EXHIBIT 2.1
CONFORMED COPY
MERGER AGREEMENT
MERGER AGREEMENT (this "AGREEMENT"), dated as of September 30, 1998, by and
among GALAXY INDUSTRIES CORPORATION, a Michigan corporation (the "COMPANY"), the
Persons listed on SCHEDULE 1 attached hereto (the "STOCKHOLDERS"), GALAXY HOLD
CO., INC., a Delaware corporation ("PARENT"), and GALAXY ACQUISITION, INC., a
Delaware corporation and a wholly owned subsidiary of Parent ("MERGER SUB").
RECITALS
A. Parent has formed Merger Sub solely for the purpose of facilitating an
efficient exchange by stockholders of the Company of their shares of common
stock of the Company, no par value per share ("COMPANY STOCK"), for the
Aggregate Closing Merger Consideration pursuant to the terms of this Agreement,
and Merger Sub will not conduct any separate business activity nor serve any
function other than to effect for the benefit of Parent and the Stockholders the
conversion of Company Stock into the Aggregate Closing Merger Consideration.
B. The respective Boards of Directors of the Company, Parent and Merger Sub
have each determined that it is in the best interests of their respective
shareholders for Merger Sub to merge with and into the Company (the "MERGER"),
on the terms and subject to the conditions set forth herein.
C. Immediately prior to the consummation of the transactions contemplated
hereby, Kenneth Smith has contributed 7,192 shares of Company Stock to Precision
Partners, L.L.C. in exchange for Membership Units (as defined in the Members
Agreement of Precision Partners, L.L.C.). SCHEDULE 1 to this Agreement reflects
the contribution of such shares of Company Stock, which have been contributed by
Precision Partners, L.L.C. to Parent and will continue as shares of common stock
of the Surviving Corporation as described in Section 2.6(e) hereof.
D. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and to prescribe various conditions to
the Merger.
Accordingly, the parties hereto agree as follows:
I. DEFINITIONS
1.1. DEFINITIONS. In addition to the terms defined elsewhere herein, the
following terms, as used herein, have the following meanings when used herein
with initial capital letters:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with the first
Person. For the
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purposes of this definition, "CONTROL," when used with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"AGGREGATE CLOSING MERGER CONSIDERATION" has the meaning ascribed to such
term in Section 2.6(a).
"AGREEMENT" has the meaning ascribed to such term in the introductory
paragraph of this Agreement as the same may be amended from time to time in
accordance with the terms hereof.
"BALANCE SHEET DATE" means August 31, 1997.
"BONUSES" have the meaning ascribed to such term in Section 3.1.21(b).
"BUSINESS DAY" means a day other than a Saturday or Sunday or a day on
which banks located in New York City are authorized or required to close.
"CAPITAL STOCK" means (a) with respect to any Person that is a corporation,
any and all shares, interests, participation or other equivalents (however
designated and whether or not voting) of corporate stock, including the common
stock of such Person and (b) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"CLOSING" has the meaning ascribed to such term in Section 2.9.
"CLOSING DATE" has the meaning ascribed to such term in Section 2.9.
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"COMPANY" has the meaning ascribed to such term in the introductory
paragraph of this Agreement, provided that references to the Company shall be
deemed to include references to former Subsidiaries of the Company that have
been directly or indirectly merged into or otherwise combined with the Company.
"COMPANY PROPERTY" means any real property and improvements and any
personal property at any time owned, leased, used, operated or occupied (whether
for storage, disposal or otherwise) by the Company or any Subsidiary.
"COMPANY SECURITIES" has the meaning ascribed to such term in Section
3.1.5(b).
"COMPANY STOCK" has the meaning ascribed to such term in Recital A.
"COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 3.1.25.
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"CONSTITUENT OF CONCERN" means any substance defined as a hazardous
substance, hazardous waste, hazardous material, pollutant, or contaminant by any
Environmental Law, any petroleum hydrocarbon and any degradation product of a
petroleum hydrocarbon, asbestos, PCB or similar substance, the handling,
storage, treatment or exposure of or to which is subject to regulation under any
Environmental Law.
"DAMAGES" has the meaning ascribed to such term in Section 6.2(a).
"DGCL" has the meaning ascribed to such term in Section 2.1.
"DIRECT CLAIM" has the meaning ascribed to such term in Section 6.4(c).
"DISPUTE NOTICE" has the meaning ascribed to such term in Section 5.1.
"EFFECTIVE TIME" has the meaning ascribed to such term in Section 2.2.
"ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, citations, summonses,
notices of non-compliance or violation, requests for information, investigations
or proceedings relating to any Environmental Law or any permit issued under any
such Law, including (a) Environmental Claims by Governmental Authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (b) Environmental Claims by
any third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Constituents of Concern or
arising from alleged injury or threat of injury to human health and safety or
the environment.
"ENVIRONMENTAL CONDITION" means a condition with respect to the environment
which has resulted or could result in a material loss, liability, cost or
expense to the Company .
"ENVIRONMENTAL LAW" means any Law in effect or to the Company's and the
Shareholders' knowledge, any Law reasonably expected to be adopted or made
effective, in each case as amended as of the Closing Date, and any judicial or
administrative interpretation thereof as of the Closing Date, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, human health and safety, including, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, ET
SEQ. ("CERCLA") and any state and local counterparts or equivalents.
"ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations,
certificates and approvals of Governmental Authorities relating to or required
by Environmental Laws and necessary for the business of the Company as currently
conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any entity that, together with the Company, would
be considered a single employer within the meaning of Section 4001 of ERISA or
Section 414 of the Code.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"FISCAL YEAR" means the twelve months ended August 31 or any other annual
period as determined from time to time by the board of directors of the Company.
"GAAP" means U.S. generally accepted accounting principles, consistently
applied.
"GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or
regulatory authority.
"INDEBTEDNESS" means with respect to any Person, at any date, without
duplication, (i) all obligations of such Person for borrowed money, including,
without limitation, all principal, interest, premiums, fees, expenses,
overdrafts and penalties with respect thereto, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of the
property or services, except trade payables incurred in the ordinary course of
business, (iv) all obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit or similar
instrument, (v) all obligations of such Person as lessee which are required to
be capitalized in accordance with GAAP and (vi) all Indebtedness of any other
Person of the type referred to in clauses (i) to (v) above directly or
indirectly guaranteed by such Person or secured by any assets of such Person.
"INDEMNIFIED PARTY" has the meaning ascribed to such term in Section
6.4(a).
"INDEMNIFYING PARTY" has the meaning ascribed to such term in Section
6.4(a).
"INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade
name, invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right, in each case
which is used or held for use or otherwise necessary in connection with the
conduct of the business of the Company as now conducted or proposed to be
conducted.
"INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of July 31, 1998 and the related
consolidated statements of earnings and retained earnings, stockholders' equity
and cash flows.
"IRS" means the Internal Revenue Service.
"LAW" means any federal, state or local statute, law, rule, regulation,
ordinance, code, permit, license, policy or rule of common law.
"LEIDAL FAMILY STOCKHOLDERS" means the Robert H. Leidal Revocable Living
Trust, the Betty A. Leidal Revocable Living Trust, Michael R. Leidal and Cheryl
Brooks.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such
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property or asset. For the purposes of this Agreement, a Person will be deemed
to own, subject to a Lien, any property or asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
property or asset.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, liabilities, condition (financial and other), results of operations or
prospects of the Company and the Subsidiaries.
"MBCA" has the meaning ascribed to such term in Section 2.1.
"MERGER" has the meaning ascribed to such term in Recital B.
"MERGER SUB" has the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the
following, during and/or after January 1, 2000: (a) handling date information
involving all and any dates, including accepting input, providing output and
performing date calculations in whole or in part; (b) operating accurately
without interruption on and in respect of any and all dates and without any
change in performance; (c) responding to and processing two digit year input
without creating any ambiguity as to the century; and (d) storing and providing
date input information without creating any ambiguity as to the century.
"1998 TAX RESERVES" means an amount equal to $194,000 representing agreed
upon reserves for Taxes with respect to the Company for the fiscal year ended
1998.
"1998 TAX YEAR" means the fiscal year ending August 31, 1998.
"OPERATING COMPANY" means an "operating company" within the meaning of
Department of Labor Regulation Section 2510.3-101(c) or successor rule or
regulation, as from time to time amended and in effect.
"ORDER" means any judgment, injunction, judicial or administrative order or
decree.
"PARENT" has the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"PARENT INDEMNIFIED PARTIES" has the meaning ascribed to such term in
Section 6.2.
"PERMITTED LIEN" means (i) mechanics', workmen's, repairmen's or other like
Liens arising or incurred in the ordinary course of business in respect of
obligations that are not overdue or (ii) other imperfections of title or
encumbrances, which do not materially affect the value or marketability of the
property subject thereto.
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"PER SHARE CLOSING MERGER CONSIDERATION" has the meaning ascribed to such
term in Section 2.6(a).
"PERSON" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"PLANS" has the meaning ascribed to such term in Section 3.1.19(a).
"POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending
after the Closing Date.
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) that
actually ends on or before the Closing Date or that would have ended on or
before the Closing Date if Parent were a C corporation filing a consolidated
return.
"REAL PROPERTY" has the meaning ascribed to such term in Section 3.1.16(b).
"RETURNS" has the meaning ascribed to such term in Section 3.1.10(a)(i).
