UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 9, 1999
Applied Magnetics Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-6635 95-1950506
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
75 Robin Hill Road
Goleta, California 93117
(Address of principal executive office)(Zip code)
Registrant's telephone number, including area code: (805) 683-5353
Exhibit Index on Page 4
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Item 2. Acquisition or Disposition of Assets.
On April 9, 1999, Magnetic Data Technologies, LLC, a Delaware
limited liability company ("MDT"), completed a recapitalization in which, among
other things, (i) MDT redeemed 220,458 Class A membership units of MDT from
Applied Magnetics Corporation ("Applied") and 20,562,542 from DDCI, LLC, a
Delaware limited liability company ("DDCI"), and (ii) MDT Holdings, LLC, a
Delaware limited liability company (the "Buyer"), purchased 177,372 Class A
membership units of MDT from Applied and 16,543,798 from DDCI. As a result of
the recapitalization, the Buyer owns 89.3% of the outstanding Class A membership
units of MDT and DDCI owns 10.17%. MDT is a leading provider of outsourced
post-sales services to original equipment manufacturers of electronic components
and systems.
DDCI is a partially-owned subsidiary of Applied. Pursuant to the
terms of DDCI's amended and restated operating agreement, Applied realized a
gain of approximately $26 million on this transaction, consisting of $397,830
received from the redemption or purchase of membership units of MDT held
directly by Applied and $25,543,620 received from DDCI. In adition to amounts
already received by Applied, approximately $650,000 has been reserved for
certain post-closing adjustments which may result in an increase or decrease in
the gain realized by Applied.
Item 7. Financial Statements and Exhibits.
Exhibits.
2.1 Recapitalization Agreement, dated as of March 20, 1999 and as
amended by Amendment No. 1 dated as of April 9, 1999, among MDT
Holdings, LLC, Applied Magnetics Corporation, DDCI, LLC, Vestro
Investments Group Limited, Milestone Acquisitions II, LLC and
Magnetic Data Technologies, LLC.
99.1 News Release issued April 12, 1999 by Applied Magnetics Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 26, 1999 APPLIED MAGNETICS CORPORATION
By /s/ Craig D. Crisman
--------------------
Craig D. Crisman
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
2.1 Recapitalization Agreement, dated as of March 20, 5
1999 and as amended by Amendment No. 1 dated as of
April 9, 1999, among MDT Holdings, LLC, Applied
Magnetics Corporation, DDCI, LLC, Vestro Investments
Group Limited, Milestone Acquisitions II, LLC and
Magnetic Data Technologies, LLC.
99.1 News Release issued April 12, 1999 by Applied 81
Magnetics Corporation.
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Exhibit 2.1
-----------
RECAPITALIZATION AGREEMENT
By and Among
MDT HOLDINGS LLC
and
APPLIED MAGNETICS CORPORATION,
DDCI, LLC,
VESTRO INVESTMENTS GROUP, LIMITED,
MILESTONE ACQUISITIONS II, LLC,
and
MAGNETIC DATA TECHNOLOGIES, LLC
DATED as of March 20, 1999
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TABLE OF CONTENTS
Page
ARTICLE I RECAPITALIZATION TRANSACTIONS.....................................1
1.1 Amendment and Restatement of the Operating Agreement of the
Company................................................................1
1.2 Financing..............................................................1
1.3 Existing Indebtedness..................................................2
1.4 Redemption of Membership Units by the Company..........................2
1.5 Purchase of Membership Units by the Buyer..............................2
1.6 Resignation of Manager.................................................2
1.7 Adjustments to the Redemption Price....................................2
1.8 Payment of Purchase Price and Redemption Price.........................6
1.9 Closing................................................................6
1.10 Closing Date...........................................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AMC............7
2.1 Due Formation; Authority...............................................7
2.2 Membership Interests...................................................8
2.3 Title to Membership Interests..........................................8
2.4 Certificate of Formation and Operating Agreement.......................9
2.5 Subsidiaries...........................................................9
2.6 Financial Statements...................................................9
2.7 No Undisclosed Liabilities, Etc.......................................10
2.8 Absence of Certain Change.............................................10
2.9 Taxes.................................................................12
2.10 Compliance with Laws..................................................14
2.11 Contracts and Other Agreements........................................14
2.12 Real Property.........................................................16
2.13 Intangible Property...................................................17
2.14 Title to Properties, Absence of Liens and Encumbrances................18
2.15 Licenses and Permits..................................................18
2.16 Employee Relations....................................................18
2.17 Employee Benefit Plans; ERISA.........................................19
2.18 Litigation............................................................21
2.19 Insurance.............................................................21
2.20 Due Authorization; Enforceability of this Agreement...................21
2.21 No Violation of Law and Agreements....................................22
2.22 Consents Required.....................................................22
2.23 [Intentionally left blank]............................................22
2.24 Inventory.............................................................23
2.25 Accounts Receivables..................................................23
2.26 Certain Interests.....................................................23
2.27 Assets Necessary to Do Business.......................................23
2.28 Customers.............................................................23
2.29 Brokerage.............................................................23
2.30 Hazardous Materials; Environmental Compliance; Disclosure of
Environmental Information.............................................24
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2.31 GG&G Obligations................................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER....................27
3.1 Execution and Delivery................................................27
3.2 Consents and Approvals................................................27
3.3 No Violation of Law and Agreements....................................27
3.4 Organization, Standing and Authority of the Buyer.....................28
3.5 Brokerage.............................................................28
3.6 Financing.............................................................28
3.7 Investment Intent.....................................................28
3.8 Independent Analysis..................................................28
ARTICLE IV COVENANTS AND AGREEMENTS........................................29
4.1 Conduct of Business...................................................29
4.2 Conditions............................................................29
4.3 Litigation............................................................29
4.4 Continued Effectiveness of Representations and Warranties of
the Buyer and the Company and AMC.....................................30
4.5 Examinations and Investigations.......................................30
4.6 Expenses..............................................................31
4.7 Further Assurances....................................................31
4.8 Employee Benefit Plans................................................32
4.9 No Contract of Employment.............................................32
4.10 Supplements To Disclosure Schedule....................................32
4.11 Records...............................................................33
4.12 Assistance to the Sellers.............................................33
4.13 Recapitalization Treatment............................................33
4.14 Noncompetition Agreement..............................................34
4.15 Pre-Closing Consultation..............................................34
4.16 Non-Solicitation of Employees.........................................34
4.17 Financing.............................................................35
4.18 No Shop...............................................................35
4.19 Pre-Closing Maintenance of Insurance..................................36
4.20 Assumption of Liabilities and Defense.................................36
4.21 Resignations..........................................................36
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF THE SELLERS AND THE COMPANY.....37
5.1 Representations and Covenants.........................................37
5.2 Litigation............................................................37
5.3 Consents and Approvals................................................37
5.4 Ancillary Agreements..................................................37
5.5 Opinion of Buyer's Counsel............................................38
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE BUYER......................38
6.1 Representations and Covenants.........................................38
6.2 Litigation............................................................38
6.3 Consents and Approvals................................................38
6.4 No Material Adverse Changes...........................................39
6.5 Resignations..........................................................39
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6.6 Ancillary Agreements..................................................39
6.7 Existing Indebtedness.................................................39
6.8 Financing.............................................................39
6.9 Opinions of the Company's and Sellers' Counsel........................39
6.10 Release of Liens .....................................................39
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................40
ARTICLE VIII INDEMNIFICATION...............................................40
8.1 Obligation to Indemnify...............................................40
8.2 Notice of Asserted Liability..........................................41
8.3 Opportunity to Defend.................................................41
8.4 Characterization of Indemnification Payments..........................42
8.5 Tax Savings...........................................................42
ARTICLE IX TAX MATTERS.....................................................43
9.1 Tax Indemnification...................................................43
9.2 Procedures Relating to Tax Indemnification and Proceedings............43
9.3 Section 338 Election. ...............................................44
9.4 Section 754 Election..................................................44
9.5 Return Filings........................................................45
9.6 Allocation of Redemption Price and Purchase Price.....................45
9.7 Tax Treatment of Recapitalization Transactions........................46
9.8 Transfer Taxes........................................................47
9.9 Resale Exemption Certificates. .......................................47
ARTICLE X TERMINATION OF AGREEMENT.........................................47
10.1 Termination...........................................................47
10.2 Survival..............................................................48
ARTICLE XI MISCELLANEOUS...................................................48
11.1 Notice................................................................48
11.2 Entire Agreement......................................................50
11.3 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies...........................................................50
11.4 Governing Law.........................................................50
11.5 Waiver of Jury Trials; Consent to Jurisdiction........................51
11.6 Binding Effect; No Assignment.........................................51
11.7 No Third Party Beneficiaries..........................................52
11.8 Counterparts..........................................................52
11.9 Schedules.............................................................52
11.10 Headings..............................................................52
11.11 Publicity.............................................................52
11.12 Severability..........................................................52
11.13 Time of Essence.......................................................52
11.14 Attorneys' Fees.......................................................52
11.15 Knowledge of the Company and AMC......................................52
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11.16 Cooperation...........................................................53
11.17 Construction..........................................................53
11.18 Definitions...........................................................53
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SCHEDULE INDEX
SCHEDULE INDEX
Schedule 1.1 Holders of Membership Units
Schedule 1.4 Redemption Schedule of Membership Units
Schedule 1.5A Purchase of Membership Units
Schedule 1.5B Post-Closing Ownership of Membership Units
Schedule 1.7A Senior Debt
Schedule 1.7B Governing Principles for Computation of Net
Operating Assets and Net Debt
Schedule 2.1 Foreign Jurisdictions in which the Company is
Qualified to do Business
Schedule 2.2 Membership Interests
Schedule 2.5A Subsidiaries; Jurisdictions in which the
Subsidiaries are Qualified to do Business
Schedule 2.5B Liens and Encumbrances on Equity of each
Subsidiary
Schedule 2.8 Changes in Condition
Schedule 2.9 Tax Matters
Schedule 2.11 Contracts and Other Agreements
Schedule 2.12 Real Property
Schedule 2.13 Intangible Property
Schedule 2.14 Liens and Encumbrances
Schedule 2.15 Licenses and Permits
Schedule 2.16 Employee Relations
Schedule 2.17 Employee Benefit Plans
Schedule 2.18 Litigation
Schedule 2.19 Insurance
Schedule 2.21 Violation of Law and Agreements
Schedule 2.22 Consents
Schedule 2.26 Certain Interests
Schedule 2.27 Assets Necessary to do Business
Schedule 2.28 Material Customers
Schedule 2.30 Environmental Matters
Schedule 3.2 Consents and Approvals
Schedule 3.6 Commitment Letters
Schedule 4.6 Sellers' Expenses
Schedule 9.6 Allocation of Redemption Price and Purchase Price
Schedule 11.15 Knowledge of the Company
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EXHIBIT INDEX
Exhibit A Second Amended and Restated Operating Agreement
Exhibit B Form of Opinion of Buyer's Counsel, Skadden, Arps, Slate,
Meagher & Flom LLP
Exhibit C Form of Opinion of Sellers' and Company's Counsel,
Sheppard, Mullin, Richter & Hampton LLP
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RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT is made and entered into as of
this 20th day of March 1999, by and among MDT Holdings LLC, a Delaware
limited liability company ("MDT Holdings"), Applied Magnetics
Corporation, a Delaware corporation ("AMC"), DDCI, LLC, a Delaware
limited liability company and subsidiary of AMC ("DDCI"), Vestro
Investments Group Limited, a Nevada limited partnership ("VIGL"),
Milestone Acquisitions II, LLC, a Nevada limited liability company
("MSA"), and Magnetic Data Technologies, LLC, a Delaware limited
liability company (the "Company"). MDT Holdings is hereinafter referred
to as the "Buyer" and AMC, DDCI, VIGL and MSA are hereinafter
collectively referred to as the "Sellers."
WHEREAS, subject to and in accordance with the terms and
conditions hereinafter set forth, the parties hereto are prepared to
effect the recapitalization of the Company in a series of transactions
(the "Recapitalization"), each of which shall be conditioned upon the
occurrence of the other transactions;
NOW THEREFORE, in consideration of the mutual promises and the
representations and warranties herein contained, the parties hereto,
intending to be legally bound, do hereby covenant and agree as follows:
ARTICLE I
RECAPITALIZATION TRANSACTIONS
On and subject to the terms and conditions set forth in this
Agreement, at the Closing (as defined in Section 1.10 hereof) the
following Recapitalization transactions shall be undertaken in the
following order, each of which shall be conditioned upon the occurrence
of each of the other prior Recapitalization transactions.
1.1 Amendment and Restatement of the Operating Agreement of
the Company. The Sellers shall further amend and restate the Operating
Agreement of the Company by adopting and approving a Second Amended and
Restated Operating Agreement of the Company in all material respects in
the form of Exhibit A hereto (the "Second Amended and Restated Operating
Agreement"). Following the execution of the Second Amended and Restated
Operating Agreement, and without any other action on the part of such
Sellers, each Seller shall hold that number of Class A Common Units and
Class B Common Units (collectively, "Membership Units") as are set forth
opposite its name on Schedule 1.1 hereto, such Membership Units
constituting all of the issued and outstanding limited liability company
interests of the Company.
1.2 Financing. In connection with the transactions
contemplated hereby, at or prior to the Closing, the Company shall
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execute and, contemporaneously with the closing of all transactions
contemplated hereby, deliver agreements and instruments relating to the
financing necessary to consummate the transactions contemplated by this
Agreement, including without limitation, to pay transaction fees and
expenses associated therewith and to provide for the Company's initial
working capital requirements (the "Financing").
1.3 Existing Indebtedness. At or prior to the Closing, the
Company and its Subsidiaries will redeem or repay all indebtedness which
may be required to be redeemed or repaid pursuant to the terms of the
Financing.
1.4 Redemption of Membership Units by the Company. At the
Closing, the Company shall redeem from AMC and DDCI, at an aggregate
redemption price of Twenty Million One Hundred Thirty-Seven Thousand
Dollars ($20,137,000), hereinafter referred to as the "Estimated
Redemption Price," an aggregate of Nineteen Million Nine Hundred Thirty-
Five Thousand Six Hundred Thirty (19,935,630) Membership Units. Each of
AMC and DDCI shall tender for redemption that number of Membership Units
set forth opposite its respective name on Schedule 1.4 hereto in exchange
for its proportionate share of the Estimated Redemption Price set forth
opposite its respective name on Schedule 1.4. The Estimated Redemption
Price shall be subject to adjustment in accordance with Section 1.7
hereof. The final amount due AMC and DDCI, calculated from the Final
Closing Date Balance Sheet (as defined below), for the redemption of the
Membership Units listed on Schedule 1.4, is hereinafter referred to as
the "Redemption Price."
1.5 Purchase of Membership Units by the Buyer. At the
Closing, the Buyer shall purchase from AMC and DDCI, for an aggregate
purchase price of Seventeen Million Twenty-Four Thousand Six Hundred
Thirty Dollars ($17,024,630), hereinafter referred to as the "Purchase
Price," an aggregate of Seventeen Million Two Hundred Twenty-Six Thousand
(17,226,000) Membership Units. AMC and DDCI shall sell to the Buyer that
number of Membership Units set forth opposite their respective names on
Schedule 1.5A hereto at the price set forth opposite their respective
names on Schedule 1.5A. Schedule 1.5B reflects the post-closing
ownership of Membership Units.
1.6 Resignation of Manager. At the Closing, DDCI shall resign
as the managing member of the Company.
1.7 Adjustments to the Redemption Price.
(a) For purposes of this Section 1.7, the "Net Operating
Assets" of the Company and its Subsidiaries shall mean and be equal to
(i) the aggregate net value of all of the assets of the Company and its
Subsidiaries, excluding cash, minus (ii) all of the liabilities of the
Company and its Subsidiaries, excluding senior debt of the Company and
its Subsidiaries as described in Schedule 1.7A (the "Senior Debt") and
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the "Net Debt" of the Company and its Subsidiaries shall mean and be
equal to the amount of Senior Debt minus the cash held by the Company, in
each case computed on a basis consistent with the governing principles
set forth on Schedule 1.7B.
(b) No later than ten (10) days prior to the Closing, the
parties shall estimate (the "Estimate") the Net Operating Assets (the
"Estimated Net Operating Asset Amount") and Net Debt (the "Estimated Net
Debt Amount") as of the Closing Date (such Estimate to be made in
accordance with the governing principles set forth in Schedule 1.7A
hereto.) If the parties cannot agree on the Estimate, AMC, on behalf of
the Sellers, and the Buyer shall each submit a good faith estimate to the
other in writing of the Net Operating Asset Amount and the Net Debt
Amount. The amounts midway between such estimates shall be deemed the
Estimated Net Operating Asset Amount and the Estimated Net Debt Amount.
The Estimated Redemption Price payable at Closing pursuant to Section 1.4
hereof shall be adjusted as follows:
(i) (A) If, pursuant to the Estimate, the Estimated
Net Operating Asset Amount exceeds Six Million Seven Hundred
Seventy-Six Thousand Dollars ($6,976,000) (the "October Balance
Sheet Net Operating Assets"), the Redemption Price payable at
Closing shall be increased by such excess; or (B) if pursuant to the
Estimate, the October Balance Sheet Net Operating Assets exceed the
Estimated Net Operating Asset Amount pursuant to the Estimate, the
Redemption Price payable at Closing shall be reduced by such excess;
and
(ii) (A) If pursuant to the Estimate, the Estimated
Net Debt Amount exceeds Three Million Eight Hundred Sixty-Three
Thousand Dollars ($3,863,000) (the "October Balance Sheet Net
Debt"), the Redemption Price payable at Closing shall be reduced by
such excess; or (B) if pursuant to the Estimate, the October Balance
Sheet Net Debt amount exceeds the Estimated Net Debt Amount pursuant
to the Estimate, the Redemption Price payable at Closing shall be
increased by such excess.
