Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and
among
TELIC OPTICS, INC.,
THE STOCKHOLDERS OF TELIC OPTICS, INC. NAMED HEREIN,
AXSYS TECHNOLOGIES, INC.
and
BIFOCAL ACQUISITION CORP.
Dated as
of April 8, 2004
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Exhibit A
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Articles of
Organization of the Surviving Corporation
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Exhibit B
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Employment Agreement
with James W. Howard
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Exhibit C
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Employment Agreement
with Ronald D. Stern
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Exhibit D
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Letter Agreement with
Irving Lowe
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Exhibit E
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Letter of Transmittal
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF
MERGER (this “Agreement”), dated as of April 8, 2004, is by and
among Telic
Optics, Inc., a Massachusetts corporation (“Target”), the stockholders of Target set
forth on the signature pages hereto (collectively, the “Principal Stockholders”), Axsys
Technologies, Inc., a Delaware corporation (“Acquirer”), and Bifocal Acquisition Corp., a
Massachusetts corporation (“Merger Sub”).
RECITALS
WHEREAS, the parties
desire to enter into this Agreement, pursuant to which Merger Sub will be
merged with and into Target, with the result that (i) the separate corporate
existence of Merger Sub will cease and Target will continue as the surviving
corporation and a wholly owned subsidiary of Acquirer and (ii) the Holders will
receive the cash consideration specified herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in
consideration of the foregoing and the mutual representations, warranties,
covenants and agreements contained herein, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, subject to the terms and conditions on
this Agreement, the parties hereto agree as follows:
ARTICLE I
Section 1.1 The
Merger. At the Effective Time,
Merger Sub will be merged with and into Target (the “Merger”), the separate existence of Merger
Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is
referred to herein as the “Surviving Corporation.”
Section 1.2 Closing:
Effective Time. The closing of the
Merger (the “Closing”)
shall take place on the date hereof (the “Closing Date”), simultaneously with the execution of
this Agreement, or at such other time and place as the parties hereto may
agree. Legal title, equitable title and
risk of loss with respect to Target’s assets and properties will pass to the
Surviving Corporation, and the Merger will be deemed effective for tax,
accounting and other computational purposes, and the parties will treat the
Closing as if it had occurred, as of 12:01 a.m. (Eastern Daylight Savings Time)
on April 8, 2004 (the “Effective Date”). On or as promptly as practicable after
the Closing Date, the parties hereto shall cause the Merger to be consummated
by filing Articles of Merger with the Secretary of the Commonwealth of the
Commonwealth of Massachusetts, in such form as required by, and executed in
accordance with the relevant provisions of, the laws of the Commonwealth of
Massachusetts (the time of such filing being the “Effective Time”).
Section 1.3 Effect
of the Merger. At the Effective
Time, the effect of the Merger shall be as provided in the applicable
provisions of the Business Corporation Law of the Commonwealth of
Massachusetts. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all of
the estate, property, rights, privileges, powers and franchises of Target and
Merger Sub and all of their property, real, personal and mixed, and all the
debts due on whatever account to either of them, as well as all stock
subscriptions and other choses in action belonging to either of them, shall be
transferred to and vested in the Surviving Corporation, without further act or
deed.
Section 1.4 Subsequent
Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or otherwise
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, properties or assets of either of Target or Merger Sub acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either Target or Merger Sub, all such
deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
Section 1.5 Conversion
of Merger Sub Common Stock. At the
Effective Time, each share of common stock of Merger Sub (the “Merger Sub Common Stock”)
that is issued and outstanding immediately prior to the Effective Time will be
converted into one validly issued, fully paid and non-assessable share of
common stock, $0.01 par value, of the Surviving Corporation.
Section 1.6 Conversion
of Target Stock. At the Effective
Time, (a) each share of the common stock of Target (the “Target Common Stock”) that is issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without the need for any further action on the part of the holders
of the Target Common Stock (except as expressly provided herein), be converted
into and represent the right to receive (i) the Per Share Merger Consideration
and (ii) a portion of the Earn-Out Payments determined in accordance with
Section 1.9 and (b) each share of Target Common Stock that is held in
treasury will automatically be cancelled without consideration being paid
therefor.
(a) Upon
consummation of the Merger, each then outstanding option to purchase Target
Common Stock (the “Options”)
granted under any of Target’s stock option agreements, each as amended
(collectively, the “Option Plans”),
whether or not then exercisable or vested, shall be acquired by the Surviving
Corporation for cancellation in consideration of payment to the holders of such
Options of (i) an amount in respect thereof equal to the product of (A) the
excess, if any, of the Per Share Merger Consideration over the per share
exercise price thereof and (B) the number of shares of Target Common Stock
subject thereto (the “Option
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Consideration”) (such payment to be net of applicable
withholding taxes) and (ii) a portion of the Earn-Out Payments determined
in accordance with Section 1.9;
(b) Except
as provided herein or as otherwise agreed to by the parties, the parties hereto
shall take all actions reasonably necessary to cause the Option Plans to
terminate as of the Effective Time and to ensure that following the Effective
Time no Person, including any holder of Options, or any participant in the
Option Plans, shall have any right to acquire any equity securities of Target,
the Surviving Corporation or any subsidiary thereof.
Section 1.8 Purchase
Price Adjustment.
(a) Within
60 days after the date of this Agreement, Acquirer shall prepare and deliver,
or cause to be prepared and delivered, to the Stockholders’ Representative a
net working capital statement (the “Working Capital Statement”), setting forth the
calculation of the amount, if any, by which (i) Target’s current assets
immediately prior to the Effective Time exceed (ii) the sum of (A) Target’s
current liabilities immediately prior to the Effective Time and (B) to the
extent not included in clause (A), the Corporate Tax Liabilities (“Closing Working Capital”). The Working Capital Statement will be
prepared in accordance with United States Generally Accepted Accounting
Principles and in a manner consistent with Target’s working capital statement
attached hereto as Schedule 1.8 and the principles of preparation
included thereon.
(b) Within
30 days following receipt by the Stockholders’ Representative of the Working
Capital Statement, the Stockholders Representative shall deliver written notice
to Acquirer of any dispute the Stockholders’ Representative has with respect to
the preparation or content of such statement and containing an alternative
proposal for Closing Working Capital.
In the event that the Stockholders’ Representative does not notify
Acquirer of a dispute with respect to the Working Capital Statement within such
30-day period, such statement will be final, conclusive and binding on the
parties. In the event of such
notification of a dispute, Acquirer and the Stockholders’ Representative will
negotiate in good faith to resolve such dispute. If Acquirer and the Stockholders’ Representative, notwithstanding
such good faith effort, fail to resolve such dispute within 30 days after the
Stockholders’ Representative advises Acquirer of the Stockholders’ Representative’s
objections, then Acquirer and the Stockholders Representative shall jointly
engage independent certified public accountants (the “Accountants”) who shall be directed to
resolve such dispute within 30 days of their engagement. All determinations made by the Accountants
shall be final, conclusive and binding on the parties. Acquirer will pay the fees and expenses of
the Accountants; provided, however, that if Closing Working
Capital, as finally determined by the Accountants, is less than or equal to
105% of the amount set forth in the Working Capital Statement initially
delivered by Acquirer to the Stockholders’ Representative, such fees and
expenses will be reimbursed to Acquirer out of the Holdback Amount.
(c) For
purposes of complying with the terms set forth in this Section 1.8, each
party shall cooperate with and make available to the other party and its
representatives all information, records, data and working papers and shall
permit access to its facilities and personnel, as may be reasonably required in
connection with the preparation and analysis of the
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Working Capital Statement
and the resolution of any disputes under the Working Capital Statement.
(d) If
either (i) the Closing Working Capital (as finally determined pursuant to
Section 1.8(b)) is less than $2,349,760 or (ii) the cash included in the
Closing Working Capital is less than the Minimum Cash Balance, then the
Purchase Price will be adjusted downward by the amount of the larger shortfall
(the “Working Capital
Shortfall”).
(e) If
the Closing Working Capital (as finally determined pursuant to
Section 1.8(b)) is greater than $2,349,760 and the cash included in the
Closing Working Capital is equal to at least the Minimum Cash Balance, then the
Purchase Price will be adjusted upward by the lesser of (i) the amount of such
excess in the Closing Working Capital and (ii) the amount of cash included in
the Closing Working Capital that exceeds the Minimum Cash Balance (the “Additional Purchase Price”).
(f) Within
10 days of the time that the Closing Working Capital is finally determined
pursuant to Section 1.8(b), which shall include within 10 days of such
time as the Stockholders’ Representative may notify Acquirer in writing that there
is no dispute with Acquirer’s calculation of Closing Working Capital, Acquirer
shall pay to each Holder an amount equal to its Pro Rata Share of the Holdback
Amount minus the Working Capital Shortfall (if any) or plus the Additional
Purchase Price (if any) and minus any fees and expenses of the Accountants, if
applicable, pursuant to Section 1.8(b), plus simple interest thereon at a
rate of 6.0% per annum from the Closing Date through the date of payment. If the Holdback Amount is insufficient to
reimburse Acquirer for the Working Capital Shortfall and any fees and expenses
of the Accountants, if applicable, pursuant to Section 1.8(b), the
Principal Stockholders will, jointly and severally, pay Acquirer the amount of
the deficiency by wire transfer to an account designated by Acquirer. Acquirer may set off all or any part of such
deficiency (to the extent not paid by the Principal Stockholders) against any
Earn-Out Payments and other amounts payable to the Holders in accordance with
Section 7.6 until such deficiency is satisfied.
(a) On
such date as may be determined pursuant to Section 1.9(f), Acquirer shall
pay to each Holder a contingent payment in an amount equal to its Pro Rata
Share of the amount by which Sales generated by the Surviving Corporation
during the period beginning on April 8, 2004, and ending on
December 31, 2004 (the “First Earn-Out Period”), as determined pursuant to
Section 1.9(f), exceed $5,506,850 (the “First Year Target”), payment to be made by
wire transfer to the account indicated for that Holder on Schedule 2.2
(or, if no such account is indicated for any Holder, to the Stockholders’
Representative for the benefit of that Holder); provided, however,
that in no event will the aggregate Earn-Out Payments exceed $4,000,000.
(b) On
such date as may be determined pursuant to Section 1.9(f), Acquirer shall
pay to each Holder a contingent payment in an amount equal to its Pro Rata
Share of the amount by which Sales generated by the Surviving Corporation
during the period beginning on January 1, 2005, and ending on
December 31, 2005 (the “Second Earn-Out Period”), as determined pursuant to
Section 1.9(f), exceed $7,500,000 (the “Second Year Target”), payment to be made by
wire transfer to the account indicated for that Holder on Schedule 2.2
(or, if no
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such account is indicated for any Holder, to the
Stockholders’ Representative for the benefit of that Holder); provided, however,
that in no event will the Earn-Out Payment made pursuant to this
Section 1.9(b), together with any Earn-Out Payments made in prior periods,
exceed $4,000,000.
(c) On
such date as may be determined pursuant to Section 1.9(f), Acquirer shall
pay to each Holder a contingent payment in an amount equal to its Pro Rata
Share of the amount by which Sales generated by the Surviving Corporation
during the period beginning on January 1, 2006, and ending on
December 31, 2006 (the “Third Earn-Out Period”), as determined pursuant to
Section 1.9(f), exceed $7,500,000 (the “Third Year Target”), payment to be made by
wire transfer to the account indicated for that Holder on Schedule 2.2
(or, if no such account is indicated for any Holder, to the Stockholders’
Representative for the benefit of that Holder); provided, however,
that in no event will the Earn-Out Payment made pursuant to this
Section 1.9(c), together with any Earn-Out Payments made in prior periods,
exceed $4,000,000.
