________________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
by and among
Global MAINTECH Corporation,
Global MAINTECH, Inc.,
BHT Acquisition, Inc.
and
▇▇▇▇▇▇ ▇▇▇▇ Technologies, Inc.
March 5, 1999
________________________________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER........................................................................ 1
1.01 The Merger.......................................................... 1
1.02 Certificate of Merger; Effective Time............................... 1
1.03 Effect of Merger.................................................... 1
1.04 Closing............................................................. 2
1.05 Certificate of Incorporation; Bylaws................................ 2
1.06 Directors and Officers.............................................. 2
1.07 Certain Defined Terms............................................... 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES................................ 2
2.01 Conversion of Securities............................................ 2
2.02 Earn Out Payment; Value of Escrow Fund.............................. 3
2.03 Dissenting Shares................................................... 4
2.04 Rights of Holders of Converted Securities........................... 5
2.05 Adjustments to Merger Consideration................................. 6
2.06 Exchange of Certificates; Escrow Fund; Deductions from Escrow Fund.. 6
2.07 Stock Options....................................................... 9
2.08 Notices to Option Holders........................................... 9
2.09 H&QGF Warrants...................................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 10
3.01 Incorporation and Corporate Power................................... 10
3.02 Execution, Delivery; Valid and Binding Agreements................... 11
3.03 Approval of the Merger Agreement and Plan of Merger;
Meeting of Stockholders............................................. 11
3.04 No Breach........................................................... 11
3.05 Governmental Authorities; Consents.................................. 11
3.06 Subsidiaries ....................................................... 12
3.07 Capital Stock....................................................... 12
3.08 Financial Statements................................................ 12
3.09 Absence of Undisclosed Liabilities.................................. 13
3.10 No Material Adverse Changes......................................... 13
3.11 Absence of Certain Developments..................................... 13
3.12 Title to Properties................................................. 15
3.13 Accounts Receivable................................................. 16
3.14 Inventory........................................................... 16
3.15 Tax Matters......................................................... 16
3.16 Contracts and Commitments........................................... 18
3.17 Intellectual Property Rights........................................ 19
3.18 Litigation.......................................................... 20
3.19 Warranties.......................................................... 20
3.20 Employees........................................................... 20
3.21 Employee Benefit Plans.............................................. 20
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3.22 Insurance........................................................... 21
3.23 Affiliate Transactions.............................................. 22
3.24 Customers and Suppliers............................................. 22
3.25 Officers and Directors; Bank Accounts............................... 22
3.26 Compliance with Laws; Permits....................................... 22
3.27 Environmental Matters............................................... 23
3.28 Brokerage........................................................... 25
3.29 Disclosure.......................................................... 25
3.30 Year 2000 Compliance................................................ 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GMC, GMI AND MERGER SUBSIDIARY.... 26
4.01 Incorporation and Corporate Power................................... 26
4.02 Execution, Delivery; Valid and Binding Agreements................... 26
4.03 No Breach........................................................... 26
4.04 Merger Subsidiary................................................... 27
4.05 Governmental Authorities; Consents.................................. 27
4.06 Brokerage........................................................... 27
4.07 Year 2000 Compliance................................................ 27
4.08 Litigation.......................................................... 28
4.09 Disclosure.......................................................... 28
ARTICLE V
COVENANTS OF THE COMPANY 28
5.01 Conduct of the Business............................................. 28
5.02 Access to Books and Records......................................... 30
5.03 Meeting of Stockholders............................................. 30
5.04 Regulatory Filings.................................................. 31
5.05 Conditions.......................................................... 31
5.06 No Shop............................................................. 31
5.07 Information Statement............................................... 31
5.08 Disclosure Schedules................................................ 31
5.09 Collateral Agreement................................................ 31
ARTICLE VI
COVENANTS OF GMI AND MERGER SUBSIDIARY............................................ 32
6.01 Regulatory Filings.................................................. 32
6.02 Conditions.......................................................... 32
6.03 Board Representation................................................ 32
6.04 Loan to The Company................................................. 32
6.05 Registration Rights................................................. 32
6.06 Disclosure Schedules................................................ 32
6.07 Delivery of Escrow Warrants......................................... 32
6.08 Collateral Agreement................................................ 33
ARTICLE VII
CONDITIONS TO CLOSING............................................................. 33
7.01 Conditions to GMC's, GMI's and Merger Subsidiary's Obligations...... 33
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7.02 Conditions to the Company's Obligations............................. 36
ARTICLE VIII
TERMINATION....................................................................... 37
8.01 Termination......................................................... 37
8.02 Effect of Termination............................................... 38
ARTICLE IX
ADDITIONAL AGREEMENTS............................................................. 39
9.01 Intercompany Financing.............................................. 39
9.02 Disposition of Assets............................................... 39
9.03 Series B Preferred Stock............................................ 39
9.04 Certain Loans from H&QGF, GBC and CR to the Company
and the Surviving Corporation....................................... 40
9.05 Confidentiality..................................................... 40
9.06 Solicitation........................................................ 41
9.07 Employee Benefit Plans.............................................. 41
9.08 Directors' and Officers' Indemnification and Insurance.............. 41
9.09 Escrow Agreement.................................................... 42
ARTICLE X
SURVIVAL; INDEMNIFICATION......................................................... 43
10.01 Survival of Representations and Warranties.......................... 43
10.02 Indemnification by the Company...................................... 43
10.03 Indemnification by GMI.............................................. 44
10.04 Method of Asserting Claims.......................................... 44
ARTICLE XI
MISCELLANEOUS..................................................................... 46
11.01 Press Releases and Announcements.................................... 46
11.02 Expenses............................................................ 46
11.03 Amendment and Waiver................................................ 46
11.04 Notices............................................................. 47
11.05 Assignment.......................................................... 47
11.06 Severability........................................................ 47
11.07 Complete Agreement.................................................. 48
11.08 Counterparts........................................................ 48
11.09 Governing Law....................................................... 48
11.10 No Third-Party Beneficiaries........................................ 48
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SCHEDULES
6.05 Registration Rights
EXHIBITS
Exhibit A - Form of Escrow Warrant
iv
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (this "Agreement") dated as of March
5, 1999, is made and entered into by and among Global MAINTECH Corporation, a
Minnesota corporation ("GMC"), Global MAINTECH, Inc., a Minnesota corporation
("GMI"), BHT Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of GMI ("Merger Subsidiary") and ▇▇▇▇▇▇ Hill Technologies, Inc., a
Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of GMI, Merger Subsidiary
and the Company have determined that it is advisable and in the best interests
of the respective corporations and their stockholders that Merger Subsidiary be
merged with and into the Company in accordance with the Delaware General
Corporation Law (the "DGCL") and the terms of this Agreement pursuant to which
the Company will be the surviving corporation and will become a wholly owned
subsidiary of GMI (the "Merger"); and
WHEREAS, GMC, GMI, Merger Subsidiary and the Company desire to make
certain representations, warranties, covenants, and agreements in connection
with, and to establish various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the conditions set
----------
forth in this Agreement, at the Effective Time, Merger Subsidiary shall be
merged with and into the Company in accordance with the DGCL, whereupon the
separate existence of Merger Subsidiary shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation").
1.02 Certificate of Merger; Effective Time. As soon as practicable
-------------------------------------
after satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger set forth in Article VII, the parties shall cause the
Merger to be consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware and make all other
filings or recordings required by the DGCL in connection with the Merger and the
transactions contemplated by this Agreement. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware or at such later time as may be agreed by the
parties in writing and specified in the Certificate of Merger (the "Effective
Time"). Notwithstanding the foregoing, solely for accounting purposes, the
merger will be deemed to be effective as of March 15, 1999.
1.03 Effect of Merger. From and after the Effective Time, the
----------------
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the
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restrictions, disabilities and duties of the Company and Merger Subsidiary, all
as provided under the DGCL.
1.04 Closing. The closing of the Merger (the "Closing") will take
-------
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at a time and place
and by a method as mutually agreed to by the parties.
1.05 Certificate of Incorporation; Bylaws. At the Effective Time, the
------------------------------------
Certificate of Incorporation and Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
1.06 Directors and Officers. The directors of Merger Subsidiary shall
----------------------
be the initial directors of the Surviving Corporation. The officers of the
Company shall be the initial officers of the Surviving Corporation.
1.07 Certain Defined Terms. Certain defined terms used throughout
---------------------
this document and its exhibit contain the word "Escrow." The word "Escrow" in
such defined terms is employed for ease of reference only, and not by way of
limitation with respect to the arrangement under which the Merger Consideration
(as defined in Section 2.01, below) is held and distributed. Accordingly, the
use of the word "Escrow" in such defined terms shall not exclude the possibility
that such defined terms relate to one or more custodial, distribution or other
arrangements entered into by the parties hereto in order to effectuate the
purposes of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01 Conversion of Securities. As of the Effective Time, by virtue of
------------------------
the Merger and without any action on the part of the holder of any shares of
capital stock of Merger Subsidiary or the Company, GMC shall deposit with
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Guaranty Finance, LLC ("H&QGF"), pursuant to a collateral
agreement consistent with this Agreement to be executed by and among H&QGF and
the parties to this Agreement prior to the Closing Date (the "Collateral
Agreement"), one or more warrants, in substantially the same form as the Form of
Warrant attached hereto as Exhibit A, to purchase 4,500,000 shares of GMC Common
Stock, no par value (the "Escrow Warrants," which, together with the Earn Out
Payment, if any, provided for in Section 2.02 hereof, shall be referred to as
the "Merger Consideration"), and:
(a) Each share of the Company's Common Stock ("Company Common Stock")
issued and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares, as defined in Section 2.04 hereof) shall be converted into
one share, or unit (an "Escrow Unit"), of the Escrow Fund (as defined in Section
2.06(a)); provided, however, that each share of Company Common Stock issued and
outstanding immediately prior to the
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Effective Time and owned by GMC, GMI, Merger Subsidiary or the Company or any
direct or indirect subsidiary of GMC, GMI, Merger Subsidiary or the Company
shall be canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(b) Each share of the Company's Series A Convertible Preferred Stock
(the "Series A Preferred Stock") issued and outstanding immediately prior to the
Effective Time (other than any Dissenting Shares) shall be converted into one
Escrow Unit; provided, however, that in the event that an Escrow Unit is worth
less than $1.65 (as determined pursuant to Section 2.02) as of the earlier of
365 days after the Closing Date or the date of the first disbursement of the
Escrow Fund to holders of Escrow Units (the "Calculation Date"), each such share
of Series A Preferred Stock shall be deemed to have been allocated additional
Escrow Units (or fractions thereof) immediately prior to the Calculation Date in
order that each such share shall have been converted into the right to receive
Merger Consideration valued at $1.65 (or such lesser amount based upon a pro
rata distribution of the remainder of the Escrow Fund (after the distributions
set forth in Section 2.06) among all such preferred shares if the Escrow Fund is
insufficient to satisfy such payment of $1.65, in which case no Merger
Consideration shall be distributed to any holder of Common Stock pursuant to
Section 2.01(a) or Section 2.01(c)).
(c) Each outstanding warrant to purchase Company Common Stock which
is issued and outstanding immediately prior to the Effective Time and which is
held by persons other than H&QGF, Greyrock Business Credit ("GBC") and
Cruttenden ▇▇▇▇ ("CR")(collectively, the "Non-H&QGF Warrants") will remain
outstanding following the Effective Time. The parties hereto agree that in the
event that any such warrants are exercised after the Effective Time, the holder
of the shares of Common Stock of the Surviving Corporation issued upon such
exercise may, at any time prior to the later of the Calculation Date or 30 days
after the Earn Out Date, opt to convert such shares into Escrow Units at the
rate of one Escrow Unit for each share of Common Stock of the Surviving
Corporation so issued. The consideration, if any, paid by the holder of a Non-
H&QGF Warrant upon exercise of such a warrant shall be delivered to the
Surviving Corporation and recorded on its books as paid-in capital.
(d) Each share of common stock, no par value per share, of Merger
Subsidiary ("Merger Subsidiary Common Stock") issued and outstanding immediately
prior to the Effective Time shall be converted into 100,000 validly issued,
fully paid and nonassessable shares of Common Stock of the Surviving
Corporation.
2.02 Earn Out Payment; Value of Escrow Fund. The "Earn Out Payment
--------------------------------------
Amount," as referred to herein, shall mean (a) the Adjusted Sales (as defined
below) less (b) the sum of (i) the Warrant Value (as defined below) and (ii) the
cash and GMC Common Stock valued at $5,000,000 delivered pursuant to Section
6.04 and Section 9.01. The payment of such amount, if any, is hereinafter
referred to as the "Earn Out Payment." At least 15% but not greater than 50% of
the Earn Out Payment shall be in the form of cash. The balance of the Earn Out
Payment shall be in the form of shares of GMC Common Stock, valued at a per
share price
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equal to 90% of the average closing price for the 30 trading-day period ending
on the last day of the Earn Out Period. Subject to the foregoing, GMC shall
determine in its sole discretion the proportion of stock and cash it pays
pursuant to the Earn Out Payment. "Earn Out Period," as referred to herein,
shall mean the 365-day period following the Effective Time. "Adjusted Sales,"
as referred to herein, shall mean (a) 68% of the Surviving Corporation's non-IBM
sales, net of any discounts, warranties and uncollected debts, plus (b) the
greater of (i) 47.1% of the Surviving Corporation's sales of Q2.15 to IBM during
the Earn Out Period, or (ii) 85% of the Surviving Corporation's sale of the
Q2.15 product line to IBM plus 100% of the gross, pre-tax profit of the
Surviving Corporation's sales during the Earn Out Period of any other fixed or
intangible assets of the Surviving Corporation sold outside the ordinary course
of the Surviving Corporation's business, all as calculated by
PriceWaterhouseCoopers, LLP, or such other accounting firm as GMI and the
Stockholders' Representative shall mutually agree to use (the "First Auditor").
"Warrant Value," as referred to herein, shall mean 4,500,000 multiplied by the
excess, if any, of the average closing bid price for the 30 trading-day period
ending on the last day of the Earn Out Period over the exercise price of such
Escrow Warrants on the last day of the Earn Out Period. Promptly following
calculation of the Earn Out Payment Amount, GMC shall deliver cash and shares of
GMC Common Stock representing the Earn Out Payment to the H&QGF pursuant to the
Collateral Agreement. Notwithstanding anything in this Agreement to the
contrary, in no event shall GMC be required to deliver more than 10,000,000
shares of GMC Common Stock, in the aggregate (as adjusted from time to time to
reflect the effect of any stock split, reverse split, stock dividend,
reorganization, recapitalization or other like change with respect to GMC Common
Stock), pursuant to this Section 2.02 or under the Escrow Warrants issued
pursuant to Section 2.01(a).
In the event that either GMC, GMI or Merger Subsidiary, on the one
hand, or the Company, on the other, dispute the Earn Out Payment Amount
calculated by the First Auditor, the disputing party may, by providing the non-
disputing party with notice of its objection to the Earn Out Payment Amount, as
calculated, within 30 days of the disputing party's receipt of notice of such
calculation, obtain a second calculation of the Earn Out Payment Amount by an
independent auditor mutually acceptable to the disputing and non-disputing
parties (the "Second Auditor"). If the Second Auditor's calculation of the Earn
Out Payment Amount varies by more than 10% from the First Auditor's calculation
of the Earn Out Payment Amount, then the calculation of the Second Auditor shall
be used as the Earn Out Payment Amount. If, however, the Second Auditor's
calculation of the Earn Out Payment Amount varies by 10% or less from the First
Auditor's calculation of the Earn Out Payment Amount, the calculation of the
First Auditor shall be used as the Earn Out Payment Amount.
The value of the Escrow Fund shall be the Warrant Value plus the Earn
Out Payment Amount (the "Escrow Value"). The value of an Escrow Unit shall be
the Escrow Value, as reduced pursuant to Section 2.06(a) hereof, divided by the
Number of Escrow Units outstanding and deemed outstanding as of the Calculation
Date.
