EXHIBIT 2.23
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
INDUSTRIAL DATA SYSTEMS CORPORATION,
A NEVADA CORPORATION
AND
IDS ENGINEERING MANAGEMENT, LC
A TEXAS LIMITED LIABILITY COMPANY
AND
PEI ACQUISITION, INC.
A TEXAS CORPORATION
AND
PETROCON ENGINEERING, INC.
A TEXAS CORPORATION
JULY 31, 2001
TABLE OF CONTENTS
Page
1. THE MERGER..................................................... 2
1.1 The Merger............................................... 2
1.2 Effective Time of the Merger............................. 2
1.3 Closing.................................................. 2
1.4 Surviving PEI............................................ 2
1.5 Effect on the Capital Stock of Parent, LC, Sub and PEI... 3
1.6 Escrow................................................... 7
1.7 Exchange of Certificates................................. 7
1.8 Stock Transfer Books..................................... 8
1.9 Dissenting Shares........................................ 9
1.10 No Further Ownership Rights in PEI Common Stock.......... 9
1.11 Lost, Stolen or Destroyed Certificates................... 9
1.12 Shareholder Approval..................................... 9
1.13 Tax and Accounting Consequences.......................... 10
2. REPRESENTATIONS AND WARRANTIES OF PARENT....................... 10
2.1 Organization, Etc........................................ 10
2.2 Capitalization of Parent................................. 10
2.3 Parent Series A Stock.................................... 11
2.4 Subsidiaries............................................. 11
2.5 Interim Operations of Sub and LC........................ 11
2.6 Authority................................................ 11
2.7 Consents................................................. 12
2.8 Proprietary Rights....................................... 12
2.9 Title.................................................... 12
2.10 Defaults................................................. 12
2.11 Full Authority........................................... 13
2.12 Parent's SEC Documents................................... 13
2.13 Investment Company....................................... 14
2.14 Undisclosed Liabilities.................................. 14
2.15 Taxes.................................................... 14
2.16 Legal Actions............................................ 14
2.17 Parent Contracts; Parent Plans........................... 15
2.18 No Material Adverse Change............................... 15
2.19 Predecessors............................................. 16
2.20 Affiliate Relationships.................................. 16
2.21 Disclosure............................................... 16
2.22 Other Disclosures........................................ 16
2.23 Tax Reorganization Representations....................... 18
2.24 Brokers.................................................. 19
2.25 Labor and Employment Matters............................. 19
2.26 Employee Benefit Plans................................... 20
2.27 Environmental Matters.................................... 22
2.28 Accounts Receivable...................................... 23
2.29 Inventories.............................................. 23
2.30 Purchase Commitments and Outstanding Bids................ 23
2.31 Payments................................................. 23
2.32 Customers and Suppliers.................................. 24
3. REPRESENTATIONS AND WARRANTIES OF PEI.......................... 24
3.1 Organization, Etc........................................ 24
3.2 Capitalization of PEI.................................... 24
3.3 Subsidiaries............................................. 25
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3.4 Authority............................................... 25
3.5 Consents................................................ 25
3.6 Proprietary Rights...................................... 25
3.7 Title................................................... 26
3.8 Defaults................................................ 26
3.9 Full Authority.......................................... 26
3.10 PEI's SEC Documents..................................... 26
3.11 Investment Company...................................... 27
3.12 Undisclosed Liabilities................................. 27
3.13 Taxes................................................... 27
3.14 Legal Actions........................................... 27
3.15 PEI Contracts; PEI Plans................................ 28
3.16 No Material Adverse Change.............................. 28
3.17 Predecessors............................................ 29
3.18 Affiliate Relationships................................. 29
3.19 Disclosure.............................................. 29
3.20 Other Disclosures....................................... 29
3.21 Brokers................................................. 31
3.22 Labor and Employment Matters............................ 31
3.23 Employee Benefit Plans.................................. 32
3.24 Environmental Matters................................... 34
3.25 Accounts Receivable..................................... 34
3.26 Inventories............................................. 34
3.27 Purchase Commitments and Outstanding Bids............... 34
3.28 Payments................................................ 35
3.29 Customers and Suppliers................................. 35
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS.......... 35
4.1 Tax Matters............................................. 35
4.2 Access.................................................. 36
4.3 Approval of the Merger Proxy............................ 36
4.4 Operations in the Ordinary Course....................... 36
4.5 Transactions Affecting Business and Properties.......... 36
4.6 Negotiations............................................ 37
4.7 Renewal of Real Estate Leases........................... 37
4.8 Articles of Incorporation and Bylaws.................... 37
4.9 Current Information..................................... 38
4.10 Corporate Approvals..................................... 38
4.11 Consents................................................ 38
4.12 Contracts............................................... 38
4.13 Insurance............................................... 39
4.14 Compliance with Laws.................................... 39
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES....................... 39
5.1 Conditions Precedent to the Obligations of PEI.......... 39
5.2 Conditions Precedent to the Obligations of Parent....... 40
5.3 Deliveries by Parent at the Closing..................... 43
5.4 Deliveries by PEI at the Closing........................ 44
5.5 Deliveries by Sub and Surviving PEI at the Closing...... 46
6. SURVIVAL, INDEMNIFICATION, ARBITRATION......................... 46
6.1 Survival................................................ 46
6.2 Indemnification by Significant PEI Shareholders......... 47
6.3 Indemnification by Parent............................... 48
6.4 Procedures for Indemnification.......................... 48
6.5 Subrogation............................................. 49
6.6 Arbitration............................................. 50
7. TERMINATION.................................................... 51
7.1 Events of Termination................................... 51
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7. 2 Effect of Termination................................... 52
8. MISCELLANEOUS.................................................. 52
8.1 Notice.................................................. 52
8.2 Further Documents....................................... 53
8.3 Assignability........................................... 53
8.4 Exhibits and Schedules.................................. 53
8.5 References to Sections, Exhibits and Schedules.......... 53
8.6 Entire Agreement........................................ 53
8.7 Headings................................................ 54
8.8 Controlling Law......................................... 54
8.9 Public Announcements.................................... 54
8.10 No Third Party Beneficiaries............................ 54
8.11 Amendments and Waivers.................................. 54
8.12 No Employee Rights...................................... 54
8.13 When Effective.......................................... 55
8.14 Takeover Statutes....................................... 55
8.15 Number and Gender of Words.............................. 55
8.16 Invalid Provisions...................................... 55
8.17 Multiple Counterparts................................... 55
8.18 No Rule of Construction................................. 55
8.19 Expenses................................................ 55
8.20 Time of the Essence..................................... 56
8.21 Attorneys' Fees......................................... 56
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EXHIBITS
Exhibit 1.5(c)(iii) Form of Certificate of Designation of Preferences,
Limitations and Relative Rights of Parent Series A Stock
Exhibit 1.6(a) Form of Indemnification Escrow Agreement
Exhibit 1.6(b) Form of Option Escrow Agreement
Exhibit 5.2(c)-1 Form of $2 Million Notes
Exhibit 5.2(c)-2 Form of $3 Million Note
Exhibit 5.2(c)-3 Form of Remainder Note
Exhibit 5.2(c)-4 Form of Equus Settlement Agreement and Plan of
Reorganization
Exhibit 5.2(j) Form of Lockup Agreement
Exhibit 5.3(d) Form of Option Pool Agreement
Exhibit 5.3(f) Form of Voting Agreement
Exhibit 5.3(m) Equus Call Option
Exhibit 5.4(f) Form of Release
Exhibit 5.4(h) Form of Significant PEI Shareholders' Voting Agreement
Exhibit 6.6 Exceptions to Commercial Rules of Arbitration
SCHEDULES
Schedule 1.4(a) Directors and Officers of Surviving PEI, Its
Subsidiaries and Officers of Parent
Schedule 1.5(c)(ii) Significant PEI Shareholders
Schedule 2.2 Parent Convertible Securities
Schedule 2.4 Parent Subsidiaries
Schedule 2.9 Parent Title to Assets
Schedule 2.14 Parent Undisclosed Liabilities
Schedule 2.15 Parent Tax Return Extensions
Schedule 2.16 Parent Legal Actions
Schedule 2.18 Parent Material Adverse Changes
Schedule 2.22(a) Parent Products
Schedule 2.22(b) Parent Real Property
Schedule 2.22(c) Parent Assets
Schedule 2.22(e) Parent Insurance
Schedule 2.22(f) Parent Financial Institutions
Schedule 2.22(g) Parent Governmental Licenses and Permits
Schedule 2.22(h) Parent Debts
Schedule 2.22(i) Parent Proprietary Rights
Schedule 2.22(j) Parent Contracts
Schedule 2.22(l) Parent Officers and Directors
Schedule 2.25 Parent Labor Disputes
Schedule 2.26(a) Parent Plans
Schedule 2.26(d) Parent Plan Compliance
Schedule 2.26(f) Parent Plan Tax Qualification
Schedule 2.26(i) Parent Plan Retiree Welfare Coverage
Schedule 2.27(b) Parent Environmental Liabilities
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Schedule 2.32 Parent Customers and Suppliers
Schedule 3.2 PEI Shareholders and Convertible Securities
Schedule 3.3 PEI Subsidiaries
Schedule 3.5 PEI Consents
Schedule 3.7 PEI Title to Assets
Schedule 3.8 PEI Defaults
Schedule 3.12 PEI Undisclosed Liabilities
Schedule 3.13 PEI Tax Return Extensions
Schedule 3.14 PEI Legal Actions
Schedule 3.16 PEI Material Adverse Changes
Schedule 3.17 PEI Predecessors
Schedule 3.18 PEI Affiliate Relationships
Schedule 3.20(a) PEI Products
Schedule 3.20(b) PEI Real Property
Schedule 3.20(c) PEI Assets
Schedule 3.20(d) PEI Consigned Property
Schedule 3.20(e) PEI Insurance
Schedule 3.20(f) PEI Financial Institutions
Schedule 3.20(g) PEI Governmental Licenses and Permits
Schedule 3.20(h) PEI Debts
Schedule 3.20(i) PEI Proprietary Rights
Schedule 3.20(j) PEI Contracts
Schedule 3.20(l) PEI Officers and Directors
Schedule 3.22 PEI Labor Disputes
Schedule 3.23(a) PEI Plans
Schedule 3.23(d) PEI Plan Compliance
Schedule 3.23(f) PEI Plan Tax Qualification
Schedule 3.23(i) PEI Plan Retiree Welfare Coverage
Schedule 3.29 PEI Customers and Suppliers
Schedule 4.5 Transactions Affecting Business and Properties
Schedule 5.4(d) PEI Employees to Sign Employment Agreements
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DEFINED TERMS
"ACTION" shall have the meaning set forth in Section 2.27(a).
"AFFILIATE" shall have the meaning set forth in Section 2.20.
"AGREEMENT" shall have the meaning set forth in the preamble.
"ALLIANCE" shall have the meaning set forth in Recital D.
"ALTERNATIVE TRANSACTION" shall have the meaning set forth in Section 4.6.
"APPLICABLE CORPORATE LAW" shall have the meaning set forth in Section 1.1.
"ARBITRATOR" shall have the meaning set forth in Section 6.6(b).
"BENEFIT ARRANGEMENTS" shall have the meaning set forth in Section 2.26(a).
"BOARD OF ARBITRATION" shall have the meaning set forth in Section 6.6(b).
"CANCELLED SHARES" shall have the meaning set forth in Section 1.5(c)(i).
"CERTIFICATE OF DESIGNATION" shall have the meaning set forth in
Section 1.5(c)(iii).
"CLOSING" shall have the meaning set forth in Section 1.3.
"CLOSING DATE" shall have the meaning set forth in Section 1.3.
"CODE" shall have the meaning set forth in Recital F.
"CONTRACT" shall have the meaning set forth in Section 2.22(j).
"CONTROL" shall have the meaning set forth in Section 2.20.
"CONTROLLED COMPANY" shall have the meaning set forth in Section 2.26(a).
"CONVERTED SHARE" shall have the meaning set forth in Section 1.5(c)(xi).
"▇▇▇▇▇ DEBT" shall have the meaning set forth in Recital B.
"▇▇▇▇▇ WARRANTS" shall have the meaning set forth in Section 1.5(c)(x).
"CURRENT PARENT SEC DOCUMENTS" shall have the meaning set forth in preamble to
Section 2.
"DESIGNATED PLANS" shall have the meaning set forth in Section 2.26(a).
"DISSENTING SHARES" shall have the meaning set forth in Section 1.9(a).
"EFFECTIVE TIME" shall have the meaning set forth in Section 1.2.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 2.27(c)(i).
"ENVIRONMENTAL LIABILITIES" shall have the meaning set forth in Section
2.27(c)(ii).
"EQUUS" shall have the meaning set forth in Recital C.
"EQUUS DEBT" shall have the meaning set forth in Recital C.
"EQUUS SETTLEMENT AGREEMENT" shall have the meaning set forth in Section 5.2(c).
"EQUUS WARRANTS" shall have the meaning set forth in Recital C.
"ERISA" shall have the meaning set forth in Section 2.26(a).
"EXCHANGE ACT" shall have the meaning set forth in Section 1.12.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.7(a).
"HAZARDOUS SUBSTANCES" shall have the meaning set forth in Section 2.27(c)(iii).
"INDEMNIFICATION ESCROW AGREEMENT" shall have the meaning set forth in Section
1.6(a).
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 6.4(a).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 6.4(a).
"INDEMNITY ESCROW" shall have the meaning set forth in Section 1.5(c)(ii).
"IRS" shall have the meaning set forth in Section 2.26(c).
"LATEST PARENT BALANCE SHEET" shall have the meaning set forth in Section 2.28.
"LATEST PEI BALANCE SHEET" shall have the meaning set forth in Section 3.25.
"LC" shall have the meaning set forth in the preamble.
"LOCKUP AGREEMENT" shall have the meaning set forth in Section 5.2(j).
"LOST PEI CERTIFICATE" shall have the meaning set forth in Section 1.11.
"MERGER" shall have the meaning set forth in Recital A.
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"MERGER CONSIDERATION" shall have the meaning set forth in Section 1.5(c).
"MERGER FILING" shall have the meaning set forth in Section 2.7.
"MERGER PROXY" shall have the meaning set forth in Section 1.12.
"OPTION ESCROW" shall have the meaning set forth in Section 1.5(c)(ii).
"OPTION ESCROW AGENT" shall have the meaning set forth in Section 1.5(c)(v).
"OPTION ESCROW AGREEMENT" shall have the meaning set forth in Section 1.6(b).
"OTHER OWNERSHIP INTERESTS" shall have the meaning set forth in Section 2.2.
"PARENT" shall have the meaning set forth in the preamble.
"PARENT CERTIFICATES" shall have the meaning set forth in Section 1.7(b).
"PARENT COMMON STOCK" shall have the meaning set forth in Recital E.
"PARENT INDEMNIFIED PARTIES" shall have the meaning set forth in Section 6.2.
"PARENT MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 2.1.
"PARENT RELATED DOCUMENTS" shall have the meaning set forth in Section 2.6.
"PARENT SEC DOCUMENTS" shall have the meaning set forth in Section 2.12.
"PARENT SERIES A STOCK" shall have the meaning set forth in Recital E.
"PARENT STOCK" shall have the meaning set forth in Section 1.7(a).
"PEI" shall have the meaning set forth in the preamble.
"PEI CERTIFICATES" shall have the meaning set forth in Section 1.7(b).
"PEI COMMON STOCK" shall have the meaning set forth in Recital B.
"PEI CONTRACT" shall have the meaning set forth in Section 3.20(j).
"PEI DESIGNATED PLANS" shall have the meaning set forth in Section 3.23(a).
"PEI INDEMNIFIED PARTIES" shall have the meaning set forth in Section 6.3.
"PEI MATERIAL ADVERSE EFFECT" shall have the meaning set forth in Section 3.1.
"PEI RELATED DOCUMENTS" shall have the meaning set forth in Section 3.4.
"PEI SHAREHOLDER DEBT" shall have the meaning set forth in Recital B.
"PEI SHAREHOLDERS" shall have the meaning set forth in Section 1.6(a).
"PERSON" shall have the meaning set forth in Section 1.5(c)(ii).
"PLANS" shall have the meaning set forth in Section 2.26(a).
"PRO RATA SHARE" shall have the meaning set forth in Section 1.5(c)(v).
"PROPRIETARY RIGHTS" shall have the meaning set forth in Section 2.8.
"REGULATED ACTIVITY" shall have the meaning set forth in Section 2.27(c)(iv).
"REMAINDER NOTE" shall have the meaning set forth in Section 5.2(c).
"REMAINING OPTION SHARES" shall have the meaning set forth in
Section 1.5(c)(ix).
"RPM WARRANTS" shall have the meaning set forth in Section 1.5(c)(x).
"SEC" shall have the meaning set forth in Section 1.12.
"SECURITIES ACT" shall have the meaning set forth in Section 1.12.
"SHAREHOLDER REPRESENTATIVE" shall have the meaning set forth in Section 6.4(a).
"SIGNIFICANT PEI SHAREHOLDER" shall have the meaning set forth in
Section 1.5(c)(ii).
"SUB" shall have the meaning set forth in the preamble.
"SUBSIDIARY" shall have the meaning set forth in the preamble to Section 2.
"SURRENDERED SHARES" shall have the meaning set forth in Section 1.5(c)(vii).
"SURVIVAL PERIODS" shall have the meaning set forth in Section 6.1.
"SURVIVING PEI" shall have the meaning set forth in Section 1.1.
"SURVIVING OPTIONS" shall have the meaning set forth in Section 1.5(c)(iv).
"TAX RETURNS" shall have the meaning set forth in Section 2.15.
"$2 MILLION NOTES" shall have the meaning set forth in Section 5.2(c).
"$3 MILLION NOTE" shall have the meaning set forth in Section 5.2(c).
vii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of July 31,
2001, is entered into by and between Industrial Data Systems Corporation, a
Nevada corporation ("PARENT"), IDS Engineering Management, LC, a Texas limited
liability company all of whose membership interests are held by Parent ("LC"),
PEI Acquisition, Inc., a Texas corporation all of whose capital stock is owned
by LC (the "SUB"), and Petrocon Engineering, Inc., a Texas corporation ("PEI").
RECITALS:
A. The respective Boards of Directors of PEI, Parent, LC and Sub have each
approved the merger of Sub with and into PEI (the "MERGER") pursuant to this
Agreement and the applicable statutes of the State of Texas.
B. Prior to the Merger, all of the debt (as of the date of this Agreement)
owed by PEI to certain of its shareholders (the "PEI SHAREHOLDER DEBT") will be
converted into shares of common stock, $0.001 par value per share, of PEI (the
"PEI COMMON STOCK"), except for up to $190,000 of the PEI Shareholder Debt which
shall be paid in cash at the Closing (as herein defined) and that portion of the
PEI Shareholder Debt held by ▇▇▇▇ ▇▇▇▇▇ (the "▇▇▇▇▇ DEBT").
C. Also, prior to the Merger, PEI will deliver to Equus II Incorporated, a
Delaware corporation ("EQUUS"), in renewal, rearrangement and extension of the
approximately $9.0 million of outstanding debt owed by PEI to Equus (the "EQUUS
DEBT") and the cancellation of all of the outstanding warrants to acquire PEI
securities held by Equus (the "EQUUS WARRANTS"): (i) the $2 Million Notes (as
herein defined); (ii) the $3 Million Note (as herein defined); and (iii) the
Remainder Note (as herein defined).
D. At the Closing, Alliance 2000, Ltd., a Texas limited partnership
("ALLIANCE"), will grant certain employees of the parties and to Equus an option
to purchase up to 2,800,000 shares of Parent Common Stock (as herein defined)
currently held by Alliance. In addition, at the Closing, Parent shall cancel
the debt owed by Alliance to Parent in the principal amount of approximately
$150,000, together with interest thereon.
E. Pursuant to the Merger, the issued and outstanding shares of PEI Common
Stock will be converted into the right to receive shares of common stock, $0.001
par value per share, of Parent (the "PARENT COMMON STOCK"), the Equus Debt
evidenced by the $2 Million Notes will be paid in full, and the Equus Debt
evidenced by the Remainder Note will be paid and satisfied by the issuance to
Equus of 2,500,000 shares of the Series A Convertible Preferred Stock, $0.001
par value per share, of Parent (the "PARENT SERIES A STOCK").