(d) On
such date as may be determined pursuant to Section 1.9(f), Acquirer shall
pay to each Holder a contingent payment in an amount equal to its Pro Rata
Share of the amount by which Sales generated by the Surviving Corporation
during the period beginning on January 1, 2007, and ending on
April 7, 2007 (the “Fourth Earn-Out Period”), as determined pursuant to
Section 1.9(f), exceed $1,993,150 (the “Fourth Year Target”), payment to be made by
wire transfer to the account indicated for that Holder on Schedule 2.2
(or, if no such account is indicated for any Holder, to the Stockholders’
Representative for the benefit of that Holder); provided, however,
that in no event will the Earn-Out Payment made pursuant to this
Section 1.9(d), together with any Earn-Out Payments made in prior periods,
exceed $4,000,000.
(e) The
Holders acknowledge that Acquirer shall own and control the Surviving
Corporation and that Acquirer may operate the Surviving Corporation and its
assets in such manner as it determines to be in its best interests.
(f) For
each of the First Earn-Out Period, the Second Earn-Out Period, the Third
Earn-Out Period and the Fourth Earn-Out Period, for purposes of
Section 1.9(a), Section 1.9(b), Section 1.9(c) and
Section 1.9(d), respectively, Acquirer shall notify the Stockholders’
Representative in writing within 30 days of the end of the applicable Earn-Out
Period of the amount of Sales generated by the Surviving Corporation during the
prior Earn-Out Period as determined by Acquirer (the “Sales Statement”). For each such period, the Stockholders’ Representative shall have
the right to review the books and records of the Surviving Corporation and, to
the extent reasonably necessary to determine Sales, the books and records of
Acquirer and Acquirer’s other Affiliates, at the Holders’ cost, solely for the
purpose of verifying Acquirer’s determination of the Sales as set forth in the
Sales Statement, and Acquirer shall cooperate with all reasonable information
requests made by the Stockholders’ Representative in connection with any such
audit. In the event that the Stockholders’
Representative disputes any part of the Sales Statement, the Stockholders’
Representative shall deliver a written notice of dispute (a “Dispute Notice”) to
Acquirer detailing any such dispute and proposing an alternative figure for
Sales. If the Stockholders’
Representative fails to deliver a Dispute Notice to Acquirer within 30 days of
Acquirer’s delivery of the Sales Statement, then the Sales Statement shall
become final, conclusive and binding upon the parties for purposes of
determining the Earn-Out Payment, if any, earned by the Holders in such period,
and Acquirer shall pay to the Holders
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such Earn-Out Payment, if
any, promptly upon the expiration of such 30-day period, or within three business
days of such earlier time as the Stockholders’ Representative may notify
Acquirer in writing that there is no dispute,
in accordance with the applicable provisions of this Section 1.9. If the Stockholders’ Representative delivers
a timely Dispute Notice to Acquirer, then the parties shall negotiate in good
faith to resolve such dispute. If
Acquirer and the Stockholders’ Representative, notwithstanding such good faith
effort, fail to resolve such dispute within 30 days after delivery of the
Dispute Notice to Acquirer, then the parties shall jointly engage the
Accountants who shall be directed to resolve such dispute within 30 days of
their engagement. The determinations
made by the Accountants shall be final, conclusive and binding upon the
parties, and any Earn-Out Payments required to be paid pursuant to the
Accountants’ determinations shall be paid to the Holders by Acquirer within 15
days of the date on which Sales for the applicable Earn-Out Period is finally
determined in accordance with the applicable provisions of this
Section 1.9. Acquirer will pay the
fees and expenses of the accountants; provided, however, that if
Sales, as finally determined by the Accountants, is less than or equal to 105%
of the amount set forth in the Sales Statement initially delivered by Acquirer
to the Stockholders’ Representative, the applicable Earn-Out Payment will be
reduced by the amount of the fees and expenses of the Accountants (but the
unreduced Earn-Out Payment will be deemed to have been made for purposes of
determining whether the cumulative Earn-Out Payments exceed $4,000,000).
(g) Acceleration
of Earn-Out Payments. In the event
that, prior to the time that all Earn-Out Payments become payable to the
Holders under this Agreement, any of the events set forth below occur, all
Earn-Out Payments contemplated by this Agreement shall be accelerated and shall
become immediately due and payable to Holders in their entirety:
(i) A
sale or other disposition of all or substantially all of the assets of Acquirer
or the Surviving Corporation, or a merger, consolidation, recapitalization or
other transaction in which any Person who is not an owner of an interest in
Acquirer or the Surviving Corporation at the Effective Time becomes the
beneficial owner, directly or indirectly, of 50% or more of the combined voting
power of all interests in Acquirer or the Surviving Corporation;
(ii) A
dissolution, bankruptcy, assignment for the benefit of creditors, creditor
trust arrangement or similar event or proceeding with respect to Acquirer or
the Surviving Corporation;
(iii) A
merger of the Surviving Corporation into Acquirer or any other division or
organization of Acquirer or any restructuring or other similar activity if, as
a result of such activity, no reasonable method exists to determine Sales for
purposes of calculating the Earn-Out Payments.
Section 1.10 Effects
of the Merger. At the Closing:
(a) the
Articles of Organization of Target, as in effect immediately prior to the
Effective Time, shall be the Articles of Organization of the Surviving
Corporation and shall be amended to read in their entirety as set forth on
Exhibit A to this Agreement until thereafter amended in accordance with the
provisions thereof or as provided by law;
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(b) the
bylaws of Merger Sub immediately prior to the Effective Time shall continue
unchanged and be the bylaws of the Surviving Corporation immediately after the
Effective Time until thereafter amended in accordance with the provisions thereof
or as provided by law;
(c) the
directors of Merger Sub immediately prior to the Effective Time shall become
the initial directors of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified; and
(d) the
initial corporate officers of the Surviving Corporation shall be as stated in
the Articles of Merger filed pursuant to Section 1.2, until their
respective successors are duly appointed.
ARTICLE II
Section 2.1 Deliveries
by Target and the Principal Stockholders at Closing. At the Closing, Target and the Principal
Stockholders are delivering to Acquirer the following:
(a) resignations,
effective as of the Closing Date, from all the members of the board of
directors of Target, and from all the officers of Target from their respective
offices;
(b) each
of the Transaction Documents to which any Holder is a party, duly executed by
such Holder;
(c) stock
certificates evidencing the Target Common Stock and stock option agreements
representing the Options, together with a Letter of Transmittal for each
Holder, duly executed by such Holder;
(d) Target’s
corporate record books;
(e) signature
cards, effective as of the Closing Date, for each bank account maintained by
Target, adding David A. Almeida and Julie L. Oakes as signatories;
(f) Consents,
in form and substance reasonably satisfactory to Acquirer, identified on Schedule 3.2;
(g) the Payoff Letters reflecting all outstanding
Target Debt as of the Closing Date and any necessary UCC termination
statements or other releases as may be reasonably required to evidence the
satisfaction of the Target Debt;
(h) a
certificate of Target, duly executed by an officer of Target, certifying as
to: (i) an attached copy of the
resolutions of the Board of Directors (or a duly authorized committee or
officer) of Target and an attached copy of the resolutions of the Stockholders,
in each case authorizing and approving the execution, delivery and performance
of, and the consummation of the transactions contemplated by, this Agreement
and the Transaction Documents, and stating that the resolutions thereby
certified have not been amended, modified,
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revoked or rescinded;
(ii) the incumbency, authority and specimen signature of each officer of
Target executing this Agreement or any of the Transaction Documents;
(iii) the good standing of Target in the Commonwealth of Massachusetts and
any other jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes qualification in such jurisdiction
necessary (and attaching a certificate thereof issued as of a recent date by
the Secretary of State of each such state); (iv) an attached true, correct
and complete (as in effect from the time the resolutions described above were
adopted until the Closing) copy of Target’s Articles of Organization (certified
by the Secretary of the Commonwealth of the Commonwealth of Massachusetts); and
(v) an attached true, correct and complete (as in effect from the time the
resolutions described above were adopted until the Closing) copy of Target’s
bylaws;
(i) a
certificate of each Holder certifying under penalties of perjury that it is not
a “foreign person” within the meaning of Section 1445 of the Code, duly
executed by such Holder and reasonably satisfactory to Acquirer;
(j) a
Form W-9 for each Holder, duly executed by such Holder;
(k) an
IRS Form 8023 (Elections under Section 338 for Corporations Making
Qualified Stock Purchases), and any other analogous or corresponding form
required to be filed with any state, local or foreign Governmental Authority to
effect the Section 338(h)(10) Election, executed by each and every
Stockholder, in a manner reasonably satisfactory to Acquirer; and
(l) such
other documents, instruments and certificates as Acquirer may reasonably
request in connection with the transactions contemplated by this Agreement and
the Transaction Documents.
Section 2.2 Deliveries
by Acquirer at Closing. At the
Closing, Acquirer is delivering the following:
(a) to
each Stockholder, the Per Share Merger Consideration times the number of shares
of Target Common Stock held by it, payable by wire transfer to the account
indicated for that Stockholder on Schedule 2.2 or, if no such
account is indicated for that Stockholder, to the Stockholders’ Representative
for the benefit of that Stockholder;
(b) to
each holder of Options, the aggregate Option Consideration with respect to the
Options held by it, payable by wire transfer to the account indicated for that
Holder on Schedule 2.2 or, if no such account is indicated for that
Holder, to the Stockholders’ Representative for the benefit of that Holder;
(c) to
the Principal Stockholders that are parties thereto, each of the Transaction
Documents to which Acquirer is a party, duly executed by Acquirer;
(d) to
the Principal Stockholders that are parties thereto, each of the Transaction
Documents to which Merger Sub is a party, duly executed by Merger Sub;
(e) to
Target, a certificate of Acquirer, duly executed by an officer of Acquirer,
certifying as to: (i) an attached
copy of the resolutions of the Board of Directors (or a
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duly authorized committee
or officer) of Acquirer authorizing and approving the execution, delivery and
performance of, and the consummation of the transactions contemplated by, this
Agreement and the Transaction Documents, and stating that the resolutions
thereby certified have not been amended, modified, revoked or rescinded;
(ii) the incumbency, authority and specimen signature of each officer of
Acquirer executing this Agreement or any of the Transaction Documents;
(iii) the good standing of Acquirer in the State of Delaware (and
attaching a certificate thereof issued as of a recent date by the Secretary of
State of such state); (iv) an attached true, correct and complete (as in
effect from the time that the resolutions described above were adopted until
the Closing Date) copy of Acquirer’s certificate of incorporation (certified by
the Secretary of State of Delaware); and (v) an attached true, correct and
complete (as in effect from the time that the resolutions described above were
adopted until the Closing Date) copy of Acquirer’s bylaws;
(f) to
Target, a certificate of Merger Sub, duly executed by an officer of Merger Sub,
certifying as to: (i) an attached
copy of the resolutions of the Board of Directors (or a duly authorized
committee or officer) of Merger Sub authorizing and approving the execution,
delivery and performance of, and the consummation of the transactions
contemplated by, this Agreement and the Transaction Documents, and stating that
the resolutions thereby certified have not been amended, modified, revoked or
rescinded; (ii) the incumbency, authority and specimen signature of each
officer of Merger Sub executing this Agreement or any of the Transaction
Documents; (iii) the good standing of Merger Sub in the State of Delaware
(and attaching a certificate thereof issued as of a recent date by the
Secretary of State of such state); (iv) an attached true, correct and
complete (as in effect from the time that the resolutions described above were
adopted until the Closing Date) copy of Merger Sub’s articles of organization
(certified by the Secretary of the Commonwealth of the Commonwealth of
Massachusetts); and (v) an attached true, correct and complete (as in
effect from the time that the resolutions described above were adopted until
the Closing Date) copy of Merger Sub’s bylaws;
(g) to
the party or parties entitled thereto pursuant to the Payoff Letters, the
amount required to repay the Target Debt in full;
(h) a
copy of an IRS Form 8023 (Elections under Section 338 for Corporations
Making Qualified Stock Purchases), and any other analogous or corresponding
form required to be filed with any state, local or foreign Governmental
Authority to effect the Section 338(h)(10) Election, in the form to be
filed by Acquirer; and
(i) such
other documents, instruments and certificates as the Stockholders’
Representative may reasonably request in connection with the transactions
contemplated by this Agreement and the Transaction Documents.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET AND THE PRINCIPAL
STOCKHOLDERS
Except as set forth in
the Target Disclosure Schedules, Target and the Principal Stockholders hereby
jointly and severally represent and warrant to Acquirer and Merger Sub as of
the date of this Agreement as follows:
Section 3.1 Organization
and Standing; Corporate Power and Authority; Capacity. Target is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and is duly qualified as a foreign corporation to do business,
and is in good standing, in any other jurisdiction where the character of its
properties owned, operated or leased or the nature of its activities makes such
qualification necessary. Target has the
full corporate power and authority to own and operate its assets and to carry
on its business as currently conducted.
