AGREEMENT AND PLAN OF MERGER
BY AND AMONG
POWER-ONE, INC.,
POWER-ONE ACQUISITION CORPORATION
AND
INTERNATIONAL POWER DEVICES, INC.
JANUARY 7, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Stockholders Approval. . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Surrender And Payment. . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Adjustment To Escrow Consideration . . . . . . . . . . . . . . . . 4
1.8 Adjustment for Claims. . . . . . . . . . . . . . . . . . . . . . . 5
1.9 Aggregate Earnout Consideration. . . . . . . . . . . . . . . . . . 5
1.10 Withholding Rights . . . . . . . . . . . . . . . . . . . . . . . . 8
1.11 Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 8
1.12 Escrow Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.13 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 Organization And Related Matters . . . . . . . . . . . . . . . . . 8
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Financial Statements; Changes; Contingencies . . . . . . . . . . . 9
2.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.5 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . .13
2.6 Title To Property; Condition Of Property; Leases . . . . . . . . .14
2.7 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . .14
2.8 Corporate Authorization. . . . . . . . . . . . . . . . . . . . . .14
2.9 Governmental Authorization . . . . . . . . . . . . . . . . . . . .15
2.10 Non-contravention. . . . . . . . . . . . . . . . . . . . . . . . .15
2.11 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .15
2.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.13 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . .16
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2.14 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.15 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . .16
2.16 No Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . .18
2.17 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.18 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.19 Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.20 Product Warranties . . . . . . . . . . . . . . . . . . . . . . . .19
2.21 Environmental Law Compliance . . . . . . . . . . . . . . . . . . .19
2.22 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2.23 Due Diligence Materials. . . . . . . . . . . . . . . . . . . . . .20
2.24 Antitakeover Statutes. . . . . . . . . . . . . . . . . . . . . . .20
2.25 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . .20
2.26 Chinese Joint Venture. . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization And Related Matters . . . . . . . . . . . . . . . . .21
3.2 Corporate Authorization. . . . . . . . . . . . . . . . . . . . . .21
3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . .21
3.4 Non-contravention. . . . . . . . . . . . . . . . . . . . . . . . .21
3.5 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .22
3.6 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . .22
3.7 No Brokers Or Finders. . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE IV
COVENANTS OF SELLER AND ITS SUBSIDIARIES
4.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.3 Notification of Certain Matters. . . . . . . . . . . . . . . . . .24
4.4 Permits and Approvals. . . . . . . . . . . . . . . . . . . . . . .24
4.5 Stockholder Meeting; Proxy Material. . . . . . . . . . . . . . . .24
4.6 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.7 Interim Balance Sheet. . . . . . . . . . . . . . . . . . . . . . .24
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ARTICLE V
COVENANTS OF BUYER
5.1 Notification of Certain Matters. . . . . . . . . . . . . . . . . .24
5.2 Management of Business after Closing Date. . . . . . . . . . . . .24
5.3 Permits and Approvals. . . . . . . . . . . . . . . . . . . . . . .25
5.4 Representation on Surviving Corporation's Board. . . . . . . . . .25
ARTICLE VI
CONDITIONS TO CLOSING
6.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . .25
6.2 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . .25
6.3 Conditions to Obligations of Seller. . . . . . . . . . . . . . . .26
ARTICLE VII
TERMINATION OF OBLIGATIONS
7.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . .27
7.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VIII
INDEMNIFICATION
8.1 Obligations of Seller. . . . . . . . . . . . . . . . . . . . . . .28
8.2 Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . .28
8.3 Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE IX
MISCELLANEOUS
9.1 Survival of Representations and Warranties . . . . . . . . . . . .30
9.2 Public Announcements . . . . . . . . . . . . . . . . . . . . . . .30
9.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .30
9.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
9.5 Stockholder Representative . . . . . . . . . . . . . . . . . . . .30
9.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
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9.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
9.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . .32
9.9 Sections and Other Headings. . . . . . . . . . . . . . . . . . . .32
9.10 Integrated Agreement . . . . . . . . . . . . . . . . . . . . . . .32
9.11 Amendments; Waivers. . . . . . . . . . . . . . . . . . . . . . . .32
9.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . .32
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.15 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.16 Specific Performance . . . . . . . . . . . . . . . . . . . . . . .33
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AGREEMENT AND PLAN OF MERGER
This Agreement is entered into as of January 7, 1999 among POWER-ONE,
INC., a Delaware corporation ("BUYER"), POWER-ONE ACQUISITION CORPORATION, a
Massachusetts corporation ("ACQUISITION CORP."), and INTERNATIONAL POWER
DEVICES, INC., a Massachusetts corporation ("SELLER"). Certain capitalized
terms used in this Agreement are defined in the text or on EXHIBIT A.
Concurrently with the execution of this Agreement, the holders of not
less than two-thirds of the Shares will deliver to Buyer their agreements in the
form of EXHIBIT B (each such agreement as amended, supplemented or otherwise
modified from time to time, the "SUPPORT AGREEMENT") to vote their Shares in
favor of the Merger, on the terms and subject to the conditions set forth in the
Support Agreement.
Concurrently with the execution of this Agreement, the Employees have executed
employment agreements with Seller that will become effective on the Closing
Date.
The parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER.
(a) At the Effective Time, Acquisition Corp. will be merged (the "MERGER")
with and into Seller in accordance with the Massachusetts Business Corporation
Law ("MBCL"), whereupon the separate existence of Acquisition Corp. will cease,
and Seller will be the surviving corporation (the "SURVIVING CORPORATION").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger set forth herein, Seller and
Acquisition Corp. will file articles of merger (the "ARTICLES OF MERGER") with
the Secretary of State of the Commonwealth of Massachusetts and make all other
filings or recordings required by the MBCL in connection with the Merger. The
"EFFECTIVE TIME" will be the date and time specified in the Articles of Merger.
(c) From and after the Effective Time, the Surviving Corporation will
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of Seller and
Acquisition Corp., all as provided in the MBCL.
(d) The Articles of Organization and bylaws of Acquisition Corp. in effect
at the Effective Time will be the Articles of Organization and bylaws of the
Surviving Corporation until amended in accordance with applicable law. From and
after the Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (i) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇, ▇.▇. ▇▇▇▇▇ and
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▇▇▇▇▇ ▇▇▇ will be the directors of the Surviving Corporation and (ii) the
officers of Seller will be the officers of the Surviving Corporation on the
Closing Date.
1.2 STOCKHOLDERS APPROVAL. This Agreement shall be submitted for adoption
and approval to the holders of shares of common stock, par value $.01 per share
("COMMON STOCK"), of Seller at the Seller Stockholders Meeting in accordance
with the provisions of this Agreement. The affirmative vote of the holders of
two-thirds of the issued and outstanding shares of Seller Common Stock on the
record date for such meeting, voting as a class (the "STOCKHOLDER APPROVAL"), is
required to approve this Agreement and the transactions contemplated hereby.
The Board of Directors of Seller will recommend that the Stockholders approve
this Agreement and the Merger.
1.3 CONVERSION OF SHARES. At the Effective Time:
(a) Buyer shall deliver to the Exchange Agent an amount (the "CASH MERGER
CONSIDERATION") equal to $31.75 million less (x) the amount of capitalized lease
obligations and indebtedness (collectively "INDEBTEDNESS") of Seller reflected
on the Interim Balance Sheet and (y) the Original Escrow Amount. Each share of
Common Stock issued and outstanding at the Effective Time (the "SHARES") (except
as otherwise provided in SECTION 1.3(b) and except for Shares held by a
Dissenting Holder) will be cancelled and extinguished and become the right to
receive (i) the Per Share Cash Merger Consideration, (ii) the Per Share Escrow
Consideration and (iii) the Per Share Aggregate Earnout Consideration.
(b) Each share of Common Stock held by Seller as treasury stock
immediately before the Effective Time will be canceled, and no payment will be
made with respect thereto; and
(c) Each share of common stock of Acquisition Corp. outstanding
immediately before the Effective Time will be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and will constitute the only
outstanding shares of capital stock of the Surviving Corporation.
1.4 DISSENTER'S RIGHTS.
(a) No conversion under SECTION 1.3 hereof will be made with respect to
Shares held by a Dissenting Holder; provided, however, that each Share held by a
Dissenting Holder who, after the Effective Time, withdraws a demand for
appraisal or loses the right of appraisal, in either case pursuant to the
applicable provisions of the MBCL, will be deemed to be converted, as of the
Effective Time, into the Per Share Merger Consideration, as set forth in SECTION
1.3. The term "DISSENTING HOLDER" will mean a holder of Common Stock who has
demanded appraisal rights in compliance with the applicable provisions of the
MBCL concerning the right of such holder to dissent from the Merger and demand
appraisal of such holder's Shares.
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(b) Any Dissenting Holder (i) who files with Seller a written objection to
the Merger before the Seller Stockholder Meeting and who states in such
objection that such Dissenting Holder intends to demand payment for the Shares
owned by such Dissenting Holder if the Merger is concluded and (ii) whose Shares
are not voted in favor of the Merger will be entitled to demand payment from
Seller for such Shares and an appraisal of the value thereof, in accordance with
the provisions of Sections 86 through 98 of the MBCL.
1.5 SURRENDER AND PAYMENT.
(a) Before the Effective Time, Buyer will appoint counsel for the Seller
as agent (the "EXCHANGE AGENT") to exchange certificates representing Shares
(other than Shares held by a Dissenting Holder) (collectively, the
"CERTIFICATES") for the Cash Merger Consideration. On or before the Closing
Date, Buyer will deliver to the Exchange Agent cash in an amount equal to the
Cash Merger Consideration and deliver to the Escrow Agent the Original Escrow
Amount in accordance with the terms of SECTION 1.12 and the Escrow Agreement.
Promptly after the Effective Time, Buyer will send, or will cause the Exchange
Agent to send, to each holder of Shares (other than a Dissenting Holder), a
letter of transmittal for use in such exchange (specifying that the delivery
will be effected, and risk of loss and title will pass, only upon proper
delivery of the Certificates to the Exchange Agent).
(b) Each holder of Shares that have been converted into the right to
receive the Per Share Merger Consideration will be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal, the Per Share Cash Merger Consideration in
respect of the number of Shares represented by such Certificate and will receive
when paid the Per Share Escrow Consideration and the Per Share Aggregate Earnout
Consideration in respect of the number of Shares represented by such
Certificate. Until so surrendered, each such Certificate will, after the
Effective Time, represent for all purposes only the right to receive the Per
Share Merger Consideration in respect of the number of Shares represented by
such Certificate. All interest accumulated on the Escrow Consideration will
follow and be paid over with the principal to which it relates.
(c) If any portion of the Per Share Merger Consideration is to be paid to
a Person other than the Person in whose name the Certificate is registered, it
will be a condition to such payment that the Certificate so surrendered will be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment will pay to the Exchange Agent any Taxes required
as a result of such payment to a Person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that such Tax
has been paid or is not payable.
(d) After the Effective Time, the stock books of Seller will be closed,
and no transfer of Common Stock will thereafter be made. Certificates presented
to Buyer after the Effective Time will be canceled and exchanged for the amount
of Per Share Cash Merger Consideration, and the right to receive the Per Share
Escrow Consideration and the Per Share Aggregate Earnout Consideration, as and
when payable, for the number of
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Shares represented by such Certificate (subject to applicable abandoned
property-escheat and similar laws).
