TABLE OF CONTENTS

 

		Page
ARTICLE I TERMS OF THE MERGER		2
	1.1.  The Offer.	2
	1.2.  Company Actions.	4
	1.3.  Directors of the Company.	5
	1.4.  The Merger.	6
	1.5.  The Closing; Effective Time.	7
	1.6.  Conversion of Securities.	7
	1.7.  Tender of and Payment for Certificates.	7
	1.8.  Options.	9
	1.9.  Dissenting Shares.	10
	1.10.  Articles of Incorporation and Bylaws.	10
	1.11.  Directors and Officers.	10
	1.12.  Other Effects of Merger.	11
	1.13.  Convertible Preferred Stock.	11
	1.14.  Additional Actions.	11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY		11
	2.1.  Due Incorporation and Good Standing.	12
	2.2.  Capitalization.	12
	2.3.  Subsidiaries.	14
	2.4.  Authorization; Binding Agreement.	14
	2.5.  Governmental Approvals.	15
	2.6.  No Violations.	15
	2.7.  SEC Filings; Company Financial Statements.	16
	2.8.  Absence of Certain Changes.	17
	2.9.  Absence of Undisclosed Liabilities.	19
	2.10.  Compliance with Laws.	19
	2.11.  Permits.	19
	2.12.  Litigation.	19
	2.13.  Restrictions on Business Activities.	20
	2.14.  Contracts.	20
	2.15.  Government Contracts.	20
	2.16.  Intellectual Property.	21
	2.17.  Employee Benefit Plans.	22
	2.18.  Taxes and Returns.	25
	2.19.  Finders and Investment Bankers.	26
	2.20.  Fairness Opinion.	27
	2.21.  Insurance.	27
	2.22.  Vote Required; Ownership of Purchaser Capital Stock; State Takeover Statutes.	27
	2.23.  Title to Properties.	28
	2.24.  Employee Matters.	28
	2.25.  Customers and Suppliers.	30

 

 

	2.26.  Orders, Commitments and Returns.	30
	2.27.  Inventory.	30
	2.28.  Accounts Receivable.	31
	2.29.  Environmental Matters.	31
	2.30.  Rights Agreement.	31
	2.31.  Schedule 14D-9; Offer Documents; and Proxy Statement.	32
	2.32.  Absence of Questionable Payments.	32
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER		33
	3.1.  Due Incorporation and Good Standing.	33
	3.2.  Authorization; Binding Agreement.	34
	3.3.  Governmental Approvals.	34
	3.4.  No Violations.	34
	3.5.  Finders and Investment Bankers.	35
	3.6.  Schedule TO; Offer Documents; Proxy Statement; Schedule 14D-9.	35
	3.7.  Financing.	35
	3.8.  Representations Complete.	35
	3.9.  Ownership of Company Stock.	36
ARTICLE IV ADDITIONAL COVENANTS OF THE COMPANY		36
	4.1.  Conduct of Business of the Company.	36
	4.2.  Notification of Certain Matters.	39
	4.3.  Access and Information.	39
	4.4.  Special Meeting; Proxy Statement.	40
	4.5.  Reasonable Best Efforts.	41
	4.6.  Public Announcements.	42
	4.7.  Compliance.	42
	4.8.  No Solicitation.	42
	4.9.  SEC and Shareholder Filings.	44
	4.10.  State Takeover Laws.	44
	4.11.  Actions Regarding the Rights Agreement.	45
	4.12.  Tail Insurance Policy.	45
ARTICLE V ADDITIONAL COVENANTS OF PURCHASER		45
	5.1.  Notification of Certain Matters.	45
	5.2.  Reasonable Best Efforts.	46
	5.3.  Compliance.	46
	5.4.  SEC and Shareholder Filings.	46
	5.5.  Indemnification.	46
	5.6.  Benefit Plans and Employee Matters.	48
ARTICLE VI CONDITIONS		48
	6.1.  Conditions to Each Party’s Obligations.	48
	6.2.  Conditions to Obligations of Purchaser.	49
	6.3.  Frustration of Conditions.	50

 

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ARTICLE VII TERMINATION AND ABANDONMENT		50
	7.1.  Termination.	50
	7.2.  Effect of Termination and Abandonment.	51
ARTICLE VIII MISCELLANEOUS		53
	8.1.  Confidentiality.	53
	8.2.  Amendment and Modification.	53
	8.3.  Waiver of Compliance; Consents.	53
	8.4.  Survival.	53
	8.5.  Notices.	54
	8.6.  Binding Effect; Assignment.	55
	8.7.  Expenses.	55
	8.8.  Governing Law.	55
	8.9.  Counterparts.	55
	8.10.  Interpretation.	55
	8.11.  Entire Agreement.	56
	8.12.  Severability.	56
	8.13.  Specific Performance.	56
	8.14.  Attorneys’ Fees.	56
	8.15.  Third Parties.	56
	8.16.  Disclosure Schedules.	57
	8.17.  Obligation of Purchaser.	57

 

 

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AGREEMENT AND PLAN OF MERGER

 

This Agreement and Plan of Merger (this “Agreement”) is made and entered into as of December 16, 2005, by and among Ault Incorporated, a Minnesota corporation (the “Company”), SL Industries, Inc., a New Jersey corporation (“Purchaser”), and Lakers Acquisition Corp., a Minnesota corporation and wholly owned subsidiary of Purchaser (“Merger Sub”).

 

WITNESSETH:

 

A.                                    The respective Boards of Directors of Merger Sub, Purchaser and the Company deem it advisable and in the best interests of their respective shareholders that Purchaser acquire the Company upon the terms and subject to the conditions provided for in this Agreement.

 

B.                                      In furtherance thereof it is proposed that the acquisition be accomplished by Merger Sub commencing a cash tender offer (as it may be amended from time to time as permitted by this Agreement, the “Offer”) to purchase and acquire (i) all shares of the issued and outstanding common stock, no par value (the “Common Stock”), of the Company (together with any associated preferred stock or other rights (the “Rights”) issued pursuant to the Rights Agreement, dated as of February 13, 1996, between the Company and Norwest Bank Minnesota, N.A. (as the same has been amended through the date hereof, the “Rights Agreement”)) for $2.90 per share of Common Stock (such amount or any greater amount per share of Common Stock paid pursuant to the Offer being hereinafter referred to as the “Offer Price” and the Common Stock and the associated Rights being hereinafter referred to as the “Shares”), subject to any applicable withholding for Taxes (as such term is defined in Section 2.18(g)), net to the seller in cash, upon the terms and subject to the conditions set forth in this Agreement.

 

C.                                      The Board of Directors of the Company has unanimously approved the Offer and the Merger (as defined below), this Agreement and the transactions contemplated by this Agreement, the Shareholders Agreement and the Stock Option Agreement, and has determined that the Offer and the Merger, this Agreement and the transactions contemplated by this Agreement, the Shareholders Agreement and the Stock Option Agreement are fair to and in the best interests of the Company and its shareholders, and has resolved to recommend that holders of Shares accept the Offer, tender their Shares to Merger Sub pursuant to the Offer and approve and adopt this Agreement and the Merger.