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2.03 Dissenting Shares.
-----------------
(a) Notwithstanding anything in this Agreement to the contrary, if
Section 262 of the DGCL shall be applicable to the Merger, shares of Company
Common Stock or Series A Preferred Stock that are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have not voted such shares in favor of the Merger, who shall have delivered,
prior to any vote on the Merger, a written demand to the Company for the
appraisal of such shares in the manner provided in Section 262 of the DGCL and
who, as of the Effective Time, shall not have effectively withdrawn or lost such
right to dissenters' rights ("Dissenting Shares") shall not be converted into
Escrow Units or represent a right to receive the Merger Consideration pursuant
to Section 2.01 hereof and an escrow agreement to be executed by the parties to
this agreement on or before the Earn Out Date (the "Escrow Agreement"), but the
holders thereof shall be entitled only to such rights as are granted by Section
262 of the DGCL. Each holder of Dissenting Shares who becomes entitled to
payment for such shares pursuant to Section 262 of the DGCL shall receive
payment therefor from the Surviving Corporation in accordance with the DGCL;
provided, however, that if any such holder of Dissenting Shares shall have
effectively withdrawn such holder's demand for appraisal of such shares or lost
such holder's right to appraisal and payment of such shares under Section 262 of
the DGCL, such holder or holders (as the case may be) shall forfeit the right to
appraisal of such shares and each such share shall thereupon be deemed to have
been canceled, extinguished and converted, as of the Effective Time, into Escrow
Units and represent the right to receive payment of the Merger Consideration, as
provided in Section 2.01 hereof and the Escrow Agreement.
(b) The Company shall give GMI (i) prompt notice of any written
demand for fair value, any withdrawal of a demand for fair value and any other
instrument served pursuant to Section 262 of the DGCL received by the Company,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for fair value under such Section 262 of the DGCL. The Company shall
not, except with the prior written consent of GMI, voluntarily make any payment
with respect to any demand for fair value or offer to settle or settle any such
demand.
2.04 Rights of Holders of Converted Securities. On and after the
-----------------------------------------
Effective Time and until surrendered for exchange, each outstanding stock
certificate which immediately prior to the Effective Time represented shares of
Company Common Stock or Series A Preferred Stock (other than Dissenting Shares)
and each stock certificate that represented Company Common Stock that was issued
upon the exercise of a Non-H&QGF Warrant, which certificate was converted into
Escrow Units pursuant to Section 2.01(c) (which certificates are collectively
referred to herein as the "Certificates"), shall be deemed for all purposes to
evidence ownership of and to represent solely the right to receive that portion
of the Merger Consideration to which the holder thereof is entitled to receive
pursuant to this Article II, which right shall be uncertificated (the issuance,
or allocation, of Escrow Units shall be recorded solely in the books of the
Transfer Agent (as such term is defined in Section 2.06(a) hereof)). In any
matters relating to the Certificates, the Transfer Agent may rely conclusively
upon the record of holders of
5
Certificates maintained by the Company containing the names and addresses of
such holders at the Effective Time (or in the case of Certificates resulting
from the exercise of Non-H&QGF Warrants, as of the Calculation Date).
2.05 Adjustments to Merger Consideration. The number of shares
-----------------------------------
issuable pursuant to the Escrow Warrants, the exercise price thereof and the
number of shares to be issued pursuant to the Earn Out Payment shall be adjusted
to reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Company
Common Stock, Series A Preferred Stock or GMC Common Stock), reorganization,
recapitalization or other like change with respect to Company Common Stock,
Series A Preferred Stock or GMC Common Stock occurring after the date of this
Agreement and prior to the Effective Time.
2.06 Exchange of Certificates; Escrow Fund; Deductions from Escrow
-------------------------------------------------------------
Fund.
----
(a) Issuance of Escrow Warrants; Appointment of Escrow Agent. As of
--------------------------------------------------------
the Effective Time, GMC shall, pursuant to the Collateral Agreement, deposit
with H&QGF the Escrow Warrants issuable pursuant to Section 2.01. In addition,
promptly following the final determination of the Earn Out Payment as provided
for in Section 2.02, GMC shall deposit with H&QGF such cash (the "Escrow Cash")
and shares of GMC Common Stock (the "Escrow Shares," and each individually an
"Escrow Share"), if any, issuable pursuant to Section 2.02 (such Escrow Cash and
Escrow Shares, if any, together with the Escrow Warrants, being hereinafter
referred to as the "Escrow Fund"). H&QGF (i) shall hold the Escrow Fund as
security for its claims and any claims of GMC or GMI against the Escrow Fund
described in the Letter Agreement by and among H&QGF, the Company and GMI dated
as of February 23, 1999 (the "Letter Agreement"), including any claims (A) by
GMC or GMI for indemnification hereunder, (B) by H&QGF pursuant to its rights
(including the dividend payment rights set forth in Section 9.03 hereof and the
liquidation preferences to be set forth in the Surviving Corporation's
Certificate of Incorporation) as holder of the Surviving Corporation's Series B
Nonvoting Preferred Stock to be created pursuant to Section 9.03 (the "Series B
Preferred Stock"), (C) by H&QGF, GBC or CR in connection with the Business Loan
Agreement in the amount of approximately $2,900,000, which amount represents the
Company's debt held by H&QGF, GBC or CR as of the date of this Agreement less
the $1,000,000 to be converted into Series B Preferred Stock pursuant to Section
9.04 hereof, and (D) by H&QGF, GBC or CR for any compensation payment due with
respect to certain contractual obligations of the Company existing immediately
prior to the Effective Time pursuant to certain warrants held by H&QGF, GBC and
CR, which warrants represent the right to purchase an aggregate of 777,441
shares of the Company's Common Stock (the "Compensation Payment"), and (ii)
shall, in its sole discretion but in any event no later than upon satisfaction
of the H&QGF Conditions (as defined below), deliver the remainder of the Escrow
Fund, if any (following satisfaction of the claims set forth above), to the
Escrow Agent for distribution to the holders of surrendered Certificates
pursuant to the terms of this Agreement and the Escrow Agreement. Except as
contemplated in the preceding sentence and by Section 2.06(f), the Escrow Fund
shall not be used for any other
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purpose. GMI shall make available to the Escrow Agent from time to time, as
needed, cash sufficient to pay cash in lieu of fractional shares pursuant to
Section 2.06(e).
The H&QGF Conditions, as referred to herein, shall be that (i) the
Surviving Corporation shall not be in default of its Business Loan Agreement or
related Security Agreement with H&QGF, (ii) GMC shall have delivered the Earn
Out Payment, if any, to H&QGF, (iii) any Compensation Payment due shall have
been made from the Escrow Fund and (iv) either (A) GMC's Common Stock shall have
traded at or above $4.00 per share for twenty consecutive trading days, or (B)
there shall be an offer to buy from H&QGF (or other current holder thereof)
without recourse, warranty or representation the Series B Preferred Stock for
$1,000,000 plus any accrued but unpaid dividends thereon and, if such offer
shall be accepted by H&QGF, such purchase price shall be paid in full.
(b) Exchange Procedures. As promptly as practicable after the
-------------------
Effective Time, the Surviving Corporation or its designee, as transfer agent
(the "Transfer Agent"), shall mail to each holder of record of a Certificate
that was converted into Escrow Units pursuant to Section 2.01 a letter of
transmittal in customary form. The letter of transmittal shall specify that
delivery of Certificates shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Transfer
Agent. The Transfer Agent shall accompany the letter of transmittal with
instructions for use in effecting the surrender of the Certificates in exchange
for Escrow Units. Upon surrender of a Certificate for cancellation to the
Transfer Agent, together with such letter of transmittal, duly executed, and
such other documents as the Transfer Agent may reasonably require, the holder of
such Certificate shall be entitled to receive such holder's proportionate share
of the Escrow Fund pursuant to the provisions of this Article II, the Letter
Agreement and the Escrow Agreement, including cash in lieu of fractional shares
of GMC Common Stock to which such holder is entitled pursuant to Section 2.06(e)
hereof and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.06(c) hereof. The Transfer Agent shall forthwith cancel
the Certificates so surrendered, and shall record in its books all Escrow Units
outstanding and deemed outstanding pursuant to this Agreement.
If there is a transfer of Certificate ownership which is not
registered in the transfer records of the Company, the Escrow Units into which
such Certificate was converted may be credited to a person other than the person
in whose name the Certificate so surrendered is registered, if, upon
presentation to the Transfer Agent, such Certificate shall be properly endorsed
or otherwise be in proper form for transfer and the person requesting such
payment shall pay any transfer or other taxes required by reason of the
allocation of Escrow Units to a person other than the registered holder of such
Certificate or establish to the reasonable satisfaction of GMC that such tax has
been paid or is not applicable. Except as provided in Section 2.03, until
surrendered as contemplated by this Section 2.06(b), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration due to the holder of the Escrow Units into
which such Certificate was converted, including cash in lieu of any fractional
shares of GMC Common Stock as contemplated by this
7
Section 2.06 and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.06(c). No interest shall be paid or shall accrue
on any cash held in the Escrow Fund or payable pursuant to Sections 2.06(c) or
2.06(e).
(c) Distributions with Respect to Unexchanged Shares. GMC shall pay
------------------------------------------------
no dividends and make no other distributions with respect to GMC Common Stock
with a record date after the Effective Time to the holder of any unsurrendered
Certificate with respect to the shares of GMC Common Stock to be issued upon
release of the Escrow Fund, and GMI shall make no cash payment in lieu of
fractional shares with respect to such GMC Common Stock pursuant to Section
2.06(e), until the holder of record of such Certificate surrenders such
Certificate.
(d) No Further Ownership Rights in Certificates. The Escrow Units
-------------------------------------------
issued upon the surrender of Certificates for exchange in accordance with the
terms hereof and the Letter Agreement shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Certificates.
(e) No Fractional Shares or Escrow Warrants to Purchase Fractional
--------------------------------------------------------------
Shares.
------
(i) No fractional shares, or Escrow Warrants to purchase fractional
shares, of GMC Common Stock shall be issued upon distribution of the Escrow
Fund, and such fractional share interests shall not entitle the owner thereof to
vote or to any rights of a stockholder of GMC.
(ii) Notwithstanding any other provision of this Agreement, each holder of
a Certificate exchanged for Escrow Units pursuant to the Merger who would
otherwise have been entitled to receive a fraction of an Escrow Share or an
Escrow Warrant to purchase a fraction of a share of GMC Common Stock (after
taking into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of GMC Common Stock multiplied by either the closing price of GMC
Common Stock on the Calculation Date (in the case of a fractional share) or the
excess of the closing price of GMC Common Stock on the Calculation Date over the
Exercise Price of such Escrow Warrant (in the case of an Escrow Warrant to
purchase a fractional share).
(f) Termination of Escrow Fund. The Escrow Agent shall deliver any
--------------------------
portion of the Escrow Fund, which remains undistributed to the holders of
Certificates for two years after the Effective Time, to GMI, upon demand,
provided that the H&QGF Conditions have been satisfied. Any holders of
Certificates who have not theretofore complied with this Article II shall
thereafter look only to GMI for payment of their claim for Merger Consideration,
including any cash in lieu of fractional shares of GMC Common Stock and any
dividends or distributions with respect to GMC Common Stock.
8
(g) No Liability. None of GMC, GMI, Merger Subsidiary, the Company,
------------
the Surviving Corporation, H&QGF or the Escrow Agent shall be liable to any
person in respect of any portion of the Escrow Fund paid to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
(h) Investment of Escrow Fund. H&QGF and the Escrow Agent shall be
-------------------------
entitled to hold, invest and co-mingle any Escrow Cash with their own cash
accounts and money market accounts. H&QGF and the Escrow Agent shall allocate
interest to the Escrow Fund at the Applicable Bank Rate (defined below) on the
Escrow Cash for the period of time that the Escrow Cash is held by H&QGF or the
Escrow Agent, respectively. The Applicable Bank Rate shall be the rate at which
Silicon Valley Bank pays interest on money market accounts or deposit accounts
of amounts most nearly comparable to the amount of Escrow Cash so held by H&QGF
and the Escrow Agent.
(i) Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen, or destroyed, then upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen, or destroyed, and, if
required by the Surviving Corporation, upon the delivery to the Surviving
Corporation of a bond in such sum as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, such person shall be entitled to receive that portion of the Escrow
Fund to which he or she is entitled pursuant to the terms and conditions set
forth in this Article II.
2.07 Stock Options. Each option (individually, a "Stock Option" and,
-------------
collectively, the "Stock Options") issued pursuant to the Company's Stock Option
Plan (the "Option Plan") and outstanding immediately prior to the Effective Time
(an "Outstanding Stock Option") shall be canceled and replaced with an option to
purchase GMC Common Stock under the Global MAINTECH Corporation 1989 Stock
Option Plan (a "Replacement Option") at an exercise price equal to the exercise
price of such Outstanding Stock Option immediately prior to the Effective Time
divided by 0.4. The Replacement Options shall not be exercisable until after
the Earn Out Date (as defined in Section 9.03). The number of shares issuable
upon exercise of each Replacement Option shall equal the number of shares
issuable (immediately prior to the Effective Time) upon exercise of the
Outstanding Stock Option that it replaced divided by a number to be agreed upon
by the parties to this Agreement on or before the Closing Date.
2.08 Notices to Option Holders. As soon as practicable after the
-------------------------
Effective Time, GMC shall deliver to each holder of a Stock Option an
appropriate notice setting forth such holder's rights pursuant thereto. GMC
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of GMC Common Stock for delivery pursuant to the exercise of
Replacement Options.
2.09 H&QGF Warrants. The outstanding warrants to purchase Company
--------------
Common Stock that are held by H&QGF, GBC and CR (collectively, the "H&QGF
Warrants") shall be converted at the Effective Time into new warrants in form
and substance to be agreed
9
upon by GMC and the holders of the H&QGF Warrants (the "Replacement Warrants")
to purchase a like number of shares of GMC Common Stock at an initial exercise
price of $4.125, subject to adjustment as set forth in the Replacement Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby makes the representations and warranties set forth
below to GMI and Merger Subsidiary, except as set forth in the Disclosure
Schedule referencing this Article III and delivered by the Company to GMI and
Merger Subsidiary no later than 10 days before the Closing Date (the "Disclosure
Schedule") (which Disclosure Schedule sets forth the exceptions to the
representations and warranties contained in this Article III under captions
referencing the Sections to which such exceptions apply). When used in
connection with the Company, the term "Material Adverse Change" means any
change, event or effect that is or is reasonably likely to be materially adverse
to the business, assets (including intangible assets), liabilities, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole; provided, however, that a Material Adverse Change shall not include any
adverse effect following the date of this Agreement on the business, financial
condition or results of operations of the Company, taken as a whole, that is
attributable to the Merger contemplated by this Agreement or the announcement of
the Merger. Disclosure under any section shall constitute disclosure under the
Disclosure Schedule without the need for cross-references. All descriptions of
agreements or other matters appearing herein are summary in nature and are
qualified by reference to the complete documents, which have been supplied to
GMI and Merger Subsidiary, or counsel to GMI and Merger Subsidiary or which the
Company will make available to GMI or Merger Subsidiary upon request. In no
event shall any disclosure hereunder be deemed to constitute an acknowledgment
that such disclosure is material to the business or financial condition of the
Company.
3.01 Incorporation and Corporate Power. The Company is a corporation
---------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and, subject to approval of this Agreement by the Company's
stockholders, has the requisite corporate power and authority to execute and
deliver this Agreement and the Certificate of Merger and to perform its
obligations hereunder and thereunder. The Company has the corporate power and
authority and all authorizations, licenses, permits and certifications necessary
to own and operate its properties and to carry on its business as now conducted
and presently proposed to be conducted. The copies of the Company's Certificate
of Incorporation and Bylaws which have been furnished by the Company to GMI and
Merger Subsidiary prior to the date hereof reflect all amendments made thereto
and are correct and complete as of the date hereof. The Company is qualified to
do business as a foreign corporation in every jurisdiction in which the nature
of its business or its ownership of property requires it to be so qualified,
except for those jurisdictions in which the failure to be so qualified would
not, individually or in the aggregate, result in a Material Adverse Change in
the Company.
