EXHIBIT 10.24
AGREEMENT AND
PLAN OF MERGER
OF
ACOUSTIC COMMUNICATION SYSTEMS, INC.
A CORPORATION OWNED BY ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
INTO
VL ACQUISITION CO.
A CORPORATION OWNED BY VIDEOLABS, INC.
DATED: MAY 17, 1999
TABLE OF CONTENTS
Page
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ARTICLE 1 THE MERGER.................................................................................. 1
1.1 The Merger.................................................................................. 1
1.2 Effective Time; Effect of the Merger........................................................ 1
1.3 Articles of Incorporation; Bylaws........................................................... 2
1.4 Directors and Officers...................................................................... 2
1.5 Conversion of Securities.................................................................... 2
1.6 Stock Transfer Records...................................................................... 3
1.7 Merger Consideration........................................................................ 3
1.8 Required Net Equity......................................................................... 3
1.9 Surrender of Certificates................................................................... 4
ARTICLE 2 THE CLOSING................................................................................. 4
2.1 Time and Place of the Closing............................................................... 4
2.2 Deliveries by the Seller.................................................................... 5
2.3 Deliveries by the Buyer..................................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES CONCERNING THE
SELLER...................................................................................... 6
3.1 Capacity of the Seller...................................................................... 6
3.2 Enforceability.............................................................................. 6
3.3 Noncontravention............................................................................ 6
3.4 Brokers' Fees............................................................................... 7
3.5 Shares...................................................................................... 7
3.6 Investment Intent........................................................................... 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY..................................................................................... 7
4.1 Organization, Qualification, and Authorization.............................................. 8
4.2 Capitalization; Investments................................................................. 8
4.3 Noncontravention............................................................................ 9
4.4 Brokers' Fees............................................................................... 9
4.5 Title to Assets............................................................................. 9
4.6 Financial Statements........................................................................ 9
4.7 Subsequent Events........................................................................... 10
4.8. Legal Compliance............................................................................ 12
4.9 Tax Matters................................................................................. 12
4.10 Real Property............................................................................... 12
4.11 Intellectual Property....................................................................... 13
4.12 Tangible Assets............................................................................. 14
4.13 Contracts................................................................................... 14
4.14 Notes and Accounts Receivable............................................................... 15
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4.15 Powers of Attorney.......................................................................... 15
4.16 Litigation.................................................................................. 15
4.17 Employees................................................................................... 15
4.18 Employee Benefit Plans...................................................................... 15
4.19 Guaranties and Warranties................................................................... 18
4.20 Permits..................................................................................... 18
4.21 Environmental Compliance.................................................................... 18
4.22 Customers................................................................................... 19
4.23 Insurance................................................................................... 19
4.24 Transactions with Affiliates................................................................ 19
4.25 No Undisclosed Liabilities.................................................................. 19
4.26 Interest in Similar Businesses.............................................................. 19
4.27 Year 2000 Compliance........................................................................ 19
4.28 Disclosure.................................................................................. 20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES CONCERNING THE
BUYER....................................................................................... 20
5.1 Organization, Qualification, and Authorization.............................................. 20
5.2 Capitalization.............................................................................. 20
5.3 Authorization and Enforceability............................................................ 21
5.4 Noncontravention............................................................................ 21
5.5 Brokers' Fees............................................................................... 21
5.6 Reports and Financial Statements............................................................ 21
ARTICLE 6 COVENANTS................................................................................... 22
6.1 General..................................................................................... 22
6.2 Transition.................................................................................. 23
6.3 Confidentiality............................................................................. 23
6.4 Conduct of Business......................................................................... 23
6.5 Reasonable Efforts.......................................................................... 24
6.6 Exclusive Dealing........................................................................... 24
6.7 Access to Records........................................................................... 24
6.8 Notice of Events............................................................................ 25
6.9 Shareholder Approval........................................................................ 25
6.10 Dissolution of Components................................................................... 25
6.11 Tax Matters................................................................................. 25
ARTICLE 7 CONDITIONS TO OBLIGATION TO CLOSE........................................................... 26
7.1 Conditions to Obligation of the Buyer....................................................... 26
7.2 Conditions to Obligation of the Seller...................................................... 27
ARTICLE 8 TERMINATION................................................................................. 28
8.1 Termination Rights.......................................................................... 28
8.2 Effect of Termination....................................................................... 28
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ARTICLE 9 REMEDIES.................................................................................... 29
9.1 Survival of Representations, Warranties and Covenants....................................... 29
9.2 Indemnification Provisions for benefit of the Buyer......................................... 29
9.3 Indemnification Provisions for Benefit of the Seller........................................ 29
9.4 Matters Involving Third Parties............................................................. 29
9.5 Other Indemnification Limitations........................................................... 30
9.6 Indemnification Holdback Escrow............................................................. 31
9.7 Dispute Resolution.......................................................................... 31
ARTICLE 10 GENERAL PROVISIONS.......................................................................... 32
10.1 Press Releases and Public Announcements..................................................... 32
10.2 No Third-Party Beneficiaries................................................................ 32
10.3 Entire Agreement............................................................................ 32
10.4 Succession and Assignment................................................................... 32
10.5 Counterparts and Facsimile Delivery......................................................... 32
10.6 Headings.................................................................................... 32
10.7 Notices..................................................................................... 32
10.8 Governing Law............................................................................... 34
10.9 Amendments and Waivers...................................................................... 34
10.10 Severability................................................................................ 34
10.11 Expenses.................................................................................... 34
10.12 Construction................................................................................ 34
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and
entered into effective as of this 17th day of May, 1999, by and among
VideoLabs, Inc., a Delaware corporation (the "Buyer"), VL Acquisition Co., a
Delaware corporation formed by Buyer ("Merger Subsidiary"), ▇▇▇▇▇ ▇▇▇▇▇▇▇, a
resident of Minnesota (the "Seller"), and Acoustic Communication Systems, Inc.,
a Minnesota corporation (the "Company"). All of the parties to this Agreement
are sometimes individually referred to as a "Party" and collectively as the
"Parties".
WHEREAS, the Company is in the business of providing equipment,
software or services that meet the data, voice or video communications
requirements of customers in Minnesota, Iowa, Nebraska, North Dakota, South
Dakota and Wisconsin (the "Business"); and
WHEREAS, the Seller owns one hundred percent (100%) of the issued and
outstanding shares of stock of the Company; and
WHEREAS, the Parties desire to enter into this Agreement pursuant to
which the Company will merge with and into the Merger Subsidiary and the Company
shall become a wholly owned subsidiary of the Buyer all upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, conditions, representations and warranties set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, and in accordance with the corporate laws of the States of Delaware
and Minnesota ("Corporate Law"), at the Effective Time (as hereinafter defined),
the Company shall be merged with and into the Merger Subsidiary (the "Merger").
As a result of the Merger, the separate corporate existence of the Company shall
cease and the Merger Subsidiary shall continue after the Merger as the surviving
corporation (the "Surviving Corporation").
1.2 EFFECTIVE TIME; EFFECT OF THE MERGER. The Merger shall become
effective immediately upon the filing of the Certificate of Merger (as defined
in Section 2.3(d) hereof) with the Secretary of State of the State of Delaware
in accordance with Corporate Law or such later effective time as the Parties may
agree to specify in the Certificate of Merger (the "Effective Time"). At the
Effective Time, the effect of the Merger shall be as provided in the applicable
provisions of Corporate Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and
franchises of the Company and Merger Subsidiary shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of each of the Company and Merger Subsidiary shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
1.3 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Subsidiary, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such
Articles of Incorporation; provided, however, that, at the Effective
Time, Article 1 of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the
corporation is Acoustic Communication Systems, Inc."
(b) At the Effective Time, the Bylaws of Merger Subsidiary,
as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving
Corporation or such Bylaws.
1.4 DIRECTORS AND OFFICERS. The directors of Merger Subsidiary
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.5 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Merger Subsidiary, the
Company, the Seller or the holders of any of the following securities:
(a) Each share of Common Stock of Merger Subsidiary issued
and outstanding immediately prior to the Effective Time shall not be
affected and shall remain as a validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Each share of Company stock issued and outstanding
immediately prior to the Effective Time (all such issued and
outstanding stock of the Company being hereinafter referred to
collectively as the "Converted Shares" and individually as a "Converted
Share") shall be canceled and shall be converted automatically into the
right to receive a portion of the Merger Consideration, which shall be
payable to the holder of such Converted Share upon surrender of the
certificate that formerly evidenced such Converted Share in the manner
provided in Section 1.9.
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(c) Each share of Company stock held in the treasury of the
Company immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof and no payment shall be
made with respect thereto.
(d) Each share of common stock held in the treasury of
Merger Subsidiary immediately prior to the Effective Time shall be
cancelled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
(e) From and after the Effective Time, the holders of
certificates representing shares of Company stock outstanding
immediately prior to the Effective Time shall cease to have any rights
with respect to such shares except as otherwise provided herein or by
Corporate Law.
1.6 STOCK TRANSFER RECORDS. The Parties acknowledge and agree that the
Company shall establish the date of this Agreement as the record date (the
"Record Date") and shall close the stock transfer books of the Company as of
such date. Between the Record Date and the Effective Time, there shall be no
further registration of transfers of Company Stock on the records of the
Company. The holders of Converted Shares registered on the stock records as of
the Record Date (which is the Seller) shall be the holders entitled to receive
the Merger Consideration under this Agreement.
