_____________________________________
AGREEMENT AND PLAN OF MERGER
among
BERRY PLASTICS ACQUISITION CORPORATION,
BERRY PLASTICS CORPORATION,
POLY-SEAL CORPORATION
and
THE SHAREHOLDERS OF POLY-SEAL
CORPORATION NAMED HEREIN
Dated as of May 5, 2000
_____________________________________
TABLE OF CONTENTS
PAGE
AGREEMENT AND PLAN OF MERGER .......................................... 1
PRELIMINARY STATEMENTS................................................. 1
ARTICLE I THE MERGER; EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS.............................. 1
Section 1.1. The Merger........................................... 1
Section 1.2. Closing.............................................. 2
Section 1.3. Effect of the Merger................................. 2
Section 1.4. Certificate of Incorporation and Bylaws of the
Surviving Corporation............................... 2
Section 1.5. Directors and Officers of the Surviving
Corporation......................................... 2
Section 1.6. Effect on Capital Stock.............................. 2
Section 1.7. Certain Defined Terms................................ 4
Section 1.8. Determination of Adjustments......................... 7
Section 1.9. Payments.............................................11
Section 1.10. Escrows.............................................13
Section 1.11. Payment of Indebtedness, Capital Lease
Obligations and Transaction Expense Amounts.........14
Section 1.12. No Duplication......................................14
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER PARTIES.......................................15
Section 2.1. Due Execution and Delivery, Etc......................15
Section 2.2. No Violation.........................................16
Section 2.3. Capital Stock........................................16
Section 2.4. Organization of the Company..........................17
Section 2.5. Consents and Approvals...............................18
Section 2.6. Financial Statements.................................18
Section 2.7. Absence of Certain Changes...........................18
Section 2.8. Absence of Undisclosed Liabilities...................19
Section 2.9. Litigation...........................................19
Section 2.10. Compliance with Applicable Law, Permits.............19
Section 2.11. Environmental Matters...............................20
Section 2.12. Intellectual Property...............................21
Section 2.13. Employee Benefit Plans..............................21
Section 2.14. Employees and Labor Relations.......................23
Section 2.15. Taxes...............................................24
Section 1.16. Material Contracts..................................25
Section 2.17. Suppliers, Distributors and Customers...............26
Section 2.18. Assets Necessary to Business........................26
Section 2.19. Tangible Personal Property..........................26
Section 2.20. Real Property.......................................27
i
Section 2.21. Insurance...........................................28
Section 2.22. Related Party Transactions..........................28
Section 2.23. Accounts and Notes Receivable.......................28
Section 2.24. Disclosure..........................................29
Section 2.25. Brokers.............................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARENT and MERGER
SUB.......................................................29
Section 3.1. Organization and Authority of Parent and Merger
Sub.................................................29
Section 3.2. No Violation.........................................30
Section 3.3. Consents and Approvals...............................30
Section 3.4. Investment...........................................30
Section 3.5. Legal Proceedings....................................30
Section 3.6. Solvency, Etc........................................30
Section 3.7. Brokers..............................................30
ARTICLE IV COVENANTS...................................................31
Section 4.1. Conduct of the Business..............................31
Section 4.2. Access to Information by Parent......................33
Section 4.3. Reasonable Efforts...................................33
Section 4.4. Stock Options........................................34
Section 4.5. Collective Bargaining Agreement......................34
Section 4.6. Access to Records by Shareholders....................34
Section 4.7. Certain Limitations on Representations and
Warranties..........................................35
Section 4.8. Supplemental Schedules...............................36
Section 4.9. Guarantee by Parent..................................36
Section 4.10. Further Assurances..................................36
Section 4.11. Certain Tax Matters.................................36
Section 4.12. Termination of Affiliate Transactions...............40
Section 4.13. Notice of Prospective Breach........................40
Section 4.14. Release.............................................41
Section 4.15. Disclosure of Information...........................41
Section 4.16. Negotiation with Others; Disposition and Voting
of Securities......................................41
Section 4.17. Use of Name.........................................43
ARTICLE V CONDITIONS...................................................43
Section 5.1. Conditions to Each Party's Obligations...............43
Section 5.2. Conditions to Obligations of the Parent and Merger
Sub.................................................43
Section 5.3. Conditions to Obligations of the Shareholder
Parties and the Company.............................45
Section 5.4. Waiver...............................................46
ARTICLE VI TERMINATION AND AMENDMENT...................................46
Section 6.1. Termination..........................................46
Section 6.2. Effect of Termination................................47
Section 6.3. Amendment............................................48
ii
ARTICLE VII SURVIVAL; INDEMNIFICATION..................................48
Section 7.1. Survival Periods.....................................48
Section 7.2. Indemnification......................................48
Section 7.3. Certain Limitations..................................49
Section 7.4. Claims...............................................51
Section 7.5. Exclusive Remedy.....................................52
Section 7.6. Adjustments..........................................52
Section 7.7. No Contribution from the Corporation or the
Surviving Corporation...............................52
Section 7.8. Tax Claims...........................................52
ARTICLE VIII MISCELLANEOUS.............................................54
Section 8.1. Shareholder Party Representatives....................54
Section 8.2. Notices..............................................54
Section 8.3. Headings.............................................56
Section 8.4. Counterparts.........................................56
Section 8.5. Entire Agreement; Assignment.........................56
Section 8.6. Governing Law........................................56
Section 8.7. Specific Performance.................................57
Section 8.8. Press Releases.......................................57
Section 8.9. Binding Nature; No Third Party Beneficiaries.........57
Section 8.10. Severability........................................57
Section 8.11. Certain Interpretive Matters and Definitions........57
Section 8.12. Payment of Expenses.................................58
Section 8.13. Remedies............................................58
Section 8.14. Independence of Covenants and Representations and
Warranties.........................................58
iii
SCHEDULES AND EXHIBITS
Schedule 1.7(ix) Closing CapEx Amount
Schedule 1.7(xi) Closing Working Capital Amount
Schedule 1.7 (xiv) Estimated Adjustment Amount
Schedule 1.7(xvii) Estimated Tax Amount
Schedule 1.8(a) Pro Forma Net Working Capital Calculation
Schedule 2.2(a) No Violation -- Shareholder Parties
Schedule 2.2(b) No Violation -- Company
Schedule 2.3(a) Company Common Stock
Schedule 2.3(b) Stock Option Plan
Schedule 2.3(c) Title to Shares
Schedule 2.4(b) Subsidiaries and other Equity Interests
Schedule 2.6 Financial Statements
Schedule 2.7 Absence of Certain Changes
Schedule 2.8 Absence of Undisclosed Liabilities
Schedule 2.9 Litigation
Schedule 2.10 Compliance with Applicable Law
Schedule 2.11 Environmental Matters
Schedule 2.12 Intellectual Property
Schedule 2.13(a),(d),(e)&(f) Employee Benefit Plans
Schedule 2.15(a),(b),(c)&(e) Taxes
Schedule 2.16 Material Contracts
Schedule 2.17 Suppliers, Distributors and Customers
Schedule 2.19 Tangible Personal Property
Schedule 2.20 Real Property
Schedule 2.21 Insurance
Schedule 2.22(b) Related Party Transactions
Schedule 2.23 Accounts and Notes Receivable
Schedule 4.1 Conduct of Business
Schedule 4.12 Termination of Affiliate Transactions
Schedule 8.1 Principal Shareholders
Schedule 8.11 Certain Interpretive Matters and Definitions
Exhibit A Form of Escrow Agreement
Exhibit B Form of Opinion of Counsel to Shareholder Parties and
Company
Exhibit C Form of Opinion of Counsel to Parent and Merger Sub
iv
TABLE OF DEFINED TERMS
TERM SECTION
Actual Unpaid Amount............................... 4.11(a)(iii)
Accountant's Determination......................... 1.8(c)
Accounting Firm.................................... 1.8(c)
Actual CapEx Amount................................ 1.7(i)
Actual Tax Liability............................... 4.11(d)
Additional Escrow Amount............................1.7(ii)
Affiliate.......................................... 2.22(a)
Aggregate Merger Consideration..................... 1.7(iii)
Agreement.......................................... Introductory Paragraph
Applicable Percentage.............................. 1.7(iv)
Audited Financial Statements....................... 2.6
Best Knowledge of the Company...................... 8.11(a)
Business........................................... Preliminary Statements
Business Day....................................... 1.7(v)
Buyer Group........................................ 7.2(a)
CapEx Overpayment Amount........................... 1.8(e)(i)
CapEx Underpayment Amount.......................... 1.8(e)(ii)
CapEx Target....................................... 1.7(vi)
Capital Lease Obligations.......................... 1.7(vii)
Capital Lease Obligations Amount................... 1.7(viii)
Certificate of Merger.............................. 1.2
Closing............................................ 1.2
Closing Date....................................... 1.2
Closing Date Payment Amount........................ 1.7(x)
Closing Date Balance Sheet......................... 1.8(a)
Closing Working Capital Amount..................... 1.7(xi)
Code............................................... 2.13
Company............................................ Introductory Paragraph
Company Common Stock............................... 1.6(a)(ii)
Compensation Deductions............................ 4.11(a)(iv)
Confidentiality Agreement.......................... 4.2(a)
Consulting and Non-Competition Agreement........... 5.2(q)
Covered Refund..................................... 4.11(b)
Credited Prepayments............................... 4.11(b)
deMilt Receivable.................................. 2.22(a)
Damages............................................ 7.2(a)
December Balance Sheet............................. 2.6
DGCL............................................... 1.1
Dissenting Shareholder............................. 1.6(c)
Effective Time..................................... 1.2
Employee Plans..................................... 2.13(a)
Environmental Law.................................. 2.11(b)
v
ERISA.............................................. 2.13(a)
ERISA Affiliate.................................... 2.13(d)(iii)
Escrow Agent....................................... 1.10(a)
Escrow Adjustment Amount Account................... 1.10(c)
Escrow Agreement................................... 1.10(a)
Escrow Amount...................................... 1.10(a)
Escrow Expense Account............................. 1.10(d)
Escrow Expense Amount.............................. 1.7(xii)
Escrow Holdback Account............................ 1.10(a)
Escrow Holdback Amount............................. 1.7(xiii)
Escrow Holdback Fund............................... 1.10(a)
Escrow Tax Account................................. 1.10(e)
Estimated Adjustment Amount........................ 1.7(xiv)
Estimated CapEx Overpayment Amount................. 1.7(xv)
Estimated CapEx Underpayment Amount................ 1.7(xvi)
Estimated Tax Amount............................... 1.7(xvii)
Estimated Working Capital Overpayment Amount....... 1.7(xviii)
Estimated Working Capital Underpayment Amount...... 1.7(xix)
Exclusive Period................................... 4.16(a)
Fair Market Value Per Share........................ 4.4
Final Separate Return Year......................... 4.11(a)(i)
Final Separate Return Year Tax Returns............. 4.11(a)(ii)
Financial Statements............................... 2.6
Financing Documents................................ 3.6
Franchise Taxes.................................... 1.7(xx)
GAAP............................................... 2.6
Governmental Entity................................ 2.4(a)
Hazardous Substance................................ 2.11(c)
Herdrich Receivable................................ 2.22(a)
HSR Act............................................ 2.5(a)
Income Taxes....................................... 1.7(xxi)
Indebtedness....................................... 1.7(xxii)
Indemnified Party.................................. 7.4(a)
Indemnifying Party................................. 7.4(a)
Intellectual Property.............................. 2.12(b)
Knowledge of the Company........................... 8.11(a)
Law................................................ 2.4(a)
Leased Real Property............................... 2.20
Liability.......................................... 2.8
Liens.............................................. 2.3(c)
Material Adverse Effect............................ 2.4(a)
Merger............................................. 1.1
Merger Sub......................................... Introductory Paragraph
Merger Sub Common Stock............................ 1.6(i)
Names.............................................. 4.17
Net Working Capital................................ 1.7(xxiii)
vi
Nonresponsive Shareholder.......................... 4.11(a)(iv)
Notice of Disagreement............................. 1.8(b)
Owned Real Property................................ 2.20
Outstanding Company Common Stock................... 1.6(a)(ii)
Overpayment Amount................................. 1.8(d)(ii)
Parent............................................. Introductory Paragraph
Parent Adjustment Amounts.......................... 1.8(f)
Permitted Liens.................................... 2.19
Per Share Merger Consideration..................... 1.6(a)(ii)
Post-Closing 1999 Returns.......................... 4.11(d)
Potential Transaction.............................. 4.16(a)
Purchase Price..................................... 1.2
Rate............................................... 1.9(c)
Real Property...................................... 2.20
Refund............................................. 4.11(b)
Related Documents.................................. 1.7(xxiv)
Schroders.......................................... 2.25
Shareholder Adjustment Amounts..................... 1.8(g)
Shareholder Parties................................ Introductory Paragraph
Shareholder Payments Escrow Account................ 1.10(b)
Shareholder Party Representatives.................. Introductory Paragraph
Statement.......................................... 1.8(a)
Stock Option....................................... 4.4
Stock Option Plan.................................. 2.3(b)
Straddle Year...................................... 4.11(a)(ii)
Straddle Year Tax Returns.......................... 4.11(a)(ii)
Subsidiary......................................... 2.4(b)
Survival Date...................................... 7.1
Surviving Corporation.............................. 1.2
Surviving Corporation Common Stock................. 1.6(a)(i)
Tax................................................ 2.15(g)
Tax Claim.......................................... 7.8
Tax Return......................................... 2.15(g)
Third Party Claim.................................. 7.4(e)
Transaction Expense Amounts........................ 1.7(xxv)
Underpayment Amount................................ 1.8(d)(i)
Unused Expense Amount.............................. 1.7(xxvi)
Working Capital Target............................. 1.7(xxvii)
vii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 5,
2000, among Berry Plastics Corporation, a Delaware corporation (the
"PARENT") , Berry Plastics Acquisition Corporation, a Delaware
corporation ("MERGER SUB"), Poly-Seal Corporation, a Delaware corporation
(the "COMPANY"), the individuals and trusts who are shareholders of the
Company listed in the signature pages to this Agreement (such
shareholders being collectively referred to as the "SHAREHOLDER
PARTIES"), and Michael C. Larned and Michael D. deMilt, as
representatives of the Shareholder Parties (the "SHAREHOLDER PARTY
REPRESENTATIVES").
PRELIMINARY STATEMENTS
A. The Company is engaged in the business of manufacturing and
selling plastic caps and closures and related activities (the
"BUSINESS").
B. The Board of Directors of each of the Parent and the Company
have determined that the acquisition of the Company, upon the terms and
subject to the conditions set forth herein, pursuant to a merger whereby
Merger Sub will be merged with and into the Company, is in the best
interests of their respective companies and shareholders.
C. Merger Sub is a wholly-owned subsidiary of Parent created solely
for the purpose of effecting the transactions contemplated hereby and
which will conduct no other activity and will be merged with and into the
Company.
D. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement
and the transactions contemplated hereby.
E. The Shareholder Party Representatives are to act as
representatives of the Shareholder Parties for certain purposes
hereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below,
the parties agree as following:
ARTICLE I
THE MERGER; EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
Section 1.1 The Merger.
Subject to the terms and provisions of this Agreement and in
accordance with Subchapter IX of the Delaware General Corporation Law
(the "DGCL"), at the Effective Time (as defined in section 1.2), Merger
Sub shall be merged with and into the Company (the "MERGER"). As a
result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
Section 1.2 Closing.
The closing of the Merger (the "CLOSING") will take place at 10:00
a.m. at the offices of O'Sullivan, Graev and Karabell LLP, 30 Rockefeller
Plaza, New York, New York, 10112 (or at such other place or time as the
parties mutually agree in writing) on a date to be specified by Parent
and the Company, which shall be no later than the third Business Day
after satisfaction or, if permissible, waiver of the conditions set forth
in Article V (the time and date of the Closing being referred to herein
as the "CLOSING DATE"), unless another date is agreed to by Parent and
the Company. On the Closing Date, a Certificate of Merger with respect
to the Merger in such form as is required by the DGCL (the "CERTIFICATE
OF MERGER") shall be duly prepared, executed and delivered to the
Secretary of State of the State of Delaware for filing, as provided in
the DGCL. The Merger shall become effective at the later of the time of
filing of the Certificate of Merger or at such time as is agreed upon by
the parties and specified in the Certificate of Merger (the "EFFECTIVE
TIME").
Section 1.3. Effect of the Merger.
Upon becoming effective, the Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all properties, rights,
privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities and duties
of Merger Sub and the Company shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 1.4. Certificate of Incorporation and Bylaws of the Surviving
Corporation.
From and after the Effective Time, and until changed or amended as
provided by law, the Certificate of Incorporation of the Company and
Bylaws of Merger Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation and Bylaws, respectively, of
the Surviving Corporation.
Section 1.5. Directors and Officers of the Surviving Corporation.
The directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation. The officers of Merger Sub immediately prior
to the Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
Section 1.6. Effect on Capital Stock.
(a) As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder thereof:
(i)Each share of Common Stock, par value $.01 per share, of Merger
Sub ("MERGER SUB COMMON STOCK") issued and outstanding immediately prior
to the Effective Time shall be converted into and become one fully paid
and non-assessable share of Common Stock, par value $.01 per share, of
the Surviving Corporation ("SURVIVING CORPORATION COMMON STOCK"), so
that, after the Effective Time, the Parent will be the holder of all of
the issued and outstanding shares of
2
Surviving Corporation Common Stock. From and after the Effective Time,
each outstanding certificate representing Merger Sub Common Stock shall
be deemed for all purposes to evidence ownership of and to represent the
same number of shares of Surviving Corporation Common Stock. After the
Effective Time, a certificate or certificates evidencing shares of Surviving
Corporation Common Stock shall be issued by the Surviving Corporation in
exchange for the certificate or certificates which formerly represented all
of the issued and outstanding shares of Merger Sub Common Stock, which shall
then be cancelled.
(ii)Each share of Common Stock, par value $0.005 per share, of the
Company ("COMPANY COMMON STOCK") issued and outstanding immediately prior
to the Effective Time ("OUTSTANDING COMPANY COMMON STOCK") (except
Outstanding Company Common Stock held by Dissenting Shareholders as
defined in Section 1.6(c), if any, or held by the Company as set forth in
Section 1.6(a)(iii)) shall be converted into and become the right to
receive, from and after the Effective Time in accordance with the terms
and provisions of this Agreement and the Escrow Agreement (as defined
below), the Aggregate Merger Consideration divided by the total number of
shares of Outstanding Company Common Stock, and shall otherwise cease to
be outstanding, shall be cancelled and retired and cease to exist. From
and after the Effective Time, the holders of certificates representing
Outstanding Company Common Stock (each a "SHAREHOLDER" and collectively,
the "SHAREHOLDERS") shall cease to have any rights as stockholders of the
Company, except for the right to receive the Aggregate Merger
Consideration in respect of such Outstanding Company Common Stock at the
times and in the manner provided in this Agreement and the Escrow
Agreement and except for such rights, if any, as they may have pursuant
to the DGCL.
(iii)Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly
by the Company (whether as treasury stock or otherwise) shall, by virtue
of the Merger and without any action on the part of the holder thereof,
be canceled and no consideration shall be delivered in exchange therefor.
(iv)Each authorized but unissued share of Company Common Stock
immediately prior to the Effective Time shall be canceled.
(b)__As of the Effective Time, by virtue of the Merger and
without any action on the part of any party, the stock transfer books of
the Company shall be closed and no transfer of Company Common Stock shall
thereafter be made.
(c)__Notwithstanding anything in this Agreement to the
contrary, to the extent required by the DGCL, any Outstanding Company
Common Stock held by a person who validly asserts and perfects appraisal
rights pursuant to Section 262 of the DGCL (a "DISSENTING SHAREHOLDER")
shall not be converted as described in Section 1.6(a)(ii), but shall be
converted into the right to receive such consideration as may be
determined to be due to such Dissenting Shareholder pursuant to Section
262 of the
3
DGCL. If, after the Effective Time, such Dissenting
Shareholder withdraws his demand or fails to perfect or otherwise loses
his rights as a Dissenting Shareholder to payment of fair value, in any
case pursuant to the DGCL, each of the shares of Outstanding Company
Common Stock of such Dissenting Shareholder shall be deemed to be
converted as of the Effective Time into the right to receive those
amounts set forth in Section 1.6(a)(ii).
