AGREEMENT AND PLAN OF MERGER
by and among
HONEYWELL INTERNATIONAL INC.,
HII-2 ACQUISITION CORP.
and
PITTWAY CORPORATION
dated as of
December 20, 1999
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter
referred to as this "Agreement"), dated as of December
20, 1999, by and among Honeywell International Inc., a
Delaware corporation ("Parent"), HII-2 Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"), and Pittway Corporation, a
Delaware corporation (the "Company").
WHEREAS, the Board of Directors (the "Board of
Directors") of each of Parent, the Purchaser and the
Company has approved, and deems it advisable and in the
best interests of its respective stockholders to consum-
mate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein; and
WHEREAS, concurrently with the execution and
delivery of this Agreement and as a condition to Parent's
and Purchaser's willingness to enter into this Agreement,
Parent and Purchaser have entered into a Stockholders
Agreement, dated as of the date hereof, the form of which
is attached hereto as Exhibit A hereto (the "Stockholders
Agreement"), with each of the stockholders named therein
(the "Stockholders") pursuant to which the Stockholders
have (x) agreed, among other things, to tender substan-
tially all of the Shares (as defined herein) owned by the
Stockholders pursuant to the Offer (as defined herein)
and (y) granted to Parent an option to purchase substan-
tially all of the Shares owned by the Stockholders (which
option is exercisable under certain circumstances follow-
ing the initial expiration date of the Offer), in each
case subject to the terms and on the conditions set forth
therein.
NOW, THEREFORE, in consideration of the forego-
ing and the mutual representations, warranties, covenants
and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I
THE OFFER AND MERGER
Section I.1 The Offer
(a) As promptly as practicable (but in no
event later than five business days after the public
announcement of the execution hereof), the Purchaser
shall commence (within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) a tender offer (the "Offer") for all of
the outstanding shares of Common Stock of the par value
of $1.00 per share of the Company (the "Common Stock"),
and all of the outstanding shares of Class A Stock of the
par value of $1.00 per share of the Company (the "Class A
Stock") (the shares of Common Stock and the shares of
Class A Stock are sometimes referred to together as the
"Shares"), at a price of $45.50 per Share, net to the
seller in cash (such price, or any such higher price per
Share as may be paid in the Offer, being referred to
herein as the "Offer Price"), subject to there being
validly tendered and not withdrawn prior to the expira-
tion of the Offer, that number of Shares which represents
at the time of acceptance for payment of any Shares
pursuant to the Offer (the "Share Purchase Date") at
least (i) two-thirds of the outstanding Shares (deter-
mined on a fully diluted basis) and (ii) Shares entitled
to cast at least two-thirds of the votes (counting the
Class A Stock as entitled to cast 1/10th of a vote per
share) that may be cast by all holders of Shares on the
Merger (as defined in Section 1.4) (determined on a fully
diluted basis)(the "Minimum Condition") and to the other
conditions set forth in Annex A hereto, and shall consum-
mate the Offer in accordance with its terms ("fully
diluted basis" means issued and outstanding Shares and
Shares subject to issuance at the discretion of the
holders under stock options or other stock based awards
outstanding at the Share Purchase Date, excluding any
portions of such options or awards surrendered to the
Company pursuant to Section 2.4 of this Agreement). The
obligation of the Purchaser to accept for payment and to
pay for any Shares validly tendered on or prior to the
expiration of the Offer and not withdrawn shall be sub-
ject only to the Minimum Condition and the other condi-
tions set forth in Annex A hereto. The Offer shall be
made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agree-
ment, the Minimum Condition and the other conditions set
forth in Annex A hereto. The Purchaser shall not amend
or waive the Minimum Condition and shall not decrease the
Offer Price or decrease the number of Shares sought, or
amend any other condition of the Offer without the writ-
ten consent of the Company; provided, however, that if on
the initial scheduled expiration date of the Offer, which
shall be 30 business days after the date on which the
execution of this Agreement is announced to the public
(it being understood that for such purpose Christmas Eve
and New Years Eve shall not be deemed to be "business
days"), all conditions to the Offer shall not have been
satisfied or waived, the Purchaser may, from time to
time, in its sole discretion, extend the expiration date
for one or more periods. The Purchaser shall, on the
terms and subject to the prior satisfaction or waiver of
the conditions of the Offer, accept for payment the
Shares tendered as soon as it is legally permitted to do
so under applicable law and pay for such Shares promptly;
provided, however, that if, immediately prior to the
initial expiration date of the Offer (as it may be ex-
tended), the Shares tendered and not withdrawn pursuant
to the Offer equal less than 90% of the outstanding
shares of each of the Common Stock and the Class A Stock,
the Purchaser may extend the Offer for one or more peri-
ods not to exceed seven business days in the aggregate,
notwithstanding that all conditions to the Offer are
satisfied as of such expiration date of the Offer.
(b) As soon as practicable on the date the
Offer is commenced, Parent and the Purchaser shall file
with the United States Securities and Exchange Commission
(the "SEC") a Tender Offer Statement on Schedule 14D-1
with respect to the Offer (together with all amendments
and supplements thereto and including the exhibits
thereto, the "Schedule 14D-l"). The Schedule 14D-1 will
include, as exhibits, the Offer to Purchase and a form of
letter of transmittal and summary advertisement (collec-
tively, together with any amendments and supplements
thereto, the "Offer Documents"). The Offer Documents
will comply in all material respects with the provisions
of applicable federal securities laws and, on the date
filed with the SEC and on the date first published, sent
or given to the Company's stockholders, shall not contain
any untrue statement of a material fact or omit to state
any material fact required to be stated therein or neces-
sary in order to make the statements therein, in light of
the circumstances under which they were made, not mis-
leading, except that no representation is made by Parent
or the Purchaser with respect to information furnished by
the Company to Parent or the Purchaser, in writing,
expressly for inclusion in the Offer Documents. The
information supplied by the Company to Parent or the
Purchaser, in writing, expressly for inclusion in the
Offer Documents and by Parent or the Purchaser to the
Company, in writing, expressly for inclusion in the
Schedule 14D-9 (as hereinafter defined) will not contain
any untrue statement of a material fact or omit to state
any material fact required to be stated therein or neces-
sary in order to make the statements therein, in light of
the circumstances under which they were made, not mis-
leading.
(c) Each of Parent and the Purchaser will take
all steps necessary to cause the Offer Documents to be
filed with the SEC and to be disseminated to holders of
the Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and
the Purchaser, on the one hand, and the Company, on the
other hand, will promptly correct any information pro-
vided by it for use in the Offer Documents if and to the
extent that it shall have become false or misleading in
any material respect and the Purchaser will take all
steps necessary to cause the Offer Documents as so cor-
rected to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. The
Company and its counsel shall be given the opportunity to
review the Schedule 14D-1 before it is filed with the
SEC. In addition, Parent and the Purchaser will provide
the Company and its counsel in writing with any comments,
whether written or oral, Parent, the Purchaser or their
counsel may receive from time to time from the SEC or its
staff with respect to the Offer Documents promptly after
the receipt of such comments.
Section I.2 Company Actions
(a) The Company hereby approves of and con-
sents to the Offer and represents that its Board of
Directors, at a meeting duly called and held, has (i)
determined that each of this Agreement, the Offer and the
Merger (as defined in Section 1.4) are fair to and in the
best interests of the stockholders of the Company, (ii)
approved this Agreement and the transactions contemplated
hereby, including the Offer and the Merger (collectively,
the "Transactions"), and such approval constitutes ap-
proval of the Offer, this Agreement, the Transactions
(including the Merger), and the Stockholders Agreement
and the transactions contemplated thereby, for purposes
of Section 203 of the Delaware General Corporation Law,
as amended (the "DGCL") such that Section 203 of the DGCL
will not apply to the transactions contemplated by this
Agreement or the Stockholders Agreement, and (iii) re-
solved to recommend that the stockholders of the Company
accept the Offer, tender their Shares thereunder to the
Purchaser and approve and adopt this Agreement and the
Merger. The Company represents that the actions set
forth in this Section 1.2(a) and all other actions it has
taken in connection therewith are sufficient to render
the relevant provisions of Section 203 of the DGCL inap-
plicable to the Offer and the Merger and the other trans-
actions contemplated by this Agreement and the Stockhold-
ers Agreement.
(b) Concurrently with the commencement of the
Offer, the Company shall file with the SEC a Solicita-
tion/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto and including
the exhibits thereto, the "Schedule 14D-9") which shall,
subject to the provisions of Section 5.4(d), contain the
recommendation referred to in clause (iii) of Section
1.2(a). The Schedule 14D-9 will comply in all material
respects with the provisions of applicable federal secu-
rities laws and, on the date filed with the SEC and on
the date first published, sent or given to the Company's
stockholders, shall not 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, except that no
representation is made by the Company with respect to
information furnished by Parent or the Purchaser for
inclusion in the Schedule 14D-9. The Company further
agrees to take all steps necessary to cause the Schedule
14D-9 to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. Each of
the Company, on the one hand, and Parent and the Pur-
chaser, on the other hand, agrees promptly to correct any
information provided by it for use in the Schedule 14D-9
if and to the extent that it shall have become false and
misleading in any material respect and the Company fur-
ther agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC
and to be disseminated to holders of the Shares, in each
case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given
the opportunity to review the Schedule 14D-9 before it is
filed with the SEC. In addition, the Company agrees to
provide Parent, the Purchaser and their counsel with any
comments, whether written or oral, that the Company or
its counsel may receive from time to time from the SEC or
its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments or other communica-
tions.
(c) In connection with the Offer, the Company
will promptly furnish or cause to be furnished to the
Purchaser mailing labels, security position listings and
any available listing, or computer file containing the
names and addresses of all recordholders of the Shares as
of a recent date, and shall furnish the Purchaser with
such additional information (including, but not limited
to, updated lists of holders of the Shares and their
addresses, mailing labels and lists of security posi-
tions) and assistance as the Purchaser or its agents may
reasonably request in communicating the Offer to the
record and beneficial holders of the Shares. Except for
such steps as are necessary to disseminate the Offer
Documents, Parent and the Purchaser shall hold in confi-
dence the information contained in any of such labels and
lists and the additional information referred to in the
preceding sentence, will use such information only in
connection with the Offer, and, if this Agreement is
terminated, will upon request of the Company deliver or
cause to be delivered to the Company all copies of such
information then in its possession or the possession of
its agents or representatives.
Section I.3 Directors.
(a) Prior to the Share Purchase Date, the
Company shall have taken all action as may be necessary
so that effective immediately after the Share Purchase
Date, the size of the Board of Directors of the Company
(the "Board") shall be reduced to eight, all directors,
other than two of the directors (as shall be designated
by the Board) shall resign and six persons designated by
Parent shall be elected to fill the vacancies so created.
(b) The Company shall promptly take all ac-
tions required pursuant to Section 14(f) of the Exchange
Act and Rule 14f-l promulgated thereunder in order to
fulfill its obligations under Section 1.3(a), including
mailing to stockholders the information required by such
Section 14(f) and Rule 14f-1 as is necessary to enable
Parent's designees to be elected to the Board. Parent or
the Purchaser will supply the Company and be solely
responsible for any information with respect to either of
them and their nominees, officers, directors and affili-
ates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 1.3 are in addition to and
shall not limit any rights which the Purchaser, Parent or
any of their affiliates may have as a holder or benefi-
cial owner of Shares as a matter of law with respect to
the election of directors or otherwise.
(c) As provided in Section 1.3(a), following
the Share Purchase Date and prior to the Effective Time,
the Board shall have at least two directors who are
directors on the date hereof and who are persons not
employed by the Company (the "Independent Directors").
If after the Share Purchase Date and prior to the Effec-
tive Time, one of the Independent Directors shall no
longer continue to serve for any reason whatsoever, the
other Independent Director shall be entitled to designate
a person to fill such vacancy who shall be deemed to be
one of the Independent Directors for purposes of this
Agreement. If after the Share Purchase Date and prior to
the Effective Time there is no Independent Director for
any reason, the other directors, pursuant to the Com-
pany's Certificate of Incorporation (the "Certificate of
Incorporation") and the Company's Bylaws, shall designate
two persons to fill such vacancies who shall not be
stockholders, affiliates or associates of Parent or the
Purchaser and such persons shall be deemed to be Inde-
pendent Directors for purposes of this Agreement. Fol-
lowing the Share Purchase Date and prior to the Effective
Time, neither Parent nor Purchaser will take any action
to cause any Independent Director to be removed other
than for cause. Notwithstanding anything in this Agree-
ment to the contrary, after the Share Purchase Date and
prior to the Effective Time, the affirmative vote of a
majority of the Independent Directors shall be required
to (a) amend or terminate this Agreement by the Company,
(b) exercise or waive any of the Company's rights, bene-
fits or remedies hereunder, or (c) take any other action
by the Board under or in connection with this Agreement.
Section I.4 The Merger. Subject to the terms
and conditions of this Agreement, at the Effective Time,
the Company and the Purchaser shall consummate a merger
(the "Merger") pursuant to which (a) the Purchaser shall
be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon
cease, (b) the Company shall be the successor or surviv-
ing corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of
Delaware, and (c) the separate corporate existence of the
Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the
Merger, except as set forth in this Section 1.4. Pursu-
ant to the Merger, (x) the Certificate of Incorporation
shall be amended in its entirety to read as the Certifi-
cate of Incorporation of the Purchaser, in effect immedi-
ately prior to the Effective Time, except that Article
FIRST thereof shall read as follows: "FIRST: The name
of the corporation is PITTWAY CORPORATION." and, as so
amended, shall be the certificate of incorporation of the
Surviving Corporation until thereafter amended as pro-
vided by law and such Certificate of Incorporation, and
(y) the By-Laws of the Purchaser (the "By-laws"), as in
effect immediately prior to the Effective Time, shall be
the By-laws of the Surviving Corporation until thereafter
amended as provided by law, by such Certificate of Incor-
poration or by such By-laws. The Merger shall have the
effects specified in the DGCL and in Article II.
Section I.5 Effective Time Parent, the
Purchaser and the Company will cause a Certificate of
Merger to be executed and filed on the Closing Date (as
defined in Section 1.6) (or on such other date as Parent
and the Company may agree) with the Secretary of State of
Delaware (the "Secretary of State") as provided in the
DGCL. The Merger shall become effective on the date on
which the Certificate of Merger is duly filed with the
Secretary of State or such time as is agreed upon by the
parties and specified in the Certificate of Merger, and
such time is hereinafter referred to as the "Effective
Time."
Section I.6 Closing The closing of the Merger
(the "Closing") shall take place at 10:00 a.m. on a date
to be specified by the parties, which shall be no later
than the second business day after satisfaction or waiver
of all of the conditions set forth in Article VI hereof
(the "Closing Date"), at the corporate offices of Parent,
unless another date or place is agreed to in writing by
the parties hereto.
Section I.7 Directors and Officers of the
Surviving Corporation. The directors of the Purchaser
and the officers of the Company at the Effective Time
shall, from and after the Effective Time, be the direc-
tors and officers, respectively, of the Surviving Corpo-
ration until their successors shall have been duly
elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the
Certificate of Incorporation and the By-laws.
Section I.8 Stockholders' Meeting.