10
3.02 Execution, Delivery; Valid and Binding Agreements. The
-------------------------------------------------
execution, delivery and performance of the Letter Agreement, this Agreement, the
Collateral Agreement and the Certificate of Merger by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite corporate action, and no other corporate
proceedings on its part are necessary to authorize the execution, delivery and
performance of the Letter Agreement, this Agreement, the Collateral Agreement
and the Certificate of Merger, other than, with respect to this Agreement,
approval by the board of directors and stockholders of the Company. The Letter
Agreement and this Agreement have been duly executed and delivered by the
Company and constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, and the Collateral Agreement and
Certificate of Merger, when executed and delivered by the Company, shall
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms.
3.03 Approval of the Merger Agreement and Plan of Merger; Meeting of
---------------------------------------------------------------
Stockholders. The Company hereby represents that its Board of Directors has, by
------------
resolutions duly adopted at a meeting held on March __, 1999, approved this
Agreement and the Certificate of Merger and the transactions contemplated hereby
and thereby, including the Merger, and resolved to recommend approval of this
Agreement by the Company's stockholders. None of the resolutions described in
this Section 3.03 has been amended or otherwise modified in any respect since
the date of adoption thereof and all such resolutions remain in full force and
effect.
3.04 No Breach. To the knowledge of the Company, the execution,
---------
delivery and performance of this Agreement and the Certificate of Merger by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of the Company, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Certificate of
Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan
agreement or other agreement or instrument by which the Company is bound or
affected, or any law, statute, rule or regulation or order, judgment or decree
to which the Company is subject, except as would not result in a Material
Adverse Change in the Company.
3.05 Governmental Authorities; Consents. Except for the filing of the
----------------------------------
Certificate of Merger with the Secretary of State of the State of Delaware, the
Company is not required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by it of
this Agreement or the Certificate of Merger or the consummation of the
transactions contemplated hereby or thereby. Except as set forth in the
Disclosure Schedule under the caption referencing this Section 3.05, no consent,
approval or authorization of any governmental or regulatory authority or any
other party or person (except the approval of this Agreement by the stockholders
of the Company) is required to be obtained by
11
the Company in connection with its execution, delivery and performance of this
Agreement or the Certificate of Merger or the transactions contemplated hereby
or thereby.
3.06 Subsidiaries. Except as otherwise set forth in the Disclosure
------------
Schedule under the caption referencing this Section 3.06, the Company does not
own any stock, partnership interest, joint venture interest or any other
security or ownership interest issued by any other corporation, organization or
entity. All issued and outstanding shares of capital stock of any of the
subsidiaries set forth in such Disclosure Schedule are owned by the Company,
either directly or through one or more other subsidiaries, free and clear of all
liens, charges, encumbrances, claims and options of any nature. All of the
outstanding shares of capital stock of such subsidiaries have been duly and
validly authorized and issued, and are fully paid and nonassessable.
3.07 Capital Stock. The authorized capital stock of the Company
-------------
consists of 30,000,000 shares of Common Stock, par value $0.01 per share, of
which, as of the date hereof, 15,683,368 shares are issued and outstanding and
10,000,000 shares of Preferred Stock, par value $0.01 per share, of which, as of
the date hereof 912,244 shares of Series A Preferred Stock are issued and
outstanding. In addition, as of the date hereof, there are outstanding options
to purchase 3,461,500 shares of Company Common Stock and outstanding warrants to
purchase 2,978,306 shares of Company Common Stock. All of such outstanding
shares of Company Common Stock and Preferred Stock, options and warrants have
been duly authorized and are validly issued, fully paid and nonassessable. The
Company has no other equity securities or securities containing any equity
features authorized, issued or outstanding. There are no agreements or other
rights or arrangements existing which provide for the sale or issuance of
capital stock by the Company and, except for the options and warrants described
above, there are no rights, subscriptions, warrants, options, conversion rights
or agreements of any kind outstanding to purchase or otherwise acquire from the
Company any shares of capital stock or other securities of the Company of any
kind. There are no agreements or other obligations (contingent or otherwise)
which may require the Company to repurchase or otherwise acquire any shares of
its capital stock.
3.08 Financial Statements. The Company has delivered to GMI copies of
--------------------
(a) the unaudited balance sheet, as of December 31, 1998, of the Company (the
"Latest Balance Sheet") and the unaudited statements of earnings, stockholders'
equity and cash flows of the Company for the year ended December 31, 1998 (such
statements and the Latest Balance Sheet being herein referred to as the "Latest
Financial Statements") and (b) the audited balance sheets, as of December 31,
1997, 1996 and 1995 of the Company and the audited statements of earnings,
stockholders' equity and cash flows of the Company for each of the years ended
1997, 1996 and 1995 (collectively, the "Annual Financial Statements"). The
Latest Financial Statements and the Annual Financial Statements are based upon
the information contained in the books and records of the Company and the
Company has used its best efforts to ensure that, except as set forth in the
Disclosure Schedule referencing this Section 3.08, the Latest Financial
Statements and the Annual Financial Statements fairly present, in all material
respects, the financial condition of the
12
Company as of the dates thereof and results of operations for the periods
referred to therein. The Annual Financial Statements have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods indicated. The Company has used its best efforts to
ensure that the Latest Financial Statements have been prepared in accordance
with generally accepted accounting principles applicable to unaudited interim
financial statements (and thus may not contain all notes and may not contain
prior period comparative data which are required to be prepared in accordance
with generally accepted accounting principles) consistently with the Annual
Financial Statements and reflect all adjustments necessary to a fair statement
of the results for the interim period(s) presented.
3.09 Absence of Undisclosed Liabilities. Except as reflected in the
----------------------------------
Latest Balance Sheet, the Company has no liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due, whether
known or unknown, and regardless of when asserted) arising out of transactions
or events heretofore entered into, or any action or inaction, or any state of
facts existing, with respect to or based upon transactions or events heretofore
occurring, except (i) liabilities which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
uninsured liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit), or (ii) as otherwise set forth in the
Disclosure Schedule under the caption referencing this Section 3.09.
3.10 No Material Adverse Changes. Since the date of the Latest
---------------------------
Balance Sheet (the "Balance Sheet Date"), there has been no Material Adverse
Change in the Company.
3.11 Absence of Certain Developments. Except as set forth in the
-------------------------------
Disclosure Schedule referencing this Section 3.11, since the Balance Sheet Date,
the Company has not:
(a) borrowed any amount or incurred or become subject to any
liability in excess of $25,000, except (i) current liabilities incurred in the
ordinary course of business and (ii) liabilities under contracts entered into in
the ordinary course of business;
(b) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets with a fair market value in excess of $25,000,
except (i) liens for current property taxes not yet due and payable, (ii) liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, (iii)
liens in respect of pledges or deposits under workers' compensation laws, (iv)
liens set forth under the caption referencing this Section 3.11 in the
Disclosure Schedule, or (v) liens voluntarily created in the ordinary course of
business, all of which liens aggregate less than $25,000;
(c) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $25,000, other than current
liabilities paid in the ordinary course of business;
13
(d) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or stockholders) any tangible assets with
a fair market value in excess of $25,000, or canceled any debts or claims, in
each case, except in the ordinary course of business;
(e) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or stockholders) any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets;
(f) disclosed, to any person other than GMI or Merger Subsidiary and
authorized representatives of GMI or Merger Subsidiary, any proprietary
confidential information, other than pursuant to a confidentiality agreement
prohibiting the use or further disclosure of such information, which agreement
is identified in the Disclosure Schedule under the caption referencing this
Section 3.11 and is in full force and effect on the date hereof;
(g) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in the
ordinary course of business or consistent with past practice;
(h) declared or paid any dividends or other distributions with
respect to any shares of the Company's capital stock or redeemed or purchased,
directly or indirectly, any shares of the Company's capital stock or any
options, except as permitted under Section 5.01(b) hereof;
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any bonds
or debt securities;
(j) taken any other action or entered into any other transaction
other than in the ordinary course of business and in accordance with past custom
and practice, or entered into any transaction with any "Insider" (as defined in
Section 3.23 hereof) which would result in a Material Adverse Change in the
Company, other than employment arrangements otherwise disclosed in this
Agreement and the Disclosure Schedule, or the transactions contemplated by this
Agreement;
(k) suffered any material theft, damage, destruction or loss of or to
any property or properties owned or used by it, whether or not covered by
insurance;
(l) made or granted any bonus or any wage, salary or compensation
increase to any director, officer, employee who earns more than $50,000 per
year, or consultant or made or granted any increase in any employee benefit plan
or arrangement, or amended or terminated any existing employee benefit plan or
arrangement, or adopted any new employee benefit plan or arrangement or made any
commitment or incurred any liability to any labor organization;
14
(m) made any single capital expenditure or commitment therefor in
excess of $100,000;
(n) made any loans or advances to, or guarantees for the benefit of,
any persons such that the aggregate amount of such loans, advances or guarantees
at any time outstanding is in excess of $25,000;
(o) made charitable contributions or pledges which in the aggregate
exceed $25,000; or
(p) made any change in accounting principles or practices from those
utilized in the preparation of the Annual Financial Statements.
3.12 Title to Properties.
-------------------
(a) The Company does not own any real property. The real property
demised by the leases (the "Leases") described under the caption referencing
this Section 3.12 in the Disclosure Schedule constitutes all of the real
property used or occupied by the Company (the "Real Property"). The Real
Property has access, sufficient for the conduct of the Company's business as now
conducted or as presently proposed to be conducted, to public roads and to all
utilities, including electricity, sanitary and storm sewer, potable water,
natural gas and other utilities, used in the operation of the business of the
Company at that location.
(b) The Leases are in full force and effect, and the Company holds a
valid and existing leasehold interest under each of the Leases for the term set
forth under such caption in the Disclosure Schedule. The Company has delivered
to GMI complete and accurate copies of each of the Leases, and none of the
Leases has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to GMI. The Company is not
in material default, and no circumstances exist which, if unremedied, would,
either with or without notice or the passage of time or both, result in such
default under any of the Leases; nor, to the best knowledge of the Company, is
any other party to any of the Leases in default.
(c) The Company owns good and marketable title to each of the
tangible properties and tangible assets reflected on the Latest Balance Sheet or
acquired since the date thereof, free and clear of all liens and encumbrances,
except for (i) liens for current taxes not yet due and payable, (ii) liens set
forth under the caption referencing this Section 3.12 in the Disclosure
Schedule, (iii) the properties subject to the Leases, (iv) assets disposed of
since the date of the Latest Balance Sheet in the ordinary course of business,
(v) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and materialmen and
(vi) liens in respect of pledges or deposits under workers' compensation laws,
all of which liens aggregate less than $25,000.
15
(d) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of the Company's business are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business. There are no defects in such assets or other conditions
relating thereto which, in the aggregate, materially adversely affect the
operation or value of such assets. The Company owns, or leases under valid
leases, all buildings, machinery, equipment and other tangible assets necessary
for the conduct of its business.
(e) To the best of the Company's knowledge, the Company is not in
violation of any applicable zoning ordinance or other law, regulation or
requirement relating to the operation of any properties used in the operation of
its business, and the Company has not received any notice of any such violation,
or the existence of any condemnation proceeding with respect to any of the Real
Property, except, in each case, with respect to violations the potential
consequences of which do not or will not result in a Material Adverse Change in
the Company.
(f) The Company has no knowledge of improvements made or contemplated
to be made by any public or private authority, the costs of which are to be
assessed as special taxes or charges against any of the Real Property, and there
are no present assessments.
3.13 Accounts Receivable. The accounts receivable reflected on the
-------------------
Latest Balance Sheet are valid receivables, are not subject to valid
counterclaims or setoffs, and are collectible in accordance with their terms,
except as otherwise described in the Disclosure Schedule under the caption
referencing this Section 3.13, and except to the extent of the bad debt reserve
reflected on the Latest Balance Sheet.
3.14 Inventory. The Company's inventory of raw materials, work in
---------
process and finished goods consists of items of a quality and quantity usable
and, with respect to finished goods only, saleable at the Company's normal
profit levels, in each case, in the ordinary course of the Company's business.
The Company's inventory of finished goods is not slow-moving as determined in
accordance with past practices, obsolete or damaged and is merchantable and fit
for its particular use. The Company has on hand or has ordered and expects
timely delivery of such quantities of raw materials and has on hand such
quantities of work in process and finished goods as are reasonably required
timely to fill current orders on hand which require delivery within 60 days and
to maintain the manufacture and shipment of products at its normal level of
operations. As of the date of the Latest Balance Sheet, the values at which
such inventory is carried on the Latest Balance Sheet are in accordance with
generally accepted accounting principles. The Disclosure Schedule, under the
caption referencing this Section 3.14, contains a materially complete and
accurate summary of the Company's inventory of raw materials, work in progress
and finished goods as of January 18, 1999.
16
3.15 Tax Matters.
-----------
(a) Each of the Company and any subsidiary, any affiliated, combined
or unitary group of which the Company or any subsidiary is or was a member, any
"Plans" (as defined in Section 3.21 hereof), as the case may be (each, a "Tax
Affiliate" and, collectively, the "Tax Affiliates"), has (except where the
failure to do so would not result in a Material Adverse Change in the Company):
(i) timely filed (or has had timely filed on its behalf) all returns,
declarations, reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any "Taxes" (as
defined in subsection (i) below) or required to be filed or sent by it by any
taxing authority having jurisdiction; (ii) timely and properly paid (or has had
paid on its behalf) all Taxes shown to be due and payable on such Returns; (iii)
established on its Latest Balance Sheet, in accordance with generally accepted
accounting principles, reserves that are adequate for the payment of any Taxes
not yet due and payable; (iv) complied with all applicable laws, rules, and
regulations relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Sections 1441 and
1442 of the Internal Revenue Code of 1986, as amended (the "Code"), or similar
provisions under any foreign laws), and timely and properly withheld from
individual employee wages and paid over to the proper governmental authorities
all amounts required to be so withheld and paid over under all applicable laws.
(b) There are no liens for Taxes upon any assets of the Company or of
any Tax Affiliate, except liens for Taxes not yet due.
(c) No deficiency for any Taxes has been proposed, asserted or
assessed against the Company or the Tax Affiliates that has not been resolved
and paid in full. No waiver, extension or comparable consent given by the
Company or the Tax Affiliates regarding the application of the statute of
limitations with respect to any Taxes or Returns is outstanding, nor is any
request for any such waiver or consent pending. There has been no Tax audit or
other administrative proceeding or court proceeding with regard to any Taxes or
Returns, nor is any such Tax audit or other proceeding pending, nor has there
been any notice to the Company by any Taxing authority regarding any such Tax,
audit or other proceeding, or, to the best knowledge of the Company, is any such
Tax audit or other proceeding threatened with regard to any Taxes or Returns.
The Company does not expect the assessment of any additional Taxes of the
Company or the Tax Affiliates and is not aware of any unresolved questions,
claims or disputes concerning the liability for Taxes of the Company or the Tax
Affiliates which would exceed the estimated reserves established on its books
and records.
(d) Neither the Company nor any Tax Affiliate is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by the Company or any Tax Affiliate that are not deductible (in whole or in
part) under Section 280G of the Code.
17
(e) Neither the Company nor any Tax Affiliate has requested any
extension of time within which to file any Return, which Return has not since
been filed.
(f) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code as it applied
prior to repeal) or an underpayment of tax (within the meaning of Section 6662
of the Code) were reported in a manner for which there is substantial authority
or were adequately disclosed (or, with respect to Returns filed before the
Closing Date, will be reported in such a manner or adequately disclosed) on the
Returns required in accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of
the Code.
