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EXHIBIT 1
STOCK PURCHASE AND SALE AGREEMENT
by and between
DSI TOYS, INC.,
and
MVII, LLC
Dated as of April 15, 1999
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This STOCK PURCHASE AND SALE AGREEMENT ("Agreement") is entered into by
and between MVII, LLC, a limited liability company formed under the laws of the
State of California ("Buyer"), and DSI Toys, Inc., a Texas corporation (the
"Company"). This Agreement is made with specific reference to the following
facts:
RECITALS:
A. WHEREAS, the Company owns and operates a business engaged in
the development, manufacturing and distribution of toys and
children's consumer electronics;
B. WHEREAS, the Board of Directors of the Company has approved
the sale of five hundred sixty-six thousand thirty-eight
(566,038) shares (the "Initial Funding Shares") of common
stock, par value $.01 per share, of the Company (the "Common
Stock" or the "Shares"), on the Initial Closing Date (as that
term is defined herein) and an additional one million seven
hundred ninety-two thousand four hundred fifty- three
(1,792,453) Shares (the "Second Funding Shares") on the Second
Closing Date (as that term is defined herein) plus a potential
upward adjustment of an additional one hundred forty thousand
(140,000) Shares as provided herein, by the Company to Buyer,
on the terms and subject to the conditions set forth in this
Agreement;
C. WHEREAS, the Board of Directors of the Company has approved
the acquisition of up to one million six hundred thousand
(1,600,000) shares of Common Stock (the "Tendered Shares") by
Buyer from the Company's shareholders (the "Shareholders"), on
the terms and subject to the conditions set forth in this
Agreement;
D. WHEREAS, in furtherance of such acquisition, Buyer proposes to
make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "Offer") to purchase the
Tendered Shares at a purchase price of $4.38 per share (the
"Offer Price") net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set
forth in this Agreement, and the Board of Directors of the
Company has adopted resolutions approving the Offer;
E. WHEREAS, the Board of Directors has approved the terms of that
certain Shareholders' and Voting Agreement of DSI Toys, Inc.
(the "Shareholders Agreement") by and among the Company,
Buyer, and M. D. ▇▇▇▇▇, Rust Capital, Ltd., a Texas limited
partnership, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ (collectively, the "DSI Group"), entered into
concurrently with the execution of this Agreement, and in
connection therewith, members of the DSI Group have executed
irrevocable proxies in favor of Buyer (the "Irrevocable
Proxies"), as an inducement to Buyer and the Company to enter
into this Agreement;
F. WHEREAS, the Board of Directors has approved the terms of that
certain Registration Rights Agreement (the "Registration
Rights Agreement") (the
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Registration Rights Agreement and the Shareholders Agreement
are hereinafter collectively referred to as the "Other
Agreements") by and among the Company, Buyer, and the DSI
Group, entered into concurrently with the execution of this
Agreement as an inducement to Buyer to enter into this
Agreement; and
G. WHEREAS, the Company and Buyer desire to make certain
representations, warranties, covenants and agreements in
connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
are acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
PURCHASE OF SHARES
SECTION 1.1 Purchase and Sale of Initial Funding Shares. Upon the terms
and subject to the conditions set forth in this Agreement the Company shall sell
to Buyer and Buyer shall purchase from the Company the Initial Funding Shares
for a total consideration of One Million Two Hundred Thousand Dollars
($1,200,000.00) (the "Initial Funding Shares Purchase Price").
SECTION 1.2 Purchase and Sale of Second Funding Shares. Upon the terms
and subject to the conditions set forth in this Agreement the Company shall sell
to Buyer and Buyer shall purchase from the Company the Second Funding Shares for
a total consideration of Three Million Eight Hundred Thousand Dollars
($3,800,000.00) (the "Second Funding Shares Purchase Price"), subject to
adjustment pursuant to Section 1.2(a).
(a) If as of 11:59 p.m. on the Second Closing Date (as defined below)
(the "Relevant Time"), the Working Capital (as defined below), is less than the
Base Amount (as defined below), then the Second Funding Shares shall be
increased by the excess of the Base Amount over the amount of Working Capital of
the Company as of the Relevant Time, based upon a stock price of Two Dollars
($2.00) per Second Funding Share; provided that the Second Funding Shares shall
not be increased by more than forty thousand (40,000) shares. "Working Capital"
shall mean current assets less current liabilities (excluding current portion of
long-term debt). The term "Base Amount" shall mean One Million Dollars
($1,000,000.00).
(b) Within three (3) business days prior to the Second Closing Date,
the Company shall deliver to Buyer a statement (together with appropriate
schedules and other support, the "Settlement Statement") that: (i) provides
Buyer with a good faith estimate of its Working Capital as of the Relevant Time,
as adjusted, for any collections, payments or distributions to be made prior to
the Relevant Time, and (ii) calculates the increase of the Second Funding Shares
pursuant to Section 1.2(a) hereof, if applicable.
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(c) If the Settlement Statement requires any adjustments to the Second
Funding Shares as described in Section 1.2(a) and Buyer agrees with the
adjustments as set forth in the Settlement Statement, then such adjustment shall
be reflected in the amount of Second Funding Shares to be issued to Buyer on the
Second Closing Date pursuant to Section 1.3(b).
(d) Unless Buyer has notified Seller that it agrees with the
adjustments as set forth in the Settlement Statement on or before the Second
Closing Date, then on the Second Closing Date, the Company shall sell to Buyer
one million seven hundred ninety-two thousand four hundred fifty-three
(1,792,453) Shares and, if Buyer elects to challenge the amount of Working
Capital contained in the Settlement Statement, Buyer shall notify the Company of
its challenge of the amount of Working Capital in writing no later than ten (10)
business days following the Second Closing Date. If Buyer and the member of the
Company's Board of Directors appointed to represent the Company by those members
of the Company's Board of Directors who are nominated by the DSI Group (the "DSI
Representative") do not agree within ten (10) days of such challenge on any such
adjustment, Buyer shall engage ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, who shall conduct such tests and
procedures as it deems reasonable to finally determine the amount of Working
Capital, as applicable, on the Second Closing Date, no later than sixty (60)
days following the Second Closing Date. If ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ determines the amount
of Working Capital of the Company as of the Relevant Time differs from that set
forth in the Settlement Statement, it shall so notify the Company and the Buyer
of such difference. If ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ determines that the Working Capital of
the Company as of the Relevant Time is greater than the Base Amount, then this
Agreement shall continue in full force and effect without any changes to the
Second Funding Shares. If ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ determines that the Working Capital of
the Company as of the Relevant Time is less than the Base Amount, then the
Second Funding Shares shall be increased by the excess of the Base Amount over
the amount of Working Capital of the Company as of the Relevant Time as
determined by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, based upon a stock price of Two Dollars ($2.00)
per Second Funding Share, and the Company shall issue to Buyer an additional
number of Second Funding Shares that the Company should have issued on the
Second Closing Date, pursuant to Section 1.2(a) hereof, based upon the findings
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
(e) If the Company fails to satisfy the terms of Section 5.20 below,
Buyer shall be issued the ▇▇▇▇ Default Shares (as defined in Section 5.20
below).
SECTION 1.3 Closings.
(a) Initial Closing. The closing of the purchase and sale of
the Initial Funding Shares (the "Initial Closing") shall take place at the
offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, 1200 ▇▇▇▇▇ Tower, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on the date hereof, or at such other
time and place as the Company and Buyer shall agree in writing (the "Initial
Closing Date"). At the Initial Closing:
(i) The Company shall deliver to Buyer: (A) one or
more certificates representing five hundred sixty-six thousand
thirty-eight (566,038) Shares, duly endorsed in blank or with duly
executed stock powers, free and clear of any Liens; (B) the Other
Agreements and the Irrevocable Proxies duly executed by the parties
thereto in the forms
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attached hereto as Exhibits 5.15, 5.16 and 1.3(a)(i)(B), respectively;
(C) those certain Side Letter Agreements executed by each of the
members of the DSI Group and the Company in the forms attached hereto
as Exhibit 1.3(a)(i)(C); (D) a favorable opinion of counsel dated as of
the Initial Closing Date in form and substance satisfactory to Buyer
and Buyer's Counsel; (E) certified copies of resolutions duly adopted
by the Company's board of directors approving this Agreement and the
transactions contemplated hereby; (F) duly executed consents of any
party having a contractual relationship with the Company or any of its
Subsidiaries and whose consent is required to be obtained to execute
this Agreement or in connection with the Initial Closing and who has
been identified as such by Company in the Seller Disclosure Letter (as
defined herein), including, but not limited to, Sunrock Capital Corp.
("Sunrock"); (G) draft copies of the consolidated balance sheet
(including related notes and schedules) and consolidated statements of
income, shareholders' equity and of cash flows to be included in the
Company's annual report on Form 10-K for the fiscal year ending January
31, 1999 (the "1998 Financial Statements"); (H) a written consent and
waiver in the form attached hereto as Exhibit 1.3(a)(i)(H) executed by
Sunrock consenting to the transactions contemplated hereby and waiving
any breaches and/or events of default arising out of or in connection
with the transactions contemplated hereby; and (I) the opinion of
Chaffe and Associates, Inc., a copy of which is attached hereto as
Exhibit 3.29.
(ii) Buyer shall deliver to the Company, (A) by wire
transfer of immediately available funds the Initial Funding Shares
Purchase Price, (B) the Other Agreements duly executed by the Buyer,
(C) a favorable opinion of counsel dated as of the Initial Closing Date
in form and substance satisfactory to the Company and the Company's
counsel, and (D) certified copies of resolutions duly adopted by the
Buyer's board of directors approving this Agreement and the
transactions contemplated hereby.
(b) Second Closing. The closing of the purchase and sale of
the Second Funding Shares (the "Second Closing") shall take place at the offices
of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, 1200 ▇▇▇▇▇ Tower, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
at 10:00 a.m., local time, on or before July 1, 1999, as the Company and Buyer
shall agree in writing (the "Second Closing Date").
(i) The Company shall deliver to Buyer one or more
certificates representing one million seven hundred ninety-two thousand
four hundred fifty-three (1,792,453) Shares (and such additional
Shares, if any, as set forth in the Settlement Statement and agreed to
by Buyer as provided in Section 1.3(c) hereof), duly endorsed in blank
or with duly executed stock powers, free and clear of any Liens;
(ii) Buyer shall deliver by wire transfer of
immediately available funds the Second Funding Shares Purchase Price to
the Company;
(iii) The Company shall amend the Amended and
Restated Articles of Incorporation of the Company to increase the
number of authorized shares of capital stock from twenty-five million
(25,000,000) to forty million (40,000,000) pursuant to the Articles of
Amendment to the Amended and Restated Articles of Incorporation
attached hereto as
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Exhibit 1.3 (the "Articles of Amendment"), by filing the Articles of
Amendment with the Secretary of State of the State of Texas, if such
Articles of Amendment have been approved by the Shareholders at the
Shareholders Meeting (as defined herein); and
(iv) The parties shall deliver all remaining items
and perform all remaining covenants required by the terms and
conditions of this Agreement.
ARTICLE II
TENDER OFFER
SECTION 2.1 The Offer
(a) Not later than the first business day after the date of this
Agreement, Buyer will make a public announcement of the offer to purchase one
million six hundred thousand (1,600,000) Shares at the Offer Price net to the
seller in cash. Notwithstanding the foregoing, the Offer Price will be subject
to possible increase as provided in Section 2.1(b) hereof.
(b) Subject to the provisions of this Agreement, as promptly as
practicable but in no event later than five business days after the date of the
public announcement by Buyer of the Offer, Buyer shall commence the Offer. The
obligation of Buyer to commence the Offer and accept for payment, and pay for,
any Shares tendered pursuant to the Offer shall be subject only to the
conditions set forth in Exhibit 2.1 attached hereto (the "Offer Conditions")
(any of which may be waived in whole or in part by Buyer in its sole
discretion). Buyer expressly reserves the right to modify the terms of the
Offer, except that, without the prior written consent of the Company, Buyer
shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the
Offer Price, (iii) add to the Offer Conditions, (iv) except as provided in the
next sentence, extend the Offer, or (v) change the form of consideration payable
in the Offer. Notwithstanding the foregoing, Buyer may, without the consent of
the Company, (i) extend the Offer, if at the scheduled or extended expiration
date of the Offer (the initial scheduled expiration date being such date as
shall be identified in the Offer Documents (as herein defined)), any of the
Offer Conditions shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer, and (iii) extend the Offer for any reason on one or more occasions for an
aggregate period of not more than twenty (20) business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence, in each case subject to the right of Buyer or the Company to
terminate this Agreement pursuant to the terms hereof. The obligation of Buyer
to accept for payment, and pay for, any Shares tendered pursuant to the Offer
shall be subject only to the conditions set forth on Exhibit 2.1 (any of which
may be waived in whole or in part by Buyer in its sole discretion). Subject to
the terms and conditions of the Offer, Buyer shall accept for payment, and pay
for, all Shares validly tendered and not withdrawn pursuant to the Offer that
Buyer becomes obligated to accept for payment, pursuant to the Offer as soon as
practicable after the expiration of the Offer.
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(c) On the date of commencement of the Offer, Buyer shall file with the
SEC a Tender Offer Statement in Schedule 14D-1 (the "Schedule 14D-1") with
respect to the Offer, which shall contain an offer to purchase and a related
letter of transmittal (such Schedule 14D-1 and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"), and Buyer shall cause to be
disseminated the Offer Documents to holders of Common Stock (collectively, the
"Shareholders" and individually, a "Shareholder") as and to the extent required
by applicable federal securities laws. Buyer and the Company each agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and Buyer further agrees to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be promptly filed with
the SEC and the other Offer Documents as so corrected to be promptly
disseminated to the Shareholders, in each case as and to the extent required by
applicable federal securities laws. The Company and its counsel shall be given
reasonable opportunity to review and comment upon the Offer Documents prior to
their filing with the SEC or dissemination to the Shareholders. Buyer agrees to
provide the Company and its counsel any comments Buyer or its counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments.
(d) Buyer shall provide on a timely basis the funds necessary to accept
for payment, and pay for, any Shares that Buyer becomes obligated to accept for
payment, and pay for, pursuant to the Offer.
SECTION 2.2 Company Actions.
