EXHIBIT 10.10
KILOVAC CORPORATION
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") dated as
of September 20, 1995 is made and entered into by and among COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), KILOVAC
CORPORATION, a California corporation (the "Company"), and the shareholders
and optionholders set forth in Schedule 1 (individually, a "Selling
Shareholder" and collectively, the "Selling Shareholders").
W I T N E S S E T H :
WHEREAS, the Selling Shareholders collectively own, beneficially and of
record, an aggregate of 124,785 Class A Common Shares, no par value, of the
Company (the "Common Stock") after giving effect to the exercise of the
outstanding options (the "Stock Options") exercisable into shares of Common
Stock; and
WHEREAS, the Selling Shareholders intend to exercise all of the Stock
Options, and thereby purchase 72,490 shares of Common Stock for an aggregate
exercise price of $1,202,691.80; and
WHEREAS, Buyer desires that the Company purchase and Selling Shareholders
desire to sell to the Company an aggregate of 99,828 shares of Common Stock
upon the terms and conditions set forth herein;
WHEREAS, Buyer desires to purchase 99,828 newly issued shares of the Common
Stock of the Company for consideration of $4,000,000.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK;
EXERCISE OF STOCK OPTIONS
1.1 Purchase and Sale; And Exercise of Stock Options.
(a) On the Closing Date (as defined below) and subject to the terms and
conditions set forth in this Agreement, the Selling Shareholders shall, in
exchange for the consideration described in Section 1.3, (i) sell, assign,
transfer and deliver to Company 99,828 Shares, (the "Sale Shares") free and
clear of all options, pledges, security interests, liens or other encumbrances
or restrictions on voting or transfer (other than those restrictions
contemplated by this Agreement), (ii) deliver to Company certificates for the
Sale Shares, with appropriate share transfer forms attached, duly endorsed in
blank, together with evidence of payment of any applicable transfer taxes and
(iii) take such steps as may be necessary to cause the Company to cancel and
redeem the Sale Shares.
(b) As of the Closing Date and immediately prior to Closing, and without any
action on the part of the holders thereof after signing this Agreement, each
Stock Option shall be exercised and the shares of Common Stock issuable on
exercise shall be issued to such holder. There shall be deducted from the
aggregate proceeds payable to the holder of each Stock Option pursuant to the
purchase of the Sale Shares, the aggregate exercise price of all Stock Options
held by such Selling Shareholder, which deduction shall be in satisfaction of
the payment by such holder of the option exercise price with respect to the
Stock Options.
(c) The Company shall sell, assign, transfer and deliver to Buyer and Buyer
shall purchase 99,828 newly issued shares of Common Stock (the "New Shares"),
free and clear of all options, pledges, security interests, liens or other
restrictions on voting or transfer (other than those restrictions contemplated
by this Agreement),
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together with evidence of payment of any applicable transfer tax in
consideration of payment in the amount of $4,000,000 and Buyer shall make
advances to Company in an aggregate amount not less than $10,000,000.
1.2 Closing. The closing (the "CLOSING") of the transactions provided for in
this Agreement shall be held at the offices of Bank of America Illinois, in
Chicago, Illinois (unless the parties hereto otherwise agree in writing) on
the Closing Date. The "CLOSING DATE" shall mean October 11, 1995; provided,
however, that if any of the conditions provided for in Article IV shall not
have been waived or met by October 11, 1995, then either Buyer or Douglas
Campbell on behalf of the Selling Shareholders shall be entitled to postpone
the Closing Date by written notice to the other party until three (3) business
days after such condition or conditions have been met or waived. The Closing
Date shall not be later than October 31, 1995, unless mutually agreed upon by
Buyer and Douglas Campbell.
1.3 Purchase Consideration. The purchase consideration for the Sale Shares
shall be the aggregate of the per share amounts set forth below, which
aggregate amount shall be subject to deduction for payment of certain expenses
in accordance with Section 1.5 of this Agreement:
(i) cash in the aggregate amount of $11,900,000, which equals $131.2527
on a per share basis; provided that with respect to Sale Shares issued on
the exercise of Stock Options, the aggregate amount payable to such
Shareholder shall be reduced by the aggregate exercise price of all Stock
Options exercised by such Selling Shareholder as of the Closing Date (the
aggregate of all such cash consideration, the "CASH CONSIDERATION");
(ii) a pro rata interest in the Escrow Fund (as defined in Section 1.4),
calculated based on a total number of interests therein, which shall be
99,828 (the aggregate of all such consideration, the "ESCROW
CONSIDERATION");
(iii) a pro rata interest in the tax benefits payable to Selling
Shareholders in accordance with Section 1.6, calculated on the same basis
as set forth in Section 1.3(ii) (the aggregate of all such consideration,
the "TAX BENEFITS CONSIDERATION"); and
(iv) one common share of Kilovac Development, Inc., a California
corporation ("KILOVAC DEVELOPMENT") and the owner of the Palm Avenue
Property (as defined below) (such aggregate shares, the "PROPERTY
CONSIDERATION").
The Cash Consideration, the Escrow Consideration, the Tax Benefits
Consideration and the Property Consideration are referred to herein,
collectively, as the "Purchase Consideration".
1.4 Escrow Fund. On the Closing Date and subject to the terms and conditions
set forth in this Agreement, in reliance on the representations, warranties,
covenants and agreements of the parties contained herein and in consideration
of the sale, assignment, transfer and delivery of the Sale Shares, the Company
shall deliver $500,000 to Bank of America, N.A. ("ESCROW AGENT") to be held
pursuant to, and in all cases subject to, the Escrow Agreement substantially
in the form of Exhibit A hereto (the "ESCROW AGREEMENT") and the Paying Agent
Agreement in the form of Exhibit B hereto (the "PAYING AGENT AGREEMENT")
delivered in connection with this Agreement; amounts so held from time to time
are to be referred to therein as the "Escrow Fund".
1.5 Payment. (a) At or prior to the Closing, Buyer, the Company and the
Selling Shareholders shall enter into the Paying Agent Agreement which, among
other things, designates the persons or entities selected by the Selling
Shareholders and approved by Buyer to act as paying agent, shareholder
representative and attorney-in-fact (the "PAYING AGENT") in connection with
the transactions contemplated in this Agreement. At the Closing, upon the
terms and subject to the conditions of this Agreement and the Paying Agent
Agreement, Buyer shall deliver the Cash Consideration to the Paying Agent for
the benefit of the Selling Shareholders.
(b) From the Cash Consideration, the Paying Agent shall first pay all fees
and expenses incurred by the Company or the Selling Shareholders in connection
with the transactions contemplated by this Agreement, all as approved by the
Paying Agent in accordance with the Paying Agent Agreement (the "TRANSACTION
FEES").
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Thereafter, the Paying Agent shall disburse to each Selling Shareholder the
amount due to such Selling Shareholder pursuant to Section 1.3 net of such
Selling Shareholder's pro rata share of the Transaction Fees.
1.6 Certain Tax Benefits. Buyer agrees that the Selling Shareholders will
receive cash payment from the Company, as described in this Section 1.6, for
certain tax benefits resulting from any deduction relating to the exercise or
sale of the Stock Options net of any income recognized by the Company
resulting from transactions contemplated herein other than any income
recognized as a result of any tax election made by Buyer or the Company after
the Closing Date (the "Deduction"). Such payment shall be made ratably to the
Selling Shareholders as follows: (A) to the extent that the Deduction results
in a net operating loss for income tax purposes in the taxable year that
includes the Closing Date (the "Short Period") that may be carried back to
prior taxable years, 100 percent of the benefit realized shall be paid to
Paying Agent for the benefit of Selling Shareholders when tax refunds are
received by the Company as a result of the carryback claims (net of any taxes
caused by the refund of state taxes); (B) to the extent that the Deduction
results in a reduction of the tax liability due for or a refund of taxes that
would otherwise have been payable with respect to the day to day sales and
operations of the Company and its Subsidiaries in the Short Period and not
from other transactions or events (including, without limitation, transactions
not in the ordinary course of business, any income resulting from transactions
contemplated by this Agreement and any income relating to prior periods), 100
percent of the benefit realized shall be paid to Paying Agent for the benefit
of Selling Shareholders (i) when refunds of such taxes are received by the
Company or (ii) when such taxes that would otherwise be payable by the Company
or the consolidated group which includes Buyer and the Company are reduced;
and (C) to the extent that the Deduction results in a net operating loss
generated in the taxable years ending through the Closing Date that is carried
forward to taxable years thereafter, 100 percent of the benefit realized by
virtue of the net operating loss carryforward for the fiscal year ending
December 31, 1995 and 50 percent of such benefit realized for fiscal years
thereafter shall be paid to the Paying Agent for the benefit of Selling
Shareholders when such benefit is actually realized. The Selling Shareholders
agree to reimburse the Buyer and/or the Company for any unearned payments made
pursuant to this Section 1.6, subject to the limitations of Section 6.2
hereof.
1.7 Continuing Common Stock.
1.7.1 Definitions. For purposes of this Section 1.7 the following terms
shall have the meanings set forth below:
"ACQUISITION DEBT" shall mean the principal and accrued interest on any
senior bank financing actually obtained by Buyer specifically to finance
the purchase of the Sale Shares hereunder, whether such Acquisition Debt is
a principal obligation of Buyer or any of its parent or affiliate
organizations, including the Company. Acquisition Debt shall also include
the principal and accrued interest on any refinancing of the foregoing
acquisition financing actually obtained, to the extent utilized to payoff
the principal amount initially borrowed as Acquisition Debt, including
accrued interest. Acquisition Debt shall not include any amount borrowed by
the Company, whether from any lending institution or from Buyer or any
affiliate of Buyer, to the extent the funds obtained are utilized in the
Company's ordinary business operations, and are not used to reduce
Acquisition Debt or to pay fees or other return to Buyer or its affiliates.
"DEBT" with respect to any entity shall mean the gross amount of all
indebtedness for borrowed money of the subject entity reflected on its
balance sheet prepared on a consolidated basis with its subsidiaries as at
the date of the event causing such measurement.
"CONTINUING SHARES" shall mean the shares of Common Stock not transferred
and redeemed by the Company at the Closing Date.
"PREFERRED STOCK" with respect to any entity shall mean the sum of the
accrued but unpaid dividends and liquidation preference on any of the
entity's stock which has any preference with respect to dividends or
liquidation proceeds.
1.7.2 Share Sale Adjustment. One half of the Continuing Shares (the
"ESCROWED CONTINUING SHARES"), together with stock assignments separate from
certificate with respect thereto duly executed by the respective
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Shareholders in blank (the "ESCROWED STOCK POWERS") shall be placed in escrow
with Adams, Duque & Hazeltine (the "SHARE ESCROW HOLDER") to be held subject
to the following. If no SALE, IPO (each as defined below) or conversion
pursuant to Subsection 1.7.5.2 (any of such events, a "LIQUIDITY EVENT")
occurs prior to January 1, 1998 and CUMULATIVE 1997 EBITDA (as defined below)
is not equal to or greater than $6,342,700 (the "EBITDA TARGET"), the Purchase
Consideration shall be deemed to have been paid with respect to both the
Escrowed Continuing Shares and the Sale Shares, and Escrow Holder shall
release the Escrowed Continuing Shares, together with the Escrowed Stock
Powers, to Buyer on account of the payment on the Closing Date of the Purchase
Consideration. If either (a) a Liquidity Event occurs prior to January 1,
1998, or (b) Cumulative 1997 EBITDA is equal to or exceeds the EBITDA Target,
then there shall be no share adjustment and the Escrowed Continuing Shares,
together with the Escrowed Stock Powers, shall be released by Escrow Agent for
the benefit of the Shareholders and delivered by Escrow Holder to the Paying
Agent.