(a) If required by applicable law in order to
consummate the Merger, the Company, acting through the
Board, shall, in accordance with applicable law:
(i) duly call, give notice of, convene
and hold a special meeting of its stockholders (the
"Special Meeting") as promptly as practicable following
the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the approval of the
Merger and the adoption of this Agreement; and
(ii) prepare and file with the SEC a
preliminary proxy or information statement relating to
the Merger and this Agreement and use its best efforts
(x) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as
hereinafter defined) and, after consultation with Parent,
to respond promptly to any comments made by the SEC with
respect to the preliminary proxy or information statement
and cause a definitive proxy or information statement,
including any amendment or supplement thereto (the "Proxy
Statement") to be mailed to its stockholders, provided
that no amendment or supplement to the Proxy Statement
will be made by the Company without consultation with
Parent and its counsel and (y) to obtain the necessary
approvals of the Merger and this Agreement by its
stockholders.
(b) Parent shall vote, or cause to be voted,
all of the Shares owned by it, the Purchaser or any of
its other subsidiaries and affiliates immediately follow-
ing the Share Purchase Date in favor of the approval of
the Merger and the approval and adoption of this Agree-
ment.
Section I.9 Merger Without Meeting of Stock-
holders. Notwithstanding Section 1.8, in the event that
Parent, the Purchaser and any other Subsidiaries of
Parent shall acquire in the aggregate at least 90% of the
outstanding shares of each class of capital stock of the
Company, pursuant to the Offer or otherwise, the parties
hereto shall, at the request of Parent and subject to
Article VI hereof, take all necessary and appropriate
action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of
stockholders of the Company, in accordance with Section
253 of the DGCL.
ARTICLE II
CONVERSION OF SECURITIES
Section II.1 Conversion of Capital Stock. As
of the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any
Shares or holders of common stock, par value $.01 per
share, of the Purchaser (the "Purchaser Common Stock"):
(a) The Purchaser Common Stock. Each issued
and outstanding share of the Purchaser Common Stock shall
be converted into and become one fully paid and
nonassessable share of common stock of the Surviving
Corporation
(b) Cancellation of Treasury Stock and Parent-
Owned Stock. All Shares that are owned by the Company
as treasury stock and any Shares owned by Parent, the
Purchaser or any other wholly owned Subsidiary of Parent
shall be cancelled and retired and shall cease to exist
and no consideration shall be delivered in exchange
therefor.
(c) Exchange of Shares. Each issued and
outstanding Share (other than Shares to be cancelled in
accordance with Section 2.1(b) and any Shares which are
held by stockholders exercising appraisal rights, if any,
pursuant to Section 262 of the DGCL ("Dissenting Stock-
holders")) shall be converted into the right to receive
the Offer Price, payable to the holder thereof, without
interest (the "Merger Consideration"), upon surrender of
the certificate formerly representing such Share in the
manner provided in Section 2.2. All such Shares, when so
converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any
such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consider-
ation therefor upon the surrender of such certificate in
accordance with Section 2.2, without interest, or the
right, if any, to receive payment from the Surviving
Corporation of the "fair value" of such Shares as deter-
mined in accordance with Section 262 of the DGCL.
Section II.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a
bank or trust company reasonably acceptable to the Com-
pany to act as agent for the holders of the Shares in
connection with the Merger (the "Paying Agent") to re-
ceive in trust the funds to which holders of the Shares
shall become entitled pursuant to Section 2.1(c). Such
funds shall be invested by the Paying Agent as directed
by Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as reason-
ably practicable after the Effective Time, the Paying
Agent shall mail to each holder of record of a certifi-
cate or certificates, which immediately prior to the
Effective Time represented outstanding Shares (the "Cer-
tificates"), whose Shares were converted pursuant to
Section 2.1 into the right to receive the Merger Consid-
eration (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
such form and have such other provisions as Parent and
the Company may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be ap-
pointed by Parent, together with such letter of transmit-
tal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger
Consideration for each Share formerly represented by such
Certificate and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consid-
eration is to be made to a person other than the person
in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate
so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and
other taxes required by reason of the payment of the
Merger Consideration to a person other than the regis-
tered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corpora-
tion that such tax either has been paid or is not appli-
cable. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive
the Merger Consideration in cash as contemplated by this
Section 2.2.
(c) Transfer Books; No Further Ownership
Rights in the Shares. At the Effective Time, the stock
transfer books of the Company shall be closed and there-
after there shall be no further registration of transfers
of the Shares on the records of the Company. From and
after the Effective Time, the holders of Certificates
evidencing ownership of the Shares outstanding immedi-
ately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise
provided for herein or by applicable law. If, after the
Effective Time, Certificates are presented to the Surviv-
ing Corporation for any reason, they shall be cancelled
and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any
time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which had been
made available to the Paying Agent and which have not
been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat or
other similar laws) only as general creditors thereof
with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest
thereon. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consid-
eration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
Section II.3 Dissenters' Rights. If any Dis-
senting Stockholder shall have demanded to be paid the
fair value of such holder's Shares, as provided in Sec-
tion 262 of the DGCL, the Company shall give Parent
notice thereof and Parent shall have the right to partic-
ipate in all negotiations and proceedings with respect to
any such demands. Neither the Company nor the Surviving
Corporation shall, except with the prior written consent
of Parent, voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for pay-
ment. If any Dissenting Stockholder shall fail to per-
fect or shall have effectively withdrawn or lost the
right to pursue appraisal rights, the Shares held by such
Dissenting Stockholder shall thereupon be treated as
though such Shares had been converted into the Merger
Consideration pursuant to Section 2.1.
Section II.4 Company Plans
(a) Promptly following commencement of the
Offer, the Company will offer to each holder of an option
then outstanding under the Company's 1990 Stock Awards
Plan, 1996 Director Stock Option Plan or 1998 Director
Stock Option Plan (each an "Option") the opportunity to
surrender to the Company, effective immediately following
the Share Purchase Date, the portion of such Option which
is then exercisable or which would then by its terms vest
or otherwise become exercisable on or prior to December
31, 2000 (the "Vested Option Portion") in return for the
payment by the Company, immediately following the Share
Purchase Date, of an Option Cash Amount as more fully
described below. The Option Cash Amount shall be paid
only when the amount set forth in clause (i) below is
positive. The Option Cash Amount payable for the Vested
Option Portion of each Option so surrendered shall be
equal to the product of (i) the Offer Price minus the
exercise price per Share of the Vested Option Portion of
such Option and (ii) the number of Shares covered by the
Vested Option Portion of such Option.
(b) Promptly following the commencement of the
Offer, the Company will offer to each holder of a perfor-
▇▇▇▇▇ shares award then outstanding under the Company's
1990 Stock Awards Plan (each a "Performance Shares
Award") the opportunity to surrender to the Company,
effective immediately following the Share Purchase Date,
the portion of such Performance Shares Award which is
then vested or which would then by its terms vest on or
prior to December 31, 2000 (the "Vested Performance
Shares Award Portion") in return for the payment by the
Company, immediately following the Share Purchase Date,
of a Performance Shares Award Cash Amount as more fully
described below. The Performance Shares Award Cash
Amount payable for each Vested Performance Shares Award
Portion so surrendered shall be equal to the product of
(i) the Offer Price and (ii) the number of shares covered
by the Vested Performance Shares Award Portion of such
Performance Shares Award.
(c) Promptly following commencement of the
Offer, the Company will offer to each holder of a bonus
shares award then outstanding under the Company's 1990
Stock Awards Plan (each a "Bonus Shares Award") the
opportunity to surrender to the Company, effective imme-
diately following the Share Purchase Date, such Bonus
Shares Award in return for the payment by the Company,
immediately following the Share Purchase Date, of an
amount equal to the product of (i) the Offer Price and
(ii) the number of shares covered by such Bonus Shares
Award.
(d) Promptly following commencement of the
Offer, the Company will offer to each holder of a stock
appreciation right then outstanding under the Company's
1990 Stock Awards Plan (each a "SAR") the opportunity to
exercise such SAR at any time.
(e) All payments by the Company pursuant to
(a), (b),(c) and (d) above shall be made net of applica-
ble withholding taxes.
(f) Any portion of any Option, Performance
Shares Award, Bonus Shares Award or SAR that is outstand-
ing at the Share Purchase Date and has not been surren-
dered to the Company pursuant to this Section 2.4 shall
continue thereafter in accordance with its terms, except
that pursuant to action heretofore taken by the Board or
the Compensation Committee of the Board, as applicable,
(i) each such portion shall immediately vest and be
exercisable or payable in full in the event of termina-
tion of employment by the employer at or after the Share
Purchase Date without cause, death or disability and (ii)
from and after the Effective Time each such portion that
is outstanding at the Effective Time shall thereafter
represent the right to acquire, in lieu of each share of
Class A Stock acquirable immediately prior to the Effec-
tive Time upon exercise or payment, cash in the amount of
the Offer Price.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as set forth in the appropriate section
of the schedule to this Agreement setting forth excep-
tions to the Company's representations and warranties set
forth herein (the "Company Disclosure Schedule"), the
Company represents and warrants to Parent and the Pur-
chaser as set forth below. The Company Disclosure Sched-
ule is arranged in sections corresponding to sections of
this Agreement to be modified by such disclosure sched-
ule.
Section III.1 Organization
(a) Each of the Company and its Subsidiaries
is a corporation or other legal entity duly organized,
validly existing and in good standing, where applicable,
under the laws of the jurisdiction of its incorporation
or organization and has all requisite corporate or other
similar power and authority and all necessary governmen-
tal approvals to own, lease and operate its properties
and to carry on its business as now being conducted,
except where the failure to be so organized, existing and
in good standing or to have such power, authority, and
governmental approvals would not, individually or in the
aggregate, have a Company Material Adverse Effect (as
defined below). As used in this Agreement, the term
"Subsidiary" shall mean all corporations or other enti-
ties in which the Company or the Parent, as the case may
be, owns a majority of the issued and outstanding capital
stock or similar interests. As used in this Agreement,
"Company Material Adverse Effect" with reference to any
events, changes or effects, shall mean such events,
changes or effects that are materially adverse to the
business, assets, liabilities, properties, results of
operations or financial condition of the Company and its
Subsidiaries taken as a whole. As used in this Agree-
ment, "to the knowledge of the Company" means the actual
knowledge, without any special inquiry, of the following
executives of the Company: King Harris, ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇▇▇.
(b) The Company and each of its Subsidiaries
is duly qualified or licensed to do business and in good
standing (where applicable) in each jurisdiction in which
the property owned, leased or operated by it or the
nature of the business conducted by it makes such quali-
fication or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing
would not individually or in the aggregate have a Company
Material Adverse Effect. Except as set forth in Section
3.1 of the Company Disclosure Schedule, or in Exhibit 21
of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, or for insignificant wholly-
owned Subsidiaries, the Company does not own (i) any
equity interest in any corporation or other entity or
(ii) marketable securities, in either instance, where the
Company's equity interest in any entity exceeds five
percent of the outstanding equity of such entity on the
date hereof.
Section III.2 Capitalization.
(a) The authorized capital stock of the Company
consists of 120,000,000 shares of Common Stock,
100,000,000 shares of Class A Stock (the Class A Stock
and the Common Stock together shall be referred to some-
times as the "Common Capital Stock"), and 2,000,000
shares of preferred stock, with no par value per share
(the "Preferred Stock"). As of December 1, 1999 (i)
7,877,664 shares of Common Stock are issued and outstand-
ing, (ii)no shares of Common Stock are issued and held in
the treasury of the Company, (iii) 34,877,405 shares of
Class A Stock are issued and outstanding, (iv) no shares
of Class A Stock are issued and held in the treasury of
the Company, (v) no shares of Preferred Stock are issued
and outstanding, (vi) 3,398,699 Shares are subject to
issuance to employees and directors pursuant to options
outstanding on the date hereof at a weighted average
exercise price of $19.03 per share, and (vii) 328,840
Shares are reserved for future issuance to employees and
directors pursuant to awards other than options outstand-
ing under the Company's 1990 Stock Awards Plan, 1996
Director Stock Option Plan or 1998 Director Stock Option
Plan (collectively, the "Company Stock Plans"). Since
December 1, 1999, the Company has not (i) issued or
granted additional options or other awards, under any of
the Company Stock Plans. All the outstanding shares of
the Company's capital stock are, and all Shares which may
be issued pursuant to the exercise or payment of out-
standing options or other awards under Company Stock
Plans will be, when issued in accordance with the respec-
tive terms thereof, duly authorized, validly issued,
fully paid and non-assessable. There are no bonds,
debentures, notes or other indebtedness having general
voting rights (or convertible into securities having such
rights) ("Voting Debt") of the Company or any of its
Subsidiaries issued and outstanding. Except as set forth
above and except as set forth in Section 3.2(a) of the
Company Disclosure Schedule and except for the Transac-
tions, as of the date hereof, (i) there are no shares of
capital stock of the Company authorized, issued or out-
standing (ii) there are no existing options, warrants,
calls, pre-emptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character,
relating to the issued or unissued capital stock of the
Company or any of its Subsidiaries, obligating the Com-
pany or any of its Subsidiaries to issue, transfer or
sell or cause to be issued, transferred or sold any
shares of capital stock or Voting Debt of, or other
equity interest in, the Company or any of its Subsidiar-
ies or securities convertible into or exchangeable for
such shares or equity interests, or obligating the Com-
pany or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment and
(iii) except as set forth in Section 3.2(a) of the Com-
pany Disclosure Schedule, there are no outstanding con-
tractual obligations of the Company or any of its Subsid-
iaries to repurchase, redeem or otherwise acquire any
Shares, or the capital stock of the Company, or any
Subsidiary or affiliate of the Company or to provide
funds to make any investment (in the form of a loan,
capital contribution or otherwise) in any Subsidiary or
any other entity.
(b) Except for director's qualifying shares
which may be required in certain jurisdictions, and
except as set forth in Section 3.2(b) of the Company
Disclosure Schedule, all of the outstanding shares of
capital stock of each of the Company's Subsidiaries are
beneficially owned by the Company, directly or indi-
rectly, and all such shares have been validly issued and
are fully paid and, in the case of its domestic Subsid-
iaries, nonassessable and are owned by either the Com-
pany or one of its Subsidiaries free and clear of all
liens, charges, claims or encumbrances ("Encumbrances").
(c) There are no voting trusts or other agree-
ments or understandings to which the Company, any of its
Subsidiaries or any of its directors is a party with
respect to the voting of the capital stock of the Company
or any of the Subsidiaries, except that the ▇▇▇▇▇▇ Group
(as defined in the Certificate of Incorporation) may be
deemed a group for purposes of Section 13(d)of the Ex-
change Act.
(d) Set forth on Section 3.2(d) of the Company
Disclosure Schedule is a list describing all options or
other awards, including stock appreciation rights, out-
standing under the Company Stock Plans.
Section III.3 Authorization; Validity of
Agreement; Company Action. The Company has full
corporate power and authority to execute and deliver this
Agreement and, subject to obtaining the approval of its
stockholders as required by applicable law, to consummate
the Transactions. The execution, delivery and
performance by the Company of this Agreement, and the
consummation by it of the Transactions, have been duly
authorized by the Board and, except for obtaining the
approval of its stockholders as contemplated by Section
1.8 hereof, no other corporate action on the part of the
Company is necessary to authorize the execution and
delivery by the Company of this Agreement and the
consummation by it of the Transactions. This Agreement
has been duly executed and delivered by the Company and,
assuming due and valid authorization, execution and
delivery hereof by Parent and the Purchaser, is a valid
and binding obligation of the Company enforceable against
the Company in accordance with its terms.