(c) (i) Promptly following the Closing, the Company
shall cause its accountants, Arthur Andersen LLP ("AA"), to prepare
an audited consolidated balance sheet of the Company and its
Subsidiaries (the "Preliminary Closing Date Balance Sheet"),
together with a computation of Net Operating Assets and Net Debt
(the "Net Operating Assets and Net Debt Statement"). The
Preliminary Closing Date Balance Sheet shall be prepared in
accordance with GAAP (as defined below) and on a basis consistent
with the Company's Recent Balance Sheet (as defined in Section 2.6
below), as modified by the governing principles set forth on
Schedule 1.7B hereto. The Net Operating Assets and Net Debt
Statement shall be derived from the Preliminary Closing Date Balance
Sheet.
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(ii) The Preliminary Closing Date Balance Sheet and
the Net Operating Assets and Net Debt Statement shall be delivered
to the Buyer and AMC, representing the Sellers within thirty
(30) business days after the Closing Date. The Buyer and the
Sellers shall each have ten (10) business days after receipt of the
Preliminary Closing Date Balance Sheet and the Net Operating Assets
and Net Debt Statement (the "Objection Period") to object to any
item or items shown on the Preliminary Closing Date Balance Sheet or
the Net Operating Assets and Net Debt Statement. During the
Objection Period, the Buyer (and the Buyer's accountants) and the
Sellers (and the Sellers' accountants, if different from AA) shall
each have access to all work papers which were used in preparation
of the Preliminary Closing Date Balance Sheet and AA, will assist
the Buyer and the Sellers in the conduct of a review of the
Preliminary Closing Date Balance Sheet, including without
limitation, the making available of books, records, work papers and
personnel. No later than the last day of the Objection Period, the
Buyer will notify AMC, on behalf of the Sellers, and AMC, on behalf
of the Sellers, will notify the Buyer in writing of any objections
to the Preliminary Closing Date Balance Sheet and the Net Operating
Assets and Net Debt Statement, setting forth in reasonable detail a
description of such objection and the dollar amount of each
objection as well as their respective calculation of Net Operating
Assets and Net Debt. If neither the Buyer nor AMC, on behalf of the
Sellers, objects during the Objection Period, the Preliminary
Closing Date Balance Sheet shall be conclusive and binding on all of
the parties to this Agreement. If either the Buyer or AMC, on
behalf of the Sellers, objects to the Preliminary Closing Date
Balance Sheet, AMC, on behalf of the Sellers, and the Buyer shall
attempt to resolve any such objections within ten (10) business days
following receipt of the Buyer's objections and/or AMC's objections,
on behalf of the Sellers. If AMC, on behalf of the Sellers, and
the Buyer are able to resolve all of the Buyer's objections, such
resolution shall be conclusive and binding upon all of the parties
to this Agreement.
(iii) If AMC, on behalf of the Sellers, and the
Buyer are unable to resolve all such objections within such ten
(10) business day period, then the Buyer and AMC, on behalf of the
Sellers, will select and retain within two (2) business days
following the end of such ten (10) business day period an accounting
firm mutually agreeable to AMC, on behalf of the Sellers, and the
Buyer (or, if they cannot agree on a mutually acceptable firm, they
shall cause their respective accounting firms to select such firm
(such accounting firm being referred to herein as the "Accounting
Arbitrator")) to resolve such disagreement. The Accounting
Arbitrator shall be directed to resolve any items in dispute between
the parties. The fees and expenses of the Accounting Arbitrator
shall be divided equally between the Sellers, on the one hand, and
the Buyer on the other hand. AMC and the Buyer shall (and the Buyer
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shall cause the Company to) provide to the Accounting Arbitrator
full cooperation, and the Accounting Arbitrator shall perform such
procedures and examine such books and records of the Company as it
deems relevant. The Accounting Arbitrator shall be instructed to
reach its conclusion regarding the disputed items within ten (10)
business days following the submission to it of any disagreements
and, in any case, as soon as practicable after such submission. The
Accounting Arbitrator's resolution of the disputed items shall be
conclusive and binding upon all of the parties to this Agreement.
The Accounting Arbitrator shall have no power or authority to make
any provision or award for any punitive, exemplary or consequential
damages, or any other type of penalty.
(iv) The Preliminary Closing Date Balance Sheet after
the acceptance thereof by the Buyer, or the resolution of all
disputes in connection therewith, in either case, pursuant to this
Section 1.7 is referred to herein as the "Final Closing Date Balance
Sheet ." The amount of Net Operating Assets and Net Debt reflected
on the Final Closing Date Balance Sheet are referred to herein as
"Final Net Operating Assets" and "Final Net Debt," respectively.
(d) If the value of the Final Net Operating Assets of the
Company and its Subsidiaries is less than the Estimated Net Operating
Asset Amount, then the Redemption Price shall be adjusted downward by an
amount equal to such difference. Conversely, if the value of the Final
Net Operating Assets of the Company and its Subsidiaries is greater than
the Estimated Net Operating Asset Amount, then the Redemption Price shall
be adjusted upward by an amount equal to such difference. In addition,
if the amount of Final Net Debt is greater than the Estimated Net Debt
Amount, then the Redemption Price shall be adjusted downward by an amount
equal to such difference. Conversely, if the amount of Final Net Debt is
less than the Estimated Net Debt Amount, then the Redemption Price shall
be adjusted upward by an amount equal to such difference. In the event
that, after taking into consideration any and all such adjustments as
hereinabove provided, the Redemption Price is determined to be less than
the Estimated Redemption Price, then the Sellers shall repay to the
Company the amount by which the Redemption Price, as adjusted, differs
from the Estimated Redemption Price. Conversely, in the event that,
after taking into consideration any and all such adjustments, including
any offsetting adjustments as herein above provided, the Redemption Price
is determined to be more than the Estimated Redemption Price, then Buyer
shall cause the Company to pay in accordance with written instructions to
the Company from the Sellers, the amount by which the Redemption Price,
as adjusted, differs from the Estimated Redemption Price.
(e) Any payment due as a result of Section 1.7 (d) above
shall be due and payable in U.S. dollars by wire transfer in immediately
available funds within ten (10) business days after the Final Closing
Date Balance Sheet is deemed final and binding pursuant to Section 1.7
(c) above.
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1.8 Payment of Purchase Price and Redemption Price. At the
Closing the Sellers shall cause the Company to pay the Estimated
Redemption Price and immediately thereafter the Buyer shall pay the
Purchase Price to the Sellers in U.S. dollars by wire transfer in
immediately available funds payable in accordance with written
instructions to the Company and the Buyer from the Sellers delivered not
less than three (3) business days prior to the Closing.
1.9 Closing.
(a) At the Closing, the Sellers will deliver, or cause
the Company to deliver, the following:
(i) to the Buyer, an opinion of Sheppard, Mullin,
Richter & Hampton LLP ("Sellers and Company Counsel"), dated the
Closing Date and addressed to the Buyer in all material respects in
the form attached hereto as Exhibit C. If requested by the Buyer,
such opinion of Sellers and Company Counsel shall state that it may
be relied upon by the lenders providing the Financing;
(ii) to the Company, duly executed instruments of
assignment as shall be effective to transfer the Membership Units
tendered by AMC and DDCI to the Company for redemption pursuant to
Section 1.4 hereof in form and substance reasonably satisfactory to
the Buyer and its counsel;
(iii) to the Buyer, duly executed instruments of
assignment as shall be effective to transfer the Membership Units
sold by AMC and DDCI to the Buyer pursuant to Section 1.5 hereof, in
form and substance reasonably satisfactory to the Buyer and its
counsel;
(iv) to AMC and DDCI, the Estimated Redemption Price
pursuant to Section 1.4 hereof;
(v) to the Buyer, copies of all approvals, orders,
consents and waivers contemplated by Section 2.22 hereof;
(vi) to the Buyer, the resignations contemplated by
Section 1.6 and Section 4.21 hereof; and
(vii) to the Buyer, such other documents, instruments
or certificates as the Buyer may reasonably request.
(b) At the Closing, the Buyer will deliver, or cause to
be delivered, as applicable, the following:
(i) to the Sellers, an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP ("Buyer Counsel"), dated the Closing Date
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and addressed to the Sellers in all material respects in the form of
Exhibit B;
(ii) to the Sellers, copies of all approvals, orders,
consents and waivers contemplated by Section 3.2 hereof;
(iii) to AMC and DDCI the Purchase Price pursuant to
Section 1.5 hereof; and
(iv) to the Sellers, such other documents,
instruments or certificates as AMC, on behalf of the Sellers, may
reasonably request.
In addition, at the Closing, all other actions shall be taken,
and all other documents shall be duly executed and delivered, which are
necessary to consummate all other transactions contemplated by this
Agreement, other than such actions and documents as are to be taken or
delivered at another date as specifically provided in this Agreement.
1.10 Closing Date. Upon the terms and subject to the
conditions of this Agreement, the Closing shall occur five (5) business
days following the date upon which all conditions hereunder have been
satisfied, or such earlier or later date as may be mutually agreed to in
writing by the Buyer and AMC, on behalf of the Sellers, (such date being
referred to herein as the "Closing Date" or the "Closing"). The Closing
shall take place at 10:00 a.m., New York time, in the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue New York, New York
10022-3897.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND AMC
The Company and AMC (and not DDCI, VIGL or MSA) jointly and
severally hereby represent and warrant to the Buyer as of the date hereof
and as of the Closing Date as follows, except as set forth in a
disclosure schedule to this Agreement that references a specific
representation in this Article II:
2.1 Due Formation; Authority. The Company is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite power and
authority to execute and deliver this Agreement, to perform its
obligations under this Agreement and to consummate the transactions
contemplated by this Agreement, and to own, lease and operate its assets,
properties and business and to carry on its business as now being
conducted. The Company is duly qualified as a foreign limited liability
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company in good standing under the laws of the jurisdictions set forth in
Schedule 2.1, which constitute all of the jurisdictions in which the
property owned, leased or operated by the Company or the nature of the
Company's business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a
material adverse affect on the business, assets, financial condition,
results of operations or prospects of the Company and the Subsidiaries,
considered as a whole ("Material Adverse Effect"). Each of the Sellers
is duly organized, validly existing and in good standing under the laws
of its jurisdiction of formation and has the requisite power and
authority to execute and deliver this Agreement, to perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby.
2.2 Membership Interests. The Company has members holding the
respective percentage interests set forth on Schedule 2.2 hereto
(collectively, the "Membership Interests"). The Membership Interests are
validly issued, fully paid and nonassessable and free of preemptive
rights. Except as set forth above, there are no membership or limited
liability company interests or other equity securities or any security
convertible into or exchangeable for any such membership or limited
liability company interests or other equity securities of the Company
issued and outstanding; there are no issued and outstanding options,
warrants or rights to purchase or acquire any membership or limited
liability company interests or other equity securities of the Company or
any security convertible into or exchangeable for any such membership or
limited liability company interests or other equity securities of the
Company, and there are no contracts, commitments, understandings,
arrangements or restrictions by which the Company is bound to issue
additional membership or limited liability company interests or other
equity securities or options, warrants or rights to purchase or acquire
any additional membership or limited liability company interests or other
equity securities or any security convertible into or exchangeable for
any such membership or limited liability company interests or other
equity securities of the Company.
2.3 Title to Membership Interests. The Sellers own
beneficially and of record, 100% of the Membership Interests free and
clear of all liens, encumbrances, security agreements, equities, options,
claims, charges, pledges, mortgages, or any other adverse claims,
restrictions or third party rights of any kind whatsoever ("Liens")
(other than restrictions of general applicability imposed by federal or
state securities laws), and, upon delivery of the Purchase Price and the
Estimated Redemption Price on the Closing Date as herein provided, the
Membership Units to be purchased by the Buyer or redeemed hereunder will
be duly and validly issued, fully paid and non-assessable; and the
Company and the Buyer, respectively, will acquire good and marketable
title to those units of Membership Interest listed on Schedules 1.4
and 1.5A, respectively, free and clear of all Liens.
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2.4 Certificate of Formation and Operating Agreement. The
Company has heretofore delivered to the Buyer true and complete copies of
the Certificate of Formation and the Amended and Restated Operating
Agreement of the Company as in effect on the date hereof. The minute
book of the Company accurately reflects all actions taken by the managing
member.
2.5 Subsidiaries. Schedule 2.5A sets forth for each direct
and indirect subsidiary of the Company (each a "Subsidiary" and
collectively, the "Subsidiaries"), (i) the percentage ownership interest
of the Company in such Subsidiaries, their respective jurisdiction of
incorporation or organization, the incumbent directors, the number of
shares of their capital stock or other equity interests of each class and
the name of and number of shares owned by each other holder of any such
shares of capital stock or other equity interests and (ii) each
corporation, partnership, joint venture, unincorporated association,
trust or other person, organization or entity in which the Company,
directly or indirectly, has, or pursuant to any agreement will have the
right to acquire by any means, any equity interest. Each Subsidiary is
duly organized, validly existing and in good standing under the laws of
its jurisdiction of formation and has the requisite power and authority
to own, lease and operate its assets and properties and to carry on its
business as it is now being conducted. The Subsidiaries are duly
qualified as foreign limited liability companies in good standing and are
duly licensed, authorized or qualified to transact business under the
laws of the jurisdictions set forth in Schedule 2.5 which constitute all
of the jurisdictions in which the property owned, leased or operated by
the Subsidiaries or the nature of the Subsidiaries' business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth
in Schedule 2.5B, all of the issued and outstanding equity securities of
each Subsidiary are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by the Company
and, free and clear of all Liens. There are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect
to any equity securities of any Subsidiary, including any right of
conversion or exchange under any outstanding security, instrument or
agreement.
2.6 Financial Statements. The Company has previously
delivered to the Buyer true and complete copies of the consolidated
financial statements of the Company (the "Company Financial Statements")
consisting of (i) the audited balance sheet at September 27, 1997,
(ii) the audited consolidated statements of income and statements of cash
flows for the seven months ended September 27, 1997, (iii) the audited
balance sheet at July 4, 1998, (iv) the audited consolidated statements
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of income and statements of cash flows for the nine months ended July 4,
1998, (v) the audited balance sheet at October 3, 1998 (the "Recent
Balance Sheet"), (vi) the audited consolidated statements of income and
statements of cash flows for the fiscal year ended October 3, 1998,
(vii) the unaudited balance sheet at January 2, 1999 and (viii) the
unaudited consolidated statements of income and statements of cash flows
for the three months ended January 2, 1999. All of the Company Financial
Statements (including all notes and schedules contained therein or
annexed thereto) have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied with past practices,
and fairly present in all material respects the assets, liabilities and
financial condition, the results of operations and cash flows of the
Company as of the dates and for the years and periods indicated. As used
in this Agreement, the term "past practices" shall mean practices
occurring during the period subsequent to March 1, 1997.
2.7 No Undisclosed Liabilities, Etc. To the knowledge of the
Company and AMC, there are no obligations, commitments, liabilities or
claims against the Company or its Subsidiaries or otherwise relating to
or arising in connection with the business of the Company or its
Subsidiaries, either accrued, absolute, contingent, or threatened
(collectively herein, the "Liabilities"), except (a) Liabilities the
amounts of which are disclosed or reserved against on the Recent Balance
Sheet, (b) Liabilities incurred, in connection with the Company's
continuing businesses, in the ordinary course of business and consistent
with past practice since the date of the Recent Balance Sheet and
(c) Liabilities that are not required by GAAP to be so disclosed or
reserved against.
