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EXHIBIT 2.1
RECAPITALIZATION AGREEMENT
RECAPITALIZATION AGREEMENT, dated as of June 23, 1999, among Key
Acquisition, L.L.C., a Delaware limited liability company ("Buyer"), Knowles
Electronics, Inc., a Delaware corporation (the "Company"), and the holders of
record of the common stock of the Company, which holders are listed in Schedule
1.1-A (collectively, the "Stockholders" and individually, a "Stockholder").
WITNESSETH:
WHEREAS, conditioned upon the consummation of the transactions
contemplated by this Agreement and effective as of the day before the Closing,
the Company shall distribute to the Stockholders in kind the Excluded Assets,
together with the cash, if any, of the Company on hand at Closing, in redemption
of ten percent of the stock owned by the Stockholders (the "Excluded Assets
Redemption");
WHEREAS, the Company desires to reconstitute its capital structure through
the issuance of new equity securities, the incurrence of new debt obligations,
the purchase for cash of certain of its outstanding equity securities on the
terms and subject to the conditions set forth herein, and the exchange of
certain of its outstanding equity securities for certain of its newly authorized
securities;
WHEREAS, Buyer desires to purchase from the Company certain of its newly
authorized equity securities on the terms and subject to the conditions set
forth herein; and
WHEREAS, the Stockholders desire to sell to the Company certain of their
currently held equity securities of the Company in exchange for cash, and the
Remaining Stockholders desire to exchange certain of their currently held equity
securities of the Company for newly authorized equity securities.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions.
(a) The following terms, as used herein, have the following meanings:
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"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; provided that neither the Company nor any Subsidiary shall be considered
an Affiliate of a Stockholder.
"Balance Sheet" means the audited consolidated balance sheet of the
Company and the Subsidiaries as of December 31, 1998.
"Balance Sheet Date" means December 31, 1998.
"Benefit Arrangement" means any employment, severance, change of control
or similar contract or arrangement (whether or not written) or any plan, policy,
fund, program, contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, stock appreciation or other
stock-related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured arrangements),
health or medical benefits, disability benefits, workers' compensation,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance or other benefits) that is not an Employee Plan, and is entered into,
maintained, administered, sponsored or contributed to by the Company or any
Subsidiary.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended on or prior to the date hereof, and any rules
or regulations promulgated thereunder.
"Company" means Knowles Electronics, Inc., a Delaware corporation.
"Employee Plan" means any "employee benefit plan", as defined in Section
3(3) of ERISA, that is subject to any provision of ERISA, and either (i) is
maintained, administered, sponsored or contributed to by the Company or any
Subsidiary, or (ii) covers any employee or former employee of the Company or any
Subsidiary.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, rules, all contractual obligations and common law
in each case as in effect on the date hereof, that have as their principal
purpose the prevention of pollution and protection of the environment, public
health and safety or worker health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
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"Excluded Assets" means (i) TFC, (ii) the Industrial Development Property,
and (iii) the Franklin Park Property, together with any related assets and
liabilities.
"Franklin Park Property" means the real estate, and improvements thereon,
commonly known as 3100 Mannheim Road, Franklin Park, Illinois.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" means the outstanding amount of any of the following
obligations (excluding any intercompany obligations) of the Company or any
Subsidiary, without duplication: (i) any indebtedness for borrowed money or
issued in substitution for or exchange of indebtedness for borrowed money, (ii)
any indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) any indebtedness for the deferred purchase price of property or services
with respect to which a Person is liable, contingently or otherwise, as obligor
or otherwise (other than trade payables and other liabilities incurred in the
ordinary course of business), (iv) any commitment by which a Person assures a
creditor against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by a Person (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vii) any indebtedness
secured by a Lien on a Person's assets, and (viii) any accrued interest on the
foregoing. The agreement of the Company in favor of Bank of Nova Scotia to
repurchase inventory sold to Unitron Ltd. under certain circumstances shall not
constitute Indebtedness.
"Industrial Development Property" means approximately 250 acres of real
estate located in Kane County, Illinois that is owned by the Company and is more
fully described in Schedule 1.1-B.
"Intellectual Property Right" means any trademark, service mark, trade
dress, trade name, logos and corporate names, Internet domain name, Internet web
site, mask work, invention, patent, trade secret, copyright, know-how (including
any registrations or applications for registration of any of the foregoing),
computer programs (including source codes) or any other similar type of
proprietary intellectual property right anywhere in the world.
"Knowledge of Buyer" or any other similar knowledge qualification in this
Agreement means to the actual knowledge of Buyer or as to any of the following
individuals, what such individual knows or reasonably should have known in light
of such individual's position and responsibilities at Buyer after reasonable
inquiry: Ken Terry, Kevin Luzak, and Janka Vazanova.
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"Knowledge of Company" or any similar knowledge qualification in this
Agreement means to the actual knowledge of the Company or as to any of the
following individuals, what such individual knows or reasonably should have
known in light of such individual's position and responsibilities at the Company
or the Subsidiaries after reasonable inquiry: Reg G. Garratt, Doug Brander,
Patrick W. Cavanagh, David Yang, Bernard J. Smith.
"Knowledge of Stockholder", "Stockholders' Knowledge" or any other similar
knowledge qualification in this Agreement means to the actual knowledge of the
Stockholders.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance in respect of such property or
asset.
"Material Adverse Effect" means (i) when applied to the Company or any
U.S. Subsidiary, a material adverse effect on the assets, financial condition or
result of operations of the Company and the U.S. Subsidiaries, taken as whole,
except any such effect resulting from or arising in connection with (a) this
Agreement or the transactions contemplated hereby; or (b) changes in any
industry in which the Company or any U.S. Subsidiary is engaged or in economic,
regulatory or political conditions generally; and (ii) when applied to any
non-U.S. Subsidiary, a material adverse effect on the assets, financial
condition or result of operations of the subject non-U.S. Subsidiary, except any
such effect resulting from or arising in connection with (a) this Agreement or
the transactions contemplated hereby; or (b) changes in any industry in which
the subject non-U.S. Subsidiary is engaged or in economic, regulatory or
political conditions generally.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Transferee" means, with respect to a Stockholder, (i) the
spouse or lineal descendants (or their spouses) of such Stockholder; (ii) any
trust or guardianship for the benefit of such Stockholder or the benefit of the
spouse or lineal descendants (or their spouses) of such Stockholder; (iii) any
Person in which such Stockholder, the spouse and the lineal descendants (or
their spouses) of such Stockholder are the direct and/or beneficial owners of
all of the equity interests; (iv) the personal representative of such
Stockholder upon such Stockholder's death for purposes of administration of such
Stockholder's estate or upon such Stockholder's incompetency for purposes of the
protection and management of the assets of such Stockholder; (v) if such
Stockholder is a trust, the beneficiary or beneficiaries of such trust; and (vi)
another Stockholder.
"Person" means an individual, corporation, partnership, limited liability
company,
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association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Remaining Stockholders" means the Stockholders listed on Schedule 2.1(e).
"Shares" means (i) as of the date hereof, 459,465 shares of common stock
of the Company, par value of $1.00 each, and (ii) after giving effect to the
Excluded Assets Redemption, 413,518.50 shares of common stock of the Company,
par value of $1.00 each. The Shares as of the date hereof and the Shares after
giving effect to the Excluded Assets Redemption owned by each Stockholder are
listed on Schedule 1.1-A hereto.
"Subsidiary" means any entity other than TFC, of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by the Company.
"TFC" means The Financial Corporation of Illinois, a Delaware corporation
and a wholly owned subsidiary of the Company.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA other
than any Multiemployer Plan.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
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<CAPTION>
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Term Section
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Accounting Referee 8.3(f)(i)
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Affiliated Transaction 5.1(h)
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Affiliation 5.7(a)
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Applicable Tax Rate 8.5(d)
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Auditor 2.3(c)
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Base Stockholders' Equity 2.4(a)
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Buyer Preamble
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Cap 11.2(a)(iii)
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Certificate of Incorporation 2.1(a)
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Claim 11.3(a)
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Closing 2.2(a)
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Closing Date 2.2(a)
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Closing Balance Sheet 2.3(a)
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Closing Stockholders' Equity 2.3(a)
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Code 8.1
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Common Stock 2.1(a)
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Company Intellectual Property Rights 3.15(a)
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</TABLE>
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<TABLE>
<CAPTION>
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Term Section
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<S> <C>
Company Securities 3.5(b)
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Company Transaction 5.6
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Compensation Maintenance Period 9.1
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Credit Facility 2.1(c)
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Credit Facility Agreements 13.15
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Damages 11.2(a)
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Deductible 11.2(a)(ii)
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Employees 9.1
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Equity Purchase Price 2.1(b)
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Equity Rollover Amount 2.1(d)
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Escrow Account 2.2(b)(iii)
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Escrow Agreement 2.2(b)(iii)
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Escrow Amount 2.2(b)(iii)
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Estoppel Letter 5.8(c)
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Excluded Assets Redemption Preamble
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Federal Tax 8.1
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Final Determination 8.1
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Final Stockholders' Equity 2.4(a)
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Indemnified Party 11.3(a)
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Indemnifying Party 11.3(a)
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Leased Real Property 3.14(b)
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Liabilities 3.8(b)
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Noncompete Period 5.7(a)
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Owned Real Property 3.14(a)
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Permitted Liens 3.14(d)(vi)
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Post-Closing Tax Period 8.1
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Potential Contributor 11.5
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Pre-Closing Tax Period 8.1
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Preferred Stock 2.1(a)
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Public Company 5.7(a)
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Real Property 3.14(c)
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Redemption Amount 2.1(d)
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Registration Rights Agreement 10.2(j)
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Representatives 11.3(f)
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Repurchased Shares 2.1(d)
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Returns 8.2(a)
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</TABLE>
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<TABLE>
<CAPTION>
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Term Section
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<S> <C>
QSSS 8.3(f)
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S Corporation 8.3(f)
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Seller's Representative 13.6
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Stockholders Preamble
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Straddle Period 8.1
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Subsidiary Securities 3.7(b)
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Surveys 5.8(b)
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Tax 8.1
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Tax Asset 8.1
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Tax Benefit 8.5(d)
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Taxing Authority 8.1
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Third-Party Claim 11.3(b)
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Title Commitments 5.8(a)
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Title Insurer 5.8(a)
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Title Policies 5.8(a)
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Transactions 2.1
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</TABLE>
ARTICLE 2
Recapitalization
SECTION 2.1 Transactions. On the basis of the representations, warranties,
covenants and agreements and subject to the satisfaction or waiver of the
conditions set forth herein and the terms hereof, each of the parties agrees to
and will consummate, at the Closing, the following transactions in the order set
forth below (collectively, the "Transactions"):
(a) The Company shall authorize the filing under the laws of the State of
Delaware of the Second Amended and Restated Certificate of Incorporation of the
Company (as amended and restated, the "Certificate of Incorporation") in the
form of Schedule 2.1(a) attached hereto, which shall provide, inter alia, for
preferred stock, par value $.01 per share (the "Preferred Stock"), and common
stock, par value $.01 per share (the "Common Stock").
(b) The Company shall sell to Buyer, and Buyer shall purchase from the
Company, the number of shares of its Preferred Stock and Common Stock set forth
on Schedule 2.1(b) upon payment of immediately available funds in the amounts
set forth on Schedule 2.1(b) the total purchase price for the shares of
Preferred Stock and Common Stock shall be equal to $188,444,444 (the "Equity
Purchase Price").
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(c) The Company shall obtain, if and as provided by Buyer, a $200 million
senior secured facility and a $150 million subordinated credit facility
(collectively the "Credit Facility") and incur indebtedness in an amount
satisfactory to consummate the transactions contemplated hereby.
(d) The Company shall purchase from the Stockholders the number of Shares
set forth opposite each Stockholder's name on Schedule 1.1-A (collectively, the
"Repurchased Shares") for an aggregate purchase price equal to the Redemption
Amount. The "Redemption Amount" shall be equal to the sum of (i) $530 million in
cash, minus (ii) the Equity Rollover Amount and minus (iii) the amount of the
Indebtedness, including the Indebtedness listed on Schedule 2.1(d). The "Equity
Rollover Amount" shall be equal to the sum of $23,555,556 (the value of the
shares of Common Stock and Preferred Stock issued to the Remaining Stockholders
pursuant to subsection (e) below), based on the Equity Purchase Price paid by
Buyer and the Remaining Stockholder's ownership percentage of the Common Stock
and Preferred Stock, such value to be determined on the basis of the per share
price paid by Buyer for the Preferred Stock and the Common Stock purchased by it
pursuant to Section 2.1(b). The Redemption Amount shall be payable in the manner
set forth in Section 2.2.
(e) In addition to the Redemption Amount paid to the Stockholders pursuant
to Section 2.1(d) above, the Company will issue to each Remaining Stockholder
the number of shares of Preferred Stock and Common Stock set forth opposite such
Remaining Stockholder's name on Schedule 2.1(e) in exchange for the Shares owned
by such Remaining Stockholder.
(f) After consummation of the Transactions, the Remaining Stockholders and
Buyer will own the number of shares of Preferred Stock and Common Stock set
forth opposite such Person's name on Schedule 2.1(e) attached hereto.
SECTION 2.2 The Closing.
(a) The closing of the Transactions (the "Closing") shall take place at
the New York offices of Kirkland & Ellis at 10:00 a.m., local time, on June 30,
1999, or if any of the conditions to the Closing set forth in Article 10 have
not been satisfied or waived by the party entitled to the benefit thereof on or
prior to such date, on the third business day after the satisfaction or waiver
of all of such conditions, or at such other place or on such other date as may
be mutually agreeable to Buyer and the Stockholders (the "Closing Date").
(b) At the Closing:
(i) Buyer shall deliver to the Company in immediately available
funds the Equity Purchase Price attributable to the Persons Buyer has designated
and set forth opposite each such Person's name on Schedule 2.1(e) upon the
delivery to Buyer of stock certificates evidencing the
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number of shares of the Preferred Stock and the Common Stock, as set forth
opposite Buyer's name on Schedule 2.1(e).
(ii) The Company will incur indebtedness under its Credit Facility
in amounts satisfactory to consummate the transactions contemplated hereby and
to fund its ongoing working capital needs.
(iii) The Company shall deposit $10,000,000 (the "Escrow Amount") in
an escrow account (the "Escrow Account") established pursuant to the terms and
conditions of an escrow agreement (the "Escrow Agreement") in the form of
Schedule 2.2(b)(iii) attached hereto. The Escrow Amount will be available until
the date which is eighteen months after the Closing Date to satisfy any amounts
owed to the Company or Buyer as a result of a breach of certain of the
representations, warranties, covenants and agreements contained herein in
accordance with the Escrow Agreement.
(iv) The Company shall pay to the Stockholders, by wire transfer of
immediately available funds to an account designated by the Stockholders, an
amount equal to the Redemption Amount less the Escrow Amount upon delivery to
the Company of the stock certificates evidencing the Repurchased Shares duly
endorsed in blank or accompanied by duly executed stock powers.
