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AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 4, 2005
by and among
BEL FUSE INC.
BEL WESTBORO INC.,
and
GALAXY POWER INC.
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER ,
dated as of March 4, 2005 (this “
Agreement ”),
is entered into by and among (i)
BEL FUSE INC. ,
a New Jersey corporation (the “
Parent ”),
(ii)
BEL WESTBORO INC. ,
a Massachusetts corporation and a wholly-owned subsidiary of the
Parent (the “
Acquirer ”),
and (iii)
GALAXY POWER INC. ,
a Massachusetts corporation (the “
Company ”).
RECITALS
WHEREAS ,
the Company manufactures and sells high current, high density dc to
dc converters and supplying products to the telecommunications,
computer and networking industries (the “
Business ”);
WHEREAS ,
the Company has authorized capital stock consisting of 2,000,000
shares of common stock, par value $.01 per share (“
Company Common Stock ”),
of which 914,463 shares are issued and outstanding as of the date
hereof;
WHEREAS ,
the Company has outstanding options to purchase an aggregate of
153,500 shares of Company Common Stock (“
Company Options ”),
129,750 of which are exercisable as of the date hereof and/or will
be exercisable immediately preceding or as a result of the closing
of the transactions contemplated hereby (“
Eligible Company Options ”)
and has outstanding warrants for the purchase of an aggregate of
278,447 shares of Company Common Stock (“
Company Warrants ”),
all of which are exercisable as of the date hereof;
WHEREAS ,
the stockholders of the Company identified on
Exhibit A annexed
hereto (the “
Principal Stockholders ”)
own, not less than two-thirds of the issued and outstanding shares
of Company Common Stock and have entered into that certain Voting
Agreement, dated on even date herewith, by and among the Parent,
the Acquirer and the Principal Stockholders, pursuant to which the
Principal Stockholders have committed to voting in favor of the
transactions contemplated by this Agreement at any meeting of the
Company’s stockholders for the purpose of approving the
transactions contemplated by this Agreement (the “
Voting Agreement ”);
and
WHEREAS ,
the Boards of Directors of each of the Parent, the Acquirer, and
the Company believe that the merger of the Acquirer with and into
the Company, pursuant to which the shares of Company Common Stock
would be exchanged for cash consideration and the Eligible Company
Options and Company Warrants would be exchanged for cash
consideration net of their applicable exercise price (the
“
Merger ”),
would be advantageous and beneficial to their respective
corporations and stockholders.
NOW, THEREFORE ,
in consideration of the mutual covenants and agreements hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1.
Closing and Effective Date of Merger
.
Subject to and upon the terms and conditions set forth in this
Agreement, the closing of the transactions contemplated under this
Agreement (the “
Closing ”)
will be held at the offices of Bowditch & Dewey, LLP, 311 Main
Street, Worcester, Massachusetts 01608 at 10:00 AM Eastern Time, on
the fifth Business Day following the satisfaction or waiver of all
conditions set forth in
Articles 5 and
6 hereof,
or such other date, place or time as may be agreed upon among the
parties hereto (the “
Closing Date ”).
Upon consummation of the Closing, the Company and the Acquirer
shall cause to be definitively executed and delivered to each other
articles of merger (the “
Articles of Merger ”)
consistent with the terms hereof and prepared in accordance with
the Massachusetts Business Corporation Act (“
MBCA ”)
and cause the Articles of Merger to be duly filed with the
Secretary of the Commonwealth for the Commonwealth of Massachusetts
in order to cause the Merger to become effective under, and in
accordance with, the laws of the Commonwealth of Massachusetts and
this Agreement. The Merger shall become effective on the date and
at the time of the filing of the Articles of Merger with the
Secretary of the Commonwealth for the Commonwealth of
Massachusetts, or at such later time as shall be agreed upon by the
Company and the Acquirer and as shall be set forth in the Articles
of Merger (the “
Effective Time ”).
The date on which the Effective Time occurs shall be referred to
herein as the “
Effective Date .”
For all purposes, all of the document deliveries and other actions
to occur at the Closing will be conclusively presumed to have
occurred at the same time, immediately before the Effective
Time.
Section 1.2.
Terms and Conditions of Merger .
At the Effective Time, pursuant to this Agreement and the Articles
of Merger, automatically and without further action:
(a)
The
Acquirer shall be merged with and into the Company and the
separate existence of the Acquirer shall cease.
(b)
The
Company shall continue as the surviving corporation in the
Merger (the “
Surviving Corporation ”).
(c)
The
effect of the Merger will be as provided in the applicable
provisions of the MBCA.
(d)
All
of the estates, properties, rights, privileges, powers and
franchises of the Company and the Acquirer and all of their
property, real, personal and mixed, and all debts due on
whatever account to either of the Company or the Acquirer
shall vest in the Surviving Corporation, without further act
or deed, except as contemplated by this
Agreement.
(e)
The
Surviving Corporation shall be responsible for all of the
liabilities and obligations of each of the Company and the
Acquirer and the liabilities of the Company and the Acquirer
shall not be affected nor shall the rights of creditors
thereof or of any Persons dealing with the Company or the
Acquirer be impaired.
(f)
The
Articles of Organization of the Company shall be amended in
the Merger to read in its entirety as set forth on
Annex A to
the Articles of Merger and as so amended shall be the Articles of
Organization of the Surviving Corporation until thereafter amended
as provided therein and by law.
(g)
The
By-laws of the Acquirer, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided therein and
by law.
(h)
From
and after the Effective Time, the Board of Directors of the
Surviving Corporation will consist of the individuals set
forth on
Exhibit B .
Each such director will hold office, subject to the applicable
provisions of the Articles of Organization and the By-Laws of the
Surviving Corporation, until the next annual meeting of
stockholders of the Surviving Corporation and until his/her
successor shall be duly elected or appointed and shall duly
qualify. If, at or after the Effective Time, a vacancy shall exist
in such Board of Directors by reason of death or inability to act,
or for any other reason, such vacancy may be filled in the manner
provided in the By-Laws of the Surviving Corporation.
(i)
From
and after the Effective Time, the individuals set forth
on
Exhibit C shall
be the officers of the Surviving Corporation and shall act as such
and hold the offices set forth opposite their names until their
respective successors are duly elected or appointed and qualified.
If, at or after the Effective Time, a vacancy shall exist in any of
the offices of the Surviving Corporation by reason of death or
inability to act, or for any other reason, such vacancy may be
filled in the manner provided in the By-Laws of the Surviving
Corporation.
(j)
Each
issued and outstanding share of the capital stock of the
Acquirer shall be converted into and represent the right to
receive ten (10) shares of common stock, par value $0.01 per
share, of the Surviving Corporation, whereupon the Parent
shall own all of the issued and outstanding capital stock of
the Surviving Corporation.
(k)
Subject
to
Section 1.3(b) ,
each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the
right to receive an amount in cash equal to the quotient of
dividing the Gross Merger Proceeds by the number of Fully Diluted
Shares (the “
Per Share Closing Amount ”).
The Per Share Closing Amount less the Per Share/Option/Warrant
Escrow Amount (calculated in the manner provided for in
Section 1.3(b) )
shall be referred to herein as the “
Adjusted Per Share Closing Amount .”
(l)
Each
holder of an Eligible Company Option and each holder of a
Company Warrant shall be entitled to receive, subject
to
Section 1.3(b) ,
with respect to each share of Company Common Stock subject to a
Company Option or a Company Warrant, an amount in cash equal to the
excess, if any, of the Per Share Closing Amount over the applicable
exercise price of such Eligible Company Option or Company Warrant
(the “
Per Option/Warrant Share Closing Amount ”).
The Per Option/Warrant Share Closing Amount for each applicable
Company Option and Company Warrant less the Per
Share/Option/Warrant Escrow Amount (calculated in the manner
provided for in
Section 1.3(b) )
shall be referred to herein as the “
Adjusted Option/Warrant Per Share Closing Amount
.”
(m)
Each
share of Company Common Stock held as treasury stock by the
Company shall be canceled and retired, and shall cease to
exist, and no payment shall be made with respect
thereto.
Section 1.3.
Payment for Stock; Procedures .