(a) The Company hereby represents that the Board of Directors of the
Company has, at a meeting duly called and held, duly adopted resolutions whereby
it: (i) determined that this Agreement, the Offer and the transactions
contemplated hereby and thereby are in the best interests of the Company and the
Shareholders, (ii) adopted and approved this Agreement, the Offer and the
transactions contemplated hereby and thereby, and (iii) resolved to recommend
that the Shareholders accept the Offer, tender their shares in response to the
Offer, and approve the sale of the Second Funding Shares by the Company to Buyer
pursuant to the terms of this Agreement. Simultaneously with the execution of
this Agreement, pursuant to the terms of the Side Letter Agreements, each of the
members of the DSI Group has agreed that if the Minimum Condition (as that term
is defined in Exhibit 2.1 attached hereto) is not met as of the initial
scheduled expiration date of the Offer, each of the members of the DSI Group
shall tender their Shares in the Offer, except where such sales in response to
the Offer might result in liability under Section 16(b) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), such that the number of
Shares tendered by each member of the DSI Group and non-DSI Group Shareholders,
shall meet the Minimum Condition. Nothing herein contained shall prevent any
member of the DSI Group from tendering any or all Shares over which such member
has dispositive power, even if the Minimum Condition is otherwise met, and any
such Shares so tendered shall be subject to a pro rata reduction to the same
extent as the Shares tendered by any other Shareholder.
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(b) Not later than the first business day after the date the Offer
Documents are filed with the SEC, the Company shall file with the SEC a
Solicitation/Recommendation Statement in Schedule 14D-9 with respect to the
Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9")
containing the recommendations described in Section 2.2(a) hereof and will
disseminate the Schedule 14D-9 as required by Rule 14d-9 under the Exchange Act.
The Company and Buyer each agrees to correct promptly any information provided
by it for use in the Schedule 14D-9 if and to the extent that information is or
becomes incomplete or inaccurate in any material respect and the Company will
file promptly any corrected Schedule 14D-9 with the SEC and disseminate promptly
the corrected Schedule 14D-9 to the Shareholders to the extent required by the
Exchange Act or the rules thereunder. Buyer and its counsel shall be given
reasonable opportunity to review and comment upon the Schedule 14D-9 prior to
its filing with the SEC or dissemination to the Shareholders. The Company agrees
to provide Buyer and its counsel any comments the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Buyer promptly with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of Shareholders, security position listings and computer files and all
other information in the Company's possession or control regarding the
beneficial owners (as defined under Rule 13d-3 of the Securities Act of 1933, as
amended (the "Securities Act")) of Common Stock, and shall furnish to Buyer such
additional information and assistance (including updated lists of Shareholders,
security position listings and computer files) as Buyer may reasonably request
in communicating the Offer to the Shareholders. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents, Buyer and its agents shall hold in confidence the information
contained in any such labels, listings and files, and will use such information
only in connection with the Offer.
SECTION 2.3 The Closing of the Offer. The closing of the Offer (the
"Offer Closing") shall occur simultaneously with and be conditioned upon the
Second Closing of the sale of the Second Funding Shares as provided in Section
1.3 hereof and the satisfaction or waiver of the conditions set forth in Exhibit
2.1 (the "Offer Closing Date"), unless another date is agreed to in writing by
the parties hereto.
SECTION 2.4 Payment for Tendered Shares.
(a) Paying Agent. Prior to the date of the consummation of the
transactions contemplated by the Offer (the "Effective Time"), Buyer shall
designate a bank or trust company or an entity which in the ordinary course of
business acts as a participation agent to act as paying agent in the Offer (the
"Paying Agent"), and, from time to time on, prior to or after the Effective
Time, Buyer shall make available to the Paying Agent cash in amounts and at the
times necessary for the payment of the purchase price for each Tendered Share
purchased (the "Tender Price") upon surrender of certificates representing
Shares (it being understood that any and all interest earned on funds made
available to the Paying Agent pursuant to this Agreement shall be turned over to
Buyer).
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(b) Payment Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Buyer may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Tender Price for such Shares surrendered.
Upon surrender of a Certificate to the Paying Agent or to such other agent or
agents as may be appointed by Buyer, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the Tender Price for each Share theretofore represented by
such Certificate which shall have been tendered. In the event of a transfer of
ownership of Shares that is not registered in the transfer records of the
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Buyer that such tax has been paid or is not
applicable. No interest will be paid or will accrue on the cash payable upon the
surrender of any Certificate. If more than one million six hundred thousand
(1,600,000) Shares are validly tendered prior to the Effective Time and not
withdrawn, the Buyer will, upon the terms and conditions of the Offer, accept
such Shares for payment on a pro rata basis as provided by Section 14(d)(6) of
the Exchange Act and Rule 14(d) promulgated thereunder, with adjustments to
avoid purchases of fractional Shares, based upon the number of Shares validly
tendered prior to the Effective Time and not withdrawn.
SECTION 2.5 Directors.
(a) Upon the Second Closing and the Offer Closing, Buyer shall be
entitled to designate four of the six directors on the Board of Directors of the
Company. In furtherance thereof, each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇ ▇.
▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇")
has agreed to tender his resignation as a member of the Board of Directors
effective upon the Second Closing and the Offer Closing to enable Buyer's
designees to be so elected to the Company's Board of Directors, and the Company
agrees to take all actions available to cause Buyer's designees to be so
elected. At such time, the Company shall, if requested by Buyer, also cause
persons designated by Buyer to constitute at least the same percentage as is on
the Company's Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) each board of directors of each Subsidiary of the Company, and
(iii) each committee (or similar body) of each such board.
(b) The Company shall promptly take all actions required, if any,
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations with respect to Section 2.5(a)
hereof, including mailing to Shareholders the information required by such
Section 14(f) and Rule 14f-1 as is necessary to enable Buyer's designees to be
elected to the Company's Board of Directors. Buyer will supply the Company and
be solely
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responsible for any information with respect to it and its nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 2.5 are in addition to and shall not limit any rights
which Buyer or any of its affiliates may have as a beneficial owner of Shares as
a matter of law with respect to the election of directors or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company represents and warrants to Buyer, as follows:
SECTION 3.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to be so qualified or in good standing is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect or prevent or
materially delay the consummation of the Offer. Section 3.1 of the disclosure
letter delivered to Buyer by the Company on or prior to entering into this
Agreement and incorporated by reference herein (the "Seller Disclosure Letter")
contains complete and correct copies of the Company's and its Subsidiaries'
certificates or articles of incorporation, as the case may be, and bylaws, each
as amended to date. The Company's and its Subsidiaries' certificates of
incorporation and bylaws so delivered are in full force and effect.
SECTION 3.2 Capital Structure. The authorized capital stock of the
Company consists of 25,000,000 shares of capital stock, 20,000,000 of which are
shares of Common Stock, and 5,000,000 of which are shares of Preferred Stock, of
which 6,000,000 shares of Common Stock and no shares of Preferred Stock were
outstanding and 2,719,000 Shares were held by the Company in its treasury, as of
the close of business on April 14, 1999. All of the outstanding Shares have been
duly authorized and are validly issued, fully paid and nonassessable and, upon
the sale thereof, the Initial Funding Shares and the Second Funding Shares will
be duly authorized, validly issued, fully paid and nonassessable. The Company
has no Shares reserved for issuance except for 603,000 Shares reserved for
issuance upon exercise of outstanding options granted under and pursuant to the
Company's Stock Option Plan, as amended from time to time (the "Stock Plan");
and 638,888 Shares reserved for issuance upon the exercise of outstanding
warrants as described in Section 32 of the Seller Disclosure Letter. Section 3.2
of the Seller Disclosure Letter contains a correct and complete list as of April
14, 1999, of each outstanding option to purchase Shares, under the Stock Plan
and pursuant to the outstanding warrants described in Section 3.2 of the Seller
Disclosure Letter (each a "Company Option"), including the holder, date of
grant, exercise price and number of Shares subject thereto, along with complete
and correct copies of the Company Options and the Stock Plan. Except as set
forth in Section 3.2 of the Seller Disclosure Letter, each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly
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issued, fully paid and nonassessable and owned by the Company, free and clear of
any Lien, right of first refusal agreement, limitation on voting rights, claim
or other encumbrance. Except as set forth in Section 3.2 of the Seller
Disclosure Letter, there are no preemptive or other outstanding rights (other
than rights accruing to the Company or its Subsidiaries), options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of the Company or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities of
the Company or any of its Subsidiaries, and no securities or obligations
evidencing such rights are authorized, issued or outstanding. The Company does
not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the Shareholders of the Company on any
matter. There is not outstanding any contractual obligations of the Company or
any of its Subsidiaries (i) to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company, or (ii) to vote or to dispose of any
shares of capital stock of any of the Subsidiaries.
SECTION 3.3 Corporate Authority; Approval and Fairness. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized and approved by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize or
approve this Agreement, or to consummate the transactions contemplated hereby
other than: (i) the approval and adoption of this Agreement and the transactions
contemplated hereby, including the approval of the sale of the Second Funding
Shares by the Company to Buyer by the affirmative vote of Shareholders holding a
majority of Shares represented in person or by proxy at a duly called meeting at
which a quorum is present or represented, and (ii) the approval of the Articles
of Amendment by the affirmative vote of Shareholders holding a majority of the
Shares then outstanding. The Board of Directors has resolved to recommend the
approval of the sale of the Second Funding Shares by the Company to Buyer and
the adoption of this Agreement and the Articles of Amendment by the
Shareholders, and has directed that the sale of the Second Funding Shares, this
Agreement and the Articles of Amendment be submitted to the Shareholders for
their approval. The Company has all corporate power and authority to enter into
this Agreement and the Other Agreements to which the Company is a party and to
consummate the transactions contemplated hereby and thereby, subject to the
approval of the Shareholders described in subsections (i) and (ii) above. This
Agreement and the Other Agreements to which the Company is a party have been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of such agreement by each other party
thereto) each constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights or by principles governing the availability of
equitable remedies (the "Bankruptcy Exception").
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SECTION 3.4 Governmental Filings; No Violations.
(a) Except as set forth in Section 3.4(a) of the Seller Disclosure
Letter, other than the filings and/or notices (i) pursuant to this Agreement,
(ii) under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), if applicable, and the Exchange Act and the Securities Act,
(iii) to comply with state securities or "blue-sky" laws, if any; and (iv)
required to be made with the NASDAQ, no notices, reports or other filings are
required to be made by the Company or any of its Subsidiaries with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by the Company or any of its Subsidiaries from, any governmental or
regulatory authority, agency, commission, body or other governmental entity,
domestic, foreign, or supranational ("Governmental Entity"), in connection with
the execution and delivery of this Agreement and the consummation by the Company
of the sale of the Initial Funding Shares and the Second Funding Shares to Buyer
and the other transactions contemplated hereby.
(b) Except for those agreements for which consents must be obtained as
set forth in Section 6.2(c) of the Seller Disclosure Letter, the execution,
delivery and performance of this Agreement by the Company does not, and the
consummation by the Company of this Agreement and the other transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, the articles of incorporation or bylaws of the Company
or the comparable governing instruments of any of its Subsidiaries, (ii) a
breach or violation of, or a default under, or the acceleration of any
obligations or the creation of a Lien or other encumbrance on the assets of the
Company or any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any loan or credit agreement, note, bond, warrant, indenture
or other instrument evidencing indebtedness for borrowed money ("Debt
Contracts") or any other agreement, lease, contract, arrangement or other
obligation ("Other Contracts") binding upon the Company or any of its
Subsidiaries or any Law (as defined in Section 3.9 below) or governmental or
non-governmental permit or license to which the Company or any of its
Subsidiaries is subject or any judgment, order or decree to which the Company or
any of its Subsidiaries or any of its properties is subject; or (iii) any change
in the rights or obligations of any party under any of the Debt Contracts or
Other Contracts, except, in the case of clause (ii) or (iii) above, for any
breach, violation, default, acceleration, creation or change that, individually
or in the aggregate, is not reasonably likely to have a Material Adverse Effect
or prevent, delay or impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
(c) Except as set forth in Section 3.4(c) of the Seller Disclosure
Letter, no event has occurred or is occurring that constitutes or, but for the
giving of notice or lapse of time, or both, would constitute an event of default
by the Company or any of its Subsidiaries under any Debt Contract or Other
Contracts binding upon the Company or any of its Subsidiaries.
SECTION 3.5 Company Reports; Financial Statements. The Company has
filed all reports and other documents to be filed by it since its formation
under the Exchange Act or the Securities Act. Section 3.5 of the Seller
Disclosure Letter contains a complete list of each registration statement,
report, proxy statement or information statement (including any amendments
thereto) filed by it with the SEC (collectively, including any such reports
filed subsequent to the date hereof, the
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"Company Reports"). The Company has delivered or will deliver promptly after
filing true and correct copies of each of the Company Reports to Buyer. As of
their respective dates, the Company Reports did not, and any Company Reports
filed with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances in which they were made, not misleading. Each of the
Company Reports complied in all material respects with the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations
thereunder. To the Knowledge of the Company, each of the consolidated balance
sheets included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents, or will fairly
present, in all material respects, the consolidated financial position of the
Company and each of its Subsidiaries as of its date, and each of the
consolidated statements of income, shareholders' equity and of cash flows
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) (together with such consolidated balance sheets
hereinafter the "Financial Statements") fairly presents, or will fairly present,
in all material respects, the results of consolidated operations, shareholders'
equity and cash flows, as the case may be, of the Company and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to notes and normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
SECTION 3.6 Absence of Certain Changes. Except as disclosed in the
Company credit reports required to be submitted by the Company, including,
without limitation, those prepared by Dun and Bradstreet and reports delivered
by the Company to the Company's lenders under any Debt Contracts (the
"Reports"), filed prior to the date hereof and as set forth in Section 3.6 of
the Seller Disclosure Letter, since October 31, 1998 (the "Financial Statement
Date"), the Company and each of its Subsidiaries have conducted their respective
businesses only in, and have not entered into or engaged in any material
transaction other than in, the ordinary and usual course of such businesses and
there has not been (a) any change in the financial condition, properties,
business or results of operations of the Company or any of its Subsidiaries or
any development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect;
(b) any damage, destruction or other casualty loss with respect to any asset or
property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance, except as is not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect; (c)
any declaration, setting aside or payment of any dividend or other distribution
in respect of the capital stock of the Company, except for dividends or other
distributions on its capital stock publicly announced prior to the date hereof;
(d) any material change by the Company in accounting principles, practices or
methods; or (e) any entry by the Company or any of its Subsidiaries into any
employment, consulting, severance, termination or indemnification agreement or
arrangement with any employee or director. Since the Financial Statement Date,
except as provided for herein or as disclosed in the Company Reports filed prior
to the date hereof, there has not been any increase in the compensation payable
or that could become payable by the Company or any of its Subsidiaries to
directors, officers or key employees or any amendment of any
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of the Compensation and Benefit Plans (as defined in Section 3.8 below) other
than increases or amendments in the ordinary course.