(v) The Company shall deliver to each Remaining Stockholder stock
certificate(s) evidencing the shares of Preferred Stock and Common Stock to be
issued to such Remaining Stockholder as indicated on Schedule 2.1(e), and
registered in each such Person's name on the stock records of the Company, upon
delivery to the Company of the stock certificates evidencing the number of
Shares held by each such Person.
SECTION 2.3 Closing Balance Sheet.
(a) As promptly as practicable, but no later than 90 days, after the
Closing Date, the Stockholders will cause to be prepared (with the assistance,
as requested, of management of the Company and the Subsidiaries in accordance
with Section 6.1 hereof) and delivered to Buyer the Closing Balance Sheet,
together with an unqualified auditors report of Ernst & Young thereon, and a
certificate based on such Closing Balance Sheet setting forth the Stockholders'
calculation of Closing Stockholders' Equity and the Redemption Amount. The
Closing Balance Sheet (the "Closing Balance Sheet") shall (x) fairly present the
consolidated financial position of the Company and the Subsidiaries as at the
close of business on the Closing Date in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with those used in the
preparation of the Balance Sheet, (y) include line items substantially
consistent with those in the Balance Sheet, and (z) be prepared in accordance
with accounting policies and practices including those described in Schedule 2.3
consistent with those used in the preparation of the Balance Sheet, except that
any liability relating to the Taxes for which the Stockholders are liable to pay
under Section 8.5(a)(iii) shall be excluded. "Closing Stockholders' Equity"
means the
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consolidated stockholders' equity of the Company and the Subsidiaries as shown
on the Closing Balance Sheet; provided that the determination of Closing
Stockholders' Equity shall exclude cash, the Excluded Assets and the proceeds of
any sale thereof prior to Closing, Indebtedness, including the Indebtedness
listed on Schedule 2.1(d), and the items set forth on Schedule 2.4.
(b) If Buyer disagrees with the Stockholders' calculation of Closing
Stockholders' Equity delivered pursuant to Section 2.3(a), Buyer may, within 30
days after delivery of the documents referred to in Section 2.3(a), deliver a
notice to the Stockholders disagreeing with such calculation and setting forth
Buyer's calculation of such amount. Any such notice of disagreement shall
specify those items or amounts as to which Buyer disagrees, and Buyer shall be
deemed to have agreed with all other items and amounts contained in the Closing
Balance Sheet and the calculation of Closing Stockholders' Equity delivered
pursuant to Section 2.3(a).
(c) If a notice of disagreement shall be duly delivered pursuant to
Section 2.3(b), Buyer and the Stockholders shall, during the 15 days following
such delivery, use their best efforts to reach agreement on the disputed items
or amounts in order to determine, as may be required, the amount of Closing
Stockholders' Equity, which amount shall not be more than the amount thereof
shown in the Stockholders' calculation delivered pursuant to Section 2.3(a) nor
less than the amount thereof shown in Buyer's calculation delivered pursuant to
Section 2.3(b). If, during such period, Buyer and the Stockholders are unable to
reach such agreement, they shall promptly thereafter cause independent
accountants of nationally recognized standing reasonably satisfactory to Buyer
and the Stockholders (who shall not have any material relationship with Buyer or
the Stockholders) (the "Auditor") promptly to review this Agreement and the
disputed items or amounts for the purpose of calculating Closing Stockholders'
Equity. In making such calculation, the Auditor shall consider only those items
or amounts in the Closing Balance Sheet or the Stockholders' calculation of
Closing Stockholders' Equity and the Redemption Amount as to which Buyer has
disagreed. In making its determination of the Closing Stockholders' Equity and
the Redemption Amount, the Auditor shall be bound by the provisions of this
Agreement. The Auditor shall deliver to Buyer and the Stockholders, as promptly
as practicable, a written report setting forth such calculation. Such report
shall be final and binding upon Buyer and the Stockholders. The cost of such
review and report shall be borne (i) by the Stockholders if the difference
between Final Stockholders' Equity (as defined in Section 2.4(a)) and the
Stockholders' calculation of Closing Stockholders' Equity delivered pursuant to
Section 2.3(a) is greater than the difference between Final Stockholders' Equity
and Buyer's calculation of Closing Stockholders Equity delivered pursuant to
Section 2.3(b); (ii) by Buyer if the first such difference is less than the
second such difference; and (iii) otherwise equally by Buyer and the
Stockholders.
(d) Buyer and the Stockholders agree that they will, and agree to
cause their respective independent accountants and the Company and each
Subsidiary to, cooperate and assist in the preparation of the Closing Balance
Sheet and the calculation of Closing Stockholders' Equity and in the conduct of
the audits and reviews referred to in this Section 2.3, including without
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limitation, the making available to the extent necessary of books, records, work
papers and personnel.
SECTION 2.4 Adjustment of Redemption Amount.
(a) If Base Stockholders' Equity exceeds Final Stockholders' Equity,
the Stockholders shall pay to Buyer, as an adjustment to the Redemption Amount,
in the manner and with interest as provided in Section 2.4(c),the amount of such
excess. If Final Stockholders' Equity exceeds Base Stockholders' Equity, Buyer
shall pay to the Stockholders, in the manner and with interest as provided in
Section 2.4(c), the amount of such excess. "Base Stockholders' Equity" means
$121,601,000, which amount is the consolidated stockholders' equity of the
Company and the Subsidiaries as shown on the Balance Sheet after the exclusion
of cash, the Excluded Assets, Indebtedness, including the Indebtedness listed on
Schedule 2.1(d). and the items set forth on Schedule 2.4. "Final Stockholders'
Equity" means the Closing Stockholders' Equity (i) as shown in the Stockholders'
calculation delivered pursuant to Section 2.3(a), if no notice of disagreement
with respect thereto is duly delivered pursuant to Section 2.3(b), or (ii) if
such a notice of disagreement is delivered, (A) as agreed by Buyer and the
Stockholders pursuant to Section 2.3(c), or (B) in the absence of such
agreement, as shown in the Auditor's calculation delivered pursuant to Section
2.3(c); provided that in no event shall Final Stockholders' Equity be more than
the Stockholders' calculation of Closing Stockholders' Equity delivered pursuant
to Section 2.3(a) or less than Buyer's calculation of Closing Stockholders'
Equity delivered pursuant to Section 2.3(b).
(b) Any payment pursuant to Section 2.4(a) shall be made at a
mutually convenient time and place within 10 days after the Final Stockholders'
Equity has been determined by delivery by Buyer or the Stockholders, as the case
may be, of a certified or official bank check payable in immediately available
funds to the other party or by causing such payments to be credited to such
account of such other party as may be designated by such other party; provided
that either Buyer or the Stockholders shall have the right, exercisable in its
sole discretion, to pay the other party an advance toward the adjustment to the
Redemption Amount determined in accordance with the first two sentences of
Section 2.4(a) before the actual amount of said adjustment is determined. The
amount and timing of the payment of the advance, if any, shall be determined by
the Stockholders or Buyer, as applicable. Any advance so paid shall be netted
against the actual amounts of adjustments to the Redemption Amount calculated
under Section 2.4(a).
(c) The amount of any payment to be made pursuant to this Section
2.4 shall bear interest from and including the Closing Date to but excluding the
date of payment at a rate per annum equal to the prime rate as published in The
Wall Street Journal, Midwest Edition, in effect from time to time during the
period from the Closing Date to the date of payment. Such interest shall be
payable at the same time as the payment to which it relates and shall be
calculated daily on the basis of a year of 365 days and the actual number of
days elapsed.
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SECTION 2.5. Pre-Closing or Concurrent Transactions. It is understood and
agreed that prior to, or concurrent with, the Closing, the Company will (i)
distribute the Excluded Assets to the Stockholders in kind as a result of the
Excluded Assets Redemption or otherwise dispose of the Excluded Assets, and
distribute the cash on hand at Closing, and (ii) pay, or cause to be paid, all
performance or sale related bonuses (other than incentive bonuses related to
1999 performance), stock appreciation right payments, option payments, deferred
compensation payments, payments under the Retirement Plan for Outside Directors
and the Supplemental Executive Retirement Plan, and transaction fees, broker's
fees, transfer taxes and related closing expenses owed by the Company
immediately prior to or upon consummation of the transactions contemplated
hereby that are not otherwise allocated between the parties pursuant to the
provisions of this Agreement.
SECTION 2.6. Adjustment for Deferred Compensation Payments. At or within
two business days after the Closing, the Company will pay to the Seller's
Representative the sum of $2,774,339 representing the agreed lost value of the
Stockholders as calculated on Schedule 2.6 of the tax deductions attributable to
the payments required to be made by the Company under Section 2.5(u) and listed
on Schedule 2.6.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Company and the Stockholders jointly and severally represent and
warrant to Buyer as of the date hereof that:
SECTION 3.1. Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required 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 such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.2 Authorization. The execution, delivery and performance by the
Company and the Stockholders of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of each Stockholder. This Agreement constitutes the valid and
binding agreement of the Company and each Stockholder, enforceable against the
Company and such Stockholder in accordance with its terms, except that such
enforcement may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles (regardless of whether considered
in a proceeding at law or in equity).
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SECTION 3.3 Government Authorization. The execution, delivery and
performance by the Company and the Stockholders of this Agreement and the
consummation of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency or official prior to
the Closing.
SECTION 3.4 Noncontravention. Except as disclosed on Schedule 3.4, the
execution, delivery and performance by the Company and the Stockholders of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (i) violate the certificate of incorporation or bylaws of the
Company or any Subsidiary; (ii) assuming compliance with the matters referred to
in Section 3.3, violate any applicable law, rule, regulation, judgment,
injunction, order or decree; (iii) require any consent or other action by any
Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Stockholders or the Company or any Subsidiary or to a loss of any benefit to
which the Stockholders or the Company or any Subsidiary is entitled under any
provision of any agreement or other instrument binding upon the Stockholders or
the Company or any Subsidiary; or (iv) result in the creation or imposition of
any Lien on any asset of the Company or any Subsidiary, except for any Permitted
Liens.
SECTION 3.5 Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of 600,000 shares of common stock, $1.00 par value, and 5,000
shares of preferred stock, $100.00 par value, of which 459,465 shares of common
stock and no shares of preferred stock are outstanding.
(b) All outstanding Shares have been duly authorized and validly
issued and are fully paid and non-assessable. As of the date hereof except as
disclosed on Schedule 3.5(b), there are no outstanding (i) shares of capital
stock or voting securities of the Company other than the Shares; (ii) securities
of the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company; (iii) options or other rights to acquire from
the Company, or other obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses 3.5(b)(i),
3.5(b)(ii) and 3.5(b)(iii) being referred to collectively as the "Company
Securities") or (iv) stock appreciation rights or phantom stock plans. Except as
disclosed in Schedule 3.5(b), there are no outstanding obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities.
(c) There are no contractual shareholder preemptive rights or rights
of first refusal or similar restrictions with respect to issuance of the
Preferred Stock and Common Stock to be issued or the purchase of the Repurchased
Shares at the Closing. The Company has not violated any state or federal
securities laws in connection with the offer, sale or issuance of any of its
capital
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stock. Except as set forth on Schedule 3.5(c), there are no agreements between
the Stockholders or any other Person with respect to the voting or transfer of
the Company's capital stock.
SECTION 3.6 Ownership of Shares. Each Stockholder is the record owner of
the Shares set forth opposite its or their respective names in Schedule 1.1-A,
free and clear of all Liens, except for (i) restrictions imposed by federal and
state securities laws; (ii) the Stockholders Agreement, dated January 1, 1997,
among the Company and the Stockholders; and (iii) any lien imposed on Shares
owned by a "grantor-type trust" described in Section 671, et. seq. of the Code
which lien secures the obligations of such trust to its grantor. The
Stockholders will transfer and deliver to the Company at the Closing valid title
to the Repurchased Shares free and clear of all Liens.
SECTION 3.7 Subsidiaries.
(a) Each corporate Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Ruwido Austria Ges. mbH & Co. KG and ruwido GmbH & Co. KG are
limited partnerships, duly formed and validly existing under the laws of their
jurisdiction of formation. Each Subsidiary has all corporate or partnership
powers, as the case may be, and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those licenses, authorizations, consents and approvals the
absence of which would not have a Material Adverse Effect. All Subsidiaries and
their respective jurisdictions of incorporation or formation are identified on
Schedule 3.7(a).
(b) Except as disclosed in Schedule 3.7(b) as to each of the
representations of this Section 3.7, all of the outstanding capital stock or
other voting securities of each Subsidiary is owned by the Company, directly or
indirectly, free and clear of any Lien. There are no outstanding (i) securities
of the Company or any Subsidiary convertible into or exchangeable for shares of
capital stock or voting securities of any Subsidiary or (ii) options or other
rights to acquire from the Company or any Subsidiary, or other obligation of the
Company or any Subsidiary to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of any Subsidiary (the items in clauses 3.7(b)(i) and 3.7(b)(ii)
being referred to collectively as the "Subsidiary Securities"). There are no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any outstanding Subsidiary Securities.
SECTION 3.8 Financial Statements.
(a) The audited consolidated balance sheet of December 31, 1998 and
the related audited consolidated statements of income and cash flows for the
year ended December 31, 1998 of the Company and the Subsidiaries fairly present,
in conformity with U.S. generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto or in Schedule
2.3), the consolidated financial position of the Company and the
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<PAGE> 15
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). Such
statements are consistent with the books and records of the Company.
(b) Except as set forth on Schedule 3.8(b), as of the Balance Sheet
Date, neither the Company nor any Subsidiary had any liabilities of any nature,
whether known or unknown, accrued, absolute, contingent or otherwise, whether
due or to become due (the "Liabilities") which were required to be reflected in
and that were not reflected or reserved against in the Balance Sheet. Since the
Balance Sheet Date, neither the Company nor any Subsidiary has incurred
Liabilities that would be required to be reflected in the Balance Sheet except
Liabilities that were incurred in the usual and ordinary course of business
consistent with past practices.
SECTION 3.9 Absence of Certain Changes. Except as disclosed in Schedule
3.9, since the Balance Sheet Date, the business of the Company and its
Subsidiaries has been conducted in the ordinary course consistent with past
practices and there has not been:
(a) any event, occurrence or development which has had a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the Company,
except for any repurchase, redemption or other acquisition by the Company or any
Subsidiary of any outstanding shares of capital stock or other securities of the
Company or any Subsidiary in connection with the disposition of the Excluded
Assets;
(c) any amendment of any material term of any outstanding security
of the Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business consistent with past practices;
(e) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments made in the ordinary course of business consistent with past
practices;
(f) any transaction or commitment made or any contract or agreement
entered into by the Company or any Subsidiary relating to the sale, lease,
transfer or assignment of any of its assets or business, in either case,
material to the Company and the Subsidiaries, taken as a whole, other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement;
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<PAGE> 16
(g) any material change in any method of accounting or accounting
practice by the Company or any Subsidiary except for any such change required by
reason of a concurrent change in generally accepted accounting principles;
(h) any (i) employment, deferred compensation, severance,
retirement, change in control or other similar agreement entered into with any
director, officer or employee of the Company or any Subsidiary (or any amendment
to any such existing agreement); (ii) grant of any severance or termination pay
to any director, officer or employee of the Company or any Subsidiary; or (iii)
change in compensation or other benefits payable to any director, officer or
employee of the Company or any Subsidiary pursuant to any severance or
retirement plans or policies thereof, in each case other than in the ordinary
course of business consistent with past practices; or
(i) any execution or termination of a contract involving
consideration in excess of $250,000; any casualty loss in excess of $500,000;
any collective bargaining agreement entered into with the Company or any
Subsidiary; or any transaction with any Stockholder or an Affiliate of any
Stockholder, other than dividends permitted under Section 3.9(b) and the
disposition of the Excluded Assets.
