AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of
December 11, 2000 among Vertex Interactive, Inc., a New Jersey corporation
("Vertex"), and Applied Tactical Systems, Inc., a New Jersey corporation ("ATS")
and the stockholders of ATS listed on the signature page hereto (the
"Stockholders"). Certain capitalized terms used herein and not otherwise defined
are defined in Section 13.13.
W I T N E S S E T H:
WHEREAS, each of the Stockholders owns the number of shares of capital
stock of ATS set forth opposite such Stockholder's name on Exhibit A;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt whereof is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
MERGER
1.1 Merger. The parties have executed this Agreement for purposes of
setting forth a plan of reorganization under the provisions of Section
368(a)(1)(A) of the Code and the rules and regulations promulgated thereunder.
To that end, each of the Stockholders shall exchange such Stockholder's shares
of ATS Stock by virtue of this plan of merger for shares of common stock, par
value $.005 per share, of Vertex (the "Vertex Common"), all in accordance with
the terms of this Agreement.
1.2 Surviving Corporation. At the Effective Date of the Merger (as
defined in Section 1.3), ATS shall be merged (the "Merger") with and into Vertex
in accordance with this Agreement and the New Jersey Business Corporation Act
("NJBCA"), whereupon the separate existence of ATS shall cease. Vertex, in its
capacity as the corporation surviving the Merger, sometimes is referred to
herein as the "Surviving Corporation." Without limiting the generality of the
foregoing, and subject thereto, at the Effective Date of the Merger, all
properties, rights, privileges, powers and franchises of ATS shall vest in the
Surviving Corporation, and all debts, liabilities and duties of ATS shall become
the debts, liabilities and duties of the Surviving Corporation.
1.3 Consummation of the Merger. Upon the terms and subject to the
conditions hereof, on the Closing Date (as defined in Section 4.1), Vertex and
ATS shall file or cause to be filed a Certificate of Merger with the Department
of Treasury of the State of New
Jersey and make all other filings or recordings required by the NJBCA in
connection with the Merger. The Merger shall be effective at such time as the
Certificate of Merger is duly filed with the Department of Treasury of State of
the State of New Jersey or at such later time, not later than five (5) Business
Days thereafter, as may (with the consent of Vertex and ATS) be specified in
such Certificate of Merger (the "Effective Date of the Merger").
1.4 Further Assurances. At and after the Effective Date of the Merger,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the ATS, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
ATS, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of ATS acquired or to be
acquired by Vertex as a result of, or in connection with, the Merger.
ARTICLE II
CERTIFICATES OF INCORPORATION;
BY-LAWS; BOARD OF DIRECTORS; OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Vertex, as amended by the Certificate of Merger, shall be the Certificate of
Incorporation of the Surviving Corporation until further amended in accordance
with applicable law.
2.2 By-Laws. The By-laws of Vertex as in effect at the Effective Date
of the Merger shall be the By-laws of the Surviving Corporation until amended in
accordance with applicable law.
2.3 Board of Directors; Officers. The directors of Vertex immediately
prior to the Effective Date shall be the directors of the Surviving Corporation;
each to hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation, and the officers of Vertex immediately
prior to the Effective Date shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation and By-laws
of the Surviving Corporation and in accordance with applicable law. ATS shall
cause each director and officer of ATS to tender his or her resignation prior to
the Effective Date, with each such resignation effective as of the Effective
Date.
ARTICLE III
CONVERSION OF STOCK
3.1 Conversion of Stock. On the Effective Date of the Merger, by virtue
of the Merger and without any action on the part of Vertex, ATS, or the holder
of any of the securities described below:
-2-
(a) each share of ATS Stock held by ATS as treasury stock, if any,
shall be canceled, without the payment of any consideration therefor and shall
cease to exist;
(b) each share of ATS Stock which is outstanding shall be converted
into the right to receive 0.75 shares of Vertex Common (such number being
referred to as the "Exchange Ratio") and, upon exchange of such shares of ATS
Stock, pursuant to Section 3.3 hereof, each such share of ATS Stock shall be
cancelled and shall cease to exist.
3.2 Closing of ATS Transfer Books. On the Effective Date of the Merger,
the stock transfer books of ATS shall be closed with respect to shares of ATS
Stock outstanding immediately prior to the Effective Date of the Merger and no
transfer of such shares of ATS Stock shall thereafter be made on such stock
transfer books. If, on or after the Effective Date of the Merger, valid
certificates representing any such shares of the ATS Stock are presented to
Vertex, they shall be exchanged as provided in Section 3.3.
3.3 Exchange of Certificates. (a) At the Closing (as defined in Section
4.1 hereof), each Stockholder shall receive a certificate or certificates
representing the aggregate number of shares of Vertex Common to which such
Stockholder is entitled as a holder of the shares of ATS Stock immediately prior
to the Effective Date of the Merger reduced, in the case of each Stockholder, by
such Stockholder's Pro Rata Share of the Escrow Shares (as defined below) to be
deposited in escrow as set forth below (the amount of Vertex Shares to which
such Stockholder is so entitled and such Stockholder's Pro Rata Share of the
Escrow Shares is set forth on Exhibit A hereto). On the Effective Date of the
Merger, certificates representing 7% of each Stockholder's shares (the "Escrow
Shares") shall be delivered to the Escrow Agent as provided in the Escrow
Agreement (as both of those terms are defined in Section 8.8).
(b) Prior to the Effective Date of the Merger, Vertex shall mail or
otherwise deliver to each holder of record of a certificate or certificates
which immediately prior to the Effective Date of the Merger represented
outstanding shares of ATS Stock (the "Certificates") whose shares are to be
converted pursuant to Section 3.1(b) into the right to receive shares of Vertex
Common (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to Vertex and shall be in such form and have such
other provisions as Vertex may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Vertex Common. At the Closing, upon surrender of a
Certificate for cancellation to Vertex, together with such letter of transmittal
duly executed and completed in accordance with its terms, each Stockholder shall
be entitled to receive in exchange therefor a certificate representing that
number of shares of Vertex Common which such Stockholder has the right to
receive pursuant to the provisions of this Article III, and the Certificate so
surrendered shall forthwith be canceled. In no event shall the holder of any
Certificate be entitled to receive interest on any funds to be received in the
Merger. In the event of a transfer of ownership of ATS Stock which is not
registered in the transfer records of ATS, a certificate representing that
number of shares of Vertex Common may be issued to a transferee if the
Certificate representing such ATS Stock is presented to Vertex accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid.
-3-
3.4 No Fractional Shares. No scrip or fractional share certificates of
Vertex Common shall be issued as a result of the Merger, but in lieu of each
fractional interest, Vertex shall issue one full share of Vertex Common for each
fractional share equal to one-half or more of one share, and each fractional
share equal to less than one-half of one share shall be eliminated.
3.5 Stock Options. (a) Subject to the terms and conditions of the
Employee Stock Option Plan of ATS (the "ATS Option Plan") and the stock option
agreements with each of Xxxxxx Xxxxxx, Xxxxxx Xxxx, and Xxxxxxx Xxxx, the ATS
Option Plan and each option to purchase ATS Stock granted thereunder that is
outstanding on the Effective Date of the Merger, shall be assumed by Vertex as
of the Effective Date of the Merger and continued in accordance with its
respective terms and each such option shall become a right to purchase a number
of shares of Vertex Common, as more fully described below.
(b) At the Effective Date of the Merger, each outstanding option to
purchase shares of ATS Stock (a "ATS Stock Option") under the ATS Option Plan,
whether vested or unvested, shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such ATS Stock Option,
a number of shares of Vertex Common equal to the product (rounded down to the
nearest whole share) of (i) the number of shares of ATS Stock issuable upon
exercise of the option immediately prior to the Effective Date of the Merger and
(ii) the Exchange Ratio; and the exercise price per share of Vertex Common at
which such option is exercisable shall be the amount (rounded up to the nearest
whole cent) obtained by dividing (x) the exercise price per share of ATS Stock
at which such option is exercisable immediately prior to the Effective Date of
the Merger by (y) the Exchange Ratio; provided, however, that, in the case of
any ATS Stock Option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422-424 of the Code ("qualified stock
options"), the exercise price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 425(a) of the Code.
(c) As soon as practicable after the Effective Date of the Merger,
Vertex shall deliver to the participants in the ATS Option Plan appropriate
notices setting forth such participants' rights pursuant thereto and that the
grants pursuant to the ATS Option Plan shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section 3.5
after giving effect to the Merger), and providing for the assumption by Vertex
of such participant options. Vertex shall comply with the terms of the ATS
Option Plan and ensure, to the extent required by, and subject to the provisions
of the ATS Option Plan and applicable laws, that ATS Stock Options which
qualified as qualified stock options prior to the Effective Date of the Merger
continue to qualify as qualified stock options after the Effective Date of the
Merger.
(d) Vertex shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Vertex Common for delivery under the
ATS Option Plan as adjusted in accordance with this Section 3.5. Vertex shall,
within fifteen (15) days after such time as financial results covering at least
thirty (30) days of combined operations of Vertex and ATS have been published by
Vertex in its annual report to the SEC, in the form of a quarterly earnings
report, an effective registration statement filed with the SEC, a report to the
SEC on form 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes the
-4-
combined results of operations, (or such other combined financial information as
may be required for registration), but in any event not later than May 14, 2001,
file and have declared effective a registration statement on Form S-8
promulgated by the SEC under the Securities Act (or any successor or other
appropriate form) with respect to the Vertex Common subject to ATS Stock Options
and shall use its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding. With respect to those individuals who subsequent to
the Merger will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, where applicable, Vertex shall administer the ATS Option Plan
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act.
ARTICLE IV
CLOSING
4.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place within five (5) Business Days of the satisfaction of
all of the conditions to closing set forth in Articles VIII and IX (the "Closing
Date"), at the offices of XxXxxxxx & English, LLP, 000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxx Xxxxxx 00000, or at such other time and such other location as may be agreed
upon by the parties.
4.2 Deliveries at Closing.
(a) At the Closing, ATS shall deliver to Vertex:
(i) certified copies of its Certificate of Incorporation, By-laws and
corporate resolutions with respect to the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby;
(ii) certificates representing all of the issued and outstanding shares
of ATS Stock;
(iii) stock powers duly endorsed in blank for the Escrow Shares;
(iv) such other items as are specified herein.
(b) At the Closing, Vertex shall deliver to ATS:
(i) certified copies of its Certificate of Incorporation, By-laws and
corporate resolutions with respect to the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby;
(ii) certificates representing the shares of Vertex Common to be issued
to the Stockholders in the amounts set forth on Exhibit A hereto; and
(iii) such other items as are specified herein.