2.8 Absence of Certain Changes. Except as contemplated by
this Agreement or as set forth in Schedule 2.8, since October 3, 1998,
neither the Company nor any Subsidiary has:
(a) entered into any transaction, contract or commitment
or incurred any obligation or liability (fixed or contingent) which is
not a business transaction, contract, commitment, obligation or liability
entered into or incurred in the ordinary course of business consistent
with past practices or which is materially adverse to the business,
assets, financial condition, results of operations or, to the knowledge
of the Company and AMC, prospects of the Company or such Subsidiary;
(b) waived or released any rights of material value,
other than in the ordinary course of business consistent with past
practices;
(c) transferred or granted any material rights under any
concessions, leases, licenses, agreements, patents, inventions, trade
names, trademarks, service marks, brand marks, brand names or copyrights,
or registrations or licenses thereof or applications therefor, or with
respect to any knowhow or other proprietary or trade rights;
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(d) entered into, adopted, amended or terminated any
employee benefit plan, made or granted any wage or salary increase
(except for increases made in accordance with established compensation
policies of the Company or such Subsidiary applied on a basis consistent
with past practices), entered into any employment or severance contract
with any officer or employee or made any loan (excluding advances for
normal reimbursable business expenses on a basis consistent with past
practices) to, adopted or entered into any collective bargaining
agreement; or entered into any transaction of any other nature with, any
officer or director of the Company or any Subsidiary;
(e) suffered any material adverse change in its financial
condition or results of operations or in its business, assets, financial
condition, results of operations or prospects considered as a whole;
(f) issued, sold or otherwise disposed of or agreed or
committed to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledged or otherwise encumbered any securities or
limited liability company interests of the Company or of the Subsidiaries
or any securities convertible into or exchangeable for any such
securities or limited liability company interests or amended the terms of
any such securities or limited liability company interests outstanding on
the date hereof;
(g) made any changes in accounting methods or practices;
(h) amended or proposed to amend its certificate of
formation or operating agreement (or other similar organizational
documents) or altered through merger, liquidation, reorganization,
restructuring or in any other fashion, the corporate structure or
ownership of the Company or any of its Subsidiaries;
(i) (i) declared, set aside, paid or made any dividend or
other distribution in respect of its securities or limited liability
company interests, or (ii) redeemed, repurchased or otherwise acquired
any of its securities or limited liability company interests or split,
combined or reclassified any of its securities or limited liability
company interests;
(j) (i) transferred, sold, leased, licensed or disposed
of any material assets or rights, except in the ordinary course of
business consistent with past practices; or (ii) acquired or agreed to
acquire, by merging or consolidating with, by purchasing an equity
interest in or a portion of the assets of or by any other manner any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquired or agreed to
acquire any assets of any other person (other than the purchase of assets
in the ordinary course of business consistent with past practices);
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(k) (i) incurred, assumed, discharged, canceled or
prepaid any material indebtedness or other obligation or issued or sold
any debt securities or rights to acquire any debt securities,
(ii) assumed, guaranteed, endorsed or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other
person, (iii) made any loans, advances or capital contributions to, or
investments in, any other person; (iv) changed the Company's practices
with respect to the timing of payments or collections; (v) pledged or
otherwise encumbered securities or limited liability company interests of
the Company and its Subsidiaries; or (vi) mortgaged or pledged any of its
assets or permitted to exist any Lien thereupon;
(l) entered into, amended, assigned or terminated any
Contract (as defined herein), except in the ordinary course of business
consistent with past practices;
(m) engaged in any transactions with the Sellers or their
subsidiaries (other than the Company and its Subsidiaries) other than in
the ordinary course of business consistent with past practices and on a
basis no less favorable than would at the time be obtainable for a
comparable transaction in an arm's-length dealing with an unrelated third
party;
(n) settled or compromised any material litigation of the
Company or any of its Subsidiaries (whether or not commenced prior to the
date of this Agreement) or settled, paid or compromised any claims,
liabilities or obligations not required to be paid, individually in an
amount in excess of $25,000;
(o) changed, or agreed to change, any business policies
which relate to advertising, pricing, personnel, labor relations, sales,
returns, or product acquisitions, in each case in a manner which would
have a Material Adverse Effect;
(p) made any material Tax election, or settled or
compromised any material Tax liability, failed to file any material Tax
Return required to be filed or failed to pay or withhold any material
amount of Taxes required to be paid or withheld; or
(q) entered into any agreement to do any of the things
described in this Section 2.8.
2.9 Taxes.
(a) All Tax Returns, or extensions therefor, which are
required to be filed by the Company or the Subsidiaries, or by AMC or its
subsidiaries with respect to the Company and the Subsidiaries, have been
timely filed and to the knowledge of the Company and AMC all such Tax
Returns were true, complete and correct in all material respects. All
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Taxes owed by any of the Company or the Subsidiaries for any taxable
period (whether or not shown on any Tax Return) have been accrued or
timely paid in full or adequately reserved for in accordance with GAAP in
the Company Financial Statements.
(b) Each of the Company and each of its Subsidiaries has
complied in all material respects with all applicable laws relating to
the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or
similar provisions under any foreign laws) and has, within the time and
in the manner prescribed by applicable laws, withheld from employee wages
and from any payments to independent contractors and paid over to the
proper Governmental Entity all amounts required to be so withheld and
paid over under all applicable laws.
(c) Except as set forth on Schedule 2.9, (i) no
deficiencies for any Taxes have been threatened, proposed, asserted or
assessed (either in writing or orally) against the Company or any of its
Subsidiaries, (ii) no Governmental Entity is conducting or proposing to
conduct an audit with respect to Taxes of or any Tax Return required to
be filed with respect to the Company or the Subsidiaries, (iii) no
extension or waiver of the statute of limitations with respect to Taxes
or Tax Returns has been granted by the Company or any of the Subsidiaries
which remains in effect, (iv) neither the Company nor any of the
Subsidiaries is a party to any agreement or arrangement (other than the
Second Amended Operating Agreement) to allocate, share or indemnify
another party (other than the Company or any of the Subsidiaries) for
Taxes, (v) there are no Liens for Taxes upon the assets of the Company or
any of the Subsidiaries, except for Liens for Taxes not yet due, (vi) no
jurisdiction where either the Company or any of the Subsidiaries does not
file a Tax Return has asserted or otherwise made a claim that the Company
or any of the Subsidiaries is required to file a Tax Return for such
jurisdiction, and (vii) no power of attorney has been granted by or with
respect to the Company or any of the Subsidiaries with respect to any
matter relating to Taxes.
(d) The Company is (and, during its entire existence, has
been) treated as either (i) an entity the separate existence of which is
disregarded for United States federal income tax purposes or (ii) a
domestic partnership for United States federal income tax purposes. No
federal Tax Return has been filed in any manner that is inconsistent with
such treatment.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Governmental Entity" means any (i) nation, state
county, city, town, village, district, or other jurisdiction of any
nature; (ii) federal, state, local, municipal, foreign or other
government; (iii) governmental or quasi-governmental authority of any
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nature (including any governmental agency, branch, department, official,
or entity and any court or other tribunal); or (iv) body exercising, or
entitled to exercise any governmentally derived administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
(g) "Taxes" mean any federal, state, local or foreign net
income, gross income, receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer, stamp
or environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority.
(h) "Tax Returns" mean all returns, reports, or
statements required to be filed with any Governmental Entity with respect
to any Tax (including any attachments thereto), including, without
limitation, any consolidated, unitary or similar return, information
return, claim for refund, amended return or declaration of estimated Tax.
2.10 Compliance with Laws. Except for any instance of
noncompliance that would not have a Material Adverse Effect, the Company
and the Subsidiaries have complied with all laws, regulations and
ordinances applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected
("Laws"). Since March 1, 1997, none of the Sellers, the Company or any
Subsidiary has received from any Governmental Entity any written
notification with respect to a possible violation of Laws.
2.11 Contracts and Other Agreements. (a) Schedule 2.11 sets
forth all of the contracts and other agreements hereinafter referred to
in this Section 2.11, to which the Company or any Subsidiary is a party
or by or to which it or its assets or properties are bound or subject
(the "Contracts"):
(i) written contracts and other agreements with any
current or former officer, director, employee, consultant, agent or
other representative having more than six (6) months to run from the
date hereof or providing for an obligation to pay and/or accrue
compensation of $50,000 or more per annum, or providing for the
payment of fees or other consideration in excess of $50,000;
(ii) collective bargaining or other contracts and
other agreements with any labor union or association representing
any employee;
(iii) contracts and other agreements for the purchase
or sale of equipment with a purchase price in excess of $50,000,
individually, or $250,000 in the aggregate that contain an
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escalation, renegotiation or redetermination clause or that can be
canceled without liability, premium or penalty only on ninety (90)
or more days notice;
(iv) contracts and other agreements for the
disposition or sale of any of the assets or properties of the
Company or any Subsidiary other than in the ordinary course of
business and for a sale price exceeding $50,000, individually, or
$250,000 in the aggregate or for the grant to any person of any
preferential rights to purchase any of its assets or properties;
(v) contracts and other agreements (including
without limitation, leases of real property) calling for an
aggregate purchase price or payments in any one year of more than
$50,000;
(vi) limited partnership, joint venture or other
unincorporated business organization or similar arrangements or
agreements;
(vii) contracts or other agreements under which the
Company or a Subsidiary or a third party agrees to indemnify any
party in amounts in excess of $50,000;
(viii) contracts and other agreements containing
covenants of the Company or any Subsidiary not to compete in any
line of business or with any person in any geographical area or
covenants of any other person not to compete with the Company or any
Subsidiary in any line of business or in any geographical area;
(ix) contracts and other agreements or arrangements
relating to the making of any loan by the Company or any Subsidiary;
(x) contracts, mortgages, indentures, notes,
installments, obligations or other instruments or other agreements
relating to the borrowing of money by the Company or any Subsidiary
or the direct or indirect guaranty by the Company or any Subsidiary
of any obligation for, or an agreement by the Company or any
Subsidiary to service, the repayment of borrowed money, or any other
contingent obligations in respect of indebtedness of any other
person or governmental or regulatory body;
(xi) contracts or other agreements for or relating to
computers, computer equipment, computer software or computer
services with a purchase price or lease cost in excess of $50,000
individually, or $250,000 in the aggregate;
(xii) contracts or other agreements between the
Company or any Subsidiary and any Governmental Entity;
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(xiii) each contract between the Company or its
Subsidiaries on the one hand, and any of the Sellers on the other
hand; and
(xiv) each other contract which is material to the
business of the Company and its Subsidiaries.
(b) There have been delivered or made available to the
Buyer true and complete copies of all of the Contracts set forth in
Schedule 2.11. Neither the Company nor any Subsidiary nor any other
party to any such Contract is in default under any such Contract, and to
the knowledge of the Company and AMC, no event has occurred which would
constitute a default (or give rise to any right of termination,
cancellation, modification or acceleration) under any such Contract nor
upon receipt of any required consents will the consummation of the
transactions contemplated by this Agreement result in a default under any
such Contract or the right to terminate such Contract. Each Contract is
a valid and binding obligation of the Company or its Subsidiary and the
other party thereto, enforceable against such persons in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the rights of creditors generally
and subject to general equity principles and to limitations on
availability of equitable relief, including specific performance.
2.12 Real Property.
(a) Schedule 2.12 sets forth a list of (i) all real
property owned by the Company or the Subsidiaries and all buildings and
other structures located on such real property; (ii) all leases,
subleases or other agreements under which the Company or any Subsidiary
is lessor or lessee of any real property; (iii) all options held by the
Company or any Subsidiary or contractual obligations on its part to
purchase or acquire any interest in real property; and (iv) any
contractual obligations on the part of the Company or any Subsidiary to
sell or dispose of any interest in real property.
(b) The Company or a Subsidiary is the owner of record,
lessor or lessee under the leases or holder of the options, as the case
may be, of each of the items set forth in Schedule 2.12. Such leases,
subleases and other agreements are in full force and effect and
constitute the valid and binding obligation of the parties thereto and
there exists no defaults or conditions with respect to the Company or a
Subsidiary, and to the knowledge of the Company and AMC, any of the other
parties to such leases, subleases and other agreements, which with the
giving of notice or the passage of time, or both, would constitute a
default with respect to such leases, subleases or other agreements. Each
of the options set forth in Schedule 2.12 is in full force and effect and
constitutes the valid and binding obligation of the parties thereto,
enforceable against such persons in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency, reorganization or
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other laws affecting the rights of creditors generally and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance.
2.13 Intangible Property.
(a) Schedule 2.13 contains an accurate and complete list
of all: (i) patents, pending patent applications and patent applications
in process but not yet filed, owned by or assigned or licensed to the
Company and the Subsidiaries (the "Patents"); registered trademarks and
service marks and pending applications therefor and material unregistered
trademarks and service marks owned by or licensed to the Company and the
Subsidiaries (the "Marks"); and copyright registrations and pending
applications therefor and material unregistered copyrights owned by or
licensed to the Company and the Subsidiaries (the "Copyrights"); (ii)
material licenses and other agreements relating to the Patents, Marks and
Copyrights, and any other licenses and other agreements relating to trade
secrets and know-how; and (iii) material manufacturing, process, and
other technology transfer and license agreements (the Patents, the Marks,
the Copyrights, the licenses and other agreements referred to in clause
(ii) above and the manufacturing, process, and other technology transfer
and license agreements referred to in clause (iii) above along with all
unregistered intellectual property owned or used by the Company and the
Subsidiaries being referred to herein collectively as the "Intellectual
Property").
(b) The Company and the Subsidiaries own, license or
otherwise have the right to use the Intellectual Property, except as set
forth in Schedule 2.13 free and clear of all Liens. Neither the Company
nor any Subsidiary is in default under any license agreement between the
Company or the Subsidiaries and any third person. Except as described in
Schedule 2.13, to the knowledge of the Company and AMC, neither the
Company nor any Subsidiary is infringing upon the rights of any third
person in its trademarks, copyrights, patents, trade secrets, rights of
publicity or privacy or other intellectual property, and neither the
Company nor any Subsidiary has knowledge of any basis for any such claim
of infringement. To the knowledge of the Company and AMC, no
circumstance exists which could reasonably result in a third party claim
alleging libel, slander, false advertising or unfair competition, or
challenging the ownership of or the Company's or any Subsidiary's right
to use any of the Intellectual Property. Except as set forth in
Schedule 2.13, there is no pending or, to the knowledge of the Company
and AMC, threatened action contesting the validity, ownership or right
to use, sell, license or dispose of any Intellectual Property. Except as
set forth in Schedule 2.13, none of the Intellectual Property is subject
to any outstanding order, decree, judgment, stipulation, restriction,
undertaking or agreement limiting the scope of use of the Intellectual
Property or declaring any of it abandoned. To the knowledge of the
Company and AMC, there is no unauthorized use, infringement or
misappropriation of the Intellectual Property by any third party. The
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Company and the Subsidiaries own or have the right to use all
intellectual property relating to their businesses that is reasonably
necessary to the conduct of their businesses, as conducted as of the date
of this Agreement. Except as set forth in Schedule 2.13, any
Intellectual Property owned by the Company or any Subsidiary is in full
force and effect and has not been cancelled, expired or abandoned. To
the knowledge of the Company and AMC, except as set forth in Schedule
2.13, any Intellectual Property owned or used by the Company or any
Subsidiary is valid and subsisting. No trade secret of the Company or
any of its Subsidiaries has been authorized to be disclosed or, to the
knowledge of the Company and AMC, been disclosed to any third party other
than pursuant to a written nondisclosure agreement that adequately
protects the Company's and the applicable Company Subsidiaries'
proprietary interests in and to such trade secrets, or as otherwise
disclosed in Schedule 2.13. The consummation of the transactions
contemplated hereby will not result in the loss or impairment of the
Company's or any of its Subsidiaries rights to own or use any of the
Intellectual Property.
2.14 Title to Properties, Absence of Liens and Encumbrances.
The Company and each Subsidiary has good and valid title (or in the case
of real property owned by the Company or its Subsidiaries, good and
marketable title) to all of its properties and assets whether real,
personal, tangible or intangible, including all properties reflected in
the Recent Balance Sheet and those acquired since the date thereof
(except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all Liens, other than (i) as referred to in
the Recent Balance Sheet, (ii) any Liens for Taxes not yet delinquent or
being contested in good faith by appropriate proceedings set forth in
Schedule 2.9 and are properly reserved for in accordance with GAAP, and
(iii) the matters set forth in Schedule 2.14.
2.15 Licenses and Permits. Schedule 2.15 sets forth all
governmental licenses, permits, variances, exemptions, orders, approvals,
authorizations and filings (the "Permits") held by the Company and the
Subsidiaries; such Permits being the only Permits necessary to the
operation of their respective business, except for the failure to hold
such Permits as would not have a Material Adverse Effect. Except for
Permits for which applications are shown in Schedule 2.15 to be pending,
all such Permits are currently in force. No written notice of any
violation has been received by the Company in respect of any such Permit
and no proceeding is pending or, to the knowledge of the Company and AMC,
threatened that would suspend or revoke or limit any such Permit.
2.16 Employee Relations. Schedule 2.16 sets forth a list of
all employment agreements and collective bargaining agreements to which
the Company or any Subsidiary is a party. Except as specified in
Schedule 2.16, (i) the Company and each Subsidiary is in compliance in
all material respects with Title VII of the federal Civil Rights Act of
1964, as amended, with the federal Occupational Safety and Health Act,
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with the regulations under any of the above or any other federal, state
or other laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, collective bargaining and
the payment of social security and similar taxes and is not engaged in
any material respect in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or
regulation; (ii) neither the Company nor any Subsidiary has been assessed
any material arrears of wages or any taxes or penalties for failure to
comply with any law or regulation described in (i) above for which
adequate reserves have not been established; (iii) none of the Sellers,
the Company or any Subsidiary has received notice of any proceedings
pending before any Governmental Entity relating to (i) or (ii) above;
(iv) none of the Company or any of its Subsidiaries are party to any
collective bargaining agreement and there is no labor strike, slowdown or
stoppage actually pending or threatened against or affecting the Company
or its Subsidiaries; (v) none of the Sellers, the Company or any of its
Subsidiaries have received notice that any representation petition
respecting the employees of the Company or its Subsidiaries has been
filed with the National Labor Relations Board; and (vi) the Company and
its Subsidiaries are and have been in substantial compliance with all
notice and other requirements under the Worker Adjustment and Retaining
Notification Act or similar state statute.