Target has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each of the Transaction Documents
to which it is a party. This Agreement
and the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action of Target, including unanimous
stockholder approval. This Agreement
and all other instruments executed and delivered by Target in connection
herewith have been duly executed and delivered by Target and, assuming due
authorization, execution and delivery by each of the other parties hereto and
thereto, constitute the valid and binding obligations of Target, enforceable
against Target in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and other similar Laws and principles of equity affecting creditors’
rights and remedies generally (collectively, the “General Enforceability Exceptions”).
Section 3.2 No
Conflicts; Defaults; Consents.
(a) Neither
the execution of this Agreement or the Transaction Documents to which it is a
party nor the consummation of the transactions contemplated hereby or thereby,
will (i) violate, conflict with, or constitute a default under, any of the
terms of Target’s organizational documents, or any provisions of, or result in
the acceleration of any obligation under, any contract, sales commitment, license,
purchase order, security agreement, mortgage, note, deed, Lien, lease,
agreement or instrument, including any order relating to Target’s business, or
by which Target or its assets are bound, (ii) result in the creation or
imposition of any Liens or claims in favor of any Person or entity upon any of
Target’s assets, (iii) violate any Law or Order applicable to Target,
(iv) constitute an event which, after notice or lapse or time or both,
would result in such violation, conflict, default, acceleration, or creation or
imposition of Liens, or (v) constitute an event which, after notice or
lapse of time or otherwise would create, or cause to be exercisable or
enforceable, any option, agreement or right of any kind to purchase any of
Target’s assets.
(b) No
Consent is required to be made or obtained by Target (i) in connection
with the execution and delivery by Target of this Agreement or the consummation
of the transactions contemplated hereby (including in connection with any
Option Plan) or (ii) for the
10
continued operation by
Acquirer of the Surviving Corporation’s business following the Closing or the
performance by the Surviving Corporation following the Closing of any contract,
agreement, commitment or undertaking included in Target’s assets.
(c) The
board of directors of Target has taken all action necessary so that no “fair
price,” “moratorium,” “control share acquisition” or other antitakeover statute
or regulation is applicable to the transactions contemplated by this Agreement.
Section 3.3 Properties. The assets and properties currently owned,
leased or licensed by Target, constitute all of the properties necessary to
conduct Target’s business as currently conducted by Target.
Target has good and marketable title to, valid and
enforceable leasehold interests in, or a valid and enforceable license to, all
of its assets and properties (including, without limitation, the Leased
Facilities). The assets and properties
owned, leased or licensed by Target are in good condition and repair (subject
to normal wear and tear consistent with the age of the assets and properties)
and are sufficient for the operation of Target’s business.
(a) The
authorized capital stock of Target consists of 200,000 shares of Target Common
Stock only. As of the close of business
on the date one business day prior to the date hereof, (i) 38,907 shares of
Target Common Stock were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable, (ii) no shares of
Target Common Stock were held in the treasury of Target and (iii) 500 shares of
Target Common Stock were reserved for issuance under Target’s employee stock
option agreements listed on Schedule 3.4 in the amounts stated in
such schedule. Schedule 3.4
sets forth, opposite the name of each Holder, the number of shares of Target
Common Stock held beneficially or of record by that Holder, the number of
shares of Target Common Stock purchasable upon the exercise of Options held by
that Holder and the exercise price applicable to each Option held by that
Holder.
(b) There
are no existing (i) options, warrants, calls, preemptive rights, subscriptions
or other rights, convertible securities, agreements or commitments of any
character obligating Target to issue, transfer or sell any shares of capital
stock or other equity interest in, Target or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual
obligations of Target to repurchase, redeem or otherwise acquire any capital
stock of Target or (iii) voting trust
or similar agreements to which Target is a party with respect to the voting of
the capital stock of Target. Target has
no subsidiaries and no direct or indirect equity interest in any Person. Each Option has an exercise price per Option
Share that is less than the Per Share Merger Consideration.
Section 3.5 Target
Contracts. Schedule 3.5
sets forth a true and complete list of each written or oral contract, agreement
or understanding to which Target is a party or by which it is bound that
involves an amount in excess of $25,000 or is otherwise material to Target’s
business (collectively, the “Target Contracts”).
For each Target Contract, the following is true: (a) each Target Contract is in full
force and effect and is valid and enforceable in accordance with its terms
against Target and against the other party or parties thereto, (b) Target
is in compliance with all applicable terms and requirements of each Target
Contract and each other party thereto is in compliance therewith, (c) no
event has occurred or circumstance exists that (with or without
11
lapse of time or notice)
would reasonably be expected to violate or result in a breach of any Target
Contract, and (d) none of the Target Contracts would restrict Acquirer’s
conduct of the Surviving Corporation’s business or limit the freedom of
Acquirer to engage in any line of business or to compete with any other Person.
Section 3.6 Financial
Statements. Attached as Schedule 3.6
are the consolidated balance sheets of Target as at December 31, 2001,
2002, and 2003, and the consolidated statements of income and cash flows for
the years then ended, together with the notes and schedules thereto, with said
2002 and 2003 financial statements audited at Acquirer’s expense (the “Financial Statements”). The Financial Statements are in accordance
with the books and records of Target, were prepared in accordance with United States
Generally Accepted Accounting Principles applied on a consistent basis, except
as disclosed in the notes thereto, and present fairly the results of operations
and the financial condition of Target as for the periods and as of the dates
indicated therein.
Section 3.7 Undisclosed
Liabilities. Target does not have
any liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or to become due, whether known or unknown, regardless
of when asserted), except (i) liabilities reflected in the Financial
Statements, (ii) liabilities that have arisen after the date of the
Financial Statements in the ordinary course of business and consistent with
past practice; or (iii) as otherwise set forth on Schedule 3.7.
Section 3.8 Conduct
of Business; No Material Adverse Change.
Except for distributions paid to Stockholders not in excess of
$2,454,000, since the Balance Sheet Date, Target has (a) operated its
business only in the ordinary course of business and (b) used its best
efforts to preserve intact its assets (other than sales of inventory and the
disposition of obsolete or damaged equipment in the ordinary course of
business) and its business. Since the
Balance Sheet Date, there has not been any material adverse change in Target’s
business, operations, assets, results of operations, condition (financial or
other) or prospects, and no event has occurred or circumstance exists that
would reasonably be expected to result in such a material adverse change.
Section 3.9 No
Proceedings; Compliance with Law.
There is no action, suit or proceeding pending or, to Target’s
knowledge, threatened against or related to Target in respect of its assets or
the conduct of its business. Target is
not subject to any Order or to any litigation, action, suit, proceeding or
investigation asserted, brought or, to Target’s knowledge, threatened against
Target in respect of its assets or the conduct of its business. To Target’s knowledge, Target’s business has
not been, and is not being, conducted in violation of any Law. No investigation or review by any
Governmental Authority with respect to Target or the conduct of its business is
pending or, to Target’s knowledge, threatened, nor has any Governmental
Authority indicated an intention to conduct the same.
Section 3.10 Intellectual
Property. For all the Intellectual
Property used in Target’s business, each of the following is true:
(a) Except
for Intellectual Property that has been incorporated into a product designed by
Target and has been transferred to, and become the property of, a customer in
the
12
ordinary course of
Target’s business, (i) Target is (immediately prior to the Closing) the sole
and exclusive owner of all right, title and interest in and to such
Intellectual Property, free and clear of all Liens (other than Permitted
Liens), or (with respect to commercially available software) has license rights
to use same; (ii) Target has not granted any license or other right that
does or will, subsequent to the Closing, permit or enable anyone to use or
receive royalties or other payments in respect of any of such Intellectual
Property; and (iii) no Person other than Target has any rights to use any
of such Intellectual Property or to sell any products or services that use or
incorporate or that were developed using or incorporating any of such
Intellectual Property.
(b) There
is no pending claim, and Target has not received any notice and, to Target’s
knowledge, there is no threatened claim against Target asserting (i) that
any of such Intellectual Property infringes or violates the rights of any
Person or (ii) that the present or past conduct of Target’s business has
infringed or violated, or will infringe or violate, any Intellectual Property
right of any Person.
Section 3.11 Customers
and Suppliers. Schedule 3.11
sets forth the ten largest customers (based on dollar amounts purchased from
Target) of Target and the ten largest suppliers (based on dollar amounts
purchased by Target) of Target, in each case, during each of the years ended
December 31, 2003, 2002 and 2001.
Target is not involved in any claim, dispute or controversy with any
customers or any suppliers of Target’s business that, individually or in the
aggregate, could reasonably be anticipated to have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of Target’s business or on its assets.
(a) Schedule 3.12
sets forth a complete list of (i) all “employee plans,” as defined in
Section 3(3) of ERISA, (ii) all other severance pay, salary continuation,
bonus, incentive, stock option, retirement, pension, profit sharing or deferred
compensation plans, contracts, programs, funds, or arrangements of any kind,
and (iii) all other employee benefit plans, contracts, programs, funds or
arrangements (whether written or oral, qualified or nonqualified, funded or
unfunded, foreign or domestic, currently effective or terminated) and any
trust, escrow or similar agreement related thereto, whether or not funded, in
respect of any present or former employees, directors, officers, stockholders,
consultants or independent contractors of Target (or any trade or business
(whether or not incorporated) (A) under common control within the meaning of
Section 4001(b)(1) of ERISA with Target or (B) that together with Target
is treated as a single employer under Section 414(t) of the Code (the “Controlled Group”))
or with respect to which Target (or the Controlled Group) has made or is
required to make payments, transfers or contributions (all of the above being
hereinafter individually or collectively referred to as “Employee Plan” or “Employee Plans,” respectively). Target has no liability with respect to any
plan, arrangement or practice of the type described in the preceding sentence
other than the Employee Plans.