Section 1.7. Certain Defined Terms.
As used herein, the following terms shall have the following
respective meanings:
(i)"ACTUAL CAPEX AMOUNT" means the aggregate amount of capital
expenditures made or accrued for during the period from January 1, 1999
through the Closing Date (excluding any capital expenditures made by the
Company not set forth on the latest capital expenditure budget delivered
on or prior to the date hereof to the Parent) and set forth on the
Statement;
(ii)"ADDITIONAL ESCROW AMOUNT" means the Escrow Holdback Amount
MINUS the amount, if any, required to be paid out to satisfy Damages with
respect to which payments may be made from the Escrow Holdback Account
under the Escrow Agreement;
(iii)"AGGREGATE MERGER CONSIDERATION" means the net amount of (i)
the Closing Date Payment Amount, PLUS (ii) the Underpayment Amount, if
any, PLUS (iii) the CapEx Underpayment Amount, if any, PLUS (iv) the
Additional Escrow Amount, if any, PLUS (v) any amounts to which
Shareholders may be entitled under Sections 4.11(a)(iii), 4.11(a)(iv),
4.11(b) and 4.11(d), PLUS (vi) the Unused Expense Amount, if any, LESS
(vii) the Overpayment Amount, if any, and LESS (viii) the CapEx
Overpayment Amount, if any;
(iv)"APPLICABLE PERCENTAGE" in respect of any Shareholder or
Shareholders means the fraction, expressed as a percentage, of which the
numerator is the total number of shares of Outstanding Company Common
Stock owned of record by such Shareholder or Shareholders and the
denominator is the total number of shares of Outstanding Company Common
Stock of all Shareholders;
(v)"BUSINESS DAY" means any day other than a Saturday or a Sunday or
a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to be closed;
(vi)"CAPEX TARGET" means the sum of (1) $5,175,000 plus (2) $8,300
per day during the period between January 1, 2000 and the Closing Date;
(vii)"CAPITAL LEASE OBLIGATIONS" means the obligations of the
Company, on a consolidated basis, to pay rent or other amounts under any
lease of (or other arrangement covering the right to use) real or
personal property, which obligations are required to be classified and
accounted for as capital leases on a
4
consolidated balance sheet of the Company as of such date computed in
accordance with GAAP, consistently applied with the Financial Statements;
(viii)"CAPITAL LEASE OBLIGATIONS AMOUNT" means the aggregate amount
required to satisfy and pay off all liabilities and obligations
(including any prepayment penalties) arising under any Capital Lease
Obligations to the extent not satisfied and paid off prior to the
Closing;
(ix)"CLOSING CAPEX AMOUNT" means the aggregate amount of capital
expenditures actually made or accrued for by the Company during the
period between January 1, 1999 and the Closing Date estimated in good
faith by the Company as set forth in Schedule 1.7(ix) hereto or, if the
Closing Date shall not occur on or prior to May 9, 2000, as set forth in
a revised Schedule to be delivered by the Shareholder Party
Representatives to the Parent at least one Business Day prior to the
Closing Date;
(x)"CLOSING DATE PAYMENT AMOUNT" means the net amount equal to (i)
$57,312,230.84, (ii) MINUS the aggregate amount of Indebtedness of the
Company to the extent not satisfied and paid off prior to the Closing,
(iii) MINUS the Capital Lease Obligations Amount, (iv) MINUS the
Estimated Tax Amount, (v) MINUS the Escrow Holdback Amount, (vi) MINUS
the Estimated CapEx Overpayment Amount, if any, (vii) MINUS the Estimated
Working Capital Overpayment Amount, if any, (viii) MINUS the Escrow
Expense Amount and (ix) MINUS the Transaction Expense Amounts;
(xi)"CLOSING WORKING CAPITAL AMOUNT" means the amount of Net Working
Capital as of the Closing Date estimated in good faith by the Company,
calculated on a basis consistent with, and using the same accounting
policies, practices and procedures used in preparing the Working Capital
Target (but including cash, which was not included in the determination
of the Working Capital Target), and set forth on Schedule 1.7(xi) hereto
or, if the Closing Date shall not occur on or prior to May 9, 2000, as
set forth in a revised Schedule to be delivered by the Shareholder Party
Representatives to the Parent at least one Business Day prior to the
Closing Date;
(xii)"ESCROW EXPENSE AMOUNT" means $200,000;
(xiii)"ESCROW HOLDBACK AMOUNT" means $1,200,000;
(xiv)"ESTIMATED ADJUSTMENT AMOUNT" means the sum of (A) the
Estimated Working Capital Underpayment Amount, if any, PLUS (B) the
Estimated CapEx Underpayment Amount, if any, as set forth in Schedule
1.7(xiv) hereto or, if the Closing Date shall not occur on or prior to
May 9, 2000, as set forth in a revised Schedule to be delivered by the
Shareholder Party Representatives to the Parent at least one Business Day
prior to the Closing Date;
5
(xv)"ESTIMATED CAPEX OVERPAYMENT AMOUNT" means the amount equal to
the difference, but only to the extent that such amount, if any, is
greater than zero, of (A) the CapEx Target minus (B) the Closing CapEx
Amount;
(xvi)"ESTIMATED CAPEX UNDERPAYMENT AMOUNT" means the amount equal to
the difference, but only to the extent that such amount, if any, is
greater than zero, of (A) the Closing CapEx Amount minus (B) the CapEx
Target;
(xvii)"ESTIMATED TAX AMOUNT" means the good faith estimated amount
of the accrued but unpaid liability of the Company, as of the Closing
Date, for Income Taxes and Franchise Taxes in respect of any Final
Separate Return Year and the portion of any Straddle Year ending on the
Closing Date as set forth on Schedule 1.7(xvii) hereto, or if the Closing
Date shall not occur on or prior to May 9, 2000, as set forth in a
revised Schedule to be delivered by the Company to the Parent at least
one Business Day prior to the Closing Date;
(xviii)"ESTIMATED WORKING CAPITAL OVERPAYMENT AMOUNT" means the
amount equal to the difference, but only to the extent that such amount,
if any, is greater than zero, of (A) the Working Capital Target minus
(B) the Closing Working Capital Amount;
(xix)"ESTIMATED WORKING CAPITAL UNDERPAYMENT AMOUNT" means the
amount equal to the difference, but only to the extent that such amount,
if any, is greater than zero, of (A) the Closing Working Capital Amount
minus (B) the Working Capital Target;
(xx)"FRANCHISE TAXES" means franchise, net worth, capital or similar
Taxes;
(xxi)"INCOME TAXES" means Taxes on income (whether based on or
measured by gross or net income) or in the nature of an income tax or
imposed in lieu thereof;
(xxii)"INDEBTEDNESS" means the aggregate amount (including the
current portions thereof), net of cash and cash equivalents, of all (i)
indebtedness for money borrowed from others and purchase money
indebtedness (other than accounts payable in the ordinary course), (ii)
indebtedness of the type described in clause (i) above guaranteed in any
manner by the Company, or in effect guaranteed, directly or indirectly,
in any manner by the Company through an agreement, contingent or
otherwise, to supply funds to, or in any other manner invest in, the
debtor, or to purchase indebtedness, or to purchase and pay for property
if not delivered or pay for services if not performed, primarily for the
purpose of enabling the debtor to make payment of the indebtedness or to
assure the owners of the indebtedness against loss, but excluding
endorsement of checks and other instruments in the ordinary course, (iii)
all indebtedness of the type described in clause (i) above secured by any
Lien upon property owned by the Company, even though the Company has not
in any manner become liable for the
6
payment of such indebtedness, and (iv) all interest expense accrued but
unpaid, and all prepayment premiums on, or relating to, any of such
indebtedness, including, but not limited to, the obligations arising under
the loan agreements referred to in Schedule 2.2(b);
(xxiii)"NET WORKING CAPITAL" means current assets minus current
liabilities, determined in accordance with generally accepted accounting
principles consistently applied, as reflected on the Closing Date Balance
Sheet, adjusted as necessary so that CURRENT ASSETS shall include only:
cash, cash equivalents, accounts receivable (net of reserves and less the
amounts due from Affiliates/Supply-Line, Inc.), inventory (net of
reserves) and prepaid expenses (less any prepaid pension cost), and
CURRENT LIABILITIES shall include only: accounts payable, accrued wages,
benefits, salaries and commissions, and all other accruals, as of the
Closing Date, including accruals for Taxes (including real estate and
similarly based taxes to the extent allocable to the period ending on the
Closing Date, determined on a per diem basis) that are not yet due and
payable (federal, state and local); PROVIDED, HOWEVER, that Net Working
Capital (A) shall not take into account as a current liability any
accruals for (1) Income Taxes or (2) Franchise Taxes, (B) shall not take
into account as a current asset any refund or other item in respect of
any Income Tax or Franchise Tax, (C) shall not include as a current
liability the current portion of Indebtedness and Capital Lease
Obligations and (D) shall not include as a current liability the
additional vacation accrual reflected in general ledger account #604;
(xxiv)"RELATED DOCUMENTS" means, collectively, the Certificate of
Merger and the Escrow Agreement;
(xxv)"TRANSACTION EXPENSE AMOUNTS" means (i) $1,910,400 payable to
Schroders and (ii) $540,000 payable to Dewey Ballantine LLP in connection
with the transactions contemplated by this Agreement;
(xxvi)"UNUSED EXPENSE AMOUNT" means the Escrow Expense Amount MINUS
amounts required to be paid out to the Shareholder Party Representatives
from the Escrow Expense Account as provided in the Escrow Agreement; and
(xxvii)"WORKING CAPITAL TARGET" means $12,891,500.
Section 1.8. Determination of Adjustments.
(a)__Within 120 calendar days after the Closing Date, the
Parent shall cause the Surviving Corporation to prepare and deliver to
the Shareholder Party Representatives (as representatives of the
Shareholder Parties) (i) the unaudited consolidated balance sheet of the
Company and its subsidiaries as of the close of business on the Closing
Date (the "CLOSING DATE BALANCE SHEET"), which shall present fairly the
consolidated financial condition of the Company as of the close of
business on the Closing Date and which shall be prepared in accordance
with GAAP and on a basis consistent with, and using the same accounting
policies, practices and procedures used in
7
preparing the December Balance Sheet (as defined in Section 2.6) to the
extent such policies, practices and procedures are in accordance with GAAP,
and (ii) a statement (the "STATEMENT") setting forth the Net Working Capital
and the Actual CapEx Amount which shall be prepared on a basis consistent
with, and using the same accounting policies, practices and procedures used
in preparing, the Working Capital Target (except with respect to the
inclusion of cash, which was not included in the determination of the Working
Capital Target) and the Closing CapEx Amount. Attached hereto as Schedule
1.8(a)is a PRO FORMA calculation of Net Working Capital, based on the December
Balance Sheet assuming that the Closing Date occurred on December 31,
1999. The parties acknowledge and agree that such Schedule (i) reflects
the general ledger accounts to be included in determining Net Working
Capital (except that the parties acknowledge that the $1,850,000 Note
Receivable referred to therein has been paid and, accordingly, will not
be reflected, as such, as a current asset), (ii) has been calculated on a
basis consistent with, and using the same accounting policies and
procedures used in preparing, the Working Capital Target and (iii)
reflects the manner in which the parties agree that the actual Net
Working Capital as of the close of business on the Closing Date shall be
calculated.
(b)__During the 30 calendar day period following receipt of the
Closing Date Balance Sheet and the Statement by the Shareholder Party
Representatives (and thereafter during the 45 calendar day period
referred to in Section 1.8(c), if applicable) the Shareholder Parties,
Shareholder Party Representatives and their independent auditors shall
have reasonable on site access during normal business hours to the
properties, books, records, schedules, analyses and working papers of the
Parent and the Surviving Corporation and be permitted to review and make
copies reasonably required of the working papers and any schedules,
analyses and other documentation of the Parent, the Surviving Corporation
and their independent auditors relating to the Closing Date Balance Sheet
and the Statement. The Closing Date Balance Sheet and the Statement
shall become final and binding upon the parties on the thirtieth calendar
day following delivery thereof, unless the Shareholder Party
Representatives give written notice of their disagreement with the
Closing Date Balance Sheet and/or the Statement ("NOTICE OF
DISAGREEMENT") to the Parent prior to such date. Any Notice of
Disagreement shall (i) specify in reasonable detail the nature of any
disagreement so asserted, and (ii) only include disagreements based on
mathematical errors or based on the Closing Date Balance Sheet or the
Statement not being prepared in accordance with this Agreement. If a
Notice of Disagreement complying with the preceding sentence is received
by the Parent in a timely manner, then the Closing Date Balance Sheet and
the Statement (as revised in accordance with clause (x) or (y) below)
shall become final and binding upon the parties on the earlier of (x) the
date the Shareholder Parties and the Parent resolve in writing any
differences they have with respect to the matters specified in the Notice
of Disagreement or (y) the date any disputed matters are finally resolved
in writing by the Accounting Firm (as defined below).
(c)__During the 45 calendar day period following the delivery
of a Notice of Disagreement that complies with the preceding paragraph,
the Shareholder Parties and the Parent shall seek in good faith to
resolve in writing any differences which they may have with respect to
the matters specified in the Notice of Disagreement.
8
During such period the Parent, the Surviving Corporation and their
representatives shall be permitted to review and make copies reasonably
required of the working papers and any schedules, analyses and any other
documentation of the Shareholder Parties, the Shareholder Party
Representatives and their independent auditors relating to the preparation
of the Notice of Disagreement. If, at the end of such 30-day period, the
Shareholder Parties and the Parent have not so resolved such differences, the
Shareholder Parties and the Parent shall submit to Arthur Andersen or, in
the event for any reason Arthur Andersen is unwilling or unable to act or
the Parent and the Shareholder Party Representatives otherwise agree (it
being understood that no party has any unilateral right to object to the
retention of Arthur Andersen for purposes of this Section 1.8), such
other nationally recognized accounting firm as the Parent and Shareholder
Party Representatives shall mutually designate (the "ACCOUNTING FIRM")
for review and resolution any and all matters which remain in dispute and
which were properly included in the Notice of Disagreement. The
Shareholder Parties and the Parent shall use reasonable efforts to cause
the Accounting Firm to render a decision resolving the matters in dispute
within 30 calendar days following the submission of such matters to the
Accounting Firm. The Closing Date Balance Sheet and the Statement will
be deemed to be as determined by the Accounting Firm. Such determination
(the "ACCOUNTANTS' DETERMINATION") shall be (A) in writing, (B) furnished
to the Shareholder Party Representatives and Parent as soon as
practicable after the items in dispute have been referred to the
Accounting Firm, (C) made in accordance with the provisions of this
Section 1.8 and (D) nonappealable and incontestable by any Shareholder,
the Surviving Corporation, the Parent and each of their respective
Affiliates and successors and not subject to collateral attack for any
reason, absent manifest error. Notwithstanding any of the foregoing to
the contrary, the Parent shall not be prejudiced by the delivery of the
Closing Date Balance Sheet and the Statement and the Shareholder Parties
shall not be prejudiced by the delivery of the Notice of Disagreement and
neither the Parent nor the Shareholder Parties shall be precluded from
raising any issues, objections or adjustments not previously raised at
any time prior to either the Accountant's Determination or the final
determination of the matters contemplated by this Section 1.8. The
Shareholder Parties, the Parent and the Surviving Corporation agree that
judgment may be entered upon the determination of the Accounting Firm in
any court having jurisdiction over the party against which such
determination is to be enforced. Except as specified in the following
sentence, the cost of any arbitration (including the fees and expenses of
the Accounting Firm) pursuant to this Section 1.8 shall be borne by the
Shareholder Parties and the Parent in inverse proportion as they may
prevail on matters resolved by the Accounting Firm, which proportionate
allocations shall also be determined by the Accounting Firm at the time
the determination of the Accounting Firm is rendered on the merits of the
matters submitted. The fees and expenses of the Parent's and Surviving
Corporation's independent auditors incurred in connection with the
preparation of the Closing Date Balance Sheet and the Statement and the
review by them of any Notice of Disagreement shall be borne by the Parent
and the Surviving Corporation, and the fees and expenses of the
Shareholder Parties' independent auditors incurred in connection with any
review by them of the Closing Date Balance Sheet and the Statement shall
be borne by the Shareholders.
9
(d)__(i) If the Net Working Capital plus the Estimated Working Capital
Overpayment Amount, if any, is greater than the Working Capital Target (the
amount of such excess being referred to herein as the "UNDERPAYMENT AMOUNT"),
then the Shareholders shall be entitled to receive, as part of the Aggregate
Merger Consideration, the Underpayment Amount and, within five (5)
Business Days following the final determination of the Net Working
Capital, the Surviving Corporation shall pay, or cause to be paid, to the
Shareholders an amount equal to the Underpayment Amount, such payments to
the Shareholders to be made to each Shareholder in accordance with such
Shareholder's Applicable Percentage.
(ii)If the Net Working Capital plus the Estimated Working Capital
Overpayment Amount, if any, is less than the Working Capital Target (the
amount of such shortfall being referred to herein as the "OVERPAYMENT
AMOUNT"), then the Surviving Corporation shall be entitled to receive the
Overpayment Amount and, within five (5) Business Days following the final
determination of the Net Working Capital, the Shareholders shall pay, or
cause to be paid, to the Surviving Corporation the Shareholder's
respective Applicable Percentages of the Overpayment Amount.
(e)__(i)If the CapEx Target less the Estimated CapEx Overpayment
Amount, if any, is greater than the Actual CapEx Amount (the amount of such
excess being referred to herein as the "CAPEX OVERPAYMENT AMOUNT"), then the
Surviving Corporation shall be entitled to receive the CapEx Overpayment Amount
and, within five (5) Business Days following the final determination of
the Actual CapEx Amount, the Shareholders shall pay, or cause to be paid,
to the Surviving Corporation the Shareholder's respective Applicable
Percentages of the CapEx Overpayment Amount.
(ii)If the CapEx Target less the Estimated CapEx Overpayment Amount,
if any, is less than the Actual CapEx Amount (the amount of such
shortfall being referred to herein as the "CAPEX UNDERPAYMENT AMOUNT"),
then the Shareholders shall be entitled to, as part of the Aggregate
Merger Consideration, the CapEx Underpayment Amount and, within five (5)
Business Days following the final determination of the Actual CapEx
Amount, the Surviving Corporation shall pay, or cause to be paid, to the
Shareholders an amount equal to the CapEx Underpayment Amount, such
payments to the Shareholders to be made to each Shareholder in accordance
with such Shareholder's Applicable Percentage.
(f)__If any of the Overpayment Amount and the CapEx Overpayment
Amount, in each case, if any (collectively, the "PARENT ADJUSTMENT
AMOUNTS"), is not satisfied within five (5) Business Days, such Parent
Adjustment Amounts may, at the option of the Parent, to the extent of any
remaining unsatisfied amount, be satisfied out of the Escrow Holdback
Account and Parent the Shareholder Party Representative shall execute and
deliver to the Escrow Agent joint written instructions directing the
Escrow Agent to (i) pay such Parent Adjustment Amounts to the Surviving
Corporation out of the Escrow Holdback Account and (ii) after payment of
any amounts to be paid from the
10
Escrow Adjustment Amount Account to the Shareholders as contemplated in
Section 1.8(g), if any, release any funds contained in the Escrow Adjustment
Amount Account to the Surviving Corporation. Within 15 days after the date
the Parent Adjustment Amounts are paid to the Surviving Corporation from the
Escrow Holdback Account pursuant to the immediately preceding sentence, the
Shareholders, in accordance with their Applicable Percentages, shall deliver
to the Escrow Agent an amount equal to the Parent Adjustment Amounts to
replenish the Escrow Holdback Account. Nothing contained in this subparagraph
shall be construed as an election of remedies by Parent and the Surviving
Corporation and the Parent and the Surviving Corporation shall have and
retain all other rights and remedies existing in their favor at law or in
equity for a breach of the provisions of this Section 1.8.