-5-
(c) At the Closing, Vertex shall deliver to the Escrow Agent, a
certificate or certificates representing the Escrow Shares, accompanied by the
stock powers referred to in Section 4.2(a)(iii).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF ATS
ATS represents and warrants to Vertex with respect to ATS as follows:
5.1 Corporate Existence and Qualification. ATS is a corporation duly
organized, validly existing and in good standing under the laws of New Jersey
and has full corporate power and authority to carry on its business as it is now
being conducted and to own, lease and operate its properties and assets. Except
as set forth in Section 5.1 of the Disclosure Schedule, ATS is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
every jurisdiction in which the character or location of the property owned or
leased by ATS or the conduct of its business requires such licensing or
qualification, and in which the failure to qualify would have a material adverse
effect on the condition (financial or otherwise), of ATS. Section 5.1 of the
Disclosure Schedule lists all such jurisdictions in which ATS is qualified or
licensed to do business as a foreign corporation. The copies of ATS's
Certificate of Incorporation, as amended to date, and By-laws, as currently in
effect and in the form delivered to Vertex, are complete, correct and in full
force and effect, and ATS is not in violation of any of the provisions thereof.
5.2 Capitalization. The shares described in Section 5.2 of the
Disclosure Schedule represent all of the authorized and issued and outstanding
shares of capital stock of ATS held of record by the Stockholders set forth in
such schedule. All issued and outstanding shares of capital stock of ATS are
duly authorized, validly issued, fully paid, nonassessable and free of rights of
first refusal; except as disclosed in Section 5.2 of the Disclosure Schedule,
there are no outstanding subscriptions, options, warrants, conversion or
exchange privileges or rights measured by the valuation of capital stock or by
the business of ATS or other rights to purchase or obtain any capital stock of
ATS or any interest in ATS; and, except as disclosed in Section 5.2 of the
Disclosure Schedule, there are no contracts, commitments, understandings,
arrangements or restrictions relating to the issuance, sale, transfer or
purchase by ATS of any shares of its capital stock.
5.3 Subsidiaries. ATS does not have any subsidiaries nor does it own,
directly or indirectly, any capital stock of or other equity interest in any
Person.
5.4 Authorization of ATS; Etc. ATS has full power and authority to
enter into this Agreement, and all agreements and documents to be entered into
pursuant to the terms of this Agreement (collectively, the "Transaction
Documents") to which it is a party, and to carry out the transactions
contemplated hereby and thereby. The Stockholders and the board of directors of
ATS have taken all action required by applicable law, ATS's Certificate of
Incorporation and By-laws, or otherwise, to authorize the execution, delivery
and performance of this Agreement and the other Transaction Documents to which
it is a party, and the
-6-
consummation of the transactions contemplated hereby and thereby. The
affirmative votes of the holders of record of a majority of the total
outstanding shares of ATS Stock (copies of which are attached as Annex I), are
the only votes of the holders of any class or series of the capital stock of ATS
required to adopt this Agreement and approve the Merger and the other
transactions contemplated hereby. Each of this Agreement and the other
Transaction Documents to which ATS is a party has been duly and validly
authorized, executed and delivered by ATS and no other corporate or individual
action is necessary. Each of this Agreement and the other Transaction Documents
to which ATS is a party is a valid and binding obligation of ATS enforceable
against ATS in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws relating to or affecting the rights of creditors generally, or by general
equitable principles.
5.5 No Violation. Except as set forth in Section 5.5 of the Disclosure
Schedule, neither the execution and delivery by ATS of this Agreement nor any of
the other Transaction Documents to which ATS is a party, nor the performance and
the consummation of the transactions contemplated hereby or thereby, will (a)
violate any provisions of the Certificate of Incorporation or By-laws of ATS,
(b) except as would not, individually or in the aggregate, have a material
adverse effect on ATS, violate, or be in conflict with, or constitute a default
(or an event which, with or without due notice or lapse of time, or both, would
constitute a default) under or result in the modification or termination of, or
cause or permit the acceleration of the maturity of any debt, obligation,
contract, commitment or other agreement to which ATS is a party or by which it
or its property is or may be bound, (c) result in the creation or imposition of
any mortgage, pledge, lien, security interest, encumbrance, restriction, charge
or limitation of any kind ("Encumbrances"), upon ATS or any of its material
assets, or (d) violate any statute or law or any judgment, decree, order,
regulation, or rule of any court or governmental authority having a material
adverse effect on the transaction contemplated hereby.
5.6 Consents and Approvals. Other than the filing of a Certificate of
Merger with the Department of Treasury of the State of New Jersey (the
"Certificate of Merger") and except as set forth in Section 5.6 of the
Disclosure Schedule, no consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority is
required to be obtained or made by ATS in connection with the execution,
delivery and performance by ATS of this Agreement or any Transaction Document to
which it is a party and the consummation of the transactions contemplated hereby
or thereby. All such consents, approvals, authorizations, declarations, notices,
filings and registrations listed or required to be listed in Section 5.6 of the
Disclosure Schedule will have been duly obtained or made on or prior to the
Closing Date.
5.7 Financial Statements. Annexed hereto in Section 5.7 of the
Disclosure Schedule are the audited balance sheet of ATS as at December 31, 1999
(the "Annual Balance Sheet") and audited statement of income and retained
earnings and statement of cash flows as at December 31, 1999, together with
notes thereto. ATS has also furnished to Vertex the unaudited balance sheet of
ATS as at September 30, 2000 (the "Balance Sheet") and the unaudited statement
of income and retained earnings for the nine-month period then ended. All of
such financial statements are in accordance with the books and records of ATS.
Except as set forth in Section 5.7 of the Disclosure Schedule, all of such
balance sheets and the notes thereto, if any, fairly present the assets,
liabilities and financial condition of ATS as at the respective dates
-7-
thereof, and the statements of income and retained earnings and the statements
of cash flows for the periods then ended, together with the notes thereto, if
any, fairly present the results of the operations for the periods therein
referred to, all in accordance with generally accepted accounting principles
("GAAP") applied consistently. Section 5.7 of the Disclosure Schedule also sets
forth, by lender, the amount of indebtedness of ATS for borrowed money as of
November 30, 2000, and the repayment terms thereof.
5.8 No Undisclosed Liabilities. ATS does not have any material
liabilities or obligations (herein "Liabilities") of any nature (absolute,
accrued, contingent or otherwise, and whether due or to become due) except (i)
Liabilities that are fully reflected or reserved against in the Balance Sheet,
(ii) Liabilities not required to be reflected or reserved against in the Balance
Sheet pursuant to GAAP, (iii) Liabilities incurred in the ordinary course of
business and consistent with past practice since the date of the Balance Sheet,
and (iv) Liabilities disclosed in any section of the Disclosure Schedules
including Section 5.8 of the Disclosure Schedule.
5.9 Absence of Certain Changes. Except as and to the extent set forth
in Section 5.9 of the Disclosure Schedule, since the date of the Annual Balance
Sheet, ATS has not:
(a) suffered any material adverse change in its condition (financial or
otherwise), assets, liabilities, reserves, business, operations;
(b) paid, discharged or satisfied any material claims, liabilities or
obligations other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities or
obligations reflected against in the Annual Balance Sheet or incurred in the
ordinary course of business since the date of the Annual Balance Sheet;
(c) permitted or allowed any of its material property or assets to be
subjected to any Encumbrance;
(d) except in the ordinary course of business, written down the value
of any inventory or written off as uncollectible any notes, lease or accounts
receivable;
(e) canceled any material debts or waived any claims or rights, waived
any statute of limitation, or sold, transferred, or otherwise disposed of any
material properties or assets, except for a fair consideration in the ordinary
course of business;
(f) except in the ordinary course of business consistent with past
practice, licensed, disposed of or permitted to lapse any rights to the use of
any Intellectual Property or disposed of or disclosed to any Person any material
Intellectual Property not theretofore a matter of public knowledge;
(g) except in the ordinary course of business consistent with past
practice, granted any general increase in the compensation or benefits of
employees or any increase in the compensation or benefits payable or to become
payable to any employee (including, in each case, any such increase pursuant to
any current or newly adopted bonus, pension, severance, profit-sharing or other
plan, agreement, arrangement or commitment);
-8-
(h) declared, paid or set aside for payment any amounts in the nature
of bonuses to any of its officers or employees;
(i) terminated any employees or officers whose services are key,
individually or in the aggregate, to ATS, or otherwise hired or terminated
employees other than in the ordinary course of business;
(j) made any capital expenditures or commitments or entered into any
capital leases in excess of $25,000 in the aggregate for additions to property,
plant or equipment;
(k) declared, paid or set aside for payment (whether in cash, assets or
stock) any dividend or other distribution in respect of its capital stock or any
other ATS securities or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or any other ATS securities or any
securities of any Affiliate of ATS;
(l) made any change in any method of accounting or accounting practice;
(m) except in the ordinary course of business, paid, loaned or advanced
any amount to, or sold, transferred or leased any properties or assets to, or
entered into any agreement or arrangement with any of its stockholders, officers
or directors, or any Affiliate or Associate of any of its stockholders, officers
or directors;
(n) issued, sold, or delivered, or otherwise increased the amount or
number of, shares of its capital stock or options, warrants or rights to acquire
any such capital stock or securities convertible into or exchangeable for such
capital stock;
(o) except in the ordinary course of business, collected any material
lease or other material payment in advance of the date that it was due;
(p) except in the ordinary course of business, delivered any material
product or material service to customers in advance of the date that it was due;
(q) except in the ordinary course of business, delayed material payment
of any accounts payable;
(r) entered into any other material transaction, contract or commitment
other than in the ordinary course of business and other than as contemplated
hereby or described in this Agreement;
(s) except in the ordinary course of business, granted any right or
license with respect to any of its material property, assets, or business or
entered into or canceled any material licensing or distributorship arrangements;
(t) to the knowledge of ATS, after inquiry, experienced any theft,
damage, destruction or loss (whether or not covered by insurance) in excess of
$5,000 to any of its properties or assets;
-9-
(u) experienced any strike or other labor dispute affecting its
business, condition, operations or assets;
(v) experienced any loss of employees, suppliers, or customers
materially adversely affecting its business, condition, operations, or assets;
or
(w) agreed, whether in writing or otherwise, to take any action
described in this Section 5.9.
5.10 Title to Properties; Encumbrances. Except as sold or disposed of
in the ordinary course of business, ATS has good and marketable title to all of
the properties and assets reflected as being owned by ATS in the Balance Sheet
and all the owned properties and assets purchased or otherwise acquired by ATS
since the date of the Balance Sheet. Except for Permitted Encumbrances (as
defined below) or as set forth in Section 5.10 of the Disclosure Schedule, none
of such properties or assets is subject to any Encumbrance. The rights,
properties and other assets presently owned, leased or licensed by ATS include
all rights, properties and assets necessary to permit ATS to conduct its
business in substantially the same manner as it has been conducted immediately
prior to the date of this Agreement. As used herein, "Permitted Encumbrances"
means (a) those Encumbrances disclosed in the Balance Sheet or the Annual
Balance Sheet, (b) statutory liens for current taxes or assessments not yet
delinquent or the validity of which are being contested in good faith by
appropriate proceedings, (c) mechanics', carriers', workers', repairmen's and
other similar liens arising or incurred in the ordinary course of business with
respect to charges not yet due or payable and (d) such other Encumbrances, if
any, which do not significantly interfere with the present use of the assets or
property of ATS.