F. For federal income tax purposes, the parties intend that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "CODE").
1
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
1. THE MERGER
1.1 The Merger. Subject to the terms and conditions hereof, and in accordance
with the Texas Business Corporation Act (the "APPLICABLE CORPORATE LAW"), at the
Effective Time (as defined in Section 1.2), Sub shall be merged with and into
PEI and the separate existence of Sub shall thereupon cease. PEI shall by virtue
of the Merger continue its corporate existence under the laws of the State of
Texas and become an indirect wholly owned subsidiary of Parent. PEI, as the
surviving entity following the Merger, is sometimes referred to in this
Agreement as "SURVIVING PEI."
1.2 Effective Time of the Merger. Appropriate Articles of Merger under the
Applicable Corporate Law shall be prepared, executed and submitted for filing
with the Secretary of State of the State of Texas at the Closing. The date that
the Merger becomes effective, in accordance with the Articles of Merger, is
referred to as the "EFFECTIVE TIME."
1.3 Closing. For purposes of this Agreement, the term "CLOSING DATE" shall
mean the date of the Closing, which shall in no event be later than October 31,
2001. The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur within three business days of the satisfaction or waiver
of all conditions precedent described in Section 5, at the offices of counsel to
Parent in Houston, Texas. The parties may agree in writing on another date,
time or place for the Closing. At the Closing, the parties will deliver or
cause to be delivered the documents described in Section 5.
1.4 Surviving PEI.
(a) Articles, Bylaws, Directors and Officers and Name of Surviving PEI.
As a result of the Merger, (i) the Articles of Incorporation of PEI, as in
effect immediately prior to the Effective Time, a copy of which has been
provided to Parent, shall be the Articles of Incorporation of Surviving PEI,
(ii) the Bylaws of PEI as in effect immediately prior to the Effective Time, a
copy of which has been provided to Parent, shall be the Bylaws of Surviving PEI,
and (iii) the directors and officers of PEI and its Subsidiaries immediately
prior to the Effective Time shall resign and the directors and officers of
Surviving PEI and its Subsidiaries shall be as set forth on Schedule 1.4(a),
until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed, as the case may be. The name of the
surviving corporation shall be "Petrocon Engineering, Inc." In addition, the
persons identified on Schedule 1.4(a) shall serve as officers of Parent as
specified on such Schedule, until the earlier of their resignation or removal or
until their respective successors are duly elected or appointed.
(b) Assets and Liabilities of Surviving PEI. As of and after the
Effective Time, Surviving PEI shall possess all the rights, privileges,
immunities and franchises of a public as well as of a private nature previously
belonging to Sub and PEI; and all property (real, personal and mixed), and all
debts due on whatever account, including subscriptions to shares,
2
and all other choses in action, and all and every other interest of or belonging
to or due to each of Sub and PEI shall be transferred to, and vested in,
Surviving PEI without further act or deed; and all such property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter the property of Surviving PEI as they were of Sub and PEI; and the
title to any real estate, or interest therein, whether by deed or otherwise,
shall not revert or be in any way impaired by reason of the Merger. Surviving
PEI shall be responsible and liable for all the liabilities and obligations of
Sub and PEI, and any claim existing, or action or proceeding pending, by or
against Sub or PEI may be prosecuted against Surviving PEI. Neither the rights
of creditors nor any liens upon the property of Sub or PEI shall be impaired by
the Merger, and all debts, liabilities and duties of each of Sub and PEI shall
attach to Surviving PEI, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it, all in
accordance with the Applicable Corporate Law and the terms of this Agreement.
1.5 Effect on the Capital Stock of Parent, LC, Sub and PEI. As of the
Effective Time, by virtue of the Merger, and without further action on the part
of any holder of shares of capital stock of or membership interests in PEI, Sub,
Parent or LC:
(a) Parent Capital Stock. Each share of capital stock of Parent issued
and outstanding at the Effective Time shall remain outstanding and shall be
unchanged at and after the Merger.
(b) LC Membership Interests. The outstanding membership interests in LC
shall remain outstanding and shall be unchanged at and after the Merger.
(c) PEI Capital Stock. At the Effective Time, all issued and outstanding
shares of the capital stock of PEI immediately prior to the Effective Time shall
be converted into the right to receive shares of the capital stock of Parent as
follows (the "MERGER CONSIDERATION"):
(i) All shares of PEI Common Stock that are owned by PEI or any of
its subsidiaries as treasury stock shall be cancelled and retired and shall
cease to exist and no stock of Parent or other consideration shall be delivered
in exchange therefor (the "CANCELLED SHARES").
(ii) All issued and outstanding shares of PEI Common Stock shall be
cancelled and converted into the right to receive an aggregate of 9,800,000
shares of Parent Common Stock; provided however, that (x) 1,000,000 of the
9,800,000 shares of the Parent Common Stock shall be deducted from the Merger
Consideration to be delivered to the Significant PEI Shareholders (as herein
defined) and placed in escrow (the "INDEMNITY ESCROW") pursuant to Section
1.6(a) and (y) the number of shares of Parent Common Stock issuable upon
exercise of the Surviving Options (as herein defined) shall be deducted from the
Merger Consideration to be delivered to the Significant PEI Shareholders and
placed in escrow (the "OPTION ESCROW") pursuant to Section 1.6(b). Each share
certificate evidencing Parent Common Stock to be issued to any Significant PEI
Shareholder shall, for the period required by the Lockup Agreement (as herein
defined), have the following legend:
3
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CONTRACTUAL
RESTRICTION ON TRANSFER AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED, EXCEPT AS SET FORTH IN THAT CERTAIN LOCKUP AGREEMENT
BETWEEN THE COMPANY AND THE HOLDER HEREOF, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICES OF THE COMPANY.
In addition, the transfer agent for the Company shall be given instructions
not to permit the transfer of the shares represented by such certificates prior
to the date set forth in the legend. Notwithstanding the foregoing, however,
Significant PEI Shareholders may have the legend removed in accordance with the
terms of the Lockup Agreement.
"SIGNIFICANT PEI SHAREHOLDER" means any Person, other than ▇▇▇▇ ▇▇▇▇▇, who,
immediately prior to the Effective Time, owns or controls, together with such
Person's Affiliates and through one or more certificates, 100,000 or more shares
of PEI Common Stock, including, without limitation the Persons listed on
Schedule 1.5(c)(ii). "PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships (including family limited
partnerships), limited liability partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organization, whether or not
legal entities, and governments and agencies and political subdivisions thereof
and their respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such Person).
(iii) Parent shall issue, in full and final satisfaction of the
Remainder Note, 2,500,000 shares of Parent Series A Stock. The terms of the
Parent Series A Stock will be as set forth on the form of the Certificate of
Designation of Preferences, Limitations and Relative Rights with respect to the
Parent Series A Stock attached as Exhibit 1.5(c)(iii) (the "CERTIFICATE OF
DESIGNATION").
(iv) At the Effective Time, each PEI option that is an outstanding
and unexercised non-qualified stock option or incentive stock option (within the
meaning of Section 422 of the Code) immediately prior thereto and each warrant
that represents a right to acquire securities in PEI, including the RPM Warrants
(as herein defined) and the ▇▇▇▇▇ Warrants (as herein defined), that is
outstanding and unexercised shall cease to represent a right to acquire shares
of PEI Common Stock and shall be assumed by Parent and converted automatically
into an option or warrant, as the case may be (together, the "SURVIVING
OPTIONS"), to purchase shares of Parent Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of Section 424(a) of the Code (in the case of incentive stock options) and the
agreements and plans pursuant to which such options and warrants were issued
evidencing grants thereunder): (A) the number of shares of Parent Common Stock
to be subject to the Surviving Options shall be equal to the product of the
number of shares of PEI Common Stock subject to the original PEI options or
warrants multiplied by the per share Merger Consideration received by the
holders of PEI Common Stock (provided that such number of shares shall be
rounded to the nearest whole share); and (B) the exercise price per share of
Parent Common Stock under the Surviving Options shall be equal to the exercise
price per share of PEI
4
Common Stock under the option or warrant, divided by the per share Merger
Consideration received by the holders of PEI Common Stock (provided that such
exercise price shall be rounded to the nearest cent).
(v) Upon the exercise of any Surviving Option (other than a cashless
exercise): (a) Parent shall immediately deliver the aggregate exercise price
received by Parent (less any social security and Medicare taxes required to be
paid in by Parent as a result of such exercise) to the Escrow Agent for the
Option Escrow (the "OPTION ESCROW AGENT") for deposit in the Option Escrow, (b)
the Option Escrow Agent shall deliver the share certificate or certificates
representing such shares to Parent and promptly cause Parent to, and Parent
promptly shall, cancel a number of shares of Parent Common Stock held by the
Option Escrow Agent equal to the number of shares of Parent Common Stock
issuable upon the exercise of such Surviving Option, (c) Parent shall deliver to
the Option Escrow Agent a certificate for any shares evidenced by the cancelled
certificates that remain outstanding, and (d) Parent shall issue to the Person
exercising the Surviving Option the number of shares of Parent Common Stock
issuable upon such exercise. The Option Escrow Agent shall promptly deliver to
each Significant PEI Shareholder a portion of the consideration received from
Parent upon the exercise of any Surviving Option (other than a cashless
exercise) equal to the Merger Consideration received by such Significant PEI
Shareholder divided by the aggregate Merger Consideration received by all
Significant PEI Shareholders (a "PRO RATA SHARE"); provided however, that if any
Significant PEI Shareholder's Pro Rata Share is less than $500, the Option
Escrow Agent may hold such funds in escrow, in a non-interest bearing account,
until the amount of the disbursements due to such Significant PEI Shareholder
aggregate at least $500.
(vi) Upon the expiration of any Surviving Option, the Option Escrow
Agent shall transfer to each Significant PEI Shareholder such shareholder's Pro
Rata Share of the shares issuable upon exercise of such expiring Surviving
Option; provided, however, that if any Significant PEI Shareholder's Pro Rata
Share of the shares issuable upon the exercise of such expiring Surviving Option
is fewer than 500 shares, the Option Escrow Agent may hold such shares in escrow
until the shares to be transferred to such Significant PEI Shareholder under
this Agreement aggregate at least 500 shares. Fractional shares shall be rounded
to the nearest whole share.
(vii) In the event of any cashless exercise of any Surviving
Options, Parent shall issue to the Person exercising the Surviving Option the
number of shares of Parent Common Stock issuable upon exercise of such Surviving
Option after deduction of the number of shares of Parent Common Stock or
Surviving Options owned by such Person necessary to pay the cashless exercise
price (the "SURRENDERED SHARES"), and the Option Escrow Agent shall surrender to
Parent a number of shares of Parent Common Stock equal to the number of shares
of Parent Common Stock issued to the Person exercising such Surviving Option. In
addition, the Option Escrow Agent shall transfer to each Significant PEI
Shareholder from the Option Escrow a number of shares of Parent Common Stock
equal to such Significant PEI Shareholder's Pro Rata Share of the Surrendered
Shares; provided, however, that if any Significant PEI Shareholder's Pro Rata
Share of such Surrendered Shares is less than 500 shares, the Option Escrow
Agent may hold such shares in escrow until the aggregate number of undisbursed
shares attributable to such Significant PEI Shareholder's Pro Rata Share
(together with any undisbursed
5
shares attributable to such Significant PEI Shareholder's Pro Rata Share
pursuant to Section 1.5(c)(vi)) is 500 or more shares.
(viii) In addition to the foregoing, at any time and from time to
time, Parent shall, upon the written request of the Option Escrow Agent and the
holder of any Surviving Option and within ten business days of such request,
issue to such holder the number of shares of Parent Common Stock specified by
the Option Escrow Agent and such holder in such request, provided that
contemporaneous with such written request, (w) the Surviving Option held by such
holder is cancelled, (x) the Option Escrow Agent surrenders to Parent for
cancellation a number of shares of Parent Common Stock equal to the number of
shares that the Option Escrow Agent and such holder have requested Parent to
issue in such request, (y) if Parent is required to withhold taxes, such taxes,
together with any amount of social security and Medicare taxes required to be
paid in by Parent, are delivered to Parent, and (z) the number of shares
remaining in the Option Escrow is equal to or greater than the aggregate number
of shares issuable upon exercise of all then outstanding Surviving Options after
giving effect to the issuance of such requested shares of Parent Common Stock
and the cancellation of any Surviving Options in connection therewith.
(ix) Upon the expiration or cancellation of all Surviving Options,
the Option Escrow Agent shall transfer to each Significant PEI Shareholders its
Pro Rata Share of the remaining shares of Parent Common Stock (the "REMAINING
OPTION SHARES"). With respect to any transfers of shares of Parent Common Stock
to any Significant PEI Shareholder in connection with the Remaining Option
Shares, fractional shares shall be rounded to the nearest whole share.
(x) All warrants issued by PEI that are outstanding immediately
prior to the Effective Time and exercisable for shares of PEI Common Stock shall
have been converted into PEI Common Stock as a result of the exercise of such
warrants or cancelled as of the Effective Time other than the warrants to
purchase up to 292,693 shares of PEI Common Stock owned by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ granted under the Warrant Purchase Agreement dated October 17,
1996 among PEI, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "RPM WARRANTS") and
the warrants to purchase up to 30,499 shares of PEI Common Stock issued by PEI
on or about January 29, 1999 to ▇▇▇▇ ▇▇▇▇▇ in connection with the issuance of
the ▇▇▇▇▇ Debt (the "▇▇▇▇▇ WARRANTS"); provided that some or all of the RPM
Warrants and the ▇▇▇▇▇ Warrants may or may not have been exercised and to the
extent unexercised as of the Closing shall be replaced by Parent in accordance
with the provisions of Section 1.5(c)(iv) and satisfied from the Option Escrow
to the extent such replacement warrants are ever exercised.
(xi) The shares of PEI Common Stock converted into the right to
receive the Merger Consideration (each a "CONVERTED SHARE") shall, by virtue of
the Merger and without any action on the part of the holder thereof, at the
Effective Time no longer be outstanding and shall at such time be cancelled and
retired and shall cease to exist, and each holder of any Converted Shares shall
thereafter cease to have any rights with respect to such Converted Shares,
except, upon the surrender of certificates representing such Converted Shares as
set forth in Section 1.7, the right to receive the Merger Consideration at the
times and in the manner set forth below.
6
(xii) Fractional shares of Parent Common Stock will not be issued in
exchange for PEI Common Stock. In lieu of any fractional share, Parent shall
deliver a cash amount equivalent (rounded to the nearest cent) to the amount
obtained by multiplying such fraction by the current market price per share of
the Parent Common Stock (as determined by the Parent Board of Directors acting
in good faith) on the Closing Date. All fractional shares of Parent Common Stock
to be received by such holder shall be aggregated, it being the intention of the
parties that no holder of PEI Common Stock will receive cash in an amount equal
to or greater than the value of one full share of Parent Common Stock. However,
if the amount due to any PEI Shareholder is less than $1.00, such amount shall
be deemed surrendered. No interest shall be payable with respect to the payment
of such cash amount.
(xiii) The Parent and the Escrow Agent may delegate to the Parent's
transfer agent any of their duties hereunder relating to the cancellation and
issuance of shares or to the delivery of checks in lieu of fractional shares to
the PEI Shareholders.
1.6 Escrow.
(a) Of the shares of Parent Common Stock to be issued to each of the
shareholders of PEI (the "PEI SHAREHOLDERS") at Closing, 1,000,000 shares will
be deducted from the Merger Consideration to be delivered to the Significant PEI
Shareholders and be held in escrow pursuant to an escrow agreement (the
"INDEMNIFICATION ESCROW AGREEMENT") in the form of the Indemnification Escrow
Agreement attached as Exhibit 1.6(a).
(b) Of the shares of Parent Common Stock to be issued to the PEI
Shareholders at the Closing, a number of shares of Parent Common Stock equal to
the number of shares of Parent Common Stock issuable upon the exercise of the
Surviving Options will be delivered to the Option Escrow Agent to be held in
escrow pursuant to the terms of an escrow agreement (the "OPTION ESCROW
AGREEMENT") in the form of Option Escrow Agreement attached as Exhibit
1.6(b).
1.7 Exchange of Certificates.
(a) At or before the Effective Time, Parent shall supply, or cause to be
supplied, to Parent's transfer agent (the "EXCHANGE AGENT"), in trust for the
benefit of the holders of PEI Common Stock and Equus (other than the Cancelled
Shares), for exchange in accordance with this Section 1.7, certificates
evidencing shares of Parent Common Stock and Parent Series A Stock (together,
the "PARENT STOCK") issuable pursuant to this Agreement in exchange for
outstanding PEI Common Stock and the Remainder Note, respectively.
(b) As soon as reasonably practicable after the Effective Time (but in
no event more than ten days thereafter), Parent shall instruct the Exchange
Agent to mail to Equus and to each holder of record of a certificate or
certificates which immediately prior to the Effective Time evidenced outstanding
shares of PEI Common Stock (the "PEI CERTIFICATES"), other than Cancelled
Shares, (i) a letter of transmittal, which letter shall specify, among other
conditions, that delivery shall be effected, and risk of loss and title to the
PEI Certificates shall pass, only upon proper delivery of the PEI Certificates
to the Exchange Agent; (ii) instructions to effect the
7
surrender of the PEI Certificates in exchange for certificates evidencing shares
of Parent Stock (the "PARENT CERTIFICATES") and, in lieu of any fractional
shares thereof, cash; and (iii) instructions to convert the Remainder Note (as
hereinafter defined) to 2,500,000 shares of Parent Series A Stock issued to
Equus. Upon surrender of a PEI Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and such other
customary documents as may be reasonably required by Parent or the Exchange
Agent, the holder of such PEI Certificate shall be entitled to receive in
exchange therefor (x) a Parent Certificate evidencing that whole number of
shares of Parent Stock which such holder has the right to receive in respect of
the shares of PEI Common Stock formerly evidenced by such PEI Certificate in
accordance with applicable provisions hereof and (y) cash in lieu of a
fractional share of Parent Stock to which such holder is entitled, and the PEI
Certificate so surrendered shall forthwith be cancelled. Until surrendered, each
outstanding PEI Certificate which represented shares of PEI Common Stock, shall
be deemed from and after the Effective Time, for all corporate purposes other
than the payment of dividends, to evidence the ownership of the number of full
shares of Parent Stock into which such shares of PEI Common Stock may be
exchanged in accordance herewith and the right to receive an amount in cash in
lieu of the issuance of any fractional shares.
(c) No dividends or other distributions with respect to Parent Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered PEI Certificate with respect to the Parent Stock such holder is
entitled to receive until such holder has surrendered his PEI Certificate.
Subject to applicable law, following the surrender of any PEI Certificate, there
shall be paid to the record holder of the Parent Certificates issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Stock.
(d) If any Parent Certificate is to be issued in a name other than that
in which the PEI Certificate surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that the PEI Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the Person requesting such exchange shall have paid to Parent, or any
agent designated by Parent, any transfer or other taxes required by reason of
the issuance of a Parent Certificate in any name other than that of the
registered holder of the PEI Certificate surrendered.
(e) Neither Parent nor PEI shall have any liability to any holder of PEI
Common Stock for any Merger Consideration (or dividends or distributions with
respect thereto) which is delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 Stock Transfer Books. At the Effective Time, the stock transfer books of
PEI shall be closed, and there shall be no further registration of transfers of
PEI Common Stock on the records of PEI.
8
1.9 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of PEI Common Stock held by a holder who has exercised appraisal rights
for such shares in accordance with the Applicable Corporate Law and who, as of
the Effective Time, has not effectively withdrawn or lost such appraisal rights
(the "DISSENTING SHARES"), shall not be converted into, or represent a right to
receive, the Merger Consideration. Such holders shall be entitled only to such
rights as are granted by the Applicable Corporate Law with respect to such
Dissenting Shares; provided however, all Dissenting Shares held by holders who
fail to perfect or who effectively withdraw or lose their rights to appraisal of
such shares under the Applicable Corporate Law shall be converted into and
become exchangeable for the right to receive, without interest thereon, the
Merger Consideration upon surrender of their PEI Certificates.
(b) Parent shall give PEI prompt written notice of any demands received
by Parent to require Parent to purchase Dissenting Shares, the withdrawal of any
such demands, and any other notices or instruments served pursuant to the
Applicable Corporate Law and received by Parent. Parent shall not, except with
the prior written consent of PEI, voluntarily make any payment with respect to
any Dissenting Shares or offer to settle, or settle, any such demands with
respect thereto.