SECTION 3.10 No Undisclosed Material Liabilities. There are no liabilities
of the Company or any Subsidiary of any kind, other than:
(a) liabilities provided for in the Balance Sheet or disclosed in
the notes thereto;
(b) liabilities disclosed on Schedule 3.10
(c) liabilities disclosed in, related to or arising under any
agreements, instruments or other matters disclosed in this Agreement or any
Schedule hereto (other than liabilities for breach of contract, breach of
warranty, tort, infringement or violation of law that are not disclosed on a
Schedule to this Agreement); or
(d) liabilities incurred in the ordinary course of business since
the Balance Sheet Date.
SECTION 3.11 Material Contracts.
(a) Schedule 3.11(a) lists the following contracts, agreements and other
arrangements to which the Company or any Subsidiary is a party, which will be in
force and effect after the Closing and denotes with an asterisk (*) whether the
consent of any third party thereto is required as a result of the consummation
of the transactions contemplated by this Agreement:
(i) any lease (whether of real or personal property) providing for
annual rentals
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<PAGE> 17
of $100,000 or more that cannot be terminated on not more than 60 days' notice
without payment by the Company or any Subsidiary of any material penalty;
(ii) any agreement for the purchase or license of materials,
supplies, goods, services, equipment or other assets providing for either (A)
annual payments by the Company and the Subsidiaries of $100,000 or more or (B)
aggregate payments by the Company and the Subsidiaries of $100,000 or more, in
each case that cannot be terminated on not more than 60 days' notice without
payment by the Company or any Subsidiary of any material penalty;
(iii) any sales, distribution, lease or other similar agreement
providing for the sale or lease by the Company or any Subsidiary of materials,
supplies, goods, services, equipment or other assets (whether of real or
personal property) that provides for annual payments to the Company and the
Subsidiaries of $100,000 or more;
(iv) any material cooperative development agreement or material
partnership, joint venture or other similar agreement or arrangement;
(v) any agreement relating to the acquisition or disposition of any
material business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money or
the deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset), except any such agreement (A) with
an outstanding principal amount not exceeding $500,000 or (B) entered into
subsequent to the date of this Agreement as permitted by Section 3.9(d);
(vii) any material agreement or other agreements that limits the
freedom of the Company or any Subsidiary to compete in any line of business or
with any Person or in any area;
(viii) any agreement with any of the Company's Affiliates or any
director or officer of the Company or any of its Affiliates that will bind the
Company or any Subsidiary after the Closing;
(ix) any agreement concerning confidentiality (other than with
customers and suppliers entered into in the ordinary course of business) or any
contract to acquire any interests in the Company, its Subsidiaries or their
property;
(x) employment or collective bargaining agreements;
(xi) powers of attorney other than routine customs or shipping
powers of attorney;
(xii) agreements, the performance of which involves consideration in
excess of
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<PAGE> 18
$250,000; or
(xiii) any profit sharing, bonus, deferred compensation, severance,
welfare benefit plan or employee benefit plan for the benefit of any current or
former directors, officers or employees of the Company.
(b) Each agreement, contract, plan, lease, arrangement or commitment
required to be disclosed pursuant to this Section is a valid and binding
agreement of the Company or a Subsidiary, as the case may be, and is in full
force and effect, and none of the Company, any Subsidiary or, to the knowledge
of the Company or the Stockholders, any other party thereto is in default or
breach in any respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment.
SECTION 3.12 Litigation. Except as disclosed on Schedule 3.12, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of the Company or the Stockholders, threatened against or affecting, the
Stockholders, the Company or any Subsidiary or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official.
SECTION 3.13 Compliance with Laws and Court Orders. Neither the Company
nor any Subsidiary is in violation of any applicable law, rule, regulation,
judgment, injunction, order or decree.
SECTION 3.14 Properties.
(a) Except for the properties subject to contracts for sale noted on
Schedule 3.14(a), the Company and the Subsidiaries have good title to, or in the
case of leased property and assets have valid leasehold interests in, all
property and assets (whether real, personal, tangible or intangible) reflected
on the Balance Sheet or acquired after the Balance Sheet Date, except for
properties and assets sold since the Balance Sheet Date in the ordinary course
of business consistent with past practices. Schedule 3.14(a) sets forth a list
of all real property (the "Owned Real Property") owned and used by the Company
or its Subsidiaries in the operation of their businesses. There are no
outstanding rights of first refusal to purchase any part of the Owned Real
Property. The current use of the Owned Real Property does not violate in any
material respect any instrument of record or agreement affecting such Owned Real
Property. There is no material violation of any covenant, condition,
restriction, easement, agreement or order of any governmental authority having
jurisdiction over any of the Owned Real Property.
(b) With respect to leases of real property disclosed on Schedule
3.11 (the "Leased Real Property"), the Company has delivered to Buyer true,
correct and complete copies of each such lease. No party to any such lease has
repudiated any provision thereof, and there are no disputes, oral agreements or
forbearance programs in effect as to such a lease. The Company has
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<PAGE> 19
not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in such leases.
(c) To the best of the Company's knowledge and belief, there are no
facts or conditions affecting any of the improvements on the Owned or Leased
Real Property (the "Real Property") which would, individually or in the
aggregate, interfere in any material respect with the use, occupancy or
operation thereof
(d) None of such property or assets is subject to any Lien, except:
(i) Liens disclosed on Schedule 3.14(d)
(ii) Liens disclosed on the Balance Sheet or notes thereto or
securing liabilities reflected on the Balance Sheet or notes thereto;
(iii) Liens for taxes, assessments and similar charges that
are not yet due and payable or are being contested in good faith;
(iv) mechanic's, materialman's, workmen's, carrier's,
repairer's and other similar Liens arising or incurred in the ordinary course of
business or that are not yet due and payable or are being contested in good
faith; or
(v) Liens incurred in the ordinary course of business since
the Balance Sheet Date (Subsections (i)-(v) of this Section 3.14(d) are,
collectively, the "Permitted Liens").
(e) The assets owned or leased by the Company and its Subsidiaries include
all buildings, machinery, equipment, and other tangible assets reasonably
necessary for the conduct of the businesses of the Company and its Subsidiaries
as presently conducted, and such assets are, subject to normal wear and tear, in
good operating condition, and are suitable for the purposes for which they
presently are used.
SECTION 3.15 Intellectual Property.
(a) Schedule 3.15(a) contains a complete and accurate list of all of
the following Intellectual Property Rights owned or licensed and used or held
for use by the Company or any Subsidiary ("Company Intellectual Property
Rights"), specifying as to each, as applicable:
(i) patents and other registered Intellectual Property
Rights;
(ii) applications for patents or registrations of
Intellectual Property Rights;
(iii) material unregistered Intellectual Property
Rights; or
(iv) material licenses, sublicenses or similar
agreements or arrangements relating to Company Intellectual Property Rights to
which the Company or any
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Subsidiary is a party.
For each such item of Company Intellectual Property Rights, Schedule
3.15(a) shall specify, as applicable, (A) the nature of such Intellectual
Property Right; (B) the owner of such Intellectual Property Right; (C) the
jurisdictions by or in which such Intellectual Property Right (Y) is recognized
(without regard to registration) or (Z) has been issued or registered or in
which an application for such issuance or registration has been filed; (D) the
registration or application numbers; and (E) the filing or issue dates.
(b) Except as disclosed in Schedule 3.15(b), there are no material
licenses, sublicenses or other similar agreements or arrangements as to which
the Company or any Subsidiary is a party and pursuant to which any Person is
authorized to use any Company Intellectual Property Right.
(c) No Company Intellectual Property Right is subject to any
outstanding judgment, injunction, order, decree or agreement restricting the use
thereof by the Company or any Subsidiary or restricting the licensing thereof by
the Company or any Subsidiary to any person, except for any judgment,
injunction, order, decree or agreement which would not reasonably be expected to
have a Material Adverse Effect.
(d) All of the Company Intellectual Property Rights are or will be
owned by, or properly assigned or licensed to, the Company or a Subsidiary at
the time of the Closing. The transactions contemplated by this Agreement will
have no adverse effect on the Company's or its Subsidiaries' right, title and
interest in and to the Company Intellectual Property Rights. The Company and its
Subsidiaries have taken all reasonably necessary action to maintain and protect
the Company Intellectual Property Rights. Except as disclosed on Schedule
3.15(d), no claim by any third party contesting the validity, enforceability,
use or ownership of any of the Company Intellectual Property Rights has been
made, is currently outstanding or is threatened. Except as disclosed on Schedule
3.15(d), none of the Stockholders, the Company or the Subsidiaries has received
any notices of, and is not aware of any facts which indicate a likelihood of,
any infringement or misappropriation by, or conflict with, any third party with
respect to the Company Intellectual Property Rights (including, without
limitation, any demand or request that the Company or any Subsidiary license any
rights from a third party). Except as disclosed on Schedule 3.15(d), none of the
Stockholders, the Company or the Subsidiaries has infringed, misappropriated or
otherwise conflicted any patent, trademark or license of any third party and
none of the Stockholders, the Company or the Subsidiaries is aware of any
infringement, misappropriation or conflict with any other Intellectual Property
Rights or other rights of any third parties which has occurred in connection
with the operation of the businesses of the Company and the Subsidiaries or will
occur as a result of the continued operation of the businesses of the Company
and the Subsidiaries as currently conducted.
SECTION 3.16 Insurance Coverage. Schedule 3.16 attached hereto sets forth
the following
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information with respect to each material insurance policy insuring the
properties, business or assets of the Company or its Subsidiaries to which the
Company or its Subsidiaries is a party, a named insured, or otherwise the
beneficiary of coverage: (a) the name of the insurer, the name of the
policyholder, and the name of each covered insured (if other than the Company);
(b) the scope, period and amount of coverage; and (c) a description of any
retroactive premium adjustments or other loss-sharing arrangements.
With respect to each insurance policy disclosed on Schedule 3.16: (a) the
policy is legal, valid, binding and enforceable in accordance with its terms and
is in full force and effect; (b) neither the Company nor any of its Subsidiaries
is in breach or default (including with respect to the payments of the premiums
or the giving of notices), and no event has occurred which with notice or lapse
of time would constitute a breach of default by the Company or its Subsidiaries
or permit the insurer to terminate, modify or accelerate, such policy; (c)
neither the Company nor any of its Subsidiaries has repudiated any provision of
such policy; (d) to the Company's or its Subsidiaries' knowledge, the insurer is
not in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach of default by the insurer or permit the
Company or its Subsidiaries to terminate, modify or accelerate, such policy; and
(e) there are no material claims by the Company or any Subsidiary pending under
any of such policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or in respect of which such
underwriters have reserved their rights. Schedule 3.16 describes any
self-insurance arrangements affecting the Company or its Subsidiaries.
SECTION 3.17 Finders' Fees. Except for Lehman Brothers, Inc. and Hambrecht
& Quist LLC whose fees will be paid by the Stockholders, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Stockholders or the Company or any Subsidiary
who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
SECTION 3.18 Employees. The Company has made available to Buyer a true and
complete list of (a) the names, titles, annual salaries and other compensation
of all officers of the Company and its Subsidiaries and all other employees of
the Company and its Subsidiaries whose annual base salary equals or exceeds
$125,000 and (b) the wage rates for all other employees of the Company and its
Subsidiaries (by classification). To the knowledge of the Company or the
Stockholders, no executive, key employee or group of employees of the Company or
its Subsidiaries has any plans to terminate employment with the Company or its
Subsidiaries.
SECTION 3.19 Employee Benefit Plans.
(a) Schedule 3.19(a) identifies each Employee Plan. The Stockholders
have made available to Buyer copies of the Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof together with the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) and the most recent actuarial
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valuation report prepared in connection with any Employee Plan. Schedule 3.19(a)
identifies each Employee Plan which is (i) a Title IV Plan or (ii) maintained in
connection with any trust described in Section 501(c)(9) of the Code. No
Employee Plan is a Multiemployer Plan.
(b) Neither the Company nor any ERISA Affiliate of the Company has
(i) engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii)
incurred, or reasonably expects to incur prior to the Closing Date (A) any
liability under Title IV of ERISA arising in connection with the termination of,
or a complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA, (B) any liability under Section 4971 of the Code, or (C)
any liability for failure to make a contribution to any plan when due, that, in
any of cases (A), (B) or (C), could become a liability of the Company or any
Subsidiary or Buyer or any of its ERISA Affiliates after the Closing Date.
(c) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to its qualification and, to the knowledge of
the Company and the Stockholders, there has been no event since the date of such
determination which would adversely affect such qualification; each trust
created under any such Plan has been determined by the Internal Revenue Service
to be exempt from tax under Section 501(a) of the Code and, to the knowledge of
the Company and the Stockholders, there has been no event since the date of such
exemption which would adversely affect such exemption. The Stockholders have
provided Buyer with the most recent determination letter of the Internal Revenue
Service relating to each such Employee Plan. Each Employee Plan has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code.
(d) Schedule 3.19(d) identifies each material Benefit Arrangement.
The Stockholders have furnished to Buyer copies or descriptions of each material
Benefit Arrangement (and, if applicable, related trust agreements) and all
amendments thereto and written descriptions thereof provided to participants.
Each material Benefit Arrangement has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations and has been maintained in good standing
with applicable regulatory authorities.
(e) Except as set forth in Schedule 3.19(e), neither the Company nor
any Subsidiary has any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance benefits
for retired, former or current employees of the Company or any Subsidiary,
except as required to avoid excise tax under Section 4980B of the Code.
(f) With respect to each Employee Plan and Benefit Arrangement,
there are no
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actions, suits or investigations or claims pending or threatened (other than
routine claims for benefits and routine joinders in domestic cases), and there
are no facts which would give rise to any liability, action, suit,
investigation, or claim (other than facts giving rise to routine claims for
benefits and routine joinders in domestic cases) against any Employee Plan or
Benefit Arrangement, any fiduciary or plan administrator or other person dealing
with any Employee Plan or Benefit Arrangement or the assets of any such Employee
Plan or Benefit Arrangement.
(g) Each executive compensation, bonus, incentive, nonqualified
retirement or supplemental executive retirement plan will be either terminated
or fully funded or fully accrued as a liability on a termination basis as of the
Closing on the Closing Balance Sheet.
SECTION 3.20 Environmental Matters. Except as disclosed on Schedule 3.20,
to the knowledge of the Company and the Stockholders:
(a) no written notice, request for information, order compliant or
penalty has been received, and there are no judicial, administrative or other
actions, suits or proceedings pending or threatened which allege a potential or
actual violation of any Environmental Law or any liability or potential
liability, in each case relating to the Company or any Subsidiary and arising
out of any Environmental Law;
(b) the Company and each Subsidiary have all environmental permits,
licenses or other authorizations necessary for their operations to comply with
all applicable Environmental Laws and have complied and are in compliance with
the terms of such permits, licenses and authorizations and with all other
applicable Environmental Laws;
(c) there has been no written environmental audit or assessment
conducted within the past five years by the Stockholders, the Company or any
Subsidiary of any property currently owned or leased by the Company or any
Subsidiary which has not been made available to Buyer prior to the date hereof.