(e) Any portion of the Cash Merger Consideration made available to the
Exchange Agent pursuant to SECTION 1.5(a) that remains unclaimed by the holders
of Shares (including for this purpose, holders of the options and warrants set
forth on SCHEDULE 2.2 (collectively, the "OPTIONS")) six months after the
Effective Time, and all interest accrued thereon, will be returned to Buyer,
upon demand, and any such holder who has not exchanged Shares for the Per Share
Cash Merger Consideration, in accordance with this Section before that time will
thereafter look only to Buyer for payment of the Per Share Cash Merger
Consideration in respect of such Shares. Notwithstanding the foregoing, Buyer
will not be liable to any holder of Shares for any amount paid to a public
official pursuant to applicable abandoned property laws. Any amounts remaining
unclaimed by holders of Shares, other than holders of Options, two years after
the Effective Time (or such earlier date immediately before such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) will, to the extent permitted by applicable law, become the property of
Buyer free and clear of any claims or interest of any person previously entitled
thereto. Any amounts remaining unclaimed by holders of Options after the
expiration date of the respective Options shall be distributed pro rata to the
other Stockholders.
1.6 STOCK OPTIONS. All shares of Common Stock issuable upon the exercise
of Options shall be deemed outstanding for purposes of determining the total
number of Shares. Each holder of an Option shall be entitled to receive upon
delivery of such Option to the Exchange Agent or to Buyer, as the case may be,
an amount equal to the difference between the Per Share Cash Merger
Consideration and the applicable Option price multiplied by the number of shares
of Common Stock covered by such Option. Each holder shall also be entitled to
payment of the Per Share Escrow Consideration and the Per Share Aggregate
Earnout Consideration, as and when paid, for the number of shares covered by
such Option.
1.7 ADJUSTMENT TO ESCROW CONSIDERATION. The Original Escrow Amount will
be subject to the following adjustments after the Closing in accordance with the
following procedure:
(a) Promptly after the Closing Date, Seller's independent auditors will
prepare and present to Buyer a balance sheet of the Business as of the Closing
Date (the "CLOSING DATE BALANCE SHEET" and as finally determined pursuant to
paragraph (d) below, the "FINAL BALANCE SHEET"). The Closing Date Balance Sheet
will be prepared in accordance with GAAP on a basis consistent with the Interim
Balance Sheet. The Stockholder Representative will deliver the Closing Date
Balance Sheet to Buyer no later than 30 days after the Closing Date.
(b) After the Closing Date, to prepare the Closing Date Balance Sheet,
Seller's independent auditors will have full access, at all reasonable times and
in a manner not disruptive of the ongoing operations of Buyer or the Surviving
Corporation, to the books, records and properties acquired by Buyer hereunder.
Buyer and its independent auditors
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will have the right to review the work papers of Seller and its auditors
utilized in preparing the Closing Date Balance Sheet.
(c) If Buyer and Seller are unable to resolve any disagreement with
respect to the Closing Date Balance Sheet within 30 days after the Stockholder
Representative receives a timely notice of disagreement, the items of
disagreement alone shall be promptly referred for final determination to one of
the "Big Five" accounting firms that does not have an existing relationship with
either Buyer or Seller, or if such firm is unable or unwilling to make such
final determination, to such other independent accounting firm as the parties
mutually designate. (The accounting firm making such determination is referred
to herein as the "INDEPENDENT ACCOUNTANTS").
(d) The Closing Date Balance Sheet will become the Final Balance Sheet and
will be deemed to be binding on Buyer and the Stockholders upon (i) Buyer's
failure to deliver to the Stockholder Representative a notice of disagreement
within 30 days of its receipt of the Closing Date Balance Sheet, (ii) resolution
of any disagreement by mutual agreement of the parties after a timely notice of
disagreement has been delivered to the Stockholder Representative, or
(iii) notification by the Independent Accountants of their final determination
of the items of disagreement submitted to them.
(e) If the amount of Indebtedness reflected on the Final Balance Sheet
exceeds the Indebtedness reflected on the Interim Balance Sheet the Escrow
Consideration will be reduced by such excess, which amount Escrow Agent will
promptly pay to Buyer, and if the Indebtedness reflected on the Final Balance
Sheet, as finally determined, is less than the indebtedness reflected on the
Interim Balance Sheet, the Escrow Consideration will be increased by such
difference, which amount Buyer will promptly deposit with the Escrow Agent.
(f) The fees and disbursements of the Independent Accountants will be
borne equally, one-half by Buyer and one-half by the Stockholders. The amount
to be borne by the Stockholders will be paid by the Escrow Agent out of the
Escrow Fund.
1.8 ADJUSTMENT FOR CLAIMS. In addition, the Original Escrow Amount shall
be adjusted from time to time in accordance with the terms of the Escrow
Agreement for any claims made by Buyer pursuant to SECTION 8.1 and as otherwise
provided in the Escrow Agreement.
1.9 AGGREGATE EARNOUT CONSIDERATION.
(a) As soon as practicable after December 31, 1999 and no later than March
31, 2000, Buyer will deliver to the Stockholder Representative a draft auditor's
report on Buyer's consolidated financial statements for the year ended December
31, 1999 including a supplemental schedule of Net Sales. (the "NET SALES
SCHEDULE"). The Net Sales Schedule will be prepared in accordance with the
definition of Net Sales contained herein. The Stockholder Representative will
have 30 days to review the Net Sales Schedule and determination of Net Sales
(such 30-day period being referred to herein as the "STOCKHOLDER REVIEW
PERIOD"). Buyer will cooperate with the Stockholder
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Representative in this review of and will make available to the Stockholder
Representative all information and data relating to the preparation of the Net
Sales Schedule as the Stockholder Representative may reasonably request, and
Seller's independent accountants will be provided with customary access of the
nature and extent provided Buyer's independent accountants in connection with
their review of the Closing Date Balance Sheet to the work papers of Buyer's
independent accountants relating thereto (subject to the Stockholder
Representative's entering into a customary waiver letter with Buyer's
independent accountants). If the Stockholder Representative disagrees with the
determination of Net Sales as calculated from the Net Sales Schedule on or
before the Stockholder Review Period expires, the Stockholder Representative
will notify Buyer of the matters with which it disagrees on or before the
Stockholder Review Period expires, and the parties will use their best efforts
to resolve any differences promptly. If the parties are unable to resolve any
disagreements that they may have with respect to the Net Sales Schedule or the
determination of the Net Sales within 30 days after the Stockholder
Representative notifies Buyer of its disagreement, then within ten (10) days
after such 30-day period expires, the parties will submit such disagreements to
binding arbitration in accordance with SECTION 1.9(d). The Net Sales Schedule
will be deemed to be binding on Seller and Buyer upon (i) Seller's failure to
deliver to Buyer a notice of disagreement before the Stockholder Review Period
Expires, (ii) resolution of any disagreement by mutual agreement of the parties
after a timely notice of disagreement has been delivered to Buyer, or
(iii) notification by the Arbitrator of its final determination of the items of
disagreement submitted to it. The costs and expenses associated with the
preparation of the Net Sales Schedule will be borne by Buyer. Any costs and
expenses incurred by the Stockholder Representative in connection with its
review of the Net Sales Schedule will be paid by the Escrow Agent out of the
Escrow Fund.
(b) Buyer will pay in cash, subject to the limit set forth in subparagraph
(e), to the Escrow Agent for the benefit of the Stockholders an amount equal to
Surviving Corporation's Net Sales less $34,000,000 multiplied by 60% (the "NET
SALES EARNOUT"). For example, if Net Sales are $44,000,000, then Buyer will pay
the Escrow Agent cash in the amount of $6,000,000. If Surviving Corporation's
Net Sales are less than $34,000,000, Buyer will not make any payment to the
Escrow Agent under the Net Sales Earnout. All sales of Surviving Corporation's
products to third parties after the Closing Date will be made at prices set by a
pricing committee consisting of the President of Buyer or his designee and the
President of Surviving Corporation; provided that if the two individuals cannot
agree on the price for any given product, the determination of Buyer's President
or such designee shall be final.
(c) Seller has delivered to Buyer a schedule (the "NPI SCHEDULE") that
sets forth (i) the New Products, (ii) the date scheduled for the
Qualification/design verification of each such New Product, (iii) that $111,200
shall be deemed earned if such product's Qualification/design verification
occurs on or before the date scheduled for such product's Qualification/design
verification on the NPI Schedule, and (iv) that $111,200 shall be deemed earned
upon each such product's Documentation being delivered in accordance with the
NPI Schedule. Buyer will pay the Escrow Agent in accordance with SECTION 1.9(e)
an amount in cash equal to the aggregate of such amounts up to a maximum of
$4,000,000, subject to the limit set forth in paragraph (e) (the "NEW PRODUCT
EARNOUT"
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and together with the Net Sales Earnout, "AGGREGATE EARNOUT CONSIDERATION").
Buyer shall deliver its determination of the New Product Earnout to the
Stockholder Representative by April 10, 2000. The Stockholder Representative
will have thirty (30) days to review such determination and to notify Buyer of
any disagreement. Buyer and the Stockholder Representative will use their best
efforts to resolve any differences promptly. If the parties are unable to
resolve any disagreements that they may have with respect to the New Product
Earnout within 30 days after the Stockholder Representative notifies Buyer of
its disagreement, then within ten days after such 30-day period expires, the
parties will submit such disagreement to binding arbitration in accordance with
SECTION 1.9(d). The New Product Earnout will be deemed to be binding on Seller
and Buyer upon (i) Seller's failure to deliver to Buyer a notice of disagreement
within 30 days, (ii) resolution of any disagreement by mutual agreement of the
parties after a timely notice of disagreement has been delivered to Buyer, or
(iii) notification by the Arbitrator of its final determination of the items of
disagreement submitted to it.
(d) Any disagreements that the parties have failed to resolve among
themselves in accordance with the provisions of SECTION 1.9(a), with respect to
the Net-Sales Earnout, or in accordance with the provisions of SECTION 1.9(c)
with respect to the New Product Earnout, will be determined by arbitration
before a single arbitrator (the "ARBITRATOR") in Boston, Massachusetts in
accordance with the rules and procedures of the American Arbitration Association
then in effect. The scope of such arbitration will be limited to the matters on
which Buyer and the Stockholder Representative disagree. Buyer and Stockholder
Representative will have ten (10) days to select an Arbitrator mutually
satisfactory to all parties and who is willing to serve. If Buyer and the
Stockholder Representative fail to agree upon an Arbitrator, the Arbitrator will
be selected by the American Arbitration Association in Boston, Massachusetts,
and such Arbitrator must be a member of a "Big Five" accounting firm that does
not have an existing relationship with either Buyer or Seller, or such other
independent arbitrator as the parties mutually designate. The decision of the
Arbitrator will be final and binding on the parties hereto, and final judgment
on the Arbitrator's decision may be entered in and enforced by any court of
competent jurisdiction. The Stockholders on the one hand, and Buyer and
Surviving Corporation on the other, will bear equally the costs and expenses of
the Arbitrator and the fees and expenses of the American Arbitration
Association. The amount to be borne by the Stockholders will be paid by the
Escrow Agent out of the Escrow Fund.
(e) Buyer will pay the Escrow Agent the Aggregate Earnout Consideration on
the later of March 31, 2000 or within ten (10) days after such amount is finally
determined in accordance with the procedures set forth above; provided, however,
that in the event that disputes have been referred to arbitration in accordance
with Section 1.9(d), Buyer shall promptly pay the Escrow Agent such portion of
the Aggregate Earnout Consideration as is not in dispute. In no event will the
Aggregate Earnout Consideration exceed $13,000,000. For each distribution to
the Stockholders out of the Escrow Fund, the Escrow Agent will deliver to each
Stockholder who has surrendered a Certificate an amount equal to the percentage
set forth opposite such Stockholder's name on Exhibit A of the Escrow Agreement
multiplied by the total amount to be distributed to all Stockholders.
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1.10 WITHHOLDING RIGHTS. Each of the Surviving Corporation and Buyer will
be entitled to deduct and withhold from the consideration otherwise payable to
any Person pursuant to this Article such amounts as it is required to deduct and
withhold with respect to the making of such payment under any provision of
federal, state, local or foreign Tax law. To the extent that amounts are so
withheld by the Surviving Corporation or Buyer, as the case may be, such
withheld amounts will be treated for all purposes of this Agreement as having
been paid to the holder of Shares in respect of which such deduction and
withholding was made by the Surviving Corporation or Buyer, as the case may be.