1.10 No Further Ownership Rights in PEI Common Stock. The Merger
Consideration delivered upon the surrender of PEI Certificates in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such PEI Certificates, and there shall
be no further registration of transfers on the records of Surviving PEI of
shares of PEI Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, PEI Certificates are presented to
Surviving PEI for any reason, they shall be cancelled and exchanged for the
Merger Consideration as described in Section 1.5.
1.11 Lost, Stolen or Destroyed Certificates. If any PEI Certificate shall
have been lost, stolen or destroyed (a "LOST PEI CERTIFICATE"), the Parent or
the Exchange Agent may, in their sole discretion, require the holders of the
Lost PEI Certificate to file a sworn affidavit confirming the loss of such PEI
Certificate and to deliver a bond in such sum as they may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Lost PEI Certificate. The Parent shall subsequently
use its commercially reasonable best efforts to cause the Exchange Agent to
deliver to the registered owner of the Lost PEI Certificate such Merger
Consideration as may be required pursuant to this Agreement.
1.12 Shareholder Approval. Both Parent and PEI shall prepare the necessary
proxy materials (which shall be included in a Registration Statement and Joint
Proxy Statement on Form S-4 (the "MERGER PROXY") to be filed with the U.S.
Securities and Exchange Commission (the "SEC")), to obtain at a shareholders'
meeting the required consent, approval or ratification of their respective
shareholders in accordance with the Securities Act of 1933, as amended
("SECURITIES ACT"), the Securities Exchange Act of 1934, as amended ("EXCHANGE
ACT"), the Applicable Corporate Law and this Agreement, as necessary for the
consummation of the transactions contemplated by this Agreement. After the
Merger Proxy is approved by the SEC, Parent and PEI shall distribute the Merger
Proxy to their respective shareholders and they shall
9
each conduct a shareholders' meeting to approve the matters set forth in the
Merger Proxy. The Merger Proxy and related documents shall be in form and
substance satisfactory to Parent and PEI. Parent and PEI shall each pay one-half
of the distribution and printing expenses, registration fees and listing fees
related to the Merger Proxy; provided however, if the transactions contemplated
hereby are not consummated because one of the parties fails to obtain
shareholder approval, that party shall pay all of such costs. Parent and PEI
shall each pay their own financial advisory fees.
1.13 Tax and Accounting Consequences. It is intended by Parent and PEI that
the Merger shall constitute a tax-free reorganization for federal income tax
purposes within the meaning of Section 368(a) of the Code. Parent and PEI
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Section 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
None of Parent, Sub, LC, PEI or any PEI Shareholder will take any actions that
disqualify the Merger for such treatment.
2. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to PEI and the PEI Shareholders that,
except as otherwise disclosed in the Disclosure Schedules or in Parent's Forms
10-KSB for the year ended December 31, 2000 and 10-QSB for the quarter ended
March 31, 2001 filed with the SEC (the "CURRENT PARENT SEC DOCUMENTS"), the
following statements are true and correct as to Parent and each of its
Subsidiaries. For purposes of this Agreement, an entity shall be deemed to be a
"SUBSIDIARY" of a second entity if the second entity holds, directly or
indirectly through its ownership of one or more Subsidiaries, more than more
than 50% of the total outstanding voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or general
partners thereof.
2.1 Organization, Etc. Parent and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and is duly qualified or licensed as a foreign
corporation authorized to do business in all other states in which any of its
assets or properties may be situated or where the business of Parent or each of
its Subsidiaries, respectively, is conducted, except where the failure to obtain
such qualification or license will not have a Parent Material Adverse Effect.
For purposes of this Section 2, the term "PARENT MATERIAL ADVERSE EFFECT" shall
mean an adverse effect on the properties, assets, financial position, results of
operations, long-term debt, other indebtedness, cash flows or contingent
liabilities of Parent or each of its Subsidiaries in an amount of $100,000 or
more.
2.2 Capitalization of Parent. The total authorized capital stock of Parent
consists of 75,000,000 shares of Parent Common Stock, of which 12,964,918 shares
are issued and outstanding as of the date of this Agreement. No shares are held
as treasury stock of Parent. Each issued and outstanding share of capital stock
of Parent is duly and validly authorized and issued, fully paid and non-
assessable, and was not issued in violation of the preemptive rights of any past
or present shareholder. Except as disclosed on Schedule 2.2, there are no
outstanding convertible or exchangeable securities, shares of capital stock,
subscriptions, calls, options,
10
warrants, rights or other agreements or commitments of any character relating to
the issuance or sale of any shares of capital stock of, or other equity
ownership interest in, Parent. Parent has no liability, contingent or otherwise,
to any Person or entity in connection with preemptive or contractual
subscription rights or the offer, sale, purchase, surrender or cancellation of
any shares of capital stock, convertible or exchangeable securities, warrants,
options, rights or other agreements or commitments of any character relating to
the issuance and sale of the capital stock of, or other equity ownership in
(collectively, "OTHER OWNERSHIP INTERESTS"), Parent or other voting interests or
securities of Parent. The shares of Parent Common Stock and the Parent Series A
Stock to be issued pursuant to the Merger are, or at the time of issuance will
be, duly authorized and, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable. The issuance
of the Parent Common Stock to the PEI Shareholders and the issuance of the
Parent Series A Stock to Equus in accordance with the terms of this Agreement
will transfer to the PEI Shareholders and to Equus valid title to such shares,
free and clear of all liens, pledges, mortgages, security interests, conditional
sales contracts and encumbrances.
2.3 Parent Series A Stock. At the Effective Time, the Parent Series A Stock
will be, upon its issuance, duly authorized, validly issued, fully paid, and
nonassessable. At the Effective Time, the underlying Parent Common Stock then
and thereafter issuable upon conversion of the Parent Series A Stock will be
duly reserved for issuance, and, when issued upon conversion of the Parent
Series A Stock, will be duly authorized, fully paid and nonassessable.
2.4 Subsidiaries. The Subsidiaries of Parent are disclosed in Schedule 2.4.
Each Significant Subsidiary (as such term is defined in Rule 1-02 of Regulation
S-X under the Securities Act) of Parent has been named in the Parent SEC
Documents. Schedule 2.4 contains, with respect to each Subsidiary of Parent,
its name and jurisdiction of incorporation and, with respect to each Subsidiary
of Parent that is not wholly owned, the number of issued and outstanding shares
of capital stock and the number of shares of capital stock owned by Parent or a
Subsidiary of Parent. All the outstanding shares of capital stock of each
Subsidiary of Parent are validly issued, fully paid and non-assessable, and
those owned by Parent or by a Subsidiary of Parent are owned free and clear of
any security interests, pledges, options, rights of first refusal, liens,
claims, encumbrances or any other limitation or restriction (including a
restriction on the right to vote or sell the same except as may be provided as a
matter of law). Except as set forth in Schedule 2.4, there are no existing
options, warrants, calls or other rights, agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any of the Subsidiaries of Parent.
2.5 Interim Operations of Sub and LC. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby. LC has solely engaged in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only as
contemplated hereby.
2.6 Authority. Each of Parent, LC and Sub has the requisite right, power and
authority to execute, deliver and perform this Agreement and all documents and
instruments referred to in this Agreement or contemplated hereby (the "PARENT
RELATED DOCUMENTS") and to
11
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of each of
Parent, LC and Sub. This Agreement has been duly and validly executed and
delivered by each of Parent, LC and Sub, and assuming the due authorization,
execution and delivery by PEI, constitutes a valid and binding agreement of each
of Parent, LC and Sub, enforceable against each of Parent, LC and Sub in
accordance with its terms. All of the Parent Related Documents, when duly
executed and delivered by Parent, LC and Sub, will constitute legal, valid and
binding obligations of each of Parent, LC and Sub, enforceable against each of
Parent, LC and Sub in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity).
2.7 Consents. No approval, consent, order or action of or filing with any
court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by each of Parent, LC or Sub
of this Agreement or the Parent Related Documents or the consummation by each of
Parent, LC or Sub of the transactions contemplated hereby, except for (i) the
filing of articles of merger, in form mutually acceptable to each of Parent and
PEI, with the Secretary of State of the State of Texas (the "MERGER FILING"),
(ii) the filing of the Merger Proxy with the SEC, (iii) such filings as may be
required under federal and state securities laws, and (iv) approval by (x)
Parent's stockholders (including a majority of the stockholders other than
Alliance and its Affiliates) of the matters to be submitted to them for approval
pursuant to the Merger Proxy and the American Stock Exchange and (y) the SEC.
Parent and each of its Subsidiaries have obtained all the licenses and permits
that are legally required for the continued operation of their respective
businesses after the Effective Time, except such licenses and permits, the
absence of which will not have a Parent Material Adverse Effect.
2.8 Proprietary Rights. Parent and each of its Subsidiaries has full and
sufficient rights to use all trade names, brand names, trademarks, service marks
and logos and to use and practice all technology, proprietary information, know-
how or patented ideas, designs or inventions (collectively "PROPRIETARY RIGHTS")
necessary for the present operation of its businesses and the marketing,
distribution, sale and use of the materials used and the products sold by Parent
and each of its Subsidiaries. To Parent's knowledge, (i) none of the ownership,
access to, use or practice of the Proprietary Rights by Parent or any of its
Subsidiaries infringes on the rights of any other party and (ii) all Proprietary
Rights are valid and enforceable.
2.9 Title. Except as set forth on Schedule 2.9, Parent and each of its
Subsidiaries owns outright, and has full legal and beneficial title to all of
its assets, free and clear of all liens, pledges, mortgages, security interests,
conditional sales contracts and encumbrances, including good and marketable
title to all of its real property interests, free and clear of any mortgages,
security agreements, liens or encumbrances.
2.10 Defaults. Neither Parent nor any of its Subsidiaries nor any Designated
Plan (as defined herein) of Parent is in default under or in violation of, and
the execution and delivery of
12
the Agreement and Parent Related Documents, and the consummation of the
transactions contemplated hereby, will not result in a default by Parent or any
of its Subsidiaries or any Parent Designated Plan under or a violation of (i)
any mortgage, indenture, charter or bylaw provision, provision of any Parent
Designated Plan, contract, agreement, lease, commitment or other instrument of
any kind to which Parent or any of its Subsidiaries or any Parent Designated
Plan is a party or by which Parent or any of its Subsidiaries or any Parent
Designated Plan or any of its properties or assets may be bound or affected or
(ii) any law, rule or regulation applicable to Parent or any of its Subsidiaries
or any Parent Designated Plan or any court injunction, order or decree, or any
valid and enforceable order of any governmental agency in effect having
jurisdiction over Parent or any Parent Designated Plan, which default or
violation could adversely affect the ability of Parent or any of its
Subsidiaries to consummate the transactions contemplated hereby or will have a
Parent Material Adverse Effect.
2.11 Full Authority. Parent and each of its Subsidiaries has full power,
authority and legal right, and has all licenses, permits, qualifications, and
other documentation (including permits required under applicable Environmental
Laws (as defined herein), necessary, to own and/or operate its businesses,
properties and assets and to carry on its businesses as being conducted on the
date hereof, and such businesses are now being conducted and such assets and
properties are being owned and/or operated, and Parent Plans have been
implemented and maintained, in compliance with all applicable laws (including
Environmental Laws), ordinances, rules and regulations of any governmental
agency of the United States, any state or political subdivision thereof, or any
foreign jurisdiction, all applicable court or administrative agency decrees,
awards and orders and all such licenses, permits, qualifications and other
documentation, except where the failure to comply will not have a Parent
Material Adverse Effect, and there is no existing condition or state of facts
which would give rise to a violation thereof or a liability or default
thereunder, except where a violation, liability or default will not have a
Parent Material Adverse Effect.
2.12 Parent's SEC Documents. Parent has filed each material form, including,
but not limited to, each report, schedule, registration statement and definitive
proxy statement required to be filed by Parent with the SEC (the "PARENT SEC
DOCUMENTS"). As of its filing date (and, with respect to any registration
statement, the date on which it was declared effective), each Parent SEC
Document was, and all information to be included by Parent in the Merger Proxy
will be, in compliance, in all material respects, with all legal requirements
and contained or will contain no untrue statement of a material fact and did not
or will not omit any statement of a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made or will be made, not misleading. The financial statements
of Parent included in the Parent SEC Documents complied, and the financial
statements of Parent included in the Merger Proxy will comply at the time of
filing with the SEC (and, with respect to any registration statement, at the
time it was declared effective), in all material respects, with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
and fairly present, in all material respects (subject, in the case of the
unaudited statements, to normal, recurring year-end audit adjustments), the
consolidated financial position of Parent and its consolidated subsidiaries as
at the dates thereof and the consolidated results of their operations
13
and changes in financial position for the periods then ended. Since December 31,
2000, there have been no changes in the Parent's method of accounting for tax
purposes or any other purposes. The consolidated financial statements of Parent
and its consolidated subsidiaries as of December 31, 2000, and as of June 30,
2001, included the Parent SEC Documents, and to be included in the Merger Proxy,
disclose or will disclose, as applicable, all liabilities of Parent and its
consolidated subsidiaries required to be disclosed therein and contain adequate
reserves for taxes and all other material accrued liabilities.
2.13 Investment Company. Neither Parent nor any of its Subsidiaries is an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or a "holding
company," a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
2.14 Undisclosed Liabilities. Except as and to the extent disclosed in the
Parent SEC Documents or on Schedule 2.14, neither Parent nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether absolute,
contingent or otherwise) which would result in a Parent Material Adverse Effect.
2.15 Taxes. Parent and each of its Subsidiaries has filed all requisite
federal and other Tax Returns, information returns, declarations and reports for
all fiscal periods ended on or before December 31, 2000; and there are no claims
(nor is there any matter pending which may result in a claim) against Parent or
any of its Subsidiaries for federal, state or local income, sales, use,
franchise or other taxes for any period or periods prior to and including
December 31, 2000 and no notice of any claim, whether pending or threatened, for
taxes has been received which would create a lien on the assets of Parent of any
of its Subsidiaries, or result in a Parent Material Adverse Effect. The amounts
shown as accruals for taxes in the financial statements included in the Current
Parent SEC Documents are sufficient for the payment of all taxes of any kind or
nature whatsoever for all fiscal periods ended on or before that date. Copies
of the federal, state and local income tax returns and franchise tax returns
(collectively, "TAX RETURNS") of Parent for its last three fiscal years have
been provided to PEI. Except as set forth on Schedule 2.15, neither Parent nor
any of its Subsidiaries has obtained an extension of time in which to file any
Tax Returns which have not yet been filed. Neither Parent nor any of its
Subsidiaries has waived any statute of limitations with respect to federal,
state, or local income, sales, use, franchise or other taxes or agreed to any
extensions of time with respect to a tax assessment or deficiency, except for
such waivers or extensions which, by their terms, have lapsed as of the date
hereof.
2.16 Legal Actions. Except as set forth on Schedule 2.16, no legal action,
suit, audit, investigation, unfair labor practice charge, complaint, claim,
grievance, or proceeding by or before any court, arbitration panel, governmental
authority or third party is pending or, to the knowledge of Parent (after making
inquiry with officers of Parent in a position to have such knowledge)
threatened, which involves or may involve Parent, any of its Subsidiaries, or
its now or previously owned or operated assets, operations, properties or
businesses.
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2.17 Parent Contracts; Parent Plans. Neither Parent nor, to Parent's
knowledge, any other party thereto, is in default under or in violation of any
Parent Contract or Designated Plan.
2.18 No Material Adverse Change. Except for the actions contemplated
by this Agreement or as set forth on Schedule 2.18, since December 31, 2000, to
Parent's knowledge there has not been: (a) any change in Parent's Articles of
Incorporation or Bylaws, (b) any change in the financial condition, assets,
liabilities (contingent or otherwise), income, business or prospects of Parent
or any of its Subsidiaries resulting in a Parent Material Adverse Effect; (c)
any damage, destruction or loss (whether or not covered by insurance) resulting
in a Parent Material Adverse Effect on the properties or business of Parent or
its Subsidiaries; (d) any change in the number of authorized or outstanding
shares of stock, or membership interests, as applicable, of Parent or its
Subsidiaries; (e) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of Parent or its Subsidiaries; (f)
any contract or commitment entered into by Parent or any of its Subsidiaries or
any incurrence by Parent or its Subsidiaries of any liability or make any
capital expenditures in excess of $100,000; (g) any increase in the
compensation, bonus, sales commissions or fee arrangement payable or to become
payable by Parent or any of its Subsidiaries to any of their respective
officers, directors, stockholders, employees, consultants or agents; (h) any
work interruptions, labor grievances or claims filed, proposed law or regulation
(the existence of which is known, or under the normal course of business should
be known, to Parent or its Subsidiaries) or any event or condition of any
character which would have a Parent Material Adverse Effect on the business or
future prospects of Parent or any of its Subsidiaries; (i) any creation,
assumption or permitting to exist any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired; (j) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of Parent or any of its Subsidiaries to
any Person, including, without limitation, the stockholders and their respective
Affiliates except as contemplated by this Agreement; (k) any cancellation, or
agreement to cancel, any indebtedness or other obligation owing to Parent or any
of its Subsidiaries, including, without limitation, any indebtedness or
obligation of the stockholders or any of their Affiliates; (1) any plan,
agreement or arrangement granting any preferential rights to purchase or acquire
any interest in any of the assets, properties or rights of Parent or its
Subsidiaries or requiring consent of any party to the transfer and assignment of
any such assets, properties or rights; (m) any purchase or acquisition of, or
agreement, plan or arrangement to purchase or acquire, any property, rights or
assets of Parent or any of its Subsidiaries; (n) any negotiation for the
acquisition of any business or start-up of any new business; (o) any merger or
consolidation or agreement to merge or consolidate with or into any other entity
(except the transactions contemplated by this Agreement); (p) any waiver of any
material rights or claims of Parent or any of its Subsidiaries; (q) any breach,
amendment or termination of any material contract, agreement, license, permit,
permit application or other right to which Parent or any of its Subsidiaries is
a party; (r) any discharge, satisfaction, compromise or settlement of any claim,
lien, charge or encumbrance or payment of any obligation or liability,
contingent or otherwise, other than current liabilities as of December 31, 2000,
as set forth in the financial statements included in the Current Parent SEC
Documents, current liabilities incurred since December 31, 2000 in the ordinary
course of business and prepayments of obligations in accordance with normal and
customary past practices; (s) any transaction by Parent or any of its
Subsidiaries outside the ordinary course of their respective business or
prohibited hereunder; or
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(t) any material adverse change in the financial condition, results of
operations or business of Parent or its Subsidiaries taken as a whole, and no
event or condition has occurred or exists that insofar as may reasonably be
foreseen, will result in a material adverse change in the financial condition,
results of operations or business of Parent or any of its Subsidiaries taken as
a whole.
2.19 Predecessors. The Parent SEC Documents contain all names under
which Parent has done business as well as the names of all predecessors of
Parent, including the names of any entities from which Parent previously
acquired significant assets.
2.20 Affiliate Relationships. No Affiliate of the shareholders, and
no director, officer or employee of or consultant to Parent or any of its
Subsidiaries owns, directly or indirectly, in whole or in part, any property,
asset or right, tangible or intangible, which is associated with any property,
asset or right owned by Parent or its Subsidiaries or that they operate or use,
or the use of which is necessary, for their respective business. The term
"AFFILIATE" means, with respect to any Person, any other Person which directly
or indirectly, by itself or through one or more intermediaries, Controls, or is
Controlled by, or is under direct or indirect common Control with, such Person.
The term "CONTROL" (and derivations thereof) means the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
2.21 Disclosure. No representation or warranty by Parent in this
Agreement, and no statement contained in the Disclosure Schedules or any
certificate delivered by Parent to PEI pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they are or were made, not misleading.