5.11 Plant and Equipment. The plants, structures and equipment of ATS
(owned or leased) are adequate for the conduct of the business of ATS as
currently conducted. ATS has not received any notification that it is in
violation of any applicable building, zoning, anti-pollution, environmental,
health or other law, ordinance or regulation in respect of its plants or
structures or operations. To the knowledge of ATS, no such violation exists, and
all related material permits, licenses and other authorizations under such laws
have been obtained and are in effect and complied with in all material respects.
5.12 Leases. Section 5.12 of the Disclosure Schedule contains a
complete list, as of the date hereof, of all leases pursuant to which ATS leases
any real property and any material personal property. All such leases are valid,
binding and enforceable in accordance with their terms, and are in full force
and effect; ATS enjoys peaceful and undisturbed possession under each such lease
and there are no existing material defaults by ATS or, to ATS's knowledge, the
other party thereunder; to ATS's knowledge, no material event of default has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute such a default thereunder;
and all lessors under such leases have consented (where such consent is
necessary) to the consummation of the transactions contemplated by this
Agreement if required by the terms of the applicable lease. To the knowledge of
ATS, all leased property is free of any material defects.
5.13 Bank Accounts. Section 5.13 of the Disclosure Schedule sets forth
the names and locations of all banks, trust companies, savings and loan
associations and other
-10-
financial institutions at which ATS maintains safe deposit boxes or accounts of
any nature and the names of all persons authorized to draw thereon, make
withdrawals therefrom or otherwise have access thereto. As at November 30, 2000,
ATS held cash and cash equivalents aggregating not less than $700,000 in the
financial institution listed in Section 5.13 of the Disclosure Schedule.
5.14 Litigation. Except as set forth in Section 5.14 of the Disclosure
Schedule, there is no legal, administrative, arbitration or other proceeding,
claim, or action of any nature or investigation pending or, to the knowledge of
ATS, threatened against or involving ATS or any of its properties or assets
(including without limitation any product liability claim for products sold by
ATS prior to the date hereof) or which questions or challenges ATS's
participation in the transactions contemplated by this Agreement or any other
Transaction Document to which it is a party or any action taken or to be taken
by ATS pursuant to this Agreement or any other Transaction Document to which it
is a party or in connection with the transactions contemplated hereby or
thereby. ATS does not know of any valid basis for any such legal,
administrative, arbitration or other proceeding, claim, or action of any nature
or investigation. ATS is not subject to any judgment, order, injunction or
decree entered in any lawsuit or proceeding which has had a material adverse
effect, or which is expected to have a material adverse effect on ATS's ability
to conduct its business as currently conducted.
5.15 Taxes.
(a) ATS has filed all Tax Returns (or the Tax Returns have been filed
on behalf of ATS) required to be filed by applicable law. All Tax Returns were
true, complete and correct and filed on a timely basis. ATS has paid all Taxes
that are due, or claimed or asserted by any taxing authority to be due, from ATS
for the periods covered by the Tax Returns. ATS (and any predecessor of ATS) has
been a validly electing S corporation within the meanings of Sections 1361 and
1362 of the Code at all times since June 7, 1988, and ATS will be an S
corporation until and including the Closing Date.
(b) Except as set forth in Section 5.15(b) of the Disclosure Schedule,
ATS has established on its books and records reserves adequate to pay all Taxes
not yet due and payable. ATS has made available to Vertex complete and accurate
copies of all work papers associated with the calculation of ATS's Tax reserves.
(c) Except as set forth in Section 5.15(c) of the Disclosure Schedule,
there are no tax liens upon the assets of ATS except Liens for Taxes not yet
due.
(d) Except as set forth in Section 5.15(d) of the Disclosure Schedule,
ATS has not requested (and no request has been made on ATS's behalf) any
extension of time within which to file any Tax Return.
(e) Except as set forth in Section 5.15(e) of the Disclosure Schedule,
(i) ATS has not entered into any agreements with any taxing authority extending
the statute of limitations for the assessment of Taxes; (ii) there are no
ongoing audits or administrative proceedings with respect to any Taxes of ATS;
and (iii) no deficiency for any Taxes has been suggested, proposed, asserted or
assessed against ATS that has not been resolved and paid in full.
-11-
(f) Except as set forth in Section 5.15(f) of the Disclosure Schedule,
no audits or other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of ATS.
(g) Except as set forth in Section 5.15(g) of the Disclosure Schedule,
ATS has not received any written ruling of a taxing authority relating to Taxes
or entered into any written and legally binding agreement with any taxing
authority relating to Taxes.
(h) Except as set forth in Section 5.15(h) of the Disclosure Schedule,
ATS has made available to Vertex complete and accurate copies of all Tax Returns
and associated work papers filed by or on behalf of ATS for all taxable years
ending on or prior to the date of this Agreement.
(i) ATS is not party or subject to, or bound by, any agreements
relating to the allocation or sharing of Taxes.
(j) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Code 'SS'6662) by ATS have been
adequately disclosed on ATS's Tax Returns in accordance with Code
'SS'6662(d)(2)(B).
(k) Except as set forth on Schedule 5.15(k) of the Disclosure Schedule,
ATS has not at any time during ATS's existence owned any subsidiaries (including
any "qualified subchapter S Subsidiaries" within the meaning of Section
1361(b)(3)(B) of the Code).
5.16 Benefit Plans. (a) Except as set forth in Section 5.16 of the
Disclosure Schedule, there are no Plans maintained or contributed to by ATS
under which ATS has any material liability, or in which any employees of ATS
participate.
(b) Except as set forth in Section 5.16 of the Disclosure Schedule,
neither ATS nor any Member of the Controlled Group has ever sponsored or
contributed to, or had any liability with respect to, a defined benefit pension
plan subject to Title IV of ERISA, including a defined benefit pension plan that
is a multiemployer plan as described in Section 3(37) of ERISA, or any Plan
subject to Section 302 of ERISA or Section 412 of the Code.
(c) Except as set forth in Section 5.16 of the Disclosure Schedule, no
employees of ATS participate in any welfare benefit plan which provides health
benefits to an employee after the employee's termination of employment or
retirement except as required under Section 4980B of the Code and Sections 60l
through 608 of ERISA or applicable state law.
(d) To the knowledge of ATS, except as set forth in Section 5.16 of the
Disclosure Schedule, each Plan which is an "employee benefit plan," as defined
in Section 3(3) of ERISA, has been administered in compliance in all material
respects with its terms and the requirements provided by any and all statutes,
orders or governmental rules or regulations applicable to the Plan, including
but not limited to ERISA and the Code. Each Plan and its related trust that are
intended to qualify under Section 401(a) of the Code and Section 501(a) of
-12-
the Code are the subject of a favorable determination or opinion letter from the
Internal Revenue Service as to such tax-qualified status.
(e) To the knowledge of ATS, all reports, forms and other documents
required to be filed with any governmental entity with respect to any Plan have
been timely filed and are accurate.
(f) To the knowledge of ATS, all contributions due prior to the date of
this Agreement with respect to any of the Plans for all periods ending prior to
the date of this Agreement (including periods from the first day of the current
plan year to the date of this Agreement) have been made in accordance with past
practice and the recommended contribution in any applicable actuarial report.
(g) With respect to each Plan required to be disclosed in Section 5.16
of the Disclosure Schedule:
(i) to the knowledge of ATS, no prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred for
which a statutory exemption is not available;
(ii) no action or claims (other than routine claims for benefits made
in the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) have been brought, or are
pending, or, to the knowledge of ATS, are threatened or imminent against or
with respect to the Plan, any employer who is participating (or who has
participated) in the Plan or any fiduciary (as defined in Section 3(21) of
ERISA) of the Plan; and
(iii) neither ATS nor any fiduciary has any knowledge of any facts
which could reasonably be expected to give rise to any such action or claim
described in clause (ii), above.
(h) Neither ATS nor any Member of the Controlled Group has any material
liability or, to the knowledge of ATS, is threatened with any material liability
(whether joint or several) (i) for any excise tax imposed by Sections 4975,
4976, 4977 or 4979 of the Code, or (ii) for a fine under Section 502 of ERISA,
(iii) or for any liability under Section 4062, 4063, 4064, 4069 or 4201 of
ERISA, Section 412(c)(11) of the Code or Section 302(c)(11) of ERISA.
(i) All of the Plans listed in Section 5.16 of the Disclosure Schedule,
to the extent applicable, have been maintained in compliance in all material
respects with the continuation of group health coverage provisions contained in
Section 4980B of the Code and Section 601 through 608 of ERISA.
(j) Except as set forth in Section 5.16 of the Disclosure Schedule,
true, correct and complete copies of all documents evidencing any Plan listed in
Section 5.16 of the Disclosure Schedule have been delivered to Vertex, and a
true, correct and complete copy of the most recent annual report on Form 5500
filed with the Internal Revenue Service for any Plan have been delivered to
Vertex.
-13-
(k) To ATS's knowledge, all expenses and liabilities relating to all of
the Plans described in Section 5.16 of the Disclosure Schedule have been, and as
of the date of this Agreement are, fully and properly accrued on the books and
records of ATS and its subsidiaries and disclosed to Vertex in Plan financial
statements.
5.17 Contracts and Commitments; No Default.
(a) Except for contracts, commitments, plans, agreements, licenses,
leases, sales orders, purchase orders and other matters (written or, to the
knowledge of ATS, oral) set forth in Section 5.17 of the Disclosure Schedule:
(i) ATS does not have an employment agreement with any officer,
employee or agent, or any agreement that contains any severance or
termination pay liabilities or obligations, nor is ATS subject to any
liabilities or obligations relating to severance, termination or vacation
pay (apart from normal vacation allowances and accrued compensation and
benefits payable in the ordinary course of business);
(ii) ATS does not have collective bargaining or union contracts or
agreements;
(iii) ATS is not restricted by agreement from carrying on its business,
or any part thereof, anywhere in the world, or from competing with any
Person in a line of business similar to any aspect of its business, nor is
ATS the beneficiary of any agreement restricting any other Person from
carrying on its business, or any part thereof, or from competing with ATS
in any line of business;
(iv) ATS does not have any debt obligation for borrowed money,
including guarantees of or agreements to acquire any such debt obligation
of others;
(v) ATS is not subject to any obligation or requirement to provide
funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any Person whether under a loan agreement,
note or otherwise;
(vi) ATS is not a party to any agreement, contract, commitment or loan
to which any of its officers, directors or stockholders or any Affiliate or
Associate of ATS is a party;
(vii) ATS is not a party to any purchase or sale contract or agreement
that continues for a period of more than twelve months (including periods
covered by any option to renew by either party);
(viii) ATS is not a lessor under any lease intended as security, an
owner participant in any leveraged lease transaction or a party to a vendor
arrangement or conditional sales agreement;
(ix) ATS has not given any power of attorney to any Person for any
purpose whatsoever; and
-14-
(x) ATS is not a party to, nor is it subject to, any other material
agreements, contracts, commitments or restrictions.