(b) Copies
of the following materials have been delivered or made available to
Acquirer: (i) all current and prior
plan documents for each Employee Plan or, in the case of an unwritten Employee
Plan, a written description thereof, (ii) all determination letters from the
Internal Revenue Service (“IRS”) with respect to any of the Employee Plans, (iii)
all current and
13
prior summary plan
descriptions, summaries of material modifications, annual reports and summary
annual reports, (iv) all current and prior trust agreements, insurance
contracts and other documents relating to the funding or payment of benefits
under any Employee Plan and (v) any other documents, forms or other
instruments relating to any Employee Plan reasonably requested by Acquirer.
(c) Each
Employee Plan has been maintained, operated and administered in compliance with
its terms and any related documents or agreements and in compliance with all
applicable laws. There have been no
prohibited transactions or breaches of any of the duties imposed on
“fiduciaries” (within the meaning of Section 3(21) of ERISA) by ERISA with
respect to the Employee Plans that could result in any liability or excise tax
under ERISA or the Code being imposed on Target.
(d) Each
Employee Plan intended to be qualified under Section 401(a) of the Code is
so qualified and has heretofore been determined by the IRS to be so qualified,
and any trust created thereunder has heretofore been determined by the IRS to
be exempt from tax under the provisions of Section 501(a) of the Code, and
nothing has occurred since the date of any such determination that could
reasonably be expected to give the IRS grounds to revoke such determination.
(e) Target
does not currently have and at no time in the past has had an obligation to
contribute to a “defined benefit plan” as defined in Section 3(35) of
ERISA, a pension plan subject to the funding standards of Section 302 of
ERISA or Section 412 of the Code, a “multiemployer plan” as defined in
Section 3(37) of ERISA or Section 414(f) of the Code or a “multiple
employer plan” within the meaning of Section 210(a) of ERISA or
Section 413(c) of the Code.
(f) With
respect to each group health plan benefiting any current or former employee of
Target or any member of the Controlled Group that is subject to
Section 4980B of the Code, Target and each member of the Controlled Group
have all complied with the continuation coverage requirements of
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.
(g) With
respect to each group health plan that is subject to Section 1862(b)(1) of
the Social Security Act (42 U.S.C. Section 1395y(b)), Target has complied
with the secondary payer requirements of Section 1862(b)(1) of such Act.
(h) No
Employee Plan is or at any time was funded through a “welfare benefit fund” as
defined in Section 419(e) of the Code, and no benefits under any Employee
Plan are or at any time have been provided through a voluntary employees’
beneficiary association (within the meaning of subsection 501(c)(9) of the
Code) or a supplemental unemployment benefit plan (within the meaning of
Section 501(c)(17) of the Code).
(i) All
contributions, transfers, and payments in respect of any Employee Plan, other
than transfers incident to an incentive stock option plan within the meaning of
Section 422 of the Code, have been or are fully deductible under the Code.
14
(j) There
is no pending or threatened assessment, complaint, proceeding, or investigation
of any kind in any court or government agency with respect to any Employee Plan
(other than routine claims for benefits), nor is there any basis for one.
(k) All
(i) insurance premiums required to be paid with respect to, (ii) benefits,
expenses, and other amounts due and payable under, and (iii) contributions,
transfers, or payments required to be made to, any Employee Plan prior to the
Closing Date will have been paid, made or accrued on or before the Closing
Date.
(l) With
respect to any insurance policy providing funding for benefits under any
Employee Plan, (i) there is no liability of Target, in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability, nor would there be any such liability if such insurance
policy was terminated on the date hereof, and (ii) no insurance company issuing
any such policy is, to the knowledge of Target, in receivership,
conservatorship, liquidation or similar proceeding and, to the knowledge of
Target, no such proceedings with respect to any insurer are imminent.
(m) No
Employee Plan provides benefits, including, without limitation, death or medical
benefits, beyond termination of service or retirement other than (i) coverage
mandated by law, (ii) death or retirement benefits under any Employee Plan that
is intended to be qualified under Section 401(a) of the Code, (iii)
long-term disability insurance or (iv) deferred compensation benefits reflected
on the books of Target.
(n) The
execution and performance of this Agreement will not (i) constitute a stated
triggering event under any Employee Plan that will result in any payment
(whether of severance pay or otherwise) becoming due from Target to any
officer, employee, or former employee (or dependents of such employee), or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due to any employee, officer or director of Target.
(o) Target
has not agreed or committed to institute any plan, program, arrangement or
agreement for the benefit of employees or former employees of Target other than
the Employee Plans, or to make any amendments to any of the Employee Plans.
(p) Target
has reserved all rights necessary to amend or terminate each of the Employee
Plans without the consent of any other person.
(q) No
Employee Plan provides benefits to any individual who is not a current or
former employee of Target, or the dependents or other beneficiaries of any such
current or former employee.
(r) No
amount that could be received (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by this Agreement
by any employee, officer or director of Target or any of its affiliates who is
a “disqualified individual” (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or
termination agreement, other compensation arrangement or Employee Plan
currently in effect would not be characterized as an “excess parachute payment”
(as such term is defined in Section 280G(b)(1) of the Code). The disallowance of a deduction under
Section 162(m) of the Code for employee remuneration will not apply to any
amount paid or
15
payable by Target under
any contract, Employee Plan, program, arrangement or understanding currently in
effect.
(a) No
labor organization has been recognized by Target or certified as the
representative of any employee of Target for the purposes of collective
bargaining. There are no pending
collective bargaining negotiations or pending or threatened strikes, job
actions, work slowdowns or work stoppages relating to any employee of
Target. Target has not in the past
three years experienced any work stoppage or picketing or organized work slow
down, job action or organizational activity or been named as a respondent in a
representation proceeding commenced pursuant to the National Labor Relations
Act, relating to any employee of Target.
There are no pending union representation petitions or, to Target’s
knowledge, threatened union organizing drives seeking certification as
representative for purposes of collective bargaining relating to any employee
of Target.
(b) Each Leased Facility is a “single site of
employment” (as defined in the WARN Act).
Less than 50 employees are employed at any Leased Facility.
(a) Target
(and any predecessor of Target) has been a validly existing S corporation
within the meaning of Sections 1361 and 1362 of the Code at all times since
January 1, 2000 up to and including the Closing Date. Target has no qualified subchapter S
Subsidiaries within the meaning of Section 1361(b)(3)(B) of the Code. Target and the Surviving Corporation shall
not be liable for any Tax under Section 1374 of the Code in connection
with the deemed sale of assets caused by the Section 338(h)(10)
Election. Target has not, in the past
10 years, (i) acquired assets from another corporation in a transaction in
which Target’s Tax basis for the acquired assets was determined, in whole or in
part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor or (ii) acquired the stock of any
corporation which is a qualified subchapter S Subsidiary.
(b) Schedule 3.14
contains a list of all jurisdictions (whether foreign or domestic) to which any
Tax imposed on overall net income is properly payable by Target. Neither Target nor any of the Principal
Stockholders has received notice of any claim by a Governmental Authority in a
jurisdiction where Target does not file Returns that it is or may be subject to
taxation by any Governmental Authority.
All Returns required to be filed by or on behalf of Target have, to the
extent required to be filed (taking into account extensions of time for filing)
on or before the Closing, have been filed when due in accordance with all
applicable Laws. All such Returns were
correct and complete in all respects.
All Taxes owed by Target (whether or not shown as due and payable on the
Returns) have been timely paid, or withheld and remitted to the appropriate
Governmental Authority.
(c) Target
currently is not a beneficiary of any extension of time within which to file
any Return. No Return of Target has
ever been audited by any Governmental Authority. There are no Liens for Taxes (other than Taxes not yet due and
payable) upon any of the assets of Target.
16
(d) Target
has withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(e) Target
is not a party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
“excess parachute payment” within the meaning of Section 280G of the Code
(or any corresponding provisions of state, local or foreign Law). None of the Holders is a foreign person
within the meaning of Section 1445 of the Code.
(f) Target
is not a party to or bound by any Tax allocation or sharing agreement. Target has never been a member of an
affiliated, consolidated, combined or unitary group. Target has no liability for the Taxes of any Person as a
transferee or successor, by contract or otherwise.
(g) Target
has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(h) There
is no action, suit, proceeding, claim, audit or investigation now pending or
threatened with respect to Target in respect of any Tax.
(i) Target
will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period ending after the Closing
Date as a result of any: (A) “closing agreement” as described in
Section 7121 of the Code (or any corresponding provision of state, local
or foreign Law; (B) installment sale or open transaction disposition made on or
prior to the Closing Date; (C) any prepaid amount received on or prior to the
Closing Date; or (D) change in method of accounting for a taxable period ending
on or prior to the Closing Date.
(j) Target
has not distributed the stock of another Person, or has had its stock
distributed by another Person, in a transaction that was purported or intended
to be governed in whole or in part by Section 355 of the Code.
(a) Target does
not own any real estate.
(b) Schedule 3.15 contains
a true, correct and complete list of all real estate currently leased by Target
and sets forth (i) a listing of all real estate lease agreements for the Leased
Facilities (the “Facility Lease
Agreements”), (ii) the date of and parties to each Facility
Lease Agreement, (iii) the remaining term of each Facility Lease Agreement
(including a description of any remaining options to renew), (iv) the monthly
minimum charges due under each Facility Lease Agreement, if any, (v) any
amounts prepaid under a Facility Lease Agreement, (vi) the amount or
description of any concessions, allowances, rebates, refunds, deposits, setoffs
or escrows relating to any Facility Lease Agreement and (vii) any
defaults, outstanding notices of defaults, claims of defaults or similar claims
of any kind or nature whatsoever, or any events which with notice or the
passage of time could become a default regarding any Facility Lease Agreement.
17
(c) No
default or breach exists by Target under any of the covenants, conditions,
restrictions, rights of way or easements, if any, materially affecting any
portion of the Leased Facilities.
(d) No
work has been performed or is in progress at, and no materials have been
furnished to, the Leased Facilities which, though not presently the subject of,
might give rise to Liens against Target’s assets or the Leased Facilities or
any portion thereof. If any Lien for
such work is filed after the Closing hereunder, the Principal Stockholders
shall promptly discharge same at their cost or bond over or provide adequate
security during their challenge of any such Lien.
(a) To
the knowledge of Target, Target is presently and has been in compliance with
all Environmental Laws applicable to the Real Property or its business, and
there exist no Environmental Conditions that require reporting, investigation,
assessment, cleanup, remediation or any other type of response action pursuant
to any Environmental Law or that could be the basis for any liability of any
kind pursuant to any Environmental Law.
(b) To
the knowledge of Target, Target has not generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced or
processed any Hazardous Materials at or upon the Real Property, except in
compliance with all applicable Environmental Laws, and there has been no
Release or Threat of Release of any Hazardous Material at or in the vicinity of
the Real Property that requires or may require reporting, investigation,
assessment, cleanup, remediation or any other type of response action by Target
or with respect to its properties pursuant to any Environmental Law, including
without limitation Releases or Threats of Releases of any Hazardous Materials
to, at or from any of the following:
(i) underground storage tanks, sumps or septic systems; (ii) materials
or equipment containing polychlorinated biphenyls; (iii) asbestos-containing
material in any friable and damaged form or conditions; or (iv) landfills,
surface impoundments or disposal areas.
(c) Target
has not (i) entered into or been subject to any consent decree, compliance
order or administrative order with respect to the Real Property or any
facilities or operations on the Real Property; (ii) received notice under the
citizen suit provisions of any Environmental Law in connection with the Real
Property; (iii) received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim with respect to
any Environmental Condition at the Real Property; or (iv) been subject to, or
to Target’s knowledge threatened with, any governmental or citizen enforcement
action with respect to the Real Property.
