)(vi).
"December 31, 2004 Balance Sheet" shall have the meaning set forth in
-------------------------------
Section 2.16.
75
"Delivered to the Buyer in Writing" shall mean delivered by the Company
---------------------------------
to the Buyer in writing on the date hereof and accepted in writing by the Buyer.
"Disclosure Schedule" shall mean the disclosure schedule provided by
-------------------
the Company to the Buyer on the date hereof and accepted in writing by the
Buyer.
"Disclosure Statement" shall mean a written proxy or information
--------------------
statement containing the information prescribed by Section 5.3(a).
"Dispute" shall mean the dispute resulting if the Indemnifying Party in
-------
a Response disputes its liability for all or part of the Claimed Amount.
"DMS" shall mean the Company's Dryer Management System.
---
"Documentation" shall mean printed, visual or electronic materials,
-------------
reports, white papers, documentation, specifications, designs, flow charts, code
listings, instructions, user manuals, frequently asked questions, release notes,
recall notices, error logs, diagnostic reports, marketing materials, packaging,
labeling, service manuals and other information describing the use, operation,
installation, configuration, features, functionality, pricing, marketing or
correction of a product, whether or not provided to end users.
"DOL" shall have the meaning set forth in Section 2.21(h)- Employees.
---
"Draft 2003 Financial Statements" shall mean the draft consolidated
-------------------------------
balance sheet and statements of income, changes in shareholders' equity and cash
flows of the Company as of and for the fiscal year ended December 31, 2003.
"Draft 2004 Financial Statements" shall mean the Most Recent Balance
-------------------------------
Sheet and the draft unaudited consolidated statements of income and cash flows
of the Company as of and for the fiscal year ended December 31, 2004.
"EAD" shall have the meaning set forth in Section 2.21(h)- Employees.
---
"Earn-Out Cap" shall mean $85,448,790 plus the Earn-Out Cap Add On
------------
Amount.
"Earn-Out Cap Add On Amount" shall mean (a) $85,448,790, (b) divided
--------------------------
by 365 and multiplied by (c) the number of days between the Closing Date and the
first day of the first full fiscal quarter after the Closing Date.
"Earn-Out Consideration" shall mean:
----------------------
(a) $0 if the Revenue for the Business Unit during the Earn-Out
Period is less than the Earn-Out Threshold;
(b) the Pro-Rated Earn-Out Amount for each dollar of Revenue
during the Earn-Out Period in excess of the Earn-Out Threshold but less than the
Earn-Out Cap; and
76
(c) $8,000,000 if the Revenue for the Business Unit during the
Earn-Out Period is equal to or exceeds the Earn-Out Cap.
For the avoidance of doubt, (i) if Revenue for the Business Unit during
the Earn-Out Period is less than the Earn-Out Threshold, the Buyer shall not
make any additional payment to the Sellers pursuant to Section 1.14, (ii) in no
event shall the aggregate Earn-Out Consideration exceed $8,000,000 and (iii) any
Earn-Out Consideration due to the Sellers by the Buyer shall be paid in addition
to the Adjusted Base Purchase Price.
"Earn-Out Dispute Notice" shall mean a written notice delivered to the
-----------------------
Buyer by the Representatives of the amount, nature and basis of a dispute of the
Buyer's determination of the Revenue for the Earn-Out Period pursuant to Section
1.14 of this Agreement.
"Earn-Out Period" shall mean the period commencing on the Closing Date
---------------
and ending on the last day of the fourth (4th) full fiscal quarter of the Buyer
after the Closing Date.
"Earn-Out Threshold" shall mean $80,032,750 plus the Earn-Out Threshold
------------------
Add On Amount.
"Earn-Out Threshold Add On Amount" shall mean (a) $80,032,750, divided
--------------------------------
by (b) 365 and multiplied by (c) the number of days between the Closing Date and
the first day of the first full fiscal quarter after the Closing Date.
"Effective Time" shall mean, in the case of a Merger Transaction, the
--------------
time at which the Surviving Corporation files the Certificate of Merger with the
Secretary of State of the State of Michigan.
"Employee Benefit Plan" shall mean any "employee pension benefit plan"
---------------------
(as defined in Section 3(2) of ERISA), any "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA), any pension scheme or life-insurance program
and any other written or oral plan, agreement or arrangement involving direct or
indirect compensation, including insurance coverage, retiree health benefits,
severance benefits, disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation, and all severance
agreements, written or otherwise, for the benefit of or relating to any current
or former employee or independent contractor of the Company or any Subsidiary.
"Environmental Law" shall mean any foreign, federal, state or local
-----------------
law, statute, rule, order, directive, judgment, Permit or regulation or the
common law relating to the environment, occupational health and safety, or
exposure of persons or property to Materials of Environmental Concern, including
but not limited to any statute, regulation, administrative decision or order
pertaining to: (a) the presence of or the treatment, storage, disposal,
generation, transportation, handling, distribution, manufacture, processing,
use, import, export, labeling, recycling, registration, investigation or
remediation of Materials of Environmental Concern or documentation related to
the foregoing; (b) air, water and noise pollution; (c) groundwater and soil
contamination; (d) the release, threatened release, or accidental release into
the environment, the workplace or other areas of Materials of Environmental
Concern, including emissions, discharges, injections, spills, escapes or dumping
of Materials of Environmental Concern; (e) transfer of interests in or control
77
of real property which may be contaminated; (f) community or worker
right-to-know disclosures with respect to Materials of Environmental Concern;
(g) the protection of wild life, marine life and wetlands, and endangered and
threatened species; (h) storage tanks, vessels, containers, abandoned or
discarded barrels and other closed receptacles; and (i) health and safety of
employees and other persons. As used above, the term "release" shall have the
meaning set forth in CERCLA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as amended.
"ERISA Affiliate" shall mean any entity which is, or at any applicable
---------------
time was, a member of (a) a controlled group of corporations (as defined in
Section 414(b) of the Code), (b) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (c) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the Company or a
Subsidiary.
"Escrow Agent" shall have the meaning set forth in Section 1.8(a)(vii).
------------
"Escrow Agreement" shall have the meaning set forth in Section
----------------
1.8(a)(vii).
"Escrow Fund" shall have the meaning set forth in Section 1.8(a)(vii).
-----------
"Escrow Retention Notice" shall have the meaning set forth in Section
-----------------------
7.5(h).
"Escrow Retention Response" shall have the meaning set forth in Section
-------------------------
7.5(h).
"Excluded Matters" shall mean claims (a) based on fraud or knowing
----------------
misrepresentation, (b) for a breach of any of the representations and warranties
set forth in Sections 2.1 (Organization, Qualification and Corporate Power), 2.2
(Capitalization), 2.3 (Authorization), 2.9 (Tax Matters), the first sentence of
Section 2.10(a) (Assets), Sections 2.22 (Employee Benefits, but only to the
extent related to and involving any Tax matters), 2.33 (Disclosure, but only to
the extent related to any of the foregoing matters listed in clause (a) or (b)),
3.1 ( Title) or 3.2 (Authority), (c) under Sections 7.1(a)(i) or 7.1(b)(i)
relating to any of the matters set forth in clause (b) hereof, (d) under
Sections 7.1(a)(iii) or 7.1(b)(ii), (e) under Section 7.1(a)(ii) relating to
claims under Article VIII (Tax Matters), (f) under Section 7.1(a)(xi) (Swiss
Sale Claims) and (g) under Article VIII (Tax Matters).
"Existing Insured Claim" shall have the meaning set forth in Section
----------------------
7.3(b).
"Extraordinary Expenses" shall mean the amount of any expenses
----------------------
attributable to (a) the exercise of stock options of the Company in 2005 on or
prior to the Closing Date, (b) the buyout of health care and employment
contracts for officers, directors and employees of the Company in 2005 on or
prior to the Closing Date or accrued for on the Closing Balance Sheet and (c)
retention bonuses paid by the Company in 2005 on or prior to the Closing Date,
in each case, to the extent such expenses are deductible (whether or nor
deducted) for federal income tax purposes.
78
"Federal Rules" shall have the meaning set forth in Section
-------------
7.4(e)(iii).
"Financial Statements" shall mean the 2002 Audited Financial
--------------------
Statements, the Draft 2003 Financial Statements and the Draft 2004 Financial
Statements.
"Footnote Detail" shall have the meaning set forth in Section 5.12.
---------------
"Forensic Accountant Report" shall have the meaning set forth in
--------------------------
Section 5.14.
"Fully Diluted Company Shares" shall mean the sum of (a) the number of
----------------------------
Company Shares issued and outstanding immediately prior to the Closing and (b)
the number of Company Shares subject to Options outstanding immediately prior to
the Closing.
"GAAP" shall mean United States generally accepted accounting
----
principles.
"Governmental Entity" shall mean any domestic or foreign court,
-------------------
arbitrational tribunal, administrative agency or commission or other domestic or
foreign governmental or regulatory authority or agency.
"▇▇▇▇▇ ▇▇▇▇▇▇▇▇" shall have the meaning set forth in Section 5.12.
--------------
"Gross Margin" shall mean the net selling price minus the manufactured
------------
cost as per the Company's standard costing system, which is limited to (a)
direct materials, (b) direct labor, and (c) manufacturing burden.
"Indemnified Party" shall mean a party entitled, or seeking to assert
-----------------
rights, to indemnification under Article VII.
"Indemnifying Party" shall mean the party from whom indemnification is
------------------
sought by an Indemnified Party.
"Insured Claim" shall have the meaning set forth in Section 7.3(b).
-------------
"Intellectual Property" shall mean all:
---------------------
(a) patents, patent applications, patent disclosures, utility
models, certificates of invention and design patents, patent applications,
registrations and applications for registrations, including all related
continuations, continuations-in-part, divisionals, reissues and reexaminations
(collectively, "Patent Rights");
-------------
(b) registered trademarks and service marks, Internet domain
names, logos, trade names, corporate names, doing business designations and
registrations and applications for registration thereof (collectively,
"Trademark Registrations"), common law trademarks and service marks and trade
-----------------------
dress, and all goodwill in the foregoing;
(c) copyrights, data and database rights and registrations and
applications for registration thereof, including moral rights of authors;
(d) mask works and registrations and applications for registration
thereof;
79
(e) inventions, invention disclosures, statutory invention
registrations, designs, trade secrets and confidential business information,
know-how, manufacturing and product processes and techniques, research and
development information, financial, marketing and business data, pricing and
cost information, business and marketing plans and customer and supplier lists
and information, whether patentable or nonpatentable, whether copyrightable or
non-copyrightable and whether or not reduced to practice, but only to the extent
maintained as confidential and proprietary information by the Company or any
Subsidiary and not otherwise in the public domain;
(f) other proprietary rights relating to any of the foregoing
(including remedies against infringements thereof and rights of protection of
interest therein under the laws of all applicable jurisdictions); and
(g) copies and tangible embodiments thereof.
"Intellectual Property Registrations" means Patent Rights, Trademark
-----------------------------------
Registrations, registered copyrights and mask work registrations.
"Internal Systems" shall mean Software and Documentation and the
----------------
computer, communications and network systems (both desktop and enterprise-wide),
laboratory equipment, reagents, materials and test apparatus used by the Company
or any Subsidiary in their respective businesses or operations or to design,
develop, manufacture, fabricate, assemble, provide, distribute, support,
maintain or test the Customer Offerings, whether located on the premises of the
Company or a Subsidiary or hosted at a third party site.
"IPMT" shall mean Innovative Paper Machine Technology, a Michigan
----
corporation.
"Joinder Agreement" shall have the meaning set forth in Section 5.3(a).
-----------------
"▇▇▇▇" shall mean the Buyer's Kadant AES Mexico subsidiary.
----
"Knowledge of the Company" shall mean the knowledge of each of the
------------------------
following individuals: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇'▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Florent
Cretieux, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇, as well as any other knowledge which any such individuals would have
possessed had they made reasonable inquiry with respect to the matter in
question.
"Lease" shall mean any lease or sublease pursuant to which the Company
-----
or a Subsidiary leases or subleases from another party any real property.
"Legal Proceeding" shall mean any action, suit, proceeding, claim,
----------------
arbitration or investigation before any Governmental Entity or before any
arbitrator.
"Letter of Credit" shall mean a letter of credit payable to the Escrow
----------------
Agent in substantially the form attached hereto as Exhibit D in the amount
---------
determined in accordance with the Escrow Agreement, as such amount may be
adjusted in accordance with the Escrow Agreement.
80
"Mandatory Plans" shall mean any non-discretionary Employee Benefit
---------------
Plan where participation by the Company or any Subsidiary is required under
applicable foreign law or applicable collective bargaining agreements for
non-United States based employees of the Company or any Subsidiary.
"Materials of Environmental Concern" shall mean any: pollutants,
----------------------------------
contaminants or hazardous substances (as such terms are defined under CERCLA),
pesticides (as such term is defined under the Federal Insecticide, Fungicide and
Rodenticide Act), solid wastes and hazardous wastes (as such terms are defined
under the Resource Conservation and Recovery Act), chemicals, other hazardous,
radioactive or toxic materials, oil, petroleum and petroleum products (and
fractions thereof), asbestos or asbestos-containing material, or any other
material (or article containing such material) listed or subject to regulation
under any Environmental Law.
"Mediator" shall have the meaning set forth in Section 7.4(e).
--------
"Merger" shall mean the merger of the Transitory Subsidiary with and
------
into the Company in accordance with the terms of this Agreement.
"Merger Transaction" shall have the meaning set forth in the second
------------------
paragraph of this Agreement.
"Most Recent Balance Sheet" shall mean the unaudited consolidated
-------------------------
balance sheet of the Company as of the Most Recent Balance Sheet Date.
"Most Recent Balance Sheet Date" shall mean December 31, 2004.
------------------------------
"Net Asset Value" shall mean the total consolidated tangible assets of
---------------
the Company, less the total consolidated liabilities of the Company as shown on
the Preliminary Closing Balance Sheet or the Closing Balance Sheet, as the case
may be.
"Net Tax Savings" shall mean, in the case of any Damages for which the
---------------
Buyer shall have been indemnified by the Sellers from the Escrow Fund in
accordance with Article VII, the amount of any Tax savings Actually Realized by
the Buyer or any Buyer Tax Subsidiary during the Tax Recovery Period which are
clearly attributable to such Damages, net of the following amounts (in each
case, to the extent identified by the Buyer during the Tax Recovery Period): (i)
any reasonable costs or expenses incurred by the Buyer or any Buyer Tax
Subsidiary in connection with Actually Realizing such amount, (ii) any increased
obligation for the payment of Taxes which will result to the Buyer or any Buyer
Tax Subsidiary from the receipt of the indemnity payment relating to such
Damages and (iii) any reduction in or offset to any other Tax savings or Tax
benefit otherwise available to the Buyer or any Buyer Tax Subsidiary which will
result from the receipt of the indemnity payment relating to such Damages.