1.7 MERGER CONSIDERATION. Subject to reduction as hereinafter provided,
the aggregate consideration payable for all Converted Shares (collectively, the
"Merger Consideration") shall be equal to the sum of the following:
(a) an amount of cash equal to One Million Dollars
($1,000,000); PLUS
(b) delivery of that number of shares of fully paid,
nonassessable, common stock, par value $.01 per share, of the Buyer
("the "Buyer's Stock"), which equals, in the aggregate, $1,500,000,
based on a price per share equal to the average of the closing bid and
asked prices of the Buyer's common stock as reported on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System
Small Cap Market, during the ten trading days ending on the trading day
immediately preceding the Closing Date.
1.8 REQUIRED NET EQUITY.
(a) The Seller acknowledges that the Merger Consideration
has been determined assuming a net equity level of the Company as of
the Closing Date at least equal to the Company's net equity level as of
December 31, 1998 (the "Minimum Equity Level") as reflected on the
audited Financial Statements (as hereafter defined). Not less than two
(2) business days prior to the Closing Date, Seller shall deliver to
Buyer a balance sheet of the Company, dated as of the Closing Date (the
"Pre-Closing Balance Sheet"), prepared in accordance with GAAP (as
hereafter defined), consistently applied, projecting the net equity of
the Company as of the Closing Date.
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The Pre-Closing Balance Sheet shall be certified by the Seller to be
true, correct and complete in all respects to the best of Seller's
knowledge and belief, and shall be accompanied by sufficient detail to
enable the Buyer to verify the account balances. During such two (2)
day period, the Buyer shall have the opportunity (but shall not be
required) to audit or otherwise verify the information on the
Pre-Closing Balance Sheet, and the same shall be adjusted for any
errors therein determined by the Buyer.
(b) In the event the net equity reflected on the Pre-Closing
Balance Sheet is less than the Minimum Equity Level as of the Closing
Date (an "Equity Deficiency"), the cash portion of the Merger
Consideration shall be reduced, dollar-for-dollar, by the amount of the
Equity Deficiency. In the event the net equity reflected on the Pre-
Closing Balance Sheet is more than the Minimum Equity Level as of the
Closing Date (an "Equity Surplus"), the Merger Consideration will not
be increased.
(c) During the nine (9) months following the Closing Date,
the Buyer may audit and otherwise verify the accuracy of the
Pre-Closing Balance Sheet. Any errors (failure to be in accordance with
GAAP) in the Pre-Closing Balance Sheet determined by Buyer shall be
reconciled between the Parties pursuant to the provisions of Article 9.
After such nine (9) month period, neither party may seek
indemnification for additional errors under Article 9.
(d) As security for the repayment of any additional Equity
Deficiency, Buyer shall be able to offset the deficiency against any
payments required under the Noncompetition Agreement.
1.9 SURRENDER OF CERTIFICATES. Promptly after the Effective Time, the
Seller shall surrender to the Surviving Corporation one or more stock
certificates representing all of the Converted Shares (the "Certificate"),
together with any reasonably requested letter of transmittal (consistent with
this Agreement), duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, which Certificate shall then be canceled by the
Surviving Corporation and the Seller shall be entitled to receive the Merger
Consideration.
ARTICLE 2
THE CLOSING
2.1 TIME AND PLACE OF THE CLOSING. Upon the terms and subject to the
conditions contained in this Agreement, the closing of the Merger contemplated
by this Agreement shall occur at a closing (the "Closing") to take place at the
offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, Suite 3100, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, commencing at 9:00 a.m. local time, on the first business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated herein (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other time and date as the Buyer and the Seller may
mutually determine (the "Closing Date").
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2.2 DELIVERIES BY THE SELLER. Upon the terms and subject to the
conditions contained in this Agreement, the Seller shall make, or cause to be
made, the following deliveries to the Buyer at the Closing:
(a) Certificate(s) representing the Converted Shares owned
by Seller, tendered for cancellation as of the Effective Time as
provided herein;
(b) Releases, in favor of Company, from Seller and in form
and substance acceptable to the Buyer;
(c) All stock record books, minute books and corporate
seals, if any, of Company;
(d) All files, books, records and correspondence of Company
in the possession of Seller;
(e) The Seller's Certificate pursuant to Section 7.1(e) of
this Agreement, duly executed by the Seller;
(f) An opinion of counsel to the Seller, dated the Closing
Date, and substantially in the form attached hereto as Exhibit 2.2(f);
(g) The Articles of Merger, in substantially the form
attached hereto as Exhibit 2.2(g), duly executed by the Company;
(h) The Seller's Employment Agreement and the Seller's
Noncompetition Agreement, in substantially the forms attached hereto as
Exhibit 2.2(h), in each case duly executed by the Seller; and
(i) Such other documents, opinions and certificates as may
be required under this Agreement or reasonably requested by the Buyer.
2.3 DELIVERIES BY THE BUYER. Upon the terms and subject to the
conditions contained in this Agreement, the Buyer shall make, or cause to be
made, the following deliveries to the Seller at the Closing:
(a) The Merger Consideration due from Buyer to the Seller
pursuant to Section 1.7 hereunder shall be delivered to the Seller at
the Closing;
(b) The Buyer's Certificate pursuant to Section 7.2(d) of
this Agreement, duly executed by the appropriate officer of Buyer;
(c) An opinion of counsel to the Buyer, dated the Closing
Date, and substantially in the form attached hereto as Exhibit 2.3(c);
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(d) The Articles of Merger, in substantially the form
attached hereto as Exhibit 2.2(g), and the Certificate of Merger, in
substantially the form attached hereto as Exhibit 2.3(d), each duly
executed by the Merger Subsidiary;
(e) The Seller's Employment Agreement and the Seller's
Noncompetition Agreement, in substantially the forms attached hereto as
Exhibit 2.2(h), in each case duly executed by the Buyer;
(f) The Registration Agreement, in substantially the form
attached hereto as Exhibit 2.3(f), duly executed by the Buyer; and
(g) Such other documents, opinions and certificates as may
be required under this Agreement or reasonably requested by the Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLER
As a material inducement to the Buyer entering into this Agreement, the
Seller hereby represents and warrants to the Buyer and the Merger Subsidiary the
following, in each case as of the date of this Agreement and the Closing Date,
unless otherwise specifically provided:
3.1 CAPACITY OF THE SELLER. The Seller is a Minnesota resident, and has
the full legal right, power, capacity and authority to execute and deliver this
Agreement and to perform the Seller's respective obligations hereunder.
3.2 ENFORCEABILITY. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium and other similar laws affecting the rights of creditors generally
and except for limitations imposed by general principles of equity. The Seller
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
3.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, government agency, or
court to which the Seller is subject; or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, permit, instrument, or
other arrangement to which the Seller is a party or by which he is bound or to
which any of his assets is subject.
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3.4 BROKERS' FEES. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer or the Company
could become liable or obligated.
3.5 SHARES. The Seller holds of record and owns beneficially the number
of shares set forth on Schedule 3.5 of the Disclosure Schedule heretofore
delivered to the Buyer (the "Disclosure Schedule") hereto constituting one
hundred percent (100%) of the issued and outstanding equity securities of the
Company and the voting and investment power of the Company, free and clear of
any restrictions on transfer, liens, pledges, security interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and demands
of any kind, nature or description, whatsoever. The Seller is not a party to any
option, warrant, purchase right, or other contract or commitment that could
require the Seller to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
3.6 INVESTMENT INTENT. The Seller acknowledges that the Buyer's Stock
has not been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws, and is being offered and sold in
reliance upon federal and state exemptions for transactions from such
registration. The Seller has such knowledge and experience in financial and
business matters that the Seller is capable of evaluating the merits and risks
of the Buyer's Stock in connection with this Agreement. The Seller has received
information concerning the Buyer and has had the opportunity to obtain
additional information as desired by Seller in order to evaluate the merits and
the risks inherent in holding the Buyer's Stock. The Seller is able to bear the
economic risk and lack of liquidity inherent in holding the Buyer's Stock for an
indefinite period. The Seller is acquiring the Buyer's Stock for investment and
not with a view toward or for sale or distribution thereof within the meaning of
the Securities Act, or with any intention of distributing or selling the Buyer's
Stock within the meaning of the Securities Act. The Seller acknowledges and
agrees that after the Closing, the Buyer's Stock may be not sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act and any applicable state securities laws,
except pursuant to an exemption from such registration available under the
Securities Act or such state securities laws. Seller acknowledges that legends
will be place on the certificates evidencing the Buyer's Stock referring to the
applicable restrictions on transferability of the Buyer's Stock. Seller
represents that he is a bona fide resident of the State of Minnesota.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
As a material inducement to the Buyer entering into this Agreement,
each of the Seller and the Company, jointly and severally, hereby represents and
warrants to the Buyer and the Merger Subsidiary the following (except as may be
otherwise disclosed on the Disclosure
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Schedule), in each case as of the date of this Agreement and the Closing Date,
unless otherwise specifically provided:
4.1 ORGANIZATION, QUALIFICATION, AND AUTHORIZATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Minnesota. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required except where any failure to be so qualified would not
have a material adverse effect on the business or the assets or the financial
condition or the results of operations of the Company, in each case taken as a
whole (a "Material Adverse Effect"). The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
its business as currently conducted by it and to own and use the properties
owned and used by it. The Company has taken all corporate action which is
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated herein. The Seller
has delivered to the Buyer correct and complete copies of the articles of
incorporation and bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Company are correct and complete in all material
respects. Schedule 4.1 of the Disclosure Schedule lists all of the officers and
directors of the Company. The Company is not in violation of any provision of
its articles of incorporation or bylaws.