(d) To
the knowledge of Target, there currently are effective all Environmental
Permits required under any Environmental Law which are necessary for Target’s
activities and operations at the Real Property. All such permits will remain effective after the Closing and may
be used by the Surviving Corporation in the same manner, and to the same
extent, as they were used by Target prior to the Closing.
18
(e) Target
has made available to Acquirer copies of all documents, records and information
in its possession or control concerning Environmental Conditions, including,
without limitation, previously conducted environmental audits and documents
regarding any disposal of Hazardous Materials from the Real Property, spill
control plans and environmental agency reports and correspondence.
(f) Schedule 3.16
contains a list of every facility that Target has ever operated.
Section 3.17 Affiliate
Transactions. There are no
agreements, contracts, transfers of assets and liabilities or other commitments
or transactions related to Target’s business, whether or not entered into in
the ordinary course of business, between Target, on the one hand, and any
Affiliates of Target (including any of the Principal Stockholders), on the
other hand.
Section 3.18 Brokers,
Finders and Agents. No Person has
acted directly or indirectly as a broker or finder for Target or the Holders in
connection with the negotiations relating to the transactions contemplated by
this Agreement, and no Person is entitled to any fee or commission or like
payment in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of Target or the Holders.
Section 3.19 Full
Disclosure. No representation or
warranty of Target or the Principal Stockholders made in this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
ARTICLE IV
Each Principal
Stockholder hereby jointly and severally represents and warrants to Acquirer
and Merger Sub as of the date of this Agreement as follows:
Section 4.1 Capacity;
Authority. Each Principal
Stockholder has the legal capacity to execute, deliver and perform such
Principal Stockholder’s obligations under this Agreement and the Transaction
Documents to which such Principal Stockholder is a party. This Agreement and each of the Transaction
Documents to which such Principal Stockholder is a party have been duly
executed and delivered by that Principal Stockholder, and, assuming due
authorization, execution and delivery by each of the other parties hereto or
thereto, represent the legal, valid and binding obligations of the Principal
Stockholder, enforceable against such Principal Stockholder in accordance with
their respective terms, subject to the General Enforceability Exceptions.
Section 4.2 No
Conflicts; Defaults; Consents. Neither
the execution and delivery by each Principal Stockholder of this Agreement and
the Transaction Documents to which the Principal Stockholder is a party, nor
the Principal Stockholder’s performance of such Principal Stockholder’s
obligations hereunder or thereunder will (i) violate or conflict with any
Law or Order applicable to such Principal Stockholder or (ii) violate,
conflict with or result in a breach or termination of, or otherwise give any
Person additional rights or compensation under, or the right to terminate or
accelerate, or constitute (with notice or lapse of time, or both) a default
19
under the terms of any
contract to which such Principal Stockholder is a party or by which any of the
assets or properties of such Principal Stockholder are bound. No Consent is required to be made or
obtained by any Principal Stockholder in connection with the execution and
delivery by it of this Agreement or the Transaction Documents to which such
Principal Stockholder is a party, or the consummation of the transactions
contemplated hereby or thereby.
ARTICLE V
Acquirer and Merger Sub
hereby jointly and severally represent and warrant to the Holders as of the
date of this Agreement as follows:
Section 5.1 Organization
and Standing; Corporate Power and Authority.
(a) Acquirer
is a corporation duly organized, validly existing and in good standing under
the laws of Delaware. Acquirer has full
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the Transaction Documents to which it is a
party. This Agreement, the Transaction
Documents to which it is a party and the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
of Acquirer. This Agreement, the
Transaction Documents to which it is a party and all other instruments executed
and delivered by Acquirer in connection herewith have been duly executed and
delivered by Acquirer and, assuming due execution and delivery by each of the
other parties hereto and thereto, constitute the valid and binding obligations
of Acquirer enforceable against Acquirer in accordance with their respective
terms, subject to the General Enforceability Exceptions.
(b) Merger
Sub is a corporation duly organized, validly existing and in good standing
under the laws of Delaware. Merger Sub
has full corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each of the Transaction Documents to which
it is a party. This Agreement, the
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action of Merger Sub. This
Agreement, the Transaction Documents to which it is a party and all other
instruments executed and delivered by Merger Sub in connection herewith have
been duly executed and delivered by Merger Sub and, assuming due execution and
delivery by each of the other parties hereto and thereto, constitute the valid
and binding obligations of Merger Sub enforceable against Merger Sub in
accordance with their respective terms, subject to the General Enforceability
Exceptions.
Section 5.2 No
Conflicts; Defaults; Consents.
(a) Neither
the execution and delivery of this Agreement or the Transaction Documents to
which it is a party nor the consummation of the transactions contemplated
hereby or thereby, will (i) violate, conflict with or constitute a default
under any of the terms of Acquirer’s organizational documents,
(ii) violate or conflict with any Law or Order applicable to Acquirer or
(iii) constitute an event which, after notice or lapse or time or both, would
result in such violation, conflict or default.
No Consent is required to be made or obtained by Acquirer in
20
connection with the
execution and delivery by Acquirer of this Agreement or the Transaction
Documents to which Acquirer is a party, or the consummation of the transactions
contemplated hereby or thereby.
(b) Neither
the execution and delivery of this Agreement or the Transaction Documents to
which it is a party nor the consummation of the transactions contemplated
hereby or thereby, will (i) conflict with or constitute a default under
any of the terms of Merger Sub’s organizational documents, (ii) violate
any Law or Order applicable to Merger Sub or (iii) constitute an event which,
after notice or lapse or time or both, would result in such violation, conflict
or default. No Consent is required to
be made or obtained by Merger Sub in connection with the execution and delivery
by Merger Sub of this Agreement or the Transaction Documents to which Merger
Sub is a party, or the consummation of the transactions contemplated hereby or
thereby.
Section 5.3 No
Proceedings; Compliance with Law.
There is no action, suit or proceeding pending or, to the knowledge of
Acquirer or Merger Sub, threatened against or related to Acquirer or Merger Sub
in respect of their respective assets or the conduct of their respective
businesses. Acquirer and Merger Sub are
not subject to any Order or to any litigation, action, suit, proceeding or
investigation asserted, brought or, to the knowledge of Acquirer or Merger Sub,
threatened against Acquirer or Merger Sub in respect of their respective assets
or the conduct of their respective businesses.
Acquirer and Merger Sub’s respective businesses have not been, and are not
being, conducted in violation of any Law.
No investigation or review by any Governmental Authority with respect to
Acquirer or Merger Sub or the conduct of their respective businesses is pending
or, to the knowledge of Acquirer or Merger Sub, threatened, nor has any
Governmental Authority indicated an intention to conduct the same.
Section 5.4 Brokers,
Finders and Agents. All
negotiations relative to this Agreement and the transactions contemplated
hereby have been initiated and carried out by Acquirer and Merger Sub in such a
manner as not to give rise to any valid claim against Target or the Holders for
any brokerage commission, finder’s fee or other like payment.
Section 5.5 Full
Disclosure. No representation or
warranty of Acquirer or Merger Sub made in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements or facts contained herein not misleading.
ARTICLE VI
Section 6.1 Public
Announcement. Except as may be
required by Law or by the rules of any exchange on which such party’s or its
Affiliates’ securities may be traded, no party hereto will issue or cause the
publication of any press release or any other announcement concerning this
Agreement or the transactions contemplated by this Agreement or otherwise
disclose this Agreement or the transactions contemplated hereby to any third
party (other than attorneys, accountants, lenders and advisors of the parties
hereto and any Persons whose Consent is required to consummate the transactions
contemplated by this Agreement) without the prior
21
written consent of
Acquirer and the Stockholders’ Representative, which consents shall not be
unreasonably withheld or delayed.
(a) The
Principal Stockholders shall prepare or cause to be prepared and timely file or
cause to be timely filed all Returns of Target for Pre-Closing Tax Periods,
including Pre-Closing Stub Periods, on a basis consistent with past practice,
except to the extent required by applicable Law, and shall timely pay or cause
to be timely paid all Taxes shown on such Tax Returns. The Principal Stockholders shall allow
Acquirer at least thirty days in which to review such Returns prior to their
filing and shall provide to Acquirer such information that is reasonably
requested by Acquirer to confirm the Principal Stockholders’ adherence to past
practice. The Principal Stockholders
shall make such revisions to such Pre-Closing Tax Period Returns as are
reasonably requested by Acquirer. Any
dispute relating to the treatment of an item on such Returns shall be resolved
pursuant to Section 6.2(c).
(b) Acquirer
and the Surviving Corporation shall prepare and timely file, or cause to be prepared
and timely filed, all Returns of Target that are due with respect to any
Straddle Period on a basis consistent with the past practice of Target, except
to the extent required by applicable Law.
The Surviving Corporation shall pay or cause to be paid all Taxes due
with respect to such Returns, provided that the Principal Stockholders shall
reimburse the Surviving Corporation for any amount of Taxes of Target or the
Surviving Corporation paid by or caused to be paid by the Surviving Corporation
with respect to such Returns attributable to a Pre-Closing Stub Period within
five days of Acquirer’s or the Surviving Corporation’s request therefor, but
only to the extent such Taxes were not included as a liability for purposes of
computing Closing Working Capital.
Acquirer shall allow the Principal Stockholders at least thirty days in
which to review such Returns prior to their filing and shall provide to the
Principal Stockholders such information as is reasonably requested by them to
confirm the adherence to Target’s past practice by Acquirer and the Surviving
Corporation. Acquirer and the Surviving
Corporation shall make such revisions to such Straddle Period Returns as are
reasonably requested by the Principal Stockholders. Any dispute relating to the treatment of an item on such Returns
shall be resolved pursuant to Section 6.2(c).
(c) If
Acquirer disagrees, in good faith, with the treatment of any item on any Return
for a Pre-Closing Tax Period of Target that was prepared by or at the direction
of the Principal Stockholders pursuant to Section 6.2(a), Acquirer shall
promptly notify the Principal Stockholders of such disagreement. If the Principal Stockholders disagree, in
good faith, with the treatment of any item on any Return for a Straddle Period of
Target that was prepared by or at the direction of Acquirer and the Surviving
Corporation pursuant to Section 6.2(b), the Stockholders’ Representative
shall promptly notify Acquirer of such disagreement. Upon the delivery of any such notice by Acquirer or the
Stockholders’ Representative, the Principal Stockholders and Acquirer shall
promptly consult each other in an effort to resolve such dispute in good
faith. If any such point of
disagreement cannot be resolved within fifteen days of the date of consultation,
the Accountants shall resolve any remaining disagreements. The determination of the Accountants shall
be final, conclusive and binding on the parties. The costs, fees and expenses of the Accountants shall be borne
equally by Acquirer, on the one hand, and the Principal Stockholders, on the
other. Nothing in this Agreement shall
prevent the timely
22
filing of a Return by the
preparing party. However, the preparing
party shall file an amended Return to reflect resolution of the items in
dispute by the parties or the Accountants, as the case may be.