A list of such audits and assessments is provided on Schedule 3.20
(d) except as disclosed on Schedule 3.20, none of the following
exists at any property owned or operated by the Company or its Subsidiaries: 1)
underground storage tanks; 2) asbestos containing materials; 3) materials or
equipment containing polychlorinated biphenyls; or 4) landfills, surface
impoundments or disposal areas;
(e) the Company and its Subsidiaries have not treated, stored,
disposed of or arranged for the disposal of, transported, handled or released
any substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or could give
rise to liabilities of the Company or its Subsidiaries, including any liability
for response costs, investigatory costs, corrective action costs, personal
injury, property damages, natural resources
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damages or attorney fees, pursuant to CERCLA or other Environmental Laws;
(f) to the knowledge of the Company and the Stockholders, no facts,
events or conditions relating to the past or present facilities, properties or
operations of the Company or its Subsidiaries will prevent, hinder or limit
continued compliance with Environmental Laws; and
(g) neither the Company nor its Subsidiaries have, either expressly
or by operation of law, assumed or undertaken any liability, including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental Laws.
SECTION 3.21 Customers and Suppliers. Since the Balance Sheet Date, no
material supplier of the Company or any Subsidiary has indicated that it shall
stop or materially decrease the rate of supplying materials, products or
services to the Company or any Subsidiary, and no material customer has
indicated to the Company or any Subsidiary that it shall stop or materially
decrease the rate of, buying materials, products or services from the Company or
any Subsidiary.
SECTION 3.22 Certain Transactions. Neither the Company nor any of its
Subsidiaries is bound by or subject to any agreement, contract or understanding
with respect to a Company Transaction (as defined in Section 5.6) other than
this Agreement, and the Company has terminated all discussions with third
parties regarding such a Company Transaction.
SECTION 3.23 Y2K Warranty. The Stockholders warrant that the Company's
products (transducers and transducer related products, ET-Series fixtures,
KEMAR, volume controls, trimmers, and headsets) do not require any change to
accommodate the year 2000. The Stockholders warrant that the Company's internal
computer systems and applications that are under the Company's control will not
cause a disruption to the supply of goods and services provided by the Company
as a result of the year 2000 compliance.
SECTION 3.24 Disclosure. To the knowledge of the Company and the
Stockholders, the representations and warranties contained in this Section 3
(including the Schedules attached hereto), do not omit to state a material fact
necessary in order to make the statements and information contained in this
Article 3 not misleading.
SECTION 3.25 Closing Date. The representations and warranties contained in
this Article 3, will be true and correct on the Closing Date as though then
made, except for written disclosures made to Buyer prior to the Closing and
consequences of the disposition of the Excluded Assets and the consummation of
the Transactions.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Stockholders as of the date hereof
that:
SECTION 4.1 Corporate Existence and Power. Buyer is a limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have a Material
Adverse Effect.
SECTION 4.2 Authorization. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Buyer. This Agreement constitutes a valid and binding agreement of Buyer,
enforceable against Buyer in accordance with its terms except that such
enforcement may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles (regardless of whether considered
in a proceeding at law or in equity).
SECTION 4.3 Government Authorization. Except as disclosed in Schedule 4.3,
the execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency or official prior to
the Closing. Buyer has obtained prior hereto the necessary consents relating to
the items on Schedule 4.3.
SECTION 4.4 Noncontravention. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) violate the certificate of formation or operating
agreement of Buyer, (ii) assuming compliance with the matters referred to in
Section 4.3, violate any applicable law, rule, regulation, judgment, injunction,
order or decree, (iii) require any consent or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Buyer or to a loss of
any benefit to which Buyer is entitled under any provision of any agreement or
other instrument binding upon Buyer; or (iv) result in the creation or
imposition of any Lien on any asset of Buyer.
SECTION 4.5 HSR Act. Under the HSR Act, Buyer is the ultimate parent
entity, and neither the sales nor the assets of Buyer equals or exceeds $10
million. Therefore, neither the Buyer nor the Stockholders are required to file
premerger notifications under the HSR Act.
SECTION 4.6 Purchase for Investment. Buyer is purchasing the Preferred
Stock and Common Stock set forth on Schedule 2.1(b) for investment for Buyer's
own account and not with
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a view to, or for sale in connection with, any distribution thereof. Buyer
(either alone or together with its advisors) has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Preferred Stock and Common Stock
set forth on Schedule 2.1(b) and is capable of bearing the economic risks of
such investment and agrees that the Preferred Stock and Common Stock set forth
on Schedule 2.1(b) may not be sold, transferred, encumbered or otherwise
disposed of except in compliance with applicable federal and state securities
laws.
SECTION 4.7 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer before any court or arbitrator or any governmental body, agency
or official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
SECTION 4.8 Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer who might be entitled to any fee or commission from the
Stockholders or any of their Affiliates upon consummation of the transactions
contemplated by this Agreement.
SECTION 4.9 Inspections; No Other Representations. Buyer is an informed
and sophisticated purchaser and has engaged expert advisors, experienced in the
evaluation and purchase of companies such as the Company and the Subsidiaries as
contemplated hereunder. Buyer has undertaken such investigation and has been
provided with and has evaluated such documents and information as it has deemed
necessary to enable it to make an informed and intelligent decision with respect
to the execution, delivery and performance of this Agreement. Buyer acknowledges
that the Stockholders have given Buyer complete and open access to the key
employees, documents and facilities of the Company and the Subsidiaries. Buyer
will undertake prior to Closing such further investigation and request such
additional documents and information as it deems necessary. Buyer agrees to
accept the Company and Subsidiaries, in the condition they are in on the Closing
Date based upon its own inspection, examination and determination with respect
thereto as to all matters, and without reliance upon any express or implied
representations or warranties of any nature made by or on behalf of or imputed
to the Stockholders, except as expressly set forth in this Agreement. Without
limiting the generality of the foregoing, Buyer acknowledges that the
Stockholders make no representation or warranty with respect to (i) any
projections, estimates or budgets delivered to or made available to Buyer of
future revenues, future results of operations (or any component thereof), future
cash flows or future financial condition (or any component thereof) of the
Company and the Subsidiaries or the future business and operations of the
Company and the Subsidiaries or (ii) any other information or documents made
available to Buyer or its counsel, accountants or advisors with respect to the
Company or the Subsidiaries or their respective businesses or operations, except
as expressly set forth in this Agreement.
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ARTICLE 5
COVENANTS OF THE STOCKHOLDERS
The Stockholders agree that:
SECTION 5.1 Conduct of the Company. From the date hereof until the Closing
Date, the Stockholders shall cause the Company and each Subsidiary to conduct
its businesses in the ordinary course consistent with past practice and to use
its reasonable efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, except as disclosed on
Schedule 5.1, the Stockholders will not permit the Company or any Subsidiary to:
(a) adopt or propose any change in its certificate of incorporation
or bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets from any other Person;
(c) sell, lease, license or otherwise dispose of any material assets
or property except (i) pursuant to existing contracts or commitments or (ii)
otherwise in the ordinary course consistent with past practice;
(d) authorize, issue, sell or otherwise dispose of any shares of
capital stock of or any option with respect to the Company or any Subsidiary, or
modify or amend any right of any holder of outstanding shares of capital stock
of or option with respect to the Company or any Subsidiary;
(e) declare, set aside or pay any dividend or other distribution in
respect of the capital stock of the Company or any Subsidiary not wholly owned
by the Company, except for dividends of which notice has been given to Buyer, or
directly or indirectly redeem, purchase or otherwise acquire any capital stock
of or any option with respect to the Company or any Subsidiary not wholly owned
by the Company except in connection with the disposition of the Excluded Assets;
or
(f) take any action that would require disclosure under Section 3.9;
or
(g) change any accounting policies or methods, except as required by
generally accepted accounting principles; or
(h) enter into any transaction with any Stockholder or any Affiliate
of any Stockholder (an "Affiliated Transaction") or any officers, directors or
employees of the Company or its Subsidiaries (other than with respect to
officers, directors and employees in the ordinary course
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of business consistent with past practice) other than dividends permitted under
Section 3.9 or with respect to the disposition of the Excluded Assets; or
(i) agree or commit to do any of the foregoing.
SECTION 5.2 Other Conduct of the Company. Nothing contained in this
Agreement shall be deemed to limit in any way the Stockholders' ability to cause
the Company or any Subsidiary to make distributions or otherwise dispose of the
Excluded Assets to the Stockholders or any Affiliate of the Stockholders or to
incur indebtedness for borrowed money so long as the principal amount of such
indebtedness outstanding as of the Closing has been included in the aggregate
principal amount of all indebtedness for borrowed money of the Company and
Subsidiaries on the Closing Balance Sheet and prepayment thereof is permitted
without premium or penalty.
SECTION 5.3 Access to Information. From the date hereof until the Closing
Date, the Stockholders will (i) give, and will cause the Company and each
Subsidiary to give, Buyer, its counsel, financial advisors, auditors, lenders,
consultants and other authorized representatives reasonable access to the
offices, key employees, properties, books and records of the Company and the
Subsidiaries; (ii) furnish, and will cause the Company and each Subsidiary to
furnish, to Buyer, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to the Company or any Subsidiary as such Persons may
reasonably request; and (iii) instruct counsel and financial advisors of the
Stockholders or the Company or any Subsidiary to cooperate with Buyer in its
investigation of the Company or any Subsidiary. Any investigation pursuant to
this Section shall be conducted in such manner as not to interfere unreasonably
with the conduct of the business of the Stockholders, the Company or any
Subsidiary. Notwithstanding the foregoing, Buyer shall not have access to
personnel records of the Company and the Subsidiaries relating to individual
performance or evaluation records, medical histories or other information which
in the Stockholders' good faith opinion is sensitive or the disclosure of which
could subject the Company or any Subsidiary to risk of liability.
SECTION 5.4 Notices of Certain Events. The Stockholders shall promptly
notify Buyer of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(c) material variances from the representations and warranties
contained in Article 3;
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(d) any actions, suits, claims investigations or proceedings
commenced relating to Stockholders or the Company or any Subsidiary that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.12; and
(e) any change in the financial condition of the Company or any
Subsidiary or in their properties, Liabilities or operations which has or may be
reasonably expected to have a Material Adverse Effect.
SECTION 5.5 Resignations. Stockholders will deliver to Buyer the
resignations of all directors of the Company and each Subsidiary at or prior to
the Closing Date.
SECTION 5.6 Exclusivity. Until consummation of the transactions
contemplated hereby or termination of this Agreement pursuant to Article 12,
none of the Company, the Stockholders or any of their respective Subsidiaries,
Affiliates, representatives, officers, employees, directors, or agents will,
directly or indirectly, (a) submit, solicit, initiate, encourage or discuss any
proposal or offer from any Person or enter into any agreement or accept any
offer relating to any (i) reorganization, liquidation, dissolution or
refinancing of any of the Company or any of its Subsidiaries, (ii)
recapitalization, merger or consolidation involving the Company or any of its
Subsidiaries, (iii) purchase or sale of substantially all of the assets (other
than a purchase or sale of inventory in the ordinary course of business
consistent with past custom and practice) or capital stock or equity interest of
the Company or any of its Subsidiaries or (iv) similar transaction or business
combination involving the Company or any of its Subsidiaries or the assets of
any of them (each of the foregoing actions described in clauses (i) through
(iv), a "Company Transaction") or (b) furnish any information with respect to,
assist or participate in or facilitate in any other manner any effort or attempt
by any Person to do or seek to do any of the foregoing; provided that any
transactions contemplated hereby or involving a disposition of the Excluded
Assets shall not constitute a Company Transaction for purposes hereof. The
Company and each Stockholder agrees to notify Buyer immediately if any Person
makes any proposal, offer, inquiry or contact with respect to a Company
Transaction.
SECTION 5.7 Noncompete and Nonsolicitation. As an inducement to Buyer to
enter into this Agreement and consummate the transactions contemplated hereby,
each of the Stockholders acknowledges and agrees as follows:
(a) During the period from the Closing Date to and including the
fifth anniversary of the Closing Date (the "Noncompete Period"), no Stockholders
shall have any affiliation (as defined below) with any Person anywhere in the
world which engages in the sale of products sold by the Company and its
Subsidiaries or which competes with the businesses of the Company and its
Subsidiaries, as such products and businesses exist or are in process as of the
Closing Date; provided that nothing contained herein shall be construed to
prohibit any Stockholders from purchasing (i) securities of the Company or (ii)
up to an aggregate of 2% of any class of the outstanding voting securities of
any Person whose securities are listed on a
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national securities exchange or traded in the NASDAQ national market system (a
"Public Company") (including, for purposes of calculating the percentage of such
securities which may be purchased by such Stockholder, the securities of such
Public Company then owned by all Affiliates of such Stockholder to the extent
such Persons are acting in concert or otherwise constitute a "group" for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934) if such
Stockholder does not have an active role in the management of such Public
Company, it being understood that the exercise of voting rights with respect to
any such voting securities, in and of itself, shall not constitute such a role.
For purposes of this Section 5.7, the term "affiliation" shall mean any direct
or indirect interest in a Person, whether as an officer, director, employee,
investor, partner, stockholder, sole proprietor, trustee, consultant, agent,
representative, broker, promoter or otherwise.
(b) During the Noncompete Period, each of the Stockholders shall
not, and shall not permit any of his or her Affiliates to (i) induce or attempt
to induce any employee of the Company or its Subsidiaries to leave the employ of
such Company or its Subsidiaries, or in any way interfere with the relationship
between the Company or its Subsidiaries and any employee thereof, (ii) hire
directly or through an Affiliate any person who, to such Person's knowledge, was
an employee of the Company or its Subsidiaries within 180 days prior to the
Closing Date, or (iii) induce or attempt to induce any customer, supplier,
licensee or other business relation of the Company or its Subsidiaries to cease
doing business with the Company or its Subsidiaries or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation of the Company or its Subsidiaries.
(c) Notwithstanding anything in this Section 5.7 to the contrary, if
at any time, in any judicial proceeding, any of the restrictions stated in this
Section 5.7 are found by a final order of a court of competent jurisdiction to
be unreasonable or otherwise unenforceable under circumstances then existing,
each Stockholder agrees that the period, scope or geographical area, as the case
may be, shall be reduced to the extent necessary to enable the court to enforce
the restrictions to the extent such provisions are allowable under law, giving
effect to the agreement and intent of the parties that the restrictions
contained herein shall be effective to the fullest extent permissible. The
Stockholders acknowledge and agree that money damages may not be an adequate
remedy for any breach or threatened breach of the provisions of Section 5.7(a)
or Section 5.7(b) and that, in such event, Buyer or its successors or assigns
may, in addition to any other rights and remedies existing in their favor, apply
to any court of competent jurisdiction for specific performance, injunctive
and/or other relief in order to enforce or prevent any violations of the
provisions of this Section 5.7 (including the extension of the Noncompete Period
applicable to any Stockholder by a period equal to the length of court
proceedings necessary to stop such violation); provided that such Stockholder is
found to have been in violation of the provisions of this Section 5.7. Any
injunction shall be available without the posting of any bond or other security.