"REVIEWED BALANCE SHEET" means the reviewed balance sheet of the Company as
of August 31, 1997.
"REVIEWED STATEMENTS" means the reviewed consolidated balance sheets of the
Company and its Subsidiaries, as of August 31, 1997, 1996 and 1995, together
with the related consolidated statements of earnings and retained earnings,
stockholders' equity and cash flows for the fiscal years then ended, together
with the notes thereto.
"SELECTED REPRESENTATIONS AND WARRANTIES" has the meaning ascribed to such
term in Section 6.1.
"SHAREHOLDER AGREEMENT" means the Shareholder, Restriction and Governance
Agreement among the Stockholders and the Company, dated September 12, 1997.
"STOCKHOLDER" has the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are at the time directly
or indirectly owned by the Company.
"SURVIVING CORPORATION" has the meaning ascribed to such term in Section
2.1.
"TAX" means (a) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by the Company or
any Subsidiary, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty, levy, or
other tax, governmental fee or other like assessment or charge of any kind
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whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any Taxing Authority (as hereinafter defined), (b) any
liability of the Company or any Subsidiary for the payment of any amounts of any
of the foregoing types as a result of being a member of an affiliated,
consolidated, combined or unitary group, or being a party to any agreement or
arrangement whereby liability of the Company or any Subsidiary for payment of
such amounts was determined or taken into account with reference to the
liability of any other Person, and (c) liability of the Company or any
Subsidiary for the payment of any amounts as a result of being a party to any
Tax Sharing Agreements or with respect to the payment of any amounts of any of
the foregoing types as a result of any express or implied obligation to
indemnify any other Person.
"TAX MATTER" has the meaning ascribed to such term in Section 5.4.
"TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or
arrangements (whether or not written) binding the Company or any Subsidiary.
"TAXING AUTHORITY" means any Governmental Authority responsible for the
imposition of any Tax.
"THIRD PARTY CLAIM" means any claim, demand, action, suit or proceeding
made or brought by any Person who or which is not a party to this Agreement.
II. THE MERGER; CLOSING
2.1. THE MERGER. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the Delaware General Corporation Law
(the "DGCL") and the Michigan Business Corporation Act (the "MBCA") at the
Effective Time, Merger Sub will be merged with and into the Company. As a result
of the Merger, the separate corporate existence of Merger Sub will cease and the
Company will continue as the surviving corporation (sometimes referred to herein
as the "SURVIVING CORPORATION") and will succeed to and assume all of the rights
and obligations of Merger Sub in accordance with the DGCL and the MBCA.
2.2. CONSUMMATION OF THE MERGER. As soon as practicable on the Closing
Date, the parties will cause the Merger to be consummated by filing with the
Delaware Secretary of State and the Michigan Secretary of State a certificate of
merger or articles of merger, in form reasonably satisfactory to the Company,
Parent and Merger Sub, executed in accordance with the relevant provisions of
the DGCL and MBCA and will make all other filings or recordings required under
the DGCL and MBCA to effect the Merger. The "EFFECTIVE TIME" as that term is
used in this Agreement will mean the effective time set forth in the certified
copy of the certificate of merger or articles of merger issued by the Michigan
Secretary of State and the Delaware Secretary of State with respect to the
Merger.
2.3. EFFECTS OF THE MERGER. The Merger will have the effects set forth in
the DGCL and the MBCA.
2.4. ARTICLES OF INCORPORATION; BY-LAWS. The Articles of Incorporation and
Bylaws of the Company, as in effect immediately prior to the Effective Time,
will be the Articles of
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Incorporation and By-laws of the Surviving Corporation and thereafter will
continue to be its Articles of Incorporation and By-Laws until amended as
provided therein and under the MBCA.
2.5. DIRECTORS AND OFFICERS. The director of Merger Sub immediately prior
to the Effective Time will be the initial director of the Surviving Corporation,
to hold office in accordance with the Articles of Incorporation and By-Laws of
the Surviving Corporation until his successor is duly elected or appointed and
qualified. The officers of the Company immediately prior to the Effective Time
will be the initial officers of the Surviving Corporation, each to hold office
until their respective successors are duly elected or appointed and qualified.
2.6. CONVERSION OF SECURITIES; MERGER CONSIDERATION. Subject to the terms
and conditions of this Agreement, at the Effective Time, by virtue of the Merger
and without any action on the part of the Company, Parent, Merger Sub or their
respective shareholders (including, without limitation, the Stockholders):
(a) Each share of Company Stock issued and outstanding immediately prior to
the Effective Time as set forth on SCHEDULE 1 opposite each Person's name
thereon, except for Company Stock owned by Parent, will be converted into the
right to receive, in cash, an amount per share of Company Stock equal to (i)
$8.0 million (the "AGGREGATE CLOSING MERGER CONSIDERATION") DIVIDED BY (ii) the
number of issued and outstanding shares of Company Stock immediately prior to
the Effective Time (the quotient of (i) DIVIDED BY (ii), the "PER SHARE CLOSING
MERGER CONSIDERATION").
(b) As of the Effective Time, all Company Stock, except for Company Stock
owned by Parent, will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each holder of a certificate
representing any shares of Company Stock will cease to have any rights with
respect thereto, except the right to receive such holder's appropriate portion
of the Aggregate Closing Merger Consideration as set forth in Section 2.6(a),
upon surrender of such certificate in accordance with Section 2.6(d).
(c) Each share of Company Stock held in the treasury of the Company
immediately prior to the Effective Time will be canceled and extinguished at the
Effective Time without any conversion thereof and no payment will be made with
respect thereto.
(d) At the Effective Time, each Stockholder will be entitled, upon
surrender to Parent of such Stockholder's certificates representing shares of
Company Stock, to receive in exchange therefor an amount equal to the Per Share
Closing Merger Consideration MULTIPLIED BY the number of shares of Company Stock
set forth opposite such Stockholder's name on SCHEDULE 1.
(e) Each share of Company Stock owned by Parent shall continue to be issued
and outstanding upon the Effective Time as validly issued, fully paid and
nonassessable shares of common stock of the Surviving Corporation.
(f) Each share of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time will
automatically without any action on the part of the holder thereof, be converted
into one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation which as of the Effective
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Time will, together with the stock of the Surviving Corporation described in
paragraph (e) above, constitute all of the issued and outstanding shares of the
Surviving Corporation.
2.7. CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Company Stock outstanding prior to the Effective Time
will not be made on the stock transfer books of the Surviving Corporation.
2.8. PAYMENT OF AGGREGATE CLOSING MERGER CONSIDERATION. Payment of the
Aggregate Closing Merger Consideration will be made in immediately available
funds by wire transfer at Closing to the account designated in writing by each
Stockholder as set forth in SCHEDULE 2.8 attached hereto, for the benefit of
such Stockholder.
2.9. CLOSING. The closing of the Merger (the "CLOSING") will take place at
the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New
York, New York, at 10:00 a.m., New York time, on the date hereof (the date on
which the Closing occurs is herein referred to as the "CLOSING DATE").
2.10. CLOSING DELIVERIES. In addition to such other deliveries as may be
contemplated hereby, at the Closing, the following deliveries shall be made:
(a) Each Stockholder shall deliver to parent a spousal consent of such
Stockholder's spouse, if any, dated the Closing Date in substantially the form
attached hereto as EXHIBIT A.
(b) The Company shall deliver to Parent a non-foreign person affidavit
required by Section 1445 of the Code.
(c) The Company shall deliver to Parent a letter of resignation from each
Director of the Company.
(d) The Company shall deliver to Parent the opinion of counsel to the
Company and the Stockholders, dated the Closing Date, substantially in the form
attached hereto as EXHIBIT B.
(e) Parent shall deliver to the Stockholders the opinion of counsel to
Parent, dated the Closing Date, substantially in the form attached hereto as
EXHIBIT C.
2.11. PROCEEDINGS. (a) Except as otherwise specifically provided for
herein, all proceedings that will be taken and all documents that will be
executed and delivered by the parties hereto on the Closing Date will be deemed
to have been taken and executed simultaneously, and no proceeding will be deemed
taken nor any document executed and delivered until all have been taken,
executed and delivered.
(b) The Stockholders agree that, upon execution and delivery of this
Agreement and the closing of the transactions contemplated hereby, the
Shareholder Agreement will be terminated and of no further force and effect.
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III. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
3.1. The Stockholders and the Company represent and warrant to Parent and
Merger Sub as of the Closing Date as follows:
3.1.1. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company has all corporate power and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. The Company has heretofore delivered
to Parent true and complete copies of the articles of incorporation and by-laws
of the Company.
3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance by the Company of this Agreement are within the Company's corporate
powers and have been duly authorized by all necessary corporate action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
3.1.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the
certificates of merger, the execution, delivery and performance by the Company
of this Agreement require no action by or in respect of, or filing with, any
Governmental Authorities.