(g)__If any of the Underpayment Amount and the CapEx
Underpayment Amount, in each case, if any (collectively, the "SHAREHOLDER
ADJUSTMENT AMOUNTS"), is not satisfied within five (5) Business Days,
such Shareholder Adjustment Amounts may, at the option of the Shareholder
Party Representatives be satisfied out of the Escrow Adjustment Amount
Account and the Parent and the Shareholder Party Representatives shall
execute and deliver to the Escrow Agent joint written instructions
directing the Escrow Agent to (i) pay such Shareholder Adjustment Amounts
to the Shareholders, such payment to be made to each Shareholder in
accordance with such Shareholder's Applicable Percentage and (ii) release
the balance of the Escrow Adjustment Amount Account, if any, to the
Surviving Corporation. Nothing contained in this subparagraph shall be
construed as an election of remedies by any Shareholder or the
Shareholder Party Representatives and the Shareholders and Shareholder
Party Representatives shall have and retain all other rights and remedies
existing in their favor at law or in equity for breach of the provisions
of this Section 1.8.
(h)__Parent and the Surviving Corporation agree that following
the Closing they shall not take any actions which would affect the
Closing Date Balance Sheet or the Statement with respect to the
accounting books and records of the Company on which the Closing Date
Balance Sheet or the Statement is to be based that are not consistent
with the Company's past practices.
Section 1.9. Payments.
(a)__From time to time, on and after the Closing Date, the
Parent shall make available and pay, or cause to be made available and to
be paid, cash in amounts and at the times necessary for the prompt
payment of all amounts payable to the Shareholders or to be placed into
escrow as provided in this Agreement.
(b)__The Aggregate Merger Consideration shall be paid as
follows:
(i)At the Effective Time, each Shareholder shall become entitled to
receive, upon surrender by such Shareholder of the certificate(s) which
immediately prior to the Effective Time represented the Outstanding
Company Common Stock held by such Shareholder, from the Shareholder
Payments Escrow Account in accordance with Section 1.10(b) and the
applicable provisions
11
of the Escrow Agreement, such Shareholder's
Applicable Percentage (based on the certificates so surrendered) of the
Closing Date Payment Amount;
(ii)The Overpayment Amount, the Underpayment Amount, the CapEx
Overpayment Amount, and the CapEx Underpayment Amount, in each case, if
any, shall be paid in accordance with Section 1.8 and the applicable
provisions of the Escrow Agreement;
(iii)The Additional Escrow Amount, if any, shall be paid from the
Escrow Holdback Account in accordance with Section 1.10(a) and the
applicable provisions of the Escrow Agreement;
(iv)The Unused Expense Amount, if any, shall be paid from the Escrow
Expense Account in accordance with Section 1.10(d) and the applicable
provisions of the Escrow Agreement; and
(v)Amounts payable pursuant to Sections 4.11(a)(iii), 4.11(a)(iv),
4.11(b) and 4.11(d) shall be paid in accordance with such Sections,
Section 1.10(e) and the applicable provisions of the Escrow Agreement.
(c)__Any payments to be made to the Shareholders pursuant to
this Article I (including payments payable pursuant to this Article I
contemplated by Section 4.11) shall be made by wire transfer of
immediately available funds to the Escrow Agent for payment to the
Shareholders in accordance with the provisions of the Escrow Agreement or
directly to the Shareholders in the same manner as payments from the
Escrow Agent to the Shareholders as provided in the Escrow Agreement.
(d)__Except as provided in the Escrow Agreement, no interest
will be paid or will accrue on the Closing Date Payment Amount payable
upon the surrender of any certificates representing Outstanding Company
Common Stock. Until surrendered as contemplated by Section 1.9(b) and
the Certificate of Merger, each certificate representing a share of
Outstanding Company Common Stock shall be deemed, at and after the
Effective Time, to represent only the right to receive upon such
surrender cash as contemplated by this Article I, the Certificate of
Merger and the DGCL.
(e)__In the event that (A) the Shareholders owe any amounts or
are obligated to make any payments to the Parent, the Surviving
Corporation or any of their Affiliates under the provisions of Article I
of this Agreement (with respect to any adjustment to the Aggregate Merger
Consideration or otherwise) and (B) the Parent or the Surviving
Corporation owes any amount or is obligated to make any payment to the
Shareholders under the provisions of Article I of this Agreement (with
respect to any adjustment to the Aggregate Merger Consideration or
otherwise), then such amounts shall be netted and payment of such net
amount shall be made by the appropriate party (whether by release of
amounts held in escrow in accordance with this Agreement or otherwise).
(f)__If any certificate which immediately prior to the
Effective Time represented Outstanding Company Common Stock shall have
been lost, stolen or
12
destroyed, upon the making of an affidavit of that
fact by the Shareholder claiming such certificate to be lost, stolen or
destroyed and the provision by such Shareholder of such indemnity against
any claim that may be made with respect to such certificate as the
Surviving Corporation may reasonably require, such Shareholder shall be
entitled to receive all payments to which such Shareholder would be
entitled upon the actual surrender of such certificate.
Section 1.10. Escrows.
(a)__The Escrow Holdback Amount shall be placed in a separate
escrow account (the "ESCROW HOLDBACK ACCOUNT"), by wire transfer of
immediately available funds on the Closing Date to the Escrow Holdback
Account. The Escrow Holdback Amount shall be delivered to Old National
Trust Company (the "ESCROW AGENT"), to be held and released by the Escrow
Agent in accordance with the Escrow Agreement in substantially the form
of Exhibit A hereto (the "ESCROW AGREEMENT") to be entered into by the
Surviving Corporation, the Shareholder Parties, the Shareholder Party
Representatives, the Parent and the Escrow Agent on the Closing Date.
The Escrow Agreement shall provide that the Escrow Holdback Amount,
together with net interest and earnings thereon (collectively, the
"ESCROW HOLDBACK FUND"), will be held in escrow until the date that is
sixteen months from the Closing Date, unless otherwise released earlier,
to satisfy (i) any indemnification claims hereunder, as more fully
described in the Escrow Agreement, (ii) any decrease in the Aggregate
Merger Consideration pursuant to Section 1.8(f), 4.11(a)(iii) or 4.11(d),
or (iii) any fees or expenses payable from the Escrow Account as provided
in Section 8.12(a).
(b)__The Closing Date Payment Amount shall be placed in a
separate escrow account (the "SHAREHOLDER PAYMENTS ESCROW ACCOUNT"), by
wire transfer of immediately available funds on the Closing Date to the
Shareholder Payments Escrow Account, to be held, together with net
interest and earnings thereon, by the Escrow Agent and released to
Shareholders in accordance with the Escrow Agreement.
(c)__The Estimated Adjustment Amount, if any, shall be placed
in a separate escrow account (the "ESCROW ADJUSTMENT AMOUNT ACCOUNT"), by
wire transfer of immediately available funds on the Closing Date to the
Escrow Adjustment Amount Account, to be held, together with net interest
and earnings thereon, by the Escrow Agent and released to the
Shareholders or to the Surviving Corporation in accordance with the
provisions of Sections 1.8(f), 1.8(g) and the Escrow Agreement.
(d)__The Escrow Expense Amount shall be placed in a separate
escrow account (the "ESCROW EXPENSE ACCOUNT"), by wire transfer of
immediately available funds on the Closing Date to the Escrow Expense
Account, to be held, together with net interest and earnings thereon, by
the Escrow Agent and released to the Shareholder Party Representatives
and/or the Shareholders in accordance with the provisions of the Escrow
Agreement.
(e)__Amounts from time to time payable pursuant to Sections
4.11(a)(iii), 4.11(a)(iv), 4.11(b) and 4.11(d) shall be placed in a
separate escrow account
13
(the "ESCROW TAX ACCOUNT"), by wire transfer of
immediately available funds to the Escrow Tax Account when due, to be
held, together with net interest and earnings thereon, by the Escrow
Agent and released to the Shareholders in accordance with the provisions
of the Escrow Agreement.
Section 1.11. PAYMENT OF INDEBTEDNESS, CAPITAL LEASE OBLIGATIONS AND
TRANSACTION EXPENSE AMOUNTS.
(a)__On the Closing Date, the Parent shall direct the lenders
who will be providing the financing for the transactions contemplated
hereby to deliver to the holders of Indebtedness and Capital Lease
Obligations (subject to Section 1.11(b) below) an amount sufficient to
repay all Indebtedness and Capital Lease Obligations outstanding as of
the Closing Date, with the result that immediately following the Closing
(subject to Section 1.11(b) below) there will be no further monetary
obligations of the Company with respect to any Indebtedness or Capital
Lease Obligations outstanding immediately prior to the Closing. On the
Closing Date, the Company will provide the Parent, Merger Sub and such
lenders with customary pay-off letters from all holders of Indebtedness
and Capital Lease Obligations in form and substance satisfactory to the
Parent, and make arrangements satisfactory to the Parent for such holders
to provide to the Parent recordable form mortgage and lien releases,
canceled notes, trademark and patent assignments and other documents
reasonably requested by the Parent simultaneously with or promptly
following the Closing.
(b)__In the event that the Parent and the Company mutually
agree to not pay off one or more Capital Lease Obligations at the
Closing, then such Capital Lease Obligation(s) shall not be paid off and
the aggregate outstanding principal amount due on such Capital Lease
Obligation(s) as of the Closing Date (exclusive of any prepayment
premiums or penalties) shall be used to reduce the Capital Lease
Obligations Amount and decrease the purchase price and determine the
Closing Date Payment Amount pursuant to the provisions of Section 1.7
hereof.
(c) On the Closing Date, the Parent shall cause the
lenders who will be providing the financing for the transactions
contemplated hereby to pay the Transaction Expense Amounts.
Section 1.12. No Duplication.
Notwithstanding any provision to the contrary contained in this
Agreement, all adjustments to be made in the determination of the
Aggregate Merger Consideration, including the calculation of the
Overpayment Amount, the Underpayment Amount, the CapEx Overpayment
Amount, the CapEx Underpayment Amount and the Additional Escrow Amount,
shall be made without duplication.
14
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER PARTIES
Subject to the terms and conditions of this Agreement (including
Section 4.7), the Company and each of the Shareholder Parties jointly and
severally represent and warrant to the Parent and Merger Sub with respect
to the matters provided for in Sections 2.1(b), 2.2(b), 2.3(a), 2.3(b),
2.4, 2.5(b) and 2.6 through 2.25, and each of the Shareholder Parties
severally (and, but only to the extent contemplated by the proviso to
Section 7.2(a), jointly) represent and warrant to the Parent and Merger
Sub as to such Shareholder Party (and such Shareholder Party's Company
Common Stock) but not (except as contemplated by the proviso to Section
7.2(a)) as to any other Shareholder Party (or any such other Shareholder
Party's Company Common Stock) with respect to the matters provided for in
Sections 2.1(a), 2.2(a), 2.3(c) and 2.5(a), as follows:
Section 2.1. DUE EXECUTION AND DELIVERY, ETC.
(a)__Each Shareholder Party has all necessary power and
authority (corporate or otherwise) to execute and deliver this Agreement
and the Related Documents and to consummate the transactions contemplated
by this Agreement and the Related Documents. The execution, delivery and
performance of this Agreement and the Related Documents by each
Shareholder Party and the consummation by each Shareholder Party of the
transactions contemplated by this Agreement and the Related Documents
have been duly authorized by all necessary action on the part of such
Shareholder Party and no other proceedings on the part of such
Shareholder Party are necessary to authorize this Agreement or the
Related Documents or for such Shareholder to consummate the transactions
contemplated by this Agreement or the Related Documents. This Agreement
and the Related Documents have been duly and validly executed and
delivered by each Shareholder Party and constitute legal, valid and
binding obligations of such Shareholder, enforceable against such
Shareholder Party in accordance with their respective terms, except as
enforcement hereof may be limited by applicable bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors rights in
general, moratorium laws or general principles of equity. If such
Shareholder Party is a trust, such trust is a validly created and
existing trust under applicable state law.
(b)__The Company has all necessary corporate power and
authority to execute and deliver this Agreement and the Related Documents
to which it is a party. The execution, delivery and performance of this
Agreement and the Related Documents by the Company and the consummation
by the Company of the transactions contemplated by this Agreement and the
Related Documents have been duly authorized by all necessary corporate
action on the part of the Company and, except for the approval of this
Agreement and the transactions contemplated herein by shareholders of the
Company in accordance with the DGCL, no other proceedings on the part of
the Company are necessary to authorize this Agreement or the Related
Documents or for the Company to consummate the transactions contemplated
by this Agreement or the Related Documents.
15
This Agreement and the Related Documents have been duly and validly executed
and delivered by the Company and, subject to such shareholder approval,
constitute legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, except as enforcement hereof may be
limited by applicable bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights in general, moratorium laws or general
principles of equity.
Section 2.2. No Violation.
(a)__Subject to the shareholder approval referred to in Section
2.1(b) and except as set forth on Schedule 2.2(a), neither the execution,
delivery or performance of this Agreement or the Related Documents by any
Shareholder Party nor the consummation by any Shareholder Party of the
transactions contemplated by this Agreement or the Related Documents nor
compliance by any Shareholder Party with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision
of the certificate of incorporation or by-laws (or similar governing
instrument or organizational document) of such Shareholder Party, (ii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or loss of material benefit)
under, any of the terms, conditions or provisions of any note, lease,
license, contract or agreement to which such Shareholder Party is a party
or by which such Shareholder Party may be bound or (iii) violate any
order, writ, injunction, decree, statute, treaty, rule or regulation
applicable to such Shareholder Party.
(b)__Subject to the shareholder approval referred to in Section
2.1(b) and to receipt of consents and/or waivers under the agreements
listed in Schedules 2.2(a) and 2.2 (b), neither the execution and
delivery of this Agreement or the Related Documents by the Shareholders
Parties or the Company nor the consummation by the Shareholder Parties or
the Company of the transactions contemplated by this Agreement or the
Related Documents nor compliance by any Shareholder Party or the Company
with any of the provisions of this Agreement or the Related Documents
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws (or similar governing instrument
or organizational document) of the Company, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation
or acceleration or loss of material benefit) under, any of the terms,
conditions or provisions of any note, lease, license, contract or
agreement to which the Company is a party or by which the Company may be
bound or (iii) violate any order, writ, injunction, decree, statute,
treaty, rule or regulation applicable to the Company.
Section 2.3. Capital Stock.
(a)__Schedule 2.3(a) sets forth the total number of outstanding
shares of Company Common Stock of the Company and the number and
percentage of shares of Company Common Stock held by each Shareholder.
Such shares constitute all of the issued and outstanding shares of
capital stock of the Company. Each of such shares is
16
duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights.
(b)__Other than pursuant to the Poly-Seal Corporation 1997
Stock Option Plan (the "STOCK OPTION PLAN") attached as Schedule 2.3(b),
there are no options, warrants, rights or agreements or other commitments
obligating the Company to issue or sell any shares of capital stock, or
any security convertible into or exercisable or exchangeable for any such
shares of capital stock. No option granted under the Stock Option Plan
is outstanding other than as set forth in Schedule 2.3(b).
(c)__Except as set forth in Schedule 2.3(c), each of the
Shareholder Parties has, and at the Closing will have, good and valid
title (both of record and beneficially) to the shares of Company Common
Stock held by such Shareholder Party, free and clear of any Liens. There
are no voting trusts, proxies or other agreements restricting the voting,
dividend rights or disposition of the Shares held by any Shareholder
Parties. As used in this Agreement, the term "LIEN" means and includes
security interests, mortgages, lines, pledges, charges, easements,
reservations, restrictions, equities, rights of way, options, rights of
first refusal and all other encumbrances, whether or not relating to the
extension of credit or the borrowing of money.
Section 2.4. ORGANIZATION OF THE COMPANY.
(a)__The Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to own, lease or operate its
properties and to carry on its business as now being conducted. The
Company is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
or licensing necessary, except in such jurisdictions where the failure to
be so duly qualified or licensed and in good standing would not have a
Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE
EFFECT" means a change or effect or any event, action, occurrence,
condition or omission that could reasonably be expected to result in a
change or effect on the Business or the Company that, in the aggregate
with all other similar changes or effects, is materially adverse to the
business, assets, condition (financial or otherwise) or results of
operations of the Business taken as a whole, but shall not include any
changes or effects relating to or resulting from (i) general economic,
political or market conditions, (ii) changes in any statute, law,
ordinance, regulation, rule, code, order or other requirement or rule of
law (each, a "LAW") or in the interpretation of any Law by any court of
competent jurisdiction or any governmental, regulatory or administrative
authority, agency or commission (a "GOVERNMENTAL ENTITY"), or
(iii) changes in GAAP (as hereinafter defined) affecting the transactions
contemplated by this Agreement or compliance with the terms hereof.
(b)__The Company has had no Subsidiaries since December 31,
1999. Schedule 2.4(b) sets forth a list of all entities which were
Subsidiaries of the Company within the past five years. As used herein,
a "SUBSIDIARY" of an entity means any entity in
17
which the specified entity directly or indirectly owns 50% or more of the
general voting interest. Except as listed in Schedule 2.4(b), the Company
does not own, directly or indirectly, any capital stock or other ownership or
participation interest in any entity.
Section 2.5. CONSENTS AND APPROVALS.
(a)__No filing with, and no permit, authorization, consent or
approval of any Governmental Entity is necessary for execution, delivery
or performance by the Shareholder Parties of this Agreement, except (i)
for the filing of the Certificates of Merger, (ii) for the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), or (iii) as a result of facts or
circumstances particular to the Company, Merger Sub or the Parent.
(b)__No filing with, and no permit, authorization, consent or
approval of any Governmental Entity is necessary for execution, delivery
or performance by the Company of this Agreement, except (i) for the
filing of the Certificate of Merger, (ii) for the applicable requirements
of the HSR Act or (iii) as a result of facts or circumstances particular
to the Shareholder Parties, Merger Sub or the Parent.
Section 2.6 Financial Statements.
Attached as Schedule 2.6 are the audited consolidated balance sheet of
the Company and its Subsidiaries as of December 31, 1999 (the "DECEMBER
BALANCE SHEET") and as of December 31, 1998, and the related audited
consolidated statements of operations, stockholders' equity and cash
flows for the years then ended (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements (i) are in accordance with the
books and records of the Company and (ii) present fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of
operations of the Company and its Subsidiaries for the periods covered
thereby, in conformity with United States generally accepted accounting
principles ("GAAP"), except as described in Schedule 2.6 hereto or in the
notes to the Financial Statements.
Section 2.7. Absence of Certain Changes.
Except as set forth in Schedule 2.7 and except as a result of matters
permitted or required by this Agreement, since December 31, 1999 through
the date of this Agreement (i) the Company has conducted the Business in
the ordinary course consistent with past practice, (ii) the Company has
not taken any action which would have constituted a violation of Section
4.1(d) if Section 4.1(d) had applied since December 31, 1999 (other than
the payment on March 6, 2000 of the ordinary dividend of $0.06 per share
to Shareholders of record at March 3, 2000), (iii) the Company has not
experienced any material damage, destruction, or loss (whether or not
covered by insurance) to its properties, and (iv) the Company has not
suffered any other Material Adverse Effect. None of the Shareholder
Parties shall have any liability for a breach of the representations and
warranties contained in this Section 2.7, if (i) the facts and
circumstances giving rise to such breach are the subject matter of
another representation or warranty set forth in this Article II, (ii)
such other representation or warranty is qualified by notice, knowledge
(including Knowledge of the Company or Best Knowledge of the Company),
materiality (including Material Adverse Effect) or such other
qualification as is contained in such other representation or warranty,
and (iii)
18
such facts and circumstances would not result in a breach of
such other representation or warranty as qualified.
Section 2.8. Absence of Undisclosed Liabilities.