1.11 LOST CERTIFICATES. If any Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and an agreement to indemnify
Buyer against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Per Share Merger Consideration represented by such
Certificate as contemplated by this Article.
1.12 ESCROW FUND. At the Closing, Buyer will deliver to State Street Bank
& Trust Company, or such other bank as the parties may mutually agree (the
"ESCROW AGENT"), the Original Escrow Amount. The Escrow Agent will hold and
deliver the Original Escrow Amount in accordance with the terms of an Escrow
Agreement in the form of EXHIBIT C, which the parties will execute and deliver
at the Closing (the "ESCROW AGREEMENT").
1.13 CLOSING. The Closing will take place at the offices of Seller's
counsel at 10:00 a.m. local time, on January 29, 1999 or such other date as
agreed to by the parties (the "CLOSING DATE"), which will be no later than the
second business day after the parties have satisfied or waived the conditions
set forth in ARTICLE VI, unless the parties agree to another time or date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 ORGANIZATION AND RELATED MATTERS. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. SCHEDULE 2.1 lists all Subsidiaries of Seller
and correctly sets forth the capitalization of each Subsidiary, the jurisdiction
in which each Subsidiary was organized, each jurisdiction in which Seller and
each Subsidiary are required to be qualified or licensed to do business as a
foreign Person and a brief summary of the Subsidiary's business. Each of the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. Seller and its
Subsidiaries have all corporate power, Permits and Approvals necessary to own
their respective properties and assets and to carry on their respective
businesses as now conducted and are duly qualified or licensed to do business as
foreign corporations in good standing in all jurisdictions in which the
character or the location of the assets owned or leased by any of them or the
nature of the business conducted by any of them requires licensing or
qualification. SCHEDULE 2.1 correctly lists the current directors and executive
officers of Seller and of each Subsidiary. True, correct and complete copies of
the
8
respective charter documents of Seller and the Subsidiaries as in effect on the
date hereof have been delivered to Buyer. Neither Seller nor any Subsidiary is
a registered or reporting company under the Exchange Act. Except as set forth
on SCHEDULE 2.1, neither Seller nor any Subsidiary has any interest in any
partnership, joint venture, limited liability company or other entity.
2.2 CAPITALIZATION. The authorized capital stock of Seller consists of
250,000 shares of Common Stock. As of the date of this Agreement, there are
outstanding 191,559 shares of Common Stock . All outstanding shares of capital
stock of Seller have been duly authorized and validly issued and are fully paid
and non-assessable. Except as set forth on SCHEDULE 2.2, Seller owns all of the
outstanding shares of capital stock of each Subsidiary. Except as set forth in
this Section and on SCHEDULE 2.2, there are no outstanding (i) shares of capital
stock or voting securities of Seller, (ii) securities of Seller convertible into
or exchangeable for shares of capital stock or voting securities of Seller or
(iii) options, warrants, restricted stock, other stock-based compensation awards
or other rights to acquire from Seller or other obligation of Seller to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Seller. There are no
outstanding obligations of Seller or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any securities referred to in clauses (i), (ii) or
(iii) above. For purposes of determining the number of shares to be used in
determining per share amounts under this Agreement, the number of outstanding
Shares shall be 225,005, which includes all shares issuable upon the exercise of
Options.
2.3 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Seller has delivered to Buyer consolidated balance sheets for Seller
and its Subsidiaries at December 31, 1997, 1996, 1995, 1994 and 1993 and the
related consolidated statements of operations, changes in Stockholder's equity
and changes in financial position or cash flow for the periods then ended (the
"AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements have been
examined by the Auditors whose reports thereon are included with such Financial
Statements. The Audited Financial Statements have been prepared in conformity
with GAAP applied on a consistent basis (except for changes, if any, required by
GAAP and disclosed therein). The statements of operations and cash flow
included within the Audited Financial Statements present fairly the results of
operations and cash flows of Seller and its Subsidiaries for the respective
periods covered, and the balance sheets present fairly the financial condition
of Seller and its Subsidiaries as of their respective dates. Since December 31,
1997, there has been no change in any of the significant accounting policies,
practices or procedures of Seller or the Subsidiaries.
(b) Seller has delivered to Buyer consolidated balance sheets for Seller
and its Subsidiaries at November 30, 1997 and 1998, and the related consolidated
statements of operations for the periods then ended (the "UNAUDITED FINANCIAL
STATEMENTS"). Such Unaudited Financial Statements have been certified by the
chief financial officer of Seller. The Unaudited Financial Statements have been
prepared in conformity with GAAP applied on a consistent basis except for
changes, if any, required by GAAP and disclosed therein. The statements of
operations and cash flows included as part of the Unaudited Financial
9
Statements present fairly the results of operations and cash flows of Seller and
its Subsidiaries for the respective periods covered, and the balance sheets
present fairly the financial condition of Seller as of their respective dates.
The Unaudited Financial Statements reflect all adjustments (which consist only
of normal recurring adjustments not material in amount and include estimated
provisions for year-end adjustments) necessary for a fair presentation. At the
dates of such balance sheets, neither Seller nor any Subsidiary had any material
liability (actual, contingent or accrued) that, in accordance with GAAP applied
on a consistent basis, should have been shown or reflected therein but was not.
The Audited Financial Statements and the Unaudited Financial Statements are
referred to collectively herein as the "FINANCIAL STATEMENTS."
(c) Except as set forth on SCHEDULE 3(c), since the Balance Sheet Date,
there has not been, occurred or arisen:
(i) any event, occurrence, development or state of circumstances
or facts which would, individually or in the aggregate, have a
material adverse effect on the Business;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of
Seller, or any repurchase, redemption or other acquisition by Seller
or any of its Subsidiaries of any outstanding shares of capital stock
or other securities of, or other ownership interests in, Seller or any
of its Subsidiaries;
(iii) any incurrence, assumption or guarantee by Seller or any
Subsidiary of any material indebtedness for borrowed money, other than
in the ordinary course of business;
(iv) any creation or other incurrence by Seller or any of its
Subsidiaries of any Encumbrance on any material asset;
(v) any making of any material loan, advance or capital
contributions to or investment in any Person other than loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries of Seller made in the ordinary course consistent with
past practices;
(vi) any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the Business or any of
its Subsidiaries;
(vii) any transaction or commitment made, or any Contract entered
into by Seller, or any of its Subsidiaries involving the acquisition
or disposition of any material assets, other than in the ordinary
course of business;
(viii) any strike or labor dispute, other than routine individual
grievances, or, to the Knowledge of Seller, any activity or proceeding
by a labor union or representative thereof to organize any employees
of Seller or any of its Subsidiaries, which employees were not subject
to a collective bargaining agreement at the Balance Sheet Date, or any
material lockouts, strikes,
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slowdowns, work stoppages or threats thereof by or with respect to
such employees;
(ix) any Tax election or any settlement or compromise of any
material Tax liability; or
(x) (i) granted any severance or termination pay to any current or
former employee, officer or director of Seller or any of its
Subsidiaries, (ii) increased benefits payable under any existing
severance or termination pay policies or employment Contract, (iii)
entered into any employment, deferred compensation or other similar
Contract (or any amendment to any such existing Contract) with any
current or former director, officer or employee of Seller or any of
its Subsidiaries, (iv) established, adopted or amended (except as
required by applicable law) any collective bargaining, bonus, profit
sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any current or former director, officer or
employee of Seller or any of its Subsidiaries, or (v) increased
compensation, bonus or other benefits payable to any current or former
director, officer or employee of Seller or any of its Subsidiaries.
(d) Neither Seller nor any Subsidiary has any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, probable of assertion or not, except liabilities that (i) are reflected or
disclosed in the Balance Sheet, (ii) are operating expenses, or indebtedness
under existing credit lines, incurred after the Balance Sheet Date in the
ordinary course of business or (iii) are set forth in SCHEDULE 2.3(d) hereto.
2.4 TAXES.
Except as set forth on SCHEDULE 2.4:
(a) All Tax Returns required to be filed by or with respect to Seller and
the Subsidiaries have been timely filed, and all such Tax Returns are complete
and correct in all material respects. Seller and its Subsidiaries have paid all
Taxes that are due from or with respect to them for the periods covered by such
Tax Returns and have made all required estimated Tax payments sufficient to
avoid any penalties for underpayment. The accrual for Taxes in the Financial
Statements is adequate to cover any and all unpaid Taxes (whether or not
disputed and whether or not due) of Seller and its Subsidiaries with respect to
Pre-Closing Straddle Periods and all other taxable periods ending on or before
the Closing Date.
(b) Except as listed in SCHEDULE 2.4, (i) the Tax Returns referred to in
clause (a) have been examined by the IRS or other appropriate Governmental
Entity or the period for assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired, (ii) there is no audit,
examination, suit, investigation or similar proceeding pending, proposed or
threatened with respect to Taxes of Seller or any Subsidiary, and no
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basis exists therefore; and (iii) there are no outstanding waivers extending
the statutory period of limitation relating to the payment of Taxes due from
Seller or any Subsidiary.
(c) SCHEDULE 2.4 sets forth the amount of net operating losses, net
capital losses, foreign Tax credits and investment and other Tax credits of
Seller and its Subsidiaries.
(d) No Closing Agreement pursuant to Section 7121 of the Code or any
similar provision of any state, local or foreign law has been entered into by or
with respect to Seller or any Subsidiary which could reasonably be expected to
have an effect on Seller's or such Subsidiary's liability for or reporting of
Taxes in any period ending after the Closing Date.
(e) All Taxes that Seller and its Subsidiaries have been required by law
to withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued, reserved against and added on the books of Seller.
Seller and its Subsidiaries have complied in all material respects with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, independent contractor, creditor, Stockholder or other
third party.
(f) Neither Seller nor any Subsidiary is liable for the Taxes of any
Person (other than any of Seller and its Subsidiaries)including as a transferee,
pursuant to Treasury Regulations Section 1.1502-6 or any analogous provision of
state, local or foreign law, or as a result of any contractual arrangement with
any third party or any taxing authority.
(g) No consent to the application of Section 341(f)(2) of the Code (or any
similar state law provision) has been made or filed by or with respect to Seller
or any Subsidiary.
(h) There is no Contract by or with Seller or any Subsidiary covering any
Person as to which payment or vesting thereunder (including any payment or
vesting as a result of the Merger) could result in a nondeductible expense to
Seller or such Subsidiary by reason of Section 280(G) of the Code.
(i) There are no liens for Taxes upon the assets of Seller or its
Subsidiaries except for liens relating to Taxes not yet due and payable.
(j) None of Seller and its Subsidiaries has ever been a member of any
group of corporations that files or has filed Tax Returns on a combined,
consolidated or unitary basis, nor does Seller or any Subsidiary have any direct
or indirect ownership interest in any partnership, joint venture or other entity
treated as a "flow-through" entity for Tax purposes.
For purposes of the last sentence of subparagraph (a) above, in the case of
Taxes that are based upon or related to income or receipts, the potion of such
Taxes that is allocable to any Pre-Closing Straddle Period shall be determined
by treating the taxable period that includes such Pre-Closing Straddle period as
consisting of two taxable years, one which ended at the close of the Closing
Date and the other which began at the
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beginning of the date following the Closing Date, and allocating the items of
income, gain, deduction, loss and credit of the relevant taxpayer between such
two taxable years on a "closing of the books basis" by assuming that the books
of the taxpayer (and of any partnership, joint venture or other "flow-through"
entity in which such taxpayer has an interest) were closed at the close of the
Closing Date, PROVIDED, HOWEVER, that exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned between such two taxable periods on a daily basis. In addition,
in the case of Taxes other than Taxes based upon or related to income or
receipts, the portion of such Taxes that is allocable to any Pre-Closing
Straddle Period shall be deemed to be the amount of such Taxes for the entire
taxable period, multiplied by a fraction, the numerator of which is the number
of days in the entire taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with the prior practice of Seller and its
Subsidiaries.