SECTION 3.7 Litigation and Liabilities. Except as set forth in Section
3.7 of the Seller Disclosure Letter, there are no (a) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any current or former director or officer of the
Company or any of its Subsidiaries (in their capacity as such) or (b)
obligations or liabilities, whether or not accrued, contingent or otherwise,
including those relating to matters involving any Environmental Law (as defined
in Section 3.11 below), that, in the case of either clause (a) or (b),
individually or in the aggregate, are reasonably likely in either such case to
have a Material Adverse Effect or prevent or impair the ability of the Company
to consummate the transactions contemplated by this Agreement, including,
without limitation, the consummation of the Offer. Except as disclosed in the
Company Reports filed prior to the date hereof and as set forth in Section 3.7
of the Seller Disclosure Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against the Company or
any of its Subsidiaries, any of its or their properties, assets or business, or,
to the Knowledge of the Company, any of its or their current or former directors
or officers, in their capacities as directors or officers of the Company, as
such, that is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.8 Employee Matters.
(a) Neither the Company nor any of its Subsidiaries has any labor
contracts or collective bargaining agreements with respect to any persons
employed by or otherwise performing services for the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has engaged in any
unfair labor practice. As of the date hereof, there is no unfair labor practice
complaint pending, or to the Knowledge of the Company threatened, against the
Company or any of its Subsidiaries. There is no labor strike, dispute, slowdown,
or stoppage pending or to the Knowledge of the Company threatened, against the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has experienced any primary work stoppage or labor difficulty
involving its employees during the last three (3) years, except in each case as
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect.
(b) Section 3.8(b) of the Seller Disclosure Letter is a true and
complete list of each bonus, deferred compensation, pension, retirement, profit
sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, employment, termination, severance,
compensation, medical, health, welfare, fringe benefits or other plan,
agreement, policy or arrangement which the Company or any of its Subsidiaries
maintains, or as to which the Company or any of its Subsidiaries is or will be
required to make any payment for the benefit of any employee, director, former
employee or former director of the Company and its Subsidiaries (the
"Compensation and Benefit Plans"). The Company has delivered or made available
to Buyer with respect to each Compensation and Benefit Plan correct and complete
copies, where applicable, of (i) all plan documents and amendments thereto,
trust agreements and amendments thereto and insurance and annuity contracts and
policies, (ii) the current summary plan description, (iii) the
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Annual Reports (Form 5500 series) and accompanying schedules, as filed, for the
most recently completed two plan years for which such reports have been filed,
(iv) the financial statements for the most recently completed two plan years for
which statements have been prepared, (v) the most recent determination letter
issued by the Internal Revenue Service (the "IRS") and the application submitted
with respect to such letter, and (vi) all correspondence with the IRS or
Department of Labor concerning any pending controversy. Any "change of control"
or similar provisions contained in any Compensation and Benefit Plan are
specifically identified in Section 3.8(b) of the Seller Disclosure Letter.
(c) All Compensation and Benefit Plans have been administered in all
material respects in accordance with their terms and are in compliance in all
material respects with all applicable laws, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the IRS, and the Company is not aware as of the date hereof of any
circumstances likely to result in revocation of any such favorable determination
letter or of any circumstance indicating that any such plan is not so qualified
in operation. As of the date hereof, there is no pending or, to the Knowledge of
the Company, threatened litigation, claim or audit by any Person relating to the
Compensation and Benefit Plans. To the Knowledge of the Company, no prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code has
occurred which would be expected to result in material liability to the Company
or any of its Subsidiaries, assuming that, for purposes of determining
materiality, the "taxable period" within the meaning of Section 4975 of the Code
with respect to such prohibited transaction had expired as of the date hereof.
(d) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by the Company or any
Subsidiary with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). None of the Company, any of its
Subsidiaries and their ERISA Affiliates have contributed, or been obligated to
contribute, to a multi-employer plan under Subtitle E of Title IV of ERISA at
any time, and no liability has been or is expected to be incurred by the Company
or any Subsidiary with respect to any such plan. None of the Company, any of its
Subsidiaries or any ERISA Affiliate contributes to or maintains a Pension Plan
subject to Title IV of ERISA or has contributed to or maintained any such plan
at any time during the six-year period prior to the date hereof.
(e) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof, have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Company Reports prior to the date hereof.
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(f) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any Compensation and Benefit Plan,
except as required under Part 6 of Title I of ERISA.
(g) Except as contemplated by this Agreement or disclosed in Section
3.8(g) of the Seller Disclosure Letter, the consummation of this Agreement and
the other transactions contemplated by this Agreement will not (i) entitle any
employees of the Company or its Subsidiaries to severance pay, (ii) accelerate
the time of payment or vesting or trigger any payment of compensation or
benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Compensation and Benefit Plans or the Stock
Plan or (iii) result in any breach or violation of, or default under, any of the
Compensation and Benefit Plans or the Stock Plan.
SECTION 3.9 Compliance with Laws; Permits. Except as set forth in the
Company Reports filed prior to the date hereof and as set forth in Section 3.9
of the Seller Disclosure Letter, the businesses of each of the Company and its
Subsidiaries are being conducted in compliance with applicable federal, state,
local and foreign laws (collectively, "Laws"), except for such violations that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect or prevent or materially burden or materially impair the ability
of the Company to consummate the transactions contemplated by this Agreement.
The Company and its Subsidiaries each has all governmental permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to own or lease and operate their respective
properties and conduct its business as presently conducted except those the
absence of which are not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect or prevent or burden or impair the ability of the
Company to consummate this Agreement and the other transactions contemplated by
this Agreement.
SECTION 3.10 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") or any applicable anti-takeover provision in the Company's
articles of incorporation, by-laws or any shareholder rights agreement, except
Article 13.03 of the Texas Business Corporation Act, is, or as of the Second
Closing Date will be, applicable to the Company, the sale of the Initial Funding
Shares and the Second Funding Shares, the Offer or the other transactions
contemplated by this Agreement. The Board of Directors of the Company has taken
all action so that Buyer will not be prohibited from entering into a "business
combination" with the Company as an "affiliated shareholder" (as those terms are
defined in Article 13.02 of the Texas Business Corporation Act) as a result of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3.11 Environmental Matters. Except as disclosed in the Company
Reports filed prior to the date hereof, and as set forth in Section 3.11 of the
Seller Disclosure Letter, (i) to the Knowledge of the Company, the Company and
its Subsidiaries are in compliance with all applicable Environmental Laws; (ii)
the Company and its Subsidiaries have not received any written notices from any
Governmental Entity or any other person or entity alleging the violation of any
applicable Environmental Law; (iii) the Company and its Subsidiaries are not the
subject of any court order,
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administrative order or decree arising under any Environmental Law; (iv) to the
Knowledge of the Company, there has not been a release of Hazardous Substances
(as defined below) on any of the properties owned or operated by the Company or
any of its Subsidiaries; and (v) to the Knowledge of the Company neither the
Company nor any Subsidiary has generated, stored, used, emitted, discharged or
disposed of any Hazardous Substances in violation of or giving rise to liability
under applicable Environmental Laws.
As used herein, "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit, order,
decree or injunction relating to the protection of the environment (including
air, water, soil and natural resources), or regulating or imposing standards of
care with respect to the use, storage, handling, release or disposal of any
Hazardous Substance, including petroleum.
As used herein, "Hazardous Substance" means any substance listed,
defined, designated, regulated or classified as hazardous, toxic or radioactive
under any applicable Environmental Law, including petroleum and petroleum
products.
SECTION 3.12 Tax Matters. Except to the extent disclosed in Section
3.12 of the Seller Disclosure Letter:
(a) The Company and each of its Subsidiaries (the Company and each
Subsidiary of the Company are hereinafter referred to collectively as the
"Taxpayers" or individually "Taxpayer") has (i) prepared in good faith and duly
and timely filed (or there have been filed on its behalf) with the appropriate
Tax authorities all Tax Returns required to be filed by it on or prior to the
date hereof, and such Tax Returns are true, complete, and correct in all
material respects, except to the extent that any failure to file any Tax Return
or any inaccuracies in filed Tax Returns would not, individually or in the
aggregate, have a Material Adverse Effect and (ii) paid in full all Taxes that
are shown as due on such filed Tax Returns except for Taxes provided for in a
reserve which is adequate for the payment of such Taxes and is reflected in the
financial statements included in the Company Reports filed prior to the date
hereof or the books and records of the Company. There is no audit or other
matter in controversy with respect to any Taxes due and owing by any Taxpayer,
and there is no Tax deficiency or claim assessed or, to the best of the
Taxpayer's Knowledge, proposed or threatened (whether orally or in writing)
against any Taxpayer, other than (x) in respect of any such audits,
controversies, deficiencies, assessments, or proposed assessments that are being
contested in good faith, for which adequate reserves have been established in
accordance with GAAP or (y) would not, individually or in the aggregate, have a
Material Adverse Effect. Section 3.12 of the Seller Disclosure Letter sets forth
any contested tax liability in respect of which the amount being contested
exceeds Ten Thousand Dollars ($10,000.00).
(b) None of the Taxpayers (i) has waived any statutory period of
limitations for the assessment of any Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency other than in the case of any
such waivers or extensions in respect of an assessment or deficiency, the Tax
liability of which has been satisfied or settled, (ii) has filed a consent under
Code Section 341(f) concerning collapsible corporation, or (iii) has any
liability for the Taxes of any other
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person as defined in Section 7701(a)(1) of the Code under Treas. Reg. ss.1.502-6
(or any similar provisions of state, local, or foreign law), as a transferee,
successor or by contract (other than liability for Taxes imposed by contract
entered into in the ordinary course of business for the acquisition by a
Taxpayer of assets used in the business of the Company or stock of any entity
holding any such assets used in the business of the Company), except to the
extent that any such waiver, consent, or liability referred to in clauses (i),
(ii) and (iii), respectively, of this Section 3.12(b) would not, individually or
in the aggregate, have a Material Adverse Effect;
(c) No claim has been made since January 1, 1994 by any authority in a
jurisdiction where the Taxpayer does not file Tax Returns that a Taxpayer is or
may be subject to taxation by that jurisdiction, other than in the case of any
such claims the liability of which has been satisfied or settled;
(d) None of the assets of a Taxpayer (i) are required to be treated as
being owned by any other person pursuant to the so-called safe harbor lease
provisions of former Section 168(f)(8) of the Code, (ii) secures any debt the
interest on which is tax-exempt under Code Section 103(a), or (iii) is
tax-exempt use property within the meaning of Code Section 168(h);
(e) None of the Taxpayers has agreed to nor is it required to make any
adjustment pursuant to Code Section 481(a) by reason of a change in accounting
method initiated by any such Taxpayer and no director or executive officer of
the Company has Knowledge that the IRS has proposed any such adjustment or
change in accounting method;
(f) None of the Taxpayers has requested an extension of the time within
which to file any foreign, federal or state Tax Return for which such Tax Return
has not been filed;
(g) None of the Taxpayers has any obligation under any Tax allocation
or sharing agreement among or between the Taxpayers and the Company or any
Affiliates thereof, and after the Second Closing Date, no Taxpayer shall be a
party to, bound by or have any obligation under any Tax allocation or sharing
agreement or have any liability thereunder among or between any Taxpayer and the
Company or any Affiliates thereof for amounts due in respect of periods prior to
the Closing Date; and
(h) As a result of the transactions contemplated by this Agreement and
the Other Agreements or the transactions contemplated hereby or thereby, none of
the Taxpayers will be obligated to make a payment that would be an "excess
parachute payment" to an individual that is currently a "dissatisfied
individual" with respect to the Company as those terms are defined in Section
2806 of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future.
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SECTION 3.13 Intellectual Property.
(a) Section 3.13(a) of the Seller Disclosure Letter lists all
Intellectual Property Rights (as defined below) of the Company and its
Subsidiaries. To the Knowledge of the Company, the Company and/or each of its
Subsidiaries owns all right, title and interest to, or has the right to use
pursuant to a valid license, as the case may be, all Intellectual Property
Rights used in the business of the Company and its Subsidiaries as presently
conducted. All registrations for Intellectual Property Rights owned by the
Company or any Subsidiary are valid and in force. Except as disclosed in Section
3.13(a) of the Seller Disclosure Letter, all applications for registrations of
Intellectual Property Rights filed by the Company or any Subsidiary are pending
and in good standing, all without challenge of any kind. To the Knowledge of the
Company, the Intellectual Property Rights owned by the Company or any of its
Subsidiaries are valid and enforceable. Except as set forth in Section 3.13(a)
of the Seller Disclosure Letter, the Company or its Subsidiaries have the sole
and exclusive right to bring actions for infringement, misappropriation or
unauthorized use of Owned Software (as defined below) and the Intellectual
Property Rights owned by the Company and its Subsidiaries, except for any rights
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect.
(b) Except as is disclosed in Section 3.13(b) of the Seller Disclosure
Letter:
(i) Neither the Company nor any of its Subsidiaries is, nor will
the Company or any of its Subsidiaries be, as a result of the
execution and delivery of this Agreement or the performance of
its obligations hereunder, in violation of any license,
sublicense, or other agreement as to which the Company or any
of its Subsidiaries is a party and pursuant to which the
Company or any of its Subsidiaries is authorized to use any
third-party Intellectual Property Rights or computer software
programs or applications;
(ii) To the Knowledge of the Company, there has been no
infringement, misappropriation, or violation of any
Intellectual Property Rights of any other person that has
occurred or results in any way from the operations of the
respective businesses of the Company or its Subsidiaries. No
claim of any infringement, misappropriation or violation of
any Intellectual Property Rights of any other person has been
made or asserted in respect of the operations of the
respective businesses of the Company or its Subsidiaries.
Neither the Company nor any of its Subsidiaries has had notice
of, nor do the executive officers of the Company have
Knowledge of any valid grounds for any bona fide claim against
the Company or its Subsidiaries that its Intellectual Property
Rights, operations, activities, products, software, equipment,
machinery or processes infringe, misappropriate or violate any
Intellectual Property Rights of any other person;
(iii) (A) The Company or its Subsidiaries has maintained and
protected the software that each owns, if any (the "Owned
Software") including, without
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limitation, all source code and system specifications
associated with such software, with such measures as are
reasonably necessary to protect the proprietary, trade secret
or confidential information contained therein; and (B) the
executive officers of the Company do not know of any
infringement, misappropriation or violation of any
Intellectual Property Rights of any other person with respect
to the Owned Software. Section 3.13(b) of the Seller
Disclosure Letter lists all Owned Software and the location of
the service codes for all Owned Software;
(iv) All employees, agents, consultants, or contractors who have
contributed to or participated in the creation or development
of inventions, discoveries, trade secrets, copyrightable
works, or ideas on behalf of the Company, any of its
Subsidiaries or any predecessor in interest thereto, if and
only if necessary to vest ownership rights in such material
with the Company and/or the Subsidiaries, either: (A) is a
party to a "work-for-hire" agreement under which the Company,
a Subsidiary (or such predecessor in interest, as applicable),
is deemed to be the original owner/author of all property
rights therein; or (B) has executed an assignment or an
agreement to assign in favor of the Company, or its Subsidiary
(or such predecessor in interest, as applicable), all right,
title and interest in such inventions, discoveries, trade
secrets, copyrightable works, or ideas.