1.7.2.1 Escrow Holder's Duties. Escrow Holder shall act solely on (i) the
joint certification of Buyer and Shareholder Representative, or (ii) the final
determination of either the Company's accountant or an arbitrator, each as
certified by both Buyer and Shareholder Representative as being final, or (a)
the arbitrator's award or the order of a court with respect to the arbitrators
award.
1.7.2.2 Cumulative 1997 EBITDA. "CUMULATIVE 1997 EBITDA" shall mean the
Company's cumulative earnings before interest, taxes, depreciation and
amortization for the fiscal years ended December 31, 1996 and December 31,
1997 determined in accordance with generally accepted accounting principles
("GAAP") applied in a manner consistent throughout all periods and in
accordance with the Company's financial statements for the three fiscal years
prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBITDA, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and
related interest, overhead (other than sales and marketing expenses and
overhead directly related to the conduct of the Company's business), and
amortization of goodwill and other capitalized assets resulting from the
purchase of the Sale Shares pursuant to this Agreement and (ii) no
consolidated or consolidating entries relating to any entity other than the
existing subsidiaries of the Company shall be given effect. Cumulative 1997
EBITDA shall be conclusively presumed to be the amount agreed by both the
Company and Shareholder Representative in writing.
1.7.3 Purchase of Continuing Shares. Buyer shall purchase and redeem the
Continuing Shares in accordance with the following:
1.7.3.1 Final Redemption. If the Continuing Shares are not earlier purchased
and the purchase obligations are not earlier terminated on an IPO as provided
below, Buyer shall effective December 31, 2005 ("Final Redemption") purchase
the Continuing Shares. The per share purchase price for the Continuing Shares
outstanding on such date shall equal the result of the Company Redemption
Value divided by the number of shares of Common Stock then outstanding.
1.7.3.2 Early Redemption. If the Continuing Shares are not purchased prior
to December 31, 2000 ("EARLY REDEMPTION") and the purchase obligations are not
earlier terminated on an IPO as provided below, Buyer shall at the election of
any Shareholder purchase the Continuing Shares owned by such Shareholder. The
per share purchase price payable with respect to the Continuing Shares
outstanding on such date shall equal the result of the COMPANY REDEMPTION
VALUE divided by the number of shares of Common Stock then outstanding. The
foregoing Shareholder election may be exercised by each Shareholder only
during the period commencing January 1, 2001 and continuing until and
including April 30, 2001, by giving written notice to Buyer or the Company.
The effective date of any such election by a Shareholder shall be December 31,
2000.
1.7.3.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY REDEMPTION EBIT" shall mean the Company's earnings before interest
and taxes for the fiscal year ending December 31, 2000 or December 31, 2005
(whichever is concurrent with Early Redemption or
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Final Redemption) determined in accordance with GAAP applied in a manner
consistent throughout all periods and in accordance with the Company's
financial statements for the three fiscal years prior to the Closing Date,
except that tooling costs will be treated as if capitalized (whether or not
actually capitalized). Further, in calculating EBIT, (i) there shall be
excluded all Buyer or corporate income and expense items allocated,
assigned or charged to the Company, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly
related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the
Sale Shares and (ii) no consolidated or consolidating entries relating to
any entity other than the subsidiaries of the Company at the end of such
measurement period shall be given effect.
"COMPANY REDEMPTION VALUE" shall equal 5.75 times COMPANY REDEMPTION EBIT,
minus the Debt of the Company.
1.7.3.4 Buyer's Determination of Payment. Buyer's determination of the
purchase price payable pursuant to this Subsection shall be determined based
on the audited financial statements of the Company and within 30 days
following the Company's auditor's completion of its audit of the Company's
financial statements for such fiscal year and not later than March 31 of the
following year.
1.7.3.5 Payment. The purchase price payable under Subsection 1.7.3.1 shall
be payable in cash within 10 days after final determination of the amount
payable and not later than May 31, 2006. The purchase price payable under
Subsection 1.7.3.2 shall be payable within 10 days after final determination
of the amount payable and not later than May 31, 2001. If such payment would
be prohibited under the Buyer's senior credit agreement or California law,
such payment shall be made as soon as practicable and shall bear interest
during the deferral at the rate of 8% per annum.
1.7.4 Purchase on a Sale. The closing of a sale (a "STOCK SALE") of greater
than 50% of the outstanding common equity interests in the Company or Buyer
(or any affiliate of Buyer which includes as part of its consolidated
operations the business of the Company (a "SALE AFFILIATE")) and the sale (an
"ASSET SALE") of all or substantially all of the assets of the Company, Buyer
or Sale Affiliate, are referred to herein together as a "SALE". If a Sale
occurs prior to Buyer's purchase of the Continuing Shares in accordance with
any of the other provisions herein, effective as of the closing date with
respect to such Sale, holders of the Continuing Shares shall participate
therein as set forth below.
1.7.4.1 Sale of the Company. If the Sale is with respect to the Company, the
holders of Continuing Shares shall be entitled to participate in the Sale
proceeds pari passu with other holders of equity interests in the Company, and
the Shareholders shall participate in such Sale pro rata with all holders of
Continuing Shares.
1.7.4.2 Sale of Buyer or Affiliate. If the Sale is with respect to Buyer or
any Selling Affiliate (either, as appropriate, a "SELLER"), the Continuing
Shares shall be purchased for a per share purchase price payable with respect
to the Continuing Shares outstanding on such date equal to the result of the
COMPANY SALE VALUE divided by the number of shares of Common Stock then
outstanding. Payment for the Continuing Shares shall be in cash at the closing
of the Sale. At Buyer's election, payment for the Continuing Shares may
instead be made at the closing of the Sale with a proportionate payment of the
NET SALE CONSIDERATION, pari passu with all other recipients of such Net Sale
Consideration.
1.7.4.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY SALE VALUE" shall equal (a) COMPANY SALE EBIT times SALE MULTIPLE,
minus (b) Debt of the Company.
"COMPANY SALE EBIT" shall mean the Company's earnings before interest and
taxes for the four fiscal quarters preceding the closing date of the Sale
determined in accordance with GAAP applied in a manner consistent
throughout all periods and consistent between the Company and Seller.
Further, in calculating EBIT, (i) there shall be excluded all Buyer or
corporate income and expense items allocated, assigned or
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charged to the Company, including debt and related interest, overhead
(other than sales and marketing expenses and overhead directly related to
the conduct of the Company's business), and (ii) no consolidated or
consolidating entries relating to any entity other than the Company and
subsidiaries of the Company at the time of the Sale shall be given effect.
"NET SALE CONSIDERATION" shall mean the fair market value in cash of (a)
all consideration received in the Sale plus the value of all Debt of the
Seller assumed or taken subject to by the buyer plus the fair market value
of (i) all shares of the Seller not sold in a Stock Sale or (ii) all assets
of the Seller retained in any Asset Sale, minus (b) the reasonable costs
and expenses of consummating such Sale, without deduction for any fees or
expenses paid to any affiliate of Buyer.
"SALE MULTIPLE" shall equal the NET SALE CONSIDERATION divided by SELLER
EBIT.
"SELLER EBIT" shall equal Seller's earnings before interest and taxes for
the four fiscal quarters preceding the closing date of the Sale determined
in accordance with GAAP applied in a manner consistent throughout all
periods and consistent between the Company and Seller. Further, in
calculating EBIT, (i) there shall be excluded all Buyer or corporate income
and expense items allocated, assigned or charged to Seller, including debt
and related interest, overhead (other than sales and marketing expenses and
overhead directly related to the conduct of Seller's business), and (ii) no
consolidated or consolidating entries relating to any entity other than the
Company and subsidiaries of Seller at the time of the Sale shall be given
effect.
"SELLER VALUE" shall equal (a) SELLER EBIT times SALE MULTIPLE, minus (b)
the Debt and Preferred Stock of Seller or Selling Affiliate (as
appropriate).
1.7.4.4 Contingent Payment. If a Sale occurs prior to the end of the 30th
full calendar month following the Closing Date, the Shareholders shall be
entitled to an additional payment as set forth below (the "CONTINGENT SALE
PAYMENT"). If no Sale occurs within such period, no Contingent Sale Payment
shall become due under this Subsection. On the occurrence of a Sale within
such period, Buyer shall pay to the Shareholders a Contingent Sale Payment in
the per share amount equal to the result of (1) the lesser of (i) the amount
of ACQUISITION DEBT then outstanding and (a) $5,000,000, divided by (b) the
number of shares of Common Stock outstanding.
1.7.4.5 Buyer's Determination of Payment. Buyer's determination of the
purchase price payable pursuant to this Subsection shall be determined based
on the audited financial statements of the Company for the four fiscal
quarters immediately prior to the closing date of such sale and within 30 days
following the Company's auditor's completion of its review of the final
quarterly financial statements of the Company for such fiscal quarters.
1.7.5 Registered Public Offering. The closing of a registered initial public
offering of common equity of the Company or Buyer (or any affiliate of Buyer
which includes as part of its consolidated operations the business of the
Company (an "OFFERING AFFILIATE")) is referred to herein as an "IPO". If an
IPO occurs prior to Buyer's purchase of the Continuing Shares in accordance
with any of the foregoing, the Continuing Shares shall be eligible to
participate in such IPO as provided below.
1.7.5.1 IPO of the Company. If the IPO is with respect to common equity of
the Company, the Continuing Shares shall be registered as a part of the
offering pari passu with other holders of equity interests in the Company, and
the Selling Shareholders shall participate in such offering pro rata with all
holders of Common Stock. The Selling Shareholders shall also participate in
any secondary offering pari passu with all other holders of unregistered
Common Stock.
1.7.5.2 IPO by Buyer or Affiliate. As a condition to an IPO with respect to
the common equity of Buyer or any Offering Affiliate (either, as appropriate,
"OFFEROR"), the Continuing Shares shall be exchanged for common equity
("OFFEROR SHARES") of Offeror having the same rights, preferences and
privileges as the direct or indirect interests of the other common equity
owners of Buyer. The number of Offeror Shares for which the aggregate
Continuing Shares shall be exchanged shall be equal to the product of (a) (i)
the proportion of common equity of the Company represented by the Continuing
Shares times (ii) the result of Company IPO Value divided
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by Offeror IPO Value, multiplied by (b) the aggregate number of Offeror Shares
which are to be outstanding immediately prior to the IPO.
In an IPO of Offeror Shares, the Offeror Shares into which the Continuing
Shares are converted shall be registered as a part of the offering pari passu
with other holders of Offeror Shares, and the Shareholders shall participate
in such offering pro rata with all holders of Offeror Shares. The Selling
Shareholders shall also participate in any secondary offering pari passu with
all other holders of unregistered Offeror Shares.
1.7.5.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY IPO EBIT" shall mean the Company's earnings before interest and
taxes for the four fiscal quarters and consistent between the Company and
Seller preceding the closing date of the IPO determined in accordance with
GAAP applied in a manner consistent throughout all periods and consistent
between the Company and Seller. Further, in calculating EBIT, (i) there
shall be excluded all Buyer or corporate income and expense items
allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and (ii) no
consolidated or consolidating entries relating to any entity other than the
Company or subsidiaries of the Company at the time of the IPO shall be
given effect.