"Netherlands Product Liability Claim" shall mean the claims described
-----------------------------------
in item No. 5 of Section 2.19(a) of the Disclosure Schedule.
81
"Neutral Accountant" shall have the meaning set forth in Section
------------------
1.10(d).
"Non-Assignable Insurance Claim" shall have the meaning set forth in
------------------------------
Section 7.3(b).
"Non-controlling Party" shall mean the party not controlling the
---------------------
defense of any Third Party Action.
"Notice" shall mean the notice of special meeting of shareholders of
------
the Company pursuant to Section 703a of the Michigan Business Corporation Act.
"Open Source Materials" shall have the meaning set forth in Section
---------------------
2.13(g).
"Option" shall mean each option to purchase or acquire Company Shares.
------
"Option Consideration" shall mean, with respect to an Option, the
--------------------
product of (a) the Option Per Share Price for such Option minus the exercise
price per Company Share subject to such Option and (b) the number of Company
Shares subject to such Option.
"Option Holder" shall mean any holder of an Option outstanding
-------------
immediately prior to the Closing, in the case of a Stock Transaction, or
immediately prior to the Effective Time, in the case of a Merger Transaction.
"Option Notice" shall have the meaning set forth in Section 5.3(b).
-------------
"Option Obligations" shall have the meaning set forth in Section
------------------
8.2(a).
"Option Per Share Price" shall mean, subject to adjustment in
----------------------
accordance with the provisions of Section 1.10, an amount determined by dividing
(i) the difference of the Preliminary Base Purchase Price minus $12,750,000 by
(ii) the number of Fully Diluted Company Shares.
"Ordinary Course of Business" shall mean the ordinary course of
---------------------------
business of the Company and its Subsidiaries consistent with past custom and
practice (including with respect to frequency and amount).
"Original Escrow Deposit" shall mean $12,750,000.
-----------------------
"Owned Real Property" shall mean each item of real property owned by
-------------------
the Company or any Subsidiary.
"Parties" and "Party" shall have the meanings set forth in the first
------- -----
paragraph of this Agreement.
"Permits" shall mean all permits, licenses, registrations,
-------
certificates, orders, approvals, franchises, variances and similar rights issued
by or obtained from any Governmental Entity (including those issued or required
under Environmental Laws and those relating to the occupancy or use of owned or
leased real property).
82
"Permitted Actions" shall mean (a) actions taken to respond to
-----------------
circumstances beyond the Buyer's control and which require the Buyer's response
as a prudent business person during the Earn-Out Period and (b) other actions
that a prudent business person would take in the operation of the Business Unit
under the circumstances and without regard to the provisions of Section 1.14.
"Pre-Closing Period" shall have the meaning set forth in Section 5.4.
------------------
"Preliminary Base Purchase Price" shall have the meaning set forth in
-------------------------------
Section 1.10(a).
"Preliminary Closing Balance Sheet" shall have the meaning set forth in
---------------------------------
Section 1.10(a).
"Preliminary Net Asset Value" shall have the meaning set forth in
---------------------------
Section 1.10(a).
"Principal Shareholder" and "Principal Shareholders" shall have the
--------------------- ----------------------
meanings set forth in the first paragraph of this Agreement.
"Product Liability Claim" shall mean any claim that the products or
-----------------------
goods sold or manufactured (but excluding, in the case of manufactured products,
any components manufactured by the Company or any Subsidiary prior to Closing
that are assembled by the Buyer, the Company or any Subsidiary following the
Closing into a larger assembly) by the Company or any Subsidiary prior to the
Closing Date have caused injury to or death to persons, or damage to or
destruction of property, and includes any worker's compensation claims arising
from the products or goods sold or manufactured (but excluding, in the case of
manufactured products, any components manufactured by the Company or any
Subsidiary prior to Closing that are assembled by the Buyer, the Company or any
Subsidiary following the Closing into a larger assembly) by the Company or any
Subsidiary prior to the Closing Date.
"Prohibited Actions" shall have the meaning set forth in Section 5.4.
------------------
"Pro-Rated Earn-Out Amount" shall mean (a) $8,000,000 divided by (b)
-------------------------
the difference between the Earn-Out Cap minus the Earn-Out Threshold.
"Public Company Fees" shall mean an amount, not to exceed $32,500,
-------------------
incurred by the Company in connection with the preparation and delivery of (i)
the S-X Financial Statements and (ii) the consent of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, each as
described in Section 5.12 (it being understood that the Public Company Fees are
intended to represent the incremental costs associated with the preparation of
the S-X Financial Statements from the audited financial statements for the 2003
and 2004 fiscal years and shall not include any costs associated with the
preparation of such audited financial statements themselves).
"Reasonable Best Efforts" shall mean best efforts, to the extent
-----------------------
commercially reasonable.
"Remediation Activities" shall have the meaning set forth in Section
----------------------
5.10(a).
"Representatives" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and
---------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
83
"Representatives Dispute Notice" shall have the meaning set forth in
------------------------------
Section 1.10(d).
"Required Insured Claim" shall have the meaning set forth in Section
----------------------
7.3(b).
"Requisite Shareholder Approval" shall mean, in the case of a Merger
------------------------------
Transaction, the adoption of this Agreement and the approval of the Merger by a
majority of the votes represented by the outstanding Company Shares entitled to
vote on this Agreement and the Merger.
"Response" shall mean a written response containing the information
--------
provided for in Section 7.4(b).
"Retained Amount" shall mean the amount of Damages, including
---------------
anticipated legal fees and expenses, that the Buyer could reasonably be expected
to incur in connection with any unresolved matters for which a Claim Notice has
previously been given by the Buyer, plus a contingency reserve of thirty percent
(30%) of such amount, which amount shall be based upon estimates prepared by
independent experts such as insurers, actuaries and counsel directly involved in
defending or prosecuting the Claim in accordance with the provisions of Section
7.5(h).
"Revenue" shall mean the revenue of the Buyer or any subsidiary of the
-------
Buyer (including 100% of the revenue of any joint venture of the Company in
which the Company holds 50% or more of the voting power of all outstanding stock
or ownership interests of such entity) other than ▇▇▇▇ (which revenue of ▇▇▇▇
shall be excluded as per clause (v) hereunder) which is recognized by the Buyer
or any such subsidiary of the Buyer in accordance with GAAP, in each case from
the sale by the Company, any Subsidiary, the Buyer or any such subsidiary of the
Buyer of any of the Customer Offerings and any new product and service that is
both (i) developed by the Business Unit and (ii) sold by the Buyer or any
subsidiary of the Buyer (including 100% of the revenue of any joint venture of
the Company in which the Company holds 50% or more of the voting power of all
outstanding stock or ownership interests of such entity) other than ▇▇▇▇.
Notwithstanding the foregoing, "Revenue" shall be calculated in each case net of
reductions for (i) discounts from amounts originally billed, (ii) returns
(including without limitation as a result of work not accepted by customers),
(iii) accounts receivable write-offs with respect to receivables generated
during the Earn-Out Period, (iv) customer deductions and (v) the difference
between (A) the amounts invoiced by ▇▇▇▇ for the Customer Offerings and (B) the
amounts invoiced to ▇▇▇▇ by the Company or any Subsidiary of the Company as in
existence at Closing, all such invoicing by ▇▇▇▇ and the Company and its
Subsidiaries to be executed in a similar manner as in the manufacturer's
representative relationship existing between ▇▇▇▇ and the Company prior to
Closing.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Security Interest" shall mean any mortgage, pledge, security interest,
-----------------
encumbrance, charge or other lien (whether arising by contract or by operation
of law) securing a debt or obligation of the Company, a Subsidiary or any other
party, other than (a) mechanic's, materialmen's and similar liens, (b) liens
arising under worker's compensation, unemployment insurance, social security,
retirement and similar legislation, and (c) liens on goods in transit incurred
pursuant to documentary letters of credit, in each case arising in the Ordinary
Course of Business of the Company and not material to the Company.
84
"Seller" shall mean (a) in the case of a Stock Transaction, each
------
Selling Shareholder and each Option Holder, and (b) in the case of a Merger
Transaction, each Company Shareholder (excluding holders of Dissenting Shares)
and each Option Holder.
"Seller Disclosure Schedule" shall mean the disclosure schedule
--------------------------
provided by the Sellers to the Buyer on the date hereof and accepted in writing
by the Buyer.
"Selling Shareholder" shall mean each Principal Shareholder and each
-------------------
other Company Shareholder who executes and delivers a Joinder Agreement in
accordance with the provisions of Section 5.3(a) of this Agreement.
"Software" shall mean computer software code, applications, utilities,
--------
development tools, diagnostics, databases and embedded systems, whether in
source code, interpreted code or object code form.
"Stock Transaction" shall have the meaning set forth in the second
-----------------
paragraph of this Agreement.
"Stub Period Tax Return" shall mean the United States federal income
----------------------
Tax Return of the Company and its Subsidiaries for the period beginning January
1, 2005 and ending on the Closing Date.
"Subsidiary" shall mean any corporation, partnership, trust, limited
----------
liability company or other non-corporate business enterprise in which the
Company (or another Subsidiary) holds stock or other ownership interests
representing (a) 50% or more of the voting power of all outstanding stock or
ownership interests of such entity or (b) the right to receive 50% or more of
the net assets of such entity available for distribution to the holders of
outstanding stock or ownership interests upon a liquidation or dissolution of
such entity.
"Surviving Corporation" shall mean, in the case of a Merger
---------------------
Transaction, the Company, as the surviving corporation in the Merger.
"Swiss Sale Claim" shall mean any claim arising out of the ownership,
----------------
operation or sale of the Company's Subsidiary The ▇▇▇▇▇▇▇ Corporation Ltd, a
corporation organized under the laws of Switzerland, including, without
limitation, any claim arising under that certain Stock Purchase Agreement dated
as of March 28, 2005 among QHD Holdings International Inc., The ▇▇▇▇▇▇▇
Corporation Holland BV and The ▇▇▇▇▇▇▇ Corporation Ltd.
"S-X Financial Statements" shall have the meaning set forth in Section
------------------------
5.12.
"Target Amount" shall mean $26,271,764. Such amount has been calculated
-------------
in accordance with Schedule 1.10(a)(i) and the Balance Sheet Requirements and
does not include any change in accruals or reserves from the amounts set forth
on the Company's August 31, 2004 balance sheet provided to the Buyer in 2004, a
copy of which is attached hereto as Schedule 1.10(a)(ii). If prior to Closing
any Party determines that there has been a change in such accruals or reserves
85
or an error in the calculation of the Target Amount based upon Schedule
1.10(a)(i) and the Balance Sheet Requirements, the Target Amount shall be
appropriately adjusted to reflect such change or correct such error. Any dispute
regarding any such change or error shall be determined by the Neutral Accountant
in accordance with the provisions of Section 1.10.
"Tax Arbitrator" shall mean the Boston, Massachusetts office of
--------------
Deloitte and Touche LLP or, if such firm is unwilling or unable to serve in such
capacity, an independent nationally recognized accounting firm selected in
writing by the Representatives and the Buyer or, if the Representatives and the
Buyer fail or refuse to select such a firm within 10 calendar days after written
request therefor by the Representatives or the Buyer, such an independent
nationally recognized accounting firm shall be selected in accordance with the
rules of the Boston, Massachusetts office of the AAA. Notwithstanding any
provision in Section 7.4 of this Agreement to the contrary, all disputes to be
referred to the Tax Arbitrator shall be held at the offices of the Tax
Arbitrator in Boston, Massachusetts unless otherwise agreed upon by the Parties.
"Taxes" shall mean all taxes, charges, fees, levies or other similar
-----
assessments or liabilities, including income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment, insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government, or
any agency thereof, or other political subdivision of the United States or any
such government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof.
"Tax Proceedings" shall mean any audit, claim for refund, or contest or
---------------
defense against any assessment, notice of deficiency, or other proposed
adjustment relating to any and all Taxes of the Company or any Subsidiary.
"Tax Recovery Period" shall mean a period commencing on the Closing
-------------------
Date and ending on the fourth (4th) anniversary of the Closing Date.
"Tax Returns" shall mean all reports, returns, declarations, statements
-----------
or other information required to be supplied to a taxing authority in connection
with Taxes.
"Third Party Action" shall mean any suit or proceeding by a person or
------------------
entity other than a Party for which indemnification may be sought by a Party
under Article VII.
"Third Party Action Response" shall mean a written response containing
---------------------------
the information provided for in Section 7.3(b).
"Transaction Consideration" shall mean, subject to adjustment in
-------------------------
accordance with the provisions of Section 1.10, an amount determined by dividing
(a) the difference of the Preliminary Base Purchase Price minus the Aggregate
Option Consideration minus $12,750,000 by (b) the number of Company Shares held
by the Company Shareholders immediately prior to the Closing.
86
"Transitory Subsidiary" shall have the meaning set forth in the first
---------------------
paragraph of this Agreement.
"Unresolved Objections" shall have the meaning set forth in Section
---------------------
1.10(d).
"USCIS" shall have the meaning set forth in Section 2.21(h).
-----
"Work Permit" shall have the meaning set forth in Section 2.21(h).
-----------
"2002 Audited Financial Statements" shall mean the audited consolidated
---------------------------------
balance sheet and statements of income, changes in shareholders' equity and cash
flows of the Company as of and for the fiscal year ended December 31, 2002, as
certified without qualification by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
ARTICLE XII
MISCELLANEOUS
12.1 Press Releases and Announcements. The Parties agree that a public
--------------------------------
announcement of the execution of this Agreement will be made no later than two
(2) business days after the date of this Agreement. No Party shall issue any
other press release or public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties;
provided, however, that (a) any Party may make any public disclosure it believes
in good faith is required by applicable law, regulation or stock market rule (in
which case the disclosing Party shall use reasonable efforts to advise the other
Parties and provide them with a copy of the proposed disclosure prior to making
the disclosure) and (b) the Buyer and its Affiliates shall not be bound by the
provisions of this Section 12.1 following the Closing Date.
12.2 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
12.3 Entire Agreement. This Agreement (including the documents referred
----------------
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated June 21, 2004 between the Buyer and the Company
shall remain in effect in accordance with its terms.
12.4 Succession and Assignment. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Transitory Subsidiary may
assign its rights, interests and obligations hereunder to an Affiliate of the
Buyer.