4.2 CAPITALIZATION; INVESTMENTS.
(a) The authorized capital stock of the Company, the total
number of shares of each class issued and outstanding, the record owner
of all such shares and the number of shares held in the treasury of the
Company, are each set forth on Schedule 4.2 of the Disclosure Schedule.
All of the issued and outstanding shares of capital stock of the
Company have been duly authorized, are validly issued, fully paid, and
nonassessable, and were not issued in violation of any preemptive
rights. There are no outstanding or authorized options or option plans,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding
any additional shares of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the capital stock of the Company. There
are no voting trusts, proxies, or other agreement or understandings
with respect to the voting of the capital stock of the Company owned by
Seller.
(b) The Company does not, directly or indirectly, own any
shares or have any other equity interest or option or other contractual
right to acquire the same in any other person or entity or is a member,
partner or joint venturer with any other such person or entity.
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(c) Acoustic Components, Inc. ("Components") is a Minnesota
corporation formed by Seller. Components currently has no assets or
property of any kind, and has never had any assets or property or
conducted any business or operations.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, governmental agency, or
court to which the Company is subject, or any provision of the articles of
incorporation or bylaws of the Company; or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, permit, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any security
interest or similar lien upon any of its assets). Except as set forth on
Schedule 4.3 of the Disclosure Schedule the Company is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government, governmental agency or party to any material
contract to which the Company is a party or by which its assets are bound, in
order to consummate the transactions contemplated by this Agreement.
4.4 BROKERS' FEES. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement and has entered into no agreement to
become so liable or obligated.
4.5 TITLE TO ASSETS. Except as disclosed in Schedule 4.5 of the
Disclosure Schedule, the Company has good title to, or a valid leasehold or
license interest in, the properties and assets used by it in the conduct of its
business as currently conducted, and/or shown on the Balance Sheet of the
Company dated as of March 31, 1999 (the "Most Recent Balance Sheet") or acquired
after the date thereof, free and clear of all security interests, mortgages,
liens, or similar encumbrances ("Security Interests") of any kind, except for
properties and assets disposed of in the ordinary course of business since the
date of the Most Recent Balance Sheet.
4.6 FINANCIAL STATEMENTS. Included in Schedule 4.6 of the Disclosure
Schedule are the following financial statements for the Company (collectively
the "Financial Statements"): (a) an audited Balance Sheet and Statement of
Income and Cash Flow as of and for the fiscal years ended December 31, 1998,
1997 and 1996; and (b) an unaudited Balance Sheet and Statement of Income for
the interim three months ended March 31, 1999. Except as set forth in Schedule
4.6 of the Disclosure Schedule, the Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, present fairly in all material respects the financial condition of the
Company as of
9
such dates and the results of its operations and cash flows for such periods,
and are consistent with the books and records of the Company; provided, however,
that the interim financial statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and the lack of
footnotes and other presentation items. No event has occurred since the date of
the Most Recent Financial Statement that would adversely affect the previous
sentence.
4.7 SUBSEQUENT EVENTS. Except as disclosed in Schedule 4.7 of the
Disclosure Schedule, since the date of the Most Recent Balance Sheet, there has
not been any change affecting the business, operations, financial condition,
results of operations or assets of the Company that has had a Material Adverse
Effect on the Company. Without limiting the generality of the foregoing, since
that date, except as disclosed in Schedule 4.7 of the Disclosure Schedule or
otherwise permitted in this Agreement:
(a) the Company has not sold, leased, transferred, disposed,
or assigned any of its material assets, tangible or intangible, other
than for a fair consideration in the ordinary course of business;
(b) the Company has not entered into any agreement,
contract, lease, or license which is currently in effect (or series of
related agreements, contracts, leases, and licenses which are currently
in effect) outside the ordinary course of business;
(c) no party (including the Company) has accelerated,
terminated, modified, or canceled any material agreement, material
contract, material lease, or material license (or series of related
material agreements, material contracts, material leases, and material
licenses) to which the Company is a party or by which it is bound;
(d) the Company has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(e) the Company has not made any capital expenditure (or
series of related capital expenditures) in excess of $50,000 outside
the ordinary course of business;
(f) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
person (or series of related capital investments, loans, and
acquisitions) outside the ordinary course of business;
(g) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation, and the Company has
not incurred any material obligation or liability, absolute, accrued,
contingent or otherwise, whether or not due or to become due, except in
the ordinary course of business, or incurred any liability or
obligation to the Seller other than for normal compensation in
accordance with past practices;
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(h) the Company has not delayed or postponed the payment of
accounts payable or other liabilities outside the ordinary course of
business or written off as uncollectible, compromised, canceled or
waived or released any claim of the Company to, any debt, note or
account receivable, except write-offs in the ordinary course of
business and consistent with the Company's past practices;
(i) there has been no change made or authorized to the
articles of incorporation or bylaws of the Company;
(j) the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock, purchased or redeemed any shares of
its capital stock or made any distributions to the Seller with respect
to its capital stock;
(k) the Company has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its
property except for ordinary wear and tear;
(l) the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees outside the ordinary course of business;
(m) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement, other than at-will
retention or termination of non-executive employees in the ordinary
course of business;
(n) the Company has not granted any increase in the base
compensation of any of, nor made any other changes in the terms of
employment of, its officers or employees outside the ordinary course of
business;
(o) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other benefit plan);
(p) the Company has not received any written or oral
communication terminating or threatening the termination of or
otherwise materially modifying any material business relationships or
material written agreements between the Company and any of its
customers or suppliers; and
(q) the Company has not agreed or promised to do any of the
foregoing.
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4.8. LEGAL COMPLIANCE. The Company is in material compliance with, has
not violated and is not in violation of, any and all laws, rules and regulations
of federal, state, local and foreign governments (and all agencies thereof)
applicable to the Company or its businesses, and with all judgments, orders,
injunctions and decrees applicable to the Company or its properties.
4.9 TAX MATTERS.
(a) The Company has filed or caused to be filed all tax
returns that are required to be filed by or that include the Company,
and has made all such filings on a timely basis. All such tax returns
were prepared in accordance with applicable laws and regulations. All
taxes owed (whether by Seller or the Company) with respect to the
Company (whether or not shown on any tax return) and which are or were
due and payable have been paid.
(b) The Company has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(c) The Company is not, and has not been, a member of an
affiliated group filing a consolidated, combined or unitary tax return,
or is a party to any tax sharing, allocation, indemnification or
similar agreement under which the Buyer or the Company could be liable
for any taxes or other claims of any person after the Closing Date.
(d) There is no action, suit, proceeding, investigation,
audit, or claim now pending or, to the knowledge of the Seller,
threatened by any governmental authority regarding any taxes relating
to the Company.
(e) Neither the Seller nor the Company has, as of the
Closing Date, (A) entered into an agreement or waiver or been requested
to enter into any agreement or waiver extending any statute of
limitations relating to the payment or collection of any taxes with
respect to the Company, or (B) applied for and not yet received a
ruling or determination from a taxing authority regarding a past or
prospective transaction of the Company.
(f) Neither the Seller nor the Company has received notice
that any jurisdiction has asserted that any tax return currently is
required to be filed by or with respect to the Company in any
jurisdiction where any such tax return is not currently being filed.
4.10 REAL PROPERTY. Schedule 4.10 of the Disclosure Schedule contains a
complete list of all real property in which the Company may claim an ownership
or leasehold interest as of the date of this Agreement (collectively, the "Real
Property"). Except as disclosed in Schedule 4.10 of the Disclosure Schedule, the
Company has not encumbered or
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disposed of its ownership or leasehold interests in the Real Property since the
date of the Most Recent Balance Sheet. Schedule 4.10 of the Disclosure Schedule
lists all real estate leased as of the date of this Agreement by the Company as
lessee (the "Leased Premises"). Each lease (collectively, the "Leases") with
respect to a Leased Premise (i) is legal, valid, binding, enforceable, and in
full force and effect; (ii) will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms upon consummation
of the transactions contemplated hereby; (iii) all rents and additional rents
due to date on each Lease have been paid; (iv) in each case the Company is in
peaceable possession and no waiver, indulgence or postponement of the Company's
material obligations thereunder has been granted by the lessor; (v) neither the
Company nor, to the Seller's knowledge, any other party thereto, is in breach or
default under any of the material terms thereof and no event has occurred which
with notice or lapse of time or both, would constitute a breach or default, or
permit termination, modification, or acceleration thereunder; and the Seller has
delivered to the Buyer true, correct and complete copies of each Lease
(including all amendments thereto).
4.11 INTELLECTUAL PROPERTY. For purposes of this Section 4.11,
"Intellectual Property" shall mean (i) all inventions, whether patentable or
unpatentable and whether or not reduced to practice, all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (v) all computer software (including data and related
documentation); (vi) all other proprietary rights; and (vii) all copies and
tangible embodiments thereof (in whatever form or medium). With respect to
Intellectual Property:
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
used in the conduct of the businesses of the Company as presently
conducted. Each item of Intellectual Property owned or used by the
Company immediately prior to the Closing hereunder will be owned or
available for use by it on identical terms and conditions upon the
Closing hereunder. The Company has taken all necessary action to
maintain and protect each material item of Intellectual Property that
it owns or uses.