2.17 Employee Benefit Plans; ERISA.
(a) Except as set forth in Schedule 2.17, at the date
hereof, neither the Company and its Subsidiaries nor any trade or
business, whether or not incorporated, that together with the Company or
the Subsidiaries would be deemed a "single employer" within the meaning
of Section 4001(b) of ERISA (an "ERISA Affiliate"), maintain or
contribute to any ERISA employee benefit, employee stock purchase, stock
option, bonus or executive compensation plans, programs, funds, trusts,
arrangements and practices (such plans, programs, funds, trusts,
arrangements and practices of the Company and the Subsidiaries being
referred to as the "Company Plans"), including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar
arrangements for the provision of benefits or perquisites. Neither the
Company nor any Subsidiary maintains or has ever maintained any
"Multi-employer Plan" within the meaning of Section 3 (37) of ERISA or a
"Multiple Employer Plan " within the meaning of Section 413 (c) of the
Code. Neither the Company and its Subsidiaries nor any ERISA Affiliate
maintains or contributes to, or has maintained or contributed to during
the five (5)-year period ending on the Closing Date, an employee pension
benefit plan as defined in Section 3(2) of ERISA which is subject to
Title IV of ERISA.
(b) With respect to each Company Plan, the Sellers or the
Company have heretofore delivered to the Buyer true and complete copies
of each of the following documents, (i) a copy of the Company Plan and
any amendments thereto (or if the Company Plan is not a written plan, a
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description thereof); (ii) a copy of the two most recent annual reports
and actuarial reports, if required under ERISA, and the most recent
report prepared with respect thereto in accordance with Statement of
Financial Accounting Standards No. 87; (iii) a copy of the most recent
summary plan description required under ERISA with respect thereto;
(iv) if the Company Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement and the
latest financial statements thereof; and (v) the most recent
determination letter received from the Internal Revenue Service with
respect to each Company Plan intended to qualify under Section 401 of the
Code.
(c) Except as set forth in the Schedule 2.17, (i) there
have been no prohibited transactions within the meaning of Section 406
or 407 of ERISA or Section 4975 of the Code with respect to any of the
Company Plans that could result in any material penalties, taxes or
liabilities, (ii) each of the Company Plans has been operated and
administered in all material respects in accordance with applicable laws
during the period of time covered by the applicable statute of
limitations, (iii) each of the Company Plans which is intended to be
"qualified" within the meaning of Section 401 (a) of the Code has been
determined by the Internal Revenue Service to be qualified, and such
determination has not been modified, revoked or limited by failure to
satisfy any condition thereof or by a subsequent amendment thereto or a
failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such
Company Plans, and the period for making any such necessary retroactive
amendments has not expired, and (iv) there are no pending, or to the
knowledge of AMC and Company, threatened or anticipated claims involving
any of the Company Plans other than claims for benefits in the ordinary
course.
(d) Except as set forth in Schedule 2.17, no Company Plan
provides medical, surgical, hospitalization, death or similar benefits
(whether or not insured) for employees or former employees of the Company
or any Subsidiary for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable
law, (ii) death benefits under any tax qualified pension plan, or
(iii) benefits the full cost of which is borne by the current or former
employee (or beneficiary of such employee).
(e) Schedule 2.17 contains a true and complete summary or
list of or otherwise describes all material employment contracts and all
other employee benefit arrangements with "change of control" or similar
provisions and all severance, retirement or termination agreements,
arrangements, policies or practices with directors, executive officers or
any other employees.
(f) There are no agreements which, determined without
regard to any agreements entered into or compensation paid after Closing
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(other than compensation paid pursuant to an agreement entered into
following the date hereof, but before Closing without the consent of
Buyer) will or may provide payments to any officer, employee, independent
contractor, shareholder, or highly compensated individual which will be
"parachute payments" under Code Section 280G that may be nondeductible to
the Company or subject to tax under Code Section 4999 for which the
Company or any ERISA affiliate would have withholding liability.
(g) The consummation of the transactions contemplated by
this Agreement will not, either alone or in combination with another
event, (i) entitle any current or former employee, independent contractor
or officer of the Company or any Subsidiary to severance pay,
unemployment compensation or any other payment by the Company, except as
expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, independent contractor or officer.
2.18 Litigation. Except as shown in Schedule 2.18, no
litigation, action, suit, proceeding or investigation is presently
pending, nor to the knowledge of the Company and AMC, threatened (nor to
the knowledge of the Company and AMC is there any basis therefor),
against or affecting the Sellers, the Company or any Subsidiary or their
properties or restricting or prohibiting the consummation of the
transactions contemplated by this Agreement before or by any Governmental
Entity or non-governmental body or by any third party.
2.19 Insurance. Schedule 2.19 sets forth a list and brief
description, including the annual premiums, of all policies or binders of
fire, errors and omissions, liability, product liability, workmen's
compensation, vehicular and other insurance held by or on behalf of the
Company and the Subsidiaries and the Company has heretofore delivered to
the Buyer true, and to the knowledge of the Company and AMC, complete
copies of all such policies of insurance. To the knowledge of the
Company and AMC, such policies and binders are valid and enforceable in
all material respects in accordance with their terms and are in full
force and effect. Except as set forth on Schedule 2.19, to the knowledge
of the Company and AMC, none of the policies set forth on Schedule 2.19
will lapse or become subject to termination by the insurer as a result of
the transactions contemplated by this Agreement. All of the insurance
policies set forth on Schedule 2.19 are terminable by the holder thereof
without penalty.
2.20 Due Authorization; Enforceability of this Agreement. The
execution and delivery of this Agreement by each of the Sellers and the
Company and the consummation by each of the Sellers and the Company of
the transactions contemplated by this Agreement have been duly authorized
by all necessary action on the part of each of the Sellers and the
Company and no other actions or proceedings on the part of each of the
Sellers and the Company are necessary to authorize this Agreement or for
the Sellers and the Company to consummate the transactions contemplated
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by this Agreement. This Agreement constitutes the valid and binding
obligation of each of the Sellers and the Company and is enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the rights
of creditors generally and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
2.21 No Violation of Law and Agreements. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms and
conditions hereof will not conflict with or violate any provision of the
charter or other organizational documents, operating agreements or bylaws
of any of the Sellers, the Company or any Subsidiary, and does not and
will not conflict with, violate, result in a breach of, or cause a
default under (i) any provision of any federal, state or local law or
regulation relating to the business or assets of any of the Sellers, the
Company and the Subsidiaries (subject to obtaining any requisite
regulatory approvals), other than violations, breaches or defaults which
would not have a Material Adverse Effect, (ii) any provision of any
order, arbitration award, judgment or decree to which any of the Sellers,
the Company and the Subsidiaries or their properties is subject, or
(iii) any provision of any material agreement or instrument to which any
of the Sellers, the Company or any Subsidiary is subject, other than
conflicts, violations, breaches or defaults which would not have a
Material Adverse Effect, or which conflicts, violations, breaches or
defaults in each of clauses (i), (ii) and (iii) above would not prohibit
or restrict the consummation of the transactions contemplated by this
Agreement. Except as set forth in Schedule 2.21, (x) none of the
Company, the Subsidiaries or the Sellers has received any notice from any
Governmental Entity that any of the owned or leased real property of the
Company or any of its Subsidiaries, or the operations of the Company or
any Subsidiary thereon, is in violation of any applicable zoning
requirement or classification, building code, pollution control ordinance
or statute or any other Law relating to such properties or to such
operations, and, (y) neither the Company nor any Subsidiary has received
notice of nuisance produced by or resulting from such properties or
operations.
2.22 Consents Required. Except as set forth in Schedule 2.22,
the conduct of business by the Company and the Subsidiaries as presently
conducted and the execution, delivery and performance of this Agreement
by the Sellers and the Company and the consummation of the transactions
contemplated hereby do not require any of the Sellers or the Company to
obtain any consent, approval or action of, or make any filing or
registration with or give notice to, any corporation, partnership,
individual, firm, trust or other entity or any Governmental Entity.
2.23 [Intentionally left blank]
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2.24 Inventory. All inventories to be reflected on the
Preliminary Closing Date Balance Sheet will have been produced or
acquired by the Company and its Subsidiaries in the ordinary course of
business and the Company and its Subsidiaries will have good and
marketable title to the inventory. The values at which the inventory
will be carried on the Preliminary Closing Date Balance Sheet will
reflect the customary valuation policy of the Company and its
Subsidiaries (which fairly reflects the value of obsolete, spoiled or
excess inventory) for stating inventory in accordance with GAAP,
consistently applied.
2.25 Accounts Receivables. All accounts receivables of the
Company and its Subsidiaries to be reflected on the Preliminary Closing
Date Balance Sheet will represent sales made in the ordinary course of
business.
2.26 Certain Interests. Except as set forth on Schedule 2.26,
no affiliate of any Seller or the Company or any of its Subsidiaries nor
any officer or director of any of them has any interest in any property
used in or pertaining to the business of the Company or any customer or
supplier doing business with the Company or any of its Subsidiaries.
Except with respect to those transactions listed on Schedule 2.26 and
transactions solely between the Company and its Subsidiaries, neither the
Company nor any of its Subsidiaries is a party to any transaction with
any affiliate of the Company, any of its Subsidiaries or any Seller or
any officer or director of any of the foregoing or of the Company or any
Subsidiary. All transactions listed on Schedule 2.26 have been entered
into on an arms-length basis and are commercially reasonable.
2.27 Assets Necessary to Do Business. Set forth on
Schedule 2.27 are the assets, properties and services provided by AMC to
the Company in connection with the conduct of its business as of the date
of this Agreement. The assets, properties, contracts and rights of the
Company and its Subsidiaries include all of the assets, properties,
contracts and rights necessary for the conduct of their business in the
manner as it is currently conducted.
2.28 Customers. Set forth on Schedule 2.28 is a list of the
Company's top ten customers, based on revenues for the fiscal year ended
October 3, 1998 ("Material Customers"). None of the Material Customers
has advised the Company that it intends to cancel or terminate its
business relationship with the Company or its Subsidiaries within the
next twelve months.
2.29 Brokerage. No broker or finder has acted, directly or
indirectly, for Sellers or the Company, nor have the Sellers or the
Company incurred any obligation to pay, any brokerage, finder's fee or
other commission or similar fee in connection with the transactions
contemplated by this Agreement, provided, however, that the Company has
entered into an agreement (the "Pedersen Agreement") with Pedersen
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Kammert & Co. LLC ("Pedersen Kammert"), investment bankers, related to
the transactions contemplated hereby. A true and correct copy of the
Pedersen Agreement and any amendments or supplements thereto has
heretofore been delivered to the Buyer. The Sellers agree to indemnify
and hold the Buyer and the Company harmless with respect to any and all
claims for brokers' fees, commissions, or other similar fees arising out
of the conduct of the Company or the Sellers, other than pursuant to the
Pedersen Agreement.
2.30 Hazardous Materials; Environmental Compliance; Disclosure
of Environmental Information.
(a) Definitions. The term "Hazardous Materials," as used
herein shall mean any and all substances (including, without limitation,
petroleum and any derivative thereof), wastes or materials classified as
hazardous or toxic under, or otherwise regulated under, any federal,
state, local, and foreign law, rule, ordinance, statute or regulation
pertaining to environmental, health, safety or natural resources matters,
including, without limitation, the following: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, the Clean Air Act, the
Clean Water Act, the Toxic Substances Control Act and the Emergency
Planning and Community Right-to-Know Act of 1986 (all such laws, rules,
ordinances, statutes and regulations being referred to collectively as
"Environmental Laws"). The term "Environmental Liabilities" shall mean
any liability, claim, demand, charge, obligation, deficiency, loss
(including, without limitation, any diminution in value), expenditure,
cost or expense (including, without limitation, reasonable attorneys'
fees and disbursements and costs of response or remediation) that [would
have a Material Adverse Effect and that] would be imposed or incurred by
reason of (i) noncompliance with any Environmental Laws by or on behalf
of the Company or its Subsidiaries or any predecessor entities on or
prior to the Closing Date or (ii)(a) the on-site or off-site disposal of
any Hazardous Materials by or on behalf of the Company or its
Subsidiaries or any predecessor entities on or prior to the Closing Date
or (b) the release into the environment of, or exposure to, any Hazardous
Materials by the Company or its Subsidiaries or any predecessor entities
or any other entity on their behalf on or prior to the Closing Date,
whether generated, handled or possessed by the Company or its
Subsidiaries or any predecessor entities or located at or emanating from
or to a site now or heretofore owned, leased or otherwise used by the
Company or its Subsidiaries or any predecessor entities. The term
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface strata)
or into or out of any property, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater or
property.
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(b) Environmental Compliance.
(i) To the knowledge of the Company and AMC, the
Company and each Subsidiary is in compliance with all applicable
Environmental Laws, (which compliance includes, but is not limited
to, the possession by the Company and its Subsidiaries of all
permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and
conditions thereof), except where the noncompliance with such
Environmental Laws would not have a Material Adverse Effect. To the
knowledge of the Company and AMC, neither the Sellers, the Company
nor its Subsidiaries have received any written communication,
whether from a Governmental Entity, citizens group, employee or
otherwise, alleging that the Company or its Subsidiaries are not in
such compliance. To the knowledge of the Company and AMC there are
no past or present actions, activities, circumstances, conditions,
events or incidents that may prevent or interfere with such
compliance in the future.
(ii) There are no criminal, civil or administrative
proceedings or investigations pending or, to the knowledge of the
Company and AMC, threatened against the Company or the Subsidiaries
relating to, arising out of, or based upon any Environmental Laws.
(iii) To the knowledge of the Company and AMC, no
underground storage tanks, friable asbestos, or PCB's are located on
property currently owned or leased by the Company or the
Subsidiaries.
(iv) To the knowledge of the Company and AMC, except
as set forth on Schedule 2.30, neither the Company nor any
Subsidiary has generated, manufactured, refined, treated, stored,
handled, produced or processed any Hazardous Materials, except in
compliance with all applicable Environmental Laws.
(v) To the knowledge of the Company and AMC, except
as set forth on Schedule 2.30, neither the Company nor any
Subsidiary has transported, disposed of or transferred any Hazardous
Materials, except in compliance with all applicable Environmental
Laws.
(vi) To the knowledge of the Company and AMC, except
as set forth on Schedule 2.30, there has been no release, disposal
or dumping of any Hazardous Materials from any properties owned or
leased by the Company or the Subsidiaries, which are reasonably
likely to create a risk to the Company or its Subsidiaries of an
Environmental Liability.
(vii) Except as set forth in Schedule 2.30, to the
knowledge of the Company and AMC, there are no past or present
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actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the Release or presence of any
Hazardous Material which could form the basis of any Environmental
Liability against the Company or its Subsidiaries, or to the
knowledge of the Company and AMC, against any person or entity whose
liability for any Environmental Liability the Company or its
Subsidiaries have or may have retained or assumed either
contractually or by operation of law.
(viii) The Company and its Subsidiaries have delivered
or otherwise made available for inspection to the Buyer complete
copies of any reports, studies, analyses, tests or monitoring
possessed or initiated by the Company or its Subsidiaries pertaining
to Hazardous Materials in, on, beneath or adjacent to any property
currently or formerly owned, operated or leased by the Company or
its Subsidiaries, or regarding the Company and its Subsidiaries
compliance with applicable Environmental Laws (the "Environmental
Reports") subsequent to August 1, 1996. To the knowledge of the
Company and AMC, there are no Environmental Reports other than the
Environmental Reports referred to in the preceding sentence.
(ix) To the knowledge of the Company and AMC, neither
the Company nor its Subsidiaries has entered into, or received
written notice that it is currently or might in the future be
subject to, any consent decree, request for information, compliance
order or administrative order or lien currently in effect with
respect to any environmental or worker health or safety matter or
received any written request for information, notice, notification,
demand letter, administrative inquiry, or formal complaint or claim
with respect to any Environmental Liabilities.
(x) To the knowledge of the Company and AMC, neither
the Company nor its Subsidiaries has received any assessment for any
citations, reimbursement obligations, fines or penalties under any
Environmental Law, no such citations, reimbursement obligations,
fines, penalties or assessments are pending or, to the knowledge of
the Company and AMC, threatened against the Company or the
Subsidiaries, and, to the knowledge of the Company and AMC, no basis
exists for such citations, reimbursement obligations, fines,
penalties or assessments.
2.31 GG&G Obligations. Other than the fee referenced in
paragraph 9 of the Standard Form of Resolution Engaging the Services of
Grisanti, Galef & Goldress, Inc. ("the Resolution") as Interim Manger of
the Company, the Company has no obligation to pay any fee or commission
to Grisanti, Galef & Goldress, Inc. ("GG&G"), other than the fees payable
to GG&G in accordance with paragraph 5 of the Resolution, and the Sellers
agree to indemnify and hold the Buyer and the Company harmless as to any
claims by GG&G, provided, however, that nothing herein contained shall
obligate the Sellers to indemnify or hold harmless the Buyer from or
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against a claim by GG&G for a fee related to a decision by the Buyer or
the Company to directly retain the services of any GG&G professional
personnel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as of the date
hereof and as of the Closing Date as follows:
3.1 Execution and Delivery. The execution and delivery of
this Agreement by the Buyer and the consummation by the Buyer of the
transactions contemplated by this Agreement have been duly authorized by
all necessary action on the part of the Buyer and no other actions or
proceedings on the part of the Buyer are necessary to authorize this
Agreement or for the Buyer to consummate the transactions contemplated by
this Agreement. This Agreement constitutes the valid and binding
obligation of the Buyer and is enforceable against the Buyer in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the rights
of creditors generally and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
3.2 Consents and Approvals. Except as set forth in
Schedule 3.2, the execution, delivery and performance by the Buyer of
this Agreement, and the consummation by the Buyer of the transactions
contemplated hereby do not require it to obtain any consent, approval or
action of, or make any filing or registration with or give any notice to,
any corporation, partnership, individual, firm or other entity or any
Governmental Entity.