Section 6.3 Apportionment
of Taxes. For purposes of this
Agreement, the portion of Tax with respect to the income, property or
operations of Target that relate to any Tax period that begins on or before the
Effective Date and ends after the Effective Date (a “Straddle Period”) will, except to the extent
that it is included as a liability for purposes of computing Closing Working
Capital, be apportioned between the period of the Straddle Period that extends
before the Effective Date through the Effective Date (the “Pre-Closing Stub Period”) and the period of
the Straddle Period that extends from the day after the Effective Date to the
end of the Straddle Period (the “Post-Closing Stub Period”) in accordance with this
Section 6.3. The portion of such
Tax attributable to the Pre-Closing Stub Period shall (i) in the case of
any Taxes other than sales or use taxes, value-added taxes, employment taxes,
withholding taxes, and any Tax based on or measured by income, receipts or
profits earned during a Straddle Period, be deemed to be the amount of such Tax
for the entire taxable period multiplied by a fraction, the numerator of which
is the number of days in the Pre-Closing Stub Period and denominator of which
is the number of days in the Straddle Period, and (ii) in the case of any
sales or use taxes, value-added taxes, employment taxes, withholding taxes, and
any Tax based on or measured by income, receipts or profits earned during a
Straddle Period, be deemed equal to the amount which would be payable if the
Straddle Period ended on and included the Effective Date. To the extent that any Tax for a Straddle
Period is based on the greater of a Tax on net income, on the one hand, and a
Tax measured by net worth or some other basis not otherwise measured by income,
on the other, the portion of such Tax related to the Pre-Closing Stub Period
shall be deemed to be (1) if the amount of such Tax for the Straddle Period is
measured by net worth or other basis, the amount of such Tax determined as
though the taxable values for the entire Straddle Period equal the respective
values as of the end of the Effective Date and multiplying the amount of such
Tax by a fraction the numerator of which is the number of days during the
Straddle Period that are in the Pre-Closing Stub Period and the denominator of
which is the number of days in the Straddle Period or (2) if the amount of such
Tax for the Straddle Period is measured by net income, the amount of such Tax
determined as though the applicable Tax period terminated at the end of the day
on the Effective Date. The portion of
Tax attributable to a Post-Closing Stub Period shall be calculated in a
corresponding manner. All transfer,
documentary, sales, use, stamp, registration, value added and other such Taxes
and fees (including any penalties and interest) imposed on Target in connection
with this Agreement will be borne and paid by the Holders when due, and the
Holders, at their own expense, will cause to be filed all necessary Returns and
other documentation with respect to all such Taxes and fees.
Section 6.4 Cooperation;
Audits. In connection with the
preparation of Returns, audit examinations, and any administrative or judicial
proceedings relating to the Tax liabilities imposed on Target for all
Pre-Closing Tax Periods or Pre-Closing Stub Periods, Acquirer and Target on the
one hand, and the Principal Stockholders on the other hand, will cooperate
fully with each other, including, but not limited to, the furnishing or making
available during normal business hours of records, personnel (as reasonably
required), books of account, powers of attorney or other materials necessary or
helpful for the preparation of such Returns, the conduct of audit examinations
or the defense of claims by Governmental Authorities as to the imposition of
Taxes.
23
Section 6.5 Code
§ 338(h)(10) Election. The
Principal Stockholders and Target shall cause each and every Stockholder to
join with Acquirer in making an election under Section 338(h)(10) of the
Code (and any corresponding election under state, local and foreign Tax law)
with respect to the Merger hereunder (collectively, the “Section 338(h)(10) Election”). The Principal Stockholders shall cause each
and every Stockholder to include any income, gain, loss, deduction, or other
Tax item resulting from the Section 338(h)(10) Election on their Returns
to the extent required by applicable Law, and shall take no position
inconsistent with treating the transactions contemplated by this Agreement as a
Section 338(h)(10) transaction.
The Holders shall also pay any Tax imposed on Target attributable to the
making of the Section 338(h)(10) Election, including (a) any Tax
imposed under Section 1374 of the Code, (b) any Tax imposed under Treasury
Regulation Section 1.338(h)(10)-1(e)(5), or (c) any state, local or
foreign Tax imposed on Target’s gain, and the Principal Stockholders shall
indemnify Buyer and Target against any Damages arising out of any failure to
pay any such Tax and all Holders will be subject to the right of setoff under
Section 7.6.
Section 6.6 Purchase
Price Allocation. Acquirer and the
Principal Stockholders agree that the Initial Merger Consideration and the
liabilities of Target included in amount realized (plus other relevant items)
shall be allocated to the assets of Target for all relevant Tax and financial
accounting purposes in a manner consistent with the allocation set forth on a
schedule (the “Allocation Schedule”),
which shall be prepared in accordance with Section 338 and
Section 1060 of the Code and the regulations thereunder. Acquirer shall prepare the Allocation
Schedule and deliver it within 30 days after Closing to the Principal
Stockholders. Within 30 days after
the receipt of the Allocation Schedule, the Principal Stockholders shall
propose to Acquirer any changes to such Allocation Schedule or shall
indicate their concurrence therewith, which concurrence shall not be
unreasonably withheld. The Principal
Stockholders’ failure to notify Acquirer of any objection to the Allocation
Schedule within 30 days after the delivery thereof shall constitute the
Principal Stockholders’ concurrence therewith.
Acquirer and the Principal Stockholders shall endeavor in good faith to
resolve any differences with respect to the Allocation Schedule within
30 days after Acquirer’s receipt of notice of objections or suggested
changes from the Principal Stockholders.
If, notwithstanding such good faith effort, the parties are unable to
resolve any differences with respect to the Allocation Schedule within
such time period, the parties shall refer any issues as to which such
differences exist to the Accountants, who shall be directed to resolve such
dispute within 30 days of their engagement.
The determination of the Accountants shall be final, binding and
conclusive. The fees and expenses of
the Accountants shall be borne 50% by Acquirer and 50% by the Principal
Stockholders. The Allocation
Schedule shall be adjusted by Acquirer for any other post-Closing
adjustment to the Initial Merger Consideration, for the amount of any
liabilities of Target included in amount realized for federal income tax
purposes and for the Earn-Out Payments, if any. Acquirer, the Principal Stockholders and Target shall file and
the Principal Stockholders shall cause each of the Holders to file all relevant
Returns (including amended Tax Returns and claims for refunds) in a manner
consistent with the Allocation Schedule, as adjusted, and shall not take any
position inconsistent with the allocations set forth in the Allocation
Schedule, as adjusted; provided, however, that the Tax basis in
the assets of Target may exceed the total amount allocated in order to reflect
Acquirer’s capitalized transaction costs not included in Initial Merger
Consideration or liabilities of Target included in amount realized, and each of
the Holders’ amount realized may be less than the total amount allocated in
order to reflect each of the Holders’ transaction costs.
24
Section 6.7 Further
Assurances. The Principal
Stockholders, the Surviving Corporation, Acquirer and Merger Sub will each
comply in all material respects with all applicable laws and with all
applicable rules and regulations of any governmental authority in connection
with its execution, delivery and performance of this Agreement and the
transactions contemplated hereby. Each
of the parties hereto agrees to use all reasonable efforts to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and to use all reasonable efforts to take,
or cause to be taken, all other actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
Section 6.8 Ongoing
Compliance with Law. Until such
time as all Earn-Out Periods have expired and all Earn-Out Payments, if any,
required by this Agreement have become payable to Holders hereunder and have
been paid to Holders hereunder, Acquirer shall, and shall cause the Surviving
Corporation to, conduct its business in accordance with all applicable Law.
ARTICLE VII
Section 7.1 Indemnification
by the Stockholders. From and after
the Closing, each of the Principal Stockholders shall jointly and severally
indemnify, defend and hold Acquirer, Merger Sub, the Surviving Corporation,
their Affiliates, and their respective directors, officers, representatives,
employees and agents (collectively, the “Acquirer Indemnitees”) harmless from and against any and
all claims of third parties and any and all claims, actions, suits, demands,
assessments, judgments, losses (including any loss of value), liabilities,
damages (including incidental, consequential and punitive damages), costs and
expenses (including interest, penalties, attorneys’ fees, and accounting fees
and investigation costs) (collectively, “Damages”) that may be incurred or suffered by any such
Acquirer Indemnitee resulting or arising from, related to or incurred or
suffered in connection with (a) any inaccuracies in or misrepresentations
of any representation or warranty of Target or the Principal Stockholders
contained in this Agreement or in any of the Transaction Documents,
(b) any breach of any covenant, obligation or agreement of any of the
Principal Stockholders contained in this Agreement or in any of the Transaction
Documents, (c) the Retained Liabilities or (d) the Employment Agreement,
by and between Irving Lowe and Target, dated September 4, 1998, with
respect to any bonus payments earned thereunder.
Section 7.2 Indemnification
by Acquirer and Surviving Corporation.
From and after the Closing, each of Acquirer and Surviving Corporation
shall jointly and severally indemnify, defend and hold the Principal
Stockholders harmless from and against any and all Damages that may be incurred
or suffered by any such Principal Stockholder resulting or arising from,
related to or incurred or suffered in connection with (a) any inaccuracies
in or misrepresentations of any representation or warranty of Acquirer or
Merger Sub contained in this Agreement or in any of the Transaction Documents,
(b) any breach of any covenant, obligation or agreement of Acquirer,
Merger Sub or Surviving Corporation contained in this Agreement or in any of
the Transaction Documents or (c) the purchase, ownership, use, operation or
condition (except to the
25
extent that such
condition existed before the Effective Time) of the Surviving Corporation’s
assets or the conduct of the Surviving Corporation’s business after the
Effective Time.
Section 7.3 Notice
of Claim; Right to Participate in and Defend Third Party Claim.
(a) If
any indemnified party receives notice of the assertion of any claim, the
commencement of any suit, action or proceeding, or the imposition of any
penalty or assessment by a third party in respect of which indemnity may be
sought hereunder (a “Third Party Claim”), and the indemnified party intends
to seek indemnification hereunder in respect of such Third Party Claim, then
the indemnified party shall provide the indemnifying party with prompt written
notice of the Third Party Claim, but in any event not later than 30 calendar
days after receipt of such notice of the Third Party Claim by the indemnified
party. The failure by an indemnified party
to so notify an indemnifying party of a Third Party Claim shall not relieve the
indemnifying party of any indemnification responsibility under this
ARTICLE VII, unless such failure materially prejudices the ability of the
indemnifying party to defend such Third Party Claim.
(b) The
indemnified party shall have the right to control the defense or settlement of
such Third Party Claim with counsel of its own choosing; provided, however,
that the indemnified party shall not settle or compromise any Third Party Claim
without the indemnifying party’s prior written consent, unless (i) the
terms of such settlement or compromise release the indemnified party or the
indemnifying party, as applicable, from any and all liability with respect to
such Third Party Claim, or (ii) the indemnifying party shall not have
acknowledged its obligations to indemnify the indemnified party with respect to
such Third Party Claim in accordance with this ARTICLE VII. The indemnifying party shall be entitled (at
the indemnifying party’s expense) to participate in the defense of any Third
Party Claim with its own counsel.
(c) Any
indemnifiable claim hereunder that is not a Third Party Claim shall be asserted
by the indemnified party by delivering written notice thereof to the
indemnifying party within thirty days of such time that the indemnified party
receives notice thereof, specifying the
factual basis of such indemnification claim in reasonable detail. Notwithstanding the preceding sentence, if
the indemnified party fails to deliver such a notice within the period provided,
the indemnifying party’s obligations hereunder will be affected only if, and to
the extent that, its rights are materially affected by such failure. If the indemnifying party does not respond
to such notice within 60 days after its receipt, it shall have no further right
to contest the validity of such claim.
(d) No
claim for indemnification may be first brought hereunder after the expiration
of the applicable period as set forth in Section 7.5; provided, however,
that the foregoing time limitations shall not apply to any such claims that
have been the subject of a written notice from the indemnified party to the
indemnifying party prior to the expiration of such period, which notice
specifies in reasonable detail the nature and basis for such claim.
26
Section 7.4 Limitation
of Liability of the Stockholders.