(b) True and complete copies of all documents (including all amendments
thereto) referred to in Section 5.17(a) have been delivered to Vertex. Section
5.17 of the Disclosure Schedule contains a list of all employees of ATS and
their annual compensation and job descriptions. All contracts, agreements,
commitments or restrictions referred to in Section 5.17(a) are valid and
enforceable in accordance with their respective terms against ATS, and, to the
knowledge of ATS, the other party or parties thereto. ATS is not materially in
default in the performance of any of its obligations thereunder; no event has
occurred which (whether with or without notice, lapse of time, or both, or the
happening or the occurrence of any other event) would constitute such a material
default thereunder by ATS; all parties under such contracts and agreements have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement if required by the terms of the
applicable contract or agreement; and to ATS's knowledge, all other parties
thereto are not in material default thereunder and have no counterclaims,
offsets and defenses with respect thereto.
5.18 Inventory. The inventory of ATS is of merchantable quality, is not
obsolete, and is salable within a commercially reasonable period in accordance
with past practices in the ordinary course of business. Except as set forth in
Section 5.18 of the Disclosure Schedule the value of the inventory of ATS is
carried on the books of ATS at the lesser of cost or market value. Except as set
forth in Section 5.18(a) of the Disclosure Schedule , since December 31, 1999
ATS has not sold or otherwise disposed of, or acquired, any inventory (other
than obsolete inventory) except in the ordinary course of business consistent
with ATS's past policies and practices (without limiting the generality of the
foregoing, ATS has not shipped inventory except in bona fide arm's-length
transactions in the ordinary course of business consistent with ATS's past
policies and practices, consistently applied).
5.19 Accounts Receivable. Except as set forth in Section 5.19 of the
Disclosure Schedule, all accounts receivable of ATS which arose on or before the
date of this Agreement, whether or not reflected in the Balance Sheet, (i)
represent sales actually made in the ordinary course of business; (ii) will be
collected in full without any set off within 180 days after the date hereof; and
(iii) are valued in accordance with GAAP. ATS has not received notice of any
counterclaims or setoffs against such accounts receivable for which reserves
have not been established.
5.20 Customers and Suppliers. Section 5.20 of the Disclosure Schedule
sets forth for the twelve-month period ended on December 31, 1999 and the
nine-month period ended September 30, 2000: (a) a list of the amounts collected
from sales to the top 10 customers of ATS during such periods; and (b) a list of
the amounts paid to the top 5 suppliers of ATS for purchases during such periods
from such suppliers. Except as set forth on Schedule 5.20, since December 31,
1999, ATS has not received notice of any material adverse change in the business
relationships of ATS with any of the customers or suppliers to whom the amounts
set forth in Section 5.20 of the Disclosure Schedule relate.
-15-
5.21 Permits and Other Operating Rights. Except as set forth in Section
5.21 of the Disclosure Schedule, ATS does not require the consent of any third
Person to permit it to operate its business in substantially the manner in which
it presently is being conducted, and possess all material permits and other
authorizations from third Persons, including without limitation, federal,
foreign, state and local governmental authorities, presently required by
applicable provisions of law, including statutes, regulations and existing
judicial decisions, and by the property and contract rights of third Persons,
necessary to permit it to operate its business in substantially the manner in
which it presently is being conducted.
5.22 Compliance With Law. ATS is in material compliance with all laws,
regulations and orders applicable to it and its properties and assets. Except as
set forth in Section 5.22 of the Disclosure Schedule, ATS has not received any
notification that it is in violation of any such laws, regulations or orders.
5.23 Warranty or Other Claims. Except as set forth in Section 5.23 of
the Disclosure Schedule, other than for warranty claims in the ordinary course
of business, to the knowledge of ATS, there are no existing, threatened,
anticipated or contemplated claims or any facts upon which such a claim could be
based, against it, for products which are defective or fail to meet any written
product warranties. Since December 31, 1999, no claim has been asserted against
ATS for renegotiation or price redetermination of any material business
transaction and, to the knowledge of ATS, there are no facts upon which any such
claim could be based.
5.24 Intellectual Property. ATS owns, or is licensed or otherwise has
the full right to use, all Intellectual Property material to, and used in or
necessary for the conduct of, its business as currently conducted. Section 5.24
of the Disclosure Schedule contains an accurate and complete description of all
such Intellectual Property used or proposed to be used by ATS in the operation
of its business. Except as set forth on Section 5.24 of the Disclosure Schedule
and except for Intellectual Property licensed by ATS to third Persons, to ATS's
knowledge, ATS has the sole and exclusive right to use such Intellectual
Property and the consummation of the transactions contemplated hereby will not
alter or impair any such rights. Except for Intellectual Property licensed by
ATS to third Persons, no claims have been asserted by any Person to the use of
any such Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement relating to such Intellectual
Property, and there is no valid basis for any such claim and the use of such
Intellectual Property by ATS does not infringe on the rights of any Person.
Except for Intellectual Property licensed by ATS to third Persons, ATS has full
right, title and interest in and to, pursuant to existing agreements and/or
applicable law, all material Intellectual Property developed by or on behalf of
any present or past employee of ATS while so employed, and all such Intellectual
Property now used or proposed to be used by ATS is the property of ATS.
5.25 Labor Difficulties. To the knowledge of ATS, (i) ATS is and has
been in material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements, and (ii) there
is no organizational effort being made or threatened involving any employees of
ATS. No actions, claims, proceedings or investigations relating to employment
have been brought, are pending or, to the knowledge of ATS, are threatened, by
or before any
-16-
governmental agency including, without limitation, the National Labor Relations
Board or the Equal Employment Opportunity Commission.
5.26 Hazardous Materials. ATS is not in material violation of any
federal, state or local Environmental Laws applicable to it or its properties,
or any material limitations, restrictions, conditions, standards, obligations or
timetables contained in any Environmental Law or any regulation, code, plan,
order, decree, notice or demand letter issued, entered, promulgated or approved
thereunder. No notice or action alleging such violation is pending or, to ATS's
knowledge, threatened, and, to ATS's knowledge, no past or present condition or
practice of the businesses conducted by ATS would prevent continued compliance
with applicable permits or give rise to any common law or statutory liability or
otherwise form the basis of any claim, action or proceeding with respect to ATS
involving any pollutant or hazardous or toxic material or waste. ATS has no
liability, present or past, under CERCLA, including, without limitation, as the
result of their ownership or operation of any "facility" as defined in CERCLA,
or their arrangement for disposal, treatment or transport of "hazardous
substances," also as defined in CERCLA.
5.27 Insurance. Section 5.27 of the Disclosure Schedule contains an
accurate and complete list of all material policies of or binders for casualty,
liability, worker's compensation and other forms of insurance owned or held by
ATS and all pending or anticipated claims thereunder. All such policies, or
binders therefor, are in full force and effect, all premiums with respect
thereto have been paid and no notice of cancellation or termination has been
received with respect to any such policy or binder. No additional premiums are
due on such policies or binders and they will remain in full force and effect
through the respective dates set forth in Section 5.27 of the Disclosure
Schedule and such policies or binders will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by the Agreement.
ATS has not been refused any insurance with respect to its assets or operations,
nor has its coverage been limited, by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last five years. ATS has not received any notification from any insurer, agent
or broker denying or disputing any claim made by ATS, or any coverage for any
such claim or the amount of any claim, and no such denied or disputed claims are
pending.
5.28 Disclosure. No representations or warranty of ATS contained in
this Agreement, and no statement contained in any section of the Disclosure
Schedules or any document explicitly listed in the Disclosure Schedules or
otherwise made part of the Disclosure Schedules contains or will contain any
untrue statement of material fact or, when all such representations, warranties
and statements are taken as a whole, omits or will omit to state any material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
5.29 Insider Interests. Except as set forth in Section 5.29 of the
Disclosure Schedule, no officer, director or stockholder of ATS has any interest
(other than as a stockholder of ATS) in any property, real or personal, tangible
or intangible, including without limitation, Intellectual Property used in or
pertaining to the business of ATS.
-17-
5.30 Employees.
(a) Section 5.30 of the Disclosure Schedule discloses all of the
material terms and conditions of employment for each employee of ATS not
generally applicable to all employees of ATS, and, except as disclosed in
Section 5.30 of the Disclosure Schedule, no employee of ATS is entitled to any
benefit not generally applicable to all employees of ATS (other than benefits
the value of which aggregate less than $1,000 per year, per employee).
(b) Except as set forth in Section 5.30 of the Disclosure Schedule, no
"leased employee", as defined in Section 414(n) of the Code, performs services
for ATS.
(c) Except as set forth in Section 5.30 of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will, by virtue of any plan,
contract, agreement or policy (written or oral) adopted by ATS or entered into
between ATS and any employee of ATS, (i) entitle any current or former employee
or current or former officer or director of ATS to severance pay, unemployment
compensation, or any other payment or benefit or (ii) accelerate the time of
payment or vesting, increase the amount of, or require or result in the funding
of any compensation or benefit due any such current or former employee, officer,
or director.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF VERTEX
Vertex represents and warrants to ATS and the Stockholders as follows:
6.1 Corporate Organization; Etc. Each of Vertex and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full corporate power and
authority to carry on its business as it is now being conducted and to own,
lease and operate its properties and assets. Each of Vertex and its subsidiaries
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in every jurisdiction in which the character or location of the
property owned or leased by it or the conduct of its business requires such
licensing or qualification, and in which the failure to qualify would have a
material adverse effect on the condition (financial or otherwise), of Vertex and
its subsidiaries, taken as a whole. The copies of each of Vertex's and its
subsidiaries Certificate of Incorporation, as amended to date, By-laws, as
currently in effect and in the form delivered to ATS, are complete, correct and
in full force and effect, and neither Vertex nor any of its subsidiaries is in
violation of any of the provisions thereof.
6.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of Vertex consists of 32,000,000 shares of common stock, par value
$.005 per share, of which 26,486,693 shares are outstanding (not including
6,758,036 shares reserved for issuance pursuant to stock options, warrants and
other securities exercisable for or convertible into shares of Vertex Common
Stock), and 2,000,000 shares of preferred stock, par value $.005 per share, of
-18-
which no shares are outstanding. All of the foregoing shares and stock options,
warrants and other securities have been duly authorized by all necessary
corporate action and all outstanding shares are validly issued, fully paid and
nonassessable. Except as set forth in the SEC Documents (copies of which have
previously been made available to ATS), no subscriptions, options, warrants
calls or rights of any kind to purchase or otherwise acquire, and no securities
convertible into or exchangeable for, capital stock of Vertex are outstanding
and there are no contracts, commitments, understandings, arrangements or
restrictions relating to the issuance, sale, transfer or purchase by Vertex of
any shares of its capital stock. Vertex is the beneficial owner of all of the
issued and outstanding shares of capital stock of its subsidiaries free and
clear of any Encumbrances.
6.3 Authorization; Etc. Except to the extent contemplated by Sections
8.7 and 9.11; Vertex has full corporate power and authority to enter into this
Agreement, and the other Transaction Documents, and to carry out the
transactions contemplated hereby and thereby. The board of directors and
stockholders of Vertex have taken all action required by law, its Certificate of
Incorporation and By-laws, or otherwise, to authorize the execution, delivery
and performance of this Agreement and the other Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby. This Agreement
and the other Transaction Documents, has been duly and validly authorized,
executed and delivered by Vertex and no other corporate action is necessary.