 

D.                                     The Board of Directors of each of Purchaser (on its own behalf and as the sole shareholder of Merger Sub), Merger Sub and the Company have each approved this Agreement and the merger of Merger Sub with and into the Company (the “Merger”) with the Company continuing as the surviving corporation in the Merger in accordance with the Minnesota Business Corporation Act (“MBCA”) and, in each such case, upon the terms and conditions set forth in this Agreement.

 

E.                                       The Board of Directors of the Company and a special committee of the Company’s Board of Directors formed in accordance with Section 302A.673 of the MBCA have unanimously approved the Offer and the Merger, this Agreement and the transactions contemplated by this Agreement, and such approvals are sufficient to render Sections 302A.671,

 

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302A.673 and 302A.675 of the MBCA inapplicable to the Offer and the Merger, this Agreement and the transactions contemplated by this Agreement.

 

F.                                       Contemporaneously with the execution and delivery of this Agreement, and as a condition and inducement to Purchaser’s and Merger Sub’s willingness to enter into this Agreement, certain shareholders of the Company (each, a “Shareholder”) are entering into a Shareholders Agreement (the “Shareholders Agreement”) in the form attached hereto as Exhibit A, pursuant to which each such Shareholder has agreed, among other things, to tender his, her or its Shares in the Offer and to grant Purchaser a proxy with respect to the voting of such Shares in favor of the Merger upon the terms and subject to the conditions set forth therein.

 

G.                                      As a condition and further inducement to Purchaser and Merger Sub to enter into this Agreement and incur the obligations set forth herein, concurrently with the execution and delivery of this Agreement, Merger Sub and the Company are entering into a Stock Option Agreement in the form of Exhibit B hereto (the “Stock Option Agreement”), pursuant to which, among other things, the Company has granted Merger Sub an option to purchase certain newly-issued shares of Common Stock, subject to certain conditions.

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I
TERMS OF THE MERGER

 

 1.1.                          The Offer.

 

(a)                                   Provided that this Agreement shall not have been terminated in accordance with Section 7.1 and none of the events set forth in Annex A hereto shall have occurred and be continuing (and shall not have been waived by Purchaser or Merger Sub), Merger Sub shall commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the “Exchange Act”)) the Offer as promptly as reasonably practicable after the date hereof, but in no event later than five (5) business days from the date of this Agreement, and the Offer shall remain open at least twenty (20) business days (as defined in Rule 14d-1(g)(3) of the Exchange Act) from commencement of the Offer (the “Initial Expiration Date”). The obligation of Merger Sub to accept for payment and to pay for any Shares validly tendered and not withdrawn prior to the expiration of the Offer (as it may be extended in accordance with the requirements of this Section 1.1(a)) shall be subject only to the satisfaction or waiver by Purchaser or Merger Sub of the following conditions: (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Common Stock that represents a majority of all outstanding shares of Common Stock that are not Beneficially Owned by Purchaser, Merger Sub or any Purchaser Affiliate (the “Minimum Condition”); and (ii) the other conditions set forth in Annex A hereto.  For purposes of this Agreement, the term “Purchaser Affiliate” shall mean any person or entity that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with Purchaser or its officers or directors and the term “Beneficially Owned or “Beneficially Own” shall include but is not limited to shares of Common

 

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Stock that any person or entity, directly or indirectly, through any written or oral agreement, arrangement, relationship, understanding or otherwise with Purchaser or a Purchaser Affiliate, has or shares the power to vote, direct the power to vote, or direct the voting of, or has or shares the power to dispose of, or direct the disposition of, and includes, but is not limited to, the currently exercisable right to acquire Common Stock through the exercise of options, warrants, or rights on the conversion of convertible securities into shares of Common Stock; provided that the term Beneficially Owned for purposes of this Section 1.01(a) shall not include shares of Common Stock that are subject to the rights of the Purchaser and Merger Sub pursuant to the Shareholders Agreement or the Stock Option Agreement. Subject to the prior satisfaction or waiver by Purchaser or Merger Sub of the Minimum Condition and the other conditions of the Offer set forth in Annex A hereto, Merger Sub shall consummate the Offer in accordance with its terms and accept for payment and pay for all Shares tendered and not withdrawn promptly following the acceptance of Shares for payment pursuant to the Offer. The Offer shall be made by means of an offer to purchase (the “Offer to Purchase”) that contains the terms set forth in this Agreement, the Minimum Condition and the other conditions set forth in Annex A hereto. Purchaser expressly reserves the right to waive any of such conditions, to increase the Offer Price and to make any other changes in the terms of the Offer; provided, however, that Merger Sub shall not, and Purchaser shall cause Merger Sub not to, decrease the Offer Price, change the form of consideration payable in the Offer, decrease the number of Shares sought in the offer, impose additional conditions to the Offer, extend the Offer beyond the Initial Expiration Date except as set forth below, purchase any Shares pursuant to the Offer or otherwise unless the shares purchased equal or exceed that number of shares of Common Stock that satisfy the Minimum Condition or amend any other condition of the Offer in any manner adverse to the holders of the Shares, in each case without the prior written consent of the Company (such consent to be authorized by the Company Board of Directors or a duly authorized committee thereof). Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, prior to the termination of this Agreement (i) if, at any scheduled expiration of the Offer any of the conditions to Merger Sub’s obligation to accept Shares for payment shall not be satisfied or waived (including without limitation the Minimum Condition), extend the Offer beyond the then applicable expiration date thereof for a time period reasonably necessary to permit such condition to be satisfied, or (ii) extend the Offer for any period required by any rule, regulation or interpretation of the United States Securities and Exchange Commission (“SEC”), or the staff thereof, applicable to the Offer or (iii) if, at any scheduled expiration of the Offer, the number of shares of Common Stock that shall have been validly tendered and not withdrawn pursuant to the Offer satisfies the Minimum Condition but represents less than 90% of the shares of Common Stock outstanding, extend the Offer (one or more times) for an aggregate additional period of not more than 20 business days.  Merger Sub may also, without the consent of the Company but only after the Minimum Condition is satisfied, extend the Offer in accordance with Rule 14d-11 under the Exchange Act. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law in connection with such increase, without the consent of the Company.

 

(b)                                  As promptly as practicable on the date of commencement of the Offer, Merger Sub shall file with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the “Schedule TO”) with respect to the Offer. The Schedule TO shall contain or incorporate by reference an offer to purchase (the “Offer to

 

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Purchase”) and forms of the related letter of transmittal and all other ancillary Offer documents (collectively, together with all amendments and supplements thereto, the “Offer Documents”). Purchaser and Merger Sub shall cause the Offer Documents to be disseminated to the holders of the Shares as and to the extent required by applicable federal securities laws. Purchaser and Merger Sub, on the one hand, and the Company, on the other hand, will promptly correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect, and Merger Sub will cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of the Shares, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment upon the Schedule TO before it is filed with the SEC. In addition, Purchaser and Merger Sub agree to provide the Company and its counsel with any comments, whether written or oral, that Purchaser or Merger Sub or their counsel may receive from time to time from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and to consult with the Company and its counsel prior to responding to any such comments.

 

(c)                                   Purchaser and Merger Sub will file with the Commissioner of Commerce of the State of Minnesota and deliver to the Company any registration statement relating to the Offer required to be filed pursuant to Chapter 80B of the Minnesota Statutes and will disseminate to the shareholders of the Company the information specified in Section 80B.03 of the Minnesota Statutes.