(a) Except
as provided in Section 7.4(c) hereof, the maximum amount of
indemnification that may be jointly required of the Principal Stockholders
under Section 7.1(a) hereof shall not exceed (i) $1,000,000 with respect
to all representations and warranties other than those contained in
Section 3.16 and (ii) $2,000,000 with respect to the representations and
warranties contained in Section 3.16; provided, however,
that the aggregate amount of indemnification under Section 7.1(a) hereof
shall not exceed $2,000,000 (the “Stockholder Cap”).
(b) Except
as provided in Section 7.4(c) hereof, the Principal Stockholders shall not
be required to indemnify any Acquirer Indemnitee for any Damages incurred by
such Acquirer Indemnitee under Section 7.1(a) unless and until the amount
of such Damages exceeds $50,000 in the aggregate (the “Stockholder Basket”), in which case such
Acquirer Indemnitee shall have the right to indemnification for the full amount
of all Damages incurred by such Acquirer Indemnitee, subject to the provisions
of Section 7.4(a).
(c) Notwithstanding
any other provisions of this Section 7.4, (i) neither the Stockholder Cap
nor the Stockholder Basket shall apply to any indemnification claim made by an
Acquirer Indemnitee based on fraud and (ii) the Stockholder Basket shall not
apply with respect to any indemnification claim made by an Acquirer Indemnitee
based on (A) the representations and warranties of Target and the Principal
Stockholders contained in Section 3.1, Section 3.2, Section 3.3,
Section 3.4, Section 3.7, clause (a) of Section 3.10,
Section 3.14, Section 3.16 and Section 3.18 or (B) the
representations and warranties of the Principal Stockholders in
Section 4.1 and Section 4.2.
Section 7.5 Survival
of Representations and Warranties.
The representations and warranties of the Principal Stockholders and
Target made in ARTICLE III and ARTICLE IV hereof and the
representations and warranties of Acquirer and Merger Sub made in
ARTICLE V hereof shall survive the Closing for a period of eighteen
months.
Section 7.6 Setoff
by Acquirer. In addition to any and
all other remedies under this Agreement or at law or in equity, Acquirer shall
be entitled to recover any indemnification payment or other amounts due from
the Principal Stockholders by retaining and setting off such amounts (whether
or not such amounts are liquidated or reduced to judgment) against any amounts
due or to become due from Acquirer to Target or to any of the Holders, as the
case may be, under this Agreement, including the Earn-Out Payments, if any,
hereunder.
Section 7.7 Setoff
by the Principal Stockholders. In
addition to any and all other remedies under this Agreement or at law or in
equity, any Principal Stockholder shall be entitled to recover any
indemnification payment or other amounts due to it from Acquirer or Surviving
Corporation by retaining and setting off such amounts (whether or not such
amounts are liquidated or reduced to judgment) against any amounts due or to
become due from that Principal Stockholder to Acquirer or Surviving
Corporation, as the case may be, under this Agreement.
27
ARTICLE VIII
Section 8.1 Expenses;
Transfer Taxes. Except as provided elsewhere in this Agreement,
each of the parties hereto shall bear its own expenses in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
Transaction Documents and in connection with the consummation of the
transactions contemplated hereby and thereby, including all fees and
disbursements of counsel, accountants, appraisers and other advisors retained
by such party, whether or not the transactions contemplated by this Agreement
are consummated. The non-prevailing
party in any legal action between any of the parties hereto shall pay all
reasonable fees and expenses of counsel, accountants, appraisers and other
advisors retained by the prevailing party in connection with any such action.
Section 8.2 Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and the Transaction
Documents. If any ambiguity or question
of intent or interpretation arises, this Agreement and the Transaction
Documents shall be construed as if drafted jointly by the parties hereto, and
no presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any of the provisions of this Agreement or any
of the Transaction Documents. The words
“included,” “includes,” or “including” (or any other tense or variation of the
word “include”) in this Agreement shall be deemed to be followed by the words “without
limitation.” When reference is made in this Agreement to an Article or
Section or Schedule, such reference shall be to an Article,
Section or Schedule of this Agreement unless otherwise
indicated. The words “hereof,” “herein”
and “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. The definitions contained in
this Agreement are applicable to the singular as well as to the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders
of such term. Any agreement, instrument
or statute defined or referred to herein or in any document or instrument that
is referred to herein means such agreement, instrument or statute as from time
to time amended, modified or supplemented, including (in the case of agreements
or instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statutes.
Section 8.3 Notices. All notices, proposals, waivers, Consents,
demands and other communications required or permitted to be given hereunder or
which any party hereto desires to give, shall be in writing (including by
electronic facsimile transmission during normal business hours) and shall be
deemed to have been duly given (a) upon delivery in person, (b) one
day after dispatched by overnight courier, (c) when transmitted by
electronic facsimile transmission (with confirmation of receipt) or
(d) three days after being mailed by registered or certified mail (postage
prepaid, return receipt requested), in each case to the respective parties at
the following addresses or facsimile numbers (or to such other address or
facsimile number as a party shall designate for itself by notice given in
accordance with this Section 8.3).
28
If to Acquirer:
Axsys Technologies, Inc.
175 Capital Boulevard,
Suite 103
Rocky Hill,
Connecticut 06067
Attn: Stephen W. Bershad
Phone: (860) 257-0200
Fax: (860) 594-5750
with a copy to:
Jones Day
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: Lyle G. Ganske
Phone: (216) 586-7264
Fax: (216) 579-0212
If to the Holders:
James W. Howard
202 Van Norden Road
Reading, MA 01867
Phone: (781) 944-3242
with a copy to:
Joseph H. Matzkin
Looney & Grossman LLP
101 Arch Street
Boston, MA 02110
Phone: (617) 951-2800
Fax: (617) 951-2819
Section 8.4 Severability. The parties hereto agree that (a) the
provisions of this Agreement shall be severable if any provision hereof is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, (b) such invalid, void or otherwise unenforceable provision
shall be automatically replaced by another provision that is as similar as
possible in terms to such invalid, void or otherwise unenforceable provision
but that is valid and enforceable, and (c) the remaining provisions of
this Agreement shall remain enforceable to the fullest extent permitted by Law.
Section 8.5 Assignment. No party to this Agreement may assign this
Agreement or any of such party’s rights, interests or obligations hereunder
without the prior written consent of the other parties hereto. Any purported assignment or transfer of this
Agreement or the rights and obligations of a party hereunder in violation of
this Section 8.5 shall be void and of no force or effect. Notwithstanding the foregoing, Acquirer may
assign or delegate any or all of its rights,
29
interests and obligations
under this Agreement, without any other party’s consent, to (a) any
Affiliate of Acquirer, provided that Acquirer shall remain responsible for the
performance of its obligations hereunder or (b) any Person who acquires
(whether in a single transaction or in a series of related transactions) all or
substantially all of the assets of the Surviving Corporation.
Section 8.6 Binding
Effect; No Third Party Beneficiaries.
This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and permitted assigns.
Except to the extent any third party is expressly granted rights or
remedies herein (including the right of Holders other than the Principal
Stockholders to receive Merger consideration and indemnification), this Agreement
is only for the benefit of the parties hereto and their respective successors
and permitted assigns and shall not inure to the benefit of any third party or
confer upon any Person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies hereunder.
Section 8.7 Entire
Agreement. This Agreement, together
with the Exhibits and Disclosure Schedules hereto, the Transaction Documents
and any other documents and instruments referred to herein or contemplated
hereby, constitutes the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof, and supersedes any prior
agreements or understandings, written or oral, among the parties with respect
to the subject matter hereof. There are
no agreements, restrictions, promises, representations, warranties, covenants
or undertakings between the parties hereto with respect to the subject matter
hereof, other than those expressly set forth or referred to herein.
Section 8.8 Amendment;
Waiver. No amendment, modification
or discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in a writing specifically referencing this Agreement
and duly executed by the party against whom enforcement of the amendment,
modification, discharge or waiver is sought.
Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other
time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties on one or more occasions to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights
or privileges hereunder.
Section 8.9 Governing
Law. This Agreement, and all
agreements, documents and instruments delivered pursuant hereto, unless
otherwise expressly provided therein, shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
giving effect to the conflict of laws principles thereof.
Section 8.10 Consent
to Jurisdiction; Waiver of Jury Trial.
Each of the parties to this Agreement (a) consents to submit to the
exclusive jurisdiction of the federal and state courts located in Manhattan
County, New York, in any suit, action or proceeding arising out of or relating
to this Agreement, (b) agrees that all claims in respect of such suit,
action or proceeding may be heard and determined in any such court
(c) agrees to be bound by any final judgment rendered in any such court,
(d) agrees not to commence any suit, action or proceeding arising out
30
of or relating to this
Agreement in any other court and (e) waives any objection it may have now
or hereafter to the laying of the venue of any such suit, action or proceeding,
including any objection based on the grounds of forum non conveniens, in any
such court.
Section 8.11 Remedies
Not Exclusive. No remedy conferred
by any of the specific provisions of this Agreement is intended to be exclusive
of any other remedy, and each remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or hereafter existing at law or
in equity or by statute or otherwise.
No remedy shall be deemed to be a limitation on the amount or measure of
damages resulting from any breach of this Agreement. The election of any one or more remedies will not constitute a
waiver of the right to pursue other available remedies.
Section 8.12 Exhibits
and Disclosure Schedules. All
Exhibits and Disclosure Schedules annexed hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Nothing in the Disclosure
Schedules hereto shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the exception is described on the
Disclosure Schedules with reasonable particularity and expressly refers to the
applicable Section of this Agreement.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a representation or warranty made herein (unless
the representation or warranty has to do with the existence of the document or
other item itself). The parties hereto intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party hereto has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
Section 8.13 Knowledge
of Target. The terms “Target’s
knowledge” and “knowledge of Target” or correlative terms shall be deemed to
mean all information that is actually known or, in the exercise of reasonable
diligence in the normal course of their employment or assigned duties or should
be known, by any Principal Stockholder.
Section 8.14 Headings. The headings contained in this Agreement are
included for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
Section 8.15 Counterparts;
Facsimile Execution. This Agreement
may be (a) executed in any number of counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute
one and the same instrument, and (b) executed and delivered by electronic
facsimile transmission with the same force and effect as if the same were a
fully executed and delivered original manual counterpart.
Section 8.16 Specific
Performance. The parties hereto
acknowledge and agree that any breach of the terms of this Agreement would give
rise to irreparable harm for which money damages would not be an adequate
remedy. Accordingly, the parties agree
that, in addition to any other remedies, each party shall be entitled to
enforce the terms of this Agreement by a
31
decree of specific
performance without the necessity of proving the inadequacy of money damages or
of providing a bond or other security.
“Accountants” has the meaning set forth in
Section 1.8(b).
“Acquirer” has the meaning set forth in the
preamble.
“Acquirer Indemnitees” has the meaning set
forth in Section 7.1.
“Additional Purchase Price” has the meaning
set forth in Section 1.8(e).
“Affiliate” means any Person that directly or
indirectly controls, is controlled by, or is under common control with, the
Person specified or, directly or indirectly, is related to any such Person.
“Agreement” has the meaning set forth in the
preamble.
“Allocation Schedule” has the meaning
set forth in Section 6.6.
“Balance Sheet Date” means December 31,
2003.
“Closing” has the meaning set forth in
Section 1.2.
“Closing Date” has the meaning set forth in
Section 1.2.
“Closing Working Capital” has the meaning set
forth in Section 1.8(a).
“Code” means the Internal Revenue Code of
1986, as amended, and the rules and regulations thereunder.
“Consents” means all consents, approvals or
authorizations of any Person or Governmental Authority.
“Controlled Group” has the meaning set forth
in Section 3.12(a).