2.5 MATERIAL CONTRACTS. SCHEDULE 2.5 lists each Contract to which Seller
or any Subsidiary is a party or to which Seller, any Subsidiary or any of their
respective properties is subject or by which any thereof is bound that is deemed
a Material Contract under this Agreement. Unless otherwise so noted on SCHEDULE
2.5, each such Contract was entered into in the ordinary course of business.
Each Contract that (a) after the Balance Sheet Date obligates Seller to pay an
amount of $50,000 or more, (b) has an unexpired term as of the date of this
Agreement in excess of one year, (c) represents a Contract upon which the
Business is substantially dependent or which is otherwise material to the
Business, (d) relates to indebtedness for money borrowed or provides for an
extension of credit other than consistent with normal credit terms, (e) limits
or restricts the ability of Seller or any Subsidiary to compete or otherwise to
conduct its business in any manner or place, (f) provides for a guaranty or
indemnity by Seller or any Subsidiary, (g) grants a power of attorney, agency or
similar authority to another person or entity, (h) contains a right or
obligation of any Associate, Affiliate, officer or director of Seller or any
Subsidiary to Seller or any Subsidiary, (i) is an employment or consulting
Contract, Stockholder agreement or voting trust, or (j) was not made in the
ordinary course of business, will be deemed to be a Material Contract and has
been identified on such SCHEDULE 2.5. True copies of the Material Contracts
appearing on SCHEDULE 2.5, including all amendments and supplements, and a
written description of the terms of any oral Material Contracts, have been
delivered to Buyer. Each Material Contract is valid and subsisting; Seller or
the applicable Subsidiary has duly performed all its obligations thereunder to
the extent that such obligations to perform have accrued; and no breach or
default, alleged breach or default, or event which would (with the passage of
time, notice or both) constitute a breach or default thereunder by Seller or any
Subsidiary, as the case may be, or, to the best Knowledge of Seller, any other
party or obligor with respect thereto, has occurred or as a result of this
Agreement or performance hereof will occur. Consummation of the transactions
contemplated by this Agreement will not (and will not give any Person a right
to) terminate or modify any rights of, or accelerate or augment any obligation
of, Seller or any Subsidiary under any of the Contracts on SCHEDULE 2.5.
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2.6 TITLE TO PROPERTY; CONDITION OF PROPERTY; LEASES. Except as set forth
in SCHEDULE 2.6, Seller and each Subsidiary have good and marketable title to
all of their material assets free of Encumbrances. All material tangible assets
of Seller and each Subsidiary are in a good state of maintenance and repair
(except for ordinary wear and tear) and are adequate for the Business. All
leasehold properties held by Seller or any Subsidiary as lessee are held under
valid, binding and enforceable leases. To the Knowledge of Seller and its
Subsidiaries, there is no pending or threatened Action that would materially
interfere with the quiet enjoyment of any such leasehold by Seller or any such
Subsidiary.
2.7 INTELLECTUAL PROPERTY. SCHEDULE 2.7 contains a complete and correct
list of (i) all Intellectual Property that is owned by Seller and any Subsidiary
and primarily related to, used in, held for use in connection with or necessary
for the conduct of, or otherwise material to, the Business, (ii) all Contracts
pursuant to which Seller or any Subsidiary has licensed Intellectual Property
to, or the use of Intellectual Property is otherwise permitted by, any other
Person and (iii) all Contracts, other than those acquired pursuant to the
purchase of shrinkwrap software, pursuant to which Seller or any Subsidiary has
had Intellectual Property licensed to it or has otherwise been permitted to use
Intellectual Property. Except as set forth on SCHEDULE 2.7, (a) Seller and its
Subsidiaries have not assigned, hypothecated or otherwise encumbered any
Intellectual Property and (b) none of the licenses included in the Intellectual
Property of Seller and its Subsidiaries purport to grant sole or exclusive
licenses to another Person, including sole or exclusive licenses limited to
specific fields of use. Except as set forth on SCHEDULE 2.7, the patents owned
by Seller and its Subsidiaries are valid and enforceable, and any patent issuing
from patent applications of Seller and its Subsidiaries will be valid and
enforceable. Except as set forth on SCHEDULE 2.7, Seller has no Knowledge of
any infringement by any other Person of any Intellectual Property of Seller, and
Seller and its Subsidiaries have not entered into any agreement to indemnify any
other party against any charge of infringement of any Intellectual Property.
Except as set forth on SCHEDULE 2.7, Seller and its Subsidiaries have not and do
not violate or infringe any Intellectual Property of any other Person, including
the licenses issued by developers of shrinkwrap software, and neither Seller nor
any Subsidiary has received any communication alleging that it violates or
infringes the Intellectual Property of any other Person. Except as set forth on
SCHEDULE 2.7, Seller and its Subsidiaries have not been sued for infringing any
Intellectual Property of another Person.
2.8 CORPORATE AUTHORIZATION.
(a) Seller has all necessary corporate power and authority to execute,
deliver and perform each Transaction Document to which it is a party. Except
for the Stockholder Approval in connection with the consummation of the Merger,
the execution, delivery and performance of the Transaction Documents have been
duly authorized by all necessary corporate action on the part of Seller. The
Agreement constitutes, and the other Transaction Documents when executed by
Seller will constitute, the valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms. The Stockholder
Approval is the only vote of the holders of any of Seller's capital stock
necessary in connection with the consummation of the Merger.
14
(b) Seller's Board of Directors, at a meeting duly called and held, has
unanimously (i) determined that this Agreement and the transactions contemplated
hereby (including the Merger) are fair to and in the best interests of the
Stockholders, (ii) approved and adopted this Agreement and the transactions
contemplated hereby (including the Merger), which approval satisfies in full any
applicable requirements of the MBCL and any applicable requirements of Chapters
110C, 110D and 110F of the Massachusetts General Law, and (iii) resolved to
recommend approval and adoption of this Agreement by the Stockholders.
2.9 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Seller of the Transaction Documents and the consummation of the transactions
contemplated thereby require no action by or in respect of, or filing with, any
Governmental Entity other than (a) the filing of the Articles of Merger in
accordance with the MBCL, (b) compliance with any applicable requirements of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, and (c) any other filings and Approvals described on
SCHEDULE 2.9.
2.10 NON-CONTRAVENTION. The execution, delivery and performance by Seller
of the Transaction Documents and the consummation by Seller of the transactions
contemplated thereby do not and will not (i) violate the Articles of
Organization or bylaws of Seller, (ii) assuming compliance with the matters
referred to in SECTION 2.9, violate any applicable Law, (iii) other than as
described on SCHEDULE 2.10, require any consent or other action by any Person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Seller or any of its
Subsidiaries or to a loss of any benefit to which Seller or any of its
Subsidiaries is entitled under any provision of any Material Contract or any
Permit or Approval affecting, or relating in any way to, the Business or (iv)
result in the creation or imposition of any Encumbrance on any material asset of
Seller or any of its Subsidiaries except, in the case of clauses (ii), (iii) and
(iv), for such matters as would not, individually or in the aggregate, have a
material adverse effect on the Business or materially impair the ability of
Seller to consummate the transactions contemplated by this Agreement.
2.11 LEGAL PROCEEDINGS. No Order has been issued and no Action is pending,
or, to the best Knowledge of Seller, threatened against or affecting Seller or
any Subsidiary or any of their respective properties or assets that individually
or when aggregated with one or more other Orders or Actions has or might
reasonably be expected to have a material adverse effect on (a) Seller or any
Subsidiary, (b) the Business or (c) Seller's ability to perform the Transaction
Documents or any aspect of the transactions contemplated thereby. SCHEDULE 2.11
lists each Order or Action that involves a claim or potential claim of aggregate
liability in excess of $50,000, whether or not covered by insurance, against, or
that enjoins or compels or seeks to enjoin or to compel any activity by, Seller
or any Subsidiary. There is no matter as to which Seller or any Subsidiary has
received any notice, claim or assertion, or, to the best Knowledge of Seller,
which otherwise has been threatened or is reasonably expected to be threatened
or initiated, against or affecting any director, officer, employee, agent or
representative of Seller or any Subsidiary or any other Person, nor to the best
Knowledge of Seller is there any reasonable basis therefor, in connection with
which any such Person has or may reasonably be expected to have, any right to
indemnification by Seller or any Subsidiary.
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2.12 INSURANCE. Seller and its Subsidiaries are, and at all times during
the past two years have been, insured with reputable insurers against all risks
normally insured against by companies in similar lines of business.
SCHEDULE 2.12 lists all insurance policies that are material to the Business and
all claims under any insurance policies made since January 1, 1994. All of the
insurance policies listed on SCHEDULE 2.12 and its Subsidiaries are in full
force and effect. Neither Seller nor any Subsidiary is in default under any such
policy.
2.13 COMPLIANCE WITH LAW. Seller and each of its Subsidiaries are and have
been in compliance with and are not under investigation with respect to and have
not been threatened to be charged with or given notice of any violation of, any
applicable Law, the violation of which would have a material adverse effect on
the Business.
2.14 EMPLOYEES. Neither Seller nor any of its Subsidiaries has any dispute
existing, or to Seller's Knowledge, threatened, involving strikes, work
stoppages, slow downs or lockouts. There are no grievance proceedings or claims
of unfair labor practices filed or, to Seller's Knowledge, threatened to be
filed with the National Labor Relations Board or any Massachusetts state agency
against Seller or any of its Subsidiaries. To Seller's Knowledge there is no
union representation or organizing effort pending or threatened against Seller
or any of its Subsidiaries. Neither Seller nor any of its Subsidiaries has
agreed to recognize any union or other collective bargaining unit. None of the
Employees has indicated a desire or intent to terminate employment with Seller
for any reason in the twelve (12) months preceding the date of this Agreement.
2.15 EMPLOYEE BENEFITS.
(a) Employee Benefit Plans, Collective Bargaining and Employment
Agreements, and Similar Arrangements.
(1) Seller does not have any ERISA Affiliates. Except as set
forth in Schedule 2.15, Seller has no employee benefit plan, whether written or
unwritten, to which Seller or any ERISA Affiliate is or during the last five
years has been a party or by which any of them is or during the last five years
has been bound, legally or otherwise, including, but not limited to, (i) any
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or incentive plan,
agreement or arrangement, (ii) any plan, agreement or arrangement providing for
"fringe benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to company automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, or (iii) any other
"employee benefit plan" (within the meaning of Section 3(3) of ERISA).
(2) Seller has delivered to Buyer true and complete copies of all
documents and summary plan descriptions with respect to such plans, agreements
and arrangements, or summary descriptions of any such plans, agreements or
arrangements not otherwise in writing.
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(3) There are no negotiations, demands or proposals that are
pending or have been made which concern matters now covered, or that would be
covered, by plans, agreements or arrangements of the type described in this
section.
(4) Seller is in compliance in all material respects with the
applicable provisions of ERISA (as amended through the date of this Agreement),
the regulations and published authorities thereunder, and all other Laws
applicable with respect to all such employee benefit plans, agreements and
arrangements. Seller has performed in all material respects all of its
obligations under all such plans, agreements and arrangements and all such
plans, agreements and arrangements have been operated in all material respects
in compliance with their terms. To the best knowledge of Seller, there are no
Actions (other than routine claims for benefits) pending or threatened against
such plans or their assets, or arising out of such plans, agreements or
arrangements, and, to the best knowledge of Seller, no facts exist which could
give rise to any such Actions.
(5) All obligations of Seller under each such plan agreement and
arrangement (i) that are due prior to the Closing Date have been paid or will be
paid prior to that time and (ii) that have accrued prior to the Closing Date
have been or will be paid or properly accrued.
(6) Seller may (except to the extent prohibited by Law) in any
manner and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate , modify or amend each such
plan or arrangement (or its participation therein) effective as of any date
before, on or after the Closing Date.