(b) The Company has not been sued or charged in writing with
(or to the knowledge of the Seller, threatened with) or been a
defendant in any claim suit, action or proceeding relating to its
business which has not been finally terminated prior to the date of
this Agreement and which involves a claim of interference,
infringement, misappropriation, or violation of Intellectual Property
rights of third parties (including
13
any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the knowledge of
the Seller, no third party has interfered with, infringed upon or
misappropriated any Intellectual Property rights of the Company.
(c) Schedule 4.11 of the Disclosure Schedule identifies each
material item of Intellectual Property owned by the Company or which
the Company has the right to use pursuant to license, sublicense,
agreement or permission. The Seller has delivered to the Buyer correct
and complete copies of or has made available for inspection by the
Buyer all patents, registrations, applications, licenses, agreements,
and permission (as amended to date) and all other written documentation
evidencing ownership and prosecution (if applicable) of each item of
Intellectual Property identified in Schedule 4.11 of the Disclosure
Schedule.
(d) To the best of Seller's knowledge, the operation of the
businesses of the Company as presently conducted does not interfere
with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties, and neither
Seller nor the Company has received any notice of any claim to the
contrary.
4.12 TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets used or held for use in the
conduct of its businesses as presently conducted. Each such tangible asset has
been maintained in accordance with normal industry practice, is free from
material defects, is in good condition and repair (normal wear and tear
excepted), and is suitable for the purposes for which it presently is used. All
inventory of the Company is in good and merchantable condition and is not
obsolete, is in normal quantities for the business of the Company, and was
purchased by the Company for resale to customers in the ordinary course of
business.
4.13 CONTRACTS. Listed on Schedule 4.13 of the Disclosure Schedule are
all written (and a summary of any oral) agreements to which the Company is a
party and which is material to the conduct of the business of the Company,
including all distribution agreements and customer contracts. With respect to
each such agreement, except as set forth in Schedule 4.13 of the Disclosure
Schedule, (i) the agreement is legal, valid, binding, enforceable, and in full
force and effect; (ii) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms upon consummation
of the transactions contemplated hereby; (iii) neither the Company nor, to the
Seller's knowledge, any other party thereto, is in breach or default under any
of the material terms thereof and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under any such agreement, except where any such
default or breach would not have a Material Adverse Effect; and (iv) the Seller
has delivered to the Buyer true, correct and complete copies of each such
agreement.
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4.14 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on the Company's books and records,
subject to normal allowances for doubtful accounts and customer claims, arose
from bona fide transactions in the ordinary course of business, are legal, valid
and binding obligations of the debtor thereof and, to the Seller's knowledge,
are subject to no additional setoffs or counterclaims in excess of the allowance
for doubtful accounts reflected in the Most Recent Balance Sheet.
4.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
4.16 LITIGATION. Schedule 4.16 of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree or ruling; or (ii) is a party or, to the knowledge of
the Seller, is threatened to be made a party to, any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi- judicial or
administrative agency of any federal, provincial, state, local, or foreign
jurisdiction or before any arbitrator.
4.17 EMPLOYEES.
(a) The Company is not a party to or bound by any collective
bargaining agreement, nor has the Company experienced any strikes,
grievances, claims of unfair labor practices, or other collective
bargaining disputes. To the Seller's knowledge, the Company has not
committed any unfair labor practice, and there is no organizational
effort presently being made or threatened by or on behalf of any labor
union with respect to employees of the Company. No employee, past or
present, of the Company has pending or, to the Seller's knowledge,
threatened to bring any claim against the Company of unjust dismissal
or a violation of the employee's civil or employment rights except as
set forth in Schedule 4.16. To the Seller's knowledge, no executive
officer, key employee or significant group of employees plans to
terminate employment with the Company during the next twelve months.
(b) The agreements as set forth in Schedule 4.17 of the
Disclosure Schedule constitute the only written employment,
compensation, deferred compensation, bonus, termination, and severance
agreements which exist with respect to the Company (collectively, the
"Employment Agreements").
4.18 EMPLOYEE BENEFIT PLANS.
(a) Identification of Plans. Schedule 4.18 of the Disclosure
Schedule (the "Employee Benefit Plan List") lists each and every
compensation, consulting, employment, employment termination or
collective bargaining agreement, and each stock option, stock purchase,
stock appreciation right, life, health, accident or other benefit
insurance, bonus, deferred or incentive compensation, severance or
separation (or any agreement providing any compensatory payment or
benefit resulting from a change in control), vacation, disability,
profit sharing, retirement, or other employment
15
or employee benefit plan, policy or arrangement of any kind, oral or
written, covering directors, officers, employees, former directors or
former employees of the Company or any ERISA Affiliate (as defined
below) or its respective beneficiaries, including, but not limited to,
any employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which the Company or any ERISA Affiliate maintains, to which the
Company or any ERISA Affiliate contributes, or under which any present
or former director, officer or employee of the Company or any ERISA
Affiliate is covered or has benefit rights and with respect to which
any liability of the Company or any ERISA Affiliate exists or is
reasonably likely to occur (collectively, "Benefit Plans"). The
Employee Benefit Plan List also sets forth a list which identifies each
and every provision in the Benefit Plans which specifically reference a
change of control as causing an increase or acceleration of benefits to
present or former directors, officers or employees of the Company or
any ERISA Affiliate or their respective beneficiaries, and any other
similar provisions which would cause an increase in liability to any
such person (in their capacity as a present or former director, officer
or employee of the Company or any ERISA Affiliate or their respective
beneficiaries) as a result of the transaction contemplated by this
Agreement ("Change of Control Benefit"), together with the name of each
person entitled or potentially entitled to receive a Change in Control
Benefit and the amount thereof. The term "Benefit Plans" does not
constitute an acknowledgment that a particular arrangement is an
employee benefit plan within the meaning of Section 3(3) of ERISA.
Without limitation of the foregoing, except as separately set forth on
the Employee Benefit Plan List, (i) no Benefit Plan is a multiemployer
plan within the meaning of Section 3(37) of ERISA, (ii) no Benefit Plan
is an employee pension benefit plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA, and (iii) neither the Company nor
any ERISA Affiliate maintains, sponsors or has an obligation to
contribute to (or has ever maintained, sponsored or had an obligation
to contribute to within the preceding six years) any such
multi-employer plan or employee pension benefit plan subject to Title
IV of ERISA or has any liability with respect to any such
multi-employer plan or employee pension benefit plan subject to Title
IV of ERISA. For the purposes of this Section 4.18, the terms "Company"
and "ERISA Affiliate" shall be deemed to include predecessors thereof.
(b) Status of Benefit Plans. Except as provided in Schedule
4.18 of the Disclosure Schedule, each of the Benefit Plans that is
intended to be a pension, profit sharing, stock bonus, thrift, savings
or employee stock ownership plan that is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") has been determined by the Internal Revenue Service ("IRS") to
qualify under Section 401(a) of the Code, and, to the best of the
Seller's and the Company's knowledge, there exist no circumstances
likely to materially adversely affect the qualified status of any such
Benefit Plan. No Benefit Plan is currently under audit by the United
States Department of Labor, the Pension Benefit Guaranty Corporation or
the IRS, and neither the Company nor any ERISA Affiliate has received
either written or oral notification by one or more of such federal
regulatory agencies of their intention to audit a Benefit Plan.
16
(c) Payment of Contributions. All accrued contributions and
other payments to be made by the Company or any ERISA Affiliate to any
Benefit Plan through the date of the Most Recent Balance Sheet have
been made or reserves adequate for such purposes have been reflected
therein. Neither the Company nor any ERISA Affiliate is in material
default in performing any of its respective contractual obligations
under any of the Benefit Plans or any related trust agreement or
insurance contract. There are no outstanding material liabilities of
any Benefit Plan other than liabilities for benefits to be paid to
participants in such plan and their beneficiaries in accordance with
the terms of such plan.
(d) Pending Litigation. There is no pending litigation or to
the best knowledge of Seller, the Company and any ERISA Affiliate, any
overtly threatened litigation or pending claim (other than benefit
claims made in the ordinary course) by or on behalf of or against any
of the Benefit Plans (or with respect to the administration of any of
the Benefit Plans) now or heretofore maintained by the Company or any
ERISA Affiliate which allege violations of applicable state or federal
law and which has a reasonable probability of being determined
adversely to the Company or any ERISA Affiliate.
(e) Fiduciary Compliance. The Company and each ERISA
Affiliate and all other persons having fiduciary or other
responsibilities or duties with respect to any Benefit Plan, are and
have since the inception of each such Benefit Plan been in compliance
in all material respects with, and each such Plan is and has been
operated in all material respects substantially in accordance with, its
provisions and in compliance in all respects with the applicable laws,
rules and regulations governing such Plan, including the rules and
regulations promulgated by the Department of Labor, the Pension Benefit
Guaranty Corporation ("PBGC") and the IRS under ERISA, the Code or any
other applicable law. No Benefit Plan has engaged in or been a party to
a non-exempt "prohibited transaction" (as defined in Section 406 of the
ERISA or 4975(c) of the Code). All Benefit Plans which are group health
plans have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and
Section 601 of ERISA.