87
12.5 Counterparts and Facsimile Signature. This Agreement may be
------------------------------------
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
12.6 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.7 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered two (2) business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
To the Buyer or the Transitory Subsidiary: with copies to:
Kadant Inc. Kadant Inc.
One Acton Place ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer Attention: General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
and to
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
88
To the Company: To the Sellers:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ c/o the following individuals,
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ as Representatives
Attn: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇...
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ & Boyn, LLP
Suite 400
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, ordinary mail or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
12.8 Governing Law. This Agreement (including the validity and
-------------
applicability of the arbitration provisions of this Agreement, the conduct of
any arbitration or mediation of a Dispute, the arbitrability or ability to
mediate any dispute, the enforcement of any arbitral or mediation award made
hereunder and any other questions of arbitration or mediation law or procedure
arising hereunder) shall be governed by and construed in accordance with the
internal laws of the State of Michigan without giving effect to any choice or
conflict of law provision or rule (whether of the State of Michigan or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of Michigan.
12.9 Amendments and Waivers. The Parties may mutually amend any
----------------------
provision of this Agreement at any time prior to the Closing; provided, however,
that, in the case of a Merger Transaction, any amendment effected subsequent to
the Requisite Shareholder Approval shall be subject to any restrictions
contained in the Michigan Business Corporation Act. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
89
and signed by all of the Parties. No waiver of any right or remedy hereunder
shall be valid unless the same shall be in writing and signed by the Party
giving such waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
12.10 Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
12.11 Submission to Jurisdiction. Each Party (a) submits and consents
--------------------------
to personal jurisdiction before any state or federal court sitting in the State
of Michigan in any action or proceeding arising out of or relating to this
Agreement (including any action or proceeding for the enforcement of any
arbitral award made in connection with any arbitration of a Dispute hereunder),
(b) agrees that all claims in respect of such action or proceeding may be heard
and determined in any such court, (c) waives any claim of inconvenient forum or
other challenge to venue in such court, (d) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court, and
(e) waives any right it may have to a trial by jury with respect to any action
or proceeding arising out of or relating to this Agreement; provided in each
case that, solely with respect to any arbitration of a Dispute, the Arbitrator
shall resolve all threshold issues relating to the validity and applicability of
the arbitration provisions of this Agreement, contract validity, applicability
of statutes of limitations and issue preclusion, and such threshold issues shall
not be heard or determined by such court. Each Party agrees to accept service of
any summons, complaint or other initial pleading made in the manner provided for
the giving of notices in Section 12.7, provided that nothing in this Section
12.11 shall affect the right of any Party to serve such summons, complaint or
other initial pleading in any other manner permitted by law.
12.12 Construction.
------------
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) 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.
90
(c) Any reference herein to "including" shall be interpreted as
"including without limitation".
(d) Any reference to any Article, Section or paragraph shall be
deemed to refer to an Article, Section or paragraph of this Agreement, unless
the context clearly indicates otherwise.
(e) All references to "$", "Dollars" or "US$" refer to currency of
the United States of America.
[Remainder of the Page Intentionally Left Blank]
<
91
> IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
BUYER:
KADANT INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President and Chief
Executive Officer
TRANSITORY SUBSIDIARY:
▇▇▇▇▇▇▇ ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
COMPANY:
THE ▇▇▇▇▇▇▇ CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, President and
Chief Executive Officer
PRINCIPAL SHAREHOLDERS:
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee of the following
Trusts: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Declaration of
Trust, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Declaration of Trust
No. 2, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Declaration of Trust
No. 3 (for ▇▇▇▇ ▇▇▇▇▇▇), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Trust No.5, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ Declaration of Trust
WRM, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Member
92
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., as Trustee of the
following Trusts: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Declaration of Trust No. 1 and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ Declaration of Trust No 3
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee of the
following Trusts: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Declaration of Trust, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust ▇▇. ▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇ (for ▇▇▇▇▇▇
▇▇▇▇▇▇), ▇▇▇▇▇▇ O, ▇▇▇▇▇▇ Irrevocable
Grantor Trust
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., as Trustee of the
following Trusts: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇.
Declaration of Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇. Trust for ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ Trust No. 7
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, as Trustee of the
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Trust
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇
93
The undersigned have joined this Agreement for the purposes of
confirming their appointment as, and agreeing to perform the
obligations of, Representatives.
REPRESENTATIVES:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
<
94
>
The undersigned, being the duly elected Secretary or Assistant
Secretary of the Transitory Subsidiary, hereby certifies that this Agreement has
been adopted by the holders of shares representing a majority of the votes
represented by the outstanding shares of capital stock of the Transitory
Subsidiary entitled to vote on this Agreement.
-----------------------------------------
Secretary or Assistant Secretary
The undersigned, being the duly elected Secretary or Assistant
Secretary of the Company, hereby certifies that this Agreement has been adopted
by the holders of shares representing a majority of the votes represented by the
outstanding Company Shares entitled to vote on this Agreement.
-----------------------------------------
Secretary or Assistant Secretary
95
EXHIBIT A
ESCROW AGREEMENT
This Escrow Agreement is entered into as of _____, 2005, by and among
Kadant Inc., a Delaware corporation (the "Buyer"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇
▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "Representatives"); and ▇.▇. ▇▇▇▇▇▇ Trust
Company, National Association, as escrow agent (the "Escrow Agent").
WHEREAS, the parties have entered into a Purchase Agreement dated April
7, 2005 (the "Purchase Agreement") by and among the Buyer, The ▇▇▇▇▇▇▇
Corporation, a Michigan corporation (the "Company"), ▇▇▇▇▇▇▇ Acquisition Corp.
[(the "Transitory Subsidiary")], the Principal Shareholders of the Company and
certain additional Selling Shareholders and Option Holders of the Company who
execute Joinder Agreements after the date of the Purchase Agreement, pursuant to
which [the Buyer will purchase all of the Company Shares]/[the Transitory
Subsidiary will merge with and into the Company which, as the surviving
corporation, will become a wholly-owned subsidiary of the Buyer]. Capitalized
terms not defined in this Agreement are as defined in the Purchase Agreement;
WHEREAS, the Purchase Agreement provides that an Escrow Fund will be
established to:
(a) secure, in accordance with Section 1.13(a) of the Purchase
Agreement, the indemnification obligations of the Sellers as set forth in
Section 7.1 of the Purchase Agreement;
(b) satisfy, in accordance with Section 1.11(a) of the Purchase
Agreement, the Sellers' obligation to adjust the Base Purchase Price in
accordance with Section 1.10(h)(i) of the Purchase Agreement;
(c) receive into the Escrow Fund 12.5% of any increase in the Base
Purchase Price as set forth in Section 1.11(b)(i) of the Purchase Agreement in
the event of an increase to the Base Purchase Price under Section 1.10(h)(iii)
of the Purchase Agreement;
(d) receive into the Escrow Fund 12.5% of the Earn-Out Consideration as
set forth in Section 1.14(d) of the Purchase Agreement;
(e) secure the obligation of the Sellers to fund any excess costs
related to Remediation Activities in accordance with Section 5.10(b) of the
Purchase Agreement;
(f) receive into the Escrow Fund the Accounts Receivable Reimbursement
as set forth in Section 7.5(h) of the Purchase Agreement; and
(g) secure the obligation to pay any Net Tax Savings in accordance with
Section 7.5(j) of the Purchase Agreement;
WHEREAS, the Purchase Agreement provides that the Buyer will deliver to
the Escrow Agent a Letter of Credit in the aggregate amount of the pro rata
portions of the Transaction
Consideration and the Aggregate Option Consideration withheld from each Seller
in accordance with Section 1.13(b) of the Purchase Agreement; and
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which (i) such Escrow Fund will be established and
maintained through this escrow and (ii) such Letter of Credit will be held and
drawn upon.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Consent of Sellers. The Selling Shareholders, by their execution
------------------
of or joinder to the Purchase Agreement, [and] the Option Holders, by their
exercise of their Options and joinder to the Purchase Agreement, [and the
Company Shareholders, by their approval of the Merger and the adoption of the
Purchase Agreement,] have consented to (a) the establishment of this escrow to:
(i) secure, in accordance with Section 1.13(a) of the Purchase
Agreement, the indemnification obligations of the Sellers as set forth in
Section 7.1 of the Purchase Agreement;
(ii) satisfy, in accordance with Section 1.11(a) of the Purchase
Agreement, the Sellers' obligation to adjust the Base Purchase Price in
accordance with Section 1.10(h)(i) of the Purchase Agreement;
(iii) receive into the Escrow Fund 12.5% of any increase in the Base
Purchase Price as set forth in Section 1.11(b)(i) of the Purchase Agreement in
the event of an increase to the Base Purchase Price under Section 1.10(h)(iii)
of the Purchase Agreement,
(iv) receive into the Escrow Fund 12.5% of the Earn-Out Consideration
as set forth in Section 1.14(d) of the Purchase Agreement;
(v) secure the obligation of the Sellers to fund any excess costs
related to Remediation Activities in accordance with Section 5.10(b) of the
Purchase Agreement;
(vi) receive into the Escrow Fund the Accounts Receivable Reimbursement
as set forth in Section 7.5(h) of the Purchase Agreement; and
(vii) secure the obligation to pay any Net Tax Savings in accordance
with Section 7.5(j) of the Purchase Agreement;
(b) the appointment of the Representatives as their representatives for purposes
of this Agreement and as attorneys-in-fact and agents for and on behalf of each
Seller and the taking by the Representatives of any and all actions and the
making of any decisions required or permitted to be taken or made by them under
this Agreement; and (c) all of the other terms, conditions and limitations in
this Agreement.
2. Escrow Fund.
-----------
(a) Purpose: The Escrow Fund shall be security for the following
-------
obligations and amounts, subject to the limitations, and in the manner provided,
in this Agreement:
(i) the Sellers have agreed in Article VII of the Purchase Agreement to
indemnify and hold harmless the Buyer from and against specified Damages;
(ii) the Buyer and the Sellers have agreed in Section 5.10(b) of the
Purchase Agreement that, in the event that the cost of completing the
Remediation Activities exceeds the reserve therefor set forth on the Closing
Balance Sheet, the amount of such excess shall be paid to the Buyer from the
Escrow Fund;
(iii) the Buyer has agreed, subject to the terms of Section 7.5(j) of
the Purchase Agreement, to deposit the amount of any Net Tax Savings in the
Escrow Fund; and
(iv) the Buyer has agreed in Section 7.5(h) of the Purchase Agreement
to deposit any Accounts Receivable Reimbursement in the Escrow Fund in the event
that the Buyer (A) makes a claim for indemnification pursuant to Section 7.1(a)
of the Purchase Agreement as a result of a breach of the representations and
warranties set forth in Section 2.16 of the Purchase Agreement; (B) recovers any
Damages from the Escrow Fund with respect to such claim; and (C) subsequently
collects any account receivable which gave rise to such Damages within 18 months
after the Closing Date.
(b) Initial Deposit: Simultaneously with the execution of this
---------------
Agreement, the Buyer [or the Transitory Subsidiary] shall deposit with the
Escrow Agent, by wire transfer of the Buyer payable to the Escrow Agent, the
Original Escrow Deposit of $12,750,000. The Escrow Fund shall be held as a trust
fund and shall not be subject to any lien, attachment, trustee process or any
other judicial process of any creditor of any party hereto. The Escrow Fund
shall be invested in accordance with Section 6 hereof. The Escrow Agent agrees
to hold the Escrow Fund in an escrow account subject to the terms and conditions
of this Agreement.
(c) Subsequent Deposits: By wire transfer of the Buyer payable to
-------------------
the Escrow Agent pursuant to:
(i) Section 1.11(b)(i) of the Purchase Agreement, the Buyer shall make
a payment of 12.5% of the amount of any surplus to the Escrow Fund pursuant to
Section 1.10(h)(iii) of the Purchase Agreement; and
(ii) Section 1.14(d) of the Purchase Agreement, the Buyer shall make a
payment of 12.5% of the Earn-Out Consideration;
(iii) Section 7.5(h) of the Purchase Agreement, the Buyer shall deposit
any Accounts Receivable Reimbursement in the Escrow Fund.
The Buyer shall give the Escrow Agent at least one (1) business day's prior
written notice of such subsequent deposit and in such notice shall indicate
whether it is a deposit pursuant to clauses (i), (ii) or (iii) of the foregoing
sentence.
(d) Transferability: The respective interests of the Sellers in
---------------
the Escrow Fund shall not be assignable or transferable, other than: (i) by
operation of law; (ii) to a trust in which such Seller is the grantor and the
primary intervivos beneficiary; or (iii) upon the death of a Seller, pursuant to
the terms of such Seller's will. Notice of any such assignment or transfer
shall be given by the Representatives to the Escrow Agent and the Buyer, and no
such assignment or transfer shall be binding on the Escrow Agent or the Buyer
until such notice is given and, in the case of the Escrow Agent, acknowledged in
writing.
3. Disbursement of Escrow Fund.
---------------------------
(a) Initial Disbursements: Subject to Sections 3(c), 3(d) and (e)
---------------------
hereof, pursuant to:
(i) Section 1.11(a) of the Purchase Agreement, a payment by wire
transfer shall be made from the Escrow Fund to the Buyer in the case of a
decrease between the Adjusted Base Purchase Price and the Preliminary Base
Purchase Price pursuant to Section 1.10(h)(i) of the Purchase Agreement;
(ii) Section 5.10(b) of the Purchase Agreement, a payment by wire
transfer shall be made from the Escrow Fund to the Buyer from time to time in an
amount equal to any excess Remediation Activities costs; and
(iii) Article VII of the Purchase Agreement, a payment by wire transfer
shall be made from the Escrow Fund to the Buyer from time to time in an amount
equal to any Damages incurred by the Buyer, the Company[, the Surviving
Corporation] or any Affiliate thereof.
(b) Interim Disbursement to the Representatives: Subject to
-------------------------------------------
receipt of the items required by and the conditions of Sections 3(d) and (e) and
pursuant to Section 3(f) hereof, within 15 business days after the 18 month
anniversary of the Closing Date (the "Interim Release Date"), the Escrow Agent
shall distribute to the Representatives, for distribution to the Sellers, that
portion of the Escrow Fund, if any, then held in escrow in excess of the sum of
(i) $2,000,000 plus (ii) the amount to be withheld with respect to unresolved
Claim Notices (as defined in Section 3(e)) pursuant to Section 3(e) below. Once
the Retained Amount has been determined in accordance with the provisions of
Section 7.5(h) of the Purchase Agreement, the Buyer and the Representatives
shall further instruct the Escrow Agent to distribute to the Representatives,
for distribution to the Sellers, that portion of the Escrow Fund, if any, then
held in escrow in excess of the sum of (i) $2,000,000 plus (ii) the Retained
Amount.