(c) As used herein, the term "Intellectual Property Rights" shall mean:
(i) all United States and foreign patents, patent applications, continuations,
continuations-in-part, divisions, reissues, patent disclosures, extensions,
re-examinations, inventions (whether or not patentable) or improvements thereto;
(ii) all United States, state, foreign and common law trademarks, service marks,
domain names, logos, trade dress and trade names (including all assumed or
fictitious names under which the Company and each Subsidiary is conducting its
business or has within the previous five years conducted its business), whether
registered or unregistered, and pending applications to register the foregoing;
(iii) all United States and foreign copyrights, whether registered or
unregistered and pending applications to register the same; and (iv) all
confidential ideas, trade secrets, know-how, concepts, methods, processes,
formulae, reports, data, customer lists, mailing lists, business plans, or other
proprietary information.
SECTION 3.14 Brokers and Finders. Neither the Company nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with this Agreement or the other transactions contemplated by this Agreement.
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SECTION 3.15 Events Subsequent to Financial Statements. Except as set
forth in Section 3.15 of the Seller Disclosure Letter, since January 31, 1998,
there has not been:
(a) Any material adverse change in the consolidated financial
condition, results of operations, business or prospective sales (meaning the
aggregate current, open purchase orders) of the Company or any of its
Subsidiaries;
(b) Any sale, lease, conveyance, license or assignment of any material
assets, tangible or intangible, of the Company or any of its Subsidiaries, other
than sales of inventory in the ordinary course of business;
(c) Any damage, destruction or property loss in excess of Fifty
Thousand Dollars ($50,000.00), individually or in the aggregate, in each
instance not covered by insurance, affecting adversely the properties or
business of the Company or any of its Subsidiaries;
(d) Any declaration or setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of the Company or any
of its Subsidiaries or any redemption, purchase or other acquisition of any such
shares other than consummating the transactions contemplated and provided for in
this Agreement;
(e) Any mortgage or pledge of, or subjection to any lien, charge,
security interest or encumbrance of any kind on any of the assets, tangible or
intangible, of the Company or any of its Subsidiaries (other than liens arising
by operation of law which secure obligations which are not yet due and payable),
nor any incurrence of indebtedness or liability or assumption of obligations by
the Company or any of its Subsidiaries other than (i) those incurred in the
ordinary course of business, which would include any working capital loans
pursuant to the Company's credit line with Bank One, Sunrock and/or State Street
(ii) those which do not exceed Fifty Thousand Dollars ($50,000.00) in the
aggregate; and (iii) those incurred in the course of negotiating, documenting
and consummating the transactions contemplated and provided for in this
Agreement;
(f) Any cancellation or satisfaction by the Company or any of its
Subsidiaries of any debt or claim or advance, except for adjustments made in the
ordinary course of business, which in the aggregate, are not material other than
consummating the transactions contemplated or provided for in this Agreement;
(g) Any waiver or release other than the cancellation of open purchase
orders by customers, by the Company or any of its Subsidiaries of any right of
any material value in excess of Fifty Thousand Dollars ($50,000.00);
(h) Any sale, assignment, transfer or grant by the Company or any of
its Subsidiaries of any material rights under any concessions, leases, licenses,
agreements, patents, inventions, trademarks, trade name or copyrights other than
sales or gifts of products or advertising or other rights or releases thereof in
the ordinary course of business;
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(i) Any arrangement, agreement or undertaking entered into by the
Company or its Subsidiaries not terminable on thirty (30) days or less notice
without cost or liability (including, without limitation, any payment of or
promise to pay any bonus or special compensation or any increase in
compensation) with employees or any increase in compensation or benefits to
officers or directors of the Company or any of its Subsidiaries, other than in
the ordinary course of business or consummating the transactions contemplated or
provided for in this Agreement;
(j) Any change made or authorized in the articles of incorporation or
other charter documents or bylaws (or comparable governing instruments) of the
Company or any of its Subsidiaries other than those contemplated or provided for
in this Agreement;
(k) Any loan to or other transaction with any officer, director or
Shareholder of the Company or any of its Subsidiaries giving rise to any claim
or right of the Company or any of its Subsidiaries against any such person or of
such person against the Company or any of its Subsidiaries other than normal
recurring travel and expense advances and expense accounts made in the ordinary
course of business;
(l) Any acceleration, termination, modification or cancellation or
threat thereof by any party of any contract, lease or other agreement or
instrument, other than the cancellation or modification of open purchase orders
by customers or vendors of the Company, that individually or in the aggregate
involves in excess of Fifty Thousand Dollars ($50,000.00) to which the Company
or any of its Subsidiaries is a party or by which it is bound, which has had or
is reasonably likely to have a Material Adverse Effect on the properties or
business of the Company or any of its Subsidiaries;
(m) Any pledge or gift of any charitable or other capital contribution
outside the ordinary course of business;
(n) Any other transaction or commitment in excess of Fifty Thousand
Dollars ($50,000.00) or related transactions or commitments, other than the
modification or cancellation of open purchase orders by customers or vendors of
the Company, in the aggregate in excess of Fifty Thousand Dollars ($50,000.00)
entered into by the Company or any of its Subsidiaries which has had or is
reasonably likely to have a Material Adverse Effect on the properties or
business of the Company or any of its Subsidiaries, or other than those
contemplated or provided for in this Agreement; or
(o) Any termination, modification or cancellation of any booked open
purchase orders by any customer of the Company in excess of One Hundred Thousand
Dollars ($100,000.00) for any individual order or Two Hundred Fifty Thousand
Dollars ($250,000.00) in the aggregate by any single customer.
SECTION 3.16 Disclosure. The Company has made available to Buyer and
its officers, attorneys, accountants, and representatives true and correct
copies of all material agreements, documents, and other items listed in the
Seller Disclosure Letter and all books and records of the
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Company and its Subsidiaries, and neither this Agreement, the Seller Disclosure
Letter, nor any information, agreements, or documents delivered to or made
available to Buyer or its officers, attorneys, accountants, or representatives
pursuant to this Agreement, contain any untrue statements of a material fact or
omits to state any material fact necessary to make the statements made herein or
therein, as the case may be, not misleading.
SECTION 3.17 Real Property. Section 3.17 of the Seller Disclosure
Letter contains a complete and accurate list and brief description of all real
property owned or leased by the Company or its Subsidiaries. With respect to
each lease so set forth: (a) the lease has been validly executed and delivered
by the Company or its Subsidiaries, as applicable, and, to the Knowledge of the
Company, by the other party or parties thereto, and is in full force and effect;
(b) neither the Company nor its Subsidiary, as applicable, nor to the Knowledge
of the Company, any other party to the lease, is in material breach or default,
and no event has occurred on the part of the Company or its Subsidiaries, as
applicable or, to the Knowledge of the Company, on the part of any other party,
which, with notice or lapse of time, would constitute such a breach or default
or permit termination, modification or acceleration under the lease; (c) the
lease will continue to be binding in accordance with its terms following the
Initial Closing and the Second Closing and sale of the Shares to Buyer; (d)
neither the Company nor its Subsidiaries has repudiated and no other party to
the lease has repudiated, any provision thereof; (e) there are no written
notices of disputes, oral agreements or delayed payment programs in effect as to
the lease; and (f) all facilities leased thereunder have been approved by all
necessary Government Entities, and are in good condition, working order and
repair, ordinary wear and tear excepted.
SECTION 3.18 Tangible Property. Except as set forth in Section 3.18 of
the Seller Disclosure Letter, each of the Company and its Subsidiaries has good
and legal title to, or a valid leasehold interest in, each item of tangible
property, whether real, personal or mixed, reflected on its books and records as
owned or used by it, subject to no encumbrances, loans, security interests,
mortgages or pledges except those which arise by matter of law or in the
ordinary course of business, or which are inventory sold subsequent to the date
of entry on the books and which sales are not entered in the books of the
Company or its Subsidiaries on the date of this Agreement or the Second Closing
Date, or which are set forth in Section 3.18 of the Seller Disclosure Letter.
SECTION 3.19 Contracts. Section 3.19 of the Seller Disclosure Letter
lists the following contracts and written arrangements under which the Company
or any other person has continuing obligations or benefits, true and complete
copies of which have been delivered to Buyer, to which the Company or any of the
Subsidiaries is a party.
(a) Any contract for the lease of personal property from or to third
parties providing for lease payments in excess of Twenty-Five Thousand Dollars
($25,000.00) per annum;
(b) Any contract for the purchase or sale of raw materials,
commodities, supplies, products manufactured by the Company or any of its
Subsidiaries or other personal property or for the furnishing or receipt of
goods or services which contract calls for performance over a period of
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more than one year and/or which involves more than the sum of Fifty Thousand
Dollars ($50,000.00);
(c) Any partnership or foreign joint venture agreement;
(d) Any agreement or instrument under which the Company or any of its
Subsidiaries is or may become indebted for borrowed money in an amount
individually or in the aggregate in excess of Fifty Thousand Dollars
($50,000.00);
(e) Any employment agreement and any non-competition agreement.
Except as otherwise described in Section 3.19 of the Seller Disclosure
Letter, all material contracts and arrangements listed in Section 3.19 of the
Seller Disclosure Letter are valid and binding agreements and are in full force
and effect as to the Company and its Subsidiaries. Neither the Company nor any
of its Subsidiaries is, and no other party is in material breach or default, and
no event has occurred on the part of the Company or any of its Subsidiaries, or,
to the Company's Knowledge, on the part of any other party to any such contract
or arrangement, which with notice or lapse of time would constitute a material
breach or default or permit termination under any such contract or arrangement.
Except as set forth in Section 3.19 of the Seller Disclosure Letter, none of
such contracts or arrangements will be terminated or modified by the execution
and delivery of this Agreement, the Other Agreements, or the consummation of the
transactions contemplated hereby or thereby, nor will any of such actions result
in or constitute a breach or default under any such contracts or arrangements.
Neither the Company nor any of its Subsidiaries is a party to any verbal
contract or arrangement which, if reduced to written form, would be required to
be listed in Section 3.19 of the Seller Disclosure Letter under the terms of
this Section 3.19 other than with its representatives and vendors which are set
out in Section 3.19 of the Seller Disclosure Letter.
SECTION 3.20 Suppliers and Customers. Section 3.20 of the Seller
Disclosure Letter is a true and complete list of all suppliers of the Company
and each of the Subsidiaries to whom the Company or any of its Subsidiaries made
payments during the fiscal year ended January 31, 1999, in excess of five
percent (5%) of the Company's and the Subsidiaries' consolidated cost of goods
sold as reflected in the 1998 Financial Statements (as defined in Section
1.3(a)(i)) and all customers of the Company and each of the Subsidiaries that
paid the Company or the Subsidiary, during the fiscal year ended January 31,
1999, more than five percent (5%) of the consolidated revenues of the Company
and the Subsidiaries as reflected in the 1998 Financial Statements. Since
January 31, 1998, and until ten (10) days prior to the Second Closing Date, no
such supplier of the Company or any of the Subsidiaries has, or has indicated
that it will, stop, or decrease materially the rate of, supplying materials,
products or services to the Company or the Subsidiary, as the case may be, and
no such customer of the Company or the Subsidiaries has materially decreased or
ceased business with the Company or the Subsidiary, as the case may be, or has
indicated that it will materially decrease or cease doing business with the
Company or the Subsidiary.
SECTION 3.21 Accounts Receivable. To the Company's Knowledge, as of the
date of this Agreement, there are and as of the Second Closing Date to the
extent included in Section 3.21 of the
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Seller Disclosure Letter, there will be, properly reflected on their respective
books and records, all notes receivable and accounts receivable of the Company
and the Subsidiaries, each of which are and will be valid receivables subject to
no known setoffs or counterclaims other than normal and routine discounts,
▇▇▇▇-▇▇▇▇▇, returns of defective goods, doubtful accounts, credits and exchanges
of products and warranty claims, all of which are and will be consistent with
past practice. To the Company's Knowledge, except as set forth in Section 3.21
of the Seller Disclosure Letter, or except normal and routine discounts,
▇▇▇▇-▇▇▇▇▇, returns of defective goods, doubtful accounts, credits and exchanges
of products and warranty claims, all of which are and will be consistent with
past practice, all such receivables are collectable in the ordinary course of
business for the Company. Section 3.21 of the Seller Disclosure Letter is a
complete list of all notes receivable and accounts receivable of the Company and
its Subsidiaries as of March 31, 1999.
SECTION 3.22 Powers of Attorney. Except as set forth in Section 3.22 of
the Seller Disclosure Letter, other than for patent applications, trademark
applications and customs brokerage agreements and in security agreements for
current loans of the Company and its Subsidiaries, there are no outstanding
powers of attorney or similar instruments executed by the Company or any of the
Subsidiaries.
SECTION 3.23 Condition of Property. Each building, fixture, machine and
piece of equipment (having a net book value of Five Thousand Dollars ($5,000.00)
or more), owned or used by the Company or any of its Subsidiaries is listed in
Section 3.23 of the Seller Disclosure Letter and is in good operating condition
and repair (ordinary wear and tear excepted), and is in compliance with all
zoning, building and fire codes, except for such instances of noncompliance that
would not have or be reasonably likely to have a Material Adverse Effect. The
Company or its Subsidiaries owns and has good and legal title to, or leases
under leases which are valid and under which the Company or its Subsidiaries, or
to the Knowledge of the Company any other party thereto, are not currently in
default, all buildings, machinery, equipment and other tangible assets used in
the conduct of the Company's or such Subsidiary's business as presently
conducted, reflected in the most recent Financial Statements, and, except as set
forth in Section 3.23 of the Seller Disclosure Letter, are free and clear of all
liens, claims and encumbrances.
SECTION 3.24 Insurance. The Company and its Subsidiaries are insured
under the policies listed in Section 3.24 of the Seller Disclosure Letter. All
such policies have been in full force and effect since January 31, 1998, are in
full force and effect as of the date hereof, and will remain so through the
Second Closing Date.
SECTION 3.25 Guarantees. Except as set forth in Section 3.25 of the
Seller Disclosure Letter, neither the Company nor any of its Subsidiaries is a
guarantor or otherwise liable for any indebtedness of any other person, firm or
corporation other than endorsements for collection in the ordinary course of
business and for its Subsidiaries.