(a)
As
of the Effective Time, either the Parent or the Acquirer (as
shall be determined by the Parent and the Acquirer, the
“
Paying Party ”)
shall deposit with the Exchange Agent for the benefit of the
holders of shares of Company Common Stock (who are not Dissenting
Stockholders), Eligible Company Options and Company Warrants, cash
in an amount equal to the Adjusted Closing Cash Merger
Proceeds
less the
Escrow Amount and
less the
amount, if any, the Paying Party is entitled to retain pursuant
to
Section 1.3(e) .
The
amount required to be deposited pursuant to this
Section 1.3(a) is
referred to herein as the “
Exchange Fund .”
(b)
At
the Closing, the Paying Party shall deliver to the Escrow
Agent, on behalf of the Company Stockholders, Company
Optionholders and Company Warrant Holders, the Escrow Amount,
which Escrow Amount shall be held in an account pursuant to
the terms of the Escrow Agreement. The Company Stockholders,
Company Optionholders and Company Warrant Holders shall be
deemed to have contributed to the Escrow Amount an amount
equal to the Per Share Escrow Amount multiplied by, (i) with
respect to the Company Stockholders, the number of shares of
Company Common Stock owned by the Company Stockholder
immediately prior to the Effective Time and (ii) with respect
to the Company Optionholders and Company Warrant Holders, the
number of shares of Company Common Stock issuable upon the
full exercise of all Eligible Company Options held by the
Company Optionholder immediately prior to the Effective Time
and all Company Warrants held by Company Warrant Holders
immediately prior to the Effective Time (in each instance, a
“
Per Share/Option/Warrant Escrow Amount ”).
(c)
The
Parent, the Acquirer and the Company have previously agreed
upon forms of (i) a notice and letter of transmittal (which
shall specify that delivery of the Certificate or Certificates
held by a Company Stockholder, Option Documents held by
Company Optionholders or Warrant Documents held by a Company
Warrant Holder shall be effected, and risk of loss and title
to such Certificate, Certificates, Option Documents or Warrant
Documents shall pass, only upon proper delivery of such
Certificate, Certificates, Option Documents or Warrant
Documents to the Paying Party, each as the case may be) and
(ii) instructions for use in effecting the surrender of such
Certificate, Certificates, Option Documents or Warrant
Documents, in each case, that the Paying Party will require in
order for the Company Stockholders, Company Optionholders or
Company Warrant Holders to obtain payment in respect of shares
of Company Common Stock, Eligible Company Options or Company
Warrants, as the case may be. Such instructions shall provide,
among other things, that each Certificate surrendered shall be
duly endorsed or otherwise accompanied by a stock power or
other instrument of transfer, in form satisfactory to the
Paying Party. As soon as practicable after the Effective Time,
the Surviving Corporation shall send to each Person who was,
at the Effective Time, a Company Stockholder, a Company
Optionholder or a Company Warrant Holder a copy of the
foregoing materials (in the forms to be mutually agreed upon
by the Parent and the Company). Upon surrender to the Exchange
Agent after the Effective Time of Certificates for
cancellation, together with such letter of transmittal duly
executed and such other documents as the Exchange Agent may
reasonably require, each such Company Stockholder shall be
entitled to receive in exchange therefor the Adjusted Per
Share Closing Amount multiplied by the number of shares of
Company Common Stock represented by such Certificates and the
Certificates so surrendered shall then be canceled. Subject
to
Section 1.4 ,
until surrendered as contemplated by this
Section 1.3(c) ,
each Certificate from and after the Effective Time shall be deemed
to represent only the right to receive, upon such surrender, the
amount of cash described herein. Upon surrender to the Exchange
Agent after the Effective Time of Option Documents or Warrant
Documents for cancellation, together with such letter of
transmittal duly executed and such other documents as the Exchange
Agent may reasonably require, such Company Optionholder or Company
Warrant Holder shall be entitled to receive in exchange therefor
the applicable Adjusted Option/Warrant Per Share Closing Amount
multiplied by the number of shares of Company Common Stock issuable
upon the full exercise of such Eligible Company Option or Company
Warrant and the Option Documents or Warrant Documents so
surrendered shall then be canceled. Subject to
Section 1.4 ,
until surrendered as contemplated by this
Section 1.3(c) ,
each Option Document or Warrant Document from and after the
Effective Time shall be deemed to represent only the right to
receive, upon such surrender, the amount of cash described herein.
To the extent that any amounts are properly withheld by the Paying
Party or the Exchange Agent for the payment of withholding Taxes
from a Company Stockholder’s Adjusted Per Share Closing
Amount or a Company Optionholder’s or a Company Warrant
Holder’s Adjusted Option/Warrant Per Share Closing Amount,
then such withheld amounts will be treated for all purposes of this
Agreement as having been paid to the Company Stockholder, the
Company Optionholder or the Company Warrant Holder from whom such
deduction and withholding were made by the Paying Party, and the
Surviving Corporation shall be obligated as an employer of such
Company Stockholder, Company Optionholder or Company Warrant Holder
to report and/or pay such withheld amounts to the appropriate
Government Entities.
(d)
In
the case of Company Stockholders, in the event any Certificate
shall have been lost, stolen or destroyed, upon receipt of an
affidavit as to such loss, theft or destruction and to the
ownership of such Certificate by the Company Stockholder
claiming such Certificate to be lost, stolen or destroyed, the
receipt by the Paying Party of appropriate and customary
indemnification and the receipt by the Paying Party of any
other required documents (in each case, as reasonably
satisfactory to the Paying Party), the Paying Party will pay
and distribute to such Company Stockholder the Adjusted Per
Share Closing Amount multiplied by the number of shares of
Company Common Stock represented by such lost, stolen or
destroyed Certificate.
(e)
If
any stockholders of the Company exercise, perfect and/or
reserve their appraisal or dissenters rights pursuant to, and
in accordance with, the MBCA and if such stockholders or any
of them do not withdraw such stockholder’s or
stockholders’ demand for appraisal prior to the
expiration of the period of time during which such
stockholders or stockholder are permitted to effect such
withdrawal under the MBCA (each, a “
Dissenting Stockholder ”),
then imm ediately
after the expiration of such period of time, the Paying Party shall
(i) retain the amounts which otherwise would have been contributed
to the Exchange Fund and paid to each such Dissenting Stockholder
pursuant to
Section 1.2(k) ;
and (ii) in accordance with Section 13.24 of the MBCA, pay to each
such Dissenting Stockholder the amount which is required to be paid
to such Dissenting Stockholder pursuant to Section 13.24 of the
MBCA .
Section 1.4.
Dissenting Shares .
Notwithstanding any provision of this Agreement to the contrary,
with respect to any shares of Company Common Stock held by
Dissenting Stockholders (the “
Dissenting Shares ”)
in accordance with the MBCA, such Dissenting Shares shall not be
converted into or represent the right to receive the consideration
payable pursuant to this Agreement upon consummation of the Merger,
but, instead, the Dissenting Stockholders shall be entitled to
payment of the appraised value of such Dissenting Shares in
accordance with the provisions of the MBCA, unless and to the
extent that any Dissenting Stockholders shall have irrevocably
forfeited his/her right to appraisal under the MBCA or irrevocably
withdrawn its demand for appraisal. If any Dissenting Stockholders
has so irrevocably forfeited or withdrawn its right to appraisal of
Dissenting Shares, then, as of the occurrence of such event, such
Dissenting Stockholders shares of Company Common Stock shall cease
to be Dissenting Shares and shall be converted into and represent
the right to receive the consideration payable in respect of such
shares pursuant to this Agreement, which payments shall be made
pursuant to the terms of this Agreement.
Section 1.5.
No Further Transfers .
After the Effective Time, there shall be no further registration of
transfer on the stock transfer books of the Company of any shares
of Company Stock. If, after the Effective Time, any Certificate is
presented (for transfer or otherwise) to the Surviving Corporation,
such Certificate shall be canceled and, subject to
Section 1.2(k) and
the procedures provided for in
Section 1.3 hereof,
payment shall be made of the consideration provided for in this
Agreement in respect of the number of shares of Company Common
Stock represented by such Certificate.
Section 1.6.
Termination of Rights .