2.22 Other Disclosures. The following disclosures pertaining to Parent
and each of its Subsidiaries are set forth in the Disclosure Schedules:
(a) Except as disclosed on Schedule 2.22(a), neither Parent nor any
of its Subsidiaries has any products or uses any product registrations, and
there are no material safety data sheets, toxicology studies or
environmental studies with respect to the business of Parent or any of its
Subsidiaries;
(b) Except as disclosed on Schedule 2.22(b), neither Parent nor any
of its Subsidiaries owns of record or beneficially, or leases, any real
property;
(c) Schedule 2.22(c) is a list of assets owned by Parent and each of
its Subsidiaries as of the date hereof which have been capitalized and have
an unamortized value of $10,000 or more, including vehicles and rolling
stock, and a list of all leased equipment of Parent and each of its
Subsidiaries, including leased vehicles;
(d) There are no raw materials or other property located at any
property owned or leased as lessee by Parent or any of its Subsidiaries
that have been consigned to Parent or any of its Subsidiaries, or are
otherwise owned by a third party, and have a market value exceeding
$10,000;
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(e) Listed on Schedule 2.22(e) is each policy of insurance maintained
by Parent and each of its Subsidiaries, and Parent has provided PEI with
information on coverages, insurers and expiration dates, an accurate list
of all insurance loss runs and workers' compensation claims received for
the past three policy years. Parent represents and warrants that (i) such
insurance is currently in full force and effect, (ii) except as set forth
on Schedule 2.22(e), Parent's insurance has never been cancelled, (iii)
Parent has never been denied coverage or experienced a substantial increase
in premiums or a substantial reduction in coverage from one policy period
to the next policy period (other than increases resulting from the growth
of Parent and its Subsidiaries and from the increased cost of insurance
generally), (iv) to Parent's knowledge, such coverage is adequate in
character and amount, (v) such coverage is placed with financially sound
and reputable insurers unaffiliated with any of the stockholders of Parent,
and (vi) similar coverage has been in place each year for the past four
years.
(f) Schedule 2.22(f) is a list of each bank, brokerage firm, trust or
other financial institution in which Parent or any of its Subsidiaries has
an account and the identity of each such account, and each bank in which
Parent or any of its Subsidiaries has a safe deposit box, together with the
names of all Persons authorized to draw on any such account or have access
to any such safe deposit box;
(g) Schedule 2.22(g) is a list and summary description of, or copies
of, all governmental licenses and permits of Parent and each of its
Subsidiaries;
(h) Schedule 2.22(h) is a list of each debt, note, mortgage, security
agreement, pledge agreement, guaranty, bond, letter of credit, lease or
other instrument creating any debt or contingent obligation of Parent or
any of its Subsidiaries, or creating a lien or claim on any assets of
Parent or any of its Subsidiaries (other than unsecured trade accounts
payable incurred in the ordinary course of business);
(i) Schedule 2.22(i) is a list of all of Parent's Proprietary Rights
and a description of all license fees and royalties (or the basis of
calculation thereof) required to be paid now or in the future by Parent or
any of its Subsidiaries for the use and practice of its Proprietary Rights;
(j) Except as disclosed on Schedule 2.22(j), neither Parent nor any of
its Subsidiaries has any Contracts. The term "CONTRACT" means each
contract, lease, undertaking, commitment, mortgage, indenture, note,
security agreement, license and other agreement in effect on the date
hereof (i) with a party other than a customer or client of Parent or its
Subsidiaries and involving the expenditure or receipt of more than $100,000
in any year; (ii) with a customer or client of Parent, its Subsidiaries or
Sub and involving the expenditure or receipt of more than $1.0 million over
the term thereof; (iii) containing provisions calling for the sale or
purchase of raw materials, products or services at prices that vary from
the market prices of such raw materials, products or services generally
prevailing in customary third party markets; (iv) which include "most
favored nations" or similar pricing or delivery arrangements; (v) requiring
Parent, its Subsidiaries or Sub, as the case may be, to indemnify or hold
harmless any other Person or entity; (vi) evidencing any warranty
obligation of Parent, its Subsidiaries or Sub, as the case may be, with
respect to goods, services or products sold or leased by it (other than
17
warranties given in the ordinary course of business); (vii) imposing on
Parent, its Subsidiaries or Sub, as the case may be, any confidentiality,
non-disclosure or non-compete obligation or containing any acceleration or
termination provisions effective upon a change of control of Parent,
Subsidiaries or Sub, respectively, or a merger of Parent or Sub into
another entity; or (viii) involving collective bargaining agreements or
other agreements with any labor union or employee group;
(k) Neither Parent nor any of its Subsidiaries has powers of attorney
presently in effect granted by Parent or any of its Subsidiaries, and all
investments of Parent or its Subsidiaries in any equity securities,
partnership interests, indebtedness or other interests in any other
corporation, or any person, partnership, joint venture, limited liability
company, trust, limited partnership or other legal entity; and
(l) Schedule 2.22(l) includes a list of all current officers,
directors and managers of Parent and each of its Subsidiaries. Parent has
provided PEI with a complete listing of the compensation of such
individuals.
2.23 Tax Reorganization Representations.
(a) LC is a domestic eligible entity, as defined in Treasury
Regulation Section 301.7701-3(b)(1)(ii), for federal income tax purposes
that is wholly owned by Parent and that has not elected to be treated as an
association taxable as a corporation under Treasury Regulation Section
301.7701-3(a).
(b) Prior to the Merger, Parent, through its ownership of LC, will be
in control of Sub within the meaning of Section 368(c) of the Code.
(c) Neither Parent nor LC has any plan or intention to cause
Surviving PEI to issue additional shares of its stock that would result in
Parent, through its ownership of LC, losing control of Surviving PEI within
the meaning of Section 368(c) of the Code.
(d) Parent has no plan or intention to reacquire any of its stock
issued in the Merger.
(e) Neither Parent nor LC has any plan or intention to liquidate
Surviving PEI; to merge Surviving PEI with or into another corporation; to
sell or otherwise dispose of the stock of Surviving PEI except for
transfers of stock to another corporation controlled by Parent to the
extent permitted by Treasury Regulation Section 1.368-2(k)(2); or to cause
Surviving PEI to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Parent to the extent permitted by Treasury
Regulation Section 1.368-2(k)(2).
(f) Following the Closing, Parent's and LC's intention is that
Surviving PEI will continue the historic business of PEI or use a
significant portion of the historic business assets of PEI in a business,
all as required to satisfy the "continuity of business enterprise"
requirement under Section 368 of the Code.
18
(g) Neither Parent nor LC owns, nor has either Parent or LC owned
during the past five years, any shares of the stock of PEI.
(h) Each of Parent, LC and Sub is undertaking the Merger for a bona
fide business purpose and not merely for the avoidance of federal income
tax.
(i) None of Parent, LC or Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) As of the Closing Date, Sub will have no liabilities which would
be assumed by Surviving PEI, and Sub will not transfer to Surviving PEI any
assets that are subject to liabilities in the Merger.
(k) The consideration used by Sub to pay the $2 Million Notes,
pursuant to Sections 5.3(i) and 5.5(a) of this Agreement, will be provided
by Parent in accordance with Treasury Regulation Section 1.368-
2(j)(3)(iii).
(l) The only assets of Sub prior to the Merger will be assets
transferred by Parent to Sub, which assets will be used for the purposes
set forth in Treasury Regulation Section 1.368-2(j)(3)(iii).
2.24 Brokers. Except for fees payable to ▇.▇. ▇▇▇▇▇▇▇▇, no broker,
investment banker or other Person is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent, its
Subsidiaries or Sub.
2.25 Labor and Employment Matters. Neither Parent nor any of its
Subsidiaries has employees who are represented by a labor union or organization,
no labor union or organization has been certified or recognized as a
representative of any such employees, and neither Parent nor any of its
Subsidiaries is a party to or has any obligation under any collective bargaining
agreement or other contract or agreement with any labor union or organization.
There are no pending or, to Parent's knowledge, threatened, representation
campaigns, elections or proceedings or questions concerning union representation
involving any employees of either Parent or any of its Subsidiaries. Neither
Parent nor any of its Subsidiaries has any knowledge of any activities or
efforts of any labor union or organization (or representatives thereof) to
organize any of its employees, any demands for recognition or collective
bargaining, any strikes, slowdowns, work stoppages or lock-outs of any kind, or
threats thereof, by or with respect to any employees of Parent or any of its
Subsidiaries, and no such activities, efforts, demands, strikes, slowdowns, work
stoppages or lock-outs occurred during a three-year period preceding the date
hereof. Neither Parent nor any of its Subsidiaries has engaged in, admitted
committing, or been held in any administrative or judicial proceeding to have
committed any unfair labor practice under the National Labor Relations Act, as
amended. Except as set forth on Schedule 2.25, neither Parent nor any of its
Subsidiaries is involved in any industrial or trade dispute or any dispute or
negotiation regarding a claim of material importance with any labor union or
organization concerning its employees, and there are no controversies, claims,
demands or
19
grievances of material importance pending or, so far as Parent is aware,
threatened, between Parent or any of its Subsidiaries and any of their
respective employees.
2.26 Employee Benefit Plans.
(a) List of Plans. Schedule 2.26(a) includes a complete and accurate
list of all employee benefits plans ("PLANS"), as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and material benefit arrangements that are not Plans ("BENEFIT
ARRANGEMENTS"), including, but not limited to any (i) employment or
consulting agreements, (ii) incentive bonus or deferred bonus arrangements,
(iii) arrangements providing termination allowance, severance or similar
benefits, (iv) equity compensation plans, (v) deferred compensation plans,
(vi) cafeteria plans, (vii) employee assistance programs, (viii) bonus
programs, (ix) scholarship programs, (x) vacation policies, and (xi) stock
option plans that are currently in effect or were maintained within three
years of the Effective Time, or have been approved before the Effective
Time but are not yet effective, for the benefit of directors, officers,
employers or former employees (or their beneficiaries) of Parent or a
Controlled Company (Plans and Benefit Arrangements collectively referred to
herein as "DESIGNATED PLANS"). "CONTROLLED COMPANY" shall mean any entity
that, together with Parent as of the relevant determination date under
ERISA, is or was required to be treated as a single employer under Section
414 of the Code and any reference to Parent in this Section 2.26 shall also
include a reference to a Controlled Company.
(b) No Title IV Plans or VEBAS. Neither Parent nor any entity
(whether or not incorporated) that was at any time during the six years
before the Effective Time treated as a single employer together with Parent
under Section 414 of the Code has ever maintained, had any obligation to
contribute to or incurred any liability with respect to a pension plan that
is or was subject to the provisions of Title IV of ERISA or Section 412 of
the Code. Neither Parent nor any entity (whether or not incorporated) that
was at any time during the six years before the Effective Time treated as a
single employer together with Parent under Section 414 of the Code has ever
maintained, had an obligation to contribute to, or incurred any liability
with respect to a multiemployer pension plan as defined in Section 3(37) of
ERISA. During the six years before the Effective Time, Parent has not
maintained, had an obligation to contribute to or incurred any liability
with respect to a voluntary employees beneficiary association that is or
was intended to satisfy the requirements of Section 501(c)(9) of the Code.
(c) Designated Plans. With respect to each Designated Plan, Parent
has delivered to PEI, as applicable, true and complete copies of (i) all
written documents comprising such Plan or each Benefit Arrangement
(including amendments and individual agreements relating thereto), (ii) the
trust, group annuity contract or other document that provides for the
funding of the Designated Plan or the payment of Designated Plan benefits,
(iii) the three most recent annual Form 5500, 990 and 1041 reports
(including all schedules thereto) filed with respect to the Designated
Plan, (iv) the most recent actuarial report, valuation statement or other
financial statement, (v) the most recent Internal Revenue Service ("IRS")
determination letter and all rulings or determinations requested from the
IRS after the date of that determination letter, (vi) the summary plan
description currently in effect and all material modifications thereto, and
(vii) all other correspondence from the IRS or Department of Labor received
that
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relate to one or more of the Designated Plans with respect to any matter,
audit or inquiry that is still pending. All information provided by Parent
and each of its Subsidiaries to the individuals who prepared any such
financial statements was true, correct and complete in all material
respects. Each financial or other report delivered to PEI pursuant hereto
is accurate in all material respects, and there has been no material
adverse change in the financial status of any Designated Plan since the
date of the most recent report provided with respect thereto.
(d) Compliance with Law. Except as set forth in Schedule 2.26(d),
Parent has operated, and has caused its appointees and nominees to operate,
each Designated Plan in a manner which is in compliance with the terms
thereof and with all applicable law, regulations and administrative agency
rulings and requirements applicable thereto, except the violation of which
would not have a Parent Material Adverse Effect. Except as otherwise
disclosed in Schedule 2.26(d), with respect to each Designated Plan that is
a Plan, (i) the Plan is in compliance with ERISA in all material respects,
including but not limited to all reporting and disclosure requirements of
Part 1 of Subtitle B of Title I of ERISA, (ii) the appropriate Form 5500
has been timely filed for each year of its existence, (iii) there has been
no transaction described in Sections 406 or 407 of ERISA or Section 4975 of
the Code relating to the Plan unless exempt under Section 408 of ERISA or
Section 4975 of the Code, as applicable, and (iv) the bonding requirements
of Section 412 of ERISA have been satisfied.
(e) Contributions. Full payment has been made of all amounts which
Parent or a Controlled Company is required, under applicable law or under
any Designated Plan or any agreement related to any Designated Plan to
which Parent or a Controlled Company is a party, to have paid as
contributions thereto as of the last day of the most recent fiscal year of
each Designated Plan ended prior to the date hereof. Benefits under all
Designated Plans are as represented in the governing instruments provided
pursuant to Section 2.26(a) and have not been increased subsequent to the
date as of which documents have been provided.
(f) Tax Qualification. Each Designated Plan, as amended to date,
that is intended to be qualified under Section 401(a) and 501(a) of the
Code has been determined to be so qualified by the IRS, has been submitted
to the IRS for a determination with respect to such qualified status or the
remedial amendment period established under Section 402(b) of the Code with
respect to the Designated Plan will not have expired prior to the Effective
Time. Except as disclosed on Schedule 2.26(f), no facts have occurred which
if known by the IRS could cause disqualification of any such Plan.
(g) Tax or Civil Liability. Neither Parent nor a Controlled Company
has participated in, or is aware of, any conduct that could result in the
imposition upon Parent of any excise tax under Sections 4971 through 4980B
of the Code or civil liability under Section 502(i) of ERISA with respect
to any Designated Plan.
(h) Claims Liability. There is no action, claim or demand of any
kind (other than routine claims for benefits) that has been brought or, to
Parent's knowledge, threatened against, or relating to, any Designated
Plan, and Parent has no knowledge of any pending investigation or
administrative review by any governmental entity relating to any Designated
Plan.
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(i) Retiree Welfare Coverage. Except as set forth in Schedule
2.26(i), no Designated Plan provides any health, life or other welfare
coverage to employees of Parent or a Controlled Company beyond termination
of their employment with Parent or a Controlled Company by reason of
retirement or otherwise, other than coverage as may be required under
Section 4980B of the Code or Part 6 of ERISA, or under the continuation of
coverage provisions of the laws of any state or locality.
(j) No Excess Parachute Payments. No amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of transactions contemplated by this Agreement by any employee, officer or
director of Parent or a Controlled Company who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination agreement,
other compensation arrangement or Designated Plan currently in effect would
be characterized as an "excess parachute payment" (as such term is defined
in Section 280G(b)(1) of the Code).
2.27 Environmental Matters.
(a) No notice, notification, demand, request for information,
citation, summons, complaint or order has been received, no complaint has
been filed, no penalty has been assessed and no investigation is pending or
has been threatened (each, an "ACTION") by any governmental entity or other
party with respect to any (i) alleged violation by Parent or any of its
Subsidiaries of any Environmental Law, (ii) alleged failure by Parent or
any such Subsidiary to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with the
conduct of its business or (iii) Regulated Activity, in each case where
such Action has had, or would have, a Parent Material Adverse Effect.
(b) Except as described in Schedule 2.27(b), neither Parent nor any
of its Subsidiaries has any material Environmental Liabilities, and there
has been no release of Hazardous Substances into the environment or
violation of any Environmental Law by Parent or any such Subsidiary or with
respect to any of their respective properties which has had, or would
reasonably be expected to have, a Parent Material Adverse Effect.
(c) For the purposes of this Agreement, the following terms have the
following meanings:
(i) "ENVIRONMENTAL LAWS" shall mean any and all federal, state,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, codes, injunctions and governmental
restrictions relating to human health, the environment or to emissions,
discharges or releases of Hazardous Substances into the environment or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances
or the clean-up or other remediation thereof.
(ii) "ENVIRONMENTAL LIABILITIES" shall mean all liabilities which
(i) arise under or relate to Environmental Laws and (ii) relate to
Regulated Activities occurring or conditions existing on or prior to the
Effective Time.
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(iii) "HAZARDOUS SUBSTANCES" shall mean any pollutants,
contaminants, toxic, radioactive, caustic or otherwise hazardous substance or
waste, including petroleum, its derivatives, by-products and other hydrocarbons,
or any substance having any constituent elements displaying any of the foregoing
characteristics that is regulated under or by any applicable Environmental Laws.
(iv) "REGULATED ACTIVITY" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Substances.
2.28 Accounts Receivable. The accounts receivable reflected in the
most recent balance sheet included in the Merger Proxy, or to be included in the
Merger Proxy (the "LATEST PARENT BALANCE SHEET"), and all accounts receivable
ensuing since the date of the Latest Parent Balance Sheet, represent bona fide
claims against debtors for sales, services performed or other charges arising on
or before the date hereof, and all the goods delivered and services performed
which gave rise to said accounts were delivered or performed in accordance with
the applicable orders, Contracts or customer requirements. Said accounts
receivable are subject to no defenses, counterclaims or rights of offset and are
fully collectible in the ordinary course of business without cost or collection
efforts therefor except to the extent of the appropriate reserves set forth on
the Latest Parent Balance Sheet, and, in the case of accounts receivable arising
since the date of the Latest Parent Balance Sheet, to a reasonable allowance for
bad debts which does not reflect a rate of bad debts more than that reflected by
the reserve for bad debts on the Parent Balance Sheet.
2.29 Inventories. The values at which inventories are shown on the
Latest Parent Balance Sheet have been determined in accordance with the normal
valuation policy of Parent, consistently applied and in accordance with
generally accepted accounting principles. The inventories (and items of
inventory acquired or manufactured subsequent to the Latest Parent Balance
Sheet) consist only of items of quality and quantity commercially usable and
salable in the ordinary course of business, except for any items of obsolete
material or material below standard quality, all of which have been written down
to realizable market value, or for which adequate reserves have been provided.
2.30 Purchase Commitments and Outstanding Bids. As of the date of this
Agreement, the aggregate backlog for accepted and unfulfilled orders for the
sale of merchandise and orders for services of Parent, including its
Subsidiaries, is at least $4,000,000. No outstanding purchase or outstanding
lease commitment of Parent or any of its Subsidiaries is presently in excess of
the normal, ordinary and usual requirements of its business, was made at any
price in excess of the now current market price, or contains terms and
conditions more onerous than those usual and customary in Parent's or such
Subsidiary's business. Neither Parent nor any of its Subsidiaries is currently
obligated to fulfill any fixed-fee Contract that requires expenditures
materially in excess of the reasonably anticipated revenues on such Contract.
There is no outstanding bid, proposal, Contract or unfilled order of Parent or
any of its Subsidiaries which would, if or when accepted, have a Parent Material
Adverse Effect.
2.31 Payments. Parent has not, directly or indirectly, paid or
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder,
23
agent, government official or other party, in the United States or any other
country, which is in any manner related to the business or operations of Parent,
which Parent knows or has reason to believe to have been illegal under any
federal, state or local laws of the United States or any other country having
jurisdiction; and Parent has not participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers and has at all times done business in an open and ethical manner.
2.32 Customers and Suppliers. Schedule 2.32 contains a complete and
accurate list of (i) the 10 largest customers of Parent and its Subsidiaries in
terms of sales during Parent's last fiscal year and (ii) the 10 largest
suppliers of Parent and its Subsidiaries in terms of purchases during Parent's
last fiscal year. Parent has provided PEI with information showing the
approximate total sales by Parent and its Subsidiaries to each such customer and
the approximate total purchases by Parent and its Subsidiaries from each
supplier during such fiscal year. Since the date of the Latest Parent Balance
Sheet, there has been no adverse change in the business relationship of Parent
or its Subsidiaries with any customer or supplier named in Schedule 2.32 which
is material to the business or financial condition of Parent.
3. REPRESENTATIONS AND WARRANTIES OF PEI
PEI hereby represents and warrants to Parent and the Parent stockholders
that, except as otherwise disclosed in the Disclosure Schedules, the following
statements are true and correct as to PEI and each of its Subsidiaries.
3.1 Organization, Etc. PEI and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and is duly qualified or licensed as a foreign
corporation authorized to do business in all other states in which any of its
assets or properties may be situated or where the business of PEI or each of its
Subsidiaries is conducted, except where the failure to obtain such qualification
or license will not have a PEI Material Adverse Effect. For purposes of this
Section 3, the term "PEI MATERIAL ADVERSE EFFECT" shall mean an adverse effect
on the properties, assets, financial position, results of operations, long-term
debt, other indebtedness, cash flows or contingent liabilities of PEI or each of
its Subsidiaries in an amount of $100,000 or more.