SECTION 3.26 Certain Business Relationships. Except as set forth in
Section 3.26 of the Seller Disclosure Letter, none of the present or former
directors, officers or employees of the
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Company or any of its Subsidiaries, or to the Company's Knowledge any present or
former Shareholders, owns, directly or indirectly, any interest in any business,
corporation or other entity (other than investments in publicly held companies)
which, on the date hereof or within the past twelve (12) months, has been
involved in any manner in any material business arrangement or relationship with
the Company or any of its Subsidiaries, and none of the foregoing persons owns
any property or rights, tangible or intangible, which are used in the business
of the Company or any of its Subsidiaries.
SECTION 3.27 Inventory. To the Company's Knowledge, the inventory of
the Company and its Subsidiaries (the "Inventory") as of the date of this
Agreement and as of the Second Closing Date does and will consist of goods which
are merchantable and fit for the purposes for which they were procured, and, to
the Company's Knowledge, the allowance for slow-moving, obsolete, damaged or
defective inventory reflected in the Financial Statements as of January 31,
1999, is adequate. To the Company's Knowledge, Section 3.27 of the Seller
Disclosure Letter contains a complete listing of the Inventory as of March 31,
1999, and the Company will deliver to Buyer an updated list of the Inventory as
of the Second Closing Date as of a date no sooner than three (3) calendar days
prior to the Second Closing Date.
SECTION 3.28 Questionable Payments. Neither the Company nor any of its
Subsidiaries has directly or indirectly (i) used corporate funds for unlawful
contributions, gifts, entertainment, or for other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (iii) violated or is in violation of any
provision or the Foreign Corrupt Practices Act of 1977 applicable to the conduct
of their business, or (iv) established or maintained any unlawful or unrecorded
fund of corporate monies or other assets.
SECTION 3.29 Opinion of Financial Advisor. The Company has delivered to
Buyer a copy of the opinion of Chaffe and Associates, Inc., dated the date
hereof, a copy of which opinion is attached hereto as Exhibit 3.29. The Company
has been authorized by Chaffe and Associates, Inc. to permit inclusion of such
opinion (and references thereto) in the Offer Documents, the Schedule 14D-9, and
the Proxy Statement.
SECTION 3.30 Information. None of the information provided or that may
be provided by the Company for use in the Schedule 14D-1, the Offer Documents,
or any other documents to be filed with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement, and none of
the Proxy Statement, the Schedule 14D-9, or the statement required to be filed
pursuant to Section 2.5(b) hereof, shall, at the time filed with the SEC or such
other Governmental Entity, and, in the case of the Proxy Statement, at the time
mailed to the Company's Shareholders, or at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information provided or that may be provided by
Buyer specifically for use in such documents. The Schedule 14D-9, the Proxy
Statement and the statement to be filed pursuant to
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Section 2.5(b) hereof will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants the Company as follows:
SECTION 4.1 Organization, Qualification, Etc. Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the state of California and has the power and authority to own and
operate its properties and assets and to carry on its business as it is now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect or prevent or
materially delay the consummation of the Offer.
SECTION 4.2 Authority Relative to this Agreement: No Violation. Buyer
has the power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary and appropriate action of Buyer. This Agreement has
been duly and validly executed and delivered by Buyer and, assuming this
Agreement has been duly and validly executed and delivered by the Company, this
Agreement constitutes a valid and binding agreement of Buyer, enforceable
against it in accordance with its terms (except insofar as enforceability may be
limited by the Bankruptcy Exception.
SECTION 4.3 Investigations: Litigation. Except as set forth in Section
4.3 of the disclosure letter delivered by the Company by Buyer on or prior to
entering into this Agreement and incorporated by reference herein (the "Buyer
Disclosure Letter"), there are no civil, criminal or administrative actions,
suits, claims, hearings, investigations or proceedings pending or, to the
Knowledge of Buyer, threatened against, Buyer or any current or former directors
or officers of Buyer or any of its Subsidiaries (in their capacities as such)
that, individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on, prevent, or impair the ability of Buyer to consummate the
transactions contemplated by this Agreement, including, without limitation, the
consummation of the Offer.
SECTION 4.4 Financing. Buyer will have available to it, at the time
required, the funds necessary to consummate the Offer, and the purchase of the
Initial Funding Shares and the Second Funding Shares.
SECTION 4.5 Information. None of the information provided or that may
be provided by Buyer for use in the Proxy Statement, the Schedule 14D-9, the
statement required to be filed
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pursuant to Section 2.5(b) hereof, or any other documents to be filed with the
SEC or any other Governmental Entity in connection with the transactions
contemplated by this Agreement, and the Schedule 14D-1, shall not, at the time
filed with the SEC, and in the case of the Proxy Statement, at the time mailed
to the Shareholders or the date of the Shareholders Meeting, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Buyer makes no representation or warranty with respect to any
information provided or that may be provided by the Company specifically for use
in such documents. The Schedule 14D-1 will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.6 Investment Representation. Buyer is acquiring the Initial
Funding Shares and the Second Funding Shares for its own account for investment
and not with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof, except (i) in an offering covered by a
registration statement filed with the SEC under the Securities Act covering such
Shares or (ii) pursuant to an applicable exemption under the Securities Act. In
acquiring the Initial Funding Shares and the Second Funding Shares, Buyer is not
offering or selling, and will not offer or sell, for the Company in connection
with any distribution of the Initial Funding Shares and the Second Funding
Shares, and Buyer does not have a participation and will not participate in any
such undertaking or in any underwriting of such an undertaking except in
compliance with applicable federal and state securities laws.
SECTION 4.7 Disclosure of Information. Buyer acknowledges that it or
its representatives have been furnished with substantially the same kind of
information regarding the Company and its business, assets, results of
operation, and financial condition as would be contained in a registration
statement prepared in connection with a public sale of the Initial Funding
Shares and the Second Funding Shares. Buyer further represents that it has had
an opportunity to ask questions of and receive answers from the Company
regarding the Company and its business, assets, results of operation, and
financial condition and the terms and conditions of the issuance of the Initial
Funding Shares and the Second Funding Shares.
SECTION 4.8 Investment Experience. Buyer acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Initial
Funding Shares and the Second Funding Shares, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Initial Funding Shares and the
Second Funding Shares. Buyer is an "accredited investor" as such term is defined
in Regulation D under the Securities Act.
SECTION 4.9 Restricted Securities. Buyer understands that the Initial
Funding Shares and the Second Funding Shares have not been registered pursuant
to the Securities Act or any applicable state securities laws, that the Initial
Funding Shares and the Second Funding Shares will be characterized as
"restricted securities" under federal securities laws, and that under such laws
and applicable regulations the Initial Funding Shares and the Second Funding
Shares cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom. In
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this connection, Buyer represents that it is familiar with Rule 144 promulgated
under the Securities Act, as currently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. Stop transfer
instructions may be issued to the transfer agent for securities of the Company
(or a notation may be made in the appropriate records of the Company) in
connection with the Initial Funding Shares and the Second Funding Shares.
SECTION 4.10 Legend. It is agreed and understood by Buyer that the
certificates representing the Initial Funding Shares and the Second Funding
Shares shall each conspicuously set forth on the face or back thereof, in
addition to any legends required by applicable law or other agreement, a legend
in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
SECTION 4.11 Brokerage Fees. Neither Buyer nor any of its Affiliates
has retained any financial advisor, broker, agent, or finder or paid or agreed
to pay any financial advisor, broker, agent, or finder on account of this
Agreement or any transaction contemplated hereby except that Gerard, Klauer,
▇▇▇▇▇▇▇▇ & Co., Inc.("GKM") has been retained as Buyer's financial advisor in
connection with the transactions contemplated hereby and Buyer may retain
additional advisors, brokers or agents as it may determine. Buyer shall
indemnify and hold harmless the Company from and against any and all losses,
claims, damages, and liabilities (including legal and other expenses reasonably
incurred in connection with investigating or defending any claims or actions)
with respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person on
the basis of any act or statement made or alleged to have been made by Buyer or
any of its Affiliates, including the fee of GKM.
ARTICLE V
COVENANTS
SECTION 5.1 Interim Operations. The Company covenants and agrees as to
itself and each of its Subsidiaries that, through the Second Closing Date
(unless Buyer shall otherwise approve, and except as otherwise expressly
contemplated by this Agreement):
(a) The business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries shall use all commercially reasonable efforts to preserve its
business organization intact and maintain its existing relations and
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goodwill with customers, suppliers, distributors, creditors, lessors, employees
and business associates;
(b) Neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any capital stock owned by it or any of its
Subsidiaries in any of its Subsidiaries or other Affiliates, except pursuant to
the exercise of existing Company Options or warrants disclosed to Buyer pursuant
to Section 3.2 hereof in accordance with their terms; (ii) amend its articles of
incorporation or by-laws (or comparable organizational documents); (iii) split,
combine or reclassify its outstanding shares of capital stock; (iv) declare, set
aside or pay any dividend payable in cash, stock or property in respect of any
capital stock other than dividends from its direct or indirect wholly-owned
Subsidiaries; or (v) repurchase, redeem or otherwise acquire, except in
connection with the payment of the exercise price of any option outstanding on
the date hereof under the Stock Plan, or permit any of its Subsidiaries to
purchase or otherwise acquire, any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its capital
stock;
(c) Neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets (other than shares issuable pursuant to options
outstanding on the date hereof under the Stock Plan or warrants outstanding on
the date hereof as described in Section 3.2 of the Seller Disclosure Letter);
(ii) purchase, transfer, lease, sell, mortgage, pledge, dispose of or encumber
any real property, or effect any improvements or expansions thereon; (iii) other
than in the ordinary and usual course of business, purchase, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any other
property or assets (including capital stock of any of its Subsidiaries) or incur
or modify any material indebtedness or other liability; (iv) make or authorize
or commit for any capital expenditure(s) in excess of $25,000; (v) make draws
against the Company's credit facility with Sunrock other than in the ordinary
course of business, provided however that after such time that the Company's
draws against such credit facility equal or exceed five million dollars
($5,000,000) in the aggregate, any additional draws against such credit
facility, whether in the ordinary course of business or otherwise, may not be
made without the prior approval of Buyer, which approval shall not be
unreasonably delayed or denied; or (vi) by any means, make any acquisition of,
or investment in any business, whether through the acquisition of assets or
stock of any other Person;
(d) Except as may be required by applicable law, and except as provided
in Section 5.8, neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Compensation and Benefit Plans or increase the salary,
wage, bonus, severance, incentive or other compensation of any employees,
officers or directors;
(e) Neither it nor any of its Subsidiaries shall settle or compromise
any claims or litigation or, except in the ordinary and usual course of business
consistent with past practice, enter into any Debt Contracts or Other Contracts,
or modify, amend or terminate prior to the scheduled
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expiration thereof any of its Debt Contracts or Other Contracts or waive,
release or assign any material rights or claims;
(f) Neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable payee
to be amended or canceled;
(g) Neither it nor any of its Subsidiaries shall take any action, other
than reasonable and usual actions in the ordinary and usual course of business
consistent with past practice, with respect to accounting policies or
procedures;
(h) Neither it nor any of its Subsidiaries shall sell, transfer, assign
or abandon any patents, trademarks or licenses which are owned or controlled
directly or indirectly by the Company or any of its Subsidiaries except in the
ordinary and usual course of business consistent with past practice;
(i) Neither it nor any of its Subsidiaries shall license or otherwise
encumber any patents or trademarks which are owned or controlled directly or
indirectly by the Company or any of its Subsidiaries, except in the ordinary and
usual course of business;
(j) Neither it nor any of its Subsidiaries shall make any modification
to employee or customer incentives or trade policies which would reasonably be
expected to cause the Company's distributors or end-user customers to increase
purchases above those levels normally required to meet their respective needs or
cause a material increase or decrease in the Company's inventories or Working
Capital; and
(k) Neither it nor any of its Subsidiaries shall authorize or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
SECTION 5.2 Acquisition Proposals. From and after the date hereof, the
Company shall not, and it shall use its best efforts to not permit any of its
directors, officers, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Takeover Proposal (as hereinafter defined) from any Person
other than Buyer, or engage in or continue discussions or negotiations relating
to any Takeover Proposal; provided, however, that the Company may engage in
discussions or negotiations with, and furnish information to, any Person that
makes a written Takeover Proposal in respect of which the Board of Directors of
the Company concludes in good faith if consummated would constitute a Superior
Proposal (as hereinafter defined), but only if the Board of Directors of the
Company shall conclude in good faith on the basis of the advice of its outside
counsel that the failure to take such action would be inconsistent with the
fiduciary obligations of such Board of Directors under applicable law; and
provided further that notwithstanding anything to the contrary herein contained,
the Board of Directors of the Company may take and disclose to the Shareholders
a position contemplated by Rule 14e-2 promulgated under the Exchange Act, comply
with Rule 14d-9 thereunder and make all disclosures required by applicable law
in connection therewith. The Company shall as soon as practicable and in any
event
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no later than the date on which such Takeover Proposal is presented to the
Company's Board of Directors notify Buyer of any Takeover Proposal received by
it or any of its directors, officers, employees, attorneys, financial advisors,
agents or other representatives or those of any of its Subsidiaries or the
receipt by the Company or any of the foregoing of any notice of any intention to
make a Takeover Proposal, including the identity of the person making such
Takeover Proposal or intending to make a Takeover Proposal and the material
terms of any such Takeover Proposal. As used in this Agreement: (i) "Takeover
Proposal" means any bona fide proposal or offer (other than a proposal or offer
by Buyer or any of its Affiliates), or any expression of interest by any Person
relating to any actual or potential merger, consolidation or other business
combination involving the Company or any of its Subsidiaries or any acquisition
in any manner (including, without limitation, by tender or exchange offer) of a
substantial equity interest in, or a substantial portion of the assets of, the
Company or any of its Subsidiaries (each being a "Material Corporate
Transaction"); and (ii) "Superior Proposal" means a bona fide proposal or offer
made by any Person concerning a Material Corporate Transaction, in each case on
terms which a majority of the members of the Board of Directors of the Company
determines in good faith, and based on the advice of outside counsel, to be more
favorable to the Company and its Shareholders than the transactions contemplated
hereby (including any revised transaction proposed by Buyer pursuant to Section
7.1(g)). During the period from the date of this Agreement through the Second
Closing Date, the Company shall not terminate, amend, modify or waive any
provision of any standstill agreement to which it or any of its Subsidiaries is
a party. During such period, the Company shall enforce, to the fullest extent
permitted under applicable law, but subject to the exercise by the Board of
Directors of the Company of their fiduciary obligations after consultation with
outside counsel, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court of the
United States of America or of any state having jurisdiction.