After the Effective Time, (a) holders of Company Common Stock will
cease to be, and will have no rights as, stockholders of the
Company, and such holders’ rights will consist only of (i) in
the case of shares of Company Common Stock other than Dissenting
Shares, the right to receive the consideration provided for in this
Agreement in respect of such shares, without interest, and (ii) in
the case of Dissenting Shares, the rights afforded to the holders
thereof under the applicable provisions of the MBCA, (b) holders of
Eligible Company Options shall be entitled to receive only the
consideration provided for in this Agreement in respect of such
Eligible Company Options, and (c) holders of Company Warrants shall
be entitled to receive only the consideration provided for in this
Agreement in respect of such Company Warrants. Until surrendered
for cancellation in accordance with the provisions of this
Article 1 ,
each stock certificate representing shares of Company Common Stock
shall, from and after the Effective Time, represent (i) in the case
of shares other than Dissenting Shares, the right to receive the
consideration provided for in this Agreement in respect of such
shares and (ii) in the case of Dissenting Shares, the rights
afforded to the holders thereof under the applicable provisions of
the MBCA.
Section 1.7.
Working Capital Adjustment .
(a)
Delivery of Accounts Receivable Report .
At least three (3) Business Days prior to the Closing, the Company
shall deliver to the Parent a report estimating all of the Accounts
Receivable as of the Closing Date (the “
Estimated Accounts Receivable Report ”).
The Estimated Accounts Receivable Report shall (i) identify the
dollar amount of each Account Receivable and (ii) include an aging
schedule for the Company’s Accounts Receivable reflecting, as
of the Closing Date, the aggregate amount of the Accounts
Receivable outstanding: (i) 30 days or less; (ii) more than 30 days
but less than or equal to 60 days; (iii) more than 60 days but less
than or equal to 90 days; and (iv) more than 90 days. The aggregate
dollar amount of the Accounts Receivable evidenced on the Estimated
Accounts Receivable Report (the “
Estimated Accounts Receivable Amount ”)
shall be determined in a manner consistent with GAAP and take into
consideration the Company’s then current reserve for bad
debts.
(b)
Taking of Inventory; Joint Inventory Report .
No more than five (5) days immediately preceding the Closing Date,
the parties shall take the following actions (the “
Inventory Audit ”):
(i)
the
Company shall deliver to the Parent a certificate which
identifies all raw materials to which the Company owns good
and marketable title and are (1) in transit to the Company,
(2) located at the Facility or (3) located at an Off-Site
Warehouse (collectively, the “
Raw Materials ”);
(ii)
the
Company shall deliver to the Parent a certificate which
identifies (1) all finished goods located at the Facility or
(2) located at an Off-Site Warehouse (collectively, the
“
FG ”);
and
(iii)
the
Company shall deliver to the Parent a certificate which
identifies all of the Company’s work-in-process
inventory located at the Facility (the “
WIP ”).
Upon
receipt of the certificates referenced in items (i), (ii) and
(iii) above (the “
Inventory Certificates ”),
the Parent shall have the right prior to the Closing to audit the
accuracy of the Inventory Certificates and should the Parent
identify any inaccuracies in the Inventory Certificates, the Parent
shall have the right to require representatives of the Company and
the Parent to conduct a physical audit as of the Closing of all or
any portion of the Raw Materials, FG or WIP. In the event that any
physical audit reveals an inaccuracy in any of the Inventory
Certificates, the Company shall so amend the applicable Inventory
Certificate(s). Once the Parent is satisfied with the content of
the Inventory Certificates, as amended, if applicable, the Company
and the Parent shall jointly prepare a report (the “
Inventory Report ”)
which (i) details, for each type of Raw Material, WIP and FG, the
number, amount and/or weight, as applicable, of items of such type
identified on the Inventory Certificates, (ii) sets forth the
agreed upon per-item values set forth in
Exhibit D for
each type of Raw Material, WIP and FG (the “
Agreed Upon Inventory Values ”),
(iii) multiplies the Agreed Upon Inventory Values for each type of
Raw Materials, WIP and FG by the number, amount and/or weight, as
applicable, as identified in the Inventory Certificates (each an
“
Inventory Category Value ”)
and (iv) determines the aggregate value of the Raw Materials, WIP
and FG by adding the Inventory Category Values (the “
Closing RM/WIP/FG Amount ”).
(c)
Closing Report .
On the Closing Date, the Company shall deliver to the Parent a
report (“
Estimated Closing Report ”)
which identifies (i) the Estimated Accounts Receivable Amount, (ii)
the Closing RM/WIP/FG Amount, and (iii) the Company’s
estimate of (A) its cash and cash equivalents as of the Closing
Date (the “
Cash Amount ”),
(B) its prepaid assets as of the Closing Date (the “
Prepaid Assets Amount ”)
and (C) its current liabilities as of the Closing Date (the
“
Liabilities Amount ”),
in each case determined in accordance with GAAP and in a manner
consistent with the preparation of the Financial Statements. The
sum of the estimated Accounts Receivable Amount
plus the
Closing RM/WIP/FG Amount
plus the
Cash Amount
plus the
Prepaid Assets Amount and
minus the
Liabilities Amount, as set forth in the Estimated Closing Report,
shall be referred to herein as the “
Estimated Working Capital Amount .”
The Estimated Working Capital Amount shall be calculated in the
same manner as the Benchmark Working Capital Amount, which is
calculated as shown on
Schedule 1.7(c) attached
hereto. Notwithstanding the foregoing, the Liabilities Amount shall
include any and all amounts (i) due and owing to any former
employees of the Company pursuant to chapter 149, section 183 of
the Massachusetts General Laws to the extent arising from the
termination of such employee’s employment with the Company
prior to the Closing; (ii) due and owing to Howard Kaepplein to the
extent arising from the termination of his employment (whether
resulting from obligations under that certain Employment Severance
Agreement dated as of March 31, 2004 by and between Howard
Kaepplein and the Company or otherwise); and (iii) required to be
expended in order to obtain all those software
licenses necessary to operate the Business in the manner in which
it is currently being operated and in compliance with applicable
Law .
(d)
Adjustment at Closing .
In the event that the Estimated Working Capital Amount is less than
$2,363,000 (the “
Benchmark Working Capital Amount ”),
the Cash Merger Proceeds shall be reduced on a dollar-for-dollar
basis, by an amount equal to the difference (the “
Negative Amount ”)
between the Benchmark Working Capital Amount and the Estimated
Working Capital Amount. In the event that the Estimated Working
Capital Amount is greater than the Benchmark Working Capital
Amount, the Cash Merger Proceeds shall be increased on a
dollar-for-dollar basis, by an amount equal to the difference (the
“
Positive Amount ”)
between the Estimated Working Capital Amount and the Benchmark
Working Capital Amount. The amount equal to the Cash Merger
Proceeds
plus the
Positive Amount or
minus the
Negative Amount, whichever is applicable, shall be referred to as
the “
Adjusted Closing Cash Merger Proceeds .”
(e)
Post-Closing Adjustmen t.
Concurrently with the delivery of the Estimated Closing Report, the
Company shall deliver such documentation and work papers as the
Company used to prepare the calculations set forth in the Estimated
Closing Report. In the event the Parent disputes the actual sum of
the Accounts Receivable Amount
plus the
Closing RM/WIP/FG Amount
plus the
Cash Amount
plus the
Prepaid Assets Amount and
minus the
Liabilities Amount as of the Effective Date (the “
Actual Working Capital Amount ”)
as shown on the Estimated Closing Report, the Parent shall, within
sixty (60) days after the Closing, advise the Stockholder
Representative in writing of any objections the Parent may have
with respect to the Estimated Closing Report (any such objection
shall (i) be set forth in reasonable detail, (ii) include
supporting calculations and documentation (if necessary) and (iii)
propose an adjustment to the Estimated Working Capital Amount) (a
“
WC Objection ”).
In the event the Parent fails to deliver to the Stockholder
Representative a WC Objection within such sixty (60) day period,
the Parent shall be deemed to have accepted and consented to the
calculations and determinations made in the Estimated Closing
Report and the calculation of the Estimated Working Capital Amount
contained in the Estimated Closing Report shall be deemed to be
final (the “
Final Working Capital Amount ”).