(g) Neither the Company nor any Tax Affiliate has filed any consent
under Section 341(f) of the Code.
(h) All Taxes of the Company which will be due and payable, whether
now or hereafter, for any period ending on, ending on and including, or ending
prior to the Closing Date, shall have been paid by or on behalf of the Company
or shall be reflected on the Company's books as an accrued Tax liability, either
current or deferred, the amount of which as of the date of the Latest Financial
Statements is as set forth therein and the amount of which as of the date of any
subsequent interim financial statements shall be as set forth therein and in
Section 3.15 of the Company Disclosure Schedule.
(i) For purposes of this Agreement, the terms "Tax" and "Taxes" mean
all taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance, stamp,
occupation, property, or other taxes, customs duties, fees, assessments, or
charges of any kind whatsoever, including, without limitation, all interest and
penalties thereon, and additions to tax or additional amounts imposed by any
taxing authority, domestic or foreign, upon the Company or any Tax Affiliate.
3.16 Contracts and Commitments.
-------------------------
(a) The Disclosure Schedule under the caption referencing this
Section 3.16 lists all material agreements, whether oral or written, to which
the Company is a party, which are currently in effect, and which relate to the
operation of the Company's business, including all of those involving the
expenditure by, or potential obligation of, the Company of $25,000 or more and
any (i) collective bargaining agreement or contract with any labor union, (ii)
bonus, pension, profit sharing, retirement or other form of deferred
compensation plan, (iii) hospitalization insurance or other welfare benefit plan
or practice, whether formal or informal, (iv) stock purchase, stock option or
similar plan, (v) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or relating to
severance pay for any such person, (vi) confidentiality agreement, (vii)
contract, agreement or understanding relating to
18
the voting of capital stock or the election of directors of the Company and any
other agreement not entered into in the ordinary course of business; provided,
however, that this Section 3.16(a) shall not apply to purchase orders made or
obtained by the Company in the ordinary course of its business.
(b) The Company has performed all obligations required to be
performed by it in connection with the contracts or commitments required to be
disclosed in the Disclosure Schedule under the caption referencing this Section
3.16 and is not in receipt of any claim of default under any contract or
commitment required to be disclosed under such caption; the Company has no
present expectation or intention of not fully performing any material obligation
pursuant to any contract or commitment required to be disclosed under such
caption; and the Company has no knowledge of any breach or anticipated breach by
any other party to any contract or commitment required to be disclosed under
such caption.
(c) Prior to the date of this Agreement, GMI and Merger Subsidiary
have been supplied with a true and correct copy of each written contract or
commitment, and a written description of each oral contract or commitment,
referred to under the caption referencing this Section 3.16 in the Disclosure
Schedule, together with all amendments, waivers or other changes thereto.
3.17 Intellectual Property Rights. The Disclosure Schedule describes
----------------------------
under the caption referencing this Section 3.17 all rights in patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, know-how or other intellectual property rights owned
by, licensed to or otherwise controlled by the Company or used in, developed for
use in or necessary to the conduct of the Company's business as now conducted or
planned to be conducted. The Company owns and possesses all right, title and
interest, or holds a valid license to use, or prior to the Effective Time will
own and possess or hold a valid license to use, the rights set forth under such
caption. The Disclosure Schedule describes under the caption referencing this
Section 3.17 all intellectual property rights which have been licensed to third
parties and those intellectual property rights which are licensed from third
parties. The Company has taken all necessary action to protect the intellectual
property rights set forth under such caption. The Company has not received any
notice of, nor are there any facts known to the Company which indicate a
likelihood of, any infringement or misappropriation by, or conflict from, any
third party with respect to the intellectual property rights which are listed;
to the best knowledge of the Company, no claim by any third party contesting the
validity of any intellectual property rights listed in the Disclosure Schedule
has been made, is currently outstanding or is threatened; the Company has not
received any notice of any infringement, misappropriation or violation by the
Company of any intellectual property rights of any third parties and the Company
has not, to the best of its knowledge, infringed, misappropriated or otherwise
violated any such intellectual property rights; and no infringement, illicit
copying, misappropriation or violation has occurred or will occur with respect
to products currently being sold by the Company or with respect to the products
currently under development (in their present state of development) or with
respect to the conduct of the Company's business as now conducted.
19
3.18 Litigation. Except as set forth in the Disclosure Schedule
----------
under the caption referencing this Section 3.18, there are no actions, suits,
proceedings, orders or investigations pending or, to the best knowledge of the
Company, threatened against the Company, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
3.19 Warranties. The Disclosure Schedule summarizes under the caption
----------
referencing this Section 3.19 all claims, to the best knowledge of the Company,
outstanding, pending or threatened for breach of any warranty relating to any
products sold by the Company prior to the date hereof. The description of the
Company's product warranties set forth under the caption referencing this
Section 3.19 is correct and complete in all material respects. The reserves for
warranty claims on the Latest Balance Sheet are consistent with the Company's
prior practices and are fully adequate to cover all warranty claims made against
any products of the Company sold prior to the date thereof.
3.20 Employees. (a) To the best knowledge of the Company, no
---------
executive employee of the Company and no group of the Company's employees has
any plans to terminate his or its employment; (b) the Company has complied with
all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes; (c) the Company has no material
labor relations problem pending and its labor relations are satisfactory; (d)
there are no workers' compensation claims pending against the Company nor is the
Company aware of any facts that would give rise to such a claim; (e) to the best
knowledge of the Company, no employee of the Company is subject to any secrecy
or noncompetition agreement or any other agreement or restriction of any kind
that would impede in any way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of the Company; and
(f) no employee or former employee of the Company has any claim with respect to
any intellectual property rights of the Company set forth under the caption
referencing Section 3.17 hereof in the Disclosure Schedule.
3.21 Employee Benefit Plans.
----------------------
(a) Except as set forth under the caption referencing Section 3.21
hereof in the Disclosure Schedule, with respect to all employees and former
employees of the Company and all dependents and beneficiaries of such employees
and former employees, (i) the Company does not maintain or contribute to any
nonqualified deferred compensation or retirement plans, contracts or
arrangements; (ii) the Company does not maintain or contribute to any qualified
defined contribution plans (as defined in Section 3(34) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 414(i)
of the Code; (iii) the Company does not maintain or contribute to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j) of
the Code); and (iv) the Company does not maintain or contribute to any employee
welfare benefit plans (as defined in Section 3(1) of ERISA).
20
(b) To the extent required (either as a matter of law or to obtain
the intended tax treatment and tax benefits), all employee benefit plans (as
defined in Section 3(3) of ERISA) which the Company does maintain or to which it
does contribute (collectively, the "Plans") comply in all material respects with
the requirements of ERISA and the Code. With respect to the Plans, (i) all
required contributions which are due have been made and a proper accrual has
been made for all contributions due in the current fiscal year; (ii) there are
no actions, suits or claims pending, other than routine uncontested claims for
benefits; and (iii) there have been no prohibited transactions (as defined in
Section 406 of ERISA or Section 4975 of the Code).
(c) GMI and Merger Subsidiary have received true and complete copies
of (i) the most recent determination letter, if any, received by the Company
from the Internal Revenue Service regarding the Plans which the Company
maintains or to which it contributes and any amendment to any Plan made
subsequent to any Plan amendments covered by any such determination letter; (ii)
the most recent financial statements and annual report or return for the Plans;
and (iii) the most recently prepared actuarial valuation reports.
(d) The Company does not contribute (and has not ever contributed) to
any multi-employer plan, as defined in Section 3(37) of ERISA. The Company has
no actual or potential liabilities under Section 4201 of ERISA for any complete
or partial withdrawal from a multi-employer plan. The Company has no actual or
potential liability for death or medical benefits after separation from
employment, other than (i) death benefits under the employee benefit plans or
programs (whether or not subject to ERISA) set forth under the caption
referencing this Section 3.21 in the Disclosure Schedule and (ii) health care
continuation benefits described in Section 4980B of the Code.
(e) Neither the Company nor any of its directors, officers, employees
or other "fiduciaries," as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans which would subject the Company, GMC,
GMI, Merger Subsidiary, the Surviving Corporation, GMI's subsidiaries or any of
their respective directors, officers or employees to any liability under ERISA
or any applicable law.
(f) The Company has not incurred any liability for any tax or civil
penalty or any disqualification of any employee benefit plan (as defined in
Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6
of Title I and Section 502(i) of ERISA.
3.22 Insurance. The Disclosure Schedule, under the caption
---------
referencing this Section 3.22, lists and briefly describes each insurance policy
maintained by the Company with respect to the Company's properties, assets and
operations and sets forth the date of expiration of each such insurance policy.
All of such insurance policies are in full force and effect and are issued by
insurers of recognized responsibility. The Company is not in default in any
material respect with regard to its obligations under any of such insurance
policies.
21
3.23 Affiliate Transactions. Except as disclosed under the caption
----------------------
referencing this Section 3.23 in the Disclosure Schedule, and other than
pursuant to this Agreement, no officer, director or employee of the Company or
any member of the immediate family of any such officer, director or employee, or
any entity in which any of such persons owns any beneficial interest (other than
any publicly-held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than one percent of the
stock of which is beneficially owned by any of such persons) (collectively
"Insiders"), has any agreement with the Company (other than normal employment
arrangements) or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the business of the Company (other than
ownership of capital stock of the Company). None of the Insiders has any direct
or indirect interest in any competitor, supplier or customer of the Company or
in any person, firm or entity from whom or to whom the Company leases any
property, or in any other person, firm or entity with whom the Company transacts
business of any nature. For purposes of this Section 3.23, the members of the
immediate family of an officer, director or employee shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such officer, director or
employee.
3.24 Customers and Suppliers. The Disclosure Schedule under the
-----------------------
caption referencing this Section 3.24 lists the 10 largest customers and the 10
largest suppliers of the Company for the fiscal years ended December 31, 1997
and 1998 and sets forth opposite the name of each such customer or supplier the
approximate percentage of net sales or purchases by the Company attributable to
such customer or supplier for each such period. Since the Balance Sheet Date,
no customer or supplier listed on the Disclosure Schedule under the caption
referencing this Section 3.24 has indicated to the Company that it will stop or
decrease the rate of business done with the Company except for changes in the
ordinary course of the Company's business.
3.25 Officers and Directors; Bank Accounts. The Disclosure Schedule,
-------------------------------------
under the caption referencing this Section 3.25, lists all officers and
directors of the Company and all of the Company's bank accounts (designating
each authorized signer).
3.26 Compliance with Laws; Permits.
-----------------------------
(a) The Company and its officers, directors, agents and employees
have complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements pertaining
to product labeling, consumer products safety, equal employment opportunity,
employee retirement, affirmative action and other hiring practices, occupational
safety and health, workers' compensation, unemployment and building and zoning
codes, which materially affect the business of the Company or the Real Property
and to which the Company may be subject, and to the best knowledge of the
Company, no claims have been filed against the Company alleging a violation of
any such laws, regulations or other requirements. The Company has no knowledge
of any action, pending or threatened, to change the zoning or
22
building ordinances or any other laws, rules, regulations or ordinances
affecting the Real Property. The Company is not relying on any exemption from
or deferral of any such applicable law, regulation or other requirement that
would not be available to GMI after it acquires the Company's properties, assets
and business.
(b) The Company has, in full force and effect, all licenses, permits
and certificates, from federal, state, local and foreign authorities (including,
without limitation, federal and state agencies regulating occupational health
and safety) necessary to conduct its business and own and operate its properties
(other than Environmental Permits, as such term is defined in Section 3.27(c)
hereof) (collectively, the "Permits"). A true and correct list of all the
Permits is set forth under the caption referencing this Section 3.26 in the
Disclosure Schedule. The Company has conducted its business in compliance with
all material terms and conditions of the Permits.
(c) The Company has not made or agreed to make gifts of money, other
property or similar benefits (other than incidental gifts of articles of nominal
value) to any actual or potential customer, supplier, governmental employee or
any other person in a position to assist or hinder the Company in connection
with any actual or proposed transaction.
(d) In particular, but without limiting the generality of the
foregoing, the Company to its best knowledge has not violated in any material
respect and has no liability, and has not received a notice or charge asserting
any violation of or liability, under the federal Occupational Safety and Health
Act of 1970 or any other federal or state acts (including rules and regulations
thereunder) regulating or otherwise affecting employee health and safety.
3.27 Environmental Matters.
---------------------
(a) As used in this Section 3.27, the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or substance as
defined in or governed by any federal, state or local law, statute, code,
ordinance, regulation, rule or other requirement relating to such substance
or otherwise relating to the environment or human health or safety,
including without limitation any waste, material, substance, pollutant or
contaminant that might cause any injury to human health or safety or to the
environment or might subject the Company to any imposition of costs or
liability under any Environmental Law.
(ii) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to pollution,
contamination or protection of the environment (including, without
limitation, all applicable federal, state, local and foreign
23
laws, rules, regulations, codes, ordinances, orders, decrees, directives,
permits, licenses and judgments relating to Hazardous Materials in effect
as of the date of this Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether intentional
or unintentional, of any Hazardous Material.
(b) The Company and the Real Property are in material compliance with
all applicable Environmental Laws.
(c) The Company has obtained, and maintained in full force and
effect, all environmental permits, licenses, certificates of compliance,
approvals and other authorizations necessary to conduct its business and own or
operate the Real Property (collectively, the "Environmental Permits"). A true
and correct copy of each such Environmental Permit shall be provided by the
Company to GMI and Merger Subsidiary at least 10 days prior to the Closing. The
Company has conducted its business in material compliance with all terms and
conditions of the Environmental Permits. The Company has filed all reports and
notifications required to be filed under and pursuant to all applicable
Environmental Laws.
(d) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 3.27, to the best of the Company's knowledge, (i) no
Hazardous Materials have been generated, treated, contained, handled, located,
used, manufactured, processed, buried, incinerated, deposited, stored, or
released on, under or about any part of the Company or the Real Property, (ii)
the Company and the Real Property and any improvements thereon, contain no
asbestos, urea, formaldehyde, radon at levels above natural background,
polychlorinated biphenyls (PCBs) or pesticides, and (iii) no aboveground or
underground storage tanks are located on, under or about the Real Property, or
have been located on, under or about the Real Property and then subsequently
been removed or filled. If any such storage tanks exist on, under or about the
Real Property, such storage tanks have been duly registered with all appropriate
governmental entities and are otherwise in compliance with all applicable
Environmental Laws.
(e) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 3.27, the Company has not received notice alleging in
any manner that the Company is, or might be potentially responsible for any
Release of Hazardous Materials, or any costs arising under or violation of
Environmental Laws.
(f) To the best of the Company's knowledge, no expenditure will be
required in order for GMI, Merger Subsidiary or the Surviving Corporation to
comply with any Environmental Laws in effect at the time of the Closing in
connection with the operation or continued operation of the business of the
Company or the Real Property in a manner consistent with the current operation
thereof by the Company.
24
(g) The Company and the Real Property are not and have not been
listed on the United States Environmental Protection Agency National Priorities
List of Hazardous Waste Sites, or any other list, schedule, law, inventory or
record of hazardous or solid waste sites maintained by any federal, state or
local agency.
(h) The Company has disclosed and delivered to GMI and Merger
Subsidiary all environmental reports and investigations which the Company has
obtained or ordered with respect to the business of the Company and the Real
Property.
(i) To the best of the Company's knowledge, no part of the business
of the Company or the Real Property have been used as a landfill, dump or other
disposal, storage, transfer, handling or treatment area for Hazardous Materials,
or as a gasoline service station or a facility for selling, dispensing, storing,
transferring, disposing or handling petroleum and/or petroleum products.
(j) To the best of the Company's knowledge, no lien has been attached
or filed against the Company or the Real Property in favor of any governmental
or private entity for (i) any liability or imposition of costs under or
violation of any applicable Environmental Law; or (ii) any Release of Hazardous
Materials.
