AGREEMENT AND PLAN OF MERGER
By and Among
GRC INTERNATIONAL, INC.
and
MAC MERGER CORPORATION
and
MANAGEMENT CONSULTING & RESEARCH, INC.
and
THE MAJOR STOCKHOLDER LISTED HEREIN
August 5, 1999
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TABLE OF CONTENTS
ARTICLE I
The Merger
Section 1.1 The Merger......................................................................... 2
Section 1.2 Closing; Closing Date; Effective Time.............................................. 2
Section 1.3 Effect of the Merger............................................................... 2
Section 1.4 Articles of Incorporation; Bylaws.................................................. 2
Section 1.5 Directors and Officers............................................................. 2
Section 1.6 Supplementary Action............................................................... 3
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1 Merger Consideration; Conversion and Cancellation of Securities.................... 3
Section 2.2 Exchange and Surrender of Certificates and Options................................. 5
Section 2.3 Dissenter's Rights................................................................. 7
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Organization and Qualification..................................................... 8
Section 3.2 Charter, Bylaws and Other Records.................................................. 8
Section 3.3 Capitalization..................................................................... 8
Section 3.4 Authority.......................................................................... 9
Section 3.5 No Conflict; Required Filings and Consents......................................... 10
Section 3.6 Permits; Compliance................................................................ 11
Section 3.7 Financial Statements; Absence of Undisclosed Liabilities........................... 11
Section 3.8 Absence of Certain Changes or Events............................................... 12
Section 3.9 Absence of Litigation.............................................................. 12
Section 3.10 Employee Benefit Plans; Labor Matters.............................................. 12
Section 3.11 Taxes.............................................................................. 15
Section 3.12 Certain Business Practices......................................................... 17
Section 3.13 Environmental Matters.............................................................. 17
Section 3.14 Vote Required...................................................................... 18
Section 3.15 Brokers............................................................................ 19
Section 3.16 Insurance.......................................................................... 19
Section 3.17 Properties......................................................................... 19
Section 3.18 Certain Material Contracts......................................................... 20
Section 3.19 Competing Interests................................................................ 20
Section 3.20 Intellectual Property Rights....................................................... 20
Section 3.21 ESOP............................................................................... 21
Section 3.22 Government Contracts............................................................... 21
Section 3.23 Fairness Opinion................................................................... 22
Section 3.24 Fiduciary Duty..................................................................... 22
Section 3.25 Year 2000 Compliance............................................................... 23
Section 3.26 No Misrepresentation............................................................... 23
ARTICLE IV
Representations and Warranties of the Major Stockholder
Section 4.1 Ownership of Stock................................................................. 23
Section 4.2 Valid and Binding Agreements....................................................... 24
Section 4.3 Consents and Approvals............................................................. 24
Section 4.4 Investment Representations......................................................... 24
Section 4.5 No Misrepresentations.............................................................. 24
ARTICLE V
Representations and Warranties of Parent Companies
Section 5.1 Organization and Qualification..................................................... 24
Section 5.2 Charter and Bylaws................................................................. 25
Section 5.3 Authority.......................................................................... 25
Section 5.4 No Conflict; Required Filings and Consents......................................... 25
Section 5.5 Litigation......................................................................... 26
Section 5.6 SEC Filings........................................................................ 26
Section 5.7 Absence of Material Adverse Change................................................. 26
Section 5.8 Parent Shares...................................................................... 26
Section 5.9 No Misrepresentations.............................................................. 26
ARTICLE VI
Covenants
Section 6.1 Certain Affirmative Covenants of the Company....................................... 26
Section 6.2 Certain Negative Covenants of the Company.......................................... 27
Section 6.3 Additional Covenants............................................................... 30
Section 6.4 Access and Information............................................................. 32
Section 6.5 Public Announcements............................................................... 33
ARTICLE VII
Closing Conditions
Section 7.1 Conditions to Obligations of Each Party Under This Agreement....................... 33
Section 7.2 Additional Conditions to Obligations of the Parent Companies....................... 33
Section 7.3 Additional Conditions to Obligations of the Company................................ 35
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.1 Termination........................................................................ 36
Section 8.2 Effect of Termination.............................................................. 37
Section 8.3 Amendment.......................................................................... 37
Section 8.4 Waiver............................................................................. 37
Section 8.5 Fees, Expenses and Other Payments.................................................. 38
ARTICLE IX
General Provisions
Section 9.1 Effectiveness of Representations, Warranties and Agreements........................ 39
Section 9.2 Notices............................................................................ 39
Section 9.3 Certain Definitions................................................................ 40
Section 9.4 Headings........................................................................... 44
Section 9.5 Severability....................................................................... 44
Section 9.6 Entire Agreement................................................................... 44
Section 9.7 Assignment......................................................................... 45
Section 9.8 Parties in Interest................................................................ 45
Section 9.9 Specific Performance............................................................... 45
Section 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative.............................. 45
Section 9.11 Governing Law...................................................................... 45
Section 9.12 Settlement of Disputes............................................................. 45
Section 9.13 Counterparts....................................................................... 45
Section 9.14 Irrevocable Proxy.................................................................. 46
EXHIBITS
Exhibit A.........Stockholders List
Exhibit B.........Option Holders List
Exhibit C.........Noncompetition Agreement
Exhibit D.........Irrevocable Proxy
Exhibit E.........Opinion of Company Legal Counsel Exhibit F.........Initial
Officers of Surviving Corporation Exhibit G.........Opinion of Legal Counsel for
Parent Companies Exhibit H.........Form of Employment Agreement Exhibit
I.........Indemnification Agreement Exhibit J.........Agreements to be
Terminated
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 5, 1999 (this
"Agreement"), is by and among GRC International, Inc., a Delaware corporation
("Parent"), MAC Merger Corporation, a Virginia corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Management Consulting & Research, Inc.,
a Virginia corporation (the "Company") and the major stockholder of the Company
listed on Exhibit A (the "Major Stockholder"). Parent and Merger Sub are
sometimes referred to herein as the "Parent Companies."
WHEREAS, the Company, upon the terms and subject to the conditions of
this Agreement and in accordance with the Virginia Stock Corporation Act
("VSCA"), will merge with and into Merger Sub (the "Merger"), and pursuant
thereto, (i) the issued and outstanding shares of common stock, $.0015 par
value, of the Company (the "Company Common Stock") not owned directly or
indirectly by the Company or the Parent Companies or their respective
subsidiaries will be converted into the right to receive consideration and (ii)
options to acquire shares of Company Common Stock will be surrendered, canceled
and exchanged for consideration or converted into the right to receive
consideration (together, the consideration for outstanding shares and for the
options is sometimes referred to herein as the "Merger Consideration") as set
forth herein;
WHEREAS, the Board of Directors of the Company has determined that the
Merger is fair to, and in the best interests of, the Company and its
stockholders and has approved and adopted this Agreement and the transactions
contemplated hereby;
WHEREAS, the Board of Directors of Parent has determined that the
Merger is fair to, and in the best interests of, Parent and its stockholders and
has approved and adopted this Agreement and the transactions contemplated
hereby;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted
this Agreement and Parent, as the sole stockholder of Merger Sub, will adopt
this Agreement promptly after the execution hereof by the parties hereto;
WHEREAS, Exhibit A to this Agreement is a list of the owners of the
Company Common Stock and Exhibit B to this Agreement is a list of the holders of
options to acquire Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with VSCA, at the Effective Time (as
defined in Section 1.2 of this Agreement), the Company shall be merged with and
into Merger Sub. As a result of the Merger, the separate corporate existence of
the Company shall cease and Merger Sub shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). Certain terms used in
this Agreement are defined in Section 9.3 hereof.
Section 1.2 Closing; Closing Date; Effective Time. Unless this Agreement shall
have been terminated pursuant to Section 8.1, and subject to the satisfaction or
waiver of the conditions set forth in Article VII, the consummation of the
Merger and the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Dickstein Shapiro Morin & Oshinsky
LLP, 2101 L Street, N.W., Washington, DC as soon as practicable (but in any
event within two business days) after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other date, time and place as
Parent and the Company may agree; provided, that the conditions set forth in
Article VII shall have been satisfied or waived at or prior to such time. The
date on which the Closing takes place is referred to herein as the "Closing
Date." As promptly as practicable on the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing Articles of Merger with the State
Corporation Commission of the Commonwealth of Virginia, in such form as required
by, and executed in accordance with the relevant provisions of, VSCA (the date
and time of such filing, or such later date or time agreed upon by Parent and
the Company and set forth therein, being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of VSCA.
Section 1.4 Articles of Incorporation; Bylaws. At the Effective Time, the
articles of incorporation of Merger Sub, as in effect immediately prior to the
Effective Time (other than as amended to provide for the name Management
Consulting & Research, Inc.), shall be the articles of incorporation of the
Surviving Corporation and thereafter shall continue to be its articles of
incorporation until amended as provided therein and pursuant to VSCA. The bylaws
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the bylaws of the Surviving Corporation and thereafter shall continue to be its
bylaws until amended as provided therein and pursuant to VSCA.
Section 1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the charter and bylaws of the Surviving
Corporation. The initial officers of the Surviving Corporation shall be as set
forth on Exhibit F, each to hold office in accordance with the bylaws of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified. In connection with the Merger, at the
Effective Time or immediately thereafter, Parent shall take such action as may
be necessary or appropriate to cause Gerald R. McNichols to be a director of
Parent immediately after the Effective Time, to hold
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office in accordance with the charter and bylaws of Parent until his successor
is duly elected or appointed and qualified.
Section 1.6 Supplementary Action. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of either of the constituent
corporations, or otherwise to carry out the provisions of this Agreement, the
officers and directors of the Surviving Corporation are hereby authorized and
empowered on behalf of the respective constituent corporations, in the name of
and on behalf of the appropriate constituent corporation, to execute and deliver
any and all things necessary or proper to vest or to perfect or confirm title to
such property or rights in the Surviving Corporation, and otherwise carry out
the purposes and provisions of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 Merger Consideration; Conversion and Cancellation of Securities. The
entire Merger Consideration payable with respect to all shares of capital stock
of the Company issued and outstanding at the Effective Time and all securities
convertible into or exercisable or exchangeable for shares of capital stock of
the Company shall be payable as provided below. At the Effective Time, by virtue
of the Merger and without any action on the part of the Parent Companies, the
Company or their respective stockholders:
(a) Subject to the other provisions of this Article II, the shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any Company Common Stock described in Section
2.l(b) of this Agreement) and the options to acquire the Company Common
Stock outstanding immediately prior to the Closing shall be converted into
the right to receive the Merger Consideration as follows:
(i) with respect to an aggregate 1,563,569 of the issued and
outstanding shares of Company Common Stock held by the Major
Stockholder as of the Effective Time, the right to receive an aggregate
2,000,000 shares of the Parent Common Stock;
(ii) with respect to each of the rest of the issued and outstanding
shares of the Company Common Stock held by Company stockholders
(including the Major Stockholder) as of the Effective Time other than
the shares of Company Common Stock described in clause (i) of this
Section 2.1(a), the right to receive an amount in cash equal to the Per
Share Amount;
(iii) with respect to each of the Company Stock Options outstanding
immediately prior to the Effective Time for which an Option
Cancellation Agreement has been received, the right to receive an
amount of cash (subject to any applicable withholding tax and
conditional upon cancellation of such options), equal to the product of
(A) the Per Share Amount minus the exercise price per share of such
Company Stock Option times (B) the number of shares of Company Common
Stock covered by such Company Stock Option; and
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(iv) with respect to the rest of the Company Stock Options
outstanding immediately prior to the Effective Time for which an Option
Cancellation Agreement has not been received, each such Company Stock
Option shall be converted into and become an option to purchase a
number of shares of Parent Common Stock equal to (A) the number of
shares of Company Common Stock covered by such Company Stock Option
times the Per Share Amount, divided by (B) $8.225. The aggregate
exercise price for all shares of Parent Company Stock covered by each
such converted Company Stock Option shall be equal to the aggregate
exercise price of such Company Stock Option prior to the Effective Time
(adjustment being made hereby to the exercise price per share of Parent
Common Stock covered by such converted Company Stock Option); the
converted Company Stock Option shall be a nonqualified stock option;
and the vesting provisions of the Converted Company Stock Option, shall
continue unchanged from and after the Effective Time.