In the event the Parent delivers a WC Objection within sixty (60)
days after the Closing, the Stockholder Representative and the
Parent shall utilize commercially reasonable efforts to try to
resolve the objections set forth in the WC Objection (the
“
Disputed Items ”)
within sixty (60) days of the Stockholder Representative’s
receipt of a WC Objection. If the parties are unable to resolve the
Parent’s objections within that period, either party may
refer the Disputed Items to the Boston office of Ernst & Young
or, if such firm is unwilling or unable to serve, the parties shall
engage the Boston office of another internationally known, mutually
acceptable accounting firm (the “
Arbiter ”)
to determine how the Disputed Items should be resolved. By
execution of this Agreement, each of the Parent and the Company
hereby represents and warrants to the other that Ernst & Young
has not performed any services for such party at any time during
the five (5) year period immediately preceding the date hereof. The
Arbiter shall determine (i) the Actual Working Capital Amount based
solely upon
the
provisions of this Agreement and the presentations by the
parties and their respective representatives, and not by
independent review, and (ii) the appropriate amount, if any,
by which the Estimated Working Capital Amount should be
adjusted as a result of the manner in which the Company
calculated the Disputed Items in preparing the Estimated
Closing Report. In resolving any Disputed Item, the Arbiter
(i) shall limit its review to matters specifically set forth
in the WC Objection, (ii) shall further limit its review to
whether the calculations are mathematically accurate and have
been prepared in accordance with the provisions of this
Agreement and (iii) shall not assign a value to any item
greater than the greatest value for such item claimed by a
party hereto or less than the smallest value for such item
claimed by a party hereto. The determinations of the Arbiter
shall be final, conclusive and binding (also, the
“
Final Working Capital Amount ”).
The fees and expenses of the Arbiter shall be shared equally
between the Company Stockholders and Company Optionholders, on the
one hand, the Parent on the other hand, with the Company
Stockholders’ and Company Optionholders’ portion of
such expenses being payable from the WC/Indemnity Escrow Amount
pursuant to the terms of the Escrow Agreement. On the fifteenth day
following the date on which the Final Working Capital Amount is
determined, (i) in the event that the Final Working Capital Amount
is greater than the Estimated Working Capital Amount, the Parent
shall deliver to the Company Stockholders and the Company
Optionholders their Pro Rata Portion of the amount equal to the
difference between (y) the Final Actual Working Capital Amount and
(z) the Estimated Working Capital Amount and (ii) in the event that
the Final Working Capital Amount is less than the Estimated Working
Capital Amount, the Parent shall be entitled to receive from the
WC/Indemnity Escrow Amount pursuant to the terms of the Escrow
Agreement an amount equal to the difference between (y) the
Estimated Working Capital Amount and (z) the Final Actual Working
Capital Amount.
Section 1.8.
Disposition of the Exchange Fund
. Any
portion of the Exchange Fund which remains undistributed to the
former holders of Company Common Stock or Eligible Company Options
or Company Warrants for twelve (12) months after the Effective Time
shall be delivered to the Surviving Corporation, upon its request,
to be held as a cash reserve for the cash payment of Company Common
Stock or Eligible Company Options or Company Warrants pursuant to
the Merger and any such former holders who have not theretofore
surrendered to the Exchange Agent their Certificates, Option
Documents and/or Warrant Documents in compliance herewith shall
thereafter look only to the Surviving Corporation for payment of
the cash to be paid pursuant to the Merger. None of the Surviving
Corporation, the Exchange Agent, the Escrow Agent or the Company
shall be liable to any former holder of Company Common Stock or
Eligible Company Options or Company Warrants for any such cash held
in the Exchange Fund or in escrow hereunder which is delivered to a
public official pursuant to an official request under any
applicable abandoned property, escheat or similar law.
Section 1.9.
Appointment of Stockholder Representative
.
(a)
In
order to efficiently administer the transactions contemplated
hereby, including the indemnification provisions set forth
in
Article 7 ,
each Company Stockholder, Company Optionholder and Company Warrant
Holder hereby designates each of Howard Kaepplein, Bernhard
Schroter and Robert Chmielinski P.C. as their representatives
(collectively, the “
Stockholder Representative ”).
By virtue of (i) the adoption of this Agreement and the approval of
the Merger by the Company Stockholders at a meeting of the
stockholders of the Company (or by written consent in lieu of a
meeting) pursuant to, and in accordance with, the applicable
provisions of the MBCA, each Company Stockholder (regardless of
whether or not such Company Stockholder votes in favor of the
adoption of this Agreement and the approval of the Merger by
written consent) and (ii) each Company Optionholder’s or
Company Warrant Holder’s receipt of the Adjusted
Option/Warrant Per Share Closing Amount, each Company Optionholder
and Company Warrant Holder, shall be deemed to agree as
follows:
(i)
the
Parent, the Acquirer and the Surviving Corporation shall be
able to rely conclusively on the instructions and decisions of
the Stockholder Representative (acting by the majority) as to
any actions required or permitted to be taken by the
Stockholder Representative hereunder, and no party hereunder
shall have any cause of action against the Parent, the
Acquirer and/or the Surviving Corporation to the extent the
Parent, the Acquirer and/or the Surviving Corporation has
relied upon the instructions or decisions of the Stockholder
Representative;
(ii)
all
actions, decisions and instructions of the Stockholder
Representative shall be based on a majority vote of the
individuals serving in the capacity of a Stockholder
Representative and any and all such actions, decisions and
instructions approved by a majority of the individuals serving
as a Stockholder Representative shall be conclusive and
binding upon all of the Company Stockholders, Company
Optionholders and Company Warrant Holders, and no Company
Stockholder, Company Optionholder or Company Warrant Holder
shall have any cause of action against the Stockholder
Representative for any action taken, decision made or
instruction given by the Stockholder Representative under this
Agreement (or for any failure to take such action, make such
decision or give such instruction), except for fraud or
willful misconduct by the Stockholder Representative; and each
Company Stockholder, Company Optionholder and Company Warrant
Holder, jointly and severally, shall indemnify each
Stockholder Representative for any and all claims,
liabilities, losses, damages, costs and expenses which such
Stockholder Representative shall suffer and which relate to or
arise, directly or indirectly, out of any action taken by
him/her in his/her capacity as a Stockholder Representative in
accordance with the terms of this Agreement and which are
asserted by any other Company Stockholder, Company
Optionholder or Company Warrant Holder against such
Stockholder Representative in accordance with the terms of
this Agreement;
(iii)
the
provisions of this
Section 1.9 are
independent and severable, are irrevocable and coupled with an
interest, and shall be enforceable notwithstanding any rights or
remedies that any Company Stockholder, Company Optionholder or
Company Warrant Holder may have in connection with the transactions
contemplated by this Agreement;
(iv)
remedies
available at law for any breach of the provisions of
this
Section 1.9 are
inadequate; therefore, the Parent, the Acquirer and/or the
Surviving Corporation shall be entitled to temporary and permanent
injunctive relief without the necessity of proving damages if the
Parent, the Acquirer and/or the Surviving Corporation brings an
action to enforce the provisions of this
Section 1.9 ;
and
(v)
the
provisions of this
Section 1.9 shall
be binding upon the executors, heirs, legal representatives,
personal representatives, successor trustees, and successors of
each Company Stockholder, Company Optionholder and Company Warrant
Holder, and any references in this Agreement to a Company
Stockholder, Company Optionholder and Company Warrant Holder shall
mean and include the successors to such Company
Stockholder’s, Company Optionholder’s or Company
Warrant Holder’s rights hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or
otherwise.
(b)
Each
Company Stockholder, Company Optionholder and Company Warrant
Holder hereby authorizes the Stockholder Representative to
take any and all action as is contemplated to be taken by or
on behalf of such Company Stockholder, Company Optionholder or
Company Warrant Holder, and to assert the Company
Stockholder’s, Company Optionholder’s or Company
Warrant Holder’s rights granted, pursuant to the terms
of this Agreement.