(k) The Company, on behalf of itself and its successors and assigns,
hereby waives, releases and agrees not to bring any claim, demand, cause of
action or proceeding, including without limitation any cost recovery action,
against GMI, Merger Subsidiary or the Surviving Corporation under any
Environmental Law.
3.28 Brokerage. Except as set forth in the Disclosure Schedule
---------
referencing this Section 3.28, no third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Company.
3.29 Disclosure. Neither this Agreement nor any of the Exhibits
----------
hereto nor any of the documents delivered by or on behalf of the Company
pursuant to Article VII hereof nor the Disclosure Schedules nor any of the
financial statements referred to in Section 3.08 hereof, taken as a whole,
contains any untrue statement of a material fact regarding the Company or its
business or any of the other matters dealt with in this Article III relating to
the Company or the transactions contemplated by this Agreement. This Agreement,
the Exhibits hereto, the documents delivered to GMI and Merger Subsidiary by or
on behalf of the Company pursuant to Article VII hereof, the Disclosure Schedule
and the financial statements referred to in Section 3.08 hereof, taken as a
whole, do not omit any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they were made, not
misleading, and there is no fact which has not been disclosed to GMI or Merger
Subsidiary of
25
which any officer or director of the Company is aware which materially affects
adversely or could reasonably be anticipated to result in a Material Adverse
Change in the Company.
3.30 Year 2000 Compliance. All software and hardware used by the
--------------------
Company is Year 2000 Compliant, including date century recognition, calculations
which accommodate same century and multi-century formulas and date values that
reflect the century. As used herein, "Year 2000 Compliant" shall mean the
ability of such software and hardware to (i) consistently handle date
information before, during and after January 1, 2000, including but not limited
to accepting date input, providing date output, and performing calculations on
dates or portions of dates; (ii) function accurately in accordance with all
documentation without interruption before, during and after January 1, 2000,
without any change of operations associated with the advent of the new century;
(iii) respond to two-digit date input in a way that resolves any ambiguity as to
century in a disclosed, defined and predetermined manner; and (iv) store and
provide output of date information in ways that are unambiguous as to century.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GMC, GMI AND MERGER SUBSIDIARY
----------------------------------------------------------------
GMC, GMI and Merger Subsidiary, jointly and severally, hereby
represent and warrant to the Company that:
4.01 Incorporation and Corporate Power. Each of GMC, GMI and Merger
---------------------------------
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Minnesota and Delaware, as applicable,
with the requisite corporate power and authority to enter into this Agreement
and the Certificate of Merger and perform its obligations hereunder and
thereunder.
4.02 Execution, Delivery; Valid and Binding Agreements. The
-------------------------------------------------
execution, delivery and performance of the Letter Agreement, this Agreement and
the Collateral Agreement by GMC, GMI and Merger Subsidiary, and the Certificate
of Merger, by Merger Subsidiary, and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance of the Letter
Agreement, this Agreement, the Collateral Agreement or the Certificate of
Merger. The Letter Agreement and this Agreement have been duly executed and
delivered by GMC, GMI and Merger Subsidiary and constitute the valid and binding
obligations of GMC, GMI and Merger Subsidiary, enforceable in accordance with
their terms, and the Certificate of Merger, when executed and delivered by
Merger Subsidiary, will constitute the valid and binding obligation of Merger
Subsidiary, enforceable in accordance with its terms.
4.03 No Breach. GMI is not in violation of any term of its
---------
Certificate of Incorporation, Bylaws or in any material respect of any agreement
required to be filed as an exhibit to any registration statements or reports
filed with the SEC by GMC. GMI has complied
26
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business, except for such violations or failures to comply as could not be
reasonably expected to result in a Material Adverse Change in GMI. The
execution, delivery and performance of this Agreement by GMC, GMI and Merger
Subsidiary and the Certificate of Merger by Merger Subsidiary and the
consummation by GMC, GMI and Merger Subsidiary of the transactions contemplated
hereby and thereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of GMC, GMI or Merger
Subsidiary, or require any authorization, consent, approval, exemption or other
action by or notice to any court or other governmental body, under the
provisions of the Articles of Incorporation or Certificate of Incorporation, as
applicable or the Bylaws of GMC, GMI or Merger Subsidiary or any indenture,
mortgage, lease, loan agreement or other agreement or instrument by which GMC,
GMI or Merger Subsidiary is bound or affected, or any law, statute, rule or
regulation or order, judgment or decree to which GMC, GMI or Merger Subsidiary
is subject.
4.04 Merger Subsidiary. All of the outstanding capital stock of
-----------------
Merger Subsidiary is owned by GMI free and clear of any lien, claim or
encumbrance or any agreement with respect thereto. Since the date of its
incorporation, Merger Subsidiary has not engaged in any activity of any nature
except in connection with or as contemplated by this Agreement and the
Certificate of Merger.
4.05 Governmental Authorities; Consents. Except for the filing of the
----------------------------------
Certificate of Merger with the Secretary of State of the State of Delaware,
neither GMC, GMI nor Merger Subsidiary is required to submit any notice, report
or other filing with any governmental authority in connection with the execution
or delivery by it of this Agreement or the Certificate of Merger or the
consummation of the transactions contemplated hereby or thereby. No consent,
approval or authorization of any governmental or regulatory authority or any
other party or person is required to be obtained by GMC, GMI or Merger
Subsidiary in connection with its execution, delivery and performance of this
Agreement or the Certificate of Merger or the transactions contemplated hereby
or thereby.
4.06 Brokerage. No third party shall be entitled to receive any
---------
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of GMC, GMI
or Merger Subsidiary.
4.07 Year 2000 Compliance. All software and hardware used by GMC and
--------------------
GMI is Year 2000 Compliant, including date century recognition, calculations
which accommodate same century and multi-century formulas and date values that
reflect the century. As used herein, "Year 2000 Compliant" shall mean the
ability of such software and hardware to (i) consistently handle date
information before, during and after January 1, 2000, including but
27
not limited to accepting date input, providing date output, and performing
calculations on dates or portions of dates; (ii) function accurately in
accordance with all documentation without interruption before, during and after
January 1, 2000, without any change of operations associated with the advent of
the new century; (iii) respond to two-digit date input in a way that resolves
any ambiguity as to century in a disclosed, defined and predetermined manner;
and (iv) store and provide output of date information in ways that are
unambiguous as to century.
4.08 Litigation. To the best knowledge of GMC and GMI, there is no
----------
action, suit, proceeding, claim, arbitration or investigation pending, or
threatened against GMI or Merger Subsidiary which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or the Merger.
4.09 Disclosure. Neither this Agreement, nor any of the Exhibits
----------
hereto, nor any of the documents delivered by or on behalf of GMC or GMI
pursuant to Article VII hereof, nor any document filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, nor the
Disclosure Schedules to be furnished by GMC, GMI or Merger Subsidiary, taken as
a whole, contains any untrue statement of a material fact regarding GMC, GMI or
their businesses or any of the other matters dealt with in this Article IV
relating to GMC, GMI or the transactions contemplated by this Agreement. Except
as disclosed in the Disclosure Schedule referencing this Section 4.09, this
Agreement, the Exhibits hereto, the documents delivered to the Company by or on
behalf of GMC, GMI and Merger Subsidiary pursuant to Article VII hereof, taken
as a whole, do not omit any material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading, and there is no fact which has not been disclosed to the
Company of which any officer or director of GMC or GMI is aware which materially
affects adversely or could reasonably be anticipated to result in a Material
Adverse Change in GMC or GMI.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
5.01 Conduct of the Business. The Company shall observe each term set
-----------------------
forth in this Section 5.01 and the Company agrees that, from the date hereof
until the Effective Time, unless otherwise consented to by GMI or Merger
Subsidiary in writing:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of the
Company's business, on an arm's-length basis and in accordance in all material
respects with all applicable laws, rules and regulations and the Company's past
custom and practice;
(b) The Company shall not, directly or indirectly, do or permit to
occur any of the following: (i) issue or sell any additional shares of, or any
options, warrants, conversion privileges or rights of any kind to acquire any
shares of, any of its capital stock; (ii) sell, pledge, dispose of or encumber
any of its assets, except in the ordinary course of business; (iii) amend or
28
propose to amend its Certificate of Incorporation or Bylaws; (iv) split, combine
or reclassify any outstanding shares of Common Stock, or declare, set aside or
pay any dividend or other distribution payable in cash, stock, property or
otherwise with respect to shares of Common Stock; (v) redeem, purchase or
acquire or offer to acquire any shares of Common Stock or other securities of
the Company, with the exception of up to 100,000 shares of the Company's Common
Stock that may be repurchased from current or former employees of the Company at
a per share price not to exceed $1.00; (vi) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership, joint venture or other business organization or division or
material assets thereof; (vii) incur any indebtedness for borrowed money or
issue any debt securities except the borrowing of working capital in the
ordinary course of business and consistent with past practice; (viii)
accelerate, beyond the normal collection cycle, collection of accounts
receivable; or (ix) enter into or propose to enter into, or modify or propose to
modify, any agreement, arrangement or understanding with respect to any of the
matters set forth in this Section 5.01(b);
(c) The Company shall not, directly or indirectly, (i) enter into or
modify any employment, severance or similar agreements or arrangements with, or
grant any bonuses, salary increases, severance or termination pay to, any
officers or directors or consultants; or (ii) in the case of employees, officers
or consultants who earn in excess of $50,000 per year, take any action with
respect to the grant of any bonuses, salary increases, severance or termination
pay or with respect to any increase of benefits payable in effect on the date
hereof;
(d) The Company shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(e) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage equal to or greater than the coverage under the canceled, terminated or
lapsed policies for substantially similar premiums are in full force and effect;
(f) The Company shall (i) use its best efforts to preserve intact the
Company's business organization and goodwill, keep available the services of the
Company's officers and employees as a group and maintain satisfactory
relationships with suppliers, distributors, customers and others having business
relationships with the Company; (ii) confer on a regular and frequent basis with
representatives of GMI or Merger Subsidiary to report operational matters and
the general status of ongoing operations; (iii) not intentionally take any
action which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement materially untrue at the
Closing; (iv) notify GMI and Merger
29
Subsidiary of any emergency or other change in the normal course of the
Company's business or in the operation of the Company's properties and of any
governmental or third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated) if such emergency,
change, complaint, investigation or hearing would be material, individually or
in the aggregate, to the business, operations or financial condition of the
Company or to the Company's, GMI's or Merger Subsidiary's ability to consummate
the transactions contemplated by this Agreement; and (v) promptly notify GMI and
Merger Subsidiary in writing if the Company shall discover that any
representation or warranty made by it in this Agreement was when made, or has
subsequently become, untrue in any respect;
(g) The Company shall (i) file any Tax returns, elections or
information statements with respect to any liabilities for Taxes of the Company
or other matters relating to Taxes of the Company which pursuant to applicable
law must be filed prior to the Closing Date; (ii) promptly upon filing provide
copies of any such Tax returns, elections or information statements to GMI and
Merger Subsidiary; (iii) make any such Tax elections or other discretionary
positions with respect to Taxes taken by or affecting the Company only upon
prior consultation with and consent of GMI or Merger Subsidiary; and (iv) not
amend any Return; and
(h) The Company shall not perform any act referenced by (or omit to
perform any act which omission is referenced by) the terms of Section 3.11.
5.02 Access to Books and Records. Between the date hereof and the
---------------------------
Closing Date, the Company shall afford to GMI, Merger Subsidiary and their
authorized representatives (the "GMI's Representatives") full access during
normal business hours and upon reasonable notice to the offices, properties,
books, records, officers, employees and other items of the Company, and
otherwise provide such assistance as is reasonably requested by GMI and Merger
Subsidiary in order that GMI and Merger Subsidiary may have a full opportunity
to make such investigation and evaluation as it shall reasonably desire to make
of the business and affairs of the Company; provided, however, that the Company
and its agents shall have no obligation to provide any documents or information
that is subject to attorney-client privilege or that is confidential attorney
work product. In addition, the Company and its officers and directors shall
cooperate fully (including providing introductions, where necessary) with GMI to
enable GMI to contact such third parties, including customers, prospective
customers, specifying agencies, vendors, or suppliers of the Company as GMI
deems reasonably necessary to complete its due diligence; provided that GMI
agrees not to initiate such contacts without the prior approval of the Company,
which approval will not be unreasonably withheld.
5.03 Meeting of Stockholders. The Company shall, promptly after the
-----------------------
date of this Agreement and in no event later than April 5, 1999, take all action
necessary in accordance with the DGCL and its Certificate of Incorporation and
Bylaws to convene a meeting of the stockholders of the Company for the purpose
of voting to approve this Agreement and the Merger, and the Company shall
consult with GMI in connection therewith. The Company shall use its best efforts
to solicit from the stockholders of the Company proxies in favor of this
30
Agreement and the Merger and shall take all other actions necessary or advisable
to secure the vote or consent of stockholders required by the DGCL to approve
this Agreement and the Merger, unless otherwise required by the applicable
fiduciary duties of directors of the Company, as determined by such directors in
good faith after consultation with independent legal counsel.
5.04 Regulatory Filings. The Company shall, as promptly as practicable
------------------
after the execution of this Agreement, make or cause to be made all filings and
submissions under any laws or regulations applicable to the Company for the
consummation of the transactions contemplated herein. The Company will
coordinate and cooperate with GMI and Merger Subsidiary in exchanging such
information, will not make any such filing without providing to GMI and Merger
Subsidiary a final copy thereof for their review and consent at least two full
business days in advance of the proposed filing and will provide such reasonable
assistance as GMI and Merger Subsidiary may request in connection with all of
the foregoing.
5.05 Conditions. The Company shall take all commercially reasonable
----------
actions necessary or desirable to cause the conditions set forth in Section 7.01
to be satisfied and to consummate the transactions contemplated herein as soon
as reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
5.06 No Shop. The Company shall not enter into any agreement, or make
-------
any undertaking or commitment, (i) to merge or consolidate with, or acquire
substantially all of the property and assets of, any other corporation or
person, (ii) to sell, lease or exchange all or substantially all of their
respective properties and assets to any other corporation or person or (iii)
otherwise to cause the ownership or control of the Company or any of its
subsidiaries to be transferred to any party other than GMI.
5.07 Information Statement. The Company shall promptly provide to GMI
---------------------
the information pertaining to the Company, including financial statements,
necessary for GMI to prepare an information statement, which shall be sent to
all holders of the Company's Common Stock and Preferred Stock for the purpose of
approving this Agreement and the Merger at a meeting of such holders to be held
on or prior to March 30, 1999 (the "Information Statement").
5.08 Disclosure Schedules. The Company shall provide the Disclosure
--------------------
Schedules required hereunder to GMI at least 10 days prior to the Closing Date.
5.09 Collateral Agreement. The Company shall enter into the Collateral
--------------------
Agreement referenced in Section 2.01 hereof.
31
ARTICLE VI
COVENANTS OF GMI AND MERGER SUBSIDIARY
--------------------------------------
GMI and Merger Subsidiary covenant and agree with the Company as
follows:
6.01 Regulatory Filings. GMI or Merger Subsidiary shall, as promptly
------------------
as practicable after the execution of the Agreement, make or cause to be made
all filings and submissions under any laws or regulations applicable to GMI and
Merger Subsidiary necessary for the consummation of the transactions
contemplated herein. GMI and Merger Subsidiary will coordinate and cooperate
with the Company in exchanging such information, will not make any such filing
without providing to the Company a final copy thereof for its review and consent
at least two full business days in advance of the proposed filing and will
provide such reasonable assistance as the Company may request in connection with
all of the foregoing.
6.02 Conditions. GMI or Merger Subsidiary shall take all commercially
----------
reasonable actions necessary or desirable to cause the conditions set forth in
Section 7.02 to be satisfied and to consummate the transactions contemplated
herein as soon as reasonably possible after the satisfaction thereof (but in any
event within three business days of such date).