(c) Final Disbursement to the Representatives: Subject to receipt
-----------------------------------------
of the items required by and the conditions of Sections 3(d) and (e) and
pursuant to Section 3(f) hereof, within five (5) business days after the five
(5) year anniversary of the Closing Date (the "Termination Date"), the Escrow
Agent shall distribute to the Representatives, for distribution to the Sellers,
all of the Escrow Fund then held in escrow.
(d) Instructions to Escrow Agent: The Escrow Agent shall disburse
----------------------------
the Escrow Fund only in accordance with:
(i) a written instrument delivered to the Escrow Agent that is executed
by both the Buyer and the Representatives (subject to the provisions of Section
9(a)) and that instructs the Escrow Agent as to the disbursement of some or all
of the Escrow Fund;
(ii) a final, non-appealable order of a court of competent
jurisdiction, a copy of which is delivered to the Escrow Agent by either (A) the
Buyer or (B) the Representatives (subject to the provisions of Section 9(a)),
along with a certification of such presenting party to the effect that such
order is from a court of competent jurisdiction and is final and nonappealabe,
upon which the Escrow Agent may conclusively rely, that instructs the Escrow
Agent as to the disbursement of some or all of the Escrow Fund; or
(iii) the provisions of Section 3(e) hereof.
Without limitation of the foregoing, on or before April 1 of each year, the
Buyer and the Representatives shall issue a joint direction to the Escrow Agent
to disburse to the Representatives, for distribution to the Sellers an amount,
to be set forth in such joint direction, equal to the amount of the federal and
state income taxes payable by the Sellers, calculated at a 40% rate, on all
interest earned on the Escrow Fund for the prior calendar year; provided,
however, that no such joint direction shall be provided in the event the Buyer's
aggregate Claim Notices equal or exceed the amount then contained in the Escrow
Fund.
(e) Disbursement and Claim Notice: Prior to any disbursement
-----------------------------
pursuant to Sections 3(a), (b) or (c) hereof, if the Buyer has previously
delivered to the Escrow Agent a copy of a Claim Notice (as hereinafter defined)
and the Escrow Agent has not received written notice from the Buyer and the
Representatives of
the resolution of the claim covered thereby, the Escrow Agent shall retain in
escrow (including after the Interim Release Date and the Termination Date, as
the case may be) an amount equal to the claimed amount covered by such Claim
Notice; provided, however, that pursuant to Section 3(b) above, the Buyer and
the Representatives shall instruct the Escrow Agent to release that portion of
the Escrow Fund in excess of the sum of (i) $2,000,000 plus (ii) the Retained
Amount once such amount has been finally determined in accordance with the
provisions of Section 7.5(h) of the Purchase Agreement. Any funds so retained in
escrow shall be disbursed only in accordance with the terms of clauses (i) or
(ii) of Section 3(d) hereof. For purposes of this Agreement, a "Claim Notice"
shall mean a written notification from the Buyer which contains (a) a
description of the damages incurred or reasonably expected to be incurred by the
Buyer and the claimed amount of such damages, to the extent then known and (b) a
statement that the Buyer is entitled to indemnification under Article VII of the
Purchase Agreement for such damages and a reasonable explanation of the basis
therefor.
(f) Method of Disbursement: Any distribution of all or a portion
----------------------
of the Escrow Fund by the Escrow Agent to the Representatives for further
disbursement to the Sellers shall be made in accordance with the percentages set
forth opposite such Sellers' respective names on Attachment A hereto; provided,
------------
however, that the Escrow Agent shall withhold the distribution of the portion of
the Escrow Fund otherwise payable to a Seller who has not, according to a
written notice provided by the Buyer to the Escrow Agent, prior to such
distribution:
(i) surrendered pursuant to the terms of the Purchase Agreement his,
her or its stock certificates formerly representing shares of stock of the
Company; or
(ii) in the case of an Option Holder, terminated his Options by
exercise prior to May 7, 2005 and by execution of a joinder to the Purchase
Agreement, or as otherwise set forth in the Purchase Agreement.
The Escrow Agent shall be entitled to conclusively rely on the written notice of
the Buyer with respect to the matters described in clauses (i) and (ii) of the
prior sentence. Any such withheld amounts shall be delivered to the Buyer
promptly after the Termination Date and shall be delivered by the Buyer to the
Representatives for disbursement to the Sellers to whom such amounts would have
otherwise been distributed upon surrender or termination, as the case may be, of
such certificates or instruments. Distributions to the Sellers shall be made by
the Representatives by mailing checks to such holders at their respective
addresses shown on Attachment A (or such other address as may be provided in
writing to the Escrow Agent by the Representatives).
4. Letter of Credit.
----------------
(a) Purpose: The Buyer has agreed in Section 1.13(b) of the
-------
Purchase Agreement to deliver the Letter of Credit to the Escrow Agent on the
Closing Date. The Letter of Credit shall secure (i) the Buyer's obligation to
pay the Sellers the amounts specified in Section 5 of this Agreement and (ii) in
the event of a shortfall in the Escrow Fund, the Sellers' obligation to
indemnify the Buyer for tax claims under the Purchase Agreement, in each case
subject to the limitations, and in the manner provided, in this Agreement.
(b) Deposit: Simultaneously with the execution of this Agreement,
-------
the Buyer [or the Transitory Subsidiary] shall deliver to the Escrow Agent the
Letter of Credit. The Letter of Credit shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party hereto. The Escrow Agent agrees to hold the Letter of Credit in escrow
subject to the terms and conditions of this Agreement.
(c) Replacement and Increase: If at any time within five (5) years
------------------------
after the Closing Date the Letter of Credit expires by its terms or is not
renewed by the issuer thereof or is not increased in accordance with the terms
of this Agreement, the Buyer shall either (i) promptly cause a replacement or
supplemental letter of credit, as the case may be, in a form reasonably
acceptable to the Representatives, to be issued to the Escrow Agent in an amount
then required under the terms of this Agreement or (ii) promptly deposit cash in
the amount then required under the terms of this Agreement (the "Cash Deposit")
with the Escrow Agent in substitution for the Letter of Credit. The term "Letter
of Credit" as used in this Agreement shall include any such replacement or
supplemental letter of credit and the Cash Deposit.
5. Disbursement of Proceeds of the Letter of Credit.
------------------------------------------------
(a) Definitions. For purposes of this Section 5, the following
-----------
definitions shall apply:
(i) "Adjusted LC Amount " means, at any point in time,
------------------
the amount of the Letter of Credit as adjusted
pursuant to Section 5(c), Section 5(d) and Section
5(g), but without
regard to any draws upon the Letter of Credit for
disbursement to the Representatives in accordance
with Section 5(e) or increases in the Letter of
Credit pursuant to Section 5(f).
(ii) "Carried Back FTC" means the amount of any United
----------------
States federal income tax credit arising under
Section 901, Section 902 or Section 960 of the Code
for the short taxable year of the Company ending on
the Closing Date that are carried back to the taxable
year ended on December 31, 2004.
(iii) "Code" means the Internal Revenue Code of 1986 (as
amended).
(iv) "Extraordinary Expenses" means the amount of any expenses
attributable to (i) the exercise of stock options of the
Company in 2005 on or prior to the Closing Date, (ii) the
buyout of health care and employment contracts for
officers, directors and employees of the Company in 2005 on
or prior to the Closing Date or accrued for on the Closing
Balance Sheet and (iii) retention bonuses paid by the
Company in 2005 on or prior to the Closing Date, in each
case, to the extent such expenses are deductible (whether
or nor deducted) for federal income tax purposes.
(v) "Foreign Tax Credits" means (A) the amount of any United
States federal income tax credit arising under Section 901,
Section 902 or Section 960 of the Code for the short
taxable year of the Company ending on the Closing Date
without regard to any carrybacks to years prior to such
short taxable year from other periods, reduced by (B)
the amount of the Carried Back FTC. In no event shall any
carryback of foreign tax credit arising during tax periods
after the Closing Date give rise to any increase in the
Foreign Tax Credits.
(vi) "Net Operating Loss" means the federal "net operating
loss" as defined in Section 172(c) of the Code of the
Company for its short taxable year ending on the
Closing Date.
(b) Initial Letter of Credit Amount. The initial amount of the
-------------------------------
Letter of Credit as of the Closing Date shall be $4,000,000.
(c) Adjustment to Letter of Credit Amount upon Filing of 2004
---------------------------------------------------------
and 2005 Tax Returns. Upon the filing of the last to be filed of the federal
--------------------
income Tax Return of the Company for the taxable year ended December 31, 2004
and the federal income Tax Return of the Company for the short taxable year
ended on the Closing Date, the Buyer shall cause the amount of the Letter of
Credit to be adjusted (and upon the written request of the Buyer, the
Representatives and the Escrow Agent shall join in and execute such instructions
to the bank issuing the Letter of Credit as shall be required to effect any such
adjustment) so that the amount of the Letter of Credit shall equal the sum of
(i) 34% of the sum of (A) the amount of the Net Operating Loss set forth on such
Tax Return for the short period ended on the Closing Date, but not in excess of
the amount of the Extraordinary Expenses set forth on either of such Tax
Returns, and (B) the amount of the unused Foreign Tax Credits for periods ending
on or before the Closing Date set forth on such Tax Return for the short period
ended on the Closing Date and (ii) 100% of the amount of any Carried Back FTC.
(d) Additional Adjustments of Letter of Credit Amount. The
-------------------------------------------------
amount of the Letter of Credit shall subsequently be reduced if an audit or
other dispute with the Internal Revenue Service results in (i) a reduction in
any of the Net Operating Loss, the Extraordinary Expenses, the Foreign Tax
Credits or the Carried Back FTC, (ii) the Net Operating Loss being used to
offset income to the extent the Sellers would be responsible for the payment of
federal income Taxes with respect to such Taxable income pursuant to Article
VIII of the Purchase Agreement or (iii) the Foreign Tax Credits or the Carried
Back FTC being used to offset Taxes for which the Sellers would be responsible
pursuant to Article VIII of the Purchase Agreement (each of (i), (ii) and (iii),
an "IRS Adjustment"). The amount of the reduction shall equal the excess of the
amount of the Letter of Credit determined pursuant to subsection (c) above, over
the amount of the Letter of Credit that would have been determined under
subsection (c) above had the amount of any IRS Adjustment been taken into
account at the time of the initial computations under subsection (c). Within 30
days of the acceptance or other final determination of any IRS Adjustment, the
Buyer shall notify the Representatives of the IRS Adjustment. Within 30 days of
the receipt of such notice, the Buyer and the Representatives shall direct the
Escrow Agent to cause the issuer of the Letter of Credit to reduce the amount of
the Letter of Credit by an amount, to be specified in such joint direction,
determined in accordance with this subsection (d). Any dispute between the Buyer
and the Representatives regarding such determination shall be resolved by the
Tax Arbitrator in accordance with the provisions of Section 7(e) of the Purchase
Agreement and the Tax Arbitrator's decision will be binding on the Buyer and the
Representatives.
(e) Letter of Credit Draws and Disbursement to Sellers. On each
--------------------------------------------------
of the first, second, third, fourth and fifth anniversaries of the Closing Date,
the Escrow Agent shall draw upon the Letter of Credit and disburse to the
Representatives for distribution to the Sellers an amount equal to the excess,
if any, of the designated percentage (as set forth below) of the Adjusted LC
Amount over the aggregate cumulative amount of the Letter of Credit previously
drawn upon and distributed to the Representatives pursuant to this Agreement.
Anniversary Percentage
----------- ----------
1 15%
2 30%
3 45%
4 60%
5* 100%
*5th anniversary draw to be made five (5)
business days prior to 5th anniversary of
Closing Date
(f) Return of Excess Disbursements. In the event of any IRS
------------------------------
Adjustment, the Buyer in good faith shall determine the amount of the reduction
of the amount of the Letter of Credit pursuant to subsection (d) above and shall
deliver to the Representatives its calculation of such reduction. Within fifteen
(15) business days of the receipt of such calculations, the Representatives
shall instruct the Escrow Agent to disburse to the Buyer from the Escrow Fund an
amount equal to the excess of the amount previously disbursed to the
Representatives pursuant to this Section 5 (net of any prior returns pursuant to
this Section 5(e)) over the aggregate amount that would have been disbursed to
the Representatives had the IRS Adjustment initially been taken into account
(the "Excess Payment"). In the event the Escrow Fund is not sufficient to fund
the Excess Payment, the Sellers shall be severally, and not jointly and
severally, liable for such amount and shall pay their respective pro-rata shares
of such amounts to the Buyer in accordance with the percentages set forth on
Attachment A hereto within fifteen (15) business days of the receipt of the
calculation of the amount of the Excess Payment. Within fifteen (15) business
days after the Buyer's receipt of the Excess Payment, the Buyer shall cause the
issuer of the Letter of Credit to issue an amendment thereto increasing the
amount of the Letter of Credit by the amount of the Excess Payment.
(g) Reduction of Letter of Credit for Tax Claims. In the event
--------------------------------------------
the amount remaining in the Escrow Fund after deducting the amount set forth in
any Claim Notices previously issued by the Buyer is insufficient to pay any
claim of the Buyer for indemnification under Article VIII of the Purchase
Agreement (a "Tax Shortfall Amount"), the Representatives and the Buyer shall
direct the Escrow Agent to cause the issuer of the Letter of Credit to reduce
the amount of the Letter of Credit by an amount, to be specified in such joint
direction, equal to the Tax Shortfall Amount.
(h) Instructions to Escrow Agent: The Escrow Agent shall draw
----------------------------
upon and disburse the proceeds of the Letter of Credit only in accordance with:
(i) a written instrument delivered to the Escrow Agent that is executed
by both the Buyer and the Representatives (subject to the provisions of Section
9(a)) and that instructs the Escrow Agent as to the disbursement of some or all
of the proceeds of the Letter of Credit; or
(ii) a final, non-appealable order of a court of competent
jurisdiction, a copy of which is delivered to the Escrow Agent by either (A) the
Buyer, or (B) the Representatives (subject to the provisions of Section 9(a)),
that instructs the Escrow Agent as to the disbursement of some or all of the
proceeds of the Letter of Credit.