(b) Notwithstanding any provision of this Agreement to the contrary,
each share of Company Common Stock held in the treasury of the Company and
each share of Company Common Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(c) All shares of the Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired, and each
certificate previously evidencing the Converted Shares shall thereafter
represent the right to receive that amount of cash and/or number of shares
of Parent Common Stock determined pursuant to Section 2.1(a) of this
Agreement. The holders of certificates previously evidencing Converted
Shares shall cease to have any rights with respect to such Converted Shares
except as otherwise provided herein or by law. Such certificates previously
evidencing Converted Shares shall be exchanged for certificates evidencing
cash and whole shares of Parent Common Stock upon the surrender of such
Certificates in accordance with the provisions of Section 2.2 of this
Agreement, without interest. No fractional shares of Parent Common Stock
shall be issued in connection with the Merger. All Company Stock Options
outstanding immediately prior to the Effective Time for which Option
Cancellation Agreements have been received shall be canceled and become the
right to receive the amount of cash determined pursuant to Section
2.1(a)(iii) of this Agreement. The holders of such Company Stock Options
will receive cash (subject to any applicable withholding tax) upon
surrender of their Company Stock Options at or after the Closing Date as
provided in Section 2.2(a) of this Agreement and the applicable Option
Cancellation Agreement. All Company Stock Options outstanding immediately
prior to the Effective Time for which Option Cancellation Agreements have
not been received shall automatically be converted, and become as of the
Effective Time, options to purchase shares of Parent Common Stock as
provided in Section 2.1(a)(iv) of this
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Agreement. The holders of such Company Stock Options will be entitled to
receive amended or revised or replacement option agreements setting forth
the terms of the converted Company Stock Options on or after the Closing
Date as provided in Section 2.2(a) of this Agreement.
(d) Each share of common stock, par value $0.10 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall
remain outstanding and unchanged as one share of common stock, par
value $0.10 per share, of the Surviving Corporation.
Section 2.2 Exchange and Surrender of Certificates and Options.
(a) As soon as practicable after the Effective Time, each holder of a
certificate previously evidencing Converted Shares shall be entitled, upon
surrender thereof to Parent or its transfer or exchange agent (as specified
in the letter of transmittal described in Section 2.2 (c)), to receive in
exchange therefor a certificate or certificates representing the number of
whole shares of Parent Common Stock into which the Converted Shares so
surrendered shall have been converted as aforesaid, in such denominations
and registered in such names as such holder may request, and the amounts of
cash Merger Consideration determined pursuant to Section 2.1(a). Until so
surrendered and exchanged, each certificate previously evidencing Converted
Shares shall represent solely the right to receive Parent Common Stock, and
the amounts of cash Merger Consideration determined pursuant to Section
2.1(a). Unless and until any such certificates shall be so surrendered and
exchanged, no dividends or other distributions payable to the holders of
record of Parent Common Stock as of any time on or after the Effective Time
shall be paid to the holders of such certificates previously evidencing
Converted Shares; provided, however, that, upon any such surrender and
exchange of such certificates, there shall be paid to the record holders of
the certificates issued and exchanged therefor (i) the amount, without
interest thereon, of dividends and other distributions, if any, with a
record date on or after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, if any, with
a record date on or after the Effective Time but prior to surrender and a
payment date occurring after surrender, payable with respect to such whole
shares of Parent Common Stock. Notwithstanding the foregoing, no party
hereto (or Parent transfer agent) shall be liable to any former holder of
Converted Shares for any cash, Parent Common Stock or dividends or
distributions thereon delivered to a public official pursuant to applicable
abandoned property, escheat or similar law. At or after the Closing Date,
holders of Company Stock Options with respect to which Option Cancellation
Agreements have been received shall receive the cash provided for in
Section 2.1(a)(iii) of this Agreement upon surrender and cancellation of
such Company Stock Options. At or after the Closing Date, holders of
Company Stock Options which have been converted into options to purchase
Parent Common Stock shall be entitled to receive amended or revised or
replacement option agreements setting forth the terms of the converted
Company Stock Options in accordance with Section 2.1(a)(iv).
(b) All shares of Parent Common Stock issued and cash Merger
Consideration paid upon the surrender for exchange of certificates
previously representing Converted Shares in accordance with the terms
hereof shall be deemed to have been issued and paid
5
in full satisfaction of all rights pertaining to such Converted Shares. At
and after the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of
Company Common Stock that was outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates which previously
evidenced Converted Shares are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this
Article II.
(c) As promptly as practicable after the Effective Time, Parent will
send or cause to be sent to each record holder of Company Common Stock at
the Effective Time a letter of transmittal and other appropriate materials
for use in surrendering certificates as contemplated hereby to the extent
such certificates have not already been surrendered.
(d) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof (i) that the certificate so surrendered shall be properly endorsed,
with signatures guaranteed, and otherwise in proper form for transfer, (ii)
that it is established to Parent's reasonable satisfaction that such
transfer otherwise be proper, and (iii) that the person requesting such
exchange shall have paid to Parent or its transfer agent any transfer or
other taxes required by reason of the issuance of a certificate for shares
of Parent Common Stock in any name other than that of the registered holder
of the certificate surrendered, or established to the satisfaction of
Parent or its transfer agent that such tax has been paid or is not payable.
Appropriate procedures shall be implemented to deal with lost stock
certificates.
(e) Parent Common Stock issued in connection with the Merger will not
be transferred unless such transfer has been registered under the
Securities Act, and applicable securities laws of other jurisdictions, or
an exemption from registration is available and evidence of such
registration or exemption reasonably satisfactory to Parent is furnished to
Parent. Shares of Parent Stock issued in connection with the Merger shall
be subject to stop transfer instructions and shall be inscribed with the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY
NOT BE SOLD OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT
COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT OR (II) THE
TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT AND, IF GRC
INTERNATIONAL, INC. ("GRC") REQUESTS, AN OPINION SATISFACTORY TO
GRC TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL."
(f) All payments of cash Merger Consideration hereunder shall be made
by Parent or its transfer or exchange agent by mailing checks to the
recipient or (provided the amount payable to such recipient is at least
$20,000) depositing, by bank wire transfer, the required amount (in
immediately available funds) in an account of the
6
recipient, which account shall be designated by the recipient at least
three (3) business days prior the date of the required payment.
(g) Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former
holder of Converted Shares or to the former holder of Company Stock Options
such amounts as Parent (or any affiliate thereof) is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Parent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former holder of the
Converted Shares or to the former holder of options in respect of which
such deduction and withholding was made by Parent.
Section 2.3 Dissenter's Rights. Notwithstanding anything in this Agreement to
the contrary, each share of Company Common Stock that is outstanding immediately
prior to the Effective Time and is held by stockholders who shall not have voted
such shares in favor of adoption of the Merger and who shall have delivered to
the Company a written demand for payment for such shares in the manner provided
in Article 15 of the VSCA ("Dissenting Stock") shall not be converted into the
right to receive the consideration as provided in Section 2.1(a) of this
Agreement, but the holders thereof shall be entitled to payment of the fair
value of such shares in accordance with the provisions of such Article 15. The
amount of the Merger Consideration shall be reduced by the amount of cash which
would otherwise be payable to holders of Dissenting Stock pursuant to Section
2.1(a); provided, however, that (i) if any holder of Dissenting Stock shall
subsequently deliver a written withdrawal of his demand for payment of such
Dissenting Stock (with the written approval of the Surviving Corporation, if
such withdrawal is not tendered within 60 days after the Effective Time), or
(ii) if any holder fails to establish his entitlement to dissenter's rights as
provided in such Article 15, such holder or holders (as the case may be) shall
forfeit the right to payment for such Dissenting Stock and such Dissenting Stock
shall thereupon be deemed to have been converted into the right to receive, as
of the Effective Time, the amount of consideration otherwise payable to such
holder or holders pursuant to Section 2.1(a) of this Agreement. The Company
shall give the Parent Companies (i) prompt notice of any written notices of
intent to demand payment, demands for payment, withdrawals of demands for
payment and any other instruments served pursuant to the VSCA received by the
Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for payment under the VSCA. The Company will not
voluntarily make any payment with respect to any demands for payment and will
not, except with the prior written consent of the Parent's Companies, settle or
offer to settle any demand.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent Companies, and
the Parent Companies in agreeing to consummate the transactions contemplated by
this Agreement have relied upon such representation and warranties, that:
7
Section 3.1 Organization and Qualification. Except as set forth in Schedule 3.1
of the Company Disclosure Schedule, each of the Company and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing would not have a Company Material Adverse Effect. The term
"Company Material Adverse Effect" as used in this Agreement shall mean any
change or effect that, individually or when taken together with all other such
changes or effects, could reasonably be expected to be materially adverse to the
business, operations, assets, prospects, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole.
Schedule 3.1 of the disclosure schedule delivered to Parent by the Company on
the date hereof (the "Company Disclosure Schedule") sets forth, as of the date
of this Agreement, a true and complete list of all the Company's directly or
indirectly owned subsidiaries, together with the jurisdiction of incorporation
or organization of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another subsidiary of the Company. Neither the Company nor any of its
subsidiaries owns an equity interest in any other partnership or joint venture
arrangement or other business entity.
Section 3.2 Charter, Bylaws and Other Records. The Company has heretofore
furnished to Parent complete and correct copies of the charter and the bylaws or
the equivalent organizational documents, in each case as amended or restated, of
the Company and each of its subsidiaries as well as minute books, stock
certificate books and stock record books of the Company and each of its
subsidiaries. Neither the Company nor any of its subsidiaries is in violation of
any of the provisions of its charter or bylaws (or equivalent organizational
documents).
Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of 5,000,000
shares of Company Common Stock, of which as of the date hereof and as of
the Effective Time: (i) 2,498,000 shares were issued and outstanding, (ii)
2,000 shares were held in treasury by the Company, and (iii) 2,000,000
shares were reserved for future issuance pursuant to the outstanding stock
options as shown on Exhibit B ("Company Stock Options"). Except as
described in this Section 3.3 or in Schedule 3.3(a) of the Company
Disclosure Schedule, as of the date of this Agreement, no shares of capital
stock of the Company are reserved for any purpose. Each of the outstanding
shares of capital stock of, or other equity interests in, each of the
Company and its subsidiaries is duly authorized, validly issued, and, in
the case of shares of capital stock fully paid and nonassessable, and has
not been issued or transferred in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in such
entities subject to) any preemptive or similar rights created by statute,
the charter or bylaws (or the equivalent organizational documents) of the
Company or any of its subsidiaries, or any agreement to which the Company
or any of its subsidiaries is a party or bound, and such outstanding shares
or other equity interests owned by the Company or a subsidiary of the
Company are owned
8
free and clear of all security interests, liens, claims, pledges,
agreements, limitations on the Company's or such subsidiary's voting
rights, charges or other encumbrances of any nature whatsoever.
(b) Except as set forth in Section 3.3(a) above or in Schedule
3.3(b)(i) to the Company Disclosure Schedule, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which the Company or any of its subsidiaries is a party
relating to the issued or unissued capital stock of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to
grant, issue or sell any shares of the capital stock of the Company or any
of its subsidiaries, by sale, lease, license or otherwise. Except as set
forth in Schedule 3.3(b)(ii) to the Company Disclosure Schedule, there are
no obligations, contingent or otherwise, of the Company or any of its
subsidiaries to (A) repurchase, redeem or otherwise acquire any shares of
the Company Common Stock or other capital stock of the Company, or the
capital stock or other equity interests of any subsidiary of the Company;
or (B) (other than advances to subsidiaries in the ordinary course of
business) provide material funds to, or make any material investment in (in
the form of a loan, capital contribution or otherwise), or provide any
guarantee with respect to the obligations of, any subsidiary of the Company
or any other person. Neither the Company nor any of its subsidiaries (x)
directly or indirectly owns, (y) has agreed to purchase or otherwise
acquire or (z) holds any interest convertible into or exchangeable or
exercisable for the capital stock of any corporation, partnership, joint
venture or other business association or entity (other than the
subsidiaries of the Company set forth in Schedule 3.1 of the Company
Disclosure Schedule). Except as set forth in Schedule 3.3(b)(iv) of the
Company Disclosure Schedule and except for any agreements, arrangements or
commitments between the Company and its subsidiaries or between such
subsidiaries, there are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may
be entitled to receive any payment based on the revenues or earnings, or
calculated in accordance therewith, of the Company or any of its
subsidiaries. Except as set forth in Schedule 3.3(b)(v) of the Company
Disclosure Schedule, there are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound with respect to the voting of any shares of capital stock of the
Company or any of its subsidiaries.
(c) The Company has delivered to Parent complete and correct copies of
each of the Company Stock Options or a copy of the form thereof and the
Company's Omnibus Stock Plan. Schedule 3.3(c) to the Company Disclosure
Schedule sets forth a complete and correct list of all outstanding Company
Stock Options setting forth as of the date hereof (i) the number and type
of Company Stock Options outstanding, (ii) the exercise price of each
outstanding Company Stock Option, (iii) the number of Company Stock Options
exercisable, and (iv) assuming no amendment or waiver of the terms thereof,
the number of Company Stock Options which will become exercisable on
account of the Merger or any other transaction contemplated hereby.