In the event of an alleged breach or violation by any such Stockholder of any of
the provisions of this Section 5.7, the Noncompete Period will be tolled for any
such Stockholder until such alleged breach or violation is resolved. The
Stockholders agree that the restrictions contained
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in this Section 5.7 are reasonable in all respects. $114,866.25 of the
Redemption Amount is in consideration of the covenants contained in this Section
5.7.
SECTION 5.8 Real Estate Matters.
(a) Title Insurance. The Company shall obtain, in preparation for
Closing and shall have delivered to Buyer, a commitment for an ALTA Owners or
Leasehold Policy of Title Insurance, as the case may be, for each parcel of Real
Property located in the United States (the "Title Commitments"), issued by a
title insurer satisfactory to Buyer (the "Title Insurer"), in such amount as
Buyer reasonably determines to be the fair market value (including all
improvements thereon), insuring Buyer's interest in such parcel as of Closing,
subject only to the Permitted Liens. The Company will provide Buyer with title
insurance policies ("Title Policies") on or before the Closing, from the Title
Insurer based upon the Title Commitments. The Company will deliver to the Title
Insurer all affidavits, undertakings and other title clearance documents
necessary to issue the Title Policies and endorsements thereto. Each such Title
Policy will be dated as of the date of Closing and (a) insure title to the
applicable parcels of real estate and all recorded easements benefitting such
parcels, subject only to Permitted Liens, and (b) contain such other
endorsements as Buyer and Buyer's lender, if any, may reasonably request. The
Stockholders shall bear one-half of the expense of the Title Commitments and
Title Policies and Buyer shall bear the other one-half of such expense.
(b) Surveys. The Company shall obtain in preparation for the
Closing, and shall have delivered to Buyer, current surveys, or documents that
are considered in the country in which the Real Property is located to be the
reasonable equivalent, of the parcels of Real Property listed on Schedule 5.8(b)
(the "Surveys"). The Surveys of Real Property located in the United States shall
be prepared by a licensed surveyor, reasonably satisfactory to Buyer, and
conforming to 1992 ALTA/ACSM Minimum Detail Requirements for Urban Land Title
Surveys and such standards as the Title Insurer may require as a condition to
the removal of any survey exceptions from the Title Policy for said parcel, and
certified to Buyer, Buyer's lender and the Title Insurer. The Stockholders shall
bear one-half of the cost and expense of the Surveys, and Buyer shall bear the
other one-half of such expense.
(c) Estoppel Letter Prior to Closing, the Company shall obtain an
estoppel and consent letter (the "Estoppel Letter") with respect to each parcel
of Leased Real Property from the landlords, lessors, sublessors or licensors for
such property in form and content reasonably satisfactory to Buyer and Buyer's
lender under the Credit Facility.
SECTION 5.9 Affiliated Transactions. The Company shall terminate all
Affiliated Transactions prior to or concurrent with the Closing.
SECTION 5.10 Trusts. For a period of twenty-four months from the Closing
each Stockholder that is a Trust owning in excess of 5% of the outstanding
Shares (i) shall not cause the Trust to be voluntarily dissolved and (ii) shall
make no discretionary distributions of the portion of the
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Redemption Amount received by the Trust unless provision is made that any Person
who receives such distribution acknowledges in writing that the assets received
in said distribution will remain subject to the Stockholders' obligations to the
Buyer hereunder.
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.1 Access; Assistance.
(a) Buyer agrees that it will cause the Company and each Subsidiary,
on and after the Closing Date, to afford promptly to the Stockholders, and each
of them, and their agents reasonable access to their properties, books, records,
employees and auditors to the extent necessary to permit the Stockholders to
determine any matter relating to their rights and obligations hereunder or to
any period ending on or before the Closing Date; provided that any such access
by the Stockholders shall not unreasonably interfere with the conduct of the
business of Buyer or the Company.
(b) Buyer agrees that it will cause the management of the Company
and the Subsidiaries to assist the Stockholders and the Seller's Representative
in the preparation of the Closing Balance Sheet to be delivered by the
Stockholders to Buyer in accordance with Section 2.3 hereof and the actions
described in Article 8 hereof.
ARTICLE 7
COVENANTS OF BUYER AND THE STOCKHOLDERS
Buyer and the Stockholders agree that:
SECTION 7.1 Reasonable Efforts; Further Assurances. Subject to the terms
and conditions of this Agreement, Buyer and the Stockholders will use their
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement;
provided that with respect to the Credit Facility, reasonable efforts shall mean
obtaining the financing thereunder pursuant to terms not inconsistent with
either of the two commitment letters issued to Buyer, true and complete copies
of which have been delivered to the Stockholders. The Stockholders and Buyer
agree, and the Stockholders, prior to the Closing, and Buyer, after the Closing,
agree to cause the Company and each Subsidiary, to execute and deliver such
other documents, certificates, agreements and other writings and to take such
other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.
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SECTION 7.2 Certain Filings. The Stockholders and Buyer shall cooperate
with one another (i) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
SECTION 7.4 Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, the parties and their Affiliates will hold, and
will cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all documents and information concerning the Company or any
Subsidiary furnished to any other or its Affiliates in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) known on a nonconfidential basis by
the receiving party or an affiliate of the receiving party prior to its being
furnished by the Company or a Subsidiary; (ii) in the public domain through no
fault of the receiving party or an Affiliate of the receiving party; or (iii)
acquired on a nonconfidential basis by the receiving party or an Affiliate of
the receiving party from sources, other than the disclosing party, or any
Affiliate, under no obligation to maintain the confidentiality thereof; provided
that the receiving party may disclose such information to its officers,
directors, employees, accountants, lenders, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such Persons are informed by the receiving party of the confidential
nature of such information and agree to treat such information confidentially.
The receiving party shall be responsible for any failure to treat such
information confidentially by such Persons. If this Agreement is terminated, the
receiving party and its Affiliates will, and will cause their respective
officers, directors, employees, accountants, lenders, counsel, consultants,
advisors and agents to, destroy or deliver to the delivering party, upon
request, all documents and other materials, and all copies thereof, obtained by
the receiving party or its Affiliates or on their behalf from the disclosing
party or any Affiliate in connection with this Agreement.
ARTICLE 8
TAX MATTERS
SECTION 8.1 Tax Definitions. The following terms, as used herein, have the
following meanings:
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"Code" means the United States Internal Revenue Code of 1986, as amended.
"Federal Tax" means any Tax imposed under Subtitle A of the Code.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations) or (ii) the payment of Tax by Buyer, the
Stockholders or any of their Affiliates, whichever is responsible for payment of
such Tax under applicable law, with respect to any item disallowed or adjusted
by a Taxing Authority, provided that such responsible party determines that no
action should be taken to recoup such payment and the other party agrees.
"Post-Closing Tax Period" means any Tax period beginning on the Closing
Date and, with respect to a Tax period that includes but does not end on the
Closing Date, the portion of such Tax period beginning on the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending before the Closing
Date and, with respect to a Tax period that includes but does not end on the
Closing Date, the portion of such Tax period ending on the day before the
Closing Date.
"Straddle Period" means any Tax period that begins before and ends on or
after the Closing Date.
"Tax" or "Taxes" means (i) any and all federal, state, local and foreign
taxes, charges, fees, levies, assessments or other governmental charges, duties,
impositions and liabilities relating to taxes, including but not limited to,
taxes based upon or measured by income, profits, gross receipts, sales, use and
occupation, and value added, services, ad valorem, alternative minimum,
transfer, license, franchise, capital stock, withholding, payroll, occupancy,
recapture, employment, unemployment, stamp, excise, net worth, accumulated
earnings, personal holding company, and property taxes, together with any
interest, penalty, addition to tax or additional amount due from, or in respect
of, the Company or any Subsidiary imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax (a "Taxing
Authority") and (ii) with respect to the Company or any Subsidiary, any
liability for the payment of any amount of the type described in clause (i) as a
result of being a member of an affiliated, consolidated or combined group with
any other corporation at any time prior to the Closing Date.
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any similar credit or tax
attribute which could reduce Taxes (including, without limitation, any deduction
or credit related to alternative minimum Taxes).
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SECTION 8.2 Tax Representations.
(a) Filing of Pre-Closing Returns. The Stockholders represent and
warrant to Buyer as of the date hereof and as of the Closing Date that, except
as set forth in the Balance Sheet (including the notes thereto) or on Schedule
8.2(a), (i) all Tax returns, statements, reports and forms (collectively, the
"Returns") required to be filed with any Taxing Authority on or before the
Closing Date with respect to any Pre-Closing Tax Period by, or with respect to,
the Company or any Subsidiary have been filed or will be filed (or the
Stockholders have timely and properly filed valid extensions of time with
respect to the filing thereof) on or before the Closing Date in accordance with
all applicable laws and all such Returns are correct and complete in all
material respects; (ii) the Company and the Subsidiaries have timely paid or
will timely pay all Taxes due and payable as of the day immediately prior to the
Closing Date; and (iii) there is no action, suit, proceeding, investigation,
audit or claim now pending against or with respect to the Company or any
Subsidiary in respect of any Tax.
(b) Notification of Tax Proceedings. Between the date hereof and the
Closing, to the extent the Stockholders have knowledge of the commencement or
scheduling of any Tax audit, the assessment of any Tax, the issuance of any
notice of Taxes due or any bill for collection of any Taxes due, or the
commencement or scheduling of any other administrative or judicial proceeding
with respect to the determination, assessment or collection of any Taxes of the
Company or any Subsidiary, the Stockholders shall provide prompt notice to Buyer
of such matter, setting forth information (to the extent known) describing any
asserted Tax liability in reasonable detail and including copies of any notice
or other documentation received from the applicable Taxing Authority with
respect to such matter.
(c) Tax Elections, Waivers and Settlements. Between the date hereof
and the Closing Date, the Stockholders shall not, and shall cause the Company
and each Subsidiary not to, take any of the following actions: (i) make, revoke
or amend any Tax election; (ii) execute any waiver of restrictions on assessment
or collection of any Taxes; or (iii) except as set forth on Schedule 8.2(c),
enter into or amend any return, agreement or settlement with any Taxing
Authority.
(d) Subchapter S Status. The Company has had valid S elections and,
for each of its U.S. Subsidiaries, has had valid QSSS elections in effect at all
times since January 1, 1997 for federal and applicable state purposes, provided,
however, that the S election in relation to the State of Pennsylvania has been
effective since January 1, 1998.
SECTION 8.3 Certain Tax Covenants.
(a) Buyer's Covenants. Buyer covenants that it will not, and will
not cause or permit the Company or any Subsidiary to, (i) file any Return
(including any amended Return) for
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a Post-Closing Tax Period that is inconsistent with any permissible method of
accounting or treatment of items used on a Return for a Pre-Closing Tax Period
as long as such method or item has a reasonable basis under applicable law,
regulation or Taxing Authority guidance and in the event the Buyer and
Stockholders cannot agree as to whether such a method or treatment was
permissible, such dispute shall be resolved by an Accounting Referee whose
costs, fees and expenses shall be borne equally by Buyer and Stockholders,
provided, however, that the Company's treatment of its foreign Subsidiaries as a
division of the Company under the "check-the-box" regulation as described in
Schedule 8.2(c) shall be deemed permissible for purpose of this Section 8.3(a)
unless there is a Final Determination that such treatment is not permissible;
(ii) amend any Return; or (iii) make or change any Tax election; if any of such
actions would give rise to any liability of the Stockholders for Taxes, or under
this Agreement, in respect of any Pre-Closing Tax Period. Buyer covenants that
it will not, and will not cause or permit the Company or any Subsidiary to,
agree or settle or permit the settlement of any liability, or compromise any
claims with respect to Taxes if any of such actions would give rise to any
liability of a Stockholder for Taxes for any Pre-Closing Tax Period or otherwise
under this Agreement without the prior consent of such Stockholder (which
consent shall not be unreasonably withheld). Buyer shall be liable for and shall
pay any and all Taxes resulting from any action referred to in this Section
8.3(a) and Buyer shall indemnify, defend and hold the Stockholders and the
Affiliates harmless against any and all such Taxes.
(b) Refunds. Buyer shall promptly pay or shall cause prompt payment
to be made to the Stockholders of all refunds of Taxes and interest thereon
received by Buyer, any Affiliate of Buyer, the Company, or any Subsidiary
attributable to Taxes paid by the Stockholders, the Company or any Subsidiary
(or any predecessor or Affiliate of the Stockholders) on or before the Closing
Date and to Taxes paid by the Stockholders pursuant to Sections 8.5(a) and
8.5(b) but only to the extent said refunds and interest exceed the sum of the
amounts reflected in the Closing Balance Sheet for said refunds and interest
plus any interest accruing on such amounts so reflected after the Closing Date.
(c) Other Taxes. All documentary, sales, use, stamp, registration
and other such taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be borne and paid by Buyer, and Buyer will,
at its own expense, file all necessary tax returns and other documentation with
respect to all such taxes and fees, and, if required by applicable law, the
Stockholders will, and will cause their Affiliates to, join in the execution of
any such tax returns and other documentation.
(d) Method of Proration for Income Tax. Items of income, loss,
deduction or credit shall be apportioned between the Pre-Closing Tax Period and
the Post-Closing Tax Period based on a closing of the books and records of the
relevant entity or entities as of the Closing Date (provided that, for this
purpose, depreciation, amortization and depletion for any Straddle Period shall
be apportioned on a daily pro rata basis). Notwithstanding anything to the
contrary in the preceding sentence, the parties agree that for income tax
purposes, items of income, loss,
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deduction or credit for any Straddle Period shall be apportioned between the
Pre-Closing Tax Period and Post-Closing Tax Period in accordance with U.S.
Treasury Regulations Section 1.1362-3(b), which Regulations shall be reasonably
interpreted by the parties in a manner intended to achieve the method of
apportionment described in the preceding sentence. Further, the performance or
sale related bonuses (other than incentive bonuses related to 1999 performance)
to the extent not deductible under Section 162 of the Code, stock appreciation
rights, option payments, deferred compensation payments, payments under the
Retirement Plan for Outside Directors and the Supplemental Executive Retirement
Plan noted in Section 2.5(ii) will not be deducted in the final S Corporation
return but will be deducted by the Company on its C Corporation return ending
after the Closing.
(e) No Contrary Elections. The Stockholders and Buyer will not
exercise any option or election (including any election to ratably allocate a
Tax year's items under Treasury Regulation Section 1.1362-3(a)) to allocate Tax
items in a manner inconsistent with Section 8.3(d) hereof.