3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 3.1.4,
the execution, delivery and performance by the Company of this Agreement will
not (a) violate the articles of incorporation or by-laws or comparable
organizational documents of the Company or any Subsidiary, (b) violate any
applicable Law or Order, (c) require any filing with or permit, consent or
approval of, or the giving of any notice to, any Person (including filings,
consents or approvals required under any permits of the Company or any licenses
to which the Company is a party), (d) result in a violation or breach of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default under, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of, the Company or any Subsidiary or to
a loss of any benefit to which the Company or any Subsidiary is entitled under
any agreement or other instrument binding upon, the Company or such Subsidiary
or any license, franchise, permit or other similar authorization held by the
Company or such Subsidiary, or (e) result in the creation or imposition of any
Lien on any asset of the Company or any Subsidiary, except in the case of
clauses (c), (d) and (e) for such filings, permits, consents, approvals or
notices and violations, breaches, conflicts and Liens which, individually or in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
3.1.5. CAPITALIZATION. (a) The authorized, issued and outstanding capital
of the Company is as set forth on SCHEDULE 3.1.5(a). The Company Stock to be
acquired by Parent is duly authorized, validly issued, fully-paid, nonassessable
and free and clear of any Lien or other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such shares,
subject to applicable securities laws).
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(b) Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding (i)
shares of capital stock or other securities of the Company, (ii) securities of
the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, or (iii) options or other rights to acquire
from the Company, or other obligation of the Company to issue, any capital
stock, other securities or securities convertible into or exchangeable for
capital stock or other securities of the Company (the items in clauses (i), (ii)
and (iii) being referred to collectively as the "COMPANY SECURITIES"). Except as
disclosed in SCHEDULE 3.1.5(b), there are no outstanding obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities.
3.1.6. SUBSIDIARIES. The Company has no Subsidiaries. Except as disclosed
in SCHEDULE 3.1.6(c), the Company does not own any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, trust, joint venture or other entity.
3.1.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The Company has
heretofore furnished Parent the Reviewed Statements. The Reviewed Statements,
including the footnotes thereto, have been prepared from the Company's general
ledger and fairly and accurately present in all material respects the Company's
general ledger and the financial position of the Company at the respective dates
thereof and the results of the operations and cash flows of the Company and the
Subsidiaries for the periods indicated.
(b) The Company has also heretofore furnished Parent the Interim Financial
Statements. The Interim Financial Statements have been prepared from the
Company's general ledger and on a basis consistent with the Reviewed Statements.
The Interim Financial Statements fairly and accurately present in all material
respects the Company's general ledger and the financial position of the Company
at the date thereof and the results of the operations of the Company for the
period indicated.
(c) Except as set forth on Schedule 3.1.7(c), there have been no changes in
the Company's reserve or accrual amounts or policies from the Balance Sheet
Date.
(d) The books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to Parent, are
complete and correct and have been maintained in accordance with sound business
practices.
3.1.8. NO UNDISCLOSED LIABILITIES. (a) There are no liabilities of the
Company or any facts or circumstances which could give rise to liabilities of
the Company, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than (a) liabilities fully provided for in the Interim
Financial Statements; (b) liabilities specifically disclosed on SCHEDULE 3.1.8
or SCHEDULE 3.1.10; and (c) other undisclosed liabilities incurred since the
date of the Interim Financial Statements in the ordinary course of business
which, individually or in the aggregate, could not have a Material Adverse
Effect.
3.1.9. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.9 contains a complete list of
all intercompany balances as of the date hereof between any Stockholder and such
Stockholder's Affiliates, on the one hand, and the Company, on the other hand.
Other than as disclosed on SCHEDULE 3.1.9, there has not been any accrual of
liability by the Company to any Stockholder or
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such Stockholder's Affiliates or other transaction between the Company and any
Stockholder and such Stockholder's Affiliates or any action taken (other than
this Agreement) which could reasonably be expected to result in any such accrual
or the incurrence of any legal or financial obligation to any such Person.
3.1.10. TAX MATTERS. (a) Except as disclosed in SCHEDULE 3.1.10(a):
(i) All Tax returns, statements, reports and forms (including
estimated tax or information returns and reports) required to be filed with
any Taxing Authority with respect to any Pre-Closing Tax Period by or on
behalf of the Company (collectively, the "RETURNS") have, to the extent
required to be filed on or before the date hereof, been filed when due in
accordance with all applicable laws;
(ii) The Returns correctly reflected in all material respects, the
facts regarding the income, business, assets, operations, and activities
and status of the Company;
(iii) All Taxes owed by the Company (whether or not shown as due and
payable on the Returns that have been filed) have been timely paid, or
withheld and remitted to the appropriate Taxing Authority;
(iv) Any reserves established for Taxes, with respect to the Company
for any Pre-Closing Tax Period (including any Pre-Closing Tax Period for
which no Return has yet been filed) reflected on the books of the Company
or Schedule 3.1.7(c) (excluding any provision for deferred income taxes)
fairly and accurately reflect the Tax liability of the Company in all
material respects for such Pre-Closing Tax Period(s);
(v) The Company is not delinquent in the payment of any Tax and has
not requested any extension of time within which to file any Return except
for extensions granted as a matter of right;
(vi) The Company (or any member of any affiliated, consolidated,
combined or unitary group of which the Company is or has been a member) has
not granted any extension or waiver of the statute of limitations period
applicable to any Return, which period (after giving effect to such
extension or waiver) has not yet expired;
(vii) There is no action, suit or proceeding now pending and no claim,
audit or investigation now pending of which the Company is aware or, to the
knowledge of the Company, any action, suit, claim, audit or investigation
threatened against or with respect to the Company in respect of any Tax;
(viii) The Company does not own any interest in real property in any
jurisdiction in which a Tax is imposed on the transfer of a controlling
interest in an entity that owns any interest in real property;
(ix) Neither the Company nor any other Person on behalf of the Company
has entered into any agreement or consent pursuant to Section 341(f) of the
Code;
12
(x) There are no Liens for Taxes upon the assets of the Company,
except Liens for current Taxes not yet due;
(xi) Except as may be required as a result of the disclosure in item 2
of Schedule 3.1.11(b) and Schedule 3.1.24, the Company will not be required
to include any adjustment in taxable income for any Post-Closing Tax Period
under Section 481(c) of the Code (or any similar provision of the Tax laws
of any jurisdiction) as a result of a change in method of accounting for a
Pre-Closing Tax Period or pursuant to the provisions of any agreement
entered into with any Taxing Authority with regard to the Tax liability of
the Company for any Pre-Closing Tax Period; and
(xii) The Company has not been a member of an affiliated,
consolidated, combined or unitary group or participated in any other
arrangement whereby any income, revenues, receipts, gain or loss of the
Company was determined or taken into account for Tax purposes with
reference to or in conjunction with any income, revenues, receipts, gain,
loss, asset or liability of any other Person.
(b) SCHEDULE 3.1.10(b) contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax imposed on overall net income
is properly payable by the Company.
3.1.11. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE
3.1.11(b), since the Balance Sheet Date, the business of the Company has been
conducted in the ordinary course consistent with past practice and the Company
has not otherwise:
(i) Amended or modified its articles of incorporation, bylaws or any other
organizational document;
(ii) Changed any salaries or other compensation of, or paid any bonuses to
any director, officer, employee or stockholder of the Company, or entered into
any employment, severance, or similar agreement with any director, officer,
stockholder or employee of the Company, PROVIDED, HOWEVER, that the compensation
of employees of the Company receiving annual compensation of less than $50,000
may have been changed in the ordinary course of business consistent with past
practice;
(iii) Adopted or increased any benefits under any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees;
(iv) Entered into any contract or commitment except contracts and
commitments (for capital expenditures or otherwise) in the ordinary course of
business consistent with past practice;
(v) Incurred, assumed or guaranteed Indebtedness;
(vi) Entered into any transaction or commitment relating to the assets of
the business of the Company which, individually or in the aggregate, could
reasonably be expected to be material to the Company, or canceled or waived any
claim or right of substantial value
13
which, individually or in the aggregate, could reasonably be expected to be
material to the Company, or amended any term of any Company Securities;
(vii) Set aside or paid any dividend or made any other distribution with
respect to any shares of capital stock of the Company or repurchased, redeemed
or otherwise acquired directly or indirectly, any outstanding shares of capital
stock or other securities of, or other ownership interests in, the Company;
(viii) Made any change in accounting methods or practices (including
changes in accruals or reserve amounts or policies);
(ix) Issued or sold any Company Securities or made any other changes in its
capital structure, including the grant of any stock option or other right to
purchase shares of capital stock of the Company;
(x) Sold, leased or otherwise disposed of any material asset or property;
(xi) Except as expressly permitted under this Agreement, written off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material; written off, written up or written
down any other material asset of Company; or altered its customary time periods
for collection of accounts receivable or payments of accounts payable;
(xii) Created or assumed any Lien other than a Permitted Lien;
(xiii) Made any loan, advance or capital contributions to or investment in
any Person;
(xiv) Terminated or closed any material facility, business or operation of
the Company;
(xv) Caused or suffered any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of the
Company which, individually or in the aggregate, had or could reasonably be
expected to have a Material Adverse Effect;
(xvi) Caused any other event, occurrence, development or state of
circumstances or facts which individually or together with other matters, had or
could reasonably be expected to have a Material Adverse Effect; or
(xvii) Agreed to do any of the foregoing.