 

 1.2.                          Company Actions.

 

(a)                                   The Company hereby approves of and consents to the Offer and represents and warrants that the Company’s Board of Directors and a special committee of the Company’s Board of Directors formed in accordance with Section 302A.673 of the MBCA (the “Special Committee”), each at a meeting duly called and held, have (i) determined that the terms of the Offer and the Merger are fair to and in the best interests of the shareholders of the Company, (ii) approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, the Shareholders Agreement and the Stock Option Agreement, and such approvals are sufficient to comply with Sections 302A.671, 302A.673 and 302A.675 of the MBCA as they apply to this Agreement and the transactions contemplated by this Agreement and (iii) resolved to recommend that the shareholders of the Company accept the Offer, tender their Shares to Merger Sub thereunder and approve and adopt this Agreement and the Merger. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Board and the approval of the Special Committee described in the immediately preceding sentence, and the Company shall not permit the recommendation of the Company’s Board or the disclosure regarding the approval of the Special Committee or any component thereof to be modified in any manner adverse to Purchaser or Merger Sub or to be withdrawn by the Company’s Board or the Special Committee, except as provided in Section 4.8(b) hereof.

 

(b)                                  As promptly as practicable on the date of commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the “Schedule 14D-9”) which shall contain the recommendation referred to in clause (iii) of Section 1.2(a) hereof. The Company further agrees to take all steps necessary to cause the Schedule 14D-9 to be disseminated to

 

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holders of the Shares as and to the extent required by applicable federal securities laws. The Company, on the one hand, and each of Purchaser and Merger Sub, on the other hand, will promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect, and the Company will cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of the Shares, in each case as and to the extent required by applicable federal securities laws. Purchaser and its counsel shall be given a reasonable opportunity to review and comment upon the Schedule 14D-9 before it is filed with the SEC. In addition, the Company agrees to provide Purchaser, Merger Sub and their counsel with any comments, whether written or oral, that the Company or its counsel may receive from time to time from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and to consult with Purchaser, Merger Sub and their counsel prior to responding to any such comments.

 

(c)                                   The Company shall promptly furnish Merger Sub with mailing labels containing the names and addresses of all record holders of Shares and with security position listings of Shares held in stock depositories, each as of a recent date, together with all other available listings and computer files containing names, addresses and security position listings of record holders and non-objecting beneficial owners of Shares. The Company shall furnish Merger Sub with such additional information, including, without limitation, updated listings and computer files of holders of Shares, mailing labels and security position listings, and such other assistance as Purchaser, Merger Sub or their agents may reasonably require in communicating the Offer to the record and beneficial holders of Shares.

 

 1.3.                          Directors of the Company.

 

(a)                                   Immediately upon the purchase of and payment for Shares by Merger Sub or any of its affiliates pursuant to the Offer following satisfaction of the Minimum Condition, Purchaser shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product obtained by multiplying the total number of directors on such Board by the percentage that the number of Shares so purchased and paid for bears to the total number of Shares then outstanding. In furtherance thereof, the Company and its Board of Directors shall, after the purchase of and payment for Shares by Merger Sub or any of its affiliates pursuant to the Offer, upon request of Merger Sub, immediately increase the size of its Board of Directors, secure the resignations of such number of directors, or any combination of the foregoing, as is necessary to enable Purchaser’s designees to be so elected to the Company’s Board and shall cause Purchaser’s designees to be so elected and shall comply with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in connection therewith. In the event that Merger Sub requests the resignation of directors of the Company pursuant to the immediately preceding sentence, the Company shall cause such directors of the Company to resign as may be designated by Merger Sub in a writing delivered to the Company. Immediately upon the first purchase of and payment for Shares by Merger Sub or any of its affiliates pursuant to the Offer, the Company shall, if requested by Purchaser, also cause directors designated by Purchaser to constitute at least the same percentage (rounded up to the next whole number) of each committee of the Company’s Board of Directors as is on the Company’s Board of Directors. Notwithstanding the foregoing, if Shares are purchased pursuant to the Offer, the Company shall use its best efforts to assure that there shall be until the Effective Time at least two members of the Company’s Board of Directors who are directors on the date

 

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hereof and are not employees of the Company; each such director (a “Continuing Director”) shall be “disinterested” as defined in Section 302A.673, Subd. 1(d), of the MBCA. In addition to any indemnification rights pursuant to this Agreement or the Company’s Articles of Incorporation and Bylaws, the Continuing Directors as a group shall be entitled to retain independent legal counsel at Company expense, if and to the extent that they reasonably believe that issues are presented to them that involve a conflict of interest for Company counsel. The Company and its Board of Directors shall promptly take all actions as may be necessary to comply with their obligations under this Section 1.3(a), including all actions as may be permitted under the MBCA and the Company’s Bylaws.  If at any time prior to the Effective Time there shall be in office only one Continuing Director for any reason, the Company’s board of directors shall be entitled to appoint a person who is not an officer or employee of the Company or any subsidiary designated by the remaining Continuing Director to fill such vacancy (and such person shall be deemed to be a Continuing Director for all purposes of this Agreement), and if at any time prior to the Effective Time no Continuing Directors then remain, the other directors of the Company then in office shall use their reasonable best efforts to designate two persons to fill such vacancies who are not officers or employees or affiliates of the Company, its subsidiaries, Purchaser or Merger Sub or any of their respective affiliates and who each meet with the requirements for being considered “disinterested” under Section 302A.673 of the MBCA (and such persons shall be deemed to be Continuing Directors for all purposes of this Agreement).

 

(b)                                  The Company shall immediately take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under Section 1.3(a), including mailing to shareholders together with the Schedule 14D-9 the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable Purchaser’s designees to be elected to the Company’s Board of Directors. Purchaser and Merger Sub will supply the Company and be solely responsible for any information with respect to them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1.

 

(c)                                   Following the election of Purchaser’s designees to the Company’s Board of Directors pursuant to this Section 1.3 and prior to the Effective Time, (i) any amendment or termination of this Agreement by the Company, (ii) any extension or waiver by the Company of the time for the performance of any of the obligations or other acts of Purchaser or Merger Sub under this Agreement, or (iii) any waiver of any of the Company’s rights hereunder shall, in any such case, require the concurrence of a majority of the directors of the Company then in office who neither were designated by Purchaser nor are employees of the Company (the “Independent Director Approval”).

 

 1.4.                          The Merger.

 

Upon the terms and subject to the conditions of this Agreement, the Merger shall be consummated in accordance with the MBCA. At the Effective Time (as defined below), upon the terms and subject to the conditions of this Agreement, Merger Sub shall be merged with and into the Company in accordance with the MBCA and the separate existence of Merger Sub shall thereupon cease, and the Company, as the surviving corporation in the Merger (the “Surviving Corporation”), shall continue its corporate existence under the laws of the State of Minnesota as a wholly owned subsidiary of Purchaser.

 

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 1.5.                          The Closing; Effective Time.

 

(a)                                   The closing of the Merger (the “Closing”) shall take place at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East 55 ^th Street, New York, New York 10022, at 10:00 a.m. local time on a date to be specified by the parties which shall be no later than the third business day after the date that all of the closing conditions set forth in Article VI have been satisfied or waived (if waivable) unless another time, date or place is agreed upon in writing by the parties hereto.