3.2 Capitalization of PEI. The total authorized capital stock of PEI
consists of (a) 20,000,000 shares of PEI Common Stock, of which 6,219,354 shares
are issued and outstanding as of the date of this Agreement, and (b) 1,000,000
shares of preferred stock, $1.00 par value, none of which is issued and
outstanding as of the date of this Agreement. No shares are held as treasury
stock of PEI. Record ownership of the outstanding shares of PEI is set forth on
Schedule 3.2. Each issued and outstanding share of capital stock of PEI is duly
and validly authorized and issued, fully paid and non-assessable, and was not
issued in violation of the preemptive rights of any past or present shareholder.
Except as disclosed on Schedule 3.2, there are no outstanding convertible or
exchangeable securities, shares of capital stock, subscriptions, calls, options,
warrants, rights or other agreements or commitments of any character relating to
the issuance or sale of any shares of capital stock of, or other equity
ownership interest in, PEI. PEI has no liability, contingent or otherwise, to
any Person or entity in connection with any Other Ownership Interests in PEI or
other voting interests or securities of PEI.
24
3.3 Subsidiaries. All Subsidiaries of PEI are disclosed in Schedule
3.3, which contains each Subsidiary's name and jurisdiction of incorporation
and, with respect to each Subsidiary of PEI that is not wholly owned, the number
of issued and outstanding shares of capital stock and the number of shares of
capital stock owned by PEI or a Subsidiary of PEI. All of the outstanding shares
of capital stock of each Subsidiary of PEI are validly issued, fully paid and
non-assessable, and those owned by PEI or by a Subsidiary of PEI are owned free
and clear of any security interests, pledges, options, rights of first refusal,
liens, claims, encumbrances or any other limitation or restriction (including a
restriction on the right to vote or sell the same except as may be provided as a
matter of law). Except as set forth in Schedule 3.3, there are no existing
options, warrants, calls or other rights, agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any of PEI or a Subsidiary of PEI.
3.4 Authority. PEI has the requisite right, power and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to in this Agreement or contemplated hereby (the "PEI RELATED
DOCUMENTS") and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of PEI. This Agreement has been duly and validly
executed and delivered by PEI, and assuming the due authorization, execution and
delivery by Parent, LC and Sub, constitutes a valid and binding agreement of
PEI, enforceable against PEI in accordance with its terms. All of the PEI
Related Documents, when duly executed and delivered by PEI, will constitute
legal, valid and binding obligations of PEI, enforceable against PEI in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding at law or in equity).
3.5 Consents. Except as set forth on Schedule 3.5, no approval,
consent, order or action of or filing with any court, administrative agency,
governmental authority or other third party is required for the execution,
delivery or performance by PEI of this Agreement or the PEI Related Documents or
the consummation by PEI of the transactions contemplated hereby, except for (i)
the Merger Filing, (ii) such filings as may be required under federal and state
securities laws, and (iii) approval by PEI's shareholders of the matters to be
submitted to them for approval pursuant to the Merger Proxy. PEI and each of its
Subsidiaries has obtained all the licenses and permits that are legally required
for the continued operation of their respective business after the Effective
Time, except such licenses and permits, the absence of which will not have a PEI
Material Adverse Effect.
3.6 Proprietary Rights. PEI and each of its Subsidiaries has full and
sufficient rights to use all Proprietary Rights necessary for the present
operation of its businesses and the marketing, distribution, sale and use of the
materials used and the products sold by PEI and each of its Subsidiaries. To
PEI's knowledge, (i) none of the ownership, access to, use or practice of the
Proprietary Rights by PEI or any of its Subsidiaries infringes on the rights of
any other party and (ii) all Proprietary Rights of PEI or any of its
Subsidiaries are valid and enforceable.
25
3.7 Title. Except as set forth on Schedule 3.7, PEI and each of its
Subsidiaries owns outright, and has full legal and beneficial title to all of
its assets free and clear of all liens, pledges, mortgages, security interests,
conditional sales contracts and encumbrances, including good and marketable
title to all of its real property interests, free and clear of any mortgages,
security agreements, liens or encumbrances.
3.8 Defaults. Except as set forth on Schedule 3.8, neither PEI nor any
of its Subsidiaries nor any Designated Plan (as defined in Section 2.26(a)) of
PEI is in default under or in violation of, and the execution and delivery of
this Agreement and the PEI Related Documents, and the consummation of the
transactions contemplated hereby, will not result in a default by PEI, any of
its Subsidiaries or any PEI Designated Plan under or a violation of (i) any
mortgage, indenture, charter or bylaw provision, provision of any PEI Designated
Plan, contract, agreement, lease, commitment or other instrument of any kind to
which PEI, its Subsidiaries or any PEI Designated Plan is a party or by which
PEI, its Subsidiaries or any PEI Designated Plan or any of its properties or
assets may be bound or affected or (ii) any law, rule or regulation applicable
to PEI or any PEI Designated Plan or any court injunction, order or decree, or
any valid and enforceable order of any governmental agency in effect having
jurisdiction over PEI, its Subsidiaries or any PEI Designated Plan, which
default or violation could adversely affect the ability of PEI to consummate the
transactions contemplated hereby or will have a PEI Material Adverse Effect.
3.9 Full Authority. PEI and each of its Subsidiaries has full power,
authority and legal right, and has all licenses, permits, qualifications, and
other documentation (including permits required under applicable Environmental
Laws) necessary, to own and/or operate their respective businesses, properties
and assets and to carry on its businesses as being conducted on the date hereof,
and such businesses are now being conducted and such assets and properties are
being owned and/or operated, and PEI Plans have been implemented and maintained,
in compliance with all applicable laws (including Environmental Laws),
ordinances, rules and regulations of any governmental agency of the United
States, any state or political subdivision thereof, or any foreign jurisdiction,
all applicable court or administrative agency decrees, awards and orders and all
such licenses, permits, qualifications and other documentation, except where the
failure to comply will not have a PEI Material Adverse Effect, and there is no
existing condition or state of facts which would give rise to a violation
thereof or a liability or default thereunder, except where a violation,
liability or default will not have a PEI Material Adverse Effect.
3.10 PEI's SEC Documents. All information included by PEI in the
Merger Proxy will be in compliance, in all material respects, with all legal
requirements and will not contain any untrue statement of a material fact or
omit any statement of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The financial statements of PEI included in the Merger
Proxy will comply, at the time of filing with the SEC (and, with respect to any
registration statement, at the time it was declared effective), in all material
respects, with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, and will be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved and will fairly present, in all material respects
(subject, in the
26
case of the unaudited statements, to normal, recurring year-end audit
adjustments), the consolidated financial position of PEI and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in financial position for the periods then ended. Since
December 31, 2000, there have been no changes in PEI's method of accounting for
tax purposes or any other purposes. The consolidated financial statements of PEI
and its consolidated Subsidiaries as of December 31, 2000, and as of June 30,
2001 to be included in the Merger Proxy will disclose, as applicable, all
liabilities of PEI and its consolidated subsidiaries required to be disclosed
therein and contain adequate reserves for taxes and all other material accrued
liabilities.
3.11 Investment Company. Neither PEI nor any of its Subsidiaries is an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or a "holding
company," a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3.12 Undisclosed Liabilities. Except as and to the extent specifically
disclosed on the audited financial statements of PEI dated as of and for the
period ended December 31, 2000 and the unaudited balance sheets and statements
of income, changes of shareholders' equity and cash flows for the period from
January 1, 2000 to March 31, 2001 provided to Parent prior to the date of this
Agreement or as described on Schedule 3.12, neither PEI nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether absolute,
contingent or otherwise) which would result in a PEI Material Adverse Effect.
3.13 Taxes. PEI and each of its Subsidiaries has filed all requisite
federal and other Tax Returns, information returns, declarations and reports for
all fiscal periods ended on or before December 31, 2000; and there are no claims
(nor is there any matter pending which may result in a claim) against PEI or any
of its Subsidiaries for federal, state or local income, sales, use, franchise or
other taxes for any period or periods prior to and including December 31, 2000,
and no notice of any claim, whether pending or threatened, for taxes has been
received which would create a lien on the assets of PEI or its Subsidiaries, or
result in a PEI Material Adverse Effect. The amounts shown as accruals for taxes
in the financial statements included in the Merger Proxy are sufficient for the
payment of all taxes of any kind or nature whatsoever for all fiscal periods
ended on or before that date. Copies of all PEI Tax Returns for its last three
fiscal years have been provided to Parent. Except as set forth on Schedule 3.13,
neither PEI nor any of its Subsidiaries has obtained any extensions of time in
which to file any Tax Return which has not yet been filed. Neither PEI nor any
of its Subsidiaries has waived any statutes of limitation with respect to
federal, state, or local income, sales, use, franchise or other taxes or agreed
to any extensions of time with respect to a tax assessment or deficiency, except
for such waivers or extensions which, by their terms, have lapsed as of the date
hereof.
3.14 Legal Actions. Except as set forth on Schedule 3.14, no legal
action, suit, audit, investigation, unfair labor practice charge, complaint,
claim, grievance, or proceeding by or before any court, arbitration panel,
governmental authority or third party is pending or, to the knowledge of PEI or
any of its Subsidiaries (after making inquiry with officers of PEI in a position
to have such knowledge) threatened, which involves or may involve PEI, its
27
Subsidiaries or their now or previously owned or operated assets, operations,
properties or businesses.
3.15 PEI Contracts; PEI Plans. Neither PEI nor any other party thereto
is in default under or in violation of any PEI Contract or PEI Designated Plan.
3.16 No Material Adverse Change. Except for the actions contemplated
by this Agreement or as set forth in Schedule 3.16, since December 31, 2000, to
PEI's knowledge, there has not been: (a) any change in PEI's Articles of
Incorporation or Bylaws, (b) any change in the financial condition, assets,
liabilities (contingent or otherwise), income, business or prospects of PEI or
any of its Subsidiaries resulting in a PEI Material Adverse Effect; (c) any
damage, destruction or loss (whether or not covered by insurance) resulting in a
PEI Material Adverse Effect on the properties or business of PEI or any of its
Subsidiaries; (d) any change in the authorized or outstanding shares of stock or
membership interests, as applicable, of PEI or its Subsidiaries; (e) any
declaration or payment of any dividend or distribution in respect of the capital
stock or any direct or indirect redemption, purchase or other acquisition of any
of the capital stock of PEI or its Subsidiaries; (f) any contract or commitment
entered into by PEI or any of its Subsidiaries, or any incurrence by PEI or any
of its Subsidiaries, or any agreement by PEI or any of its Subsidiaries to incur
any liability or make any capital expenditures in excess of $100,000; (g) any
increase in the compensation, bonus, sales commissions or fee arrangement
payable or to become payable by PEI or any of its Subsidiaries to any of their
respective officers, directors, shareholders, employees, consultants or agents;
(h) any work interruptions, labor grievances or claims filed, proposed law or
regulation (the existence of which is known, or under the normal course of
business should be known, to PEI or its Subsidiaries) or any event or condition
of any character which would have a PEI Material Adverse Effect on the business
or future prospects of PEI or any of its Subsidiaries; (i) any creation,
assumption or permitting to exist any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired; (j) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of PEI or any of its Subsidiaries to any
Person, including, without limitation, the shareholders and their respective
Affiliates except as contemplated by this Agreement; (k) any cancellation, or
agreement to cancel, any indebtedness or other obligation owing to PEI or its
Subsidiaries, including, without limitation, any indebtedness or obligation of
the shareholders or any of their Affiliates; (l) any plan, agreement or
arrangement granting any preferential rights to purchase or acquire any interest
in any of the assets, properties or rights of PEI or its Subsidiaries or
requiring consent of any party to the transfer and assignment of any such
assets, properties or rights; (m) any purchase or acquisition of, or agreement,
plan or arrangement to purchase or acquire, any property, rights or assets of
PEI or any of its Subsidiaries; (n) any negotiation for the acquisition of any
business or start-up of any new business; (o) any merger or consolidation or
agreement to merge or consolidate with or into any other entity (except the
transactions contemplated by this Agreement); (p) any waiver of any material
rights or claims of Parent or any of its Subsidiaries; (q) any breach, amendment
or termination of any material contract, agreement, license, permit, permit
application or other right to which PEI or any of its Subsidiaries is a party;
(r) any discharge, satisfaction, compromise or settlement of any claim, lien,
charge or encumbrance or payment of any obligation or liability, contingent or
otherwise, other than current liabilities as of December 31, 2000, as set forth
in the financial statements to be included in the Merger Proxy, current
liabilities incurred since
28
December 31, 2000 in the ordinary course of business and prepayments of
obligations in accordance with normal and customary past practices; (s) any
transaction by PEI or any of its Subsidiaries outside the ordinary course of
their respective business or prohibited hereunder, or (t) any material adverse
change in the financial condition, results of operations or business of PEI or
its Subsidiaries, taken as a whole, and no event or condition has occurred or
exists that insofar as may reasonably be foreseen, will result in a material
adverse change in the financial condition, results of operations or business of
PEI and any of its Subsidiaries, taken as a whole.
3.17 Predecessors. Schedule 3.17 contains all names under which PEI or
its Subsidiaries have done business during the last five years as well as the
names of all predecessors of PEI or its Subsidiaries, including the names of any
entities from which PEI or its Subsidiaries previously acquired significant
assets during the last five years.
3.18 Affiliate Relationships. Except as set forth on Schedule 3.18, no
Affiliate (as defined in Section 2.20) of the shareholders, and no director,
officer or employee of or consultant to PEI or its Subsidiaries owns, directly
or indirectly, in whole or in part, any property, asset or right, tangible or
intangible, which is associated with any property, asset or right owned by PEI
or its Subsidiaries, or which PEI or its Subsidiaries are operating or using or
the use of which is necessary for their respective businesses.
3.19 Disclosure. No representation or warranty by PEI in this
Agreement, and no statement contained in the Disclosure Schedules or any
certificate delivered by PEI to Parent pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they are or were made, not misleading.
3.20 Other Disclosures. The following disclosures pertaining to PEI
and each of its Subsidiaries are set forth in the Disclosure Schedules:
(a) Except as disclosed on Schedule 3.20(a), neither PEI nor any of
its Subsidiaries has any products or uses any product registrations, and
there are no material safety data sheets, toxicology studies or
environmental studies with respect to the business of PEI or any of its
Subsidiaries;
(b) Except as disclosed on Schedule 3.20(b), PEI or any of its
Subsidiaries neither owns of record or beneficially, nor leases, any real
property;
(c) Schedule 3.20(c) is a list of assets owned by PEI and each of its
Subsidiaries as of the date hereof which have been capitalized and have an
unamortized value of $10,000 or more, including vehicles and rolling stock,
and a list of all leased equipment of PEI or its Subsidiaries, including
leased vehicles;
(d) Except as set forth on Schedule 3.20(d), there are no raw
materials or other property located at any property owned or leased as
lessee by PEI or any of its Subsidiaries that have been consigned to PEI,
or are otherwise owned by a third party, that in the aggregate, have a
market value exceeding $10,000;
29
(e) Listed on Schedule 3.20(e) is each policy of insurance maintained
by PEI and each of its Subsidiaries, and PEI has provided Parent with
information on premiums, coverages, insurers, expiration dates and
deductibles, an accurate list of all insurance loss runs and workers'
compensation claims received for the past three policy years. PEI
represents and warrants that (i) such insurance is currently in full force
and effect; (ii) insurance held by PEI or any of its Subsidiaries has never
been cancelled; (iii) neither PEI nor any of its Subsidiaries has been
denied coverage or experienced a substantial increase in premiums or a
substantial reduction in coverage from one policy period to the next policy
period other than increases resulting from the growth of PEI and its
Subsidiaries and from the increased cost of insurance generally; (iv) to
PEI's knowledge, such coverage is adequate in character and amount; (v)
such coverage is placed with financially sound and reputable insurers
unaffiliated with any of the PEI Shareholders; and (vi) similar coverage
has been in place each year for the past four years;
(f) Schedule 3.20(f) is a list of each bank, brokerage firm, trust or
other financial institution in which PEI or any of its Subsidiaries has an
account and the identity of each such account, and each bank in which PEI
or any of its Subsidiaries has a safe deposit box, together with the names
of all Persons authorized to draw on any such account or have access to any
such safe deposit box;
(g) Schedule 3.20(g) is a list and summary description of, or copies
of, all governmental licenses and permits of PEI and each of its
Subsidiaries;
(h) Schedule 3.20(h) is a list of each debt, note, mortgage, security
agreement, pledge agreement, guaranty, bond, letter of credit, lease or
other instrument creating any debt or contingent obligation of PEI or its
Subsidiaries, or creating a lien or claim on any assets of Parent or any of
its Subsidiaries (other than unsecured trade accounts payable incurred in
the ordinary course of business), including a list of any indebtedness of
PEI or its Subsidiaries to any PEI Shareholder;
(i) Schedule 3.20(i) is a list of all of PEI's Proprietary Rights and
a description of all license fees and royalties (or the basis of
calculation thereof) required to be paid now or in the future by PEI or its
Subsidiaries for the use and practice of its Proprietary Rights;
(j) Except as disclosed on Schedule 3.20(j), neither PEI nor its
Subsidiaries has any PEI Contracts. The term "PEI CONTRACT" means each
contract, lease, undertaking, commitment, mortgage, indenture, note,
security agreement, license and other agreement of PEI or its Subsidiaries
in effect on the date hereof (i) with a party other than a customer or
client of PEI or its Subsidiaries and involving the expenditure or receipt
of more than $100,000 in any year; (ii) with a customer or client of PEI
and involving the expenditure or receipt of more than $1.0 million over the
term thereof; (iii) containing provisions calling for the sale or purchase
of raw materials, products or services at prices that vary from the market
prices of such raw materials, products or services generally prevailing in
customary third party markets; (iv) which include "most favored nations" or
similar pricing or delivery arrangements; (v) requiring PEI or its
Subsidiaries to indemnify or hold harmless any other Person or entity; (vi)
evidencing any warranty obligation of PEI or its Subsidiaries with respect
to goods, services or products sold or
30
leased by it (other than warranties given in the ordinary course of
business); (vii) imposing on PEI or its Subsidiaries any confidentiality,
non-disclosure or non-compete obligation or containing any acceleration or
termination provisions effective upon a change of control of PEI, or a
merger of PEI into another entity; or (viii) involving collective
bargaining agreements or other agreements with any labor union or employee
group;
(k) Neither PEI nor any of its Subsidiaries has powers of attorney
presently in effect granted by PEI or any of its Subsidiaries and all
investments of PEI or its Subsidiaries in any equity securities,
partnership interests, indebtedness or other interests in any other
corporation, or any person, partnership, joint venture, limited liability
company, trust, limited partnership or other legal entity; and
(l) Schedule 3.20(l) includes a list of all officers, directors and
managers of PEI and each of its Subsidiaries. PEI has provided Parent with
a complete listing of the compensation and such individuals.
3.21 Brokers. Except for fees payable to ▇.▇. ▇▇▇▇▇ & Associates, no
broker, investment banker or other Person is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
PEI or any of its Subsidiaries.
3.22 Labor and Employment Matters. Neither PEI nor any of its
Subsidiaries has employees who are represented by a labor union or organization,
no labor union or organization has been certified or recognized as a
representative of any such employees, and neither PEI nor any of its
Subsidiaries is a party to or has any obligation under any collective bargaining
agreement or other contract or agreement with any labor union or organization.
There are no pending or, to PEI's knowledge, threatened, representation
campaigns, elections or proceedings or questions concerning union representation
involving any employees of either PEI or any of its Subsidiaries. Neither PEI
nor any of its Subsidiaries has any knowledge of any activities or efforts of
any labor union or organization (or representatives thereof) to organize any of
its employees, any demands for recognition or collective bargaining, any
strikes, slowdowns, work stoppages or lock-outs of any kind, or threats thereof,
by or with respect to any employees of PEI or any of its Subsidiaries, and no
such activities, efforts, demands, strikes, slowdowns, work stoppages or lock-
outs occurred during a three-year period preceding the date hereof. Neither PEI
nor any of its Subsidiaries has engaged in, admitted committing, or been held in
any administrative or judicial proceeding to have committed any unfair labor
practice under the National Labor Relations Act, as amended. Except as set forth
on Schedule 3.22, neither PEI nor any of its Subsidiaries is involved in any
industrial or trade dispute or any dispute or negotiation regarding a claim of
material importance with any labor union or organization concerning its
employees, and there are no controversies, claims, demands or grievances of
material importance pending or, so far as PEI is aware, threatened, between PEI
or any of its Subsidiaries and any of its employees.