3.1.12. CONTRACTS. (a) Except as specifically disclosed in SCHEDULE
3.1.12(a), the Company is not a party to nor bound by any of the following
(whether written or oral):
(i) any lease (whether of real or personal property) providing for
annual rentals of $10,000 or more;
14
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets (including in terms of quantity and
dollar amount) that provides for either (A) annual payments by the Company
of $10,000 or more or (B) aggregate payments by the Company of $20,000 or
more;
(iii) any sales, distribution or other similar agreement providing for
the sale by the Company of materials, supplies, goods, services, equipment
or other assets that provides for either (A) annual payments to the Company
of $10,000 or more or (B) aggregate payments to the Company of $20,000 or
more;
(iv) any partnership, joint venture or other similar agreement or
arrangement;
(v) any agreement relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or otherwise);
(vi) any agreement relating to Indebtedness (in any case, whether
incurred, assumed, guaranteed or secured by any asset);
(vii) any license, franchise or similar agreement;
(viii) any agency, dealer, sales representative, marketing or other
similar agreement;
(ix) any agreement that substantially limits the freedom of the
Company to compete in any line of business, geographic area or with any
Person or which would so limit the freedom of the Company after the Closing
Date;
(x) any agreement with (A) any Stockholder or any of such
Stockholder's Affiliates, (B) any Person directly or indirectly owning,
controlling or holding with power to vote, 5% or more of the outstanding
voting securities of any Stockholder's Affiliates, (C) any Person 5% or
more of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by a Stockholder or any of
such Stockholder's Affiliates, (D) any director or officer of a
Stockholder's Affiliates or any "associates" or members of the "immediate
family" (as such terms are respectively defined in Rule 12b-2 and Rule
16a-1 of the Exchange Act) of any such director or officer, or (E) any
director or officer of the Company or with any "associate" or any member of
the "immediate family" (as such terms are respectively defined in Rules
12b-2 and 16a-1 of the Exchange Act) of any such director or officer;
(xi) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution
in respect of capital stock of the Company;
(xii) any management service, consulting or any other similar type of
contract;
15
(xiii) any warranty, guaranty or other similar undertaking with
respect to a contractual performance extended by the Company other than in
the ordinary course of business consistent with past practice;
(xiv) any employment, deferred compensation, severance, bonus,
retirement or other similar agreement or plan in effect as of the date
hereof and entered into or adopted by the Company, on the one hand, and any
director or officer of the Company or any other employee of the Company
receiving annual compensation of $80,000 or more, on the other hand; or
(xv) any other agreement, commitment, arrangement or plan not made in
the ordinary course of business that is material to the Company.
(b) Each agreement, contract, plan, lease, arrangement or commitment
disclosed in SCHEDULE 3.1.12(a) or any other Schedule to this Agreement or
required to be disclosed pursuant to this Section is a valid and binding
agreement of the Company, as the case may be, and is in full force and effect,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles, and none of the Company or the Stockholders, or, to the knowledge of
the Company or any Stockholder, any other party thereto is in default or breach
in any material respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment. To the knowledge of the Company or any
Stockholder, there is no event, occurrence, condition or act (including the
consummation of the transactions contemplated hereby) which, with the giving of
notice or the passage of time, or the happening of any other event or condition,
could become a material default or event of default thereunder.
(c) SCHEDULE 3.1.12(c) sets forth every grant by the Company in the past
three years of any severance or termination pay to any employee of the Company
receiving annual compensation of $80,000 or more, or any director or officer of
the Company.
3.1.13. INSURANCE COVERAGE. The Company has furnished to Parent a list of,
and true and complete copies of, all insurance policies and fidelity bonds
covering the assets, business, operations, employees, officers and directors of
the Company. There is no material claim by the Company pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and the Company has complied in
all material respects with the terms and conditions of all such policies and
bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) are in full force and effect
and are disclosed in SCHEDULE 3.1.13. Such policies of insurance and bonds are
of the type and in amounts deemed by the management of the Company to be
sufficient. The Company does not know of any threatened termination of, or
premium increase with respect to, any of such policies or bonds. Since the last
renewal date of any insurance policy, there has not been any material adverse
change in the relationship of the Company with its insurers or the premiums
payable pursuant to such policies.
3.1.14. LITIGATION. Except as disclosed in SCHEDULE 3.1.14, there is no
action, suit, investigation, arbitration or administrative or other proceeding
pending or, to the knowledge
16
of the Company or any Stockholder, threatened against or affecting the Company
or any Stockholder or any of their respective properties before any court or
arbitrator or any Governmental Authorities which, if determined or resolved
adversely to the Company, could reasonably be expected to, individually or when
considered together with all other such matters, (a) materially and adversely
affect the right or ability of the Company to carry on its business as now
conducted, (b) have a Material Adverse Effect, or (c) which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement; and neither the Company nor any
Stockholder knows of any valid basis for any such action, proceeding or
investigation.
3.1.15. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE
3.1.15(a), the Company is not and has not been since the Balance Sheet Date in
violation of any applicable Law or Order, except for such violations that have
not had and could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) SCHEDULE 3.1.15(b) sets forth a list of each material government or
regulatory license, authorization, permit, consent and approval held by the
Company, issued and held in respect of the Company or required to be so issued
and held to carry on the business of the Company as currently conducted. Except
as disclosed in SCHEDULE 3.1.15(b), to the knowledge of the Company or any
Stockholder, each such license, authorization, permit, consent and approval is
valid and in full force and effect and will not be terminated or impaired (or
become terminated or impaired) as a result of the transactions contemplated
hereby. To the knowledge of the Company or any Stockholder, the Company is not
in default under, and no condition exists that with notice or lapse of time or
both would constitute a default under, any material license, franchise, permit,
consent or approval or similar authorization held by the Company.
3.1.16. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in
SCHEDULE 3.1.16(a) and except for inventory disposed of in the ordinary course
of business, the Company has good title to, or in the case of leased property
has valid leasehold interests in, all property and assets (whether real or
personal, tangible or intangible) reflected in the Reviewed Balance Sheet or
acquired after the Balance Sheet Date. None of such property or assets is
subject to any Liens, except for (i) Liens disclosed in the Reviewed Balance
Sheet; (ii) Liens for Taxes not yet due or being contested in good faith (and
for which adequate accruals or reserves have been established on the Reviewed
Balance Sheet); and (iii) Permitted Liens.
(b) SCHEDULE 3.1.16(b) sets forth a list of all real property assets owned
or leased by the Company ("REAL PROPERTY"). Each such lease of real property is
a valid and binding obligation of the Company, and is in full force and effect,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles, and the Company is a tenant or possessor in good standing thereunder
and all rents due under such leases have been paid. There does not exist under
any such lease any default or any event which with notice or lapse of time or
both would constitute a default, except for such defaults that have not and
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. The Company is in peaceful and undisturbed possession
of the space and/or estate under each lease of which it is a tenant and, to the
knowledge of the Company or any Stockholder, has good and valid rights of
ingress and egress to and from all the
17
Real Property from and to the public street systems for all usual street, road
and utility purposes. Neither the Company nor any Stockholder has received any
notice of any appropriation, condemnation or like proceeding, or of any
violation of any applicable zoning Law or Order relating to or affecting the
Real Property, and to the Company's and each Stockholder's knowledge, no such
proceeding has been threatened or commenced.
(c) Except as disclosed in SCHEDULE 3.1.16(c), to the knowledge of the
Company or any Stockholder, the assets owned or leased by the Company
(including, real, personal, tangible and intangible property), or which they
otherwise have the right to use (including, real, personal, tangible and
intangible property), constitute all of the assets held for use or used in
connection with the businesses of the Company and are generally in good
operating condition and repair (normal wear and tear excepted) and are adequate
to conduct such businesses as currently conducted.
3.1.17. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.1.17(a) sets forth a list of
all Intellectual Property Rights and all material licenses, sublicenses and
other written agreements as to which the Company or any of its Affiliates is a
party and pursuant to which any Person is authorized to use such Intellectual
Property Right, including the identity of all parties thereto.
(b) Except as disclosed in SCHEDULE 3.1.17(b):
(i) The Company has not since January 1, 1993, been sued or charged in
writing with or been a defendant in any claim, suit, action or proceeding
relating to its business that is either pending or, to the knowledge of the
Company or any Stockholder, threatened that, in either case, has not been
finally terminated prior to the date hereof and that involves a claim of
infringement by the Company of any trademark, service mark, trade name,
invention, patent, trade secret, copyright, know-how or any other similar
type of proprietary intellectual property right of any other Person or
continuing infringement by any other Person of any Intellectual Property
Rights and the Company has no knowledge of any basis for such claim of
infringement, and no knowledge of any continuing infringement by any other
Person of any Intellectual Property Rights;
(ii) No Intellectual Property Right is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use
thereof by the Company or restricting the licensing thereof by the Company
to any Person;
(iii) The Company has not entered into any agreement to indemnify any
other Person against any charge of infringement of any trademark, service
mark, trade name, invention, patent, trade secret, copyright, know-how or
any other similar type of proprietary intellectual property right; and
(iv) There are no processes or formulae, research or development
results or other know-how of the Company, the value of which to the Company
is contingent upon maintenance of the confidentiality thereof.