 

(b)                                  Effective Time. Subject to the provisions of this Agreement, on the Closing Date the parties shall file with the Secretary of State of the State of Minnesota articles of merger in accordance with Section 302A.615 or 302A.621 of the MBCA as applicable (as the case may be, the “Articles of Merger”) executed in accordance with the relevant provisions of the MBCA and shall make all other filings or recordings required under the MBCA in order to effect the Merger. The Merger shall become effective upon the filing of the Articles of Merger or at such other time as is agreed by the parties hereto and specified in the Articles of Merger. The time when the Merger shall become effective is herein referred to as the “Effective Time” and the date on which the Effective Time occurs is herein referred to as the “Closing Date.”

 

 1.6.                          Conversion of Securities .

 

At the Effective Time, by virtue of the Merger and without any action on the part of the holders of any securities of Merger Sub or the Company:

 

(a)                                   Each Share that is owned by Purchaser, the Company or any of their respective subsidiaries shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

 

(b)                                  Each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 1.6(a) hereof and Dissenting Shares) shall automatically be converted into the right to receive the Offer Price in cash (the “Merger Consideration”), payable, without interest, to the holder of such Share upon surrender, in the manner provided in Section 1.7 hereof, of the certificate that formerly evidenced such Share. All such Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon the surrender of such certificate in accordance with Section 1.7 hereof.

 

(c)                                   Each issued and outstanding share of common stock of Merger Sub shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.

 

 1.7.                          Tender of and Payment for Certificates.

 

(a)                                   Paying Agent .  Prior to the Effective Time, Purchaser shall designate a bank or trust company reasonably acceptable to the Company to act as agent for the holders of the Shares (other than Shares held by Purchaser, the Company and any of their respective subsidiaries and

 

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Dissenting Shares) in connection with the Merger (the “Paying Agent”) to receive in trust, the aggregate Merger Consideration to which holders of Shares shall become entitled pursuant to Section 1.6(b) hereof. Purchaser shall deposit such aggregate Merger Consideration with the Paying Agent promptly following the Effective Time. Such aggregate Merger Consideration shall be invested by the Paying Agent as directed by Purchaser.

 

(b)                                  Exchange Procedures .  Promptly after the Effective Time, Purchaser and the Surviving Corporation shall cause to be mailed to each holder of record, as of the Effective Time, of a certificate or certificates, which immediately prior to the Effective Time represented outstanding Shares (the “Certificates”), whose Shares were converted pursuant to Section 1.6(b) hereof into the right to receive the Merger Consideration, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Purchaser may reasonably specify) and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Purchaser, together with such letter of transmittal, properly completed and duly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid all transfer and other Taxes required by reason of the issuance to a person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such Tax either has been paid or is not applicable. Until surrendered as contemplated by this Section 1.7, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration for each Share in cash as contemplated by Section 1.6(b) hereof.

 

(c)                                   Transfer Books; No Further Ownership Rights in the Shares .  At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter there shall be no further registration of transfers of the Shares on the records of the Company. From and after the Effective Time, the holders of Certificates evidencing ownership of the Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares, except as otherwise provided for herein or by applicable law. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article I.

 

(d)                                  Termination of Fund; No Liability .  At any time following the six-month anniversary of the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent, and holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of

 

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their Certificates without any interest thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent nor any party hereto shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(e)                                   Lost, Stolen or Destroyed Certificates .  In the event any Certificates shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate(s) to be lost, stolen or destroyed and, if required by Purchaser, the posting by such person of a bond in such sum as Purchaser may reasonably direct as indemnity against any claim that may be made against any party hereto or the Surviving Corporation with respect to such Certificate(s), the Paying Agent will disburse the Merger Consideration pursuant to Section 1.6(b) payable in respect of the Shares represented by such lost, stolen or destroyed Certificates.

 

(f)                                     Withholding Taxes .  Purchaser and Merger Sub shall be entitled to deduct and withhold, or cause the Paying Agent to deduct and withhold, from the Offer Price or the Merger Consideration payable to a holder of Shares pursuant to the Offer or the Merger any such amounts as are required under the Internal Revenue Code of 1986, as amended (the “Code”), or any applicable provision of state, local or foreign Tax law. To the extent that amounts are so withheld by Purchaser or Merger Sub, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Purchaser or Merger Sub.

 

 1.8.                          Options.

 

(a)                                   With respect to all outstanding options to purchase Shares (the “Company Options”), granted under the Company’s 1986 Employee Stock Option Plan and 1996 Stock Plan (collectively, the “Company Option Plans”) or otherwise, at the Effective Time, subject to the terms and conditions set forth below in this Section 1.8(a), each holder of a Company Option will be entitled to receive from the Company, and shall receive, in settlement of each Company Option a “Cash Amount.” The “Cash Amount” shall be equal to the net amount of (A) the product of the excess, if any, of the Merger Consideration over the exercise price per share of such Company Option at the Effective Time, multiplied by (ii) the number of shares subject to such Company Option, less (B) any applicable withholdings for Taxes. If the exercise price per share of any Company Option equals or exceeds the Merger Consideration, the Cash Amount therefor shall be zero. Notwithstanding the foregoing, (i) payment of the Cash Amount is subject to written acknowledgement, in a form acceptable to the Surviving Corporation, that no further payment is due to such holder on account of any Company Option and all of such holder’s rights under such Company Options have terminated and (ii) with respect to any person subject to Section 16(a) of the Exchange Act, any Cash Amount to be paid to such person in accordance with this Section 1.8(a) shall be paid as soon as practicable after the payment can be made without liability to such person under Section 16(b) of the Exchange Act.

 

(b)                                  As of the Effective Time, except as provided in this Section 1.8, all rights under any Company Option and any provision of the Company Option Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of the Company shall be cancelled. The Company shall take all action necessary to ensure that, as of and after the Effective Time, except as provided in this Section 1.8, no person

 

9

 

shall have any right under the Company Option Plans or any other plan, program or arrangement with respect to equity securities of the Company, the Surviving Corporation or any subsidiary thereof.

 

(c)                                   At or before the Effective Time, the Company shall cause to be effected any necessary amendments to the Company Option Plans and any other resolutions, consents or notices, in such form reasonably acceptable to Purchaser, required under the Company Option Plans or any Company Options to give effect to the foregoing provisions of this Section 1.8.

 

 1.9.                          Dissenting Shares.

 

Notwithstanding any provision of this Agreement to the contrary, each outstanding Share, the holder of which has demanded and perfected such holder’s right to dissent from the Merger and to be paid the fair value of such Shares in accordance with Sections 302A.471 and 302A.473 of the MBCA and, as of the Effective Time, has not effectively withdrawn or lost such dissenters’ rights (“Dissenting Shares”), shall not be converted into or represent a right to receive the Merger Consideration into which Shares are converted pursuant to Section 1.6(b) hereof, but the holder thereof shall be entitled only to such rights as are granted by the MBCA. Notwithstanding the immediately preceding sentence, if any holder of Shares who demands dissenters’ rights with respect to its Shares under the MBCA effectively withdraws or loses (through failure to perfect or otherwise) its dissenters’ rights, then as of the Effective Time or the occurrence of such event, whichever later occurs, such holder’s Shares will automatically be converted into and represent only the right to receive the Merger Consideration as provided in Section 1.6(b) hereof, without interest thereon, upon surrender of the certificate or certificates formerly representing such Shares. After the Effective Time, Purchaser shall cause the Company to make all payments to holders of Shares with respect to such demands in accordance with the MBCA. The Company shall give Purchaser (i) prompt written notice of any notice of intent to demand fair value for any Shares, withdrawals of such notices, and any other instruments served pursuant to the MBCA and received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for fair value for Shares under the MBCA. The Company shall not, except with the prior written consent of Purchaser, voluntarily make any payment with respect to any demands for fair value for Shares or offer to settle or settle any such demands.