Section 3.4 Authority. The Company has all requisite power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the
9
transactions contemplated hereby (subject to, with respect to the Merger, the
adoption of this Agreement by the stockholders of the Company as described in
Section 3.14 hereof). The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the adoption of this Agreement by the stockholders
of the Company as described in Section 3.14 hereof). This Agreement has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
Section 3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated hereby will not
(i) conflict with or violate the charter or bylaws, or the equivalent
organizational documents, in each case as amended or restated, of the
Company or any of its subsidiaries, (ii) conflict with or violate any
federal, state, foreign or local law, statute, ordinance, rule, regulation,
order, judgment or decree (individually, "Law" and collectively, "Laws")
applicable to the Company or any of its subsidiaries or by which any of
their respective properties is bound or subject or (iii) except as
described in Schedule 3.5(a) of the Company Disclosure Schedule, result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
require payment under, or result in the creation of a lien or encumbrance
on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
or to which the Company or any of its subsidiaries or any of their
respective properties is bound or subject, except in the case of clauses
(ii) and (iii) above where such conflict, violation, breach, default,
right, requirement, lien, or encumbrance could not be reasonably expected
to have a Company Material Adverse Effect. The Board of Directors of the
Company has taken all actions necessary under VSCA, including approving the
transactions contemplated by this Agreement and taking appropriate actions
under any stockholder protection laws applicable to the Company or any of
its subsidiaries, to ensure that restrictions on business combinations or
the owning or voting of the capital stock of the Company or any of its
subsidiaries do not, and will not apply with respect or as a result of the
transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company does
not, and consummation of the transactions contemplated hereby will not,
require the Company to obtain any consent, license, permit, approval,
waiver, authorization or order of, or to make any filing with or
notification to, any governmental or regulatory authority, domestic or
foreign (collectively, "Governmental Entities"), except for applicable
requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the filing and recordation of
appropriate merger documents as required by VSCA.
10
Section 3.6 Permits; Compliance. Each of the Company and its subsidiaries is in
possession of all material franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Company Permits"), and
there is no action, proceeding or investigation pending or, to the knowledge of
the Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its subsidiaries is in conflict
with, or in default or violation of (a) any Law applicable to the Company or any
of its subsidiaries or by or to which any of their respective properties is
bound or subject or (b) any of the Company Permits. Neither the Company nor any
of its subsidiaries has received from any Governmental Entity any written
notification with respect to possible material conflicts, defaults or violations
of Laws which has not been fully resolved.
Section 3.7 Financial Statements; Absence of Undisclosed Liabilities.
(a) Attached as Schedule 3.7(a) of the Company Disclosure Schedule are
true and complete copies of (a) the unaudited consolidated balance sheet of
the Company and its subsidiaries (the "Latest Balance Sheet") as of June
30, 1999 (the "Latest Balance Sheet Date") and the related unaudited
consolidated statements of operations for the four (4) months then ended,
and (b) the audited consolidated balance sheets of the Company and its
subsidiaries as of February 29, 1996 and February 28, 1997, 1998 and 1999
and the related audited statements of operations and cash flow for the
twelve (12) months each then ended (collectively, the "Financial
Statements"). The Financial Statements present fairly, in all material
respects, the financial condition and stockholders' equity of the Company
and its subsidiaries at the dates specified and the results of its
operations and cash flows of the Company and its subsidiaries for the
periods specified and the audited Financial Statements have been prepared
in accordance with GAAP, consistently applied with the Company's past
practices, and the unaudited Financial Statements have been prepared in
accordance with, except as set forth in Schedule 3.7(a) of the Company
Disclosure Schedule, GAAP consistently applied with the Company's past
practices, subject in the case of the unaudited statements to changes
resulting from normal period-end adjustments for recurring accruals (which
will not be material individually or in the aggregate) and to the absence
of footnote disclosure and other presentation items. The Financial
Statements do not contain any items of a special or nonrecurring nature,
except as expressly stated therein. The Financial Statements have been
prepared from the books and records of the Company and its subsidiaries,
which accurately and fairly reflect, in all material respects, all the
transactions of, acquisitions and dispositions of assets by, and incurrence
of liabilities by the Company and its subsidiaries.
(b) Neither the Company nor any of its subsidiaries have any direct or
indirect debts, obligations or liabilities of any nature, whether absolute,
accrued, contingent, liquidated or otherwise, and whether due or to become
due, asserted or unasserted, known or unknown (collectively,
"Liabilities"), except for (i) Liabilities specifically identified in the
Latest Balance Sheet and (ii) obligations incurred in the ordinary course
of business after the Latest Balance Sheet Date.
11
Section 3.8 Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.8 of the Company Disclosure Schedule, since February 28, 1999, there
has not been: (a) any material adverse change in the condition (financial or
otherwise), results of operations, business, prospects, assets or Liabilities of
the Company and its subsidiaries or with respect to the manner in which the
Company and its subsidiaries conduct business or operations; (b) any
declaration, setting aside or payment (including without limitation any dividend
or other distribution or repayment of indebtedness) to any stockholder, other
than payment of compensation to employees, directors or consultants of the
Company or its subsidiaries in the ordinary course of business and consistent
with past practices; (c) any breach or default (or event that with notice or
lapse of time would constitute a breach or default), termination or threatened
termination under any Material Contract (as defined in Section 3.18(a)); (d) any
material theft, damage, destruction, casualty loss, condemnation or eminent
domain proceeding affecting any of the assets of the Company or its
Subsidiaries, whether or not covered by insurance; (e) any sale, assignment or
transfer of any of the assets of the Company or its subsidiaries, except in the
ordinary course of business and consistent with past practices; (f) any waiver
by the Company or its subsidiaries of any material rights related to the
Company's business, operations or assets; (g) any other material transaction,
agreement or commitment entered into by the Company or its subsidiaries
affecting the business of the Company or its subsidiaries, operations or assets,
except in the ordinary course of business and consistent with past practices; or
(h) any agreement or understanding to do or resulting in any of the foregoing.
Section 3.9 Absence of Litigation. Except as set forth in Schedule 3.9 of the
Company Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of the Company, investigation of
any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries or any properties or rights of
the Company or any of its subsidiaries, and neither the Company nor any of its
subsidiaries is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of the
Company, continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Government Entity or arbitrator,
including, without limitation, cease-and-desist or other orders.
Section 3.10 Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 3.10 to the Company Disclosure Schedule is a
complete and correct list of all "employee benefit plans" (as defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
all plans or policies providing for "fringe benefits" (including but not
limited to vacation, paid holidays, personal leave, employee discount,
educational benefit or similar programs), and each other bonus, incentive
compensation, deferred compensation, profit sharing, stock, severance,
retirement, health, life, disability, group insurance, employment, stock
option, stock purchase, stock appreciation right, supplemental
unemployment, layoff, consulting, or any other similar plan, agreement,
policy or understanding (whether written or oral, qualified or
nonqualified, currently effective or terminated), and any trust, escrow or
other agreement related thereto, which (a) is or has been established,
maintained or contributed to by the Company or any ERISA Affiliate or with
respect to which the Company or any ERISA Affiliate has any liability, or
(b) provides benefits, or describes
12
policies or procedures applicable, to any officer, employee, director,
former officer, former employee or former director of the Company or any
ERISA Affiliate, or any dependent thereof, regardless of whether funded
(each, an "Employee Plan," and collectively, the "Employee Plans").
(b) No written or oral representations have been made to any employee
or officer or former employee or officer of the Company or its subsidiaries
promising or guaranteeing any coverage under any employee welfare plan for
any period of time beyond the end of the current plan year (except to the
extent of coverage required under Code Section 4980B). Except as described
in Schedule 3.10(b) of the Company Disclosure Schedule, the consummation of
the transactions contemplated by this Agreement will not accelerate the
time of payment or vesting, or increase the amount of compensation
(including amounts due under Employee Plans) due to any employee, officer,
former employee or former officer of the Company, or its subsidiaries.
(c) With respect to each Employee Plan, the Company has made available
to Buyer true, correct and complete copies of (i) the plan documents and
summary plan description; (ii) the most recent determination letter
received from the Internal Revenue Service; (iii) the annual reports
required to be filed for the three most recent plan years of each such
Employee Plan; (iv) all related trust agreements, insurance contracts or
other funding agreements which implement such Employee Plan; and (v) all
other documents, records or other materials related thereto reasonably
requested by Buyer.
(d) The Management Consulting & Research, Inc. Profit Sharing Plan and
the ESOP (a) are the only employee pension benefit plans maintained by the
Company or any ERISA Affiliate; and (b) meet the qualification requirements
of the Code in form and operation, and each such plan, and each trust (if
any) forming a part thereof, has received a favorable determination letter
from the Internal Revenue Service as to the qualification under the Code of
such plan and the tax-exempt status of such related trust, and nothing has
occurred since the date of such determination letter that may adversely
affect the qualification of such plan or the tax-exempt status of such
related trust. All Employee Plans purporting to qualify for special tax
treatment under any provision of the Code, including, without limitation,
Code Sections 79, 105, 106, 125, 127, 129, 132, 421 or 501(c)(9) meet the
requirement of such sections in form and in operation. All reports, returns
or filings required by any Governmental Entity have been timely filed in
accordance with all applicable requirements.
(e) No condition exists that would subject the Company, any ERISA
Affiliate or Parent to any excise Tax, penalty tax or fine related to any
Employee Plan. No prohibited transactions, as defined by Section 406 of
ERISA or Section 4975 of the Code, have occurred with respect to any of the
Employee Plans and there is no liability for Taxes with respect to
prohibited transactions under Section 4975 of the Code. Neither the Company
nor any ERISA Affiliate has engaged in any transaction in connection with
which the Company, any ERISA Affiliate or Parent could be subjected to a
criminal or civil penalty under ERISA. No condition exists which would
constitute grounds for involuntary termination of any of the Employee Plans
under Section 4042 of ERISA, and except as set forth on Schedule 3.10 of
the Company Disclosure Schedule, there have
13
been no reportable events as defined in Section 4043(b) of ERISA (other
than events for which the 30-day notice have been waived by the Pension
Benefit Guaranty Corporation), with respect to any Employee Plan that is a
pension benefit plan.
(f) All excess contributions, if any (together with any income
allocable thereto), have been distributed (or, if forfeitable, forfeited)
before the close of the first two and one half (2 1/2) months of the
following plan year for all plan years prior to the plan year ending
February 2000; and there is no liability for excise Tax under Section 4979
of the Code with respect to such excess contributions, if any, for any
Employee Plan. There is no liability for Taxes with respect to: (i) an
accumulated funding deficiency under Section 4971 of the Code; and/or (ii)
nondeductible contributions under Section 4972 of the Code.
(g) No Employee Plan provides for retiree medical or retiree life
insurance benefits for former employees of the Company or any ERISA
Affiliate and there is no liability for Taxes with respect to disqualified
benefits under Section 4976 of the Code. No Employee Plan that is a pension
benefit plan has been terminated by the Company or any ERISA Affiliate
except as set forth on Schedule 3.10 of the Company Disclosure Schedule;
there is no liability for Taxes with respect to a reversion of qualified
plan assets under Section 4980 of the Code; and each terminated Employee
Plan that is a pension benefit plan has completed final distribution of its
assets in accordance with both the terms of the Employee Plan and such
termination.
(h) There have been no failures to comply with the continuation
coverage provisions required by Sections 601-608 of ERISA and Section 4980B
of the Code under any Employee Plan.
(i) There are no Employee Plans that are required to comply with the
provisions of any foreign law.
(j) There are no agreements which will or may provide payments which
will not be deductible under Code Section 280G.
(k) There is no Employee Plan that is subject to Part 3 of Title I of
ERISA or Title IV of ERISA; each Employee Plan has been operated in all
respects in compliance with ERISA, the Code and all other applicable Laws;
none of the Employee Plans is a "multiple employer plan" or "multiemployer
plan" (as described or defined in ERISA or the Code), nor has the Company
or any ERISA Affiliate ever contributed or been required to contribute to
any such plan; there are no material unfunded liabilities existing under
any Employee Plans, and each Employee Plan could be terminated as of the
Closing Date without any material liability to the Parent, the Company or
any ERISA Affiliate.
(l) There are no actions, suits, claims, audits, or investigations
pending or, to the knowledge of the Company, threatened against, or with
respect to, any of the Employee Plans, any trust which serves as a funding
medium for any of the Employee Plans or their respective assets; and all
contributions required to be made to the Employee Plans have been made
timely.