“Corporate Tax Liabilities” means the Tax
liabilities imposed on Target or the Surviving Corporation for all Pre-Closing
Tax Periods or Pre-Closing Stub Periods or as a result of the consummation of
the Transactions contemplated hereby, including the Section 338(h)(10)
Election.
“Damages” has the meaning set forth in
Section 7.1.
“Dispute Notice” has the meaning set forth in
Section 1.9(f).
“Earn-Out Payment” means any contingent
payment required to be made by Acquirer to Target pursuant to Section 1.9.
32
“Earn-Out Periods” means the First Earn-Out
Period, the Second Earn-Out Period, the Third Earn-Out Period and the Fourth
Earn-Out Period.
“Effective Date” has the meaning set
forth in Section 1.2.
“Effective Time” has the meaning set forth in
Section 1.2.
“Employee Plan” has the meaning set forth in
Section 3.12(a).
“Employment Agreements” means the employment
agreements to be entered into as of the date of this Agreement between Acquirer
and each of James W. Howard and Ronald D. Stern in the forms attached hereto as
Exhibit B and Exhibit C, respectively, and the letter
agreement to be entered into as of the date of this Agreement among the
Acquirer, Target and Irving Lowe in the form attached hereto as Exhibit D.
“Environment” means soil, surface waters,
groundwater, land, stream sediments, surface or subsurface strata, ambient air,
indoor air or indoor air quality, interior and/or exterior, including, without
limitation, any material or substance used in the physical structure, of any
building or improvement and any environmental medium.
“Environmental Condition” means any condition
of the Environment with respect to the Real Property, or with respect to any
other real property at which any Hazardous Material generated by the operation
of the business of Target prior to the Closing has been treated, stored or
disposed of, which violates any Environmental Law, or even though not violative
of any Environmental Law, nevertheless results in any Release, or Threat of
Release, damage, loss, cost, expense, claim, demand, order or liability,
alleged or imposed by any Person (including, without limitation, any
Governmental Authority).
“Environmental Law” means any federal, state
and local law, regulation, rule, ordinance, policy or guideline relating to the
Environment implementing or otherwise dealing with the subject matter thereof.
“Environmental Permit” means any environmental
permit, license, approval, consent or authorization issued by a Governmental
Authority.
“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended.
“Facility Lease Agreements” has the meaning
set forth in Section 3.15(b).
“Financial Statements” has the meaning set
forth in Section 3.6.
“First Earn-Out Period” has the meaning set
forth in Section 1.9(a).
“First Year Target” has the meaning set forth
in Section 1.9(a).
“Fourth Earn-Out Period” has the meaning set
forth in Section 1.9(d).
“Fourth Year Target” has the meaning set forth
in Section 1.9(d).
33
“General Enforceability Exceptions” has the
meaning set forth in Section 3.1.
“Governmental Authority” means any government
or political subdivision or regulatory authority, whether federal, state, local
or foreign, or any agency or instrumentality of any such government or
political subdivision or regulatory authority, or any federal, state, local or
foreign court or arbitrator.
“Hazardous Material” means any pollutant,
toxic substance including asbestos and asbestos-containing materials, hazardous
waste, hazardous material, hazardous substance, contaminant, petroleum or
petroleum-containing materials as defined in or the subject of any
Environmental Law.
“Holdback Amount” means $500,000.
“Holder” means each Stockholder and holder of
Options.
“Initial Merger Consideration” means (a) the
Per Share Merger Consideration times the number of shares of Target Common
Stock outstanding immediately before the Effective Time plus (b) the aggregate
Option Consideration.
“Intellectual Property” means (a) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof,
(b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations and
renewals in connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all trade secrets
and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, artwork,
specifications, customer and supplier lists, customer data (including credit
card information), user data, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data
and related documentation and object and source codes), computer programs, web
sites, servers and domain names, (g) all other proprietary rights,
(h) all copies, whether in magnetic format or hard copy, and tangible
embodiments thereof (in whatever form or medium), (i) all product
development materials, and (j) all rights of action arising therefrom, all
claims by reason of infringement thereof, and the right to sue and collect
damages for such infringement.
“IRS” has the meaning set forth in
Section 3.12(b).
“Law” means any law, statute, regulation,
ordinance, rule, order, decree, judgment, interpretation, ruling or other
requirement of any Government Authority.
“Leased Facilities” means all facilities
identified as such on Section 3.15(b).
34
“Letter of Transmittal” means a letter of
transmittal in the form attached hereto as Exhibit E.
“Liens” means any and all liens, claims, prior
assignments, mortgages, leases, charges, security interests, pledges,
conditional sales contracts, collateral security interests, or other title
retention arrangements, rights of first refusal, options, restrictions or
encumbrances whatsoever.
“Merger” has the meaning set forth in
Section 1.1.
“Merger Sub” has the meaning set forth in the
preamble.
“Merger Sub Common Stock” has the meaning set
forth in Section 1.5.
“Minimum Cash Balance” means an amount equal
to $500,000 plus the Corporate Tax Liabilities.
“Option Consideration” has the meaning set
forth in Section 1.7(a).
“Option Exercise Price” means, with respect to
each option to acquire Target Common Stock (whether or not the option has
vested), the price at which each underlying share of Target Common Stock may be
purchased.
“Options” has the meaning set forth in
Section 1.7(a).
“Option Plans” has the meaning set forth in
Section 1.7(a).
“Option Shares” means the shares of Target
Common Stock underlying Options.
“Order” means any order, judgment, injunction,
award, decree, ruling, charge or writ of any Government Authority.
“Payoff Letters” means the letters provided by
the lenders or other holders of Target Debt to Target in connection with the
repayment of the Target Debt as contemplated hereby.
“Permitted Liens” means (a) Liens for
current taxes, assessments, fees and other charges by Governmental Authorities
that are not due and payable as of the date of this Agreement, (b) Liens
created by Acquirer and (c) those matters that are set forth on Schedule 8.17.
“Per Share Merger Consideration” means (a)
$14,000,000 less
the amount of Target Debt, less the Holdback Amount and plus the
aggregate Option Exercise Price divided by (b) the number of Target
Shares.
“Person” means any individual, sole
proprietorship, partnership, corporation, limited liability company,
unincorporated society or association, trust or other entity.
“Post-Closing Stub Period” has that meaning
set forth in Section 6.3.
“Pre-Closing Stub Period” has that meaning set
forth in Section 6.3.
35
“Post-Closing Tax Period” means any Tax period
beginning after the Effective Date.
“Pre-Closing Tax Period” means any Tax period
ending on or before the Effective Date.
“Principal Stockholders” has the meaning set
forth in the preamble.
“Pro Rata Share” means, with respect to any
Holder, a percentage determined as of the time immediately before the Closing
by dividing (a) the number of shares of Target Common Stock held by that Holder
plus the number of Option Shares underlying Options held by that Holder by (ii)
the Target Shares.
“Purchase Price” means the Initial Merger
Consideration plus any Additional Purchase Price plus any Earn-Out Payments minus any
Working Capital Shortfall.
“Real Property” means any and all real
property and interests in real property of Target, any real property leaseholds
and subleaseholds, purchase options, easements, licenses, rights to access and
rights of way and any other real property otherwise currently or previously
owned, occupied or used in connection with Target’s business.
“Release” means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping of a Hazardous Material into the
Environment.
“Retained Liabilities” means all Corporate Tax
Liabilities and all liabilities and obligations of Target (whether accrued or
unaccrued, contingent or noncontingent, matured or unmatured) other than
liabilities and obligations subtracted from Target’s current assets in
calculating the Closing Working Capital.
For the avoidance of doubt, “Retained Liabilities” does not include
liabilities or obligations of Surviving Corporation first arising after the
Effective Time.
“Returns” means returns, declarations,
reports, claims for refund, information returns or other documents (including
any related or supporting schedules, statements or information) filed or required
to be filed in connection with the determination, assessment or collection of
any Taxes of any party hereto or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
“Sales” means, for any period, sales of the
Surviving Corporation, Acquirer or any Affiliate of Acquirer arising from any
products manufactured or developed by Target or the Surviving Corporation,
determined in accordance with United States Generally Accepted Accounting
Principles applied on a consistent basis.
“Sales Statement” has the meaning set forth in
Section 1.9(f).
“Second Earn-Out Period” has the meaning set
forth in Section 1.9(b).
“Second Year Target” has the meaning set forth
in Section 1.9(b).
“Section 338(h)(10) Election” has the meaning
set forth in Section 6.5.
36
“Stockholder Basket” has the meaning set forth
in Section 7.4(b).
“Stockholder Cap” has the meaning set forth in
Section 7.4(a).
“Stockholders” means all stockholders of
Target immediately prior to the Closing.
“Stockholders’ Representative” means James W.
Howard.
“Straddle Period” has the meaning set forth in
Section 6.3.
“Surviving Corporation” has the meaning set
forth in Section 1.1.
“Target” has the meaning set forth in the
preamble.
“Target Common Stock” has the meaning set
forth in Section 1.6.
“Target Contracts” has the meaning set forth
in Section 3.5.
“Target Debt” means all of Target’s
outstanding indebtedness for borrowed money immediately before the Effective
Time.
“Target Shares” means all shares of Target
Common Stock issued and outstanding immediately prior to the Effective Time and
all Option Shares.
“Tax” means (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value
added, transfer, franchise, profits, license, withholding on amounts paid to or
by Target, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Governmental Authority, whether disputed or not, (ii) any
liability of Target for the payment of any amounts of any of the foregoing
types as a result of being a member of an affiliated, consolidated, combined or
unitary group, or being a party to any agreement or arrangement whereby
liability of Target for payment of such amounts was determined or taken into
account with reference to the liability of any other Person and (ii) any
liability of Target for the payment of any amounts as a result of being a party
to any Tax sharing agreements or arrangements (whether or not written) binding
on Target or with respect to the payment of any amounts of any of the foregoing
types as a result of any express or implied obligation to indemnify any other
Person.
“Third Earn-Out Period” has the meaning set
forth in Section 1.9(c).
“Third Party Claim” has the meaning set forth
in Section 7.3(a).
“Third Year Target” has the meaning set forth
in Section 1.9(c).
“Threat of Release” means a substantial
likelihood of a Release that requires action to prevent or mitigate damage to
the Environment that might result from such Release.
37
“Transaction Documents” means this Agreement,
the Employment Agreements and all other documents and instruments described in,
or contemplated by, Section 2.1 and Section 2.2.
“WARN Act” means the
Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C.
§§ 2101 - 2109, as amended.
“Working Capital Shortfall” has the meaning
set forth in Section 1.8(d).
“Working Capital Statement” has the meaning
set forth in Section 1.8(a).
[Signature Page Follows This Page]
38
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed as of the day and
year first above written.
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TELIC OPTICS, INC.
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By:
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/s/ James W.
Howard
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Name:
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James W. Howard
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Title:
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President
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By:
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/s/ Ronald D.
Stern
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Name:
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Ronald D. Stern
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Title:
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Clerk
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/s/ James W.
Howard
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JAMES W. HOWARD
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/s/ Ronald D.
Stern
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RONALD D. STERN
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AXSYS TECHNOLOGIES, INC.
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By:
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/s/ David A.
Almeida
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Name:
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David A. Almeida
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Title:
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Vice President, Chief
Financial Officer,
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Secretary and Treasurer
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BIFOCAL ACQUISITION CORP.
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By:
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/s/ David A.
Almeida
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Name:
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David A. Almeida
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Title:
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President
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By:
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/s/ Cynthia J.
McNickle
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Name:
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Cynthia J.
McNickle
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Title:
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Clerk
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