31
3.23 Employee Benefit Plans.
(a) List of Plans. Schedule 3.23(a) includes a complete and accurate
list of all Plans and Benefit Arrangements of PEI or its Subsidiaries,
including, but not limited to any (i) employment or consulting agreements,
(ii) incentive bonus or deferred bonus arrangements, (iii) arrangements
providing termination allowance, severance or similar benefits, (iv) equity
compensation plans, (v) deferred compensation plans, (vi) cafeteria plans,
(vii) employee assistance programs, (viii) bonus programs, (ix) scholarship
programs, (x) vacation policies, and (xi) stock option plans that are
currently in effect or were maintained within three years of the Effective
Time, or have been approved before the Effective Time but are not yet
effective, for the benefit of directors, officers, employers or former
employees (or their beneficiaries) of PEI or a Controlled Company ("PEI
DESIGNATED PLANS").
(b) No Title IV Plans or VEBAS. Neither PEI nor any entity (whether
or not incorporated) that was at any time during the six years before the
Effective Time treated as a single employer together with PEI under Section
414 of the Code has ever maintained, had any obligation to contribute to or
incurred any liability with respect to a pension plan that is or was
subject to the provisions of Title IV of ERISA or Section 412 of the Code.
Neither PEI nor any entity (whether or not incorporated) that was at any
time during the six years before the Effective Time treated as a single
employer together with PEI under Section 414 of the Code has ever
maintained, had an obligation to contribute to, or incurred any liability
with respect to a multiemployer pension plan as defined in Section 3(37) of
ERISA. During the six years before the Effective Time, PEI has not
maintained, had an obligation to contribute to or incurred any liability
with respect to a voluntary employees beneficiary association that is or
was intended to satisfy the requirements of Section 501(c)(9) of the Code.
(c) Designated Plans. With respect to each PEI Designated Plan, PEI
has delivered to Parent, as applicable, true and complete copies of (i) all
written documents comprising such Plan or each Benefit Arrangement
(including amendments and individual agreements relating thereto), (ii) the
trust, group annuity contract or other document that provides for the
funding of the PEI Designated Plan or the payment of Designated Plan
benefits, (iii) the three most recent annual Form 5500, 990 and 1041
reports (including all schedules thereto) filed with respect to the
Designated Plan, (iv) the most recent actuarial report, valuation statement
or other financial statement, (v) the most recent IRS determination letter
and all rulings or determinations requested from the IRS after the date of
that determination letter, (vi) the summary plan description currently in
effect and all material modifications thereto, and (vii) all other
correspondence from the IRS or Department of Labor received that relate to
one or more of the Designated Plans with respect to any matter, audit or
inquiry that is still pending. All information provided by PEI and each of
its Subsidiaries to the individuals who prepared any such financial
statements was true, correct and complete in all material respects. Each
financial or other report delivered to PEI pursuant hereto is accurate in
all material respects, and there has been no material adverse change in the
financial status of any PEI Designated Plan since the date of the most
recent report provided with respect thereto.
(d) Compliance with Law. Except as set forth in Schedule 3.23(d), PEI
has operated, and has caused its appointees and nominees to operate, each
Designated Plan in a
32
manner which is in compliance with the terms thereof and with all
applicable law, regulations and administrative agency rulings and
requirements applicable thereto, except the violation of which would not
have a PEI Material Adverse Effect. Except as otherwise disclosed in
Schedule 3.23(d), with respect to each Designated Plan that is a Plan, (i)
the Plan is in compliance with ERISA in all material respects, including
but not limited to all reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA, (ii) the appropriate Form 5500 has been
timely filed for each year of its existence, (iii) there has been no
transaction described in Sections 406 or 407 of ERISA or Section 4975 of
the Code relating to the Plan unless exempt under Section 408 of ERISA or
Section 4975 of the Code, as applicable, and (iv) the bonding requirements
of Section 412 of ERISA have been satisfied.
(e) Contributions. Full payment has been made of all amounts which
PEI or a Controlled Company is required, under applicable law or under any
Designated Plan or any agreement related to any Designated Plan to which
PEI or a Controlled Company is a party, to have paid as contributions
thereto as of the last day of the most recent fiscal year of each
Designated Plan ended prior to the date hereof. Benefits under all
Designated Plans are as represented in the governing instruments provided
pursuant to Section 3.23(a) and have not been increased subsequent to the
date as of which documents have been provided.
(f) Tax Qualification. Each Designated Plan, as amended to date,
that is intended to be qualified under Section 401(a) and 501(a) of the
Code has been determined to be so qualified by the IRS, has been submitted
to the IRS for a determination with respect to such qualified status or the
remedial amendment period established under Section 402(b) of the Code with
respect to the Designated Plan will not have expired prior to the Effective
Time. Except as disclosed on Schedule 3.23(f), no facts have occurred which
if known by the IRS could cause disqualification of any such Plan.
(g) Tax or Civil Liability. Neither PEI nor a Controlled Company has
participated in, or is aware of, any conduct that could result in the
imposition upon PEI of any excise tax under Sections 4971 through 4980B of
the Code or civil liability under Section 502(i) of ERISA with respect to
any Designated Plan.
(h) Claims Liability. There is no action, claim or demand of any
kind (other than routine claims for benefits) that has been brought or, to
PEI's knowledge, threatened against, or relating to, any Designated Plan,
and PEI has no knowledge of any pending investigation or administrative
review by any governmental entity relating to any Designated Plan.
(i) Retiree Welfare Coverage. Except as set forth in Schedule
3.23(i), no Designated Plan provides any health, life or other welfare
coverage to employees of PEI or a Controlled Company beyond termination of
their employment with PEI or a Controlled Company by reason of retirement
or otherwise, other than coverage as may be required under Section 4980B of
the Code or Part 6 of ERISA, or under the continuation of coverage
provisions of the laws of any state or locality.
33
(j) No Excess Parachute Payments. No amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
transactions contemplated by this Agreement by any employee, officer or director
of PEI or a Controlled Company who is a "disqualified individual" under any
employment, severance or termination agreement, other compensation arrangement
or Designated Plan currently in effect would be characterized as an "excess
parachute payment."
3.24 Environmental Matters.
(a) No Action has been filed by any governmental entity or other party
with respect to any (i) alleged violation by PEI or any of its Subsidiaries of
any Environmental Law, (ii) alleged failure by PEI or any such Subsidiary to
have any environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or (iii)
Regulated Activity, in each case where such Action has had, or would have, a PEI
Material Adverse Effect.
(b) Neither PEI nor any of its Subsidiaries has any material
Environmental Liabilities, and there has been no release of Hazardous Substances
into the environment or violation of any Environmental Law by PEI or any such
Subsidiary or with respect to any of their respective properties which has had,
or would reasonably be expected to have, a PEI Material Adverse Effect.
3.25 Accounts Receivable. The accounts receivable reflected in the most
recent balance sheet of PEI included in the Merger Proxy (the "LATEST PEI
BALANCE SHEET"), and all accounts receivable ensuing since the date of the
Latest PEI Balance Sheet, represent bona fide claims against debtors for sales,
services performed or other charges arising on or before the date hereof, and
all the goods delivered and services performed which gave rise to said accounts
were delivered or performed in accordance with the applicable orders, PEI
Contracts or customer requirements. Said accounts receivable are subject to no
defenses, counterclaims or rights of offset and are fully collectible in the
ordinary course of business without cost or collection efforts therefor except
to the extent of the appropriate reserves set forth on the Latest PEI Balance
Sheet, and, in the case of accounts receivable arising since the date of the
Latest PEI Balance Sheet, to a reasonable allowance for bad debts which does not
reflect a rate of bad debts more than that reflected by the reserve for bad
debts on the PEI Balance Sheet.
3.26 Inventories. The values at which inventories are shown on the Latest PEI
Balance Sheet have been determined in accordance with the normal valuation
policy of the PEI, consistently applied and in accordance with generally
accepted accounting principles. The inventories (and items of inventory acquired
or manufactured subsequent to the Latest PEI Balance Sheet) consist only of
items of quality and quantity commercially usable and salable in the ordinary
course of business, except for any items of obsolete material or material below
standard quality, all of which have been written down to realizable market
value, or for which adequate reserves have been provided.
3.27 Purchase Commitments and Outstanding Bids. As of the date of this
Agreement, the aggregate backlog for accepted and unfulfilled orders for the
sale of merchandise and orders
34
for services of PEI, including its Subsidiaries, shall be at least $12,000,000.
No outstanding purchase or outstanding lease commitment of PEI or any of its
Subsidiaries is presently in excess of the normal, ordinary and usual
requirements of its business, was made at any price in excess of the now current
market price, or contains terms and conditions more onerous than those usual and
customary in PEI's or such Subsidiary's business. Neither PEI nor any of its
Subsidiaries is currently obligated to fulfill any fixed-fee Contract that
requires expenditures materially in excess of the reasonably anticipated
revenues on such Contract. There is no outstanding bid, proposal, Contract or
unfilled order of PEI or any of its Subsidiaries which would, if or when
accepted, have a PEI Material Adverse Effect.
3.28 Payments. Neither PEI nor any of its Subsidiaries has, directly or
indirectly, paid or delivered any fee, commission or other sum of money or item
or property, however characterized, to any finder, agent, government official or
other party, in the United States or any other country, which is in any manner
related to the business or operations of PEI or its Subsidiaries, which PEI
knows or has reason to believe to have been illegal under any federal, state or
local laws of the United States or any other country having jurisdiction; and
neither PEI nor its Subsidiaries has participated, directly or indirectly, in
any boycotts or other similar practices affecting any of its actual or potential
customers and has at all times done business in an open and ethical manner.
3.29 Customers and Suppliers. Schedule 3.29 contains a complete and accurate
list of (i) the 10 largest customers of PEI and its Subsidiaries in terms of
sales during PEI's last fiscal year, and (ii) the 10 largest suppliers of PEI
and its Subsidiaries in terms of purchases during PEI's last fiscal year. PEI
has provided Parent with information showing the approximate total sales by PEI
and its Subsidiaries to each such customer and the approximate total purchases
by PEI and its Subsidiaries from each supplier during such fiscal year. Since
the date of the latest PEI Balance Sheet, there has been no adverse change in
the business relationship of PEI or any of its Subsidiaries with any customer or
supplier named in the Schedule 3.29 which is material to the business or
financial condition of PEI.
4. CERTAIN COVENANTS, AGREEMENTS AND PRE-CLOSING MATTERS
4.1 Tax Matters.
(a) Unless the other parties shall otherwise agree in writing, none of
PEI, Parent, LC, Sub or Surviving PEI shall knowingly take or fail to take any
action, which action or failure to act would jeopardize the qualification of the
Merger as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
(b) Parent and LC shall not make an election on IRS Form 8832, pursuant
to Treasury Regulation Section 301.7701-3(c), to classify LC as an association
(and thus taxable as a corporation) for federal income tax purposes.
(c) In rendering the opinion required by Section 5.1(k) of this
Agreement, Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ LLP may request and rely upon representations
contained in certificates
35
of officers of Parent and PEI, and Parent and PEI shall use their best efforts
to make available such truthful certificates.
4.2 Access. Each of PEI and Parent shall cooperate fully in permitting the
other and its representatives to make a full investigation of the properties,
operations and financial condition of such party, and shall afford the other and
its representatives reasonable access to the offices, buildings, real
properties, machinery and equipment, inventory and supplies, records, files,
books of account, tax returns, agreements and commitments and personnel of such
party. Any such inspection shall occur during normal business hours and shall
be scheduled by a party following request for access made to the other party.
Each party will use its reasonable best efforts to conduct its review in such a
manner as not to be disruptive to the other party's employees or business
operations. Each party shall reimburse the other for any damage caused by such
party or its representatives during the review process.
4.3 Approval of the Merger Proxy. Each of PEI and Parent shall cooperate
fully in preparing and filing the Merger Proxy, and in obtaining at their
respective shareholders' meeting the required consent, approval or ratification
of the matters in the Merger Proxy by their respective shareholders in
accordance with the Securities Act, the Exchange Act, this Agreement, and the
Applicable Corporate Law. Upon securing the approval of the Merger Proxy, each
of PEI and Parent shall cooperate fully in making any amendments thereto
required, if any, between the date of effectiveness and the date of the
shareholders' meetings.
4.4 Operations in the Ordinary Course. From the date of this Agreement until
the Effective Time, each of PEI and Parent will conduct its business in a
commercially prudent manner, as a going concern and in the ordinary course
(except as necessary or appropriate as a result of the transactions contemplated
herein). Consistent with such operation, it will comply in all material respects
with applicable legal and contractual obligations, consistent with past
practice. Each of PEI and Parent shall make all reasonable efforts to preserve
intact its present business organization, keep available the services of its
officers and employees, and preserve its relationships with its customers,
suppliers and others having business dealings with it, to the end that its
business shall not be materially impaired on or prior to the Effective Time.
From the date of this Agreement until the Effective Time, each of PEI and the
Parent shall maintain its respective records and books of account in a manner
that fairly reflects, in all material respects, its income, expenses, assets and
liabilities consistent with past practice.
4.5 Transactions Affecting Business and Properties. Except as specifically
required by this Agreement or as set forth on Schedule 4.5, from the date of
this Agreement until the Effective Time, without the prior written consent of
the other party, neither PEI nor Parent will, without the prior written approval
of the other: (a) make any single capital commitment in excess of $25,000, or
$100,000 in the aggregate, (b) incur any indebtedness for money borrowed other
than borrowings in the ordinary course of business consistent with past
practice, (c) declare, set aside or pay any dividend or make any other
distribution regarding its outstanding securities, (d) do any act other than in
the ordinary course of business consistent with past practice, or (e) mortgage
or otherwise encumber, voluntarily or involuntarily, presently or prospectively,
any of its assets or properties. Neither PEI nor the Parent shall agree,
without the prior written consent of the other, to (i) any adverse modification
of the terms of any document
36
or contractual arrangement or to prepay or incur additional material obligations
to any Person, whenever effective, (ii) dispose of any assets under its control,
except in the ordinary course of business, (iii) materially increase the annual
level of compensation of any employee, or increase at all the annual level of
compensation of any Person whose compensation in the last preceding fiscal year
exceeded $75,000, or grant any unusual or extraordinary bonuses, benefits or
other forms of direct or indirect compensation to any employee, officer,
director or consultant, except in amounts in keeping with past practices by
formulas or otherwise, or (iv) increase, terminate, amend or otherwise modify
any plan for the benefit of employees.
4.6 Negotiations. Each of PEI and Parent agrees not to, and each shall cause
its officers, directors and Affiliates and their respective representatives not
to, except to the extent appropriate to fulfill the fiduciary duties owed under
applicable laws to its shareholders, as advised in writing by its legal counsel,
take any action (including, without limitation, the solicitation of proxies from
shareholders or the voting of stock), which could impede, or adversely effect
the likelihood of, the consummation of the Merger. In addition, Parent and PEI
each agree not to otherwise directly or indirectly make, solicit, initiate,
participate in or otherwise encourage the submission of any proposal or offer
from any Person (including without limitation, any of its directors, officers,
shareholders or employees or those of its Subsidiaries) relating to any
liquidation, dissolution, recapitalization, reorganization, merger,
consolidation or the acquisition of all or a material portion of the assets of,
or any equity interest in, PEI or Parent, as applicable, or their respective
Subsidiaries, other than the Merger (an "ALTERNATIVE TRANSACTION"). Further,
Parent and PEI each agree not to cause its officers, directors and Affiliates
and their respective representatives to, except to the extent appropriate to
fulfill the fiduciary duties owed under applicable laws to their respective
shareholders, as advised in writing by their respective legal counsel, directly
or indirectly, participate in any negotiations or discussions regarding, or
furnish any information with respect to, or otherwise cooperate in any way in
connection with, or assist or participate in, facilitate or encourage, any
effort or attempt to effect or seek to effect, any Alternative Transaction with
or involving any Person other than PEI or Parent, as applicable, or an Affiliate
of PEI or Parent.
4.7 Renewal of Real Estate Leases. Each of PEI and Parent agree not to and
not to permit their respective Subsidiaries to renew their existing real estate
leases at a rate that is above fair market value, and each further agrees not to
secure more real estate space than is reasonably necessary to conduct its
business.
4.8 Articles of Incorporation and Bylaws. Except as specifically required by
this Agreement, from the date of this Agreement until the Effective Time,
neither PEI nor Parent, without the prior written consent of the other, which
shall not be unreasonably withheld, will take any of the following actions or
agree to take any of such actions:
(a) amend or otherwise change its Articles of Incorporation or Bylaws or
any instrument similar in purpose and intent to them;
(b) issue any shares of its capital stock except: (1) in connection with
the exercise of any outstanding option or warrant; or (2) in satisfaction of the
PEI Shareholder Debt.
37
(c) issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments under which any additional shares
of its capital stock may be authorized, issued or transferred from treasury;
(d) take any action that would make any of the representations and
warranties in this Agreement untrue or incorrect except as necessary to
consummate the transactions contemplated by this Agreement; or
(e) agree to do any of the acts listed above.
4.9 Current Information. Each of PEI and Parent shall advise the other in
writing as promptly as possible of:
(a) the occurrence of any event that renders any of the their
representations or warranties in this Agreement inaccurate as of any date prior
to the Effective Time;
(b) the awareness that any of their representations or warranties in
this Agreement was not accurate in all respects when made; and
(c) their failure to comply with or accomplish any of the covenants or
agreements set forth in this Agreement in any respect.
4.10 Corporate Approvals. Each of PEI and Parent shall take all further
action required, if any, to obtain the approval of their respective boards of
directors (subject to applicable fiduciary duty standards) and shareholders
(including the approval of a majority of the Parent stockholders other than
Alliance and its Affiliates) to this Agreement and to the transactions
contemplated hereby.
4.11 Consents. Each of PEI and Parent shall use its commercially reasonable
best efforts to procure all consents, approvals or waivers that are required and
for completion of the transactions described in this Agreement, including using
all reasonable efforts to obtain all required consents of any governmental
agency or body issuing any permits, licenses or other governmental
authorizations affecting PEI or the Parent, or their respective businesses or
properties, so that Surviving PEI may continue to operate the business and
properties of PEI without interruption following the Effective Time.
4.12 Contracts. From the date of this Agreement until the Effective Time,
neither PEI nor Parent, without the prior written consent of the other, shall
amend or allow to be amended in any material respect or consent to the
termination of any contract, agreement, instrument or other arrangement to which
it is a party which would reasonably be expected to require the payment or
expense of (i) $25,000 or more annually if not in the ordinary course of
business or (ii) $1.0 million if in the ordinary course of business, in each
case whether written or oral, or enter into or become a party to or submit any
bid or proposal for any such contract, agreement or other instrument or
arrangement to which it is a party.
38
4.13 Insurance. From the date of this Agreement until the Effective Time,
each of PEI and Parent shall continue in force their existing insurance
policies, or shall immediately replace such policies with comparable insurance
companies on comparable terms and conditions.
4.14 Compliance with Laws. Each of PEI and Parent shall duly comply with all
laws applicable to it and its properties, business, operations and employees.
Without limiting the foregoing, Parent will timely file all annual, quarterly
and current reports required to be filed with the SEC as may be required to
permit the PEI Shareholders who become Affiliates of Parent to sell their shares
under Rule 144.
5. CONDITIONS PRECEDENT; CLOSING DELIVERIES
5.1 Conditions Precedent to the Obligations of PEI. The obligations of PEI to
effect the Merger under this Agreement are subject to the satisfaction of each
of the following conditions, unless waived by PEI in writing to the extent
permitted by applicable law:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Parent contained in this Agreement, the Disclosure Schedules, or
in any closing certificate or Parent Related Document delivered to PEI pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that date other than representations and warranties as are
specifically made as of another date and other than changes occurring in the
ordinary course of business and not resulting in a Parent Material Adverse
Effect, and changes to capitalization resulting from option exercises or stock
repurchases consistent with Parent's Stock Repurchase Plan and Parent shall have
delivered to PEI a certificate to that effect.
(b) Performance of Covenants. Parent, LC and Sub shall have performed
and complied with all covenants of this Agreement to be performed or complied
with by each of them at or prior to the Closing Date, and Parent shall have
delivered to PEI a certificate to that effect.