3.3 No Violation of Law and Agreements. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms and
conditions hereof will not conflict with or violate any provision of the
charter or other organizational documents or operating agreement or
bylaws of the Buyer and does not and will not conflict with, violate,
result in a breach of, or cause a default under (i) any provision of any
federal, state or local law or regulation relating to the business or
assets of the Buyer (subject to obtaining any requisite regulatory
approvals), (ii) any provision of any order, arbitration award, judgment
or decree to which the Buyer or its properties is subject, or (iii) any
provision of any material agreement or instrument to which the Buyer is
subject, other than conflicts, violations, breaches or defaults in the
case of clauses (i), (ii) and (iii) which would not have a material
adverse effect on the Buyer's ability to consummate the transactions
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contemplated hereby, or which would prohibit or restrict the consummation
of the transactions contemplated by this Agreement.
3.4 Organization, Standing and Authority of the Buyer. The
Buyer is a limited liability company duly organized, validly existing and
in good standing under the laws of its jurisdiction of formation and the
Buyer has all requisite power and authority to execute and deliver this
Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement, and to own,
lease and operate its assets, properties and business and to carry on its
business as now being conducted. The Buyer is duly qualified or
authorized as a limited liability company is in good standing in each
jurisdiction in which such qualification is required by law.
3.5 Brokerage. No broker or finder has acted, directly or
indirectly, for the Buyer, nor has the Buyer incurred any obligation to
pay any brokerage, finder's fee or other commission in connection with
the transactions contemplated by this Agreement. The Buyer agrees to
indemnify and hold the Sellers harmless with respect to any and all
claims for brokers' fees, commissions, or other similar fees arising out
of the conduct of the Buyer.
3.6 Financing. Schedule 3.6 sets forth true and complete
copies of written documentation from third parties which provides for the
Financing in amounts sufficient to consummate the transactions
contemplated hereby, including, without limitation, to pay transaction
fees and expenses associated therewith and to provide the Company working
capital. The commitment fees set forth in such financing documents which
are due and payable have been paid.
3.7 Investment Intent. The Buyer is purchasing the Membership
Units for its own account for investment and with no present intention of
distributing or reselling those units of membership interest or any part
thereof, subject nevertheless, to any requirement of law that the
disposition thereof by the Buyer shall at all times be within the control
of the Buyer. The Buyer is fully informed as to the applicable
limitations upon any distribution or resale of the Membership Units
(which have not been registered pursuant to the Securities Act of 1933,
as amended (the "Securities Act")) under the Securities Act. The Buyer
agrees not to distribute or resell any of the Membership Units if such
distribution or resale would constitute a violation of the Securities
Act.
3.8 Independent Analysis. Except as otherwise expressly set
forth in this Agreement, Buyer recognizes that Sellers and the Company
have made no representation or warranty upon which Buyer is relying with
respect to (i) the Company's ability to obtain new business, (ii) retain
its existing business subsequent to the Closing Date or (iii) any
financial or other projections. Sellers and the Company specifically
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disclaim any warranty as to the accuracy of the projections previously
provided.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Conduct of Business. From the date hereof to the Closing
Date, the Company and the Subsidiaries will operate their businesses only
in the ordinary course of business consistent with past practices and,
without the prior written consent of the Buyer, will not undertake any of
the actions specified in Section 2.8 except that (i) for purposes of this
Section 4.1, the dollar thresholds set forth in the definition of
Contracts in Section 2.11 hereof shall be deemed to be $10,000
individually and $50,000 in the aggregate and (ii) the Company shall be
entitled to take such actions as are generally reflected in the capital
expenditure budget, for fiscal year 1999, previously provided to the
Buyer. The Company shall use all reasonable efforts to preserve intact
the present organization of its business, keep available the services of
the present officers and employees of the Company and preserve the
Company's relationships with customers, suppliers, and others having
significant business dealings with its business.
4.2 Conditions. The Buyer, the Company and the Sellers agree
that from the date hereof to the Closing Date, each will use its
commercially reasonable efforts:
(i) To satisfy the conditions precedent to
consummation of the transactions contemplated by this Agreement to
the extent they are to be performed by it, its agents or
representatives.
(ii) To cooperate with the other parties and the
Company, to the extent cooperation on its part is helpful, in the
other parties' or the Company's efforts to satisfy the conditions
precedent to consummate the transactions contemplated by this
Agreement.
(iii) To obtain the consents referred to in this
Agreement.
4.3 Litigation.
(a) From the date hereof through the Closing Date, the
Sellers and the Company shall notify the Buyer promptly upon obtaining
knowledge of any litigation, actions, suits or proceedings that, from
that date hereof, are threatened or commenced against the Company or any
Subsidiary or against any of their respective officers, directors or
employees, or against the properties or assets of the Company or any
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Subsidiary and of any requests for additional information or documentary
materials by any governmental or regulatory body in connection with the
transactions contemplated hereby.
(b) From the date hereof through the Closing Date, the
Buyer shall notify the Sellers promptly of any actions or proceedings
threatened or commenced against the Buyer, or against any officer,
director, employee, properties or assets of the Buyer with respect to the
transactions contemplated hereby, and of any requests for additional
information or documentary materials by any governmental or regulatory
body in connection with the transactions contemplated hereby.
4.4 Continued Effectiveness of Representations and Warranties
of the Buyer and the Company and AMC. From the date hereof through the
Closing Date, (a) the Sellers, the Company and the Subsidiaries shall use
commercially reasonable efforts to conduct their affairs in such a manner
so that, except as otherwise contemplated or permitted by this Agreement,
the representations and warranties contained in Article II shall continue
to be true and correct on and as of the Closing Date as if made on and as
of the Closing Date, (b) the Buyer shall use commercially reasonable
efforts to conduct its affairs in such a manner so that, except as
otherwise contemplated or permitted by this Agreement, the
representations and warranties contained in Article III shall continue to
be true and correct on and as of the Closing Date as if made on and as of
the Closing Date, (c) the Sellers and the Company shall promptly notify
the Buyer of any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a violation or
breach of this Agreement by the Sellers or the Company, and (d) the Buyer
shall promptly notify the Sellers of any event, condition or circumstance
occurring from the date hereof through the Closing Date that would
constitute a violation or breach of this Agreement by the Buyer. No
notice made pursuant to this Section 4.4 shall be deemed to cure any
violation or breach of any covenant, representation or warranty in this
Agreement.
4.5 Examinations and Investigations. Subject to any
limitations imposed by law, prior to the Closing Date, the Buyer shall be
entitled, through its employees, officers, accountants and other
representatives, to make such investigation of the assets, liabilities,
offices, facilities, properties, business and operations of the Company
and the Subsidiaries and such examination of the books, records and
financial condition of the Company and the Subsidiaries as the Buyer
reasonably determines is necessary to evaluate the assets, liabilities,
properties, business and operations of the Company and the Subsidiaries.
Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the Company, the Sellers and
their respective employees and representatives, including, without
limitation, their respective counsel and independent public accountants,
shall cooperate fully with such representatives in connection with such
review and examination. If this Agreement terminates, the Buyer and its
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affiliates shall continue to be bound by the terms of that certain
Confidentiality Agreement by and between and the Company dated as of
December 1, 1998 (the "Confidentiality Agreement"), provided, however,
that effective upon the Closing, the Confidentiality Agreement shall be
of no further force or effect. In addition, the Sellers shall use their
reasonable best efforts to cause the Company's independent public
accountants to make available to the Buyer, its independent public
accountants, its attorneys and its financing sources and the independent
public accountants and attorneys of the Buyer's financing sources, upon
reasonable notice by the Buyer, during regular business hours, reasonable
access to their personnel, work papers and such other reasonably
requested documentation relating to their work papers and to their
reports on the books and records of the Company, in each case which
relate to the business of the Company and such other parties shall
reasonably require in connection with the transactions contemplated by
this Agreement or as is reasonably requested in connection with any
investigation that the Buyer may undertake, provided, however, that
nothing herein contained shall require the Company or AMC's attorneys to
disclose information covered by the attorney-client privilege.
4.6 Expenses. If the transactions contemplated hereby are
consummated, all costs and expenses incurred by the Sellers, the Company
and the Subsidiaries in connection with this Agreement, the transactions
contemplated hereby and all prior efforts in connection with any merger,
sale of Membership Interests or similar business combination involving
the Company, including without limitation, (i) the fees and expenses of
counsel to the Company, the Sellers, Brian Stone and other members of the
Company's management, (ii) the fees and expenses of the accountants for
the Company and the Sellers, including in connection with the preparation
of the Company Financial Statements and (iii) the fees and expenses of
Pedersen Kammert (the"Sellers' Expenses") shall (y) have been paid by the
Company prior to the Closing Date or (z) be fully reserved against as a
liability on the Final Closing Date Balance Sheet. AMC agrees to
indemnify, defend and hold harmless the Buyer and the Company from and
against any and all Sellers' Expenses and any and all claims, liabilities
and damages arising from the failure to pay such Sellers' Expenses to the
extent such Seller's Expenses are not paid by the Company prior to the
Closing Date or fully reserved against as a liability on the Final
Closing Date Balance Sheet. If the transactions contemplated hereby are
consummated the Company will pay (or reimburse the Buyer for ) all
reasonable fees and expenses incurred by the Buyer in connection with
this Agreement and the transactions contemplated hereby. If the
transactions contemplated hereby are not consummated each party hereto
shall be responsible for its own fees and expenses.
4.7 Further Assurances. Each of the parties shall execute
such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby. Each such party shall use its
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reasonable best efforts to fulfill or obtain the fulfillment of the
conditions to the Closing as promptly as practicable.
4.8 Employee Benefit Plans. Effective as of the Closing, the
Buyer shall cause the Company and the Subsidiaries to either (a) continue
to provide coverage for their employees under the Company's existing
life, long-term disability, medical, dental, accidental death and
dismemberment and travel accident plans of the Company applicable to
employees of the Company or any Subsidiaries (the "Welfare Benefit
Plans") or (b) provide coverage under welfare plans substantially similar
to that provided by the welfare plans established by the Company or its
Subsidiaries for employees of the Company or any Subsidiary (the "New
Welfare Benefit Plans"). If the Company establishes New Welfare Benefit
Plans, the Buyer agrees that the employees of the Company shall be
eligible to participate in the New Welfare Benefit Plans, to the same
extent that such employees were eligible to participate in the Old
Welfare Plans as of the Closing, and shall not be subject to any pre-
existing condition exclusion. The Buyer agrees to cause the Company and
its Subsidiaries to maintain either the old Welfare Benefit Plans or the
New Welfare Benefit Plans or a combination thereof in such form without
any material change for a period of two (2) years after the Closing,
subject to changes required to maintain compliance with the Code, ERISA
and other applicable laws. Notwithstanding the foregoing, in the event
that during the two-year period following the Closing, there is an
increase in the cost of the benefits provided under the old Welfare
Benefit Plans or the new Welfare Benefit Plans, the Buyer may increase
the cost to employees so that such cost increase is shared by the Buyer
and the employees in proportion to the cost sharing arrangement as of the
date hereof. After the Closing, the Company shall be responsible for
providing continuation coverage under Section 4980B of the Code. The
employees of the Company and its Subsidiaries shall receive credit for
all purposes (including eligibility and vesting) for service recognized
for such purposes under the employee benefit plans of the Company or its
Subsidiaries with respect to Buyer's comparable employee benefit plans
(as such term is defined in Section 3(3) of ERISA), provided, however,
that such service shall not be recognized to the extent that such
recognition would result in a duplication of benefits.
4.9 No Contract of Employment. No provision of this Agreement
shall create any third party beneficiary or other right in any employee
or former employee of the Company or any Subsidiary (including any
beneficiary or dependent thereof) in respect of continued employment (or
resumed employment) with the Company or any Subsidiary or in respect of
any benefits that may be provided, directly or indirectly under any plan
or arrangement maintained by the Company or the Buyer.
4.10 Supplements To Disclosure Schedule. From time to time
prior to the Closing, the Company and AMC may supplement or amend the
Disclosure Schedule. No supplement or amendment of the Disclosure
Schedule made pursuant to this Section 4.10 shall be deemed to cure any
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breach or inaccuracy of any representation or warranty made in this
Agreement.
4.11 Records. After the Closing, the Company shall maintain,
and the Buyer shall cause the Company to maintain for a period of seven
years (and thereafter to the extent relevant to any litigation, including
arbitration and any tax audit or appeal) commenced before the expiration
of such seven-year period) all books and records of the Company and the
Subsidiaries and permit the Sellers to have reasonable access during
normal business hours at the Sellers' expense to examine and copy such
books, records and data of which the Sellers have no copy in connection
with the preparation of the Sellers' financial reports, tax returns, tax
audits, the defense or prosecution of litigation (including arbitration
and any tax audit or appeal) related thereto. Notwithstanding the
foregoing, the Company shall be entitled to destroy or otherwise dispose
of such books, records and data if, prior to such destruction or
disposition, it offers to surrender such books, records and data to all
Sellers and all of the Sellers decline to take possession thereof.
4.12 Assistance to the Sellers. The Buyer shall cause the
Company to provide the Sellers with reasonable assistance at the expense
of the Company (other than out-of-pocket expenses which shall be borne by
Sellers) by the provision of employees to act as witnesses and to assist
in the preparation of documents, reports and other information requested
by the Sellers in support of activities described in the above
Section 4.11 or in the defense of any lawsuit arising out of the Sellers'
activities related to the Company, or the Company's activities prior to
the Closing provided, however, that in no event shall the efforts
required of the Company's employees unreasonably interfere with their
daily employment responsibilities on behalf of the Company.
4.13 Recapitalization Treatment. As of the date hereof and
for a period of five (5) years after the Closing, the Buyer, the Company
and the Sellers shall cooperate with any reasonable requests of the
Buyer, the Company or the Sellers, as applicable, related to the
recording of the transactions contemplated by this Agreement as a
recapitalization for financial reporting purposes, including, without
limitation, to assist the Buyer and its affiliates or the Company with
any presentation to any person (including any Governmental Entity) with
regard to such recording and to include appropriate disclosure with
regard to such recording in all filings with any Governmental Entity. In
furtherance of the foregoing, the Sellers, the Buyer and the Company
shall provide the Buyer, the Company and the Sellers for their (and their
respective advisers') prior review and comment, any description of the
transactions contemplated by this Agreement which is meant to be
disseminated to any person.
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4.14 Noncompetition Agreement.
(a) For a period of five (5) years after the Closing
Date, AMC and its subsidiaries and entities controlled by or under
membership control with AMC, will not engage in, conduct, commence or
purchase, directly or indirectly, on its own behalf or on behalf of any
other person or entity, whether in its own name or in partnership or
association or jointly with any other person or entity, any business
which is in competition with products or services marketed by the Company
and its Subsidiaries. The foregoing would not prevent AMC from acquiring
any business, a portion of which competes with the Company and its
Subsidiaries as set forth in the previous sentence, so long as AMC, as
the acquirer, divests itself of such portion of the business within a
reasonable time.
(b) If it is ever held that the restriction placed on any
party to this Agreement by this Section 4.14 is too onerous and is not
necessary for the protection of the other party or parties hereto, each
party to this Agreement agrees that any court of competent jurisdiction
may impose lesser restrictions which such court may consider to be
necessary or appropriate to properly protect the other party or parties
hereto.
(c) No part of the Redemption Price or Purchase Price is
or shall be allocated to the covenants of AMC in this Section 4.14 for
tax or any other purpose, and no party hereto shall make any such
allocation on any Tax Return or financial statement. The covenants of
the Company in this Section 4.14 are made solely in consideration of the
execution of this Agreement by Buyer and the Company.
4.15 Pre-Closing Consultation. Following the date hereof and
prior to the Closing Date, the Sellers shall, and shall cause the Company
to, confer with the Buyer on a regular basis and on all significant
operational matters and material decisions affecting the business of the
Company and its Subsidiaries. Such consultation shall be made on as
frequent a basis as may be reasonably requested by the Buyer. The
parties hereto acknowledge and agree that the agreements set forth in
this Section 4.15 shall be subject to any restrictions or limitations
under applicable law.
4.16 Non-Solicitation of Employees.
(a) From and after the date hereof, the Sellers shall
not, without the prior written approval of the Buyer, for a period of two
(2) years from the Closing Date, directly or indirectly solicit,
encourage, entice or induce any person who is an employee of the Company
or any of its Subsidiaries at the date hereof or at any time prior to the
Closing Date, to terminate his or her employment with the Company or any
of its Subsidiaries or hire or employ any person who is an employee of
the Company or any of the Subsidiaries at the date hereof or who becomes
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an employee of the Company or any of the Subsidiaries after the date
hereof but prior to the Closing Date; provided that the foregoing shall
not apply to persons who approach the Sellers or any of their
subsidiaries or affiliates for the purposes of employment or who are
hired as a result of the use of any independent employment agency where
contact between such person and the independent employment agency was
initiated by such person or as a result of the use of a general
solicitation (such as an advertisement) not specifically directed to
employees of the Company.
