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EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 22, 2000
BY AND AMONG
MEDICAL DEVICE MANUFACTURING, INC.,
(THE "PURCHASER")
KMKATM ACQUISITION CORP.,
(THE "MERGERSUB")
AMERICAN TECHNICAL MOLDING, INC.
(THE "COMPANY")
AND
THE SHAREHOLDERS OF AMERICAN TECHNICAL MOLDING, INC.
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
December 22, 2000, is entered into by and among Medical Device Manufacturing,
Inc., a Colorado corporation (the "Purchaser"), KMKATM Acquisition Corp., a
California corporation (the "MergerSub"), American Technical Molding, Inc., a
California corporation (the "Company"), and each of Xxxxx X. Xxxxxxxx, Xxxx X.
Xxxxxx and Xxxxx Xxx Xxxxxx, Trustees of the 1994 Xxxx Xxxxxx Xxxxxx and Xxxxx
Xxx Xxxxxx Revocable Trust, and Xxxx Xxxxxx, Jr. (each hereafter individually
referred to as a "Shareholder" and collectively referred to as the
"Shareholders").
RECITALS
A. The Boards of Directors of Purchaser, MergerSub and the Company
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that MergerSub and the Company
combine into a single company through the merger of MergerSub with and into the
Company with the Company being the surviving entity (the "Merger") and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all issued and
outstanding shares of capital stock of the Company (the "Company Stock"), shall
be converted into the right to receive cash and shares of Class A-5 5%
Convertible Preferred Stock of MDMI Holdings, Inc. (the "Convertible Preferred
Stock") in the amounts and on the terms set forth herein.
C. The Company, Purchaser, MergerSub and the Shareholders desire to
make certain representations and warranties and other agreements in connection
with the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Actions" shall mean any litigation and proceedings of any nature,
whether at law or in equity, before any court, arbitrator, arbitration panel or
Governmental Authority.
"Affiliate" of a Person shall mean any Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person.
"Agreement of Merger" shall have the meaning set forth in Section 2.1
of this Agreement.
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"Auditor" shall have the meaning set forth in Section 2.7(e)(iii).
"Balance Sheet" shall have the meaning set forth in Section 4.7 of this
Agreement.
"Balance Sheet Date" shall have the meaning set forth in Section 4.7 of
this Agreement.
"Business" shall have the meaning set forth in Section 6.5 (a) of this
Agreement.
"Certificate of Designation" shall have the meaning set forth in
Section 2.7(a) of this Agreement.
"CGCL" shall mean the California General Corporation Law.
"Clean-up" shall mean removal or remediation of, or other response to
(including, without limitation, testing, monitoring, sampling or investigating
of any kind) any Release, to the satisfaction of all applicable governmental
agencies and in compliance with Environmental Laws.
"Closing" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Consideration" shall have the meaning set forth in Section
2.7(a) of this Agreement.
"Closing Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the initial paragraph of
this Agreement.
"Company Stock" shall have the meaning set forth in the Recitals to
this Agreement.
"Computer Programs" shall mean (a) any and all computer software
programs and software development tools, including all source and object code,
(b) databases and compilations, including any and all data and collections of
data, whether machine readable or otherwise, (c) all descriptions, flow-charts
and other work product used to design, plan, organize and develop any of the
foregoing, (d) all domain names and the content contained on the respective
Internet site(s), and (e) all documentation, including user manuals and training
materials, relating to any of the foregoing.
"Contracts" shall mean all contracts, agreements, indentures, licenses,
leases, commitments, arrangements, sales orders and purchase orders of every
kind, whether written or oral.
"Contributed Assets" shall have the meaning set forth in Section 6.5(a)
of this Agreement.
"Contribution Agreement" shall have the meaning set forth in Section
6.5(b) of this Agreement.
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"Convertible Preferred Stock" shall mean shares of Class A-5 5%
Convertible Preferred Stock of MDMI Holdings, Inc. or, to the extent that such
shares are mandatorily converted under the terms of the Certificate of
Designation, the equivalent amount of any security into which the Class A-5
Stock is converted.
"Damages" shall mean, collectively, losses, Liabilities, Liens, costs,
damages, claims and expenses (including reasonable fees and disbursements of
counsel, consultants or experts and expenses of investigation) and, without
limiting the generality of the foregoing, with regard to environmental matters
shall also include specifically response costs, corrective action costs, natural
resource damages, costs to comply with orders or injunctions, damages or awards
for property damage or personal injury, fines, penalties and costs for testing,
remediation or cleanup costs, including those related to administrative review
of site remediation.
"Direct Claim" shall have the meaning set forth in Section 11.4 of this
Agreement.
"Disclosure Schedules" shall mean the disclosure schedules delivered to
Purchaser by the Company and the Shareholders on or prior to the date of this
Agreement.
"Dollars" and "$" shall mean United States dollars.
"Earn-Out Payment" shall have the meaning set forth in Section 2.7(d)
of this Agreement.
"Effective Time" shall have the meaning set forth in Section 2.2 of
this Agreement.
"EBITDA" shall mean the Company's earnings before interest, taxes,
depreciation and amortization, all as determined in accordance with GAAP, and
applied on a consistent basis.
"Employment Agreement" shall have the meaning set forth in Section 8.17
of this Agreement.
"Employment Laws" shall mean all federal, state, local and municipal
Laws in effect at or prior to Closing relating to employees, dependent
contractors and independent contractors and their employment, or rendition of
services, including but not limited to taxation, health, labor, labor/management
relations, occupational health and safety, pay equity, employment equity or
discrimination, employment standards, benefits and workers' compensation.
"Environment" shall mean the environment or natural environment as
defined in any Environmental Laws, including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata and any sewer,
septic, waste treatment, storage, or disposal system.
"Environmental Laws" shall mean all applicable federal, state, local
and municipal Laws in existence, enacted or in effect at or prior to Closing
relating to pollution or protection of public health and safety, the workplace
and the Environment, including, without limitation, Laws relating to Releases or
otherwise relating to the generation, manufacture, processing, distribution,
use, treatment, storage, disposal, transport, labeling, advertising, sale,
display or handling of Hazardous Materials. "Environmental Laws" shall include,
but not be limited to the following
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statutes and all rules and regulations relating thereto, all as amended in
existence, enacted or in effect at or prior to the Closing:
(a) The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Sections 9601-9675; the Resource
Conservation and Recovery Act of 1976 ("RCRA") 42 U.S.C. Section
6901-6991; the Clean Water Act 33 U.S.C. Section 1321 et seq.; the
Clean Air Act 42 U.S.C. Sections 7401 et seq.; the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA") 7 U.S.C. Section 136 et seq.;
the Toxic Substances Control Act ("TSCA") 15 U.S.C. Sections 2601-2671;
and the Food, Drug and Cosmetic Act ("FDCA"), and
(b) all similar state and local laws, statutes, codes, ordinances,
regulations and rules.
"Environmental Liabilities" shall mean Damages relating to or arising
in any way from (a) Environmental Laws; (b) violations of or Liabilities
pursuant to, and alleged violations of or Liabilities pursuant to Environmental
Laws; (c) Releases; (d) Clean-up; (e) litigation, proceedings, investigations,
prosecutions, orders, citations, directives or notices (written or oral) by any
Person relating to any of the foregoing.
"Environmental Permits" shall have the meaning set forth in Section
4.20(b) of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall have the meaning set forth in Section 4.19(a)
of this Agreement.
"ERISA Plans" shall have the meaning set forth in Section 4.19(a) of
this Agreement.
"Escrow Funds" shall have the meaning set forth in Section 2.7(a)(iii)
of this Agreement.
"Escrow Agreement" shall have the meaning set forth in Section
2.7(a)(iii) of this Agreement.
"Estimated Net Worth" shall have the meaning set forth in Section
2.7(b) of this Agreement.
"Final Net Worth" shall have the meaning set forth in Section 2.7(c) of
this Agreement.
"Financial Statements" shall have the meaning set forth in Section 4.7
of this Agreement.
"GAAP" shall mean generally accepted accounting principles, as in
effect in the United States at or prior to Closing.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government,
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whether foreign or domestic and whether national, federal, provincial, state,
regional, local or municipal.
"Hazardous Materials" shall mean those substances, wastes, or materials
that are regulated by or form the basis of liability under Environmental Laws
and includes, without limitation, (a) all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous substance, or solid or
hazardous waste, hazardous material or chemical substance or dangerous
substance, (b) petroleum or petroleum derived substance or waste, (c) asbestos
or asbestos-containing material, (d) PCBs or PCB-containing materials or fluids,
(e) any other substance with respect to which a Governmental Authority may
require Clean-Up and (f) any radioactive material or substance.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended, and any regulations promulgated thereunder.
"Indebtedness" shall mean (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services (other
than current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) and including earn-out or
similar contingent purchase amounts, (b) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under lease, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person, (e) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof,
and (f) all guarantees by such Person of obligations of others.
"Indemnifying Party" shall mean any Person or Persons required to
provide indemnification under this Agreement.
"Indemnitee" shall mean any Person or Persons entitled to
indemnification under this Agreement.
"Intellectual Property" shall mean all intellectual property rights
used in the business of the Company as currently conducted or as presently
contemplated by the Company to be conducted, including all patents and patent
applications, trademarks, trademark registrations and applications; service
marks, service xxxx registrations and applications, logos, designs, proprietary
rights, slogans and general intangibles of like nature, together with all
goodwill related to the foregoing; trade names, copyrights, copyright
registrations and applications; computer programs; product plans, technology,
process engineering, drawings, schematic drawings, secret processes; proprietary
knowledge, including without limitation, trade secrets, know-how, confidential
confirmation, proprietary processes and formulae.
"KMK Enterprises" shall mean Kelley, Morrison, Xxxxxx, Partners, a
General Partnership organized under California law.
"Knowledge" with respect to any particular representation or warranty
contained in this Agreement, when used to apply to the "Knowledge" of the
Company or the "Knowledge" of any
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of the Shareholders shall mean the actual knowledge or conscious awareness of
the Shareholders or any employee of the Company with managerial or substantial
responsibility for the subject matter of such representation.
"Laws" shall mean statutes, common laws, rules, ordinances,
regulations, codes, licensing requirements, orders, judgments, injunctions,
decrees, licenses, permits and bylaws of a Governmental Authority.
"Lenders" shall mean the Persons who provide or shall provide
interest-bearing loans to Purchaser or Parent.
"Liabilities" shall mean debts, liabilities, commitments, obligations,
duties and responsibilities of any kind and description, whether absolute or
contingent, monetary or non-monetary, direct or indirect, known or unknown or
matured or unmatured, or of any other nature.
"Licenses" shall have the meaning set forth in Section 4.11(d) of this
Agreement.
"Lien" shall mean any security interest, lien, mortgage, claim, charge,
pledge, restriction, equitable interest or encumbrance of any nature and in the
case of securities any put, call or similar right of a third party with respect
to such securities.
"Litigation" shall mean any litigation, legal action, arbitration,
proceeding, material demand, material claim or investigation pending, or to the
Knowledge of the Company or the Shareholders threatened, planned or reasonably
probable, against, affecting or brought by or against the any of the
Shareholders, the Company, the Company's present or former employees or
independent contractors affiliated at any time with the Shareholders or the
Company.
"Lock-up Agreements" shall have the meaning set forth in Section 8.23
of this Agreement.
"Material Adverse Effect" shall mean, with respect to the same or any
similar events, acts, conditions or occurrences, whether individually or in the
aggregate, a material adverse effect on or change in (a) any of the business,
condition (financial or otherwise), operations, assets or liabilities of the
Company taken as a whole, (b) the legality or enforceability against the Company
or the Shareholders of this Agreement, or (c) the ability of the Company or any
Shareholder to perform his, her or its obligations and to consummate the
transactions under this Agreement. For purposes of clause (a) of this definition
and without limiting the generality of the foregoing, an effect or change with
respect to the same or any similar event(s), act(s), condition(s) or
occurrence(s) individually or in the aggregate with respect to which the Company
would reasonably be expected to have $50,000 in the aggregate or more in Damages
(without taking into account fees and disbursements of counsel, consultants or
experts or expenses of investigation) being asserted against, imposed upon or
sustained by the Company shall constitute a Material Adverse Effect or change.
"Material Contract" shall have the meaning set forth in Section 4.14(a)
of this Agreement.
"Merger" shall have the meaning set forth in the Recitals to this
Agreement.
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"Merger Consideration" shall have the meaning set forth in Section 2.7
of this Agreement.
"MergerSub" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Minimum Net Worth" shall mean $2,656,195.
"Net Worth" shall mean the assets of the Company net of its liabilities
as of the Closing Date subject to adjustments made by Xxxxxx Xxxxxxxx or the
Auditor.
"Non-Competition Agreements" shall have the meaning set forth in
Section 8.16 of this Agreement.
"Notice of Settlement" shall have the meaning set forth in Section
11.3(c) of this Agreement.
"Notice to Contest" shall have the meaning set forth in Section 11.3(c)
of this Agreement.
"Notice to Defend" shall have the meaning set forth in Section 11.3(a)
of this Agreement.
"Objection Notice" shall have the meaning set forth in Section
2.7(e)(ii) of this Agreement.
"Objection Period" shall have the meaning set forth in Section
2.7(e)(ii) of this Agreement.
"Parent" shall mean MDMI Holdings, Inc., a Colorado corporation.
"Parent Financial Statements" shall have the meaning set forth in
Section 5.6 of this Agreement.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, firm, partnership or other entity or
government or Governmental Authority.
"Plans" shall have the meaning set forth in Section 4.19(a) of this
Agreement.
"Proposed Merger Consideration Adjustment" shall have the meaning set
forth in Section 2.7(a)(i) of this Agreement.
"Purchaser" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Purchaser Indemnitee" shall have the meaning set forth in Section 11.1
of this Agreement.
"Real Property" shall have the meaning set forth in Section 4.13 of
this Agreement.
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"Regulatory Action(s)" shall mean any claim, demand, action or
proceeding brought or instigated by any governmental agency in connection with
any Environmental Law (including without limitation civil, criminal or
administrative proceedings), whether or not seeking costs, damages, penalties or
expenses.
"Release" shall mean the presence, spilling, leaking, disposing,
discharging, emitting, depositing, injecting, leaching, escaping or any other
release or threatened release, and whether intentional or unintentional, of any
Hazardous Material.
"Shareholders" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Shareholders' Opinion" shall have the meaning set forth in Section
8.11 of this Agreement.
"Shareholders' Agreement" shall have the meaning set forth in Section
8.18 of this Agreement.
"SPD" shall have the meaning set forth in Section 4.19(b)(iv) of this
Agreement.
"Stock Payment" shall have the meaning set forth in Section 2.7(a) of
this Agreement.
"Subscription Agreement" and "Subscription Agreements" shall have the
meanings set forth in Section 8.20 of this Agreement.
"Subsidiary" shall mean any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Company.
"Surviving Corporation" shall have the meaning set forth in Section 2.1
of this Agreement.
"Systems" shall have the meaning set forth in Section 4.27 of this
Agreement.
"Tax Returns" shall mean all returns, declarations, reports, forms,
estimates, information returns, statements or other documents (including any
related or supporting information) filed or required to be filed with or
supplied to any Governmental Authority in connection with any Taxes.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties
or other assessments, including, without limitation, income, gross receipts,
excise, real and personal property, sales, transfer, license, payroll,
withholding, social security, franchise, unemployment insurance, workers'
compensation, employer health tax or other taxes, imposed by any Governmental
Authority and shall include any interest, penalties or additions to tax
attributable to any of the foregoing.
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"Third Party Claim" shall have the meaning set forth in Section 11.3(a)
of this Agreement.
"Third Party Environmental Claim(s)" shall mean third party claims,
actions, demands or proceedings (other than Regulatory Actions) based on
negligence, trespass, strict liability, nuisance, toxic tort or detriment to
human health or welfare due to any Release of Hazardous Materials, and whether
or not seeking costs, damages, penalties or expenses.