(f) ERISA Compliance. No Benefit Plan is subject to the
provisions of Part 3 of Title I of ERISA, Section 412 of the Code or
the provisions of Title IV of ERISA. Neither the Company nor any ERISA
Affiliate has incurred, nor is there a basis for believing that either
the Company or any ERISA Affiliate may incur, any material liability
under Title IV of ERISA in connection with any plan subject to the
provisions of Title IV of ERISA now or heretofore maintained or
contributed to by it or by any ERISA Affiliate (as that term is defined
in the next sentence) of the Company. The term "ERISA Affiliate" shall
mean any person which is or was a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Code) as
the Company or is or was under common control (within the meaning of
Section 414(c) of the Code) with the Company.
17
(g) Change in Control Benefits. Schedule 4.18 of the
Disclosure Schedule lists: (A) each executive officer and director of
the Company or any ERISA Affiliates who is eligible to receive a Change
of Control Benefit, (B) the amount of each such Change of Control
Benefit calculated as if a change of control occurred, and such benefit
payment became due, on the date hereof, (C) each such individual's base
rate of compensation in effect as of the date of this Agreement, (D)
such individual's compensation from the Company and any ERISA Affiliate
for each of the calendar years 1994 through 1998, as reported by the
Company and any ERISA Affiliate on Form W-2 or Form 1099, and (E) any
other amounts, identified by type, necessary to calculate such
benefits. Neither the Company nor any ERISA Affiliate has made any
payments or provided any compensation or benefits nor is a party to any
agreement or any Benefit Plan that could obligate it or any successor
thereto to make any payments or provide any compensation or benefits,
the deductibility of which is limited by Section 280G of the Code.
4.19 GUARANTIES AND WARRANTIES. Other than endorsements of negotiable
instruments in the ordinary course of business, the Company is not a guarantor
or otherwise is liable for any material liability or material obligation
(including indebtedness) of any other person. Except as otherwise required under
applicable state and federal law, the Company has not made or given any
warranties with respect to any of the products distributed by the Company.
4.20 PERMITS. The Company holds all environmental permits and other
material permits, licenses or franchises of governmental authorities required
under any environmental law or other law, regulation, order or decree, in
connection with the ownership and/or operation of the business and assets of the
Company, all such permits, licenses and franchises are listed in Schedule 4.20
of the Disclosure Schedule, and the Company is in compliance with such permits,
licenses and franchises in all material respects. All such permits, licenses and
franchises are in full force and effect and the Company has not received any
notification pursuant to any law relating to the business of the Company that
any currently held material permit, license or franchise relating to the
operation of the business and/or assets of the Company has been or is about to
be made subject to materially different limitations or conditions, or has been
or is about to be revoked, withdrawn or terminated.
4.21 ENVIRONMENTAL COMPLIANCE. The Company and its operations and
properties are in compliance with all environmental laws in all material
respects. No government agency or third party has submitted to the Company any
notification, demand, request for information, citation, summons, or compliant,
and no order has been issued, no compliant has been filed, no penalty has been
assessed and no investigation or review is pending or threatened, relating to
any environmental law. Except in substantial compliance with applicable
environmental laws, hazardous materials have not been generated, used, treated
or stored on, transported to or from, disposed of or released on any property
owned or operated at any time by the Company. Except as set forth in Schedule
4.21 of the Disclosure Schedule, to the Seller's knowledge, there are not now
and never have been any underground storage tanks located on any property owned
or operated by the Company.
18
4.22 CUSTOMERS. The Seller has heretofore delivered to the Buyer a true
and correct list of the 20 largest customers of the Company as of the date
hereof based on revenues generated during the twelve (12) months ended December
31, 1998. The relationships of the Company with each of such customers are
satisfactory commercial working relationships, and no such customer has
cancelled or otherwise terminated, or threatened in writing, or to the Seller's
knowledge, threatened orally, to cancel or otherwise terminate, its relationship
with the Company.
4.23 INSURANCE. The Seller has heretofore delivered to the Buyer a true
and correct list of all policies of insurance maintained by or on behalf of the
Company with respect to its business or operations and which are in effect as of
the date of this Agreement. As of the date of this Agreement, all such policies
are in full force and effect, all premiums due thereon have been paid and the
Company has complied in all material respects with the provisions thereof. To
Seller's and Company's knowledge, no event has occurred which is reasonably
likely to give rise to a material claim relating to the Company under such
insurance policies.
4.24 TRANSACTIONS WITH AFFILIATES. Schedule 4.24 of the Disclosure
Schedule lists all agreements and other arrangements and transactions in effect
and entered into between the Seller or an affiliate of the Seller, on the one
hand, and the Company, on the other hand. For purposes of this Agreement,
"affiliate" shall mean any person or entity (i) which directly or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such person or entity, (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such person or entity, or (iii) any other person or entity
for which a person described in clause (ii) acts in such capacity.
4.25 NO UNDISCLOSED LIABILITIES. Except for (a) liabilities for future
performance pursuant to any agreement listed in Schedules 4.10, 4.11 or 4.13 of
the Disclosure Schedule; (b) liabilities disclosed, reserved for or otherwise
reflected in the Most Recent Balance Sheet and the notes thereto; and (c)
liabilities incurred in the ordinary course of business by the Company after the
date of the Most Recent Balance Sheet which will not, individually or in the
aggregate, have a Material Adverse Effect, the Company has not incurred any
liability (contingent or otherwise) that would be required to be disclosed in
financial statements under GAAP, consistently applied. The Company is not
indebted to the Seller for any amounts other than normal compensation as
disclosed to the Buyer for not more than one partial payroll period.
4.26 INTEREST IN SIMILAR BUSINESSES. The Seller does not have any
financial interest in any person, firm, corporation or other entity which is, or
during the past five years was, directly or indirectly, engaged in a business
substantially similar to the Business.
4.27 YEAR 2000 COMPLIANCE. The Company has (i) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers, vendors and customers) that could be adversely affected
by the "Year 2000
19
Problem" (being the risk that computer applications used by the Company (or its
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline (a true, correct
and complete copy of which have been provided to Buyer) for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with the timetable. Based on the foregoing, the Seller and the
Company believe that all computer applications (including those of its
suppliers, vendors and customers to the extent that they may affect the Company)
that are material to its business and operations (including computer
applications that are imbedded in machinery and other equipment of the Company)
are reasonably expected on a timely basis to be able to perform properly all
date-sensitive functions for all dates before and after January 1, 2000 (that
is, to be "Year 2000 Compliant"), except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect.
4.28 DISCLOSURE. No representation or warranty by the Seller contained
in this Agreement or Exhibit hereto or in the Disclosure Schedules, and no
information heretofore provided by the Seller or the Company to the Buyer, or
contained in the Financial Statements, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made therein not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
CONCERNING THE BUYER
As a material inducement to the Seller entering into this Agreement,
the Buyer hereby represents and warrants to the Seller the following, in each
case as of the date of this Agreement and the Closing Date, unless otherwise
specifically provided:
5.1 ORGANIZATION, QUALIFICATION, AND AUTHORIZATION. Each of the Buyer
and the Merger Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware. The Buyer and the
Merger Subsidiary each has full corporate power and authority to carry on its
business as currently conducted by it and to own and use the properties owned
and used by it. The Buyer has delivered to the Seller correct and complete
copies of the articles of incorporation and bylaws of the Buyer (as amended to
date).
5.2 CAPITALIZATION. The authorized capital stock of the Buyer, the
total number of shares of each class issued and outstanding, and the number of
shares held in the treasury of the Buyer, are each set forth on Schedule 5.2 of
the Buyer's Disclosure Schedule provided to Seller. As of the Closing and the
issuance thereof, the Buyer's Stock to be issued to the Seller under this
Agreement will be duly authorized, validly issued, fully paid, and
nonassessable.
20
5.3 AUTHORIZATION AND ENFORCEABILITY. The Buyer and the Merger
Subsidiary each has full corporate power and authority to execute and deliver
this Agreement and to perform their respective obligations hereunder. Except as
provided in Section 6.9 hereof, the Buyer and the Merger Subsidiary each has
taken all corporate action which is necessary to authorize the execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated herein, including the approval of their respective board of
directors and the approval of Merger Subsidiary's sole shareholder. This
Agreement constitutes the valid and legally binding obligation of each of the
Buyer and the Merger Subsidiary, enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally and except for
limitations imposed by general principles of equity. Except with respect to
shareholder consent of the Buyer pursuant to Section 6.10 hereof, the Buyer and
the Merger Subsidiary need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government, governmental
agency or party to any material agreement to which they are a party or by which
its assets is bound, in order to consummate the transactions contemplated by
this Agreement.
5.4 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, directive or ruling of any government, governmental agency, or
court to which the Buyer or Merger Subsidiary is subject, or any provision of
the Buyer's or Merger Subsidiary's articles of incorporation or bylaws; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
permit, instrument, or other arrangement to which the Buyer or Merger Subsidiary
is a party or by which the Buyer or Merger Subsidiary is bound or to which any
of their assets is subject.
5.5 BROKERS' FEES. The Buyer and Merger Subsidiary has no liability or
obligation to pay any fees or commission to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Seller
could become liable or obligated.