Except as set forth in Schedule 2.8, other than with respect to Taxes
(which are addressed in Section 2.15), and except as a result of matters
permitted or required by this Agreement, as of the date of this
Agreement, the Company has no Liabilities (as defined below) of a type
required to be reflected on a balance sheet prepared in accordance with
GAAP, except (a) Liabilities reflected on the Financial Statements
(including any notes thereto) or in the Schedules hereto, (b) Liabilities
incurred after December 31, 1999 in the ordinary course of business
(other than any Liability arising from breach of contract, breach of
warranty, tort, infringement or violation of any law or any action, suit
or other legal proceeding), and (c) Liabilities (other than any Liability
arising from breach of contract) under contracts which have arisen in the
ordinary cause of business or under any contract disclosed under Section
2.16. Other than as reflected in the Schedules hereto, there are no loss
contingencies (as such term is used in Financial Accounting Standards
Board in March 1975) of or affecting the Company which are not adequately
provided for or disclosed on the balance sheet of the Company and its
Subsidiaries as of December 31, 1999 included in the Financial Statements
(the "December Balance Sheet") (or the notes thereto), or the books and
records of the Company for subsequent periods, in each case to the extent
required by GAAP. None of the Shareholder Parties shall have any
liability for a breach of the representations and warranties contained in
this Section 2.8, if (i) the facts and circumstances giving rise to such
breach are the subject matter of another representation or warranty set
forth in this Article II, (ii) such other representation or warranty is
qualified by notice, knowledge (including Knowledge of the Company or
Best Knowledge of the Company) materiality (including Material Adverse
Effect) or such other qualification as is contained in such other
representation or warranty and (iii) such facts and circumstances would
not result in a breach of such other representation or warranty as
qualified.
As used herein, "LIABILITY" means any liability or obligation,
whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated and whether due or to
become due, regardless of when asserted.
Section 2.9. Litigation.
Except as set forth in Schedule 2.9, other than with respect to Taxes
(which are addressed in Section 2.15), as of the date of this Agreement,
there is no suit (in law or equity), claim, action, proceeding or
investigation pending against the Company or any Subsidiary before any
Governmental Entity or, to the Knowledge of the Company, threatened
against the Company or any Subsidiary. Neither the Company nor any
Subsidiary is subject to, or in default under the terms of, any judgment,
order or decree of any Governmental Entity specifically applicable to the
Company or any Subsidiary.
Section 2.10. Compliance with Applicable Law, Permits.
Schedule 2.10 hereto sets forth a true and complete list of all
material permits, licenses, variances, exemptions, orders, approvals and
authorizations of all Governmental Entities held by the Company.
19
The Company possesses all material permits, licenses, variances, exemptions,
orders, approvals and authorizations of all Governmental Entities
necessary for the lawful conduct of the Business substantially as it is
currently conducted and (b) the Business is being conducted in compliance
in all material respects with all applicable laws. This Section 2.10
does not relate to matters with respect to (i) environmental matters,
which are the subject of Section 2.11, (ii) benefits and employment
matters, which are the subject of Section 2.13 and (iii) Taxes, which are
the subject of Section 2.15.
Section 2.11. ENVIRONMENTAL MATTERS.
(a)__Except as set forth in Schedule 2.11, (i) the Company and
its Subsidiaries have complied and are in compliance with all applicable
Environmental Laws (as defined below) in all material respects, (ii) no
Hazardous Substances (as defined below) are present at or have been
disposed on or released or discharged onto, under or from any of the
properties currently or formerly owned, leased or operated by the Company
or its Subsidiaries (including soils, groundwater, surface water,
buildings or other structures) in violation of or so as to give rise to
any Liability (contingent or otherwise) or any investigatory, corrective
or remedial obligation of the Company under any Environmental Law, (iii)
the Company and its Subsidiaries have not disposed of or arranged for the
disposal of any Hazardous Substances at any property in violation of or
so as to give rise to any Liability (contingent or otherwise) or any
investigatory, corrective or remedial obligation of the Company under any
Environmental Law, (iv) neither the Company nor the Shareholder Parties
have received any written notice, demand, letter request for information
or claim alleging that the Company is or may be in violation of or liable
or potentially responsible under any Environmental Law, (v) there are no
underground storage tanks at any facility or property owned or operated
by the Company, (vi) neither the Company nor any of its Subsidiaries has
expressly assumed or undertaken any liability, including, without
limitation, any obligation for corrective or remedial action, of any
other person relating to Environmental Law; and (vii) the Company has
made available to Parent all environmental audits, reports and other
material environmental documents relating to the Company's, its
Subsidiaries, or their respective Affiliates or predecessors' past or
current properties, facilities or operations which are in its possession
or under its reasonable control.
(b)__As used herein, the term "ENVIRONMENTAL LAW" means any
international, national, regional, federal, state, municipal or local
law, regulation, order, judgement, decree or common law or other
requirements of any Governmental Entity, as in effect prior to, on or
after the date hereof relating to the protection of the environment
(including, without limitation, natural resources) or workplace or human
health or safety, including the manufacture, introduction into commerce,
export, import, handling, use, presence, disposal or release of any
Hazardous Substance.
(c)__As used herein, the term "HAZARDOUS SUBSTANCE" means any
pollutant, contaminant, hazardous waste, acutely hazardous waste,
radioactive waste, infectious waste, toxic substance or hazardous
substance or other material, substance or waste with respect to which
liability or standards of conduct may be imposed pursuant to any
Environmental Law.
20
(d)__The Shareholder Parties' and the Company's representations
and warranties regarding environmental matters are limited to those
contained in this Section 2.11.
Section 2.12. INTELLECTUAL PROPERTY.
(a)__Schedule 2.12 lists or describes all patents, registered
copyrights and trademarks and applications therefor and material
unregistered trademarks used in the conduct of the Business as of the
date hereof and all material license agreements pursuant to which the
Company is licensee in respect of any patents, trademarks or other
Intellectual Property (as defined below) used in the conduct of the
Business as of the date hereof. The Company owns or has the right to use
all Intellectual Property as is necessary to conduct its business
substantially in the same manner as currently conducted; none of the
Shareholder Parties, the Company or any Subsidiary has received written
notice from any third party regarding any actual or potential
infringement by the Company or any Subsidiary of any Intellectual
Property of any third party or written notice from any third party
regarding any assertion or claim challenging the validity of any such
Intellectual Property; the current conduct of the Business does not, to
the Knowledge of the Company, conflict with any Intellectual Property of
any third party; and, to the Knowledge of the Company, no third party is
infringing the Intellectual Property of the Company.
(b)__As used herein, the term "INTELLECTUAL PROPERTY" includes
all patents, registered and unregistered trademarks, trade names,
copyrights, service marks and registrations and applications therefor,
know-how, trade secrets, proprietary processes and formulae, confidential
information, franchises, licenses, inventions, instructions, marketing
materials, trade dress, logos and designs and all available documentation
and media constituting, describing or relating to the foregoing,
including, without limitation, manuals, memoranda and records.
(c)__The Shareholder Parties' representations and warranties
regarding Intellectual Property and Intellectual Property matters are
limited to those contained in this Section 2.12.
Section 2.13. EMPLOYEE BENEFIT PLANS.
(a)__Schedule 2.13(a) contains a complete list of all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employment and
severance agreements, and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and
other similar employee benefit plans, programs and agreements, in each
case that is sponsored, maintained, contributed to or required to be
contributed to by the Company, or to which the Company is a party for the
benefit of any current or former employee of the Company (together, the
"EMPLOYEE PLANS").
(b)__The Shareholder Parties or the Company have delivered or
made available to the Parent accurate and complete copies of the
following with respect to the
21
Employee Plans, to the extent applicable:
(i) plan documents and amendments thereto, (ii) summary plan
descriptions, (iii) trust documents, insurance contracts and other
funding instruments, (iv) the most recently prepared financial statement
and actuarial report, (v) the most recently filed annual report and (vi)
determination letters received from the Internal Revenue Service.
(c)__All Employee Plans have been administered and operated in
compliance in all material respects with the requirements of ERISA, the
Internal Revenue Code of 1986, as amended (the "CODE") and all other
applicable Laws. Each Employee Plan that is intended to be qualified
under Section 401(a) of the Code has received a determination letter from
the Internal Revenue Service stating that it is so qualified, and such
determination letter has not been revoked. There have been no
"prohibited transactions" within the meaning of Section 4975 of the Code
or Section 406 of ERISA involving any of the Employee Plans that could
subject the Company to any material penalties or taxes.
(d)__Except as set forth on Schedule 2.13(d):
(i)The Company has made all contributions under the Employee Plans
required to be made under the terms of such plans and applicable law,
including the payment of premiums required to be made to the PBGC, other
insurance premiums and in the case of all Employee Plans that are pension
plans within the meaning of Section 3(2) of ERISA, all employee
contributions have been remitted to the appropriate trusts or accounts on
a timely basis.
(ii)Each Employee Plan that is subject to the minimum funding
requirements of Section 412 of the Code is in compliance with such
requirements, and no Employee Plan has a minimum funding variance or
waiver under Section 412(d) of the Code.
(iii)Neither the Company, its subsidiaries, nor any trade or
business that, together with the Company or any of its subsidiaries,
would be deemed a "single employer" under Section 4001(b) of ERISA (an
"ERISA AFFILIATE") has any liability under Title IV of ERISA including,
without limitation, with respect to previously terminated Employee Plans
(other than for the payment of premiums to the Pension Benefit Guaranty
Corporation) and, to the Best Knowledge of the Company, no condition
exists that presents a material risk to the Company of incurring any
liability under such Title.
(iv)Neither the Company nor any of its subsidiaries participates in
any multiemployer plan (as defined in Section 3(37) of ERISA), nor has
the Company, its subsidiaries or any ERISA Affiliate incurred any
withdrawal liability to a multiemployer plan that has not been satisfied
in full.
(e)__Except as set forth on Schedule 2.13(e), no actual or, to
the Knowledge of the Company, threatened disputes, lawsuits, claims
(other than routine claims for benefits), investigations or audits by any
person or Governmental Entity have
22
been filed or, to the Knowledge of the Company, are pending with respect to
the Employee Plans or the Company in connection with any Employee Plan or the
fiduciaries or administrators thereof.
(f)__Except as set forth in Schedule 2.13(f), there is no
contract, agreement, plan or arrangement covering any person that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company by reason of Section
280G of the Code.
(g)__No "reportable event" (within the meaning of Section 4043
of ERISA) has occurred with respect to any Employee Plan, within the last
three years, for which the notice requirement has not been waived under
Section 4043 of ERISA or the regulations thereunder, other than as a
result of the transactions contemplated herein.
(h)__The Company and its ERISA Affiliates have neither made nor
agreed to make, nor are required to make (other than to bring any
Employee Plan into compliance with ERISA or the Code) any changes in
benefits that would substantially increase the costs of maintaining any
of the Employee Plans.
(i)__No Employee Plan currently maintained by the Company is or
was a "multiple employer plan" (within the meaning of section 413 of the
Code).
(j)__To the Knowledge of the Company, with respect to any
Employee Plan, there has not been any act or omission by the Company or
any of its ERISA Affiliates that has given rise to or could be reasonably
expected to give rise to any fines, penalties or related charges under
ERISA or the Code for which the Company could be liable, except as would
not be reasonably likely to have a Material Adverse Effect.
(k)__The present value of all accrued benefits (whether or not
vested) under each Employee Plan subject to Title IV of ERISA do not
exceed, and will not exceed, as of the Closing Date, the then current
fair market value of the assets of such Employee Plan (for purposes of
determining the present value of accrued benefits under the Employee
Plans, the actuarial assumptions and methods used under each Employee
Plan for the most recent plan valuation date shall be used).
Section 2.14. Employees and Labor Relations.
Except as set forth on Schedule 2.14, there is (i) no unfair labor
practice, grievance or labor arbitration proceeding pending, or to the
Best Knowledge of the Company, threatened against the Company relating to
the Business, (ii) no strike, labor dispute, slowdown, work stoppage,
picketing, boycott or other labor dispute pending or threatened against
the Business (other than grievances in the ordinary course) and (iii) no
dispute as to union representational status with regard to the employees
of the Business. To the Best Knowledge of the Company, the Company is in
compliance in all material respects with all applicable Laws regarding
employment, employment practices, terms and conditions of employment, the
retention of independent contractors and leased employees, equal
employment opportunity, collective bargaining, wages, hours and
withholding.
23
Section 2.15. TAXES.
(a)__Except as set forth in Schedule 2.15, (i) the Company and
each Subsidiary has timely filed (taking into account extensions) all Tax
Returns (as hereinafter defined) required to have been filed under
applicable Laws and such Tax Returns were true, correct and complete in
all material respects; (ii) all Taxes (as hereinafter defined),
including, without limitation, any Taxes shown to be due on such Tax
Returns, that are required to have been paid have been timely paid; (iii)
no deficiency for any amount of Tax has been asserted or assessed in
writing by a taxing authority against the Company or any Subsidiary that
has not been settled or paid; (iv) neither the Company nor any Subsidiary
has requested an extension of time in which to file a Tax Return
otherwise currently due and neither the Company nor any Subsidiary has
consented to extend the time in which any Tax may be assessed or
collected by any taxing authority; (v) there are no audits, examinations,
lawsuits or other administrative or judicial proceedings relating to
Taxes of the Company or any Subsidiary and neither the Company nor any
Subsidiary has been notified in writing by any taxing authority (x) that
any issues have been raised with respect to any Tax Return, or (y) that
they intend to perform an audit with respect to any Tax Return; and (vi)
the Company and each Subsidiary have complied with all applicable Laws
relating to withholding and payment of Taxes.
(b)__Schedule 2.15 lists all income Tax Returns filed with
respect to the Company and any Subsidiaries for tax periods ended on or
after December 31, 1996.
(c)__Except as set forth in Schedule 2.15, (i) the Company is
not and has never been a party to any tax sharing, tax indemnity or
similar agreements; (ii) the Company has no liability for Taxes of any
other Person under Treasury regulations section 1.1502-6, as a transferee
or successor, by contract or otherwise; and (iii) there are no requests
for rulings or determinations relating to the Company pending with any
taxing authority;
(d)__Neither the Company nor any of its Subsidiaries (A) is
treated as or has made an election to be treated as a "consenting
corporation" under Section 341(f) of the Code or (B) is, or has been, a
"personal holding company" within the meaning of Section 542 of the Code;
(e)__Except as set forth in Schedule 2.15, neither the Company
nor any of its Subsidiaries has agreed to or has been required to make
any adjustments or changes to its accounting methods that would give rise
to an adjustment pursuant to Section 481 of the Code either on, before or
after the Closing Date, and the Internal Revenue Service has not proposed
in writing any such adjustments or changes in the accounting methods of
the Company or any of its Subsidiaries;
(f)__Except as set forth in Schedule 2.15, no written claim has
ever been made by any taxing authority in a jurisdiction in which the
Company and its Subsidiaries do not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction; and
24
(g)__For the purposes hereof, (i) the term "TAX" means any
income, gross receipts, profits, capital stock, franchise, unemployment,
property, ad valorem, stamp, excise, occupation, sales, use, transfer,
import, export, value added, employment, social security or other similar
tax imposed by any domestic or foreign taxing authority, and any interest
or penalties in respect of the foregoing; and (ii) the term "TAX RETURN"
means any report, statement, declaration or document with respect to
Taxes.
Section 2.16. MATERIAL CONTRACTS.
(a)__Schedule 2.16 lists the following notes, leases, licenses,
contracts or binding agreements (as used in this Section 2.16,
"CONTRACTS") to which the Company, as of the date of this Agreement, is a
party or is bound:
(i)each contract relating to the borrowing of money, guarantee of
obligations of others or to the mortgaging, pledging or otherwise placing
an encumbrance or Lien on any asset or group of assets of the Company or
any Subsidiary in each case in an amount exceeding $50,000 and which is
not reflected in the December Balance Sheet;
(ii)each contract that materially limits the freedom of the Company
to compete in its lines of business or with any person or in any
geographical area or otherwise to conduct its business as presently
conducted;
(iii)each collective bargaining or union contract;
(iv)each contract for the purchase of capital equipment, materials
or supplies, except those contracts terminable without material penalty
on 30 or fewer days' notice and those involving payment of less than
$100,000 per year;
(v)each contract for the acquisition or disposition of material
assets, other than in the ordinary course of business;
(vi)each contract relating to the leasing of material real property;
(vii)each contract with any health maintenance organization or other
healthcare provider involving the annual payment of at least $25,000;
(viii)each contract which involves the receipt or payment of more
than $50,000 per year, except for customer purchase orders and raw
material purchase orders and those contracts terminable without material
penalty on 30 or fewer days' notice;
(ix)each employment agreement or other contract for the employment
of any officer, director or employee or other person, whether on a full-
time, part-time, consulting or other basis;
(x)each contract or agreement with any current officer, director,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under
the
25
Securities Exchange Act of 1934, as amended) of the Company not
otherwise listed in response to any other clause of this Section 2.16(a);
(xi)each contract for the lending or investing of funds of the
Company (other than funds under Employee Plans); and
(xii)each other contract not in the ordinary course of business
which could reasonably be determined to be material to the Business.
(b)__The Company is not (and, to the Knowledge of the Company,
nor is any other party) in breach or default in any material respect, and
no event has occurred which would constitute (with or without due notice
or lapse of time or both) a breach or default in any material respect, or
give rise to any right of termination, cancellation or acceleration,
under any contract listed in Schedule 2.16 and each such contract is a
valid and binding obligation of the Company and, to the Knowledge of the
Company, each other party thereto, enforceable against such persons in
accordance with its terms.
Section 2.17. Suppliers, Distributors and Customers.
Schedule 2.17 sets forth a listing of each of the entities
which are, calculated on the basis of payments made by or payments
received by the Company for the 12-month period ended December 31, 1999,
(A) the five largest (by dollar volume) raw material suppliers of the
Company, (B) the five largest (by dollar volume) distributors of the
Company and (C) the five largest (by dollar volume) customers of the
Company. Except as set forth in Schedule 2.17, since the date of the
December Balance Sheet, no supplier, distributor or customer that is
listed in Schedule 2.17 has stopped or materially decreased, or has given
notice to the Company that it will stop or materially decrease, the rate
of business done with the Company, whether as a result of the
transactions contemplated hereby or otherwise (it being understood that
no assurance is given that any such supplier, distributor or customer
will continue to do business with the Company or that the rate of such
business will not decrease). The Company believes that its relationship
with the customers listed in Schedule 2.17 is generally good and, except
as indicated in Schedule 2.17, that no material disagreement or dispute
exists between the Company and any such customer.
Section 2.18. Assets Necessary to Business.
The assets and properties of the Company include all of the
assets and properties necessary for the conduct of the Business in
substantially the manner as it is currently conducted.
Section 2.19. Tangible Personal Property.
Except (a) with respect to the Owned Real Property and the Leased
Real Property (which are the subject of Section 2.20), (b) as listed or
described on Schedule 2.19, and (c) for assets sold in the ordinary
course of business since the date of the December Balance Sheet, the
Company owns all material tangible assets reflected on the December
Balance Sheet as owned by the Company or thereafter purchased or acquired
by the Company, free and clear of all Liens except for (i) Liens that are
listed or described on Schedule 2.19, (ii) mechanics', carriers',
workers', repairmen's, landlord's, warehouse or other Liens arising or
incurred in the ordinary course of business of the Business securing
amounts that are not delinquent, (iii) Liens for taxes, assessments and
other similar governmental charges which are not due and
26
payable or which may thereafter be paid without penalty or which are
listed or described on any Schedule, and (iv) Liens that arise under zoning,
land use and other similar Laws and other imperfections of title or
encumbrances, if any, which do not materially affect the marketability of
the property subject thereto and do not materially impair the use of the
property subject thereto in the Business as presently conducted. (The items
referred to in clauses (i) through (iv) of the immediately preceding
sentence being "PERMITTED LIENS.")
Section 2.20. Real Property.
Schedule 2.20 lists all real property owned in fee by the Company (the
"OWNED REAL PROPERTY") or leased by the Company (the "LEASED REAL
PROPERTY" and, together with the Owned Real Property, collectively, the
"REAL PROPERTY").