Section 1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation" even if not actually
followed by such phrase unless the context expressly provides otherwise. All
references herein to Annexes, Articles, Sections, paragraphs, Exhibits and
Schedules shall be deemed references to this Agreement unless the context shall
otherwise require. Unless otherwise expressly defined, terms defined in the
Agreement shall have the same meanings when used in any section, Exhibit or
Schedule and terms defined in any section, Exhibit or Schedule shall have the
same meanings when used in the Agreement or in any other section, Exhibit or
Schedule. The words "herein," "hereof," "hereto" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision of this Agreement.
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ARTICLE II
MERGER
Section 2.1 The Merger. At the Effective Time and subject to and upon
the terms and conditions of this Agreement, the Agreement of Merger attached
hereto as EXHIBIT A (the "Agreement of Merger") and the applicable provisions of
the CGCL, MergerSub shall be merged with and into the Company, the separate
corporate existence of MergerSub shall cease and the Company shall continue as
the surviving corporation of the Merger. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
Section 2.2 Closing; Effective Time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable after the satisfaction or waiver of each of the conditions set forth
in Articles VIII and IX below or at such other time as the parties agree (the
"Closing Date"). In connection with the Closing, the parties shall cause the
Merger to be consummated by filing the Agreement of Merger with the Secretary of
State of the State of California, in accordance with the relevant provisions of
the CGCL (the time of such filing being the "Effective Time"). The Closing shall
take place via facsimile transmission and such other forms of electronic
communication as the parties mutually agree.
Section 2.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of the CGCL. At the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and MergerSub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and MergerSub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 2.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of
MergerSub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by the CGCL and the Articles of Incorporation.
(b) At the Effective Time, the Bylaws of MergerSub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by the CGCL, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
Section 2.5 Directors and Officers. At the Effective Time, the
directors of MergerSub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation. Those former employees of the Company
who, in accordance with the terms of their Employment Agreements, are intended
to be officers of the Surviving Corporation, including Xxxxx X. Xxxxxxxx, shall
be officers of the Surviving Corporation. Except for the
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aforementioned officers, the officers of MergerSub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation. Each such
director and officer of the Surviving Corporation shall serve until their
respective successors are duly elected or appointed and qualified.
Section 2.6 Surrender of Certificates; Effect of Merger on Company
Stock.
(a) At Closing, the Shareholders shall surrender to Purchaser
certificates, properly endorsed for transfer or accompanied by duly executed
stock powers, representing all of the issued and outstanding shares of Company
Stock held by the Shareholders immediately prior to the Effective Time as set
forth on ANNEX I hereto. Each such certificate shall be delivered to the
Surviving Corporation, canceled, and, simultaneously with such delivery and
cancellation, the Merger Consideration into which such capital stock shall have
been converted in the Merger shall be delivered to the persons entitled thereto
under this Agreement. From and after the Effective Time, each certificate which
prior to the Effective Time represented shares of Company Stock shall be deemed
to represent only the right to receive the Merger Consideration contemplated
herein, and the Shareholders shall cease to have any rights with respect to the
shares of Company Stock formerly represented thereby, except as otherwise
provided herein or by law.
(b) At the Effective Time, and without any further action by any
of the parties, (i) all shares of Company Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Stock shall
cease to have any rights with respect thereto, and (ii) all shares of capital
stock of MergerSub shall be converted into an equivalent number of shares of
common stock of the Surviving Corporation. Any shares of the Company Stock held
in the treasury of the Company immediately prior to the Effective Time shall be
canceled and extinguished and no payment shall be made with respect thereto.
Section 2.7 Merger Consideration.
(a) The aggregate consideration to the Shareholders shall be equal
to $25,425,000 as adjusted pursuant to Sections 2.7(b) and 2.7(c) below (the
"Closing Consideration") plus any Earn-Out Payment calculated in accordance with
Section 2.7(d) below (collectively, the Closing Consideration and the Earn-Out
Payment shall be referred to herein as the "Merger Consideration"). The Merger
Consideration shall be allocated to each Shareholder in the manner described in
ANNEX I.
(i) Purchaser shall pay all Merger Consideration in the
following manner: (A) 90.1% of the aggregate Merger Consideration shall be
payable in cash by wire transfer of immediately available federal funds to
accounts to be designated by each Shareholder and (B) 9.9% of the aggregate
Merger Consideration (the "Stock Payment") shall be payable in shares of
Convertible Preferred Stock equal to that number of shares of Convertible
Preferred Stock determined by dividing the Stock Payment by $16.00, the
liquidation preference for the Convertible Preferred Stock. The Convertible
Preferred Stock shall have such further rights and
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preferences described in the amendment to the Parent's Articles of Incorporation
the form of which is attached as EXHIBIT B to this Agreement (the "Certificate
of Designation").
(ii) No fractional share of Convertible Preferred Stock shall
be issued to a Shareholder, and Purchaser shall pay any Shareholder entitled to
such a fractional share an amount equal to such fraction multiplied by the
liquidation preference of the Convertible Preferred Stock in cash.
(iii) As shown in ANNEX I, Purchaser shall pay $375,000 (the
"Escrow Funds") of the Closing Consideration into escrow in accordance with the
terms of an escrow agreement (the "Escrow Agreement"), in the form of EXHIBIT K
to this Agreement, for the purpose of indemnifying Purchaser and every Affiliate
of Purchaser for any Damages arising out of or relating to the matters
identified on Schedule 4.21. The Escrow Funds shall be held by the escrow agent
and released to Purchaser and/or the Shareholders in accordance with the terms
of the Escrow Agreement.
(b) At the Closing, the Company shall deliver a pro forma balance
sheet as of the Closing Date and, based on such balance sheet, a calculation of
the Net Worth (the "Estimated Net Worth"). The parties hereto agree that under
no circumstances shall any Contributed Asset be considered an asset of the
Company for purposes of the calculation of Net Worth. The Closing Consideration
shall be subject to the following adjustments, based on the difference between
the Estimated Net Worth and the Minimum Net Worth:
(i) if the Minimum Net Worth exceeds the Estimated Net Worth,
the Closing Consideration shall be decreased by the difference between the
Minimum Net Worth and the Estimated Net Worth;
(ii) otherwise, the Closing Consideration shall not be
adjusted pursuant to this Section 2.7(b).
(c) Within sixty (60) days of the Closing Date, the Company shall
cause Xxxxxx Xxxxxxxx to audit the Net Worth delivered pursuant to Section
2.7(b) above. Based on such audit, Xxxxxx Xxxxxxxx shall deliver a final balance
sheet as of the Closing Date and, based on such final balance sheet, a
calculation of the final Net Worth (the "Final Net Worth"). The Closing
Consideration shall be subject to the following adjustments, based on any
difference between the Estimated Net Worth and the Final Net Worth:
(i) if the Minimum Net Worth exceeds the Final Net Worth and
no Closing Consideration adjustment was made pursuant to Section 2.7(b) above,
the Shareholders shall pay the Purchaser the difference between the Minimum Net
Worth and the Final Net Worth;
(ii) if the Final Net Worth exceeds the Minimum Net Worth and
a Closing Consideration adjustment was made pursuant Section 2.7(b) above, the
Purchaser shall pay the Shareholders the amount of the Closing Consideration
adjustment made pursuant to Section 2.7(b) above;
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(iii) if the Minimum Net Worth exceeds the Final Net Worth and
a Closing Consideration adjustment was made pursuant to Section 2.7(b) above,
then if the Final Net Worth is greater than the Estimated Net Worth, the
Purchaser shall pay the Shareholders the difference between the Final Net Worth
and the Estimated Net Worth, otherwise, the Shareholders shall pay the Purchaser
the difference between the Estimated Net Worth and the Final Net Worth;
(iv) otherwise, the Closing Consideration shall not be
adjusted pursuant to this Section 2.7(c).
(v) Any amount payable as a result of an adjustment under this
Section 2.7(c) shall be paid on or before the later to occur of (A) forty-five
(45) days after delivery of the Final Net Worth to the Purchaser and the
Shareholders or (B) resolution of the procedures set forth in Section 2.7(e)
below.
(vi) Any amount payable by the Purchaser to the Shareholders
or by the Shareholders to the Purchaser shall be paid in cash and Convertible
Preferred Stock in the same ratio and with the same percentage allocation to or
by each Shareholder, as applicable, as the Closing Consideration described in
ANNEX I.
(d) Within 30 days after the delivery of audited financial
statements of the Company for the fiscal year ending December 31, 2001 (the
"2001 Financials"), Purchaser shall pay, and/or shall cause the Company to pay,
to the Shareholders specifically identified in ANNEX I, an aggregate amount (the
"Earn-Out Payment") equal to the product of 7.5 and the amount, if any, by which
the Company's EBITDA, calculated from the 2001 Financials, exceeds $3,400,000.
Notwithstanding the foregoing, in no event will the Earn-Out Payment exceed
$3,000,000. The Earn-Out Payment shall be allocated among specified Shareholders
in accordance with the directions in ANNEX I. For the purposes of the
calculation of any Earn-Out Payment, the calculation of EBITDA from the 2001
Financials shall not include any liabilities which result from expenses relating
to the Merger, changes in accounting methods, extraordinary items, or one-time
charges against income, except to the extent such items relate to reserves or
payments on claims against the Company, regulatory compliance, bad debt or are
justified as arising in the ordinary course of business. Furthermore, for the
purposes of this section, the "ordinary course of business" shall not include
plans for diversification, expansion or modernization unless such plans are in
response to the need to provide additional capacity or capabilities to service
the requirements of new or existing customers of the Company.
(e) If Shareholders disagree with the Earn-Out Payment and/or
Final Net Worth delivered by the Purchaser, the following procedure shall be
employed:
(i) Shareholders shall have until forty five (45) days after
the Purchaser's delivery of the Earn-Out Payment and/or the Final Net Worth, as
applicable, (each a "Review Period") to review Xxxxxx Xxxxxxxx'x and Purchaser's
determination of the Earn-Out Payment and/or the Final Net Worth. During each
Review Period, at the request of a Shareholder, Purchaser shall cause the
Company and Xxxxxx Xxxxxxxx to provide the Shareholders back-up financial
information and working papers and the like reasonably
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necessary for such review. Any requested adjustments to the Earn-Out Payment or
Final Net Worth determination shall be made by written notice to Purchaser,
signed by all the Shareholders, within the respective Review Period (an
"Adjustment Notice"), setting forth (A) the Shareholders' objections to
Purchaser's determination of the Earn-Out Payment and/or the Final Net Worth, as
applicable, (B) the Shareholders' determination of the Earn-Out Payment and the
Final Net Worth, as applicable, and (C) the proposed Merger Consideration
adjustment (the "Proposed Merger Consideration Adjustment"). If the Shareholders
do not deliver an Adjustment Notice to Purchaser within the applicable Review
Period, the Purchaser's determination of the Earn-Out Payment and Final Net
Worth shall be final and binding on the parties.
(ii) To the extent that Purchaser has any objection to the
Proposed Merger Consideration Adjustment, such objection shall be made by a
written notice that sets for the basis for such objection to the Shareholders
(the "Objection Notice") within twenty (20) days after delivery of an Adjustment
Notice (the "Objection Period"). If Purchaser does not object to the Proposed
Merger Consideration Adjustment within the Objection Period, then the Proposed
Merger Consideration Adjustment shall be final and binding on the parties.
(iii) If Purchaser delivers an Objection Notice in response to
any Adjustment Notice delivered by the Shareholders, and the Shareholders and
Purchaser are unable to agree upon the amount of any Proposed Merger
Consideration Adjustment within ten (10) days after receipt of the Objection
Notice, then an auditor (a nationally recognized accounting firm other than
Xxxxxx Xxxxxxxx, mutually acceptable to the parties) (the "Auditor") shall be
requested to conduct a review and determine the amount of the Earn-Out Payment
and/or the Final Net Worth, as applicable. The Auditor shall be instructed in
performing such review that Purchaser and Shareholders shall each be provided
with copies of any and all correspondence and drafts distributed to any party.
Each of the Shareholders and Purchaser shall be granted reasonable access to all
documents made available to the Auditor by the other party, provided that any
information contained in such documents shall be subject to the confidentiality
provisions set forth in this Agreement. Prior to issuing its final
determination, the Auditor shall issue a draft of its report to Purchaser and
the Shareholders, and Purchaser and each Shareholder shall have the opportunity
to provide the Auditor with input and any additional information that such party
deems relevant, provided that the Auditor shall not be required to use any such
input or information in connection with its review and determination. The
Auditor shall promptly deliver copies of its report to Purchaser and the
Shareholders, setting forth its determination of the Earn-Out Payment and/or the
Final Net Worth (the "Auditor's Report"), as applicable. The Auditor's Report
shall be conclusive and binding upon both Purchaser and Shareholders and any
adjustments to the Merger Consideration shall be paid in accordance with
Sections 2.7(c)(v), and/or 2.7(d), as applicable. Fifty percent of the costs and
expenses of the Auditor and the Auditor's Report contemplated by this Section
shall be borne by Purchaser, and the remainder of such costs shall, in the case
of a dispute of the Net Worth, be borne by the Shareholders or in the case of a
dispute of the Earn-Out Payment, be borne by the Shareholders participating in
the Earn-Out Payment.
Section 2.8 Closing Deliveries. At the Closing:
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(a) The Company and the Shareholders shall deliver or cause to be
delivered to Purchaser the following: (i) certificates representing all issued
and outstanding shares of the Company Stock held by each Shareholder as set
forth on ANNEX I duly endorsed by the appropriate Shareholder, for transfer to
the Purchaser or accompanied by duly executed stock powers, in either case
executed in blank and otherwise in a form acceptable for transfer on the books
of the Company;
(ii) the certificates pursuant Section 8.8;
(iii) the resignations of the Company's directors and certain
officers, pursuant to Section 8.12;
(iv) the stock books, stock ledgers, minute books and
corporate seals of the Company;
(v) any authorizations, consents or approvals required
pursuant to Section 8.4;
(vi) the Noncompetition Agreements pursuant to Section 8.16;
(vii) the Employment Agreement pursuant to Section 8.17;
(viii) joinders to the Shareholders' Agreement, pursuant to
Section 8.18;
(ix) a copy of the certified charter of the Company and a
certificate of good standing pursuant to Section 8.9;
(x) the bylaws of the Company, along with certificates
executed by the Secretary of the Company certifying that such copies are true,
correct and complete, and that such bylaws were duly adopted and have not been
amended or rescinded pursuant to Section 8.9;
(xi) the Subscription Agreements pursuant to Section 8.20;
(xii) the Lock-up Agreements pursuant to Section 8.21;
(xiii) the Escrow Agreement pursuant to Section 8.23; and
(xiv) the Agreement of Merger signed on behalf of the Company.
(b) Purchaser shall deliver or cause to be delivered to the
Shareholders the following:
(i) the Merger Consideration;
(ii) the certificates pursuant to Section 9.7;
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(iii) any authorizations, consents and approvals required
pursuant to Section 9.3;
(iv) the Employment Agreement pursuant to Section 9.8;
(v) the Noncompetition Agreements pursuant to Section 9.9;
(vi) certified copies of the charters of the Purchaser and
MergerSub and a certificate of good standing for each of the Purchaser and
MergerSub pursuant to Section 9.10;
(vii) the bylaws of the Purchaser and MergerSub, along with a
certificate executed by the Secretary of the Purchaser and MergerSub,
respectively, certifying that such copies are true, correct and complete, and
that such bylaws were duly adopted and have not been amended or rescinded
pursuant to Section 9.10;
(viii) the Subscription Agreements pursuant to Section 9.11;
(ix) the Escrow Agreement pursuant to Section 9.12; and
(x) the Agreement of Merger, duly executed by the MergerSub.