Section III.4 Consents and Approvals; No
Violations. Except for the filings set forth in Section
3.4 of the Company Disclosure Schedule, or contemplated
by Sections 5.11 and 5.12, and the filings, permits,
authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange
Act, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the laws of any foreign
jurisdiction, and the DGCL, none of the execution, deliv-
ery or performance of this Agreement by the Company, the
consummation by the Company of the Transactions or com-
pliance by the Company with any of the provisions hereof
will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation, the By-
laws or similar organizational documents of the Company
or any of its Subsidiaries, (ii) require any filing with,
or permit, authorization, consent or approval of, any
court, arbitral tribunal, administrative agency or com-
mission or other governmental or other regulatory author-
ity or agency (a "Governmental Entity"), (iii) result in
a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation
or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiar-
ies is a party or by which any of them or any of their
properties or assets may be bound (the "Company Agree-
ments") or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their proper-
ties or assets, excluding from the foregoing clauses
(ii), (iii) and (iv) such violations, breaches or de-
faults, and such failures to make filings, or obtain
permits, authorizations, consents or approvals, which
would not, individually or in the aggregate, have a
Company Material Adverse Effect or a material adverse
effect on the ability of the Company to consummate the
Transactions. Section 3.4 of the Company Disclosure
Schedule sets forth a list of all third party consents
and approvals required to be obtained in connection with
this Agreement under the Specified Contracts prior to the
consummation of the Transactions.
Section III.5 SEC Reports and Financial State-
ments.
(a) The Company has filed with the SEC all
forms, reports, schedules, statements and other documents
required to be filed by it since January 1, 1996 and
prior to the date hereof, under the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act")
(as such documents have been amended since the time of
their filing, collectively, the "Company SEC Documents").
As of their respective dates or, if amended, as of the
date of the last such amendment, the Company SEC Docu-
ments, including, without limitation, any financial
statements or schedules included therein (a) did 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 therein, in
light of the circumstances under which they were made,
not misleading and (b) complied in all material respects
with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be, and the applica-
ble rules and regulations of the SEC thereunder. None of
the Company's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) The financial statements of the Company
included in the Company SEC Documents (the "Financial
Statements") have been prepared from, and are in accor-
dance with, the books and records of the Company and its
consolidated Subsidiaries, comply in all material re-
spects with applicable accounting requirements and with
the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with
United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the period
involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial
position and the consolidated results of operations and
cash flows (subject, in the case of unaudited interim
financial statements, to normal year end adjustments and
the absence of footnote disclosures as permitted by
Regulation S-X) of the Company and its consolidated
Subsidiaries as of the times and for the periods referred
to therein.
Section III.6 Absence of Certain Change.
Except as disclosed in Section 3.6 of the Company
Disclosure Schedule or in the Company SEC Documents filed
prior to the date hereof, (A) since September 30, 1999,
(i) to the knowledge of the Company, the Company and its
Subsidiaries have conducted their respective businesses
only in the ordinary and usual course, (ii) there have
not occurred prior to the date hereof any events or
changes (including the incurrence of any liabilities of
any nature, whether or not accrued, contingent or
otherwise) having or reasonably likely to have,
individually or in the aggregate, a Company Material
Adverse Effect, (iii) there has not been the destruction
of any material property, (iv) the Company has not taken
any action which would have been prohibited under Section
5.1 had it taken place after the date hereof, and (B)
since December 31, 1998 and prior to the date hereof
there has been no material adverse change in the business
relationship of the Company and any of the top five
customers of the Company by revenue.
Section III.7 No Undisclosed Liabilities.
Except (a) as disclosed in the Financial Statements and
(b) for liabilities and obligations (i) incurred in the
ordinary course of business and consistent with past
practice since September 30, 1999, (ii) pursuant to the
terms of this Agreement, (iii) as set forth in Section
3.7 of the Company Disclosure Schedule, or (iv) as re-
quired to be disclosed in Section 3.9 of the Company
Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise,
whether or not required by GAAP to be reflected in,
reserved against or otherwise described in the ▇▇▇▇▇▇▇-
dated balance sheet of the Company (including the notes
thereto) which, individually or in the aggregate, are
reasonably likely to have a Company Material Adverse
Effect.
Section III.8 Specified Contracts. Except as
set forth in Section 3.8 of the Company Disclosure Sched-
ule, there have been made available to Parent and its
representatives true, correct and complete copies of all
of the following contracts to which Company or any of its
Subsidiaries is a party or by which any of them is bound
(collectively, the "Specified Contracts"): (i) contracts
with any directors and those persons identified in the
last sentence of Section 3.1(a); (ii) collective bargain-
ing agreements for which the Company or any of its domes-
tic Subsidiaries is a party; (iii) pending contracts (A)
for the sale of any of the assets of Company or any of
its Subsidiaries, other than contracts entered into in
the ordinary course of business or (B) for the grant to
any person of any preferential rights to purchase any of
its assets, other than in the ordinary course of busi-
ness; (iv) contracts which restrict, in any material
respect, the Company or any of its Subsidiaries from
competing in any line of business or with any person in
any geographical area; (v) indentures, credit agreements,
security agreements, mortgages, guarantees, promissory
notes and other contracts relating to the borrowing of
money involving indebtedness for borrowed money, in each
case, in excess of $2,500,000; (vi) contracts with any
stockholders of Company beneficially owning 5% or more of
the Company's outstanding capital stock on the date
hereof; (vii) acquisition, merger, asset purchase or sale
agreements with a purchase price in excess of $10,000,000
entered into since July 1, 1995 (other than agreements
for the purchase and sale of materials or products in the
ordinary course of business); (viii) contracts relating
to any material joint venture, partnership, strategic
alliance or other similar agreement; and (ix) all other
agreements, contracts or instruments entered into which,
to the knowledge of the Company, are material to the
Company and its Subsidiaries taken as a whole. A list of
the Specified Contracts is set forth on Section 3.8 of
the Company Disclosure Schedule. The provisions of this
Section 3.8 shall be limited to the knowledge of the
Company as they relate to its foreign Subsidiaries.
Section III.9 Litigation. Except as set forth
in Section 3.9 of the Company Disclosure Schedule, or the
Company SEC Documents, as of the date hereof, to the
knowledge of the Company, there are no suits, claims,
actions, proceedings, including, without limitation,
arbitration proceedings or alternative dispute resolution
proceedings, or investigations pending or threatened
against the Company or any of its Subsidiaries before any
Governmental Entity in which damages in excess of
$500,000 are being sought or that, either individually or
in the aggregate, would be reasonably likely to have a
Company Material Adverse Effect.
Section III.10 Employee Benefit Plans.
(a) For purposes of this Agreement, the term
"Plans" shall include: each deferred compensation and
each incentive compensation, stock purchase, stock option
and other equity compensation plan, program, agreement or
arrangement; each severance or termination pay, medical,
surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of
section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")); each profit-sharing,
stock bonus or other "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each
employment, termination or severance agreement; and each
other employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with
the Company would be deemed a "single employer" within
the meaning of section 4001(b) of ERISA, or to which the
Company or an ERISA Affiliate is party, whether written
or oral, for the benefit of any employee or former em-
ployee of the Company or any of its Subsidiaries (the
"Plans"). Each of the Plans that is subject to section
302 or Title IV of ERISA or section 412 of the Code (as
defined below) is hereinafter referred to in this Section
3.10 as a "Title IV Plan." Set forth on Section 3.8 or
3.10(a) of the Company Disclosure Schedule is a list of
each material Plan covering domestic employees (excluding
employment agreements).
(b) With respect to each material domestic
Plan, the Company has made available, or will make avail-
able on or before January 15, 2000, to Purchaser true and
complete copies of the Plan and any amendments thereto
(or if the Plan is not a written Plan, a description
thereof), any related trust or other funding vehicle, any
reports or summaries required under ERISA or the Internal
Revenue Code of 1986, as amended (the "Code") and the
most recent determination letter received from the Inter-
nal Revenue Service with respect to each Plan intended to
qualify under section 401 of the Code.
(c) No material liability under Title IV or
section 302 of ERISA has been incurred by the Company or
any ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to
the Company or any ERISA Affiliate of incurring any such
liability, other than liability for premiums due the
Pension Benefit Guaranty Corporation ("PBGC") (which
premiums have been paid when due).
(d) The PBGC has not instituted proceedings to
terminate any Title IV Plan and no condition exists that
presents a material risk that such proceedings will be
instituted.
(e) No Title IV Plan or any trust established
thereunder has incurred any "accumulated funding defi-
ciency" (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived, as of the last
day of the most recent fiscal year for each Title IV
Plan. All contributions required to be made with respect
to any Plan have been timely made.
(f) No Title IV Plan is a "multiemployer
pension plan," as defined in section 3(37) of ERISA, nor
is any Title IV Plan a plan described in section 4063(a)
of ERISA. Neither the Company nor any ERISA Affiliate
has made or suffered a "complete withdrawal" or a "par-
tial withdrawal," as such terms are respectively defined
in sections 4203 and 4205 of ERISA (or any liability
resulting therefrom has been satisfied in full).
(g) Neither the Company nor any of its Subsid-
iaries, any Plan, any trust created thereunder, nor any
trustee or administrator thereof has engaged in a trans-
action in connection with which the Company or any of its
Subsidiaries, any Plan, any such trust, or any trustee or
administrator (as defined in section 3(16)(A) of ERISA)
thereof, or any party in interest (as defined in ERISA
Section 3(14)) or fiduciary with respect to any Plan or
any such trust could be subject to either a material
civil penalty assessed pursuant to section 409 or 502(i)
of ERISA or a material tax imposed pursuant to section
4975 or 4976 of the Code.
(h) Each Plan has been operated and adminis-
tered, in all material respects, in accordance with its
terms and applicable law, including but not limited to
ERISA and the Code.
(i) Each Plan intended to be "qualified"
within the meaning of section 401(a) of the Code has
received a determination from the Internal Revenue Ser-
vice indicating that such Plan is so qualified and the
trusts maintained thereunder are exempt from taxation
under section 501(a) of the Code and to the knowledge of
the Company there is no basis to believe that any such
Plan would not be so qualified (excluding amendments to
any Plans required to be made in the future to comply
with requirements of law).
(j) No Plan provides medical, surgical, hospi-
talization, death or similar benefits (whether or not
insured) for domestic employees or former employees of
the Company or any of its Subsidiaries for periods ex-
tending beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable
law, (ii) death benefits under any "pension plan," or
(iii) benefits the full cost of which is borne by the
current or former employee (or his beneficiary).
(k) Except as disclosed in Section 3.10(k) of
the Company Disclosure Schedule, or as set forth in
Section 5.10, the consummation of the Transactions will
not, either alone or in combination with another event,
except as expressly provided in this Agreement, (i)
entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, unem-
ployment compensation or any other payment, or (ii)
accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or
officer.
(l) There are no pending, or to the knowledge
of the Company, threatened or anticipated claims by or on
behalf of any Plan, by any employee or beneficiary cov-
ered under any such Plan, or otherwise involving any such
Plan (other than routine claims for benefits).
(m) To the knowledge of the Company, with
respect to each Plan established or maintained outside of
the United States of America primarily for benefit of
employees of the Company or any of its Subsidiaries
residing outside the United States of America (a "Foreign
Benefit Plan"): (i) all employer and employee contribu-
tions to each Foreign Benefit Plan required by law or by
the terms of such Foreign Benefit Plan have been made,
or, if applicable, accrued, in accordance with normal
accounting practices; (ii) the fair market value of the
assets of each funded Foreign Benefit Plan, the liability
of each insurer for any Foreign Benefit Plan funded
through insurance or the book reserve established for any
Foreign Benefit Plan, together with any accrued contribu-
tions, is sufficient to procure or provide for the ac-
crued benefit obligations, as of September 30, 1999, with
respect to all current and former participants in such
plan according to the actuarial assumptions and valua-
tions most recently used to determine employer contribu-
tions to such Foreign Benefit Plan and none of the Trans-
actions shall cause such assets or insurance obligations
to be less than such benefit obligations; and (iii) each
Foreign Benefit Plan required to be registered has been
registered and has been maintained in good standing with
applicable regulatory authorities.
(n) Prior to the date hereof, the Company has
amended its Change of Control Plan, its employment agree-
ment with ▇▇▇ ▇. ▇▇▇▇▇▇▇ and any other relevant plan to
delete any requirement to fund a grantor trust as a
result of this Agreement or the Transactions so long as
the Company is not in breach of any such employment
agreement or any other employment agreement between the
Company or a Subsidiary of the Company and the individu-
als who participate in such plan. A copy of the amended
plans and agreement(s) are attached as Section 3.10(n) of
the Company Disclosure Schedule.
Section III.11 Labor Matters. Except as set
forth in Section 3.11 of the Company Disclosure Schedule
or the Company SEC Documents, (i) there are no controver-
sies pending or, to the knowledge of the Company, threat-
ened, between the Company or any of its Subsidiaries and
any of their respective employees, which controversies
have had, or would reasonably be expected, individually
or in the aggregate, to have a Company Material Adverse
Effect; (ii) neither the Company nor any of its United
States Subsidiaries is in breach of any material collec-
tive bargaining agreement or other labor union contract
applicable to persons employed by the Company or its
United States Subsidiaries which would reasonably be
expected, individually or in the aggregate, to have a
Company Material Adverse Effect, nor to the knowledge of
the Company are there any activities or proceedings of
any labor union to organize any significant number of
such employees; (iii) neither the Company nor any of its
Subsidiaries is in breach of any material collective
bargaining agreement or other labor union contract, nor,
to the knowledge of the Company, are there any activities
or proceedings of any labor unions to organize employees,
or of any strikes, slowdowns, work stoppages, lockouts,
or threats thereof, by or with respect to any employees
of the Company or any of its Subsidiaries which would
reasonably be expected, individually or in the aggregate,
to have a Company Material Adverse Effect; and (iv) there
are no (A) unfair labor practice charges, material griev-
ances or material complaints pending or threatened by or
on behalf of any employee or group of employees of the
Company or any of its Subsidiaries, or (B) complaints,
charges or claims against the Company or any of its
Subsidiaries pending or threatened to be brought or
filed, with any Governmental Entity or arbitrator based
on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment
of any individual by the Company or any of its Subsidiar-
ies.
Section III.12 Tax Matters; Government
Benefits.
(a) The Company and each of its eligible
domestic Subsidiaries are members of the affiliated group
(within the meaning of Section 1504(a) of the Code), of
which the Company is the common parent. The Company and
each of its Subsidiaries have duly filed all Tax Returns
(as hereinafter defined) that are required to be filed
excluding only such Tax Returns as to which, individually
or in the aggregate, any failure to file does not have a
Company Material Adverse Effect and have duly paid or
caused to be duly paid in full or made provision in
accordance with GAAP for the payment of all Taxes (as
hereinafter defined) due with respect to all periods
covered by such Tax Returns. All such Tax Returns are
correct and complete in all material respects and accu-
rately reflect, in all material respects, all liability
for Taxes for the periods covered thereby. All Tax
liabilities of the Company and each of its Subsidiaries
for results of operations through September 30, 1999
(whether or not shown on any Tax Return) have been paid
or have been adequately reflected on the Company's bal-
ance sheet as of September 30, 1999 included in the
Financial Statements (the "Balance Sheet") other than
those Taxes as to which the failure to pay or provide
reserves will not have a Company Material Adverse Effect.
Since September 30, 1999, the Company has not incurred
liability for any Taxes other than in the ordinary course
of business. Neither the Company nor any of its Subsid-
iaries has received written notice of any material claim
made by an authority in a jurisdiction where neither the
Company nor any of its Subsidiaries file Tax Returns,
that the Company is or may be subject to taxation by that
jurisdiction.