3.1.18. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 3.1.18:
18
(i) Constituents of Concern have not been generated, recycled, used,
treated or stored on, transported to or from, or released or disposed on,
the Company Property or, to the knowledge of the Company and the
Stockholders, any property adjoining or adjacent except in compliance with
Environmental Laws;
(ii) Except as could not individually, or in the aggregate, reasonably
be expected to have a Material Adverse Effect, the Company is in compliance
with Environmental Laws and the requirements of permits issued under such
Environmental Laws with respect to the Company Property;
(iii) There are no pending or, to the knowledge of the Company,
threatened Environmental Claims against the Company or any Company
Property;
(iv) There are no facts, circumstances, conditions or occurrences
regarding the Company's or any Subsidiary's past or present business or
operations or any Company Property, or to the knowledge of the Company and
the Stockholders, any property adjoining any Company Property, that could
reasonably be expected (i) to form the basis of an Environmental Claim
against the Company, or any of the Company Property or assets, or (ii) to
cause any such current Company Property or assets to be subject to any
restrictions on its ownership, occupancy, use or transferability under any
Environmental Law;
(v) There are not now and, to the knowledge of the Company and the
Stockholders, there have never been any underground storage tanks or sumps
located on any Company Property or, to the knowledge of the Company and the
Stockholders, located on any property that adjoins or is adjacent to any
Company Property;
(vi) Neither the Company nor any Company Property is listed or
proposed for listing on the National Priorities List under CERCLA, or
CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign
list of sites requiring investigation or clean-up;
(vii) There are no Environmental Permits that are nontransferable or
require consent, notification or other action to remain in full force and
effect following the consummation of the transactions contemplated hereby;
and
(viii) The Company has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition whether
caused by the Company or any other Person) which could reasonably be
expected to have a Material Adverse Effect.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis commenced or conducted by or on behalf of the Company
(or by a third party of which the Company or any Stockholder has knowledge) in
relation to the current or prior business of the Company or any Subsidiary, or
any property or facility currently or, to the
19
knowledge of the Company or any Stockholder, previously owned or leased by the
Company or any Subsidiary, which has not been disclosed or delivered to Parent
prior to the date hereof.
(c) Neither the Company nor any Subsidiary owns or leases or has owned or
leased any property, and does not conduct and has not conducted any operations,
in New Jersey or Connecticut.
(d) For purposes of this Section, the terms "Company" (including the use of
such terms in the term "Company Property") will include any entity which is, in
whole or in part, a predecessor of the Company.
3.1.19. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.19(a) sets forth a
list of all employee benefit plans (as defined in Section 3(3) of ERISA), and
all other employee benefit plans, programs, arrangements, contracts or schemes,
written or oral, statutory or contractual, with respect to which the Company, a
Subsidiary or any ERISA Affiliate has or has had in the six years preceding the
date hereof any obligation or liability or which are or were in the six years
preceding the date hereof maintained, contributed to or sponsored by the Company
or any ERISA Affiliate for the benefit of any current or former employee,
officer or director of the Company or any ERISA Affiliate (collectively, the
"PLANS"). With respect to each employee pension benefit plan subject to ERISA,
the Company has delivered to Parent a true and complete copy of each such Plan
(including all amendments thereto) and a true and complete copy of each material
document (including all amendments thereto) prepared in connection with each
such Plan including, without limitation, (i) a copy of each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, and (iii) the most recently filed IRS Form 5500 for each such
Plan, if any. The Company has no express or implied commitment, whether legally
enforceable or not, to create, incur liability with respect to or cause to exist
any employee benefit plan or to modify any Plan, other than as required by law.
(b) Except as disclosed in SCHEDULE 3.1.19(b), none of the Plans is a plan
that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or
Section 412 of the Code. None of the Plans is (i) a "multiemployer plan" as
defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under
Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection
with a trust described in Section 501(c)(9) of the Code. Except as disclosed in
SCHEDULE 3.1.19(b), (A) none of the Plans provides for the payment of
separation, severance, termination or similar-type benefits to any person, and
(B) none of the Plans provides for or promises retiree medical or life insurance
benefits to any current or former employee, officer or director of the Company.
Except as disclosed in SCHEDULE 3.1.19(b), each of the Plans is subject only to
the laws of the United States or a political subdivision thereof.
(c) Except as disclosed in SCHEDULE 3.1.19(c), each Plan is in compliance
in all material respects with, and has always been operated in all material
respects in accordance with, its terms and the requirements of all applicable
law, foreign and domestic, and the Company and the ERISA Affiliates have
satisfied in all material respects all of their statutory, regulatory and
contractual obligations with respect to each such Plan. No legal action, suit or
claim is pending or, to the knowledge of the Company and any Stockholder,
threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and no fact or event exists that could give rise to any such
action, suit or claim.
20
(d) Except as disclosed in SCHEDULE 3.1.19(d), each Plan or trust which is
intended to be qualified or exempt from taxation under Section 401(a), 401(k) or
501(a) of the Code has received a favorable determination letter from the IRS
that it is so qualified or exempt, and no fact or event has occurred since the
date of such determination letter to adversely affect the qualified or exempt
status of any Plan or trust.
(e) There has been no non-exempt prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor any ERISA Affiliate has incurred any material liability
for any excise tax arising under Section 4971, 4972, 4975, 4980 or 4980B of the
Code and no fact or event exists which could give rise to such liability.
Neither the Company nor any ERISA Affiliate has incurred any material liability
relating to Title IV of ERISA (other than for the payment of premiums to the
Pension Benefit Guaranty Corporation), and no fact or event exists which could
give rise to such liability.
(f) All material contributions, premiums or payments required to be made
with respect to any Plan have been made on or before their due dates. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Government Authorities, and
no fact or event exists which could give rise to any such challenge or
disallowance.
(g) There has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any ERISA Affiliate
thereof relating to, or change in employee participation or coverage under, any
Plan that would increase materially the expense of maintaining such Plan above
the level of the expense incurred in respect thereto for the most recent fiscal
year ended prior to the date hereof.
(h) Except as disclosed in SCHEDULE 3.1.19(h) or in this Agreement, no
employee or former employee of the Company or any ERISA Affiliate thereof will
become entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced such benefit (including acceleration of vesting or exercise
of an incentive award) as a result of the transactions contemplated hereby.
(i) Except as disclosed in SCHEDULE 3.1.19(i), no current or former
employee of the Company or any ERISA Affiliate thereof holds any option to
purchase shares of the Company.
(j) None of the Plans promises or provides retiree health or life insurance
benefits.
3.1.20. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in
SCHEDULE 3.1.20, to the knowledge of the Company, no Stockholder, nor any
other officer or director of the Company possesses, directly or indirectly,
any ownership interest in, or is a director, officer or employee of, any
Person which is a supplier, customer, lessor, lessee, licensor, developer,
competitor or potential competitor of the Company. Ownership of securities of
a company whose securities are registered under the Exchange Act of 2% or
less of any class of such securities will not be deemed to be a financial
interest for purposes of this Section 3.1.20.
21
3.1.21. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE COMPENSATION;
BONUSES. To the knowledge of the Company or any Stockholder:
(a) The relationships of the Company with its customers, suppliers and
employees are good commercial working relationships and, except as disclosed in
SCHEDULE 3.1.21(a), none of the Company's material customers or material
suppliers or employees receiving annual compensation in excess of $50,000 has
canceled, terminated or otherwise materially altered or notified the Company of
any intention or otherwise threatened to cancel, terminate or materially alter
its relationship with the Company effective prior to, as of, or within one year
after, the Closing. As of the date hereof, there has not been, and the Company
has no reason to believe that there will be, any change in relations with
material customers, suppliers or employees of the Company as a result of the
transactions contemplated by this Agreement.
(b) SCHEDULE 3.1.21(b) lists (i) all employees of the Company who receive
annual compensation in excess of $60,000 and (ii) all bonuses and any other
amounts to be paid by the Company to employees of the Company at or in
connection with the Closing ("BONUSES").
3.1.22. OTHER EMPLOYMENT MATTERS. (a) The Company is in material compliance
with all Federal, state or other applicable laws, domestic or foreign,
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any unfair
labor practice which could reasonably be expected to have a Material Adverse
Effect; no unfair labor practice complaint against the Company is pending before
the National Labor Relations Board; there is no labor strike, dispute, slowdown
or stoppage actually pending, or, to the knowledge of the Company or any
Stockholder, threatened against, or involving, the Company; the Company is not a
party to any collective bargaining agreement and no collective bargaining
agreement is currently being negotiated by the Company; to the knowledge of the
Company and Stockholders, no representation question exists respecting employees
of the Company; and, except as specifically set forth on SCHEDULE 3.1.22, no
claim in respect of the employment of any employee has been asserted and is
currently pending or, to the knowledge of the Company or any Stockholder
threatened, against the Company.
(b) SCHEDULE 3.1.22 contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since the
Balance Sheet Date: vacation accrued; and service credited for purposes of
vesting and eligibility to participate under any pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Plan of the Company.
(c) No former or current employee or current or former director of the
Company is a party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, non-competition, or proprietary rights agreement,
between such employee or director and any other Person that in any way adversely
affected, affects, or will affect (i) the performance of his duties as an
employee or director of the Company, or (ii) the ability of the Company to
conduct its business.
22
(d) SCHEDULE 3.1.22 also contains a complete and accurate list of the
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefits, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.1.23. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.1.23, all of
the accounts receivable reflected on the Reviewed Balance Sheet (net of the
reserves set forth on the Reviewed Balance Sheet) and all accounts receivable
which have arisen since the Balance Sheet Date (net of any additional reserves
established since the Balance Sheet Date in accordance with past practice, none
of which is material) are valid and enforceable claims, and the goods and
services sold and delivered which gave rise to such accounts receivable were
sold and delivered in conformity with the applicable purchase orders, agreements
and specifications. Such accounts receivable are subject to no defenses, offsets
or recovery in whole or in part by the Persons whose purchase gave rise to such
accounts receivable or by third parties and are fully collectible in the
ordinary course of business without resort to legal proceedings, except to the
extent of the amount of the reserve for doubtful accounts reflected in the
Reviewed Balance Sheet.