"COMPANY IPO VALUE" shall equal (a) COMPANY IPO EBIT times IPO MULTIPLE
minus (b) the Debt of the Company; provided however that during the period
continuing until the last day of the 30th full calendar month following the
Closing Date, the Debt of the Company as used in the foregoing calculation
shall not include the Acquisition Debt.
"IPO MULTIPLE" shall equal the result of multiplying (a) the number of
shares of Offeror common stock to be outstanding immediately prior to the
IPO times (b) the per share offering price as determined by the lead
underwriter for the IPO at the final pricing meeting prior to closing the
IPO, and adding to the product (c) the Debt and Preferred Stock of Offeror,
and subtracting from the product (d) the estimated transaction fees to be
incurred in connection with the IPO, and dividing the amount thus
determined by (e) Offeror IPO EBIT.
"OFFEROR IPO EBIT" shall equal Offeror's earnings before interest and taxes
for the four fiscal quarters preceding the closing date of the IPO
determined in accordance with GAAP applied in a manner consistent
throughout all periods and consistent between the Company and Seller.
Further, in calculating EBIT, (i) there shall be excluded all Buyer or
corporate income and expense items allocated, assigned or charged to
Offeror, including debt and related interest, overhead (other than sales
and marketing expenses and overhead directly related to the conduct of
Offeror's business), and (ii) no consolidated or consolidating entries
relating to any entity other than Offeror or subsidiaries of Offeror at the
time of the IPO shall be given effect.
"OFFEROR IPO VALUE" shall equal (a) Offeror IPO EBIT times IPO Multiple,
minus (b) the Debt and Preferred Stock of Offeror.
1.7.5.4 Manner of Exchange. If there is an exchange of Continuing Shares for
Offeror Shares, such exchange shall be completed in compliance with federal
and state securities laws and Buyer shall use its best efforts to cause such
exchange to be completed in a manner that is tax free to the Shareholders and
Buyer. Further, following such exchange Buyer shall use its best efforts to
cause the Shareholders to be entitled to tack their holding period for the
Continuing Shares to their holding period for the Offeror Shares for purposes
of Rule 144 promulgated under the Securities Act of 1933 (the "33 Act") or
shall be entitled to sell such shares under the provisions of Rule 144 or Rule
145 without regard to holding period. Such efforts may include holding a
fairness hearing under Section 3(a)(10) of the 33 Act and seeking a "no-
action" letter in connection therewith.
1.7.5.5 Termination of Purchase Obligations. Upon an IPO in which the
Continuing Shares or Offeror Shares received in exchange therefor are
registered and participate, all obligations of Buyer to purchase the
Continuing Shares shall terminate and be of no further force or effect.
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1.7.6 Right of Review. Cumulative 1997 EBITDA, together with all the other
defined terms in this Section 1.7 involving calculation or determination by
Buyer are referred to herein as the "Determination Numbers". With respect to
the Determination Numbers, Buyer shall, promptly upon computation, provide to
Shareholder Representative the amount determined by Buyer for such
Determination Number and a complete and accurate description of the
calculations and determinations made in connection therewith, including the
amount and manner of calculation of any numbers used in computing the
Determination Numbers. In addition, Buyer shall provide Shareholder
Representative complete and accurate copies of the Company's, and, where
appropriate, Buyer's and any affiliate's financial statements relevant in
reviewing such calculations and determinations. Examples of such calculations
are appended to this Agreement as Schedule 2. Shareholder Representative shall
also have the right, in person or by its agent, to audit the relevant books
and records of the Company, and where appropriate, Buyer and its affiliates,
with regard to such calculations and determinations. Such right may be
exercised by written request made within 60 days following Shareholder
Representative's receipt of Buyer's report of such Determination Number and
the foregoing description and financial statements.
1.7.6.1 Disputes. If Shareholder Representative disputes any Determination
Number, and Shareholder Representative and Buyer are unable to resolve their
differences within 30 days following receipt by Buyer of a statement from
Shareholder Representative setting forth complete and accurate descriptions of
its differences with the calculations and determinations used in computing a
Determination Number, the amount of such Determination Number shall be
submitted to the Company's independent public accountants who shall confer
with Buyer and Shareholder Representative regarding all calculations and
determinations, and who shall thereafter render its determination made in
accordance with the provisions of this Section 1.7. Such determination shall
be final and binding on the parties, absent manifest error. Any claim of
manifest error shall be determined by arbitration in accordance with this
Agreement.
1.7.6.2 No Separate Shareholder Right. No person entitled to payments in
accordance with this Section 1.7 shall have any right to dispute the Company's
calculations or determinations, or review the Company's books and records.
Shareholder Representative is the sole representative of all such persons in
reviewing, challenging or confirming such determinations. Any agreement of
Shareholder Representative with Buyer resolving any Determination Number or
the amounts payable hereunder, and any determination of the Shareholder
Representative to acquiesce in, and any failure to appeal, any determination
by the Company, its independent public accountants or any arbitrator, shall be
final and binding on all persons entitled to receive payments hereunder. The
foregoing is a material and substantial consideration to Buyer in entering
into this agreement and providing for the purchase of the Sale Shares and the
Continuing Shares in accordance herewith. The separate review of the matters
subject hereof by the several Shareholders could result in different
Shareholders receiving different amounts and would result in a substantial
burden and inconvenience to Buyer and the Company in complying with multiple
review requests.
1.7.7 Anti-dilution. If there is any share dividend or stock split, or any
exchange or recapitalization or other occurrence affecting the Company's
Common Stock, the figures used in the calculations herein shall be adjusted to
eliminate the effect of such occurrence. The Company shall not issue any
equity interests so long as Buyer's obligations under this Section 1.7 are not
satisfied, unless such issuance enhances or does not dilute the value of the
Continuing Shares and Shareholder Representative approves such issuance in
writing prior to the effectiveness thereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties by Buyer. Buyer represents and warrants
to, and agrees with, the Selling Shareholders as follows:
a. Organization, etc. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own all of
8
its property and assets and to carry on its business as it is now being
conducted. Buyer is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or
the character of its property makes such qualification necessary. The
copies of the Certificate of Incorporation and By-laws of Buyer, which have
been delivered to the Company are complete and correct, and such
instruments, as so amended, are in full force and effect.
b. Authority Relative To Agreement. Buyer has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Buyer of
this Agreement and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action or proceedings. This Agreement has been duly executed and delivered
by Buyer and is a valid and binding agreement of Buyer, enforceable in
accordance with its terms.
c. Non-Contravention. The execution and delivery of this Agreement by
Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby will not, (i) violate any provision of its Certificate
of Incorporation or By-Laws, or (ii) violate, or result with the giving of
notice or the lapse of time or both in a violation of, any provision of any
mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment or decree to which Buyer or
any of its properties or assets (real, personal or mixed, tangible or
intangible) are bound, which, in the case of clause (ii) above, would have
a material adverse effect on the ability of Buyer to consummate the
transactions contemplated herein.
d. Consents, etc. As of the Closing Date, Buyer shall have obtained all
licenses, permits, consents, authorizations, orders or approvals of any
governmental commission, board or regulatory body necessary for its
execution and delivery of this Agreement and its consummation of the
transactions contemplated hereby.
2.2 Representations and Warranties by the Company. Except as set forth in
the Disclosure Schedule dated as of the date hereof prepared by the Company
and made a part of this Agreement (the "Disclosure Schedule"), the Paying
Agent on behalf of the Selling Shareholders represents and warrants to, and
agrees with, Buyer as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California,
with full corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted. The
Company is duly qualified or licensed to do business and is in good
standing in the states in which it has facilities and each other
jurisdiction in which the nature of its business or the character of its
properties requires such qualification. The copies of the Certificate of
Incorporation and By-laws, as amended, of the Company, which have been
delivered to Buyer, are complete and correct, and such instruments are in
full force and effect.
b. Capital Stock and Securities. The authorized capital stock of the
Company consists of 400,000 shares, consisting of (i) 200,000 shares of
Common Stock and (ii) 200,000 Series B Common Shares, no par value. As of
the Closing (after giving effect to the exercise of the Stock Options),
124,785 shares of the Common Stock will be issued and outstanding, all of
which will be owned, beneficially and of record, by the Selling
Shareholders in the amounts set forth on Schedule 1 attached hereto. Each
share of capital stock of the Company is owned by the Selling Shareholders
free and clear of any and all liens, charges, pledges, security interests
or other encumbrances of any kind. Each outstanding share of capital stock
of the Company is and shall be duly authorized, validly issued, fully paid
and nonassessable. Upon the consummation of the purchase of the Sale Shares
as contemplated by Sections 1.1 and 1.3, the Company will acquire from the
Selling Shareholders good and valid title to the Sale Shares free and clear
of any liens, claims, charges, pledges, options, contractual restrictions
of any kind or other legal or equitable encumbrances. Except for Stock
Options exercisable into 72,490 shares of Common Stock which are held by
the Selling Shareholders in the amounts set forth on Schedule 1 and which
will be exercised pursuant to
9
Article I, the Company does not have any outstanding commitments to issue
or sell any shares of its capital stock, or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from the Company any shares of its capital stock,
and no securities or obligations evidencing any such right are outstanding.
The Company does not have outstanding any other debt or equity securities
other than its Common Stock and existing indebtedness, which, including the
terms thereof, are fully described in the Disclosure Schedule.
c. Subsidiaries. The Company does not have any Subsidiaries other than
Kilovac Development and Kilovac International, Inc., a California
corporation. Set forth on the Disclosure Schedule is a correct and complete
list of the Subsidiaries, showing as to each, its name, its corporate,
partnership or joint venture form, the jurisdiction of its incorporation or
formation, the number of shares of stock of each class of each Subsidiary
which is outstanding and the number of such outstanding shares owned by
each of the Company and its Subsidiaries. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Subsidiary has the corporate or other
power and authority to carry on its business as now being conducted and to
own and lease its properties and is duly qualified to do business as a
foreign corporation in each jurisdiction in which the nature of its
business or properties makes such qualification necessary. All of the
outstanding shares of capital stock of each Subsidiary have been validly
issued, are fully paid and non-assessable with no personal liability
attaching to the ownership thereof and are free and clear of all liens. The
Company is the sole beneficial owner of all the outstanding shares of each
Subsidiary which is a corporation and there are no other securities of any
Subsidiary which is a corporation other than such outstanding shares. There
are no outstanding rights, warrants, options or agreements with respect to
any such outstanding shares of Subsidiaries including, without limitation,
agreements granting to any person rights to acquire any capital stock or
agreements with respect to the voting thereof. Neither the Company nor any
of its Subsidiaries has any investment (whether equity, debt or other) in
any other person. The copies of the Certificate of Incorporation and By-
laws, as amended, of each Subsidiary, which have been delivered to Buyer,
are complete and correct, and such instruments are in full force and
effect.
d. Authority Relative to Agreement. The Company and each Selling
Shareholder has the power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Company and each Selling Shareholder of this
Agreement and the consummation by such parties of the transactions
contemplated hereby have been duly authorized by each such party. No other
proceedings on the part of the Company or any Selling Shareholder are
necessary, and no vote or consent by the shareholders of the Company is
necessary, to authorize the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and each Selling
Shareholder and is a valid and binding agreement of each such party,
enforceable in accordance with its terms.
e. Non-Contravention. The consummation of the transactions contemplated
hereby will not violate any provision of the Certificate of Incorporation
or By-Laws of the Company or any of its Subsidiaries, or violate, or result
with the giving of notice or the lapse of time or both in a violation of,
any provision of any mortgage, lien, lease, agreement, license, instrument,
law, ordinance, regulation, order, arbitration award, judgment or decree to
which the Company, any of its Subsidiaries or any of their properties or
assets (real, personal or mixed, tangible or intangible) are bound.
f. Consents, etc. As of the Closing Date, the Company and the Selling
Shareholders shall have obtained all licenses, permits, consents,
authorizations, orders or approvals of any governmental commission, board
or regulatory body, if any, necessary for the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby.
g. Financial Statements. The Company and the Selling Shareholders have
heretofore delivered to Buyer the audited consolidated financial statements
of the Company and its subsidiaries for the fiscal years
10
ended December 31, 1990, 1991, 1992, 1993 and 1994 and the unaudited
unconsolidated financial statements of the Company and its subsidiaries for
the 6 periods ended June 16, 1995 including their balance sheets as of each
such date and the related statements of income, cash flow, and
shareholders' equity for each of the respective periods then ended (the
"Financial Statements"). Except as noted therein, such Financial Statements
have been prepared from the books and records of the Company and its
subsidiaries, and are in accordance with generally accepted accounting
principles consistently applied throughout the periods covered thereby, and
fairly present the financial condition, results of operations, and cash
flows of the Company and its subsidiaries as of the respective dates and
for the respective periods thereof except in the case of the June 16, 1995
Financial Statements footnotes have been omitted and it is subject to
normal year-end adjustments (which adjustments, individually or in the
aggregate, will not be material).