(f) Preparation and Filing of Tax Returns. (i) The Stockholders
shall have the right and obligation to timely prepare and file, and cause to be
timely prepared and filed, when due any 1998 and 1999 federal and state income
Tax Return of the Company or any Subsidiary for any period ending prior to the
Closing Date, including, without limitation, all final Returns of the Company as
an "S Corporation" or any Subsidiary which is classified as a "qualified
subchapter S subsidiary" as such terms are defined in Section 1361 of the Code
(hereinafter, "S Corporation" and "QSSS," respectively) for the period beginning
on the first day of the fiscal year of the Company or a Subsidiary, as the case
may be, in which the Closing occurs through and including the day before the
Closing Date. Such Returns shall be prepared in a manner consistent with past
practice and without a change of any election or any accounting method and shall
be submitted by the Stockholders to Buyer (together with schedules, statements
and, to the extent requested by Buyer, supporting documentation) at least 30
days prior to the due date (with regard to extensions) for such Returns. Buyer
shall have the right to review all work papers and procedures used to prepare
any such Return. If Buyer within 10 business days after delivery of any such
Return notifies the Stockholders in writing that it objects to any item in such
Return because the treatment of such item has no reasonable basis, the disputed
items shall be resolved (within a reasonable time, taking into account the
deadline for filing such Return) by a nationally recognized independent
accounting firm chosen by and mutually acceptable to both Buyer and the
Stockholders (an "Accounting Referee"). The costs, fees and expenses of such
Accounting Referee shall be borne equally by Buyer and the Stockholders. Upon
resolution of all such items, the relevant Return shall be adjusted to reflect
such resolution and shall be binding upon the parties without further
adjustment. Buyer and the Stockholders shall cooperate to the end that any such
Returns are filed when due (taking into account any extension of a required
filing date) and Buyer shall thereupon cause an officer of the Company to sign
any such Returns. To the extent that tax accounting for any item is specified in
this Agreement, such tax accounting shall be binding upon the Accounting
Referee.
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(ii) Buyer shall have the right and obligation to timely prepare and file,
and cause to be timely prepared and filed, when due, all other Returns that are
required to be filed by the Company or any Subsidiary.
SECTION 8.4 Cooperation on Tax Matters.
(a) Notice. In the event any income Taxing Authority informs the
Stockholders or their Affiliates, on the one hand, or Buyer, the Company, any
Subsidiary or any Affiliate of Buyer, on the other, of any notice of proposed
audit, claim, assessment or other dispute concerning an amount of Taxes with
respect to which the other party may be liable, the party so informed shall
promptly notify the other party of such matter. Such notice shall contain
factual information (to the extent known) describing any asserted Tax liability
in reasonable detail and shall be accompanied by copies of any notice or other
documents received from any Taxing Authority with respect to such matter.
(b) Assistance. The Stockholders, on the one hand, and Buyer and the
Company, on the other, shall cooperate (and cause their Affiliates to cooperate)
with each other and with each other's agents, including accounting firms and
legal counsel, in connection with Tax matters relating to the Company or any
Subsidiary, including (i) preparation and filing of Tax Returns; (ii)
determining the liability and amount of any Taxes due or the right to and amount
of any refund of Taxes; (iii) examinations of any Returns; and (iv) any
administrative or judicial proceeding in respect of Taxes assessed or proposed
to be assessed. Such cooperation shall include each party making all information
and documents in its possession relating to the Company and Subsidiaries
available to the other party. Each party also shall make available to the other
parties, as reasonably requested, personnel (including officers, directors,
employees and agents) responsible for preparing, maintaining and interpreting
information and documents relevant to Taxes, personnel necessary to sign Returns
and personnel reasonably required as witnesses or for purposes of providing
information or documents in connection with any administrative or judicial
proceedings relating to Taxes.
(c) Consent to Settlement. Buyer and the Stockholders shall not agree to
settle or permit the settlement of any liability or compromise any claims with
respect to Taxes, which settlement or compromise may affect the liability for
Taxes (or right to a Tax Benefit) of the other party, without such other party's
consent (which consent may not be unreasonably withheld). Neither Buyer nor the
Stockholders shall make, revoke or amend any Tax election or amend any Return of
the other party, without such other party's consent (which consent may not be
unreasonably withheld), which may affect the other party's liability for Taxes
or right to a Tax Benefit, except as disclosed in Section 8.2(c).
(d) Defense. The Stockholders may discharge, at any time, its
indemnification obligation under this Article 8 by paying to Buyer the amount of
the applicable loss, calculated on the date of such payment. The Stockholders or
Buyer, as the case may be, may at its own
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expense, participate in and, upon notice to the other party, assume the defense
of any claim, suit, action, litigation or proceeding (including any Tax audit)
for which it may be liable for indemnification hereunder. If the indemnifying
party assumes defense, the other party shall have the right (but not the duty)
to participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party. Whether or not the
indemnifying party chooses to defend or prosecute any claim, all of the parties
hereto shall cooperate in the defense or prosecution thereof.
SECTION 8.5 Indemnification.
(a) Taxes Related to Transactions. Notwithstanding anything to the
contrary in this Article 8, the Stockholders shall be liable for and shall pay
when due (i) any and all Taxes imposed on the Stockholders arising in any way in
connection with the sale of the Repurchased Shares; (ii) any Taxes payable by
the Stockholders as shareholders of the Company; and (iii) except for Taxes
payable by the Company under Section 1363(d) of the Code (relating to LIFO
recapture upon an election to be treated as an S Corporation), any corporate
level Taxes imposed upon the Company resulting from the sale of the Repurchased
Shares contemplated by Section 2.1 or the distribution or other disposition of
the Excluded Assets (including without limitation corporate level Taxes imposed
under Section 1374 of the Code), and the Stockholders shall promptly indemnify,
defend and hold Buyer and its Affiliates, and as of the Closing Date, the
Company and any Subsidiary, harmless against any and all such Taxes. To the
extent the distribution or other disposition of Excluded Assets creates a sale
or exchange to the Company for federal or state income tax purposes, the
treatment of such sale or exchange on the Company's Corporation tax returns for
any Pre-Closing Tax Period will not be objected to by Buyer pursuant to Section
8.3(f) as long as such treatment is supported by appraisals conducted by
professional valuation firms.
(b) Stockholders Liable For Certain Company and Shareholder Level Taxes.
The Stockholders shall be liable for and shall pay when due, and shall promptly
indemnify, defend and hold Buyer and its Affiliates, and as of the Closing Date,
the Company and any Subsidiary, harmless from and against, any and all Taxes
imposed on items of income, loss, deduction or credit which are passed trough to
the Stockholders as shareholders of the Company for any time periods during
which the Company or any Subsidiary is classified as an S Corporation or QSSS,
respectively, and the Stockholders are shareholders of the Company, including,
without limitation, any and all Taxes imposed on items of income, loss,
deduction or credit which are passed through to the Stockholders as shareholders
of the Company under the provisions of Section 1366 of the Code. The
Stockholders shall also indemnify Buyer for (i) any Tax liability of the Company
or any of its Subsidiaries for any Pre-Closing Tax Period attributable to the
failure of any S election or QSSS election to be valid or the termination or
revocation of any such election (except for Taxes payable by the Company under
Section 1363 of the Code relating to LIFO recapture upon an election to be
treated as an S Corporation); (ii) any Tax not paid or accrued for on the
Closing Balance Sheet imposed on the Company or any of its Subsidiaries for any
Pre-Closing Tax Period;
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and (iii) any Tax attributable to the Transactions, and to any other
transactions outside the ordinary course of business not directed by Buyer,
occurring on the Closing Date but prior to the Closing, the liability for which
does not result in an adjustment to the Redemption Amount pursuant to Section
2.4. The Stockholders have the right to defend and take corrective action to
reduce or eliminate such Taxes. Buyer agrees to cooperate in any such effort
taken by the Stockholders or their representatives.
(c) Stockholders Not Liable For Other Corporate Level Taxes. Except for
those corporate level Taxes expressly treated under Sections 8.5(a) and 8.5(b)
above, the Stockholders shall not be liable for any other Taxes imposed on the
Company or any Subsidiary, including, without limitation, any Taxes payable by
the Company under Section 338 of the Code (relating to a deemed asset sale) or
Section 1363 of the Code (relating to LIFO recapture upon an election to be
treated as an S Corporation) and Buyer, the Company and the Subsidiaries,
jointly and severally, shall promptly indemnify, defend and hold the
Stockholders and their Affiliates harmless from and against any and all such
Taxes.
(d) Tax Benefit. If either party's indemnification obligation under this
Article 8 arises in respect of an adjustment which makes allowable to the other
party, any of its Affiliates or, as of the Closing, the Company or any
Subsidiary, any deduction, amortization, exclusion from income or other
allowance (a "Tax Benefit") which would not, but for such adjustment, be
allowable, then any indemnification payment shall be an amount equal to (x) the
amount otherwise due but for this Section 8.5(d), minus (y) the amount of any
Tax refunds at the time received or the amount of any reduction in Taxes at the
time realized.
SECTION 8.6 Adjustments. Any amount paid to or by the Stockholders under
Section 8.3 or 8.5 shall be treated as an adjustment to the Redemption Amount
unless a Final Determination causes any such amount to not constitute an
adjustment to the Redemption Amount for Federal Tax purposes. Any payment
required to be made by Buyer or the Stockholders under Section 8.3 or 8.5 that
is not made when due shall bear interest at the rate per annum determined, from
time to time, under the provisions of Section 662 1(a)(2) of the Code until
paid.
SECTION 8.7 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Article 8 or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing for the full period of all statutes of limitations
(giving effect to any waiver, mitigation or extension thereof).
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.1 Maintenance of Benefits. During the period commencing on the
Closing Date and ending on the second anniversary thereof (the "Compensation
Maintenance Period"),
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Buyer or its Affiliate shall provide employees of the Company and the
Subsidiaries ("Employees") with compensation and employee benefits reasonably
comparable in the aggregate to those provided to such Employees immediately
prior to the Closing Date. Notwithstanding the foregoing, this Section 9.1 shall
not apply to any Employee included in a unit of employees covered by a
collective bargaining agreement.
SECTION 9.2 Service Recognition. Buyer and its Affiliates shall recognize
service with the Company, the Subsidiaries, the Stockholders and their
Affiliates as service for all purposes under any benefit plan maintained by
Buyer or its Affiliates, except for purposes of benefit accrual under any
defined benefit pension plan (other than a defined benefit pension plan
maintained by the Company or a Subsidiary as of the Closing Date). Buyer and its
Affiliates shall credit the dollar amount of all expenses incurred by Employees
and their respective eligible dependents during the applicable plan year in
which occurs the Closing Date, to the extent relevant, for purposes of
satisfying such plan year's deductible and co-payment limitations under any
applicable plan in which such Employees participate after the Closing Date.
Notwithstanding the foregoing, this Section 9.2 shall not apply to an Employee
included in a unit of employees covered by a collective bargaining agreement.
SECTION 9.3 No Third-Party Beneficiaries. The provisions of this Article 9
shall not create any rights in any Employee or any other person who is not a
party to this Agreement, and no such person shall have any rights as a
third-party beneficiary hereof.
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.1 Conditions to Obligations of Buyer and the Stockholders. The
obligations of Buyer and the Stockholders to consummate the Closing are subject
to the satisfaction of the following conditions:
(a) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Closing.
(b) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of the
Closing shall have been taken, made or obtained, except for any such actions or
filings the failure to take, make or obtain would not reasonably be expected to
have a Material Adverse Effect.
SECTION 10.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a) Stockholders' Performance. (i) The Stockholders shall have
performed in
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all material respects all of its obligations hereunder required to be performed
by them on or prior to the Closing Date, (ii) the representations and warranties
of the Stockholders contained in this Agreement and in any certificate or other
writing delivered by the Stockholders pursuant hereto shall be true and correct
in all material respects at and as of the Closing Date as if made at and as of
such date (without giving effect to any disclosures made by the Company or the
Stockholders after the date hereof), except for consequences of the consummation
of the Transactions and the disposition of the Excluded Assets, and (iii) Buyer
shall have received a certificate signed by the duly authorized representative
or representatives (any of which representatives may be officers of the Company)
of the Stockholders to the foregoing effect.
(b) Company`s Opinion. Buyer shall have received an opinion of
Defrees & Fiske, counsel to the Company, dated the Closing Date in the form of
Schedule 10.2(b) attached hereto addressed to the Buyer and the Buyer's lenders.
In rendering such opinion, such counsel may rely upon certificates of public
officers; upon opinions of counsel reasonably satisfactory to Buyer as to
matters governed by the laws of jurisdictions other than Illinois, the Delaware
General Corporation Law or the federal laws of the United States of America;
and, as to matters of fact, upon certificates of officers of the Company or any
Subsidiary, copies of which opinions and certificates shall be contemporaneously
delivered to Buyer.
(c) Good Standing. Buyer shall have received all documents it may
reasonably request relating to the existence and good standing of the Company
and the Subsidiaries, all in form and substance reasonably satisfactory to
Buyer.
(d) Amendment of Certificate of Incorporation. The Company's
Certificate of Incorporation shall have been amended and restated in the form of
Schedule 2.1(a) attached hereto, shall be in full force and effect under the
laws of the State of Delaware as of the Closing as so amended and restated and
shall not have been further amended or modified.
(e) Escrow Agreement. The Company and the Stockholders shall have
entered into the Escrow Agreement in the form of Schedule 2.2(b)(iii) attached
hereto, and the Escrow Agreement shall be in full force and effect as of the
Closing.
(f) Stockholders Agreement. The Company, the Remaining Stockholders,
and each of the individuals listed on Schedule 10.2(f)(1) shall have entered
into a stockholders agreement containing customary terms and conditions
substantially in the form set forth in Schedule 10.2(f)(2) attached hereto (the
"Stockholders Agreement"), and the Stockholders Agreement shall be in full force
and effect as of the Closing.
(g) Financing. The Company shall have received financing under the
Credit Facility on terms satisfactory to Buyer.
(h) Litigation. No suit, action or proceeding before any court or
governmental
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body will be pending or threatened which would prevent the consummation of the
transactions contemplated by this Agreement or the agreements contemplated
hereby.
(i) Consents and Approvals. All consents and approvals by (a)
governmental agencies that are required for the consummation of the transactions
contemplated hereby or the other agreements contemplated hereby will have been
obtained and (b) third parties that are required in order to prevent a breach
of, a default under, or a termination, change in the terms or conditions or
modification of, any material instrument, contract, lease, license or other
agreement to which the Company or its Subsidiaries is a party, will have been
obtained on terms and conditions reasonably satisfactory to Buyer. The Company
shall have obtained the Estoppel Letters.
(j) Registration Rights Agreement. The Company, the Remaining
Stockholders, and each of the individuals listed on Schedule 10.2(f)(1) shall
have entered into a registration rights agreement substantially in the form of
Schedule 10.2(j) attached hereto (the "Registration Rights Agreement"), and the
Registration Rights Agreement shall be in full force and effect as of the
Closing and shall have not been amended or modified.
(k) Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Buyer and its counsel.
(1) Title Insurance and Surveys. Buyer shall have received the Title
Policies and the Surveys.
(m) Pay-off Letters. Buyer shall have received pay-off letters for
Indebtedness, if any, to be paid as of the Closing and evidence that the
Company's line of credit shall have been terminated.