5.6 REPORTS AND FINANCIAL STATEMENTS.
(a) The Buyer has previously furnished or made available to
the Seller and the Company true and complete copies of (i) its Annual
Reports on Form 10-K for each of the three fiscal years ended December
31, 1998, as filed with the Securities and Exchange Commission, (ii)
its Quarterly Reports on Form 10-Q for the quarter ended March 31,
1999, and (iii) all other reports or registration statements filed by
the Buyer with the Securities and Exchange Commission since December
31, 1998. As of their respective dates, such reports, proxy statements
and registration statements did not contain, and the proxy statement to
be distributed to shareholders of Buyer in connection with the
shareholder meeting required for approval of this merger will not
21
contain, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The audited consolidated financial statements and
unaudited interim financial statements included in the reports or other
filings referred to in Section 5.5(a) have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods (except (i) as may be indicated therein or in
the notes or schedules thereto and (ii) with respect to unaudited
interim financial statements, the absence of notes which, if presented,
would not differ materially from those included in the consolidated
balance sheet of the Buyer as of December 31, 1998). These statements
fairly present the consolidated financial position of the Buyer as of
the respective dates thereof and the consolidated results of operations
and changes in financial position (or statements of cash flow) of the
Buyer for each of the periods then ended, subject, in the case of
unaudited interim financial statements, to normal year-end adjustments
and any other adjustments described therein and the absence of notes
(which, if presented, would not differ materially from those included
in the consolidated balance sheet of the Buyer as of December 31,
1998).
(c) Except as disclosed in any reports or registration
statements filed by the Buyer with the Securities and Exchange
Commission since December 31, 1998, the information and disclosures
contained in the Buyer's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 remain complete and correct in all material
respects as of its date as if such disclosures were made on and as of
the date hereof and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
ARTICLE 6
COVENANTS
The parties agree as follows with respect to the periods indicated:
6.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article 9 below).
The Seller acknowledges and agrees that from and after the Closing, the
Surviving Corporation shall be entitled to sole possession of all documents,
books, records, agreements, and financial data of any sort relating to the
Company, provided the Seller shall have access to such documents, books,
records, agreements and financial data after the Closing for any proper purpose
(eg. tax reporting and audits).
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6.2 TRANSITION. From and after the date of this Agreement, the Seller
will not take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company from maintaining the same business relationships with
it after the Closing as it maintained with it prior to the Closing.
6.3 CONFIDENTIALITY. From and after the date of this Agreement, the
Seller will treat and hold as such all of the information concerning the
Company, and its business and affairs, that is not already generally available
to the public ("Confidential Information") and refrain from using any of the
Confidential Information except in connection with this Agreement.
6.4 CONDUCT OF BUSINESS. From the date hereof until the Closing, except
with the Buyer's prior written consent, the Seller shall cause the Company to
carry on its business in the ordinary course of business consistent with past
practice and to use its reasonable commercial efforts to preserve intact its
business organization and relationships with third parties and, without limiting
the generality of the foregoing, the Seller shall not:
(a) do or omit to do any act or thing which would cause any
of the representations and warranties set out in Section 3 or Section 4
to be untrue at the Closing Date;
(b) permit the Company to:
(i) do or omit to do any act or thing which
would cause any of the representations and
warranties set out in Section 4 to be untrue
if made at the Closing Date;
(ii) make or authorize any material capital
expenditures;
(iii) enter into any material contract outside the
ordinary course of business or amend or
terminate any material contract to which it
is a party or exercise any renewal,
expansion or other options relating thereto,
other than in the ordinary course of
business;
(iv) dispose, or agree or commit to dispose, of
any material assets out of the ordinary
course of business;
(v) make any material change in federal, state
or local tax elections, or accounting
methods, principles or practices, unless
required by law or by changes in GAAP; or
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(vi) merge or consolidate with any person,
acquire any stock or other ownership
interest in any person or the assets of any
business as an entirety, or liquidate,
dissolve or otherwise reorganize or seek
protection from creditors; or
(c) cause or permit the Company, directly or indirectly, to
adopt, amend, modify, spin-off, transfer or assume any of the assets or
liabilities of, terminate or partially terminate, any Benefit Plan; or
(d) amend, or permit the amendment of the articles of
incorporation, by-laws or other organizational documents of the
Company, make any changes in the capital structure of the Company, or
issue or sell, or purchase, or agree to issue, sell or purchase, any
capital stock or securities of the Company, or declare or pay any
dividend or other distribution out of the Company. During the period
from the date of this Agreement to the Closing Date, the Seller shall
cause the Company to confer on a regular basis with the Buyer as to the
business of the Company, and to report periodically on the general
status of ongoing operations of the Company.
6.5 REASONABLE EFFORTS. Each Party agrees to use with all due dispatch
its commercially reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with the other Parties in
connection with the foregoing. Each Party further agrees not to undertake any
course of action inconsistent with the satisfaction of the conditions to Closing
set forth herein, and to do all such acts and take all such measures as may be
commercially reasonable to comply, and be in compliance, with the
representations, warranties, covenants and agreements contained in this
Agreement.
6.6 EXCLUSIVE DEALING. During the period from the date of this
Agreement to the earlier of the Closing Date or the termination of this
Agreement, the Seller shall not initiate or engage in discussions or
negotiations with, or provide any information to, any person other than the
Buyer, Seller's attorneys, accountants or advisors, concerning any sale of the
Company or any material part thereof or any similar transaction. In the event
this Agreement is terminated by either party for any reason, each of the Buyer
and the Seller agree that in the further event that Buyer, on the one hand, or
Seller or Company on the other hand, agree or commit to agree to consummate a
transaction similar to the transaction contemplated in this Agreement (whether
by stock purchase, asset purchase or merger) before December 31, 1999, then in
such event the party terminating this Agreement shall pay to the other a break
up fee of $100,000 in cash on demand. The foregoing breakup fee is intended to
compensate as liquidated damages the receiving party for expenses incurred in
furtherance of this transaction, and not as a penalty.
6.7 ACCESS TO RECORDS. Between the date of this Agreement and the
Closing Date, the Company shall allow the Buyer, its representatives and
potential lenders, full and complete access to the books, records and business
premises and properties of the Company,
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and furnish to the Buyer all such information concerning the Company and its
businesses and affairs as the Buyer may reasonably request, for purposes of
conducting a due diligence investigation; provided, however, that any such
investigation shall be conducted during normal business hours and shall not
unreasonably interfere with the operations of the Company. No such investigation
shall affect any of the representations and warranties of the Seller hereunder.
6.8 NOTICE OF EVENTS. From the date of this Agreement to the Closing
Date, the Company shall promptly notify in writing the Buyer of any fact which,
if known at the date of this Agreement, would have been required to be set forth
or disclosed in or pursuant to this Agreement, or which would or could result in
the breach by the Seller of any representation or warranty or a breach of any
covenant or agreement in this Agreement.
6.9 SHAREHOLDER APPROVAL. As soon as practicable after the execution of
this Agreement (but not earlier than June 29, 1999), the Buyer shall duly call
and notice a special or annual meeting of the Shareholders of the Company, and
include in the purposes of which the review and approval of the Merger and the
issuance of the Buyer's Stock as provided herein (the "Shareholder Meeting").
The proxy materials disseminated by the Buyer shall include a recommendation of
the board of directors that the shareholders approve the Merger and the issuance
of the Buyer's Stock; provided, however, that the foregoing covenant shall be
subject, in all respects, to the fiduciary obligations of the board of directors
to the Buyer and its shareholders under applicable law as advised by legal
counsel to the Buyer. The Shareholder Meeting shall be noticed and held
according to the Bylaws of the Buyer, Delaware corporate law and the rules of
any applicable securities exchange. The Seller hereby irrevocably confirms that
the Seller has already approved, as the sole shareholder of the Company, the
Merger.
6.10 DISSOLUTION OF COMPONENTS. Within ten (10) of the Closing, the
Seller agrees to take all action necessary to dissolve Components.
6.11 TAX MATTERS. The Parties acknowledge that the Company currently
has in effect an election to be taxed as a Subchapter S Corporation under the
Code (the "Election"). Without the consent of the other, neither the Company nor
the Buyer shall make any election under Section 338(h)(10) of the Code. Neither
the Seller nor the Company shall revoke or otherwise terminate the Election
prior to the Closing. From and after the Closing, the Election shall terminate,
effective as of the Closing. The Seller acknowledges and agrees that the Seller
shall prepare, at Seller's cost, the Company's final S-corporation tax return,
which return shall be subject to the review and approval of Buyer prior to
filing. Seller shall include any income, gain, loss, deduction or other tax
items for the periods up to and including the Closing on Seller's tax return in
a manner consistent with such final tax return for such periods.
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ARTICLE 7
CONDITIONS TO OBLIGATION TO CLOSE
7.1 CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Section
3 and Section 4 above shall be true, correct and complete in all
material respects at and as of the Closing Date (and any representation
or warranty that is qualified as to materiality in Sections 3 or 4
shall be deemed to be without such qualification for purposes of the
foregoing);
(b) The Seller shall have performed and complied with all of
the Seller's covenants hereunder in all material respects through the
Closing;
(c) The Company shall have procured all of the third party
authorizations, approvals and consents referred to in Section 4.3
above;
(d) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement; (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation; (iii) affect adversely following consummation of the
right of the Buyer to own stock in the Merger Subsidiary and to control
the Company; or (iv) materially and adversely affect the right of the
Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(e) The Seller shall have delivered to the Buyer a Seller's
Certificate to the effect that each of the conditions specified above
in Section 7.1(a)-(d) is satisfied;
(f) Shareholders of the Buyer shall have approved by the
requisite majority vote (as required by the Bylaws of the Buyer,
Delaware corporate law and the rules of any applicable securities
exchanges) the Merger and the issuance of the Buyer's Stock at the
Shareholder Meeting as provided herein;
(g) The Seller shall have delivered to the Buyer the
resignations of all directors and officers of the Company, all to be
effective as of the Closing;
(h) All certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to counsel to the
Buyer;
26
(i) There shall have been delivered to the Buyer an opinion
of counsel to the Seller, dated the Closing Date, in substantially the
form of Exhibit 2.2(f) hereof;
(j) The Seller shall deliver to the Buyer all stock record
books, minute books and corporate seals, if any, of the Company;
(k) The Company shall have executed and delivered to the
Buyer the Articles of Merger in substantially the form of Exhibit
2.2(g) hereof;
(l) The Seller shall have executed and delivered to the
Buyer the Employment Agreement and the Noncompetition Agreement in
substantially the forms of Exhibit 2.2(h) hereof;
(m) There shall have been no material damage, dilution,
diminution, or destruction to any of the Company's assets, properties
or businesses, or any material adverse change affecting the assets,
properties, business or condition, financial or otherwise, of the
Company; and
(n) The Seller shall have executed and delivered such other
instruments and agreements as have been reasonably requested by the
Buyer.