(7) Except as disclosed in Schedule 2.15, the consummation,
announcement or other action relating to the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional or
further acts or events) result in any (i) payment (whether of severance pay or
otherwise) becoming due from Seller to any officer, employee, former employee,
director, or former director thereof or to the trustee under any "rabbi trust"
or similar arrangement, or (ii) benefit under any such plan or arrangement being
established, accelerated, vested or payable.
(b) Qualified Plans.
(1) Seller's 401(k) plan (the "Plan") is the only "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA and within
the meaning of Section 401(a) of the Code).
(2) The Plan has been duly authorized by board of directors of
Seller. The Plan is qualified in form and operation under Section 401(a) of the
Code, and each trust under the Plan is exempt from tax under Section 501(a) of
the Code. No event has occurred that will or could give rise to
disqualification or loss of tax-exempt status of the Plan or any such trust
under such sections. No event has occurred that will or could subject the Plan
to tax under Section 511 of the Code. No prohibited transaction (within the
meaning of Section 4975 of the Code) or party-in-interest transaction (within
the meaning of Section 406 of ERISA) has occurred with respect to the Plan.
17
(3) Seller has delivered to Buyer for the Plan copies of the
following documents: (i) the Form 5500 filed in the most recent plan year,
including but not limited to all schedules thereto and financial statements with
attached opinions of independent accountants, (ii) the most recent determination
letter from the IRS, (iii) the consolidated statement of assets and liabilities
of such plan as of its most recent valuation date, and (iv) the statement of
changes in fund balance and in financial position or the statement of changes in
net assets available for benefits under such plan for the most recently ended
plan year. The financial statements so delivered fairly present the financial
condition and the results or operations of the Plan as of such dates, in
accordance with GAAP.
(c) Multiemployer Plans. The Plan is not a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA). Seller has never contributed to or had
an obligation to contribute to any multiemployer plan.
(d) Welfare Plans. Except as required under Section 4980B of the Code,
Seller has no obligation to provide health benefits to any employee following
termination of employment.
(e) Fines and Penalties. There has been no act or omission by Seller that
has given rise to or may give rise to fines, penalties, taxes, or related
charges under Section 502(c) or (i) or Section 4071 of ERISA or Chapter 43 of
the Code.
2.16 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Seller or any Subsidiary or any of their respective Affiliates in connection
with the negotiation, execution or performance of this Agreement or the
transactions contemplated by this Agreement is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of this
Agreement or such transactions.
2.17 INVENTORIES. All inventories of Seller and each Subsidiary are of
good merchantable quality, reasonably in balance, and salable or currently
usable in the ordinary course of business. The value of obsolete, damaged or
excess inventory and of inventory below standard quality has been written down
on the Balance Sheet to ascertainable market value, or adequate reserves
described on the Balance Sheet have been provided therefor, and the value at
which inventories are carried reflects the customary inventory valuation policy
of Seller and its Subsidiaries (which fairly reflects the value of obsolete,
spoiled or excess inventory) for stating inventory, in accordance with GAAP.
2.18 CUSTOMERS. SCHEDULE 2.18 lists the names of, and describes all
Contracts with and the appropriate percentage of Business attributable to, the
ten largest customers of the Business. Neither Seller nor any Subsidiary has
received any notice nor has any reason to believe that any material customer of
Seller or any Subsidiary has (i) ceased to use, or will cease, or has materially
reduced or will materially reduce the use of, the products, goods or services of
the Business or (ii) materially reduced or will materially reduce the price it
will pay for products, goods or services of the Business, including in each case
after the consummation of the transactions contemplated by this Agreement. To
the Knowledge of Seller and its Subsidiaries, no customer of the Business listed
on SCHEDULE 2.18 has
18
threatened to take any action described in the preceding sentence as a result of
the consummation of the transactions contemplated by this Agreement.
2.19 SUPPLIERS. SCHEDULE 2.19 lists the ten most significant suppliers of
the Business at the date of this Agreement, and any sole-source suppliers of
significant goods or services (other than electricity, gas, telephone or water)
to Seller or any Subsidiary with respect to which alternative sources of supply
are not readily available on comparable terms and conditions. Neither Seller
nor any Subsidiary has received any notice nor has any reason to believe that
there has been any material adverse change in the price of raw materials,
supplies, goods, services or other merchandise provided by such suppliers or
that such suppliers will not continue to provide the Surviving Corporation with
supplies at any time after the Closing Date on terms and conditions similar to
those used in their current sales to the Business. To the Knowledge of Seller
or any Subsidiary, no supplier listed on SCHEDULE 2.19 has threatened to take
any action described in the preceding sentence as a result of the consummation
of the transactions contemplated by this Agreement.
2.20 PRODUCT WARRANTIES. Except as set forth in SCHEDULE 2.20: (a) there
are no warranties, express or implied, written or oral, with respect to the
products of the Business; (b) there are no pending or threatened claims with
respect to any such warranty; (c) no returns of any single product sold by
Seller during the two years preceding the date hereof have exceeded one percent
(1%); (d) there have been no product recalls or Actions pending or, to Seller's
knowledge, threatened during such period relating to Seller's products; and (e)
to Seller's knowledge, no customer of Seller or any Subsidiary has experienced
failures or serious product performance defects greater than one percent (1%)
for any product purchased from Seller or any such Subsidiary within the
twenty-four months preceding the date of this Agreement. Adequate reserves have
been provided on the Balance Sheet for Seller's warranty obligations.
2.21 ENVIRONMENTAL LAW COMPLIANCE. Except as set forth on SCHEDULE 2.21,
there are no pending or, to Seller or any Subsidiary's Knowledge, threatened
claims, suits or proceedings arising out of or related to any noncompliance with
any Environmental Laws in connection with the Business. Seller and its
Subsidiaries have complied and are in compliance with all Laws applicable to the
Business relating to environmental protection, including standards relating to
air, water, land and the generation, storage, transportation, treatment or
disposal of Hazardous Substances (collectively, "ENVIRONMENTAL LAWS"), except
where non-compliance with any such Laws would not have a material adverse effect
on the Business. Seller and its Subsidiaries have received all Permits relating
to environmental matters, including all air, water and waste permits and permits
for emission and/or disposal of solid, liquid and gaseous materials from their
operations, and the Seller and its Subsidiaries are operating the Business in
conformance with such Permits. Seller and its Subsidiaries have diligently
searched and know of no place on their properties where Hazardous Substances
have entered or are likely to enter the air, soil or groundwater. Neither
Seller nor any Subsidiary has installed, used, buried or removed any and, to
Seller's or any Subsidiary's Knowledge, there are no, surface impoundments or
underground tanks or vessels or sumps, drains or pipelines that hold Hazardous
Substances on Seller's or any Subsidiary's properties.
19
2.22 MINUTE BOOKS. The minute books of Seller accurately reflect all
material actions and proceedings taken to date by the Stockholders, Board of
Directors and committees of Seller, and such minute books contain true and
complete copies of the charter documents of Seller and all related amendments.
The stock record book of Seller reflects, or will at the Closing reflect,
accurately all transactions in its capital stock of all classes.
2.23 DUE DILIGENCE MATERIALS. All documents, agreements and other
materials provided by Seller or its Subsidiaries to Buyer or any representative
of Buyer in connection with the due diligence conducted in connection with the
transactions contemplated by this Agreement have been true, correct and complete
originals or copies of the documents, agreements and other materials purported
to be provided or to which access has been given.
2.24 ANTITAKEOVER STATUTES. Neither the provisions of Chapter 110C, 110D
and 110F of the Massachusetts General Laws nor any other antitakeover or similar
statute or regulation applies to the transactions contemplated hereby.
2.25 YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 2.25, all
information systems of Seller and its Subsidiaries are Year 2000 Compliant.
With respect to all such information systems, Seller and its Subsidiaries have
completed the assessment stage for determining Year 2000 Compliance and
concluded that no renovation is necessary. "Year 2000 Compliant" with respect
to any item means that such item: (i) from now until January 1, 2000, must
correctly operate, store, process and produce data containing dates before
January 1, 2000; (ii) from now until January 1, 2000, must correctly operate,
store, process and produce data containing dates after December 31, 1999;
(iii) from January 1, 2000, must correctly operate, store, process and produce
data containing dates before January 1, 2000; (iv) from January 1, 2000, must
correctly operate, store, process and produce data containing dates after
December 31, 1999; (v) must be able to handle the date January 1, 2001
correctly; (vi) must recognize the year 2000 as a leap year (February 2000 is
recognized as a valid date, Julian date 00060 is recognized as February 29,
2000, Julian date 00366 is recognized as December 31, 2000, arithmetic
operations performed recognize that the year 2000 has 366 days and binary date
36584 is recognized as February 29, 2000); and (vii) must be able to correctly
process data containing the date September 9, 1999. For purposes of this
definition, "correctly" means accurately and without delay, corruption,
interruption or error relating to the time at which or the date on which such
items are operating.
2.26 CHINESE JOINT VENTURE. Seller has a 49% interest in Shenzhen SED-IPD
International Electronic Device Co., Ltd. (the "JOINT VENTURE") in accordance
with the agreement that has been delivered to Buyer pursuant to this SECTION
2.26. Seller has transferred to the Joint Venture the right to manufacture
exclusively pursuant to Seller's product specifications approximately 10
different modules that use Seller's older technology and has not otherwise
transferred any rights to any of Seller's Intellectual Property. To the
Seller's Knowledge, all purchases by the Joint Venture are from Seller's vendors
or from Seller-approved vendors. The Joint Venture agreement provides that,
with the approval of the appropriate Chinese governmental authority, 70% of the
Joint
20
Venture's products are to be sold in the international market and the remainder
sold within the Peoples Republic of China.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
3.1 ORGANIZATION AND RELATED MATTERS. Buyer is a corporation duly
organized, validly existing and in good standing under the State of Delaware.
Buyer has all corporate power, Permits and Approvals necessary to own its
properties and assets and to carry on its business as now conducted and is duly
qualified or licensed to do business as a foreign corporation in good standing
in all jurisdictions in which the character or the location of the assets owned
or leased by it or the nature of the business conducted by it requires licensing
or qualification.
3.2 CORPORATE AUTHORIZATION.
(a) Buyer has all necessary corporate power and authority to execute,
deliver and perform each Transaction Document to which it is a party. The
execution, delivery and performance of the Transaction Documents by Buyer have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement constitutes, and the other Transaction Documents when executed by
Buyer will constitute, the valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms.
(b) Buyer's Board of Directors has unanimously approved and adopted this
Agreement and the transactions contemplated hereby (including the Merger), which
approval satisfies in full any applicable requirements of the Delaware General
Corporation Law.
3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Buyer of the Transaction Documents and the consummation of the transactions
contemplated thereby require no action by or in respect of, or filing with, any
Governmental Entity other than (a) the filing of the Articles of Merger in
accordance with the MBCL and (b) compliance with any applicable requirements of
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
3.4 NON-CONTRAVENTION. The execution, delivery and performance by Buyer
of the Transaction Documents and the consummation by Buyer of the transactions
contemplated thereby do not and will not (i) violate the Certificate of
Incorporation or bylaws of Buyer, (ii) assuming compliance with the matters
referred to in SECTION 3.3, violate any applicable Law, (iii) require any
consent or other action by any Person under, constitute a default under, or give
rise to any right of termination, cancellation or acceleration of any right or
obligation of Buyer or to a loss of any benefit to which Buyer is entitled under
any provision of any Contract binding upon Buyer or any Permit or Approval
affecting, or relating in any way to, the assets or business of Buyer or (iv)
result in the creation or imposition of any Encumbrance on any material asset of
Buyer except, in
21
the case of clauses (ii), (iii) and (iv), for such matters as would not,
individually or in the aggregate, have a material adverse effect on Buyer or
materially impair the ability of Buyer to consummate the transactions
contemplated by this Agreement.