(a)__The Company has title to the Owned Real Property and title
to the leasehold interests in the Leased Real Property (subject to the
terms of the applicable leases, subleases and related instruments
governing its interests therein, as listed on Schedule 2.20), free and
clear of all Liens other than (i) Liens listed or described on Schedule
2.20, (ii) Permitted Liens, and (iii) easements, covenants, rights-of-way
and other encumbrances or restrictions, whether recorded or referred to
in an applicable lease or unrecorded, which do not materially impair the
continued use of the property subject thereto in the Business as
presently conducted. The leases and subleases related to the Leased Real
Property are valid and subsisting leases or subleases which are in full
force and effect.
(b)__With respect to the Real Property, except as set forth on
Schedule 2.20:
(i)no portion of any Owned Real Property and, to the Best Knowledge
of the Company, no portion of any Leased Real Property is subject to any
pending condemnation proceeding or proceeding by any public or quasi-
public authority and there is no threatened condemnation or proceeding
with respect thereto;
(ii)the Company is the owner and holder of all the leasehold estates
purported to be granted by the leases relating to the Leased Real
Property and each lease is in full force and effect and constitutes a
valid and binding obligation of the Company;
(iii)no notice of any increase in the assessed valuation of any
Owned Real Property and no notice of any contemplated special assessment
in respect of any Owned Real Property has been received by the Company
since December 31, 1999;
(iv)there are no contracts, written or oral, to which the Company is
a party, granting to any party or parties the right of use or occupancy
of any portion of the parcels of the Real Property; and
(v)there are no parties (other than the Company or their lessees
disclosed pursuant to paragraph (iii) above) in possession of the Real
Property.
27
Section 2.21. Insurance.
Schedule 2.21 sets forth a true and complete list of all policies of
insurance held or maintained by the Company (specifying the insurer,
amount of coverage, type of insurance, policy number and any pending
claims thereunder). All such insurance policies are in full force and
effect and the Company has not received any notice of cancellation with
respect thereto. The Company has maintained such or similar types of
insurance coverage at all times during the last three years. With
respect to each policy of insurance listed on Schedule 2.21: (i) all
premiums due through the date of this Agreement with respect thereto are
currently paid and are not subject to adjustment other than as a result
of normal policy year audits, and, to the Knowledge of the Company, no
Person is in default in any respect with respect to its obligations under
any such policy, and to the Best Knowledge of the Company, no basis
exists that would give any insurer under any such policy the right to
cancel or unilaterally reduce or limit the stated coverages contained in
such policy or relieve the insurer under any such policy of its
obligations to satisfy in full any claim thereunder and (ii) the Company
has not received any notice that such policy has been or shall be
canceled or terminated or will not be renewed on substantially the same
terms as are now in effect or the premium on such policy shall be
materially increased on the renewal thereof.
Section 2.22. Related Party Transactions.
(a)__Except for (i) arrangements or relationships contemplated
by this Agreement, (ii) arrangements or relationships between the Company
and Shareholder Parties who are or were employees, officers or directors
of the Company pursuant to contracts, agreements and Employee Plans
referred to herein (including the Stock Option Plan) or listed in any of
the Schedules hereto, (iii) service by employees in such capacity in the
ordinary course of business, (iv) service by certain of the Shareholder
Parties as officers of the Company and/or on the Board of Directors of
the Company, and (v) indebtedness to the Company of Michael (and Susanne)
deMilt in the principal amount of $42,359.47 (the "DEMILT RECEIVABLE")
and of William Herdrich in the principal amount of $206,025.33 (the
"HERDRICH RECEIVABLE"), no employee, officer, director or Shareholder or
any person controlled by, controlling or under common control with, or
related by blood or marriage to, any employee, officer, director or
Shareholder (each an "AFFILIATE") has engaged or been involved in any
material business arrangement or relationship with the Company within the
last 12 months and none of employees, officers, directors or Shareholders
of the Company or any of their respective Affiliates owns any material
asset, tangible or intangible, which is used in the business of the
Company.
(b)__Except as set forth on Schedule 2.22, there are no
vehicles, boats, aircraft, apartments or other residential or
recreational properties or facilities owned or operated by the Company
for executive, administrative or sales purposes or any social club
memberships owned or paid for by the Company or any Subsidiary.
Section 2.23. Accounts and Notes Receivable.
All accounts receivable and notes receivable owing to the Company
represent valid and enforceable claims arising from bona fide
transactions made in the ordinary course of business. Except as set
forth on Schedule 2.23, as of May 1, 2000, there is (i) no account debtor
or note debtor delinquent
28
in its payment by more than 90 days, (ii) no
account debtor or note debtor has refused or, to the Knowledge of the
Company, threatened to refuse to pay its obligations for any reason,
(iii) to the Knowledge of the Company, no account debtor or note debtor
that is insolvent or bankrupt and (iv) no account receivable or note
receivable pledged to any third party by the Company.
Section 2.24. Disclosure.
The representations and warranties of the Company and the
Shareholder Parties contained in this Agreement, including the Schedules
hereto, do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make any such representation or
warranty, in light of the circumstances under which it is made, not
misleading.
Section 2.25. Brokers.
No broker, investment banker, financial advisor or other person,
other than Schroder & Co. Inc. ("SCHRODERS"), the fees and expenses of
which are the obligation of the Company and, subject to the provisions of
Section 8.12, will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of any Shareholder Party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB
Subject to the terms and conditions of this Agreement, the Parent
and Merger Sub, jointly and separately, represent and warrant to the
Company and the Shareholders as follows:
Section 3.1. Organization and Authority of Parent and Merger Sub.
Each of the Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all necessary corporate power
and authority to execute and deliver this Agreement and the Related
Documents and to consummate the transactions contemplated by this
Agreement and the Related Documents. The execution, delivery and
performance of this Agreement and the Related Documents by each of the
Parent and Merger Sub and the consummation by each of the Parent and
Merger Sub of the transactions contemplated by this Agreement and the
Related Documents have been duly authorized by all necessary corporate
action on the part of the Parent and Merger Sub and no other corporate
proceedings on the part of either the Parent or Merger Sub are necessary
to authorize this Agreement or the Related Documents or for the Parent or
Merger Sub to consummate the transactions contemplated by this Agreement
or the Related Documents. This Agreement and the Related Documents have
been duly and validly executed and delivered by each of the Parent and
Merger Sub and constitute legal, valid and binding obligations of each of
the Parent and Merger Sub, enforceable against each of the Parent and
Merger Sub in accordance with their respective terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
or other similar laws affecting the enforcement of creditors rights in
general, moratorium laws or general principles of equity.
29
Section 3.2. No Violation.
Neither the execution, delivery or performance of this Agreement
or the Related Documents by the Parent or Merger Sub nor the consummation
by the Parent or Merger Sub of the transactions contemplated by this
Agreement or the Related Documents nor compliance by the Parent or Merger
Sub with any of the provisions hereof or thereof will (i) conflict with
or result in any breach of any provision of the certificates of
incorporation or by-laws (or similar governing instrument or
organizational document) of the Parent or Merger Sub, (ii) result in a
violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, lease, license contract or
agreement to which the Parent or Merger Sub is a party or by which the
Parent or Merger Sub may be bound or (iii) violate any order, writ,
injunction, decree, statute, treaty, rule or regulation applicable to the
Parent or Merger Sub.
Section 3.3. Consents and Approvals.
No filing with, and no permit, authorization, consent or approval
of, any Governmental Entity, is necessary for execution, delivery or
performance by the Parent or Merger Sub of this Agreement, except (i) for
the filing of the Certificate of Merger, (ii) for the applicable
requirements of the HSR Act, or (iii) as a result of facts or
circumstances particular to the Shareholder Parties or the Company.
Section 3.4. Investment.
Parent is acquiring the capital stock of the Surviving
Corporation solely for the purpose of investment and not with a view to
any resale or distribution thereof in violation of any applicable
securities Law.
Section 3.5. Legal Proceedings.
There is no suit, claim, action, proceeding or investigation
pending, or to the knowledge of the Parent or Merger Sub, threatened
against the Parent or Merger Sub affecting, or which may affect, the
Parent's or Merger Sub's ability to perform its obligations under this
Agreement.
Section 3.6. Solvency, Etc.
Neither the Parent nor Merger Sub is, and after giving
effect to the financing obligations undertaken in connection with this
Agreement and to the transactions contemplated hereby, including the
payment of the Aggregate Merger Consideration, none of the Parent, Merger
Sub or the Surviving Corporation will be, insolvent, left with
unreasonably small or impaired capital or indebted beyond its ability to
pay such debts as they mature.
Section 3.7. Brokers.
No broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on
behalf of the Parent or Merger Sub or any Subsidiary or Affiliate of the
Parent or Merger Sub.
30
ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF THE BUSINESS.
(a)__During the period from the date hereof to the Closing, the
Company shall, except as otherwise expressly provided in this Agreement,
operate only in the ordinary course of business, consistent with past
custom and practice (including the collection of receivables, the payment
of payables and the maintenance of supplies). The Company shall use all
commercially reasonable efforts to preserve intact the present
organization of the Business, keep available the services of officers and
directors, and preserve the Company's relationships with customers,
suppliers and others having significant business dealings with the
Business.
(b)__During the period from the date hereof to the Closing, the
Company shall use commercially reasonable efforts to maintain the assets
of the Company in customary repair, order and condition, maintain
insurance reasonably comparable to that in effect on the date of the
December Balance Sheet, replace in accordance with past practice
inoperable or worn out assets with assets of comparable quality and, in
the event of a casualty, loss or damage to any of such assets or
properties prior to the Closing Date for which the Company is insured or
the condemnation of any assets or properties, either repair or replace
such assets or property or, if the Parent or Merger Sub agrees, cause the
Company or such Subsidiary to retain such insurance or condemnation
proceeds.
(c)__The Company will promptly inform the Parent in writing of
any variances from the representations and warranties contained in
Section 2 of which the Company becomes aware between the date hereof and
the Closing Date.
(d)__Without limiting the generality of the foregoing, and
except as set forth in Schedule 4.1 or as otherwise expressly provided in
this Agreement, from the date of this Agreement to the Closing, the
Company shall not, without the prior written consent of the Parent (which
consent shall not be unreasonably withheld or delayed):
(i)amend or propose to amend its certificate of incorporation or by-
laws (or other similar organizational documents);
(ii)except for the issuance of Company Common Stock upon the
exercise of options granted under the Stock Option Plan, issue, deliver,
pledge, encumber or sell, or authorize or propose the issuance, delivery,
pledge, encumbrance or sale of any shares of capital stock of the
Company, or any securities convertible into, or exchangeable for, any
such shares, or rights, warrants or options to acquire any such shares of
capital stock or other convertible securities or propose any change in
its equity capitalization;
(iii)other than as contemplated in Section 4.4, (w) make any payment
directly or indirectly to any Shareholder other than in such
Shareholder's capacity
31
as an employee, officer or director of the
Company, (x) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock, (y) redeem, repurchase or
otherwise acquire any of its securities, other than as contemplated in
Section 4.4, or (z) split, combine or reclassify any of its capital
stock;
(iv)acquire or dispose of any material assets, securities, rights or
other properties or interests unless in the ordinary course of business
consistent with past practice;
(v)other than in the ordinary course of business or to fund any
payment to be made as contemplated in Section 4.4, (x) incur or assume
any material indebtedness or issue or sell any debt securities or rights
to acquire any debt securities, (y) assume, guarantee, endorse or
otherwise become liable for the obligations of any other person or (z)
make any loans, advances or capital contributions to, or investments in,
any other person;
(vi)enter into, adopt, amend or terminate any employee benefit plan,
increase the compensation or fringe benefits of any officer or employee
of the Company or pay any benefit not required by any existing plan,
except in the ordinary course of business or as may be required by
applicable law or existing contractual arrangements or as necessary to
carry out this Agreement (including Section 4.4);
(vii)enter into or amend any employment or severance agreement with
any employee, adopt, enter into or amend any collective bargaining
agreement, except in the ordinary course of business or as may be
required by applicable Law or existing contractual arrangements;
(viii)enter into, amend, accelerate or terminate any contract except
in the ordinary course of business or as contemplated by this Agreement;
(ix)engage in any transactions with Affiliates other than in the
ordinary course of business;
(x)make any Tax elections or settle or compromise any Tax Liability;
(xi)other than as contemplated under this Agreement and the Related
Documents, create, establish or acquire any Subsidiary or acquire or
agree to acquire by merging or consolidating with, or by purchasing any
material portion of the capital stock or assets of, or by any other
manner, any business or any corporation, partnership, association or
other business organization or division thereof;
(xii)delay or postpone the payment of accounts payable and other
obligations and liabilities or accelerate the collection of accounts
receivable, other than in the ordinary course of business consistent with
past custom and practice; or
32
(xiii)other than in the ordinary course of business, take or cause
to be taken any action which is designed or intended to have the effect
of discouraging customers, employees, suppliers, lessors and other
associates of the Company from maintaining the same business
relationships with the Company after the date of this Agreement as were
maintained with the Company prior to the date of this Agreement.
Section 4.2. Access to Information by Parent.
(a)__Prior to the Closing, the Company shall, upon reasonable
notice, afford to the officers, employees, accountants, counsel and other
representatives of the Parent (i) reasonable access during normal
business hours to executive personnel of the Company and to all
properties, books, records (including tax returns filed and those in
preparation) of the Company relating to the Business, and furnish
promptly to the Parent all information concerning the business,
properties and personnel of the Business as the Parent may reasonably
request, (ii) full access to the audit work papers and other records of
the independent certified public accountants of the Company, (iii) the
opportunity to review such financial and operating data and other
information with respect to the Business as the Parent or Merger Sub may
from time to time reasonably request and (iv) access to the customers of
the Company under mutually agreeable circumstances. All such information
shall be kept confidential pursuant to the Confidentiality Agreement
dated September 29, 1999 between the Parent and the Company (the
"CONFIDENTIALITY AGREEMENT").
(b)__Notwithstanding the foregoing, neither the Company nor the
Shareholder Parties shall be required to disclose, or cause the
disclosure of, any information with respect to which the Company or the
Shareholder Parties, as the case may be, reasonably believe may violate
applicable law.
Section 4.3. REASONABLE EFFORTS.
(a)__Upon the terms and subject to the conditions of this
Agreement (including, without limitation, Section 4.3(c)), each of the
parties hereto shall use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate
and make effective the transactions contemplated by this Agreement as
promptly as practicable, including, but not limited to, (i) the
preparation and filing of all forms, registrations and notices required
to be filed to consummate the transactions contemplated by this Agreement
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any Governmental
Entity, including making the filings pursuant to the HSR Act within 10
business days of the date hereof, and (ii) using all reasonable efforts
to cause the satisfaction of all conditions to Closing. Each party shall
promptly consult with the other with respect to, provide any necessary
information with respect to and as reasonably necessary provide the other
(or its counsel) copies of, all filings made by such party with any
Governmental Entity or any other information supplied by such party to a
Governmental Entity in connection with this Agreement and the
transactions contemplated by this Agreement.
33
(b)__Each party hereto shall promptly inform the others of any
communication from any Government Entity regarding any of the
transactions contemplated by this Agreement. If any party receives a
request for additional information or documentary material from any such
Government Entity with respect to the transactions contemplated by this
Agreement, then such party will endeavor in good faith to make, or cause
to be made, as soon as reasonably practicable and after consultation with
the other party, an appropriate response in compliance with such request.
(c)__Parent, the Company and the Shareholder Parties agree and
acknowledge that they each shall use their commercially reasonable
efforts to obtain any required clearances under any antitrust law
(including, without limitation, the HSR Act) and the Parent will pay and
be responsible for all filing fees payable in connection therewith. The
Parent, the Company and the Shareholder Parties shall promptly take all
commercially reasonable actions to avoid and eliminate any impediment,
and to secure any required clearances, under any antitrust law to the
consummation of the transactions contemplated hereby, it being understood
that such action shall not include any sale or divestiture of any
business or assets. The Parent, the Company and the Shareholder Parties
shall use commercially reasonable efforts to prevent the entry of any
order or injunction that would prevent or delay the consummation of the
transactions contemplated hereby and, if any such order or injunction is
issued, take all steps, including the appeal thereof, the posting of a
bond or the steps contemplated by the immediately preceding sentence, to
vacate, modify or suspend such injunction as to permit the consummation
of the transactions contemplated hereby as promptly as practicable.
Section 4.4. Stock Options.
Each outstanding stock option pursuant to the Stock Option Plan
(each, a "STOCK OPTION") shall be cancelled prior to Closing, and each
holder of any Stock Option, whether or not then vested or exercisable,
shall be paid by the Company for each such Stock Option an amount in cash
(less any required tax withholdings) determined by multiplying (i) the
excess, if any, of the Fair Market Value Per Share (as hereinafter
defined) over the applicable exercise price of such Stock Option by (ii)
the number of shares of Company Common Stock subject to such Stock
Option. For the purposes hereof, "FAIR MARKET VALUE PER SHARE" shall
mean the fair value of such shares, on a fully diluted basis, as
determined by the Board of Directors as contemplated by the Stock Option
Plan.
Section 4.5. Collective Bargaining Agreement.
Parent agrees that, as of the Closing Date, it shall cause the
Surviving Corporation to (i) recognize USWA Local 6967, as the exclusive
collective bargaining representative of the Surviving Corporation's
bargaining unit employees, and (ii) honor in accordance with its terms
the collective bargaining agreement dated April 21, 1997 between USWA
Local 6967 and the Company.
Section 4.6. Access to Records by Shareholders.
Parent and Company agree that, from and after the Closing
for a period of six years, the Shareholder Party Representatives and
their attorneys, agents, accountants and designees may have such
34
reasonable access to the books and records of the Business and such right
to make copies thereof as the Shareholder Party Representatives and their
attorneys, agents, accountants and designees may reasonably deem
necessary. Any such examination shall be performed at the place where
such books and records are regularly maintained, shall be conducted
during normal business hours, and shall be done in a reasonable manner so
as to minimize the disruption and interference with normal business
activities. Such access shall extend only insofar as such books and
records relate to the Shareholders or events arising on or prior to the
Closing Date with respect to the Business or the Shareholders. Parent
shall ensure that no such books and records are destroyed for a period of
at least six years from the Closing Date. After such six-year period, at
least 90 calendar days' prior written notice to such effect shall be
given to the Shareholder Representatives, who shall be given an
opportunity during such 90-day period, at their own cost and expense, to
remove and retain all or any part of such books and records they may
select.
Section 4.7. CERTAIN LIMITATIONS ON REPRESENTATIONS AND WARRANTIES.
(a)__Each of the parties hereby acknowledges and agrees that no
party has relied or will rely upon any document or written or oral
information previously furnished to or discovered by it or its
representatives, including, without limitation, the Information
Memorandum prepared by the Company and Schroders, as financial advisor to
the Company, any information provided to the Parent or Merger Sub
pursuant to any presentation by or on behalf of the Shareholder Parties,
the Company or Schroders in connection with the transactions contemplated
herein or any financial projection or forecast delivered to the Parent or
Merger Sub with respect to the revenues or profitability which may arise
from the operation of the Business after the Closing Date, other than
this Agreement (including the Schedules and Exhibits hereto). With
respect to any projection or forecast delivered by or on behalf of
Schroders, the Company or any of the Shareholder Parties to the Parent or
Merger Sub, each of the Parent and Merger Sub acknowledges that (A) there
are uncertainties inherent in attempting to make such projections and
forecasts, (B) it is familiar with such uncertainties, and (C) Parent is
acquiring the Business as a going concern, and has prepared its own
financial forecasts for the Business.
(b)__Except as expressly stated herein, in the Related
Documents and in the Schedules hereto, neither the Company nor any of the
Shareholder Parties makes any representations or warranties with respect
to the Business, the Company Common Stock, or the transactions
contemplated hereby or the events giving rise thereto.
(c)__Notwithstanding any other provision hereof, (i) the
inclusion of an item in a Schedule will not be deemed an admission that
such item represents a material exception or fact, event or circumstance
or that such item would result in a Material Adverse Effect and (ii) the
representations and warranties made in this Agreement by the Shareholder
Parties and the Company will be deemed for all purposes to be qualified
by the disclosures made in the Schedules, it being understood that any
disclosure made on a Schedule shall be deemed to be included on any other
Schedule if such disclosure could reasonably be expected to be pertinent
to the representation and warranty to which such other Schedule relates.