(b) The federal income Tax Returns of the
Company and its Subsidiaries have been examined by the
Internal Revenue Service (or the applicable statutes of
limitation for the assessment of federal income Taxes for
such periods have expired) for all periods through and
including December 31, 1995, and no material deficiencies
were asserted as a result of such examinations that have
not been resolved or fully paid or accrued. Neither the
Company nor any of its Subsidiaries has waived any stat-
ute of limitations in any jurisdiction in respect of
Taxes or Tax Returns or agreed to any extension of time
with respect to a Tax assessment or deficiency except in
the ordinary course consistent with past practice.
(c) Except as set forth on Section 3.12(c) of
the Company Disclosure Schedule, no federal, state, local
or foreign audits, examinations or other administrative
proceedings have been commenced with regard to any Taxes
or Tax Returns of the Company or of any of its Subsidiar-
ies other than in the ordinary course of business, con-
sistent with past practice. No written notification has
been received by the Company or by any of its Subsidiar-
ies that such an audit, examination or other proceeding
is pending or threatened with respect to any Taxes due
from or with respect to or attributable to the Company or
any of its Subsidiaries or any Tax Return filed by or
with respect to the Company or any of its Subsidiaries.
To the knowledge of the Company, there is no dispute or
claim concerning any material Tax liabilities of the
Company, or any of its Subsidiaries either claimed or
raised by any taxing authority in writing which, individ-
ually or in the aggregate, are material to the Company
and which are not reserved for in the Financial State-
ments.
(d) Except as set forth on Section 3.12(d) of
the Company Disclosure Schedule, neither the Company nor
any of its Subsidiaries is a party to any agreement,
plan, contract or arrangement that is reasonably likely
to result, separately or in the aggregate, in a payment
of any "excess parachute payments" within the meaning of
Section 280G of the Code.
(e) Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section
341(f) of the Code (or any predecessor provision)
concerning collapsible corporations, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of
a "subsection (f) asset" (as such term is defined in Sec-
tion 341(f)(4) of the Code) owned by the Company or any
of its Subsidiaries.
(f) To the knowledge of the Company, no taxing
authority is asserting or threatening to assert a claim
against the Company or any of its Subsidiaries under or
as a result of Section 482 of the Code or any similar
provision of state, local or foreign law.
(g) Except as set forth in Section 3.12(g) of
the Company Disclosure Schedule, to the knowledge of the
Company, neither the Company nor any of its Subsidiaries
is a party to any material tax sharing, tax indemnity or
other similar agreement or arrangement with any entity
not included in the Company's consolidated financial
statements most recently filed by the Company with the
SEC.
(h) Except as set forth in Section 3.12(h) of
the Company Disclosure Schedule, to the knowledge of the
Company, none of the Company or any of its Subsidiaries
has been a member of any affiliated group within the
meaning of Section 1504(a) of the Code, or any similar
affiliated or consolidated group for tax purposes under
state, local or foreign law (other than a group the
common parent of which is the Company) to the extent that
being such a member is reasonably likely to give rise to
a material tax liability, or has any material liability
for Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6
or any similar provision of state, local or foreign law,
or as a transferee or successor, by contract or other-
wise.
(i) As used in this Agreement, the following
terms shall have the following meanings:
(i) "Tax" or "Taxes" shall mean all
taxes, charges, fees, duties, levies, penalties or other
assessments imposed by any federal, state, local or
foreign governmental authority, including, but not
limited to, income, gross receipts, excise, property,
sales, gain, use, license, custom duty, unemployment,
capital stock, transfer, franchise, payroll, withholding,
social security, minimum estimated, and other taxes, and
shall include interest, penalties or additions
attributable thereto; and
(ii) "Tax Return" shall mean any return,
declaration, report, claim for refund, or information
return or statement relating to Taxes, including any
schedule or attachment thereto, and including any
amendment thereof.
Section III.13 Intellectual Property.
(a) As used herein, the term "Intellectual
Property" means all trademarks, service marks, trade
names, Internet domain names and logos, together with
goodwill, registrations and applications relating to the
foregoing; registered patents, registered and unregis-
tered copyrights (including registrations and applica-
tions for any of the foregoing); computer programs,
including any and all software implementations of algo-
rithms, models and methodologies whether in source code
or object code form, databases and compilations, includ-
ing any and all data and collections of data, all docu-
mentation, including user manuals and training materials,
related to any of the foregoing and the content and
information contained on any Web site (collectively,
"Software"); confidential information, technology, know-
how, inventions, processes, formulae, algorithms, models
and methodologies (such confidential items, collectively
"Trade Secrets") held for use or used in the business of
the Company as conducted on the date hereof or as pres-
ently contemplated to be conducted and any licenses to
use any of the foregoing.
(b) As used herein, the term "License Agree-
ments" means all agreements granting or obtaining any
right to use or practice any rights under any Intellec-
tual Property, to which the Company or any of its Subsid-
iaries is a party or otherwise bound, as licensee or
licensor thereunder, including, without limitation,
license agreements, settlement agreements and covenants
not to ▇▇▇.
(c) Except as set forth in Section 3.13(c) of
the Company Disclosure Schedule or as would not have,
individually, or in the aggregate, a Company Material
Adverse Effect:
(i) the Company or its Subsidiaries own or have
the right to use all Intellectual Property, free and
clear of all liens or other encumbrances;
(ii) any Intellectual Property owned or used by
the Company or any of its Subsidiaries has been duly
maintained, is valid and subsisting, in full force and
effect and has not been cancelled, expired or abandoned;
(iii) the Company has not received any notice
of actual or alleged infringement by the Company or any
of its Subsidiaries or an offer of license from any third
party of any intellectual property of such third party,
and to the knowledge of the Company, there is no basis
for such a claim against, or offer to, the Company or any
of its Subsidiaries;
(iv) the Company has not received written
notice from any third party regarding any assertion or
claim challenging the validity of any Intellectual Prop-
erty owned or used by the Company or any of its Subsid-
iaries and to the knowledge of the Company there is no
basis for such a claim;
(v) to the knowledge of the Company, no third
party is misappropriating, infringing, diluting or vio-
lating any Intellectual Property owned by the Company or
any of its Subsidiaries;
(vi) the License Agreements are valid and
binding obligations of the Company or any of its Subsid-
iaries, enforceable in accordance with their terms, and
there exists no event or condition which will result in a
violation or breach of, or constitute a default by the
Company or any of its Subsidiaries or the other party
thereto, under any such License Agreement;
(vii) the Company and each of its Subsidiaries
take reasonable measures to protect the confidentiality
of Trade Secrets;
(viii) the consummation of the Transactions
will not result in the loss or impairment of the Com-
pany's or any of its Subsidiaries' rights to own or use
any of the Intellectual Property, nor will such consumma-
tion require the consent of any third party in respect of
any Intellectual Property; and
(ix) all material Software used or held for use
by the Company (a) was developed by employees of the
Company or any of its Subsidiaries within the scope of
their employment; (b) was developed by independent con-
tractors who have assigned all of their rights to the
Company or any of its Subsidiaries pursuant to written
agreement; or (c) is leased or licensed pursuant to the
License Agreements.
Section III.14. Year 2000 Compliance. Except
as set forth in Section 3.14 of the Company Disclosure
Schedule, all Software and systems used by and products,
systems and/or services sold by the Company and each
Subsidiary of the Company are Year 2000 Compliant, except
for such failures which, individually or in the aggre-
gate, have not had and are not reasonably likely to have
a Company Material Adverse Effect. As used herein,
"Year 2000 Compliant" and "Year 2000 Compliance" mean
for all dates and times, including, without limitation
dates and times after December 31, 1999 and in the multi-
century scenario, when used on a stand-alone system or in
combination with other software or systems: (i) the
application system functions and receives and processes
dates and times correctly without abnormal results;
(ii) all date related calculations are correct
(including, without limitation, age calculations),
duration calculations and scheduling calculations);
(iii) all manipulations and comparisons of date-related
data produce correct results for all valid date values
within the scope of the application; (iv) there is no
century ambiguity; and (v) leap years are accounted for
and correctly identified (including, without limitation,
that 2000 is recognized as a leap year). The Company and
each of its Subsidiaries have taken such steps, as the
Company and/or such Subsidiaries believed were
reasonable, to ascertain, for entities that (x) provide
data of any type that includes date information or which
is otherwise derived from, dependent on or related to
date information ("Date Data") to the Company or any of
its Subsidiaries, (y) processes in any way Date Data for
the Company or any of its Subsidiaries or (z) otherwise
provides any product or service to the Company or any of
its Subsidiaries that is dependent on Year 2000
Compliance, that such entities' Date Data and related
software and systems that are used for, or on behalf of,
the Company or any of its Subsidiaries are Year 2000
Compliant, and to the knowledge of the Company, all of
the software and systems of the Company and each of its
Subsidiaries are Year 2000 Compliant, except for any
failure to be Year 2000 Compliant that would not,
individually or in the aggregate, have a Company Material
Adverse Effect.
Section III.15 Insurance. Except as disclosed
in Section 3.15 of the Company Disclosure Schedule or the
Company SEC Reports, all material fire and casualty,
general liability, business interruption, product liabil-
ity and sprinkler and water damage insurance policies
maintained by the Company or any of its Subsidiaries are
with reputable insurance carriers, provide coverage for
all normal risks incident to the business of the Company
and its Subsidiaries and their respective properties and
assets and are in character and amount appropriate for
the business conducted by the Company, except as would
not reasonably be expected, individually or in the aggre-
gate, to have a Company Material Adverse Effect.
Section III.16 Compliance with Laws. (i) The
Company and its Subsidiaries are in compliance with, and
have not violated, in any material respect, any applica-
ble law, rule or regulation of any United States federal,
State, local, or foreign government or agency thereof
which affects the business, properties or assets of the
Company and its Subsidiaries, and (ii) no notice, charge,
claim, action or assertion has been received by the
Company or any of its Subsidiaries or has been filed,
commenced or, to the Company's knowledge, threatened
against the Company or any of its Subsidiaries alleging
any such violation except, in case of each of clause (i)
and (ii), as would not have, individually or in the
aggregate, a Company Material Adverse Effect. To the
knowledge of the Company, all licenses, permits and
approvals required under such laws, rules and regulations
are in full force and effect.
Section III.17 Restrictions on Business
Activities. To the knowledge of the Company, except for
this Agreement or as set forth in Section 3.17 of the
Company Disclosure Schedule or the Company SEC Documents,
there is no agreement, judgment, injunction, order or
decree binding upon the Company or any of its
Subsidiaries which has or would reasonably be expected
to have the effect of prohibiting or impairing the
conduct of business by the Company or any of its
Subsidiaries as currently conducted by the Company or
such Subsidiary, except for any prohibition or impairment
as would not reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect.
Section III.18 Vote Required. The affirmative
vote of the holders of shares of Common Capital Stock
entitled to cast at least two-thirds of the votes which
the outstanding shares of Common Capital Stock are enti-
tled to cast at the time on matters other than the elec-
tion of directors is the only vote of the holders of any
class or series of the Company's capital stock which may
be necessary to approve this Agreement or the Transac-
tions. The restrictions contained in Section 203 of the
DGCL are not applicable to this Agreement, the Stockhold-
ers Agreement and the transactions contemplated hereby
and thereby, including the Offer, the Merger and the
acquisition of Shares pursuant to the Stockholders Agree-
ment. No other State takeover statute or similar state
statute applies or purports to apply to the Offer, the
Merger or the other Transactions.
Section III.19 Interested Party Transactions.
Except as set forth in Section 3.19 of the Company Dis-
closure Schedule or the Company SEC Documents or as
otherwise contemplated by this Agreement, for events as
to which the amounts involved do not, in the aggregate,
exceed $300,000 since the Company's proxy statement dated
April 5, 1999, no event has occurred that would be re-
quired to be reported as a Certain Relationship or Re-
lated Transaction pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section III.20 Environmental Laws.
Except, for purposes of Sections 3.20(a)-(f),
such matters as would not have, individually or in the
aggregate, a Company Material Adverse Effect:
(a) Except as set forth in Section 3.20(a) of
the Company Disclosure Schedule, the Company and its
Subsidiaries have always been and are in compliance with
all applicable Environmental Laws (as defined below)
(which compliance includes, without limitation, the
possession by the Company and its Subsidiaries of all
permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with
the terms and conditions thereof).
(b) Except as set forth in Section 3.20(b) of
the Company Disclosure Schedule, there is no Environmen-
tal Claim (as defined below) pending or, to the Company's
knowledge, threatened against the Company or any of its
Subsidiaries or, to the Company's knowledge, against any
person or entity whose liability for any Environmental
Claim the Company or any of its Subsidiaries has or may
have retained or assumed either contractually or by
operation of law.
(c) Except as disclosed in Section 3.20(c) of
the Company Disclosure Schedule, to the knowledge of
Company, there are no pending proceedings related to the
issuance or renewal of permits or authorizations required
under Environmental Laws.
(d) Except as disclosed in Section 3.20(d) of
the Company Disclosure Schedule, neither the Company nor
any of its Subsidiaries is subject to any judicial or
administrative orders or decrees pursuant to any Environ-
mental Law.
(e) Except as set forth in Section 3.20(e) of
the Company Disclosure Schedule, there are no past or
present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the
release or presence of any Hazardous Material (as defined
below), which could reasonably be expected to form the
basis of any Environmental Claim (as defined below)
against the Company or any of its Subsidiaries, or to the
Company's knowledge, against any person or entity whose
liability for any Environmental Claim the Company or any
of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
(f) Except as set forth in Section 3.20(f) of
the Company Disclosure Schedule, the Company and its
Subsidiaries have not and, to the knowledge of the Com-
pany, no other person has placed, stored, deposited,
discharged, buried, dumped or disposed of Hazardous
Materials or any other wastes produced by, or resulting
from, any business, commercial or industrial activities,
operations or processes, on, beneath or adjacent to any
property currently or formerly owned, operated or leased
by the Company or any of its Subsidiaries, except (x) for
inventories of such substances to be used, and wastes
generated therefrom, which have been disposed of in
compliance with Environmental Laws in the ordinary course
of business of the Company and its Subsidiaries.
(g) For purposes of this Agreement, (i) "Envi-
ronmental Laws" means all federal, State, local and
foreign laws and regulations relating to pollution or
protection of human health, safety or the environment
enacted as of the date of this Agreement, including,
without limitation, laws relating to releases or threat-
ened releases of Hazardous Materials or otherwise relat-
ing to the manufacture, processing, distribution, use,
treatment, storage, release, disposal, transport or
handling of Hazardous Materials and all laws and regula-
tions with regard to record keeping, notification, dis-
closure and reporting requirements respecting Hazardous
Materials; (ii) "Environmental Claim" means any claim,
action, cause of action, investigation or notice (written
or oral) by any person or entity alleging potential
liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, govern-
mental response costs, natural resources damages, prop-
erty damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or
release, of any Hazardous Materials at any location,
whether or not owned, leased or operated by the Company
or any of its Subsidiaries, or (b) circumstances forming
the basis of any violation, or alleged violation, of any
Environmental Law; (iii) "Hazardous Materials" means all
substances defined as Hazardous Substances, Oils, Pollut-
ants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. No. 300.5,
or defined as such by, or regulated as such under, any
Environmental Law.
Section III.21 Real Property. The Company or
one of its Subsidiaries has good and marketable title to
each parcel of real property owned by the Company or its
Subsidiaries and a valid leasehold interest in all real
property leased by the Company and its Subsidiaries free
and clear of all pledges, claims, liens, charges, mort-
gages, conditional sale or title retention agreements,
hypothecations, collateral assignments, security inter-
ests, easements and other encumbrances of any kind or
nature whatsoever (collectively, "Liens") except (A)
those reflected or reserved against in the latest balance
sheet of the Company included in the Company SEC Docu-
ments or Section 3.21 of the Company Disclosure Schedule,
(B) taxes and general and special assessments not in
default and payable without penalty and interest, and (C)
other Liens that individually or in the aggregate do not
materially detract from the value of such property or its
intended use.