Section 2.9 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company with respect to all shares of capital stock of the
Company shall be closed and no further registration of transfers of such shares
of capital stock shall thereafter be made on the records of the Company.
Section 2.10 Taking of Necessary Action; Further Action. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest (a) the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and MergerSub or (b) the
Shareholders with the Merger Consideration as described in Sections 2.7 and 2.8,
the officers and directors of the Company, Purchaser and MergerSub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders represents and warrants to each of the
Purchaser and MergerSub with respect to himself as set forth in this Article
III.
Section 3.1 Ownership of Company Stock. The Shareholder owns the
Company Stock attributed to such Shareholder in ANNEX I free and clear of all
Liens, other than restrictions imposed by federal and state securities laws.
Section 3.2 Authorization, Etc. The Shareholder has full power and
authority to execute, deliver and perform his obligations under this Agreement
and the documents and instruments contemplated hereby and to carry out the
transactions contemplated hereby and thereby. No other action on the part of
each Shareholder is necessary to approve and authorize the execution, delivery
and performance by such Shareholder of this Agreement and the documents and
instruments contemplated hereby or the consummation by the Company and the
Shareholders of the transactions contemplated hereby or thereby. This Agreement
constitutes a legal, valid and binding agreement of the each Shareholder,
enforceable against such Shareholder in accordance with its terms, except that
(a) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders jointly and severally
represent and warrant to each of Purchaser and MergerSub as set forth in this
Article IV including, where appropriate, with respect to the Contributed Assets.
Section 4.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Except as set forth on Schedule 4.1, the Company has no
Subsidiaries, and does not have a direct or indirect ownership interest in any
Person. The Company is qualified to do business in the jurisdictions set forth
in Schedule 4.1. The Company has the power and authority (corporate and
otherwise) to own, lease and operate its respective properties and assets and to
carry on its business as now being conducted and is duly qualified or licensed
to do business as a foreign corporation in good standing in the jurisdictions
where the failure to so qualify would have a Material Adverse Effect. The
Company has delivered to Purchaser complete and correct copies of the Company's
charter documents and all amendments thereto to the date hereof.
Section 4.2 Ownership of Company Stock. ANNEX I sets forth the name of
each Person owning Company Stock and the amount of Company Stock owned by such
Person. Other than the Company Stock held by the Shareholders, all of which is
set forth and accounted for in ANNEX I, there is no Company Stock issued,
outstanding or held in the treasury of the Company.
Section 4.3 Authorization, Etc. The Company has full power and
authority to execute, deliver and perform its obligations under this Agreement
and the documents and instruments contemplated hereby and to carry out the
transactions contemplated hereby and thereby. The Company and each of the
Shareholders has duly approved and authorized the execution and delivery of this
Agreement and the documents and instruments contemplated hereby and the
consummation of the transactions contemplated hereby and thereby, and no other
corporate proceedings or other action on the part of the Company or any
Shareholder is necessary to approve and authorize the execution, delivery and
performance by the Company of this Agreement and the documents and instruments
contemplated hereby or the consummation by the Company of the transactions
contemplated hereby or thereby. This Agreement constitutes a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that (a) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
Section 4.4 No Conflict. Except as set forth in Schedule 4.4, neither
the execution, delivery or performance of this Agreement or the other documents
and instruments to be executed and delivered by the Company or the Shareholders
pursuant hereto, nor the consummation by the Company or the Shareholders of the
transactions contemplated hereby or
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thereby, nor compliance by the Company or the Shareholders with any of the
provisions hereof or thereof shall (a) conflict with or result in any breach of
any provision of the Articles of Incorporation, Bylaws or similar organizational
documents of the Company, (b) constitute a change in control under or require
the consent from or the giving of notice to a third party, result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the creation of any Lien upon
or affecting any of the Company's assets or properties pursuant to, any of the
terms, conditions or provisions of any contractual obligation of the Company,
(c) violate any order, writ, injunction, decree, statute, rule or regulation of
any Governmental Authority applicable to the Company or the Shareholders or to
which any of their properties or assets may be bound, or (d) result in
triggering of any right of first refusal or other right under any agreement to
which the Company or the Shareholders are a party.
Section 4.5 Governmental Consents. Except for filings required by the
HSR Act, no consent, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby by the Shareholders and the Company.
Section 4.6 Capital Stock. As of the date hereof, the authorized
capital stock of the Company consists of 50,000 shares of common stock of which
10,000 shares are issued and outstanding, all of which are owned by the
Shareholders in the amounts set forth in ANNEX I. Neither the Company's Articles
of Incorporation nor its Board of Directors have attributed any par value to the
Company's common stock. Except as set forth on Schedule 4.6, there are no
outstanding subscriptions, options, warrants, calls, rights, Contracts,
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, transfer or voting of any Company Stock, including any rights of
conversion or exchange under any outstanding securities or other instruments.
All outstanding Company Stock has been validly issued and is fully paid,
nonassessable and free of preemptive or similar rights.
Section 4.7 Financial Statements. The Company has delivered to
Purchaser the Company's Financial Statements. For the purposes of this
Agreement, "Financial Statements" shall mean: (a) its unaudited balance sheet as
of September 30, 2000 and the related statement of income and cash flows for the
nine-month period then ended; (b) a compiled balance sheet (the "Balance Sheet")
as of December 31, 1999 (the "Balance Sheet Date") and compiled statements of
income and cash flow for the fiscal year then ended; and (c) a compiled balance
sheet as of December 31, 1998 and compiled statements of income and cash flow
for the fiscal year then ended. The Financial Statements are in accordance with
the books and records of the Company (which books and records are correct and
complete), correct and complete in all material respects, and fairly present the
financial position of the Company and its results of operations, consistently
applied, as of and for the periods indicated (except for customary year end
adjustments).
Section 4.8 Absence of Certain Changes or Events. Except as set forth
on Schedule 4.8, since the Balance Sheet Date (a) the Company has conducted its
business only in the ordinary course and consistent with past practice, (b)
there has not been any developments or
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events which have had or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect and (c) and except as contemplated
in this Agreement, the Company has not:
(i) adopted any amendment to its Articles of Incorporation,
Bylaws or similar organization documents;
(ii) (A) sold, leased, transferred or disposed of any assets
or rights other than in the ordinary course of business consistent with past
practice, which assets or rights do not involve more than $50,000 in the
aggregate (B) incurred any Lien thereupon, except for Liens incurred in the
ordinary course of business consistent with past practice which Liens would not
in the aggregate exceed $50,000, (C) acquired or leased any assets or rights
other than assets or rights in the ordinary course of business consistent with
past practice, that individually or in the aggregate would involve more than
$50,000, or (D) entered into any commitment or transaction with respect to (A),
(B) or (C) above;
(iii) (A) incurred, assumed or refinanced any Indebtedness or
(B) made any loans, advances or capital contributions to, or investments in, any
Person;
(iv) paid, discharged or satisfied any liability, obligation,
or Lien other than payment, discharge or satisfaction of (A) Indebtedness as it
matures and become due and payable or (B) liabilities, obligations or Liens in
the ordinary course of business consistent with past practice;
(v) (A) changed any of the accounting or tax principles,
practices or methods used by the Company, except as required by changes in
applicable Tax Laws, or (B) changed reserve amounts or policies;
(vi) entered into any employment contract or other arrangement
or made any change in the compensation payable or to become payable to any
Shareholder or any of the Company's officers, employees, agents, consultants or
Persons acting in a similar capacity (other than general increases in wages to
employees who are not officers or Persons acting in a similar capacity or
Affiliates in the ordinary course consistent with past practice), or to Persons
providing management services, entered into or amended any employment,
severance, consulting, termination or other agreement or employee benefit plan
or made any loans to any of its Affiliates, officers, employees, agents or
consultants or Persons acting in a similar capacity or made any change in its
existing borrowing or lending arrangements for or on behalf of any of such
Persons pursuant to an employee benefit plan or otherwise;
(vii) paid or made any accrual or arrangement for payment of
any pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any Affiliate, officer, employee or
Person acting in a similar capacity; or paid or agreed to pay or made any
accrual or arrangement for payment to any Affiliate, officers, employees or
Persons acting in a similar capacity of any amount relating to unused vacation
days, except payments and accruals made in the ordinary course consistent with
past practice; grant, issue, accelerate or accrue salary or other payments or
benefits pursuant to any pension, profit-
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sharing, bonus, extra compensation, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance, severance
pay, retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any Affiliate,
officer, employee, agent or consultant or Person acting in a similar capacity,
whether past or present; or amend in any material respect any such existing
plan, agreement or arrangement in a manner consistent with the foregoing;
(viii) entered into any collective bargaining agreement;
(ix) made any payments (other than regular compensation
payable to officers and employees or Persons acting in a similar capacity of the
Company in the ordinary course consistent with past practice and tax payment
distributions to the Shareholders consistent with the Company's past practice),
loans, advances or other distributions (other than such distributions that did
not and are not reasonably likely to result in the Net Worth of the Company
being less than the Minimum Net Worth), or enter into any transaction, agreement
or arrangement with, Shareholders, Company's Affiliates, officers, employees,
agents, consultants or Persons acting in a similar capacity, stockholders of
their Affiliates, associates or family members;
(x) made or authorized any capital expenditures, except in the
ordinary course consistent with past practice not in excess of $25,000
individually or $100,000 in the aggregate;
(xi) incurred any Taxes, except in the ordinary course of
business consistent with past practice;
(xii) settled or compromised any Tax liability or agreed to
any adjustment of any Tax attribute or made any election with respect to Taxes;
(xiii) failed to duly and timely file any Tax Return with the
appropriate Governmental Authorities required to be filed by it in a true and
complete and correct form or to timely pay all Taxes shown to be due thereon;
(xiv) (A) entered into, amended, renewed or permitted the
automatic renewal of, terminated or waived any right under, any Material
Contract, or, except in the ordinary course of business consistent with past
practice, any other agreement, or (B) took any action or failed to take any
action that, with or without either notice or lapse of time, would constitute a
default under any Material Contract;
(xv) (A) made any change in its working capital practices
generally, including accelerating any collections of cash or accounts receivable
or deferring payments or (B) failed to make timely accruals, including with
respect to accounts payable and liabilities incurred in the ordinary course of
business;
(xvi) failed to renew (at levels consistent with presently
existing levels), terminated or amended or failed to perform any of its
obligations or permitted any material
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default to exist or caused any material breach under, or entered into (except
for renewals in the ordinary course of business consistent with past practice),
any material policy of insurance;
(xvii) experienced any material damage, destruction, or loss
to its property not covered by insurance;
(xviii) disposed of or permitted to lapse any material
Intellectual Property;
(xix) except in the ordinary course of business consistent
with past practice pursuant to appropriate confidentiality agreements, and
except as required by any Law or any existing agreements set forth on Schedule
4.14 or as may be reasonably necessary to secure or protect intellectual or
other property rights of the Company, provided any confidential information to
any Person other than Purchaser;
(xx) suffered total or significant partial loss of the
business of any customers;
(xxi) suffered a material change in the normal operating
balances of the Corporation's inventory; (xxii) changed the compensation levels
applicable to any class of Company employees; or (xxiii) paid any bonuses
payable or to become payable to any of the Shareholders or any of the Company's
officers, employees, agents, consultants or Persons acting in a similar
capacity.
Section 4.9 No Undisclosed Liabilities. The Company has no Liabilities
that would be material to the Company taken as a whole, except for such
Liabilities as (a) are set forth on Schedule 4.9 hereto, (b) are reflected on
the Financial Statements or (c) were incurred since the Balance Sheet Date in
the ordinary course of business.
Section 4.10 Property; Inventory.
(a) The Company owns, or otherwise has a valid leasehold interest
providing sufficient and legally enforceable rights to use, all of the property
and assets necessary or otherwise material to the conduct of its businesses.
Except as disclosed on Schedule 4.10, the Company has good and marketable title
to all assets reflected on the Financial Statements or acquired since the
Balance Sheet Date, free and clear of all Liens, other than immaterial assets
disposed of since the Balance Sheet Date in the ordinary course of business
consistent with past practice. Such assets are in good operating condition and
repair (ordinary wear and tear excepted), have been reasonably maintained
consistent with standards generally followed in the industry and are suitable
for their present uses.
(b) Schedule 4.10 sets forth by office location as of the Balance
Sheet Date, a complete and accurate list of all furniture, equipment,
automobiles and all other tangible personal
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property (including its net book value) owned by, in the possession of, or used
by the Company in connection with its business as currently conducted and which
have an initial book value in excess of $2,500 per item. Except as set forth on
Schedule 4.10, no such tangible personal property is held under any lease,
security agreement, conditional sales contract, or other title retention or
security arrangement or subject to any liens or encumbrances, or is located
other than in the possession of the Company.
(c) The Company's inventory consists of raw materials and
consignment and finished goods salable by the Company in the ordinary course of
business. The Financial Statements reflect an adequate reserve for all the
Company's inventory that is slow-moving, as determined in accordance with the
Company's customary practices, or is obsolete, damaged or defective.
Section 4.11 Intellectual Property.
(a) The Company is the sole and exclusive owner of, or has the
valid right to use, sell and license, the Intellectual Property necessary or
otherwise material to the conduct of its business, free and clear of all Liens.
Schedule 4.11(a) sets forth a complete and accurate list (including which the
Company is the owner or licensee thereof) of all (i) patents and patent
applications, (ii) trademark or service xxxx registrations and applications,
(iii) copyright registrations and applications, and (iv) material unregistered
copyrights, service marks, trademarks and trade names, each as owned or licensed
by the Company. The Company currently is listed in the records of the
appropriate United States or state agency as the sole owner of record for each
owned application and registration listed on Schedule 4.11(a).
(b) The registrations listed on Schedule 4.11(b) are valid and
subsisting, in full force and effect in all material respects, and have not been
canceled, expired or abandoned. There is no pending, existing, or to the
Knowledge of the Company or the Shareholders, threatened, opposition,
interference, cancellation proceeding or other legal or governmental proceeding
before any court or registration authority in any jurisdiction against the
registrations listed on Schedule 4.11(b) or the Intellectual Property.
(c) Schedule 4.11(c) lists all of the Computer Programs other than
off-the-shelf applications which are owned, licensed, leased or otherwise used
by the Company in connection with the operation of its businesses as currently
conducted, and identifies which is owned, licensed, leased, or otherwise used,
as the case may be. Each Computer Program listed on Schedule 4.11(c) is either
(i) owned by the Company, (ii) currently in the public domain or otherwise
available to a Company without the license, lease or consent of any third party,
or (iii) used under rights granted to a Company pursuant to a written agreement,
license or lease from a third party, which written agreement, license or lease
is set forth on Schedule 4.11(c). The Company uses the Computer Programs set
forth on Schedule 4.11(c) in connection with the operation of its business as
conducted on the date hereof and, to the Knowledge of the Company or a
Shareholder, such use does not violate the rights of any third party. All
Computer Programs set forth in Schedule 4.11(c) were either developed by (x)
employees of the Company within the scope of their employment; (y) third parties
as "work-made-for-hire," as that term is defined under Section 101 of the United
States copyright laws, pursuant to written agreements;
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(z) independent contractors who have assigned their rights to the Company
pursuant to written agreements. The Company has the perpetual, unrestricted
right to use the Computer Programs identified on Schedule 4.11(c) which right
shall not be effected by the Merger or the transactions contemplated by this
Agreement.
(d) Schedule 4.11(d) sets forth a complete and accurate list of
all agreements pertaining to the use of or granting any right to use or practice
any rights under any Intellectual Property, whether the Company is the licensee
or licensor thereunder (the "Licenses") and any written settlements or
assignments relating to any Intellectual Property. The Licenses are valid and
binding obligations of the Company and, to the Knowledge of the Company or a
Shareholder, each other party thereto, enforceable against the Company, and, to
the Knowledge of the Company or a Shareholder, each such other party in
accordance with their terms except as such enforceability may be limited by
applicable law, and there are no breaches or defaults by the Company or, to the
Knowledge of the Company or the Shareholders, any other party thereto under any
License.