Each of this Agreement and the other Transaction Documents, is a valid and
binding obligation of Vertex and enforceable against it in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally, or by general equitable principles.
6.4 No Violation. Neither the execution and delivery of this Agreement,
nor any of the other Transaction Documents, by Vertex, nor the performance and
the consummation of the transactions contemplated hereby or thereby, will (a)
violate any provisions of the Certificate of Incorporation or By-laws of Vertex
or any of its subsidiaries, (b) except as would not, individually or in the
aggregate, have a material adverse effect on Vertex or any of its subsidiaries,
violate, or be in conflict with, or constitute a default (or an event which,
with or without due notice or lapse of time, or both, would constitute a
default) under or result in the material modification or termination of, or
cause or permit the acceleration of the maturity of any material debt,
obligation, contract, commitment or other agreement to which Vertex or any of is
subsidiaries is a party or by which Vertex or any of its subsidiaries or its
respective property is or may be bound, (c) result in the creation or imposition
of any material mortgage, pledge, lien, security interest, encumbrance,
restriction, charge or limitation of any kind, upon Vertex or any of its
subsidiaries or any of their respective properties or assets, or (d) except as
would not, individually or in the aggregate, have a material adverse effect on
Vertex or any of its subsidiaries, violate any statute or law or any judgment,
decree, order, regulation, or rule of any court or governmental authority.
6.5 Litigation. There is no legal, administrative, arbitration or other
proceeding, claim, or action of any nature or investigation pending, or to the
knowledge of Vertex, threatened against or involving Vertex or any of its
subsidiaries or any of their respective properties or assets (a) which questions
or challenges the validity of this Agreement or any other Transaction Documents
or any action taken or to be taken by Vertex pursuant to this Agreement
-19-
or any other Transaction Documents or in connection with the transactions
contemplated hereby or thereby, or (b) which is reasonably expected to have a
material adverse effect on Vertex or any of its subsidiaries. Vertex does not
know or has no reason to know of any valid basis for any such legal,
administrative, arbitration or other proceeding, claim, or action of any nature
or investigation. Neither Vertex nor any of its subsidiaries is subject to any
judgment, order, injunction or decree entered in any lawsuit or proceeding which
has had a material adverse effect, or which is expected to have a material
adverse effect on its ability to conduct its business as currently conducted.
6.6 Consents and Approvals. Other than the filing of the Certificate of
Merger and except as contemplated by the Registration Agreement referred to in
Section 8.6, and except as contemplated by Sections 8.7 and 9.11, no consent,
approval or authorization of, or declaration, notice, filing or registration
with, any governmental or regulatory authority or third Person is required to be
obtained or made by Vertex or its subsidiaries in connection with the execution,
delivery and performance of this Agreement or any of the other Transaction
Documents by Vertex and the consummation of the transactions contemplated hereby
or thereby.
6.7 Vertex Common Stock Authorized. On or before the Effective Date of
the Merger, the shares of Vertex Common to be issued to the Stockholders
pursuant to the terms of this Agreement will have been duly authorized by the
board of directors and stockholders of Vertex and, when so issued pursuant to
the terms of this Agreement, will have been validly issued and will be fully
paid and non-assessable shares of Vertex Common, free and clear of preemptive
rights and rights of first refusal and the Stockholders will receive good title
to the shares of Vertex Common free and clear of any Encumbrances. On or before
the Effective Date of the Merger, the shares of Vertex Common issuable upon
exercise of the ATS Stock Options described in Section 3.5 hereof and the
options to be granted to Xxxxxx X. XxXxxx and Xxxxxxxx X. XxXxxx under the
Vertex Stock Option Agreements (as defined in Section 8.12 hereof) (together
with the ATS Stock Options, the "Vertex Options") will have been duly authorized
and reserved for issuance by the board of directors of Vertex and, when issued
and delivered upon exercise of the Vertex Options in accordance with the
agreements governing the Vertex Options, will be validly issued and fully paid
and non-assessable shares of Vertex Common, free and clear of preemptive rights
and rights of first refusal and upon exercise the holders of the Vertex Options
will receive good title to the shares of Vertex Common free and clear of any
Encumbrances.
6.8 Vertex SEC Documents. Vertex has made available to ATS a copy of
the SEC Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
SEC Documents. As of their respective dates, the SEC Documents (including
documents included as exhibits thereto or incorporated by reference therein) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Vertex and its subsidiaries included in such SEC Documents have
been prepared in accordance with GAAP applied on a consistent basis (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited
-20-
statements as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of Vertex and its subsidiaries as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal year-end and audit adjustments and any other
adjustments described therein.
6.9 Absence of Material Changes. Except as and to the extent set forth
in Vertex's SEC Documents, since the date of the respective SEC Documents,
neither Vertex nor any of its subsidiaries has suffered any material adverse
change in its condition (financial or otherwise), assets, liabilities, reserves,
business, operations or prospects.
6.10 Compliance With Law. Vertex and its subsidiaries are in material
compliance with all laws, regulations and orders applicable to it and its
properties and assets. Except as set forth in Vertex's SEC Documents, neither
Vertex nor any of its subsidiaries has received any notification that it is in
violation of any such laws, regulations or orders and no such violation exists.
-21-
ARTICLE VII
ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 Access to Information. From and after the date of this Agreement,
ATS shall provide to Vertex, its employees, agents and representatives
(collectively, "Vertex Representatives") and Vertex shall provide ATS and its
agents and representatives (collectively, "ATS Representatives") full access
during reasonable business hours to all of ATS's and Vertex's, as the case may
be, financial statements, records, files, stock books, minute books, books of
account, reports, contracts, commitments, insurance policies, surety bonds,
leases, tax returns and all other data and information pertinent to its business
as Vertex or ATS, as the case may be, shall reasonably request for the purpose
of investigating the financial status and business of ATS or Vertex, as the case
may be (the "Investigation"). During the Investigation, Vertex or ATS, as the
case may be, at its expense, may make copies of such data and information as it
or they may deem desirable, subject to Section 7.3, and unless it is limited or
restricted from doing so by law or regulation.
7.2 Confidentiality. Any and all data and information obtained by
Vertex or ATS, as the case may be, pursuant to Section 7.1 (the "Information"),
are valuable, special and unique assets of ATS or Vertex, as the case may be.
From and after the date hereof and until the Closing Date or, if this Agreement
is terminated prior to the Closing Date, for a period of one year following the
date of such termination, Vertex and the Vertex Representatives, and ATS and ATS
Representatives, shall treat, hold and maintain the Information, whether written
or oral, and all reports, notes, evaluations, summaries, analyses, compilations,
studies and other documents prepared with respect thereto, as confidential and
shall not disclose any of such Information to any person or entity for any
reason or purpose whatsoever, nor shall they make use of such Information for
their own purposes or for the benefit of any person or entity under any
circumstances other than in connection with Vertex's or ATS's consideration of
the transactions contemplated hereby; provided, that these restrictions shall
not apply to such Information (a) which is, at the time of disclosure, in the
public domain (provided that the disclosing party was not responsible, directly
or indirectly, for such information entering the public domain without ATS's or
Vertex's, as the case may be, consent), or (b) which was disclosed to Vertex or
ATS, as the case may be, by a third party not restricted from disclosing such
Information; and provided further that Vertex or ATS, as the case may be, may
disclose Information (a) if required to do so by the order of a court or other
competent authority or under applicable law, or (b) to its counsel or
professional advisors subject to their agreement to maintain such Information in
strict confidence and not to disclose or use such Information other than in the
course of advising Vertex or ATS, as the case may be. In the event that Vertex
or ATS, as the case may be, is or are requested or required by a court or other
competent authority or under applicable law to disclose Information, Vertex or
ATS, as the case may be, will give ATS or Vertex, as the case may be, prompt
notice of such request or requirements to enable ATS or Vertex, as the case may
be, to seek an appropriate protective order and will consult and cooperate with
ATS or Vertex, as the case may be, such other party in taking steps to resist or
narrow the scope of such request or requirement. The duties and obligations
contained in this Section 7.2 shall supersede any prior agreement between Vertex
and ATS with respect to the subject matter of this Section 7.2.
-22-
7.3 Return of Documents. If this Agreement and the Merger are
terminated prior to Closing for any reason, Vertex and ATS, at their respective
expense and promptly after the date of such termination, shall return to ATS and
Vertex, as applicable, any and all Information obtained pursuant to Section 7.1,
together with all copies thereof and all notes, reports, evaluations, analyses,
summaries, memoranda, compilations, studies and other documents prepared with
respect thereto or, in the alternative, Vertex and ATS shall destroy all such
Information and other data and shall certify such destruction to ATS and Vertex,
as applicable, in writing. The obligations set forth in this Section 7.3 shall
survive any termination of this Agreement.
7.4 Conduct of Business. Except as otherwise provided by this
Agreement, from and after the date hereof and until the Closing Date (or the
earlier termination of this Agreement), each of Vertex and ATS shall conduct its
business only in the ordinary course consistent with past practice.
7.5 Certain Restrictions. Except as otherwise provided or contemplated
by this Agreement, from and after the date hereof and until the Closing Date (or
the earlier termination of this Agreement), ATS shall not:
(a) amend its Certificate of Incorporation or By-laws, or take any
action with respect to any such amendment or any recapitalization,
reorganization, liquidation or dissolution; or
(b) take any action, or cause or permit to occur any event, described
in Sections 5.9(a)-(s) and (w).
Notwithstanding the foregoing, prior to the Effective Date of the
Merger, ATS shall make a distribution(s) to the Stockholders equal to the
Stockholders' best estimate of the difference between (a) the amount of taxes
payable by the Stockholders with respect to the fiscal year(s) ending December
31, 2000 and, if applicable, December 31, 2001, and (b) all distributions
received by the Stockholders since January 1, 2000. On or before April 1, 2001,
Vertex and the Company shall agree upon the actual amount of taxes payable by
the Stockholders with respect to the fiscal year ending December 31, 2000 and,
to the extent that the aggregate distributions paid to the Stockholders shall be
less than or shall exceed such actual amount, then the Stockholders or Vertex,
respectively, shall pay to the other any such shortfall and/or excess.
7.6 Press Releases. ATS and Vertex covenant and agree with each other
that no press release or other public announcement or public disclosure related
to this Agreement, the terms hereof, the transactions contemplated hereby or any
information disclosed in connection herewith will be issued by any party hereto
without the approval of Vertex and ATS; provided that if Vertex has delivered a
copy of such press release or other public announcement or public disclosure to
ATS and has provided ATS with reasonable time to review such press release or
other public announcement or public disclosure and Vertex is unable to obtain
the approval of its press release or other public announcement or public
disclosure from ATS and Vertex is advised by counsel that such press release,
public announcement or public disclosure is required by
-23-
applicable law or the rules of Nasdaq, then Vertex may issue the legally
required press release, public announcement or public disclosure and promptly
furnish ATS with a copy thereof.