(c) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted after the date hereof against Parent, LC or Sub arising by
reason of the Merger pursuant to this Agreement, which is reasonably likely (i)
to restrain, prohibit or invalidate the consummation of the transactions
contemplated by this Agreement, or (ii) to have a Parent Material Adverse
Effect, and Parent shall have delivered to PEI a certificate to that effect.
(d) Line of Credit. PEI, with the assistance of Parent and Parent's
Subsidiaries, shall have obtained a line of credit acceptable to Parent in all
respects that will be sufficient to allow Surviving PEI to repay the $2 Million
Notes at the Closing and have a revolving line of credit of not less than $15
million, and the terms and documentation of such financing shall have been
finalized to the satisfaction of Parent and PEI.
(e) Effectiveness of Merger Proxy. The SEC shall have declared the
Merger Proxy effective, thereby making the Merger Consideration freely tradable
subject to the Lockup Agreement and applicable law.
39
(f) Approvals. Parent, LC and Sub shall have procured all of the
consents, approvals and waivers of third parties or any regulatory body or
authority, whether required contractually or by applicable law or otherwise
necessary for the execution, delivery and performance of this Agreement
(including the Parent Related Documents) by Parent, LC and Sub prior to the
Closing Date, and Parent shall have delivered to PEI a certificate to that
effect. Alliance shall have executed and delivered a proxy to vote its shares of
Parent Common Stock in favor of all proposals described in the Merger Proxy. In
addition, holders of a majority of the Common Stock of Parent present at the
Parent stockholder meeting either in person or by proxy, other than Common Stock
of Parent held by Alliance or its Affiliates, shall have approved the
transactions contemplated by this Agreement.
(g) Filing of Designation of Series A Stock. Parent shall, following
receipt of the requisite approval by its directors and stockholders, have filed
or cause to have been filed with the Secretary of State of Nevada Articles of
Amendment to its Articles of Incorporation authorizing the issuance of not less
than 5,000,000 shares of preferred stock, designating such preferred stock as
Series A Preferred Stock with the preferences, limitations and relative rights
set forth in the Certificate of Designation.
(h) Closing Deliveries. All documents required to be executed or
delivered at Closing by Parent, LC or Sub pursuant to Section 5.3 shall have
been so executed and delivered.
(i) No Material Adverse Change. There shall not have been any event that
in the reasonable judgment of PEI materially adversely affects the properties,
assets, financial condition, results of operations, cash flows, businesses or
prospects of Parent.
(j) Certain Corporate Actions. All necessary director and stockholder
resolutions, waivers and consents required to consummate the transactions
contemplated hereunder shall have been executed and delivered in form and
substance satisfactory to PEI and its counsel.
(k) Tax Opinion. PEI shall have received an opinion of Gardere ▇▇▇▇▇
▇▇▇▇▇▇ LLP, counsel to PEI, dated at the Closing Date, to the effect that, on
the basis of the facts, representations and assumptions set forth in such
opinion (a) the Merger constitutes a "reorganization" within the meaning of
Section 368(a) of the Code and (b) that, accordingly, (i) no gain or loss will
be recognized by PEI as a result of the Merger and (ii) no gain or loss will be
recognized by a shareholder of PEI who receives Parent Common Stock in exchange
for shares of PEI Common Stock; except with respect to cash received in lieu of
fractional share interests.
(l) Parent Board of Directors. The Parent Board of Directors shall have
been reconstituted in accordance with the description of the Board of Directors
in the Merger Proxy.
5.2 Conditions Precedent to the Obligations of Parent. The obligations of
Parent to effect the Merger under this Agreement are subject to the satisfaction
of each of the following conditions, unless waived by Parent in writing:
40
(a) Repayment of PEI Accounts Receivable from PEI Shareholders. Prior to
Closing, PEI shall have caused to be paid in full and in cash all accounts
receivable and notes receivable owed by any PEI Shareholder to PEI, except for
travel advances made in the ordinary course of business.
(b) Issuance of PEI Common Stock in Satisfaction of PEI Shareholder
Debt. Prior to the Closing, PEI shall have issued shares of PEI Common Stock to
the holders of the PEI Shareholder Debt and paid in cash not more than $190,000
of the then outstanding principal balance in full and final satisfaction of the
PEI Shareholder Debt, other than the ▇▇▇▇▇ Debt.
(c) Issuance of PEI Notes. Prior to the Closing, PEI shall have
delivered to Equus in renewal, rearrangement and extension of the Equus Debt and
the cancellation of the Equus Warrants: (i) promissory notes in the aggregate
original principal amount of $2 million (the "$2 MILLION NOTES") in the form
attached as Exhibit 5.2(c)-1; (ii) a promissory note in the original principal
amount of $3 million (the "$3 MILLION NOTE") in the form attached as Exhibit
5.2(c)-2; and (iii) a promissory note in the original principal amount equal to
(x) the outstanding principal balance of and all accrued and unpaid interest on
the Equus Debt minus (y) $5.0 million (the "REMAINDER NOTE") in the form
attached as Exhibit 5.2(c)-3. In addition, Equus shall have agreed to accept
2,500,000 shares of Parent Series A Stock as full and final settlement of the
Remainder Note, and Equus shall have executed and delivered to PEI the
Settlement Agreement and Plan of Reorganization (the "EQUUS SETTLEMENT
AGREEMENT") in the form attached as Exhibit 5.2(c)-4.
(d) Effectiveness of Merger Proxy. The SEC shall have declared the
Merger Proxy effective, thereby making the Merger Consideration freely tradable
subject to the Lockup Agreement and applicable law.
(e) Accuracy of Representations and Warranties. The representations and
warranties of PEI contained in this Agreement, the Disclosure Schedules, or in
any closing certificate or PEI Related Document delivered to Parent pursuant
hereto shall be true and correct at and as of the Closing Date as though made at
and as of that date other than representations and warranties as are
specifically made as of another date, changes occurring in the ordinary course
of business and not resulting in a PEI Material Adverse Effect, and changes to
capitalization resulting from actions permitted or required under this
Agreement, including without limitation Section 4.8(b).
(f) Performance of Covenants. PEI shall have performed and complied with
all covenants of this Agreement to be performed or complied with by it at or
prior to the Closing Date and PEI shall have delivered to Parent a certificate
to such effect.
(g) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted after the date hereof against PEI or any of its
Subsidiaries arising by reason of the Merger pursuant to this Agreement, which
is reasonably likely (i) to restrain, prohibit or invalidate the consummation of
the transactions contemplated by this Agreement, or (ii) to have a PEI Material
Adverse Effect, and PEI shall have delivered to Parent a certificate to that
effect.
41
(h) Termination of Shareholders' Agreement. The Shareholders' Agreement
dated as of March 9, 1999, among PEI and the shareholders of PEI shall have been
terminated at the special meeting of the shareholders of PEI held in connection
with the Merger, and PEI shall have delivered to IDS a certificate to that
effect.
(i) Cancellation of PEI Options and Warrants. All options and warrants
in PEI that are not being converted into options and warrants in Parent shall
have been exercised or cancelled or shall have expired by their own terms.
(j) Lockup Agreement. Each of the Significant PEI Shareholders shall
have executed and delivered a lockup agreement in substantially the form
attached hereto as Exhibit 5.2(j) (the "LOCKUP AGREEMENT").
(k) Line of Credit. PEI, with the assistance of Parent and Parent's
Subsidiaries, shall have obtained a line of credit acceptable to Parent in all
respects that will be sufficient to allow Surviving PEI to repay the $2 Million
Notes at the Closing and have a revolving line of credit of not less than $15
million, and the terms and documentation of such financing have been finalized
to the satisfaction of IDS and PEI.
(l) Approvals. PEI shall have used its commercially reasonable best
efforts to procure all of the consents, approvals and waivers of third parties
or any regulatory body or authority, whether required contractually or by
applicable law or otherwise necessary for the execution, delivery and
performance of this Agreement (including the PEI Related Documents) by PEI prior
to the Closing Date, and PEI shall have delivered to Parent a certificate to
that effect, listing any approvals required but not received. A majority of the
PEI Shareholders shall have approved the merger proposal described in the Merger
Proxy. In addition, 66 2/3% of the PEI Shareholders shall have approved the
proposal to terminate the Shareholders' Agreement described in the Merger Proxy.
(m) Third Party Consents. PEI, with the assistance of Parent and
Parent's Subsidiaries, shall have used its commercially reasonable best efforts
to obtain all required consents from third parties.
(n) Dissenter's Rights. Dissenter's rights shall not have been exercised
in accordance with the relevant provisions of the Applicable Corporate Law by
PEI Shareholders holding more than 350,000 shares of PEI Common Stock.
(o) Closing Deliveries. All documents required to be executed or
delivered at Closing by PEI pursuant to Section 5.4 shall have been so executed
and delivered.
(p) No Material Adverse Change. There shall not have been any event that
in the reasonable judgment of Parent materially adversely affects the
properties, assets, financial condition, results of operations, cash flows,
businesses or prospects of PEI.
(q) Certain Corporate Actions. All necessary director and shareholder
resolutions, waivers and consents required to consummate the transactions
42
contemplated hereunder shall have been executed and delivered in form and
substance satisfactory to Parent and its counsel.
5.3 Deliveries by Parent at the Closing. At the Closing, simultaneously with
the deliveries by PEI specified in Section 5.4, and in addition to any
deliveries required to be made by Parent pursuant to any Parent Related Document
at the Closing, Parent shall deliver or cause to be delivered to PEI the
following:
(a) Closing Certificates. Parent shall deliver the certificates required
pursuant to Section 5.1.
(b) Secretary's Certificate for Parent. Parent shall deliver a
certificate executed by the Secretary of Parent dated the Closing Date, (i)
verifying that the Articles of Incorporation, including the Certificate of
Designation, and the Bylaws (as attached thereto) are true, correct and complete
as of the Closing Date, (ii) attesting to all corporate and shareholder action
taken by Parent including the resolutions of the Board of Directors and
shareholders authorizing the transactions contemplated by this Agreement and all
other agreements or matters contemplated hereby or executed in connection
herewith, (iii) certifying the names and true signatures of the officers of
Parent authorized to sign this Agreement and the Parent Related Agreements to
which it is a party, and (iv) attaching certificates dated within ten days of
Closing as to the corporate existence and good standing of Parent in the States
of Nevada and Texas.
(c) Secretary's Certificate for LC. LC shall deliver a certificate
executed by the Secretary of LC dated the Closing Date, (i) verifying that the
Articles of Organization and Regulations (as attached thereto) are true, correct
and complete as of the Closing Date, (ii) attesting to all manager and member
action taken by LC including the resolutions of the managers authorizing the
transactions contemplated by this Agreement and all other agreements or matters
contemplated hereby or executed in connection herewith, (iii) certifying the
names and true signatures of the officers or managers of LC authorized to sign
this Agreement and the Parent Related Agreements to which it is a party, and
(iv) attaching certificates dated within ten days of Closing as to the corporate
existence and good standing of LC in the State of Texas.
(d) Alliance Option Pool Agreement. Parent shall deliver the Option Pool
Agreement, executed by Alliance, which Agreement shall be in the form attached
hereto as Exhibit 5.3(d), and Alliance shall issue option agreements in the form
of the option agreements attached thereto to the Persons designated by the
mutual agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
(e) Legal Opinion. Parent shall have delivered a legal opinion by
counsel to Parent reasonably satisfactory to PEI.
(f) Voting Agreement. Parent and the Significant PEI Shareholders shall
have executed and delivered a voting agreement in substantially the form
attached hereto as Exhibit 5.3(f).
43
(g) Escrow Agreements. Parent shall execute and deliver the
Indemnification Escrow Agreement and the Option Escrow Agreement.
(h) Employment Agreements. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have executed an
employment agreement including a covenant not to compete with the business
operations of Parent or any of its Subsidiaries for a period of five years
following the Closing unless he is terminated without cause.
(i) Equus Notes. Parent shall (i) cause Surviving PEI to pay in full the
$2 Million Notes in cash, and (ii) issue 2,500,000 shares of Series A Stock in
full payment and satisfaction of the Remainder Note, in exchange for the return
of such notes marked "Cancelled and Paid in Full." Parent and each of its
Subsidiaries shall also execute and deliver a guaranty and grant a security
interest to secure the $3 Million Note, which Guaranty and Security Agreement
shall be in the form attached to the Equus Settlement Agreement.
(j) Instruction Letter. Parent shall deliver to the Exchange Agent an
instruction letter, acceptable to PEI, providing for the Exchange Agent to give
information to the PEI Shareholders with respect to the exchange of their
shares, and providing for the delivery of shares into the Indemnification Escrow
and the Option Escrow.
(k) Option Agreements. Parent shall deliver the Surviving Options to the
Persons entitled thereto.
(l) Alliance Debt Cancellation. Parent shall cancel and forgive the
outstanding principal balance of and all accrued and unpaid interest on the debt
owed by Alliance to Parent in the original principal amount of $150,000.
(m) Equus Call Option. Parent shall deliver the Equus Call Option,
executed by Alliance, in the form attached hereto as Exhibit 5.3(m).
(n) Documents. Parent shall execute and deliver any and all other
documents, certificates, opinions, instruments and agreements required to be
executed and delivered by Parent or its officers or directors at the Closing as
contemplated hereby or as may be reasonably requested by PEI.
The consummation of the Closing shall not be deemed to be a waiver by PEI
or Surviving PEI of any of their rights or remedies against Parent hereunder for
any breach of any warranty, covenant or agreement herein by Parent irrespective
of any knowledge of or investigation with respect thereto made by or on behalf
of PEI.
5.4 Deliveries by PEI at the Closing. At the Closing, simultaneously with the
deliveries by Parent specified in Section 5.3, and in addition to any other
deliveries to be made by PEI pursuant to any PEI Related Document at the
Closing, PEI shall deliver or cause to be delivered to Parent the following:
(a) Closing Certificates. PEI shall deliver the certificates required
pursuant to Section 5.2.
44
(b) Secretary's Certificate. PEI shall deliver a certificate executed by
the Secretary of PEI dated the Closing Date, (i) verifying that the Articles of
Incorporation and the Bylaws (as attached thereto) are true, correct and
complete as of the Closing Date, (ii) attesting to all corporate and shareholder
action taken by PEI including the resolutions of the Board of Directors and
shareholders authorizing the transactions contemplated by this Agreement and all
other agreements or matters contemplated hereby or executed in connection
herewith, (iii) certifying the names and true signatures of the officers of PEI
authorized to sign this Agreement and the PEI Related Agreements to which it is
a party, and (iv) attaching certificates dated within ten days of Closing as to
the corporate existence and good standing of PEI in the State of Texas.
(c) Legal Opinion. PEI shall have delivered a legal opinion by counsel
to PEI reasonably satisfactory to Parent.
(d) Employment Agreements. Each person listed on Schedule 5.4(d) shall
have executed an employment agreement on terms mutually acceptable to Parent and
such employee including a covenant not to compete with the business operations
of Parent or any of its Subsidiaries for a period of three years following the
Closing unless such person is terminated without cause.
(e) Voting Agreement. PEI and the other Persons named therein shall have
executed and delivered a voting agreement in substantially the form attached
hereto as Exhibit 5.3(f).
(f) Release by PEI Shareholders to be Effective Upon Closing. PEI shall
deliver releases in the form of the Release attached as Exhibit 5.4(f), executed
by each of the Significant PEI Shareholders, which release shall, among other
matters, (i) release, acquit and forever discharge PEI, Parent and Equus from
any and all liabilities, obligations, claims, demands, actions or causes of
action arising from or relating to any event, occurrence, act, omission or
condition occurring or existing on or prior to the Effective Time; (ii) waive
all breaches, defaults or violations of any agreement applicable to PEI Common
Stock or PEI Shareholder Debt, and agree that any and all such agreements are
terminated as of the Effective Time; and (iii) waive any and all preemptive or
other rights to acquire any shares of capital stock of PEI and release any and
all claims arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights.
(g) Escrow Agreement. PEI shall have delivered the Indemnification
Escrow Agreement and the Option Escrow Agreement, which shall have been executed
by both PEI and the Significant PEI Shareholders.
(h) Significant PEI Shareholders Voting Agreement. The Significant PEI
Shareholders shall have executed and delivered the Voting Agreement attached as
Exhibit 5.4(h).
(i) Documents. PEI shall execute and deliver all other documents,
certificates, opinions, instruments and agreements required to be executed and
delivered by PEI
45
or its officers or directors at the Closing as contemplated hereby or as may be
reasonably requested by Parent.
The consummation of the Closing shall not be deemed to be a waiver by
Parent of any of its rights or remedies against PEI hereunder for breach of any
warranty, covenant or agreement herein by PEI irrespective of any knowledge of
or investigation with respect thereto made by or on behalf of Parent.
5.5 Deliveries by Sub and Surviving PEI at the Closing.
(a) Payment of $2 Million Notes. Surviving PEI shall pay the $2 Million
Notes, by wire transfer to Equus, to the following account: Equus II
Incorporated, Account # 5772222982, Routing #▇▇▇▇▇▇▇▇▇, Bank of America,
Houston, Texas.
(b) Secretary's Certificate. Sub shall deliver a certificate executed by
the Secretary of Sub dated the Closing Date, (i) verifying that the Articles of
Incorporation and the Bylaws (as attached thereto) are true, correct and
complete as of the Closing Date, (ii) attesting to all corporate and shareholder
action taken by Sub including the resolutions of the Board of Directors and sole
shareholder authorizing the transactions contemplated by this Agreement and all
other agreements or matters contemplated hereby or executed in connection
herewith, (iii) certifying the names and true signatures of the officers of Sub
authorized to sign this Agreement and any other transaction document to which it
is a party, and (iv) attaching certificates dated within ten days of Closing as
to the corporate existence and good standing of Sub in the State of Texas.
(c) Employment Agreements. Surviving PEI shall execute or cause to be
executed and delivered employment agreements with those former officers,
directors and key employees of PEI designated by Parent and PEI.
6. SURVIVAL, INDEMNIFICATION, ARBITRATION
6.1 Survival. The representations and warranties set forth in this Agreement
and the other documents, instruments and agreements contemplated hereby shall
survive for a period of two years from the Effective Time; provided, however,
that the representations and warranties with respect to Sections 2.15, 2.27,
3.13 and 3.24 shall survive for the applicable statute of limitations periods.
The periods of survival of the representations and warranties as stated above in
this Section 6.1 are referred to herein as the "SURVIVAL PERIODS." The
liabilities of the parties under their respective representations and warranties
shall expire as of the expiration of the applicable Survival Period and no claim
for indemnification may be made with respect to any breach of any representation
or warranty, the applicable Survival Period of which shall have expired, except
to the extent that written notice of such breach shall have been given to the
party against which such claim is asserted on or before the date of such
expiration. The covenants and agreements of the parties herein and in other
documents and instruments executed and delivered in connection with the closing
of the transactions contemplated hereby shall survive for a period of two years
from the Effective Time.
46
6.2 Indemnification by Significant PEI Shareholders. Subject to the
provisions of Section 6.4, the Significant PEI Shareholders shall, in accordance
with their respective Pro Rata Shares, indemnify, save and hold harmless Parent
and Surviving PEI and any of their assignees (including lenders) and all of
their respective officers, directors, employees, representatives, agents,
advisors and consultants and all of their respective heirs, legal
representatives, successors and assigns (collectively the "PARENT INDEMNIFIED
PARTIES") from and against any and all losses (net of taxes) arising from, out
of or in any manner connected with or based on:
(a) the breach of any covenant of PEI or the failure by PEI to perform
any obligation of PEI contained herein or in any PEI Related Document;
(b) PEI's failure to comply with any law, rule or regulation relating to
a PEI Designated Plan, whether or not disclosed prior to the Closing;
(c) Litigation disclosed in Schedule 3.14 to the extent the aggregate
amount of all losses after the Effective Time, including the cost of such
litigation, exceeds the sum of (i) the aggregate amount of reserves for
litigation shown on the financial records of PEI as of the last day of the
calendar month immediately preceding the Closing Date; plus (ii) one-half of one
percent of the gross revenues of PEI and its Subsidiaries for the period from
the Effective Time to the second anniversary of the Closing Date;
(d) any inaccuracy in or breach of any representation or warranty of PEI
contained herein or in any PEI Related Document as of the date hereof or as of
the Effective Time;
(e) indemnification payments made by Parent or Surviving PEI to PEI's
present or former officers, directors, employees, agents, consultants, advisors
or representatives in respect of actions taken or omitted to be taken prior to
the Closing;
(f) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and involving
or related to the assets, properties, business or operations now or previously
owned or operated by PEI or any of its Subsidiaries and not (i) disclosed in
this Agreement, including the Disclosure Schedules or (ii) disclosed in the
Merger Proxy; and
(g) any claim made under the indemnification agreement made by Parent or
any of its Subsidiaries pursuant to Section 4.2 of those certain Guaranty
agreements executed by Parent and each of its Subsidiaries in favor of and for
the benefit of Equus with respect to the $3 Million Note.