SECTION 5.3 Information Supplied. The Company and Buyer each agrees, as
to itself and its Subsidiaries, that none of the information supplied or to be
supplied by it or its Subsidiaries for inclusion or incorporation by reference
in (i) the Schedule 14D-1, the Offer Documents, the Schedule 14D-9, the Proxy
Statement, the statement required to be filed pursuant to Section 2.5(b) hereof,
or any other documents to be filed with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement will, at the
time filed with the SEC, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) the Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to the Shareholders and at the
time of the meeting of Shareholders to be held in connection with this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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SECTION 5.4 Company Action. In order to consummate the transactions
contemplated hereby, the Company will, in accordance with applicable law and its
articles of incorporation and bylaws:
(a) hold a special meeting of the Shareholders (the "Shareholders
Meeting") as soon as practicable following the date of this Agreement for the
purpose of: (i) approving the sale of the Second Funding Shares by the Company
to Buyer as contemplated herein and (ii) adopting and approving this Agreement
and the Articles of Amendment;
(b) as promptly as practicable after the date of this Agreement, (i)
file with the SEC a proxy statement (the "Proxy Statement") and other proxy
soliciting materials relating to the Shareholders Meeting, (ii) respond promptly
to any comments made by the SEC with respect to the Proxy Statement or other
proxy soliciting materials, (iii) cause the Proxy Statement to be mailed to the
Shareholders at the earliest practicable time after the date of this Agreement,
and (iv) in all other respects use its best efforts to cause the Shareholders to
approve the sale of the Second Funding Shares by the Company to Buyer, and
approve and adopt this Agreement and the Articles of Amendment; and
(c) include in the Proxy Statement, the recommendation of the Board
that the Shareholders of the Company vote in favor of the sale of the Second
Funding Shares by the Company to Buyer and adopt and approve this Agreement and
the Articles of Amendment; provided, however, the Company's Board of Directors
shall not be required to make, and shall be entitled to withdraw, any such
recommendation (and cease such solicitation) if such Board concludes in good
faith on the basis of the advice of its outside counsel that the making of, or
the failure to withdraw, such recommendation would violate the fiduciary
obligations of such Board under applicable law.
Buyer and its counsel shall be given reasonable opportunity to review and
comment upon the Proxy Statement prior to its filing with the SEC or
dissemination to Shareholders of the Company. The Company agrees to provide
Buyer and its counsel any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Proxy Statement promptly after the
receipt of such comments.
SECTION 5.5 Filings; Other Actions; Notification.
(a) The Company shall use its best efforts to obtain all necessary
state securities law or "blue sky" permits and approvals, if any, required in
connection with the sale of the Initial Funding Shares and the Second Funding
Shares to Buyer and to consummate the other transactions contemplated by this
Agreement and will pay all expenses incident thereto;
(b) The Company and Buyer shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective best efforts
to take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the transactions contemplated by this
Agreement as soon as practicable, including preparing and filing as promptly as
practicable
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all documentation to effect all necessary notices, reports and other filings,
responding promptly to any requests for further information and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the transactions contemplated by
this Agreement as promptly as practicable. Subject to applicable laws relating
to the exchange of information, Buyer and the Company shall have the right to
review in advance, and each will consult the other on, all the information
relating to Buyer or the Company, as the case may be, and any of their
respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party, the SEC and/or any other Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Company and Buyer shall act
reasonably and as promptly as practicable;
(c) The Company and Buyer each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and Shareholders and such other matters as may be reasonably
necessary or advisable in connection with the Schedule 14D-1, the Offer
Documents, the Schedule 14D-9, the Proxy Statement, the statement required to be
filed pursuant to Section 2.5(b) hereof or any other statement, filing, notice
or application made by or on behalf of Buyer, the Company or any of their
respective Subsidiaries to any third party, the SEC and/or any other
Governmental Entity in connection with the transactions contemplated by this
Agreement;
(d) The Company and Buyer each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notice or other
communications received by Buyer or the Company, as the case may be, or any of
its Subsidiaries, from any third party, the SEC, and/or any other Governmental
Entity with respect to the transactions contemplated by this Agreement;
(e) Without limiting the generality of the undertakings pursuant to
this Section 5.5, (i) the Company and Buyer agree to provide promptly to any and
all federal, state, local or foreign court or Government Entity with
jurisdiction over enforcement of any applicable antitrust laws ("Government
Antitrust Entity") information and documents requested by any Government
Antitrust Entity or necessary, proper or advisable to permit consummation of the
transactions contemplated by this Agreement; and (ii) in connection with any
filing or submission or other action required to be made or taken by either
Buyer or the Company to effect the transactions contemplated hereby or thereby,
the Company shall not, without Buyer's prior written consent, commit to any
divestiture transaction, and, neither Buyer nor any of its Affiliates shall be
required to divest or hold separate or otherwise take or commit to take any
action that limits its freedom of action with respect to, or its ability to
retain, the Company or any portions thereof or any of the business, product
lines, properties or assets of Buyer or any of its Affiliates.
SECTION 5.6 Access. Upon reasonable notice, and except as may otherwise
be required by applicable law, the Company shall (and shall cause its
Subsidiaries to) afford Buyer's officers, employees, counsel, accountants and
other authorized representatives ("Representatives") access, during normal
business hours throughout the period prior to the Second Closing Date, to its
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properties, books, contracts and records (including its audit work papers and
related documents) and, during such period, shall (and shall cause its
Subsidiaries to) furnish promptly to Buyer all information concerning its
business, properties and personnel as may reasonably be requested, provided that
no investigation pursuant to this Section 5.6 shall affect or be deemed to
modify any representation or warranty made by the Company, and provided,
further, that the foregoing shall not require the Company to permit any
inspection, or to disclose any information, that in the reasonable judgment of
the Company, would result in the disclosure of any trade secrets of it or third
parties or violate any of its obligations with respect to confidentiality if the
Company shall have used reasonable efforts to obtain the consent of such third
party to such inspection or disclosure. All requests for information made
pursuant to this Section 5.6 shall be directed to an executive officer of the
Company or such Person as may be designated by its officers. Buyer and the
Company shall each designate two representatives to meet (either in person or by
conference telephone), on a semi-monthly basis to discuss the Company's capital
expenditures, inventory management, sales promotions, distribution arrangements,
construction projects, group purchasing organization contracts, other material
contracts, patents, licenses and such other business matters concerning the
Company's operations as are desired. All such information supplied hereunder
shall be governed by the terms of that certain Confidentiality Agreement between
the Company and E. ▇▇▇▇▇▇ ▇▇▇▇▇▇.
SECTION 5.7 Publicity. The initial press releases by Buyer and the
Company concerning this Agreement and the transactions contemplated hereby shall
be mutually agreed as to content prior to thereafter the Company and Buyer shall
consult with each other prior to issuing any press releases or otherwise making
public announcements with respect to the transactions contemplated by this
Agreement and prior to making any filings with any third party, the SEC and/or
any other Governmental Entity (including any national securities exchange) with
respect thereto, except as may be required by law or by obligations pursuant to
any listing agreement with or rules of any national securities exchange or
NASDAQ.
SECTION 5.8 Employee Benefits. For a period of one (1) year immediately
following the Second Closing, Buyer agrees to cause the Company to provide to
all active employees of the Company as of the Second Closing who continue to be
employed by the Company coverage under group medical, group dental, 401(k)
savings, disability insurance, life insurance, accidental death and disability,
and vacation plans or arrangements which are, in the aggregate, substantially
similar to the plans providing such benefits to the employees immediately prior
to the Second Closing Date.
SECTION 5.9 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.9, whether or not
the transactions contemplated by this Agreement shall be consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, the fees and disbursements
of counsel, financial advisors, accountants, actuaries and consultants, shall be
paid by the party incurring such costs and expenses, provided that: (i) all
expenses incurred in connection with the filing fees and the printing and
mailing costs of the Schedule 14D-1, the Offer Documents, the Schedule 14D-9,
the Proxy Statement, and the statement required by Section 2.5(a) hereof shall
be shared equally by Buyer and the Company, and (ii) all
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filing fees and other costs incurred by any of the parties hereto in connection
with the HSR Act, if any, shall be borne by the Company.
(b) Notwithstanding any provisions in this Agreement to the contrary,
if the Agreement is terminated in accordance with Sections 7.1(g) or 7.1(h), the
Company shall pay Buyer $1 million simultaneously with accepting such proposal.
Nothing contained in this Section 5.9 shall be deemed to limit any
remedies available to any party for any breach of this Agreement by any other
party which such remedies shall be in addition to any amounts received by any
party pursuant to this Section 5.9; provided, however, that, with respect to any
breach by the Company of the provisions of Section 5.2 that is not the result of
bad faith on the part of the Company, Buyer's exclusive remedy in respect of
such breach shall be limited to the $1 million, and the Company shall have no
other liability to Buyer in respect of such breach.
SECTION 5.10 Takeover Statute. If any Takeover Statute is or may become
applicable to the transactions contemplated by this Agreement, then each of
Buyer and the Company and its Board of Directors, subject to applicable law,
shall grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
SECTION 5.11 Notification of Certain Matters. Buyer, shall give prompt
notice to the Company, and the Company shall give prompt notice to Buyer, of:
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would cause (A) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
or (B) any covenant, condition or agreement contained in this Agreement not to
be complied with or satisfied in any material respect; and (ii) any failure of
Buyer or the Company, as the case may be, to comply with any covenant or
agreement to be complied with by it hereunder in any material respect; provided,
however, that the delivery of any notice pursuant to this Section 5.11 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.12 Phase I Environmental Audit. Buyer may obtain at its own
expense, as soon as practicable, but in any event within thirty (30) days of the
date of this Agreement, Phase I reports pursuant to ASTM Standard E 1527-97 or
other standard environmental assessments (the "Environmental Reports") with
respect to any properties owned or leased by the Company from and environmental
engineering firm selected by Buyer. Buyer acknowledges and agrees that the
Company leases all its real property and, as a result, Buyer's ability to obtain
such Environmental Reports may be limited. If Buyer elects to obtain such
Environmental Reports, Buyer shall, promptly (but in no event later than five
(5) business days) after receipt thereof, provide a copy of such Environmental
Reports to the Company.
SECTION 5.13 Shareholder Claims. The Company shall not agree to, cause
or permit the settlement or compromise of any claim brought by any present,
former or purported holder of any
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securities of the Company prior to the Second Closing Date without prior written
consent of Buyer, which shall not be unreasonably withheld.
SECTION 5.14 Notice of Changes. The Company shall inform Buyer in
writing within five (5) days of any change, or prior to the Second Closing Date
if less than five (5) days prior to the Second Closing, which occurs or is
threatened (or if any development occurs or is threatened involving a
prospective change) in the financial condition, results of operations, business,
or prospective sales that has or may reasonably be expected to have a Material
Adverse Effect on the financial condition, results of operations, business or
prospective sales of the Company; provided, however, that the delivery of any
notice pursuant to this Section 5.14 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 5.15 Shareholders' and Voting Agreement. As a condition to the
Company's and Buyer's willingness to enter into this Agreement, the Company and
Buyer have entered into that certain Shareholders' and Voting Agreement by and
among the Company, Buyer and the DSI Group, in the form attached hereto as
Exhibit 5.15.
SECTION 5.16 Registration Rights Agreement. As a condition to Buyer's
willingness to enter into this Agreement, Buyer has entered into that certain
Registration Rights Agreement by and among Buyer, the Company, and the DSI Group
in the form attached hereto as Exhibit 5.16.
SECTION 5.17 Consulting Agreement. On or promptly following the Second
Closing, the Company and M. D. ▇▇▇▇▇ ("▇▇▇▇▇") will enter into a Consulting
Agreement (the "Consulting Agreement") in the form attached hereto as Exhibit
5.17.
SECTION 5.18 Side Letter Agreements. On or prior to the Second Closing
Date, each of the members of the DSI Group will execute a Side Letter Agreement
in the form attached hereto as Exhibit 5.18.
SECTION 5.19 Indemnification Arrangements. Buyer agrees that for the
period from the Second Closing Date until three (3) years after the Second
Closing Date Buyer shall use its best efforts (i) to cause the Company and its
Subsidiaries to maintain in effect without any reduction in scope or coverage
indemnification provisions for present and former directors, officers, employees
and agents of the Company and its Subsidiaries that are at least as favorable to
all such persons as those contained in the Company's Articles of Incorporation
and Bylaws in effect as of the date hereof; (ii) if available on commercially
reasonable terms, to cause the Company to maintain its current levels of errors
and omissions insurance coverage for its directors and officers in effect as of
the date hereof; and (iii) prevent the Company from unlawfully transferring
assets of the Company that would otherwise be available for the lawful indemnity
claims of the Company's then current and former directors, officers, employees
and agents; provided, however, nothing contained herein shall prevent or
preclude Buyer from causing or permitting the Company to enter into a
commercially reasonable transaction with a third party for the sale of all or
substantially all of the Company's assets or that involves the merger or
consolidation of the Company with another entity; and provided
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further that Buyer shall not be required to take any action that prevents Buyer
or any of Buyer's officers, directors or members from exercising any fiduciary
obligation they may have to the Company.
SECTION 5.20 ▇▇▇▇ Estate. On or before June 30, 1999, the Company and
the DSI Group shall have consummated a transaction with all necessary parties to
resolve any disputes with the ▇▇▇▇ Estate substantially similar to the terms and
conditions of the proposed agreement(s) identified in Section 5.20 of the Seller
Disclosure Letter (the "▇▇▇▇ Agreements"). If the Company and all additional
parties shall not have consummated the transactions contemplated by the ▇▇▇▇
Agreements on or before June 30, 1999, then the Company shall issue to Buyer on
the Second Closing Date (or on July 1, 1999, if the Second Closing Date occurs
prior to June 30, 1999), one hundred thousand (100,000) additional Shares (the
"▇▇▇▇ Default Shares"), for no additional consideration.
SECTION 5.21 Sunrock Agreements. There shall not occur a default or
breach, nor shall there occur any fact or circumstance, which with notice or
lapse of time would constitute a breach or default or permit termination of any
contract, loan or agreement of any type with Sunrock.
SECTION 5.22 Use of Proceeds. Immediately upon the consummation of the
Initial Closing, the Company shall apply all of the proceeds of the Initial
Funding Shares Purchase Price to the reduction of the Company's indebtedness to
Sunrock.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Sale of
the Second Funding Shares. The respective obligation of each party to effect the
sale of the Second Funding Shares from the Company to Buyer is subject to the
satisfaction or waiver at or prior to the Second Closing Date of each of the
following conditions:
(a) Shareholder Approval. This Agreement and all transactions
contemplated herein shall have been duly approved by the Shareholders in
accordance with all applicable law and the articles of incorporation and by-laws
of Company;
(b) Regulatory Consents. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated and all notices, reports and other
filings required to be made prior to the Second Closing Date by the Company,
Buyer or any of their respective Subsidiaries with, and all consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Second Closing Date by the Company, Buyer or any of their
respective Subsidiaries from, any Governmental Entity (collectively,
"Governmental Consents") in connection with the execution and delivery of this
Agreement and the consummation of the other transactions contemplated hereby by
the Company
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shall have been made or obtained (as the case may be), except those that the
failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the business of the
Company or any of its Subsidiaries;
(c) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of this Agreement and the
transactions contemplated hereby (collectively, an "Order"); and
(d) Blue Sky Approvals. The Company shall have received all state
securities and "blue sky" permits and approvals, if any, necessary to consummate
the transactions contemplated hereby.