(i) Method of Disbursement: Any distribution of the proceeds of
----------------------
the Letter of Credit by the Escrow Agent to the Representatives for further
disbursement to the Sellers shall be made in accordance with the percentages set
forth opposite such Sellers' respective names on Attachment A hereto; provided,
------------
however, that the Escrow Agent shall withhold the distribution of the portion of
the proceeds of the Letter of Credit otherwise payable to a Seller who has not,
according to a written notice provided by the Buyer to the Escrow Agent, prior
to such distribution:
(i) surrendered pursuant to the terms of the Purchase Agreement his,
her or its stock certificates formerly representing shares of stock of the
Company; or
(ii) in the case of an Option Holder, terminated his Options by
exercise and execution of a joinder to the Purchase Agreement, or as otherwise
set forth in the Purchase Agreement.
The Escrow Agent shall be entitled to conclusively rely on the written notice of
the Buyer with respect to the matters described in clauses (i) and (ii) of the
foregoing sentence. Any such withheld amounts shall be delivered to the Buyer
promptly after the Termination Date and shall be delivered by the Buyer to the
Representatives for disbursement to the Sellers to whom such amounts would have
otherwise been distributed upon surrender or termination, as the case may be, of
such certificates or instruments. Distributions to the Sellers shall be made by
the Representatives by mailing checks to such holders at their respective
addresses shown on Attachment A (or such other address as may be provided in
------------
writing to the Escrow Agent by the Representatives).
6. Investment of Funds.
-------------------
(a) Permitted Investments: Any monies held in the Escrow Fund
---------------------
shall be invested by the Escrow Agent, to the extent permitted by law and as
directed by the Representatives (subject to the provisions of Section 9(a)), in
(i) obligations issued or guaranteed by the United States of America or any
agency or instrumentality thereof; (ii) obligations (including certificates of
deposit, time deposits, demand deposits, trust account deposits and bankers'
acceptances) of domestic commercial banks which at the date of their last public
reporting had total assets in excess of $500,000,000; (iii) commercial paper
rated at least A-1 or P-1 or, if not rated, issued by companies having
outstanding debt rated at least AA or Aa; and (iv) money market mutual funds
invested exclusively in some or all of the securities described in the foregoing
clauses (i), (ii) and (iii). Absent receipt of specific written investment
instructions from the Representatives (subject to the provisions of Section
9(a)), the Escrow Agent shall invest any monies held in the Escrow Fund in
[interest bearing, tax free municipal bonds or funds invested exclusively in
such bonds __________________]. The Escrow Agent shall have no liability for any
investment losses, including without limitation any market loss on any
investment liquidated prior to maturity in order to make a payment required
hereunder.
(b) Tax Reporting. The parties hereto agree that, for tax
-------------
reporting purposes, all interest or other income earned from the investment of
the Escrow Fund or any portion thereof in any tax year (i) to the extent such
interest or other income is distributed by the Escrow Agent to any person or
entity pursuant to the terms of this Agreement during such tax year, shall be
reported as allocated to such person or entity, and (ii) otherwise, shall be
reported as allocated to the Sellers, based on the percentages set forth on
Attachment A, whether or not such income is distributed during such fiscal year.
------------
(c) Certification of Tax Identification Number. The parties hereto
------------------------------------------
agree to provide the Escrow Agent with a certified tax identification number by
signing and returning,
and causing the Sellers to sign and return, an original Form W-9 (or Form W-8,
in the case of non-U.S. persons) to the Escrow Agent prior to the date on which
any income earned on the investment of the Escrow Fund is credited to the Escrow
Fund. The parties hereto understand that, in the event their tax identification
numbers are not certified to the Escrow Agent, the Internal Revenue Code, as
amended from time to time, may require withholding of a portion of any interest
or other income earned on the investment of the Escrow Fund.
7. Fees and Expenses. The Buyer, on the one hand, and the Sellers, on
-----------------
the other hand, shall each (a) pay one-half of the fees of the Escrow Agent for
the services to be rendered by the Escrow Agent hereunder, which are set forth
on Attachment B hereto, (b) reimburse the Escrow Agent for one-half of its
reasonable expenses (including reasonable attorney's fees and expenses) incurred
in connection with the performance of its duties under this Agreement; and (c)
shall indemnify and hold the other party harmless with respect to the respective
obligations of each party set forth in this Section 7, including reasonable
attorneys' fees and costs incurred by a party in enforcing this indemnity. The
Escrow Agent shall have, and is hereby granted, a prior lien on the portion of
the Escrow Fund to which the Sellers become entitled hereunder with respect to
the Sellers' portion of the Escrow Agent's unpaid fees, non-reimbursed expenses
or unsatisfied indemnification rights, superior to the interests of the Sellers.
The Escrow Agent shall have, and is hereby granted, a prior lien on the portion
of the Escrow Fund to which the Buyer becomes entitled hereunder with respect to
the Buyer's portion of the Escrow Agent's unpaid fees, nonreimbursed expenses or
unsatisfied indemnification rights, superior to the interests of the Buyer. The
Escrow Agent shall be entitled and is hereby granted the right to set off and
deduct any unpaid fees, non-reimbursed expenses or unsatisfied indemnification
rights from (i) the portion of the Escrow Fund to which the Sellers have become
entitled hereunder with respect to the Sellers' portion of the Escrow Agent's
unpaid fees, nonreimbursed expenses, or unsatisfied indemnification rights; and
(ii) the portion of the Escrow Fund to which the Buyer has become entitled
hereunder with respect to the Buyer's portion of the Escrow Agent's unpaid fees,
nonreimbursed expenses, or unsatisfied indemnification rights.
8. Limitation of Escrow Agent's Liability.
--------------------------------------
(a) Limitation on Liability. The Escrow Agent shall incur no
-----------------------
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other documents
believed by it in good faith to be genuine and duly authorized, nor for other
action or inaction, except its own willful misconduct or gross negligence. The
Escrow Agent shall not be responsible for the validity or sufficiency of this
Agreement or any other agreement referred to herein. In all questions arising
under the Escrow Agreement, the Escrow Agent may rely on the advice of counsel,
and the Escrow Agent shall not be liable to anyone for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice. The Escrow
Agent shall not be required to take any action hereunder involving any expense
unless the payment of such expense is made or provided for in a manner
reasonably satisfactory to it. IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE,
DIRECTLY OR INDIRECTLY, FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL LOSSES OR
DAMAGES OF ANY KIND WHATSOEVER (INCLUDING BUT NOT LIMITED TO LOST PROFITS), EVEN
IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR
DAMAGES AND REGARDLESS OF THE FORM OF ACTION.
(b) Indemnification. The Buyer, on the one hand, and the Sellers,
---------------
on the other hand, agree to indemnify the Escrow Agent for, and hold it harmless
against, any loss, liability, claim, proceeding, suit, demand, penalty, cost or
expense, including without limitation reasonable fees and expenses of counsel
and experts ("Losses") arising out of or in connection with its carrying out of
its duties hereunder, except to the extent such Losses shall have been caused by
the bad faith or gross negligence of the Escrow Agent. The Buyer, on the one
hand, and the Sellers, on the other hand, shall each be liable for one-half of
such amounts, and each shall indemnify and hold the other harmless with respect
thereto, including reasonable attorneys' fees and expenses incurred in enforcing
the foregoing indemnity. The obligations of the Buyer and the Sellers under this
Section shall survive the termination of this Escrow Agreement and the
resignation or removal of the Escrow Agent.
9. Authority of Representatives; Successors and Assignees.
------------------------------------------------------
(a) Authority. The Representatives from time to time hereunder
---------
shall make any and all decisions in such capacity, and take or decline to take
any action in such capacity, by (and only by) majority consent of such persons.
(b) Successor Representatives. In the event of the death or
-------------------------
permanent disability of one of the Representatives, or his resignation as a
Representative, a successor Representative shall be elected in accordance with
the provisions of the Purchase Agreement. The Escrow Agent shall be entitled to
receive and may conclusively rely upon a written notice of the remaining
Representatives to the effect that a successor Representative has been elected
in accordance with the provisions of the Purchase Agreement. Each successor
Representative shall have all of the power, authority, rights and privileges
conferred by this Agreement upon the original Representative, and the term
"Representative" as used herein shall be deemed to include each successor
Representative. The Representatives have the power to appoint up to two (2)
additional person(s) to act as Representatives at any time, which appointment
shall only be binding upon the other parties hereto after notice thereof has
been provided to the Sellers, the Escrow Agent and the Buyer.
(c) Power and Authority. The Representatives shall have full
-------------------
power and authority to represent the Sellers and their respective successors,
with respect to all matters arising under this Agreement and all actions taken
by the Representatives hereunder shall be binding upon the Sellers and their
respective successors, as if expressly confirmed and ratified in writing by each
of them. Without limiting the generality of the foregoing, the Representatives
shall have full power and authority to interpret all of the terms and provisions
of this Agreement, to compromise any claims asserted hereunder and to authorize
payments to be made with respect thereto, on behalf of the Sellers and their
respective successors.
(d) Reliance. The Buyer and the Escrow Agent may rely on the
--------
Representatives as the exclusive agent of the Sellers under this Agreement and
shall incur no liability to any party with respect to any action taken or
suffered by either of them in reliance thereon.
10. Amounts Payable by Sellers. The amounts payable to the Escrow
--------------------------
Agent by the Seller under this Agreement (i.e., the fees and expenses of the
Escrow Agent payable pursuant to
Section 7 hereof and the indemnification obligations pursuant to Section 8(b)
hereof) shall be payable solely as follows. The Escrow Agent shall notify the
Representatives of any such amount payable by the Sellers as soon as it becomes
aware that any such amount is payable, with a copy of such notice to the Buyer.
On the sixth business day after the delivery of such notice, the Escrow Agent
shall disburse such amount from the Escrow Fund (up to the amount then available
in the Escrow Fund) to the party to whom such amount is owed in satisfaction of
such payment or indemnification obligations of the Sellers; provided that if
either the Representatives or the Buyer deliver to the Escrow Agent within five
business days after delivery of such notice by the Escrow Agent a written notice
contesting the legitimacy or reasonableness of such amount (with a copy of such
notice to the non-contesting party), then the Escrow Agent shall not disburse
the disputed portion of such claimed amount except in accordance with the terms
of clauses (i) or (ii) of Section 3(c) hereof. The Representatives and the Buyer
hereby agree that (i) any contest of the legitimacy or reasonableness of such
amount must be in good faith and (ii) they may not contest the legitimacy or
reasonableness of the fees and expenses agreed to on Attachment B.
11. Termination. This Agreement shall terminate upon the later to
-----------
occur of (a) disbursement by the Escrow Agent of all of the Escrow Fund in
accordance with this Agreement and (b) the later to occur of (i) the termination
of the Letter of Credit in accordance with its terms or (ii) the disbursement of
all of the proceeds of the Letter of Credit or Cash Deposit substituted therefor
under Section 4(c)(ii), in accordance with this Agreement; provided that the
provisions of Sections 7 and 8 hereof shall survive such termination.
12. Successor Escrow Agent. In the event the Escrow Agent becomes
----------------------
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the Buyer and the Representatives, not less than 60
days' prior to the date when such resignation shall take effect. The
Representatives may appoint a successor Escrow Agent without the consent of the
Buyer, so long as such successor is a bank with assets of at least $500 million,
with offices in the State of Michigan, and may appoint any other successor
Escrow Agent with the consent of the Buyer, which shall not be unreasonably
withheld, conditioned or delayed. No successor Escrow Agent can alter or amend
the terms of this Escrow Agreement without the express written consent of the
Buyer and the Representatives. If, within such notice period, the
Representatives provide to the Escrow Agent written instructions with respect to
the appointment of a successor Escrow Agent and directions for the transfer of
all or any portion of the Escrow Fund and the Letter of Credit then held by the
Escrow Agent to such successor, the Escrow Agent shall act in accordance with
such instructions and promptly transfer the Escrow Fund and the Letter of Credit
to such designated successor. If no successor Escrow Agent is named as provided
in this Section 12 prior to the date on which the resignation of the Escrow
Agent is to properly take effect, the Escrow Agent may apply to a court of
competent jurisdiction for appointment of a successor Escrow Agent.
13. General.
-------
(a) Entire Agreement. Except for those provisions of the Purchase
----------------
Agreement referenced herein, this Agreement constitutes the entire agreement
among the parties and supersedes any prior understandings, agreements or
representations by or among the parties,
written or oral, with respect to the subject matter hereof. The Escrow Agent
shall neither be responsible for, nor chargeable with, knowledge of the terms
and conditions of the Purchase Agreement. In the event of a conflict between the
terms of the Purchase Agreement and the terms of this Escrow Agreement with
respect to a matter impacting the rights or obligations of the Escrow Agent, the
terms of this Escrow Agreement shall control.
(b) Succession and Assignment. This Agreement shall be binding
-------------------------
upon and inure to the benefit of the parties named herein and their respective
successors and permitted assigns.
(c) Counterparts and Facsimile Signature. This Agreement may be
------------------------------------
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
(d) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Notices. All notices, instructions and other communications
-------
hereunder shall be in writing. Any notice, instruction or other communication
hereunder shall be deemed duly delivered one business day after it is sent for
next business day delivery via a reputable nationwide overnight courier service,
in each case to the intended recipient at the address set forth below its name
on the signature page attached hereto. Any party may give any notice,
instruction or other communication hereunder using any other means (including
personal delivery, expedited courier, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice, instruction or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party to whom it is intended. Any party may change
the address to which notices, instructions, or other communications hereunder
are to be delivered by giving the other parties notice in the manner set forth
in this Section.
(f) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Michigan without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Michigan or any other jurisdiction) that would cause the application
of laws of any jurisdiction other than those of the State of Michigan.
(g) Amendments and Waivers. This Agreement may be amended only
----------------------
with the written consent of the Buyer, the Escrow Agent and the Representatives.
No waiver of any right or remedy hereunder shall be valid unless the same shall
be in writing and signed by the party giving such waiver. No waiver by any party
with respect to any condition, default or breach of covenant hereunder shall be
deemed to extend to any prior or subsequent condition, default or breach of
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(h) Submission to Jurisdiction. Each of the parties hereto (i)
--------------------------
submits to the jurisdiction of any state or federal court sitting in the State
of Michigan in any action or proceeding arising out of or relating to this
Agreement, (ii) agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court, (iii)
waives any claim of inconvenient forum or other challenge to venue in such
court, (iv) agrees not to bring any action or proceeding arising out of or
relating to this Agreement in any other court and (v) waives any right it may
have to a trial by jury with respect to any action or proceeding arising out of
or relating to this Agreement. Each party agrees to accept service of any
summons, complaint or other initial pleading made in the manner provided for the
giving of notices in Section 13(e) hereof, provided that nothing in this Section
13(h), however, shall affect the right of any party to serve such summons,
complaint or other initial pleading in any other manner permitted by law.