35
Section 4.8. Supplemental Schedules.
The Shareholder Parties may (but will not be required to), from time
to time prior to two days before the Closing, by notice in accordance
with this Agreement, supplement or amend any Schedule, including, without
limitation, one or more supplements or amendments to correct any matter
which would otherwise constitute a breach of any representation, warranty
or covenant herein contained; PROVIDED, HOWEVER, that subject to the
following sentence, no such supplement or amendment will affect the
rights or obligations of the parties to this Agreement. Notwithstanding
any other provision hereof, no such supplement or amendment will affect
the Parent's or Merger Sub's right not to complete the transactions
contemplated hereby in the circumstances specified in Section 5.2(a) or
otherwise under this Agreement, but, if the Closing occurs, any such
supplement or amendment of any Schedule will be effective to cure and
correct for all purposes (including, without limitation, Article VII) any
breach of any representation, warranty or covenant which would have
existed by reason of the Shareholder Parties' not having made such
supplement or amendment.
Section 4.9. Guarantee by Parent.
The Parent hereby unconditionally guarantees the full and timely
performance by Merger Sub, and from and after the Effective Time by the
Surviving Corporation, of all of Merger Sub's and Surviving Corporation's
respective obligations under this Agreement (including the obligation to
pay the Per Share Merger Consideration) and hereby irrevocably waives all
suretyship defenses (other than satisfaction and payment) that otherwise
may now or in the future be available to the Parent in connection
therewith. Without limiting the generality or effect of the foregoing,
the Parent will cause Merger Sub, and from and after the Effective Time,
the Surviving Corporation, (a) to perform in accordance with the terms of
this Agreement all covenants to be performed by Merger Sub or the
Surviving Corporation, as the case may be, and (b) to have cash on hand
and other capital resources sufficient to discharge on a timely basis all
of Merger Sub's and the Surviving Corporation's respective obligations
hereunder.
Section 4.10. Further Assurances.
From time to time after the Closing, without additional
consideration, the parties will execute and deliver such further
instruments and take such other action as may be necessary to make
effective the transactions contemplated by this Agreement.
Section 4.11. Certain Tax Matters.
(A)__PREPARATION OF FINAL SEPARATE RETURN YEAR INCOME AND
FRANCHISE TAX RETURNS, ETC.
(i)Parent and the Shareholder Parties agree that, for U.S.
federal income tax purposes, the current taxable year of the Company
shall end on and as of the Closing Date (the "FINAL SEPARATE RETURN
YEAR"). In the event, as to any state or local jurisdiction, an election
or other action is required to be taken to terminate the Company's
taxable year on the Closing Date, Parent shall (or shall cause the
Company to) make such election or take such action.
36
(ii)Parent shall cause the Company to prepare and shall timely
file (A) all applicable Income and Franchise Tax Returns for the
Company's Final Separate Return Year ("FINAL SEPARATE RETURN YEAR TAX
RETURNS") and (B) as to any state or local jurisdiction that will not
permit a Tax Return filed on the basis that the taxable year terminated
on the Closing Date, all applicable Income and Franchise Tax Returns
("STRADDLE YEAR TAX RETURNS") for the taxable year of the Company that
includes but does not end on the Closing Date (a "STRADDLE YEAR"), on a
basis consistent with past practices of the Company and applicable law.
At least forty-five (45) days prior to the due date for filing any such
Tax Return (and prior to the filing of such Tax Return), Parent shall
provide drafts of such Tax Returns as prepared by Parent and Company to
the Shareholder Party Representatives for their review and comment.
Further, in the case of any Straddle Year Tax Return, Parent shall set
forth its proposed allocation of the total Taxes shown as due on the
draft Tax Return for the Straddle Year between the period ended on the
Closing Date (for which the Shareholders shall be accountable) and the
period following the Closing Date (for which Parent and the Company shall
be accountable). Such allocation shall be a specific allocation, so as
to reflect, as nearly as possible, the outcome had the Company's taxable
year in fact ended on the Closing Date. If the Shareholder Party
Representatives, within fifteen (15) days after delivery of such draft
Tax Returns (and proposed allocation, if any), notify Parent that they
object to any items in such draft Tax Returns (or proposed allocation),
the parties shall proceed in good faith to resolve the disputed items
and, if they are unable to do so within ten (10) days of such
notification, the disputed items shall be resolved by the Accounting Firm
prior to the due date for filing such Tax Returns. Upon resolution of
all disputed items, the affected Tax Returns shall be finalized on a
basis reflecting such resolution, which shall be conclusive as between
the parties. The costs, fees and expenses of the Accounting Firm shall
be borne equally by Parent, on the one hand, and the Shareholders, on the
other.
(iii)If the sum of (A) the Income and Franchise Taxes for all
Final Separate Return Years as reflected on the Final Separate Return
Year Tax Returns net of any estimated tax payments and other payments
made within, or credits attributable to, the period ended on the Closing
Date in respect thereof, plus (B) the portion of any Income Taxes and
Franchise Taxes in respect of Straddle Years as reflected on the Straddle
Year Tax Returns determined to be allocable to the Shareholders net of
any estimated tax payments and other payments made within, or credits
attributable to, the period ended on the Closing Date in respect of
Straddle Year Income and Franchise Taxes (such sum being referred to
herein as the "ACTUAL UNPAID AMOUNT") is greater than the Estimated Tax
Amount, such excess shall be treated as a decrease in Aggregate Merger
Consideration and shall be paid out of the Escrow Holdback Account
pursuant to Section 1.10(a), or, if no funds are available to be paid
from such Account, then the Shareholders shall pay to Parent the amount
by which the Actual Unpaid Amount exceeds the Estimated Tax Amount. If
the Estimated Tax Amount exceeds the Actual Unpaid Amount (including by
such amount as the Actual Unpaid Amount may be less than zero), then,
pursuant to section 4.11(e), Parent shall pay to the Shareholders the
amount by which the Estimated Tax Amount exceeds the Actual Unpaid
Amount. Such payment by the Shareholders or Parent, as the case may be,
shall be made within 15 days after the timely filing of the last of the
affected Tax Returns. In all events, the Shareholders shall have no
responsibility for payment and remittal of the Taxes due with
37
the Final Separate Return Year Tax Returns and the Straddle Year Tax Returns,
which, to the contrary, solely shall be the responsibility of Parent and
the Company, which Parent hereby covenants to discharge or cause to be
discharged on a timely basis.
(iv)Parent acknowledges and agrees that payments to employees
of the Company pursuant to Section 4.4 are expected to give rise to
significant deductions in respect of the Company's Final Separate Return
Year (and the portion of the period ended on the Closing Date with
respect to any Straddle Years) and that, without limitation of paragraph
(b) below, the Shareholders specifically bargained for the payment to
them, as additional Purchase Price, of the amount of any refunds or
setoffs of Taxes, as and when received (or, in the case of any setoffs,
realized) by the Company subsequent to the Closing Date, attributable to
a carryback of any net operating loss from the Final Separate Return Year
(or any Straddle Year), relating to any such deductions allowable to the
Company in respect of the exercise or cancellation of employee stock
options and any other severance or change in control payments to existing
or former employees of the Company (collectively, "COMPENSATION
DEDUCTIONS") or relating to any other deductions reportable in the Final
Separate Return Year Tax Returns, or in the case of any Straddle Year Tax
Returns, properly allocable to the portion of the period ended on the
Closing Date. Parent agrees, at the Shareholder's expense, to cause the
Company to file such Tax Returns and refund claims on a timely basis as
may be necessary to effectuate the foregoing, and, within 15 days after
such refund is received (or such setoff is realized), pursuant to Section
4.11(e), shall make, or cause the Company to make, the payments to the
Shareholders contemplated hereby; PROVIDED, that the Company shall
withhold payment from any Shareholder not otherwise a Shareholder Party
that has not agreed in writing to incur the obligations described in the
second paragraph of Section 4.11(b), requiring the return to the Company
of any amounts previously remitted to such party in respect of Refunds,
if the Tax item to which the Refund relates is successfully challenged (a
"NONRESPONSIVE SHAREHOLDER"), it being understood that any Shareholder
who properly signs and submits a Letter of Transmittal as contemplated in
the Escrow Agreement shall not be treated as a Nonresponsive Shareholder
and shall agree to incur such obligation. Any such Tax Returns and
refund claims shall be subject to review and comment by the Shareholder
Party Representatives as set forth in subparagraph (ii) above.
Consistent with the foregoing, without duplication of Section
4.11(a)(iii) above, Parent further agrees to promptly remit to the
Shareholders the amount of any reduction in Straddle Year Taxes, and
other state and local Income and Franchise Taxes, for which Parent
otherwise is accountable attributable solely to the actual use of the
Compensation Deductions to offset income of the Company, the Parent or
any Affiliate thereof, assuming that all other items of loss or expense
are used to offset such income prior to the use of such Compensation
Deductions.
(b)__REMITTAL OF REFUNDS TO SHAREHOLDERS. Any refunds of Taxes
(over and above those addressed in clause (iv) of subparagraph (a) above)
of the Company (including interest paid thereon) for any taxable period
(or portion thereof) ended on or before the Closing Date resulting from
income, losses, deductions, credits or other tax items generated by the
Company during taxable periods (or portions thereof) ended on or prior to
the Closing Date and any amount that would have been so refunded but for
its application by way of setoff or credit ("REFUND") that has not
already been paid or
38
credited to the Shareholders shall be for the account of the Shareholders
and, pursuant to Section 4.11(e), Parent shall cause the Company to remit
to the Shareholders the amount of any and all such Refunds within 15 days
after the Refund is received (or otherwise applied); PROVIDED, that the
Company may withhold payment to any Nonresponsive Shareholder. Parent
shall cause the Company to file for and obtain any and all such Refunds
that it shall have identified to be available (neither Parent nor the
Company being under an affirmative obligation to identify any Refunds,
however).
In the event any refund, setoff, credit or reduction in respect
of Taxes as to which the Company has made any payments to a Shareholder
pursuant to this subparagraph (b) or subparagraph (a)(iv) above (a
"COVERED REFUND") shall be challenged successfully by any taxing
authority upon audit, each Shareholder so having previously received any
payments in respect thereof shall be obligated to repay the Company the
amounts previously remitted to him in respect thereof; PROVIDED, HOWEVER,
that such Shareholder (through the Shareholder Party Representatives)
shall have been given the opportunity to contest the taxing authority's
proposed denial of the Covered Refund pursuant to Section 7.8 hereof,
treating such Shareholder as an "Indemnifying Party" and the Company as
an "Indemnified Party" for such purpose.
(c)__AMENDED RETURNS. Unless otherwise required by law,
neither Parent nor the Company shall file any amended Tax Return relating
to a taxable period of the Company ended on or before, or that includes,
the Closing Date without the prior written consent of the Shareholder
Party Representatives.
(d)__PREPARATION OF 1999 INCOME AND FRANCHISE TAX RETURNS, ETC.
With respect to any federal, state and local Income and Franchise Tax
Returns of the Company for the year ended December 31, 1999 that have not
been filed by the Closing Date ("POST-CLOSING 1999 RETURNS"), Parent
shall cause the Company to prepare and shall timely file such Tax
Returns, on a basis consistent with past practices of the Company and
applicable law. At least forty-five (45) days prior to the final due
date (with extensions) for filing any such Post-Closing 1999 Returns (and
prior to the filing of any such Post-Closing 1999 Returns) Parent shall
provide drafts of such Tax Returns as prepared by Parent and Company to
the Shareholder Party Representatives for their review and comment. If
the Shareholder Party Representatives, within fifteen (15) days after
delivery of such draft Tax Returns, notify Parent that they object to any
items in such draft Tax Returns, the parties shall proceed in good faith
to resolve the disputed items and, if they are unable to do so within
ten (10) days of such notification, the disputed items shall be resolved
by the Accounting Firm prior to such due date for filing such Tax
Returns. Upon resolution of all disputed items, the affected Post-
Closing 1999 Returns shall be finalized on a basis reflecting such
resolution, which shall be conclusive as between the parties. To the
extent that the sum of (i) estimated taxes paid by the Company with
respect to the Post-Closing 1999 Returns, (ii) payments made by the
Company upon filing any extensions relating to such Tax Returns
(excluding any such payments made after the Closing Date) and
(iii) amounts of overpayments from prior tax years applied to such Tax
Returns (the sum of (i), (ii) and (iii), the "CREDITED PREPAYMENTS")
exceeds the actual Tax liability for the taxable year as reflected on the
Post-Closing 1999 Returns (the "ACTUAL TAX LIABILITY"), pursuant to
Section 4.11(e),
39
Parent shall pay such excess to the Shareholders within
fifteen (15) days after the timely filing of the last of such Tax
Returns. If the Actual Tax Liability exceeds the Credited Prepayments,
such excess shall be a set off against any amounts owed by Parent to the
Shareholders pursuant to Section 4.11(a)(iii) or (iv), and, to the extent
not so used, shall be treated as a decrease in Aggregate Merger
Consideration and shall be paid out of the Escrow Holdback Account
pursuant to Section 1.10(a), or, if no funds are available to be paid
from such Account, the Shareholders shall pay such excess to Parent
within fifteen (15) days after the timely filing of the last of the
Separate Return Year Tax Returns and Straddle Year Tax Returns. In all
events, the Shareholders shall have no responsibility for payment and
remittal of the Taxes due with the Post-Closing 1999 Returns, which, to
the contrary, solely shall be the responsibility of Parent and the
Company, which Parent hereby covenants to discharge or cause to be
discharged on a timely basis. The costs, fees and expenses of the
Accounting Firm shall be borne equally by Parent, on the one hand, and
the Shareholders, on the other.
(e)__PAYMENTS BY PARENT OR THE COMPANY. Any payments to be
made by Parent or the Company to the Shareholders pursuant to this
Section 4.11 shall be made directly to the Escrow Agent, as contemplated
in Section 2(d) of the Escrow Agreement, for the purpose of remittal to
the Shareholders pursuant to Section 8 of the Escrow Agreement.
(f)__FILING EXPENSES. All out-of-pocket expenses incurred in
filing (i) Final Separate Return Year Tax Returns, (ii) Post-Closing 1999
Returns and (iii) any tax return, claim for a refund or other tax filing
for tax benefits or tax refunds to be paid to the Shareholders, and one-
half of the out-of-pocket expenses incurred in filing Straddle Year Tax
Returns, shall be borne by the Shareholders.
Section 4.12. Termination of Affiliate Transactions.
The Company and each Shareholder Party agrees that, effective as of
the Closing and without any further action by the Company, the Surviving
Corporation or any Shareholder, the Company and the Surviving Corporation
shall be released from any and all obligations and liabilities under
agreements, business arrangements or other relationships with such
Shareholder Party and its Affiliates entered into prior to the Closing,
except for obligations and liabilities under this Agreement and the
Related Documents, obligations to the Shareholder Parties in their
capacities as employees (including under Benefit Plans) or as officers or
directors (including indemnification obligations), obligations to
Shareholder Parties under the agreements contemplated by Sections 5.2(p)
and 5.2(q) and arrangements set forth on Schedule 4.12, and all such
agreements, business arrangements and other relationships so released
shall have no further force or effect.
Section 4.13. Notice of Prospective Breach.
Each party shall promptly notify the other parties in writing (it
being understood that notification to or from the Shareholder Parties
shall be accomplished by notification to or from the Shareholder Party
Representatives) upon the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would be reasonably likely to cause
(i) any representation or warranty contained in this Agreement to be
untrue or inaccurate at any time from the date of this Agreement to the
Closing as if such representation and warranty were made at such time
40
or (ii) any failure of any party hereto to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
under this Agreement.
Section 4.14. Release.
(a)__Each Shareholder Party hereby irrevocably releases and
forever discharges the Company (for the benefit of the Surviving
Corporation and its shareholders), effective from and after the Effective
Time, of and from all manner of actions, causes of action, suits, rights,
debts, dues, sums of money, accounts, bonds, bills, covenants, contracts,
controversies, omissions, promises, variances, trespasses, damages,
liabilities, judgments, executions, claims and demands whatsoever, in law
or in equity which against the Company such Shareholder Party ever had,
now has or which it hereafter can, shall or may have, whether known or
unknown, suspected or unsuspected, matured or unmatured, fixed or
contingent, for, upon or by reason of any matter or cause arising at any
time on or prior to the Closing (unless occasioned by fraud or willful
misconduct or gross negligence); PROVIDED, HOWEVER, that the foregoing
provisions shall not apply to obligations and liabilities under this
Agreement and the Related Documents, obligations to the Shareholder
Parties in their capacities as employees (including under Benefit Plans)
or as officers or directors (including indemnification obligations),
obligations to Shareholder Parties under the agreements contemplated by
Sections 5.2(p) and 5.2(q) and arrangements set forth on Schedule 4.12.
(b)__Each Shareholder Party specifically represents and
warrants to the Company that such Shareholder Party has not assigned any
claim to be released as set forth in paragraph (a) above, and agrees to
indemnify and hold harmless the Company from and against any and all
losses or damages arising from or in any way related to (i) any such
assignment, and (ii) any action by any third party arising from or in any
way related to the relationship among such Shareholder Party and the
Company which is the subject of this Section 4.14.
Section 4.15. Disclosure of Information.
From and after the Closing, the Shareholder Parties shall not use or
disclose to any Person any Confidential Information for any reason or
purpose whatsoever, nor shall they make use of any of the Confidential
Information for their own purposes or for the benefit of any Person
except the Company, the Parent, Merger Sub, the Surviving Corporation or
any Affiliate thereof; PROVIDED, HOWEVER, that the foregoing shall not be
deemed to restrict or prohibit use or disclosure of any Confidential
Information as required by law or judicial process or in connection with
the enforcement, or otherwise to give effect to, the provisions of this
Agreement and the Related Documents. As used in this Agreement,
"CONFIDENTIAL INFORMATION" means Intellectual Property of the Company and
all information of a proprietary or confidential nature relating to the
Company or the Business, excluding any information that (i) as of the
Closing Date, is in the public domain, (ii) after the Closing Date enters
the public domain through no wrongful action or inaction on the part of
any Shareholder Party or (iii) is communication to a Shareholder Party by
a third party under no duty of secrecy or confidentiality to the Company
or the Parent.
Section 4.16. Negotiation with Others; Disposition and Voting of Securities.
41
(a)__During the period from the date hereof to the earlier of
the Closing or the termination of this Agreement pursuant to Section 6.1
(the "EXCLUSIVE PERIOD"), the Company and the Shareholder Parties shall
deal exclusively with the Parent and Merger Sub regarding the acquisition
of or investment in the Company, whether by way of merger, purchase of
capital stock, purchase of assets or otherwise (a "POTENTIAL
TRANSACTION") and, without the prior written consent of the Parent,
neither the Company nor any Shareholder Party shall, directly or
indirectly, (i) solicit, initiate discussions with or engage in
negotiations with any Person (whether such negotiations are initiated by
the Company or any Shareholder Party or otherwise), other than the Parent
and its Affiliates or a party designated by the Parent, relating to a
Potential Transaction, (ii) provide information or documentation with
respect to the Company, any Subsidiary or the Business to any Person,
other than the Parent and its Affiliates or a party designated by the
Parent, relating to a Potential Transaction or (iii) enter into an
agreement with any Person, other than the Parent, Merger Sub or any
Affiliate thereof, providing for any Potential Transaction. The Company
and the Shareholder Parties represent to the Parent that they are not
legally bound to negotiate or enter into a Potential Transaction with any
person other than the Parent.