(e) No trade secret or confidential know-how material to the
business of the Company as currently operated has been disclosed or authorized
to be disclosed to any third party, other than pursuant to a non-disclosure
agreement that protects the Company's proprietary interests in and to such trade
secrets and confidential know-how.
(f) The conduct of the business of the Company does not infringe
upon any intellectual property right owned or controlled by any third party and
to the Knowledge of the Company or the Shareholders, no third party is
infringing upon any Intellectual Property owned by the Company and no such
claims have been made against a third party by the Company. There are no claims
or suits pending or, to the Knowledge of the Company or the Shareholders,
threatened, and the Company has not received any written notice of a third party
claim or suit (x) alleging that the Company's activities or the conduct of its
businesses infringes upon or constitutes the unauthorized use of the proprietary
rights of any third party, or (y) challenging the ownership, use, validity or
enforceability of the Intellectual Property.
(g) There are no settlements, consents, judgments or orders or
other agreements which restrict the rights of the Company to use any
Intellectual Property, or other agreements which restrict the Company's rights
to use any Intellectual Property owned by the Company.
(h) The consummation of the transactions contemplated hereby shall
not result in the loss or impairment of the right of Purchaser or its successors
to own or use any of the Intellectual Property currently owned or used by the
Company nor shall it require the consent of any Governmental Authority or third
party in respect of any such Intellectual Property and no present or former
employee, or officer of the Company has any right, title, or interest, directly
or indirectly, in whole or in part, in any Intellectual Property.
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Section 4.12 Tax Matters.
(a) The Company has timely filed with the appropriate governmental
agencies complete and accurate Tax Returns required to be filed by it in respect
of all applicable Taxes of the Company required to be paid through the date
hereof, and shall timely file any such Tax Return required to be filed by it
prior to the Closing Date with respect to all applicable Taxes required to be
paid through the Closing Date. All such Tax Returns were prepared in compliance
with applicable law and all Taxes due, or claimed to be due by any taxing
authority, pursuant thereto (whether or not shown as due on any Tax Return) have
been paid. In addition, all Taxes due or claimed to be due by any taxing
authority (whether or not shown on any Tax Return), prior to the Closing Date
for which the Company may be liable in its own right or as a transferee of the
assets of, or successor to, any corporation, person, association, partnership,
joint venture or other entity, have been paid on a timely basis, or an adequate
reserve has been established therefor. The Company is currently not the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
(b) The Company has withheld and paid all Taxes that the Company
is required to withhold and pay in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(c) To the Knowledge of the Company or the Shareholders, there is
no basis for any Tax authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no action, suit, proceeding, audit,
investigation, assessment, dispute or claim concerning any Tax liability of the
Company, either (i) claimed or raised by any authority delivered to the Company
in writing or (ii) based upon personal contact with any agent of such authority.
(d) The Shareholders shall make available to Purchaser at the
Company's corporate offices prior to Closing correct and complete copies of all
federal, state, local and foreign income Tax Returns and all written
communications from the Service or other Tax authorities relating to any such
Tax Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company since December 31, 1994.
(e) The Company 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, and no power of attorney granted by the Company with
respect to any Tax matter is currently in force.
(f) The Company has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under any
circumstances could obligate it to make any payments that shall not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code. The Company is not a party to any Tax allocation or sharing
agreement. The Company,
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(i) has not been a member of an affiliated group filing a consolidated federal
income Tax Return, (ii) is not and has not ever been a partner in a partnership
or an owner of an interest in an entity treated as a partnership for federal
income tax purposes, and (iii) has no liability for the Taxes of any person
(other than the Company) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
(g) The unpaid Taxes of the Company do not exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company in filing its Tax Returns.
(h) The Company has been a validly electing S corporation within
the meaning of Sections 1361 and 1362 of the Code at all times since September
1997 and shall be an S corporation up to and including the Closing Date. The
Company has not in the past 10 years (a) acquired assets from another
corporation in a transaction in which the Company'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 (b)
acquired the stock of any corporation that is a qualified subchapter S
subsidiary.
Section 4.13 Real Property.
(a) Schedule 4.13 lists all real property owned, leased or
subleased to the Company (the "Real Property"), and in the case of leased real
property, identifies the lessor, rental rate, lease term, expiration date and
existence of a renewal option. The Shareholders have delivered to Purchaser
correct and complete copies of the leases and subleases listed in Schedule 4.13,
as such leases or subleases have been amended to date. The current use of the
Real Property by the Company does not violate the certificate of occupancy
thereof or any local zoning or similar land use or other Laws and, to the
Knowledge of the Company or a Shareholder, none of the structures on the Real
Property encroaches upon real property of another Person, and no structure of
any other Person encroaches upon any Real Property. The Company has not received
notice of any pending or threatened condemnation proceeding, or of any sale or
other disposition in lieu of condemnation, affecting any of the Real Property.
Each parcel of Real Property abuts on or has direct vehicular access to a public
road. With respect to each lease and sublease listed, except as otherwise
indicated in Schedule 4.13(b):
(i) the lease or sublease is in full force and effect and
shall remain in full force and effect on identical terms after the Closing,
without the need to obtain the consent of any party thereto
(ii) the Company is in possession of the leased premises and
all rental and other obligations of the Company are current;
(iii) the Company is not in breach or default (or has not
received notice of breach or default), and no event has occurred which, with
notice or lapse of time, would
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constitute a breach or default or permit termination, modification or
acceleration under such lease or sublease;
(iv) to the Knowledge of the Company or the Shareholders, no
party has repudiated any provision of such lease or sublease;
(v) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease to which the Company is a party;
(vi) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(vii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof by the Company and
have been operated and maintained by the Company in compliance with applicable
laws, except to the extent that the failure to receive any such approval,
license or permit for any such facility, or to operate and maintain any such
facility in compliance with applicable laws would not have a Material Adverse
Effect on such facility or the Company's use of such facility as currently used;
and
(viii) the properties on which all facilities leased or
subleased thereunder reside are used in a manner consistent with applicable
zoning, and all such facilities leased or subleased have all requisite permits
(other than those permits with respect to property leased by the Company which
by their nature are solely the responsibility of the owner or lessor of such
leased property), to allow the Company to operate all aspects of its business
thereon and therein in full compliance with applicable laws and contractual
obligations of the Company.
Section 4.14 Material Contracts.
(a) Schedule 4.14 lists each of the following Contracts and other
agreements (or, in the case of oral Contracts, summaries thereof) to which the
Company is a party or by or to which the Company or any of its assets or
properties is bound or subject (such Contracts and agreements being "Material
Contracts"):
(i) any advertising, market research and other marketing
agreements;
(ii) any employment, severance, non-competition, consulting or
other agreements of any nature with any current or former stockholder, partner,
officer or employee of the Company or any Affiliate of any of such Persons;
(iii) any agreements relating to the making of any loan or
advance by the Company;
(iv) any agreements providing for the indemnification by the
Company of any Person;
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(v) any agreements with any Governmental Authority except
those entered into in the ordinary course of business which are not material to
the Company;
(vi) any Contracts, agreements and other arrangements for the
sale of assets or for the furnishing of services, goods or products by or to the
Company, including supply agreements, (A) with firm commitments having a value
in excess of $10,000 or (B) having a term which is greater than six months and
which is not terminable by the Company on less than 90 days' notice without the
payment of any termination fee or similar payment;
(vii) any broker, distributor, dealer, representative or
agency agreements;
(viii) any agreements (including settlement agreements)
currently in effect pursuant to which the Company licenses the right to use any
Intellectual Property to any Person or from any Person, and research and
development agreements;
(ix) any confidentiality agreements entered into by the
Company during the period commencing five years prior to the date hereof
pursuant to which confidential information has been provided to a third party or
by which the Company was restricted from providing information to third parties,
other than those entered into the ordinary course of business relating to the
Company's operations;
(x) any voting trust or similar agreements relating to any of
the Ownership Interests to which any of the Shareholders or the Company is a
party;
(xi) any joint venture, partnership or similar documents or
agreements;
(xii) any agreements that limit or purport to limit the
ability of the Company to own, operate, sell, transfer, pledge or otherwise
dispose of any assets; and
(xiii) all other agreements, Contracts or commitments not made
in the ordinary course of business which are material to the Company.
(b) Each Material Contract is legal, valid and binding on and
enforceable against the Company and, to the Knowledge of the Company or a
Shareholder, the other parties thereto and is in full force and effect except as
enforceability may be limited by applicable law. Upon consummation of the
transactions contemplated by this Agreement, to the Knowledge of the Company or
the Shareholders, each Material Contract shall remain in full force and effect
without any loss of benefits thereunder and, except as disclosed on Schedule
4.14, without the need to obtain the consent of any party thereto to the
transactions contemplated by this Agreement. The Company is not (and with the
giving of notice or lapse of time would not be) in material breach of, or
material default under, any Material Contract and, to the Knowledge of the
Company or the Shareholders, no other party thereto is in material breach of, or
material default under, any Material Contract. The Company has not received any
written notice that any Material Contract is not enforceable against any party
thereto, that any Material Contract has been terminated before the expiration of
its term or that any party to a Material Contract intends to terminate such
Material Contract prior to the termination date specified therein, or that any
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other party is in breach of, or default under, any Material Contract. True and
complete copies of all Material Contracts or, in the case of oral agreements, if
any, written summaries thereof have been delivered to Purchaser.
Section 4.15 Relationship with Suppliers & Customers. To the Knowledge
of the Company or the Shareholders, except as set forth in Schedule 4.15, the
Company currently has good relationships with its suppliers and customers. The
Company currently is not in dispute with any current or former supplier of
material to the Company or any customer of the Company, and, except as set forth
on Schedule 4.15, since December 31, 1998, no supplier to or customer of the
Company has notified the Company that it shall stop doing business, or reduce
its business, with the Company, the cessation or reduction of which business
would have a Material Adverse Effect. Schedule 4.15 lists the ten (10) largest
(in terms of dollar volume) customers and suppliers of the Company during each
of the three (3) immediately preceding fiscal years of the Company.
Section 4.16 Notes and Accounts Receivable; Bank Accounts. Schedule
4.16 sets forth, as of the Balance Sheet Date, all notes and accounts receivable
of the Company. Except as set forth in Schedule 4.16, all notes and receivables
of the Company reflected on the Financial Statements or created after the
Balance Sheet Date arose in the ordinary course of business and, except as set
forth in Schedule 4.16, are not subject to setoffs or counterclaims, are current
and collectible and shall be collected in accordance with their terms at their
recorded amounts. The Company has historically maintained a level of accounts
payable and accounts receivable appropriate to service its respective
operations. Schedule 4.16 also sets forth (a) all related party notes and
accounts receivable (including those that shall be repaid or offset prior to
Closing) and (b) all bank accounts maintained by the Company.
Section 4.17 Insurance. Schedule 4.17 sets forth a complete and
accurate list as of the date hereof of all primary, excess and umbrella
policies, bonds and other forms of insurance owned or held by or on behalf of or
providing insurance coverage to the Company and its business, properties and
assets (or its officers, salespersons, agents or employees or Persons acting in
a similar capacity) and the extent, if any, to which the limits of liability
under such policies have been exhausted. True and complete copies of such
policies have been delivered to Purchaser. All such policies are in full force
and effect and all such policies in such amounts shall be outstanding and in
full force and effect without interruption until the Closing. The Company has
not received notice of default under any such policy, nor has it received
written notice of any pending or threatened termination of cancellation,
coverage limitation or reduction, or material premium increase with respect to
any such policy. Schedule 4.17 sets forth a complete and accurate summary of all
of the self-insurance coverage provided by the Company. No letters of credit
have been posted and no cash has been restricted to support any reserves for
insurance on the Balance Sheet.
Section 4.18 Employees.
(a) Except as set forth in Schedule 4.18, to the Knowledge of the
Company or the Shareholders, no executive, key employee or group of employees
has any plans to terminate employment with the Company. The Company is not a
party to or bound by any
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collective bargaining agreement nor has the Company experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company has not taken any action, or omitted to take any action,
that would result in any unfair labor practice except any such action or
omission that would not result in a Material Adverse Effect. No organizational
effort is presently being made or, to the Knowledge of the Company or the
Shareholders, is threatened by or on behalf of any labor union with respect to
employees of the Company. All of the Company's current procedures, policies and
training practices with respect to employee matters, including, without
limitation, those relating to the hiring and termination of employees and worker
safety, conform with applicable Laws to which the Company is subject, except for
any such nonconformance that would not result in a Material Adverse Effect. No
offer has been made to any employee of the Company to purchase any portion of
the capital stock or assets of the Company, nor has any discussion taken place
regarding such a transaction or any similar transaction. The Company is not
subject to any claim for overdue overtime compensation due to any employee, and,
to the Knowledge of the Company or a Shareholder, no such claim has been
threatened.
(b) The Company has not received a notice of any violation of any
immigration and naturalization laws relating to employment and employees and has
properly completed and maintained all applicable forms (including, but not
limited to, I-9 forms) and, to the Knowledge of the Company or the Shareholders,
the Company is in compliance with all such immigration and naturalization laws
and there are no citations, investigations, administrative proceedings or formal
complaints of violations of the immigration or naturalization laws pending or,
to the Knowledge of the Company or the Shareholders, threatened before the
Immigration and Naturalization Service of any federal, state or administrative
agency or court against or involving the Company or any of the Shareholders.
Section 4.19 Employee Benefits.
(a) Schedule 4.19 contains a true and complete list of each
employment, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, stock appreciation right or other stock-based incentive,
severance, change-in-control, or termination pay, hospitalization or other
medical, disability, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension, or retirement plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by the Company or an Affiliate of the Company, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company would be
deemed a "single employer" within the meaning of Section 4001(b)(1) of ERISA,
for the benefit of any current or former employee or director of the Company or
any ERISA Affiliate (the "Plans"). Schedule 4.19 identifies each of the Plans
that is an "employee welfare benefit plan," or "employee pension benefit plan"
as such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA Plans"). Neither the Company
nor any ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any current or former employee or director of the Company
or any ERISA Affiliate.
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(b) With respect to each of the Plans, the Company has heretofore
delivered to Purchaser true and complete copies of each of the following
documents, as applicable:
(i) a copy of the Plan documents (including all amendments
thereto) for each written Plan or a written description of any Plan that is not
otherwise in writing;
(ii) a copy of the annual report or Internal Revenue Service
Form 5500 Series, if required under ERISA, with respect to each ERISA Plan for
the last three Plan years ending prior to the date of this Agreement for which
such a report was filed;
(iii) a copy of the actuarial report, if required under ERISA,
with respect to each ERISA Plan for the last three Plan years ending prior to
the date of this Agreement;
(iv) a copy of the most recent Summary Plan Description
("SPD"), together with all summaries of material modification issued with
respect to such SPD, if required under ERISA, with respect to each ERISA Plan,
and all other material employee communications relating to each ERISA Plan;
(v) if the Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, if any;
(vi) all Contracts relating to the Plans with respect to which
the Company or any ERISA Affiliate may have any liability, including insurance
Contracts, investment management agreements, subscription and participation
agreements and record keeping agreements; and
(vii) the most recent determination letter received from the
IRS with respect to each Plan that is intended to be qualified under Section
401(a) of the Code.
(c) Neither the Company nor any ERISA Affiliate, any of the ERISA
Plans, any trust created thereunder, or to the Knowledge of the Company or the
Shareholders, any trustee or administrator thereof has engaged in a transaction
or has taken or failed to take any action in connection with which the Company
or any ERISA Affiliate could be subject to any material liability for either a
civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975(a) or (b), 4976 or 4980B of the Code.