6.03 Board Representation. GMC shall use its best efforts to cause to
--------------------
be elected to GMI's Board of Directors, as of the Closing Date and from time to
time thereafter, as necessary, two persons nominated by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
(the "Stockholders' Representative") and a third person 150 days after the
Effective Date if GMI's net worth 150 days after the Effective Date is less than
the sum of $12,000,000 and GMI's investment in the Surviving Corporation.
6.04 Loan to The Company. On or before the Closing Date, GMI shall
-------------------
loan to the Company $2,500,000, which loan shall be converted into a
contribution to capital immediately following the Effective Time.
6.05 Registration Rights. Holders of the GMC Common Stock to be issued
-------------------
in connection with the Earn Out Payment, if any, pursuant to Section 2.02 and
upon exercise of the Escrow Warrants (the "Unregistered GMC Common Stock") shall
have the registration rights set forth in Schedule 6.05 hereto, subject to the
terms and conditions set forth therein.
6.06 Disclosure Schedules. GMC, GMI and Merger Subsidiary shall
--------------------
provide their respective Disclosure Schedules to the Company at least 10 days
prior to the Closing Date.
6.07 Delivery of Escrow Warrants. On or before the Effective Time, GMC
---------------------------
shall deliver the Escrow Warrants to H&QGF as secured party under the Business
Loan Agreement.
32
6.08 Collateral Agreement. GMI and Merger Subsidiary shall enter into
--------------------
the Collateral Agreement referenced in Section 2.01 hereof.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.01 Conditions to GMC's, GMI's and Merger Subsidiary's Obligations.
--------------------------------------------------------------
The obligation of GMC, GMI and Merger Subsidiary to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions at or before the Effective Time:
(a) The representations and warranties set forth in Article III
hereof shall be true and correct in all material respects at and as of the
Effective Time as though then made and as though the Effective Time had been
substituted for the date of this Agreement throughout such representations and
warranties (without taking into account any disclosures by the Company of
discoveries, events or occurrences arising on or after the date hereof), except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(b) The Company shall have performed in all material respects all of
the covenants and agreements required to be performed by them prior to the
Effective Time under this Agreement;
(c) The Company shall have obtained, or caused to be obtained, each
consent and approval necessary in order that the transactions contemplated
herein not constitute a material breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on any of the
Company's assets pursuant to the provisions of, any agreement, arrangement or
undertaking of or affecting the Company or any license, franchise or permit of
or affecting the Company;
(d) The Letter Agreement, this Agreement, the Certificate of Merger
and the Merger shall have been duly and validly authorized by the board of
directors of the Company and this Agreement shall have been duly and validly
approved by the stockholders of the Company, the Company shall have delivered to
GMI evidence, in form satisfactory to GMI's counsel, of such authorization and
approval, and the Certificate of Merger shall have been duly executed by the
Company;
(e) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated by this
Agreement or the Certificate of Merger shall have been duly made and obtained;
(f) There shall not be threatened, instituted or pending any action
or proceeding, before any court or governmental authority or agency, domestic or
foreign,
33
(i) challenging or seeking to make illegal, or to delay or otherwise directly or
indirectly restrain or prohibit, the consummation of the transactions
contemplated hereby or seeking to obtain material damages in connection with
such transactions, (ii) seeking to prohibit direct or indirect ownership or
operation by GMI or Merger Subsidiary of all or a material portion of the
business or assets of the Company or to GMI or Merger Subsidiary or any of their
subsidiaries or the Company to dispose of or to hold separately all or a
material portion of the business or assets of GMI or Merger Subsidiary and their
subsidiaries or of the Company, as a result of the transactions contemplated
hereby, (iii) seeking to require direct or indirect transfer or sale by GMI or
Merger Subsidiary of any of the shares of Company Common Stock, (iv) seeking to
invalidate or render unenforceable any material provision of this Agreement, the
Certificate of Merger or any of the other agreements attached as exhibits hereto
(collectively, the "Related Agreements"), or (v) otherwise relating to and
materially adversely affecting the transactions contemplated hereby;
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 7.01(f) hereof;
(h) GMI shall have completed its due diligence investigation of the
Company, including the Company's financial statements, tax returns, contracts,
employee benefit plans, real property and equipment, and such investigation
shall be satisfactory to GMI in its sole discretion, and the officers of the
Company shall have made themselves available for additional due diligence as
reasonably requested by GMI at any time before the Closing Date; provided,
however, that GMI's satisfaction with its due diligence in its sole discretion,
as a closing condition, shall terminate at the end of the tenth calendar day
following the mailing of the Information Statement to be prepared pursuant to
Section 5.07 hereof;
(i) The Company's Disclosure Schedules shall not contain or disclose
any fact or circumstance existing as of the date of this Agreement which has not
been disclosed to GMI as of the date of this Agreement (with the understanding
that write-downs of evaluation units, demonstration units, consigned units and
parts and other equipment has been disclosed to GMI as of the date of this
Agreement) regarding the business, assets, properties, condition (financial or
otherwise) or results of operations of the Company which, individually or in the
aggregate with other such facts and circumstances, are reasonably likely to
cause the Company or its business to realize a loss, cost, expense or diminution
in value, or otherwise result in an adverse effect on the business, assets,
properties, condition (financial or otherwise) or results of operations of the
Company, taken as a whole, of $250,000 or more (a "Material Adverse Effect");
(j) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by the Company, whether or not covered by
insurance, which, in the
34
aggregate, has, or would be reasonably likely to have, a Material Adverse Effect
on the Company;
(k) No more than 12% of the outstanding shares of Company Common
Stock shall be qualified to be Dissenting Shares as of the Effective Time;
(l) GMI shall have received from counsel for the Company a written
opinion, dated the date of the Effective Time, addressed to GMC, GMI and Merger
Subsidiary and reasonably satisfactory to counsel for GMI;
(m) Prior to the Effective Time, the Company shall have delivered to
GMI all of the following:
(i) a certificate of the Secretary of the Company, dated as of
the date of the Effective Time, stating that the conditions precedent set forth
in subsections (a) and (b) above have been satisfied;
(ii) a copy of each of (X) the text of the resolutions adopted
by the board of directors of the Company authorizing the execution, delivery and
performance of the Letter Agreement, this Agreement and the Certificate of
Merger and the consummation of all of the transactions contemplated by this
Agreement and the Certificate of Merger and (Y) the Bylaws of the Company, along
with a certificate executed on behalf of the Company by its corporate secretary
certifying to GMI that such copies are true and correct copies of such
resolutions and Bylaws, respectively, and that such resolutions and bylaws were
duly adopted and have not been amended or rescinded;
(iii) the Company's minute books, stock transfer records,
corporate seal and other materials related to the Company's corporate
administration;
(iv) a copy of the Certificate of Incorporation of the Company,
certified by the Secretary of State of the State of Delaware, and Certificates
of Good Standing from the Secretary of State of the State of Delaware evidencing
the good standing of the Company in such jurisdiction;
(v) copies of the third party and governmental consents and
approvals and of the authorizations referred to in subsections (c), (d) and (e)
above;
(vi) incumbency certificates executed on behalf of the Company
by its corporate secretary certifying the signature and office of each officer
executing this Agreement and the Certificate of Merger and the Related
Agreements executed by the Company;
(vii) an executed copy of each of the Related Agreements;
35
(viii) such other certificates, documents and instruments as GMI
reasonably requests related to the transactions contemplated hereby;
(n) ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇ ▇▇▇▇▇▇ III and the ▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇ Foundation (the "Stockholder Lenders") shall have canceled $280,000 of
short-term Company debt, plus accrued but unpaid interest, in exchange for the
issuance by the Company to the Stockholder Lenders of a number of shares of the
Company's Common Stock equal to the amount of such debt and accrued but unpaid
interest divided by $1.00;
(o) No more than 35 of the stockholders of the Company shall not be
"accredited investors" within the meaning of Rule 501 under the 1933 Act, and
the Company shall have delivered to GMI evidence, in form satisfactory to GMI's
counsel, of compliance with this condition; and
(p) H&QGF, GMC and GMI shall have negotiated and executed loan
agreements providing for one or more loans in the aggregate amount of up to
$3,000,000 to be made by H&QGF to GMC, GMI or the Surviving Corporation.
(q) The Company shall have executed the Collateral Agreement.
7.02 Conditions to the Company's Obligations. The obligation of the
---------------------------------------
Company to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions at or before the Effective Time:
(a) The representations and warranties set forth in Article IV hereof
will be true and correct in all material respects at and as of the Effective
Time as though then made and as though the Effective Time had been substituted
for the date of this Agreement throughout such representations and warranties,
except that any such representation or warranty made as of a specified date
(other than the date hereof) shall only need to have been true on and as of such
date;
(b) GMI and Merger Subsidiary shall have performed in all material
respects all the covenants and agreements required to be performed by them prior
to the Effective Time under this Agreement and the Certificate of Merger prior
to the Effective Time, and Merger Subsidiary shall have executed the Certificate
of Merger;
(c) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated hereby
will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action
or proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain
36
or prohibit, the consummation of the transactions contemplated by this Agreement
or the Certificate of Merger or seeking to obtain material damages in connection
with such transactions, (ii) seeking to invalidate or render unenforceable any
material provision of this Agreement, the Certificate of Merger or any of the
Related Agreements, or (iii) otherwise relating to and materially adversely
affecting the transactions contemplated hereby or thereby;
(e) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement or the Certificate of Merger by any federal, state or foreign
court, government or governmental authority or agency, which would reasonably be
expected to result, directly or indirectly, in any of the consequences referred
to in Section 7.02(d) hereof;
(f) The Company shall have received from counsel for GMI and Merger
Subsidiary a written opinion, dated as of the date of the Effective Time,
addressed to the Company and reasonably satisfactory to the Company's counsel;
and
(g) At or prior to the Effective Time, GMI shall have delivered to
the Company (i) a certificate of the Secretary of GMI, dated as of the date of
the Effective Time, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied, (ii) a copy of each of (X)
the text of the resolutions adopted by the board of directors of GMC, GMI and
Merger Subsidiary authorizing the execution, delivery and performance of the
Letter Agreement, this Agreement and the Certificate of Merger and the
consummation of all of the transactions contemplated by the Letter Agreement,
this Agreement and the Certificate of Merger and (Y) certificates executed on
behalf of each of GMC, GMI and Merger Subsidiary by their respective corporate
secretaries certifying to the Company that such copies are true and correct
copies of such resolutions and that such resolutions were duly adopted and have
not been amended or rescinded, and (iii) an executed copy of each of the Related
Agreements.
(h) GMI and Merger Subsidiary shall have executed the Collateral
Agreement.
ARTICLE VIII
TERMINATION
-----------
8.01 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time:
(a) by the mutual consent of GMC, GMI, Merger Subsidiary and the
Company;
(b) by either GMC, GMI or Merger Subsidiary, on the one hand, or the
Company, on the other, if there has been a material misrepresentation, breach of
warranty or
37
breach of covenant on the part of the other in the representations, warranties
and covenants set forth in this Agreement;
(c) by either GMC, GMI or Merger Subsidiary, on the one hand, or the
Company, on the other, if the transactions contemplated by this Agreement or the
Certificate of Merger have not been approved by the Company's stockholders by
April 5, 1999; provided that neither will be entitled to terminate this
Agreement pursuant to this Section 8.01(c) if such party's willful breach of
this Agreement has prevented the stockholder approval of the transactions
contemplated by this Agreement or the Certificate of Merger;
(d) by GMC, GMI or Merger Subsidiary if, after the date hereof, there
shall have been a Material Adverse Effect or if an event shall have occurred
which, so far as reasonably can be foreseen, would result in any such Material
Adverse Effect, except to the extent such Material Adverse Effect is directly
caused by GMC, GMI or Merger Subsidiary;
(e) by the Company if after the date hereof, there shall have been a
fact or circumstance regarding the business, assets, properties, condition
(financial or otherwise), results of operations of the GMC or GMI which,
individually or in the aggregate with other such facts and circumstances, are
reasonably likely to cause GMC or GMI or their respective businesses to realize
a loss, cost, expense or diminution in value, or otherwise result in an adverse
effect on the business, assets, properties, condition (financial or otherwise)
or results of operations of GMC or GMI, taken as a whole, of $250,000 or more,
or if an event shall have occurred which, so far as reasonably can be foreseen,
would result in any such result, except to the extent such result is directly
caused by the Company; or
(f) by GMC, GMI or Merger Subsidiary if, before the end of the tenth
calendar day following the mailing of the Information Statement to be prepared
pursuant to Section 5.07 hereof, GMI shall be unsatisfied with the results of
its due diligence investigation contemplated in Section 7.01(h).
8.02 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 8.01 by either GMC, GMI or Merger Subsidiary,
on the one hand, or the Company, on the other, all provisions of this Agreement
shall terminate and there shall be no liability on the part of any of GMC, GMI,
Merger Subsidiary, or the Company or the Company's stockholders, officers or
directors, except that Sections 9.04, 9.05, 11.01, 11.02, 11.03 and 11.09 hereof
shall survive indefinitely, and the parties to this Agreement shall remain
liable for willful breaches of this Agreement prior to the time of such
termination.
38
ARTICLE IX
ADDITIONAL AGREEMENTS
---------------------
9.01 Intercompany Financing.
----------------------
(a) On or before 90 days after the Closing Date, GMI shall deliver
$2,500,000 in cash as a capital contribution to the Surviving Corporation. If
GMI shall fail to make such capital contribution in full within 90 days of the
Closing Date, the unpaid balance shall be delivered in the form of GMC Common
Stock valued in the amount of such unpaid balance based on the average closing
price for the 20 trading day period ending on the 90/th/ day after the Closing
Date, which GMC Common Stock shall be delivered by GMC to the Surviving
Corporation. GMC shall have the right at any time after such delivery to
repurchase some or all of the GMC Common Stock so delivered at the product of
(i) the average closing price of GMC Common Stock for the 20 trading day period
ending one day before the date on which such shares were delivered to the
Surviving Corporation (the "Base Price") and (ii) 120% (the "Repurchase Price");
provided that GMC shall have the obligation to repurchase at the Repurchase
Price, on or before the Earn Out Date (as defined in Section 9.03 hereof), all
of the GMC Common Stock so delivered; provided, however, that GMC shall deliver
only the Base Price to the Surviving Corporation and shall deliver the remainder
of the Repurchase Price to the Escrow Agent for deposit into the Escrow Fund for
the benefit of the holders of the Escrow Units.
(b) The funds received by the Company and the Surviving Corporation
pursuant to Section 6.04 and this Section 9.01 shall be used by the Company and
the Surviving Corporation for working capital purposes only, shall be paid to
H&QGF only pursuant to the Company's obligations under its debt agreements held
by H&QGF, unless GMI shall consent thereto, in advance, in writing, and shall in
no case be distributed to the holders of the Company's securities (other than as
repayment of intercompany indebtedness to GMI or GMC after the Closing).
Immediately following the first disbursement of cash from GMI to the Company
under the loan of $2,500,000 to be made pursuant to Section 6.04, the Company
shall obtain the prior approval of GMI for any capital expenditure of the
Company in excess of $25,000.
9.02 Disposition of Assets. GMI shall not cause the Surviving
---------------------
Corporation to dispose of any assets valued at more than $50,000 unless it has
the written consent of the Chief Executive Officer or President of the Surviving
Corporation or until 90 days or more after the Closing Date.
9.03 Series B Preferred Stock.
------------------------
(a) Promptly after the Effective Time, the Surviving Corporation
shall amend its Certificate of Incorporation to create a new class of nonvoting
preferred stock (the "Series B Preferred Stock") and shall use its best efforts
to negotiate and conclude an agreement with
39
H&QGF, GBC and CR to exchange $1,000,000 of the Surviving Corporation's
indebtedness held by H&QGF, GBC and CR for 400,000 shares of such Series B
Preferred Stock.