(b) If it is ever held that the restriction placed on any
party to this Agreement by this Section 4.16 is too onerous and is not
necessary for the protection of the other party or parties hereto, each
party to this Agreement agrees that any court of competent jurisdiction
may impose lesser restrictions which such court may consider to be
necessary or appropriate to properly protect the other party or parties
hereto.
4.17 Financing. The Buyer will consult with the Company in
connection with the negotiation of the terms of the Financing. The
Company agrees to provide, and will cause its Subsidiaries and its and
their respective officers, employees, counsel and accountants to provide,
to the Buyer all reasonably necessary cooperation in connection with the
arrangement of the Financing and any other financing to be consummated
contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including without
limitation, the execution and delivery of any pledge or security
documents, underwriting or placement agreements, other definitive
financing documents, or other requested certificates, documents or
financial information as may be requested by the Buyer in connection with
the Financing.
4.18 No Shop. The Sellers and the Company shall not, and shall
cause the Company's directors, officers, employees, advisers,
representatives, agents and affiliates and each of the Subsidiaries (and
each of their respective directors, officers, employees, advisors,
representatives, agents and affiliates ) not to, directly or indirectly,
encourage, engage in, solicit or initiate any discussions or negotiations
with, or provide any information to, or negotiate or enter into any
agreement or agreement in principle with, any other persons, entity or
group, with respect to a sale of (or of a substantial interest in) or
recapitalization of the Company or its Subsidiaries, their assets (except
in the ordinary course of business consistent with past practice) or
capital stock or any similar transaction. The Sellers and the Company
shall, and shall cause the Subsidiaries (and each of their respective
directors, officers, employees, advisors, representatives, agents and
affiliates) to, notify the Buyer of any action taken by any persons in
connection with the foregoing sentence and shall provide the Buyer with
any information, written or oral, obtained by such party in connection
therewith.
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4.19 Pre-Closing Maintenance of Insurance. From the date
hereof through the Closing Date, the Company and its Subsidiaries shall
maintain in force (including necessary renewals thereof) the insurance
policies listed on Schedule 2.19, except to the extent that they may be
replaced with materially equivalent policies appropriate to insure the
assets, properties and businesses of the Company and the Subsidiaries to
the same extent as currently insured.
4.20 Assumption of Liabilities and Defense.
(a) Subject to the indemnification provisions set forth
in Article VIII and Article IX, Buyer and the Company agree for the
benefit of the Sellers that from and after the Closing the Buyer will
cause the Company to perform and fully discharge the Company's
liabilities and obligations in existence on the Closing Date (accrued,
contingent or otherwise) or arising thereafter (notwithstanding the fact
that any such obligation or liability arises out of activities of the
Company and the Subsidiaries prior to the Closing Date). In the event
that the Sellers (or their respective directors, officers, members and
employees) shall be named in any lawsuit or legal proceeding against the
Company or any Subsidiary with respect to any liability or obligation
covered by the preceding sentence, the Company, at its expense, will
assume the defense thereof and will instruct its counsel to defend the
Sellers (and any such person or persons related to Sellers so named) and
will hold Sellers (and any such person or persons named) harmless from
all losses, claims, liabilities, damages, deficiencies, costs or expenses
(including interest, penalties and reasonable attorneys' fees and
disbursements) ("Losses") with respect thereto.
(b) Subject to the indemnification provisions set forth
in Article VIII and Article IX, the Sellers agree for the benefit of the
Buyer and the Company that from and after the Closing the Sellers will
perform and fully discharge their liabilities and obligations (other than
those of or relating to the Company against which the Buyer has agreed to
cause the Company to indemnify the Sellers pursuant to Section 4.20(a))
in existence on the Closing Date (accrued, contingent or otherwise) or
arising thereafter (notwithstanding the fact that any such obligation or
liability arises out of activities of the Sellers prior to the Closing
Date). In the event that the Buyer (or its directors, officers and
members) shall be named in any lawsuit or legal proceeding against any of
the Sellers with respect to any liability or obligation covered by the
preceding sentence, the Sellers, at their own expense, will assume the
defense thereof and will instruct their counsel to defend the Buyer (and
any such person or persons related to the Buyer so named) and will hold
the Buyer (and any such person or persons named) harmless from all Losses
with respect thereto.
4.21 Resignations. At or prior to the Closing, Brian Stone
shall resign from any and all positions held by him at AMC. No later
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than six (6) months following the Closing, Brian Stone shall have
resigned from any and all positions held by him at any Seller or any
affiliate thereof (other than MSA and its affiliates and DDCI).
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF
THE SELLERS AND THE COMPANY
The obligations of Sellers and the Company to enter into and
effect the Closing are subject to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which may be
waived in writing by AMC, on behalf of the Sellers, and the Company.
5.1 Representations and Covenants.
(a) The representations and warranties of the Buyer set
forth in this Agreement shall be true and correct in all material
respects as of the date hereof and at and as of the Closing Date as
though made at and as of the Closing Date, other than representations and
warranties that speak as of a specified date or time (which need only be
true and correct as of such date or time).
(b) The Buyer shall have duly performed and complied in
all material respects with all covenants and agreements to be performed
or complied with by the Buyer on or prior to the Closing Date, and the
Sellers shall have received a certificate of the managing member of the
Buyer to the effect of Sections 5.1(a) and (b).
5.2 Litigation. No injunction, writ, preliminary restraining
order or any order of any nature shall have been issued and not removed
by a court of competent jurisdiction or any Governmental Entity nor shall
any statute, rule, regulation or executive order be promulgated or
enacted by any Governmental Entity, that prohibits the consummation of
the transactions contemplated hereby.
5.3 Consents and Approvals. All waivers, licenses,
agreements, permits, consents, approvals or authorizations of third
parties or Governmental Entities or any modification or amendments to
existing agreements with third parties required to be obtained by the
Buyer shall have been obtained and shall be in full force and effect and
without conditions or limitations which unreasonably restrict the ability
of the parties hereto to carry out the transactions contemplated hereby
and the Sellers shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the granting of same.
5.4 Ancillary Agreements. On the Closing Date, all remaining
and new members of the Company shall have entered into the Second Amended
and Restated Operating Agreement.
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5.5 Opinion of Buyer's Counsel. The Sellers and the Company
shall have received at the Closing from Skadden, Arps, Slate, Meagher &
Flom LLP, counsel to the Buyer, an opinion dated the Closing Date in form
and substance substantially as set forth in Exhibit B.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
The obligation of the Buyer to enter into and effect the
Closing is subject to the fulfillment on or prior to the Closing Date of
the following conditions, any one or more of which may be waived in
writing by the Buyer:
6.1 Representations and Covenants.
(a) The representations and warranties of the Company and
AMC set forth in this Agreement shall be true and correct in all material
respects as of the date hereof and at and as of the Closing Date as
though made at and as of the Closing Date, other than representations and
warranties that speak as of a specified date or time (which need only be
true and correct as of such date or time).
(b) The Sellers and the Company shall have duly performed
and complied in all material respects with all covenants and agreements
to be performed or complied with by the Company or the Sellers on or
prior to the Closing Date, and the Buyer shall have received a
certificate of the chief executive officer of the Company and the chief
executive officer of AMC to the effect of Sections 6.1(a) and (b).
6.2 Litigation. No injunction, writ, preliminary restraining
order or any order of any nature shall have been issued and not removed
by a court of competent jurisdiction or any Governmental Entity nor shall
any statute, rule, regulation or executive order be promulgated or
enacted by any Governmental Entity, that prohibits the consummation of
the transactions contemplated hereby and there shall be no action, suit
or other proceeding pending or threatened pertaining to the transactions
contemplated by this Agreement or to its consummation.
6.3 Consents and Approvals. All waivers, licenses,
agreements, permits, consents, approvals or authorizations of third
parties or Governmental Entities or any modifications or amendments to
existing agreements with third parties required to be obtained by the
Company and the Sellers shall have been obtained and shall be in full
force and effect and without conditions or limitations which unreasonably
restrict the ability of the parties hereto to carry out the transactions
contemplated hereby and the Buyer shall have been furnished with
appropriate evidence, reasonably satisfactory to it and its counsel, of
the granting of same.
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6.4 No Material Adverse Changes. Since the date hereof,
(i) there shall not have been any material adverse change in the
business, assets, financial condition, results of operations or prospects
of the Company and the Subsidiaries taken as a whole, and (ii) the
Company and the Subsidiaries shall not have sustained any loss or damage,
whether or not insured, that materially affects their ability, taken as a
whole, to conduct their business.
6.5 Resignations. The Buyer shall have received resignations
from such officers of the Company and the Subsidiaries as the Buyer shall
designate prior to Closing and the resignations contemplated by
Section 4.21 herein.
6.6 Ancillary Agreements. On the Closing Date, all remaining
and new members of the Company shall have entered into the Second Amended
and Restated Operating Agreement.
6.7 Existing Indebtedness. The Indebtedness of the Company and
its Subsidiaries required to be redeemed or repaid hereunder shall have
been redeemed or pre-paid in accordance with Section 1.3 hereof. The
Company shall have delivered to the Buyer evidence satisfactory to the
Buyer that such Indebtedness has been canceled and that any Liens that
existed in connection therewith have been released as of the Closing
Date.
6.8 Financing. The Company shall have received the proceeds
of the Financing on terms and conditions substantially the same as set
forth in the commitment letters from (i) Massachusetts Mutual Life
Insurance Company and (ii) NationsBank, N.A. and NationsBanc Montgomery
Securities, LLC, dated February 17, 1999 and February 22, 1999,
respectively.
6.9 Opinions of the Company's and Sellers' Counsel. The Buyer
shall have received at the Closing from Sheppard, Mullin, Richter &
Hampton LLP, counsel to the Sellers and the Company, an opinion dated the
Closing Date in form and substance substantially as set forth in
Exhibit C.
6.10 Release of Liens. All liens relating to the equity
securities of the Subsidiaries and the intellectual property of the
Company and the Subsidiaries, including without limitation, those liens
and potential liens referred to in Schedules 2.5B and 2.13(b) hereto
shall have been released at or prior to the Closing Date and the Buyer
shall have received evidence satisfactory to it of such release.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein shall
survive the execution and delivery hereof and the Closing hereunder, and
except as otherwise specifically provided in this Agreement, shall
thereafter terminate and expire eighteen (18) months from the Closing
Date; provided, however, that the foregoing time limitations shall not
apply in respect of any representation and warranty contained in
Sections 2.1, 2.2, 2.3, 2.20, 2.29, 2.31, 3.4, 3.5 and 3.7, which shall
survive without limitation and, Section 2.30 which shall survive the
Closing and continue in full force and effect until three (3) years after
the Closing Date and Section 2.9 which shall survive the Closing and
continue in full force and effect until six (6) months after the
expiration (with valid extensions; provided, the Buyer and the Company
shall not have extended the statute of limitations with respect to any
tax matter at issue for a period or periods in the aggregate of more than
one year without the permission of AMC, which permission shall not be
unreasonably withheld) of the applicable statute of limitations relating
to the matter at issue; provided that if a claim or notice is given under
Article VIII within the applicable time limitation set forth above with
respect to any representation or warranty prior to any such expiration
date, the claim with respect to such representation or warranty shall
continue indefinitely until such claim is finally resolved.
ARTICLE VIII
INDEMNIFICATION
8.1 Obligation to Indemnify.
(a) Subject to the limitations contained in Article VII,
following the Closing, AMC agrees to indemnify, defend and hold harmless
the Buyer and the Company (and their respective directors, officers,
employees, affiliates and assigns) from and against any and all
judgments, fines, penalties, losses, claims, liabilities, damages,
demands, complaints, actions or causes of action, suits, proceedings,
investigations, arbitrations, assessments, and any interest thereon and
any costs and expenses (including reasonable attorneys' fees in
connection therewith) ("Buyer Losses"), directly or indirectly, as a
result of, or based upon or arising from, any inaccuracy in or breach or
nonperformance of any of the representations, warranties, covenants, or
agreements made by or of the Company or any Seller in this Agreement
including in any certificate or other document delivered pursuant hereto
(other than covenants to be performed by the Company after the Closing).
AMC shall not be liable with respect to any Buyer Losses unless the
aggregate Buyer Losses (other than Buyer Losses by reason of or resulting
from breaches of representations or warranties contained in Sections 2.1,
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2.2, 2.3, 2.20, 2.21, 2.22, 2.29 and 2.31 hereof as to which the Buyer
Deductible (as defined below) and the Buyer Cap (as defined below) will
not apply) shall exceed Six Hundred Thousand Dollars ($600,000) (the
"Buyer Deductible") up to a maximum of Six Million Dollars ($6,000,000)
(the "Buyer Cap"). Neither the Buyer nor the Company shall be entitled
to indemnification for Buyer Losses if the Buyer or the Company has
received indemnification for such Buyer Losses and the Company shall not
be entitled to indemnification for Buyer Losses if the Buyer has received
indemnification for such Buyer Losses.
(b) Subject to the limitations contained in Article VII,
following the Closing, the Buyer and the Company agree, jointly and
individually, to indemnify, defend, and hold harmless the Sellers (and
their directors, officers, members, employees, affiliates and assigns)
from any and all judgments, fines, penalties, losses, claims,
liabilities, damages, demands, complaints, actions or causes of action,
suits, proceedings, investigations, arbitrations, assessments, and any
interest thereon and any costs and expenses (including reasonable
attorneys' fees in connection therewith), in excess of amounts received
or receivable by the Sellers from insurance proceeds, ("Seller Losses"),
directly or indirectly, as a result of, or based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, covenants, or agreements made by or of the Buyer in this
Agreement including in any certificate or other documents delivered
pursuant hereto (including covenants to be performed by the Company after
the Closing). The Buyer and the Company shall not be liable with respect
to any Seller Losses unless the aggregate Seller Losses shall exceed Six
Hundred Thousand Dollars ($600,000) up to a maximum of Six Million
Dollars ($6,000,000). The Sellers shall not be entitled to
indemnification for Seller Losses from the Buyer if the Sellers have
received indemnification for such Seller Losses from the Company and the
Sellers shall not be entitled to indemnification for Seller Losses from
the Company if the Sellers have received indemnification for such Seller
Losses from the Buyer.
(c) The persons to whom indemnification is provided under
the provisions herein are referred to herein as the "Indemnitee" and the
persons providing indemnification are referred to as the "Indemnitor."
8.2 Notice of Asserted Liability. If an Indemnitee intends to
seek indemnification pursuant to this Article VIII, such Indemnitee shall
promptly notify the Indemnitor in writing of such claim and any third
party claim in respect of which indemnification is sought in each case
prior to the expiration of the applicable limitation period set forth in
Article VII. Any such notice shall set forth in reasonable detail the
facts, circumstances and basis of the claim.
8.3 Opportunity to Defend. If a claim involves a claim by a
third party against the Indemnitee, the Indemnitor may assume, through
counsel of its own choosing (so long as reasonably acceptable to the
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Indemnitee) and at its own expense, the defense thereof, and the
Indemnitee shall cooperate with it in connection therewith (including by
furnishing such information as the Indemnitor may reasonably request),
provided, that the Indemnitee may participate in such defense through
counsel chosen by it, at its own expense. So long as the Indemnitor is
contesting any such claim in good faith, the Indemnitee shall not pay or
settle, or admit any liability with respect to, any such claim without
the Indemnitor's consent. The Indemnitor will not without the
Indemnitee's prior written consent settle or compromise any claim or
consent to entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnitee of a release from all liability in respect of such claim.
The Indemnitor shall not, without the prior written consent of the
Indemnitee (which consent shall not be unreasonably withheld), take any
measure or step in connection with any settlement or compromise that
imposes an unreasonable burden or encumbrance upon the operation or
conduct of the business of the Company. If the Indemnitor is not
contesting such claim in good faith, then the Indemnitee may, upon at
least 10 days' notice to the Indemnitor (unless the Indemnitor shall
assume such settlement or defense within such 10 day period), conduct and
control, through counsel of its own choosing and at the expense of the
Indemnitor, the settlement or defense thereof, and the Indemnitor shall
cooperate with it in connection therewith. The failure of the Indemnitee
to participate in, conduct or control such defense shall not relieve the
Indemnitor of any obligation it may have hereunder. In any event, either
the Indemnitee or the Indemnitor may participate, at their own expense,
in the defense of any claim. If either the Indemnitee or the Indemnitor
chooses to defend or participate in the defense of any claim, it shall
have the right to receive from the other party any information or books,
records or other documents within such party's control that are necessary
or appropriate for such defense.
8.4 Characterization of Indemnification Payments. To the
extent permitted by applicable Tax law, all amounts paid by the Buyer and
the Company to the Sellers or by AMC to the Buyer and the Company,
respectively, pursuant to Article VIII and Article IX shall be treated as
adjustments to the Purchase Price and the Redemption Price, respectively,
for all Tax purposes.
8.5 Tax Savings. Buyer shall pay to the Sellers, as and when
realized, the amount of any actual savings in Taxes enjoyed by Buyer as a
result of incurring or paying any Losses or Taxes for which Sellers are
required to indemnify Buyer or the Company pursuant to Article VIII or
Article IX.