SECTION 6.2 Conditions to Obligations of Buyer. The obligations of
Buyer to purchase the Second Funding Shares are also subject to the satisfaction
or waiver by Buyer at or prior to the Second Closing Date of the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement shall have been true and
correct when made and also shall be true and correct at and as of the Second
Closing Date as if made at and as of the Second Closing Date, except as
contemplated or permitted by this Agreement and except for such matters that,
either individually or when combined with any breach of any other representation
or warranty of the Company or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set forth
in Sections 6.2(b) or 6.2(c) hereof, are not reasonably likely to have a
Material Impact (as defined in this Section 6.2(a) below), and Buyer shall have
received a certificate signed on behalf of the Company by its Chief Executive
Officer and its Chief Financial Officer to such effect. For purposes of Sections
6.2, 6.3 and Exhibit 2.1, a "Material Impact" shall be any matter or matters
having an adverse impact or economic consequence that exceeds Three Hundred
Sixty Thousand Dollars ($360,000).
(b) Performance of Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Second Closing Date, except for such matters that, either
individually or when combined with any breach of any representation or warranty
of the Company as of the times set forth in Section 6.2(a) or any fact,
circumstance, occurrence, breach or default, or any failure to perform any
covenant or obligation all as set forth in this Section 6.2(b) and in Section
6.2(c) hereof, are not reasonably likely to have a Material Impact, and Buyer
shall have received a certificate signed on behalf of the Company by its Chief
Executive Officer and its Chief Financial Officer to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be required
under any Debt Contract or Other Contract to which the Company or any of its
Subsidiaries is a party, all of which are listed in Section 6.2(c) of the Seller
Disclosure Letter, and there shall not have occurred any breach or default, nor
shall there have occurred any fact or circumstance which with notice or lapse of
time would
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constitute a breach or default or permit termination of any Debt Contract or
Other Contract to which the Company or any of its Subsidiaries is a party,
except for such matters that, either individually or when combined with any
breach of any representation or warranty of the Company as of the times set
forth in Section 6.2(a) or any fact, circumstance, occurrence, breach or
default, or any failure to perform any covenant or obligation all as set forth
in Section 6.2(b) or this Section 6.2(c), are not reasonably likely to have a
Material Impact, and Buyer shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and its Chief Financial Officer to
such effect.
(d) Shareholders' and Voting Agreement. The Company, Buyer, and the DSI
Group shall have entered into the Shareholders' and Voting Agreement in the form
attached hereto as Exhibit 5.15.
(e) ▇▇▇▇▇ Consulting Agreement. ▇▇▇▇▇ shall have entered into the ▇▇▇▇▇
Consulting Agreement in the form attached hereto as Exhibit 5.17.
(f) Offer Conditions. The conditions specified in Exhibit 2.1 shall
have been satisfied or waived.
(g) Side Letter Agreement. Each of the members of the DSI Group shall
have executed a Side Letter Agreement in the form attached hereto as Exhibit
5.18.
(h) Opinion of Counsel. The Company shall have caused to be delivered
to Buyer a favorable opinion of counsel dated the Second Closing Date
substantially in the form attached hereto as Exhibit 6.2(h).
(i) Resignations. Each of ▇▇▇▇▇▇, Crosby, Neitz, and ▇▇▇▇▇ shall have
delivered his resignation from the Board of Directors of the Company effective
as of the Second Closing Date.
(j) Closing Certificates. At the Second Closing Date, the Company or
the Shareholders, as applicable, will have delivered to Buyer the following:
(i) A certificate executed on behalf of the Company by its
Chief Executive Officer and Chief Financial Officer, dated
as of the Second Closing Date, to the effect that each of
the conditions specified above in Section 6.2(a)-(c) is
satisfied in all respects;
(ii) Share certificates representing the Second Funding Shares.
(iii) Certified copies of the resolutions duly adopted by the
Company and the Shareholders approving this Agreement and
all transactions contemplated hereby; and
(iv) Such other usual and customary documents as Buyer may
reasonably request in connection with the transactions
contemplated hereby.
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(k) Environmental Reports. The Environmental Reports prepared pursuant
to Section 5.12 hereof, if any, shall not have disclosed any condition that has
or is reasonably likely to have a Material Adverse Effect on the Company or any
of its Subsidiaries.
(l) Audited Financial Statements. The Company shall have delivered to
Buyer copies of the audited consolidated balance sheet (including related notes
and schedules) and audited consolidated statements of income, shareholders
equity, and of cash flows which shall be substantially identical to the 1998
Financial Statements.
SECTION 6.3 Conditions to Obligation of the Company. The obligation of
the Company to effect this Agreement and the transactions contemplated hereby is
also subject to the satisfaction or waiver by the Company at or prior to the
Second Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Buyer contained in this Agreement shall have been true and correct
when made and shall be true and correct in all material respects at and as of
the Second Closing Date as if made at and as of the Second Closing Date, in each
case except as contemplated or permitted by this Agreement and the Company shall
have received a certificate to this effect signed on behalf of Buyer by its
Chief Executive Officer and its Chief Financial Officer;
(b) Performance of Obligations of Buyer. Buyer shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Second Closing Date and the Company shall have
received a certificate to this effect signed on behalf of Buyer by its Chief
Executive Officer and its Chief Financial Officer to such effect;
(c) Consents Under Agreements. The parties shall have obtained the
consent or approval of each Person identified in Section 6.2(c) of the Seller
Disclosure Letter whose consent or approval shall be required in order to
consummate the transactions contemplated by this Agreement, except where the
failure to obtain such consents or approvals is not, individually or in the
aggregate, reasonably likely to have material impact;
(d) Opinion of Counsel. Buyer shall have caused to be delivered to
Company a favorable opinion of counsel dated the Second Closing Date
substantially in the form attached hereto as Exhibit 6.3(d);
(e) ▇▇▇▇▇ Consulting Agreement. The Company shall have entered into the
▇▇▇▇▇ Consulting Agreement in the form attached hereto as Exhibit 5.17;
(f) Purchase of Shares. Buyer shall have consummated the purchase of
the Minimum Amount of Shares validly tendered and not withdrawn pursuant to the
Offer, it being understood that the Second Closing of the sale of the Second
Funding Shares shall occur simultaneously with and be conditioned upon the Offer
Closing pursuant to Section 2.3 hereof; and
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(g) Closing Certificates. At the Second Closing, the Buyer will have
delivered to the Company the following:
(i) A certificate executed on behalf of Buyer by its Chief
Executive Officer and Chief Financial Officer, dated as of
the Second Closing Date, to the effect that each of the
conditions specified above in Section 6.3(a) and (b) is
satisfied in all respects;
(ii) The Second Funding Shares Purchase Price in immediately
available funds;
(iii) Certified copies of resolutions duly adopted by Buyer
approving this Agreement and all transactions contemplated
hereby; and
(iv) Such other usual and customary documents as the Company may
reasonably request in connection with the transactions
contemplated hereby.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby abandoned, at any time prior to the Second
Closing Date, whether before or after any approval by the Shareholders of the
matters presented in connection with this Agreement:
(a) By mutual written consent of Buyer and the Company;
(b) By Buyer, by written notice to the Company if (i) the Company shall
have failed to comply in any material respect with any of its covenants or
agreements contained in this Agreement required to be complied with prior to the
date of such termination, which failure to comply has not been cured within
fifteen (15) business days after receipt by the Company of written notice of
such failure to comply; or (ii) the Company shall not have duly called and
noticed a special shareholders meeting to be held no later than June 4, 1999
(subject to adjournment) within the notice period required by law and the
Company's articles of incorporation and bylaws; or (iii) the Shareholders shall
not approve this Agreement and the transactions contemplated by this Agreement
at a duly called and noticed special shareholders meeting at which a quorum is
present in person or by proxy, or any adjournment thereof prior to June 21,
1999;
(c) By the Company, by written notice to Buyer, if (i) Buyer shall have
failed to comply in any material respect with any of its respective covenants or
agreements contained in this Agreement required to be complied with prior to the
date of such termination, which failure to comply has not been cured within
fifteen (15) business days after receipt of Buyer of written notice of such
failure to comply; or (ii) the Shareholders shall not approve this Agreement and
the transactions contemplated by this Agreement at a duly called and noticed
special shareholders
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meeting at which a quorum is present in person or by proxy, or any adjournment
thereof prior to June 21, 1999;
(d) By either Buyer or the Company, by written notice from the
terminating party to the other party, if there has been (i) a breach by the
other party of any representation or warranty made as of the date hereof that is
not qualified by reference to a Material Adverse Effect, the effect of which has
a Company Material Adverse Effect or a Buyer Material Adverse Effect, as the
case may be, or (ii) a breach by the other party of any representation or
warranty made as of the date hereof that is qualified by reference to a Material
Adverse Effect, in each case, which breach has not been cured (if capable of
being cured) within fifteen (15) business days after receipt by the breaching
party of written notice of the breach;
(e) By either Buyer or the Company: if (i) as a result of the failure
of any of the offer conditions set forth in Exhibit 2.1 the Offer shall have
terminated or expired in accordance with its terms without Buyer having accepted
for payment any Shares pursuant to the Offer or (ii) Buyer shall not have
accepted for payment any Shares pursuant to the Offer prior to July 1, 1999;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.1(e) shall not be available to any party whose failure to perform any
of its obligations under this Agreement results in the failure of any such
condition or if the failure of such condition results from facts or
circumstances that constitute a breach of a representation or warranty under
this Agreement by such party;
(f) By either Buyer or the Company, by written notice from the
terminating party to the other party, if: (i) the Second Closing and the Offer
Closing have not been effected on or prior to the close of business on July 1,
1999, whether such date is before or after the date of approval by the
Shareholders; provided, however, that the right to terminate this Agreement
pursuant to this clause (f) shall not be available to any party whose failure to
fulfill any obligation of this Agreement has been the cause of, or resulted in,
the failure of the Second Closing to have occurred on or prior to such date; or
(ii) any court or other Governmental Entity having jurisdiction over a party
hereto shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable;
(g) By the Company, by written notice to Buyer, if the Board of
Directors of the Company shall determine in good faith that a Takeover Proposal
constitutes a Superior Proposal; provided, however, that the Company may not
terminate this Agreement pursuant to this clause (g) unless (i) five (5)
business days shall have elapsed after delivery to Buyer of a written notice of
such determination by such Board of Directors and at all reasonable times during
such five (5) business-day period the Company shall have provided Buyer a
reasonable opportunity, during such five (5) business-day period, to propose a
modification of the terms and conditions of this Agreement so that a business
combination between the Company and Buyer may be effected, and (ii) at the end
of such five (5) business-day period such Board of Directors shall continue to
believe in good faith that such Takeover Proposal constitutes a Superior
Proposal and simultaneously therewith or not
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later than ninety (90) business days thereafter the Company shall enter into a
definitive acquisition, merger or similar agreement to effect such Superior
Proposal;
(h) By Buyer, by written notice to the Company, if (i) the Board of
Directors of the Company shall not have recommended this Agreement and the
transactions contemplated hereby to the Company's Shareholders as contemplated
by Sections 2.2 and 3.3 hereof, or shall have resolved not to make such
recommendations, or shall have modified in a manner adverse to Buyer or
rescinded its recommendations to the Shareholders, or shall have modified or
rescinded its approval of this Agreement or the transactions contemplated
herein, or shall have resolved to do any of the foregoing, (ii) the Board of
Directors of the Company shall have recommended to the Shareholders any Takeover
Proposal (other than by Buyer or an Affiliate of Buyer) or shall have resolved
to do so, (iii) a tender offer or exchange offer for twenty percent (20%) or
more of the outstanding shares of capital stock of the Company is commenced, and
the Board of Directors of the Company fails to recommend against acceptance of
such tender offer or exchange offer by its Shareholders within the ten (10)
business day period (or such shorter period) required by Section 14e-2 of the
Exchange Act (the taking of no position by the expiration of such ten (10)
business day period (or such shorter period) with respect to the acceptance of
such tender offer or exchange offer by its shareholders constituting such a
failure), or (iv) the Company or any of its Subsidiaries, without having
received prior written consent from Buyer, shall have entered into, authorized,
recommended, proposed, or publicly announced its intention to enter into,
authorize, recommend or propose to its Shareholders an agreement, arrangement,
understanding or letter of intent with any Person (other than Buyer or any of
its Affiliates) to (A) effect a merger or consolidation or similar transaction
involving the Company or any of its Subsidiaries, (B) purchase, lease, or
otherwise acquire all or a substantial portion of the assets of the Company or
any of its Subsidiaries or (C) purchase or otherwise acquire (including by way
of merger, consolidation, share exchange or similar transaction) beneficial
ownership of securities representing twenty percent (20%) or more of the voting
power of the Company (in each case other than any such merger, consolidation,
purchase, lease or other transaction involving only the Company and one (1) or
more of its Subsidiaries or involving only any two (2) or more of its
Subsidiaries); and
(i) By Buyer or the Company, by written notice to the other party, if
ten (10) business days elapse after all the conditions set forth in Article VI
(other than conditions that by their nature are to be satisfied at the Second
Closing) shall be satisfied or waived and the Second Closing shall not have
occurred through no fault of the terminating party.
The right of Buyer or the Company, to terminate this Agreement pursuant
to this Section 7.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of such party, whether
prior to or after the execution of this Agreement.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement by either Buyer or the Company as provided in Section 7.1, this
Agreement shall forthwith become void without any liability hereunder on the
part of the Company or Buyer or their respective directors or officers, except
for Section 5.9, Article VIII, and the last sentence of Section 5.6, which shall
survive
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any such termination; provided, however, that nothing contained in this Section
7.2 shall relieve any party hereto from any liability for any breach of this
Agreement.
SECTION 7.3 Extension: Waiver. At any time prior to the Second Closing
Date, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, or (iii) waive compliance with
any of the agreements or conditions of the other party contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in any instrument in writing signed on behalf
of such party. The failure or any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights. Notwithstanding the foregoing, no failure or delay by the Company or
Buyer in exercising any right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise of any other right hereunder.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION; REMEDIES
SECTION 8.1 Survival of Representations and Warranties. All of the
representations and warranties of the Company contained in this Agreement,
except for the representations and warranties in Sections 3.7, 3.11, and 3.12,
shall survive the Second Closing hereunder and continue in full force and effect
for a period of three (3) years. The representations and warranties of the
Company in Section 3.11 shall survive the Second Closing and continue in full
force and effect for a period of six (6) years, and the representations and
warranties of the Company in Sections 3.7 and 3.12 shall survive the Second
Closing and continue in full force and effect for a period of eight (8) years.