The Buyer may waive any condition specified in this Section 7.1, if it executes
a writing so stating at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Section
5 above shall be true, correct and complete in all material respects at
and as of the Closing date (and any representation or warranty that is
qualified as to materiality in Section 5 shall be deemed to be without
such qualification for purposes of the foregoing);
(b) The Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) No action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated
by this Agreement; (ii) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation; or (iii) affect
adversely following consummation of the right of the Seller to own the
Buyer's Shares , and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
27
(d) The Buyer shall have delivered to the Seller a Buyer's
Certificate to the effect that each of the conditions specified above
in Section 7.2(a)-(c) is satisfied;
(e) All certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to counsel to the
Seller;
(f) There shall have been delivered to the Seller an opinion
of counsel to the Buyer, dated the Closing Date, in substantially the
form of Exhibit 2.3(c) hereof;
(g) The Merger Subsidiary shall have executed and delivered
to the Company the Certificate of Merger in substantially the form of
Exhibit 2.3(d) hereof and the Articles of Merger, in substantially the
form of Exhibit 2.2(g) hereof;
(h) The Buyer shall have executed and delivered to Seller
the Employment Agreement and the Noncompetition Agreement in
substantially the forms of Exhibit 2.2(h) hereof;
(i) The Buyer shall have executed and delivered to Seller
the Registration Agreement in substantially the form of Exhibit 2.3(f)
hereof; and
(j) The Buyer shall have executed and delivered such other
instruments and agreements as the Seller shall have reasonably
requested.
The Seller may waive any condition specified in this Section 7.2 if it executes
a writing so stating at or prior to the Closing.
ARTICLE 8
TERMINATION
8.1 TERMINATION RIGHTS. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual consent of the Seller and the Buyer; or
(b) By either the Seller or the Buyer by a written notice to
the other if the Closing Date has not occurred on or prior to September
1, 1999 and the failure to complete the purchase and sale of the Shares
herein provided for on or before such date did not result from any
breach of this Agreement by the party seeking to terminate this
Agreement.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 8.1, this Agreement shall terminate, and have no
further force or effect (except for this Section 8.2 and Section 6.6 hereof) and
the transactions contemplated hereby
28
shall be abandoned without further action by the parties. Except as otherwise
provided herein, any such termination shall not, however, relieve any party of
any liability for breach of any covenant or obligation under this Agreement.
ARTICLE 9
REMEDIES
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties, covenants and indemnities contained in this
Agreement shall survive the Closing until the expiration of the applicable
statute of limitation.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER. In the event
that any of the representations or warranties of the Seller contained herein
shall be untrue or incorrect at the Closing (without regard to any "materiality"
or "Material Adverse Effect" exception contained therein), or in the event of a
breach of any covenants of the Seller contained herein, or in the event the
Equity Deficiency determined from the Pre-Closing Balance Sheet is determined to
have been understated, then the Seller agrees to indemnify, defend and hold
harmless the Buyer, together with the Surviving Corporation, and their
respective officers, directors, employees, successors and assigns (collectively,
the" Buyer Indemnified Parties") from and against the entirety of any judgments,
actions, suits, proceedings, investigations, claims, demands, costs, losses,
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith and court costs and reasonable fees and
disbursements of counsel) (collectively, "Adverse Consequences") any of the
Buyer Indemnified Parties may suffer through and after the date of the claim for
indemnification resulting from, arising out of, relating to, in the nature of,
or caused by such failure of such representation and warranty to be true and
correct or by such breach or understatement.
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the event
that any of the representations or warranties of Buyer contained herein shall be
untrue or incorrect at the Closing (without regard to any "materiality" or
"Material Adverse Effect" exception contained therein), or in the event of a
breach of any of the covenants of the Buyer contained herein, then the Buyer
agrees to indemnify and hold harmless the Seller, and his heirs, legal
representatives, successors or permitted assigns (collectively, the" Seller
Indemnified Parties") from and against the entirety of any Adverse Consequences
any of the Seller Indemnified Parties may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by such failure of such representation and warranty to
be true and correct or by such breach.
9.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third-Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Article 9, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified
29
Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party is materially prejudiced
by such delay.
(b) An Indemnifying Party will have the right to defend the
Indemnified Party against the Third-Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (i)
the Indemnifying Party notifies the Indemnified Party in writing within
thirty (30) days after the Indemnified Party has given notice of the
Third-Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third-Party
Claim; (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third-Party Claim and fulfill its indemnification obligations
hereunder; and (iii) the Indemnifying Party conducts the defense of the
Third-Party Claim actively and diligently. Unless and until the
Indemnifying Party makes an election in accordance with this Section
9.4(b), all of the Indemnified Party's reasonable costs and expenses
arising out of the defense, settlement or compromise of any such action
or claim shall be Adverse Consequences subject to indemnification
hereunder to the extent provided herein.
(c) So long as the Indemnifying Party is conducting the
defense of the Third-Party Claim in accordance with Section 9.4(b)
above, (i) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third-Party
Claim, (provided that the costs and expense of such co-counsel shall be
for the account of the Indemnifying Party if the named parties to any
such action (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party and such Indemnified Party
shall have been advised in writing by such co-counsel that there may be
one or more legal defenses available to the Indemnifying Party which
are not available to, or the assertion of which would be adverse to the
interests of, the Indemnified Party); (ii) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement
with respect to the Third-Party Claim without the prior written consent
of the Indemnifying Party (not to be withheld unreasonably); and (iii)
the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third-Party Claim without
the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
9.5 OTHER INDEMNIFICATION LIMITATIONS. Notwithstanding anything
contained in this Article 9 to the contrary, the Seller shall have no liability
under Section 9.2 unless and until all such Adverse Consequences exceed in the
aggregate the Equity Surplus, if any; provided, however, that in the event the
Buyer's Adverse Consequences exceed such deductible amount, then Buyer shall be
entitled to recover only the excess of such Adverse Consequences, and not the
deductible amount.
30
9.6 INDEMNIFICATION HOLDBACK ESCROW. In order to facilitate the payment
of any of Seller's indemnification obligations hereunder, the Buyer shall
holdback $100,000 of the cash portion of the Merger Consideration payable to the
Seller at the Closing (the "Holdback"), which amount shall be held by Buyer in
escrow pursuant to this Section 9.6. The Holdback shall be increased by the
amount, if any, of the overstatement in the event the Equity Deficiency as
determined from the Pre-Closing Balance Sheet is thereafter determined to have
been overstated, but in no event shall the Holdback be increased by more than
the amount of the reduction to the cash portion of the Merger Consideration made
at Closing pursuant to Section 1.8(b) hereof. If requested by the Seller, the
Holdback shall be deposited with a mutually acceptable financial institution,
provided that the Seller pays all costs associated with such third party escrow
agent. Upon notice of an indemnification claim by the Buyer Indemnified Parties
hereunder, the Buyer may deduct and retain from the Holdback the amount of the
Adverse Consequences therefor. In the event of a dispute over whether the Buyer
is entitled to Indemnification hereunder, the Buyer shall not deduct and retain
amounts from the Holdback unless and until the dispute is resolved. The then
remaining portion of the Holdback, if any, on the first annual anniversary of
the Closing shall be paid to the Seller in cash (net of any pending claims which
shall be resolved before any payment therefor is remitted to the Seller). The
Parties acknowledge and agree that notwithstanding the foregoing, the Buyer is
not limited to the Holdback with respect to its indemnification claims and
rights hereunder, and that the Buyer shall be entitled to offset any further
indemnification amounts hereunder against any other funds due from the Buyer to
the Seller, including any amounts under the Noncompetition Agreement.
9.7 DISPUTE RESOLUTION. In the event any dispute arises out of or in
relation to this Agreement, or a breach hereof, including any dispute regarding
the existence, validity, interpretation, scope or termination of this Agreement,
and if such dispute cannot be settled within a reasonable time through direct
negotiations between the parties, which the parties agree to pursue in good
faith, such dispute shall be submitted to binding arbitration conducted in
Hennepin, Minnesota, in accordance with the then-current Commercial Rules of the
American Arbitration Association ("AAA"). Any arbitration hereunder shall be
conducted by a panel of arbitrators consisting of three members constituted with
the assistance of the AAA, one of whom shall be a senior or retired judge of the
Minnesota State or Federal court system, one of whom shall be a mutually
acceptable member of the video conferencing solutions industry, and one of whom
shall be a mutually acceptable member of the accounting industry. The costs and
expenses of the arbitration shall be paid by the party against whom the
arbitrators render a decision, if a decision is rendered against a party,
otherwise the costs and expenses shall be shared equally between the Buyer, on
the one hand, and the Seller, on the other hand. The arbitrators shall have full
power and authority to rule on any question of law in the same manner as any
judge of any court of competent jurisdiction, and the decision of the
arbitrators shall be final and conclusive upon the Parties, and shall not be
subject to any appeal or review, except as provided under the Uniform
Arbitration Act, Minn. Stat. ss.572.08 et. seq. The arbitrators shall have full
power to make any award (including the award of equitable remedies) that shall
under the circumstances presented to them be deemed to be proper; provided that
the arbitrators shall not have the power to award punitive damages
31
or to limit, expand or otherwise modify the terms of this Agreement. Judgment
may be entered upon any award rendered by the arbitrators in accordance with
applicable law in any court of competent jurisdiction.