(d) All contributions and premiums which the Company or any ERISA
Affiliate is required to pay under the terms of each of the ERISA Plans and
Section 412 of the Code, have, to the extent due, been paid in full or properly
recorded on the financial statements or records of the Company and none of the
ERISA Plans or any trust established thereunder has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the most recent fiscal year
of each of the ERISA Plans ended prior to the date of this Agreement. No lien
has been imposed under Section 412(n) of the Code or Section 302(f) of ERISA on
the assets of the Company or any ERISA Affiliate and no event or circumstance
has occurred that is reasonably likely to result in
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the imposition of any such Lien on any such assets on account of any ERISA Plan.
Neither the Company nor any ERISA Affiliate has taken any action (including,
without limitation, actions required by law) relating to any ERISA Plan that
will increase the Purchaser's, the Company's or any ERISA Affiliate's
obligations under any ERISA Plan.
(e) Neither the Company nor any ERISA Affiliate presently
maintains a Plan or has previously maintained a Plan which is a "multiemployer
plan," as such term is defined in Section 3(37) of ERISA, an Employee Stock
Ownership Plan ("ESOP"), as such term is defined in Section 4975(e)(7) of the
Code, or a Defined Benefit Plan, as such term is defined in Section 3(35) of
ERISA.
(f) The Company and the ERISA Affiliates have complied with all
applicable Employment Laws. The Company and the ERISA Affiliates have no
liability for any delinquent contributions within the meaning of Section 515 of
ERISA (including, without limitation, related attorneys' fees, costs, liquidated
damages and interest) or for any arrearages of wages. Except as set forth on
Schedule 4.19, the Company and the ERISA Affiliates have no pending unfair labor
practice charges, contract grievances under any collective bargaining agreement,
other administrative charges, claims, grievances or lawsuits before any court,
governmental agency, regulatory body, or arbiter arising under any law governing
any Plan, and there exist no facts that could give rise to such a claim.
(g) Each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified. All ERISA
Plans and any related trust agreements or annuity agreements (or any other
funding agreement) comply and have complied with ERISA, the Code, and all other
laws. The Company and all ERISA Affiliates have applied for and received a
currently effective determination letter from the IRS for each ERISA Plan
intended to be "qualified" stating that each ERISA Plan is so qualified.
Notwithstanding the foregoing, it may be necessary to restate each ERISA Plan to
comply with changes to applicable law which have occurred in the current
calendar year. All statements made by or on the behalf of the Company or an
ERISA Affiliate in connection with the applications for determinations with
respect to the qualified plans were true and complete when made and continue to
be true and complete.
(h) No ERISA Plan is a Voluntary Employees' Beneficiary
Association ("VEBA") within the meaning of Section 501(c)(9) of the Code.
(i) No amounts payable under any of the Plans or any other
contract, agreement or arrangement with respect to which the Company or any
ERISA Affiliate may have any liability could fail to be deductible for federal
income tax purposes by virtue of Section 280G of the Code.
(j) No Plan provides benefits, including death or medical benefits
(whether or not insured) with respect to current or former employees of any of
the Company or any ERISA Affiliate after retirement or other termination of
service (other than (i) coverage mandated by applicable Laws, (ii) death
benefits or retirements benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as
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liabilities on the books of the Company or an ERISA Affiliate, or (iv) benefits,
the full direct cost of which is borne by the current or former employee (or
beneficiary thereof)).
(k) Except as specifically set forth in this Agreement, the
consummation of the transactions contemplated by this Agreement shall not (i)
entitle any current or former employee, officer or director of the Company or
any ERISA Affiliate to severance pay, unemployment compensation or any other
similar termination payment or (ii) except as set forth on Schedule 4.19,
accelerate the time of payment or vesting or increase the amount of or otherwise
enhance any benefit due any such employee, officer or director.
(l) There are no pending or, to the Knowledge of the Company or
the Shareholders, threatened or anticipated, claims by or on behalf of any Plan,
by an employee or beneficiary under any such Plan, or otherwise involving any
such Plan (other than routine claims for benefits).
(m) No Plan is a "qualified foreign plan" (as such term is defined
in Section 404A(e) of the Code), and no Plan is subject to the laws of any
jurisdiction other than the United States of America or one of its political
subdivisions.
(n) The Company and any ERISA Affiliates have (i) filed or caused
to be filed all returns and reports on the Plans that they are required to file
and (ii) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other fees, interest, penalties and assessments
relating to the Plans that are payable by or for the Company or an ERISA
Affiliate have been timely reported, fully paid, and discharged
Section 4.20 Environmental Compliance and Liabilities.
(a) Except as disclosed in Schedule 4.20: (i) the Company and all
Real Property is currently, and at all times during the Company's ownership or
operation of its respective business has been, in compliance with Environmental
Laws; and (ii) at all times during the period of the Company's ownership,
tenancy, or operation of the Real Property or any real property formerly owned
by the Company, operated, or leased by the Company ("Former Real Property"),
there has not been any Release at, on, under or from the Real Property, except
any such Release which will not result in any Liability under Environmental
Laws. Except as disclosed on Schedule 4.20, at all times prior to the Company's
ownership or operation of the Real Property, to the Company's Knowledge, there
did not occur any Release at, on, under or from the Real Property, except any
such Release which will not result in any Liability under Environmental Laws.
(b) Except as disclosed on Schedule 4.20, the Company has obtained
and maintained in full force and effect, all environmental permits, licenses,
certificates of compliance, approvals and other authorizations necessary to
conduct the activities and business of the Company as currently conducted and to
own or operate the Real Property (collectively the "Environmental Permits"). The
Company has conducted its activities and business in
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compliance in all material respects with all terms and conditions of any
Environmental Permits. Except as disclosed in Schedule 4.20, the Company has
filed all reports and notifications required to be filed by each under
applicable Environmental Laws, and timely filed applications for all
Environmental Permits. All of the Environmental Permits listed on Schedule 4.20
are transferable and none require consent, notification, or other action to
remain in full force and effect following consummation of the transaction
contemplated hereby.
(c) Except as disclosed in Schedule 4.20, neither the Shareholders
nor the Company have received any notice that any Third Party Environmental
Claims or Regulatory Actions have been asserted or assessed against the Company
or the Real Property or any Former Real Property and, except as disclosed on
Schedule 4.20, no Third Party Environmental Claims or Regulatory Actions are
pending or, to the Knowledge of the Company or the Shareholders, threatened,
against the Company, the Former Real Property or the Real Property arising out
of or due to, or allegedly arising out of or due to, (i) the Release of any
Hazardous Materials; (ii) any violation or alleged violation of any
Environmental Law with respect to the Real Property, the Former Real Property,
or the activities of the Company; (iii) any injury to human health or safety or
to the environment by reason of the past or present condition of, or past or
present activities on or under, the Real Property or the Former Real Property;
or (iv) the generation, manufacture, storage, treatment, handling,
transportation or other use, of any Hazardous Material by or for the Company on
or off the Real Property.
(d) Except as disclosed in Schedule 4.20, no polychlorinated
biphenyls ("PCBs"), radioactive materials, asbestos or asbestos containing
materials, radon, or urea formaldehyde is present at the Real Property.
(e) Except as disclosed in Schedule 4.20, the Company has not
transported or arranged for the treatment, disposal, or transportation of any
Hazardous Materials to any location (i) which is listed on the EPA's National
Priorities List ("NPL") or the Comprehensive Environmental Response,
Compensation, Liability Information System ("CERCLIS") or on any similar list of
properties requiring Clean-up maintained by a Governmental Authority, or (ii)
which may lead to claims against Purchaser for damages to natural resources,
personal injury, Clean-up costs or Clean-up work, including, but not limited to,
claims under CERCLA.
(f) Except as disclosed on Schedule 4.20, none of the Real
Property or Former Real Property is listed on the NPL or CERCLIS, or any similar
list of properties requiring Clean-up maintained by a Governmental Authority.
Except as disclosed on Schedule 4.20, no part of the owned Real Property was
ever used or is it now being used as, and none of the Former Real Property was
used during the period of the Company's ownership, operation or tenancy as a
landfill, a dump, or a disposal, storage, transfer or handling area for
Hazardous Materials which requires a permit under Environmental Laws or a
gasoline service station. Except as disclosed on Schedule 4.20, no part of the
leased Real Property is used for, or to the Knowledge of the Company or a
Shareholder, was used for the foregoing purposes, and the Company has not nor,
to the Knowledge of the Company or a Shareholder, has any third party used the
Former Real Property or the Real Property for any of the foregoing purposes.
Except as disclosed on Schedule 4.20, there are no and never have been at the
Real Property any wetlands or any underground or above ground improvements used
for the storage of Hazardous Materials.
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(g) The Company has furnished to Purchaser copies of all
environmental assessments, reports, audits and other documents in its possession
or under its control that relate to the environmental condition of the Real
Property, the Former Real Property, any Liability of the Company relating to the
offsite disposal or treatment of Hazardous Materials, or the Company's
compliance with Environmental Laws. Any such documents or information the
Company has furnished to Purchaser is accurate and complete in all material
respects, for the stated purpose for which the information was prepared.
(h) Except as disclosed on Schedule 4.20, no authorization,
notification, recording, filing, consent, waiting period, remediation,
investigation, or approval is required under any Environmental Law in order to
consummate the transaction contemplated hereby.
(i) To the Knowledge of the Company or a Shareholder, no proposed
or final regulation published pursuant to Environmental Laws and no
Environmental Permit for which the Company has or should have applied, could
reasonably be expected to result in a capital expenditure in excess of $50,000.
Section 4.21 Litigation and Claims, Compliance with Laws.
(a) Schedule 4.21(a) sets forth all Litigation as of the date
hereof, including the name of the claimant, the date of the alleged act or
omission, a detailed narrative as to the nature of the alleged act or omission,
the date the matter was referred to an insurance carrier of the Company (if
referred), the estimated amount of exposure, the amount the Company has
reserved, or the amount of the Company's claim and estimated expenses of the
Company in connection with such matters. Except as disclosed on Schedule 4.21,
there is no Litigation which is not fully covered by the insurance policies
referenced in Section 4.17. Neither the Company, nor the Company's assets or
properties, are subject to any order, consent decree, settlement or similar
agreement with any Governmental Authority. Except as disclosed on Schedule 4.21,
there is no judgment, injunction, decree, order or other determination of an
arbitrator or Governmental Authority specifically applicable to the Company or
any of its properties or assets. Except as disclosed on Schedule 4.21, there is
no Litigation relating to alleged unlawful discrimination or sexual harassment.
As of the date hereof, there is no Litigation which seeks to prevent
consummation of the transactions contemplated hereby or which seeks material
damages in connection with the transactions contemplated hereby.
(b) Except as set forth in Schedule 4.21(b), the Company has
complied and is in compliance with all Laws applicable to the Company and its
business except where the failure to be in compliance would not reasonably be
expected to have a Material Adverse Effect. Except as set forth in Schedule
4.21(b), the Company holds all material licenses, permits and other
authorizations of Governmental Authorities necessary to conduct its business as
now being conducted or, under currently applicable Laws, to continue to conduct
its business as now being conducted. Except as set forth in Schedule 4.21(b),
there is no intent to make any changes in the conduct of the business of the
Company that shall result in or cause the Company to be in noncompliance with
applicable Laws or that shall require changes in or a loss of any such licenses,
permits or other authorizations or an increase in any expenses related thereto
except where such noncompliance, change, loss or increase would not reasonably
be expected to have a
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Material Adverse Effect. Such licenses, permits and other authorizations as
aforesaid held by the Company are valid and in full force and effect, and there
are no (a) Actions pending, or to the Knowledge of the Company or the
Shareholders, threatened or (b) Investigations to the Knowledge of the Company
or the Shareholders pending or threatened that could result in the termination,
impairment or nonrenewal thereof.
Section 4.22 Affiliate Transactions. Schedule 4.22 lists all
agreements, arrangements and currently proposed agreements and arrangements, by
or between the Company, on the one hand, with or for the benefit of any current
or former shareholder, partner, officer or other Affiliate of the Company or any
of such Person's Affiliates, or any entity in which any such Person has a direct
or indirect material interest. Schedule 4.22 lists all payments of any kind
since January 1, 1998, from the Company, to or for the benefit of any current or
former partner, officer or other Affiliate of the Company or any of such
Person's Affiliates, or any entity in which any such Person has a direct or
indirect material interest. All outstanding debts and other obligations of the
Company to any Person were incurred in return for fair and adequate
consideration paid or delivered by them in cash or other property. All debts to
the Company of any Affiliate of the Company, Shareholder, officer of the Company
or their respective Affiliates are reflected on the Financial Statements.
Section 4.23 Records.
(a) The corporate minute books of the Company contain records of
all actions taken by the Shareholders and the Board of Directors and all
committees thereto of the Company which are complete and accurate in all
material respects. Copies of all such minute books which are complete and
accurate in all material respects have been delivered by the Company to
Purchaser. All officers and directors of the Company have been properly elected.
(b) The accounting books and records of the Company are complete
and correct.
Section 4.24 Brokers, Finders, Etc. Neither the Company nor the
Shareholders have employed, or are subject to the valid claim of, nor has the
Company or the Shareholders incurred any Liability that would be payable by the
Company, for any brokerage, finder's or other fees or commissions of any broker,
finder or other financial intermediary in connection with the transactions
contemplated by this Agreement.
Section 4.25 Representations and Warranties Generally. The
representations and warranties contained in any particular section of this
Article IV are not exclusive as to any particular subject matter covered by such
section and different sections may apply different tests to the same or similar
matters. One section of the Disclosure Schedules may specifically cross
reference other applicable sections or parts thereof of the Disclosure Schedules
without repeating disclosure that applies to more than one section.
Section 4.26 Competing Business. Except as set forth on Schedule 4.26,
the Shareholders have no direct or indirect interest of any nature whatever in
any Person which
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competes with, conducts any business similar to, has any arrangement or
agreement with, or is involved in any way with, any business similar to the
business of the Company.
Section 4.27 Year 2000 Program. Except as set forth in Schedule 4.27,
All devices, systems, machinery, information technology, computer software and
hardware and other date sensitive technology (collectively, the "Systems")
necessary for the Company to carry on its business as conducted immediately
prior to the Closing Date are Year 2000 Compliant to the extent necessary to
ensure no material disruption of the operations of Purchaser. As used herein,
Year 2000 Compliant means that such Systems are designed to be used prior to,
during and after the Gregorian calendar year 2000 A.D. and shall operate during
each such time period without error relating to date data, specifically
including any error relating to, or the product of, date data which represents
or references different centuries or more than one century.
Section 4.28 Product Warranty and Liability. It is the Company's
standard practice to sell each product sold by the Company in conformity with
all applicable contractual commitments, if any, and all express and implied
warranties of the manufacturer. All products sold by the Company have been sold
in conformity with such practice, except for such deviations therefrom that are
not and would not have a Material Adverse Effect. No product sold by the Company
is subject to any other guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale. Schedule 4.28 sets forth a
list of all product liability claims raised or asserted against the Company
since January 1, 1996. No third party has advised the Company that it has any
liability arising out of any injury to individuals or property as a result of
the ownership, possession or use of any product sold by the Company prior to
Closing.
Section 4.29 Other Information. No representation or warranty of the
Company or the Shareholders in this Agreement, nor any statement, certificate or
other document furnished or to be furnished by the Company or the Shareholders
to Purchaser pursuant to this Agreement, nor the exhibits and schedules hereto,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Shareholders as
follows:
Section 5.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado.