3.1.24. INVENTORY. Except as set forth in SCHEDULE 3.1.24, all inventories
reflected on the Reviewed Balance Sheet (net of the reserves set forth on the
Reviewed Balance Sheet) and all inventories which have been acquired or produced
since the Balance Sheet Date (net of any additional reserves established since
the Balance Sheet Date in accordance with past practice, none of which is
material) are in good condition, are not obsolete, and are useable or saleable
in the ordinary course of business, as is consistent with the past business
practice of the Company. Past practice includes the continued inclusion of
inventory requiring re-work and material subsequently determined after machining
to be scrapped due to perocity, as well as excess quantity purchases over
specific order requirements due to minimum purchase requirements imposed by
vendors. Except as set forth in the immediately preceding sentence and Schedule
3.1.24, to the Company's and the Stockholders' knowledge, the values at which
such inventories are carried are in accordance with GAAP consistently applied.
The amount and mix of items in the inventories of supplies, in-process and
finished products are consistent with the past business practices of the
Company. The Company has not written down or written off any inventory acquired
by it after September 1, 1997, except for the generation of scrap in the
ordinary course of manufacturing, none of which in the aggregate is material.
3.1.25. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.25 describes the measures that
have been implemented to determine the extent to which the computer systems used
by the Company in its business (the "COMPUTER SYSTEMS") are not in Millennium
Compliance, and the material details of any program undertaken with a view
towards causing the Computer Systems to achieve Millennium Compliance.
3.1.26 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of the Stockholders or the Company who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
3.2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder
represents and warrants, severally and not jointly and with respect to such
Stockholder only, to Parent as of the Closing Date as follows:
23
3.2.1. AUTHORITY; ENFORCEABILITY. Such Stockholder has all requisite power
and authority, and has taken all action necessary, to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform his
or its obligations hereunder. This Agreement has been duly executed and
delivered by such Stockholder and is a legal, valid and binding obligation of
such Stockholder enforceable against such Stockholder in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
3.2.2. NO CONFLICTS. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby and compliance with
the terms hereof do not, violate or conflict with in any respect or result in a
breach under any contract, license, Order or Law applicable to such Stockholder.
3.2.3. NO CONSENTS. Except for the filing of the certificates of merger, no
consent of, approval or filing with, any court or other Person is required to be
obtained or made by or with respect to such Stockholder in connection with the
execution and delivery of this Agreement or the consummation by such Stockholder
of the transactions contemplated hereby.
3.2.4. OWNERSHIP OF SHARES; TITLE. All of the issued and outstanding shares
of Company Stock set forth opposite such Stockholder's name on SCHEDULE 1 are
lawfully owned of record and beneficially by such Stockholder, free and clear of
any Liens. Such Stockholder has the full legal right, power and authority to
vote, sell, assign, transfer and convey such shares of Company Stock. Such
shares are not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment, option, proxy, right of first refusal or
understanding, including without limitation any contract restricting or
otherwise relating to the voting, dividend rights or disposition of such shares.
3.2.5. LITIGATION. Except as disclosed in SCHEDULE 3.2.5, there is no
action, suit, investigation, arbitration or administrative or other proceeding
pending or, to the knowledge of such Stockholder, threatened against or
affecting such Stockholder before any court or arbitrator or any Governmental
Authorities which, individually or in the aggregate, if determined or resolved
adversely to such Stockholder could, individually or when considered together
with all other such matters, adversely affect the right or ability of such
Stockholder to consummate the transactions contemplated by this Agreement; and
such Stockholder knows of no valid basis for any such action, proceeding or
investigation.
3.2.6. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in
SCHEDULE 3.2.6, neither such Stockholder, nor, to the knowledge of such
Stockholder, any other officer or director of the Company, possesses, directly
or indirectly, any ownership interest in, or is a director, officer or employee
of, any Person which is a supplier, customer, lessor, lessee, licensor,
developer, competitor or potential competitor of the Company. Ownership of
securities of a company whose securities are registered under the Exchange Act
of 2% or less of any class of such securities will not be deemed to be an
ownership interest for purposes of this Section 3.2.6.
24
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub represents and warrants to the Company and
the Stockholders as of the Closing Date as follows:
4.1. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Parent and Merger Sub has all
power and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted.
4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement are within each
of Parent's and Merger Sub's respective corporate powers and have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent or Merger Sub
and constitutes a valid and binding agreement of Parent or Merger Sub, as
applicable, enforceable against Parent or Merger Sub in accordance with its
terms, except to the extent that enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
4.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the certificates
of merger, the execution, delivery and performance by Parent and Merger Sub of
this Agreement require no action by or in respect of, or filing with, any
Governmental Authorities.
4.4. NON-CONTRAVENTION. The execution, delivery and performance by each of
Parent and Merger Sub of this Agreement will not (a) violate the certificate of
incorporation or bylaws of Parent or Merger Sub, or (b) violate any applicable
Law or Order.
4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there is no action,
suit, investigation, arbitration or administrative or other proceeding pending
or, to the knowledge of Parent, threatened against or affecting Parent or Merger
Sub, or any of Parent's or Merger Sub's properties before any court or
arbitrator or any Governmental Authorities which, individually or in the
aggregate, if determined or resolved adversely to Parent or Merger Sub, could
reasonably be expected to materially and adversely affect the right or ability
of Parent or Merger Sub to consummate the transactions contemplated by this
Agreement.
4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P. and Carlisle
Group, L.P., whose fees and expenses (including transaction fees) will be paid
by the Surviving Corporation, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Parent who might be entitled to any fee or commission from the Stockholders
or the Company upon consummation of the transactions contemplated by this
Agreement.
25
V. TAX MATTERS
5.1. TAX RETURNS. The Stockholders will have the exclusive authority and
obligation to prepare and timely file, or cause to be prepared and timely filed,
all Returns of the Company that are due with respect to any taxable year or
other taxable period ending on or prior to the Closing Date. Such authority will
include, but not be limited to, the determination of the manner in which any
items of income, gain, deduction, loss or credit arising out of the income,
properties and operations of the Company will be reported or disclosed in such
Returns; PROVIDED, HOWEVER, that such Returns will be prepared by treating items
on such Returns in a manner consistent with the past practice with respect to
such items, unless otherwise required by law. The Stockholders will provide to
Parent drafts of all Returns of the Company required to be prepared and filed by
the Stockholders under this Section 5.1 at least 30 days prior to the due date
for the filing of such Returns (including any extensions). At least 15 days
prior to the due date for the filing of such Returns (including any extensions),
Parent will notify the Stockholders of the existence of any objection
(specifying in reasonable detail the nature and basis of such objection) Parent
may have to any items set forth on such draft Returns (a "DISPUTE NOTICE").
Parent and the Stockholders agree to consult and resolve in good faith any such
objection. The Stockholders will not file any return without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed;
PROVIDED, HOWEVER, that no such consent will be required if Parent shall not
have timely delivered a Dispute Notice or the objections contained in such
Dispute Notice shall have been finally resolved.
5.2. APPORTIONMENT OF TAXES. All Taxes and Tax liabilities with respect to
the income, property or operations of the Company that relate to a taxable year
or other taxable period beginning before and ending after the Closing Date will
be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax
Period as determined from the books and records of the Company, between
Pre-Closing and Post-Closing Tax Periods as though the taxable year of the
Company terminated at the close of business on the Closing Date, and based on
accounting methods, elections and conventions that do not have the effect of
distorting income and expenses. The Stockholders will be liable for the payment
of all Taxes of the Company which are attributable to any Pre-Closing Tax
Period, whether shown on any original return or amended return for the period
referred to therein, to the extent, only in the case of Taxes attributable to
the Company's 1998 Tax Year, such amounts exceed in the aggregate the 1998 Tax
Reserves. The Company will be liable for the payment of all Taxes which are
attributable to any Post-Closing Tax Period. All transfer, documentary, sales,
use, stamp, registration, value added and other such Taxes and fees (including
any penalties and interest), imposed on the Parent or the Company which are
incurred in connection with this Agreement will be borne and paid by the
Stockholders when due, and the Stockholders will, at their own expense, cause to
be filed all necessary Returns and other documentation with respect to all such
Taxes and fees. Notwithstanding the foregoing: (i) there shall be no
apportionment of Federal 1120 income taxes or State of Michigan Single Business
Tax for the tax year beginning September 1, 1998; and (ii) there shall be no
apportionment of personal or real property taxes due after June 30, 1998.
5.3. COOPERATION; AUDITS. In connection with the preparation of Returns,
audit examinations and any administrative or judicial proceedings relating to
the Tax liabilities imposed on the Company for all Pre-Closing Tax Periods,
Parent and the Company on the one hand, and the Stockholders on the other hand,
will cooperate fully with each other, including, but not limited to, the
furnishing or making available during normal business hours of records,
26
personnel (as reasonably required), books of account, powers of attorney or
other materials necessary or helpful for the preparation of such Returns, the
conduct of audit examinations or the defense of claims by Tax authorities as to
the imposition of Taxes.