 

 1.10.                   Articles of Incorporation and Bylaws .

 

Subject to Section 5.5 hereof, at and after the Effective Time until the same have been duly amended, (i) the Articles of Incorporation of the Surviving Corporation shall be identical to the Articles of Incorporation of Merger Sub in effect at the Effective Time and (ii) and the Bylaws of the Surviving Corporation shall be identical to the Bylaws of Merger Sub in effect at the Effective Time.

 

 1.11.                   Directors and Officers .

 

At and after the Effective Time, the directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, and the officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation

 

10

 

except as the Merger Sub shall otherwise provide in writing, in each case until their successors are elected or appointed and qualified. If, at the Effective Time, a vacancy shall exist on the Board of Directors or in any office of the Surviving Corporation, such vacancy may thereafter be filled in the manner provided by law.

 

 1.12.                   Other Effects of Merger .

 

The Merger shall have all further effects as specified in the applicable provisions of the MBCA.

 

 1.13.                   Convertible Preferred Stock .

 

On the Closing Date (and immediately prior to the Effective Time) the Company shall redeem all of the then issued and outstanding shares of the Company’s Series B Convertible Preferred Stock, no par value (the “Convertible Preferred Stock”), pursuant to the Company’s optional redemption right under Section 9(a) of  the Certificate of Designation for the Convertible Preferred Stock (the “Convertible Preferred Stock Designation”).  The  redemption price will be equal to the Face Value (as defined in the Convertible Preferred Stock Designation) thereof plus accrued and unpaid dividends thereon, in accordance with the provisions of the Convertible Preferred Stock Designation.  Immediately after the execution and delivery of this Agreement, the Company shall deliver a notice to the holders of the Convertible Preferred Stock satisfactory to Purchaser in accordance with the Convertible Preferred Stock Designation stating that, subject to consummation of the Merger, the Company proposes to redeem all of the outstanding Convertible Preferred Stock on the Closing Date, for the Face Value thereof plus all accrued and unpaid dividends thereon.

 

 1.14.                   Additional Actions .

 

If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Merger Sub or the Company or otherwise carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of Merger Sub or the Company, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of Merger Sub or the Company, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

 

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The following representations and warranties by the Company to Purchaser and Merger Sub are qualified by the Company Disclosure Schedule, which sets forth certain disclosures concerning the Company, its subsidiaries and its business (the “Company Disclosure Schedule”), each section of which only qualifies the correspondingly numbered representation or warranty in

 

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this Article II.  The inclusion of any item in the Company Disclosure Schedule shall not be deemed an admission that such item is a material fact, event or circumstance or that such item has or had, or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.  The Company hereby represents and warrants to Purchaser and Merger Sub as follows:

 

 2.1.                          Due Incorporation and Good Standing .

 

(a)                                   Each of the Company and each of its subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except as indicated in Section 2.1(a) of the Company Disclosure Schedule, and in each case so indicated the failure to be so duly qualified or licensed and in good standing could not reasonably be expected to have a Company Material Adverse Effect. For purposes of this Agreement, the term “Company Material Adverse Effect” shall mean a material adverse effect on the business, assets, condition (financial or otherwise), liabilities or the results of operations of the Company or its subsidiaries, or the ability for the Company to consummate the transactions contemplated by this Agreement, except in each case for any such effects resulting from, arising out of, or relating to (i) general business or economic conditions the occurrence or effects of which are not unique or specific to the Company, (ii) conditions generally affecting the industry in which the Company and its subsidiaries compete, or (iii) the taking of any action or incurring of any expense in connection with this Agreement or the transactions contemplated hereby.  Company Material Adverse Effect does not include any changes, events, conditions, or effects relating solely to Purchaser or its subsidiaries’ financial condition, results of operation or business. The Company has heretofore made available to Purchaser accurate and complete copies of the Restated Articles of Incorporation, as amended, and Bylaws, as currently in effect, of the Company and each of its subsidiaries.

 

 2.2.                          Capitalization .

 

(a)                                   The authorized capital stock of the Company consists of (i) 10,000,000 shares of Common Stock, (ii) 2,074 shares of  Convertible Preferred Stock, (iii) 50,000 shares of preferred stock, no par value, designated as Series A Junior Participating Preferred Stock (the “Series A Preferred Stock”) and reserved for issuance in connection with the Rights Agreement, and (iv) 947,926 shares of Preferred Stock that are not designated (the “Undesignated Capital Stock” and together with the Common Stock, the Convertible Preferred Stock and the Series A Preferred Stock, the “Company Capital Stock”). As of the close of business on the date hereof, (i) 4,861,192 shares of Common Stock were issued and outstanding, (ii) 2,074 shares of Convertible Preferred Stock were issued and outstanding, (iii) no shares of Series A Preferred Stock were issued and outstanding, (iv) no shares of Undesignated Capital Stock were issued and outstanding, and (v) 1,175,826 shares of Common Stock were reserved for issuance pursuant to outstanding Company Options. All of the outstanding shares of Company Capital Stock are, and all shares of Company Capital Stock which may be issued pursuant to the exercise of outstanding

 

12

 

Company Options and Company Warrants will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable. The rights, preferences, privileges and mandatory redemption rights of the Convertible Preferred Stock and the Series A Preferred Stock are as set forth in the Restated Articles of Incorporation, as amended. The aggregate Face Value of the issued and outstanding Convertible Preferred Stock is $2,074,000 and the aggregate accrued and unpaid dividends on the issued and outstanding Convertible Preferred Stock as of the date hereof is approximately $12,250.00.  To the Company’s knowledge, the sole record and beneficial holder of the Convertible Preferred Stock is Nidec America Corporation.  None of the outstanding securities of the Company has been issued in violation of any federal or state securities laws.

 

(b)                                  Except as set forth above or as set forth in Section 2.2(b) of the Company Disclosure Schedule, as of the date hereof, (i) there are no shares of capital stock of the Company or its subsidiaries authorized, issued or outstanding, (ii) there are no existing options, warrants, calls, preemptive or similar rights, bonds, debentures, notes or other indebtedness having general voting rights or debt convertible into securities having such rights (“Voting Debt”) or subscriptions or other rights, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or its subsidiaries obligating the Company or its subsidiaries to issue, transfer or sell or cause to be issued, transferred, sold or repurchased any options or shares of capital stock or Voting Debt of, or other equity interest in, the Company or its subsidiaries or securities convertible into or exchangeable for such shares or equity interests, or obligating the Company or its subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment and (iii) there are no outstanding contractual obligations of the Company or its subsidiaries to repurchase, redeem or otherwise acquire any Company Capital Stock, or other capital stock of the Company or its subsidiaries to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. Except for the Company’s obligations under the Rights Agreement (including the Rights) and except as otherwise expressly contemplated by this Agreement, as of the date hereof there are no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or other agreements of any kind relating to any of the issued, outstanding, authorized but unissued, or unauthorized shares of capital stock or any other security of the Company or its subsidiaries, and there is no authorized or issued security of any kind convertible into or exchangeable, for any such capital stock or other security. A true, correct and complete copy of the Rights Agreement has been delivered to Purchaser by the Company prior to the date hereof.