14
(m) All employees of the Company and its subsidiaries are terminable at
the will of the Company, and neither the Company, nor any present or former
director, or officer, employee or agent of the Company has made any binding
commitments of the Company or any of its subsidiaries, written or verbal,
to any present or former director, officer, agent or employee concerning
his term, condition, benefits or employment other than as set forth in
Schedule 3.10.
(n) Neither the Company nor any of its subsidiaries is a party to any
collective bargaining or other labor union contract. No collective
bargaining agreement is being negotiated by the Company or any of its
subsidiaries. The Company and its subsidiaries are in compliance in all
material respects with all applicable laws respecting employment,
employment practices and wages and hours. There is no pending or, to the
knowledge of the Company, threatened labor dispute, strike or work stoppage
against the Company or any of its subsidiaries which may interfere with the
respective business activities of the Company or any of its subsidiaries.
None of the Company, its subsidiaries or any of their respective
representatives or employees has committed any unfair labor practices in
connection with the operation of the respective businesses of the Company
or its subsidiaries, and there is no pending or, to the knowledge of the
Company, threatened charge or complaint against the Company or any of its
subsidiaries by the National Labor Relations Board or any comparable state
agency.
(o) Neither the Company nor any of its subsidiaries is a party to or is
bound by any severance agreements, programs, policies, plans or
arrangements, whether or not written. Schedule 3.10(o) of the Company
Disclosure Schedule sets forth, and the Company has provided to Parent true
and correct copies of, (i) all employment agreements with officers or
employees of the Company or its subsidiaries; (ii) all agreements with
consultants of the Company or its subsidiaries obligating the Company or
any subsidiary to make annual cash payments in an amount exceeding $50,000;
and (iii) all noncompetition agreements with the Company or its
subsidiaries.
(p) Except as set forth on Schedule 3.10(p) of the Company Disclosure
Schedule, since February 28, 1999, there has been no increase in
compensation payable or to become payable to any directors, officers or
employees of the Company or any of its subsidiaries other than increases in
the ordinary course of business after the date hereof with respect to
employees who are not officers or directors.
Section 3.11 Taxes.
(a) Except as set forth on Schedule 3.11(a) to the Company Disclosure
Schedule, each of the Company and its subsidiaries has timely filed all the
Tax Returns that it was required to file. All such Tax Returns were correct
and complete in all material respects. All Taxes owed by any of the Company
and its subsidiaries (whether or not shown on any Tax Return) have been
paid. Adequate reserves and accruals have been established by Company and
its subsidiaries to provide for the payment of all Taxes which are not yet
due and payable with respect to the Company and its subsidiaries for all
taxable periods or portions thereof ending on or before the Effective Time.
Each of the Company and its subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee,
15
independent contractor, creditor, stockholder, or other third party. No
claim has ever been made by an authority in a jurisdiction where any of the
Company and its subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
(b) All Tax Returns of or with respect to the Company or any of its
subsidiaries, with unexpired or extended statutes of limitations, which
have not been audited by the applicable governmental authority are set
forth in Schedule 3.11(b) to the Company Disclosure Schedule.
(c) Except as set forth on Schedule 3.11(c) to the Company Disclosure
Schedule, there is not in force any extension of time with respect to the
due date for the filing of any Tax Return of or with respect to the Company
or any its subsidiaries or any waiver or agreement for any extension of
time for the assessment, collection or payment of any Tax of or with
respect to the Company or any of its subsidiaries.
(d) There are no pending audits, actions, proceedings, investigations,
disputes or claims with respect to or against the Company or any of its
subsidiaries for or with respect to any Taxes, no assessment, deficiency or
adjustment has been assessed or proposed, or threatened with respect to any
Tax Return of or with respect to the Company or any of its subsidiaries,
and there is no reasonable basis on which any claim for Taxes can be
asserted against the Company or any of its subsidiaries.
(e) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in Section 3.7 of this
Agreement are sufficient to cover in all material respects the payment of
all Taxes, whether or not assessed or disputed, which are, or are hereafter
found to be, or to have been, due by or with respect to the Company and any
of its subsidiaries up to and through the periods covered thereby.
(f) The Company has previously delivered to Parent true and complete
copies of each written Tax allocation or sharing agreement and a true and
complete description of each unwritten Tax allocation or sharing
arrangement affecting the Company or any of its subsidiaries.
(g) Except for statutory liens for current Taxes not yet due, no liens
for Taxes exist upon the assets of any of the Company or its subsidiaries.
(h) Neither the Company nor any of its subsidiaries will be required to
include any amount in income for any taxable period or portion thereof
beginning after the Effective Time as a result of a change in accounting
method for any taxable period ending on or before the Effective Time or
pursuant to any agreement with any Tax authority with respect to any such
taxable period.
(i) None of the property of the Company or any of its subsidiaries is
held in an arrangement for which partnership Tax Returns are being filed,
and neither the Company nor any of its subsidiaries owns any interest in
any entity the income of which is required to be included in the income of
the Company or such subsidiary.
16
(j) None of the property of the Company or any of its subsidiaries is
subject to a safe-harbor lease (pursuant to Section 168(f) (8) of the
Internal Revenue Code of 1954 as in effect after the Economic Recovery Tax
Act of 1981 and before the Tax Reform Act of 1986) or is "tax-exempt use
property" (within the meaning of Section 168(h) of the Code) or "tax-exempt
bond financed property" (within the meaning of Section 168(g)(5) of the
Code).
(k) Neither the Company nor any of its subsidiaries has made an
election under Section 341(f) of the Code.
(l) Neither the Company nor any subsidiary (i) has ever been a member
of an affiliated group of corporations (as defined in Section 1504(a) of
the Code) other than the group of which the Company is currently the common
parent or (ii) has any liability for the Taxes of any other person under
Treasury Regulation ss. 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.
(m) Neither the Company nor any subsidiary is or has ever been subject
to Taxes in any jurisdiction outside the United States.
(n) Neither the Company nor any subsidiary has been a United States
real property holding corporation within the meaning of Code section
897(c)(2) during the applicable period specified in Code section
897(c)(1)(A)(ii).
Section 3.12 Certain Business Practices. None of the Company, any of its
subsidiaries or any directors, officers, agents or employees of the Company or
any of its subsidiaries has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
Section 3.13 Environmental Matters. Except for matters that would not result,
individually or in the aggregate with all other such matters, in liability to
the Company or any of its subsidiaries, (i) the properties, operations and
activities of the Company and its subsidiaries are in compliance with all
applicable Environmental Laws; (ii) the Company and its subsidiaries and the
properties and operations of the Company and its subsidiaries are not subject to
any existing, pending or, to the knowledge of the Company, threatened action,
suit, claim, investigation, inquiry or proceeding by or before any governmental
authority under any Environmental Law; (iii) all notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed by the Company
or any of its subsidiaries under any Environmental Law in connection with any
aspect of the business of the Company or its subsidiaries, including without
limitation those relating to the treatment, storage, disposal or release of a
hazardous or otherwise regulated substance, have been duly obtained or filed and
will remain valid and in effect after the Merger, and the Company and its
subsidiaries are in compliance with the terms and conditions of all such
notices, permits, licenses and similar authorizations; (iv) the Company and its
subsidiaries have satisfied and are currently in compliance with all financial
responsibility requirements applicable to their operations and imposed by any
governmental authority under
17
any Environmental Law, and the Company and its subsidiaries have not received
any notice of noncompliance with any such financial responsibility requirements;
(v) to the Company's knowledge, there are no physical or environmental
conditions existing on any property of the Company or its subsidiaries or
resulting from the Company's or such subsidiaries' operations or activities,
past or present, at any location, that would give rise to any on-site or
off-site remedial obligations imposed on the Company or any of its subsidiaries
under any Environmental Laws or that would impact the soil, groundwater, surface
water or human health; (vi) to the Company's knowledge, since the effective date
of the relevant requirements of applicable Environmental Laws and to the extent
required by such applicable Environmental Laws, all hazardous or otherwise
regulated substances generated by the Company and its subsidiaries have been
transported only by carriers authorized under Environmental Laws to transport
such substances and wastes, and disposed of only at treatment, storage, and
disposal facilities authorized under Environmental Laws to treat, store or
dispose of such substances and wastes; (vii) there has been no exposure of any
person or property to hazardous substances or any pollutant or contaminant, nor
has there been any release of hazardous substances, or any pollutant or
contaminant into the environment by the Company or its subsidiaries or in
connection with their properties or operations that could reasonably be expected
to give rise to any claim against the Company or any of its subsidiaries for
damages or compensation; and (viii) the Company and its subsidiaries have made
available to Parent all internal and external environmental audits and studies
and all correspondence on substantial environmental matters in the possession of
the Company or its subsidiaries relating to any of the current or former
properties or operations of the Company and its subsidiaries.
For purposes of this Agreement, the term "Environmental Laws" shall
mean any and all laws, statutes, ordinances, rules, regulations, or orders of
any Governmental Entity pertaining to health or the environment currently in
effect in any and all jurisdictions in which the Company and its subsidiaries
own property or conduct business, including without limitation, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended,
the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of
1990 ("OPA"), any state laws implementing the foregoing federal laws, and all
other environmental conservation or protection laws. For purposes of this
Agreement, the terms "hazardous substance" and "release" have the meanings
specified in CERCLA and RCRA and shall include petroleum and petroleum products,
radon and PCB's, and the term "disposal" has the meaning specified in RCRA;
provided, however, that to the extent the laws of the state in which the
property is located establish a meaning for "hazardous substance," "release," or
"disposal" that is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply.
Section 3.14 Vote Required. The only vote of the holders of any class or series
of the Company capital stock necessary to approve the Merger and adopt this
Agreement is the affirmative vote of the holders of two-thirds of the
outstanding shares of the Company Common Stock.
18
Section 3.15 Brokers. Except as set forth in Schedule 3.15 to the Company
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission payable by the Company or any of
its subsidiaries in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or any of
its subsidiaries.
Section 3.16 Insurance. Schedule 3.16 of the Company Disclosure Schedule sets
forth a complete and correct list of all binders or insurance policies in force
with respect to Company and its subsidiaries and identifies the insurer, type,
the policy number and the period of coverage. Complete and correct copies of all
such policies have been provided to Parent. Except as set forth on Schedule 3.16
of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has been refused any insurance with respect to its business,
operations, properties or any of its assets, nor has coverage been limited by
any insurance carrier to which it has applied for insurance or with which it has
carried insurance, during the last two years.
Section 3.17 Properties. Except as set forth on Schedule 3.17 to the Company
Disclosure Schedule and except for liens arising in the ordinary course of
business after the date hereof and properties and assets disposed of in the
ordinary course of business after February 28, 1999, the Company and its
subsidiaries have good and marketable title, free and clear of all material
liens, to all their properties and assets, whether tangible or intangible, real,
personal or mixed, reflected in the February 28, 1999 consolidated balance sheet
included in the Financial Statements as being owned by the Company and its
subsidiaries as of the date thereof or purported to be owned on the date hereof.
All buildings, and all fixtures, equipment and other property and assets held
under leases by any of the Company or its subsidiaries are held under valid
instruments enforceable by the Company or its subsidiaries in accordance with
their respective terms. All of the Company's and its subsidiaries' equipment in
regular use has been well maintained and is in good and serviceable condition,
reasonable wear and tear excepted.
Section 3.18 Certain Material Contracts.
(a) Schedule 3.18(a) to the Company Disclosure Schedule lists each
agreement and arrangement (whether written or oral and including all
amendments thereto) to which the Company or any of its subsidiaries is a
party or a beneficiary or by which the Company or any of its subsidiaries
is bound that is material, directly or indirectly, to the business of the
Company and any of its subsidiaries, taken as a whole (collectively, the
"Material Contracts"), including without limitation (i) any supply,
distribution or other agreements or arrangements pursuant to which the
Company or its subsidiaries sell or distribute any products or services and
which is not cancelable within 30 days notice without penalty; (ii) any
warranty agreements or arrangements under which the Company or any of its
subsidiaries has any liability with a value in excess of $50,000; (iii) any
capital or operating leases or conditional sales agreements relating to
vehicles or equipment with a value in excess of $50,000; (iv) any
agreements or arrangements pursuant to which the Company or any of its
subsidiaries is entitled or obligated to acquire any assets from a third
party in excess of $50,000; (v) insurance policies; (vi) any employment,
consulting, noncompetition, separation, collective bargaining, union or
labor agreements or arrangements; (vii) any agreement evidencing, securing
or otherwise relating to any indebtedness for which the Company or any of
its
19
subsidiaries has any liability in excess of $50,000, (viii) any agreement
with or for the benefit of any stockholder, director, officer or employee
of the Company or any of its subsidiaries, or any affiliate or family
member thereof; and (ix) any other agreement or arrangement pursuant to
which the Company or any of its subsidiaries could be required to make or
be entitled to receive aggregate payments in excess of $50,000 and which is
not cancelable within 30 days notice without penalty.