(c)
In
the event that any of Howard Kaepplein, Bernhard Schroter and
Robert Chmielinski P.C. (or any of their substitutes as
Stockholder Representative) dies, becomes unable to perform
his or her responsibilities hereunder or resigns from such
position, then David Steadman (or his substitute) shall fill
such vacancy and shall be deemed to be a Stockholder
Representative for all purposes of this Agreement and the
documents delivered pursuant hereto. In the event that all of
the foregoing individuals are unable or unwilling to serve as
a Stockholder Representative, alternate Stockholder
Representatives shall be elected by the holders of a majority
of the shares of Company Common Stock outstanding immediately
prior to the Effective Time, assuming the conversion, exchange
and/or exercise of all outstanding Eligible Company Options
and Company Warrants which are then currently convertible,
exercisable or exchangeable for Common Stock.
(d)
Each
Stockholder Representative shall be compensated for his or her
services rendered in connection with the performance of his or
her duties as a Stockholder Representative, whether arising
under this Agreement or otherwise, at hourly rates
commensurate with such Stockholder Representative’s
customary hourly rates for his or her other professional
activities and shall be reimbursed for his or her reasonable
costs and expenses incurred in connection with the performance
of his or her duties as a Stockholder Representative, whether
arising under this Agreement or otherwise, including the
reasonable fees of a certified public accountant or other
professional advisor retained by the Stockholder
Representative in connection with their duties under this
Agreement. Notwithstanding the foregoing, all rights of a
Stockholder Representativ e
to compensation and/or expense reimbursement, whether arising
under this Agreement or otherwise, shall be satisfied
exclusively by payment out of, and only to the extent of, the
Stockholder Representative Escrow Amount, which shall be
maintained by Bowditch & Dewey, LLP, as escrow agent. In
no event shall the Surviving Corporation (i) be obligated to
pay to any Stockholder Representative any amounts pursuant to
this Section 1.9(d) or (ii) have any recourse against the
Stockholder Representative Escrow Amount or
Bowditch & Dewey, LLP in its capacity as escrow
agent.
Section 1.10.
Effect of Stockholder Approval of Merger
.
The adoption of this Agreement and the approval of the Merger by
the Company Stockholders at a meeting of stockholders of the
Company (or by written consent in lieu of a meeting) pursuant to,
and in accordance with, the applicable provisions of the MBCA shall
be deemed to constitute approval by each Company Stockholder
individually (regardless of whether or not such Company Stockholder
votes in favor of the adoption of this Agreement and the approval
of the Merger at such meeting or by written consent) to the same
extent as if such Company Stockholder were a party to this
Agreement of, and the execution of the transmittal letter and other
required documentation by a Company Optionholder or a Company
Warrant Holder shall be deemed a consent to, (a) the appointment of
the Stockholder Representative, (b) the grant to the Stockholder
Representatives of all of the powers, rights and privileges
contemplated under this Agreement, including the right to
indemnification set forth in
Section 1.9(a)(ii) hereof,
(c) the provisions of this Agreement concerning the replacement and
substitution of a person serving as a Stockholder Representative
and (d) the terms and conditions of this Agreement.
Section 1.11.
Post-Closing Accounts Receivable Adjustment
.
Following the Closing, the Parent shall cause the Surviving
Corporation to use commercially reasonable efforts to collect the
Accounts Receivable (each a “
Pre-Closing Receivable ”).
Within twenty (20) days of the close of each of the first six (6)
calendar months following the calendar month in which the Closing
occurs, the Parent will deliver a report to the Stockholder
Representative indicating which Pre-Closing Receivables were
collected by the Surviving Corporation in the then most recently
completed month. During the one hundred eighty (180) day period
following the Closing, the Parent shall cause the Surviving
Corporation to authorize its employee in charge of collecting the
Pre-Closing Receivables to respond to any reasonable inquiries made
by the Stockholder Representative concerning the collection of the
Pre-Closing Receivables. Any and all payments received by the
Surviving Corporation after the Closing (a “
Post-Closing Account Payment ”)
from the customers of the Business (the “
Accounts ”)
shall be applied to the longest outstanding Pre-Closing
Receivable;
provided ,
however ,
that if a customer objects to the amount of an invoice or the
quality of a product to which such Pre-Closing Receivable relates,
such customer payment shall be applied to the customer’s next
longest outstanding Accounts Receivable with which the customer has
not objected to the amount of an invoice or the quality of a
product to which such Accounts Receivable relates. If the Surviving
Corporation is unable to collect a Pre-Closing Receivable within
one hundred eighty (180) days from the invoice date of the
Pre-Closing Receivable (the “
Receivable Cut-Off Date ”),
the Parent shall be entitled to receive from the WC/Indemnity
Escrow Amount an amount equal to the unpaid portion of any such
Pre-Closing Receivable;
provided ,
however ,
that if
prior to the Receivable Cut-Off Date the Surviving Corporation
enters into an arrangement with a customer pursuant to which such
customer is permitted to pay all or a portion of a Pre-Closing
Receivable after the Receivable Cut-Off Date, such unpaid portion
of such Pre-Closing Receivable due after the Receivable Cut-Off
Date shall not be payable out of the WC/Indemnity Escrow Amount
until (i) the customer breaches the terms of its payment
arrangements with the Surviving Company or (ii) five (5) Business
Days prior to the date the WC/Indemnity Escrow Amount is due to be
released pursuant to the terms of the Escrow
Agreement.
Section 1.12.
Payments to Persons other than Registered
Holders .
If any cash is to be paid to any Person other than the registered
holder of the Certificate surrendered in exchange therefor, it
shall be a condition to such exchange that such surrendered
Certificate shall be properly endorsed and otherwise in proper form
for transfer and such Person either (i) shall pay to the Exchange
Agent any transfer or other Taxes required as a result of such cash
payment to such Person or (ii) shall establish to the satisfaction
of the Exchange Agent that such Tax has been paid or is not
applicable. The Acquirer, the Escrow Agent or the Exchange Agent
shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as the Acquirer, the
Escrow Agent or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign Tax law. To the extent
that amounts are so withheld by the Acquirer, the Escrow Agent or
the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction
and withholding was made by the Acquirer, the Escrow Agent or the
Exchange Agent. All amounts in respect of Taxes received or
withheld by the Acquirer, the Escrow Agent or the Exchange Agent
shall be disposed of by the Acquirer, the Escrow Agent or the
Exchange Agent, as applicable, in accordance with the Code or such
state, local or foreign Tax law, as applicable.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
The
Company hereby represents and warrants to the Parent and the
Acquirer as follows:
Section 2.1.
Organization; Authority .
The Company is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority
to own or lease and operate its properties and to carry on its
business as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the nature of its operations or properties
requires such a qualification. The Company has delivered to the
Parent true, complete and correct copies of its Articles of
Organization and By-Laws, and all amendments thereto.
Section 2.2.
Approval, Binding Effect .
The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to perform all of its
agreements and obligations under, and to consummate the
transactions contemplated by, this Agreement. This Agreement and
the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Company and no other corporate
approvals, other than the approval of the Company Stockholders
owning two-thirds of the issued and outstanding shares of the
Company Common Stock, on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company. This Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency and similar
Laws affecting creditor's rights generally or equitable principles
relating to the availability of remedies.
Section 2.3.
Non-Contravention .
Except as set forth on
Schedule 2.3 ,
the execution and delivery of this Agreement, the performance and
compliance by the Company with the terms hereof and the
consummation of all transactions, including the Merger,
contemplated hereby will not conflict with, result in a breach or
violation of, constitute a default (with or without due notice or
lapse of time or both) under, or give rise to any Encumbrance,
right of termination, cancellation, acceleration, vesting or
modification of any right or obligation or loss of any benefit
under (a) any provision of the Articles of Organization or By-Laws
of the Company, (b) any Law or restriction applicable to the
Company or its properties or assets, (c) any judgment, order, writ,
injunction or decree of any court or judicial or quasi-judicial
tribunal applicable to the Company or its properties or assets or
(d) any contract, commitment, lease, agreement, mortgage, note,
bond, indenture or other instrument or obligation to which the
Company is a party or by which it or its assets are
bound.
Section 2.4.
No Consents .
Except as set forth on
Schedule 2.4 ,
no consent, notice, approval, waiver, license or other
authorization or action by or filing, registration or qualification
with any Governmental Entity or any other Person (including any
party to any agreement with the Company) is required in connection
with the execution and delivery by the Company of this Agreement,
the consummation by the Company of the transactions contemplated
hereby, or the performance by the Company of its obligations
hereunder.
Section 2.5.