 

(c)                                   Except as set forth in Section 2.2(c) of the Company Disclosure Schedule, there are no voting trusts or other agreements or understandings to which the Company is a party with respect to the voting of the Company Capital Stock.

 

(d)                                  Following the Effective Time, no holder of Company Options will have any right to receive shares of common stock of the Surviving Corporation upon exercise of Company Options.

 

(e)                                   Except as disclosed in Section 2.2(e) of the Company Disclosure Schedule, no Indebtedness of the Company or its subsidiaries contains any restriction upon (i) the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness by the Company or its

13

 

subsidiaries, or (iii) the ability of the Company or its subsidiaries to grant any lien on its properties or assets. As used in this Agreement, “Indebtedness” means (A) all indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (B) any other indebtedness that is evidenced by a note, bond, debenture or similar instrument, (C) all obligations under financing leases, (D) all obligations in respect of acceptances issued or created, (E) all liabilities secured by any lien on any property and (F) all guarantee obligations.

 

(f)                                     Section 2.2(f) of the Company Disclosure Schedule lists all Company Options outstanding as of the date hereof, the name of the holder of each Company Option, the date of grant and the exercise price of such Company Option, the number of shares of Common Stock as to which such Company Option has vested, the vesting schedule for such Company Option, a summary of any acceleration provisions or milestones, and whether the exercisability of such Company Option will be accelerated in any way by the transactions contemplated under this Agreement, and indicates the extent of acceleration, if any. Since August 28, 2005, the Company has not granted any Company Options to officers or directors of the Company or any other Person.

 

(g)                                  No agreement or understanding requires consent or approval from the holder of any Company Option to effectuate the terms of this Agreement.

 

 2.3.                          Subsidiaries

 

Section 2.3 of the Company Disclosure Schedule contains a list of all subsidiaries.  Each subsidiary is wholly owned by the Company. All of the capital stock and other interests of the subsidiaries so held are owned by the Company free and clear of any claim, lien, encumbrance, security interest or agreement with respect thereto. All of the outstanding shares of capital stock in each of the Subsidiaries held by the Company are duly authorized, validly issued, fully paid and nonassessable and were issued free of preemptive rights and in compliance with applicable Laws. No equity securities or other interests of any of the subsidiaries are or may become required to be issued or purchased by reason of any options, warrants, rights to subscribe to, puts, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of any capital stock of any subsidiary, and there are no contracts, commitments, understandings or arrangements by which any subsidiary is bound to issue additional shares of its capital stock, or options, warrants or rights to purchase or acquire any additional shares of its capital stock or securities convertible into or exchangeable for such shares.

 

 2.4.                          Authorization; Binding Agreement .

 

The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, the Shareholders Agreement and the Stock Option Agreement have been duly and validly authorized by the Company’s Board of Directors, and no other corporate proceedings on the part of the Company are necessary to authorize the execution

 

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and delivery of this Agreement or to consummate the transactions contemplated hereby (other than the requisite approval of the Merger by the shareholders of the Company in accordance with the MBCA). This Agreement has been duly and validly executed and delivered by the Company and constitutes the legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by principles of equity regarding the availability of remedies (“Enforceability Exceptions”). The Special Committee and the Company’s Board of Directors have approved the Offer, the Merger, this Agreement, the Shareholders Agreement and the Stock Option Agreement and the transactions contemplated hereby and thereby and such approvals are sufficient so that Sections 302A.671, 302A.673 and 302A.675 of the MBCA will not impede the Offer, the Merger, this Agreement and the other transactions contemplated by this Agreement.

 

 2.5.                          Governmental Approvals .

 

No consent, approval, waiver or authorization of, notice to or declaration or filing with (“Consent”), any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self regulatory organization (“Governmental Authority”) on the part of the Company or its subsidiaries is required in connection with the execution or delivery by the Company of this Agreement, the Offer, the Merger or the consummation by the Company of the other transactions contemplated hereby other than (i) the filing of the Articles of Merger with the Secretary of State of the State of Minnesota in accordance with the MBCA, (ii) filings with the SEC and state securities laws administrators (including the Commissioner of Commerce of the State of Minnesota), (iii) such filings as may be required in any jurisdiction where the Company is qualified or authorized to do business as a foreign corporation in order to maintain such qualification or authorization and (iv) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Company Material Adverse Effect.

 

 2.6.                          No Violations .

 

The execution and delivery of this Agreement, the Offer, the Merger, the consummation of the other transactions contemplated hereby and compliance by the Company with any of the provisions hereof will not (i) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws or other governing instruments of the Company, (ii) except as set forth on Section 2.6 of the Company Disclosure Schedule, require any Consent under or result in a material violation or material breach of, or constitute (with or without due notice or lapse of time or both) a material default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument to which the Company is a party or by which its assets are bound, (iii) result in the creation or imposition of any liens, charges, security interests, options, claims, mortgages, pledges, assessments, charges, adverse claims, rights of others or restrictions (whether on voting, sale, transfer, disposition or otherwise) or other encumbrances or restrictions of any nature

 

15

 

whatsoever whether imposed by agreement, understanding, law or equity, or any conditional sale contract, title retention contract or other contract to give or refrain from giving any of the foregoing (“Encumbrances”) of any kind upon any of the assets of the Company or (iv) subject to obtaining the Consents from Governmental Authorities referred to in Section 2.5 hereof, contravene any applicable provision of any statute, law, rule or regulation or any order, decision, injunction, judgment, award or decree (“Law” or “Laws”) to which the Company or any of its assets or properties is subject.

 

 2.7.                          SEC Filings; Company Financial Statements .

 

(a)                                   The Company has filed all forms, reports, schedules, statements and other documents required to be filed by the Company with the SEC since May 1, 2000 under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”) and has made available to Purchaser such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that the Company may file subsequent to the date hereof) are referred to herein as the “Company SEC Reports.” As of their respective dates, except as disclosed in Section 2.7(a) of the Company Disclosure Schedule, the Company SEC Reports (i) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact or disclose any matter or proceeding required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Between the date of this Agreement and the Closing Date, the Company will timely file with the SEC all documents required to be filed by it under the Exchange Act.

 

(b)                                  Except as set forth in Section 2.7(b) of the Company Disclosure Schedule, each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (the “Company Financials”), including each Company SEC Report filed after the date hereof until the Closing, (i) was prepared from, are in accordance with and accurately reflect in all material respects, the Company’s books and records as of the times and for the periods referred to therein, (ii) complied in all material respects with the published rules and regulations of the SEC with respect thereto, (iii) was prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act), (iv) fairly presented the consolidated financial position of the Company as at the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments and (v) was prepared from and in accordance with the Company’s books and records. The balance sheet of the Company contained in the Company SEC Report as of August 28, 2005 (the “Balance Sheet Date”) as filed with the SEC before the date hereof is hereinafter referred to as the “Company Balance Sheet.”