7.7 Pooling of Interests. From and after the date hereof and until the
Effective Date of the Merger, neither Vertex, ATS, nor or any of their
respective affiliates shall take any action that would jeopardize the treatment
of the business combination to be effected by the Merger as a "pooling of
interests" for accounting purposes.
7.8 Fulfillment of Conditions. Each of Vertex and ATS will use its best
efforts to take all commercially reasonable steps necessary or desirable and
proceed diligently and in good faith to satisfy each condition to the
obligations of the other party(ies) contained in this Agreement.
7.9 Nasdaq Listing. Vertex shall use its best efforts to cause the
Vertex Common issuable pursuant to the terms of this Agreement (including shares
of Vertex Common issuable upon exercise of the Vertex Options) to be approved
for listing on the Nasdaq National Market prior to the Closing Date.
7.10 Employee Benefits.
(a) Subject to paragraphs (b) and (c) below, Company Employees (as
defined herein) shall participate in all employee benefit plans of Vertex
immediately following the Closing Date, subject to the terms and conditions of
those plans. For purposes of this Section 7.10, "Company Employees" shall mean
persons who are, as of the Closing Date, employees of ATS.
(b) As promptly as practicable after the Closing Date, Vertex shall use
its best efforts to credit Company Employees for all service with ATS prior to
the Closing Date for purposes of eligibility and vesting under all employee
benefit plans, programs, policies, and fringe benefits of Vertex in which they
become participants on or after the Closing Date. With respect to any medical or
dental benefit plan in which Company Employees participate after the Closing
Date, Vertex shall use its best efforts to waive or cause to be waived any
waiting periods, pre-existing condition exclusions and actively-at-work
requirements (provided, however, that no such waiver shall apply to a
pre-existing condition of any Company Employee who was, as of the Closing Date,
excluded from participation in the Company's medical and/or dental plan by
virtue of such pre-existing condition), and shall use its best efforts to
provide that any covered expenses incurred on or before the Closing Date by a
Company Employee or a Company Employee's covered dependent shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions after the Closing Date to the same extent as
such expenses are taken into account for the benefit of similarly situated
employees of Vertex.
(c) Vertex shall use its best efforts to cause each
tax-qualified pension or retirement plan maintained or sponsored by it to allow
all Eligible Company Employees to participate in each such plan immediately
following the Closing Date. For purposes of the foregoing, Eligible Company
Employees are Company Employees who are eligible to participate in the Applied
Tactical Systems, Inc. 401(k) Plan (the "ATS 401(k) Plan") as of the Closing
-24-
Date. ATS shall use its best efforts to cause all benefits under the ATS 401(k)
Plan of participants who are Company Employees as of the Closing Date to be
fully vested and nonforfeitable.
7.11 Continuity of Business Enterprise. Vertex shall continue at least
one significant historic business line of ATS, or use at least a significant
portion of the historic business assets of ATS in a business, in each case
within the meaning of Section 1.368-1(d) of the Treasury Regulations promulgated
under the Code (the "Regulations"); provided, however, that Vertex may transfer
the historic business assets of ATS (a) to a corporation that is a member of
Vertex's "qualified group" (within the meaning of Regulations Section
1.368-1(d)(4)(ii)) or (b) to a partnership if (i) one or more members of
Vertex's qualified group have active and substantial management functions as a
partner with respect to ATS's historic business or (ii) members of Vertex's
qualified group in the aggregate own an interest in the partnership representing
a significant interest in ATS's historic business, in each case within the
meaning of Regulations Section 1.368-1(d)(4)(iii).
ARTICLE VIII
CONDITIONS TO ATS's OBLIGATIONS
The obligation of ATS to effect the transactions contemplated herein
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions:
8.1 Representations and Warranties True. The representations and
warranties of Vertex contained herein shall be true and correct, in all material
respects, on and as of the Closing Date as though made on and as of the Closing
Date, except for those which speak of a particular date or for changes
contemplated by this Agreement.
8.2 No Proceeding or Litigation. No suit, action, investigation,
inquiry or other proceeding by any governmental body or other Person shall have
been instituted or threatened that questions the validity or legality of the
transactions contemplated hereby or that, if successfully asserted, would have a
material adverse effect on the conduct of Vertex's or its subsidiaries' business
or its properties and assets taken as a whole.
8.3 Certificates. Vertex shall have furnished ATS with such
certificates of its officers to evidence compliance with the conditions set
forth in this Article VIII as may be reasonably requested by ATS.
8.4 Consents. Prior to the Closing, Vertex shall have obtained all
necessary approvals and consents required for the consummation of the
transactions contemplated hereby. The costs of obtaining any such approvals or
consents shall be borne by Vertex.
8.5 Absence of Adverse Change. From September 30, 2000 through
the Effective Date of the Merger, there will have been no adverse change in
Vertex's and its subsidiaries' business, their properties or their assets, or
the consolidated financial position of Vertex and its subsidiaries as shown in
the Quarterly Report (other than changes occurring in the
-25-
ordinary course of business) which individually or in the aggregate will have
had a material adverse effect on Vertex's and its subsidiaries' business, its
properties or its assets or the consolidated financial position of Vertex and is
subsidiaries as shown in the Quarterly Report.
8.6 Registration Agreement. Vertex and each of the Stockholders shall
have entered into the Registration Agreement, dated as of the Closing Date,
substantially in the form of Exhibit B.
8.7 Sufficient Vertex Common Stock. Prior to Closing, Vertex shall have
duly and validly amended its Certificate of Incorporation to increase the
authorized shares of Vertex Common to a number which is at least sufficient to
enable Vertex to consummate the transactions contemplated by this Agreement, and
shall provide ATS with appropriate proof of same.
8.8 Escrow Agreement. Vertex, each of the Stockholders and XxXxxxxx &
English, LLP, as escrow agent (the "Escrow Agent"), shall have executed and
delivered an Escrow Agreement, dated as of the Closing Date, substantially in
the form of Exhibit C (the "Escrow Agreement").
8.9 Employment and Non-Competition Agreements. Vertex shall have
entered into (a) Employment Agreements with (i) Xxxxxxx XxXxxx and Xxxxxx XxXxxx
in the form of Exhibit D, and (b) Non-Competition Agreements with each of
Xxxxxxx XxXxxx, Xxxxxx XxXxxx, and Xxxxx Xxxxxxxxxx substantially in the form of
Exhibit E.
8.10 Stock Certificates. Vertex shall have delivered to each of the
Stockholders certificates representing the number of shares of Vertex Common to
be issued to such Stockholder pursuant to the terms of this Agreement.
8.11 Stock Options. Vertex shall granted options to purchase 175,000,
125,000 and 75,000 shares of Vertex Common under the Vertex Non-Qualified Stock
Option Plan to Xxxxxx X. XxXxxx, Xxxxxxx X. XxXxxx and Xxxxxxxx X. XxXxxx,
respectively, and shall have executed and delivered to such individuals option
agreements with respect to the foregoing (the "Vertex Stock Option Agreements").
8.12 Nasdaq Listing. The Vertex Common issuable pursuant to the terms
of this Agreement (including shares of Vertex Common issuable upon exercise of
the Vertex Options) shall have been approved for listing on the Nasdaq National
Market.
ARTICLE IX
CONDITIONS TO VERTEX'S OBLIGATIONS
The obligation of Vertex to effect the transactions contemplated herein
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions:
-26-
9.1 Representations and Warranties True. The representations and
warranties of ATS contained herein shall be true and correct, in all material
respects, on and as of the Closing Date as though made on and as of the Closing
Date, except for those which speak of a particular date or for changes
contemplated by this Agreement.
9.2 Consents. Prior to the Closing, ATS shall have obtained all
necessary approvals and consents required for the consummation of the
transactions contemplated hereby to the extent that the failure to have obtained
the same would be reasonably likely to have a material adverse effect on ATS's
business, properties or assets (taken as a whole). The costs of obtaining any
such approvals or consents shall be borne by ATS.
9.3 Absence of Adverse Change. From September 30, 2000 through the date
hereof, there will have been no adverse change in ATS's business, properties or
assets, or the financial position of ATS as shown in the Balance Sheet (other
than changes occurring in the ordinary course of business or changes disclosed
on the Disclosure Schedule) which individually or in the aggregate will have had
a material adverse effect on ATS's business, properties or assets (taken as a
whole) or on the financial position of ATS as shown in the Balance Sheet.
9.4 No Proceeding or Litigation. No suit, action, investigation,
inquiry or other proceeding by any governmental body or other Person shall have
been instituted or threatened that questions the validity or legality of the
transactions contemplated hereby or that, if successfully asserted, would
otherwise have a material adverse effect on the conduct of ATS's business or on
its properties or assets taken as a whole.
9.5 Escrow Agreement. Vertex, each of the Stockholders and the Escrow
Agent, shall have executed and delivered the Escrow Agreement.
9.6 Affiliate Agreements. Each of the Stockholders shall have executed
and delivered to Vertex a written agreement substantially in the form of Exhibit
F (an "Affiliate Agreement").
9.6 Employment and Non-Competition Agreements. Vertex shall have
entered into (a) Employment Agreements with Xxxxxxx XxXxxx and Xxxxxx XxXxxx in
the form of Exhibit D, and (b) Non-Competition Agreements with each of Xxxxxxx
XxXxxx, Xxxxxx XxXxxx, and Xxxxx Xxxxxxxxxx substantially in the form of Exhibit
E.
9.7 Certificates. ATS shall have furnished Vertex with such
certificates to evidence compliance with the conditions set forth in this
Article IX as may be reasonably requested by Vertex, and ATS shall have provided
for the release from or termination of any and all liens or UCC filings against
ATS and /or any of its assets as of the Closing.
9.8 Stock Certificates. The Stockholders shall have delivered to Vertex
certificates representing all of the issued and outstanding shares of ATS Stock
for exchange in the Merger.
9.9 Certain Lease Amendments. That certain Lease Agreement dated
January 1, 1999 between Research Properties, LLC and ATS, covering the premises
located at
-27-
150 Research Boulevard, Rochester, New York, and that certain Lease Agreement
dated August 1, 1997 between Xxxxxxx X. and Xxxxxxxx X. XxXxxx, covering the
premises located at 00 Xxxxxx Xxxxx, Xxxxxxxxx, Xxx Xxxxxx, shall each have been
amended to provide for a month-to-month term beginning on the first day of the
first month following the Closing Date.
ARTICLE X
TAX MATTERS
10.1 Transfer Taxes. ATS shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar taxes and
fees, including without limitation any New Jersey state gains or transfer taxes
(collectively, "Transfer Taxes") arising out of or in connection with the
transactions effected pursuant to this Agreement.
10.2 Tax Returns, Tax Cooperation.
(a) The Principal Stockholders shall prepare or shall cause to be
prepared and file or cause to be filed all Tax Returns for ATS for all periods
ending on or before the Closing Date which are filed after the Closing Date. The
Principal Stockholders shall permit Vertex, upon its request, to review and
comment on each such Tax Return prior to filing. To the extent permitted by
applicable law, the Principal Stockholders shall include any income, gain, loss,
deduction and other tax items for such periods on their own tax returns in a
manner consistent with the Schedules K-1 prepared in accordance with this
Section 10.2(a) for such periods.