No Subsidiaries .
The Company does not have, nor has it ever had, any Subsidiaries
and does not own or hold of record or beneficially, and is not
obligated to acquire, any equity or ownership interest in any other
Person.
Section 2.6.
Capitalization .
(a)
The
authorized capital stock of the Company consists solely of
2,000,000 shares of Company Common Stock, 914,463 shares of
which are issued and outstanding on the date hereof. All such
outstanding shares of capital stock of the Company are owned
of record as of the date hereof by the stockholders set forth
on
Schedule 2.6(a) ,
and are duly authorized, validly issued, fully paid, nonassessable
and free and clear of any preemptive rights or Encumbrances.
Schedule 2.6(a) sets
forth a complete list of all Company Options and Company Warrants,
and showing for each such option: (i) the name of the optionee or
warrant holder, (ii) the number of shares issuable, (iii) the
number of vested shares, (iv) the date of expiration, (v) the
exercise price, (vi) in the case of an option, whether or not such
option is intended to be an “incentive stock option”
under Section 422 of the Code and (vii) whether the option or
warrant shall become exercisable upon the consummation of the
transactions contemplated by this Agreement. The Company has
delivered to the Parent true and complete copies of each agreement
evidencing the grant of each Company Option and Company Warrant.
The Company has caused, or prior to the Effective Time shall cause,
all Company Options other than Eligible Company Options (the
“
Non-Eligible Company Options ”)
to be canceled, terminated and of no further force and effect. All
of the Company Warrants will be exercisable as of the Effective
Time. The Company Options and Company Warrants were validly issued
by the Company. Except for the Voting Agreement, there are no
voting trusts or other agreements or understandings to which the
Company or any of its stockholders are a party with respect to the
voting of the Company Common Stock. The amendments made by the
Company in 2005 to (i) the Company’s Incentive Stock Option
Plan, adopted in 1999, as amended, and the Company’s
Incentive Stock Option Plan, adopted in 2002, as amended
(collectively, the “
Plans ”),
and (ii) the Stock Option Agreements and Warrants identified
on
Schedule 2.6(b) ,
which such amendments provide
for cashless exercise of Company Options and Company Warrants and
partial acceleration of the unvested Company Options, will
have
received prior to the Effective Time the necessary corporate and
non-corporate approvals (i) on the part of the Board of Directors
of the Company, the Company’s shareholders and the holders of
the Company Options and Company Warrants and (ii) to satisfy the
requirements contained in the Company’s Articles of
Organization, as amended, the Company’s Bylaws, and the
MBCA.
(b)
Except
as set forth on
Schedule 2.6(b) ,
(i) the Company does not have any shares of capital stock or voting
securities reserved for issuance and (ii) does not have and is not
bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the Company
to issue, deliver or sell, or cause to be issued, delivered or sold
any shares of Company Common Stock or any other ownership interest
of the Company or any securities convertible into, exchangeable for
or representing the right to subscribe for, purchase or otherwise
receive any shares of Company Common Stock or any other ownership
interest of the Company or obligating the Company to grant, extend
or enter into any such subscriptions, options, warrants, calls,
commitments or agreements. There are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company.
Section 2.7.
Financial Statements .
(a)
Attached
as
Schedule 2.7 are
true and complete copies of (a) the audited balance sheet of the
Company as of the years ended December 31, 2003 and 2002, and the
related audited income statement, audited statement of cash flows
and audited statement of changes in stockholders’ equity of
the Company for the three years ended December 31, 2003 (the
“
Audited Financial Statements ”),
(b) the unaudited balance sheet (the “
Balance Sheet ”)
of the Company as of December 31, 2004 and the related unaudited
income statement, unaudited statement of cash flows and unaudited
statement of retained earnings for the twelve (12) months then
ended (the “
Unaudited Financial Statements ”
and, together with the Audited Financial Statements, the
“
Financial Statements ”).
The Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered
thereby, except for the absence of footnotes thereto. The Financial
Statements fairly present the financial condition and the results
of operations of the Company and its Subsidiaries as of the dates
and for the periods covered thereby.
(b)
The
accounts receivable of the Company reflected in the Unaudited
Financial Statements arose from bona fide transactions in the
ordinary course of business and reflect credit terms
consistent with the past practices of the Company. The Company
has not received notice of any counterclaims or setoffs
against such accounts receivable for which reserves have not
been established in accordance with GAAP.
(c)
The
raw materials, work in process and finished goods inventory of
the Company to the extent reflected on the Unaudited Financial
Statements net of reserves are usable or saleable in the
ordinary course of business of the Company and are recorded on
the books of the Company at the lower of cost or market value
in accordance with GAAP.
Section 2.8.
Absence of Certain Changes .
Except as set forth on
Schedule 2.8 ,
since December 31, 2003, there has not been:
(a)
any
adverse change in the condition (financial or otherwise),
results of operations, assets, liabilities or business of the
Company other than changes arising in the ordinary course of
business;
(b)
any
acquisition or disposition by the Company outside the ordinary
course of business of any asset or property used by the
Company;
(c)
any
damage, destruction or casualty loss to any material asset of
the Company, whether or not covered by insurance;
(d)
any
(i) increase in the compensation, pension or other benefits
payable or to become payable to any of the present or former
directors, officers, employees, directors, agents or
representatives of the Company or any bonus payments or
arrangements made to or with any of them, (ii) grant of any
severance or termination pay to any present or former
director, officer or employee of the Company, (iii) loan or
advance of money or other property by the Company to any
present or former director, officer or employee of the
Company, (iv) establishment, adoption, entrance into,
amendment or termination of any collective bargaining
agreement or (v) grants of any equity or equity-based
awards;
(e)
any
voluntary forgiveness, cancellation, compromise, release or
waiver of any right or claim (or series of related rights and
claims) of the Company in excess of $25,000 individually or
$25,000 in the aggregate or outside the ordinary course of
business, or any voluntary waiver of any right of value other
than immaterial compromises of accounts receivable in the
ordinary course of business consistent with past
practice;
(f)
the
imposition of any Encumbrance on any of the assets of the
Company;
(g)
any
lapse, termination, acceleration, modification, amendment,
cancellation or expiration, or to the Company’s
Knowledge, threatened termination, acceleration, modification,
amendment or cancellation, of any Material Contract or other
material agreement, insurance policy, plan, lease, license or
permit to which the Company is a party or from which the
Company receives benefits;
(h)
any
amendments to the Articles of Organization or By-Laws (or
other organizational documents) of the Company;
(i)
any
issuance, sale or disposal of any shares of capital stock or
other ownership interest of the Company, or any grant of,
options, warrants or other rights to purchase or obtain
(including upon conversion, exchange or exercise) any shares
of capital stock or other ownership interest of the
Company;
(j)
any
capital expenditure (or series of related capital
expenditures) either in excess of $25,000 or outside the
ordinary course of business;
(k)
any
change in any method of accounting, other than any such
changes required by GAAP;
(l)
any
declaration, setting aside or payment of any dividend or other
distribution (whether in cash or in kind) on or with respect
to, or redemption, purchase or other acquisition of, any
shares of capital stock of the Company;
(m)
any
loss or, to the Company’s Knowledge, any threatened loss
of a customer group or group of customers which purchased
individually or in the aggregate (on an annual basis) more
than $100,000 of goods and services from or through the
Company;
(n)
any
act or omission outside of the ordinary course of business
other than in connection with the transactions contemplated
hereby; or
(o)
any
commitment to do any of the foregoing.
Section 2.9.
No Undisclosed Liabilities .
The Company does not have any material liability or obligation
(absolute, accrued, contingent or otherwise) of a nature required
by GAAP to be reflected on a balance sheet of the Company or
reserved against or disclosed in the notes thereto, except (a) for
liabilities set forth in the Balance Sheet or the notes thereto,
(b) as set forth on
Schedule 2.9 or
(c) for incidental trade account payables and expenses incurred in
the ordinary course of business since the Balance Sheet
Date.
Section 2.10.
Title to Assets; Material Leases; Tangible
Assets .