The December 31, 1994 balance sheet delivered as part of the Financial
Statements is referred to as the "Balance Sheet" and the June 16, 1995
balance sheet delivered as part of the Financial Statements is referred to
as the "Interim Balance Sheet".
h. Government Authorizations and Compliance with Laws. The business of
the Company and its Subsidiaries has been operated in material compliance
with all laws, ordinances, regulations and orders, of all governmental
entities, domestic or foreign. The Company and its Subsidiaries have all
material permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of their business.
No notice has been received by the Company or any of its Subsidiaries and,
to the Company's knowledge after due inquiry, no investigation or review is
pending or threatened by any governmental entity with respect to (i) any
alleged violation by the Company or any of its Subsidiaries of any law,
ordinance, regulation, order, policy or guideline of any governmental
entity, or (ii) any alleged failure to have all permits, certificates,
licenses, approvals and other authorizations required in connection with
the operation of the business of the Company and its Subsidiaries. As used
in this Agreement, "Company's knowledge after due inquiry" shall mean the
knowledge of Douglas Campbell, Rick Danchuk, Pat McPherson, Robert Helman
and Dan McAllister, after inquiry by them of the Company's officer level
employees having responsibility for matters in the subject area of the
statement made and review of the Company's records with respect to such
subject matter.
i. Tax Matters. All federal, state, local and foreign tax returns and tax
reports required to be filed by or with respect to the Company or its
Subsidiaries have been duly filed. All taxes (including interest, penalties
and related costs) with respect to the Company and its Subsidiaries for all
taxable periods ending on or prior to the Closing Date have been paid,
except (a) to the extent of reserves for taxes (other than deferred taxes)
reflected on the Interim Balance Sheet less payments of such taxes on or
prior to the Closing Date and (b) for such taxes (other than deferred
taxes) properly accruable by the Company and its Subsidiaries for the
period beginning immediately following the date of the Interim Balance
Sheet and ending on the Closing Date but only to the extent that such taxes
arise in the ordinary course of the operations of the Company and its
Subsidiaries occurring during such period (and not taxes arising from other
transactions or events, including, without limitation, any taxes on income
resulting from transactions contemplated by this Agreement and any taxes
relating to prior periods); provided, however, that the reserve set forth
in clause (a) above and the accrual for taxes set forth in clause (b) above
shall be reduced for the tax effect of any deductions relating to the
exercise or cancellation of the Stock Options. No issues have been raised,
either orally or in writing, (and are currently pending) by any foreign,
federal, state or local taxing authority in connection with any of the
returns or reports referred to in this Section 2.2(i). No waivers of
statutes of limitations as to any tax matters are currently in effect with
respect to the Company or its Subsidiaries.
All tax returns filed by the Company and its Subsidiaries were true and
correct in all material respects as of the date on which they were filed.
Complete copies of all federal, state and local income tax returns for the
Company and its Subsidiaries that have been filed with respect to taxable
periods for which the statute of limitations period has not run have been
delivered to Buyer. The Company has provided to Buyer
11
all revenue agent's reports and other written assertions by governmental
authorities of deficiencies or other liabilities for taxes of the Company
and its Subsidiaries with respect to past periods for which the statute of
limitations period has not run. All amounts required to be collected or
withheld by the Company and its Subsidiaries with respect to taxes have
been duly collected or withheld and any such amounts that are required to
be remitted to any taxing authority have been duly remitted.
No extension of time within which to file any tax return that related to
the Company and its Subsidiaries has been requested, which return has not
since been filed. There are no tax rulings, requests for rulings, or
closing agreements to which the Company or its Subsidiaries is a party or
is subject which could affect the liability for taxes for any period after
the Closing Date. All federal income tax returns of the Company and its
Subsidiaries with respect to taxable periods through the year ended
December 31, 1991, have been examined and closed or are returns with
respect to which the applicable statute of limitations period has expired
without extension or waiver. No power of attorney has been granted by the
Company or its Subsidiaries with respect to any matter relating to taxes of
the Company and its Subsidiaries which is currently in force.
The Company and its Subsidiaries have not filed a consent under Section
341(f) of the Code or any comparable provision of state revenue statutes.
The Company and its Subsidiaries have made all payments of estimated taxes
required to be made under Section 6655 of the Code and any comparable
provisions of state, local or foreign law. Any adjustment of taxes of the
Company and its Subsidiaries made by the Internal Revenue Service in any
examination which is required to be reported to the appropriate state,
local or foreign taxing authorities has been reported, and any additional
taxes due with respect thereto have been paid.
The Company and its Subsidiaries have not agreed or are not required to
include in income any adjustment pursuant to Section 481(a) of the Code (or
similar provisions of other law or regulations) by reason of a change in
accounting method. No excess loss accounts exist with respect to the
Company or any Subsidiary. There is no deferred gain or loss arising from
deferred intercompany transactions between the Company and its
Subsidiaries. The Company or its Subsidiaries are not a party to any
agreement that would result by its terms in the payment of a non-deductible
"excess parachute payment" within the meaning of Section 280G of the Code.
The amount of deferred tax assets reflected on the Balance Sheet and the
Interim Balance Sheet are determined in accordance with GAAP, subject to
year end adjustments.
For the purpose of this Agreement, any federal, state, local or foreign
income, sales, use, transfer, payroll, unemployment, Social Security,
personal property, occupancy or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon, is referred to as a "tax."
j. Title to Properties; Absence of Liens and Encumbrances, etc. The
Company and its Subsidiaries have good and marketable title to all of the
properties and other assets (real, personal and mixed, tangible and
intangible) reflected in the Balance Sheet or acquired after the date
thereof (except for properties and assets sold or otherwise disposed of
since December 31, 1994 in the ordinary and usual course of business and
the real property located at 410 Palm Avenue (the "Palm Avenue Property")),
free and clear of any and all liens, charges, pledges, mortgages, security
interests or other encumbrances of any kind ("Liens"). Except for those
properties or assets acquired since December 31, 1994, all properties and
assets (real, personal and mixed, tangible and intangible) used in the
business of the Company and its Subsidiaries are reflected in the Balance
Sheet in the manner and to the extent required by generally accepted
accounting principles.
k. Material Agreements. The Disclosure Schedule lists every material
agreement to which the Company or any of its Subsidiaries is a party or by
which it or any of their properties or assets (real, personal or mixed,
tangible or intangible) is bound which is to be performed in whole or in
part after the Closing Date. Solely for the purpose of this Section 2.2(k),
the term "material agreement" shall mean any
12
single agreement or lease, including agreements with respect to notes
receivable, pursuant to which any party thereto is obligated after the date
hereof to make payments aggregating more than $100,000. There is no
default, nor will any default occur hereafter, as a result of the
consummation of the transactions contemplated hereby or otherwise, in any
obligation to be performed by any party to any material agreement to which
the Company or any of its Subsidiaries is a party or by which it or any of
its properties or assets (real, personal or mixed, tangible or intangible)
is bound. Each agreement listed in the Disclosure Schedule is valid and
binding in accordance with its terms. Other than this Agreement, there are
no agreements or options to sell or lease any of the properties or assets
(real, personal or mixed, tangible or intangible) of the Company or any of
its Subsidiaries except in the ordinary and usual course of its business.
The Company has delivered to Buyer true and complete copies of all
agreements listed in the Disclosure Schedule, including supporting
documentation.
l. Litigation. (i) There is no claim, action, suit or proceeding pending
or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets
(real, personal or mixed, tangible or intangible) or which seeks to
prohibit, restrict or delay consummation of the transactions contemplated
by this Agreement or any of the conditions to consummation of the
transactions contemplated by this Agreement, nor is there any judgement,
decree, injunction, ruling, award or order of any court, governmental
department, commission, agency or instrumentality or arbitrator outstanding
or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets
(real, personal or mixed, tangible or intangible); and (ii) neither the
Company, any of its Subsidiaries nor any of their officers or, to the
Company's knowledge, employees is currently charged with, or to the
Company's knowledge is currently under investigation with respect to, any
violation of any provision of any federal, state, foreign or other
applicable law or administrative regulation in respect of the business of
the Company and its Subsidiaries.
m. Employee Benefit Plans. The Disclosure Schedule contains a complete
list of "Plans" consisting of each:
(1) "employee welfare benefit plan", as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), to which
the Company or any of its Subsidiaries contributes or is required to
contribute, including each multi-employer welfare plan ("Welfare
Plan"), and sets forth the amount of any liability of the Company or
its Subsidiaries for payments more than thirty days past due with
respect to each Welfare Plan as of the Closing Date;
(2) "multi-employer pension plan," as defined in Section 3(37) of
ERISA, to which the Company (or any entity which is a member of a
"controlled group of corporations" with or is under "common control"
with the Company as defined in Section 414(b) or (c) of the Internal
Revenue Code of 1986 as amended ("Code") ("Common Control Entity")) has
contributed or been obligated to contribute at any time after September
25, 1980 ("Multi-employer Plan").
(3) "employee pension benefit plan," as defined in Section 3(2) of
ERISA, (other than a Multi-employer Plan) to which the Company or any
Common Control Equity contributes or is required to contribute
("Pension Plan"); and
(4) deferred compensation plan, bonus plan, stock option plan,
employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment, other than normal payroll
practices and policies concerning holidays, vacations and salary
continuation during short absences for illness or other reasons,
maintained by the Company or its Subsidiaries.
n. Pension Plans. The funding method used in connection with each Pension
Plan which is subject to the minimum funding requirements of ERISA is
acceptable and the actuarial assumptions used in connection with funding
each such plan, in the aggregate, are reasonable. The assets of each
Pension Plan are sufficient to discharge all liabilities under such plan,
on an ongoing basis and on a termination basis, and there is no
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA,
with respect
13
to any plan year of any such plan. Neither the Company nor any Common
Control Entity has any liability for unpaid contributions with respect to
any Pension Plan.
(1) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under
the provisions of Code Sections 401(a) (or 403(a) as appropriate) and
501(a).