Section III.22 Opinion of Financial Advisor.
The Company has received the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
Company, LLC, dated December 18, 1999, to the effect
that, as of such date, the consideration to be received
by the holders of Shares pursuant to this Agreement is
fair to such holders from a financial point of view, a
copy of which opinion has been delivered to Parent and
the Purchaser.
Section III.23 Brokers. No broker, finder or
investment banker (other than ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company,
LLC the fees and expenses of whom will be paid by the
Company) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct
copy of all agreements between the Company and ▇▇▇▇▇▇▇
▇▇▇▇▇ & Company, LLC pursuant to which such firm would be
entitled to any payment relating to the transactions
contemplated hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
The Parent and Purchaser represent and warrant
to the Company as set forth below.
Section IV.1 Organization. Each of Parent and
the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Delaware
and has all requisite corporate or other similar power
and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure
to be so organized, existing and in good standing or to
have such power, authority, and governmental approvals
would not have, individually or in the aggregate, a
Parent Material Adverse Effect. As used in this Agree-
ment, "Parent Material Adverse Effect," with reference to
any events, changes or effects, shall mean such events,
changes or effects that are materially adverse to the
Parent and its Subsidiaries, taken as a whole.
Section IV.2 Authorization; Validity of Agree-
ment; Necessary Action. Each of Parent and the Purchaser
has full corporate power and authority to execute and
deliver this Agreement and to consummate the Transac-
tions. The execution, delivery and performance by Parent
and the Purchaser of this Agreement and the consummation
of the Merger and of the Transactions have been duly
authorized by the Board of Directors of Parent and the
Purchaser and by Parent as the sole stockholder of the
Purchaser and no other corporate action on the part of
Parent or the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of
this Agreement and the consummation of the Transactions.
This Agreement has been duly executed and delivered by
Parent and the Purchaser, as the case may be, and, assum-
ing due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation
of each of Parent and the Purchaser, as the case may be,
enforceable against each of them in accordance with its
terms.
Section IV.3 Consents and Approvals; No ▇▇▇▇▇-
tions. Except for the filings contemplated by Sections
5.11 and 5.12 and except for the filings, permits, autho-
rizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange
Act, the HSR Act, the laws of any jurisdiction, and the
DGCL, none of the execution, delivery or performance of
this Agreement by Parent or the Purchaser, the consumma-
tion by Parent or the Purchaser of the Transactions or
compliance by Parent or the Purchaser with any of the
provisions hereof will (i) conflict with or result in any
breach of any provision of the respective certificate of
incorporation or by-laws of Parent or the Purchaser, (ii)
require any filing with, or permit, authorization, con-
sent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or
obligation to which Parent, or any of its Subsidiaries or
the Purchaser is a party or by which any of them or any
of their respective properties or assets may be bound, or
(iv) violate any order, writ, injunction, decree, stat-
ute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets, ex-
cluding from the foregoing clauses (ii), (iii) and (iv)
such violations, breaches, defaults or such failures to
make filings, or obtain permits, authorizations, consents
or approvals which would not, individually or in the
aggregate, have a material adverse effect on the ability
of Parent and Purchaser to consummate the Transactions.
Section IV.4 Financing. As of the date
hereof, Parent and Purchaser have, and on the Share
Purchase Date and at the Effective Time, Parent and
Purchaser will have, sufficient cash resources available
to finance the Transactions.
ARTICLE V
COVENANTS
Section V.1 Interim Operations of the Company.
The Company covenants and agrees that, except (i) as
expressly contemplated by this Agreement, (ii) as set
forth on Section 5.1 of the Company Disclosure Schedule
or (iii) with the consent of Parent, which consent will
not be unreasonably withheld, after the date hereof, and
prior to the time the directors designated by the Pur-
chaser have been elected to, and shall constitute a
majority of, the Board pursuant to Section 1.3 (the
"Appointment Date"):
(a) the business of the Company and its Sub-
sidiaries shall be conducted only in the ordinary and
usual course and, to the extent consistent therewith,
each of the Company and its Subsidiaries shall use its
commercially reasonable best efforts and shall cooperate
with Parent to preserve its business organization intact
and maintain its existing relations with customers,
suppliers, employees, creditors and business partners;
(b) the Company will not, directly or indi-
rectly, (i) except (x) upon exercise or payment of stock
options or other awards outstanding under the Company
Stock Plans or (y) pursuant to outstanding obligations to
the former stockholders of Alarm Suppliers, Inc., sell,
pledge, dispose of or encumber any shares of, or securi-
ties convertible into or exchangeable for, or options,
warrants, calls, commitment or rights of any kind to
acquire, any shares of capital stock of any class of the
Company or any of its Subsidiaries,(ii) amend its Certif-
icate of Incorporation or By-laws or similar organiza-
tional documents; or (iii) split, combine or reclassify
the outstanding Shares or any outstanding capital stock
of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsid-
iaries shall: (i) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property
with respect to its capital stock other than dividends
paid by Subsidiaries of the Company in the ordinary
course of business consistent with past practice; pro-
vided, that the Company may declare and pay the regular
quarterly cash dividends in amounts not to exceed $.0217
per share of Common Stock and $.03 per share of Class A
Stock to holders of shares of Common Stock and Class A
Stock;(ii) transfer, lease, license, sell, mortgage,
pledge, dispose of, or encumber any assets other than in
the ordinary and usual course of business and consistent
with past practice, or incur or modify any indebtedness
or other liability, other than in the ordinary and usual
course of business and consistent with past practice; or
(iii) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d)neither the Company nor any of its Subsid-
iaries shall, except as required by any collective bar-
gaining agreement, grant any increase in the compensation
payable or to become payable by the Company or any of its
Subsidiaries to any of its officers or employees except
that the Company and its Subsidiaries may grant base
salary increases consistent with past practice for em-
ployees normally occurring at or after the 1999 year end
for year 2000; provided, that such increases in base
salaries may not exceed five percent (5%) in the aggre-
gate for all such employees (except for salaries paid to
managers of businesses acquired by the Company after
October 1, 1998, in which case such salaries shall be
determined in a manner consistent with the Company's past
practice with respect to salaries paid to managers of
acquired companies); provided, further, that any in-
creases in the base salaries payable to the Company's top
ten most highly compensated executives must be consistent
with past practice for such executives (unless agreed to,
on a case by case basis, by Parent) and, in any event,
such increases may not exceed ten percent (10%) of base
salary (x) for each such executive and (y) in the aggre-
gate for all such executives;
(e)neither the Company nor any of its Subsid-
iaries shall (A) adopt any new, or (B) amend or otherwise
increase, or accelerate the payment or vesting of the
amounts payable or to become payable under, any existing,
bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit
plan, agreement or arrangement; provided, that the Com-
pany may pay cash bonuses to any or all of its managers
covering 1999 performance so long as the amount of each
such bonus is consistent with past practice (unless
agreed to, on a case by case basis, by Parent) and the
aggregate amount of such bonuses (excluding the bonuses
payable under previously agreed to formulas so long as
the amounts paid are per such existing formulas) do not
exceed by twenty percent (20%) the aggregate amount of
the bonuses (in cash or otherwise) paid to such managers
for 1998 performance, except for bonuses paid to managers
of businesses acquired by the Company after October 1,
1998, in which case such bonuses shall be consistent with
the Company's past practice with respect to bonus poli-
cies for acquired businesses; and provided, further, that
the Company may, before the completion of the Offer (x)
modify the termination for "Good Reason" provision in
executive employment contracts such that "Good Reason"
would include a reduction in yearly total compensation
opportunity offered to a given executive for reasonable
performance, and (y) eliminate the "Adjustments" clause
in each of such executive employment agreements;
(f) neither the Company nor any of its Subsid-
iaries shall enter into any employment or severance
agreement with or otherwise grant any severance or termi-
nation pay to any officer, director or employee of the
Company or any of its Subsidiaries; provided, that em-
ployment agreements with additional executives may be
entered into upon agreement of Parent and the Company;
(g) neither the Company nor any of its Subsid-
iaries shall permit any insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or
terminated without notice to Parent, except in the ordi-
nary course of business and consistent with past prac-
▇▇▇▇;
(h) neither the Company nor any of its Subsid-
iaries shall enter into any contract or transaction
relating to the purchase of assets other than in the
ordinary course of business consistent with prior prac-
tices;
(i) neither the Company nor any of its Subsid-
iaries shall enter into any contract or transaction
relating to the lending of any material amount of money
to, or the purchase of any stock of, or other equity
interest in, or material amount of assets of, any corpo-
ration or other entity, or enter into any joint venture
or partnership (collectively, "Investments"), other than
those Investments in progress on the date hereof;
(j) make any capital expenditures which are
significantly in excess of the amounts set forth in the
budgets previously provided to Parent in writing;
(k) neither the Company nor any of its Subsid-
iaries shall change any of the accounting methods used by
it unless required by GAAP, make any material Tax elec-
tion except in the ordinary course of business consistent
with past practice, change any material Tax election
already made, adopt any material Tax accounting method
except in the ordinary course of business consistent with
past practice, change any material Tax accounting method
unless required by GAAP, or, except in the ordinary
course consistent with past practice, enter into any
closing agreement, settle any Tax claim or assessment or
consent to any Tax claim or assessment or any waiver of
the statute of limitations for any such claim or assess-
ment; and
(l) neither the Company nor any of its Subsid-
iaries will take any action with the intent of causing
any of the conditions to the Offer set forth in Annex A
not to be satisfied.
Section V.2 Access; Confidentiality.
(a) Upon reasonable notice, the Company shall
(and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel, financing
sources and other representatives of Parent, access,
during normal business hours during the period prior to
the Appointment Date, to all its employees, properties,
books, contracts, commitments and records and, during
such period, the Company shall (and shall cause each of
its Subsidiaries to) furnish promptly to the Parent (a) a
copy of each report, schedule, registration statement and
other document filed or received by it during such period
pursuant to the requirements of federal securities laws
and (b) all other information concerning its business,
properties and personnel as Parent may reasonably re-
quest. Access shall include the right to conduct such
environmental studies and tests as Parent, in its reason-
able discretion, shall deem appropriate. After the
Appointment Date, the Company shall provide Parent and
such persons as Parent shall designate with all such
information, at such time as Parent shall request.
Nothing, however, contained in this Section 5.2 shall
require disclosure of the names of bidders, the disclo-
sure of which is not required under Section 5.4. Unless
otherwise required by law and until the Appointment Date,
Parent will hold any such information which is nonpublic
in confidence in accordance with the provisions of the
letter agreement dated July 15, 1999 related to the
Transactions, as amended November 19, 1999 (the "Confi-
dentiality Agreement").
(b) Following the execution of this Agreement,
Parent and the Company shall cooperate with each other
and make all reasonable efforts to minimize any disrup-
tion to the business which may result from the announce-
ment of the Transactions.
Section V.3 Consents and Approvals.
(a) Each of the Company, Parent and the Pur-
chaser will use its commercially reasonable best efforts
to comply promptly with all legal requirements which may
be imposed on it with respect to this Agreement and the
Transactions (which actions shall include, without limi-
tation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with
any other Governmental Entity) and will promptly ▇▇▇▇▇▇-
ate with and furnish information to each other in connec-
tion with any such requirements imposed upon any of them
or any of their Subsidiaries in connection with this
Agreement and the Transactions. Each of the Company,
Parent and the Purchaser will, and will cause its Subsid-
iaries to, use its commercially reasonable best efforts
to obtain (and will cooperate with each other in obtain-
ing) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other public
or private third party required to be obtained or made by
Parent, the Purchaser, the Company or any of their Sub-
sidiaries in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement.
(b) The Company and Parent shall each use its
commercially reasonable best efforts to file as soon as
practicable notifications under the HSR Act and to re-
spond as promptly as practicable to any inquiries re-
ceived from the Federal Trade Commission and the Anti-
trust Division of the Department of Justice for addi-
tional information or documentation and to respond as
promptly as practicable to all inquiries and requests
received from any State Attorney General or other Govern-
mental Entity in connection with antitrust matters.
(c) The Company and Parent shall each use its
commercially reasonable best efforts to file as soon as
practicable any other forms or notifications which may be
required by any foreign Governmental Entity and to obtain
as promptly as reasonably possible any approvals which
may be required in connection therewith.
Section V.4 No Solicitation
(a) Neither the Company nor any of its Sub-
sidiaries shall (and the Company shall use its best
efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited
to, investment bankers, attorneys and accountants (col-
lectively, "Agents"), not to), directly or indirectly,
encourage, solicit, participate in or initiate discus-
sions or negotiations with, or provide any information
to, any corporation, partnership, person or other entity
or group (other than Parent, any of its affiliates or
representatives) concerning any proposal or offer to
acquire all or a substantial part of the business and
properties of the Company or any of its Subsidiaries or
any capital stock of the Company or any of its Subsidiar-
ies, whether by merger, tender offer, exchange offer,
sale of assets or similar transactions involving the
Company or any Subsidiary, division or operating or
principal business unit of the Company (an "Acquisition
Proposal"). The Company will immediately cease any
existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the
foregoing, if any.
(b) Notwithstanding the foregoing, prior to
the Share Purchase Date, the Company may furnish informa-
tion concerning its business, properties or assets to any
corporation, partnership, person or other entity or
group, and may participate in discussions and negotia-
tions with such entity or group, if (x) such person has
on an unsolicited basis submitted to the Company (1) an
Acquisition Proposal believed by the Board in good faith
to be bona fide, or (2) an expression of interest be-
lieved by the Board in good faith to be bona fide indi-
cating such person's desire to pursue the possibility of
making an Acquisition Proposal on terms financially
superior to the Offer and the Merger (an "Indication of
Interest") and, in either such case, the Board determines
in good faith (i) after consulting with its financial
advisors, that such person has the financial capability
to consummate such Acquisition Proposal or, in the case
of an Indication of Interest, a transaction on terms
financially superior to the Offer and Merger, and (ii)
after receipt of advice from outside legal counsel to the
Company, that such action by the Company is appropriate
in furtherance of the best interests of the Company's
stockholders, and (y) such person has signed a confiden-
tiality agreement substantially identical to the Confi-
dentiality Agreement (it being understood that the Board
and/or its financial advisors may, in any event, discuss
with any person submitting an Acquisition Proposal or
Indication of Interest such person's bona fides and/or
financial capability). The Company will promptly provide
to Parent any written material information regarding the
Company provided to such person which was not previously
provided or otherwise made available to Parent.
(c) The Company will promptly following
receipt of an Acquisition Proposal or Indication of
Interest (and in any event not later than 24 hours after
receipt thereof) notify Parent of the receipt of the
Acquisition Proposal or Indication of Interest, as the
case may be, and any stated, whether in writing or other-
wise, material terms (other than the identity of the
person submitting such Acquisition Proposal or Indication
of Interest) of such Indication of Interest or Acquisi-
tion Proposal. The Company will promptly notify Parent
of any material changes in any disclosed Indication of
Interest or Acquisition Proposal. The foregoing notwith-
standing, the Company shall not be required to disclose
the terms of any Indication of Interest unless and until
the Company publicly discloses the existence of such
Indication of Interest.
(d) The Board may withdraw or modify its
approval or recommendation of the Offer and/or the
Merger, provided (i) the Board believes in good faith,
after receipt of advice from outside legal counsel to the
Company, that the failure to do so could reasonably be
expected to cause the Board to violate its fiduciary
duties to the Company's stockholders under applicable
law, and (ii) the Company notifies Parent of any such
withdrawal or modification prior to its release to the
public.