(i) Successor Entity to Escrow Agent. Any banking association or
--------------------------------
corporation into which the Escrow Agent may be merged, converted or with which
the Escrow Agent may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Escrow Agent shall be a party,
or any banking association or corporation to which all or substantially all of
the corporate trust or escrow business of the Escrow Agent shall be sold or
otherwise transferred, shall succeed to all the Escrow Agent's rights,
obligations and immunities hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
(j) Force Majeure. Notwithstanding any other provision of this
-------------
Escrow Agreement, the Escrow Agent shall not be obligated to perform any
obligation hereunder and shall not incur any liability for the nonperformance or
breach of any obligation hereunder to the extent that the Escrow Agent is
delayed in performing, unable to perform or breaches such obligation because of
acts of God, war, terrorism, fire, floods, strikes, electrical outages,
equipment or transmission failures, or other causes reasonably beyond its
control.
(k) Funds Transfer Agreement. In the event funds transfer
------------------------
instructions are given (other than in writing at the time of the execution of
the Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent
is authorized to seek confirmation of such instructions by telephone call-back
to the person or persons designated on Attachment C hereto, and the Escrow Agent
may rely upon the confirmations of anyone purporting to be the person or persons
so designated. The persons and telephone numbers for call-backs may be changed
only in writing actually received and acknowledged by the Escrow Agent. The
parties to the Agreement acknowledge that such security procedure is
commercially reasonable. It is understood that the Escrow Agent and the
beneficiary's bank in any funds transfer may rely solely upon any account
numbers or similar identifying number provided by any party hereto to identify
(i) the beneficiary, (ii) the beneficiary's bank or (iii) an intermediary bank.
The Escrow Agent may apply funds for any payment order it executes using any
such identifying number, even where its use may result in a person other than
the beneficiary being paid, or the transfer of funds to a bank other than the
beneficiary's bank, or an intermediary bank, designated.
(l) Uncertainty; Dispute. In the event that it is not clear from
--------------------
a reading of this Agreement how to proceed in a situation not explicitly
addressed by the terms of this Escrow Agreement, whether because of conflicting
demands by the other parties hereto or otherwise, the Escrow Agent shall be
permitted to interplead all of the assets held hereunder into a court of
competent jurisdiction, and thereafter be fully relieved from any and all
liability or obligation
with respect to such interpleaded assets. The parties hereto other than the
Escrow Agent further agree to pursue any redress or recourse in connection with
such a dispute, without making the Escrow Agent a party to the same.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
KADANT INC.
By:__________________________________
Name:
Title:
Address:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
REPRESENTATIVES
_____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Address:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
_____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address:
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
_____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Address:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
▇.▇. ▇▇▇▇▇▇ TRUST COMPANY, NATIONAL
ASSOCIATION, as Escrow Agent
By:__________________________________
Name:
Title:
Address:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
EXHIBIT B
FORM OF JOINDER AGREEMENT
This Joinder Agreement (this "Joinder Agreement") is being executed and
-----------------
delivered pursuant to Section 5.3(a) of the Purchase Agreement (the "Agreement")
---------
entered into as of _______, 2005, by and among Kadant Inc., a Delaware
corporation (the "Buyer"), ▇▇▇▇▇▇▇ Acquisition Corp., a Michigan corporation and
-----
a wholly-owned subsidiary of the Buyer, The ▇▇▇▇▇▇▇ Corporation, a Michigan
corporation (the "Company"), and the Principal Shareholders of the Company, for
-------
the purpose of the undersigned becoming a party to, and bound by, the terms of
the Agreement as: (a) a "Party" to the Agreement and a "Seller"; and (b) in the
case of a Company Shareholder and an Option Holder who has irrevocably
exercised, prior to the Closing, all or any portion of his, her or its Options
to the extent of such election, being deemed a "Selling Shareholder" thereunder.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Agreement.
1. Option Holder:
-------------
WHEREAS, the undersigned Option Holder hereby acknowledges
that (a) Exhibit A hereto sets forth a true and correct description of all
---------
Options held by such Option Holder, (b) he, she or it has the right to exercise
all or any portion of the Options held by the Option Holder, at any time on or
before May 7, 2005, and (c) by making the election set forth below and executing
the form of promissory note attached hereto as Exhibit B (the "Note"), he, she
---------
or it has irrevocably elected to exercise all of the Options held by the Option
Holder on the date hereof and, in the event of such election, the Company or, in
the case of a Merger Transaction, the Surviving Corporation, shall at the
Closing withhold sufficient proceeds otherwise payable to such Option Holder to
repay the Note in full; and
WHEREAS, if such Option Holder does not exercise all of the
Options held by the Option Holder on or before May 7, 2005 all of the
unexercised Options owned by the undersigned Option Holder as set forth on
Exhibit A shall terminate and be of no further force or effect.
---------
NOW, THEREFORE, the undersigned Option Holder agrees, in the
case of either a Stock Transaction or a Merger Transaction, as follows:
a. By executing and delivering this Joinder Agreement to the
Company, the undersigned Option Holder shall be deemed a
"Party" and a "Seller" for all purposes of the Agreement;
b. The undersigned Option Holder hereby:
(i) acknowledges having read the representations in
the Agreement sections entitled "Representations and
Warranties of the Company and the Sellers" and
"Representations of the Sellers," and hereby
represents that (A) the statements contained therein
are complete and accurate and (B)
Exhibit A sets forth a true and correct description of
---------
all Options held by such Option Holder;
(ii) further agrees to be bound by all of the terms
and conditions (including, but not limited to,
Section 1.13, Escrow, and Section 7.1,
Indemnification by the Sellers) of the Agreement as a
"Party" and "Seller" thereunder, and authorizes the
signature page of this Joinder Agreement to be
attached to the Agreement or counterparts thereof;
and
(iii) represents and warrants that the undersigned
Option Holder has received (A) the Option Notice, (B)
the Disclosure Statement, and (C) a copy of the
Agreement, and has carefully read such documents and
understands the terms thereof; and
c. The undersigned Option Holder hereby:
(i) agrees that, if the Option Holder does not
exercise all of the Options held by the undersigned
Option Holder on or before May 7, 2005, such
unexercised Options shall terminate and be of no
further force or effect;
(ii) waives any rights that the undersigned Option
Holder may have to receive any consideration at any
time after May 7, 2005 for the unexercised Options
held by the undersigned Option Holder or the shares
underlying such unexercised Options under any
agreement, as such agreement may have been amended,
restated or supplemented, including, but not limited
to, any stockholders' agreement (collectively, the
"Stockholders' Agreements"), previously entered into
between the undersigned Option Holder and the
Company, including, but not limited to, the right to
receive a cash payment equivalent to the "book
value"(as defined in the relevant Stockholders'
Agreement) of the shares underlying each unexercised
Option held by the undersigned Option Holder;
(iii) waives any rights that the undersigned Option
Holder may have at any time after May 7, 2005 in
connection with the unexercised Options held by the
undersigned Option Holder or the shares underlying
such unexercised Options under any option agreement,
as such option agreement may have been amended,
restated or supplemented (collectively, the "Option
Agreements"), previously entered into between the
undersigned Option Holder and the Company, including,
but not limited to, the right to receive 45 days
notice prior to termination of the Option Agreements;
(iv) agrees that at the Closing the Stockholders'
Agreements and the Option Agreements to which the
undersigned Option Holder is a party shall have been
automatically terminated and shall be of no further
force or effect; and
(v) acknowledges that the undersigned Option Holder
has the right, in lieu of termination of the Options
held by the undersigned Option Holder, to exercise
any or all of the Options held by the undersigned
Option Holder
at any time on or before May 7, 2005. By executing
and delivering the Note and initialing this paragraph
in the space provided below, the undersigned Option
Holder has irrevocably elected to: (A) exercise all
such Options effective as of the date hereof through
a cashless exercise, (B) be deemed a Company
Shareholder under the Agreement and this Joinder
Agreement, and (C) grant the Company or, in the case
of a Merger Transaction, the Surviving Corporation,
the right to withhold sufficient proceeds otherwise
payable to such Option Holder at the Closing to repay
the Note in full.
________ Initials of Option Holder.
2. Company Shareholder:
-------------------
WHEREAS, the Buyer has agreed at the Closing to purchase from
the undersigned Company Shareholder, pursuant to the terms and conditions of the
Agreement, all of the Company Shares owned by the undersigned Company
Shareholder as set forth on Exhibit A hereto (the term "Company Shareholder"
---------
including, for purposes of this Section 2, any Option Holder who has irrevocably
elected to exercise, prior to the Closing, all or any portion of his her or its
Options to the extent of such election); and
WHEREAS, the undersigned Company Shareholder hereby agrees at
the Closing to sell, pursuant to the terms and conditions of the Agreement, all
of the Company Shares owned by the undersigned Company Shareholder as set forth
on Exhibit A hereto.
---------
NOW, THEREFORE, the undersigned Company Shareholder agrees, in
the case of either a Stock Transaction or a Merger Transaction, as follows:
a. By executing and delivering this Joinder Agreement to the
Company, the undersigned Company Shareholder shall be deemed a
"Party" and a "Selling Shareholder" for all purposes of the
Agreement, as fully and completely as if his, her or its
signature were affixed to such Agreement. In connection
therewith, at the Closing the undersigned Company Shareholder
agrees to sell, and the Buyer agrees to purchase from the
undersigned Company Shareholder, all of the Company Shares
owned by the undersigned Company Shareholder as set forth on
Exhibit A hereto;
---------
b. The Company Shareholder hereby:
(i) acknowledges having read the representations in
the Agreement sections entitled "Representations and
Warranties of the Company and the Sellers" and
"Representations of the Sellers," and hereby
represents that (A) the statements contained therein
are complete and accurate and (B) Exhibit A sets
---------
forth a true and correct description of all Company
Shares held by such Company Shareholder;
(ii) further agrees to be bound by all of the terms
and conditions (including, but not limited to,
Section 1.13, Escrow, and Section 7.1,
Indemnification by the Sellers) of the Agreement as a
"Party," "Seller"
and "Selling Shareholder" thereunder, and authorizes the
signature page of this Joinder Agreement to be attached
to the Agreement or counterparts thereof; and
(iii) represents and warrants that the undersigned
Company Shareholder has received (A) the Notice, (B)
the Disclosure Statement, and (C) a copy of the
Agreement, and has carefully read such documents and
understands the terms thereof; and
c. The undersigned Company Shareholder hereby (i) agrees
that the consideration received by the undersigned Company
Shareholder in accordance with the terms of the Agreement
shall be the only consideration received in connection with
the sale of the Company Shares held by the undersigned Company
Shareholder, (ii) waives any rights that the undersigned
Company Shareholder may have to receive any additional
consideration for the Company Shares held by the Company
Shareholder under any agreement, as such agreement may have
been amended, restated or supplemented, including, but not
limited to, any Stockholders' Agreement, previously entered
into between the undersigned Company Shareholder and the
Company, including, but not limited to, the right to receive a
cash payment equivalent to the book value of the Company
Shares held by the undersigned Company Shareholder and (iii)
agrees that at the Closing the Stockholders' Agreements to
which the undersigned Company Shareholder is a party shall
automatically terminate and be of no further force or effect.
3. Governing Law: This Joinder Agreement shall be governed
-------------
by and construed in accordance with the laws of the State of Michigan.
4. Agreement of the Parties: This Joinder Agreement and the
------------------------
Agreement and the other items referred to herein or therein constitute the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersede all present and prior agreements, whether written or oral.
5. Counterparts: The signature page of this Joinder
------------
Agreement, when executed, shall constitute a counterpart to the Agreement.
[Remainder of Page Intentionally Left Blank]
The undersigned has caused this Joinder Agreement to the
Agreement to be executed and delivered as of the date set forth below.
OPTION HOLDER
Dated: __________, 2005 ________________________________
Print name of Option Holder
________________________________
Signature
COMPANY SHAREHOLDER
Dated: __________, 2005 ________________________________
Print name of Shareholder
________________________________
Signature if Shareholder is an
individual
By:________________________________
Signature if Shareholder is an
entity
Title:_____________________________
Print title of person signing if
Shareholder is an entity
EXHIBIT C
FORM OF OPINION OF COUNSEL TO
THE COMPANY AND THE SELLERS
________ ___, 2005
Kadant Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Reference is made to that certain Purchase Agreement dated
_______________, 2005 (the "Purchase Agreement"), by and among Kadant Inc. (the
"Buyer"), ▇▇▇▇▇▇▇ Acquisition Corp. (the "Transitory Subsidiary"), The ▇▇▇▇▇▇▇
Corporation (the "Company"), the Principal Shareholders of The ▇▇▇▇▇▇▇
Corporation identified in the Purchase Agreement, and certain additional
Shareholders and Option Holders of The ▇▇▇▇▇▇▇ Corporation who executed Joinder
Agreements after the date of the Purchase Agreement (the Principal Shareholders
and such additional Shareholders and Option Holders are collectively referred to
as the "Sellers"). We have acted as counsel for the Company and the
Representatives in connection with the negotiation and execution of the Purchase
Agreement and the consummation of the transactions contemplated thereby.
Capitalized terms used herein, unless otherwise defined, have the same meaning
as set forth in the Purchase Agreement.
In connection with this opinion we have examined the following
documents ( collectively the "Transaction Documents"):
1. The Purchase Agreement, and the following "Collateral
Agreements" and documents: the Disclosure Schedule; the Seller Disclosure
Schedule; the schedule Delivered to the Buyer in Writing; the Escrow Agreement;
the Joinder Agreement; Certificate of the Sellers; and a Certificate of the
Company;
2. The Articles of Incorporation and By-Laws of the Company,
each as amended to date;
3. The Articles of Incorporation and By-Laws of the following
Subsidiaries, each as amended to date: The ▇▇▇▇▇▇▇ Export Corporation, ▇▇▇▇▇▇▇
Northeast, Inc., Specialty Castings, Inc. ▇▇▇▇▇▇▇ Technical Services Corp.,
▇▇▇▇▇▇▇ Services Wisconsin Corp., ▇▇▇▇▇▇▇ Technical Solutions, Inc., ▇▇▇▇▇▇▇
Investments, Inc., ▇▇▇▇▇▇▇ China Investments, Inc., The ▇▇▇▇▇▇▇ Corporation
Latin America Holding, Inc. (collectively the "Michigan Subsidiaries");
4. Certificate of Existence for the Company and the Michigan
Subsidiaries issued by the State of Michigan;
5. The form of Stock Option Agreement between the Company and
the Option Holders; and
6. Such other certificates, records, documents and papers as
we deem necessary to examine for purposes of this opinion.