5.4. CONTROVERSIES. Parent will promptly notify each of the Stockholders in
writing upon receipt by Parent or any Affiliate of Parent (including the Company
after the Closing Date) of written notice of any inquiries, claims, assessments,
audits or similar events with respect to Taxes relating to a Pre-Closing Tax
Period for which the Stockholders may be liable under this Agreement (any such
inquiry, claim, assessment, audit or similar event, a "TAX MATTER"). The
Stockholders, at their sole expense, will have the exclusive authority to
represent the interests of the Company with respect to any Tax Matter before the
IRS, any other Taxing Authority, any other governmental agency or authority or
any court and will have the sole right to extend or waive the statute of
limitations, with respect to a Tax Matter and to control the defense, compromise
or other resolution of any Tax Matter, including responding to inquiries, filing
Tax returns and settling audits; PROVIDED, HOWEVER, that the Stockholders will
not enter jointly and/or severally into any settlement of or otherwise
compromise any Tax Matter that affects or may affect the Tax liability of Parent
or the Company or any affiliate of the foregoing for any Post-Closing Tax
Period, including the portion of a period beginning before the Closing Date and
ending after the Closing Date, without the prior written consent of Parent,
which consent will not be unreasonably withheld. The Stockholders will keep
Parent fully and timely informed with respect to the commencement, status and
nature of any Tax Matter. The Stockholders will, in good faith, allow Parent to
consult with the Stockholders regarding the conduct of or positions taken in any
such proceeding.
5.5. AMENDED RETURNS. The Stockholders will not file or cause or permit to
be filed jointly and/or severally any amended Return without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed.
Parent will not file or cause to be filed any amended return covering any period
or adjusting any Taxes for a period which includes any period prior to the
Closing Date without the prior written consent of the Stockholders, which
consent will not be unreasonably withheld or delayed.
VI. SURVIVAL; INDEMNIFICATION
6.1. SURVIVAL. The representations and warranties of the parties contained
in this Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith will survive the Closing for two years
thereafter; PROVIDED, HOWEVER, that the representations and warranties contained
in Sections 3.1.10 and 3.1.18 will survive the Closing until the expiration of
the statute of limitations applicable to the matters covered thereby (after
giving effect to any waiver, mitigation or extension thereof granted by the
Company after the Closing) and the representations and warranties contained in
Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5 and 3.1.6, (collectively, the
"SELECTED REPRESENTATIONS AND WARRANTIES"), 3.2.1, 3.2.2, 3.2.3, 3.2.4, 4.1,
4.2, 4.3 and 4.4 will survive the Closing indefinitely. Notwithstanding the
preceding sentence, any representation or warranty in respect of which indemnity
may be sought under this Agreement will survive the time at which it would
otherwise terminate pursuant to the preceding sentence if written notice of the
inaccuracy or breach thereof giving rise to such right of indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time; PROVIDED, HOWEVER, that the applicable representation or warranty will
survive only with respect to the particular inaccuracy or breach specified in
such written notice. All
27
covenants and agreements of the parties contained in this Agreement will survive
the Closing indefinitely.
6.2. INDEMNIFICATION. (a) Kenneth Smith hereby agrees to indemnify, defend
and hold harmless Parent and its officers, directors, employees, members,
managing directors, Affiliates (including the Company) and agents, and the
successors to the foregoing (and their respective officers, directors,
employees, members, managing directors, Affiliates and agents) (collectively,
the "PARENT INDEMNIFIED PARTIES"), against any and all liabilities, damages and
losses, including, without limitation, diminution in value of the Company,
Company Stock, lost profits and, only to the extent asserted in a Third Party
Claim, punitive damages, and all costs or expenses, including, without
limitation, attorneys' and consultants' fees and expenses ("DAMAGES"), incurred
or suffered as a result of or arising out of the failure of any representation
or warranty in any subsection of Section 3.1 to be true and correct as of the
Closing Date (other than a breach of Section 3.1.10 with respect to Taxes, which
will be governed by Section 6.3) as a result of an event, fact or circumstance
occurring on or after, and not otherwise existing prior to, January 1, 1997.
Kenneth Smith will not be liable under this Section 6.2(a) (other than with
respect to breaches of any of the Selected Representations and Warranties)
unless the aggregate amount of Damages exceeds $100,000 and then from the first
dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that
Kenneth Smith's liability under this Section 6.2(a) (other than with respect to
breaches of any of the Selected Representations and Warranties) will not exceed,
in the aggregate, $3.0 million.
(b) Each of the Leidal Family Stockholders hereby agrees to indemnify,
defend and hold harmless, jointly and severally, the Parent Indemnified Parties
against any and all Damages incurred or suffered as a result of or arising out
of the failure of any representation or warranty in any subsection of Section
3.1 to be true and correct as of the Closing Date (other than a breach of
Section 3.1.10 with respect to Taxes, which will be governed by Section 6.3) as
a result of an event, fact or circumstance occurring or existing prior to, but
not first occurring on or after, January 1, 1997; PROVIDED, HOWEVER, that the
Leidal Family Stockholders will not be liable under this Section 6.2(b) (other
than with respect to breaches of any of the Selected Representations and
Warranties) unless the aggregate amount of Damages exceeds $100,000 and then
from the first dollar to the full extent of such Damages; PROVIDED, FURTHER,
HOWEVER, that the Leidal Family Stockholders' liability under this Section
6.2(b) (other than with respect to breaches of any of the Selected
Representations and Warranties) will not exceed, in the aggregate, $3.0 million.
(c) Each of the Stockholders severally and not jointly, hereby agree to
indemnify, defend and hold harmless the Parent Indemnified Parties against any
and all Damages incurred or suffered as a result of or arising out of the
failure of any representation or warranty made by such Stockholder in any
subsection of Section 3.2 of this Agreement to be true and correct as of the
Closing Date.
(d) Parent and the Company, jointly and severally, hereby agree to
indemnify, defend and hold harmless the Stockholders against Damages incurred or
suffered as a result of or arising out of the failure of any representation or
warranty made by Parent or Merger Sub in this Agreement to be true and correct
as of the Closing Date; PROVIDED, HOWEVER, that Parent will not be liable under
this Section 6.2(d) unless the aggregate amount of Damages exceeds $100,000
28
and then from the first dollar to the full extent of such Damages; PROVIDED,
FURTHER, HOWEVER, that Parent's liability under this Section 6.2(d) will not
exceed, in the aggregate, $6.0 million.
6.3. TAX INDEMNIFICATION. (a) Kenneth Smith hereby agrees to indemnify,
defend and hold harmless the Parent Indemnified Parties against (i) all Taxes
(and losses, claims and expenses related thereto) resulting from, arising out
of, or incurred with respect to, any claims that may be asserted by any party
based upon, attributable to, or resulting from the failure of any representation
or warranty made pursuant to Section 3.1.10 to be true and correct as of the
Closing Date as a result of an event, fact or circumstance occurring on or
after, and not otherwise existing prior to, January 1, 1997, to the extent, only
in the case of Taxes attributable to the Company's 1998 Tax Year, such amounts
exceed in the aggregate the 1998 Tax Reserves, (ii) all Taxes imposed on or
asserted against the Company or for which the Company may be liable in respect
of the properties, income or operations of the Company for all Pre-Closing Tax
Periods ending on or after January 1, 1997, to the extent, only in the case of
Taxes attributable to the Company's 1998 Tax Year, such amounts exceed in the
aggregate the 1998 Tax Reserves, and (iii) all Taxes imposed on or asserted
against the Company, or for which the Company may be liable, as a result of any
transaction contemplated by this Agreement, but excluding (i) any Federal 1120
income taxes or State of Michigan Single Business Tax for the tax year beginning
September 1, 1998, and (ii) any real and personal property taxes of the Company
due after June 30, 1998.
(b) Each of the Leidal Family Stockholders hereby agrees to indemnify,
defend and hold harmless, jointly and severally, the Parent Indemnified Parties
against (i) all Taxes (and losses, claims and expenses related thereto)
resulting from, arising out of, or incurred with respect to, any claims that may
be asserted by any party based upon, attributable to, or resulting from the
failure of any representation or warranty made pursuant to Section 3.1.10 to be
true and correct as of the Closing Date as a result of an event, fact or
circumstance occurring or existing prior to, but not first occurring on or
after, January 1, 1997, and (ii) all Taxes imposed on or asserted against the
Company or for which the Company may be liable in respect of the properties,
income or operations of the Company for all Pre-Closing Tax Periods ending prior
to January 1, 1997.
6.4. PROCEDURES. (a) If any Person who or which is entitled to seek
indemnification under Section 6.2 or Section 6.3 (an "INDEMNIFIED PARTY")
receives notice of the assertion or commencement of any Third Party Claim
against such Indemnified Party with respect to which the Person against whom or
which such indemnification is being sought (an "INDEMNIFYING PARTY") is
obligated to provide indemnification under this Agreement, the Indemnified Party
will give such Indemnifying Party reasonably prompt written notice thereof, but
in any event not later than 20 days after receipt of such written notice of such
Third Party Claim. Such notice by the Indemnified Party will describe the Third
Party Claim in reasonable detail, will include copies of all available material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Damages that has been or may be sustained by the Indemnified
Party. The Indemnifying Party will have the right to participate in, or, by
giving written notice to the Indemnified Party, to assume, the defense of any
Third Party Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel (reasonably satisfactory to the Indemnified
Party), and the Indemnified Party will cooperate in good faith in such defense.