(b)__During the Exclusive Period, each Shareholder Party shall,
as to himself, herself or itself, and the Company, except as contemplated
by this Agreement, shall:
(i)without the prior written consent of the Parent, refrain from
transferring, selling or assigning to any Person, or agreeing in any
manner to transfer, sell or assign to any Person, or pledge, encumber,
deposit in a voting trust or grant a proxy (other than for purposes of
effectuating the transactions contemplated by this Agreement and the
Related Documents and other than with respect to the granting of any
proxy to, or entering into any voting trust with, any Principal
Shareholder or in the normal course of corporate governance which is not
intended to impede or delay the transactions contemplated by this
Agreement) with respect to, any securities of the Company presently or
hereafter owned or controlled by him, her or it; and
(ii)vote the shares of capital stock of the Company presently or
hereafter owned or controlled by such Shareholder Party or the Company
(or any other security which has voting rights) against any merger (other
than the Merger), consolidation, sale of assets, reorganization,
recapitalization, liquidation or winding up of the Company at every
meeting of shareholders of the Company called therefor and at every
adjournment thereof (or withhold consent in writing to any such action
proposed to be taken by written consent in lieu of a meeting).
(c)__The parties recognize and acknowledge that a breach by the
Company or any Shareholder Party of this Section 4.16 will cause
irreparable and material loss and damage to the Parent and Merger Sub as
to which they will not have an adequate remedy at law or in damages.
Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any
such breach.
42
Section 4.17. Use of Name.
From and after the Closing, the Shareholder Parties shall not allege
or assert that the name "Poly-Seal", "Moldcraft", "Supply-Line" or any
substantially similar variants thereof (the "NAMES") have not become
distinctive and unique and none of the Shareholder Parties shall allege
or assert that the Names have not obtained secondary meaning, identifying
the Names or any variant thereof as the source of goods associated with
such Name. The Shareholder Parties undertake in this Agreement as a
matter of contract to refrain, from and after the Closing, from,
(A) owning any interest, directly or indirectly, in, or becoming
associated with or otherwise lending any aid or support to, any Person
(other than the Surviving Corporation, the Parent or any Affiliate
thereof) using the Names or (B) performing any service or offering any
goods identified with the Names in a manner that is likely to cause
confusion in the minds of ordinary purchasers, except on behalf of the
Surviving Corporation, the Parent of any Affiliate thereof. In
connection therewith, it is agreed that the undertaking under this
Section 4.17 is of a special and unique nature, the loss of which cannot
be adequately compensated for in damages by an action at law, and that
the breach or threatened breach of the provisions of this Section 4.17
would cause the Surviving Corporation, the Parent and their Affiliates
irreparable harm. In the event of any such breach, the Surviving
Corporation and the Parent shall be entitled, as a matter of right, to
injunctive and other equitable relief without waiving any other rights
which they may have to damages or otherwise.
ARTICLE V
CONDITIONS
Section 5.1. Conditions to Each Party's Obligations.
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or
waiver of the following conditions:
(a)__No statute, rule, regulation, order, decree or injunction
shall have been enacted, entered, promulgated or enforced by a
Governmental Entity which prohibits the consummation of the transactions
contemplated by this Agreement shall be in effect.
(b)__All material consents and approvals of any Governmental
Entity required for the consummation of the transactions contemplated by
this Agreement shall have been obtained.
Section 5.2. Conditions to Obligations of the Parent and Merger Sub.
The obligation of the Parent and Merger Sub to effect the
transactions contemplated by this Agreement are further subject to the
satisfaction or waiver of the following conditions:
(a)__The representations and warranties of the Company and the
Shareholder Parties in this Agreement shall be true and correct in all
material respects (except for those qualified by materiality which shall
be true and correct in all respects) at and as of the Closing Date with
the same effect as though such representations and warranties had been
made at and as of such time, provided that any representations and
43
warranties that speak as of a specific date or time need only be true and
correct in all material respects, or, in the case of any such
representation or warranty qualified by materiality, in all respects, as
of such specific date or time.
(b)__The Shareholder Parties and the Company shall have
performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing,
including, without limitation, approval of the Merger by the Shareholders
as required under the DGCL.
(c)__The Parent and Merger Sub shall have received certificates
signed by the Shareholder Party Representatives (on behalf of the
Shareholder Parties) and by the President and the Chief Financial Officer
of the Company to the effects set forth in clauses (a) and (b) above.
(d)__Parent shall have obtained on terms and conditions
satisfactory to the Parent in its sole discretion all of the financing
needed in order to consummate the transactions contemplated hereby.
(e)__The Shareholder Parties and the Company shall have
delivered or caused to be delivered an opinion of counsel in form and
substance substantially as set forth in Exhibit B, addressed to the
Parent and Merger Sub and dated as of the Closing Date.
(f)__No Material Adverse Effect shall have occurred between the
date hereof and the Closing Date.
(g)__Each of the Parent, Surviving Corporation, the Shareholder
Party Representatives and the Escrow Agent shall have executed and
delivered the Escrow Agreement.
(h)__The Parent and the Surviving Corporation shall have
received the written resignations, effective the Effective Time, of
Michael C. Larned (as Chairman of the Board of Directors of the Company),
Michael D. deMilt (as Secretary and Director of the Company), Pieter V.C.
Litchfield (as Treasurer and Director of the Company), William Herdrich
(as President and Director of the Company) and Robert Weilminster (as
Vice-President Finance and Administration of the Company).
(i)__The Parent and Merger Sub shall have received duly
executed letter agreements in form and substance reasonably satisfactory
to the Parent, Merger Sub and their counsel, providing for (i) the
payment and cancellation of all of the Indebtedness and Capital Lease
Obligations as of the Closing Date and (ii) the release of any Lien on
the assets of the Company and its Subsidiaries relating thereto.
(j)__The Parent and Merger Sub shall have received certified
copies of the resolutions of the Company's board of directors and the
Shareholders, approving the Merger, this Agreement, all other documents
contemplated hereby and the consummation of the transactions contemplated
hereby.
44
(k)__The Company shall have delivered to the Parent and Merger
Sub an officer's certificate certifying the Company's Charter, the
Company's By-laws and the incumbency of each officer executing on behalf
of the Company this Agreement or any agreement or instrument contemplated
hereby.
(l)__The Company shall have delivered to the Parent and Merger
Sub certificates of the Secretaries of State of the States of Delaware
and Maryland, dated as of the Closing Date (or as close thereto as
reasonably practicable), certifying as to the good standing and non-
delinquent status of the Company.
(m)__The Company shall have delivered to the Parent a
certificate, dated as of the Closing Date, certifying that the Company is
not, and has not in the last five years been, a United States real
property holding corporation as defined in Section 897(c)(2) of the Code.
(n)__The Company shall have delivered to the Parent and Merger
Sub a copy of the HSR Act pre-merger notification form filed by the Trust
U/W/O Edward S. Litchfield in connection with the consummation of the
transactions contemplated hereby.
(o)__The Shareholder Party Representatives shall have delivered
to the Parent the Schedules contemplated by Sections 1.7(ix), 1.7(xi),
1.7(xiv) and 1.7(xvii).
(p)__Parent and Merger Sub shall have received counterparts of
the Employment Agreements between the Surviving Corporation and each of
Robert C. Weilminster and Dale Finley, each dated as of the Closing Date,
duly executed by each of Robert C. Weilminster and Dale Finley.
(q)__Parent and Merger Sub shall have received counterparts of
the Consulting and Non-Competition Agreement between the Surviving
Corporation and William J. Herdrich, dated as of the Closing Date (the
"CONSULTING AND NON-COMPETITION AGREEMENT"), duly executed by William J.
Herdrich.
(r)__The Parent shall have received evidence reasonably
satisfactory to the Parent of the repayment in full (including accrued
interest) of the deMilt Receivable and the Herdrich Receivable.
Section 5.3. Conditions to Obligations of the Shareholder Parties and
the Company.
The obligation of the Company to effect the transactions contemplated
by this Agreement are further subject to the Company's and the
Shareholder Parties' satisfaction or waiver of the following conditions:
(a)__The representations and warranties of the Parent and
Merger Sub in this Agreement shall be true and correct in all material
respects at and as of the Closing Date with the same effect as though
such representations and warranties had been made at and as of such time,
other than representations and warranties that speak as of a specific
date or time (which need only be true and correct in all material
respects as of such date or time).
45
(b)__Each of the Parent and Merger Sub shall have performed in
all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing.
(c)__The Company and the Shareholder Party Representatives
shall have received a certificate from the President of each of the
Parent and Merger Sub to the effects set forth in clauses (a) and (b)
above.
(d)__The Parent and Merger Sub shall have delivered or caused
to be delivered an opinion of counsel in form and substance substantially
as set forth in Exhibit C, addressed to the Company and to the
Shareholder Party Representatives (as representatives of the Shareholder
Parties).
(e)__Each of the Parent, Merger Sub and the Escrow Agent shall
have executed and delivered the Escrow Agreement.
(f)__The Shareholder Party Representatives and the Company
shall have received certified copies of the resolutions of the Parent and
Merger Sub's board of directors, approving the Merger, this Agreement,
all other documents contemplated hereby and the consummation of the
transactions contemplated hereby.
(g)__The Parent and Merger Subs shall have delivered to the
Shareholder Party Representatives and the Company an officer's
certificate certifying the Parent and Merger Sub's Charter, the Parent
and Merger Sub's By-laws and the incumbency of each officer executing
this Agreement or any agreement or instrument contemplated hereby.
(h)__The Parent and Merger Subs shall have delivered to the
Shareholder Party Representatives and the Company certificates of the
Secretary of State of the State of Delaware, dated as of the Closing Date
(or as close thereto as reasonably practicable), certifying as to the
good standing and non-delinquent status of such entity.
Section 5.4. Waiver.
Any of the foregoing conditions in this Article V may be waived or the
time for performance thereof extended (i) insofar as it is a condition to
the obligations of the Parent and Merger Sub, by the Parent and Merger
Sub at their option and (ii) insofar as it is a condition to the
obligations of the Company and the Shareholder Parties, by the Company
and the Shareholder Party Representatives at their option.
ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1. Termination.
This Agreement may be terminated at any time prior to the Closing
by:
(a)__mutual written consent of the Shareholder Party
Representatives, the Company, the Parent and Merger Sub;
46
(b)__the Company or the Shareholder Party Representatives if
the Closing shall not have occurred on or before May 9, 2000 (unless the
failure to consummate the Closing shall be due to the action or failure
to act of the Company or the Shareholder Parties);
(c)__Parent if the Closing shall not have occurred on or before
May 31, 2000 or such other date mutually agreed upon in writing by the
parties hereto (unless the failure to consummate the Closing shall be due
to the action or failure to act of Parent and/or Merger Sub);
(d)__the Company or the Shareholder Party Representatives or
the Parent if any court of competent jurisdiction or other competent
Governmental Entity shall have issued a statute, rule, regulation, order,
decree or injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such statute, rule, regulation, order, decree or injunction
or other action shall have become final and nonappealable;
(e)__the Parent, if there has been a breach by the Company or
any Shareholder Party of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of the Company or any
Shareholder Party which breach is material and which such party fails to
cure within 10 Business Days after notice thereof is given by the Parent
(except no cure period shall be provided for a breach which by its nature
cannot be cured), or within 30 Business Days after notice thereof is
given if such party, using its reasonable best efforts, cannot cure said
breach within said 10-Business Day period; or
(f)__the Company or the Shareholder Party Representatives, if
there has been a breach by the Parent or Merger Sub of any
representation, warranty, covenant or agreement set forth in this
Agreement on the part of the Parent or Merger Sub which breach is
material and which such party fails to cure within 10 Business Days after
notice thereof is given by the Company or the Shareholder Party
Representatives (except no cure period shall be provided for a breach
which by its nature cannot be cured), or within 30 Business Days after
notice thereof is given if such party, using its reasonable best efforts,
cannot cure said breach within said 10-Business Day period.
Section 6.2. Effect of Termination.
In the event of the termination and abandonment of this Agreement
pursuant to Section 6.1 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party
hereto or its affiliates (including trustees, directors, officers or
stockholders); PROVIDED, HOWEVER, that the Confidentiality Agreement
shall survive in accordance with the terms and conditions provided for
therein and this Section 6.2 and Article VIII shall survive the
termination of this Agreement; and PROVIDED, FURTHER, that the liability
of any party for any breach by such party of the representations,
warranties, covenants or agreements of such party set forth in this
Agreement occurring prior to the termination of this Agreement shall
survive the termination of this Agreement and, in addition, in the event
of any action for breach of contract in the event of a termination of
this Agreement, the
47
prevailing party shall be reimbursed by the other party to the action
for reasonable attorneys' fees and expenses relating to such action.
Section 6.3. Amendment.
This Agreement may be amended or modified at any time by the
parties hereto, but only by an instrument in writing signed on behalf of
each of the Parent, Merger Sub, the Shareholder Party Representatives and
the Company.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival Periods.
All representations and warranties of the parties contained in
Article II and Article III of this Agreement shall survive until the date
which is sixteen months after the Closing Date, and, if notice of a claim
(setting forth in reasonable detail the facts, circumstances and basis of
the claim) is provided by such date, shall survive until the final
resolution thereof, provided that: (i) the representations and
warranties in Section 2.13 shall survive until the fourth anniversary of
the date of the Closing Date; (ii) the representations and warranties
contained in Section 2.15 shall survive the Closing Date until the date
that is 30 days after the expiration of the statute of limitations, if
any, applicable to the matters set forth therein; and (iii) the
representations and warranties contained in Sections 2.1, 2.3, 2.4 and
2.25 shall survive the Closing Date without any time limit. The
covenants and other agreements of the parties contained in this Agreement
shall survive the Closing Date until they are otherwise terminated,
whether by their terms or as a matter of applicable law. The date upon
which any representation, warranty, covenant or other agreement contained
herein shall terminate, if any, is referred to as the "SURVIVAL DATE",
and the parties acknowledge that, in the event that a claim is made under
this Article VII with respect to any representation, warranty, covenant
or other agreement contained herein prior to the applicable Survival
Date, such representation, warranty, covenant or other agreement shall
survive until such time as such claim is resolved (whether hereunder,
judicially or otherwise).
Section 7.2. Indemnification.
Subject to the other provisions of this Article VII, from and
after the Closing:
(a)__Each Shareholder Party agrees severally, and not jointly
(except to the limited extent contemplated below), to indemnify and hold
harmless the Parent, Merger Sub, the Surviving Corporation and their
respective Affiliates, trustees, employees, officers, directors, agents
and other representatives (collectively, the "BUYER GROUP") from and
against any and all costs or expenses (including reasonable attorneys'
and accountant's and other professional fees), judgments, fines,
penalties, losses, shortages, claims, assessments, Taxes incurred as a
result of the receipt of indemnification payments, Liability and damages,
net of (I) any Tax benefits actually realized as of the time the
indemnification payment is made due to the events giving rise thereto and
(II) the net present value of any future Tax benefits to be realized (as
reasonably estimated by Parent in good faith) due to the events giving
rise to an indemnification payment hereunder (collectively, "DAMAGES") it
may suffer, sustain or incur as a result of the untruth, inaccuracy or
breach of any representation or warranty of
48
such Shareholder Party contained in Sections 2.1(a), 2.2(a), 2.3(c) and
2.5(a); PROVIDED, HOWEVER, that notwithstanding the foregoing, each of
the Trust U/W/O Edward S. Litchfield and The Philip A. Litchfield Trust
U/A/D 12/30/96 (but not any of the other Shareholder Parties) shall be
jointly and severally liable to the Buyer Group in respect of Damages
the Buyer Group may suffer, sustain or incur as a result of any untruth,
inaccuracy or breach of any such representation or warranty by either of
such trusts (but not as to any other Shareholder Party).
(b)__The Shareholder Parties, jointly and severally, shall
indemnify and hold harmless the Buyer Group from and against any Damages
incurred by them that arise out of (i) any inaccuracy or breach of any
representation or warranty contained herein made by the Company or the
Shareholder Parties (other than the representations and warranties
contained in Sections 2.1(a), 2.2(a), 2.3(c) and 2.5(a)) or in the
certificate delivered pursuant to Section 5.2(c), (ii) failure to perform
any covenant or obligation made by the Shareholder Parties or the Company
(but not the Surviving Corporation) in this Agreement; or (iii) any
amounts to which any Dissenting Shareholder shall become entitled on
account of the exercise of such Dissenting Shareholders' rights under
Section 262 of the DGCL to the extent such amounts exceed the amounts to
which such Dissenting Shareholder otherwise would be entitled pursuant to
the terms and provisions of this Agreement.
(c)__The Parent and the Surviving Corporation, jointly and
severally, shall indemnify and hold harmless the Shareholders and their
Affiliates, trustees, beneficiaries, agents (including the Shareholder
Party Representatives) and other representatives, from and against any
Damages actually incurred by them that arise out of (i) any breach of any
representation or warranty herein made by the Parent or Merger Sub; or
(ii) failure to perform any covenant or obligation made by the Parent or
Merger Sub in this Agreement.
(d)__Michael deMilt, severally, shall indemnify the Buyer Group
for any amount owed and not received by the Company in respect of the
deMilt Receivable. William Herdrich, severally, shall indemnify the
Buyer Group for any amount owed and not received by the Company in
respect of the Herdrich Receivable.
Section 7.3. CERTAIN LIMITATIONS.
(a)__Notwithstanding any provision to the contrary contained in
this Agreement, none of the Shareholder Parties shall be obligated to
indemnify the Buyer Group for any Damages, other than any Damages as to
which the substantive basis for the claim relates to Tax ("Tax Damages"),
pursuant to Section 7.2(b)(i) unless and until the dollar amount of all
Damages (excluding Tax Damages) for which the Shareholder Parties, but
for this Section 7.3(a) (but after giving effect to Sections 7.3(c) and
7.3(d)), would otherwise be liable pursuant to Section 7.2(b)(i) equals
in the aggregate $680,000, and then only for the excess over such amount;
PROVIDED, HOWEVER, that in no event shall the limitation set forth in
this Section 7.3(a) apply to (i) the rights of the Buyer Group under
Section 7.2(b)(i) with respect to the representations and warranties set
forth in
49
Sections 2.1(b), 2.3(a), 2.3(b), 2.4(a) and 2.25 or (ii) any
willful breach by the Company or the Shareholder Parties of any
representation or warranty contained in Article II.
(b)__Notwithstanding any provision to the contrary contained in
this Agreement, the maximum aggregate amount of Damages (including Tax
Damages) payable pursuant to Section 7.2(b)(i) by the Shareholder Parties
shall not exceed $11,600,000; PROVIDED, HOWEVER, that in no event shall
the limitation set forth in this Section 7.3(b) apply to (i) the rights
of the Buyer Group under Section 7.2(b)(i) with respect to the
representations and warranties set forth in Sections 2.1(b), 2.3(a),
2.3(b), 2.4(a) and 2.25 or (ii) any willful breach by the Company or the
Shareholder Parties of any representation or warranty contained in
Article II.
(c)__Notwithstanding any provision to the contrary contained in
this Agreement, Damages shall not include and no Person will have any
obligation under Section 7.2(a) or 7.2(b) in respect of any lost profits
or consequential, incidental, indirect, special or punitive damages.
(d)__Notwithstanding any provision to the contrary contained in
this Agreement, in no event shall any Shareholder Party have any
obligation under Section 7.2(a) and Section 7.2(b) for any Damages to the
extent such Damages have been taken into account in determining any
adjustment to the Aggregate Merger Consideration under Article I
(including any payment pursuant to Section 4.11).
(e)__Notwithstanding any provision to the contrary contained in
this Agreement, the maximum liability of each of Pieter V. C. Litchfield,
Michael C. Larned, Michael deMilt, William Herdrich and Robert
Weilminster for any Damages pursuant to Section 7.2(b) shall in no event
exceed in any particular case such individual's Applicable Percentage of
the total amount of Damages for which indemnification may be claimed
pursuant to such Section (after giving effect to Sections 7.3(a), 7.3(b),
7.3(c), 7.3(d) and 7.3(f)).
(f)__Notwithstanding any provision to the contrary contained in
this Agreement, no Indemnifying Parties shall have any obligation to
indemnify any Indemnified Party under this ARTICLE VII for any Damages
that are actually recovered by the Indemnified Party from any third party
(including any amounts recovered under insurance policies), and in the
event of a recovery by such Indemnified Party subsequent to an
indemnification payment being made the Indemnified Party shall reimburse
the Indemnifying Party to the extent of such amount actually recovered.