 

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(c)                                   The Company has heretofore furnished to Purchaser a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Securities Act or the Exchange Act except as set forth in Section 2.7(c) of the Company Disclosure Schedule.  All public announcements in a news release issued by the Dow Jones news service, PR Newswire or any equivalent service made by the Company since the Balance Sheet Date did not and will not contain any untrue statement of a material fact or omit to state a material fact or disclose any matter or proceeding required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading except as set forth in Section 2.7(c) of the Company Disclosure Schedule.

 

(d)                                  Section 2.7(d) of the Company Disclosure Schedule sets forth a complete list of all effective registration statements filed on Form S-3 or Form S-8 or otherwise relying on Rule 415 under the Securities Act.

 

(e)                                   Except as set forth in Section 2.7(e) of the Company Disclosure Schedule, the Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14 and 15d14 promulgated under the Exchange Act) designed to ensure that material information relating to the Company is made known to the Chief Executive Officer and Chief Financial Officer. To the Company’s knowledge, there are no significant deficiencies or material weaknesses in the design or operation of Company’s internal controls which could adversely affect Company’s ability to record, process, summarize and report financial data. To the Company’s knowledge, there is no fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.

 

 2.8.                          Absence of Certain Changes .

 

Except as disclosed in Section 2.8 of the Company Disclosure Schedule, from the Balance Sheet Date to the date hereof, the Company and its subsidiaries have not:

 

(a)                                   suffered any Company Material Adverse Effect or any event or change which is reasonably expected to have or constitute a Company Material Adverse Effect;

 

(b)                                  incurred any liabilities or obligations (absolute, accrued, contingent or otherwise), except items incurred in the ordinary course of business and consistent with past practice, which exceed $50,000 in the aggregate;

 

(c)                                   paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities and obligations reflected or reserved against in the Company Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date;

 

(d)                                  permitted or allowed any of their properties or assets (real, personal or mixed, tangible or intangible) to be subjected to any Encumbrances, except for liens for current taxes not

 

17

 

yet due or liens the incurrence of which would not reasonably be expected to have a Company Material Adverse Effect;

 

(e)                                   cancelled any debts or waived any claims or rights of material value;

 

(f)                                     sold, transferred, or otherwise disposed of any of their material properties or assets (real, personal or mixed, tangible or intangible), except in the ordinary course of business, consistent with past practice;

 

(g)                                  granted any increase in the compensation or benefits of any director, officer, employee or consultant of the Company (including any such increase pursuant to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation or benefits payable or to become payable to any director, officer, employee or consultant of the Company, except in the case of employees other than officers of the Company for such increases in compensation or benefits made in the ordinary course of business, consistent with past practice;

 

(h)                                  made any change in severance policy or practices;

 

(i)                                      made any capital expenditure or acquired any property, plant and equipment for a cost in excess of $25,000 in the aggregate;

 

(j)                                      declared, paid or set aside for payment any dividend or other distribution (whether in cash, stock or property) in respect of their respective capital stock or redeemed, purchased or otherwise acquired, directly or indirectly, any shares of capital stock or other securities of the Company;

 

(k)                                   (i) made any changes in any of the accounting methods used by it materially affecting its assets, liabilities or business, except for such changes required by GAAP; or (ii) made or changed any election relating to Taxes, adopted or changed any accounting method relating to Taxes, entered into any closing agreement relating to Taxes, filed any amended Tax Return, settled or consented to any claim or assessment relating to Taxes, incurred any obligation to make any payment of, or in respect of, any Taxes, except in the ordinary course of business, or agreed to extend or waive the statutory period of limitations for the assessment or collection of Taxes;

 

(l)                                      paid, loaned, modified or advanced any amount to, or sold, transferred or leased any material properties or assets (real, personal or mixed, tangible or intangible) to, or entered into any agreement or arrangement with, any of their respective officers, directors or shareholders or any affiliate or associate of any of their officers, directors or shareholders except for directors’ fees, expense reimbursements in the ordinary course and compensation to officers at rates not inconsistent with the Company’s past practice;

 

(m)                                written-down the value of any inventory (including write-downs by reason of shrinkage or mark-down) or written off as uncollectible any notes or accounts receivable in excess of $50,000 in the aggregate, nor is any such write-down required;

 

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(n)                                  suffered any impairment of any material Company Intellectual Property (as defined in Section 2.16(a)) or any material adverse change in any material Company Intellectual Property licensed from a third party, in each case, other than in the ordinary course of business consistent with past practice, or disposed of or disclosed (except as necessary in the conduct of its business) to a third party any Trade Secrets owned by the Company;

 

(o)                                  granted, issued, accelerated, paid, accrued or agreed to pay or make any accrual or arrangement for payments or benefits pursuant to, or adopted or amended, any Company Employee Plans except those made in the ordinary course of business consistent with past practice; or

 

(p)                                  agreed, whether in writing or otherwise, to take any action described in this Section 2.8.

 

 2.9.                          Absence of Undisclosed Liabilities .

 

Except (a) as disclosed in the Company Balance Sheet or in Section 2.9 of the Company Disclosure Schedule and (b) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date, neither the Company nor its subsidiaries have incurred any material liabilities or obligations of any nature, whether or not accrued, contingent or otherwise required by GAAP to be recognized or disclosed on a consolidated balance sheet of the Company or in the notes thereto.

 

 2.10.                   Compliance with Laws .

 

The business of the Company and its subsidiaries has been operated in compliance with all Laws applicable thereto, except for any instances of non-compliance which would not reasonably be expected to have a Company Material Adverse Effect.

 

 2.11.                   Permits .

 

(a)                                   Each of the Company and its subsidiaries has all permits (including signage permits), certificates, licenses, approvals and other authorizations required in connection with the operation of its business (collectively, “Company Permits”), (b) neither the Company nor its subsidiaries is in violation of any Company Permit and (c) no proceedings are pending or, to the knowledge of the Company, threatened, to revoke or limit any Company Permit, except, in each case, those the absence or violation of which would not reasonably be expected to have a Company Material Adverse Effect.

 

 2.12.                   Litigation .

 

Except as disclosed in the Company SEC Reports filed prior to the date hereof or in Section 2.12 of the Company Disclosure Schedule, there is no private or governmental action, suit, proceeding, claim, arbitration or investigation (“Litigation”) pending before any agency, court or tribunal, foreign or domestic or, to the knowledge of the Company, threatened against the Company, its subsidiaries or any of their properties or any of their officers or directors (in their capacities as such). There is no judgment, decree or order against the Company or its subsidiaries or, to the knowledge of the Company, any of its directors or officers (in their

 

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capacities as such), that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or that would reasonably be expected to have a Company Material Adverse Effect. Except as disclosed in the Company SEC Reports filed prior to the date hereof, there is no litigation that the Company or its subsidiaries have pending against other parties. The descriptions of all litigation in the Company SEC Reports are accurate in all material respects

 

 2.13.                   Restrictions on Business Activities .

 

Except as set forth in Section 2.13 of the Company Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon the Company or its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or impairing any current business practice of the Company or its subsidiaries, any acquisition of property by the Company or its subsidiaries or the conduct of business by the Company or its subsidiaries as currently conducted.