(b) The Series B Preferred Stock shall pay a dividend at an annual
rate of 12%, in cash and in Escrow Units at a rate of $1.30 per Escrow Unit.
The dividend shall be paid entirely in Escrow Units until November 1, 1999.
From November 1, 1999 through the 365/th/ day following the Closing Date (the
"Earn Out Date"), the dividend shall be paid 50% in cash and 50% in Escrow
Units. After the Earn Out Date, the dividend shall be paid entirely in cash.
All dividends to be paid in Escrow Units pursuant to this Section 9.03
(including all Escrow Units due up to and through the Earn Out Date) shall be
deemed prepaid at Closing. All dividends due in cash shall be paid quarterly in
arrears by the Surviving Corporation.
(c) Each share of Series B Preferred Stock shall be convertible into
one share of the common stock of the Surviving Corporation ("Surviving
Corporation Common Stock"); provided, however, that upon any such conversion
each share of Surviving Corporation Common Stock so issued shall immediately be
deemed tendered to GMC in exchange for one share of GMC Common Stock to be
delivered by GMC to the former holder of the Series B Preferred Stock.
9.04 Certain Loans from H&QGF, GBC and CR to the Company and the
-----------------------------------------------------------
Surviving Corporation. Reference is made herein to an "Existing Business Loan
---------------------
Agreement" which shall mean the Business Loan Agreement between the Company and
H&QGF dated September 30, 1996, as amended on April 24, 1997, and including all
documents related thereto. On the Closing Date, the Existing Business Loan
Agreement shall be assumed by the Surviving Corporation and amended to change
certain of its terms and provisions, and the resulting post-Closing agreement
between the Surviving Corporation and H&QGF shall be referred to as the
"Business Loan Agreement." Each share of Company Common Stock received by
H&QGF, GBC and CR as interest earned before the Closing Date under certain loans
from H&QGF (and its participants, GBC and CR) to the Company pursuant to the
Existing Business Loan Agreement shall be converted as of the Closing Date into
one Escrow Unit, pursuant to Section 2.01(a) hereof. Interest under the
Business Loan Agreement, which interest shall accrue at an annual rate of 9.75%,
shall be prepaid to H&QGF, GBC and CR on the Closing Date for interest to be
earned up to and including the ninetieth day following the Closing Date (the
"Prepaid Interest"). Such Prepaid Interest shall be paid in Escrow Units at the
rate of one Escrow Unit for each $1.30 of Prepaid Interest.
9.05 Confidentiality.
---------------
(a) For purposes of this Section 9.04, a "party" shall refer to (a)
the Company and (b) together, GMI and Merger Subsidiary. Each party shall treat
as confidential and shall cause its accountants, counsel and other
representatives to treat as confidential, all documents and information
concerning the other party furnished by the other party to such party (including
documents and information furnished prior to the date hereof) in connection with
the transactions contemplated by this Agreement, except to the extent that such
information or documents (i) at the
40
time of its disclosure to the receiving party by or on behalf of the disclosing
party is already known or available to the receiving party; provided, that the
receiving party is not subject to similar restrictions on confidentiality as set
forth herein with a third party with respect to such information; (ii) is or
becomes known or available to the public other than as a result of unauthorized
disclosure by the receiving party or its directors, officers, employees, agents
or representatives, (iii) is or becomes known or available to the receiving
party without similar restrictions of confidentiality as set forth herein from a
source other than the disclosing party, provided that such source is not known
by the receiving party, after reasonable inquiry, to be bound by a
confidentiality agreement with, or other obligation of secrecy to, the
disclosing party that would prohibit such disclosures to the receiving party by
such other party; (iv) is independently generated by the receiving party and not
derived from confidential information; or (v) is required to be disclosed by the
receiving party by law, regulation, court order or other legal process. Subject
to the foregoing, each party will not release or disclose such information or
documents to any person other than its representatives in connection with this
Agreement and will not use such information for purposes other than as
contemplated by this Agreement. In the event of the termination of this
Agreement, each party hereto shall, and shall cause its representatives to,
deliver to the other party the originals of all documents obtained by such party
or on behalf of such party from the other party in connection with this
Agreement, whether so obtained before or after the execution hereof, and such
party shall, and shall cause its representatives to, destroy all copies thereof.
(b) Unless otherwise required by law, no party shall disclose to any
person (other than the party's representatives) any information regarding the
transactions contemplated by this Agreement, including the existence and terms
of this Agreement.
9.06 Solicitation. Each of the Company, GMI and Merger Subsidiary
------------
consent that from the date hereof until three years after termination of this
Agreement pursuant to Article VIII or the Effective Time, whichever occurs
first, they will not (except in connection with the transactions contemplated
hereby) offer to hire, hire, attempt to offer to hire or attempt to hire any
employees of GMI or Merger Subsidiary (in the case of the Company) or the
Company (in the case of GMI or Merger Subsidiary).
9.07 Employee Benefit Plans. GMI shall allow retained employees of
----------------------
the Company to participate, effective as of the Closing Date, under the terms of
the GMI's Employee Benefit Plans, including without limitation its health,
medical, disability, life or other insurance, retirement, 401(k) or severance
plans, as employees of similar salary and position at GMI or its subsidiaries as
if such employees had been employees of GMI subsidiaries during their employment
by the Company. Nothing herein shall (i) obligate GMI to offer employment to or
to continue to employ any person employed by the Company prior to the Effective
Time or (ii) prevent GMI from reducing or discontinuing any benefit for all of
its employees, including those employed by the Company prior to the Effective
Time. Any employee of the Company retained by GMI shall be an "at will"
employee, unless otherwise provided by agreement between GMI and such employee.
41
9.08 Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) Except to the extent required by law, until the second
anniversary of the Effective Time, GMI will not take any action so as to amend,
modify or repeal the provisions for indemnification of directors, officers,
stockholders, employees or agents contained in the Certificate of Incorporation
or bylaws of the Surviving Corporation (which as of the Effective Time shall be
no less favorable to such individuals than those maintained by the Company on
the date hereof) in such a manner as would adversely affect the rights of any
individual who shall have served as a director, officer, stockholder, employee
or agent of the Company prior to the Effective Time (each an "Indemnified
Party") to be indemnified by the Company in respect of their serving in such
capacities prior to the Effective Time. GMI shall indemnify all directors,
officers, employees, and stockholders who are officers or directors of the
Company against any liability or losses (including reasonable attorney's fees
for counsel who are reasonably acceptable to GMI) any of them may incur because
of any claim brought against them prior to within two years from the Effective
Time as officers, directors, employees, agents or stockholders of the Company,
and in connection therewith, shall, subject to relevant state law and the
Certificate of Incorporation and Bylaws of the Company and the Surviving
Corporation, advance reasonable attorney's fees to them to defend any such
claim; provided, however, that GMI shall be entitled to cooperate in the defense
of any such matter; and provided, further, that GMI shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that GMI shall not be obligated
pursuant to this Section to pay the fees and disbursements of more than one
counsel for all Indemnified Parties in any single action, except to the extent
that, in the opinion of counsel for the Indemnified Parties, two or more of such
Indemnified Parties have conflicting interests in the outcome of such action.
GMI may obtain directors' and officers' liability insurance covering its
obligations under this section.
(b) GMI and the Surviving Corporation shall maintain, until April 5,
2001, the policies of directors' and officers' liability insurance maintained by
the Company as of the date hereof (or policies of at least the same coverage and
amounts containing terms that are no less advantageous to the insured parties)
with respect to claims arising from facts or events that occurred on or prior to
the Effective Time.
(c) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and each party entitled
to insurance coverage under paragraph (b) above, respectively, and his or her
heirs and legal representatives, and shall be in addition to any other rights an
Indemnified Party may have under the Certificate of Incorporation or Bylaws of
the Surviving Corporation, under the DGCL or otherwise.
9.09 Escrow Agreement. On or before the Earn Out Date, GMC, GMI and
----------------
the Surviving Corporation shall enter into the Escrow Agreement (as defined in
Section 2.02 hereof) pursuant to which the Merger Consideration shall be
distributed consistent with the terms of the Letter Agreement, this Agreement
and the Collateral Agreement.
42
ARTICLE X
SURVIVAL; INDEMNIFICATION
-------------------------
10.01 Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party in
the Closing, the representations and warranties contained in Article III and
Article IV hereof shall survive the Effective Time for a period of one year
following the Effective Time.
10.02 Indemnification by the Company.
------------------------------
(a) Subject to the limitations of Section 10.02(b), the Company
agrees to indemnify in full GMC, GMI and Merger Subsidiary and their respective
officers, directors, employees, agents and stockholders (collectively, the "GMI
Indemnified Parties") and hold them harmless against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal expenses),
whether or not actually incurred or paid (collectively, "Losses"), which GMI
Indemnified Parties may suffer, sustain or become subject to, prior to the first
anniversary of the Effective Time, as a result of (i) any misrepresentation in
any of the representations and warranties of the Company contained in this
Agreement or in any exhibits, schedules, certificates or other documents
delivered or to be delivered by or on behalf of the Company pursuant to the
terms of this Agreement or otherwise referenced or incorporated in this
Agreement (collectively, the "Related Documents"), (ii) any breach of, or
failure to perform, any agreement of the Company contained in this Agreement or
any of the Related Documents, (iii) any "Claims" (as defined in Section 10.04(a)
hereof) or threatened Claims against GMI arising out of the actions or inactions
of the Company with respect to the Company's business prior to the Effective
Time; or (iv) any untrue statement or alleged untrue statement of any material
fact contained in the Information Statement, or any amendment or supplement
thereto, or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances in which they were
made, not misleading (collectively, "GMI Losses"); provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out to or is based upon any untrue
statement or alleged untrue statement or omission or allege omission so made in
conformity with information furnished by GMC, GMI or Merger Subsidiary.
Notwithstanding anything in this Section 10.02 to the contrary, the GMI
Indemnified Parties agree to seek indemnification from the Escrow Fund only.
(b) The Company shall be liable to the GMI Indemnified Parties for
any GMI Loss (i) only if GMI or Merger Subsidiary delivers to the Stockholder's
Representative written notice, setting forth in reasonable detail the identity,
nature and amount of GMI Losses related to such claim or claims prior to the
first anniversary of the Effective Time and (ii) only if the aggregate amount of
all GMI Losses exceeds $250,000 (the "Basket Amount"), in which case the Company
shall be obligated to indemnify the GMI Indemnified Parties only for the excess
of the
43
aggregate amount of all such GMI Losses over the Basket Amount. GMI or Merger
Subsidiary's failure to provide the detail required by clause (i) in the
preceding sentence shall not constitute either a breach of this Agreement by GMI
or Merger Subsidiary or any basis for the Company to assert that GMI or Merger
Subsidiary did not comply with the terms of this Section 10.03 sufficient to
cause either GMI or Merger Subsidiary to have waived its rights under this
Section 10.03.
10.03 Indemnification by GMI.
----------------------
(a) Subject to the limitations of Section 10.03(b), GMI agrees to
indemnify in full the Company and the Company's officers, directors, employees,
agents and stockholders (collectively, the "Company Indemnified Parties") and
hold them harmless against any Losses which any of the Company Indemnified
Parties may suffer, sustain or become subject to, prior to the first anniversary
of the Effective Time, as a result of (i) any misrepresentation in any of the
representations and warranties of GMI and Merger Subsidiary contained in this
Agreement or in any of the Related Documents, (ii) any breach of, or failure to
perform, any agreement of GMC, GMI or Merger Subsidiary contained in this
Agreement or any of the Related Documents, (iii) any Claims or threatened Claims
against the Company arising out of the actions or inactions of GMC, GMI or
Merger Subsidiary with respect to the Company's business or the Real Property
after the Effective Time; or (iv) any untrue statement or alleged untrue
statement of any material fact contained in the Information Statement, or any
amendment or supplement thereto, or arise out of are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading; provided, however, that GMI will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expense arises out to or is based upon any untrue statement or alleged
untrue statement or omission or allege omission so made in conformity with
information furnished by the Company (collectively, "Company Losses").
(b) GMI will be liable to the Company Indemnified Parties for any
Company Loss (i) only if the Company delivers to GMI and Merger Subsidiary
written notice, setting forth in reasonable detail the identity, nature and
amount of Company Losses related to such claim or claims prior to the first
anniversary of the Effective Time and (ii) only if the aggregate amount of all
Company Losses exceeds the Basket Amount, in which case GMI shall be obligated
to indemnify the Company Indemnified Parties only for the excess of the
aggregate amount of all such Company Losses over the Basket Amount. The
Company's failure to provide the detail required by clause (i) in the preceding
sentence shall not constitute either a breach of this Agreement by the Company
or any basis for GMC, GMI or Merger Subsidiary to assert that the Company did
not comply with the terms of this Section 10.03 sufficient to cause either the
Company to have waived its rights under this Section 10.03.
10.04 Method of Asserting Claims. As used herein, an "Indemnified
--------------------------
Party" shall refer to a "GMI Indemnified Party" or "Company Indemnified Party,"
as applicable, the
44
"Notifying Party" shall refer to the party hereto whose Indemnified Parties are
entitled to indemnification hereunder, and the "Indemnifying Party" shall refer
to the party hereto obligated to indemnify such Notifying Party's Indemnified
Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim"), the Notifying Party shall give the Indemnifying Party prompt notice
thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has materially and
adversely affected the Indemnifying Party's ability to defend successfully a
Claim. The Indemnifying Party shall be entitled to contest and defend such
Claim; provided, that the Indemnifying Party (i) has a reasonable basis for
concluding that such defense may be successful and (ii) diligently contests and
defends such Claim. Notice of the intention so to contest and defend shall be
given by the Indemnifying Party to the Notifying Party within 20 business days
after the Notifying Party's notice of such Claim (but, in all events, at least
five business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the Indemnifying Party. The Notifying Party shall be entitled at
any time, at its own cost and expense (which expense shall not constitute a Loss
unless the Notifying Party reasonably determines that the Indemnifying Party is
not adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Notifying Party elects to participate in such defense, the Notifying Party will
cooperate with the Indemnifying Party in the conduct of such defense. Neither
the Notifying Party nor the Indemnifying Party may concede, settle or compromise
any Claim without the consent of the other party, which consents will not be
unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the ongoing
business of any of the Indemnified Parties, which Claim, if decided against any
of the Indemnified Parties, would materially adversely affect the ongoing
business or reputation of any of the Indemnified Parties, then, in each such
case, the Indemnified Parties alone shall be entitled to contest, defend and
settle such Claim in the first instance and, if the Indemnified Parties do not
contest, defend or settle such Claim, the Indemnifying Party shall then have the
right to contest and defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim against
any Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within 30 days after delivery of such notice by the Notifying Party
whether the Indemnifying Party disputes the claim described in such notice, the
Loss in the amount specified in the Notifying Party's notice will be
conclusively deemed a liability of the Indemnifying Party and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its Liability with
45
respect to such claim, the Chief Executive Officers of each of the Indemnifying
Party and the Notifying Party will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through the negotiations of such
Chief Executive Officers within 60 days after the delivery of the Notifying
Party's notice of such claim, such dispute shall be resolved fully and finally
in Minneapolis, Minnesota by a mutually acceptable arbitrator selected pursuant
to, and an arbitration governed by, the Commercial Arbitration Rules of the
American Arbitration Association. The arbitrator shall resolve the dispute
within 30 days after selection and judgment upon the award rendered by such
arbitrator may be entered in any court of competent jurisdiction.
(c) After the Closing, the rights set forth in this Article X shall
be each party's sole and exclusive remedies against the other party hereto for
misrepresentations or breaches of covenants contained in this Agreement and the
Related Documents. Notwithstanding the foregoing, nothing herein shall prevent
any of the Indemnified Parties from bringing an action based upon allegations of
fraud or other intentional breach of an obligation of or with respect to either
party in connection with this Agreement and the Related Documents. In the event
such action is brought, the prevailing party's reasonable attorneys' fees and
reasonable costs shall be paid by the nonprevailing party.