3.5 LEGAL PROCEEDINGS. No Order or Action is pending, or, to the best
Knowledge of Buyer, threatened against or affecting Buyer or any of its
properties or assets that individually or when aggregated with one or more other
Orders or Actions has or might reasonably be expected to materially impair
Buyer's ability to perform the Transaction Documents.
3.6 COMPLIANCE WITH LAW. Buyer is and has been in compliance with and is
not under investigation with respect to and has not been threatened to be
charged with or given notice of any violation of, any applicable Law.
3.7 NO BROKERS OR FINDERS. Other than ▇▇▇▇▇▇▇▇ Inc., whose fee Buyer will
bear, no agent, broker, finder or investment or commercial banker, or other
Person or firms engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions.
ARTICLE IV
COVENANTS OF SELLER AND ITS SUBSIDIARIES
4.1 ACCESS. Seller will, and will cause its Subsidiaries to, make
available for inspection by Buyer and its representatives, during normal
business hours and in a manner so as not to interfere with normal business
operations, all of Seller's records (including Tax records), books of account,
premises, Contracts and all other documents in Seller's possession or control
that are reasonably requested by Buyer and its representatives to inspect and
examine the business and affairs of Seller. Seller will cause its managerial
employees, counsel and regular independent accountants to be available upon
reasonable advance notice to answer questions of Buyer and Buyer's
representatives concerning the business and affairs of Seller. No examination by
Buyer and its representatives will, however, constitute a waiver or
relinquishment by Buyer of its rights to rely on Seller's covenants,
representations and warranties made herein or pursuant hereto.
4.2 CONDUCT OF SELLER. From the date hereof until the Effective Time,
except with the prior written consent of Buyer, Seller and its Subsidiaries will
conduct their business in the ordinary course consistent with past practice,
including payment of accounts payable and collection of accounts receivable, and
will use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
except in the ordinary course consistent with past practice or as consented to
by Buyer in writing, Seller will not, and will not permit any of its
Subsidiaries to:
(a) adopt or propose any changes in their respective charter documents or
bylaws;
22
(b) merge or consolidate with any other Person or acquire a material
amount of assets or any capital stock or other securities of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets or
property except pursuant to existing Contracts;
(d) take any action that would make any representation or warranty of
Seller hereunder inaccurate at the Effective Time;
(e) enter into any licensing agreement, private label arrangement or
understanding or other similar arrangement with respect to any of Seller's or
any Subsidiary's Intellectual Property;
(f) (i) grant any severance or termination pay to any current or former
employee, officer or director of Seller or any of its Subsidiaries, (ii)
increase benefits payable under any existing severance or termination pay
policies or employment Contract, (iii) enter into any employment, deferred
compensation or other similar Contract (or any amendment to any such existing
Contract) with any current or former director, officer or employee of Seller or
any of its Subsidiaries, (iv) establish, adopt or amend (except as required by
applicable law) any collective bargaining, bonus, profit sharing, thrift,
pension, retirement, deferred compensation, compensation, stock option,
restricted stock or other benefit plan or arrangement covering any current or
former director, officer or employee of Seller or any of its Subsidiaries, or
(v) increase compensation, bonus or other benefits payable to any current or
former director, officer or employee of Seller or any of its Subsidiaries;
(g) issue any additional shares of capital stock, or issue, sell or grant
any option or right to acquire or otherwise dispose of or commit to dispose of
any of its authorized but unissued capital stock or other corporate securities,
except upon exercise of warrants and other rights currently outstanding and set
forth on SCHEDULE 2.2;
(h) declare or pay any dividends or make any other distribution in cash or
property on its capital stock or other equity interests;
(i) repurchase or redeem any shares of its capital stock or other equity
interests;
(j) grant any kind of Encumbrance with respect to any material part of its
assets, real or personal, tangible or intangible;
(k) amend any Tax Return, or make or change any Tax election or take any
Tax reporting position; or
(l) agree or commit to do any of the foregoing.
4.3 NOTIFICATION OF CERTAIN MATTERS. Seller will promptly notify Buyer of
(i) any event of which Seller obtains Knowledge which has had or might
reasonably be expected to have a material adverse effect on the Business or
which if known as of the date hereof would be required to be disclosed to Buyer
and (ii) any failure of Seller to comply
23
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement.
4.4 PERMITS AND APPROVALS. Seller will cooperate with Buyer and use its
best efforts to obtain (and will immediately prepare all registrations, filings
and applications, requests and notices preliminary to) all Approvals and Permits
that may be necessary or which may be reasonably requested by Buyer to
consummate the transactions contemplated by this Agreement, including under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
4.5 STOCKHOLDER MEETING; PROXY MATERIAL. Seller will, in accordance with
applicable Law and the Articles of Organization and bylaws of Seller, cause a
meeting of its Stockholders (the "SELLER STOCKHOLDER MEETING") to be duly called
and held as soon as reasonably practicable for the purpose of voting on the
approval and adoption of this Agreement. In connection with such meeting,
Seller will (i) promptly prepare and thereafter mail to its Stockholders as
promptly as practicable a proxy statement and all other proxy materials for such
meeting, (ii) use all reasonable efforts to obtain the necessary approvals by
its Stockholders of this Agreement and the transactions contemplated hereby and
(iii) otherwise comply with all legal requirements applicable to such meeting.
4.6 CONDITIONS. Seller will use its best efforts to take all actions
reasonably necessary or appropriate to cause each condition set forth in SECTION
6.2 to be fulfilled on or before the Closing.
4.7 INTERIM BALANCE SHEET. Seller shall prepare and deliver to Buyer at
least two days before the Closing Date its best estimate of Seller's balance
sheet as of the Closing Date (the "INTERIM BALANCE SHEET") so that the parties
may determine the Indebtedness of Seller to be used in making the determination
described in SECTION 1.3.
ARTICLE V
COVENANTS OF BUYER
5.1 NOTIFICATION OF CERTAIN MATTERS. Buyer will promptly notify Seller of
(i) the occurrence, or failure to occur, of any event that would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date of this Agreement to the Closing Date and
(ii) any failure of Buyer to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
5.2 MANAGEMENT OF BUSINESS AFTER CLOSING DATE. Buyer shall use its
reasonable best efforts to cooperate with the Surviving Corporation's management
to manage the Business after the Closing Date in a manner that does not
adversely affect the Aggregate Earnout Consideration, and to provide the
Surviving Corporation during 1999 with working capital adequate (a) to replace
any working capital lines of credit of Seller in existence as of the Closing
Date that are terminated or reduced by Buyer subsequent to such date, and (b) to
finance Seller's projected cost of operations during such year (as
24
disclosed to, and approved by, Buyer prior to the Closing Date, which approval
will not be unreasonably withheld, or as mutually agreed thereafter).
5.3 PERMITS AND APPROVALS. Buyer will cooperate with Seller and use its
best efforts to obtain (and will immediately prepare all registrations, filings
and applications, requests and notices preliminary to) all Approvals and Permits
that may be necessary or which may be reasonably requested by Seller to
consummate the transactions contemplated by this Agreement, including under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act
5.4 REPRESENTATION ON SURVIVING CORPORATION'S BOARD. Subsequent to the
Closing Date and until April 30, 2000, Buyer will take any and all necessary
action, as a stockholder of Surviving Corporation or otherwise, so that the
Stockholder Representative shall serve at all times as a director of Surviving
Corporation, so long as the Stockholder Representative is able and willing to do
so.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 GENERAL CONDITIONS. The obligations of the parties to consummate the
Merger are subject to satisfaction of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement, including the appointment of
the Stockholder Representative as provided in SECTION 9.5, must have been
approved and adopted by the requisite affirmative vote of the holders of Common
Stock in accordance with Seller's Articles of Organization and the MBCL.
(b) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Any applicable waiting period under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act relating to the Merger must have expired or been
terminated.
(c) NO RESTRAINING ACTION. No Action shall have been instituted or
threatened against Buyer, Seller, Acquisition Corp. or their respective
Subsidiaries before any Governmental Entity, seeking to restrain or prohibit the
consummation of the transactions contemplated hereby.
(d) MERGER. The Articles of Merger shall have been filed with the
Secretary of State of the Commonwealth of Massachusetts.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. Unless waived, in whole or part,
in writing by Buyer, Buyer's obligations hereunder are subject, before or at the
Closing, to satisfaction of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained in ARTICLE II shall be true at the Closing Date with the same
effect as though made at such time. Seller shall have performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or before the Closing Date, and Seller shall
have delivered to Buyer a certificate of Seller in form and substance
satisfactory to Buyer, dated the Closing Date and signed by its Chief Executive
Officer and Chief Financial Officer to such effect.
25
(b) MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in or affecting the Business since the Balance Sheet Date.
(c) OPINION OF COUNSEL. Buyer must have received at the Closing from
▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP, counsel to Seller, an opinion dated the Closing Date,
in form and substance satisfactory to Buyer.
(d) CORPORATE PROCEEDINGS. True and complete copies of all corporate
proceedings and documents effecting the authorization and approval of the
Transaction Documents and the transactions contemplated thereunder by Seller,
certified by the Chief Executive Officer and the Clerk of Seller, shall have
been furnished to Buyer.
(e) TRANSACTION DOCUMENTS. Seller shall have executed and delivered the
Transaction Documents other than this Agreement.
(f) APPROVALS AND PERMITS. Seller must have obtained all Approvals and
Permits necessary to consummate the transactions contemplated hereby.
(g) PAYMENT OF BONUSES. Seller shall have paid all bonuses and other
amounts referred to in SCHEDULE 2.3(d) before or contemporaneously with the
Closing.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER. Unless waived, in whole or part,
in writing by Seller, Seller's obligations hereunder are subject, before or at
the Closing, to satisfaction of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer contained in ARTICLE III shall be true at the Closing Date with the same
effect as though made at such time. Buyer shall have performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or before the Closing Date, and Buyer shall
have delivered to Seller a certificate of Buyer in form and substances
satisfactory to Seller, dated the Closing Date and signed by its Chief Executive
Officer and Chief Financial Officer to such effect.
(b) OPINION OF COUNSEL. Seller must have received at the Closing from
O'Melveny & ▇▇▇▇▇ LLP, counsel to Buyer, an opinion dated the Closing Date, in
form and substance satisfactory to Seller.
(c) CORPORATE PROCEEDINGS. True and complete copies of all corporate
proceedings and documents effecting the authorization and approval of the
Transaction Documents and the transactions contemplated thereunder by Buyer,
certified by the Chief Executive Officer and the Secretary of Buyer, shall have
been furnished to Seller.
(d) BUYER'S FACILITIES. Seller's executive officers shall have been given
the opportunity to visit Buyer's facilities during normal business hours and in
a manner so as not to interfere with normal business operations.
(e) TRANSACTION DOCUMENTS. Buyer must have executed and delivered the
Transaction Documents other than this Agreement.
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ARTICLE VII
TERMINATION OF OBLIGATIONS
7.1 TERMINATION OF AGREEMENT. Notwithstanding anything herein to the
contrary, this Agreement and the transactions contemplated by this Agreement
will terminate if the Closing does not occur on or before the close of business
on February 28, 1999, unless extended by mutual consent in writing of Buyer and
Seller and otherwise may be terminated at any time before the Closing as follows
and in no other manner:
(a) MUTUAL CONSENT. By mutual consent in writing of Buyer and Seller.
(b) CONDITIONS TO BUYER'S PERFORMANCE NOT MET. By Buyer by written notice
to Seller if any event occurs or condition exists which would render impossible
the satisfaction of one or more conditions to the obligations of Buyer to
consummate the transactions contemplated by this Agreement as set forth in
SECTION 6.1 OR 6.2.
(c) CONDITIONS TO SELLER'S PERFORMANCE NOT MET. By Seller by written
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in SECTION 6.1 OR 6.3.
(d) INACCURATE INFORMATION. By Buyer if any material information (whether
or not in writing) delivered by or on behalf of Seller, Company or any
Subsidiary to Buyer is inaccurate or incomplete in any material respect.