(2) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument complies currently, and has
complied at all times in the past, both as to form and in operation,
with the provisions of applicable Federal law, including the Code and
ERISA.
(3) The Company have paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit
Guaranty Corporation ("PBGC") with respect to each Pension Plan for
each plan year thereof for which such premiums are required. There has
been no "reportable event" (as defined in Section 4043(b) of ERISA and
the PBGC regulations under such Section) with respect to any Pension
Plan. No liability to the PBGC has been incurred by the Company or any
Common Control Entity on account of the termination of any Pension
Plan. No filing has been made by the Company or any Common Control
Entity with PBGC, and no proceeding has been commenced by the PBGC, to
terminate any Pension Plan. Neither the Company nor any Common Control
Entity has, at any time, (a) ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, (b)
withdrawn as a substantial employer so as to become subject to the
provisions of Section 4063 of ERISA, or (c) ceased making contributions
on or before the Closing Date to any Pension Plan subject to Section
4064(a) of ERISA to which the Company or any Common Control Entity made
contributions during the five years prior to the Closing Date.
o. Multi-employer Plans. Neither the Company nor any Common Control
Entity has, at any time, withdrawn from a Multi-employer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in ERISA
Sections 4203 and 4205, respectively.
p. Prohibited Transactions. Neither the Company, any of its Subsidiaries
nor, to the Company's knowledge after due inquiry, any plan fiduciary of
any Welfare Plan or Pension Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited
transaction," as defined in Section 4975(c)(1) of the Code, for which no
exemption exists under Section 4975(c)(2) or 4975(d) of the Code.
q. Copies of Relevant Plan Documents. True and complete copies of each of
the following documents have been delivered by the Company to Buyer: (i)
each Welfare Plan and each Pension Plan, related trust agreements, annuity
contracts or other funding instruments, (ii) each plan, agreement,
arrangement and commitment referred to in Sections 2.2(m) and (n), and
complete descriptions of any such plan which is not in writing, (iii) the
most recent determination letter issued by the Internal Revenue Service
with respect to each Pension Plan, (iv) Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Welfare Plan and
each Pension Plan for the two most recent plan years and (v) all actuarial
reports prepared for the last three years for each Pension Plan.
r. Validity and Enforceability of Plans. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other funding instrument and
each plan, agreement, arrangement and commitment referred to in Sections
2.2(m) and (n) is legally valid and binding and in full force and effect.
s. Payments to Retirees. Neither the Company, any of its Subsidiaries nor
any Welfare Plan has any obligation to make any payment to or with respect
to any former or current employee of the Company pursuant to any retiree
medical benefit or other Welfare Plan.
t. Litigation Under Plans. Neither the Company, any of Subsidiaries nor
any Plan is a party to any litigation relating to, or seeking benefits
under, any Plan.
14
u. Employment Agreements. Neither the Company nor any of its Subsidiaries
is a party to any employment, severance or similar agreements.
v. Change in Control Provisions. Neither the Company nor any of its
Subsidiaries is a party to any agreement which contains any provision
pursuant to which the Company or any of its Subsidiaries will be obligated
to make any payment as a result of the transactions contemplated hereby.
w. Labor Matters. There are no controversies pending between the Company
and its Subsidiaries and any of their employees or officers. Neither the
Company nor any of its Subsidiaries is subject to any collective agreements
and, to the Company's knowledge after due inquiry, there is no current
prospect for any union election.
x. Employees. The Disclosure Schedule contains a true and complete list
of all the employees of the Company and its Subsidiaries, their ages, pay
levels and length of service.
y. Absence of Certain Changes or Events. Since December 31, 1994 there
has not been (i) any change, or any development involving a prospective
change, which, individually or in the aggregate, has had or could have a
material adverse effect ("Material Adverse Effect") on the financial
condition, business, operations, or prospects of the Company and its
Subsidiaries taken as a whole; (ii) any damage, destruction or other loss
with respect to property owned by the Company or any of its Subsidiaries,
whether or not covered by insurance, or any strike, work stoppage or
slowdown or other labor trouble involving the Company or any of its
Subsidiaries; (iii) any direct or indirect redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of any shares of the
capital stock of the Company or any of its Subsidiaries; (iv) any
declaration, setting aside or payment of any dividend or distribution
(whether in cash, capital stock or property); or (v) the entry by the
Company or any of its Subsidiaries into any commitment or transaction which
is not in the ordinary course of business.
z. Absence of Undisclosed Liabilities and Agreements. Except as
specifically provided for in the Balance Sheet, the Company and its
Subsidiaries (i) did not have, as of December 31, 1994, any material debts,
liabilities or obligations, whether accrued, absolute, contingent or
otherwise and whether due or to become due (including, without limitation,
any liabilities resulting from the failure to comply with any law
applicable to the Company, any of its Subsidiaries or to the conduct of
their business) (ii) have not incurred, since December 31, 1994, any such
debts, liabilities or obligations other than in the ordinary and usual
course of their business, (iii) are not a party to any material agreement
which contains unusual or burdensome terms and conditions, or (iv) except
in connection with the transactions contemplated in this Agreement, has
not, since December 31, 1994, conducted their business otherwise than in
the ordinary and usual course.
aa. Insurance. The Company and its Subsidiaries have insurance policies
in full force and effect which provide for coverages which are normal in
both amount and scope for the business conducted by the Company and its
Subsidiaries. The current insurance coverage of the Company and its
Subsidiaries is as described in the Disclosure Schedule.
ab. Payments. The Company and its Subsidiaries have not, directly or
indirectly, paid or delivered any fees, commissions or other sums of money
or items of property however characterized to any finders, agents,
customers, government officials or other parties, in the United States or
in any other country, which in any manner are related to the business or
operations of the Company and its Subsidiaries, and which have been illegal
under any federal, state or local laws of the United States or any other
country or territory having jurisdiction over the Company or any of its
Subsidiaries. The Company and its Subsidiaries have not participated,
directly or indirectly, in any boycotts or similar practices.
ac. Renegotiation. The Company and its Subsidiaries are not subject to
renegotiation, redetermination or excess profit recovery with respect to
any fiscal year by reason of U.S. Government contracts performed by them.
15
ad. Inventories. All inventories carried by the Company and its
Subsidiaries as of June 16, 1995 and reflected on the Interim Balance
Sheet, are valued at the lower of cost or market on a first-in-first-out
basis consistent with generally accepted accounting principles. For this
purpose, the lower of cost or market shall be determined on an item by item
rather than an aggregate basis. Except to the extent of inventory reserves
reflected in the Interim Balance Sheet, the items included in said
inventories are normal items of inventory carried by the Company and its
Subsidiaries, and are current, suitable and merchantable for the filling of
orders in the normal course of business, and are not obsolete, damaged,
defective or slow moving.
ae. Products Liability. There are no facts or the occurrence of any event
known or which reasonably should be known to the Company or the Selling
Shareholders forming the basis for any claim against the Company or any of
its Subsidiaries for products liability, whether in tort or strict
liability or on account of any express or implied warranty.
af. Notes and Accounts Receivable and Liabilities. Each of the material
liabilities of the Company and its Subsidiaries as of December 31, 1994 and
June 16, 1995 is reflected or reserved for on the Balance Sheet and the
Interim Balance Sheet, respectively, and the amounts so reflected or
reserved are true and correct according to GAAP. Notes and accounts
receivable will be fully collectible, except to the extent of reserves for
doubtful accounts reflected in the Interim Balance Sheet.
ag. Proprietary Rights. The proprietary rights listed in the Disclosure
Schedule are all those used in the business of the Company and its
Subsidiaries. To the knowledge of the Company after due inquiry, the
Company's and its Subsidiaries' use of such Proprietary Rights is not
infringing upon or otherwise violating the rights of any third party in or
to such proprietary rights, and no proceedings have been instituted against
or notices received by the Company or any of its Subsidiaries that are
presently outstanding alleging that the Company's or any Subsidiary's use
of such Proprietary Rights infringes upon or otherwise violates any rights
of a third party in or to such Proprietary Rights.
ah. Books of Account. The books of account of the Company and its
Subsidiaries have and will adequately reflect all of their respective items
of income and expense and all of their assets, liabilities and accruals, in
accordance with generally accepted accounting principles.
ai. Purchase Commitments and Outstanding Bids. As of the date of this
Agreement and as of the Closing Date, there are no claims against the
Company or any of its Subsidiaries to return in excess of an aggregate of
$50,000 by reason of alleged over-shipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. No outstanding
purchase or outstanding lease commitment of the Company or any of its
Subsidiaries presently is in excess of the normal, ordinary and usual
requirements of its business or contains terms and conditions more onerous
than those usual and customary in the business of the Company and its
Subsidiaries.
aj. Customers and Suppliers. The Disclosure Schedule contains a complete
and accurate list of (i) the 10 largest customers of the Company and its
Subsidiaries in terms of revenues during the Company's last fiscal year,
showing the approximate total sales to each such customer during such
fiscal year; (ii) the 10 largest suppliers of the Company and its
Subsidiaries in terms of purchases during the Company's last fiscal year,
showing the approximate total purchases from each such supplier during such
fiscal year. Since December 31, 1994, to the Company's knowledge after due
inquiry, there has been no adverse change in the business relationship of
the Company and its Subsidiaries with any customer or supplier named in the
Disclosure Schedule.
ak. Permits. The Disclosure Schedule contains a complete and accurate
list of all permits held by the Company or any of its Subsidiaries or for
which the Company or any Subsidiary has applied, which are the only
material permits necessary for or used by the Company and its Subsidiaries
to carry on their business as presently conducted.
al. Environmental Matters. (1) The Company and each of its
Subsidiaries is in compliance in all material respects with all
applicable Environmental Laws, and for the past five years has been in
such compliance; and the Company and each Selling Shareholder have no
reason to believe that
16
circumstances exist which could prevent or interfere with continued
compliance in all material respects by the Company and each of its
Subsidiaries with all applicable Environmental Laws after the Closing
Date.
(2) The Company and its Subsidiaries hold all material Environmental
Permits necessary to conduct their operations as they are currently
conducted; the Disclosure Schedule includes a true and complete list of
all such Environmental Permits and their expiration dates, and the
Company and the Selling Shareholders have no reason to believe that
such permits (A) will not be renewed, or (B) will be renewed under
terms that could reasonably be expected to have an adverse effect on
the Company and its Subsidiaries.
(3) There are no Materials of Environmental Concern present at, and
no Materials of Environmental Concern are or have been in any way
released or threatened to be released from, any Kilovac Property,
former Kilovac Property, or as a result of present or former operations
of the Company or any of its Subsidiaries or any predecessor entity
(including without limitation the disposal of Materials of
Environmental Concern at any location other than a Kilovac Property or
former Kilovac Property), that could reasonably be expected to be in
material violation of or otherwise to give rise to material liability
of the Company or any of its Subsidiaries under any Environmental Law.
(4) No reports of any kind have been made to or required by any
Governmental Authority pursuant to any Environmental Law concerning
spills or any other releases of any kind at, or in any way from, any
Kilovac Property, former Kilovac Property, or as a result of present or
former operations of the Company or any of its Subsidiaries or any
predecessor entity, for which spills, releases, or reports thereof the
Company or any of its Subsidiaries may be liable under any
Environmental Law; true and complete copies of all written reports
concerning such spills and other releases have been provided or made
available to Buyer.