(d) Any indemnification payable under this Article X shall be, to
the extent permitted by law, an adjustment to purchase price.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 Press Releases and Announcements. Prior to the Effective Time,
--------------------------------
no party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the Company
without prior written approval of the other party hereto, except as may be
necessary, in the opinion of counsel to the party seeking to make disclosure, to
comply with the requirements of this Agreement, the Certificate of Merger or
applicable law. If any such press release or public announcement is so required,
the party making such disclosure shall consult with the other party prior to
making such disclosure, and the parties shall use all reasonable efforts, acting
in good faith, to agree upon a text for such disclosure which is satisfactory to
both parties.
11.02 Expenses. Except as otherwise expressly provided for herein, the
--------
Company, GMC, GMI and Merger Subsidiary will each pay all of their own expenses
(including attorneys', investment bankers' and accountants' fees) in connection
with the negotiation of this Agreement, the performance of their respective
obligations under this Agreement and the Certificate of Merger and the
consummation of the transactions contemplated hereby and thereby (whether
consummated or not).
11.03 Amendment and Waiver. This Agreement may not be amended or
--------------------
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced; provided, however, that after the approval of
this Agreement by the stockholders of
46
the Company, no amendment may be made which reduces the Merger Consideration or
which effects any changes which would materially adversely affect the
stockholders of the Company without the further approval of the stockholders of
the Company. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify or amend any part
of this Agreement or any rights or obligations of any person under or by reason
of this Agreement.
11.04 Notices. All notices, demands and other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
three days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
GMI, Merger Subsidiary and the Company will, unless another address is specified
in writing, be sent to the address indicated below:
Notices to GMI or Merger Subsidiary: with a copy to:
----------------------------------- --------------
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
Global MAINTECH, Inc. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Company: with a copy to:
---------------------- --------------
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Phleger & ▇▇▇▇▇▇▇▇ LLP
President and Chief Executive Officer ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ Hill Technologies, Inc. ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Telecopy: (▇▇▇)▇▇▇-▇▇▇▇
Telecopy: (▇▇▇)▇▇▇-▇▇▇▇
Notices to the Stockholders' Representative:
-------------------------------------------
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Chairman, Board of Directors
▇▇▇▇▇▇ ▇▇▇▇ Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇)▇▇▇-▇▇▇▇
11.05 Assignment. This Agreement and all of the provisions hereof will
----------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by any
party hereto without the prior written consent of the other parties hereto.
47
11.06 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
11.07 Complete Agreement. This Agreement, the Certificate of Merger
------------------
and the Related Agreements and other exhibits hereto, the Disclosure Schedule
and the other documents referred to herein contain the complete agreement
between the parties and supersede any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
11.08 Counterparts. This Agreement may be executed in one or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
11.09 Governing Law. The internal law, without regard for conflicts of
-------------
laws principles, of the State of California will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.
11.10 No Third-Party Beneficiaries. Notwithstanding anything to the
----------------------------
contrary in Section 9.06, no employee or former employee of the Company shall be
entitled to rights under this Agreement as a third-party beneficiary.
[The remainder of this page was intentionally left blank. Signature page
follows.]
48
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
Global MAINTECH Corporation
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
Name:
Title:
Global MAINTECH, Inc.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
Name:
Title:
BHT Acquisition, Inc.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
Name:
Title:
▇▇▇▇▇▇ ▇▇▇▇ Technologies, Inc.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
Name:
Title:
SCHEDULE 6.05
REGISTRATION RIGHTS
1. Piggyback Registration Rights. If at any time or from time to time 90 days
-----------------------------
or more after the Closing Date, GMC proposes to register any of its securities
under the Act on any form for the registration of securities under such Act,
whether or not for its own account, other than by a registration statement on
Form S-8 or other form which does not include substantially the same information
as would be required in a form for the general registration of securities or
would not be available for the Registrable Securities (a "Piggyback Eligible
Registration"), it shall as expeditiously as possible (and at least 15 days
before the proposed registration) give written notice to all holders of
Unregistered GMC Common Stock and the Non-H&QGF Warrants, by giving such notice
to the Stockholders' Representative, specifying its intention to register and
specifying such holders' rights under this Section 1 (the "Piggyback
Registration Rights"). Upon the written request of any such holder made within
20 days after receipt of any such notice (which request shall specify the number
of shares of Unregistered GMC Common Stock intended to be disposed of by such
holder), GMC shall include in the registration statement the Unregistered GMC
Common Stock which the Company has been so requested to register by the holders
thereof (the "Selling Stockholders") and shall keep such registration statement
in effect and in compliance with each applicable Federal and state law or
regulation for 180 days (a "Piggyback Registration").
a. Withdrawal of Piggyback Registration by GMC. If, at any time after
-------------------------------------------
giving written notice of its intention to register any securities in a
Piggyback Eligible Registration but prior to the effective date of the
related registration statement, GMC shall determine for any reason not
to register such securities, GMC shall give written notice of such
determination to each Selling Stockholder, by giving such notice to
the Stockholders' Representative, and thereupon shall be relieved of
its obligation to register any Unregistered GMC Common Stock in
connection with such Piggyback Eligible Registration. All best
efforts obligations of GMC pursuant to Section 3 shall cease if GMC
determines to terminate prior to such effective date any registration
where Unregistered GMC Common Stock are being registered pursuant to
this Section 1.
b. Piggyback Registration of Underwritten Public Offerings. If a
-------------------------------------------------------
Piggyback Eligible Registration involves an offering by or through
underwriters, then, (i) all Selling Stockholders must sell their
Unregistered GMC Common Stock to the underwriters selected by GMC on
the same terms and conditions as apply to securities otherwise being
sold through the underwriters and (ii) any Selling Stockholder may
elect in writing, not later than three business days prior to the
effectiveness of the registration statement filed in connection with
such registration, not to have his, her or its Unregistered GMC Common
Stock so included in connection with such registration.
c. Payment of Registration Expenses for Piggyback Registration. GMC
-----------------------------------------------------------
shall pay any and all Registration Expenses (as defined below)
incurred or made in connection with each registration of Unregistered
GMC Common Stock requested pursuant to a Piggyback Registration Right.
For purposes of this Section 1, Registration Expenses shall mean any
and all expenses incurred in connection with any registration or
action incident to performance of or compliance by GMC with Section 1,
2, 3 or 4 of this Schedule, including, without limitation, (i) all
Securities and Exchange Commission, national securities exchange and
NASD registration and filing fees; (ii) all listing fees and all
transfer agent fees; (iii) all fees and expenses of complying with
state securities or blue sky laws (including the fees and
disbursements of counsel for the underwriters in connection with blue
sky qualifications of the Unregistered GMC Common Stock); (iv) all
printing, mailing, messenger and delivery expenses; and (v) all fees
and disbursements of counsel for GMC and of its accountants, including
the expenses of any special audits or "cold comfort" letters.
d. Priority in Piggyback Eligible Registration. If a Piggyback Eligible
-------------------------------------------
Registration involves an offering by or through underwriters, GMC
shall not be required to include Unregistered GMC Common Stock therein
if and to the extent the underwriter managing the offering reasonably
believes in good faith and advises each Selling Stockholder, by
advising the Stockholders' Representative, that inclusion of the
Selling Stockholder's Unregistered GMC Common Stock would materially
adversely affect such offering; provided, that, except with respect to
Unregistered GMC Common Stock requested to be included in the
Piggyback Eligible Registration by certain officers of GMC in the
amount of $294,500 identified as "notes receivable-officers" in the
Consolidated Balance Sheets in GMC's annual report on Form 10-KSB for
the year ended December 31, 1997, (i) if other Selling Stockholders
who are employees, officers, directors or other affiliates of GMC have
requested registration of securities in the proposed offering, GMC
will reduce or eliminate such other Selling Stockholders' securities
before any reduction or elimination of Unregistered GMC Common Stock;
(ii) any such reduction or elimination (after taking into account the
effect of clause (i)) shall be pro rata to all other holders of the
--- ----
securities of GMC exercising "piggyback registration rights" similar
to those set forth herein in proportion to the respective number of
shares they have requested to be registered, and (iii) in such event,
such Selling Stockholders may delay any offering by them of all
Unregistered GMC Common Stock requested to be included or that portion
of such Unregistered GMC Common Stock eliminated for such period, not
to exceed 60 days, as the managing underwriter shall request and GMC
shall file such supplements and post-effective amendments and take
such other action necessary under Federal and state law or regulation
as may be necessary to permit such Selling Stockholders to make their
proposed offering for a period of 180 days following such period of
delay.
2. Demand Registration Rights.
--------------------------
a. Request for Registration. If, at any time 30 days or more after the
------------------------
Closing Date and prior to the expiration of two years after the
Closing Date, any holder of the Unregistered GMC Common Stock requests
that GMC file a registration statement under the Act with respect to
that holder's Unregistered GMC Common Stock, GMC as soon as
practicable shall use its best efforts to file a registration
statement with respect to all Unregistered GMC Common Stock that it
has been so requested to include and obtain the effectiveness thereof
and to take all other action necessary under any Federal or state law
or regulation to permit the Unregistered GMC Common Stock that are
then held and/or that may be acquired upon the exercise of the Escrow
Warrants specified in the notices of the holder or holders thereof to
be sold or otherwise disposed of and GMC shall maintain such
compliance with each such Federal and state law and regulation for 180
days (a "Demand Registration"); provided, however, that GMC shall be
entitled to defer such registration for a period of up to 90 days if
and to the extent that its Board of Directors shall determine that
such registration would materially interfere with a pending corporate
transaction. GMC shall also promptly give written notice, by giving
such notice to the Stockholders' Representative, to the holders of any
other Unregistered GMC Common Stock and the Non-H&QGF Warrants that
have not made a request to GMC pursuant to the provisions of this
subsection (a) of its intention to effect any required registration or
qualification, and shall use its best efforts to effect as
expeditiously as possible such registration or qualification of all
other such Unregistered GMC Common Stock that are then held and/or
that may be acquired upon the exercise of Escrow Warrants, the holder
or holders of which have requested such registration or qualification
within 15 days after such notice has been given by GMC as provided in
the preceding sentence. GMC shall be required to effect a
registration or qualification pursuant to this Section 2(a) only once.
b. Payment of Registration Expenses for Demand Registration. GMC shall
--------------------------------------------------------
pay all Registration Expenses in connection with a Demand Registration
only if holders of more than 50% of the Unregistered GMC Common Stock
request registration pursuant to this Section 2. In all other cases,
the holder or holders of Unregistered GMC Common Stock to be
registered pursuant to this Section 2 shall bear all Registration
Expenses in connection with such registration.
c. Selection of Underwriters. If any Demand Registration is requested to
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be in the form of an underwritten offering, the managing underwriter,
the co-manager (if any) and the qualified independent underwriter
required under the rules of the NASD (if any) shall be selected and
obtained by the holders of a majority of the Unregistered GMC Common
Stock to be registered. Such selection shall be subject to GMC's
consent, which consent shall not be unreasonably withheld. All fees
and expenses (other than Registration Expenses otherwise required to
be paid) of any managing underwriter, any co-manager or any qualified
independent
underwriter or other independent pricer required under the rules of
the NASD shall be paid for by such underwriters or by the Selling
Stockholders.
3. Registration Procedure. If and whenever GMC is required to use its best
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efforts to take action pursuant to any Federal or state law or regulation to
permit the sale or other disposition of any Unregistered GMC Common Stock that
are then held or that may be acquired in connection with the Earn Out Payment,
if any, or the exercise of Escrow Warrants in order to effect or cause the
registration of any Unregistered GMC Common Stock under the Act as provided in
Section 1 or 2, GMC shall, as expeditiously as practicable:
a. furnish to each Selling Stockholder and the underwriters, if any,
without charge, as many copies of the registration statement, the
prospectus or prospectuses (including each preliminary prospectus) and
any amendment or supplement thereto as they may reasonably request;
b. enter into such agreements (including an underwriting agreement) and
take all other actions reasonably required in connection therewith in
order to expedite or facilitate the disposition of such Unregistered
GMC Common Stock and in such connection, if the registration is in
connection with an underwritten offering (i) make such representations
and warranties to the underwriters in such form, substance and scope
as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) obtain
opinions of counsel to GMC and updates thereof (which counsel and
opinions in form, scope and substance shall be reasonably satisfactory
to the underwriters) addressed to the underwriters and the Selling
Stockholders covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such underwriters; (iii) obtain "cold comfort"
letters and updates thereof from GMC's accountants addressed to the
underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters and the Selling Stockholders in connection with
underwritten offerings; (iv) set forth in full in any underwriting
agreement entered into the indemnification provisions and procedures
of Section 4 with respect to all parties to be indemnified pursuant to
Section 4; and (v) deliver such documents and certificates as may be
reasonably requested by the underwriters to evidence compliance with
clause (i) of this Section 3(b) and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by GMC; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required
thereunder;
c. make available for inspection by the Stockholders' Representative all
financial and other records, pertinent corporate documents and
properties of GMC, and cause GMC's officers, directors and employees
to supply all information reasonably requested by any such
representatives in connection with such registration. Similarly, each
Selling Stockholder shall furnish to GMC such
information regarding the distribution of such securities and such
other information as may otherwise be required by the Act to be
included in the related registration statement.
d. otherwise use its best efforts to comply with all applicable Federal
and state regulations; and take such other action as may be reasonably
necessary or advisable to enable each such Selling Stockholder and
each such underwriter to consummate the sale or disposition in such
jurisdiction or jurisdiction in which any such Selling Stockholder or
underwriter shall have requested that the Unregistered GMC Common
Stock be sold.
4. Indemnification. In the event that any Unregistered GMC Common Stock is
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included in a registration statement pursuant to Section 6.05 of the Agreement
and this Schedule 6.05:
a. Indemnification by GMC. GMC will indemnify and hold harmless the
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Selling Stockholders and any underwriter (as defined in the ▇▇▇▇ ▇▇▇)
for such Selling Stockholders from and against any and all loss,
damage, liability, cost and expense to which the Selling Stockholders
or any such underwriter may become subject under the 1933 Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading,
provided however, that GMC will not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises
out to or is based upon any untrue statement or alleged untrue
statement or omission or allege omission so made in conformity with
information furnished by any Selling Stockholder or such underwriter;
b. Indemnification by Selling Stockholders. Any Selling Stockholder and
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any underwriter for the Selling Stockholders shall indemnify and hold
harmless GMC and GMI to the same extent as provided in paragraph (a)
of this Section 4 to the extent that any such loss, damage, liability,
cost or expense to which GMC and GMI may become subject is caused by
or arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in conformity
with information furnished by such Selling Stockholder or underwriter;
and
c. Indemnification Procedure. Promptly after receipt by an indemnified
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party pursuant to the provisions of paragraph (a) or (b) of this
Section 4 of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified
party will, if a claim thereof is to be made against the indemnifying
party pursuant to the provisions of said paragraph (a) or
(b), promptly notify the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified
party otherwise than hereunder. In case such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party;
provided, however, if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict
of interest which would prevent counsel for the indemnifying party
from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
5. Limitation on Registration Rights. Notwithstanding anything to the
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contrary contained in this Schedule 6.05, holders of the Unregistered GMC Common
Stock shall have the foregoing registration rights only to the extent that an
exemption from the registration and prospectus delivery requirements of the Act
pursuant to Rule 144 promulgated under the Act is not available.
6. Assignment. The registration and indemnification rights granted to the
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holders of Unregistered GMC Common Stock pursuant to this Schedule 6.05 and
Section 6.05 of the Merger Agreement shall be for the benefit of and enforceable
by the recipients of Unregistered GMC Common Stock issued in connection with the
Earn Out Payment, if any, and exercise of Escrow Warrants, and any subsequent
holders of Unregistered GMC Common Stock, whether or not any express assignment
of such rights to any such subsequent holder is made.