MergerSub is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. Except as set forth on Schedule 5.1,
Purchaser and MergerSub have no Subsidiaries, and does not have a direct or
indirect ownership interest in any Person. Purchaser and MergerSub are qualified
to do business in the jurisdictions set forth in Schedule 5.1. Each of Purchaser
and MergerSub has the power and authority (corporate and otherwise) to own,
lease and operate its respective properties and assets and to carry on its
business as now being conducted and is duly qualified or licensed to do business
as a foreign corporation in good standing in the jurisdictions in which the
ownership, lease or operation of its property or the conduct of its business
requires such qualification. Purchaser has delivered to the Shareholders
complete and correct copies of Purchaser's and MergerSub's charter documents and
all amendments thereto to the date hereof.
Section 5.2 Authorization, Etc. Each of Purchaser and MergerSub has
full corporate power and authority to execute, deliver and perform its
respective obligations under this Agreement and the documents and instruments
contemplated hereby and to carry out the transactions contemplated hereby and
thereby. Each of Purchaser and MergerSub has duly approved and authorized the
execution and delivery of this Agreement and the documents and instruments
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby, and no other corporate proceedings on the part of Purchaser or
MergerSub is necessary to approve and authorize the execution, delivery and
performance by Purchaser and MergerSub of this Agreement and the documents and
instruments contemplated hereby and the consummation by Purchaser and MergerSub
of the transactions contemplated hereby and thereby. This Agreement constitutes
a legal, valid and binding agreement of Purchaser and MergerSub, enforceable
against Purchaser and MergerSub, respectively, in accordance with its terms,
except that (a) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
Section 5.3 Brokers' Fees. Neither Purchaser nor MergerSub has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement for which
the Shareholders could become liable or obligated.
Section 5.4 Ownership and Capital Stock. MergerSub is a wholly-owned
subsidiary of Purchaser. Purchaser is a wholly-owned subsidiary of Parent. As of
the date hereof, the authorized capital stock of Parent consists of (a)
50,000,000 shares of common stock, par value $0.01 per share, of which 150,000
shares of voting common stock are issued and outstanding and
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no shares of non-voting convertible common stock are issued and outstanding and
(b) 50,000,000 shares of preferred stock, par value $0.01 per share, of which
(i) 2,500,000 shares have been designated as Class A-1 5% Convertible Preferred
Stock, of which 868,372 shares are issued and outstanding, (ii) 1,400,000 shares
have been designated as Class A-2 5% Convertible Preferred Stock, of which
1,125,000 shares are issued and outstanding, (iii) 26,456 shares have been
designated as Class A-3 5% Convertible Preferred Stock, of which 26,456 shares
are issued and outstanding, (iv) 300,000 shares have been designated as Class
B-1 Convertible Preferred Stock, of which 300,000 shares are issued and
outstanding, (v) 6,250,000 shares have been designated Class A-4 5% Convertible
Preferred Stock, of which 3,437,500 shares are issued and outstanding, (vi)
200,000 shares have been designated Class B-2 Convertible Preferred Stock of
which 100,000 shares are issued and outstanding, and (vii) 1,000,000 shares have
been designated Class AA Convertible Preferred Stock, of which 515,882 shares
are issued and outstanding. Except for (i) warrants to acquire an aggregate of
88,656 shares of non-voting common stock, (ii) outstanding options to acquire an
aggregate of 673,154 shares of voting common stock, and (iii) those restrictions
contained in the Shareholders' Agreement, as amended from time to time, there
are no outstanding subscriptions, options, warrants, calls, rights, Contracts,
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, transfer or voting of any capital stock of Parent. All
outstanding shares of capital stock have been validly issued and are fully paid,
nonassessable and free of preemptive or similar rights. Parent has adopted a
stock option plan that resulted in the reservation of 10% of the Parent's common
stock for the employees of Parent and its Subsidiaries.
Section 5.5 No Conflict. Except as set forth in Schedule 5.5, neither
the execution, delivery or performance of this Agreement or the other documents
and instruments to be executed and delivered by Purchaser or MergerSub pursuant
hereto, nor the consummation by Purchaser or MergerSub of the transactions
contemplated hereby or thereby, nor compliance by Purchaser or MergerSub with
any of the provisions hereof or thereof shall (a) conflict with or result in any
breach of any provision of the Articles of Incorporation, Bylaws or similar
organizational documents of Purchaser or MergerSub, (b) other than the consent
of Lenders which shall be obtained prior to Closing, constitute a change in
control under or require the consent from or the giving of notice to a third
party, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, or result in the
creation of any Lien upon or affecting any of Purchaser's or MergerSub's assets
or properties pursuant to, any of the terms, conditions or provisions of any
contractual obligation of Purchaser or MergerSub or (c) violate any order, writ,
injunction, decree, statute, rule or regulation of any Governmental Authority
applicable to Purchaser or MergerSub or to which any of its properties or assets
may be bound.
Section 5.6 Financial Statements. The Purchaser has delivered to the
Company and the Shareholders the Parent's Financial Statements. For the purposes
of this Agreement, "Parent Financial Statements" shall mean: (a) its unaudited
balance sheet as of October 31, 2000, and the related statement of income and
cash flows for the ten-month period then ended and (b) audited balance sheets as
of December 31, 1999 and statements of income and cash flow for the fiscal year
then ended for Parent, UTI Corporation, and Noble-Met, Ltd. Except as set forth
on Schedule 5.6, the Parent Financial Statements are correct and complete in all
material respects
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and have been prepared in accordance with the books and records of the Purchaser
(which books and records are correct and complete), and fairly present the
financial position of the Purchaser and its results of operations in all
material respects as of and for the periods indicated in accordance with GAAP
and have been prepared in accordance with GAAP consistently applied, subject in
the case of the unaudited Parent Financial Statements, to normal and customary
year-end adjustments (which are not anticipated to be material) and the absence
of footnotes.
Section 5.7 Other Information. No representation or warranty of
Purchaser or MergerSub in this Agreement, nor any statement, certificate or
other document furnished or to be furnished by Purchaser or MergerSub to the
Shareholders pursuant to this Agreement, nor the exhibits and schedules hereto,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
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ARTICLE VI
SHAREHOLDERS' AND COMPANY'S OBLIGATIONS
The Shareholders and the Company shall, and the Shareholders shall
cause the Company to, perform the covenants set forth in this Article VI.
Section 6.1 General. Each of the Shareholders and the Company shall use
his or its best efforts to take all action and to do all things necessary in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction of the closing conditions set forth in Article
VIII below).
Section 6.2 Cooperation. The Shareholders and the Company shall furnish
or cause to be furnished to Purchaser and its Lenders and their representatives
all data and information concerning the business, finances and properties of the
Company that may reasonably be requested to consummate the transactions
contemplated by this Agreement.
Section 6.3 Notices and Consents. The Shareholders shall cause the
Company to, and the Company shall, use its best efforts to obtain any
third-party consents, including, without limitation, the consent of lessors and
sublessors. The Shareholders and the Company shall cooperate and share
information with Purchaser regarding the preparation of all filings required by
the HSR Act and shall seek early termination of any waiting period imposed by
the HSR Act.
Section 6.4 Company Obligations; Affiliate Agreements.
(a) At or prior to the Closing, the Shareholders shall have, and
the Shareholders shall have caused each of their respective Affiliates to have,
repaid any Indebtedness or other amounts owing from such Persons to the Company.
(b) At Closing, upon the election of the Shareholders either (i)
the Shareholders shall cause the Company to repay all revolving lines of credit,
other interest-bearing Indebtedness and all capital leases of the Company other
than those listed on Schedule 6.4 with a portion of the Closing Cash Payment, or
(ii) Purchaser shall repay all such credit, debt and capital leases by wire
transfer and receive a dollar-for-dollar reduction in the Merger Consideration
in the amount equal to such repayments.
(c) Prior to the Closing, the Shareholders shall have caused all
agreements between any Shareholder or their Affiliate, on the one hand, and the
Company, on the other hand to be terminated in all respects such that there is
no liability thereunder on the part of the Company. The Shareholders agree,
jointly and severally, to indemnify Purchaser for any cost or expense incurred
in connection with the obligations specified in this Section 6.4 which
indemnification shall not be subject to the limitations set forth in section
11.5(b) of this Agreement.
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Section 6.5 Contribution of certain Assets of KMK Enterprises.
(a) Prior to the Closing, Shareholders shall cause KMK Enterprises
to contribute, transfer, assign, convey and deliver to the Company all right,
title and interest in and to all of the Contributed Assets (as defined below)
free and clear of all Liens, encumbrances and security interests. For purposes
of this Agreement, "Contributed Assets" shall mean all of the assets of KMK
Enterprises used in the business of the Company (the "Business") including,
without limitation, (a) all Contracts, Contract rights, quotations and other
executory commitments of KMK Enterprises entered into in connection with the
conduct of the Business and specifically assumed by the Company listed on
Schedule 6.5; (b) all capital equipment, office equipment, related software and
other personal property related to the Business including, without limitation,
those items listed on Schedule 6.5; (c) all supplier lists and related
information including addresses, drawings, files, papers and records related to
the Business and the Contributed Assets; (d) all deposits, advance payments,
prepaid items and expenses, deferred charges, rights of offset and credits and
claims for refund relating to the Business and the Contributed Assets; (e) all
claims, rights and causes in action against third parties and all rights to
insurance proceeds relating to any damage, destruction or impairment of the
Contributed Assets or necessary to or used in the conduct of the Business; and
(f) all licenses, permits, consents and certificates of any regulatory,
administrative or other governmental agency or body issued to or held by KMK
Enterprises and necessary or incidental to the conduct of the Business (to the
extent the same are transferable).
(b) The contribution, conveyance, assignment, transfer and
delivery of the Contributed Assets will be effected by the execution and
delivery of (i) a contribution agreement (the "Contribution Agreement") in the
form of EXHIBIT J to this Agreement, (ii) such ancillary agreements as may be
required or contemplated by the terms of the Contribution Agreement, (iii)
executed copies of the filings, consents, approvals, notices or waivers, and
copies of the instruments transferring, registering or issuing the consents,
approvals, permits, licenses, permissions, registrations or other authorizations
referred to herein, and (iv) such other instruments of conveyance, transfer and
assignment as shall be necessary to vest in the Company full right, title and
interest in and to the Contributed Assets, free and clear of all Liens,
encumbrances and security interests, whether absolute, accrued, contingent or
otherwise.
ARTICLE VII
PURCHASER'S OBLIGATIONS
Section 7.1 Consent of Lenders. Purchaser shall use commercially
reasonable efforts to obtain debt financing described in Section 8.14 and the
consent of any such Lenders to the transactions contemplated by this Agreement.
Section 7.2 Environmental Due Diligence. Purchaser shall engage
recognized experts, mutually acceptable to the Company, Purchaser and
Purchaser's Lenders, to perform a Phase I and, if appropriate, a Phase II
environmental review in scope and substance, and pursuant to such methods, as
may be reasonably required by Purchaser and the Lenders. In the event any Phase
II environmental review is required, the Shareholders shall use their best
efforts, and shall cause the
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Company to use its best efforts, to secure all consents necessary to permit any
such Phase II environmental review to proceed. The Company shall be responsible
for the costs and expenses related to the Phase I environmental review and Phase
II environmental review (to the extent such a review is deemed necessary);
provided, however, that Purchaser shall pay for any such costs and expenses to
the extent they exceed $15,000.00 in the aggregate.
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ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S AND MERGERSUB'S PERFORMANCE
The obligations of Purchaser and MergerSub to consummate the Merger and
the other transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below.
Purchaser may waive any or all of these conditions in whole or in part without
prior notice.
Section 8.1 Representations and Warranties True. Except as otherwise
permitted by this Agreement, all representations and warranties by the Company
or the Shareholders in this Agreement, or in any written statement that will be
delivered to Purchaser or MergerSub by the Company or the Shareholders under
this Agreement, shall be true on and as of the Closing Date as though made at
that time.
Section 8.2 Performance. The Company and the Shareholders shall have
performed, satisfied, and complied, in all material respects, with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied with by them, or any of them, on or before the Closing Date.
Section 8.3 No Material Adverse Effect. During the period from the
Balance Sheet Date to the Closing Date, there shall not have been any Material
Adverse Effect in the financial condition or the results of operations of the
Company or the relationship between the Company and any significant customers,
and the Company shall not have sustained any loss or damage to its assets,
whether or not insured, that materially affects its ability to conduct a
material part of its business.
Section 8.4 Consents. The Shareholders and the Company shall have
procured all of the third-party authorizations and consents specified in this
Agreement, including, without limitation, the consents of lessors under any
leases to Purchaser. In addition, any waiting period under the HSR Act, if
applicable, shall have expired or been terminated.
Section 8.5 No Proceedings, Injunctions, Etc. No action, suit or
proceeding shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
wherein an unfavorable injunction, judgment, order, decree ruling or charge
would (a) prevent consummation of the Merger or any of the other transactions
contemplated by this Agreement, (b) cause any of the transactions contemplated
by this Agreement to be rescinded or voided following consummation or (c) affect
adversely the right of the Company to own its assets and to operate its business
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect).
Section 8.6 Accounts. The Company's accounts payable and accounts
receivable shall be in a condition consistent with the ordinary course of
business, as determined by historical conditions for the Company.
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Section 8.7 Accountant's Deliveries. Xxxxxx Xxxxxxxx shall have
delivered (a) audited financial statements of the Company for its fiscal year
ended December 31, 1999 and the period ended November 30, 2000, (b)
determination of the Twelve Month EBITDA and (c) determination of the Net Worth.
Section 8.8 Shareholders' and Officer's Certificates. The Shareholders
shall have delivered to Purchaser a certificate to the effect that each of the
conditions specified above in Sections 8.1 through 8.6 have been satisfied.
Section 8.9 Certified Organizational and Approval Documents. The
Company shall have delivered to Purchaser (a) a certified copy of its charter,
(b) a certificate of good standing from the Secretary of State of the State of
California dated within 5 business days of the Closing Date, (c) a copy of the
bylaws of the Company with a certification executed by the Secretary of the
Company that such copy is true, correct and complete, and that such bylaws were
duly adopted and have not been amended or rescinded and (d) a copy of the
resolutions of the Board of Directors of the Company and its shareholders
approving the Merger and the other transactions contemplated by this Agreement
with a certification executed by the Secretary of the Company that such copy is
true, correct and complete, and that such resolutions were duly adopted and have
not been amended or rescinded.
Section 8.10 Repayment of Debt. Contemporaneous with Closing, the
Shareholders shall cause the Company to repay all revolving lines of credit,
other interest-bearing Indebtedness and all capital leases other than those
listed on Schedule 6.4 of the Company with a portion of the Closing Cash
Payment, or, at the Company's request, Purchaser shall repay all such revolving
lines of credit, other interest-bearing Indebtedness and capital leases of the
Company by wire transfer and receive a dollar for dollar reduction in the Merger
Consideration in the amount equal to such repayments.
Section 8.11 Opinion of Company's Counsel. Purchaser shall have
received from Xxxxxxxxx & Xxxxxxxxx, counsel to the Company, an opinion,
addressed to Purchaser and dated as of the Closing (the "Shareholders'
Opinion"), in form and substance substantially as set forth in EXHIBIT C.
Section 8.12 Resignations. Purchaser shall have received the
resignations, effective as of the Closing, of all of the directors and those
officers of the Company who will not be retained as officers of the Surviving
Corporation.
Section 8.13 Regulatory and Third Party Approvals. The Shareholders and
the Company shall be in receipt of all regulatory or third party approvals
which, in Purchaser's opinion, are necessary for the consummation of the Merger
and the other transactions contemplated by this Agreement, including, but not
limited to, any approvals required under the HSR Act.
Section 8.14 Financing. Purchaser shall have either (a) received
commitments for a new credit facility providing for or (b) have available under
an existing credit facility $20,000,000 in senior term, revolver debt and
subordinated debt financing for the consummation
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of the transactions contemplated by this Agreement, on terms and conditions
acceptable to Purchaser in its discretion.