(e) At any time after 5:00 P.M., Central
Time, on the second full business day following the
business day on which notice is given (it being under-
stood that Christmas Eve and New Years Eve shall not be
deemed to be "business days" for such purpose) to Parent
of the Company's intent to do so and if the Company has
otherwise complied with the terms of this Section 5.4
(including, without limitation, the provisions of Section
5.4(c)), the Board may, provided that the notice identi-
fies the person submitting the Acquisition Proposal,
cause the Company to enter into an agreement with respect
to such Acquisition Proposal. Parent agrees that neither
it nor any of its Subsidiaries nor any of the officers,
directors, employees, representatives or agents, includ-
ing, but not limited to investment bankers, attorneys and
accountants, of any of the foregoing shall, directly or
indirectly, contact, on behalf or at the direction of
Parent or any of its Subsidiaries, any person disclosed
to Parent as having submitted an Acquisition Proposal
with respect to such Acquisition Proposal, the Offer, the
Merger, or any arrangement or understanding in connection
therewith (other than contacts not intended to dissuade,
and that are not reasonably likely to have the effect of
dissuading, such person from pursuing such Acquisition
Proposal), so long as such person is subject to similar
restrictions. In the event the Company is going to enter
into an agreement with respect to an Acquisition Proposal
pursuant to the second preceding sentence, the Company
will not do so unless it has terminated this Agreement
pursuant to Section 7.1(c)(ii) and paid or caused to be
paid to Parent the Termination Fee (as defined below) not
later than simultaneously with entering into such agree-
ment. In the event that any notice given pursuant to
this Section 5.4(e) is given on a non-business day, the
notice shall be deemed to have been given on the next
following business day.
(f) Nothing contained in this Section 5.4 or
any other provision hereof, however, shall prohibit the
Company or the Board from (i) taking and disclosing to
the Company's stockholders a position with respect to a
tender or exchange offer by a third party pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act,
or (ii) making such disclosure to the Company's stock-
holders as, in the good faith judgment of the Board,
after receiving advice from outside counsel, is required
under applicable law, provided that the Company may not,
except as permitted by Section 5.4(d) or (e), withdraw or
modify its approval or recommendation of the Offer or the
Merger or enter into any agreement with respect to any
Acquisition Proposal.
(g) Notwithstanding the foregoing provisions
of this Section 5.4, it is agreed and understood that the
Company (i) will include in the joint press release
announcing this Agreement a statement to the effect that,
consistent with its fiduciary obligations and subject to
the terms of this Agreement, the Board has preserved its
ability to respond to third parties where appropriate,
(ii) will file this Agreement, the Stockholders Agreement
and such press release as exhibits to a Current Report on
Form 8-K and (iii) may repeat such statement in other
public disclosures and in private communications with
financial analysts, its stockholders and others.
(h) Nothing contained in this Section 5.4
shall prohibit Parent from purchasing Shares pursuant to
the Offer or the Stockholders Agreement.
Section V.5 Additional Agreements. Subject to
the terms and conditions herein provided, each of the
parties hereto shall use all commercially reasonable best
efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, or to
remove any injunction or other impediments or delays,
legal or otherwise, to achieve the satisfaction of the
Minimum Condition and all conditions set forth in Annex A
and Article VI, and to consummate and make effective the
Merger and the other transactions contemplated by this
Agreement. In case at any time after the Effective Time
any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and
directors of the Company, Parent and the Purchaser shall
use all commercially reasonable best efforts to take, or
cause to be taken, all such necessary actions.
Section V.6 Publicity. The initial press
release (the "Press Release") with respect to the execu-
tion of this Agreement shall be a joint press release
acceptable to Parent and the Company. Thereafter, except
as provided in Section 5.4(g), so long as this Agreement
is in effect, neither the Company, Parent nor any of
their respective affiliates shall issue or cause the
publication of any press release or other public an-
nouncement with respect to the Merger, this Agreement or
the other Transactions without the prior consultation of
the other party, except as such party believes, after
receiving the advice of outside counsel, may be required
by law or by any listing agreement with a national secu-
rities exchange or trading market, in which case, such
party shall contact the other party prior to, or if
impracticable as soon as reasonably practicable after,
making any such disclosure.
Section V.7 Notification of Certain Matters.
The Company shall give prompt notice to Parent and Parent
shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would cause any representation
or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the
completion of the Offer and (ii) any material failure of
the Company, Parent or the Purchaser, as the case may be,
to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereun-
der; provided, however, that the delivery of any notice
pursuant to this Section 5.7 shall not limit or otherwise
affect the remedies available hereunder to the party
receiving such notice. If requested by Parent, the
Company shall confirm the satisfaction of the condition
to the Offer set forth in paragraph (f) of Annex A
hereto.
Section V.8 Directors' and Officers' Insurance
and Indemnification.
(a) From and after the Share Purchase Date,
Parent shall cause the Company or any successor to the
Company (including, without limitation, the Surviving
Corporation) to indemnify, defend and hold harmless the
present and former directors, officers and employees of
the Company and its Subsidiaries, and persons who become
any of the foregoing prior to the Effective Time (each an
"Indemnified Party") against all losses, claims, damages,
liabilities, costs, fees and expenses (including reason-
able fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in
settlement (provided that any such settlement is effected
with the written consent of the Parent or the Surviving
Corporation which consent shall not unreasonably be
withheld or delayed)) arising out of actions or omissions
occurring at or prior to the Effective Time to the full
extent permitted under applicable Delaware law. Parent
further agrees to advance expenses to any Indemnified
Party promptly upon receipt of an undertaking from such
Indemnified Party that such expenses shall be repaid
should it be ultimately determined that such Indemnified
Party is not entitled to indemnification hereunder.
(b) Parent shall, or shall cause the Company
or any successor to the Company (including without limi-
tation, the Surviving Corporation) to, maintain the
Company's existing officers' and directors' liability
insurance ("D&O Insurance") for a period of not less than
six years after the Share Purchase Date; provided, that
the Parent may substitute therefor policies of substan-
tially equivalent coverage and amounts containing terms
no less favorable to the directors or officers who are
Indemnified Parties; provided, further, if the existing
D&O Insurance protecting such directors and officers
expires, is terminated or cancelled during such period,
Parent or the Surviving Corporation will use all reason-
able efforts to obtain substantially similar D&O Insur-
ance; provided, further, however, that in no event shall
the Company be required to pay aggregate annual premiums
for insurance under this Section 5.8(b) in excess of 175%
of the aggregate premiums paid by the Company in 1999 on
an annualized basis for such purpose (the "1999 Pre-
mium"); and provided, further, that if the Parent or the
Surviving Corporation is unable to obtain the amount of
insurance required by this Section 5.8(b) for such aggre-
gate premium, Parent or the Surviving Corporation shall
obtain as much insurance as can be obtained for an annual
premium not in excess of 175% of the 1999 Premium.
Section V.9 Purchaser Compliance. Parent
shall cause the Purchaser to comply with all of its
obligations under or related to this Agreement.
Section V.10 Employee Benefits
.
(a) Parent shall cause the Company, and follow-
ing the Merger, the Surviving Corporation, to provide for
a period of not less than one year following the Share
Purchase Date to each person who is an employee of the
Company or its Subsidiaries immediately prior to the
Share Purchase Date (a "Company Employee") who remains in
the employ of the Company or any of its Subsidiaries with
employee benefits that are generally comparable, in the
aggregate, to the employee benefits provided to such
employees immediately prior to the date hereof. For
purposes of all employee benefit plans, programs and
arrangements maintained by or contributed to by Parent
and its Subsidiaries (including, after the Share Purchase
Date, the Company and any successor thereto, including
without limitation, the Surviving Corporation), Parent
shall, or shall cause its Subsidiaries to, cause each
such plan, program or arrangement made available to such
employees to treat the prior service with the Company,
its affiliates or other entities of each Company Employee
(to the same extent such service is recognized under
analogous plans, programs or arrangements of the Company
or its affiliates prior to the Share Purchase Date) as
service rendered to Parent or its Subsidiaries, as the
case may be, for purposes of eligibility to participate
in and vesting thereunder (but not benefit accrual,
except to the extent required by law); provided, however,
that such crediting of service shall not operate to
duplicate any benefit or the funding of such benefit.
Company Employees shall also be given credit for any
deductible or co-payment amounts paid in respect of the
plan year in which the Share Purchase Date occurs, to the
extent that, following the Share Purchase Date, they
participate in any other plan for which deductibles or
co-payments are required. Parent shall also cause each
Parent benefit plan made available to Company Employees
to waive any preexisting condition which was waived or
otherwise covered under the terms of any Company Plan
immediately prior to the Share Purchase Date or waiting
period limitation which would otherwise be applicable to
a Company Employee on or after the Share Purchase Date.
(b) Parent shall cause the Surviving Corpora-
tion to honor the employment agreements and change of
control plans listed in Section 5.10(a) to the Company
Disclosure Schedule (the "Severance Agreements"), except
to the extent modified or superseded by a separate agree-
ment entered into by the employee and the Company or
Parent or Purchaser.
(c) Parent shall establish a severance program
covering any domestic Company employees whose employment
may be terminated within one year of the Share Purchase
Date other than for cause, death or disability. The
severance program shall provide severance benefits of not
less than one week of salary for each year of service up
to a maximum of 52 weeks. Parent shall further provide,
or arrange to have provided, outplacement assistance
appropriate for each employee level. In addition, Parent
shall establish "pay to stay" programs for Company em-
ployees as appropriate. Parent shall establish such
other plans or programs as contemplated by Section
5.10(c) of the Company Disclosure Schedule.
(d) The provisions of this Section 5.10 shall
not be applicable to employees subject to collective
bargaining agreements whose employment shall be subject
to the terms of such agreements.
Section V.11 Compliance with ISRA.
(a) The Company and its Subsidiaries shall be
responsible, prior and subsequent to the Share Purchase
Date, for compliance with the New Jersey Industrial Site
Recovery Act, N.J.S.A. 13:1K-6 et seq. (together, with
the regulations and guidance promulgated thereunder,
"ISRA").
(b) Prior to the Share Purchase Date, the
Company and its Subsidiaries and Parent and the Purchaser
shall reasonably cooperate with one another with respect
to compliance with ISRA, including, but not limited to,
providing Parent and the Purchaser with advance copies of
all submittals to be filed in connection with ISRA and
reasonably incorporating comments provided by Parent
and/or the Purchaser into such filings, providing copies
of correspondence and documents received from the New
Jersey Department of Environmental Protection ("NJDEP")
to Purchaser on a timely basis, and undertaking strategic
actions with respect to ISRA compliance only after con-
sultation with Parent and/or the Purchaser; provided,
that nothing herein shall require the Company and its
Subsidiaries to undertake any action that would cause any
of them to violate the requirements of ISRA. Without
limiting the generality of the foregoing, the Company
shall, at the reasonable request of Parent and/or the
Purchaser, file an application for a Letter of Non-Appli-
cability or another appropriate exemption or limitation
on the scope of ISRA review if, in the reasonable judg-
ment of Purchaser, such application is reasonably likely
to be approved by the NJDEP.
(c) Without limiting the generality of Section
5.11(b), to the extent that it is determined that ISRA is
applicable to the Merger or the purchase of Shares pursu-
ant to the Offer, the Company and its Subsidiaries shall
reasonably cooperate with Parent and the Purchaser, and
Parent and the Purchaser shall reasonably cooperate with
the Company and its Subsidiaries, to take all actions
necessary to obtain approval from the NJDEP to effectuate
the Merger. To the extent that it is not possible to
obtain a No Further Action Letter (as defined in ISRA) or
an approval of a Remediation Workplan (as defined in
ISRA) or some other approval that would exempt or limit
the application of ISRA to the transaction prior to the
date the Merger is to scheduled to become effective or
the Share Purchase Date, Parent and the Purchaser and the
Company and its Subsidiaries agree that the Company
and/or its relevant Subsidiaries shall enter into a
Remediation Agreement with the NJDEP in order to allow
the Merger and the purchase of Shares pursuant to the
Offer to proceed.
Section V.12 Compliance with Connecticut
Transfer Act.
(a) The Company and its Subsidiaries shall be
responsible, prior and subsequent to the Share Purchase
Date, for compliance with the Connecticut Transfer Act.
(b) Prior to the Share Purchase Date, the
Company and its Subsidiaries and Parent and the Purchaser
shall reasonably cooperate with one another with respect
to compliance with the Connecticut Transfer Act, includ-
ing, but not limited to, the Company and its Subsidiaries
reasonably consulting with Purchaser regarding whether
the Company and its Subsidiaries, for each property in
Connecticut that is subject to the Connecticut Transfer
Act, will provide a Form I, Form II, Form III or Form IV
(as such terms are defined by the Connecticut Transfer
Act) (hereinafter, reference to the "Form" shall mean a
Form I, Form II, Form III or Form IV) to Parent and the
Purchaser at the Share Purchase Date. The Company and
its Subsidiaries shall provide a copy, in draft form, of
(i) the Form it intends to provide to Parent and the
Purchaser for each property that is subject to the Con-
necticut Transfer Act and (ii) any Environmental Assess-
ment forms (if such forms are required under the Connect-
icut Transfer Act), at least 10 business days prior to
the Share Purchase Date, and the use and contents of such
Form and such Environmental Assessment form shall be
subject to Parent's and the Purchaser's reasonable ap-
proval; provided, that nothing herein shall require the
Company and its Subsidiaries to undertake any action that
would cause any of them to violate the requirements of
the Connecticut Transfer Act.
Section V.13 Tax Opinion.
(a) On or prior to the date hereof, Parent has
received an opinion of counsel from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
stating that it is their opinion that, based on the
representations contained in the representation letters
referred to in such opinion and previously delivered to
Parent from King Harris, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, and ▇▇▇ ▇▇▇▇▇▇▇ (the "Listed Officers"), and
from ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "Listed Directors"), and assuming the
accuracy of the facts set forth in Section 5.13 of the
Company Disclosure Schedule (the "Tax Schedule"), the
Spinoff will not fail to qualify as a distribution on
which no gain or loss was recognized by the Indemnified
Company Stockholders under Section 355 of the Code due to
violation of the "device" or "continuity of shareholder
interest" requirements of Section 355 of the Code and the
regulations thereunder (an "Indemnifiable Disqualifica-
tion") as a result of (1) the negotiation (which began
with the exploratory meetings between representatives of
Parent and/or Honeywell Inc. and the Company commencing
in May 1999), execution and delivery of this Agreement or
(2) any of the transactions contemplated by this Agree-
ment or the Stockholders Agreement, assuming the Transac-
tions are consummated as contemplated in the Agreement.
(b) For purposes of this Section 5.13 and
Section 5.14 and Annex A hereto:
(i) "Spinee" means Penton Media, Inc., a
Delaware corporation.
(ii) "Spinoff" means the distribution by the
Company of all of the outstanding capital stock of Spinee
to the stockholders of the Company of record at the close
of business on July 31, 1998 (and such stockholders,
without regard to whether they currently or hereafter
hold any capital stock of the Company or Spinee, are
referred to as the "Indemnified Company Stockholders").