(b) Vertex and the Principal Stockholders shall cooperate fully, as and
to the extent reasonably requested by each party, in connection with the filing
of Tax Returns pursuant to this Section 10.2 and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon a party's request) the provision of records and information reasonably
relevant to any such audit, litigation or other proceeding, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Vertex and the Principal
Stockholders agree (i) to retain all books and records with respect to tax
matters pertinent to ATS relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Vertex or the Principal Stockholders, any extensions thereof)
of the respective taxable periods (provided, however, that nothing herein shall
be construed to interfere with the right of the Principal Stockholders to retain
such books and records with respect to tax matters pertinent to ATS relating to
any taxable period beginning before the Closing Date as the Principal
Stockholders deem necessary or advisable to retain for tax audit purposes), and
to abide by all record retention agreements entered into with any governmental
authority, and (ii) to give the other party reasonable written notice before
transferring, destroying or discarding any such books and records and, if the
other party so requests, Vertex or the Principal Stockholders, as the case may
be, shall allow the other party to take possession of such books and records.
(c) Vertex and the Principal Stockholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any
-28-
other Person as may be necessary to mitigate, reduce or eliminate any tax that
could be imposed (including without limitation any tax with respect to the
transactions contemplated hereby).
(d) Vertex shall not take any action with respect to any Tax Return of
ATS for any period prior to the Closing Date without the prior written consent
of the Principal Stockholders.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification. (a) Vertex, its subsidiaries and Affiliates,
their officers, directors and employees, and their successors and assigns
(collectively, "Vertex Indemnitees") shall be indemnified, defended and held
harmless from and against any and all losses, claims, demands, liabilities,
damages or deficiencies, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and disbursements ("Losses")
in accordance with the terms of this Article XI, to the extent such Losses arise
out of or are incident to any of the following:
(i) any misrepresentation or breach of any warranty made by ATS
in or pursuant to this Agreement;
(ii) any breach of any obligation, agreement, covenant, or other
term or provision hereof to be performed by ATS;
(iii) all Taxes of ATS with respect to any taxable period ending
on or before the Effective Date of the Merger, regardless of any matters
relating to Taxes set forth in Section 5.15 of the Disclosure Schedule
other than Taxes that were fully reserved against and reflected on the
Balance Sheet; and
(iv) any and all actions, suits, proceedings, investigations,
demands, assessments, judgments, or settlements incident to any of the
foregoing.
(b) Each of ATS, its Affiliates, officers, directors and employees, and
their successors and assigns and the Stockholders and their successors and
assigns (collectively, "ATS Indemnities") shall be indemnified, defended and
held harmless from and against any and all Losses in accordance with the terms
of this Article XI, to the extent such Losses arise out of or are incident to
any of the following:
(i) any misrepresentation or breach of any warranty made by Vertex in
or pursuant to this Agreement;
(ii) any breach of any obligation, agreement, covenant, or other term
or provision hereof to be performed by Vertex; and
-29-
(iii) any and all actions, suits, proceedings, investigations, demands,
assessments, judgments, or settlements incident to any of the foregoing.
11.2 Indemnification Threshold. Notwithstanding anything to the
contrary contained in this Agreement, neither the Vertex Indemnities nor the ATS
Indemnities shall be indemnified under Section 11.1 for Losses unless and until
the aggregate amount of all Losses asserted by Vertex Indemnities or ATS
Indemnities, as the case may be, equals or exceeds $500,000, in which event such
indemnities shall be entitled to reimbursement for the full amount of such
Losses in excess of $500,000, subject to the limitations set forth in Section
11.5 hereof. The amount of any indemnity payment due hereunder shall be reduced
by an amount equal to the Tax benefit, if any, actually recognized by such
indemnities as a result of the Loss in question in the Tax year in which the
Loss occurred.
11.3 Notice and Right to Defend.
(a) In the event that any legal proceeding shall be instituted or any
claim or demand shall be asserted by a third party in respect of which indemnity
may be sought by any party hereto (the "Indemnitee") pursuant to the provisions
of Sections 11.1, the Indemnitee shall with reasonable promptness after
obtaining knowledge of such proceeding, claim, or demand give written notice
thereof to the any other party from which indemnification is being sought
pursuant to Section 11.1 (the "Indemnifying Party"), who shall then have the
right at the option and expense of the Indemnifying Party to be represented by
counsel of the Indemnifying Party's choice in connection with such matter, which
counsel shall be reasonably satisfactory to the Indemnitee, and to defend
against, negotiate, settle, or otherwise deal with any such proceeding, claim,
or demand; provided, however, that without the prior written consent of the
Indemnitee (which consent shall not be unreasonably withheld or delayed), the
Indemnifying Party shall not consent to the entry of any judgment in or agree to
any settlement of any such matter; and provided further that the Indemnitee may
retain counsel at the Indemnitee's own expense to represent the Indemnitee in
connection with any such proceeding, claim, or demand. If the Indemnitee refuses
with respect to any such matter to consent to any monetary aspect of any
judgment or settlement favored by the Indemnifying Party and such matter is
later settled for or adjudicated in an amount in excess of the settlement or
judgment amount initially favored by the Indemnifying Party, the Indemnitee
shall be liable to the Indemnifying Party for such excess amount. Failure by the
Indemnifying Party to notify the Indemnitee of the election by the Indemnifying
Party to defend against, negotiate, settle or otherwise deal with any
proceeding, claim, or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the Indemnitee
shall be deemed a waiver by the Indemnifying Party of the Indemnifying Party's
right to defend against, negotiate, settle or otherwise deal with any such
matter; provided, however, that the Indemnitee may assert the Indemnitee's right
to defend against, settle or otherwise deal with any such matter at any time if
the Indemnifying Party is financially unable to defend against, settle or
otherwise deal with such matter. Such assertion may not be made absent
consultation with and written notice to the Indemnifying Party. If the
Indemnifying Party assumes the defense, negotiation, settlement or disposition
of any such proceeding, claim or demand, the Indemnifying Party shall take or
cause to be taken all steps the Indemnifying Party in good xxxxx xxxxx
appropriate, after consultation with the Indemnitee, to defend, negotiate,
settle or deal with any such proceeding, claim or demand, and the Indemnitee
-30-
shall in all events be entitled to indemnity with respect to such matter as and
to the extent provided in this Article XI.
(b) In the event that any legal proceeding shall be instituted or any
claim or demand shall be asserted by a third party in respect of which indemnity
may be sought by the Indemnitee and in the event that the Indemnifying Party
does not elect to defend against, negotiate, settle or otherwise deal with any
such proceeding, claim or demand with respect to which indemnity is sought or
does not take the steps described in the last sentence of paragraph (a) above,
the Indemnitee may defend against, settle, or otherwise deal with any such
proceeding, claim or demand in such manner as it in good xxxxx xxxxx
appropriate, and the Indemnifying Party shall be liable, as and to the extent
provided in this Article XI, for indemnification with respect to such matter
including, without limitation, the cost of such defense (including reasonable
attorney's fees and expenses).
(c) The parties hereto will cooperate fully with each other in
connection with the defense or settlement of any proceeding, claim or demand by
a third party with respect to which a claim for indemnification is made
hereunder.
11.4 Survival of Representations and Warranties. All of the respective
representations and warranties of ATS shall survive the consummation of the
transactions contemplated herein and expire nine (9) months following the
Effective Date of the Merger, warranties in Sections 5.3, 5.5 and 5.6 shall not
expire and shall remain in full force and effect for their respective statute of
limitations. The representations and warranties of Vertex contained herein shall
survive the consummation of the transactions contemplated herein and expire nine
(9) months following the Effective Date of the Merger, provided that the
representations and warranties in Sections 6.3 and 6.7 shall not expire and
shall remain in full force and effect for their respective statute of
limitations. Any claims for indemnification timely asserted under this Article
XI shall survive until such claim is resolved.
11.5 Escrow. At the Closing, Vertex shall deliver to the Escrow Agent
share certificates evidencing the Escrow Shares pursuant to the Escrow
Agreement. In the event that Indemnitee becomes entitled to reimbursement for
Losses pursuant to Section 11.1, Indemnitee shall be entitled to receive
reimbursement only from the Escrow Agent, pursuant to the Escrow Agreement, in
the form of Escrow Shares valued (for such purposes only) at the closing price
per share of Vertex Common as quoted on the Nasdaq National Market and reported
in the Wall Street Journal on the Effective Date of the Merger, and no other
indemnification payments in excess of the value of the Escrow Shares shall be
payable to any Vertex Indemnitees under this Agreement.
11.6 Adjustment to Consideration. The amount of any reimbursement for
Losses shall be characterized as an adjustment to the amount of consideration
paid by Vertex pursuant to the Merger.
ARTICLE XII
TERMINATION
-31-
12.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of
Vertex and ATS;
(b) at any time before the Closing, by Vertex or ATS, in the event (i)
of a material breach hereof by the non-terminating party if such non-terminating
party fails to cure such breach within five (5) business days following
notification thereof by the terminating party or (ii) upon notification of the
non-terminating party by the terminating party that the satisfaction of any
condition to the terminating party's obligations under this Agreement becomes
impossible or impracticable with the use of commercially reasonable efforts if
the failure of such condition to be satisfied is not caused by a breach hereof
by the terminating party; or
(c) at any time after March 31, 2001 by Vertex or ATS upon notification
of the non-terminating party by the terminating party if the Closing shall not
have occurred on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
12.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 12.1, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of Vertex or ATS (or
any of their respective officers, directors, employees, agents or other
representatives or Affiliates), except as provided in the next succeeding
sentence and except that Sections 7.2, 7.3, 7.6 and 13.5 will continue to apply
following any such termination. Notwithstanding any other provision in this
Agreement to the contrary, upon termination of this Agreement pursuant to
Section 12.1(b) or (c), ATS will remain liable to Vertex for any willful breach
of this Agreement by ATS existing at the time of such termination, and Vertex
will remain liable to ATS and the Stockholders for any willful breach of this
Agreement by Vertex existing at the time of such termination.