Section 8.15 Completion of Due Diligence; Customer Survey and Lender
Consent. Purchaser and its Lenders shall be satisfied in all respects with the
results of their (a) due diligence review of the Company and its operations and
assets and (b) survey of the Company's customers, and Purchaser shall have
obtained the consent of its Lenders to the transactions contemplated by this
Agreement.
Section 8.16 Non-Competition Agreements. Each of the Shareholders shall
have executed a five (5) year Non-Competition Agreement (collectively, the
"Non-Competition Agreements"), which shall include covenants not to (a) compete
with Purchaser or the Company or any Affiliates of either of them, or (b) raid
or solicit the employees, agents, Affiliates or customers of Purchaser or the
Company. Each Non-Competition Agreement shall be in substantially the form set
forth on EXHIBIT D to this Agreement.
Section 8.17 Employment Agreement. Xxxxx X. Xxxxxxxx shall have
executed his employment agreement (the "Employment Agreement"), in substantially
the forms set forth in EXHIBIT E to this Agreement.
Section 8.18 Shareholders' Agreement. Each of the Shareholders shall
have executed a joinder to the exisiting shareholders' agreement among the
Parent and its shareholders (the "Shareholders' Agreement") a copy of which is
attached as EXHIBIT F to this Agreement.
Section 8.19 Various Approvals. The Merger and other transactions
contemplated by this Agreement shall have been approved by the Board of
Directors of Purchaser and the Investment Committee of KRG Capital Partners,
LLC.
Section 8.20 Subscription Agreement. Each of the Shareholders shall
have entered into a subscription agreement in substantially the form attached as
EXHIBIT G to this Agreement (each a "Subscription Agreement" and collectively,
the "Subscription Agreements").
Section 8.21 Lock-up Agreement. Each of the Shareholders shall have
entered into a Lock-up Agreement with respect to the Convertible Preferred Stock
with certain underwriters of Parent's stock in substantially the form attached
as EXHIBIT H to this Agreement (each a "Lock-up Agreement" and collectively, the
"Lock-up Agreements").
Section 8.22 Contribution of KMK Assets. The Company and KMK
Enterprises shall have entered into the Contribution Agreement, and the
Contributed Assets shall have been contributed, transferred and assigned to the
Company free and clear of all Liens, encumbrances and security interests,
whether absolute, accrued, contingent or otherwise, except for those capital
leases and related security interests to be paid at Closing pursuant to Section
8.10 of this Agreement.
Section 8.23 Escrow Agreement. The Shareholders shall have entered into
the Escrow Agreement.
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Section 8.24 Termination of Stockholder Agreement. The Shareholders
shall have terminated the Restrictive Stock Transfer Agreement, dated May 17,
1989 as amended on January 2, 1998, by and between Xxxx X. Xxxxxx, Xxxx X.
Xxxxxx and Xxxxx Xxxxxx as joint tenants, Xxxx X. Xxxxxx, Xx. and Xxxxx
Xxxxxxxx.
Section 8.25 Landlord Commitment. The Shareholders shall have delivered
to Purchaser a commitment from the lessor of the real estate occupied by the
Company to cooperate in dividing the current lease between such lessor, the
Company and JK Molds into two separate leases, one between lessor and the
Company and one between the lessor and JK Molds under substantially the same
terms as the current lease.
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ARTICLE IX
CONDITIONS PRECEDENT TO THE COMPANY'S AND THE SHAREHOLDERS' PERFORMANCE
The obligation of the Company and the Shareholders to consummate the
Merger and the other transactions contemplated by this Agreement are subject to
the satisfaction at or before the Closing of all the following conditions. The
Company may waive any or all of these conditions in whole or in part without
prior notice.
Section 9.1 Representations and Warranties True. All representations
and warranties by Purchaser contained in this Agreement or in any written
statement delivered by Purchaser or MergerSub under this Agreement shall be true
on and as of the Closing Date as though such representations and warranties were
made on and as of that date.
Section 9.2 Performance. Purchaser and MergerSub shall have performed
and complied with all covenants and agreements and satisfied all conditions that
they are required by this Agreement to perform, comply with, or satisfy before
or at the Closing.
Section 9.3 Consents. Purchaser shall have procured all of the
third-party authorizations and consents specified in this Agreement. In
addition, any waiting period under the HSR Act, if applicable, shall have
expired or been terminated.
Section 9.4 No Proceedings, Injunctions, Etc. No action, suit or
proceeding shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
wherein an unfavorable injunction, judgment, order, decree ruling or charge
would (a) prevent consummation of the Merger or any of the other transactions
contemplated by this Agreement or (b) cause any of the transactions contemplated
by this Agreement to be rescinded or voided following consummation.
Section 9.5 Shareholders' Agreement. At Closing, Purchaser and each of
the shareholders of Parent shall continue to be bound by the Shareholders'
Agreement.
Section 9.6 Opinion of Purchaser's Counsel. Shareholders shall have
received from Xxxxx & Xxxxxxx L.L.P., counsel to Purchaser, an opinion,
addressed to the Shareholders and dated as of the Closing (the "Purchaser's
Opinion"), in form and substance substantially as set forth in EXHIBIT H.
Section 9.7 Officer's Certificate. Purchaser shall have delivered to
the Company a certificate by its Vice President and Secretary to the effect that
each of the conditions specified above in Sections 9.1 through 9.5 have been
satisfied.
Section 9.8 Employment Agreement. Purchaser shall have executed the
Employment Agreement.
Section 9.9 Non-Competition Agreements. Purchaser shall have executed
the Non-Competition Agreements.
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Section 9.10 Certified Organizational Documents. The Purchaser shall
have delivered to the Company (a) certified copies of the charters of Purchaser
and MergerSub, (b) a certificate of good standing for each of Purchaser and
MergerSub from the Secretary of State of the States of Colorado and [insert
state of incorporation of MergerSub] dated within 5 business days of the Closing
Date, (c) a copy of each of the bylaws of Purchaser and MergerSub, along with a
certificate executed by the Secretaries of Purchaser and MergerSub,
respectively, certifying that such copy is true, correct and complete, and that
such bylaws were duly adopted and have not been amended or rescinded and and (d)
a copy of the resolutions of the Board of Directors of Purchaser and of the
Board of Directors and shareholder of MergerSub approving the Merger and the
other transactions contemplated by this Agreement with a certification executed
by the Secretaries of the Purchaser and MergerSub, respectively, that such
copies are true, correct and complete, and that such resolutions were duly
adopted and have not been amended or rescinded.
Section 9.11 Subscription Agreements. The Purchaser shall have executed
the Subscription Agreements.
Section 9.12 Escrow Agreement. The Purchaser shall have entered into
the Escrow Agreement.
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ARTICLE X
POST-CLOSING COVENANTS
The parties agree as following with respect to the period following the
Closing.
Section 10.1 General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
including obtaining any third-party consents not obtained prior to Closing, each
of the parties shall take such further action (including the execution and
delivery of such further instruments and documents) as any other party
reasonably may request, at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Article XI below). The parties agree to cooperate to revise the first entry in
Schedule 4.20 to reflect only those factual disclosures in the referenced Phase
I report in a manner mutually agreeable to the parties.
Section 10.2 Books and Records. The Shareholders acknowledge and agree
that from and after the Closing, Purchaser shall be entitled to possession of
all documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company. Purchaser shall permit each
Shareholder and their representatives to have reasonable access to copies of the
books and records of the Company, dated at or prior to the Closing Date, and
shall furnish or cause to be furnished to each Shareholder, at such
Shareholder's sole expense, such financial, Tax and operating data and other
available information with respect to the Company and its assets, properties,
employees, businesses and operations as such Shareholder shall from time to time
reasonably request; provided that such information is dated and relates to
matters occurring at or prior to the Closing Date. Purchaser shall cause the
Company to retain all Company Tax records for the applicable statute of
limitations and all other material Company books and records for a period of two
years from the Closing Date. In exercising their rights of access hereunder, the
Shareholders shall use reasonable efforts to avoid undue disruption to the
business of Purchaser or the Company.
Section 10.3 Litigation Support. In the event that and for so long as
any party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
(including Tax audits) in connection with (a) any transaction contemplated under
this Agreement or (b) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transition on or prior to the Closing Date involving the Company, each of the
other parties shall cooperate with such party and its counsel in the contest or
defense, make available its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor under Article XI below).
Section 10.4 Tax Matters. The Shareholders and Purchaser agree to
provide each other with such cooperation and information as either of them
reasonably may request of the other in relation to (a) preparation of any Tax
Return of the Company or with respect to the Company's operations, (b)
determining any Taxes or right to a refund of Taxes of the Company or with
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respect to the Company's operations, or (c) responding to any audit or
examination of Tax Returns of the Company or with respect to the Company's
operations.
Section 10.5 Public Disclosure; Confidentiality. From and after the
Closing Date, each Shareholder shall keep confidential all information relating
to the Surviving Corporation and its operations. The foregoing shall not
preclude any Shareholder from (a) the use or disclosure of such information
which currently is known generally to the public or which subsequently has come
into the public domain, other than by way of disclosure by any Shareholder in
violation of this Agreement or (b) the disclosure of such information to the
extent required by law or court order, provided that, to the extent practicable,
prior to such disclosure required by law or court order, such Shareholder shall
give Purchaser prior written notice of the nature of the required disclosure.
Section 10.6 Cooperation with Initial Public Offering. Each Shareholder
shall use his reasonable best efforts to cooperate with Parent, Purchaser, the
Surviving Corporation and their respective representatives and agents in
connection with any proposed initial public offering of capital stock of the
Surviving Corporation or Purchaser after the Closing Date, including, but not
limited to, providing, organizing and preparing information regarding the
Surviving Corporation and participating in underwriter due diligence sessions
and investor meetings at such times as are requested by the underwriters of such
public offering.
Section 10.7 Cooperation with Fulfillment of Credit Facility
Obligations. Each Shareholder shall use his reasonable best efforts to cooperate
with Parent, Purchaser, the Surviving Corporation and their respective
representatives and agents in connection with the fulfillment of any obligations
imposed on Parent, Purchaser and/or the Surviving Corporation by Lenders
including, but not limited to, coordinating with (a) former creditors of the
Company to have them take the necessary actions and file the necessary documents
to release any and all liens on the Surviving Corporation or its property and
(b) coordinating with the lessor of the leased Real Property to obtain any
agreements, certificates, documents or environmental testing required by the
Lenders. Within 30 days of the Closing Date, the Shareholders shall cause their
counsel to deliver an opinion to the Lenders substantially in the form of
EXHIBIT L to this Agreement. The Shareholders shall cause JK Molds to cooperate
with the Company in reasonably determining a division of space and rent
concerning the leased property for the purposed of dividing the current lease
for such property into two separate leases.
Section 10.8 No 338(h)(10) Election. The Purchaser shall not, and shall
not permit the Company to, make the election provided for by Section 338(h)(10)
of the Code or any comparable election under state or local tax law with respect
to Purchaser's acquisition of the capital stock of the Company from the
Shareholders pursuant to the Merger.
Section 10.9 Environmental Insurance. Within 15 days after the Closing
Date, the Purchaser, the Company and the Shareholders agree to purchase
environmental insurance on the Company for the benefit of the Purchaser, its
Affiliates and the Shareholders under substantially the terms and conditions and
providing substantially the coverages described in ANNEX II to this Agreement.
The cost of such environmental insurance shall be borne 50% by the Company and
50% by the Shareholders.
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ARTICLE XI
INDEMNIFICATION
Section 11.1 Indemnification by Shareholders. Subject to Section 11.5,
the Shareholders agree, jointly and severally, to indemnify Purchaser and every
Affiliate (and their respective officers, directors, shareholders, agents and
representatives) of Purchaser (which shall specifically include the Surviving
Corporation) (each a "Purchaser Indemnitee") against and hold them harmless from
any and all Damages which may be asserted against, imposed upon or sustained by
a Purchaser Indemnitee by reason of or arising out of the breach, default,
inaccuracy or failure of any of the warranties, representations, covenants or
agreements of the Company or the Shareholders contained in this Agreement or in
any certificate or instrument required to be delivered pursuant hereto. In
addition to the foregoing, the Shareholders agree, jointly and severally to
indemnify Purchaser Indemnitees against and hold them harmless from any and all
Damages which may be asserted against, imposed upon or sustained by a Purchaser
Indemnitee as a result of any of the following resulting from the operations of
the Company up to and including the Closing Date: (a) liability for Taxes for
any period up to and including the Closing ("Company Taxes"); (b) Litigation;
(c) Environmental Liabilities; (d) any product liability claim; (e) liabilities
pursuant to the Occupational Health & Safety Act or any laws relating to health
and safety; (f) any liabilities resulting from infringements or claimed
infringements by the Company on the Intellectual Property of a third party.
Section 11.2 Indemnification by Purchaser. Subject to Section 11.5,
from and after Closing, Purchaser agrees to indemnify each Shareholder and hold
him harmless from and against any and all Damages which may be asserted against,
imposed upon or sustained by such Shareholder at any time by reason of or
arising out of the breach, default, inaccuracy or failure of any warranties,
representations, conditions, covenants or agreements of Purchaser contained in
this Agreement or in any certificate, instrument or document delivered pursuant
hereto.
Section 11.3 Procedures for Third-Party Claims.
(a) If any Indemnitee receives written notice of the assertion of
any claim or of the commencement of any action or proceeding by any entity who
is not a party to this Agreement (a "Third Party Claim") against or affecting
such Indemnitee, and if such assertion were presumed to be true (regardless of
the actual outcome) then a party could be obligated to provide indemnification
under this Agreement as a result of or in connection with such claim, action or
proceeding, such Indemnitee shall give such Indemnifying Party reasonably prompt
written notice thereof, but in any event no later than 30 calendar days after
receipt of such written notice of such Third Party Claim; provided, however,
that failure to give notice as provided in this paragraph (a) shall not relieve
the Indemnifying Party of its indemnification obligations under this Article XI
except to the extent that such Indemnifying Party is actually prejudiced by such
failure. Said written notice to the Indemnifying Party shall set forth the basis
of the Third Party Claim in reasonable detail and include copies of all
pertinent correspondence relating to such Third Party Claim. The Indemnifying
Party shall have the right to assume and control the defense of any Third Party
Claim at such Indemnifying Party's sole expense and by such Indemnifying Party's
own counsel, by giving written notice to the Indemnitee (the "Notice to
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Defend") no later than thirty (30) calendar days after receipt of the
above-described notice of such Third Party Claim. The Indemnitee also shall have
the right to participate in the defense of any Third Party Claim assisted by
counsel of its own choosing, but all fees and expenses of such counsel shall be
paid by the Indemnitee. The Indemnifying Party and the Indemnitee shall
cooperate with each other in good faith in such defense and make available all
employees and books and records in its control as reasonably deemed necessary
with respect to such defense (but not to the extent that would require waiver of
any privilege). If the Indemnitee does not receive from the Indemnifying Party a
Notice to Defend with respect to a Third Party Claim or a written notice of
objection to the claim for indemnification specifying in reasonable detail the
basis for the objection within the 30 day period described above, the Indemnitee
may, at its option, elect to solely defend the Third Party Claim assisted by
counsel of its own choosing, and the Indemnifying Party shall be liable for all
reasonable costs and expenses, and all settlement amounts (subject to and in
accordance with paragraph (c) below of this Section 11.3) or other liabilities,
losses, damages and injuries paid or incurred in connection therewith to the
extent such claim is or would have been indemnifiable under this Agreement if
such claim is or had been proved. In such event, the Indemnifying Party shall
also have the right to participate in the defense of any Third Party Claim
assisted by counsel of its choosing at its own expense.