SECTION 10.3 Conditions to Obligation of the Stockholders. The obligation
of the Stockholders to consummate the Closing is subject to the satisfaction of
the following further conditions:
(a) Buyer's Performance. (i) Buyer shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Closing Date; (ii) the representations and warranties of
Buyer contained in this Agreement and in any certificate or other writing
delivered by Buyer pursuant hereto shall be true in all material respects at and
as of the Closing Date, as if made at and as of such date; and (iii) the
Stockholders shall have received a certificate signed by a Member of the Board
of Members of Buyer to the foregoing effect.
(b) Buyer's Opinion. The Stockholders shall have received an opinion
of Kirkland & Ellis, counsel to Buyer, dated the Closing Date in the form of
Schedule 10.3(b)
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attached hereto addressed to the Stockholders. In rendering such opinion, such
counsel may rely upon certificates of public officers; upon opinions of counsel
reasonably satisfactory to the Stockholders as to matters governed by the laws
of jurisdictions other than Illinois, the Delaware General Corporation Law or
the federal laws of the United States of America; and, as to matters of fact,
upon certificates of officers of Buyer, copies of which opinions and
certificates shall be contemporaneously delivered to the Stockholders.
(c) Consents. The Stockholders shall have received all consents,
authorizations or approvals from governmental agencies referred to in Section
4.3, in each case in form and substance reasonably satisfactory to the
Stockholders, and no such consent, authorization or approval shall have been
revoked.
(d) Good Standing. The Stockholders shall have received all
documents it may reasonably request relating to the existence of Buyer and the
authority of Buyer for this Agreement, all in form and substance reasonably
satisfactory to the Stockholders.
(e) Escrow Agreement. Buyer shall have entered into the Escrow
Agreement in the form of Schedule 2.2(b)(iii) attached hereto, and the Escrow
Agreement shall be in full force and effect as of the Closing.
(f) Buyer's Investors. Buyer shall have delivered to the
Stockholders a complete list of the investors in the Common Stock and the
Preferred Stock, other than the Remaining Stockholders, and such other
information as reasonably requested by the Stockholders to evaluate the
applicability of HSR Act.
(g) Litigation. No suit, action or proceeding before any court or
governmental body will be pending or threatened which would prevent the
consummation of the transactions contemplated by this Agreement or the
agreements contemplated hereby.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing until the date which is eighteen months after the
Closing Date; provided that the covenants, agreements, representations and
warranties contained in (i) Article 9 shall survive until the date which is six
months after the expiration of the Compensation Maintenance Period; (ii) Article
8 shall survive as set forth in Section 8.7; (iii) Buyer's confidentiality
letter agreement dated September 17, 1998 shall survive for the period set forth
therein; (iv) Sections 3.1, 3.2, 3.5, 3.6, 3.17, 4.5, 4.9, 6.1, 11.4, 11.5 and
11.6 shall survive for the applicable statute of limitations; and (v) Section
5.7 shall survive for the period set
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forth therein. Notwithstanding the preceding sentence, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the inaccuracy or breach
thereof giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such time.
SECTION 11.2 Indemnification.
(a) The Stockholders hereby indemnify Buyer and its Affiliates against and
agree to hold each of them harmless from any and all damage, loss, liability and
expense (including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer or any of its Affiliates
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by the Stockholders (or the Company prior to
or at the time of Closing) pursuant to this Agreement; provided that:
(i) no misrepresentation or breach of warranty by the Stockholders (or the
Company prior to or at the time of Closing) pursuant to this Agreement where the
Damages are less than $10,000 in any single instance shall give rise to any
liability of the Stockholders to Buyer, the Company or their Affiliates.
(ii) the Stockholders shall not be liable unless the aggregate amount of
Damages with respect to all matters for breaches of covenants, agreements,
representations and warranties contained in this Agreement (other than those set
forth in Sections 3.1, 3.2, 3.5, 3.6, and 3.17 and Article 5 (provided that the
reference in Section 5.1 to Section 3.9 shall be deemed to refer to only Section
3.9(e) and 3.9(h)) exceeds $1,000,000 (the "Deductible") and then only to the
extent of such excess, and
(iii) the Stockholders' maximum liability for breaches of covenants,
agreements, representations and warranties contained in this Agreement (other
than those set forth in Sections 3.1, 3.2, 3.5, 3.6, and 3.17 and Article 5
(provided that the reference in Section 5.1 to Section 3.9 shall be deemed to
refer to only Section 3.9(e) and 3.9(h)) shall not exceed $10 million (the
"Cap").
(b) The Stockholders hereby indemnify Buyer and its Affiliates against and
agree to hold each of them harmless from any and all Damages (without regard to
the Deductible or the Cap) incurred or suffered by Buyer or any of its
Affiliates arising out of (i) the Company's ownership or operation of the
Franklin Park Property prior to the Closing Date or remediation costs necessary
to comply with any Environmental Law with respect to the Franklin Park Property,
(ii) the consequences of having treated foreign Subsidiaries as a division of
the Company under the "check-the-box" regulations as described in Schedule
8.2(c), and (iii) patent infringement and related claims to the extent of the
occurrence or existence of any events, facts or circumstances
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in any period or periods prior to and including the Closing asserted by
Interlink Electronics, Inc. to the extent of Damages in excess of $100,000, and
(iv) that portion of the adjustment calculated on Schedule 2.6 and allocable to
a payment required by Section 2.5(ii) and listed on Schedule 2.6 for which a
deduction by the Company for a Post-Closing Tax Period is not allowed.
(c) Buyer hereby indemnifies the Stockholders and their Affiliates against
and agrees to hold each of them harmless from any and all Damages incurred or
suffered by the Stockholders or any of their Affiliates arising out of any
misrepresentation, or breach of warranty, covenant or agreement made or to be
performed by Buyer (or the Company after the Closing) pursuant to this
Agreement; provided that:
(i) no misrepresentation or breach of warranty made or to be performed by
Buyer (or the Company after the Closing) pursuant to this Agreement where the
Damages in any single instance are less than $10,000 shall give rise to any
liability of Buyer to the Stockholders or their Affiliates,
(ii) Buyer shall not be liable for breaches of covenants, agreements,
representations and warranties contained in this Agreement (other than Sections
4.1, 4.2, 4.5 and 4.9) unless the aggregate amount of Damages with respect to
all matters for breaches of covenants, agreements, representations and
warranties contained in this Agreement (other than sections 4.1, 4.2, 4.5 and
4.9) exceeds the Deductible and then only to the extent of such excess, and
(iii) Buyer's maximum liability for breaches of covenants, agreements,
representations and warranties contained in this Agreement (other than Sections
4.1, 4.2, 4.5 and 4.9) shall not exceed the Cap.
(d) The Company hereby indemnifies the Stockholders and their Affiliates
against and agrees to hold each of them harmless from any and all Damages
incurred or suffered by the Stockholders or any of their Affiliates arising out
of any misrepresentation, or breach of warranty, covenant or agreement made or
to be performed by Buyer pursuant to this Agreement.
SECTION 11.3 Procedures.
(a) The Party seeking indemnification under Section 11.2 (the "Indemnified
Party") agrees to give prompt written notice to the party against whom indemnity
is sought (the "Indemnifying Party") of the assertion of any claim, or the
commencement of any action or proceeding ("Claim"), in respect of which
indemnity may be sought for Damages hereunder and will provide the Indemnifying
Party such information with respect thereto that the Indemnifying Party may
reasonably request, including in any case, copies of any summons, complaint or
other pleading which may have been served and any written claim, demand,
invoice, billing or other document evidencing or asserting the Claim, and a good
faith estimate of the amount of the Claim for indemnity. The failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent such failure shall have adversely
prejudiced the Indemnifying Party.
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<PAGE> 47
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Claim asserted by any third party ("Third Party Claim") and, subject to
the limitations set forth in this Section, shall be entitled to control and
appoint lead counsel for such defense in each case at its expense. If the
Indemnifying Party assumes the control of the defense, the Indemnified Party
shall be entitled to employ counsel, at its expense, separate from the counsel
employed by the Indemnifying Party. In any event, the parties shall cooperate in
the defense or prosecution of any Third Party Claim.
(c) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 11.3,
(i) the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party (which shall not be unreasonably withheld) before entering
into any settlement of such Third Party Claim, if the settlement does not
release the Indemnified Party from all liabilities and obligations with respect
to such Third Party Claim or the settlement imposes injunctive or other
equitable relief against the Indemnified Party and (ii) the Indemnified Party
shall be entitled to participate in the defense of such Third Party Claim and to
employ separate counsel of its choice for such purpose. The fees and expenses of
such separate counsel shall be paid by the Indemnified Party.
(d) The Stockholders and Buyer shall cooperate, and cause their respective
Affiliates to cooperate, in the defense or prosecution of any Third Party Claim
and shall furnish or cause to be furnished such records, information and
testimony, and attend such conferences, discovery proceedings, hearings, trials
or appeals, as may be reasonably requested in connection therewith.
(e) The Seller's Representative and Buyer shall make available to each
other, their counsel and accountants all information and documents reasonably
available to them which relate to any Third Party Claim subject to indemnity
hereunder and to render to each other such assistance as may reasonably be
required in order to ensure the proper and adequate defense of any such Third
Party Claim.
(f) The Seller's Representative and his Deputies (collectively the
"Representatives") shall be free from any liability when acting in good faith in
accordance with any written advice or opinion received from legal counsel, an
independent certified public accountant or other expert rendering advice or an
opinion within the area of his or her expertise. The Representatives shall not
be liable for any mistakes of fact or errors of judgment, or for any acts or
omissions of any kind unless caused by willful misconduct or gross negligence of
the Representatives with regard to their duties under this Agreement. The
Stockholders and Buyer hereby covenant not to sue the Representatives as a
result of any and all loss, damage, liability or expense that the
Representatives may sustain or incur as a result of any action taken in good
faith hereunder and not due to the Representatives' gross negligence or willful
misconduct. The covenant not to sue in this Section 11.3(f) shall survive the
termination of this Agreement.
SECTION 11.4 Calculation of Damages.
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(a) The amount of any Damages payable under Section 11.2 by the
Indemnifying Party shall be reduced by the amount of any Tax Benefit realized by
the Indemnified Party arising from the incurrence or payment of the Damages and
shall be net of any amounts recovered or recoverable by the Indemnified Party
under applicable insurance policies.
(b) The Indemnifying Party shall not be liable under Section 11.2
for any (i) Damages relating to any matter to the extent that (y) there is
included in the Closing Balance Sheet a specific liability or reserve relating
to such matter so long as such liability or reserve is not exceeded or (z) the
Indemnified Party had otherwise been compensated for such matter pursuant to the
Redemption Amount adjustment under Section 2.4 or (ii) consequential or punitive
Damages.
(c) Notwithstanding any other provision of this Agreement to the
contrary, if on the Closing Date the Indemnified Party has actual knowledge of
any information that would cause one or more of the representations and
warranties made by the Indemnifying Party to be inaccurate as of the date made,
the Indemnified Party shall have no right or remedy after the Closing with
respect to such inaccuracy and shall be deemed to have waived its rights to
indemnification in respect thereof.
SECTION 11.5 Assignment of Claims. If the Indemnified Party receives any
payment from an Indemnifying Party in respect of any Damages pursuant to Section
11.2 and the Indemnified Party could have recovered all or a part of such
Damages from a third party (a "Potential Contributor") based on the underlying
Claim asserted against the Indemnifying Party, the Indemnified Party shall
assign such of its rights to proceed against the Potential Contributor as are
necessary to permit the Indemnifying Party to recover from the Potential
Contributor the amount of such payment.
SECTION 11.6 Exclusivity. Except as specifically set forth in this
Agreement, effective as of the Closing Buyer waives any rights and claims Buyer
may have against the Stockholders, whether in law or in equity, relating to the
Company, any Subsidiary or the Shares or the transactions contemplated hereby.
The rights and claims waived by Buyer include, without limitation, claims for
contribution or other rights of recovery arising out of or relating to any
Environmental Law, claims for breach of contact, breach of representation or
warranty, negligent misrepresentation and all other claims for breach of duty.
After the Closing, the provisions of Article 8 and Section 11.2 will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement (other than those contained in Sections 2.4 and 6.1) or other
claim arising out of this Agreement or the transactions contemplated hereby,
other than for claims of fraud and intentional misrepresentation.
SECTION 11.7 Escrow Agreement. The Escrow Amount shall be paid pursuant to
the terms and conditions of the Escrow Agreement. The Escrow Agreement provides,
among other
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things, that (a) Buyer shall offset against such cash deposited in the Escrow
Account indemnification payments due under this Article 11, and (b) there shall
be released to the Stockholders on December 31, 2000 the balance of the Escrow
Account, less any indemnification payments made under this Article 11, subject
to the holdback for unresolved claims for which a notice of claim has been given
in accordance with the Escrow Agreement.
ARTICLE 12
TERMINATION
SECTION 12.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement of the Stockholders and Buyer;
(b) by either the Stockholders or Buyer if the Closing shall not
have been consummated on or before August 31, 1999 so long as the party
terminating this Agreement is not in breach of its obligations under this
Agreement;
(c) by either the Stockholders or Buyer if consummation of the
transactions contemplated hereby would violate any nonappealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction; or
(d) by Buyer if the amendments or supplements to the Schedules
pursuant to Section 13.14(b) have, in the aggregate, a Material Adverse Effect.
The party desiring to terminate this Agreement pursuant to clauses 12.1(b),
12.1(c) or 12.1(d) shall give notice of such termination to the other party.
SECTION 12.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 12.1 such termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; provided
that if such termination shall result from the willful (i) failure of either
party to fulfill a condition to the performance of the obligations of the other
party; (ii) failure to perform a covenant of this Agreement; or (iii) breach by
either party hereto of any representation or warranty or agreement continued
herein, such party shall be fully liable for any and all Damages incurred or
suffered by the other party as a result of such failure or breach. The
provisions of Sections 7.4, 13.3, 13.5, 13.6, 13.8, 13.9 and 13.10 shall survive
any termination hereof pursuant to Section 12.1.
ARTICLE 13
MISCELLANEOUS
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SECTION 13.1 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyer or the Company (after the Closing), to:
Key Acquisition, L.L.C.
c/o Doughty Hanson & Co., Ltd.
Times Place
45 Pall Mall
London SW1Y 5JG
England
Attention: Ken Terry
Fax: 171 747 9325
with a copy to:
Lovell White Durrant
65 Holborn Viaduct
London EC1A 2DY U.K.
Attention: Allan Murray Jones, Esq.
Fax: 171 248 4212
And a copy to:
Kirkland & Ellis
200 East Randolph Avenue
Chicago, Illinois 60601 USA
Attention: E. Paul Quinn
Fax: 312/861-2200
And a copy to:
Kirkland & Ellis
The International Financial Centre
25 Old Broad Street
London, EC2N 1HQ
Attention: Stuart Mills, Esq.
Fax: 171 816 8800
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<PAGE> 51
if to the Stockholders or the Company (prior to the Closing), to:
Seller's Representative:
John W. Hupp
200 South Michigan Avenue
Suite 1100
Chicago, Illinois 60601 USA
Fax: 312/939-5617
with a copy to:
Defrees & Fiske
200 South Michigan Avenue, Suite 1100
Chicago, Illinois 60604
Attention: Henry J. Underwood
Fax: 312/939-5617
or at such other place as any party hereto shall furnish to each other party
hereto in writing.