(e) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. By Buyer if Buyer receives a request for further
information under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act from either the FTC or Department of
Justice, and Buyer believes, based on advice from its counsel, that such request
for additional information will likely result in a challenge by the FTC or
Department of Justice of the transactions contemplated by this Agreement.
(f) MATERIAL BREACH. By Buyer or Seller if there has been a material
misrepresentation or other material breach by the other party in its
representations, warranties and covenants set forth herein; provided, however,
that if such breach is susceptible to cure, the breaching party will have ten
business days after receiving notice from the other party of its intention to
terminate this Agreement if such breach continues in which to cure such breach.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
SECTION 7.1, all further obligations of the parties under this Agreement will
terminate without further liability of any party to another; provided that the
obligations of the parties contained in SECTION 9.3 and SECTION 9.6 will survive
any such termination. A termination under SECTION 7.1 will not relieve any
party of any liability for a breach of, or for any misrepresentation under this
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
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ARTICLE VIII
INDEMNIFICATION
8.1 OBLIGATIONS OF SELLER. Seller will indemnify and hold harmless Buyer
and each Buyer Subsidiary, and their respective directors, officers, employees,
Affiliates, agents and assigns from and against any and all Losses of Buyer or
any Buyer Subsidiary, directly or indirectly, as a result of, or based upon or
arising from (a) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by Seller in or
pursuant to this Agreement; (b) any third party claims or demand regarding the
conduct of the Business before the Closing, whether asserted before or after the
Closing, unless such claim or demand, or the facts and circumstances giving rise
to such claim or demand, have been disclosed on the Disclosure Schedule; (c) any
claims by Buyer under the agreement to purchase the assets of ▇▇-▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ Partnership being entered into contemporaneously with this Agreement or
(d) any other matter specifically described in the Escrow Agreement and not
included within (a) through (c). All amounts owed by Seller to Buyer will be
paid out of the Escrow Fund in accordance with the Escrow Agreement.
Notwithstanding anything herein to the contrary, Seller will not be liable to
indemnify any Person: (i) until the total amount of all Indemnifiable Claims
exceeds $250,000, provided, however, that if said sum of $250,000 is exceeded,
Seller's obligation to Buyer hereunder will include payment of said $250,000, as
well as the excess over that amount,(ii) except to the extent of amounts in the
Escrow Funds, as the same may be supplemented from time to time pursuant to
SECTION 1 hereof, (iii) in excess of any limitation contained in the Escrow
Agreement and not set forth herein, or (iv) for aggregate Indemnifiable Claims
in excess of $5,850,000.
8.2 OBLIGATIONS OF BUYER. Buyer will indemnify and hold harmless the
Stockholders from and against any Losses of the Stockholders, directly or
indirectly, as a result of, or based upon or arising from, any inaccuracy in or
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by Buyer in or pursuant to this Agreement.
8.3 PROCEDURE.
(a) Any party seeking indemnification with respect to any Loss shall give
notice to the party required to provide indemnity hereunder on or before the
date specified in SECTION 9.1. The Stockholder Representative shall act on
behalf of Seller and the Stockholders for all purposes under this ARTICLE VIII
in accordance with SECTION 9.5. If any claim, demand or liability is asserted
by any third party against any Indemnified Party, the Indemnifying Party shall
upon the written request of the Indemnified Party, defend any Actions brought
against the Indemnified Party in respect of matters embraced by the indemnity
with counsel satisfactory to the Indemnified Party, but the Indemnified Party
shall have the right to conduct and control the defense, compromise or
settlement of any Indemnifiable Claim if the Indemnified Party chooses to do so,
on behalf of and for the account and risk of the Indemnifying Party who shall be
bound by the result so obtained to the extent provided herein, provided,
however, that no Indemnifiable Claim shall be settled by an Indemnified Party
unless the Indemnifying Party shall consent thereto, which consent shall not be
unreasonably withheld or delayed. If, after a request to defend any
28
Action, the Indemnifying Party neglects to defend the Indemnified Party, a
recovery against the latter suffered by it in good faith is conclusive in its
favor against the Indemnifying Party, provided however that, if the Indemnifying
Party has not received reasonable notice of the Action against the Indemnified
Party, or is not allowed to control its defense, judgment against the
Indemnified Party is only presumptive evidence against the Indemnifying Party.
Each party hereto, to the extent that it is or becomes an Indemnifying Party,
hereby stipulates that a judgment against the Indemnified Party shall be
conclusive upon the Indemnifying Party. The parties shall cooperate in the
defense of all third party claims which may give rise to Indemnifiable Claims
hereunder. Counsel for the Indemnifying Party shall be entitled to participate
in the defense of any Action brought against the Indemnified Party and to be
named as co-counsel of record; counsel for the Indemnified Party shall be lead
counsel in all phases of any such litigation and if counsel for the respective
parties cannot agree on any matter with respect to such defense, the
determination of counsel for the Indemnified Party shall be final. The fees and
expenses of counsel for Seller as an Indemnifying Party, as provided in the
preceding sentence, shall be paid from the Escrow Fund if and to the extent, and
only if and to the extent, that the same are incurred in connection with (i) the
review of pleadings and documents generated by parties to the Action, other than
Surviving Corporation, and other than documents produced in discovery, (ii)
consultation with Buyer's counsel, or services requested of Seller's Counsel by
Buyer's counsel, in connection with such Action, and (iii) attendance by no more
than one attorney at court proceedings, other than depositions, in such Action.
In connection with the defense of any claim, each party shall make available to
the party controlling such defense any books, records or other documents within
its control that are reasonably requested in the course of such defense.
8.4 Any amounts payable by the Indemnifying Party to or on behalf of an
Indemnified Party in respect of a Loss shall be adjusted as follows:
(a) If such Indemnified Party is liable for any additional Taxes as a
result of the payment of amounts in respect of an Indemnifiable Claim, the
Indemnifying Party will pay to the Indemnified Party in addition to such amounts
in respect of the Loss within 15 days after being notified by the Indemnified
Party of the payment of such liability an amount equal to such additional Taxes.
(b) The Indemnified Party shall reimburse the Indemnifying Party an amount
equal to the net reduction in any year in the liability for Taxes (that are
based upon or measured by income) of the Indemnified Party or any member of a
consolidated or combined tax group of which the Indemnified Party is, or was at
any time, part, which reduction is actually realized with respect to any period
after the Closing Date and which reduction would not have been realized but for
the amounts paid (or any audit adjustment or deficiency with respect thereto, if
applicable) in respect of a Loss, or amounts paid by the Indemnified Party
pursuant to this paragraph (a "NET TAX BENEFIT"). The amount of any Net Tax
Benefit shall be paid not later than 15 days after the date on which such Net
Tax Benefit shall be realized. Any expenses associated with the realization of
a net Tax Benefit or any contest or proceeding with respect to a Net Tax Benefit
shall be deemed to reduce such Net Tax Benefit.
29
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties and agreements contained in this Agreement will survive the Closing
until April 30, 2000 and then expire in all respects.
9.2 PUBLIC ANNOUNCEMENTS. Buyer and Seller will consult with each other
before issuing any press releases or making any public statement with respect to
this Agreement or the transactions contemplated hereby and will not issue any
such press release or make any such public statement before such consultation.
9.3 CONFIDENTIALITY. All information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) will be kept
confidential by such other party and its representatives and will not be used by
any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, or as may otherwise be required by Law or (v) to
the extent such duty as to confidentiality is waived in writing by the other
party. If this Agreement is terminated, each party shall use all reasonable
efforts to return upon written request from the other party all documents (and
reproductions thereof) received by it or its representatives from such other
party (and, in the case of reproductions, all such reproductions made by the
receiving party) that include information not within the exceptions contained in
the first sentence of this SECTION 9.3, unless the recipients provide assurances
reasonably satisfactory to the requesting party that such documents have been
destroyed.
9.4 ASSIGNMENT. The respective rights of Buyer and Seller under this
Agreement are not assignable.
9.5 STOCKHOLDER REPRESENTATIVE. Seller and the Stockholders, by virtue of
their approval of this Agreement, will be deemed to have irrevocably constituted
and appointed, ▇. ▇. ▇▇▇▇▇, effective as of the Effective Time, (together with
his permitted successors, the "Stockholder Representative"), as their true and
lawful agent and attorney-in-fact to enter into any agreement in connection with
the transactions contemplated by this Agreement or any transactions contemplated
by the Escrow Agreement, to exercise all or any of the powers, authority and
discretion conferred on him under either this Agreement or the Escrow Agreement,
to waive any terms and conditions of any such agreement (other than the Merger
Consideration), to give and receive notices on their behalf and to be their
exclusive representative with respect to any Action arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any Action for which the Buyer or the
Acquisition Company may be entitled to indemnification and the Stockholder
Representative agrees to act as, and to undertake the duties and
responsibilities of, such agent and attorney-in-fact. This power of attorney
is coupled with an interest and is irrevocable. The Stockholder Representative
30
shall not be liable for any action taken or not taken by him in connection with
his obligations under this Agreement in the absence of his own gross negligence
or willful misconduct. If the Stockholder Representative shall be unable or
unwilling to serve in such capacity, his successor, who shall serve and exercise
the powers of Stockholder Representative hereunder, shall be named by those
persons holding a majority of the Shares of Common Stock.
9.6 EXPENSES. Except as otherwise provided herein, Buyer and Seller will
bear all expenses incurred by it in connection with this Agreement and in the
consummation of the transactions contemplated hereby and in preparation
therefor. Without limiting the generality of the foregoing, Seller will pay all
of the reasonable fees and expenses of ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & Co. incurred in connection with the transactions contemplated hereby,
and Buyer shall to the extent necessary provide Seller with the funds necessary
to pay such expenses within a reasonable time after the presentation of invoices
therefor.
9.7 NOTICES. All notices (including other communications required or
permitted) under this Agreement must be in writing and must be delivered:
(a) in person; (b) by registered, express or certified mail, postage prepaid,
return receipt requested; (c) by a generally recognized courier or messenger
service that provides written acknowledgement of receipt by the addressee; or
(d) by facsimile or other generally accepted means of electronic transmission
with a verification of delivery. Notices are deemed delivered at the earlier of
the date such notice is actually received by a party or two days after such
notice is given. Notices to Seller must be given at the addresses below, but
any party may furnish, from time to time, other addresses for notices to it.
If to Buyer, at: with a copy to:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 1999 Avenue of the Stars
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to Seller, at: with a copy to:
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP
Boston, Massachusetts One Post Office Square
Attn: ▇.▇. ▇▇▇▇▇ Boston, Massachusetts
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier:(▇▇▇) ▇▇▇-▇▇▇▇ Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
31
The addresses to which notices or demands are to be given may be
changed from time to time by notice served as provided above. Delivery of
notice to the copied parties above is not notice to Buyer or Seller, as the case
may be.
9.8 FURTHER ASSURANCES. Seller will, upon the request of Buyer, from time
to time execute and deliver such additional certificates, agreements and other
documents and take such other actions as Buyer reasonably requests, to render
effective the transactions contemplated hereby.
9.9 SECTIONS AND OTHER HEADINGS. Sections or other headings contained in
this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement.
9.10 INTEGRATED AGREEMENT. This Agreement and the exhibits and schedules
hereto constitute the entire agreement between the parties hereto, and no
agreements, understandings, restrictions, warranties or representations exist
between the parties other than those set forth herein or provided for herein.
All exhibits, schedules and appendices attached to this Agreement are
incorporated herein.
9.11 AMENDMENTS; WAIVERS. All parties must approve any amendment to this
Agreement. Any waiver of any right or remedy requires the consent of the party
waiving it. Every amendment or waiver must be in writing and designated as an
amendment or waiver, as appropriate. No failure by any party to insist on the
strict performance of any provision of this Agreement, or to exercise any right
or remedy, will be deemed a waiver of such performance, right or remedy, or of
any other provision of this Agreement.