(b) If, within the thirty (30) day period set forth in paragraph
(a) above of this Section 11.3, an Indemnitee receives a Notice to Defend from
an Indemnifying Party with respect to any Third Party Claim, the Indemnifying
Party shall not be liable for any costs and legal expenses of the Indemnitee
incurred after receipt by the Indemnitee of such Notice to Defend.
(c) In the event there is a dispute between the Indemnifying Party
and Indemnitee concerning whether a Third Party Claim should be contested,
settled or compromised, it shall be settled, compromised or contested, in
accordance with the next succeeding sentences; provided, however, that the
Indemnitee, or its respective successors or assigns, shall neither be required
to refrain from paying or satisfying any claim which has matured by court
judgment or decree, unless appeal is taken thereafter and proper appeal bond
posted by the Indemnifying Party, nor shall the Indemnitee be required to
refrain from paying or satisfying any Third Party Claim after and to the extent
that such Third Party Claim has resulted in an unstayed injunction. The
Indemnifying Party shall not, without the Indemnitee's prior written consent,
not to be unreasonably withheld, settle or compromise any action or claim or
consent to the entry of any judgment with respect to any action, claim or
proceeding for anything other than money damages paid by the Indemnifying Party
unless the settlement does not involve the imposition of any liability or
obligation on the Indemnitee or any restriction on its activities. The
Indemnifying Party may, without the Indemnitee's written consent, settle or
compromise any such action or claim or consent to entry of any judgment with
respect to any such action or claim which requires solely the payment of money
damages by the Indemnifying Party. Subject to the foregoing, in the event that
the Indemnifying Party, on the one hand, or the Indemnitee, on the other hand,
has reached a good faith, bona fide settlement, agreement or compromise, subject
only to approval hereunder, with any claimant regarding a matter which may be
the subject of indemnification hereunder and desires to settle on the basis of
such agreement or compromise, such party who desires to so settle or compromise
shall notify the other party in writing of its desire setting forth the terms of
such settlement or compromise (the "Notice of Settlement"). The Third Party
Claim may be settled or compromised on such basis unless within twenty (20)
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days of the receipt of the Notice of Settlement the party who issued the Notice
of Settlement receives a notice from the other party of its desire to continue
to contest the matter (the "Notice to Contest") and, in such case:
(i) Should the Indemnitee deliver a Notice to Contest, the
claim shall be so contested and the liability of the Indemnifying Party shall be
limited as provided in clause (iii) below;
(ii) If the settlement or compromise could result in a further
claim for indemnification being made against the Indemnifying Party and if the
Indemnifying Party delivers the Notice to Contest, the claim shall be so
contested and the liability of the Indemnitee shall be limited as provided in
clause (iii) below; and
(iii) If a matter is contested as provided in clauses (i) or
(ii) above and is later adjudicated, settled, compromised or otherwise disposed
of and such adjudication, compromise, settlement or disposition results in a
liability, loss, damage or injury in excess of the amount for which one party
desired previously to settle the matter, then the liability of such party shall
be limited to such lesser proposed settlement amount (plus attorney's fees and
expenses to the date of the proposed but unapproved settlement to the extent
provided for in paragraphs (a) and (b) above) and the party contesting the
matter shall be solely responsible for any additional amount.
Section 11.4 Procedures for Direct Claims. Any claim for which an
Indemnitee intends to assert a right to indemnifiable Damages under this
Agreement which does not result from a Third-Party Claim (a "Direct Claim")
shall be asserted by giving each Indemnifying Party reasonably prompt written
notice thereof, and each Indemnifying Party shall have a period of forty-five
(45) calendar days within which to respond to such Direct Claim. If any
Indemnifying Party does not so respond within such forty-five (45) calendar day
period, such Indemnifying Party shall be deemed to have rejected such claim, in
which event the Indemnitee shall be free to pursue such remedies as may be
available to the Indemnitee pursuant to this Agreement. A failure to give timely
notice as provided in this Section 11.4 shall not affect the rights or
obligations of any party hereunder except and only to the extent that, as a
result of such failure, any party which was entitled to receive such notice was
deprived of its right to recover any payment under its applicable insurance
coverage, incurred an obligation or liability which otherwise would have been
avoided, or was otherwise actually prejudiced.
Section 11.5 Limitations of Indemnification Obligations.
(a) All the representations and warranties made by Purchaser, the
Company or the Shareholders in this Agreement shall survive until twenty-four
(24) months following the Closing Date; provided, however, that Sections 4.12
and 4.21 shall survive until the expiration of the applicable statutes of
limitation; provided, further, that the representations and warranties in
Sections 3.1, 3.2, 4.1, 4.2, 4.3, 4.4, 4.6, 5.1, 5.2, 5.4 and 5.5 shall survive
without termination. In the event notice of any claim for indemnification under
Section 11.3(a) hereof shall have been given within the applicable survival
period, the representations and warranties that are the subject of such
indemnification claim shall survive until such time as such claim is finally
resolved. The
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covenants and agreements of the parties set forth in this Agreement and the
indemnification obligations of the parties hereunder shall survive indefinitely
except as expressly provided herein.
(b) A Purchaser Indemnitee shall not have any right to
indemnification under this Agreement until the aggregate of all amounts claimed
by all Purchaser Indemnitees exceeds $300,000 under this Agreement (the
"Shareholder Basket") and in such event the indemnification obligations of the
respective Indemnifying Parties hereunder shall apply to all Damages in excess
of such amount. Notwithstanding the foregoing, the Shareholder Basket shall not
apply to Company Taxes, Environmental Liabilities or a breach of a
representation or warranty contained in Sections 3.1, 3.2, 4.1, 4.2, 4.3, 4.6 or
4.20 of this Agreement, and the Shareholders shall be fully liable, subject to
the limitations in the next sentence, for Damages associated with Company Taxes,
Environmental Liabilities or such a breach. Except for Company Taxes or a breach
of a representation or warranty contained in Sections 3.1, 3.2, 4.1, 4.2, 4.3 or
4.6 of this Agreement, for which the individual liability of a Shareholder for
Damages pursuant to this Article XI shall not exceed such Shareholder's Merger
Consideration, in no event shall the individual liability of a Shareholder for
Damages pursuant to this Article XI exceed twenty-five percent (25%) of such
Shareholder's Merger Consideration. Any amount to which a Shareholder is
obligated to pay under this Section 11.5 shall be paid to the appropriate
Purchaser Indemnitee in the same ratio of cash to Convertible Preferred Stock as
such Shareholder received in Merger Consideration. For purposes of payment of
any indemnity obligation, the value of the Convertible Preferred Stock, or any
common stock into which such Convertible Preferred Stock is converted, shall be
deemed to be the liquidation value of $16.00 per share as adjusted for any
post-Closing stock split, reverse stock split, stock dividend, voluntary or
involuntary conversion to common stock or similar event.
(c) A Shareholder shall not have any right to indemnification
under this Agreement until the aggregate of all amounts claimed by all
Shareholders exceeds $300,000 under this Agreement (the "Purchaser Basket") and
in such event the indemnification obligations of the respective Indemnifying
Parties hereunder shall apply to all Damages in excess of such amount.
Notwithstanding the foregoing, the Purchaser Basket shall not apply to a breach
of a representation or warranty contained in Sections 5.1, 5.2 or 5.4 of this
Agreement, and the Purchaser shall be fully liable for Damages associated with
such a breach. Except for a breach of a representation or warranty contained in
Sections 5.1, 5.2 or 5.4 of this Agreement, for which the liability of the
Purchaser for Damages to any Shareholder pursuant to this Article XI shall not
exceed the amount of the Merger Consideration received by such Shareholder, in
no event shall the aggregate liability of the Purchaser for Damages to any
Shareholder pursuant to this Article XI exceed twenty-five percent (25%) of the
amount of the Merger Consideration received by such Shareholder.
Section 11.6 Survival of Representations, Warranties and Covenants. The
representations, warranties, covenants, indemnities, conditions and agreements
contained herein are and shall be deemed to be continuing representations,
warranties, covenants, indemnities, conditions and agreements that survive the
Closing and remain in full force and effect regardless of any investigations or
knowledge of or on behalf of any party, but subject to the applicable
limitations contained in Section 11.5.
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ARTICLE XII
TERMINATION
Section 12.1 Termination of Agreement.
The parties may terminate this Agreement as provided below:
(a) Purchaser, and the Company may terminate this Agreement by
mutual written consent at any time prior to the Closing.
(b) Purchaser may terminate this Agreement by written notice to
the Company at any time prior to Closing if its Lenders refuse to consent to the
transaction contemplated by this Agreement.
(c) Purchaser may terminate this Agreement by giving written
notice to the Company at any time prior to the Closing (i) in the event the
Company or any Shareholder has breached any representation, warranty or covenant
contained in this Agreement in any material respect, Purchaser has notified the
Company or such Shareholder of the breach, and the breach has continued without
cure for a period of thirty (30) days after the notice of breach or (ii) if the
Closing shall not have occurred on or before February 15, 2001, by reason of the
failure of any condition precedent under Article VIII hereof (unless the failure
results primarily from Purchaser itself breaching any representation, warranty
or covenant contained in this Agreement).
(d) Purchaser may terminate this Agreement if it is not satisfied
in all respects with the results of its due diligence review of the Company and
the Company's operations and assets; provided, however, that if Purchaser does
not exercise the termination right contained in this Section 12.1(d) within
thirty days of execution of this Agreement, such termination right shall lapse.
(e) The Company may terminate this Agreement by giving written
notice to Purchaser at any time prior to the Closing (i) in the event Purchaser
has breached any material representation, warranty or covenant contained in this
Agreement in any material respect, the Company has notified Purchaser of the
breach, and the breach has continued without cure for a period of thirty (30)
days after the notice of breach or (ii) if the Closing shall not have occurred
on or before February 15, 2001 by reason of the failure of any condition
precedent under Article IX hereof (unless the failure results primarily from the
Company or any Shareholder breaching any representation, warranty or covenant
contained in this Agreement).
Section 12.2 Effect of Termination. If any party terminates this
Agreement pursuant to Section 12.1 above, all rights and obligations of the
parties hereunder hereof shall terminate without any liability of any party to
any other party. Nothing set forth in this Section 12.2 shall mitigate or
otherwise compromise the rights or obligations of the parties under Section
13.12 or in the event of a breach of the terms or provisions of this Agreement
generally. Upon any such termination, the Purchaser shall provide the Company
with a copy of any environmental due
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diligence carried out pursuant to Section 7.2 of this Agreement and a copy of
the audit report of the Company's interim financial statements produced by
Xxxxxx Xxxxxxxx.
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ARTICLE XIII
MISCELLANEOUS
Section 13.1 Fees and Expenses. Except as contemplated by this
Agreement, until Closing, all costs and expenses incurred in connection with
negotiating and preparing this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
Section 13.2 Entire Agreement. This Agreement, which also includes the
Annexes, Disclosure Schedules and Exhibits hereto, sets forth the entire
agreement and understanding among the parties and merges and supersedes all
prior discussions, agreements and understandings of every kind and nature among
them as to the subject matter hereof, and no party shall be bound by any
condition, definition, warranty or representation other than as expressly
provided for in this Agreement or as may be on a date on or subsequent to the
date hereof duly set forth in writing signed by each party which is to be bound
thereby.
Section 13.3 Amendments. This Agreement (including the Annexes,
Disclosure Schedules and Exhibits hereto) shall not be changed, modified or
amended except by a writing signed by each party to be charged, and this
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by each party to be charged. The rights and
remedies of the parties hereunder are cumulative and not exclusive of any other
right or remedy any party may have. No failure or delay by any party hereto in
exercising any right, power or privilege shall operate as a waiver of any such
right, power or privilege, except as expressly set forth in this Agreement. No
waiver of any default shall constitute a waiver of any other or any subsequent
default. No single or partial exercise of any right, power or privilege shall
preclude the further or other exercise of the same or other right, power or
privilege.
Section 13.4 Taxes. Any Taxes in the nature of a sales or transfer tax,
any stock transfer tax or any other taxes that may be or may become payable by
the Shareholders including, but not limited to, any Taxes resulting from or
ensuing as a consequence of the consummation of any transaction contemplated
hereby shall be paid by the Shareholders, and the Shareholders shall indemnify
and hold harmless Purchaser from and against all such Taxes.
Section 13.5 Governing Law; Consent to Jurisdiction; Service of
Process. This Agreement and its validity, construction and performance shall be
governed in all respects by the laws of the State of Colorado without giving
effect to principles of conflicts of law. Purchaser, each Shareholder and the
Company hereby agree and consent to be subject to the exclusive jurisdiction of
the federal and state courts of Colorado located in Denver, Colorado in any
suit, action or proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby. Each party hereby irrevocably consents to the service of
any and all process in any such suit, action or proceeding by the delivery of
such process to such party at the address and in the manner provided in Section
13.9.
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Section 13.6 Representation by Counsel. Each party and its counsel
cooperated in the drafting and preparation of this Agreement and the documents
referred to herein. Accordingly, any rule of law or any legal decision that
would require interpretation of any ambiguities in this Agreement against the
party that drafted it is of no application and is hereby expressly waived by
each party.
Section 13.7 Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
legal representatives and permitted assigns. The Agreement may not be assigned
by the Company or any Shareholder without the prior written consent of
Purchaser. Purchaser may not assign this Agreement without the prior written
consent of the Company; provided, however, that Purchaser may assign this
Agreement to an Affiliate of Purchaser without such consent. Nothing herein
contained shall confer or is intended to confer on any third party or entity
which is not a party to this Agreement any rights under this Agreement, except
for Purchaser and its Affiliates which are acknowledged to be third party
beneficiaries and Purchaser Indemnitees who are acknowledged to be third party
beneficiaries under Article XI.
Section 13.8 Headings. The headings in the Articles, Sections,
paragraphs, Exhibits, Sections of the Disclosure Schedule and sections of this
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
Section 13.9 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
FedEx, to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Purchaser, to:
MDMI Holdings, Inc.
c/o UTI Corporation
000 Xxxx 0xx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Fax: (000) 000-0000
and to:
KRG Capital Partners, LLC
Xxx Xxxx Xxxxxxx Xxxxxxxx
0000 Xxxxxxxx Xxxxxx
Tower One, Suite 1500
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000
with a copy to:
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Xxxxx & Xxxxxxx L.L.P.
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to the Company:
with a copy to:
(c) if to Shareholder, to:
with a copy to:
Section 13.10 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 13.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 13.12 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
Section 13.13 Legal Fees and Expenses. In the event that any
arbitration or legal action is brought for the enforcement of this Agreement, or
because of any alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in said action or proceeding, in addition to any other
relief to which such party may be entitled.
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SIGNATURES
IN WITNESS WHEREOF, Purchaser, Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized and each of the Shareholders has signed this Agreement as of the date
first written above.
PURCHASER
MEDICAL DEVICE MANUFACTURING, INC.
By: /s/ XXXXXX X. XXXXXXX
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Name: Xxxxxx X. Xxxxxxx
Title: Vice President
MERGERSUB
KMKATM ACQUISITION CORP.
By: /s/ XXXXXX X. XXXXXXX
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Name: Xxxxxx X. Xxxxxxx
Title: Vice President
COMPANY
AMERICAN TECHNICAL MOLDING, INC.
By: /s/ XXXXX XXXXXXXX
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Name: Xxxxx Xxxxxxxx
Title: President
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SHAREHOLDERS
By: /s/ XXXXX X. XXXXXXXX
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Xxxxx X. Xxxxxxxx
The 1994 Xxxx X. Xxxxxx and Xxxxx Xxx Xxxxxx
Revocable Trust
By: /s/ XXXX X. XXXXXX
-------------------
Name: Xxxx X. Xxxxxx
Title: Trustee
By: /s/ XXXXX XXX XXXXXX
---------------------
Name: Xxxxx Xxx Xxxxxx
Title: Trustee
By: /s/ XXXX XXXXXX, JR.
-----------------------
Xxxx Xxxxxx, Jr.
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