ARTICLE 10
GENERAL PROVISIONS
10.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller, except to the extent required by law or the rules of any
applicable securities exchange, and except as may be necessary in connection
with the solicitation of Buyer's shareholder approval at the Shareholder's
Meeting.
10.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person or entity other than the Parties and their
respective heirs, legal representatives, successors and permitted assigns.
10.3 ENTIRE AGREEMENT. This Agreement (including the Disclosure
Schedules and Exhibits referred to herein) constitutes the entire agreement
among the Parties with respect to matters coming within the scope of the
provisions of this Agreement and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. No Party may assign
either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the Buyer and the Seller.
10.5 COUNTERPARTS AND FACSIMILE DELIVERY. This Agreement may be
executed in one or more counterparts, and by different Parties on different
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. This Agreement shall be
effective once one or more counterparts hereof has been executed by each Party
hereto, whether or not all such signatures are on the same counterpart. Either
Party may deliver an executed counterpart of this Agreement by facsimile
transmission, provided the original executed counterpart is thereafter promptly
delivered to the other Party.
10.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by
32
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Seller
or the Company: Acoustic Communication Systems, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: Best & ▇▇▇▇▇▇▇▇ LLP
4000 US Bank Place
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer: VideoLabs, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇
Suite 3100
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
33
10.8 GOVERNING LAW. Except to the extent of the Merger, which shall be
governed by the laws of the States of Delaware and Minnesota, as applicable,
this Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Minnesota without giving effect to any choice or
conflict of law provision or rule (whether of the State of Minnesota or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Minnesota.
10.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability for the offending term or provision in any other
situation or in any other jurisdiction.
10.11 EXPENSES. Each Buyer, on the one hand, and the Seller, on the
other hand, will bear its own costs and expenses (including legal fees and
expenses and filing or processing fees imposes by governmental authorities)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Company shall not pay or be liable for any of the Seller costs and
expenses (including the fees and expenses of their legal counsel or other
advisors) in connection with this Agreement.
10.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein, shall have
independent significance, and that all statements contained herein and in the
Disclosure Schedules and Exhibits hereto shall be deemed to be representations
and warranties hereunder. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
34
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
ACOUSTIC COMMUNICATION SYSTEMS, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Its President
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
VIDEOLABS, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
VL ACQUISITION CO.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
35
FIRST AMENDMENT TO AGREEMENT
AND
PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
("Amendment") is made and entered into effective as of this 25th day of May,
1999 by and among Videolabs, Inc., a Delaware corporation ("Buyer"), VL
Acquisition Co., a Delaware corporation formed by Buyer ("Merger Subsidiary"),
▇▇▇▇▇ ▇▇▇▇▇▇▇, a Minnesota resident ("Seller") and Acoustic Communication
Systems, Inc., a Minnesota corporation (the "Company"). Capitalized terms used
herein not otherwise defined shall have the definitions set forth in the
Agreement and Plan of Merger of Acoustic Communication Systems, Inc. into VL
Acquisition Co. dated May 17, 1999 (the "Merger Agreement").
The Parties agree that the Merger Agreement is hereby amended as
follows:
1. At the end of the third "WHEREAS" clause on the first page, the
following sentence is hereby added:
The Parties intend that the merger contemplated hereby will
qualify as a "statutory merger" under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
2. Section 1.7(a) of the Merger Agreement is hereby amended to read as
follows:
(a) An amount of cash equal to Five Hundred Thousand Dollars
($500,000); PLUS
3. The following sentence shall be added at the end of Section 1.8(a)
of the Merger Agreement:
(a) For the purposes of this Section 1.8, the debt incurred by
the Company in connection with the distribution to Seller by the
Company pursuant to Section 1.10 below shall be considered equity for
the purpose of determining the Minimum Equity Level under this Section.
4. The following section 1.10 shall be added to the Merger Agreement
immediately following Section 1.9:
1.10 Loan and Distribution. No later than June 15, 1999,
Seller shall loan to the Company cash in an amount equal to Five
Hundred Thousand Dollars ($500,000) pursuant to a promissory note in
form and substance reasonably acceptable to Buyer (the "Note"). The
Note shall be unsecured and shall provide for interest at the
"Applicable Federal Rate" established by Internal Revenue Service
Regulations during the period which the loan is outstanding. The Note
shall be due and payable in full upon the consummation of the Merger at
the Closing, or on September 30, 1999 whichever occurs earlier. If the
Note becomes due and payable upon consummation
of the Merger, the obligation to pay the Note shall be assumed by
Merger Subsidiary, and payment shall be made to Seller at the Closing.
Any contrary statement, covenant or representation contained herein
notwithstanding, immediately upon receipt of the funds loaned by
Seller, the Company shall make a distribution of retained earnings, in
the form of a dividend, in the amount of $500,000.00 to Seller.
5. At the Closing of the Merger, the Buyer shall contribute to the
capital of the Merger Subsidiary (or extend a loan which will be deemed to be
capital) the amount of $500,000.00 in cash, to finance the payment of the Note
to the Seller.
6. Notwithstanding anything in the Merger Agreement to the contrary,
the computation and calculation of net equity of the Company under Section 1.8
of the Merger Agreement (for purposes of determining compliance with the Minimum
Equity Level) shall be made after giving full and complete effect to all
transactions contemplated in this Amendment (being the loan, dividend, capital
contribution and loan repayment).
7. The balance of the Merger Agreement is unchanged, is hereby ratified
and confirmed in all respects and remains in full force and effect.
VIDEOLABS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
VL ACQUISITION CO.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
ACOUSTIC COMMUNICATION SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Its President
▇▇▇▇▇ ▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
SECOND AMENDMENT TO AGREEMENT
AND
PLAN OF MERGER
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made and entered into effective as of this 3rd day of August, 1999 by and among
Videolabs, Inc., a Delaware corporation ("Buyer"), VL Acquisition Co., a
Delaware, corporation formed by Buyer ("Merger Subsidiary"), ▇▇▇▇▇ ▇▇▇▇▇▇▇, a
Minnesota resident ("Seller") and Acoustic Communication Systems, Inc., a
Minnesota corporation (the "Company"). Capitalized terms used herein not
otherwise defined shall have the definitions set forth in the Agreement and
Plan of Merger of Acoustic Communication Systems, Inc. into VL Acquisition Co.
dated May 17, 1999, as amended by that certain First Amendment to Agreement and
Plan of Merger dated effective May 25, 1999 (as amended, the "Merger
Agreement").
The Parties agree that the Merger Agreement is hereby amended as follows:
1. The Parties have agreed that the number of shares of Buyer's stock
calculated pursuant to Section 1.7 of the Merger Agreement shall be computed
from the closing bid and asked prices of the Buyer's common stock as reported on
NASDAQ during the ten trading days ending on Thursday, July 29, 1999. The number
of shares to be issued is 1,209,678.
2. The Parties acknowledge their mutual desire to consummate the
Closing on this date, notwithstanding the current unavailability of the
Pre-Closing Balance Sheet, which the Company continues to work on. Therefore,
notwithstanding the contrary provisions of the Merger Agreement, the parties
have agreed to proceed as follows:
(a) The Closing Date shall be August 3, 1999, and all actions shall
be taken to effectuate the Merger effective as of this date.
(b) The Buyer waives the requirement of the Holdback under Section
9.6 of the Merger Agreement. However, the cash portion of the Merger
Consideration payable at closing (being the full $500,000), the share
certificate representing the Buyer's Stock (computed as provided above),
and the repayment of the Note (as defined and provided in the first
Amendment) shall not be paid or delivered until completion and delivery of
the Pre-Closing Balance Sheet (and confirmation of the Minimum Equity
Level or computation of any deficiency or delinquency in the Minimum
Equity Level), all as provided in the Merger Agreement.
(c) Following completion and delivery of the Pre-Closing Balance Sheet
and the confirmation of the Minimum Equity Level, the Buyer shall deliver
the cash Portion of the Merger Consideration (without reduction for
any deficiency in the Minimum Equity Level, if applicable), shall deliver a
stock certificate evidencing the Buyer's Stock, and further shall cause
the Company to repay the Note. In the event in a deficiency in the
Minimum Equity Level as of the Closing Date as provided in the Merger
Agreement, the parties agree to take all action necessary to offset such
deficiency (according to the terms of the Merger Agreement) against the
consideration payable to the Principal under the Noncompetition Agreement
dated effective as of August 2, 1999.
3. The balance of the Merger Agreement is unchanged, is hereby ratified
and confirmed in all respects and remains in full force and effect.
VIDEOLABS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
VL ACQUISITION CO.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Its President
ACOUSTIC COMMUNICATION SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Its President
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