(a)
Except
as set forth in
Schedule 2.10(a) ,
the Company has good and marketable title to (or valid leasehold or
contractual interests in) all of the assets and properties used in
connection with the operation of the Business, free and clear of
any Encumbrances, except (i) mechanics’, carriers’,
workmen’s, repairmen’s, warehousemen’s or other
like Encumbrances arising or incurred in the ordinary course of
business, (ii) liens for Taxes that are not yet due and payable or
that may hereafter be paid without penalty and (iii) other
imperfections of title or Encumbrances, if any, that do not,
individually or in the aggregate, materially impair the continued
use and operation of the assets to which they relate in the conduct
of the Business as presently conducted.
Schedule 2.10(a) also
contains a complete list of all machinery, motor vehicles, computer
equipment, other equipment, furniture, fixtures, and all other
tangible personal property (i) owned by the Company and used in
connection with the Business on the date hereof and (ii) leased by
the Company and used in connection with the Business on the date
hereof pursuant to leases which involve monthly payments of more
than $500 per month on account of any such lease. Neither the
Company nor, to the Company’s Knowledge, any lessor of any
such lease is in default under any such lease and, to the
Company’s Knowledge, no facts exists which, with notice
and/or the passage of time, would constitute such a
default.
(b)
All
material tangible assets and properties reflected on the
Balance Sheet and all of the assets leased by the Company
identified on
Schedule 2.10(a) are
in all material respects in good operating condition and repair,
reasonable wear and tear excepted, and no material properties or
assets necessary for the conduct of the Business in substantially
the same manner as the Business has heretofore been conducted are
in need of replacement or material maintenance or repair except for
routine replacement, maintenance and repair.
(c)
The
Company has never owned any real property.
Schedule 2.10(c) sets
forth all material personal property leases to which the Company is
a party or by which it is bound and all real property leases to
which the Company is a party or by which it is bound (the
“
Leases ”).
The Business is conducted solely from the Facility. Except as
disclosed in
Schedule 2.10(c) ,
each Lease is the legal, valid and binding obligation of the
Company, and to the Knowledge of the Company, of each other party
thereto, enforceable against each such party thereto in accordance
with its terms. Except as provided in
Schedule 2.10(c) ,
the consummation of the transactions contemplated by this Agreement
will not result in any default, penalty, termination, acceleration
or modification to any Lease and each Lease will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms immediately following and after giving effect to
the consummation of the transactions contemplated by this
Agreement. The Company, and to the Knowledge of the Company, each
other party thereto, is not in breach or default of, and no event
has occurred which, with or without notice or lapse of time, would
constitute a breach or default or permit termination, acceleration
or modification under any Lease.
(d)
The
rights, properties and assets owned by, leased or licensed to
or otherwise freely available in the public domain for use by
the Company include all rights, properties and other assets
necessary to permit the Company to conduct its business in all
material respects in the same manner as it is conducted on, or
has been conducted immediately prior to, the date of this
Agreement.
Section 2.11.
Indebtedness .
Except for Indebtedness reflected in the Balance Sheet and set
forth on
Schedule 2.11 ,
the Company does not have any Indebtedness outstanding at the date
hereof. The Company is not in default with respect to any
outstanding Indebtedness or any instrument relating thereto and
except as set forth on
Schedule 2.11 ,
no such Indebtedness or any instrument or agreement relating
thereto purports to limit the operation of the Business. Complete
and correct copies of all instruments and agreements (including all
amendments, supplements, waivers and consents) relating to any
Indebtedness of the Company have been furnished to the
Parent.
Section 2.12.
Taxes .
(a)
The
Company has duly filed all Tax Returns required to be filed by
it, all such filed Tax Returns are complete and accurate in
all material respects and the Company has duly and timely paid
all Taxes that are required to be paid by it, except with
respect to matters contested in good faith in appropriate
proceedings and identified on
Schedule 2.12(a) .
The Company has established as of the Balance Sheet Date, on its
books and records, reserves in accordance with GAAP consistently
applied that are adequate in the opinion of management of the
Company for the payment of all Federal, state and local Taxes not
yet due and payable, but are incurred in respect of the Company
through such date. Except as set forth on
Schedule 2.12(a) ,
the Company has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or
other third party. The Company has not waived any statute of
limitations with respect to any material Taxes or, to the extent
related to such Taxes, agreed to any extension of time with respect
to a Tax assessment or deficiency, in each case to the extent such
waiver or agreement is currently in effect. Except as set forth
in
Schedule 2.12(a) ,
no Federal, state, local income, franchise or sales and use Tax
Returns of the Company have been examined by the United States
Internal Revenue Service (“
IRS ”)
or the appropriate state, local or foreign Tax authority. With
respect to each examination identified on
Schedule 2.12(a) ,
no deficiencies were asserted as a result of such examinations
which have not been resolved and paid in full. There is no action,
suit, investigation, audit, claim or assessment pending or, to the
Knowledge of the Company, proposed or threatened, with respect to
Taxes of the Company. To the Knowledge of the Company, no claim has
ever been made by a Tax authority in a jurisdiction where the
Company does not file Tax Returns that the Company is or may be
subject to Taxes assessed by such jurisdiction. The Company does
not have any material liability for any Taxes of any Person, other
than the Company, under Treasury Regulation Section 1.1502-6 or any
comparable provision of state, local, or foreign law, as a
transferee or successor, by contract or otherwise. The Company has
made available to the Parent true and correct copies of the United
States Federal, state, local and foreign income Tax Returns filed
by the Company for Taxable years ended after December 31, 1999 and
before the date hereof.
(b)
Except
as set forth on
Schedule 2.12(b) ,
the Company (i) has not requested any extension of time within
which to file any Tax Return which Tax Return has not since been
filed, (ii) is not a party to any agreement providing for the
allocation or sharing of Taxes, (iii) is not required to include in
income any adjustment pursuant to Section 481(a) of the Code, by
reason of a voluntary change in accounting method initiated by the
Company (nor does the Company have any Knowledge that the IRS has
proposed any such adjustment or change of accounting method) or has
any application pending with the IRS or any other Tax authority
requesting permission for any change in accounting method, (iv) has
not issued or assumed any obligation under Section 279 of the Code,
any high yield discount obligation as described in Section
163(f)(1) of the Code or any registration-required obligation
within the meaning of Section 163(f)(2) of the Code that is not in
registered form, (v) is not, or has not been during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code, a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Code, (vi) is not or has not been a member
of an affiliated group (within the meaning of Section 1504(a) of
the Code) filing consolidated United States Federal income Tax
Returns (other than such a group the common parent of which is or
was the Company), (vii) has not been a party to any distribution
occurring during the last three years in which the parties to such
distribution treated the distribution as one to which Section 355
of the Code (or any similar provision of state, local or foreign
law) applied and (viii) has disclosed on its federal Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code
Section 6662.
(c)
Except
as set forth on
Schedule 2.12(c) ,
no officer, director, employee or agent (or former officer,
director, employee or agent) of the Company is entitled to now, or
will or may be entitled to as a consequence of this Agreement or
the Merger or otherwise, to any payment or benefit from the
Company, the Surviving Corporation or from the Parent or any of its
Subsidiaries which if paid or provided would constitute an
“excess parachute payment”, as defined in Section 280G
of the Code or regulations promulgated thereunder.
Section 2.13.
Litigation, Etc .
Except as set forth on
Schedule 2.13 ,
no proceeding, arbitration, action, judgment, decision, settlement,
writ, stipulation, decree, lawsuit, claim, complaint, injunction,
order or investigation before any Governmental Entity or other
forum is pending or, to the Knowledge of the Company, threatened
against the Company. There is no judgment, decree, injunction, or
order of a Governmental Entity outstanding against the Company. The
Company has not received any written notice from any Governmental
Entity of any pending or threatened governmental investigation
relating to the Company. Except as set forth on
Schedule 2.13 ,
there are no facts or circumstances known to the Company that could
result in a claim against the Company for damages or equitable
relief which, if decided adversely, could reasonably be expected to
result in a Material Adverse Effect.
Schedule 2.13 identifies
and provides a short description of any and all proceedings,
arbitrations, actions, judgments, decisions, settlements, writs,
stipulations, decrees, lawsuits, claims, complaints, injunctions,
orders and investigation to which the Company has been a party or
which the Company has received, as applicable, during the five (5)
year period preceding the date hereof.
Section 2.14.
Employee Matters .