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ARTICLE IX
TAX MATTERS
9.1 Tax Indemnification.
(a) Notwithstanding anything in this Agreement to the
contrary, AMC shall indemnify the Buyer and its affiliates and hold them
harmless from and against (i) any liability for Taxes imposed upon the
Company or the Subsidiaries for all taxable periods ending on or before
the Closing Date (other than Taxes taken into account in the
determination of the Estimated or Final Net Operating Assets or Net Debt)
and (ii) any liability for Taxes attributable to a breach by AMC of its
obligations under this Agreement. Notwithstanding the foregoing, AMC
shall not be required to indemnify or hold harmless the Buyer and its
affiliates from or against any liability for Taxes (i) attributable to a
breach by the Buyer of its obligations under this Agreement or
consummation of the transactions contemplated by this Agreement
(provided, Sellers shall pay income, capital gain and franchise taxes
imposed upon them as a result of such transactions) and (ii) until the
accrual for tax liability set forth in the Closing Date Balance Sheet has
been fully applied to such Tax liability.
(b) The Buyer shall indemnify the Sellers and hold them
harmless from and against (i) any liability for Taxes of the Company or
the Subsidiaries for any taxable period ending after the Closing Date and
(ii) any liability for Taxes attributable to a breach by the Buyer of its
obligations under this Agreement.
(c) For purposes of this Section 9.1, in the case of any
taxable period that includes but does not end on the Closing Date (a
"Straddle Period"), Taxes of the Company and the Subsidiaries for the
Straddle Period shall be computed as if such taxable period ended on and
included the Closing Date. All items of income, gain, loss, deduction,
expense and credit of the Company and each Subsidiary for any Straddle
Period shall, for United States federal and state and local income tax
purposes, be allocated to the portion of the Straddle Period before
Closing on the "closing-of-the-books" method and without regard to the
Recapitalization transactions. Ad valorem Taxes for any Straddle Period
shall be allocated based on the number of days in such Straddle Period
before, or on and after, the Closing Date; provided, however, any
increase therein arising as a result of the transactions contemplated by
this Agreement shall be treated as arising after the Closing Date.
9.2 Procedures Relating to Tax Indemnification and
Proceedings.
(a) If a claim for Taxes, including, without limitation,
notice of a pending or threatened audit, shall be made by any taxing
authority in writing (a "Tax Claim"), which, if successful, might result
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in an indemnity payment pursuant to Section 9.1 herein, the Indemnitee
(as defined in Section 8.1(c)) shall notify the Indemnitor (as defined in
Section 8.1(c)) in writing of the Tax Claim promptly upon receipt of such
Tax Claim.
(b) With respect to any Tax Claim which might result in
an indemnity payment to an Indemnitee pursuant to Section 9.1 herein, the
Indemnitor shall control all proceedings taken in connection with such
Tax Claim (including, without limitation, selection of counsel) and,
without limiting the foregoing, may at its sole expense pursue or forego
any and all administrative appeals, proceedings, hearings and conferences
with any taxing authority with respect thereto, and may either pay the
Tax Claim and sue for a refund where applicable law permits such refund
suits or contest such Tax Claim in any permissible manner; provided,
however, that the Indemnitor shall from time to time consult with the
Indemnitee upon the Indemnitee's request therefor with respect to such
proceedings and, provided further that, in no case shall the Indemnitee
or its affiliates settle or otherwise compromise any Tax Claim referred
to in the preceding sentence without the Indemnitor's prior written
consent. The Indemnitee, its affiliates and its successors shall
cooperate with the Indemnitor in contesting such Tax Claim, which
cooperation shall include, without limitation, the retention and (upon
the Indemnitor's request) the provision to the Indemnitor of records and
information which are relevant to such Tax Claim and making employees
available to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such
Tax Claim.
(c) DDCI shall be the Tax Matters Partner for any taxable
year ended before Closing or any portion of a Straddle Period before
Closing.
9.3 Section 338 Election. With respect to the stock of
Magnetic Data Belgium N.V., a subsidiary of the Company, Buyer shall have
the option to make or to cause the Company to make an election under
section 338(g) of the Code (a "338 Election") (and any comparable
election under foreign, state or local tax law), provided that the 338
Election will not result in any adjustment to the Closing Date Balance
Sheet. If Buyer does make a 338 Election, Buyer shall deliver to the
Sellers a notice of such election in the manner prescribed in Treasury
Regulation section 1.338-1(g)(4).
9.4 Section 754 Election. At the request of the Buyer, DDCI,
as the managing member of the Company, shall cause the Company to make a
timely and valid election under Section 754 of the Code for the taxable
year that ends on or immediately before the Closing Date, which election
shall be filed with the income Tax Returns filed by DDCI as described in
Section 9.5(a).
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9.5 Return Filings.
(a) DDCI, as the managing member of the Company, shall
prepare or cause to be prepared on a timely basis all income Tax Returns
with respect to the Company and the Subsidiaries for taxable periods
ending on or prior to the Closing Date. DDCI shall provide such Tax
Returns to the Buyer for its review and, to the extent they may affect
the Company for a taxable year beginning after Closing, its consent.
The Buyer and DDCI shall cooperate in good faith to complete and file (or
cause to be filed) such Tax Returns. If the Buyer disagrees with such
Tax Return as prepared by DDCI, the Buyer and DDCI shall promptly consult
with each other to resolve such disagreement following DDCI's receipt of
written notice from the Buyer setting forth the Buyer's grounds for
disagreement (the "Consultation Notice"). If any such disagreement
cannot be resolved within 30 days of the receipt of the Consultation
Notice, DDCI shall within ten days after such period select an
internationally recognized accounting firm, which accounting firm shall
be reasonably acceptable to the Buyer, to determine all points of
disagreement concerning the preparation and filing of such Tax Return.
(b) The Company shall prepare or cause to be prepared on
a timely basis all Tax Returns with respect to the Company and the
Subsidiaries (i) for taxable periods ending on or prior to the Closing
Date, if for Taxes other than income Taxes and not required to be filed
on or before Closing, and (ii) for taxable periods ending after the
Closing Date.
(c) The Sellers, the Company and the Subsidiaries and the
Buyer shall reasonably cooperate, and shall cause their respective
affiliates, officers, employees, agents, auditors and representatives
reasonably to cooperate, in preparing and filing all Tax Returns
(including amended returns and claims for refunds), including maintaining
and making available to each other all records necessary in connection
with Taxes and in resolving all disputes and audits with respect to all
taxable periods relating to Taxes.
9.6 Allocation of Redemption Price and Purchase Price. Within
90 days following the Closing Date, Buyer shall deliver to AMC, on behalf
of the Sellers, a Schedule 9.6 (the "Proposed Allocation Schedule")
setting forth Buyer's proposal for allocating the Redemption Price, the
Purchase Price, and any other amounts required to be allocated pursuant
to Section 734, 743, 751, 755, or 1060 of the Code or similar provision
of foreign, state, or local tax law for all Tax purposes. If AMC, on
behalf of the Sellers, disagrees with any items reflected on the Proposed
Allocation Schedule so provided, AMC, on behalf of the Sellers, shall
have the right to notify the Buyer of such disagreement and its reasons
for so disagreeing within 30 days after AMC, on behalf of the Sellers,
receives the Proposed Allocation Schedule. If AMC, on behalf of the
Sellers, does not notify the Buyer of such disagreement within 30 days
after AMC receives the Proposed Allocation Schedule, then the Proposed
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Allocation Schedule shall be considered the Final Allocation Schedule.
If AMC, on behalf of the Sellers, does so notify Buyer of such
disagreement within such 30 day period, then AMC, on behalf of the
Sellers, and the Buyer shall in good faith attempt to resolve such
disagreement, and if AMC, on behalf of the Sellers, and the Buyer do so
resolve such disagreement the Proposed Allocation Schedule (as modified
as a result of the resolution of such disagreement) shall be considered
the Final Allocation Schedule. If AMC, on behalf of the Sellers, does so
notify Buyer of such disagreement within such 30 day period and AMC, on
behalf of the Sellers, and the Buyer fail to resolve such disagreement
within 180 days after Closing, then either AMC, on behalf of the Sellers,
or Buyer shall have the right, no later than 210 days after Closing, to
submit the matter to arbitration (the "Allocation Arbitration") before an
arbitration panel comprised of a single Qualified Arbitrator (as
hereinafter defined) mutually agreed to by AMC, on behalf of the Sellers,
and Buyer (or, if AMC, on behalf of the Sellers, and Buyer cannot agree
on a single arbitrator, before an arbitration panel comprised of three
Qualified Arbitrators, one of whom shall be selected by AMC, on behalf of
the Sellers, one of whom shall be selected by Buyer and the third of whom
shall be selected by the two arbitrators so selected). "Qualified
Arbitrator" means a tax partner at a nationally recognized accounting
firm who spends substantially all of his or her professional time
advising clients in respect of tax matters relating to corporate mergers
and acquisitions. The Allocation Arbitration shall be conducted in
accordance with the provisions of the California Code of Civil Procedure.
AMC, on behalf of the Sellers, and Buyer shall each pay one-half the fees
and expenses of the Allocation Arbitration panel. The Allocation
Arbitration shall be conducted on a time schedule so as to enable an
award to be made no later than February 29, 2000. The Proposed
Allocation Schedule, as modified by any award pursuant to an Allocation
Arbitration, shall be considered the Final Allocation Schedule. If AMC,
on behalf of the Sellers, shall have notified Buyer of a disagreement
with the Proposed Allocation Schedule within 30 days after receipt
thereof by AMC, on behalf of the Sellers, AMC, on behalf of the Sellers,
and Buyer fail in good faith to resolve such disagreement, and neither
AMC, on behalf of the Sellers, nor Buyer submits such disagreement to an
Allocation Arbitration within 210 days after Closing, then there shall be
no Final Allocation Schedule and each party may make such allocation as
it deems to be appropriate and in compliance with applicable law; but in
all other cases the parties shall adopt and utilize the allocation as
determined on the Final Allocation Schedule for the purpose of all Tax
Returns filed by them, and shall not voluntarily take any action
inconsistent therewith upon examination of any Tax Return, in any refund
claim, in any litigation or otherwise with respect to such Tax Returns.
9.7 Tax Treatment of Recapitalization Transactions.
(a) The Redemption Transaction pursuant to Section 1.4
shall be treated as a current distribution under Section 731 of the Code.
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(b) The Purchase of Membership Units pursuant to Section
1.5 shall be treated as the sale or exchange thereof within the meaning
of Section 741 of the Code.
(c) The Parties shall report the Recapitalization
Transactions for income Tax purposes consistent with the foregoing
provisions of this Section 9.6 and shall not take a contrary portion for
any purpose except as required pursuant to a final determination as
defined in Section 1313(a) of the Code.
9.8 Transfer Taxes. All sales, use, transfer, stamp,
documentary, filing, recordation and other similar taxes imposed as a
result of the redemption of Membership Units pursuant to Section 1.4
herein or the purchase of Membership Units pursuant to Section 1.5 herein
together with any interest, additions or penalties with respect thereto
shall be borne equally by AMC and the Buyer.
9.9 Resale Exemption Certificates. Prior to Closing, the
Company shall use commercially reasonable efforts to obtain resale
exemption certificates relevant to any taxable period for which the
statute of limitations has not expired prior to the Closing for all
jurisdictions in which the Company has or may have sales or use tax
nexus.
ARTICLE X
TERMINATION OF AGREEMENT
10.1 Termination.
(a) This Agreement may be terminated prior to the Closing
as follows:
(i) at the election of AMC, on behalf of the
Sellers, if any one or more of the conditions to the obligation of
the Sellers to close has not been fulfilled as of April 16, 1999;
(ii) at the election of the Buyer, if any one or more
of the conditions to its obligation to close has not been fulfilled
as of April 16, 1999;
(iii) at the election of AMC, on behalf of the
Sellers, if the Buyer has materially breached any representation,
warranty, covenant or agreement contained in this Agreement, which
if not cured would cause the condition set forth in Section 5.1, not
to be satisfied, and such breach shall not have been cured within
30 days after notice thereof shall have been received by the Buyer
which sets forth in reasonable detail the nature of the alleged
breach;
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(iv) at the election of the Buyer, if the Sellers or
the Company have materially breached any representation, warranty,
covenant or agreement contained in this Agreement, which if not
cured would cause the condition set forth in Section 6.1, not to be
satisfied, and such breach shall not have been cured within 30 days
after notice thereof shall have been received by the Sellers which
sets forth in reasonable detail the nature of the alleged breach;
and
(v) at any time on or prior to the Closing Date, by
mutual written consent of AMC, on behalf of the Sellers and of the
Buyer.
(b) In the event that the Buyer or AMC, on behalf of the
Sellers, as the case may be, elect to terminate this Agreement pursuant
to Section 10.1 (iii) or (iv) hereof, the terminating party shall deliver
an irrevocable notice to the other party or parties to this Agreement
declaring its election to so terminate this Agreement in accordance with
the provisions of Section 10.1 (iii) or (iv), as the case may be, and
setting forth therein the basis for such termination.
(c) If this Agreement so terminates, it shall become null
and void and have no further force or effect, except as provided in
Section 10.2.
10.2 Survival. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above,
this Agreement shall become void and of no further force and effect,
except for the provisions of Section 4.6. None of the parties hereto
shall have any liability in respect to a termination of this Agreement,
except to the extent that failure to satisfy the conditions of Articles V
or VI results from the intentional or willful violation of the
representations, warranties, covenants or agreements of such party under
this Agreement. For purposes of the preceding sentence, the failure of
any party to comply with its respective obligations under Article I
promptly after all conditions to such compliance shall have been
fulfilled, shall constitute an intentional or willful violation of the
agreement herein contained by such failing party.
ARTICLE XI
MISCELLANEOUS
11.1 Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally
(including by messenger) or sent by facsimile transmission or sent by
certified mail, postage prepaid to the appropriate address or facsimile
number set forth below. Any such notice shall be deemed given when so
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delivered personally or sent by facsimile transmission or, if mailed, two
days after the date of deposit in the United States mail, by certified
mail return receipt requested, as follows:
(i) If to the Buyer to:
MDT Holdings LLC
c/o Dubilier & Company
64 West 21st Street
New York, NY 10010
Attention: Michael J. Dubilier
Telecopier: (212) 727-3349
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Mark C. Smith, Esq.
Telecopier: (212) 735-2000
(ii) If to the Sellers or the Company to:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117
Attention: Chief Executive Officer
Telecopier: (805) 967-2677
DDCI, LLC
445 Pine Avenue
Goleta, CA 93117
Attention: Managing Partner
Telecopier: (805) 967-2828
Vestro Investments Group Limited
P.O. Box 5240
114 Robert Avenue
Incline Village, CA 89450
Attention: Managing Partner
Telecopier: (702) 832-5263
Milestone Acquisitions II, LLC
3 Trieste
Irvine, CA 92606
Attention: Managing Member
Telecopier: (949) 651-0129
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with a copy to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, California 90071
Attention: James J. Slaby, Esq.
Telecopier: (213) 620-1398
Lee Goddard & Duffy LLP
18500 Von Karman Avenue, Suite 700
Irvine, California 92612-0504
Attention: Raymond Lee, Esq.
Telecopier: (949) 253-0505
Any party may by notice given in accordance with this
Section 11.1 to the other parties designate another address or person for
receipt of notices hereunder.
11.2 Entire Agreement. This Agreement (including the Schedules
and Exhibits) and the Confidentiality Agreement contains the entire
agreement among the parties with respect to the subject matter hereof,
and supersedes all prior agreements written or oral, with respect to the
subject matter hereof.
11.3 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only
by a written instrument signed by each of the parties or, in the case of
a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof. No waiver on the part of any party of any right,
power or privilege, nor any single or partial exercise of any such right,
power or privilege, shall preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at law or in equity.
The rights and remedies of any party based upon, arising out of or
otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties) as to which
there is no inaccuracy or breach.
11.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive and procedural laws of the
State of California applicable to agreements made and to be performed
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entirely within such State, without giving effect to its conflict of
laws, principles or rules.
11.5 Waiver of Jury Trials; Consent to Jurisdiction. WITH
RESPECT TO ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR ANY RELATED
TRANSACTION, THE PARTIES EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A
JURY TRIAL AND AGREE THAT ANY SUCH LITIGATION SHALL BE TRIED BY A JUDGE
WITHOUT A JURY. Each party agrees to personal jurisdiction and venue in
any United States District Courts located in the State of California,
County of Los Angeles (and any California State Court) for that purpose,
and appoints the person set forth in Section 11.1 as its agent for
service of process in such jurisdiction. EACH OF THE PARTIES HERETO
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH DISPUTE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (I) SUCH PARTY IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, (II) SUCH PARTY
AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY SUCH
COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS IS BROUGHT IN AN
INCONVENIENT FORUM.
11.6 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns and legal representatives. Neither this
Agreement, nor any right hereunder, may be assigned by any party without
the written consent of the other party hereto. Any such assignment or
attempted assignment shall be void. Notwithstanding anything to the
contrary set forth herein, the Buyer may assign and transfer to any
entity providing financing for the transactions contemplated by this
Agreement (or any refinancing of such financing) as security for such
financing all of the interest, rights and remedies of the Buyer in, to
and with respect to this Agreement. The Sellers and their successors and
assigns hereby expressly consent to such assignment. Any such assignment
will be made for collateral security purposes only and will not release
or discharge the Buyer from any obligations it may have pursuant to this
Agreement. Notwithstanding anything to the contrary set forth herein,
the Buyer may (i) authorize and empower such financing sources to assert,
either directly or on behalf of the Buyer, any claims the Buyer may have
against the Sellers under this Agreement and (ii) make, constitute and
appoint one agent bank in respect of such financing (and all officers,
employees and agents designated by such agent) as the true and lawful
attorney and agent-in-fact of the Buyer for the purpose of enabling the
financing sources to assert and collect any such claims. Notwithstanding
anything to the contrary set forth herein, the Buyer may assign to
existing or prospective members of management of the Board of Managers of
the Company and its Subsidiaries and certain other investors the right to
purchase a portion of the Membership Units to be purchased by the Buyer
pursuant to Section 1.5 hereof; provided that any such assignment will
not release or discharge the Buyer from any obligation it may have
pursuant to this Agreement.