Based on and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan.
2. Each of the Michigan Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan. [Note: Company to provide similar opinions from counsel regarding each
of the non-Michigan subsidiaries.]
3. The Company and each of the Michigan Subsidiaries has all
requisite corporate power and authority to conduct the business in which, to our
knowledge, each is currently engaged. The Company, the Principal Shareholders,
and to our knowledge, each Selling Shareholder has all requisite power and
authority to enter into and perform its or their respective obligations under
the Agreement and to carry out the transactions contemplated thereby. [Note:
Company to provide similar opinions from counsel regarding each of the
non-Michigan subsidiaries.]
4. The authorized capital stock of the Company consists of:
(i) One Hundred Thousand (100,000) shares of voting common stock, Ten Dollars
($10.00) par value per share, Thirty-six Thousand Four Hundred Sixty (36,460)
shares of which are issued and outstanding and (ii) One Million Five Hundred
Thousand (1,500,000) shares of Class B, non-voting common stock, Ten Dollars
($10.00) par value per share, ______________________________________ shares of
which are issued and outstanding. [Due to option exercise before closing, this
number will have to be provided at Closing].
5. Except as set forth in Section 2.2(b) of the Disclosure
Schedule and Section 2.2(b) of the schedule Delivered to the Buyer in Writing,
all of the issued and outstanding Company Shares are duly authorized, validly
issued, fully paid, nonassessable, are held of record by the Company
Shareholders as set forth on Schedule II of the schedule Delivered to the Buyer
in writing and are free of all preemptive rights imposed by law or contained in
the Articles of
Incorporation or By-laws of the Company or in any agreement listed in Schedule
2.2(b) and 2.2(c) of the Disclosure Schedule. Except as set forth in Section
2.2(c) of the Disclosure Schedule and Section 2.2(c) of the schedule Delivered
to the Buyer in Writing, to our knowledge, there are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights or other agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance or redemption of any of its capital stock.
6. Except as set forth in Section 2.5 of the Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each of
the Michigan Subsidiaries are duly authorized, validly issued, fully paid,
nonassessable, are free of all preemptive rights imposed by law or contained in
the charter, by-laws or other organizational document of each of the Michigan
Subsidiaries and, except as set forth in Section 2.5 of the Disclosure Schedule,
are held of record by the Company. [Note: Company to provide similar opinions
from counsel regarding each of the non-Michigan subsidiaries.]
7. The execution and delivery by the Company and the Principal
Shareholders of the Purchase Agreement, and the consummation by the Company and
the Principal Shareholders of the transactions contemplated thereby, have been
duly and validly authorized by all necessary corporate and shareholder action on
the part of the Company and the Principal Shareholders. The Purchase Agreement
has been duly and validly executed and delivered by the Company and the
Principal Shareholders and constitutes a valid and binding obligation of the
Company and the Principal Shareholders, enforceable against the Company and the
Principal Shareholders in accordance with its terms.
8. [The Joinder Agreement has been duly and validly executed
by all of the Sellers party thereto, and constitutes a valid and binding
obligation of such Sellers, enforceable against them in accordance with its
terms].
9. Neither the execution and delivery by the Company or any
Seller of theAgreement or any Joinder Agreement, nor the consummation by the
Company or any Seller of the transactions contemplated thereby: (a) conflicts
with or violates any provision of the Company's Articles of Incorporation or
By-laws, or the charter, by-laws or other organizational document of any
Michigan Subsidiary, (b) except as set forth in Section 2.4 of the Disclosure
Schedule, requires on the part of the Company, any Michigan Subsidiary or any
Seller any filing with, or permit, authorization, consent or approval of, any
Governmental Entity which has not been filed or obtained, (c) except as set
forth in Section 2.4 of the Disclosure Schedule, conflicts with, results in a
breach of, constitutes (with or without due notice or lapse of time or both) a
default under, results in the acceleration of, creates in any party the right to
accelerate, terminate, modify or cancel or requires any notice, consent or
waiver (which has not been obtained) under, the agreements listed in Exhibit A
attached hereto; (d) to our knowledge, results in the imposition of any Security
Interest upon any assets of the Company or any Michigan Subsidiary; or (e)
violates any statute, rule or regulation applicable to the Company, any Michigan
Subsidiary or any of their respective properties or assets or to our knowledge,
any statute, rule or regulation applicable to any of the Sellers, or any of
their respective properties or assets. [Note: Company to provide similar
opinions from counsel regarding each of the non-Michigan subsidiaries.]
10. To our knowledge, except as set forth in Section 2.19 and
Section 2.23 of the Disclosure Schedule, neither the Company nor any Michigan
Subsidiary (a) is subject to any unsatisfied judgment, order, decree,
stipulation or injunction or (b) is a party to or threatened to be made a party
to any complaint, action, suit, proceeding, hearing or investigation of or in
any court or administrative agency of any U.S. federal, foreign, regional,
state, provincial or localjurisdiction or before any arbitrator. [Note: Company
to provide similar opinions from counsel regarding each of the non-Michigan
subsidiaries.]
11. All outstanding Options have been terminated and no longer
represent the right to acquire equity in the Company.
his opinion letter is subject to the following assumptions,
exceptions and limitations:
A. As used in the opinions expressed herein, "to our knowledge",
"Known to us" and similar phrases mean the actual knowledge, without independent
inquiry, investigation or verification, by attorneys in our Firm who are
involved in the representation of the Company and the Principal Shareholders in
connection with the proposed transaction. We have made no independent
investigation of the facts stated in any certificate, exhibit, or schedule and
we have assumed that the representations and warranties made by the Company and
the Sellers are true and correct, however, nothing has come to our attention
that would lead us to believe that such facts are inaccurate. Our reference to
the "Disclosure Schedule" or the "schedule Delivered to the Buyer in Writing"
includes any amendments to or updates of such schedules that are provided to us
as of the date of Closing in accordance with the terms of the Agreement.
B. We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
authentic originals of all documents submitted to us as copies and the accuracy
of all factual recitations contained in certificates or similar documents.
C. We have assumed that each of the documents executed by the Buyer
or the Transitory Subsidiary relating in any way to this transaction has been
duly authorized, executed and delivered by it, is legally binding upon and
enforceable against it to the extent each such document purports to be, and that
the Buyer will perform each of the covenants and agreements it has agreed to
perform. We have assumed that documents we have reviewed in connection with this
opinion, which purport to have been executed by parties other than the Company
and the Sellers, have been duly executed by such parties, that such parties had
all requisite power to enter into and perform all obligations thereunder, that
execution and delivery thereof has been duly authorized by all requisite action,
and that the subject instruments are valid and binding upon said parties.
Additionally, we have, without independent verification, assumed that the Buyer
will not in the future take any discretionary action (including a decision not
to act) permitted under the Transaction Documents that would result in a
violation of law or constitute a breach or default under any other agreements or
court orders to which the Buyer may be subject.
D. The opinions expressed in paragraphs 7 and 8 above with respect to
the validity, binding effect and enforceability of the Purchase Agreement is
subject to (i) applicable laws relating to bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
creditors' rights generally, whether now or hereafter in effect, (ii) general
principles of equity, including, without limitation, concepts of materiality,
laches, reasonableness, good faith and fair dealing and the principles regarding
when injunctive or other equitable remedies will be available (regardless of
whether considered in a proceeding at law or in equity), and (iii) any
requirement under applicable laws generally imposing an obligation of good faith
or reasonableness in the performance and enforcement of contracts.
E. We express no opinion as to the validity, legality, binding effect
or enforceability of any covenant or agreement (i) providing for release of
liability for or the indemnification against any losses, claims, damages,
expenses or liabilities incurred by any person as a result of any violation of
any securities law by such person, as a result of the gross negligence or
willful misconduct of such person, or as a result of the negligence of such
person if a court would find that the intent to indemnify such person for such
person's negligence was not clearly expressed or that such indemnification
violates a public policy of the State of Michigan; (ii) requiring that any
amendment, modification or waiver of any Transaction Document shall not be
effective unless in writing; (iii) providing for the consent to jurisdiction of
any court, the waiver of objection of venue of any court, the waiver of or
consent to service of process in any manner other than provided in the laws of
the State of Michigan, the waiver of jury trial, the waiver of counterclaim,
cross-claim or equitable subrogation, or the waiver of any benefit or right,
except to the extent permitted by applicable law; (iv) providing that delays
will not operate as waivers; (v) which attempts to modify or waive any
requirements of reasonableness or notice arising under the laws of any
jurisdiction to the extent applicable to the transactions contemplated by the
Transaction Documents; (vi) which purports to be a waiver of the obligations of
good faith, fair dealing, diligence, mitigation of damages, or commercial
reasonableness and other duties and obligations under the Michigan Uniform
Commercial Code which may not be waiveable; (vii) relating to severability as
applied to any portion of a Transaction Document deemed by a court to be
material; (viii) waiving the benefits of any statutory provision or common law
right where such waiver violates limitations imposed by statute or is against
public policy, violates the Uniform Commercial Code of Michigan, the Michigan or
the United States Constitution; (ix) which purports to grant a power of
attorney; (x) with respect to a covenant not to compete or a redemption
transaction under MCL 450.1345; or (xi) providing for a choice of any governing
law other than the laws of the State of Michigan. We do not express an opinion
as to what constitutes "best efforts" under Michigan law. Each of our opinions
is further subject to the effect of rules of law that (i) limit or affect the
enforcement of provisions of a contract that purport to waive, or to require
waiver of, the obligations of good faith, fair dealing, diligence, and
reasonableness; (ii) provide that forum selection clauses in contracts are not
necessarily binding on the court(s) in the forum selected; (iii) limit the
availability of a remedy under certain circumstances where another remedy has
been elected; (iv) provide a statutory time limitation after which a remedy may
not be enforced (the statute of limitations for general contract actions in
Michigan is six (6) years (MCLA 600.5087(8)); (v) may, where less than all of a
contract may be unenforceable, limit the enforceability of the balance of the
contract to circumstances in which the unenforceable portion is not an essential
part of the agreed exchange; (vi) limit the enforceability of provisions
releasing, exculpating, or exempting a party from, or requiring indemnification
of a party for, liability for its own action or inaction, to the extent the
action or inaction involves negligence, recklessness, willful misconduct,
unlawful conduct or violation of public policy; and (vii) govern and afford
judicial discretion regarding the determination of damages and entitlement to
attorney fees and other costs.
F. In rendering the opinions set forth above, we have made no
examination of, and we express no opinion with respect to, any tax, securities,
or accounting matters; or compliance of the Seller's real property with any
subdivision, land development, zoning, environmental, or other laws, codes,
ordinances, rules, and regulations pertaining to land use and development; or
permits or approvals with respect to construction, use, or occupancy required
from any governmental authority having jurisdiction over the Seller's
facilities.
G. Our opinions are limited to only those laws, rules and regulations
that, in the exercise of customary professional diligence, are recognized as
generally applicable to the transactions contemplated by the Transaction
Documents or to business organizations of the same type as the Company (which
are not engaged in regulated business activities).
H. In rendering the foregoing opinions, we have relied as to factual
matters, without independent investigation or verification, on certificates and
other communications from public officials, shareholders, and officers of the
Company, although nothing has come to our attention to cause us to believe that
such reliance is not justified. We have assumed without independent
investigation or verification, that there is no oral or written agreement,
understanding, course of dealing or usage of trade that amends any term of any
Transaction Document, or any waiver of any such term, that the Transaction
Documents are accurate and complete and that there has been no mutual mistake of
fact or fraud, duress, undue influence or similar inequitable conduct.
I. The foregoing opinions are limited to the laws of the State of
Michigan and the federal laws of the United States of America, and we express no
opinion with respect to the laws of any other jurisdiction. To the extent that
any other laws govern any of the matters as to which we are opining below, we
have assumed, with your permission and without independent investigation, that
such laws are identical to the state laws of the State of Michigan, and we
express no opinion as to whether such assumption is reasonable or correct.
This opinion letter is rendered to the Buyer pursuant to Section
6.1(xi) of the Purchase Agreement and in connection with the consummation of the
transactions contemplated by the Purchase Agreement, and may not be used for any
other purpose nor relied upon by anyone else, other than ▇▇ ▇▇▇▇▇▇ Securities
Inc. and ▇▇ ▇▇▇▇▇▇ Chase Bank and the other lenders, if any (collectively, the
"Lenders"), named in that [Senior Credit Agreement] dated as of [__________]
between the Buyer and the Lenders all may rely on this opinion to the same
extent as if it were addressed to them.
Except as provided above, this opinion letter may not be circulated,
quoted, in whole or in part, or otherwise referred to in any report or document
or furnished to any other person without our prior written consent. This opinion
letter is as of the date hereof, and we undertake no obligation, and expressly
disclaim any obligation, to advise you of any change in the matters set forth
herein. Our legal opinions are an expression of professional judgment and not a
guaranty of result. The opinions expressed herein relate only to the matters
specifically set forth, and no opinion is implied or should be inferred as to
any other matters.
Very truly yours,
▇▇▇▇▇▇▇ & Boyn, LLP
EXHIBIT D
date]
OUR L/C NO.:
TO:
▇.▇. ▇▇▇▇▇▇ TRUST COMPANY,
NATIONAL ASSOCIATION, as Escrow Agent
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No. 312/▇▇▇-▇▇▇▇
APPLICANT:
Kadant Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
WE HAVE ESTABLISHED OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR AS
DETAILED HEREIN SUBJECT TO ISP98
DOCUMENTARY CREDIT NUMBER:
DATE OF ISSUE:
BENEFICIARY:
▇.▇. ▇▇▇▇▇▇ TRUST COMPANY, NATIONAL ASSOCIATION, as Escrow Agent
APPLICANT:
Kadant Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
DATE AND PLACE OF EXPIRY:
AT OUR COUNTER
DOCUMENT CREDIT AMOUNT:
AVAILABLE WITH:
JPMORGAN CHASE BANK, N.A.
[insert issuing bank city & state]
BY PAYMENT
WE HEREBY ISSUE IN YOUR FAVOR OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO:
XXXXXX FOR THE ACCOUNT OF KADANT INC. FOR AN AMOUNT OR AMOUNTS NOT TO EXCEED IN
THE AGGREGATE U.S. $4,000,000 (FOUR MILLION U.S. DOLLARS), EFFECTIVE [ISSUE
DATE] AND EXPIRING AT OUR OFFICE ON [EXPIRATION DATE].