(a)
Schedule 2.14(a) lists
the names and titles of, and current annual compensation and most
recent annual bonus for, each current employee of the Company,
together with a description of any agreements concerning such
employees and the individual’s employee status (e.g.,
full-time, part-time, temporary, active, leave of absence, hourly,
salaried).
(b)
There
are no personnel policies applicable to the employees of the
Company, other than employee manuals, true and complete copies
of which have previously been provided to the
Parent.
(c)
Schedule 2.14(c) lists
all Company Options and Company Warrants, showing for each such
option or warrant: (i) the name of the optionee or warrant holder,
(ii) the number of shares issuable, (iii) the number of vested
shares, (iv) the date of expiration, (v) the exercise price and
(vi) in the case of an option, whether or not such option is
intended to be an “incentive stock option” under
Section 422 of the Code. The Company has delivered to the Parent
true and complete copies of each agreement evidencing the grant of
each such option and warrant.
(d)
Schedule 2.14(d) lists
all shares of Company Common Stock issued pursuant to any
restricted stock agreement (written or unwritten) including (i) the
date such shares were sold or awarded, (ii) the purchase price per
share, if any, (iii) the number of shares issued, (iv) the number
of such shares which, as of the date hereof, have vested and (v)
the vesting schedule for such shares which, as of the date hereof,
have not vested. The Company has delivered to the Parent true and
complete copies of each such restricted stock
agreement.
(e)
Except
as set forth on
Schedule 2.14(e) ,
with respect to current and former employees and service providers
of the Company (each an “
Employee ”):
(i)
the
Company is and has been in compliance in all material respects
with all Laws respecting employment and employment practices,
terms and conditions of employment and wages and hours,
including any Laws respecting minimum wage and overtime
payments, employment discrimination, workers’
compensation, family and medical leave, immigration, and
occupational safety and health requirements, and has not and
is not engaged in any unfair labor practice;
(ii)
there
is no basis for any claim by any Employee that such Employee
was subject to a wrongful discharge or any employment
discrimination by the Company, or its management, arising out
of or relating to such Employee’s race, sex, age,
religion, national origin, ethnicity, handicap or any other
protected characteristic under applicable Laws;
(iii)
there
is not now, nor within the past six (6) years has there been,
any actions, suits, claims, labor disputes or grievances
pending, or, to the Knowledge of the Company, threatened or
reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including
charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would,
individually or in the aggregate, result in any liability to
the Company;
(iv)
the
Employees of the Company are not and have never been
represented by any labor union, no collective bargaining
agreement is binding and in force against the Company or
currently being negotiated by the Company, and to the
Company’s Knowledge, no union organization campaign is
in progress with respect to any of the Employees, and no
question concerning representation exists respecting such
Employees;
(v)
the
Company has not entered into any agreement, arrangement or
understanding restricting its ability to terminate the
employment of any or all of its Employees at any time, for any
lawful or no reason, without penalty or
liability;
(vi)
each
person classified by the Company as an independent contractor
satisfies and has satisfied the requirements of any Law to be
so classified, and the Company has fully and accurately
reported such independent contractors’ compensation on
IRS Forms 1099 when required to do so;
(vii)
the
Company has no liability for any payment with respect to
unemployment compensation benefits, social security or other
benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and
consistent with past practice); and
(viii)
there
are no pending, threatened or reasonably anticipated claims or
actions against the Company under any worker’s
compensation policy or long-term disability
policy.
(f)
No
“mass layoff,” “plant closing” or
similar event as defined by the Worker Adjustment and
Retraining Notification Act with respect to the Company has
occurred.
Section 2.15.
Contracts .
Except for contracts, commitments, leases, plans, agreements and
licenses listed on
Schedule 2.15 (the
“
Material Contracts ”),
the Company is not a party to or otherwise bound by (whether
written or oral):
(a)
any
contract or purchase order for the future purchase of
materials or supplies in excess of $100,000;
(b)
any
executory contracts for capital expenditures;
(c)
any
contracts or commitments for the future sale of products in
excess of $100,000 or with a remaining term in excess of
ninety (90) days, other than purchase orders relating to
purchases to be made by customers of the Company in the
ordinary course of business;
(d)
any
contract with a distributor, dealer, sales representative,
supplier, manufacturer or other Persons relating to the
distribution, sale, supply or manufacture of
products;
(e)
any
contract or agreement with any director, officer or
stockholder of the Company (or any of their respective
Affiliates) or any other Person in which any of the foregoing
has a ten percent (10%) or more direct or indirect
interest;
(f)
any
contract providing for stock awards or other equity-based
compensation awards, bonuses, pensions, deferred or incentive
compensation, retirement or severance payments,
profit-sharing, insurance or other benefit plans or programs
for any present or former officer, consultant, director or
employee of the Company;
(g)
any
employment, severance, change in control, consulting,
commission, agency and representative agreement or agreement
to which the Company is a party with any employee including,
without limitation, all agreements and commitments relating to
wages, hours or other terms or conditions of employment (other
than unwritten employment arrangements terminable at will
without payment of any contractual severance or other
amount);
(h)
any
agreement concerning confidentiality, non-competition or
non-solicitation of employees;
(i)
any
contract for the lease or sublease as lessee, lessor,
sublessee or sublessor of real or personal property of the
Company, or any license of computer software;
(j)
any
contract or agreement that limits or purports to limit the
ability of the Company to compete in any line of business or
with any Person or in any geographic area or during any period
of time or that limits or purports to limit any other
Person’s ability to compete with the
Company;
(k)
any
contract or agreement concerning a partnership, joint venture,
joint development or other cooperation agreement;
(l)
any
contract or agreement for guaranty, indemnity or suretyship of
Indebtedness of any Person;
(m)
any
other agreement (or group of related agreements) the
performance of which involves consideration in excess of
$100,000 or is otherwise material to the Company and its
business; and
(n)
any
amendments, supplements or modifications (whether written or
oral) in respect of any of the foregoing.
The
Company has delivered or made available to the Parent a
correct and complete copy of each Material Contract. Except as
set forth on
Schedule 2.15 ,
each Material Contract is legal, valid, binding, enforceable, and
in full force and effect and will continue to be legal, valid,
binding, enforceable, and in full force and effect immediately
following the consummation of and after giving effect to the
transactions contemplated by this Agreement. Except as set forth
on
Schedule 2.15 ,
neither the Company nor, to the Knowledge of the Company, any other
party to any Material Contract to which the Company is a party, is
in breach or default in complying with any provisions thereof and
no event has occurred which with or without notice or lapse of time
would constitute a breach or default, or permit termination,
modification, or acceleration under any Material Contract. Except
as set forth on
Schedule 2.15 ,
the Company has not received any written notice of the intention of
any party to terminate any Material Contract, whether as a
termination for convenience or for default of the Company
thereunder.
Section 2.16.
Pensions and Benefits .
(a)
Except
as disclosed on
Schedule 2.16(a) ,
(i) neither the Company nor any of its ERISA Affiliates maintains
or sponsors, or makes or is required to make contributions to, or
has any liability (contingent or otherwise) with respect to, any
Plans, (ii) none of the Plans is a “multi-employer
plan”, as defined in Section 3(37) of ERISA (a “
Multi-employer Plan ”),
(iii) none of the Plans is a “single-employer plan”
within the meaning of Section 4001(a)(15) of ERISA (a
“
Single Employer Plan ”),
(iv) none of the Plans provides post-retirement medical or health
benefits, and (v) none of the Plans is a “welfare benefit
fund,” as defined in Section 419(e) of the Code, or an
organization described in Sections 501(c)(9) or 501(c)(20) of the
Code. The Company has delivered to the Parent true and complete
copies of (i) each Plan document (or written description of each
unwritten Plan), and all amendments thereto, (ii) the summary plan
description of each Plan and modifications thereto, (iii) each
trust agreement or other funding medium with respect to each Plan,
(iv) the three (3) most recent annual reports for each of the Plans
(including all related schedules), (v) the most recent Internal
Revenue Service determination letter, opinion, notification or
advisory letter (as the case may be) for each Plan which is
intended to constitute a qualified plan under Section 401 of the
Code, (vi) for each Plan that is a Single Employer Plan, the three
(3) most recent actuarial reports and
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