ARTICLE XIII
MISCELLANEOUS
13.1 Arbitration. The parties to this Agreement agree that any disputes
arising out of, or in connection with, the execution, interpretation,
performance or non-performance of this Agreement (including the validity, scope
and enforceability of this arbitration provision) shall be settled by
arbitration, which shall be conducted in Newark, New Jersey pursuant to the then
prevailing rules of the American Arbitration Association ("AAA") by a panel of
three arbitrators of the AAA (the "Board of Arbitration") acceptable to ATS or
the Stockholders, on the one hand, and Vertex, on the other hand. Each of ATS or
the Stockholders, on one hand, and Vertex, on the other hand, shall select one
(1) member and the third member shall be selected by mutual agreement of the
other members. If the other members fail to reach agreement on a third member
within thirty (30) days after their selection, the parties shall jointly request
the AAA to designate, in accordance with AAA rules, a third member experienced
in industries in which the Surviving Corporation does business. The parties
agree to facilitate the arbitration by (a) making
-32-
available to one another and to the Board of Arbitration for inspection and
extraction all documents, books, records, and personnel under their control or
under the control of a person controlling or controlled by such party if
determined by the Board of Arbitration to be relevant to the dispute, (b)
conducting arbitration hearings to the greatest extent possible on successive
business days and (c) using their best efforts to observe the time periods
established by the rules of the AAA or by the Board of Arbitration for the
submission of evidence and briefs. The decision of the Board of Arbitration
shall be final, binding and not subject to further review, and judgment on the
award of the Board of Arbitration may be entered in and enforced by any court
having jurisdiction over the parties or their assets. If any legal action,
arbitration or other proceeding is brought to interpret or enforce the terms of
this Agreement, each party shall bear its own expense in relation thereto,
including but not limited to such party's attorneys' fees, if any, and the
expenses and fees of the member of the Board of Arbitration appointed by such
party, provided, however, that the expenses and fees of the third member of the
Board of Arbitration and any other expenses of the Board of Arbitration not
capable of being attributed to any one member shall be borne in equal parts by
each of Vertex, on the one hand, and ATS or the Stockholders, on the other hand.
13.2 Finders and Brokers. Each party hereby represents and warrants to
the others that neither it nor its representatives have made any arrangements
for the payment of any finders' fees, brokerage fees, agents' commissions, or
like payments in connection with the transactions contemplated hereby. Each
party shall indemnify and hold harmless the others from any claim that is
asserted by any Person for a finder's or broker's fee or like payment with
respect to this Agreement arising from any act, representation or promise of the
indemnifying party or its representative.
13.3 Amendment. Subject to applicable law, this Agreement may only be
amended or supplemented by written agreement of Vertex, ATS and the
Stockholders.
13.4 Waiver of Compliance. Any failure of any party hereto, to comply
with any provision of this Agreement may be expressly waived in writing by the
other parties hereto, but such waiver or failure to insist upon strict
compliance with such provision shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure to exercise and no
delay in exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
or power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or in
equity. The waiver by any party of the time for performance of any act or
condition hereunder does not constitute a waiver of the act or condition itself.
13.5 Expenses; Attorneys Fees. Vertex on the one hand and ATS on the
other shall pay all expenses incurred by it or on its behalf in connection with
this Agreement or any transaction contemplated hereby.
13.6 Notices. All notices, demands, and other communications required
or permitted hereunder shall be made in writing and shall be deemed to have been
duly given if
-33-
delivered by hand, against receipt, or mailed, postage prepaid, certified or
registered mail, return receipt requested, and addressed as follows:
to ATS or the Stockholders at:
Applied Tactical Systems, Inc.
00 Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxxx X. XxXxxx
Facsimile:
with a copy to:
Xxxxxxxxxx Xxxxxxx, PC
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
to Vertex at:
Vertex Interactive, Inc.
00 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxxxx X.X. Xxxx
Facsimile: (000) 000-0000
with a copy to:
XxXxxxxx & English, LLP
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
Notice of change of address shall be effective only when notice thereof is given
in accordance with this Section. All notices complying with this Section shall
be deemed to have been received on the date of delivery or on the third business
day after mailing.
13.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective heirs, successors
and permitted assigns.
13.8 Governing Law. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of New Jersey, without regard to its rules regarding
conflicts of law.
-34-
13.9 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.10 Headings. The headings of the Sections and Articles of this
Agreement are for reference purposes only and shall not constitute a part hereof
or affect the meaning or interpretation of this Agreement.
13.11 Entire Agreement. This Agreement and the other Transaction
Documents shall be the final expression of the parties' agreement with respect
to the subject matter hereof and may not be contradicted by evidence of any
prior or contemporaneous agreement. Each of this Agreement and the other
Transaction Documents shall constitute the complete and exclusive statement of
its respective terms and no extrinsic evidence whatsoever may be introduced in
any judicial, administrative, or other legal proceeding involving this Agreement
or any of the Transaction Documents.
13.12 Disclosure Schedule. The Disclosure Schedule shall be divided
into sections corresponding to the sections of this Agreement. Disclosure in any
section of the Disclosure Schedule shall only constitute disclosure for purposes
of the corresponding section of the Agreement and not for any other purpose
unless specifically referred to in any other section.
13.13 Certain Definitions.
"Affiliate" or "Associate" shall have the meaning assigned thereto in
Rule 405, as presently promulgated under the Securities Act.
"Annual Balance Sheet" has the meaning ascribed to it in Section 5.7.
"ATS" has the meaning ascribed to it in Section 1.2.
"ATS Common Stock" or "ATS Stock" shall mean the common stock, par
value $.01 per share, of ATS.
"ATS Representatives" has the meaning ascribed to it in Section 7.1.
"ATS Stock Options" has the meaning ascribed to it in Section 3.5(b).
"Balance Sheet" has the meaning ascribed to it in Section 5.7.
"Business Day" shall mean any day that is not a Saturday or a Sunday or
a day on which banks located in New Jersey are authorized or required to be
closed.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Certificate of Merger" has the meaning ascribed to it in Section 5.6.
-35-
"Closing" has the meaning ascribed to it in Section 4.1.
"Closing Date" has the meaning ascribed to it in Section 4.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" shall mean a schedule delivered by ATS prior to
the execution and delivery of this Agreement.
"Effective Date of the Merger" has the meaning ascribed to it in
Section 1.3.
"Environmental Laws" shall mean all laws and regulations relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" has the meaning ascribed to it in Section 8.8.
"Escrow Agreement" has the meaning ascribed to it in Section 8.8.
"Escrow Shares" has the meaning ascribed to it in Section 3.3.
"Exchange Act" has the meaning ascribed to it in Section 6.8.
"Exchange Ratio" has the meaning ascribed to it in Section 3.1(b).
"GAAP" has the meaning ascribed to it in Section 5.7.
"Indemnifying Party" has the meaning ascribed to it in Section 11.3.
"Indemnitee" has the meaning ascribed to it in Section 11.3.
"Inspection Period" has the meaning ascribed to it in Section 7.1.
"Intellectual Property" shall mean all intangible property, including
without limitation all trade names, trademarks, patents, patent applications,
licenses, copyrights, shop rights, technical information, know-how, proprietary
information, processes and trade secrets.
"Liabilities" has the meaning ascribed to it in Section 5.8.
"Losses" has the meaning ascribed to it in Section 11.1.
-36-
"Member of the Controlled Group" shall mean each trade or business,
whether or not incorporated, which would be treated as a single employer with
ATS under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Merger" has the meaning ascribed to it in Section 1.2.
"Person" shall include any individual, partnership, joint venture,
corporation, trust, unincorporated organization, any other entity and any
government or any department or agency thereof, whether acting in an individual,
fiduciary, or other capacity.
"Plan" shall mean (i) any "employee benefit plan" within the meaning of
Section 3(3) of ERISA, (ii) any profit sharing, pension, deferred compensation,
bonus, stock option, stock purchase, other stock-based severance, parachute,
change in control, retainer, consulting, health, welfare or incentive plan,
agreement or arrangement, (iii) any plan or policy providing for "fringe
benefits" to employees, including but not limited to vacation, paid holidays,
personal leave, employee discount, educational benefit or similar programs, or
(iv) any employment agreement.
"Principal Stockholders" shall mean Xxxxxxx X. XxXxxx and Xxxxxx
XxXxxx.
"Pro Rata Share" shall mean the pro rata share of the Escrow Shares of
the relevant Stockholder rounded to the nearest whole number.
"qualified stock options" has the meaning ascribed to it in Section
3.5(b).
"Quarterly Report" shall mean Vertex's Quarterly Report filed on Form
10-Q for the quarter ended September 30, 2000.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean Vertex's Annual Report on Form 10-K for the
year ended July 31, 1999, Vertex's Transition Report on Form 10-K for the period
from August 1, 1999 to September 30, 1999, all Quarterly Reports of Vertex filed
on Form 10-Q and all Current Reports of Vertex filed on Form 8-K since September
30, 1999 and Vertex's Proxy Statement for its 1999 Annual Meeting of
Stockholders (including, in each case, all amendments thereto through the date
hereof and all documents listed as Exhibits thereto).
"Surviving Corporation" has the meaning ascribed to it in Section 1.2.
"Taxes" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies, other assessments, or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any taxes and any expenses incurred in
connection with the determination, settlement or litigation of any Tax
liability.
-37-
"Tax Return" shall mean a report, return or other information
(including any amendments) required to be supplied to a governmental entity by
ATS or the Surviving Corporation, as the case may be, and their subsidiaries
with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes ATS or the
Surviving Corporation, as the case may be, or their subsidiaries.
"to the knowledge of ATS" or "ATS's knowledge" shall mean the actual
knowledge of any of Xxxxxxx X. XxXxxx, Xxxxxx XxXxxx, and/or Xxxxx Xxxxxxxxxx,
after review of such person's own files.
"Transfer Taxes" has the meaning ascribed to it in Section 10.1.
"Vertex Common" has the meaning ascribed to it in Section 1.1.
"Vertex Indemnities" has the meaning ascribed to it in Section 11.1.
"Vertex Representatives" has the meaning ascribed to it in Section 7.1.
-38-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VERTEX INTERACTIVE, INC.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Name:
Title:
APPLIED TACTICAL SYSTEMS, INC.
By: /s/ Xxxxxxx X. XxXxxx
-----------------------------
Name: Xxxxxxx X. XxXxxx
Title: President and CEO
STOCKHOLDERS:
/s/ Xxxxxxx X XxXxxx
-------------------------------
Xxxxxxx X. XxXxxx
/s/ Xxxxxx XxXxxx
--------------------------------
Xxxxxx XxXxxx
/s Xxxxxx Xxxxxxxxxx
--------------------------------
Xxxxx Xxxxxxxxxx
-39-
ANNEXES:
I - Written Consents of ATS Stockholders
EXHIBITS:
A - Stockholders
B - Registration Agreement
C - Escrow Agreement
D - Employment Agreement
E - Form of Non-Competition Agreement
F - Form of Affiliate Agreement
SCHEDULES:
Disclosure Schedule
-40-
EXHIBIT A
Shares Owned/Conversion Shares
ATS Common Stockholders
------------------------------------------------------------------------------------------
Number of Number of Number of Vertex Number of Vertex
ATS Shares Vertex Shares Shares Received Shares Placed in
Stockholder Owned Exchanged at Closing Escrow
------------------------------------------------------------------------------------------
Xxxxxxx X. XxXxxx 2,800,000 2,100,000 1,953,000 147,000
------------------------------------------------------------------------------------------
Xxxxxx XxXxxx 800,000 600,000 558,000 42,000
------------------------------------------------------------------------------------------
Xxxxx Xxxxxxxxxx 400,000 300,000 279,000 21,000
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
TOTAL: 4,000,000 3,000,000 2,790,000 210,000
------------------------------------------------------------------------------------------
1
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as...................................'SS'