(b) The Company and its subsidiaries have performed in all material
respects all of their obligations under each Material Contract and there
exists no material breach or default (or event that with notice or lapse of
time would constitute a material breach or default) under any Material
Contract.
(c) On the date hereof and on the Closing Date, each Material Contract
will be valid, binding and in full force and effect and enforceable in
accordance with its respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally
and subject to general principles of equity. There has been no termination
or, to the Company's knowledge, threatened termination or notice of default
under any Material Contract. The Company has delivered to Parent a copy of
each written Material Contract.
(d) Except as set forth in Schedule 3.18(d) to the Company Disclosure
Schedule, no consent of any person is required in connection with the
transactions contemplated by this Agreement in order to preserve the rights
of the Company or any of its subsidiaries under or to prevent any
disadvantage to the Company or any of its subsidiaries in respect of any
Material Contract after the Effective Time. All consents set forth on such
Schedule 3.18(d) will be obtained prior to the Closing Date.
Section 3.19 Competing Interests. Except as described in Schedule 3.19, none of
the Company, any of its subsidiaries, any director or officer of any of the
foregoing, or any affiliate of the Major Stockholder owns, directly or
indirectly, an interest in any person that is a competitor, customer or supplier
of the Company or any of its subsidiaries or that otherwise has business
dealings with the Company or any of its subsidiaries that are material to the
Company and its subsidiaries taken as a whole, other than the beneficial
ownership of not more than five percent (5%) of the voting securities of any
such entity that are publicly traded. Except as set forth on Schedule 3.19, none
of the Major Stockholder or his affiliates or the directors or officers of the
Company or any of its subsidiaries is currently a party to any transaction with
the Company or any of its subsidiaries (other than for services as employees,
officers and directors), including without limitation any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from, any such person, or to or from any corporation,
partnership, trust or other entity in which any such person owns in excess of
five percent (5%) of the outstanding equity interest.
Section 3.20 Intellectual Property Rights. There are no registered patents,
trademarks, service marks, trade names or copyrights, or applications for or
licenses (to or from the Company or any of its subsidiaries) that (a) are owned
by the Company or any of its subsidiaries, or with respect to which the Company
or any of its subsidiaries has any rights, or (b) are used, whether
20
directly or indirectly, by the Company or any of its subsidiaries. The Company
and its subsidiaries have the right to use the trademarks and trade names and
any computer software and software licenses, intellectual property, proprietary
information, trade secrets, trademarks, trade names, Internet domain name(s),
copyrights, material and manufacturing specifications, drawings and designs used
by the Company or any of its subsidiaries in the business of the Company or any
of its subsidiaries (collectively, "Intellectual Property"), without infringing
on or otherwise acting adversely to the rights or claimed rights of any person.
Neither the Company nor any of its subsidiaries is obligated to pay any royalty
or other consideration to any person in connection with the use of any
Intellectual Property. To the Company's knowledge, no other person is infringing
on the rights of the Company and its subsidiaries in any of their Intellectual
Property. The Company possesses a valid registration for use of the domain name
"www.mcri.com" as registered with Network Solutions, Inc.
Section 3.21 ESOP.
(a) The ESOP is the legal owner and holder of record of the shares of
Company Common Stock set forth opposite its name on Exhibit A, free and
clear of any pledge, lien, security interest, option, charge, right of
first refusal, encumbrance, claim or equity of any kind.
(b) The consummation by the trustee under the ESOP of the transactions
contemplated hereby, do not and will not (i) require an act, the consent or
approval of, or advance filing with, any Governmental Entity or other third
party, (ii) constitute or result in the breach of any provision of, or
constitute a default under the ESOP, any agreement or instrument to which
the ESOP is a party or by which any of its assets is subject or bound,
(iii) violate any Law, regulation, judgment or order binding upon the ESOP,
including, without limitation, Section 409(e)(3) of the Code, (iv)
constitute or result in a prohibited transaction under the Code or ERISA,
(v) result in the creation of any security interest, claim, lien, charge or
encumbrance upon any of the property or assets of the ESOP or (vi) result
in a Tax imposed under Code Section 4978.
Section 3.22 Government Contracts.
(a) (i) all Federal Government Contracts of the Company or its
subsidiaries and all contracts between either the Company or one of its
subsidiaries and any state or local government, agency or authority
(collectively referred to as "Government Contracts") constitute valid and
binding obligations of either the Company or subsidiaries party thereto
and, to the knowledge of the Company, the other party or parties thereof,
enforceable in accordance with their terms; (ii) either the Company or any
of the subsidiaries party thereto is in compliance in all material respects
with the terms of each of the Government Contracts (iii) neither the
Company, its subsidiaries, nor any other party has terminated, canceled or
waived any material term or condition of any Government Contract; and (iv)
the cost accounting, estimating, property, and procurement systems relating
to the Government Contracts are in compliance in all material respects with
applicable laws, regulations, and contract provisions, including applicable
cost principles and applicable cost accounting standards.
21
(b) None of the Government Contracts has a currently incurred or
currently projected cost overrun; and, to the Company's knowledge, there
are no material delivery or performance problems or issues on the part of
the Company or its subsidiaries with respect to the Government Contracts.
(c) Except for those liens listed on Schedule 3.22 to the Company
Disclosure Schedule, made in accordance with the 31 U.S.C. ss. 3727 (as
amended), otherwise known as Assignment of Claims Act, and the 41 U.S.C.
ss. 15 (as amended), otherwise known as the Assignment of Contracts Act,
neither the Company nor any of its subsidiaries has assigned or otherwise
conveyed or transferred, or agreed to assign, convey, or transfer to any
person, any right, title or interest in or to any of the Government
Contracts, or any account receivable relating thereto, whether as a
security interest or otherwise.
(d) Neither the Company nor any of its subsidiaries has received any
notice or other communication in any form from the federal government
regarding their actual or threatened disqualification, suspension, or
debarment from contracting with the federal government.
(e) (i) none of the Government Contracts have been terminated for
default or convenience; (ii) no show cause or cure notices, as defined by
each Government Contract or applicable federal regulations, have been
issued, or to the Company's knowledge, proposed or threatened; and (iii)
neither the Company nor its subsidiaries have received any notices to cure
any defaults of the Government Contracts; (iv) there is no pending or, to
the knowledge of the Company, threatened audit, inquiry, or investigation
relating to any Government Contract; and (v) neither the Company nor its
subsidiaries have received notice of any claims against the Company or its
subsidiaries by the Governmental Entity, or any other party to a Government
Contract.
(f) None of the Government Contracts, to the Company's knowledge, are
anticipated to be terminated for convenience or discontinued for any
reason, including for lack of funding or federal budget constraints.
(g) All information, data, representations, statements and certificates
as submitted or provided to any Governmental Entity relative to the
Government Contracts were current, complete and accurate in all material
respects as of the date made (including particularly invoices, claims or
other requests for payments and any certificate regarding procurement
integrity "or certificates of current cost and pricing data"), in each case
to the extent of any open statute of limitations.
Section 3.23 Fairness Opinion. The ESOP and its trustees have received a written
opinion from DeLisi & Ghee, Inc., an independent financial advisor, to the
effect that, as of the date of delivery such opinion, the transactions
contemplated by this Agreement are fair, from a financial perspective, to the
ESOP participants.
Section 3.24 Fiduciary Duty. In connection with the negotiation and approval of
this Agreement and the transactions contemplated hereunder or the calling of the
special meeting of the stockholders of the Company, the conduct thereof and the
solicitation of proxies with respect thereto, neither the Company nor its
directors or Major Stockholder have breached any duty
22
or obligation owing to the stockholders of the Company, including without
limitation, any fiduciary duty owed to the stockholders of the Company pursuant
to the VSCA.
Section 3.25 Year 2000 Compliance.
(a) Schedule 3.25 to the Company Disclosure Schedule sets forth the
Information Technology (as defined below) which is Year 2000 Compliant (as
defined below).
(b) As used in this Agreement, "Year 2000 Compliant" and "Year 2000
Compliance" mean, with respect to Information Technology, that the
Information Technology accurately processes date/time data (including but
not limited to, calculating, comparing, and sequencing) from, into, and
between the twentieth and twenty-first centuries, and the years 1999 and
2000 and leap year calculations, and, to the extent that other hardware,
software, firmware, network systems, embedded systems, telecommunications
systems and other systems or components is used in combination with the
Information Technology, properly exchanges date/time data with it, and the
Information Technology has been tested to verify these capabilities.
(c) As used in this Agreement, "Information Technology" means all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems, and other systems or components of the Company and its
subsidiaries or their respective products that utilize microprocessor
technology.
Section 3.26 No Misrepresentation. Without limiting any of the representations
and warranties contained herein, no representation or warranty of the Company
and no statement by the Company or other information contained in the Company
Disclosure Schedule or any document incorporated therein by reference or
delivered by the Company to Parent contains, as of the date of such
representation, warranty, statement or document, contains any untrue statement
of material fact, or omits to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which such
statements were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJOR STOCKHOLDER
The Major Stockholder represents and warrants to the Parent Companies,
and the Parent Companies in agreeing to consummate the transactions contemplated
by this Agreement have relied upon such representations and warranties, that:
Section 4.1 Ownership of Stock. Except as set forth on Schedule 4.1 of the
Company Disclosure Schedule, the Major Stockholder is the owner, beneficially
and of record, of the shares of Company Common Stock set forth opposite his name
on Exhibit A, free and clear of any pledge, lien, security interest, option,
charge, right of first refusal, encumbrance, claim or equity of any kind.
23
Section 4.2 Valid and Binding Agreements. The Major Stockholder has the full
right, capacity and power to enter into this Agreement. All necessary action on
the part of the Major Stockholder has been taken to authorize the execution and
delivery of this Agreement, the performance of his obligations hereunder and the
consummation of the transactions contemplated hereby. This Agreement has been,
duly and validly executed and delivered by the Major Stockholder, and
constitutes valid and binding obligations, enforceable against such Major
Stockholder, in accordance with its terms.
Section 4.3 Consents and Approvals. Except for consents, approvals or
authorizations which, if not received, or declarations, filings or registrations
which, if not made, would not have a Company Material Adverse Effect or which
would not adversely effect the ability of the Major Stockholder to perform his
obligations hereunder, no permit, consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity or third party
is required to be made or obtained by any such Major Stockholder in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.4 Investment Representations. The Major Stockholder who will acquire
Parent Common Stock as part of the Merger Consideration (i) is an "accredited
investor" as defined under the Securities Act, (ii) is acquiring the Parent
Common Stock for the Major Stockholder's own account without a view to any
distribution thereof in violation of the Securities Act or any applicable state
securities Law, (iii) is experienced in evaluating and making investments of
this type, and has had access to, and has received, all the information that the
Major Stockholder reasonably has required to evaluate this investment,
including, but not limited to, the Parent's SEC Filings, and access to the
management of Parent and the opportunity to ask questions and to receive answers
to such questions, and (iv) is financially able to bear the risks associated
with an investment in the Parent Common Stock being acquired hereby.
Section 4.5 No Misrepresentations. The representations, warranties and
statements made by the Major Stockholder in or pursuant to this Agreement are
true, complete and correct in all material respects. None of such
representations, warranties or statements contains any untrue statement of a
material fact or omits to state any material fact necessary to make any such
representation, warranty or statement, under the circumstances in which it is
made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT COMPANIES
The Parent Companies hereby represent and warrant to the Company, and
the Company in agreeing to consummate the transactions contemplated by this
Agreement have relied on such representations and warranties, that:
Section 5.1 Organization and Qualification. Each of the Parent Companies is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted
24
by it or the ownership or leasing of its properties makes such qualification
necessary, other than where the failure to be so duly qualified and in good
standing would not have a Parent Material Adverse Effect. The term "Parent
Material Adverse Effect" as used in this Agreement shall mean any change or
effect that, individually or when taken together with all such other changes or
effects, could reasonably be expected to be materially adverse to the business,
operations, assets, and prospects, condition (financial or otherwise), or
results of operations of Parent and its subsidiaries, taken as a whole.
Section 5.2 Charter and Bylaws. Parent has heretofore furnished to the Company a
complete and correct copy of the charter and bylaws, as amended or restated, of
each of the Parent Companies. None of the Parent Companies is in violation of
any of the provisions of its charter or bylaws.
Section 5.3 Authority. Each of the Parent Companies has all requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby
(subject to, with respect to the Merger, the adoption of this Agreement by
Parent as the stockholder of Merger Sub). The execution and delivery of this
Agreement by each of the Parent Companies and the consummation by each of the
Parent Companies of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of any of the Parent Companies are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the adoption of this Agreement by Parent as the
stockholder of Merger Sub). This Agreement has been duly executed and delivered
by each of the Parent Companies and constitutes the legal, valid and binding
obligation of each of the Parent Companies, enforceable against the Parent
Companies in accordance with its terms.