(5) None of the following are or have been on, under, in or at any
Kilovac Property, or to the Company's knowledge after due inquiry, any
former Kilovac Property: (A) underground or aboveground storage tanks
containing Materials of Environmental Concern; (B) polychlorinated
biphenyls; (C) asbestos or asbestos-containing materials; (D) septic
tanks, septic fields, dry-wells, or similar structures; (E) lagoons or
impoundments; or other bodies of water to which Materials of
Environmental Concern may have been discharged; (F) landfills or
dumping areas; or similar locations where Materials of Environmental
Concern may have been placed.
(6) Neither the Company nor any of its Subsidiaries has received any
Environmental Claim, and to Company's knowledge after due inquiry, no
Environmental Claim has been threatened against the Company or any of
its Subsidiaries by any person.
(7) Neither the Company nor any of its Subsidiaries has entered into,
agreed to, nor is the Company or any of its Subsidiaries otherwise
subject to any judgment, decree, order or similar requirement under any
Environmental Law, nor to the Company's knowledge after due inquiry is
any such judgment, decree, order or requirement being negotiated that
may obligate or affect the Company or any of its Subsidiaries.
(8) Neither the Company nor any of its Subsidiaries has assumed or
retained, contractually or by operation of law, any liabilities or
obligations of other persons, contingent or otherwise, in connection
with any Environmental Law.
(9) There are no past or present actions, activities, events,
conditions or circumstances, including without limitation the release,
threatened release, emission, discharge, generation, treatment, storage
or disposal of Materials of Environmental Concern, that could
reasonably be expected to give rise to any material liability or
obligation of the Company or any of its Subsidiaries under any
Environmental Laws. None of the matters set forth on the Disclosure
Schedule, or any aggregation thereof, could reasonably be expected to
have a Material Adverse Effect.
(10) True and complete copies of all reports, studies, assessments,
audits, and similar documents in the possession or control of the
Company, any of its Subsidiaries or any Selling Shareholder that
17
address any issues of actual or potential noncompliance in any material
respect with, or actual or potential material liability under, any
Environmental Laws that may affect the Company or any of its
Subsidiaries have been provided to Buyer prior to the signing hereof.
(11) As used in this Section 2.2(al):
"Environmental Claim" means any written or oral notice, claim,
demand, action, suit, complaint, proceeding or other communication
by any person alleging liability or potential liability (including
without limitation liability or potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or resulting from
(i) the presence, discharge, emission, release or threatened release
of any Materials of Environmental Concern at any location, (ii)
circumstances forming the basis of any violation or alleged
violation of any Environmental Law or Environmental Permit, or (iii)
otherwise relating to obligations or liabilities under any
Environmental Law.
"Environmental Laws" means all foreign (to the extent applicable),
federal, state and local statutes, rules, regulations, ordinances,
orders, judgments, decrees and common law relating in any manner to
contamination, pollution, or protection of human health or the
environment, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Solid
Waste Disposal Act, the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Endangered Species Act, the
National Environmental Protection Act, the Occupational Safety and
Health Act, the Emergency Planning and Community-Right-to-Know Act,
the Safe Drinking Water Act, all as amended, and similar laws of any
other Governmental Authority.
"Environmental Permits" means all permits, licenses, registrations
and other governmental authorizations or exemptions required under
Environmental Laws.
"Materials of Environmental Concern" refers to any waste,
pollutant, contaminant or other substance of any kind (including
without limitation odors, radioactivity, and electromagnetic fields)
regulated by or under, or which may otherwise give rise to liability
under, any Environmental Law.
"Kilovac Property" means all real property in which the Company or
any of its Subsidiaries have any legal interest, including without
limitation a leasehold interest, and any equipment or other property
owned or leased by the Company or any of its Subsidiaries.
am. Transactions with Certain Persons. Neither any officer, director,
shareholder or employee of the Company and its Subsidiaries nor any member
of any such person's immediate family is presently a party to any material
transaction with the Company or any of its Subsidiaries relating to the
business of the Company and its Subsidiaries, including without limitation,
any contract, agreement or other arrangement (i) providing for the
furnishing of material services by (other than for services as officers,
directors or employees of the Company and its Subsidiaries), (ii) providing
for the rental of material real or personal property from, or (iii)
otherwise requiring material payments to (other than for services as
officers, directors or employees of the Company and its Subsidiaries) any
such person or corporation, partnership, trust or other entity in which any
such person has a substantial interest as a shareholder, officer, director,
trustee or partner.
an. Information. The Company and the Selling Shareholders have furnished
and will continue to furnish to Buyer detailed information with respect to
the assets, earnings, and business of the Company and its Subsidiaries, and
acknowledge that Buyer has relied and will rely thereon in entering into
this Agreement and consummating the transaction contemplated by this
Agreement. No such information, the preparation of which was under the
Company's and any Selling Shareholder's direct control, as it has been
corrected from time to time by the Company or Selling Shareholders,
contains an untrue statement of material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made not
misleading.
18
ARTICLE III
ACTIONS PRIOR TO THE CLOSING
3.1 Conduct of the Company. During the period from the date hereof to the
Closing Date:
a. Operations in the Ordinary Course of Business. Except as contemplated
by this Agreement, the Company and its Subsidiaries shall, and the Selling
Shareholders shall cause the Company and its Subsidiaries to, conduct their
business operations according to the ordinary and usual course of business
and will use their best efforts (i) to preserve intact their business
organization; (ii) to maintain their books and records in accordance with
past practices; (iii) to keep available the services of their officers and
employees; and (iv) to maintain satisfactory relationships with licensors,
suppliers, distributors, customers and others having business relationships
with them. The Company and the Selling Shareholders shall confer with Buyer
or its representatives to keep it informed with respect to operational
matters of a material nature and to report the general status of the
ongoing operations of the business of the Company and its Subsidiaries.
b. Forbearances by the Company. Except as contemplated by this Agreement,
the Company and its Subsidiaries will not, and the Selling Shareholders
will not permit the Company and its Subsidiaries to, without the prior
written consent of Buyer:
(1) incur any indebtedness for borrowed money, except in the ordinary
course of business consistent with past practice in an amount not to
exceed $100,000;
(2) assume, guarantee, endorse or otherwise become responsible for
the obligations of, or make any loans or advances to, any other
individual, firm or corporation;
(3) make any direct or indirect redemption, purchase or other
acquisition of any shares of its capital stock or declare, set aside or
pay any dividend or distribution (whether in cash, capital stock or
property) other than the dividend or distribution to the Company's
shareholders of the shares of Kilovac Development, any dividends to the
Company from any of its Subsidiaries and the repurchase of Common Stock
held by Richard Edict or Harvey Clement for an amount not to exceed
$85,000 in the aggregate;
(4) mortgage, pledge or otherwise encumber any of its properties or
assets (other than the pledge of after acquired property as security
for indebtedness under the Bank of America Loan Agreement);
(5) sell, lease, transfer or dispose of any of its properties or
assets (other than the shares of Kilovac Development waive or release
any rights of material value, or cancel, compromise, release or assign
any indebtedness owed to it or any claims held by it except for sales
of inventory in the ordinary and usual course of business and
consistent with past practice;
(6) except for capital expenditures not to exceed $20,000 or items
included in the capital budget included in the Disclosure Schedule,
make any investment or expenditure of a capital nature either by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any property or assets of
any other individual, firm or corporation;
(7) enter into any transaction other than in the ordinary and usual
course of its business and consistent with past practice;
(8) enter into or terminate any agreement, plan or lease, or make any
change in any of its agreements, plans or leases;
(9) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be cancelled or terminated or any of the coverage
thereunder to lapse;
(10) enter into any collective bargaining agreements;
(11) increase in any manner the compensation, remuneration or fringe
benefits of any of its officers or employees (other than increases in
the hourly compensation of nonofficer employees in the ordinary course
of business consistent with past practice) or pay or agree to pay any
pension, retirement
19
allowance, or other benefit not required by any existing employee
benefit plan to any such officers or employees, commit itself to any
employment agreement or employee benefit plan with or for the benefit
of any of its officers or employees or any other person, or alter,
amend, terminate in whole or in part, or curtail or permanently
discontinue distributions to, any pension plan or any other employee
benefit plan;
(12) issue any shares of capital stock or issue any warrants,
options, calls, subscriptions, or other agreements or commitments
obligating it to issue shares of capital stock;
(13) enter into an agreement to do any of the things described in
clauses (1) through (12) of this Section 3.1; or
(14) take any action which would render inaccurate any representation
and warranty made herein.
3.2 Regulatory Consents, Authorizations, etc. Each party hereto will use its
best efforts to obtain all consents, authorizations, orders and approvals of,
and make all filings and registrations with, any governmental commission,
board or other regulatory body or any other person required for or in
connection with the consummation of the transactions contemplated hereby and
will cooperate fully with the other parties in assisting them to obtain such
approvals and to make such filings and registrations. No party hereto will
take or omit to take any action for the purpose of delaying, impairing or
impeding the receipt of any required consent, authorization, order or approval
or the making of any required filing or registration.
3.3 Investigation by Buyer. Prior to the Closing Date, Buyer may make or
cause to be made such investigation of the business, properties, assets and
liabilities of the Company and its financial and legal conditions as Buyer
deems necessary or advisable to familiarize itself therewith, provided that
such investigation shall not unreasonably interfere with the normal operations
of the Company. Such investigation may include, without limitation, an
examination and valuation of inventory by Buyer's accountants and an appraisal
of all assets of the Company. Prior to the Closing Date, upon reasonable prior
notice, the Company and the Selling Shareholders agree to permit Buyer and its
authorized representatives, or cause them to be permitted, to have full access
to the premises, books and records, officers, employees, and independent
accountants (including the independent accountant's work-papers) of the
Company at reasonable hours, and prior to the Closing Date the officers of the
Company shall furnish Buyer with such financial and operating data and other
information with respect to the business, properties and assets of the Company
as Buyer shall from time to time reasonably request. No investigation by Buyer
heretofore or hereafter made shall affect the representations and warranties
of the Company contained herein. Prior to the Closing Date, or in the event
this Agreement is terminated, Buyer shall not use any information relating to
the Company obtained by it from the Company or the Selling Shareholders
pursuant to this Section 3.3, which is not otherwise publicly available, for
any purpose unrelated to the consummation of the transactions contemplated
hereby, and prior to such Closing Date, Buyer will not disclose any such
information to any person, unless and until such time as such information is
otherwise publicly available or as Buyer is advised by counsel that such
information is required by law to be disclosed. In the event this Agreement is
terminated, Buyer agrees to keep confidential all information it has obtained
concerning the Company under the terms of this Agreement for a five-year
period and to return promptly, if so requested by the Company, every document
furnished to Buyer by the Company and the Selling Shareholders, in connection
with the transactions contemplated hereby, and any copies thereof Buyer may
have made, and to use its best efforts to cause its representatives to whom
such documents were furnished promptly to return such documents, and any
copies thereof any of them may have made.
3.4 Expenses. Subject to Section 3.7, the Selling Shareholders joint and
severally agree to pay all of the fees, costs and expenses of the Selling
Shareholders, and Buyer agrees to pay all of the fees, costs and expenses of
Buyer, (including, without limitation, those of advisors, financial advisors,
lawyers or accountants) incurred in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
20
3.5 Negotiations with Others. During the period from the date of this
Agreement to the Closing Date, or until this Agreement is terminated in
accordance with the provisions of Article V, if it is so terminated, the
Company, the Selling Shareholders and their agents shall not, directly or
indirectly, without the prior written consent of Buyer, solicit or initiate
discussions or engage in negotiations with, or provide any information other
than publicly available information to, or authorize any financial advisor or
other person to solicit or initiate discussions or engage in negotiations
with, or provide any information to, any corporation, partnership, person or
other entity or group (other than Buyer) concerning any possible proposal
regarding a sale of shares of capital stock of, or a merger, consolidation,
sale of assets or other similar transaction involving the Company, and the
Company and the Selling Shareholders will promptly notify Buyer if any such
discussions or negotiations are sought to be initiated with, any such
information is requested from, or any such proposal or possible proposal is
received by the Company, the Selling Shareholders and/or their agents.