 

 2.14.                   Contracts .

 

(a)                                   Neither the Company nor its subsidiaries is a party or is subject to any management, royalty, license, lease or joint venture agreement or any material note, bond, mortgage, indenture, contract, lease, license, agreement or instrument (“Company Material Contract”) that is not listed in Section 2.14(a) of the Company Disclosure Schedule. All such Company Material Contracts are valid and binding and are in full force and effect and enforceable by the Company or its subsidiaries in accordance with their respective terms, subject to the Enforceability Exceptions. Neither the Company or its subsidiaries nor, to the knowledge of the Company, any other party thereto is in violation or breach of or default under any such Company Material Contract where such violation or breach would reasonably be expected to have a Company Material Adverse Effect.

 

(b)                                  Except as is listed in Section 2.14(b) of the Company Disclosure Schedule, neither the Company nor its subsidiaries is a party to, and none of their assets or properties are subject to, any agreement, arrangement or understanding (written or oral) with any other person (including an affiliate of the Company or its subsidiaries), which (i) provides capital, surplus, balance sheet or any other form of economic or financial support to such other person, (ii) guarantees the obligations of, or performance of any acts, by such other person, or (iii) imposes legal liability on the Company or its subsidiaries for any payments (contingent or otherwise) under any note, guarantee, debt, bond, mortgage, indenture, contract, lease, license, agreement or instrument.

 

 2.15.                   Government Contracts .

 

(a)                                   Customers and Suppliers .  Neither the Company nor its subsidiaries is currently in, and the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not result in, any material violation, breach or default of any term or provision or trigger automatic or optional termination of (i) any contract with any Governmental Authority, (ii) any subcontract issued at any tier under a prime contract with any Governmental Authority, or (iii) any bid, proposal, offer or quotation relating

 

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to a contract with any Governmental Authority or a subcontract issued under a contract with any Governmental Authority, except, in the case of each of (i), (ii) and (iii) above, that with respect to the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, for any violation, breach, default or automatic or optional termination right that arises as a result of Purchaser’s failure to comply with the terms of such contract, subcontract, bid, proposal, offer or quotation.  Neither the Company nor its subsidiaries is in any material violation, breach or default of any provision of any federal order, statute, rule or regulation (including the Federal Acquisition Regulation (“FAR”), agency supplements to the FAR, the Arms Export Control Act (22 U.S.C. 277 et seq.), and agency export regulations) or any similar state or local Law or regulation governing any contract, subcontract, bid, or proposal with any Governmental Authority, as applicable.  Neither the Company nor its subsidiaries has received a cure notice, a show cause notice or a stop work notice, nor has the Company or its subsidiaries been threatened with termination for default under any contract or subcontract with any Governmental Authority. To the Company’s knowledge, no request for equitable adjustment by any of its vendors, suppliers or subcontractors against it relating to contracts or subcontracts involving any Governmental Authority exists.

 

(b)                                  Government Claims .  To the Company’s knowledge, no state of facts exists that would constitute valid grounds for the assertion of a material claim by a Governmental Authority against the Company or any of its subsidiaries for any of the following: (i) defective pricing, (ii) FAR and/or CAS noncompliance, (iii) fraud or (iv) false claims or false statements. To the Company’s knowledge, no state of facts exists that would constitute valid grounds for the assertion of a claim by a Governmental Authority against the Company or any of its subsidiaries for either (y) unallowable costs as defined in the FAR at Part 31, including those that may be included in indirect cost claims for prior years that have not yet been finally agreed to by the Governmental Authority; or (z) any other monetary claims relating to the performance or administration by the Company of contracts or subcontracts for any Governmental Authority.

 

(c)                                   Suspension or Debarment .  Neither the Company nor any of its subsidiaries has been suspended or debarred from bidding on contracts or subcontracts with any Governmental Authority in connection with the conduct of its business; no such suspension or debarment has been initiated or, to the Company’s knowledge, threatened. There is no ongoing investigation, audit, prosecution, civil or administrative proceeding or settlement negotiation, or internal investigation, relating to the contracts or subcontracts of the Company or any of its subsidiaries with any Governmental Authority or the violation of any federal, state or local order, statute, rule, or regulation relating to government contracts, subcontracts, or export controls.

 

 2.16.                   Intellectual Property .

 

(a)                                   The Company and its subsidiaries own, and/or are licensed or otherwise possess rights to use all: (i) trademarks and service marks (registered or unregistered), trade dress, trade names and other names and slogans embodying business goodwill or indications of origin, all applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (ii) inventions, technology, computer programs and software (including password unprotected interpretive code or source code, object code, development documentation, programming tools, drawings, specifications and data), and all applications and patents disclosed on Section 2.16(c) of the Company Disclosure Schedule pertaining to the

 

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foregoing, including re-issues, continuations, divisions, continuations-in-part, renewals or extensions; (iii) trade secrets, including confidential and other non-public information (“Trade Secrets”) (iv) writings, designs, software programs, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto; (v) databases and all database rights; (vi) internet websites, domain names and applications and registrations pertaining thereto; and (vii) other intellectual property rights (“Company Intellectual Property”) that are used in the respective businesses of the Company and its subsidiaries as currently conducted, except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Company Material Adverse Effect.

 

(b)                                  There are no infringements of any Company Intellectual Property by any third party that would reasonably be expected to have a Company Material Adverse Effect, and the conduct of the businesses as currently conducted or as currently planned to be conducted does not infringe any proprietary right of a third party except as set forth in Section 2.16(b) of the Company Disclosure Schedule.

 

(c)                                   Section 2.16(c) of the Company Disclosure Schedule sets forth a complete list of all patents, trademarks, registrations and pending registration applications pertaining to the Company Intellectual Property owned by the Company and its subsidiaries (collectively, the “Registered Intellectual Property”). All such Registered Intellectual Property is owned by the Company and/or its subsidiaries, free and clear of liens or encumbrances of any nature.

 

(d)                                  Section 2.16(d) of the Company Disclosure Schedule sets forth a complete list of all licenses, sublicenses and other agreements in which the Company or any of its subsidiaries have granted rights to any person to make, use, sell, distribute or service any products or services which utilize or incorporate the Company Intellectual Property and a separate list of all material licenses, sublicenses and other agreements in which the Company or any of its subsidiaries has received rights from any person to use the Company Intellectual Property (the “Licensed Intellectual Property”). The Company and its subsidiaries will not, as a result of the execution and delivery of this Agreement, the Shareholders Agreement or the Stock Option Agreement, or the performance of its obligations under this Agreement, the Shareholders Agreement or the Stock Option Agreement, be in material breach of any license, sublicense or other agreement relating to the Licensed Intellectual Property.

 

(e)                                   The Company and its subsidiaries own or have the right to use all computer software currently used in and material to their businesses, except for any failures to own or rights of use that would not reasonably be expected to have a Company Material Adverse Effect.

 

 2.17.                   Employee Benefit Plans .

 

(a)                                   Section 2.17(a) of the Company Disclosure Schedule lists, with respect to the Company and its subsidiaries and any trade or business (whether or not incorporated) which is treated as a single employer with the Company and its subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code (excluding any such subsidiary or trade or business employing persons with no U.S. source income, as defined in Section 862 of the Code, each such excluded subsidiary, trade or business being referred to herein as a “Non-US Affiliate”) (each of the foregoing other than Non-US Affiliates, an “ERISA Affiliate”), (i) all employee benefit plans (as

 

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defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (ii) each loan to a non-officer employee, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs, agreements or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, p