(g)__ Notwithstanding any provision to the contrary contained
in this Agreement, in no event shall any claim be made pursuant to
Section 7.2(c) based on any breach of any representation or warranty
contained in Section 3.7 unless the Parent or the Surviving Corporation
shall be the subject of a bankruptcy proceeding under the United States
Bankruptcy Code, as amended.
50
Section 7.4. CLAIMS.
(a)__The persons to whom indemnification is provided hereunder
are referred to herein as the "INDEMNIFIED PARTIES" and the persons
providing indemnification are referred to as the "INDEMNIFYING PARTIES."
(b)__The parties shall cooperate with each other with respect
to resolving any claim or liability which one party may be obligated to
provide indemnification hereunder, including making all reasonable
efforts to mitigate or resolve any claim or liability. If the
Indemnified Party does not make such efforts, the Indemnifying Party
shall not be obligated to provide indemnification for any Damages that
could reasonably be expected to have been avoided if such party had made
such efforts.
(c)__If an Indemnified Party intends to seek indemnification
pursuant to this Article VII, such Indemnified Party shall promptly
notify the Indemnifying Party in writing of such claim. The Indemnified
Party will provide the Indemnifying Party with prompt notice of any third
party claim in respect of which indemnification is sought. The failure
to provide either such notice (PROVIDED that it is given within the
survival period provided for in Section 7.1) will not affect any rights
hereunder except to the extent the Indemnifying Party is materially
prejudiced thereby. Any such notice shall set forth in reasonable detail
the facts, circumstances and basis of the claim.
(d)__Any obligation of any Shareholder Party to indemnify the
Buyer Group (other than on account of any inaccuracy or breach of any
representation or warranty contained in Sections 2.1(a), 2.2(a), 2.3(c)
and 2.5(a)) shall be satisfied (i) first, in cash, from the Escrow
Holdback Account, and the Shareholder Party Representatives and the
Parent shall execute joint written instructions to the Escrow Agent
directing the Escrow Agent to make payment to the Surviving Corporation
or the appropriate member of the Buyer Group and (ii) second, in cash,
from the Shareholder Parties liable therefor by payment to the Surviving
Corporation or the appropriate member of the Buyer Group. Any obligation
of any Shareholder Party to indemnify the Buyer Group on account of any
inaccuracy or breach of any representation or warranty contained in
Section 2.1(a), 2.2(a), 2.3(c) or 2.5(a) shall be satisfied, in cash,
from the Shareholder Party or the Shareholder Parties liable therefor.
(e)__If such claim involves a claim by a third party (other
than with respect to Taxes) (a "THIRD PARTY CLAIM") against the
Indemnified Party, the Indemnifying Party may assume, through counsel of
its own choosing and at its own expense, the settlement or defense
thereof, and the Indemnified Party shall cooperate with it in connection
therewith (including by furnishing such information as the Indemnifying
Party may reasonably request); PROVIDED, that the Indemnified Party may
participate in such defense through counsel chosen by it, at its own
expense; PROVIDED, HOWEVER, that the Indemnifying Parties shall not have
the right to assume the defense of any Third Party Claim, notwithstanding
the giving of such written acknowledgment, if (i) the claim seeks only an
injunction or other equitable relief, (ii) the Indemnified Parties shall
have been advised by counsel that there are one or more legal or
equitable defenses available to
51
them which are different from or in addition to those available to the
Indemnifying Parties, and, in the reasonable opinion of the Indemnified
Parties, counsel for the Indemnifying Parties could not adequately represent
the interests of the Indemnified Parties because such interests could be
in conflict with those of the Indemnifying Parties, (iii) such action or
proceeding involves, or could have a material effect on, any material matter
beyond the scope of the indemnification obligation of the Indemnifying Parties
or (iv) the Indemnifying Parties shall not have assumed the defense of
the Third Party Claim in a timely fashion; PROVIDED, FURTHER, HOWEVER,
that the Indemnifying Parties shall nonetheless be permitted to
participate in (but not control) the defense of such Third Party Claim
through counsel of their choosing, at their own expense. The Indemnified
Party shall not pay or settle, or admit any liability with respect to,
any claim without the Indemnifying Party's prior written consent, unless
the Indemnifying Party is contesting a claim pursuant to the terms hereof
but is failing to do so in good faith. The Indemnifying Party will not
settle any claim without the Indemnified Party's prior written consent if
such settlement would materially restrict the operation of the Business.
If the Indemnifying Party is not contesting such claim in good faith,
then the Indemnified Party may, upon at least 10 days' notice to the
Indemnifying Party (unless the Indemnifying Party shall assume such
settlement or defense within such 10 day period), conduct and control,
through counsel of its own choosing and at the expense of the
Indemnifying Party, the settlement or defense thereof, and the
Indemnifying Party shall cooperate with it in connection therewith. The
failure of the Indemnified Party to participate in, conduct or control
such defense shall not relieve the Indemnifying Party of any obligation
it may have hereunder.
Section 7.5. Exclusive Remedy.
Following the Closing, the provisions of this Article VII shall
be the exclusive remedy for monetary damages with regard to the matters
covered hereby, provided that nothing herein shall relieve any party from
any liability for fraud.
Section 7.6. Adjustments.
To the extent permitted by law, the parties will treat all
indemnity payments as adjustments to the Aggregate Merger Consideration
and liabilities for indemnified Losses as having been in existence as of
the Closing Date.
Section 7.7. No Contribution from the Corporation or the Surviving
Corporation.
The obligations of the Shareholder Parties to indemnify the Buyer
Group pursuant to the terms of this Agreement are primary obligations of
the Shareholder Parties, subject to the limitations set forth herein.
The Shareholder Parties hereby waive any rights to seek or obtain
indemnification or contribution from the Company or the Surviving
Corporation for Damages as a result of any breach by the Company of any
representation, warranty or covenant contained in this Agreement.
Section 7.8. Tax Claims.
The Indemnified Party shall promptly notify the Indemnifying Party in
writing of the commencement of any claim, audit, examination, or other
proposed change or adjustment relating to Taxes of which it or any of its
affiliates (including the Company) has been informed in writing by any
taxing authority which may affect the liability of the Indemnifying Party
under Section 7.2 (each, a "TAX CLAIM"). Such notice shall describe the
asserted Tax Claim in reasonable detail and shall
52
include copies of any notices and other documents received from any taxing
authority in respect of any such asserted Tax Claim. If notice of a Tax
Claim is not given by the Indemnified Party to the Indemnifying Party
within a sufficient period of time to allow the Indemnifying Party to
effectively contest such Tax Claim, or in reasonable detail to apprise the
Indemnifying Party of the nature of the Tax Claim or if the Indemnified
Party otherwise fails to follow the requirements of this Section 7.8, the
Indemnifying Party shall not be liable to the Indemnified Party, any of
its affiliates or any of their respective officers, directors, employees,
stockholders, agents or representatives and the amount of any indemnity payment
pursuant to Section 7.2 shall be reduced, to the extent that the
Indemnifying Party is harmed or its position is actually prejudiced as a
result thereof.
With respect to any Tax Claim (other than a Tax Claim relating
to a Straddle Year), at the Indemnifying Party's election (to be made not
later than 10 business days following the Indemnifying Party's receipt of
a notification of a Tax Claim from the Indemnified Party), the
Indemnifying Party shall have the sole right to represent the Company's
interests in any Tax audit or administrative or court proceeding and to
employ counsel of its choice, and, without limiting the foregoing, may in
its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with
respect thereto, and may, in its sole discretion, either pay the Tax
claimed and sue for a refund where applicable law permits such refund
suits or contest the Tax Claim in any permissible manner PROVIDED, the
Indemnifying Party shall not settle any claim without the Indemnified
Party's prior written consent (not to be unreasonably withheld or
delayed) if such settlement would materially affect the tax liability of
the Company for any period commencing after the Closing Date. Subject to
the foregoing, the Indemnifying Party may settle any issues and take any
other actions in its discretion in connection with such audit or
proceedings. The Indemnified Party may participate in such defense
through counsel chosen by it, at its own expense. The Indemnified Party
shall cooperate fully with the Indemnifying Party (including, but not
limited to, by granting to the Indemnifying Party a power of attorney
reasonably necessary to represent the Company in any such audit or
proceeding and by causing the Company, at the Indemnifying Party's
reasonable request, to take such requested actions in the defense against
or compromise of any claim in any Tax audit or proceeding which the
Indemnifying Party controls pursuant hereto), timely make available to
the Indemnifying Party all data and other information reasonably
requested by the Indemnifying Party in connection with such audit or
proceedings, make employees available on a mutually convenient basis to
provide additional information or explanation of any material provided
hereunder or to testify at proceedings relating to such Tax Claim and
facilitate the Indemnifying Party's participation in the contest of all
Tax Claims.
In no case shall the Indemnified Party or any of its affiliates
or any of their respective officers, directors, employees, stockholders,
agents or representatives settle or otherwise compromise any Tax Claim
without the Indemnifying Party's prior written consent.
With respect to a Tax Claim relating to a Straddle Year, Parent
and the Shareholder Parties shall jointly control all proceedings and
neither party shall settle or otherwise compromise such Tax Claim without
the other party's prior written consent.
53
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Shareholder Party Representatives.
Following the signing of this Agreement, the Shareholder Party
Representatives, acting individually or jointly, shall, in addition to
being authorized to take any action which they are specifically
authorized or permitted to take pursuant to this Agreement or the Escrow
Agreement, be authorized to act for and on behalf of each of the
Shareholders listed on Schedule 8.1 hereto (the "Principal Shareholders")
with respect to this Agreement and the Escrow Agreement, including,
without limitation, in all instances where the Principal Shareholders or
any of them are required or permitted to give any approval or consent or
to take any other action under this Agreement or the Escrow Agreement.
The Parent, Merger Sub, the Company and the Surviving Corporation shall
not be responsible for the proper application by the Shareholder Party
Representatives of any payment, assignment, instrument or other delivery
made to the Shareholder Party Representatives, including payment to the
Shareholder Party Account, for the benefit of any of the Principal
Shareholders or for the Shareholder Party Representatives' compliance
with the terms and provisions of this Agreement or the Escrow Agreement
and shall be entitled to rely conclusively upon the actions of the
Shareholder Party Representatives as actions for and on behalf of the
Principal Shareholders with respect to this Agreement and the Escrow
Agreement. Notwithstanding anything to the contrary contained herein,
neither of the Shareholder Party Representatives shall be required to
take, or liable for failing to take, any action not expressly required to
be taken by the Shareholder Party Representatives pursuant to the terms
of this Agreement and in no event shall either of the Shareholder Party
Representatives be personally responsible or liable for any obligation or
liability hereunder or under the Escrow Agreement of any Shareholder or
other party hereto or for the proper application by any Principal
Shareholder or any other person of any payment, assignment, instrument or
other delivery made by either of the Shareholder Party Representatives to
such Principal Shareholder or other person. Wherever in this Agreement
or in the Escrow Agreement the Shareholder Party Representatives are
authorized or permitted to take any action, such action may be taken by
either or both of them and the act of either of them shall be deemed to
be the act of both, and the Parent, Merger Sub, Surviving Corporation and
Escrow Agent shall be entitled to rely upon any such action accordingly.
Section 8.2. Notices.
All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt by the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
54
(a)__if to the Parent and/or Merger Sub, to:
Berry Plastics Corporation
101 Oakley Street
Evansville, Indiana 47710
Attention: James M. Kratochvil
Telecopy: (812) 421-9604
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael J. O'Brien
Telecopy: (212) 408-2420
(b)__if to the Company, to:
Poly-Seal Corporation
1810 Portal Street
Baltimore, Maryland 21224-6512
Attention: William Herdrich
Telecopy: (410) 633-1928
with a copy to:
the Shareholder Parties, as provided hereinbelow.
(c)__if to the Shareholder Parties or Shareholder Party
Representatives, to:
Michael C. Larned
as Shareholder Party Representative
178 Farms Road
Stamford, Connecticut, 06903
Telecopy: (203) 986-1522
and/or
Michael D. deMilt
as Shareholder Party Representative
62 Woodmere Road
Stamford, Connecticut, 06905
55
Telecopy: (203) 986-1522
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Brian J. Morris
Telecopy: 212-259-6333
Section 8.3. Headings.
The headings herein are inserted for convenience only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 8.4. Counterparts.
This Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same instrument. Any
counterpart or other signature to this Agreement or any Related Document
that is delivered by facsimile shall be deemed for all purposes as
constituting good and valid execution and delivery by such party of this
Agreement or such Related Document.
Section 8.5. Entire Agreement; Assignment.
(a)__This Agreement and the Exhibits (in their executed form)
and Schedules hereto, the Related Documents and the documents and
certificates delivered in connection herewith constitute the entire
agreement among the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, both written and oral, including, without limitation, the
Letter of Intent dated January 3, 2000, as amended, among the parties
with respect to the subject matter hereof.
(b)__This Agreement shall not be assigned by a party hereto
without the prior written consent of the other parties hereto; PROVIDED,
HOWEVER, that anything contained herein to the contrary notwithstanding,
the Parent and Merger Sub may, without the prior written consent of any
other parties, assign any or all of its rights and interests hereunder to
any lender or lenders providing financing for the transactions
contemplated hereby; PROVIDED, FURTHER, HOWEVER, that no such assignment
shall relieve the Parent or Merger Sub from any of its obligations or
liabilities hereunder.
Section 8.6. Governing Law.
This agreement shall be governed and construed in accordance with
the laws of the State of New York, without regard to any applicable
conflicts of law principles. The parties hereto expressly and
irrevocably (i) consent to the exclusive jurisdiction of the federal and
state courts sitting in New York, (ii) agree not to bring any action
related to this agreement or the transactions contemplated hereby in any
other court (except to enforce the judgment of such courts), (iii) agree
not to object to venue in such courts or to claim that such forum is
inconvenient and (iv) agree that notice
56
or the service of process in any proceeding shall be properly served or
delivered if delivered in the manner contemplated by Section 8.2 hereof.
Final judgment by such courts shall be conclusive and may be enforced in
any manner permitted by law. In addition, each of the parties hereto waives
any right to trial by jury with respect to any claim or proceeding related
to or arising out of this agreement or any of the transactions contemplated
hereby.
Section 8.7. Specific Performance.
The parties hereto agree that if any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached, irreparable damage would occur, no adequate
remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
Section 8.8. Press Releases.
Prior to the Closing, no party will issue or cause the publication of
any press release or other public announcement with respect to this
Agreement or the transactions contemplated hereby without the prior
consent of the Shareholders and the Parent, which consent will not be
unreasonably withheld; PROVIDED, HOWEVER, that nothing herein will
prohibit any party from issuing or causing publication of any such press
release or public announcement to the extent that such party determines
such action to be required by Law or the rules of any national stock
exchange applicable to it or its Affiliates, in which event the party
making such determination will, if practicable in the circumstances, use
reasonable efforts to allow the other parties reasonable time to comment
on such release or announcement in advance of its issuance.
Section 8.9. Binding Nature; No Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and their respective successors, assigns,
trustees, heirs and estates, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person or persons
any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 8.10. Severability.
This Agreement shall be deemed severable and the invalidity or
unenforceability of any term or provision of this Agreement shall not
affect the validity or enforceability of this Agreement or of any other
term hereof, which shall remain in full force and effect.
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in a given
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.11. CERTAIN INTERPRETIVE MATTERS AND DEFINITIONS.
(a)__Unless the context otherwise requires, (i) all references
to Sections, Schedules or Exhibits are to Sections, Schedules or Exhibits
of or to this Agreement, (ii) each accounting term not otherwise defined
in this Agreement has the meaning assigned to it in accordance with GAAP,
(iii) "or" is disjunctive but not necessarily exclusive, (iv)
57
words in the singular include the plural and VICE VERSA, (v) all reference
to "$" or dollar amounts will be to lawful currency of the United States of
America, (vi) the phrase "KNOWLEDGE OF THE COMPANY" means the actual
knowledge of the persons listed on Schedule 8.11 (the Parent, Merger Sub
and the Surviving Corporation hereby expressly acknowledging that such
persons are under no obligation to conduct any particular inquiry for
purposes of any matter to which such phrase applies) and (vii) the phrase
"BEST KNOWLEDGE OF THE COMPANY" means that knowledge that the individuals
listed in Schedule 8.11 actually have or could have obtained after making
such inquiry as reasonable business persons in the respective positions
of such individuals would have made with respect to the matter to which
such phrase applies.
(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.
Section 8.12. Payment of Expenses.
Whether or not the transactions contemplated by this Agreement shall
be consummated, each party hereto shall pay its own fees and expenses
incident to preparing for, entering into and carrying out this Agreement,
except as expressly otherwise provided in this Agreement; PROVIDED,
HOWEVER, that, in the event the Merger is consummated, all fees and
expenses incurred by the Company and the Shareholders incident to
preparing for, entering into and carrying out this Agreement (including,
without limitation, all expenses of attorneys, accountants, tax advisors,
brokers and investment bankers (including Schroders and Dewey Ballantine
LLP)), shall, unless and to the extent such fees and expenses are taken
into account in determining the Aggregate Adjustment Amount, be borne by
the Shareholders and not the Parent, Merger Sub or the Surviving
Corporation. To the extent not determinable at the Closing Date, any
such fees and expenses which are the responsibility of the Shareholders
shall be paid by the Shareholders, PRO RATA based on their respective
Applicable Percentages, subsequent to the Closing Date (and, to the
extent not so paid, may be withdrawn by the Surviving Company from the
Escrow Account).
Section 8.13. Remedies.
Subject to the provisions of Sections 7.5 and 6.2, the parties shall
each have and retain all other rights and remedies existing in their
favor at law or equity, including, without limitation, any actions for
specific performance and/or injunctive or other equitable relief
(including, without limitation, the remedy of rescission) to enforce or
prevent any violations of the provisions of this Agreement.
Section 8.14. Independence of Covenants and Representations and Warranties.
Subject to the provisions hereof (including Section 4.7), (i) all
covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain
covenant, the fact that such action or condition is permitted by another
covenant shall not affect the occurrence of such default, unless
expressly permitted under an exception to such initial covenant and,
(ii) all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty
proves to be incorrect or is breached, the fact that another
representation or warranty concerning
58
the same or similar subject matter is correct or is not breached will not
affect the incorrectness of or a breach of a representation and warranty
hereunder.
59
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
BERRY PLASTICS ACQUISITION CORPORATION
By: /S/ JAMES M. KRATOCHVIL
Name:James M. Kratochvil
Title:Executive Vice President, Chief Financial Officer, Treasurer and
Secretary
BERRY PLASTICS CORPORATION
By: /S/ JAMES M. KRATOCHVIL
Name:James M. Kratochvil
Title:Executive Vice President, Chief Financial Officer, Treasurer and
Secretary
POLY-SEAL CORPORATION
By: /S/ MICHAEL C. LARNED
Name:Michael C. Larned
Title:Chairman of the Board
THE SHAREHOLDER PARTIES
TRUST U/W/O EDWARD S. LITCHFIELD
By:/S/ PIETER V. C. LITCHFIELD
Name:Pieter V. C. Litchfield
Title:Trustee
By:/S/ MICHAEL D. DEMILT
Name:Michael D. deMilt
Title:Trustee
60
THE PHILIP A. LITCHFIELD
1996 REVOCABLE TRUST U/A/D 12/30/96
By:/S/ PHILIP A. LITCHFIELD
Name:Philip A. Litchfield
Title:Trustee
By:/S/ MICHAEL C. LARNED
Name:Michael C. Larned
Title:Trustee
By:/S/ MICHAEL D. DEMILT
Name:Michael D. deMilt
Title:Trustee
/S/ PIETER V. C. LITCHFIELD
Pieter V. C. Litchfield
/S/ MICHAEL C. LARNED
Michael C. Larned
/S/ MICHAEL D. DEMILT
Michael D. deMilt
/S/ WILLIAM HERDRICH
William Herdrich
/S/ ROBERT WEILMINSTER
Robert Weilminster
61
THE SHAREHOLDER PARTY REPRESENTATIVES
/S/ MICHAEL C. LARNED
Michael C. Larned
/S/ MICHAEL D. DEMILT
Michael D. deMilt
62