3.6 Publicity. Until the Closing Date, each party hereto agrees not to issue
any press release or to otherwise make any public statement with respect to
the transactions contemplated hereby except as may be required by law, in
which event such press release or public statement shall be made only after
consultation with the Company or Buyer, as the case may be; then and
thereafter no such public announcement shall be made without the consent,
which shall not be unreasonably withheld, of the Company (in the case of
releases or statements issued or made by Buyer) or Buyer (in the case of
releases or statements issued or made by the Company or the Selling
Shareholders).
3.7 Environmental Audit. If required by any prospective provider of
financing for the transactions contemplated by this Agreement, the parties
hereto agree that Buyer may have a Phase II environmental audit (the
"Environmental Audit") completed prior to Closing at the Company's facilities.
The environmental consultant shall be chosen by Buyer. The Company shall have
the right to approve each phase of the Environmental Audit, which approval
shall not be unreasonably withheld. The fees, costs and expenses relating to
the Environmental Audit shall be borne as follows: (x) the first $10,000 by
the Selling Shareholders, (y) the next $10,000 by Buyer and (z) any balance in
excess of $20,000 equally by the Selling Shareholders and Buyer.
3.8 Kilovac Development. Prior to the Closing, the Company shall (i) cause
Kilovac Development to assign and transfer to the Company all of its material
assets other than the Palm Avenue Property, if any, and (ii) cancel any
intercompany debt of Kilovac Develoment to the Company and (iii) contribute
funds to Kilovac Development sufficient to discharge any third party
indebtedness and the guarantee by the Company thereof in an amount not to
exceed $230,000.
3.9 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best 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 hereby as soon as
reasonably practicable hereinafter.
ARTICLE IV
CONDITIONS TO THE CLOSING
4.1 Conditions to the Closing Relating to Buyer. Consummation of the
transaction contemplated hereby is subject to the fulfillment to the
reasonable satisfaction of Buyer, prior to or at the Closing Date, of each of
the following conditions:
a. Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with
any governmental commission, board or other regulatory body or any other
person which are required, prior to the Closing Date, for or in connection
with the execution and delivery of this Agreement and the consummation by
each party hereto and the Company of the transactions contemplated hereby,
or which are required in order to avoid violation or termination of any
agreement listed in the Disclosure Schedule, shall have been obtained or
made.
21
b. Representations and Warranties. The representations and warranties of
the Company and the Selling Shareholders contained in this Agreement are
true and correct in all material respects at and as of the Closing Date,
except for changes contemplated by this Agreement, with the same force and
effect as if made at and as of the Closing Date; and the Selling
Shareholders and the Company shall have performed or complied in all
material aspects with all agreements and covenants required by this
Agreement to be performed or complied with by them at or prior to the
Closing Date.
c. Certificate. Each of the Selling Shareholders who is a member of the
Board of Directors of the Company shall have delivered to Buyer
certificates to the effect that (i) he is familiar with the provisions of
this Agreement and (ii) the conditions specified in Sections 4.1(a) and (b)
have, to his knowledge after inquiry of the Company's officer level
employees having responsibility for matters in the subject area of the
condition to be satisfied and review of the Company's records with respect
to such subject matter, been satisfied.
d. Litigation; Other Events. No action, suit or proceeding shall have
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the
conditions to the transactions contemplated herein, or seeks damages as a
result of the consummation of the transactions contemplated herein, or
speaks to the conduct of the business of the Company after the Closing
Date.
e. Financing. Buyer shall have completed arrangements, on terms and
conditions reasonably satisfactory to it, for the financing of a portion of
the purchase price and the ongoing working capital requirements of the
Company.
f. Environmental Audit. If required pursuant to Section 3.7, Buyer shall
have completed the Environmental Audit and the results of such audit shall
be satisfactory to it.
g. Existing Indebtedness. Bank of America shall have released and
discharged its lien securing the outstanding indebtedness against payment
by Buyer of the outstanding balance of such indebtedness without premium or
penalty. On the Closing Date, the aggregate outstanding indebtedness of the
Company and its Subsidiaries shall not exceed $430,000.
h. Related Agreements. The Escrow Agreement, the Paying Agent Agreement
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and
C hereto.
i. Legal Opinion. Buyer shall have received a legal opinion, dated as of
the Closing Date, from Adams, Duque & Hazeltine, special counsel to the
Company, in the form of Exhibit D hereto.
4.2 Conditions to the Closing Related to the Company and the Selling
Shareholders. Consummation of the transaction contemplated hereby is subject
to the fulfillment to the reasonable satisfaction of the Company and the
Selling Shareholders, prior to or at the Closing Date, of each of the
following conditions:
a. Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with
any governmental commission, board or other regulatory body or any other
person which are required, prior to the Closing Date, for or in connection
with the execution and delivery of this Agreement and the consummation by
each party hereto and the Company of the transactions contemplated hereby,
or which are required in order to avoid violation or termination of any
agreement listed in the Disclosure Schedule, shall have been obtained or
made.
b. Representations and Warranties. The representations and warranties of
Buyer contained in this Agreement are true and correct in all material
respects on the date hereof and shall also be true and correct in all
material respects at and as of the Closing Date, except for changes
contemplated by this Agreement, with the same force and effect as if made
at and as of the Closing Date; and Buyer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
22
c. Certificate. Buyer shall have delivered to the Selling Shareholders a
certificate, dated as of the Closing Date, of the Chairman of the Board and
Chief Executive Officer of Buyer to the effect that (i) he is familiar with
the provisions of this Agreement and (ii) the conditions specified in
Sections 4.2(a) and (b) have, to his knowledge after due inquiry, been
satisfied.
d. Litigation; Other Events. No action, suit or proceeding shall have
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the
conditions to the transactions contemplated herein, or seeks damages as a
result of the consummation of the transactions contemplated herein, or
speaks to the conduct of the business of the Company after the Closing
Date.
e. Related Agreements. The Escrow Agreement, the Paying Agent Agreement
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and
C hereto.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated by:
(1) By mutual action of the Company and Buyer;
(2) By the Company, if any of the conditions set forth in Section 4.2
shall not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Buyer on or before the Closing Date; or
(3) By Buyer, if any of the conditions set forth in Section 4.1 shall not
have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by the Company and the Selling Shareholders
on or before the Closing Date.
5.2. Effects of Termination. In the event of the termination of this
Agreement, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto or their
respective stockholders or directors or officers in respect thereof, except
for the obligations of the parties hereto in the last two sentences of Section
3.3 and the Confidentiality Agreement (as defined below), and except that
nothing herein will relieve any party from liability for any breach of this
Agreement prior to such termination.
ARTICLE VI
INDEMNITY
6.1 Survival of Representations and Warranties Indemnity. The
representations, warranties, agreements and covenants by the Company and
Selling Shareholders (other than the agreements and covenants set forth in
Article VII) shall survive until the 12 month anniversary of the Closing Date,
except that the representations, warranties, agreements and covenants of the
Company and the Selling Shareholders contained in (i) Section 2.2(al) shall
survive until the 24 month anniversary of the Closing Date and (ii) Section
2.2(i) shall survive indefinitely.
6.2 Indemnity. Subject to said applicable survival periods, the Shareholders
agree to indemnify Buyer, the Company and/or their Affiliates for any and all
claims, demands, losses, costs, charges, expenses, obligations, liabilities,
actions, suits, damages, judgments, and deficiencies, including interest and
penalties, reasonable counsels' fees and all reasonable amounts paid in
settlement of any claim, action, or suit (collectively referred to as
"CLAIMS") which may be sustained, suffered or incurred by Buyer, the Company
and/or their Affiliates and arising out of or by reason of any breaches of the
representations, warranties, agreements and covenants of the
23
Company or the Selling Shareholders contained herein; provided, that, (i) the
obligations of the Selling Shareholders under this Section 6.2 relating to
taxes shall be limited to the Escrowed Funds and the setoff of any amounts
then due to the Selling Shareholders under this Agreement and (ii) all other
obligations of the Selling Shareholders under this Section 6.2 shall be
limited to the Escrowed Funds. Each of the Selling Shareholders agrees that
Buyer, the Company and/or their Affiliates will have the rights to setoff the
amounts referred to in the preceding proviso.
6.3 Cooperation. The term "Claims" as used in this Article is not limited to
matters asserted by third parties against Buyer and/or the Company. Claims
does not include any damages for which the Company receives insurance
reimbursement. In the event a Claim is asserted by any third party against
Buyer and/or the Company, it shall notify Selling Shareholders of such Claim
by giving to Selling Shareholders written notice, and shall give Selling
Shareholders and their counsel access to any and all such files, records and
other documents as may be necessary to enable Selling Shareholders to
investigate or participate in the defense against such Claim (but at the cost
and expense of such Selling Shareholders) and Buyer shall otherwise cooperate
in connection therewith and shall not assume a position contrary to that of
Selling Shareholders with respect to all such third party Claims.
ARTICLE VII
CERTAIN POST-CLOSING AGREEMENTS
7.1 Noncompete. Each of Pat McPherson, Robert Helman, Dan McAllister and
Rick Danchuk agree on behalf of himself and his Affiliates that he will not
anywhere in the State of California, including all the counties listed on
Schedule 2 hereto, or anywhere else at any time for three years after the date
hereof and Douglas Campbell agrees on behalf of himself and his Affiliates
that he will not anywhere in the State of California, including all the
counties listed on Schedule 2 hereto, or anywhere else at any time for five
years after the date hereof, except with the express prior written consent of
Buyer: (a) directly or indirectly, engage in any Competitive Business
(meaning, any business engaged in by the Company as of the Closing Date),
whether such engagement shall be as an owner, partner, agent, consultant or
shareholder (except as the holder of not more than five percent (5%) of the
outstanding shares of a corporation whose stock is listed on any national or
regional securities exchange or reported by the National Association of
Securities Dealers Automated Quotations System or any successor thereto); (b)
directly or indirectly solicit, divert or accept business from or otherwise
take away or interfere with any customer of Buyer, the Company or their
Affiliates engaged in any Competitive Business, including without limitation
any person who was a customer or whose business was being pursued by Buyer,
the Company or their Affiliates prior to the date hereof; or (c) directly or
indirectly, accept employment with, be employed by or be a principal of any
business or enterprise operating within the United States of America which
then employs or has as a principal or holder of any interest therein (except
as the holder of not more than one percent (1%) of the outstanding shares of a
corporation whose shares are publicly traded) any individual who was
previously employed in a managerial or consultant position with Buyer, the
Company or any of their Affiliates, provided however, that this prohibition
shall not be applicable if such business or enterprise is not a Competitive
Business. The Company and each of the individuals subject to this Section
acknowledge that the Company's products are sold and used in each county in
the State of California.