(iii) "Indemnified Tax" means:
(1) any Tax imposed on and payable by an
Indemnified Company Stockholder resulting from an
Indemnifiable Disqualification as a result of (x) the
negotiation (which began with the exploratory meetings
between representatives of Parent and/or Honeywell Inc.
and the Company commencing in May 1999), execution and
delivery of this Agreement, (y) any of the transactions
contemplated by this Agreement or the Stockholders Agree-
ment, or (z) any action or inaction on the part of Parent
or the Company at or after the Share Purchase Date, less
(2) if it is determined that the Spinoff
failed to qualify as a distribution to which Section 355
of the Code applied, any refund or credit of Taxes paid
which such Indemnified Company Stockholder would be
entitled to receive (assuming, whether or not true, that
the Indemnified Company Stockholder had filed a claim for
such refund or credit (including a protective refund
claim) promptly upon receipt of the notice described in
Section 5.14(b)(iii)) as a result of any increase in the
tax basis (as compared to the tax basis that would exist
if the Spinoff qualified as a distribution to which
Section 355 of the Code applied) of shares of capital
stock of the Company or shares of Spinee capital stock
received by the Indemnified Company Stockholder in the
Spinoff which the Indemnified Company Stockholder has
sold or otherwise disposed of on or before the date
Parent's indemnification payment to the Indemnified
Company Stockholder is made hereunder, and less (without
duplication)
(3) if it is determined that the Spinoff
failed to qualify as a distribution to which Section 355
of the Code applied, the deemed present value of any
future Tax savings available to such Indemnified Company
Stockholder as a result of any increase in the tax basis
(as compared to the tax basis that would exist if the
Spinoff qualified as a distribution to which Section 355
of the Code applied) of the shares of Spinee capital
stock received by the Indemnified Company Stockholder in
the Spinoff. The deemed present value of such future tax
savings shall be equal to 68% of the Tax savings that
would be available to such Indemnified Company Stock-
holder if taxable gain or loss with respect to any shares
of Spinee capital stock received by the Indemnified
Company Stockholder in the Spinoff then held by the
Indemnified Company Stockholder were recognized on the
date Parent's indemnification payment to the Indemnified
Company Stockholder is made hereunder.
Section V.14 Indemnification.
(a) Parent agrees, subject to the terms and
conditions of this Section 5.14, to indemnify, defend and
hold harmless each Indemnified Company Stockholder from
any Indemnified Tax.
(b) Parent's obligation to indemnify a partic-
ular Indemnified Company Stockholder from an Indemnified
Tax shall be of no force or effect if:
(i) any of the fact statements set forth in
the Tax Schedule are not true and correct or any Listed
Officer or Listed Director fails to cooperate with Parent
in Parent's defense against the Indemnified Tax as
reasonably requested by Parent and with Parent responsi-
ble for the reasonable out-of-pocket expenses of the
Listed Officer or Listed Director, and the untruthfulness
or incorrectness of such fact or such failure to ▇▇▇▇▇▇-
ate is material to a determination that an Indemnifiable
Disqualification has occurred; or
(ii) in the case of a Listed Officer or
Listed Director, any representation made by any Listed
Officer or Listed Director in any such person's represen-
tation letter is not true and correct and such failure is
material to a determination that an Indemnifiable Dis-
qualification has occurred; or
(iii) the Indemnified Company Stockholder
does not notify Parent within 15 business days of the
Indemnified Company Stockholder's receipt of any written
question or other notice from the Internal Revenue
Service to the effect that the Internal Revenue Service
is reviewing the Spinoff (in which event, notwithstanding
the introduction to this subsection (b), Parent's
obligation to indemnify, defend and hold harmless the
Indemnified Company Stockholder from the Indemnified Tax
shall not cease to be of any force or effect, but instead
shall be reduced to the extent such failure adversely
affects Parent's ability to defend against the
Indemnified Tax); or
(iv) provided that Parent agrees to under-
take the defense against the Indemnified Tax in a writing
given to the Indemnified Company Stockholder within 15
business days following such notification and thereafter
diligently pursues such defense, the Indemnified Company
Stockholder: (x) does not permit Parent to control such
defense or takes any action inconsistent with such per-
mission, (y) does not cooperate with Parent in such
defense as reasonably requested by Parent and with Parent
responsible for the reasonable out-of-pocket expenses of
the Indemnified Company Stockholder, or (z) consents to
the entry of any judgment or enters into any settlement
with respect to the Indemnified Tax without Parent's
prior written consent (which shall not be unreasonably
withheld, determined solely with regard to the impact of
the settlement on the Parent) (it being understood that
the Indemnified Company Stockholder may retain separate
counsel to monitor such defense, at the Indemnified
Company Stockholder's expense); or
(v) Parent's ability to defend against the
Indemnified Tax with respect to an Indemnified Company
Stockholder is adversely affected as a result of another
Indemnified Company Stockholder who is a Listed Officer,
Listed Director, or a party to the Stockholders Agreement
(x) failing to permit Parent to control such other
Indemnified Company Stockholder's defense against an
Indemnified Tax in a proceeding to which the proviso in
Section 5.14 (b)(iv) applied or (y) consenting to the
entry of any judgment or entering into any settlement
with respect to an Indemnified Tax in a proceeding to
which the proviso in Section 5.14 (b)(iv) applied without
Parent's prior written consent (which shall not be unrea-
sonably withheld), in which event, notwithstanding the
introduction to this subsection (b), Parent's obligation
to indemnify, defend and hold harmless the Indemnified
Company Stockholder from the Indemnified Tax shall not
cease to be of any force or effect, but instead shall be
reduced to the extent such failure or consent or entry
adversely affects Parent's ability to defend against the
Indemnified Tax).
(c) In the event (i) Parent does not agree to
undertake the defense of the Indemnified Tax in a writing
given to the Indemnified Company Stockholder within 15
business days following such notification, or does not
thereafter diligently pursue such defense, and (ii)
Parent does not agree to pay the Indemnified Tax in a
writing given to the Indemnified Company Stockholder
within 15 business days following such notification, and
(iii) the Indemnified Company Stockholder wishes to
conduct its own defense of the Indemnified Tax, and (iv)
the Indemnified Company Stockholder gives written notifi-
cation to Parent that the Indemnified Company Stockholder
intends to commence, no sooner than 15 business days
from such notice, its own defense of such Indemnified
Tax, the Indemnified Company Stockholder thereafter may
conduct such defense and may, without Parent's consent,
consent to the entry of any judgment or enter into any
settlement with respect to the Indemnified Tax. In the
event such conditions are met, the Indemnified Tax shall
include any costs reasonably incurred by the Indemnified
Company Stockholder in defending against or contesting
the validity of the Indemnified Tax. For the avoidance
of doubt, Parent shall not be obligated to indemnify any
Indemnified Company Stockholder for costs of defense
where Parent has decided not to contest the Indemnified
Tax and has so advised the Indemnified Company Stock-
holder, and agreed to pay the Indemnified Tax, in a
writing given to the Indemnified Stockholder within the
15 business day period described above.
(d) Amounts to be paid by Parent to the Indem-
nified Company Stockholder pursuant to this Section will
be increased by such additional amounts (the "Additional
Amounts") as necessary so that the amounts received by
the Indemnified Company Stockholder, net of any Taxes
thereon (including Taxes on such Additional Amounts),
will not be less than the amounts the Indemnified Company
Stockholder would have received if such Taxes had not
been imposed. The Additional Amounts shall be determined
by using the maximum income tax rate applicable to
long-term capital gains or ordinary income (based on the
respective portions of the amounts received by the Indem-
nified Company Stockholder so characterized) for the year
the payment is made.
(e) In the event (i) Parent pays an amount to
an Indemnified Company Stockholder pursuant to this
Section with respect to such Indemnified Company Stock-
holder and (ii) it is subsequently determined that such
Indemnified Company Stockholder is not entitled to indem-
nification hereunder, such Indemnified Company Stock-
holder shall be obligated, promptly upon written demand,
to reimburse Parent for such amount paid.
(f) Each Indemnified Company Stockholder is an
express third party beneficiary of the provisions of this
Section, and the benefits of this Section shall not be
withdrawn from or denied to any Indemnified Company
Stockholder without such Indemnified Company Stock-
holder's written consent. Notwithstanding the preceding
sentence, no such written consent is required to the
extent subsection (b) above operates to eliminate the
benefits of this Section 5.14.
ARTICLE VI
CONDITIONS
Section VI.1 Conditions to Each Party's Obliga-
tion to Effect the Merger. The respective obligation of
each party to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of
the following conditions, any and all of which may be
waived in whole or in part by the Company, Parent or the
Purchaser, as the case may be, to the extent permitted by
applicable law:
(a) Shareholder Approval. This Agreement
shall have been approved and adopted by the requisite
vote of the holders of the Shares, if required by appli-
cable law, in order to consummate the Merger;
(b) Statutes; Court Orders. No statute, rule
or regulation shall have been enacted or promulgated by
any governmental authority which prohibits the consumma-
tion of the Merger; and there shall be no order or in-
junction of a court of competent jurisdiction in effect
precluding consummation of the Merger; provided, that
Parent shall employ its commercially reasonable best
efforts to oppose, contest and resolve such order or
injunction;
(c) Purchase of Shares in Offer. Parent, the
Purchaser or their affiliates shall have purchased Shares
pursuant to the Offer; and
(d) Other Government Approvals. Any other
material governmental approvals required to be obtained
prior to the consummation of the Merger shall have been
obtained; provided, that Parent shall employ its commer-
cially reasonable best efforts to obtain any such re-
quired approvals.
ARTICLE VII
TERMINATION
Section VII.1 Termination. This Agreement may
be terminated and the Transactions contemplated herein
may be abandoned at any time prior to the Share Purchase
Date:
(a) By the mutual written consent of Parent
and the Company.
(b) By either of the Company or Parent
(i) if (x) the Offer shall have expired
without any Shares being purchased therein or (y)
the Purchaser shall not have accepted for payment
all Shares tendered pursuant to the Offer by Febru-
ary 20, 2000 or, in the event that the failure of
the conditions to the Offer as of February 20, 2000
is as a result of any waiting periods under applica-
ble laws having not expired, or any approvals under
applicable laws having not been received, by Febru-
ary 20, 2000, June 30, 2000, provided, however, that
the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available (A) to any
party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted
in, the failure of Parent or the Purchaser, as the
case may be, to purchase the Shares pursuant to the
Offer on or prior to such date, or (B) after Pur-
chaser shall have purchased Shares pursuant to the
Offer; or
(ii) if any Governmental Entity shall
have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable
efforts to lift), which permanently restrains,
enjoins or otherwise prohibits the acceptance for
payment of, or payment for, Shares pursuant to the
Offer or the Merger and such order, decree, ruling
or other action shall have become final and non-
appealable.
(c) By the Company:
(i) if Parent, the Purchaser or any of
their affiliates shall have failed to commence the
Offer on or prior to five business days following
the date of the initial public announcement of the
Offer; provided, that the Company may not terminate
this Agreement pursuant to this Section 7.1(c)(i) if
the Company is at such time in breach of its obliga-
tions under this Agreement such as to cause a mate-
rial adverse effect on the Company and its Subsid-
iaries, taken as a whole;
(ii) in connection with entering into a
definitive agreement in accordance with Section 5.4(e),
provided it has complied with all provisions thereof,
including the notice provisions therein, and that it
makes simultaneous payment of the Termination Fee; or
(iii) if Parent or the Purchaser shall
have breached in any material respect any of their
respective representations, warranties, covenants or
other agreements contained in this Agreement, which
breach cannot be or has not been cured, in all
material respects, within 30 days after the giving
of written notice to Parent or the Purchaser, as
applicable.
(d) By Parent:
(i) if, due to an occurrence, not involv-
ing a breach by Parent or the Purchaser of their
obligations hereunder, which makes it impossible to
satisfy any of the conditions set forth in Annex A
hereto, Parent, the Purchaser, or any of their affiliates
shall have failed to commence the Offer on or prior to
five business days following the date of the initial
public announcement of the Offer;
(ii) if prior to the Share Purchase Date,
the Company shall have breached any representation,
warranty, covenant or other agreement contained in
this Agreement which (A) would give rise to the
failure of a condition set forth in paragraph (f) or
(g) of Annex A hereto and (B) cannot be or has not
been cured, in all material respects, within 30 days
after the giving of written notice to the Company;
(iii) if either Parent or the Purchaser is
entitled to terminate the Offer as a result of the
occurrence of any event set forth in paragraph (e) of
Annex A hereto; or
(iv) if either Parent or the Purchaser is
entitled to terminate the Offer as a result of the
occurrence of any event set forth in paragraph (h) of
Annex A hereto.
Section VII.2 Effect of Termination. In the
event of the termination of this Agreement pursuant to
its terms, written notice thereof shall forthwith be
given to the other party or parties specifying the provi-
sion hereof pursuant to which such termination is made,
and this Agreement shall forthwith become null and void,
and there shall be no liability on the part of the Parent
or the Company except (A) for fraud or for breach of this
Agreement prior to such termination and (B) as set forth
in Sections 5.2(a) (the last sentence thereof), 7.2 and
8.1. Any termination of this Agreement shall not affect,
and the Company agrees not to rescind or modify, any
approval previously granted under Section 203 of the DGCL
with respect to the Stockholders Agreement or the trans-
actions contemplated thereby. The provisions of Section
5.14 shall survive any termination of this Agreement if
the option granted to Parent pursuant to Section 2.1(a)
of the Stockholders Agreement is exercised.
ARTICLE VIII
MISCELLANEOUS
Section VIII.1 Fees and Expenses.
(a) Except as contemplated by this Agreement,
including Section 8.1(b) hereof, all costs and expenses
incurred in connection with this Agreement and the con-
summation of the Transactions shall be paid by the party
incurring such expenses.
(b) If (x) the Company shall terminate this
Agreement pursuant to Section 7.1(c)(ii), (y) either the
Company or Parent terminates this Agreement pursuant to
Section 7.1(b)(i) or Parent terminates this Agreement
pursuant to Section 7.1(d)(ii) and, in the case of this
subclause (y), (a) prior thereto there shall have been
publicly announced another Acquisition Proposal that is
financially superior to the Offer and Merger (either at
the time it is made or at any time prior to the termina-
tion of this Agreement) or Indication of Interest and (b)
an Acquisition Proposal shall be consummated on or prior
to November 15, 2000, or (z) Parent terminates this
Agreement pursuant to Section 7.1(d)(iv) and, in the case
of this subclause (z), an Acquisition Proposal on terms
financially superior to the Offer and Merger shall be
consummated on or prior to November 15, 2000, the Company
shall pay to Parent an amount equal to $80,000,000
(eighty million dollars) (the "Termination Fee"), which
Termination Fee shall be payable in same day funds and,
in the case of clause (x), no later than the termination
of this Agreement; provided, however, that no Termination
Fee shall be payable if the Purchaser or Parent was in
material breach of its representations, warranties or
obligations under this Agreement at the time of its
termination. No separate additional amount shall be
payable hereunder to Parent to reimburse it for out-of-
pocket expenses.
(c) If Parent shall terminate this Agreement
pursuant to Section 7.1(d)(iii) hereof, the Company shall
pay to Parent an amount equal to 50% of the Termination
Fee, which amount shall be payable in same day funds upon
the termination of this Agreement and, if an Acquisition
Proposal shall be consummated on or prior to November 15,
2000, the Company shall pay to Parent an amount equal to
the Termination Fee less any amount theretofore paid
pursuant to this Section 8.1(c), which amount shall be
payable in same day funds no later than the consummation
of such Acquisition Proposal.
Section VIII.2 Amendment and Modification.
Subject to applicable law, this Agreement may be amended,
modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of
the Company contemplated hereby, by written agreement of
the parties hereto, by action taken by their respective
Boards of Directors (which in the case of the Company
shall include approvals as contemplated in Section
1.3(c)), at any time prior to the Closing Date with
respect to any of the terms contained herein.