Notwithstanding any right of Buyer to fully investigate the affairs of the
Company and notwithstanding any knowledge of facts determined or determinable by
Buyer pursuant to such investigation or right of investigation, Buyer has the
right fully to rely upon the representation, warranties and covenants of the
Company.
SECTION 8.2 Indemnification by the Company.
(a) The Company agrees to indemnify, defend and save Buyer and its
Affiliates and each of their respective officers, directors, employees, and
agents (each, a "Buyer Indemnified Party"), harmless from and against, and to
promptly pay to a Buyer Indemnified Party or reimburse a Buyer Indemnified Party
for, any and all liabilities (whether contingent, fixed or unfixed, liquidated
or unliquidated, or otherwise), obligations, deficiencies, demands, claims,
suits, actions, or causes of action, assessments, losses, costs, expenses,
interest, fines, penalties, actual or punitive damages or costs or expenses of
any and all investigations, proceedings, judgments, environmental remediations,
settlements and compromises (including reasonable fees and expenses of
attorneys, accountants and other experts) (individually and collectively,
"Losses") sustained or incurred by any Buyer Indemnified Party relating to,
resulting from, arising out of or otherwise by virtue of any
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(i) misrepresentation or breach of a warranty made in Article III or (ii)
non-compliance or breach by the Company of any of the covenants or agreements
contained in this Agreement.
(b) A Buyer Indemnified Party or Seller Indemnified Party (as herein
defined) shall be entitled to indemnification pursuant to Section 8.2(a) or
Section 8.3, as applicable, only if and to the extent that the aggregate amount
of Losses and with respect to which all claims for indemnification made pursuant
to Section 8.2(a) or Section 8.3, as applicable, exceed, in the aggregate, One
Hundred Seventy-Five Thousand Dollars ($175,000.00) (the "Deductible"),
whereupon the Company or Buyer, as applicable, shall be obligated to pay in full
all such Losses, and provided that the Buyer Indemnified Parties or Seller
Indemnified Parties, respectively, shall not be entitled to aggregate
indemnification payments pursuant to Section 8.2(a) or Section 8.3, as
applicable, in excess of Twelve Million Dollars ($12,000,000.00) (the "Cap").
SECTION 8.3 Indemnification by Buyer. From and after the Initial
Closing, Buyer agrees to indemnify, defend and save the Company and its
officers, directors, employees and agents (each a "Seller Indemnified Party"),
harmless from and against, and to promptly pay to a Seller Indemnified Party or
reimburse a Seller Indemnified Party for, any and all Losses sustained or
incurred by such Seller Indemnified Party relating to, resulting from, arising
out of or otherwise by virtue of any (i) misrepresentation or breach of warranty
made in Article IV, or (ii) non-compliance with or breach by Buyer of any of the
covenants or agreements contained in this Agreement to be performed by Buyer.
SECTION 8.4 Indemnification Procedure for Third Party Claims. In the
event that subsequent to the Initial Closing any person or entity entitled to
indemnification under this Agreement (an "Indemnified Party") asserts a claim
for indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any entity who is not a party to
this Agreement or an Affiliate of such a party (including, but not limited to
any Governmental Entity) (a "Third Party Claim") against such Indemnified Party,
against which a Party is required to provide indemnification under this
Agreement (an "Indemnifying Party"), the Indemnified Party shall give written
notice together with a statement of any available information regarding such
claim to the Indemnifying Party within thirty (30) days after learning of such
claim (or within such shorter time as may be necessary to give the Indemnifying
Party a reasonable opportunity to respond to such claim). The Indemnifying Party
shall have the right, upon written notice to the Indemnified Party (the "Defense
Notice") within thirty (30) days after receipt from the Indemnified Party of
notice of such claim, (which notice by the Indemnifying Party shall specify the
counsel it will appoint to defend such claim ("Defense Counsel")), to conduct at
its expense the defense against such claim in its own name, or if necessary in
the name of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld or delayed.
(a) In the event that the Indemnifying Party shall fail to give such
notice, it shall be deemed to have elected not to conduct the defense of the
subject claim, and in such event the Indemnified Party shall have the right to
conduct such defense in good faith and to compromise and settle the claim
without prior consent of the Indemnifying Party and the Indemnifying Party will
be
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liable for all costs, expenses, settlement amounts or other Losses paid or
incurred in connection therewith.
(b) In the event that the Indemnifying Party does elect to conduct the
defense of the subject claim, the Indemnified Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as may be
reasonably requested by it, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the reasonable right at its expense to
reasonably participate in the defense assisted by counsel of its own choosing at
its own expense, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
Without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld or delayed, the Indemnifying Party will not enter
into any settlement of any Third Party Claim or cease to defend against such
claim, if pursuant to or as a result of such settlement or cessation (i)
injunctive or other equitable relief would be imposed against the Indemnified
Party or its Affiliates; or (ii) such settlement or cessation would lead to
liability or create any financial or other obligation on the part of the
Indemnified Party or its Affiliates for which the Indemnified Party is not
entitled to indemnification hereunder. If a firm offer is made to settle a Third
Party Claim, which offer the Indemnifying Party is permitted to accept pursuant
to the preceding sentence, and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give written notice to the
Indemnified Party to that effect. If the Indemnified Party notifies the
Indemnifying Party that it does not wish such offer to be accepted within twenty
calendar days after its receipt of such notice, the Indemnified Party may elect
by such notice to the Indemnifying Party to continue to contest or defend such
Third Party Claim, and in such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will not exceed the amount of such settlement
offer, plus costs and expenses paid or incurred by the Indemnified Party through
the end of such twenty day period. Notwithstanding anything to the contrary
contained herein, the Indemnifying Party shall not be entitled to control, and
the Indemnified Party shall be entitled to have sole control over, the defense
or settlement of any claim to the extent that claim seeks an order, injunction
or other equitable relief against the Indemnified Party which, if successful,
could have a Material Adverse Effect on the Indemnified Party or its Affiliates
(and the cost of such defense shall constitute a Loss for which the Indemnified
Party is entitled to indemnification hereunder).
(c) Any judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
SECTION 8.5 Direct Claims. It is the intent of the parties hereto that
all direct claims by an Indemnified Party against a party hereto not arising out
of Third Party Claims shall be subject to and benefit from the terms of this
Article VIII. Any claim under this Article VIII by an Indemnified Party for
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party written notice
thereof.
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SECTION 8.6 Failure to Give Timely Notice. A failure by an Indemnified
Party to give timely, complete or accurate notice as provided in Sections 8.4 or
8.5, will not affect the rights or obligations of any party hereunder except and
only to the extent that, as a result of such failure, any party entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or to the extent that it was otherwise damaged as
a result of such failure to give timely notice.
SECTION 8.7 Reduction of Loss. The amount of Losses payable with
respect to an indemnification claim shall be determined on an after tax basis
and reduced by receipt of payment (i) under insurance policies which are not
subject to retroactive adjustment or other reimbursement to the insurer in
respect of such payment, or (ii) from third parties not Affiliated with the
Indemnified Party, such payments (net of the expenses of the recovery thereof),
shall be credited against such Loss. No Indemnified Party shall take any action
the purpose and intent of which is to prejudice the defense of any claim subject
to indemnification hereunder or to induce a third party to assert a claim
subject to indemnification hereunder.
SECTION 8.8 Subrogation. The Indemnifying Party shall be subrogated to
the Indemnified Party's rights of recovery to the extent of any Loss satisfied
by the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Company.
SECTION 8.9 Limitations. Other than for claims of fraud or intentional
misrepresentation, after the Second Closing Date the remedies afforded under
this Article VIII shall be the exclusive remedy available to the parties hereto
seeking damages for a breach of a representation, warranty or covenant contained
herein; provided, however, nothing contained herein shall limit or restrict a
party hereto from seeking or obtaining injunctive or other equitable relief.
SECTION 8.10 Determination Procedure. The parties hereto agree that in
the event a Buyer Indemnified Party makes a claim for indemnification under this
Article VIII and Buyer and the DSI Representative cannot agree on whether such
Buyer Indemnified Party is entitled to indemnification under this Article VIII,
then, unless Buyer and the DSI Representative agree on a different mechanism for
resolving such dispute, such determination shall be submitted to a panel of
three arbitrators. Such arbitration shall be conducted in accordance with the
Federal Arbitration Act and the rules of the American Arbitration Association.
The decision of the arbitrators or a majority thereof, made in writing, shall be
final and binding upon the parties hereto as to the determination of entitlement
to indemnification. In all matters relating to claims for indemnification or
other disputes under this Agreement, the DSI Representative shall represent the
Company and Buyer shall represent itself.
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ARTICLE IX
MISCELLANEOUS AND GENERAL
SECTION 9.1 Definitions. For purposes of this Agreement:
(a) "Affiliate" of any person means another person that directly or
indirectly, through on or more intermediaries, controls, is controlled by, or is
under common control with, such first person.
(b) "Antitrust Laws" mean and include the ▇▇▇▇▇▇▇ Act, as amended, the
▇▇▇▇▇▇▇ Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state or foreign statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
(c) "Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
(d) "Governmental Entity" means any government or an agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
(e) "Knowledge" or "Known" A Person is deemed to have "knowledge" of a
particular fact or matter if any of its executive officers, directors or
managers (i) is actually aware of such fact or matter, or (ii) could reasonably
be expected to be aware of such fact or matter after a due diligence
investigation of such scope and extent as a reasonably prudent person would
undertake under similar facts and circumstances.
(f) "Lien" means any encumbrance, hypothecation, infringement, lien,
mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of any
nature whatsoever of, on, or with respect to any asset, property or property
interest; provided, however, that the term "Lien" shall not include (i) liens
for water and sewer charges and current taxes including, without limitation,
real estate taxes, not yet due and payable or being contested in good faith;
(ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's
and other similar liens arising or incurred in the ordinary course of business;
(iii) all liens approved in writing by the other party hereto; or (iv)
restrictions on transfer imposed by federal or state securities laws.
(g) "Material Adverse Effect" means, when used in connection with the
Company or Buyer, any change or effect that (i) has had, or is reasonably likely
to have a materially adverse impact on the business, operations, or results of
operations, assets or condition (financial or otherwise) of such Party or any of
its Subsidiaries, or (ii) substantially impairs or delays the
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consummation of the transactions contemplated hereby, but, in either such event,
shall not include (A) any change or effect that results from conditions, events
or circumstances generally affecting the industries in which the Company or
Buyer operate or the economy in general, (B) any action or change specifically
permitted or required by the provisions of this Agreement, or (C) the
transactions contemplated by this Agreement or the announcement hereof,
provided, however, a Material Adverse Effect will be deemed to include the
circumstances set forth in (i) or (ii) above if those circumstances are caused
by any suit, action, cause or proceeding brought by any third party seeking
injunctive relief, damages, or any other relief concerning the transactions
contemplated by this Agreement.
(h) "Party" or "Parties" means the Company on the one hand, and Buyer
on the other hand.
(i) "Person" means any natural person, firm, individual, business
trust, trust, association, corporation, partnership, joint venture, company,
unincorporated entity or Governmental Entity.
(j) "Subsidiary" or "Subsidiaries" of any Person means another Person,
an amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its board of
directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first Person.
(k) "Tax" or "Taxes" means all federal, state, local and foreign taxes,
net or gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, personal property, real property, capital stock, profits,
social security, (or similar) unemployment, disability, registration, value
added, estimated, alternative or add-on minimum taxes, customs, duties or other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto, imposed by a Tax authority.
(l) "Tax Returns" means all federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms, and information
returns and any amendments thereto.
SECTION 9.2 Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Second Closing Date, the Parties hereto
may modify or amend this Agreement, by written agreement executed and delivered
by duly authorized officers of the respective Parties.
SECTION 9.3 Waiver of Conditions. The conditions to each of the
Parties' obligations to consummate this Agreement are for the sole benefit of
such Party and may be waived by such Party in whole or in part to the extent
permitted by applicable law.
SECTION 9.4 Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
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SECTION 9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF TEXAS WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The
Parties hereby irrevocably submit to the jurisdiction of the courts
of the State of Texas and the Federal courts of the United States of America
located in the State of Texas solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the Parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a Texas State or Federal court. The Parties hereby consent to and grant
any such court jurisdiction over the person of such Parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
9.6 below or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
SECTION 9.6 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile:
If to Buyer:
Attention: ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: 805/▇▇▇-▇▇▇▇
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with copies to: J. ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Andre, Morris & Buttery
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: 805/▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Carrington, Coleman, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: 214/▇▇▇-▇▇▇▇
If to Company:
Attention: President
▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: 713/▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & Knight
1200 San Jacinto Center
▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: 512/▇▇▇-▇▇▇▇
or to such other persons or addresses as may be designated in writing by the
Party to receive such notice as provided above.
SECTION 9.7 Entire Agreement; No Other Representations. This Agreement
(including any exhibits hereto), the Seller Disclosure Letter, the Buyer
Disclosure Letter and the Exhibits constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER BUYER NOR THE COMPANY MAKES ANY
OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR
THE OTHER'S REPRESENTATIVES OF ANY
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DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE
FOREGOING.
SECTION 9.8 No Third Party Beneficiaries. Except as provided in Section
5.2 and Article VIII (Indemnification), this Agreement is not intended to confer
upon any Person other than the Parties hereto any rights or remedies hereunder.
SECTION 9.9 Obligations of Buyer and of the Company. Whenever this
Agreement requires a Subsidiary of Buyer to take any action, such requirement
shall be deemed to constitute an undertaking on the part of Buyer to cause such
Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to constitute
an undertaking on the part of the Company to cause such Subsidiary to take such
action.
SECTION 9.10 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 9.11 Interpretation. The table of contents and headings herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Where a reference in this Agreement is made to a Section or Exhibit,
such reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
SECTION 9.12 Assignment. This Agreement shall not be assignable by
operation of law or otherwise.
SECTION 9.13 Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event that any of the terms or provisions
of this Agreement were not performed in accordance with their specific wording
or were otherwise breached. It is accordingly agreed that each of the Parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States of America or any state having jurisdiction, such
remedy being in addition to any other remedy to which any Party may be entitled
at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the Parties hereto as of the date first
written above.
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MVII, LLC
By: /s/ E. ▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
Name: E. ▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
Title: Manager
-------------------------
DSI TOYS, INC.
By: /s/ M.D. ▇▇▇▇▇
-------------------------
Name: M.D. ▇▇▇▇▇
-------------------------
Title: Chief Executive Officer
-------------------------
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