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11.7 No Third Party Beneficiaries. Nothing in this Agreement
is intended or shall be construed to give any person any legal or
equitable right, remedy or claim under or in respect of this Agreement or
any provision contained herein.
11.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than all, but
together signed by all of the parties hereto.
11.9 Schedules. The Schedules are a part of this Agreement as
if fully set forth herein. All references herein to Articles, Sections,
paragraphs and Schedules shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require.
11.10 Headings. The headings in the Agreement are for
reference only, and shall not affect the interpretation of this
Agreement.
11.11 Publicity. All notices to third parties and all
other publicity prior to the Closing concerning the transactions
contemplated by this Agreement shall be jointly planned and coordinated
by the Buyer and the Sellers.
11.12 Severability. If any portion of this Agreement shall
be deemed unenforceable by a court of competent jurisdiction, the
remaining portions shall be valid and enforceable.
11.13 Time of Essence. Time is of the essence for each and
every provision of this Agreement.
11.14 Attorneys' Fees. If any proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred
in that proceeding, in addition to any other relief to which it may be
entitled.
11.15 Knowledge of the Company and AMC. For purposes of
any representation or warranty of a party contained herein or in any
document provided hereunder which is made to such party's knowledge,
knowledge will be imputed to such party in accordance with the following:
(i) to AMC, when any officer or director of AMC
having direct responsibilities relating to the Company or
transactions contemplated by this Agreement has such knowledge; and
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(ii) to the Company, when any officer or director of
the Company or the Subsidiaries (or in the case of Sections 2.18 and
2.30 of this Agreement only, any officer or director of the Company
and the Subsidiaries, William Scott, Howard Oney, John Duffy, Fred
DeGryse and Eddy Verlinden, as reflected on Schedule 11.15) has such
knowledge.
(iii) An individual will be deemed to have "knowledge"
as used in regard to any representation or warranty contained in
this Agreement if such individual (and in the case of Sections 2.18
and 2.30 of this Agreement only, if any of the individuals listed on
Schedule 11.15 is actually aware of such fact or matter, after
having carefully reviewed each of Sections 2.18 and 2.30, having
consulted with Sellers and Company counsel in connection therewith
and having informed, or been informed by, any other individual
listed on Schedule 11.15 of any relevant information relating
thereto) is actually aware of such fact or matter.
11.16 Cooperation. The Company shall provide the Buyer or
its representatives with any other document related to the respective
businesses of the Company and the Subsidiaries that the Buyer may
reasonably request and shall otherwise cooperate in the Buyer's
examination of the business of the Company.
11.17 Construction. The Parties hereto agree that this
Agreement is the product of negotiations between sophisticated parties,
each of whom were represented by counsel and each of whom had an
opportunity to participate in, and did participate in, the drafting of
each provision hereof.
11.18 Definitions.
(a) "Pending" As used in this Agreement, the terms
"pending action" or "pending proceeding" or other matters or events that
are "pending" shall mean an action, proceeding or other matter in
connection with which the Company or a Subsidiary has been formally
served upon the Company or a Subsidiary or of which the Company or a
Subsidiary has actual notice.
(b) "Default" As used in this Agreement, the term
"default" shall mean, as the case may be, an omission or failure on the
part of (i) the Company or any of the Subsidiaries to perform a duty or
obligation to a third party and the Company or the Subsidiary either has
knowledge (as defined in Section 11.15) of such omission or failure or an
officer or director of the Company or a Subsidiary has actual notice of
such omission or failure or (ii) a third party to perform a duty or
obligation to the Company or any of the Subsidiaries and the Company or
any of the Subsidiaries has knowledge of such omission or failure.
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IN WITNESS WHEREOF, the Buyer, the Sellers, AMC and
the Company have duly executed and delivered this Agreement as
of the date first above written.
"Buyer"
MDT HOLDINGS LLC,
a Delaware limited liability company
Attest: By _________________________
- ------------------------- Its: ___________________
"Sellers"
"AMC"
APPLIED MAGNETICS CORPORATION
a Delaware corporation
Attest: By /s/ Craig D. Crisman
-------------------------
Craig D. Crisman
- ------------------------- Its Chief Executive Officer
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DDCI, LLC
a Delaware limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its Chief Executive Officer
VESTRO INVESTMENT GROUP LIMITED
a Nevada limited partnership
Attest: By /s/ Jerry E. Goldress
-------------------------
Jerry E. Goldress
- ------------------------- Its Managing Partner
MILESTONE ACQUISITIONS II, LLC
a Nevada limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its: Managing Member
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"Company"
MAGNETIC DATA TECHNOLOGIES, LLC
a Delaware limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its: Chief Executive Officer
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Schedule 1.1 - Pre-Closing Ownership
------------------------------------
Name Number of Common Interest
---- -------------------------
Membership Units
----------------
Applied Magnetics Corporation
DDCI, LLC
Vestro Investments Group Limited
Milestone Acquisitions II LLC ==========
Total Units Outstanding ..........................
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Schedule 1.4 - Redeemed Units
-----------------------------
Name Number of Redeemed Aggregate Redemption
---- ------------------ --------------------
Common Interest Unit Price
-------------------- -----
Applied Magnetics Corporation
DDCI, LLC
Vestro Investments Group
Limited
Milestone Acquisitions II LLC ========== ==========
Total Units Redeemed ...........................
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Schedule 1.5A - Purchased Units
-------------------------------
Name Number of Common Aggregate Purchase Price
---- ---------------- ------------------------
Interest Units Purchased
------------------------
Applied Magnetics Corporation
DDCI, LLC
Vestro Investments Group
Limited
Milestone Acquisitions II LLC ========== ==========
Total Units Redeemed ...........................
-59-
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<PAGE>
Schedule 1.5B - Post Closing Ownership
--------------------------------------
Name Number of Class A Number of Class B
---- ----------------- -----------------
Common Units Common Units
------------ ------------
MDT Holdings LLC
DDCI, LLC
Vestro Investments Group Limited
Milestone Acquisitions II LLC
[Others] ========== ==========
Total Post Closing Ownership...................
-60-
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<PAGE>
AMENDMENT NO. 1 TO
RECAPITALIZATION AGREEMENT
BY AND
AMONG
MDT HOLDINGS LLC,
and
APPLIED MAGNETICS CORPORATION
DDCI, LLC,
VESTRO INVESTMENTS GROUP LIMITED,
MILESTONE ACQUISITIONS II, LLC,
and
MAGNETIC DATA TECHNOLOGIES, LLC
Dated as of April , 1999
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<PAGE>
AMENDMENT NO. 1 ("Amendment No. 1") dated as of April , 1999,
amending the Recapitalization Agreement (the "Recapitalization Agreement"),
dated as of March 20, 1999, by and among MDT Holdings LLC, a Delaware limited
liability company and Applied Magnetics Corporation, a Delaware corporation
("AMC"), DDCI, LLC, a Delaware limited liability company and subsidiary of AMC
("DDCI"), Vestro Investments Group Limited, a Nevada limited partnership
("VIGL"), Milestone Acquisitions II, LLC, a Nevada limited liability company
("MA") and Mag netic Data Technologies, LLC, a Delaware limited liability
company.
WHEREAS, the parties hereto desire to amend the Recapitalization
Agreement in certain respects.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings provided therefor in the Recapitalization
Agree ment.
2. Amendments to Recapitalization Agreement. The Recapitalization
Agreement is hereby amended as set forth in this Section 2.
(a) Section 1.4 of the Recapitalization Agreement is hereby
amended by deleting the first sen tence thereof and inserting in lieu thereof
the following:
"At the Closing, the Company shall redeem from AMC and DDCI, at an
aggregate redemption price of Twenty Million Seven Hundred
Eighty-Three Thousand Dollars ($20,783,000), hereinafter referred to
as the "Estimated Redemption Price," an aggregate of Twenty Million
Seven Hundred Eighty-Three Thousand (20,783,000) Membership
Units."
(b) Section 1.5 of the Recapitalization Agreement is hereby
amended by deleting the first sen tence thereof and inserting in lieu thereof
the follow ing:
"At the Closing, the Buyer shall purchase from AMC and DDCI, for an
aggregate purchase price of Sixteen Million Seven Hundred Twenty-One
Thousand One Hundred Seventy Dollars ($16,721,170), hereinafter
referred to as the "Purchase Price," an aggregate of Sixteen
Million Seven Hundred Twenty-One Thousand One Hundred Seventy
(16,721,170) Membership Units."
(c) Section 11.6 of the Recapitalization Agreement is hereby
amended by deleting the fourth sentence thereof and inserting in lieu thereof
the following:
"Notwithstanding anything to the contrary set forth herein, the
Buyer and the Company may assign and transfer to any entity
providing financing for the transactions contemplated by this
Agreement (or any refinancing of such financing) as security for
such financing all of the interest, rights and remedies of the Buyer
and the Company in, to and with respect to this Agreement."
1
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<PAGE>
(d) Schedules 1.1, 1.4, 1.5A and 1.5B to the Recapitalization
Agreement are hereby amended by deleting such schedules in their entirety and
inserting in lieu thereof the Schedules 1.1, 1.4, 1.5A and 1.5B that are
attached to this Amendment No. 1.
3. Miscellaneous. This Amendment No. 1 is limited precisely as
written and shall not be deemed to be an amendment to any other term or
condition of the Recapitalization Agreement or any of the documents referred to
therein. Wherever the Recapitalization Agreement is referred to in the
Recapitalization Agreement or in any other agreements, documents and
instruments, such reference shall be to the Recapitalization Agreement as
amended hereby. Except as expressly amended hereby, the terms and conditions of
the Recapitalization Agreement shall continue in full force and effect.
4. Counterparts. This Amendment No. 1 may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
5. Governing Law. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (REGARDLESS OF
THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO
ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION,
EFFECT AND PERFORMANCE.
IN WITNESS WHEREOF, the Buyer, the Sellers, AMC and the Company have
duly executed and delivered this Agreement as of the date first above written.
"Buyer"
MDT HOLDINGS LLC,
a Delaware limited liability company
Attest: By _________________________
- ------------------------- Its: ___________________
"Sellers"
"AMC"
APPLIED MAGNETICS CORPORATION
a Delaware corporation
Attest: By /s/ Craig D. Crisman
-------------------------
Craig D. Crisman
- ------------------------- Its Chief Executive Officer
2
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<PAGE>
DDCI, LLC
a Delaware limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its Chief Executive Officer
VESTRO INVESTMENT GROUP LIMITED
a Nevada limited partnership
Attest: By /s/ Jerry E. Goldress
-------------------------
Jerry E. Goldress
- ------------------------- Its Managing Partner
MILESTONE ACQUISITIONS II, LLC
a Nevada limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its: Managing Member
3
Page 75 of 82
<PAGE>
"Company"
MAGNETIC DATA TECHNOLOGIES, LLC
a Delaware limited liability company
Attest: By /s/ Brian R. Stone
-------------------------
Brian R. Stone
- ------------------------- Its: Chief Executive Officer
4
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<PAGE>
SCHEDULE 1.1
HOLDERS OF MEMBERSHIP UNITS
Seller Class A Units Class B Units
- ------ ------------- -------------
Applied Magnetics Corporation 397,830
DDC I, LLC 38,987,340
Vestro Investments Group Limited 99,458
Milestone Acquisitions II, LLC 1,372,511
Page 77 of 82
<PAGE>
SCHEDULE 1.4
REDEMPTION SCHEDULE OF MEMBERSHIP UNITS
Estimated
Seller Membership Units Redemption Price
- ------ ---------------- ----------------
Applied Magnetics Corporation 220,458 $220,458
DDC I, LLC 20,562,542 $20,562,542
Vestro Investments Group Limited ----- ----
Milestone Acquisitions II, LLC ----- ----
Page 78 of 82
<PAGE>
SCHEDULE 1.5A
PURCHASE SCHEDULE OF MEMBERSHIP UNITS
Seller Membership Units Purchase Price
- ------ ---------------- --------------
Applied Magnetics Corporation 177,372 $177,372
DDC I, LLC 16,543,798 $16,543,798
Vestro Investments Group Limited ---- ----
Milestone Acquisitions II, LLC ---- ----
Page 79 of 82
<PAGE>
SCHEDULE 1.5B
POST-CLOSING OWNERSHIP OF MEMBERSHIP UNITS
Post-Closing Owners Class A Units Class B Units
- ------------------- ------------- -------------
DDC I, LLC 1,881,000
Vestro Investments Group Limited 99,458
Milestone Acquisitions II, LLC 2,300,000
MDT Holdings, LLC* 16,519,542
*Pursuant to Section 11.6, Buyer has the right to assign its purchase rights
hereunder to existing or prospective members of management or the Board of
Managers of the Company or its Subsidiaries and certain other investors.
Page 80 of 82
<PAGE>
Exhibit 99.1
------------
APPLIED MAGNETICS CORPORATION
NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
Contact: Craig D. Crisman
Chief Executive Officer
Tel: 805-683-5353
APPLIED MAGNETICS CORPORATION RECAPITALIZES
SUBSIDIARY, MAGNETIC DATA TECHNOLOGIES, LLC
----------------------------------
GOLETA, California, April 12, 1999 - APPLIED MAGNETICS CORPORATION (APM:NYSE)
announced today that it had completed the previously announced acquisition by
Dubilier & Company of Applied Magnetics' subsidiary, Magnetic Data Technologies,
LLC ("MDT"). MDT is a leading provider of outsourced post-sales services to
original equipment manufacturers ("OEMs") of electronic components and systems.
Applied Magnetics realized a gain of approximately $25 million on the
transaction.
Craig D. Crisman, Chairman and Chief Executive Officer of Applied
Magnetics, said "We are pleased to have the significant additional liquidity
resulting from this transaction and we look forward to our relationship with
Dubilier & Company through our continuing participation in Magnetic Data."
Michael J. Dubilier, Managing Partner of Dubilier & Company, said "MDT is a
very well managed business in an exciting growth sector. We look forward to
partnering our operating and financial professionals with Brian Stone, the Chief
Executive Officer, and his management team in building the business."
According to Brian Stone, "MDT's superior service capability and the
technical expertise of our employees provide a strong base to capitalize on the
growing outsourcing of post-sale services by electronics manufacturers. The
addition of financial resources and operational capabilities of Dubilier &
Company will be instrumental in enabling MDT to provide additional services to
our existing customers, develop new opportunities and achieve our full
potential."
Page 81 of 82
<PAGE>
The transaction was structured as a leveraged recapitalization in which
Applied Magnetics will retain an approximate 10 percent ownership position.
NationsBank, N.A. and Massachusetts Mutual Life Insurance Company provided the
debt financing for the transaction. MassMutual also made an equity investment in
MDT alongside Dubilier & Company.
Applied Magnetics acquired Magnetic Data in July,1996, as a result of a
foreclosure. Since then, Magnetic Data has been held by Applied Magnetics for
sale and has not been consolidated with Applied Magnetics financial statements.
Forward-looking statements included in this release are based on estimates
and assumptions made by management of the Company, which, although believed to
be reasonable, are inherently uncertain and difficult to predict. Therefore,
undue reliance should not be placed upon such estimates. Such statements are
subject to certain risks and uncertainties inherent in the Company's business
that could cause actual results to differ materially from those projected. These
factors include, but are not limited to: successful transition to volume
production of MR and GMR disk head products with profitable yields; the limited
number of customers and customer changes in short range and long range plans;
competitive pricing pressures; changes in business conditions affecting the
Company's financial position or results of operations which significantly
increase the Company's working capital needs; the Company's inability to
generate or obtain sufficient capital to fund its working capital needs; the
Company's ability to control inventory levels; domestic and international
competition in the Company's product areas; risks related to international
transactions and general economic risks and uncertainties.
Applied Magnetics Corporation is an independent manufacturer of magnetic
recording heads, head-gimbal assemblies ("HGAs") and headstack assemblies
("HSAs") for computer hard disk drives. Founded in 1957, Applied Magnetics is
the oldest independent U.S. based supplier or disk heads to the merchant market.
Headquartered in Goleta, California, the Company employs over 3,600 people
around the world, with facilities in Malaysia, Korea, Singapore and China. The
Company's worldwide web site can be found at www.appmag.com.
Founded in 1982, Magnetic Data is among the oldest independent service
companies to the computer data storage and telecommunications industries. The
Company has significant long-standing relationships with many leading electronic
OEM's for which it provides repair and warranty services for computer
peripherals, telecommunications and other electronic and digital devices.
For more information about Magnetic Data, visit Magnetic Data's internet
home page at www.magneticdata.com.
Dubilier & Company, is a New York-based private investment firm focused on
buying and building middle-market companies in partnership with management.
Page 82 of 82