Notwithstanding anything herein to the contrary, (i) except for liability for
the matters set forth in Schedule 3.14, the Significant PEI Shareholders shall
not have any liability for indemnification hereunder until the aggregate
liability (net of any insurance proceeds received by Parent or Surviving PEI
with respect to such liability) equals or exceeds $100,000, following which the
Significant PEI Shareholders shall have liability only for the aggregate
liability in excess of $100,000; and (ii) the Significant PEI Shareholders'
liability for indemnification arising
47
hereunder shall be limited to, and shall be paid solely out of, the 1,000,000
shares of the Parent Common Stock held in the Indemnification Escrow pursuant to
Section 1.6.
6.3 Indemnification by Parent. Subject to the provisions of Section 6.4, the
Parent shall indemnify, save and hold harmless the Significant PEI Shareholders
and any of their assignees (including lenders) and all of their respective
officers, directors, employees, representatives, agents, advisors and
consultants and all of their respective heirs, legal representatives, successors
and assigns (collectively the "PEI INDEMNIFIED PARTIES") from and against any
and all losses (net of taxes) arising from, out of or in any manner connected
with or based on:
(a) the breach of any covenant of Parent or the failure by Parent to
perform any obligation of Parent contained herein or in any Parent Related
Document;
(b) any inaccuracy in or breach of any representation or warranty of
Parent contained herein or in any Parent Related Document as of the date hereof
or as of the Effective Time;
(c) Parent's failure to comply with any law, rule or regulation relating
to a Parent Designated Plan, whether or not disclosed prior to the Closing; and
(d) any act, omission, occurrence, event, condition or circumstance
occurring or existing at any time on or before the Effective Time and involving
or related to the assets, properties, business or operations now or previously
owned or operated by Parent or any of its Subsidiaries and not (i) disclosed in
this Agreement, including the Disclosure Schedules or (ii) disclosed in the
Merger Proxy.
Notwithstanding anything herein to the contrary, Parent shall not have any
liability for indemnification hereunder until the aggregate liability (net of
any insurance proceeds received with respect to such liability) equals or
exceeds $100,000, following which Parent shall have liability only for the
aggregate liability in excess of $100,000; and (ii) Parent's liability for
indemnification arising hereunder shall be limited solely to offset any of the
rights to indemnity from the Significant PEI Shareholders. Accordingly, if
neither the Parent nor Surviving PEI has rights to indemnity pursuant to this
Agreement, the Significant PEI Shareholders shall not have any right to
indemnity under this Agreement.
6.4 Procedures for Indemnification.
(a) Notice. The Parent Indemnified Parties or the PEI Indemnified
Parties, as the case may be, that are seeking indemnity pursuant to this
Agreement (the "INDEMNIFIED PARTY") shall give prompt notice to Parent or the
Shareholder Representative (as hereinafter defined), as the case may be (the
"INDEMNIFYING PARTY"), of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought
hereunder. For purposes of this Agreement, the "SHAREHOLDER REPRESENTATIVE"
shall initially be ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, acting as the shareholder representative
for the Significant PEI Shareholders pursuant to the terms of the Indemnity
Escrow Agreement. Any failure on the part of any
48
Indemnified Party to give the notice described in this Section 6.4(a) shall
relieve the Indemnifying Party of its obligations under this Section 6 only to
the extent that such Indemnifying Party has been prejudiced by the lack of
timely and adequate notice (except that the Indemnifying Party shall not be
liable for any expenses incurred by the Indemnified Party during the period in
which the Indemnified Party failed to give such notice). Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, promptly (and in any
event within 10 days thereof) after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to such claim, action, suit or proceeding.
(b) Legal Defense. The Indemnifying Party shall have the obligation to
assume the defense or settlement of any third-party claim, suit, action or
proceeding in respect of which indemnity may be sought hereunder, provided that
(i) Parent shall at all times have the right, at its option and cost, to
participate fully therein, and (ii) if the Indemnified Party does not proceed
diligently to defend the third-party claim, suit, action or proceeding within 10
days after receipt of notice of such third-party claim, suit, action or
proceeding, the Indemnified Party shall have the right, but not the obligation,
to undertake the defense of any such third-party claim, suit, action or
proceeding.
(c) Settlement. The Indemnifying Party shall not be required to
indemnify the Indemnified Party with respect to any amounts paid in settlement
of any third-party suit, action, proceeding or investigation entered into
without the written consent of the Indemnifying Party; provided, that if the
Indemnifying Party gives 10 days' prior written notice to the Indemnified Party
of a settlement offer which the Indemnifying Party desires to accept and to pay
all losses with respect thereto and the Indemnified Party fails or refuses to
consent to such settlement within 10 days after delivery of such settlement
offer notice to the Indemnified Party, and such settlement otherwise complies
with the provisions of this Section 6.4, the Indemnifying Party shall not be
liable for losses arising from such third-party suit, action, proceeding or
investigation in excess of the amount proposed in such settlement offer.
Notwithstanding the foregoing, no Indemnifying Party will consent to the entry
of any judgment or enter into any settlement without the consent of the
Indemnified Party, if such judgment or settlement imposes any obligation or
liability upon the Indemnified Party other than the execution, delivery or
approval thereof and customary releases of claims with respect to the subject
matter thereof.
(d) Cooperation. The parties shall cooperate in defending any such
third-party suit, action, proceeding or investigation, and the defending party
shall have reasonable access to the books and records, and personnel in the
possession or control of the Indemnified Party that are pertinent to the
defense. The Indemnified Party may join the Indemnifying Party in any suit,
action, claim or proceeding brought by a third party as to which any right of
indemnity created by this Agreement would or might apply, for the purpose of
enforcing any right of the indemnity granted to such Indemnified Party pursuant
to this Agreement.
6.5 Subrogation. Each Indemnifying Party hereby waives for itself and its
Affiliates any rights to subrogation against any Indemnified Party or its
insurers for losses arising from any third-party claims for which it is liable
or against which it indemnifies any Indemnified Party
49
and, if necessary, each Indemnifying Party shall obtain waivers of such
subrogation from its, his or her insurers.
6.6 Arbitration.
(a) If a dispute between Parent and PEI relating to this Agreement, or
under any other agreement executed and delivered in connection herewith, is not
resolved within 10 business days from the date that either party has notified
the other that such dispute exists, then such dispute shall be submitted jointly
for conciliation to the president or his designee of each party. If such senior
executive officers are unable to resolve the dispute within 15 business days
from the date that it is first presented to them, then such dispute shall be
referred to binding arbitration.
(b) Any dispute under this Agreement shall be submitted to arbitration
pursuant to this Section. Within 30 calendar days of notice of the dispute, the
parties shall select a single arbitrator (the "ARBITRATOR"). If the parties are
unable to select the Arbitrator within such time, the dispute shall be
determined by the decision of a board of arbitration consisting of three members
("BOARD OF ARBITRATION") selected as hereinafter provided. For purpose of the
Board of Arbitration, Parent shall select an arbitrator and PEI shall select an
arbitrator, each of whom shall be a member of the Board of Arbitration, and each
of whom shall be independent of the parties and shall be experienced in
arbitrating complex commercial transactions. A third Board of Arbitration
member, independent of the parties, shall be selected by mutual agreement of the
other two Board of Arbitration members. If the other two Board of Arbitration
members fail to reach agreement on such third member within 20 days after their
selection, such third member shall thereafter be selected by the American
Arbitration Association upon application made to it for such purpose by any
party to the arbitration. The Arbitrator or the Board of Arbitration (as
applicable) shall meet in ▇▇▇▇▇▇ County, Texas, and shall reach and render a
decision in writing with respect to items in dispute. The decision shall state
the facts and law on which it is based, be approved by the Arbitrator or at
least a majority of the members of the Board of Arbitration (as applicable), and
shall be based on the law governing this Agreement. In connection with rendering
its decisions, the Arbitrator or Board of Arbitration (as applicable) shall
adopt and follow the Commercial Rules of Arbitration of the American Arbitration
Association in effect as of the date of the arbitration, except as provided in
Exhibit 6.6. To the extent practical, decisions of the arbitrator or the Board
of Arbitration (as applicable) shall be rendered and delivered to Parent, PEI,
and the Shareholder Representative no more than 30 calendar days following
commencement of proceedings with respect thereto. Any decision made by the
Arbitrator or the Board of Arbitration (as applicable) (either prior to or after
the expiration of such 30-day period) shall be final, binding and conclusive on
Parent and PEI (except as may be provided in Exhibit 6.6) and each party to the
arbitration shall be entitled to enforce such decision to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The fees
and expenses of the Arbitrator or the Board of Arbitration (as applicable) and
the reasonable fees and expenses of legal counsel and consultants of the parties
shall be allocated among the parties in the same proportion that the aggregate
amount of the disputed items so submitted to the Arbitrator or the Board of
Arbitration (as applicable) that is unsuccessfully submitted by each of them (as
finally determined by the Arbitration or the Board of Arbitration) bears to the
total amount of items so submitted.
50
(c) Sections 6.6(a) and 6.6(b) shall not apply to any claim for
injunctive relief or specific performance. Such claims shall be submitted to a
court of competent jurisdiction, and neither party shall be required to post any
bond or other security. If a party chooses to pursue such relief, such conduct
shall not constitute a waiver of, or be deemed inconsistent with, the
arbitration provisions set forth in Section 6.6. Once the claims for injunctive
relief or specific performance are finally decided, any and all remaining claims
shall be submitted to arbitration pursuant to Sections 6.6(a) and 6.6(b) and the
Board of Arbitration shall be bound by the findings and rulings of the court on
the claims for injunctive relief or specific performance.
(d) This Section 6.6 shall survive the termination of this Agreement and
the Closing of the transactions contemplated herein.
7. TERMINATION
7.1 Events of Termination. This Agreement may be terminated and the Merger
shall be abandoned upon the occurrence of an event described in Section 7.1(a)
through Section 7.1(d). On termination, other than Section 6.6, this Agreement
shall be of no further force or effect except as to liabilities for
misrepresentation, breach or default in connection with any warranty,
representation, covenant, duty or obligation given, occurring or arising prior
to the date of termination and abandonment.
(a) Misrepresentation, Breach or Failure by PEI. By Parent, at Parent's
election, if any of the conditions precedent to its obligation to close stated
in Section 5.2 have not been fulfilled or waived by the scheduled Closing Date;
if an event has occurred that results in PEI Material Adverse Effect; or if
there has been any misrepresentation or breach of or failure to satisfy timely
on the part of PEI any condition or any material warranty, representation or
agreement contained herein, if such breach or failure is not cured within 15
business days after receipt of written notice from Parent describing such breach
or failure in detail.
(b) Misrepresentation, Breach or Failure by Parent. By PEI, at PEI's
election, if any of the conditions precedent to its obligation to close stated
in Section 5.1 have not been fulfilled or waived by the scheduled Closing Date,
if an event has occurred that results in a Parent Material Adverse Effect; or if
there has been any misrepresentation or breach of or failure to satisfy timely
on the part of Parent any condition or any material warranty, representation or
agreement contained herein, if such breach or failure is not cured within 15
business days after receipt of written notice from PEI describing such breach or
failure in detail.
(c) Expiration of Time. By either Parent or PEI if, for any reason the
Closing shall not have taken place by October 31, 2001; provided, however, that
neither Parent nor PEI shall be entitled to terminate this Agreement pursuant to
this Section 7.1(c) if such party is in material breach of this Agreement at
such time.
(d) Damages for Termination; Breakup Fee. If Parent declines to
consummate the Merger solely because either (i) up to but no more than three
Significant PEI Shareholders (none of whom is an officer or director of PEI at
the time of the execution and delivery of this Agreement) fail to sign the
documents required to be signed by the Significant
51
PEI Shareholders as a condition to Closing, or (ii) holders of more than 350,000
shares of PEI Common Stock exercised dissenters' rights and none of such holders
was an officer or director of PEI at the time of the execution and delivery of
this Agreement, then Parent shall not be entitled to damages from PEI for PEI's
failure to meet its conditions precedent to Closing. Notwithstanding any
provision of this Agreement to the contrary, if this transaction in not closed
for any reason and PEI consummates an Alternative Transaction at any time within
six months after the date of this Agreement, then, in addition to all other
damages to which Parent may be entitled at law or in equity, PEI shall, promptly
following the consummation of such Alternative Transaction, pay to Parent by
wire transfer a fee of $250,000.
7.2 Effect of Termination. Termination of this Agreement pursuant to Section
7.1 shall be without prejudice to any and all remedies the parties may have
against each other for breach of this Agreement.
8. MISCELLANEOUS
8.1 Notice. Any notice, delivery or communication required or permitted to be
given under this Agreement shall be in writing, and shall be mailed, postage
prepaid, or delivered, to the addresses given below, or sent by fax to the fax
numbers set forth below, as follows:
To Parent and/or LC:
Industrial Data Systems Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
IDS Engineering Management, LC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
With a copy to (delivery of which shall not constitute notice
hereunder):
Jenkens & ▇▇▇▇▇▇▇▇▇, a Professional Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
To PEI or the Significant PEI Shareholders:
Petrocon Engineering, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
52
With a copy to (delivery of which shall not constitute notice hereunder):
Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇
or such other address as shall be furnished in writing by any such party to the
other party, and such notice shall be effective and be deemed to have been given
as of the date actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 8.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
8.2 Further Documents. The parties shall, at any time and from time to time
after the date hereof, upon request by the other party and without further
consideration, execute and deliver such instruments or other documents and take
such further action as may be reasonably required in order to perfect any other
undertaking made by such party hereunder.
8.3 Assignability. Neither party shall assign this Agreement in whole or in
part without the prior written consent of the other party.
8.4 Exhibits and Schedules. The Exhibits and Schedules (and any appendices
thereto) referred to in this Agreement are and shall be incorporated herein and
made a part hereof.
8.5 References to Sections, Exhibits and Schedules. Unless the context
otherwise requires, all Sections and Exhibits referred to herein are,
respectively, sections of, and exhibits to, this Agreement and all Schedules
referred to herein are schedules constituting a part of the Disclosure
Schedules.
8.6 Entire Agreement. This Agreement, together with the Confidentiality
Agreements executed by Parent and PEI on or about October 13, 1999, and October
31, 2000, constitutes the full understanding of the parties, a complete
allocation of risks between them and a complete and exclusive statement of the
terms and conditions of their agreement relating to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, that may
exist between the parties with respect thereto. Except as otherwise
specifically provided in this Agreement, no conditions, usage of trade, course
of dealing or performance, understanding or agreement purporting to modify,
vary, explain or supplement the terms or conditions of this Agreement shall be
binding unless hereafter made in writing and signed by the party to be bound,
and no modification shall be effected by the acknowledgment or acceptance of
documents containing terms or conditions at variance with or in addition to
those set forth in this Agreement. No waiver by any party with respect to any
breach or default or of any right or
53
remedy and no course of dealing shall be deemed to constitute a continuing
waiver of any other breach or default or of any other right or remedy, unless
such waiver be expressed in writing signed by the party to be bound. Failure of
a party to exercise any right shall not be deemed a waiver of such right or
rights in the future.
8.7 Headings. Headings as to the contents of particular Sections are for
convenience only and are in no way to be construed as part of this Agreement or
as a limitation of the scope of the particular Sections to which they refer.
8.8 Controlling Law. The validity, interpretation and performance of this
Agreement and any dispute connected herewith shall be governed and construed in
accordance with the laws of the state of Texas except with respect to conflict
of law provisions which would result in the applicability of another state's
substantive law. Venue for any disputes not subject to arbitration shall be in
▇▇▇▇▇▇ County, Texas, and the parties agree to submit to the jurisdiction of the
state and federal courts in ▇▇▇▇▇▇ County, Texas.
8.9 Public Announcements. The parties shall cooperate in making all press
releases, public announcements or other public confirmations of this Agreement
and the transactions contemplated herein; except as required by law, no party
shall publish any of the foregoing without the prior written consent of the
other parties, which consent each party agrees not to unreasonably withhold.
8.10 No Third Party Beneficiaries. Except as set forth in Section 6, no
Person or entity not a party to this Agreement shall have rights under this
Agreement as a third party beneficiary or otherwise.
8.11 Amendments and Waivers. This Agreement may be amended by PEI, LC, Sub
and Parent, by action taken by their Boards of Directors to the extent permitted
by applicable law; provided, however, that no such amendment shall (i) alter or
change any provision of this Agreement, the alteration or change of which must
be adopted by the holders of capital stock of Parent or PEI under the Articles
of Incorporation of Parent or PEI or the Applicable Corporate Law, or (ii) alter
or change this Section 8.11, unless each such alteration or change is adopted by
the holders of shares of capital stock of Parent and PEI as may be required by
the Articles of Incorporation of Parent or PEI or the Applicable Corporate Law.
Prior to the Effective Time, all amendments to this Agreement must be by an
instrument in writing signed on behalf of PEI and Parent. After the Effective
Time, all amendments to this Agreement must be by an instrument in writing
signed on behalf of Parent and Surviving PEI. Any term or provision of this
Agreement (other than the requirements for shareholder approvals) may be waived
in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof.
8.12 No Employee Rights. Nothing herein expressed or implied shall confer
upon any employee of PEI or Parent any rights or remedies, including any right
to employment or continued employment for any specified period, of any nature or
kind whatsoever under or by reason of this Agreement, or shall cause the
employment status of any employee to be other than terminable at will.
54
8.13 When Effective. This Agreement shall become effective only upon the
execution and delivery of one or more counterparts of this Agreement by PEI, LC,
Parent and Sub.
8.14 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, PEI and Parent and their
respective members of their Boards of Directors shall grant such approvals and
take such actions as are necessary so that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated herein.
8.15 Number and Gender of Words. Whenever herein the singular number is used,
the same shall include the plural where appropriate and words of any gender
shall include each other gender where appropriate.
8.16 Invalid Provisions. If any provision of this Agreement is held by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalid, illegal or unenforceable provision shall be severed
from the remainder of this Agreement, and the remainder of this Agreement shall
be enforced. In addition, the invalid, illegal or unenforceable provision shall
be deemed to be automatically modified, and, as so modified, to be included in
this Agreement, such modification being made to the minimum extent necessary to
render the provision valid, legal and enforceable. Notwithstanding the
foregoing, however, if the severed or modified provision concerns all or a
portion of the essential consideration to be delivered under this Agreement by
one party to the other, the remaining provisions of this Agreement shall also be
modified to the extent necessary to equitably adjust the parties' respective
rights and obligations hereunder.
8.17 Multiple Counterparts. This Agreement may be executed in a number of
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes and all such counterparts shall,
collectively, constitute one agreement, but, in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
8.18 No Rule of Construction. All of the parties hereto have been represented
by counsel in the negotiations and preparation of this Agreement; therefore,
this Agreement will be deemed to be drafted by each of the parties hereto, and
no rule of construction will be invoked respecting the authorship of this
Agreement.
8.19 Expenses. Except as otherwise expressly provided herein, each of the
parties shall bear all of its own expenses in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby, and,
after the Effective Time, Surviving PEI shall be responsible for the expenses of
PEI incurred in connection with the transactions contemplated by this Agreement.
55
8.20 Time of the Essence. Time is of the essence in the performance of the
obligations of each of the parties to this Agreement and any agreement or
instrument contemplated hereunder.
8.21 Attorneys' Fees. If any arbitration or action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs from the other party; provided,
however, that no party shall be a prevailing party unless such party has
recovered more or paid less as a result of arbitration or a final order
resulting from judicial proceedings than the amount offered in writing by an
opposing party to settle the dispute.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on
the date first above written.
PARENT:
INDUSTRIAL DATA SYSTEMS
CORPORATION
By:
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
LC:
IDS ENGINEERING MANAGEMENT, LC
By:
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
SUB:
PEI ACQUISITION, INC.
By:
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
PEI:
PETROCON ENGINEERING, INC.
By:
----------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
57
SCHEDULES AND EXHIBITS
TO AGREEMENT AND PLAN OF MERGER
Intentionally omitted.
58