29
(b) If, within ten days after giving notice of a Third Party Claim to an
Indemnifying Party pursuant to Section 6.4(a), an Indemnified Party receives
written notice from the Indemnifying Party that the Indemnifying Party has
elected to assume the defense of such Third Party Claim as provided in the last
sentence of Section 6.4(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten days after receiving written notice from the Indemnified Party that
the Indemnified Party reasonably believes the Indemnifying Party has failed to
take such steps or if the Indemnifying Party has not undertaken fully to
indemnify the Indemnified Party in respect of all damages relating to the
matter, the Indemnified Party may assume its own defense, and the Indemnifying
Party will be liable for all reasonable costs and expenses paid or incurred in
connection therewith. Without the prior written consent of the Indemnified
Party, the Indemnifying Party will not enter into any settlement of any Third
Party Claim which would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder, or which provides for injunctive
or other non-monetary relief applicable to the Indemnified Party, or, as to
matters other than Tax Matters, does not include an unconditional release of all
Indemnified Parties. If a firm offer is made to settle a Third Party Claim
without leading to liability or the creation of a financial or other obligation
on the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party will give written notice
to the Indemnified Party to that effect. If the Indemnified Party fails to
consent to such firm offer within ten days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party Claim and,
in such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will not exceed the amount of such settlement offer. The Indemnified
Party will provide the Indemnifying Party with reasonable access during normal
business hours to books, records, and employees of the Indemnified Party
necessary in connection with the Indemnifying Party's defense of any Third Party
Claim which is the subject of a claim for indemnification by an Indemnified
Party hereunder.
(c) Any claim by an Indemnified Party on account of Damages which does not
result from a Third Party Claim (a "DIRECT CLAIM") will be asserted by giving
the Indemnifying Party reasonably prompt written notice thereof, but in any
event not later than 20 days after the Indemnified Party becomes aware of such
Direct Claim. Such notice by the Indemnified Party will describe the Direct
Claim in reasonable detail, will include copies of all available material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of Damages that has been or may be sustained by the Indemnified
Party. The Indemnifying Party will have a period of ten days within which to
respond in writing to such Direct Claim. If the Indemnifying Party does not so
respond within such ten day period, the Indemnifying Party will be deemed to
have rejected such claim, in which event the Indemnified Party will be free to
pursue such remedies as may be available to the Indemnified Party on the terms
and subject to the provisions of this Agreement.
(d) A failure to give timely notice or to include any specified information
in any notice as provided in Section 6.4(a), 6.4(b) or 6.4(c) will not affect
the rights or obligations of any party hereunder, except and only to the extent
that, as a result of such failure, any party which was entitled to receive such
notice was deprived of its right to recover any payment under
30
its applicable insurance coverage or was otherwise materially prejudiced as a
result of such failure.
(e) All indemnifiable Damages under this Agreement will be paid in cash in
immediately available funds.
6.5. TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by any
Stockholder or Parent under Section 6.2 or 6.3 will be treated as a capital
contribution, on the one hand, or an adjustment to the Aggregate Closing Merger
Consideration, on the other hand.
6.6. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of
Damages for which indemnification is provided under Sections 6.2 and 6.3 will be
computed net of any insurance proceeds received by the Indemnified Party in
connection with such Damages, reduced by all costs and expenses related thereto
and any premium increase or expense resulting therefrom. If the amount with
respect to which any claim is made under this Section 6.6 gives rise to a
currently realizable Tax benefit, the indemnity payment will be reduced by the
amount of such currently realizable benefit then available to the party making
the claim if and to the extent actually realized by such party in the fiscal
year in which such indemnity payment is made to such party or in the next
succeeding fiscal year.
VII. MISCELLANEOUS
7.1. NOTICES. All notices, requests and other communications to any party
hereunder will be in writing (including facsimile transmission) and will be
given to such party at its address set forth in SCHEDULE 7.1. All such notices,
requests and other communications will be deemed received on the date of receipt
by the recipient thereof if received prior to 5:00 p.m. in the place of receipt
and such day is a business day in the place of receipt. Otherwise, any such
notice, request or communication will be deemed not to have been received until
the next succeeding business day in the place of receipt.
7.2. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder will operate as a waiver thereof nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided will be cumulative and not exclusive of any rights or remedies provided
by law.
7.3. EXPENSES. Except as otherwise expressly provided for herein, the
parties will pay or cause to be paid all of their own fees and expenses incident
to this Agreement and in preparing to consummate and consummating the
transactions contemplated hereby, including the fees and expenses of any broker,
finder, financial advisor, legal advisor or similar person engaged by such
party. It is agreed that the Company shall pay, at or prior to the Closing, the
reasonable legal fees of Thav, Gross, Steinway & Bennett, P.C. for services
rendered in
31
connection with this transaction, provided that a reasonably detailed invoice
therefor shall have been delivered to Parent at the Closing.
7.4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto.
7.5. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VI, this
Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied will give or be construed to
give to any Person, other than the parties hereto and such permitted assigns any
legal or equitable rights hereunder.
7.6. GOVERNING LAW. This Agreement will be governed by, and construed in
accordance with, the law of the State of New York, without regard to the
conflict of laws rules of such state.
7.7. JURISDICTION. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may be brought in any court of competent
jurisdiction in the Borough of Manhattan or the United States District Court for
the Southern District of New York and each of the parties hereby consents to the
non-exclusive jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without limiting
the foregoing, each party agrees that service of process on such party as
provided in Section 7.1 will be deemed effective service of process on such
party.
7.8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
7.9. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
7.10. HEADINGS. The headings in this Agreement are for convenience of
reference only and will not control or affect the meaning or construction of any
provisions hereof.
7.11. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement. This Agreement (including the Schedules
and Exhibits hereto) supersedes all
32
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof of this Agreement.
7.12. SEVERABILITY. If any provision of this Agreement or the application
of any such provision to any person or circumstance is held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
hereof.
7.13. NO WAIVER. No action or inaction taken or omitted pursuant to this
Agreement will be deemed to constitute a waiver of compliance with any
representations, warranties or covenants contained in this Agreement and will
not operate or be construed as a waiver of any subsequent breach, whether of a
similar or dissimilar nature.
7.14. CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise
requires, (a) all references to Sections, Articles, Exhibits or Schedules are to
Sections, Articles, Exhibits, or Schedules of or to this Agreement, (b) each of
the Schedules will apply only to the corresponding Section or subsection of this
Agreement, (c) each term defined in this Agreement has the meaning assigned to
it, (d) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP, (e) words in the singular
include the plural and VICE VERSA, and (f) the term "INCLUDING" means "including
without limitation." All references to $ or dollar amounts will be to lawful
currency of the United States. To the extent the term "day" or "days" is used,
it shall mean calendar days.
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
(c) (i) All references to the "KNOWLEDGE OF THE COMPANY" or to words of
similar import will be deemed to be references to the actual knowledge of one or
more of the executive officers or directors of the Company whose names are
listed on SCHEDULE 7.14(c)(i), and will include such knowledge as such executive
officers or directors would have had after due inquiry of the responsible
individuals of the Company whose names are listed separately on SCHEDULE
7.14(c)(i) and its counsel and accountants.
(ii) All references to the "KNOWLEDGE OF PARENT" or to words of
similar import will be deemed to be references to the actual knowledge of
one or more of the executive officers, directors or members of the
management committee of Parent whose names are listed on SCHEDULE
7.14(c)(ii) and, will include such knowledge as such executive officers,
directors or management committee members would have had after due inquiry
of the responsible individuals of Parent whose names are listed separately
on SCHEDULE 7.14(c)(ii) and its counsel and accountants.
(iii) All references to the "KNOWLEDGE OF STOCKHOLDER" or to words of
similar import will be deemed to be references to the actual knowledge of
such Stockholder, as applicable.
33
7.15. FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, the other parties will execute and deliver, or cause to be
executed and delivered, all such documents and instruments and will take, or
cause to be taken, all such further or other actions, as the requesting party
may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
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The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers or in their individual capacity, if applicable,
as of the day and year first above written.
GALAXY INDUSTRIES
CORPORATION
By: /s/ Kenneth Smith
------------------------
Name: Kenneth Smith
Title: President
GALAXY HOLD CO., INC.
By: /s/ William Gumina
------------------------
Name: William Gumina
Title: Vice President
GALAXY ACQUISITION, INC.
By: /s/ William Gumina
------------------------
Name: William Gumina
Title: Vice President
/s/ Kenneth Smith
------------------------------
Kenneth Smith
/s/ Robert H. Leidal
------------------------------
Robert H. Leidal
/s/ Betty A. Leidal
------------------------------
Betty A. Leidal
/s/ Michael R. Leidal
------------------------------
Michael R. Leidal
/s/ Cheryl Brooks
------------------------------
Cheryl Brooks
35
Robert H. Leidal Revocable Living Trust
By: /s/ Robert H. Leidal
----------------------
Robert H. Leidal
Trustee
Betty A. Leidal Revocable Living Trust
By: /s/ Betty A. Leidal
----------------------
Betty A. Leidal
Trustee
36