Section 5.4 No Conflict; Required Filings and Consent.
(a) The execution and delivery of this Agreement by each of the Parent
Companies does not, and the consummation of the transactions contemplated
hereby will not (i) conflict with or violate the charter or bylaws, or the
equivalent organizational documents, in each case as amended or restated,
of Parent or any of Parent's subsidiaries, (ii) conflict with or violate
any Laws applicable to Parent or any of Parent's subsidiaries or by which
any of their properties is bound or subject, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Parent or any of Parent's subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or any of Parent's
subsidiaries is a party or by or to which Parent or any of Parent's
subsidiaries or any of their respective properties is bound or subject.
(b) The execution and delivery of this Agreement by each of the Parent
Companies does not, and the consummation of the transactions contemplated
hereby will not, require any of the Parent Companies to obtain any consent,
license, permit, approval, waiver, authorization or order of, or to make
any filing with or notification to, any Governmental Entities, except for
applicable requirements, if any, of the HSR Act and
25
the Securities and Exchange Commission and the New York and Pacific Stock
Exchanges and the filing and recordation of appropriate merger documents as
required by VSCA.
Section 5.5 Litigation. There are no lawsuits, actions, claims or administrative
proceedings pending or, to the knowledge of Merger Sub or Parent, threatened,
against Parent or any of its subsidiaries that would have a material adverse
effect in the condition (financial or otherwise), results of operations,
business, assets or liabilities of Parent and its subsidiaries taken as a whole.
Section 5.6 SEC Filings. The Parent Companies have delivered to the Company for
delivery to its stockholders true and complete copies of the following
documents, in each case as filed with the Securities and Exchange Commission:
Parent's Annual Report on Form 10-K for the fiscal year ended June 30, 1998,
Amendment No. 1 to Form 10-K/A with respect thereto, Parent's Quarterly Reports
on Form 10-Q for the fiscal quarters ended September 30, and December 31, 1998,
and March 31, 1999, Parent's Annual Report to Stockholders, Parent's Proxy
Statement for its annual stockholders' meeting held on November 5, 1998, and
Parent's Current Report on Form 8-K, dated July 1, 1998 (collectively, the "SEC
Filings"). The SEC Filings (i) do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make any statement
contained therein, under the circumstances in which it is made, not misleading
and (ii) were prepared in all material respects in accordance with the
requirements of applicable law.
Section 5.7 Absence of Material Adverse Change. Since the date of the latest SEC
Filing, there has not been any material adverse change in the condition
(financial or otherwise), results of operations, business, assets or liabilities
of Merger Sub or Parent.
Section 5.8 Parent Shares. When issued and delivered at the Closing in
accordance with this Agreement, the shares of Parent Common Stock will be duly
authorized, validly issued, fully paid and nonassessable, free of any preemptive
or other similar rights of any Person. The Parent Shares have not been
registered pursuant to the Securities Act, or under any applicable state
securities Laws.
Section 5.9 No Misrepresentations. The representations, warranties and
statements made by Merger Sub and Parent in or pursuant to this Agreement are
true, complete and correct in all material respects. None of such
representations, warranties or statements contains any untrue statement of a
material fact or omits to state any material fact necessary to make any such
representation, warranty or statement, under the circumstances in which it is
made, not misleading.
ARTICLE VI
COVENANTS
Section 6.1 Certain Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Parent,
the Company will and will cause its subsidiaries to:
26
(a) comply in all material respects with all Laws applicable to its
business and notify Parent of any legal, administrative or other
proceedings, investigations, inquiries, complaints, notices of violations
or other asserted claims, judgments, injunctions or restrictions, pending,
outstanding or to the Company's knowledge, threatened or contemplated,
which could have a Company Material Adverse Effect;
(b) operate its business in the usual and ordinary course consistent
with past practices;
(c) use all reasonable efforts to preserve its business organization,
maintain its material rights and franchises, retain the services of its
respective officers and employees and maintain its relationships with its
customers and suppliers;
(d) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain
supplies and inventories in quantities consistent with its customary
business practice; and
(e) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
Section 6.2 Certain Negative Covenants of the Company. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Parent,
from the date of this Agreement until the Effective Time, the Company will not
do, and will not permit any of its subsidiaries to do, any of the foregoing:
(a) (i) increase the compensation payable to or to become payable to
any director or executive officer, unless such increase results from the
operation of compensation arrangements in effect prior to the date hereof;
(ii) grant any severance or termination pay (other than pursuant to the
normal severance policy of the Company or its subsidiaries as in effect on
the date of this Agreement) to, or enter into or amend any employment or
severance agreement with, any director, officer or employee; (iii)
establish, adopt or enter into any employee benefit plan or arrangement; or
(iv) except as may be required by applicable Law, amend in any material
respect, or take any other actions with respect to, any of the Employee
Plans or any of the plans, programs, agreements, policies or other
arrangements described in Section 3.10 of this Agreement;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends by a
wholly owned subsidiary of the Company to the Company or another wholly
owned subsidiary of the Company;
(c) (i) redeem, purchase or otherwise acquire any shares of its or any
of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its subsidiaries'
capital stock (other than any such acquisition directly from any wholly
owned subsidiary of the Company in exchange for capital contributions or
loans to such subsidiary), or any options, warrants or conversion or other
rights to acquire any shares of its or its subsidiaries' capital stock or
any such securities or obligations (except in connection with the exercise
of outstanding Company
27
Stock Options in accordance with their terms); (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify
any of its or its subsidiaries' capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its or its subsidiaries' capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its or its
subsidiaries' capital stock (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire any such shares; (ii)
amend or otherwise modify the terms of any such rights or options the
effect of which shall be to make such terms more favorable to the holders
thereof; or (iii) take any action to accelerate the exercisability of
Company Stock Options;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any of its material assets or any material assets
of any of its subsidiaries, except for dispositions of inventories and of
assets in the ordinary course of business and consistent with past
practice;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction (as defined below), or
enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize or permit any
of the officers, directors or employees of the Company or any of its
subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any of the
Company's subsidiaries to take any such action, and the Company shall
promptly notify Parent of all relevant terms of any such inquiries and
proposals received by the Company or any of its subsidiaries or by any such
officer, director, investment banker, financial advisor, attorney,
accountant or other representative relating to any of such matters and if
such inquiry or proposal is in writing, the Company shall promptly deliver
or cause to be delivered to Parent a copy of such inquiry or proposal;
provided, however, that nothing contained in this subsection (g) shall
prohibit the Board of Directors of the Company from (i) furnishing
information to, or entering into discussions or negotiations with, any
person or entity in connection with an unsolicited bona fide written
proposal, which proposal is at a materially higher value and not subject to
a financing condition, by such person or entity to acquire the Company
28
pursuant to a merger, consolidation, share exchange, business combination
or other similar transaction or to acquire a substantial portion of the
assets of the Company or any of its subsidiaries, if, and only to the
extent that (A) the Board of Directors of the Company, after consultation
with and based upon the advice of independent legal counsel, determines in
good faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable Law and
(B) prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity the Company (x) provides five
days prior written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person or entity and (y) enters into with such person or entity a
confidentiality arrangement in reasonably customary form on terms not more
favorable to such person or entity than the terms contained in the
Bilateral Non-Disclosure Agreement, dated March 29, 1999, and that certain
letter, dated May 25, 1999, each between Parent and Company (collectively,
the "Confidentiality Arrangement"); (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction;
or (iii) failing to make or withdrawing or modifying its recommendation
referred to in and based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for such Board of
Directors to comply with its fiduciary duties to stockholders under
applicable law. For purposes of this Agreement, "Competing Transaction"
shall mean any of the following (other than the transactions contemplated
by this Agreement) involving the Company or any of its subsidiaries: (i)
any merger, consolidation, share exchange, business combination or similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 20% or more of the assets of the Company and its
subsidiaries, taken as a whole; (iii) any person having acquired beneficial
ownership of, or any group (as such term is used in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) having
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 20% or more of the outstanding shares of capital stock of the
Company; or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the
foregoing;
(h) release any third party from its obligations, or grant any consent,
under any existing standstill provision relating to a Competing Transaction
or otherwise under any confidentiality or other agreement, or fail to fully
enforce any such agreement;
(i) adopt or propose to adopt any amendments to its charter or bylaws;
(j) (A) change any of its methods of accounting in effect at February
28, 1999, or (B) make or rescind any express or deemed election relating to
Taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ending February 28, 1999,
except, in each case, as may be required by Law or GAAP;
29
(k) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business consistent
with past practice and in no event in excess of $50,000 in the aggregate;
(l) enter into any material arrangement, agreement or contract with any
third party (other than customers in the ordinary course of business) which
provides for an exclusive arrangement with that third party or is
substantially more restrictive on the Company or substantially less
advantageous to the Company than arrangements, agreements or contracts
existing on the date hereof;
(m) agree in writing or otherwise to do any of the foregoing.
Section 6.3 Additional Covenants.
(a) The Company and Parent shall each use, and shall cause each of
their respective subsidiaries to use, all reasonable efforts to (i) take,
or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise
to consummate and make effective the transactions contemplated by this
Agreement, (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by Parent or the Company or any of their subsidiaries
in connection with the authorization, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the Merger, (iii) make all necessary
filings, and thereafter make any other required submissions, with respect
to this Agreement and the Merger required under the HSR Act and any other
applicable Law; provided that Parent and the Company shall cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the nonfiling party and its
advisors prior to filings and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. Parent
and the Company shall request early termination of the waiting period with
respect to the Merger under the HSR Act.
(b) Parent and the Company agree to cooperate with respect to, and
shall cause each of their respective subsidiaries to cooperate with respect
to, and agree to use all reasonable efforts vigorously to contest and
resist, any action, including legislative, administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") of any Governmental Entity that is in effect and
that restricts, prevents or prohibits the consummation of the Merger or any
other transactions contemplated by this Agreement, including, without
limitation, by vigorously pursuing all available avenues of administrative
and judicial appeal and all available legislative action.
(c) (i) Each of the Company and Parent shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use all reasonable efforts to obtain
any third party consents (A) necessary, proper or advisable to consummate
the transactions contemplated by this
30
Agreement, (B) otherwise required under any contracts, licenses, leases or
other agreements in connection with the consummation of the transactions
contemplated hereby or (C) required to prevent a Company Material Adverse
Effect from occurring prior to the Effective Time or a Parent Material
Adverse Effect from occurring after the Effective Time.
(ii) In the event that any party shall fail to obtain any third
party consent described in subsection (c)(i) above, such party shall
use all reasonable efforts, and shall take any such actions reasonably
requested by the other parties, to limit the adverse effect upon the
Company and Parent, their respective subsidiaries, and their respective
businesses resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such consent.
(d) In order to consummate the Merger, the Company's Board of Directors
shall duly call and hold a meeting of its stockholders on or prior to
September 7, 1999, for purposes of authorizing the Merger and, relevant to
such meeting, recommend that the stockholders vote to approve the Merger.
In connection with such meeting, the Company shall prepare and send notice
of such meeting in accordance with the requirements of the VSCA on or prior
to August 10, 1999. The Company shall cause the ESOP trustees to provide to
the ESOP participants notice of the meeting of the Company's stockholders
and a means of providing confidential directions to the ESOP trustees as to
the manner in which the shares of Company Common Stock held by the ESOP are
to be voted at such meeting in accordance with the requirements of the ESOP
plan document, ERISA and the Code. All information provided to the
Company's stockholders and the ESOP participants shall not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading.
(e) Parent shall take actions necessary to cause the Merger Sub to
approve the Merger.
(f) Major Stockholder shall, in his capacity as a stockholder of the
Company, vote to approve the Merger and the other transactions contemplated
hereby.
(g) All agreements, whether written or oral, direct or indirect,
between the Company or its subsidiaries on the one hand and the Major
Stockholder or his affiliates on the other hand shall be terminated without
liability to the Company or such subsidiary, at or prior to the Effective
Time. At or prior to the Closing, Gerald R. McNichols shall have purchased
the Company's interest in the split dollar life insurance arrangement
insuring his life in exchange for the value of such interest as reflected
in the accounts of the Company.
(h) At or prior to the Closing, the Major Stockholder shall repay all
indebtedness owing to the Company or any of its subsidiaries, including any
outstanding principal and interest, for borrowed money, advances or other
amounts paid to such Major Stockholder or their affiliates.