Section VIII.3 Nonsurvival of Representations
and Warranties. None of the representations and
warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this
Agreement shall survive the completion of the Offer.
Section VIII.4 Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed given if delivered personally, telecopied (which
is confirmed) or sent by an overnight courier service,
such as Federal Express, to the parties at the following
addresses (or at such other address for a party as shall
be specified by like notice):
(a) if to Parent or the Purchaser, to:
Honeywell International Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
if to the Company, to:
Pittway Corporation
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President and CEO
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section VIII.5 Interpretation. When a
reference is made in this Agreement to Sections, such
reference shall be to a Section of 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." As used in this Agreement, the term
"affiliates" shall have the meaning set forth in Rule
12b-2 of the Exchange Act.
Section VIII.6 Counterparts. This Agreement
may be executed in counterparts, each of which shall be
considered one and the same agreement and shall become
effective when counterparts have been signed by each of
the parties and delivered to the other parties.
Section VIII.7 Entire Agreement; No Third
Party Beneficiaries. This Agreement and the
Confidentiality Agreement (including the documents and
the instruments referred to herein and therein): (a)
constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral,
among the parties with respect to the subject matter
hereof, and (b) except as provided in Sections 2.4, 5.8
and 5.14, are not intended to confer upon any person
other than the parties hereto any rights or remedies
hereunder.
Section VIII.8 Severability. Any term or
provision of this Agreement that is held by a court of
competent jurisdiction or other authority to be invalid,
void or unenforceable in any situation in any
jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that
any term or provision hereof is invalid, void or
unenforceable, the parties agree that the court making
such determination shall have the power to delete
specific words or phrases, or to replace any invalid,
void or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or
unenforceable term or provision.
Section VIII.9 Governing Law. This Agreement
shall be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
Section VIII.10 Assignment. Neither this
Agreement not any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the
prior written content of the other parties, except that
the Purchaser may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsid-
iary of Parent (in which event such Subsidiary shall
become a party to this Agreement and the parties will
make such amendments as are appropriate to reflect such
assignment. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective
successors and assigns.
IN WITNESS WHEREOF, Parent, the Purchaser and
the Company have caused this Agreement to be signed by
their respective duly authorized officers as of the date
first written above.
HONEYWELL INTERNATIONAL INC.
By
Name:
Title:
HII-2 ACQUISITION CORP.
By
Name:
Title:
PITTWAY CORPORATION
By
Name:
Title:
ANNEX A
Certain Conditions of the Offer. Notwithstand-
ing any other provisions of the Offer, and in addition to
(and not in limitation of) the Purchaser's rights to
extend and amend the Offer at any time in its sole dis-
cretion (subject to the provisions of this Agreement),
the Purchaser shall not be required to accept for payment
or, subject to any applicable rules and regulations of
the SEC, including Rule 14e-l(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or
return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the
acceptance for payment of or, subject to the restriction
referred to above, the payment for, any tendered Shares,
and, subject to the terms of the Merger Agreement, may
terminate or amend the Offer as to any Shares not then
paid for, if (i) any applicable waiting period under the
HSR Act has not expired or terminated, (ii) the Minimum
Condition has not been satisfied, or (iii) at any time on
or after the date of this Agreement and before the Share
Purchase Date, any of the following events shall occur:
(a)(i) there shall be threatened or pending any
suit, action or proceeding by any Governmental Entity
against the Purchaser, Parent, the Company or any Subsid-
iary of the Company or (ii) there shall be instituted or
pending any suit, action or proceeding before any court
which, in the case of either (i) or (ii), in the good
faith judgment of Parent and Purchaser, after consulting
with legal counsel, is likely to result in any change or
effect (or any development that, insofar as can reason-
ably be foreseen, is likely to result in any change or
effect) that will constitute a Company Material Adverse
Effect or is materially adverse to the ability of Parent
to consummate this Agreement, the Offer, the acquisition
of Shares pursuant to the Offer or the Merger, and which
in the case of either (i) or (ii), is (A) seeking to
prohibit or impose any material limitations on Parent's
or the Purchaser's ownership or operation (or that of any
of their respective Subsidiaries or affiliates) of all or
a material portion of the businesses or assets of the
Company and its Subsidiaries taken as a whole, or to
compel Parent or the Purchaser or their respective Sub-
sidiaries and affiliates to dispose of or hold separate
any material portion of the business or assets of the
Company or Parent and their respective Subsidiaries, in
each case taken as a whole, (B) challenging the acquisi-
tion by Parent or the Purchaser of any Shares under the
Offer, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the perfor-
▇▇▇▇▇ of any of the other transactions contemplated by
this Agreement, or seeking to obtain from the Company,
Parent or the Purchaser any damages that are material in
relation to the Company and its Subsidiaries taken as a
whole, (C) seeking to impose material limitations on the
ability of the Purchaser, or render the Purchaser unable,
to accept for payment, pay for or purchase some or all of
the Shares pursuant to the Offer and the Merger, (D)
seeking to impose material limitations on the ability of
Purchaser or Parent effectively to exercise full rights
of ownership of the Shares, including, without limita-
tion, the right to vote the Shares purchased by it on all
matters properly presented to the Company's stockholders,
or (E) which otherwise is reasonably likely to have a
Company Material Adverse Effect; provided, that Parent
shall employ its commercially reasonable best efforts to
oppose, contest and resolve any such pending or threat-
ened suit, action or proceeding;
(b) there shall be any statute, rule, regula-
tion, judgment, order or injunction enacted, entered,
enforced, promulgated, or deemed applicable, pursuant to
an authoritative interpretation by or on behalf of a
Government Entity, to the Offer or the Merger, or any
other action shall be taken by any Governmental Entity,
other than the application to the Offer or the Merger of
applicable waiting periods under HSR Act, that is reason-
ably likely to result, directly or indirectly, in any of
the consequences referred to in clauses (A) through (E)
of paragraph (a) above; provided, that Parent shall
employ its commercially reasonable best efforts to op-
pose, contest and resolve any such judgment, order,
injunction or enforcement by any such Government Entity;
(c) there shall have occurred (i) a declara-
tion of a banking moratorium or any suspension of pay-
ments in respect of banks in the United States (whether
or not mandatory) or (ii) any limitation (whether or not
mandatory) by any United States governmental authority on
the extension of credit generally by banks or other
financial institutions, in each instance to the extent,
but only to the extent, that such events affect Parent's
ability to obtain financing for the Offer;
(d) there shall have occurred any events,
changes or effects after the date of this Agreement
which, either individually or in the aggregate, has had
or is reasonably likely to have a Company Material
Adverse Effect; provided that (i) any adverse change in
the business relationship of the Company or any of its
Subsidiaries with any of its customers as a result of (x)
the Company's entering into this Agreement or (y) the
Transactions, (ii) any effect of any such adverse change
on the business, assets, liabilities, properties, results
of operations or financial condition of the Company and
its Subsidiaries, (iii) any adverse effect of any deci-
sion by any customer of the Company or any of its Subsid-
iaries that accounted for 5% or more of the consolidated
net sales of the Company for the fiscal year ending
December 31, 1999 to change the mix or channel of pur-
chasing of products ordered or to be ordered from the
Company or any of it Subsidiaries, (iv) any adverse
effect on the business relationship between the Company
and its Subsidiaries, on the one hand, and Protection One
Alarm Monitoring, Inc. and its affiliates, on the other
hand, resulting from the financial condition of Protec-
tion One Alarm Monitoring, Inc. and its affiliates and
(v) any adverse effect of changes in foreign currency
exchange rates shall be excluded when making any determi-
nation whether a Company Material Adverse Effect has
occurred;
(e)(i) the Board or any committee thereof
shall have withdrawn or modified in a manner adverse to
Parent or the Purchaser its approval or recommendation of
the Offer, the Merger or this Agreement, approved or
recommended any Acquisition Proposal or, upon the request
of Parent, failed to reaffirm its approval or recommenda-
tion of the Offer, the Merger or this Agreement, or (ii)
the Company shall have entered into any agreement with
respect to any Acquisition Proposal in accordance with
Section 5.4(e) of this Agreement;
(f) the representations and warranties of the
Company set forth in this Agreement (which for these
purposes shall exclude all qualifications or exceptions
relating to "materiality" and/or Company Material Adverse
Effect) shall not be true and correct, in each case (i)
as of the date referred to in any representation or
warranty which addresses matters as of a particular date,
or (ii) as to all other representations and warranties,
as of the date of this Agreement and as of the scheduled
expiration of the Offer, such that the aggregate effect
of all such representations and warranties which are not
true and correct shall have had or be reasonably likely
to have a Company Material Adverse Effect;
(g) the Company shall have failed to perform
any obligation or to comply with any agreement or cove-
nant with the Company to be performed or complied with by
it under this Agreement other than any failure which,
except for the provisions of Section 1.3(a), would not
have, or be reasonably likely to have, either individu-
ally or in the aggregate, a Company Material Adverse
Effect;
(h) any person (other than any person benefi-
cially owning (as defined in Rule 13d-3 promulgated
under the Exchange Act), or part of a group beneficially
owning, 20% or more of the outstanding Common Capital
Stock on the date of this Agreement) acquires beneficial
ownership of at least 20% (or, with respect to any per-
son beneficially owning, or part of a group beneficially
owning, 10% or more on the date of this Agreement or
with respect to any group of which such a person may be
or become a member, 25%) of the outstanding Common Capi-
tal Stock;
(i) this Agreement shall have been terminated
in accordance with its terms; or
(j) ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ shall have withdrawn its
tax opinion delivered pursuant to Section 5.13 of this
Agreement and advised Parent in writing that, on account
of such counsel's discovery of additional facts (a de-
scription of which shall be included in such writing)
subsequent to the date of such opinion establishing that
any of the fact statements set forth in the Tax Schedule
are not true and correct, it has become such counsel's
opinion that it is more likely than not that the Spinoff
will fail to qualify as a distribution to which Section
355 of the Code applies as a result of (1) the negotia-
tion (which began with the exploratory meeting between
representatives of Parent and/or Honeywell Inc. and the
Company commencing in May, 1999), execution and delivery
of this Agreement, (2) any of the Transactions, or (3)
any action or inaction on the part of the Company at or
before the Share Purchase Date.
The foregoing conditions are for the sole
benefit of Parent and the Purchaser, may be asserted by
Parent or the Purchaser and may be waived by Parent or
the Purchaser in whole or in part at any time and from
time to time in the sole discretion of Parent or the
Purchaser, subject in each case to the terms of this
Agreement. The failure by Parent or the Purchaser at
any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Table of Contents
Page No.
ARTICLE I THE OFFER AND MERGER
Section 1.1 The Offer. 2
Section 1.2 Company Actions. 4
Section 1.3 Directors. 6
Section 1.4 The Merger 8
Section 1.5 Effective Time 8
Section 1.6 Closing 9
Section 1.7 Directors and Officers of theSurviving
Corporation 9
Section 1.8 Stockholders' Meeting 9
Section 1.9 Merger Without Meeting ofStockholders 10
ARTICLE II CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock 10
Section 2.2 Exchange of Certificates 11
Section 2.3 Dissenters' Rights. 13
Section 2.4 Company Plans. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
Section 3.1 Organization 15
Section 3.2 Capitalization 16
Section 3.3 Authorization; Validity of Agreement;
Company Action 18
Section 3.4 Consents and Approvals; No Violations 19
Section 3.5 SEC Reports and Financial Statements 20
Section 3.6 Absence of Certain Change 21
Section 3.7 No Undisclosed Liabilities 21
Section 3.8 Specified Contracts 21
Section 3.9 Litigation. 22
Section 3.10 Employee Benefit Plans 23
Section 3.11 Labor Matters 26
Section 3.12 Tax Matters; Government Benefits 27
Section 3.13 Intellectual Property. 30
Section 3.15 Insurance 33
Section 3.16 Compliance with Laws. 33
Section 3.17 Restrictions on Business Activities 34
Section 3.18 Vote Required. 34
Section 3.19 Interested Party Transactions 34
Section 3.20 Environmental Laws 34
Section 3.21 Real Property 37
Section 3.22 Opinion of Financial Advisor. 37
Section 3.23 Brokers 37
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
Section 4.1 Organization. 38
Section 4.2 Authorization; Validity of Agreement;
Necessary Action. 38
Section 4.3 Consents and Approvals; No Violations 38
Section 4.4 Financing 39
ARTICLE V COVENANTS
Section 5.1 Interim Operations of the Company 39
Section 5.2 Access; Confidentiality. 43
Section 5.3 Consents and Approvals. 44
Section 5.4 No Solicitation. 45
Section 5.5 Additional Agreements. 48
Section 5.6 Publicity 48
Section 5.7 Notification of Certain Matters 49
Section 5.8 Directors' and Officers' Insuranceand
Indemnification 49
Section 5.9 Purchaser Compliance. 50
Section 5.10 Employee Benefits 50
Section 5.11 Compliance with ISRA 52
Section 5.12 Compliance with Connecticut Transfer Act 53
Section 5.13 Tax Opinion 54
Section 5.14 Indemnification 56
ARTICLE VI CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to
Effect the Merger. 59
ARTICLE VII TERMINATION
Section 7.1 Termination 60
Section 7.2 Effect of Termination 62
ARTICLE VIII MISCELLANEOUS
Section 8.1 Fees and Expenses 62
Section 8.2 Amendment and Modification. 63
Section 8.3 Nonsurvival of Representationsand
Warranties. 64
Section 8.4 Notices 64
Section 8.5 Interpretation 65
Section 8.6 Counterparts. 65
Section 8.7 Entire Agreement; No Third Party
Beneficiaries 65
Section 8.8 Severability. 65
Section 8.9 Governing Law 66
Section 8.10 Assignment 66
Annex A
Certain Conditions of the Offer
Exhibit A
Stockholder Agreement
Index of Defined Terms
Defined Term Page No.
1999 Premium 50
Stockholders 1, 2, 6, 7, 17, 22, 48, 54, 58
Stockholders Agreement 1
Acquisition Proposal 45
Agreement 1
Appointment Date 40
Balance Sheet 28
Board of Directors 1
By-laws 8
Certificates 11
Class A Common Stock 2
Closing 9
Closing Date 9
Code 23
Common Capital Stock 16
Common Stock 2
Company 1
Company Agreements 19
Company Disclosure Schedule 15
Company Employee 50
Company Material Adverse Effect 16
Company SEC Documents 20
Confidentiality Agreement 44
D&O Insurance 50
DGCL 5
Dissenting Stockholders 11
Effective Time 8
Encumbrances 18
Environmental Claim 36
Environmental Laws 36
ERISA 23
ERISA Affiliate 23
Exchange Act 2
Financial Statements 20
Form 53
fully diluted basis 2
GAAP 20
Governmental Entity 19
Hazardous Materials 36
HSR Act 19
Indemnified Party 49
Independent Directors 7
Intellectual Property 30
Liens 37
Merger 8
Merger Consideration 11
Minimum Condition 2
NJDEP 52
Offer 2
Offer Documents 3
Offer Price 2
Offer to Purchase 2
Parent 1
Parent Material Adverse Effect 38
Paying Agent 11
PBGC 24
Plans 23
Preferred Stock 16
Proxy Statement 9
Purchaser 1
Purchaser Common Stock 10
Schedule 14D-9 5
Schedule 14D-l 3
SEC 3
Secretary of State 8
Securities Act 20
Severance Agreements 51
Shares 2
Software 30
Special Meeting 9
Subsidiary 16
Surviving Corporation 8
Tax 30
Tax Return 30
Taxes 30
Termination Fee 63
Title IV Plan 23
Trade Secrets 30
Transactions 5
Voting Debt 17
79