FUNDS UNDER THIS STANDBY LETTER OF CREDIT ARE AVAILABLE TO YOU UPON OUR RECEIPT
OF THE FOLLOWING:
A STATEMENT, SIGNED AND DATED BY THE BENEFICIARY (SIGNED AS SUCH), READING AS
FOLLOWS: "WE HEREBY DEMAND PAYMENT IN THE AMOUNT OF USD__________________ UNDER
JPMORGAN CHASE BANK, N.A. LETTER OF CREDIT NO. ____________________. THE AMOUNT
OF THIS DRAWING IS IN ACCORDANCE WITH SECTION 5.(e) OF THE ESCROW AGREEMENT
ENTERED INTO AS OF _____, 2005, BY AND AMONG KADANT INC., A DELAWARE CORPORATION
(THE "BUYER"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(THE "REPRESENTATIVES"); AND ▇.▇. ▇▇▇▇▇▇ TRUST COMPANY, NATIONAL ASSOCIATION, AS
ESCROW AGENT (THE "ESCROW AGENT")."
THE AMOUNT OF THIS STANDBY LETTER OF CREDIT MAY BE AMENDED FROM TIME TO TIME
UPON RECEIPT OF A STATEMENT, SIGNED AND DATED BY THE BENEFICIARY (SIGNED AS
SUCH), READING AS FOLLOWS: "IN ACCORDANCE WITH SECTION 5.(c), 5.(d) OR 5.(g) OF
THE ESCROW AGREEMENT ENTERED INTO AS OF _____, 2005, BY AND AMONG KADANT INC., A
DELAWARE CORPORATION (THE "BUYER"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (THE "REPRESENTATIVES"); AND ▇.▇. ▇▇▇▇▇▇ TRUST COMPANY,
NATIONAL ASSOCIATION, AS ESCROW AGENT (THE "ESCROW AGENT") WE HEREBY REQUEST
THIS LETTER OF CREDIT BE (INCREASED OR REDUCED) BY USD
__________________________." UPON OUR RECEIPT OF THE APPLICANTS' WRITTEN
AGREEMENT TO AMEND THE LETTER OF CREDIT AS REQUESTED, WE SHALL ADVISE YOU VIA
OUR USUAL AND CUSTOMARY AMENDMENT.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY
EXTENDED WITHOUT AMENDMENT FOR ADDITIONAL 12 MONTH PERIODS FROM THE PRESENT OR
EACH FUTURE EXPIRATION DATE, UNLESS AT LEAST 30 DAYS PRIOR TO THE CURRENT EXPIRY
DATE WE SEND NOTICE IN WRITING TO YOU VIA SWIFT, TELEX, REGISTERED MAIL, OR HAND
DELIVERY AT THE ABOVE ADDRESS, THAT WE ELECT NOT TO AUTOMATICALLY EXTEND THIS
LETTER OF CREDIT FOR ANY ADDITIONAL PERIOD. HOWEVER IN NO EVENT SHALL THIS
LETTER OF CREDIT BE AUTOMATICALLY EXTENDED BEYOND THE FINAL EXPIRY DATE OF
[Insert date 5 years after Closing Date]---------------. UPON SUCH NOTICE TO
YOU, YOU MAY DRAW ON US AT SIGHT FOR AN AMOUNT NOT TO EXCEED THE BALANCE
REMAINING IN THIS LETTER OF CREDIT WITHIN THE THEN-APPLICABLE EXPIRY DATE, BY
YOUR SWIFT OR PRESENTATION OF YOUR DRAFT AND DATED STATEMENT PURPORTEDLY SIGNED
BY ONE OF YOUR OFFICIALS READING EXACTLY AS FOLLOWS:
THE AMOUNT OF THIS DRAWING USD ........... UNDER JPMORGAN CHASE BANK, N.A.
LETTER OF CREDIT NUMBER -------- REPRESENTS FUNDS DUE US AS WE HAVE RECEIVED
NOTICE FROM JPMORGAN CHASE BANK, N.A. OF THEIR DECISION
NOT TO AUTOMATICALLY EXTEND LETTER OF CREDIT NUMBER -------- AND THE UNDERLYING
OBLIGATION REMAINS OUTSTANDING.
IN THE EVENT THIS LETTER OF CREDIT IS SUBSEQUENTLY AMENDED BY US TO EITHER:
I) RESCIND A NOTICE OF NON-EXTENSION AND TO EXTEND THE EXPIRY DATE HEREOF TO A
FUTURE DATE, OR II) EXTEND THE EXPIRY DATE TO A DATE THAT IS AFTER THE STATED
FINAL EXPIRY DATE HEREOF, SUCH EXTENSION SHALL BE FOR THAT SINGLE PERIOD ONLY
AND THIS LETTER OF CREDIT WILL NOT BE SUBJECT TO ANY FUTURE AUTOMATIC EXTENSIONS
UNLESS AN AUTOMATIC EXTENSION PROVISION IS EXPRESSLY INCORPORATED INTO SUCH
AMENDMENT.
A COPY OF OUR NOTICE THAT THE LETTER OF CREDIT WILL NOT BE AUTOMATICALLY
EXTENDED WILL ALSO BE SENT TO:
[APPLICANT]
THIS LETTER OF CREDIT IS TRANSFERABLE IN ITS ENTIRETY (BUT NOT IN PART)
AND JPMORGAN CHASE BANK, N.A. ONLY IS AUTHORIZED TO ACT AS THE
TRANSFERRING BANK. WE SHALL NOT RECOGNIZE ANY TRANSFER OF THIS LETTER OF CREDIT
UNTIL THIS ORIGINAL LETTER OF CREDIT TOGETHER WITH ANY AMENDMENTS AND A SIGNED
AND COMPLETED TRANSFER FORM, ATTACHED HERETO, IS RECEIVED BY US AND OUR TRANSFER
CHARGES OF 1/4 OF 1 PERCENT OF THE TRANSFERRED AMOUNT, MINIMUM $150.00 ARE PAID
BY BANK OR CERTIFIED CHECK. THE CORRECTNESS OF THE SIGNATURE AND TITLE OF THE
PERSON SIGNING THE TRANSFER FORMS MUST BE VERIFIED BY YOUR BANK. IN CASE OF ANY
TRANSFER UNDER THIS LETTER OF CREDIT, THE DRAFT AND ANY REQUIRED STATEMENT MUST
BE EXECUTED BY THE TRANSFEREE. THIS LETTER OF CREDIT MAY NOT BE TRANSFERRED TO
ANY PERSON WITH WHICH U.S. PERSONS ARE PROHIBITED FROM DOING BUSINESS UNDER U.S.
FOREIGN ASSETS CONTROL REGULATIONS OR OTHER APPLICABLE U.S. LAWS AND
REGULATIONS.
ALL CORRESPONDENCE AND ANY DRAWINGS HEREUNDER ARE TO BE DIRECTED TO [INSERT
ISSUING BANK ADDRESS FOR PRESENTATION.]
WE HEREBY AGREE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THIS LETTER OF CREDIT WILL BE DULY HONORED.
THIS LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES
1998, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 590 (THE "ISP98").
THIS LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS.
DATE: _______________
TO:
JPMORGAN CHASE BANK
[INSERT ISSUING BANK ADDRESS FOR PRESENTATION.]
ATTENTION: STANDBY LETTER OF CREDIT DEPARTMENT
RE: LETTER OF CREDIT NO. ___________________
ISSUED BY: JPMORGAN CHASE BANK
GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY
TRANSFERS TO:
--------------------------------------------------------------------------------
NAME OF TRANSFEREE
--------------------------------------------------------------------------------
ADDRESS
________________________________________________________________________________
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT IN ITS ENTIRETY.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH
LETTER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE AND THE TRANSFEREE SHALL HAVE
THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY
AMENDMENTS WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS AND WHETHER NOW
EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE
TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED
BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE
ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE HEREOF, AND FORWARD IT DIRECT TO
THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.
PLEASE DEBIT OUR ACCOUNT NO. _____________ FOR USD ___________ OR
ENCLOSED IS REMITTANCE OF USD___________ VIA CERTIFIED CHECK IN
PAYMENT OF YOUR TRANSFER COMMISSION AND IN ADDITION THERETO WE AGREE TO PAY TO
YOU ON DEMAND ANY EXPENSES WHICH MAY BE INCURRED BY YOU IN CONNECTION WITH THIS
TRANSFER.
SINCERELY,
-----------------------------------
NAME OF BENEFICIARY
-----------------------------------
AUTHORIZED NAME & TITLE
-----------------------------------
AUTHORIZED SIGNATURE
-----------------------------------
TELEPHONE NUMBER
THE ABOVE SIGNATURE, WITH TITLE AS STATED, CONFORMS WITH THAT ON FILE WITH US
AND IS AUTHORIZED FOR EXECUTION OF SUCH INSTRUMENTS.
NAME & ADDRESS OF BANK __________________________
------------------------------------------------------------
AUTHORIZED NAME & TITLE _________________________
AUTHORIZED SIGNATURE ____________________________
TELEPHONE NO. ___________________________________
THIS FORM MUST BE EXECUTED IN DUPLICATE.
EXHIBIT E
OPTION NOTE
$_____________________ As of _____________, 2005
The ▇▇▇▇▇▇▇ Corporation (the Company") and certain of its shareholders
have entered into a Purchase Agreement dated _____________, 2005 (the "Purchase
Agreement") for either (a) the sale of 100% of the issued and outstanding shares
of capital stock of the Company to Kadant, Inc. ("Kadant") or (b) the merger of
the Company and a subsidiary of Kadant. The undersigned,
______________________________________ (the "Option Holder"), as an employee of
the Company, has executed a Stock Option Agreement with the Company dated
__________________, 200___, (the "Stock Option Agreement") and has outstanding
options to purchase _____________ Class B, non-voting shares of the Company (the
"Options"). The Option Holder has executed a Joinder Agreement of even date and
has irrevocably elected to exercise all of the Option Holder's Options at the
price and in accordance with the terms and provisions of the Stock Option
Agreement effective as of [the date hereof]. The Company has agreed to accept
this Note from the Option Holder as payment for the shares to be issued upon
exercise of the Options.
Capitalized terms unless otherwise defined herein shall have the same
meaning as set forth in the Purchase Agreement.
FOR VALUE RECEIVED, the Option Holder promises to pay to the order of
The ▇▇▇▇▇▇▇ Corporation, a Michigan corporation, its successors and assigns,
("▇▇▇▇▇▇▇"), with principal offices at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, the principal sum of _______________________________________ and 00/100
Dollars ($_______________) with interest on the unpaid principal balance from
the date hereof, at the annual rate of ______________ percent (___%) per annum,
but in no event in excess of the maximum rate permitted by law. Option Holder
agrees that all amounts payable under this Note shall be paid without relief
from valuation and appraisement laws.
1. PAYMENTS AND PREPAYMENTS.
------------------------
(a) Unless the maturity of this Note shall otherwise have
been accelerated pursuant to paragraph 2 hereof, this Note shall mature and all
unpaid amounts shall be due and payable in full on the Closing Date under the
Purchase Agreement (the "Maturity Date").
(b) Payments of principal and interest on this Note shall be
made at the offices of The ▇▇▇▇▇▇▇ Corporation, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other place or places within the United States as may be
specified in writing by the holder of this Note.
(c) If any payment on this Note becomes due and payable on a
day other than a Business Day, the maturity hereof shall be extended to the next
succeeding Business Day.
(d) Option Holder shall not have the right to prepay this
Note in whole or in part.
2. Events of Default. In the event that:
-----------------
(a) Option Holder fails to make any payment of principal or
interest required to be made on this Note when due; or
(b) Option Holder (i) commences any case, proceeding or other
action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or shall make a general assignment for the
benefit of its creditors, or (ii) is the debtor named in any other case,
proceeding or other action of a nature referred to in clause (i) above which
results in the entry of an order for relief or any such adjudication or
appointment or remains undismissed or unbonded for a period of sixty (60) days,
or (iii) takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i) or (ii)
above, or (iv) shall generally not, or shall be unable to, or shall admit in
writing its inability to pay its debts as they become due;
then, and in any such event, and at any time thereafter, if such event shall
then be continuing for more than ten (10) days after receipt of written notice
of such default by Option Holder, any holder of this Note may, by written notice
to Option Holder, declare this Note due and payable, whereupon the entire unpaid
balance and other indebtedness on account of this obligation due together with
accrued but unpaid interest, if any, of this Note shall be due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived.
3. Miscellaneous:
-------------
(a) No failure by the holder of this Note to exercise any
right under this Note, including any rights resulting from an event of default,
shall operate as a waiver or otherwise prevent the holder from exercising any of
its rights under this Note at any other time, including the exercise by the
holder of any rights at any time during the continuance of such event of default
or on the occurrence of a subsequent event of default.
(b) The holder of this Note, in its sole discretion, may
renew this Note, accept a renewal note or notes, extend the time for the payment
of the indebtedness evidenced by this Note, reduce the payments under this Note,
or do any combination of such actions on any number of occasions; provided,
however, that (i) any such action shall not release Option Holder from any
liability on the obligation evidenced by this Note and (ii) prior to the Closing
the holder shall not take any such action without the prior written consent of
Kadant. Option Holder and any endorser or guarantor of this Note each waive
presentment for payment, protest, notice of protest, notice of non-payment or
dishonor of this Note and diligence in the collection of this Note; and each of
them consents to any actions by the Company or any holder of this Note as set
forth in this paragraph.
(c) If this Note or any part of this Note is not paid when
due and if the holder incurs any expenses in connection with its collection,
Option Holder agrees to pay all reasonable expenses so incurred, including
reasonable attorneys' fees, paralegal fees, costs and expenses.
(d) This Note and the rights and obligations of Option Holder
and each holder hereunder shall be construed in accordance with and be governed
by the laws of the State of Michigan.
(e) Upon payment in full of all outstanding principal and
interest due under this Note, Option Holder's obligations in respect of payment
of this Note shall terminate and the holder shall promptly return this Note to
Option Holder.
(f) The Option Holder expressly agrees that this Note shall
be paid in full from the Transaction Consideration otherwise payable to the
Option Holder at the Closing. The Option Holder expressly authorizes the
Representatives to deduct the total principal amount and all accrued interest
due under this Note from the Transaction Consideration payable to the Option
Holder at Closing and to pay said amount to the Company at Closing in
satisfaction of this Note.
IN WITNESS WHEREOF, Option Holder has caused this Note to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
"OPTION HOLDER"
-----------------------------------
Signature
Printed Name: _____________________
Address: __________________________
__________________________
__________________________