31
(i) Prior to the Effective Time, the Committee under the Company's
Omnibus Stock Plan shall take all actions required under such Omnibus Stock
Plan to provide for the cancellation and surrender or the conversion and
continuance, as the case may be, of all outstanding Company Stock Options
in accordance with Article II of this Agreement.
(j) The Major Stockholder and the Company shall use their respective
best efforts to cause all indebtedness owing to the Company or any of its
subsidiaries by any stockholder, director or officer of the Company or any
Subsidiary or by any of their respective affiliates, to be repaid at or
prior to the Closing except as otherwise provided in the Employment
Agreements set forth in Exhibit H.
(k) All of the agreements listed or described on Exhibit J to this
Agreement shall be terminated without liability to the Company or such
subsidiary, at or prior to the Effective Time.
Section 6.4 Access and Information.
(a) The Company shall, and shall cause its subsidiaries to (i) afford
to Parent and its officers, directors, employees, accountants, consultants,
legal counsel, agents and other representatives (collectively, the "Parent
Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, agents, properties, offices and
other facilities of the Company and its subsidiaries and to the books and
records thereof; (ii) furnish promptly to Parent and the Parent
Representatives such information concerning the business, properties,
contracts, records and personnel of the Company and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by Parent;
and (iii) afford to Parent and the Parent Representatives access to the
Company's customers (accompanied, at the Company's discretion, by the
Company).
(b) Parent shall, and shall cause its subsidiaries to (i) afford to the
Company and its officers, directors, employees, accountants, consultants,
legal counsel, agents and other representatives (collectively, the "
Company Representatives") reasonable access at reasonable times, upon
reasonable prior notice, to the officers, employees, accountants, agents,
properties, offices and other facilities of Parent and its subsidiaries and
to the books and records thereof and (ii) furnish promptly to the Company
and the Company Representatives such information concerning the business,
properties, contracts, records and personnel of Parent and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by the
Company.
(c) Notwithstanding the foregoing provisions of this Section 6.4, no
party shall be required to grant access or furnish information to the other
party to the extent that such access or the furnishing of such information
is prohibited by Law. No investigation by the parties hereto made
heretofore or hereafter shall affect the representations and warranties of
the parties which are herein contained and each such representation and
warranty shall survive such investigation.
32
(d) The information received pursuant to Section 6.4(a) and (b) shall
be deemed to be "proprietary information" for purposes of the
Confidentiality Arrangement.
Section 6.5 Public Announcements. The Company and Parent shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and shall not issue any such press release or make
any such public statement prior to such consultation unless required by Law or,
in the case of Parent, by rules and regulations of the New York Stock Exchange.
The press release announcing the execution and delivery of this Agreement shall
be a joint press release of Parent and the Company.
ARTICLE VII
CLOSING CONDITIONS
Section 7.1 Conditions to Obligations of Each Party Under This Agreement. The
respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by the parties hereto, in whole or in part, to the extent
permitted by applicable law:
(a) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other Order (whether temporary, preliminary or permanent) which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; and no such Governmental Entity
shall have initiated or threatened to initiate any proceeding seeking any
of the foregoing.
(b) HSR Act. The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
(c) Fairness Opinion. The ESOP trustee shall have received a fairness
opinion for the benefit of the ESOP participants from an independent
financial advisor which shall not have been rescinded, withdrawn or
revoked.
(d) Stockholder Approval. The Merger shall have been approved by the
requisite vote of the stockholders of the Company.
Section 7.2 Additional Conditions to Obligations of the Parent Companies. The
obligations of the Parent Companies to effect the Merger and the other
transactions contemplated hereby are also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by Parent, in whole or in part:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Major Stockholder contained in this
Agreement shall be true and correct as of the Closing Date as though made
on and as of the Closing Date (except to the extent such representations
and warranties specifically relate to an earlier
33
date, in which case such representations and warranties shall be true and
correct as of such earlier date). The Parent Companies shall have received
a certificate of the President and Chief Executive Officer of the Company,
and a certificate of the Major Stockholder, each dated the Closing Date, to
such effect.
(b) Agreements and Covenants. The Company shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. The
Parent Companies shall have received a certificate of the President and
Chief Executive Officer of the Company, dated the Closing Date, to that
effect.
(c) Material Adverse Change. Since February 28, 1999, there shall have
been no change, occurrence or circumstance in the business, financial
condition or results of operations of the Company or any of its
subsidiaries having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial condition, results of
operations, business or operations of the Company and its subsidiaries,
taken as a whole. The Parent Companies shall have received a certificate of
the President and Chief Executive Officer of the Company, dated the Closing
Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of Parent, to the continuing operation of the
business of the Company, which imposes any condition or restriction upon
the Parent Companies or the business or operations of the Company which, in
the reasonable business judgment of Parent, would be materially burdensome
in the context of the transactions contemplated by this Agreement.
(e) Intentionally Omitted.
(f) Corporate Proceedings. All corporate and other proceedings to be
taken and all consents to be obtained by the Company in connection with the
transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to Parent
and its counsel, each of whom shall have received all such originals or
certified or other copies of such documents as either may reasonably
request.
(g) Opinion of Company Counsel. Counsel to the Company shall have given
legal opinions substantially to the effect as set out in Exhibit E to this
Agreement.
(h) Options. The Committee under the Company's Omnibus Stock Plan shall
have taken all action required under such Omnibus Stock Plan to provide for
the cancellation and surrender, or conversion and continuance, as the case
may be, of all outstanding Company Stock Options in accordance with Article
II of this Agreement.
(i) Employment Agreements. The Parent Companies and/or the Surviving
Corporation shall have entered into employment agreements substantially in
the form of Exhibit H with those key employees of the Company designated by
Parent in writing on or prior to the date hereof, which employment
agreements shall be in full force and effect.
34
(j) Noncompetition Agreement. Gerald R. McNichols shall have entered
into a noncompetition agreement substantially in the form attached hereto
as Exhibit C to this Agreement.
(k) Indemnification Agreement. Each of the Major Stockholder, the
Parent Companies and the Company shall have executed and delivered the
Indemnification Agreement substantially in the form of Exhibit I to this
Agreement.
(l) Dissenter's Rights. Holders of more than five percent (5%) of the
Company Common Stock shall not have given written notice of intent to
demand payment for Company Common Stock under Article 15 of the VSCA.
(m) Releases of Liens. The Company shall have obtained releases of all
liens and encumbrances of record on the assets of the Company and its
subsidiaries other than the liens and encumbrances expressly approved in
writing by Parent.
(n) Subsidiaries. The Company shall have acquired all of the
outstanding equity securities of its subsidiaries and shall own,
beneficially and of record, all of the equity interests in its subsidiaries
free and clear of all security interests, liens, claims, pledges,
agreements, limitations on voting rights, changes or other encumbrances of
any nature whatsoever.
Section 7.3 Additional Conditions to Obligations of the Company. The obligations
of the Company to effect the Merger and the other transactions contemplated
hereby are also subject to the satisfaction at or prior to the Closing Date of
the following conditions, any or all of which may be waived in writing by the
Company, in whole or in part:
(a) Representations and Warranties. Each of the representations and
warranties of the Parent Companies contained in this Agreement shall be
true and correct as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall be true and correct as of such earlier date). The
Company shall have received a certificate of the President or the Chief
Financial Officer of the Parent, dated the Closing Date, to such effect.
(b) Agreements and Covenants. The Parent Companies shall have performed
or complied with all agreements and covenants required by this Agreement to
be performed or complied with by them on or prior to the Closing Date. The
Company shall have received a certificate of the President or the Chief
Financial Officer of the Parent, dated the Closing Date, to that effect.
(c) Material Adverse Change. Since March 31, 1999, there shall have
been no change, occurrence or circumstance in the business, financial
condition or results of operations of Parent or any of its subsidiaries
having or reasonably likely to have, individually or in the aggregate, a
material adverse effect on the financial condition, results of operations,
business, or operations of Parent and its subsidiaries, taken as a whole.
The Company shall have received a certificate of the President or the Chief
Financial Officer of each of the Parent Companies, dated the Closing Date,
to such effect.
35
(d) Absence of Regulatory Conditions. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of the Company, to the continuing operation of
the current or future business of Parent, which imposes any condition or
restriction upon Parent or the business or operations of Parent which, in
the reasonable business judgment of the Company, would be materially
burdensome in the context of the transactions contemplated by this
Agreement.
(e) Corporate Proceedings. All corporate and other proceedings to be
taken and all consents to be obtained by the Parent Companies in connection
with the transactions contemplated by this Agreement and all documents
incident thereto shall be reasonably satisfactory in form and substance to
the Company and its counsel, each of whom shall have received all such
originals or certified or other copies of such documents as either may
reasonably request.
(f) Opinion of Parent Counsel. Counsel to the Parent Companies shall
have given a legal opinion substantially to the effect set out in Exhibit G
to this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of this Agreement and the
Merger by the stockholders of the Company:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.2(a) or Section
7.2(b) of this Agreement, as the case may be, would be incapable of being
satisfied by September 16, 1999; provided, that in any case, a willful
breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 8.1(b);
(c) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of the Parent Companies set forth in this
Agreement, or if any representation or warranty of the Parent Companies
shall have become untrue, in either case such that the conditions set forth
in Section 7.3(a) or Section 7.3(b) of this Agreement, as the case may be,
would be incapable of being satisfied by September 16, 1999; provided, that
in any case, a willful breach shall be deemed to cause such conditions to
be incapable of being satisfied for purposes of this Section 8.1(c);
(d) by either Parent or the Company, if there shall be any Order which
is final and nonappealable preventing the consummation of the Merger,
except if the party
36
relying on such Order to terminate this Agreement has not complied with its
obligations under Section 6.3(b) of this Agreement;
(e) by either Parent or the Company, if the Merger shall not have been
consummated before September 16, 1999;
(f) by Parent, if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Parent or shall have resolved to do any of the foregoing;
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company any Competing Transaction or shall have
resolved to do so; or (iii) any person (other than Parent or an affiliate
thereof) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is used in Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) shall have been formed which beneficially owns or has the right
to acquire beneficial ownership of, 20% or more of the then outstanding
shares of capital stock of the Company; or
(g) by the Company, if the Board of Directors of the Company recommends
to the Company's stockholders approval or acceptance of a Competing
Transaction, in each case only if the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal
counsel, determines in good faith that such action is necessary for such
Board of Directors to comply with its fiduciary duties to stockholders
under applicable law.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
Section 8.2 Effect of Termination. Except as provided in Section 8.5 or Section
9.1 of this Agreement, in the event of the termination of this Agreement
pursuant to Section 8.1, this Agreement shall forthwith become void, there shall
be no liability on the part of the Parent Companies, the Company or the Major
Stockholder to the others, and all rights and obligations of any party hereto
shall cease, except that nothing herein shall relieve any party of any liability
for (i) any breach of such party's covenants or agreements contained in this
Agreement, or (ii) any willful breach of such party's representations or
warranties contained in this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger by the stockholders of the Company, no amendment, which under applicable
Law may not be made without the approval of the stockholders of the Company, may
be made without such approval. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the
37
other party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. For purposes of this Section
8.4, the Parent Companies as a group shall be deemed to be one party.
Section 8.5 Fees, Expenses and Other Payments.
(a) Except as otherwise provided in this Section 8.5, the Parent
Companies, the Company and the Securityholders (including all of holders of
the Company Common Stock and all holders of Company Stock Options
outstanding immediately prior to the Effective Time, the "Securityholders")
will each bear their own respective costs and expenses in connection with
the proposed Merger and related transactions. The Company and Major
Stockholder shall cause the Securityholders to bear any costs, expenses or
fees payable to any financial advisors, attorneys, accountants or other
representatives retained by the Securityholders or the Company with regard
to the Merger and related transactions contemplated herein in excess of
$450,000 in the aggregate. In no event shall the Parent Companies make or
assume any payments in connection with any fairness opinion obtained by, or
for the benefit of, the Company, the ESOP or any Securityholders. The
Parent Companies shall bear any costs, expenses or fees payable to any
financial advisors, attorneys, accountants or other representatives
retained by the Parent Companies with regard to the Merger and related
transactions contemplated herein. The Parent Companies will pay the filing
fees and fees of legal counsel applicable to all filings required under the
HSR Act in connection with the Merger and the other transactions
contemplated by this Agreement.
(b) The Company agrees that if this Agreement is terminated pursuant
to:
(i) Section 8.1(b) and (x) such termination is the result of a
willful breach of any representation, warranty, covenant or agreement
of the Company contained herein and (y) the Company shall have had
contacts or entered into negotiations relating to a Competing
Transaction, in any such case at any time within the period commencing
on the date of this Agreement through the date of termination of this
Agreement; or
(ii) Section 8.1(e) because this Agreement and the Merger shall
fail to receive the requisite vote for approval and adoption by the
stockholders of the Company at the Company Stockholders Meeting and at
the time of such meeting there shall exist a Competing Transaction; or
(iii) Sections 8.1(f)(ii); or
(iv) Section 8.1(g);
then the Company shall pay to Parent an amount equal to $1,000,000, which
amount is inclusive of all of Parent's expenses.