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to
5:00 p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
received on the next succeeding business day in the place of receipt.
SECTION 13.2 Amendments and Waivers.
(a) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 13.3 Expenses. Except as provided in Sections 2.4, 5.8, 8.3(c) and
8.3(f)(i), all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
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<PAGE> 52
SECTION 13.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that any Stockholder may
assign any or all of its rights and obligations hereunder to any Permitted
Transferee to whom such Stockholder sells, assigns or transfers any or all of
such Stockholder's Shares prior to the Closing; provided that such Permitted
Transferee expressly agrees in writing to be bound by the terms of this
Agreement; provided further that Buyer may assign any or all of its rights or
obligations under this Agreement to (i) the lender under the Credit Facility as
collateral security therefor; or (ii) with written notice to the Seller's
Representative, any Person who after the Closing acquires all or substantially
all of the assets of the Company or a majority of the Common Stock of the
Company. In the event of any transfer of Shares pursuant to the preceding
sentence, Schedule 1.1-A shall be amended to reflect such sale, assignment or
transfer.
SECTION 13.5 Joint and Several Obligations of Stockholders. The
obligations and liabilities of the Stockholders hereunder shall be the joint and
several obligations of the Stockholders; provided that (i) the extent of the
obligations and liabilities of a Person in his, her or its capacity as a trustee
of a trust that is a Stockholder and as to which trust such Person is not a
beneficial owner shall be limited to, and may be satisfied solely from, the
assets of that trust and (ii) the extent of the obligations and liabilities of a
Person in his capacity as a guardian of a guardianship that is a Stockholder may
be satisfied solely from the portion of the Redemption Amount attributable to
the Shares owned by such guardianship at the Closing.
SECTION 13.6 Representative of Stockholders.
(a) One Person (the "Seller's Representative") shall be appointed as
representative of the Stockholders to act for the Stockholders in all matters
with respect to this Agreement and its implementation by a written designation
to that effect signed by all of the Stockholders and delivered to Buyer. Such
written designation shall be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signature was upon the same
instrument. The name and address of the Person so appointed as Seller's
Representative shall be the name and address of the Seller's Representative set
forth in Section 13.1. Such appointment may be rescinded by written notice
signed by the Stockholders holding in the aggregate more than 50% in interest of
the Shares to that effect delivered to Buyer as provided in Section 13.1 and to
the Person or Persons designated as the Seller's Representative and the other
Stockholders as provided in the written designation by which the Seller's
Representative was appointed; provided that said notice shall include the
designation of a new Seller's Representative.
(b) The Seller's Representative may, but is not required to, appoint one
Person ("Deputy Seller's Representative") to act in his place and stead on each
and every matter as to which the Seller's Representative shall have power and
authority under this Agreement and the Escrow Agreement. Appointment of a Deputy
Seller's Representative shall be by written designation
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<PAGE> 53
signed by the Seller's Representative and delivered to Buyer. Such appointment
may be rescinded by written notice signed by the Seller's Representative and
delivered to Buyer, and a new Deputy Seller's Representative may be appointed in
the same or in a separate notice. The Seller's Representative may carry out any
of his rights, powers, or responsibilities under this Agreement or the Escrow
Agreement either directly, through the Deputy Seller's Representative, or
through his agents or attorneys.
(c) Buyer and any other Person may rely on any written notice described in
(a) or (b) in all matters relating to this Agreement and its implementation
unless and until Buyer or such other Person, as the case may be, receives a
notice signed by the holders of more than 50% in interest of the Shares sold by
the Stockholders to the Company hereunder or by the Seller's Representative, as
the case may be.
(d) The Stockholders hereby authorize the Seller's Representative to
execute on their behalf the Escrow Agreement, the Stockholders Agreement and the
Registration Rights Agreement and any subsequent amendments, modifications or
waivers thereto.
SECTION 13.7 Buyer's Certificate of Incumbency. Buyer shall deliver to
Seller's Representative as reasonably requested from time to time a certificate
of incumbency in a form reasonably acceptable to Seller's Representative
designating the officer or officers having the authority to act for the Buyer in
matters with respect to this Agreement. The authority of the Persons designated
on said certificate shall be effective until written notice of the recission
thereof is delivered to the Seller's Representative.
SECTION 13.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Illinois, without regard to
the conflicts of law rules of such state.
SECTION 13.9 Jurisdiction. Except as otherwise expressly provided in this
Agreement, the parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may only
be brought in the United States District Court for the Northern District of
Illinois or the Circuit Court of Cook County, Illinois, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on Buyer in the case of Buyer, and on the Seller's Representative in the case of
the Stockholders, at the locations provided in Section 13.1 shall be deemed
effective service of process
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on such party.
SECTION 13.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.11 Counterparts; Third-Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other parties hereto. Each of
the Stockholders shall be deemed to have received a counterpart signed by the
other parties hereto at the time the Seller's Representative has received such a
counterpart. No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder, except as
permitted by Section 13.4.
SECTION 13.12 Entire Agreement. This Agreement, the Stockholders
Agreement, the Registration Rights Agreement, the Escrow Agreement and Buyer's
confidentiality agreement dated September 17, 1998 constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement, the Stockholders Agreement, the Registration Rights Agreement, the
Escrow Agreement and said letter agreement.
SECTION 13.13 Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 13.14 Disclosure Schedules.
(a) The parties acknowledge and agree that (i) the Schedules to this
Agreement may include certain items and information solely for informational
purposes for the convenience of Buyer and (ii) the disclosure by the
Stockholders of any matter in the Schedules shall not be deemed to constitute an
acknowledgment by the Stockholders that the matter is required to be disclosed
by the terms of this Agreement or that the matter is material. If any Schedule
discloses an item or information in such a way as to make its relevance to the
disclosure required by another Schedule readily apparent, the matter shall be
deemed to have been disclosed in such other Schedule, notwithstanding the
omission of an appropriate cross-reference to such other Schedule.
(b) From the date hereof until the Closing Date, the Stockholders may
amend and/or supplement the Schedules to this Agreement to reflect events or
changes apparent after the execution of this Agreement.
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<PAGE> 55
SECTION 13.15 Non-applicability of Credit Facility Agreements. Buyer and
its Affiliates have been negotiating on behalf of the Company so that, at or
prior to the Closing, the Company will enter into the following agreements to
provide credit facilities to the Company: (i) a Credit Agreement among the
Company, The Chase Manhattan Bank, Morgan Stanley Dean Witter, Chase Securities
Inc. and other parties, and (ii) a Note Purchase Agreement among Morgan Stanley
Senior Funding, Inc. and Chase Securities Inc. providing for the issuance of
Senior Subordinated Increasing Rate Notes due June 30, 2000, along with all
Notes and other instruments, documents, exhibits, schedules, annexes, and
ancillary agreements and certificates executed or delivered by or on behalf of
the Company or any Subsidiary to lenders in connection therewith (collectively,
the "Credit Facility Agreements"). It is agreed that the representations,
warranties, covenants or agreements made pursuant to this Agreement shall be
deemed not to incorporate or otherwise reflect any provisions of the Credit
Facility Agreements.
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<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
KEY ACQUISITION, L.L.C.
By: /s/ Ken Terry
-------------------------------------
Name:
Title:
KNOWLES ELECTRONICS, INC.
By: /s/ Reg Garratt
-------------------------------------
Name: Reg G. Garratt
Title: Chairman and CEO
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<PAGE> 57
STOCKHOLDERS OF KNOWLES ELECTRONICS, INC.
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Marital Trust
under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Nancy W. Knowles
Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the James E. Knowles
Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Margaret Knowles Schink
Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
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<PAGE> 58
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Margaret Knowles Schink
Sub-Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Katherine Knowles Strasburg
Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Katherine Knowles Strasburg
Sub-Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
Nancy W. Knowles, John W. Hupp and Continental
Bank N.A., as Trustees for the Nancy J. Knowles
Trust under the Hugh S. Knowles Trust dtd. 8/22/74
By: /s/ Nancy W. Knowles Continental Bank N.A., Trustee
-----------------------------
Nancy W. Knowles, Trustee
By: /s/ Howard J. Tatar
-------------------------------------
By: /s/ John W. Hupp Title: Senior Vice President
-----------------------------
John W. Hupp, Trustee
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<PAGE> 59
James E. Knowles, Trustee under James E. Knowles
d/o/t dated 12/18/96
By: /s/ James E. Knowles
------------------------------------
James E. Knowles, Trustee
Margaret Knowles Schink, as Trustee f/b/o
Margaret Knowles Schink u/t/a dtd. 10/27/72
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, Trustee
Katherine Knowles Strasburg, as Trustee of the
Katherine Knowles Strasburg Separate Property
Revocable Trust UTA dtd. 12/3/88
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Nancy W. Knowles, Trustee of the
Nancy W. Knowles d/o/t dated 4/18/90
By: /s/ Nancy W. Knowles
------------------------------------
Nancy W. Knowles, Trustee
/s/ James Hugh Knowles
----------------------------------------
James Hugh Knowles
/s/ Charles L. Knowles
----------------------------------------
Charles L. Knowles
Susan Knowles Bates and Richard J.S. Bates,
as Tenants in Common
/s/ Susan Knowles Bates
----------------------------------------
Susan Knowles Bates
and
/s/ Richard J.S. Bates
----------------------------------------
Richard J.S. Bates
/s/ Nancy J. Knowles
-----------------------------------------
Nancy J. Knowles
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<PAGE> 60
/s/ Hugh C. Schink
----------------------------------------
Hugh C. Schink
Katherine Knowles Strasburg, as Trustee f/b/o
Theodore Knowles Schink u/t/a dtd. 12/24/79
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Margaret Knowles Schink, as Trustee f/b/o
Laura Anne Strasburg u/t/a dtd. 12/30/78
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, Trustee
Paul A. Strasburg, as Custodian for Gregory Arthur
Strasburg under the NY Uniform Gifts to Minors Act
By: /s/ Paul A. Strasburg
------------------------------------
Paul A. Strasburg, Custodian
Paul A. Strasburg, as Custodian for Gregory Arthur
Strasburg under the CA Uniform Transfers to Minors Act
By: /s/ Paul A. Strasburg
------------------------------------
Paul A. Strasburg, Custodian
Paul A. Strasburg, as Trustee of the Paul A. Strasburg
Revocable Trust UTA dated 10/27/94
By: /s/ Paul A. Strasburg
------------------------------------
Paul A. Strasburg, Trustee
Susan Knowles Bates and Richard J.S. Bates,
as Trustees Under the Bates Children Trust II
dtd. 12/15/92
By: /s/ Susan Knowles Bates
------------------------------------
Susan Knowles Bates, Trustee
By: /s/ Richard J. S. Bates
------------------------------------
Richard J. S. Bates, Trustee
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<PAGE> 61
James Hugh Knowles, as Successor Trustee of the Bates
Children 1997 Irrevocable Trust dtd 12/31/97
By: /s/ James Hugh Knowles
------------------------------------
James Hugh Knowles,
Successor Trustee
James H. Knowles and Robert E. Spellmeyer, Trustees
of the James E. Knowles 1998 Gift Trust for James
By: /s/ James H. Knowles
------------------------------------
James H. Knowles, Trustee
By: /s/ Robert E. Spellmeyer
------------------------------------
Robert E. Spellmeyer, Trustee
Charles L. Knowles and Robert J. Nelson, Trustees
of the James E. Knowles 1998 Gift Trustees for Charles
By: /s/ Charles L. Knowles
------------------------------------
Charles L. Knowles, Trustee
By: /s/ Robert J. Nelson
------------------------------------
Robert J. Nelson, Trustee
Susan K. Bates and Richard J. S. Bates, Trustees
of the James E. Knowles 1998 Descendants Trust for Susan
By: /s/ Susan K. Bates
------------------------------------
Susan K. Bates, Trustee
By: /s/ Richard J. S. Bates
------------------------------------
Richard J. S. Bates, Trustee
Nancy J. Knowles and Jeffrey L. Brodsky, Trustees
of the James E. Knowles 1998 Descendants Trust for Nancy
By: /s/ Nancy J. Knowles
------------------------------------
Nancy J. Knowles, Trustee
By: /s/ Jeffrey L. Brodsky
------------------------------------
Jeffrey L. Brodsky, Trustee
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<PAGE> 62
/s/ Susan Knowles Bates
----------------------------------------
Susan Knowles Bates
James Hugh Knowles and Robert Spellmeyer as Trustees
of the Susan Knowles Bates 1998 Family Trust
By: /s/ James Hugh Knowles
------------------------------------
James Hugh Knowles, Trustee
By: /s/ Robert Spellmeyer
------------------------------------
Robert Spellmeyer, Trustee
James Hugh Knowles, as Trustee of the
Richard J. S. Bates 1998 Family Trust
By: /s/ James Hugh Knowles
------------------------------------
James Hugh Knowles, Trustee
Susan K. Bates and James Hugh Knowles, as Trustees
of the Richard J. S. Bates Annuity Trust
By: /s/ Susan K Bates
------------------------------------
Susan K Bates, Trustee
By: /s/ James Hugh Knowles
------------------------------------
James Hugh Knowles, Trustee
Jeffrey L. Brodsky, Trustee of the Nancy J. Knowles
Grantor Retained Annuity Trust #1
By: /s/ Jeffrey L. Brodsky
------------------------------------
Jeffrey L. Brodsky, Trustee
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Katherine Knowles Strasburg Qualified
Annuity Trust for Laura Anne Strasburg, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustee
-62-
<PAGE> 63
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Katherine Knowles Strasburg Qualified
Annuity Trust for Gregory Arthur Strasburg, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustees
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Katherine Knowles Strasburg Irrevocable
Trust for Laura Anne Strasburg, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustee
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Katherine Knowles Strasburg Irrevocable
Trust for Gregory Arthur Strasburg, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustee
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Laura Anne Strasburg
Irrevocable GST Trust, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustee
-63-
<PAGE> 64
Margaret Knowles Schink and Marsden S. Blois III,
co-trustees of the Gregory Arthur Strasburg
Irrevocable GST Trust, dtd 8/28/98
By: /s/ Margaret Knowles Schink
------------------------------------
Margaret Knowles Schink, co-Trustee
By: /s/ Marsden S. Blois III
------------------------------------
Marsden S. Blois III, co-Trustee
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink 1998 Gift Trust for
Tad U/A/D 8/14/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Katherine Knowles Strasburg and Hugh C. Schink,
Trustees of the Margaret Knowles Schink 1998
Gift Trust for Hugh U/A/D 8/14/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
By: /s/ Hugh C. Schink
------------------------------------
Hugh C. Schink, Trustee
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink Annuity 3 Trust
U/A/D 9/3/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink Annuity 5 Trust
U/A/D 9/3/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
-64-
<PAGE> 65
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink Annuity 7 Trust
U/A/D 9/3/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink Annuity 12 Trust
U/A/D 9/3/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
Katherine Knowles Strasburg, Trustee of the
Margaret Knowles Schink 1998 Descendants Trust
U/A/D 8/14/98
By: /s/ Katherine Knowles Strasburg
------------------------------------
Katherine Knowles Strasburg, Trustee
-65-