7.2 Nondisclosure. Each of the Selling Shareholders, agree that, for a
period of seven years following the Closing Date, except as required by law or
by the order of any court or government agency or in the performance of his
duties as an employee of the Company or its Subsidiaries, he shall keep secret
and retain in strictest confidence and shall not, except with the express
prior written consent of Buyer, directly or indirectly disclose, communicate
or divulge to any person, or use for the benefit of any person, any
Proprietary Information (meaning, all information or data with respect to the
conduct or details of the business of the Company including, without
limitation, methods of operation, customers and customer lists, details of
contracts with customers, consultants, suppliers or employees, products,
proposed products, former products, proposed, pending or completed
acquisitions of any company, division, product line or other business unit,
prices and pricing policies,
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fees, costs, plans, designs, technology, inventions, trade secrets, know-how,
software, marketing methods, policies, plans, personnel, suppliers,
competitors, markets or other specialized information or proprietary matters
of the business of the Company). The restriction contained in the preceding
sentence shall not apply to any Proprietary Information that (i) is a matter
of public knowledge on the date of this Agreement or (ii) becomes a matter of
public knowledge after the date of this Agreement from another source which is
under no known obligation of confidentiality to Buyer or its Affiliates.
7.3 Anti-dilution. In the event of the issuance, sale, grant or distribution
by the Company to Buyer or any of its Affiliates of any shares of Common
Stock, the Selling Shareholders shall be entitled to participate in such
issuance, sale, grant or distribution on a pro rata basis, and on the same
terms and conditions, so that following such issuance, sale, grant or
distribution each Selling Shareholder will, if such Selling Shareholder has
elected to purchase or otherwise receive the shares to be issued, sold,
granted or distributed, have the same percentage of the Common Stock ownership
of the Company as such Selling Shareholder had prior to such issuance, sale,
grant or distribution. This Section 7.3 shall not apply to registered public
offerings.
7.4 Contributions to ESBP. Each of the parties hereto agrees and
acknowledges that neither Buyer nor the Company shall have any obligation to
make any contributions to the Kilovac Corporation Employee Stock Bonus Plan
(the "ESBP") after the Closing Date.
7.5 Additional Restrictions. Except with the prior written approval of the
Paying Agent, after the Closing Date and until a Liquidity Event, the Company:
(a) shall not issue any additional shares of capital stock of the
Company;
(b) shall not amend the charter or by-laws of the Company or any of its
subsidiaries,
(c) shall not effect the voluntary liquidation, dissolution or winding up
of the Company or any of its subsidiaries, or the sale, lease or exchange
of all or substantially all of the assets, property or business of the
Company or any of its subsidiaries, or the merger or consolidation of the
Company with or into any other corporation (except a wholly-owned
subsidiary of the Company),
(d) shall not incur any indebtedness for borrowed money, except (i)
pursuant to financing arrangements entered into in connection with the
Closing between Buyer and Bank of America, N.A. (and any extensions
thereof), and (ii) other indebtedness incurred in the ordinary course of
business, consistent with past practice,
(e) shall not guaranty any indebtedness of any person or entity other
than financing arrangements entered into in connection with the Closing
between Buyer and Bank of America, N.A. (and any extensions thereof),
(f) shall not make any acquisition or disposition of securities other
than as a result of the reorganization of a debtor of the Company or a
business or line of business in a single transaction or a series of related
transactions,
(g) shall not repurchase or redeem any capital stock of the Company or
any of its subsidiaries,
(h) shall not declare or pay any dividends or distributions on Common
Stock (except as specifically provided herein),
(i) shall not make any initial public offering of shares of common stock
of the Company or of any of its subsidiaries or grant any registration
rights with respect to common stock of the Company or of any of its
subsidiaries,
(j) shall not create or dissolve any subsidiary of the Company, or
(k) shall not adopt or amend any personnel policies or personnel plans of
the Company or any of its subsidiaries, including those relating to
compensation or benefits.
(l) shall not enter into, or be a party to, any transaction with Buyer or
any affiliate of Buyer, except in the ordinary course of business and upon
fair and reasonable arms-length terms, which are no less favorable to the
Company than would be obtained in an arm's length transaction with an
unaffiliated third party.
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(m) shall in reduction of intercompany advances to the Company, deliver
all excess cash of the Company to Buyer, and borrow all working capital
needs from Buyer and the terms of intercompany advances in favor of the
Company shall be subject to only the charges and interest as applicable on
Buyer's senior credit accomodations.
(n) shall, until satisfaction of all obligations of Buyer and the Company
with respect to the Continuing Shares, be operated, and Buyer shall so
cause the Company to be operated as a separate subsidiary or division in a
manner to permit the computation and verification of the Determination
Numbers.
7.6 Restrictions on Transfer.
(a) Subject to paragraph (b) below, commencing on the Closing Date and
ending on December 31, 2005, no Selling Shareholder shall sell, transfer,
pledge or otherwise encumber any of his or her shares of Common Stock. Subject
to paragraph (b) below, any shares during such period shall be null and void.
(b) Any Selling Shareholder may at any time transfer to another Selling
Shareholder or by devise effective upon his or her death or by gift any or all
of his or her Continuing Shares to the heirs or beneficiaries of such Selling
Shareholder's estate (or of the estate of a family member of such Selling
Shareholder) (or their respective guardians, custodians or one or more trusts,
partnerships, corporations or similar entities principally for the benefit of
such spouse or children), provided however, that such transferee continues to
be bound by the terms of this Agreement in the event of any such transfer by a
Selling Shareholder to more than one person or entity, all of such persons or
entities shall collectively have right equal to the rights of such respective
Selling Shareholder under this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
telecopy (receipt confirmed by telephone) or by registered or certified mail,
postage prepaid, addressed as follows:
If to Buyer:
Communications Instruments, Inc.
c/o Stonebridge Partners
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: Michael S. Bruno, Jr.
Telecopy No.: (914) 682-0834
Telephone No.: (914) 682-2285
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esq.
Telecopy No.: (212) 455-2502
Telephone No.: (212) 455-3240
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If to the Company or the Selling Shareholders:
Kilovac Corporation
P.O. Box 4422
Santa Barbara, California 93140
Attention: Douglas Campbell
Telecopy No.: (805) 684-1681
Telephone No.: (805) 684-4560,
(following closing, notices to the
Company shall also be sent to Buyer)
with a copy to:
Adams, Duque & Hazeltine
777 South Figueroa Street, 10th Floor
Los Angeles, California 90017
Attention: R. Stephen Doan, Esq.
Telecopy No.: (213) 896-5500
Telephone No.: (213) 620-1240
or such other person or address as shall be furnished in writing by any party
to the other parties prior to the giving of the applicable notice or
communication, and such notice or communication shall be deemed to have been
given ten (10) days after mailed, or in the case of personal delivery or
telecopy, upon receipt of transmission.
8.2 Financial Advisors and Brokers. Other than ING Capital, the Company and
the Selling Shareholders represent and warrant, jointly and severally, that no
investment banker, broker or finder is entitled to any financial advisory,
brokerage or finder's fee or other similar payment from the Company based on
agreements, arrangements or undertakings made by it or any of its respective
directors, officers or employees in connection with the transactions
contemplated hereby.
8.3 Counterparts. This Agreement shall be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Disclosure Schedule. The Disclosure Schedule is an integral part of this
Agreement.
8.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
8.6 Exhibits. The attached Exhibits are an integral part of this Agreement.
8.7 Miscellaneous. This Agreement (including the Schedules and Exhibits
hereto and the Disclosure Schedule) (a) constitutes (together with that
certain letter agreement, dated June 5, 1995, between Stonebridge Partners and
ING Capital (the "CONFIDENTIALITY AGREEMENT")) the entire Agreement and
understanding and supersedes all prior agreements and understandings, both
written and oral, among the parties hereto with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, (c) shall not be assigned, by operation of law or
otherwise, and (d) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of California. If
there is a conflict between the provisions of the Confidentiality Agreement
and this Agreement, the provisions of the Confidentiality Agreement shall
control.
8.8 Arbitration. Any party shall have the right to submit any dispute
arising out of this Agreement to neutral binding arbitration in the City of
Los Angeles with a partner of Price Waterhouse, L.L.P. In the event of
arbitration, the matter shall be heard before a single arbitrator and all
submissions shall be made in writing. Any party requesting arbitration shall
give notice to the other party stating the issue to be resolved. The decision
of the arbitrator shall be final and binding on both parties, with each party
or parties bearing its own costs and expenses with respect to the dispute.
Each party hereby consents to the entry of a judgment in any court of
competent jurisdiction enforcing any arbitration decision made in accordance
herewith.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written:
Communications Instruments, Inc.
/s/ Michael Bruno
Attest ______________________________ By___________________________________
Michael Bruno,
Its Director
Kilovac Corporation
/s/ Douglas Campbell
Attest ______________________________ By___________________________________
Douglas Campbell,
Its President
SELLING SHAREHOLDERS
/s/ Douglas L. Campbell
Witness _____________________________________
Douglas L. Campbell,
Trustee of the Kilovac Corporation
Employee Stock Bonus Plan
/s/ Douglas L. Campbell
Witness _____________________________________
Douglas L. Campbell,
as Trustee of the Campbell
Charitable Remainder Unitrust
Witness /s/ Milo Filip
_____________________________________
Milo Filip,
as Trustee of the Erin Campbell
Trust
Witness /s/ Douglas L. Campbell
_____________________________________
Douglas L. Campbell
Witness /s/ Ronald D. Klingensmith
_____________________________________
Ronald D. Klingensmith,
as Trustee of the Donald C.
Campbell Charitable Unitrust
Witness /s/ Pat McPherson
_____________________________________
Pat McPherson
/s/ Robert Helman
Witness _____________________________________
Robert Helman
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Witness /s/ Dan McAllister
_____________________________________
Dan McAllister
/s/ Rick Danchuk
Witness _____________________________________
Rick Danchuk
/s/ Harry Jabagchourian
Witness _____________________________________
Harry Jabagchourian
Witness /s/ John Stewart
_____________________________________
John Stewart
Witness /s/ Rick Steen
_____________________________________
Rick Steen
Witness /s/ Susan Reid
_____________________________________
Susan Reid
Witness /s/ Robin Hamilton
_____________________________________
Robin Hamilton
Witness /s/ Gary Clancy
_____________________________________
Gary Clancy
Witness /s/ Hugh Vos
_____________________________________
Hugh Vos
/s/ Norm Blankenship
Witness _____________________________________
Norm Blankenship
/s/ Carmen Rivera
Witness _____________________________________
Carmen Rivera
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ATTACHMENTS TO STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
Disclosure Schedule Section 2.2
Schedule 1 Capitalization Section 2.2 (b)
Schedule 2 Continuing Share Examples Section 1.7.6
Schedule 3 All California Counties Section 7.1
Exhibit A Escrow Agreement Section 1.4
Exhibit B Paying Agent Agreement Section 1.4
Exhibit C Employment Agreement (Campbell) Section 4.1 (h)
Exhibit D Opinion of Counsel to Company Section 4.1 (i)
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SCHEDULE 1
Douglas L. Campbell, Trustee of the Kilovac Corporation Employee Stock Bonus
Plan ("ESBP")
Douglas L. Campbell, as Trustee of the Campbell Charitable Remainder
Unitrust
Milo Filip, as Trustee of the Erin Campbell Trust
Don Campbell
Rick Steen
Pat McPherson
Robert Helman
Dan McAllister
Rick Danchuk
State of
County of ss.:
On , 1995, before me, the undersigned, a Notary Public in and for said
County and State, personally appeared , known to me to be the person that
executed the within instrument and acknowledged to me that such person
executed the same.
____________________________________
Notary Public in and for said County
and State
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