(c) Any payment required to be made pursuant to Section 8.5(b) of this
Agreement shall be made as promptly as practicable but not later than three
business days
38
after termination of this Agreement, and shall be made by wire transfer of
immediately available funds to an account designated by Parent.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 9.1(b) of this Agreement, the
representations, warranties and agreements of each party hereto shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Article VIII, except for the obligations of the
Surviving Corporation and Parent pursuant to Article II and the
representations and warranties of the Major Stockholder pursuant to Article
IV, which shall survive the Merger and the Closing, and except to the
extent continued for purposes of the Indemnification Agreement. Nothing
herein shall be construed to cause the Confidentiality Arrangement to
terminate upon the termination of this Agreement pursuant to Article VIII.
Section 9.2 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to any of the Parent Companies, to:
GRC International, Inc.
1900 Gallows Road
Vienna, Virginia 22182
Attn: Thomas E. McCabe, Senior Vice President,
Director of Corporate Development and General Counsel
Facsimile No.: (703) 448-6890
with a copy to:
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20037
Attn: Kenneth R. Morrow, Esq.
Facsimile No.: (202) 887-0689
39
(b) If to the Company, to:
Management Consulting & Research, Inc.
2000 Corporate Ridge #400
McLean, Virginia 22102
Attn: Gerald R. McNichols, President and Chief
Executive Officer
Facsimile No.: (703) 506-8601
with a copy to:
Jaeger & Teras, L.L.P.
1090 Vermont Avenue, N.W.
Suite 350
Washington, DC 20005
Attn: Philip W. Jaeger, Esq.
Facsimile No.: (202) 842-0748
(c) If to the Major Stockholder, to:
Gerald R. McNichols
23349 Parsons Road
Middleburg, VA 20117
Facsimile No.: (540) 687-4164
with a copy to:
Jaeger & Teras, L.L.P.
1090 Vermont Avenue, N.W.
Suite 350
Washington, DC 20005
Attn: Philip W. Jaeger, Esq.
Facsimile No.: (202) 842-0748
Section 9.3 Certain Definitions. For the purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "Agreement" has the meaning set out in the first paragraph of this
Agreement;
(c) a person shall be deemed a "beneficial owner" of or to have
"beneficial ownership" of the Company Common Stock or Parent Common Stock,
as the case may be, in accordance with the interpretation of the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act, as
in effect on the date hereof; provided that a person shall be deemed to be
the beneficial owner of, and to have beneficial ownership of, the Company
Common Stock or Parent Common Stock, as the case may be, that such person
or any affiliate of such person has the right to acquire (whether such
right is
40
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise;
(d) "business day" means any day other than a day on which banks in the
Commonwealth of Virginia are authorized or obligated to be closed;
(e) "CERCLA" has the meaning set out in Section 3.13;
(f) "Closing" has the meaning set out in Section 1.2;
(g) "Closing Date" has the meaning set out in Section 1.2;
(h) "Code" means the Internal Revenue Code of 1986, as amended;
(i) "Company" has the meaning set out in the first paragraph of this
Agreement;
(j) "Company Common Stock" has the meaning set out in the first recital
to the Agreement;
(k) "Company Disclosure Schedule" has the meaning set out in Section
3.1;
(l) "Company Material Adverse Effect" has the meaning set out in
Section 3.1;
(m) "Company Permits" has the meaning set out in Section 3.6;
(n) "Company Representatives" has the meaning set out in Section
6.4(b);
(o) "Company Stock Option(s)" has the meaning set out in Section
3.3(a);
(p) "Competing Transaction" has the meaning set out in Section 6.2(g);
(q) "Confidentiality Arrangement" has the meaning set forth in Section
6.2(g);
(r) "control" (including the terms "controlled," "controlled by," and
"under common control with") means the possession, directly or indirectly,
or as trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock or as trustee or executor, by contract
or credit arrangement or otherwise;
(s) "Converted Shares" means shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time as converted into the
right to receive Merger Consideration pursuant to Section 2.1(a) at the
Effective Time and excluding any shares of Company Common Stock described
in Section 2.1(b);
(t) "Dissenting Stock" has the meaning set out in Section 2.3;
(u) "Effective Time" has the meaning set out in Section 1.2;
(v) "Employee Plan(s)" has the meaning set out in Section 3.10(a);
41
(w) "Environmental Law(s)" has the meaning set out in Section 3.13;
(x) "ERISA" has the meaning set out in Section 3.10(a);
(y) "ERISA Affiliate" means the Company and each corporation,
partnership, or other trade or business, whether or not incorporated, which
is or has been treated as a single employer or controlled group member with
the Company pursuant to Code Section 414 or ERISA Section 4001;
(z) "ESOP" means the Management Consulting & Research, Inc. Employee
Stock Ownership Plan dated March 1, 1995;
(aa) "Exchange Act" means the Securities Exchange Act of 1993, as
amended;
(bb) "Federal Government Contract" is to be given its customary use
within the industry. It is further defined to include any contractual
arrangement (implied or express) with any agency, department, or branch of
the United States Government that is subject to the laws and regulations of
the United States of America, regardless of whether the Company is in
privity of contract with the United States or is operating through a
subcontract, partnership, teaming arrangement, affiliate, or other indirect
arrangement;
(cc) "Financial Statements" has the meaning set out in Section 3.7(a);
(dd) "GAAP" means United States generally accepted accounting
principles;
(ee) "Government Contract(s)" has the meaning set out in Section
3.22(a);
(ff) "Governmental Entities" has the meaning set out in Section 3.5(b);
(gg) "HSR Act" has the meaning set out in Section 3.5(b);
(hh) "Indemnification Agreement" means the indemnification agreement to
be entered into on the Closing Date by and among Parent, Surviving
Corporation and the Securityholders in substantially the form of Exhibit I;
(ii) "Information Technology" has the meaning set out in Section
3.25(c);
(jj) "Intellectual Property" has the meaning set out in Section 3.20;
(kk) "knowledge" or "known" means with respect to any matter in
question, if an executive officer of the Company or Parent, as the case may
be, has actual knowledge of such matter after due investigation thereof;
(ll) "Latest Balance Sheet" has the meaning set out in Section 3.7(a);
(mm) "Latest Balance Sheet Date" has the meaning set out in Section
3.7(a);
(nn) "Law(s)" has the meaning set out in Section 3.5(a);
(oo) "Liabilities" has the meaning set out in Section 3.7(b);
(pp) "Material Contract" has the meaning set out in Section 3.18(a);
42
(qq) "Merger Consideration" has the meaning set out in the first
recital to this Agreement;
(rr) "Merger Sub" has the meaning as set out in the first paragraph of
this Agreement;
(ss) "OPA" has the meaning set out in Section 3.13;
(tt) "Option Cancellation Agreement" means an agreement in form and
substance satisfactory to the Company and Parent and executed by the holder
of a Company Stock Option, pursuant to which agreement the Company Stock
Option will be cancelled and surrendered in exchange for a right to receive
cash consideration as provided in Section 2.1(a)(iii);
(uu) "Order" has the meaning set out in Section 6.3(b);
(vv) "Parent" has the meaning set out in the first paragraph of this
Agreement;
(ww) "Parent Common Stock" means the Common Stock, par value $0.10 per
share, of Parent;
(xx) "Parent Companies" has the meaning set out in the first paragraph
of this Agreement;
(yy) "Parent Material Adverse Effect" has the meaning set out in
Section 5.1;
(zz) "Parent Representatives" has the meaning set out in Section
6.4(a);
(aaa) "Per Share Amount" means an amount in dollars equal to (i) the
sum of (A) $27,100,000 and (B) the aggregate exercise price of all of the
Company Stock Options outstanding and unexercised at the Effective Time,
the exercise price of which is equal to or greater than the Per Share
Amount, divided by (ii) the sum of (X) the total number of shares of
Company Common Stock issued and outstanding at the Effective Time and (Y)
the total number of shares of Company Common Stock covered by all of the
Company Stock Options which are outstanding immediately prior to the
Effective Time;
(bbb) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
used in Section l3(d) of the Exchange Act);
(ccc) "RCRA" has the meaning set out in Section 3.13;
(ddd) "SEC Filings" has the meaning set out in Section 5.6;
(eee) "Securities Act" means the Securities Act of 1933, as amended;
(fff) "Securityholder(s)" has the meaning set out in Section 8.5(a);
(ggg) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person, means any corporation,
partnership, joint venture or
43
other legal entity of which the Company, Parent, the Surviving Corporation
or any such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity;
(hhh) "Surviving Corporation" has the meaning set out in Section 1.1;
(iii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
assessments, duties or other amounts payable to any federal, state, local
or foreign taxing authority or agency, including, without limitation, (x)
income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment
compensation, utility, severance, excise, stamp, windfall profits, transfer
and gains taxes, (y) customs, duties, imposts, charges, levies or other
similar assessments of any kind, and (z) interest, penalties and additions
to tax imposed with respect thereto;
(jjj) "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof;
(kkk) "VSCA" has the meaning set out in the first recital to this
Agreement; and
(lll) "Year 2000 Compliant" and "Year 2000 Compliance" have the
meanings set out in Section 3.25(b).
Section 9.4 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement Section references herein are, unless the context otherwise
requires, references to sections of this Agreement.
Section 9.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
Section 9.6 Entire Agreement. This Agreement (together with the Exhibits and the
Company Disclosure Schedule) and the Confidentiality Arrangement constitute the
entire agreement of the parties, and supersede all prior agreements and
undertakings, both written and oral, among the parties or between any of them,
with respect to the subject matter hereof. The Company agrees that nothing
contained in this Agreement or the transactions contemplated hereby shall be
deemed to violate the Confidentiality Arrangement and that such agreements and
proxies have been entered into or granted with the prior written consent of the
Company.
44
Section 9.7 Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except that Merger Sub may assign its obligations to another
affiliate.
Section 9.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
Section 9.9 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
for which damages, even if available, will not be an adequate remedy.
Accordingly, each party hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
Section 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
Section 9.11 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Virginia, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.
Section 9.12 Settlement of Disputes. Any and all controversies, disputes, or
claims arising out of or relating to this Agreement, or any part hereof,
including, without limitation, the meaning, applicability, or scope of this
Section 9.12 and the performance, breach, interpretation, meaning, construction,
or enforceability of this Agreement, or any portion hereof, and all claims for
rescission or fraud in the inducement of this Agreement, shall, at the request
of any party, be settled or resolved by binding arbitration pursuant to the
commercial rules and regulations of the American Arbitration Association (the
"AAA") for the resolution of commercial disputes. Any party requesting
arbitration under this Agreement shall make a demand on the other parties by
registered or certified mail with a copy to the AAA. The parties consent and
agree to have any such arbitration proceedings heard in Vienna, Virginia. The
arbitration shall take place regardless of whether any party to the dispute or
controversy fails or refuses to participate. The arbitrators shall apply
Virginia substantive law and federal substantive law where state law is
preempted. The arbitrators shall have the power to grant all legal and equitable
remedies, including without limitation, the remedy of specific performance, and
award compensatory damages provided by Virginia law. The arbitrators shall
prepare in writing and provide to the parties an award including factual
findings and the reasons on which the decision is based. Judgement upon any
award may be entered in any court having jurisdiction thereof.
Section 9.13 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be
45
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
Section 9.14 Irrevocable Proxy. Upon execution of this Agreement, the Major
Stockholder shall execute and deliver, and the Company shall cause each of the
directors and executive officers of the Company to execute and deliver an
irrevocable proxy in favor of Parent with respect to all of the voting stock of
the Company held by such persons, in substantially the form attached as Exhibit
D to this Agreement.
[The balance of this page has been intentionally left blank.]
46
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
GRC INTERNATIONAL, INC.
/s/ Thomas E. McCabe
By: --------------------------------------------
Thomas E. McCabe
Senior Vice President, Director of Corporate
Development and General Counsel
MAC MERGER CORPORATION
/s/ Thomas E. McCabe
By: ----------------------------------------------
Thomas E. McCabe
Senior Vice President, Director of Corporate
Development and General Counsel
MANAGEMENT CONSULTING & RESEARCH, INC.
/s/ Gerald R. McNichols
By: ----------------------------------------------
Gerald R. McNichols
President and Chief Executive Officer
MAJOR STOCKHOLDER:
/s/ Gerald R. McNichols
-------------------------------------------------
Gerald R. McNichols
47