9.12 INTERPRETATION. If any claim is made by a party relating to any
conflict, omission or ambiguity in the provisions of this Agreement, no
presumption or burden of proof or persuasion will be implied because this
Agreement was prepared by or at the request of any party or its counsel. The
parties waive any statute or rule of law to the contrary. Unless the context
otherwise requires: (i) a term has the meaning assigned to it; (ii) "or" is not
exclusive; (iii) words in the singular include the plural, and words in the
plural include the singular; (iv) "herein," "hereof" and other words of similar
import refer to this Agreement as a whole and not to any particular Section,
Subsection, paragraph, clause, or other subdivision; (v) all references to
"Section", "Schedule" or "Exhibit" refer to the particular Section, Schedule or
Exhibit in or attached to this Agreement; and (vi) "including" and "includes,"
when following any general provision, sentence, clause, statement, term or
matter, will be deemed to be followed by ", but not limited to," and ", but is
not limited to," respectively.
9.13 COUNTERPARTS. This Agreement is being signed in several counterparts.
Each of them is an original, and all of them constitute one agreement.
9.14 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be adjusted rather than voided, if
possible, to achieve the intent of the parties to the extent possible. In any
event, all other provisions of this Agreement will be deemed valid and
enforceable to the extent possible.
32
9.15 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal laws of the State of California (without reference
to its rules as to conflicts of law), except that the Merger will be governed by
the law of the Commonwealth of Massachusetts.
9.16 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur if any provision of this Agreement was not performed in accordance with
the terms hereof and that the parties will be entitled to specific performance
of the terms hereof in addition to any other remedy to which they are entitled
at law or equity.
[Intentionally left blank]
33
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officers as of the day and year first above
written.
POWER-ONE, INC.
By:
-----------------------------------
Its: President
POWER-ONE ACQUISITION CORPORATION
By:
---------------------------------
Its: President
INTERNATIONAL POWER DEVICES, INC.
By:
---------------------------------
Its: President
34
LIST OF EXHIBITS
Exhibit A Definitions
Exhibit B Form of Stockholder Support Agreement
Exhibit C Form of Escrow Agreement
SCHEDULES
Schedule A Disclosure Schedules
35
EXHIBIT A
"ACTION" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"AGREEMENT" means this Agreement by and among Buyer, Acquisition Corp.
and Seller as may be amended, supplemented or modified from time to time.
"AGGREGATE EARNOUT CONSIDERATION" has the meaning set forth in SECTION
1.9(c).
"AGGREGATE ESCROW CONSIDERATION" means amounts paid out of the Escrow
Fund from time to time to the Stockholders.
"APPROVAL" means any approval, authorization, consent, qualification
or registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"ARBITRATOR" has the meaning set forth in SECTION 1.9(d).
"ARTICLES OF MERGER" has the meaning set forth in SECTION 1.1(b).
"ASSOCIATE" of a Person means
(i) a corporation or organization (other than a party to this
Agreement) of which such Person is an officer or partner or, directly or
indirectly, beneficially owns 10% or more of any class of equity securities;
(ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar capacity; and
(iii) any relative or spouse of such Person or any relative of
such spouse who has the same home as such person or who is a director or officer
of Seller or any of its Affiliates.
"AUDITED FINANCIAL STATEMENTS" has the meaning set forth in
SECTION 2.3(a).
"AUDITORS" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & Company,
independent public accountants to Seller.
36
"BALANCE SHEET" means the balance sheet as of November 30, 1998
included within the Unaudited Financial Statements.
"BALANCE SHEET DATE" means November 30, 1998.
"BUSINESS" means the business of Seller, any Subsidiary and the
Chinese Joint Venture taken as a whole, and shall be deemed to include any of
the following incidents of such business: income, cash flow, operations,
condition (financial or other), assets/properties, anticipated revenues/income,
prospects and liabilities.
"BUYER SUBSIDIARY" means any Person in which Buyer has a direct or
indirect equity or ownership interest in excess of 50% including, after the
Closing Date, the Seller.
"CASH MERGER CONSIDERATION" has the meaning set forth in
SECTION 1.3(a).
"CERTIFICATES" has the meaning set forth in SECTION 1.5(a).
"CLOSING" means the consummation of the transactions contemplated by
this Agreement.
"CLOSING DATE" has the meaning set forth in SECTION 1.13.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in SECTION
1.7(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" has the meaning set forth in SECTION 1.2.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing, to which Seller or any Subsidiary is a party.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule dated January 7,
1999 and delivered by Seller to Buyer on the date of this Agreement. The
Sections of the Disclosure Schedule will be numbered to correspond to the
applicable Section of this Agreement and, together with all matters under such
heading, will be deemed to qualify ONLY that section, unless it is manifestly
evident from such disclosure that it qualifies another section, in which case it
will be deemed to qualify such other section.
"DISSENTING HOLDER" has the meaning set forth in SECTION 1.4(a).
"DOCUMENTATION" shall mean for each New Product the documentation
setting forth the product specifications, application notes, testing
specifications, building materials, schematics, mechanical drawings and
manufacturing process.
"EFFECTIVE TIME" has the meaning set forth in SECTION 1.1(b).
37
"EMPLOYEES" means ▇.▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇, Chi Fu Yeh, Gang Xia,
Hai Pin Miao, ▇▇▇▇▇▇ ▇▇▇, and Fei Ma.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"ENVIRONMENTAL LAWS" has the meaning set forth in SECTION 2.21.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"ERISA AFFILIATE" means (i) any corporation which is a member of a
group of corporations of which Seller is a member and which is a controlled
group of corporations within the meaning of Section 414(b) of the Code; (ii) any
trade or business (whether or not incorporated) which is a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code of which Seller is a member; and (iii) a member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Code of which
Seller, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member.
"ESCROW AGENT" has the meaning set forth in SECTION 1.12.
"ESCROW AGREEMENT" has the meaning set forth in SECTION 1.12.
"ESCROW FUND" means all funds deposited by Buyer in cash with the
Escrow Agent pursuant to this Agreement.
"ESCROW CONSIDERATION" means the Original Escrow Amount, as adjusted
from time to time in accordance with the provisions of this Agreement and the
Escrow Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" has the meaning set forth in SECTION 1.5(a).
"FINAL BALANCE SHEET" has the meaning set forth in SECTION 1.7(a).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 2.3(b).
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
38
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"GROSS MARGIN" means Surviving Corporation's Net Sales less cost of
goods sold divided by Net Sales, calculated in accordance with GAAP as applied
by Buyer.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"HAZARDOUS SUBSTANCE" means (but is not limited to) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or
"toxic substances," or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
"INDEBTEDNESS" has the meaning set forth in SECTION 1.3(a).
"INDEMNIFIABLE CLAIM" means any Loss for or against which any party is
entitled to indemnification under this Agreement.
"INDEMNIFIED PARTY" means the party entitled to indemnity under this
Agreement.
"INDEMNIFYING PARTY" means the party obligated to provide
indemnification under this Agreement.
"INDEPENDENT ACCOUNTANTS" has the meaning set forth in SECTION 1.7(c).
"INTELLECTUAL PROPERTY" means any trade secret, secret process or
other confidential information or know-how and any brand name, copyright,
patent, service ▇▇▇▇, trademark or trade name, and all registrations or
applications for registration of any of the foregoing.
"INTERIM BALANCE SHEET" has the meaning set forth in SECTION 4.7.
"IRS" means the Internal Revenue Service or any successor entity.
"JOINT VENTURE" has the meaning set forth in SECTION 2.26.
"KNOWLEDGE" of any Person means actual knowledge of such Person or
knowledge that such Person could reasonably be expected to have under the facts
and circumstances.
39
"LAW" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including interest or other carrying costs, penalties, legal, accounting and
other professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified Person.
"MBCL" has the meaning set forth in SECTION 1.1(a).
"MATERIAL CONTRACT" means any Contract material to the Business as of
or after the date hereof and includes but is not limited to those contracts
deemed material by SECTION 2.5.
"MERGER" has the meaning set forth in SECTION 1.1(a)
"MERGER CONSIDERATION" means the Cash Merger Consideration, the Escrow
Consideration and the Aggregate Earnout Consideration, collectively.
"NET SALES" means the gross sales of Surviving Corporation's products
to third parties, less any returns and customer or distributor special price
discounts or any other discounts from original invoiced price, by Seller from
January 1, 1999 to the Closing Date and by Buyer and any Buyer Subsidiary from
the Closing Date to December 31, 1999, all as calculated in accordance with
GAAP.
"NET SALES EARNOUT" has the meaning set forth in SECTION 1.9(b).
"NET SALES SCHEDULE" has the meaning set forth in SECTION 1.9(a).
"NEW PRODUCT" means each of the new products set forth on the schedule
described in SECTION 1.9(c) that is scheduled for introduction by Seller during
1999.
"NEW PRODUCT EARNOUT" has the meaning set forth in SECTION 1.9(c).
"NPI SCHEDULE" has the meaning set forth in SECTION 1.9(c).
"OPTION" has the meaning set forth in SECTION 1.5(e).
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"ORIGINAL ESCROW AMOUNT" means $3,600,000.
40
"PAD" means the specifications mutually developed by Buyer and Seller
for each New Product that sets forth the electrical, mechanical, quality and
reliability objectives, cost and any customer specific requirements for such
product.
"PERMIT" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"PER SHARE AGGREGATE EARNOUT CONSIDERATION" means the Aggregate
Earnout divided by the number of Shares.
"PER SHARE CASH MERGER CONSIDERATION" means the Cash Merger
Consideration divided by the number of Shares.
"PER SHARE ESCROW CONSIDERATION" means the Escrow Consideration
divided by the number of Shares.
"PER SHARE MERGER CONSIDERATION" means the sum of the Per Share Cash
Merger Consideration, the Per Share Escrow Consideration and the Per Share
Aggregate Earnout Consideration.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PLAN" has the meaning set forth in SECTION 2.15.
"PRE-CLOSING STRADDLE PERIOD" means, with respect to any taxable
period of Seller, or any Subsidiary that begins before and ends after the
Closing Date, the portion of such taxable period that ends on the Closing Date.
"QUALIFICATION/DESIGN VERIFICATION" for each New Product means the
development of such product, including the development and testing of a
sufficient number of prototypes, to the point in time that it meets the PAD for
such product.
"SELLER STOCKHOLDER MEETING" has the meaning set forth in SECTION 4.5.
"SHARES" has the meaning set forth in SECTION 1.3(a); provided that
for all purposes of per share distributions of any portion of the Merger
Consideration, SHARES shall also include any shares deemed to be outstanding
pursuant to SECTION 1.6.
"STOCKHOLDER APPROVAL" has the meaning set forth in SECTION 1.2.
"STOCKHOLDERS" means the holders of Common Stock at the Effective
Time; provided that for all purposes of determining the individuals or entities
to whom any part of the Merger Consideration is to be distributed, STOCKHOLDERS
shall also include the holders of any Options after such Options are exercised,
whether such exercise occurs before or after the Closing Date.
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"STOCKHOLDER REVIEW PERIOD has the meaning set forth in SECTION
1.9(a).
"STOCKHOLDER REPRESENTATIVE" is ▇. ▇. ▇▇▇▇▇.
"SUBSIDIARY" means any Person in which Seller has a direct or indirect
equity or ownership interest in excess of 50%.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 1.1(a).
"TAX" means any foreign, federal, state, county or local income, sales
and use, excise, franchise, real and personal property, transfer, gross receipt,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Governmental
Entity, any interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof, and any Loss in connection with the determination,
settlement or litigation of any Tax liability.
"TAX RETURN" means a report, return or other in formation required to
be supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes Seller or any Subsidiary.
"TRANSACTION DOCUMENTS" means this Agreement, the Escrow Agreement and
the Articles of Merger.
"UNAUDITED FINANCIAL STATEMENTS" has the meaning set forth in SECTION
2.3(b).
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