SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 12, 1995
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-11521 23-1701520
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation or Organization) File Number) Identification No.)
Great Valley Corporate Center
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
(Registrant's telephone number, including area code): (610) 647-5930
Page 1 of 3 pages
Exhibit Index is on page 2
(PAGE)
Item 5. OTHER EVENTS.
On May 12, 1995, the Company and Adage Systems International,
Inc., a Michigan corporation ("Adage"), entered into an Agreement and
Plan of Merger and Reorganization (the "Agreement") providing for the
acquisition by the Company, through a wholly-owned subsidiary, of all of
the Adage common stock. The purchase price will consist of 1,000,000
shares of common stock ("Company Common Stock") of the Company. The
Company will be required to make additional payments to the shareholders
of Adage, in either additional shares of Company Common Stock or a
combination of additional shares of Company Common Stock and cash, in
the event that the market price of the Common Stock approximately five
years after the closing is lower than a base price. The base price may
not be lower than $15 nor higher than $50, and will be determined
pursuant to a formula tied to the pretax profits of Adage during the
five-year period commencing October 1, 1995. The additional payment, if
required to be made, will be made first with additional shares of
Company Common Stock, and only if the maximum number of shares of Common
Stock issuable pursuant to the Agreement (2,545,000) is reached will the
balance be paid in cash, subject to certain limitations. At or within 6
months following closing, the Company will be required to loan not more
than $1,500,000 to certain of the shareholders of Adage for up to five
years. The loans will be non-recourse and secured by shares of Company
Common Stock.
Closing of the transaction is subject to customary closing
conditions, including approval of the merger by the Adage shareholders.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
Sequentially
(c) EXHIBITS Numbered Page
A Merger Agreement dated 4
May 12, 1995 between the
Company and Adage (excluding
exhibits and schedules)
(PAGE)
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
Date: May 12, 1995 By:__/s/______________________
Name: Richard A. Blumenthal
Title: Senior Vice President
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
By and Among
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
and
SCT ACQUISITION CORPORATION
and
ADAGE SYSTEMS INTERNATIONAL, INC.
and
GERALD F. O'CONNELL and DAVID PHELAN
Dated as of May 12, 1995
(PAGE)
TABLE OF CONTENTS
ARTICLE 1 - BASIC PLAN OF REORGANIZATION AND RELATED MATTERS
1.1. The Merger
1.2. Conversion of Stock
1.3. Dissenting Stock
1.4. Surrender of Certificates
1.5. Certificate of Incorporation of the Surviving Corporation
1.6. By-Laws of the Surviving Corporation
1.7. Directors and Officers of the Surviving Corporation
1.8. Additional Payments
1.9. Loans
1.10. Restricted Activities
1.11. Matters Regarding Parent Stock
1.12. Closing
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company and the
Principal Shareholders
2.2. Representations and Warranties of Principal Shareholders
2.3. Representations and Warranties of Parent and Sub
ARTICLE 3 - CERTAIN TRANSACTIONS AND RELATED MATTERS
3.1. Access to Information; Notice of Changes
3.2. Confidentiality
3.3. Conduct of the Business of the Company Pending the Closing
Date
3.4. Best Efforts
3.5. No Solicitation of Other Offers
3.6. Notice of Default
3.7. Agreement to Execute Certain Documents
3.8. Post-Closing Operations
3.9. Board Attendance Right
3.10. Cooperation Regarding Financial Statements
3.11. Relocation of Surviving Corporation
3.12. Shareholders' Meeting
3.13. First Fidelity Bank Indebtedness
ARTICLE 4 - CONDITIONS PRECEDENT TO MERGER
4.1. Conditions Precedent to Obligations of Parent, Sub and the
Company
4.2. Conditions Precedent to Obligations of Parent and Sub
4.3. Conditions Precedent to Obligation of the Company
ARTICLE 5 - SURVIVAL; INDEMNIFICATION; EXPENSES
ARTICLE 6 - TERMINATION AND ABANDONMENT
6.1. Termination
6.2. Effect of Termination
6.3. Expenses If No Closing
6.4. Extension; Waiver
ARTICLE 7 - MISCELLANEOUS
7.1. Fees and Expenses
7.2. Tax Consequences
7.3. Public Announcements
7.4. Notices
7.5. Tax-Free Reorganization
7.6. Entire Agreement
7.7. Binding Effect; Benefit; Assignment
7.8. Amendment and Modification
7.9. Further Actions
7.10. Headings
7.11. Counterparts
7.12. Applicable Law
7.13. Severability
(PAGE)
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of May
12, 1995 ("Agreement"), by and among SYSTEMS & COMPUTER TECHNOLOGY
CORPORATION, a Delaware corporation ("Parent"), SCT ACQUISITION
CORPORATION, a Delaware corporation ("Sub") and a wholly-owned
subsidiary of Parent, and ADAGE SYSTEMS INTERNATIONAL, INC., a Michigan
corporation (the "Company"), and each of the following shareholders of
the Company: Gerald F. O'Connell and David Phelan (collectively, the
"Principal Shareholders").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company desire to effect a reorganization and in furtherance thereof
have approved the acquisition of the Company by Parent, subject to the
terms and conditions of this Agreement;
WHEREAS, to complete such reorganization, the respective Boards of
Directors of Parent, Sub and the Company have approved the merger of the
Company and Sub (the "Merger") pursuant to and subject to the terms and
conditions of this Agreement;
WHEREAS, the Principal Shareholders, Halcyon Resources Limited,
John C. Hanger, Ira Gerard and V. Somasundaram (collectively, the
"Shareholders") collectively own all of the outstanding shares of common
stock (the "Common Stock"), of the Company and all rights to acquire
shares of Common Stock;
WHEREAS, the Principal Shareholders own, or pursuant to voting
agreements and irrevocable proxies granted by certain of the
other Shareholders have the right to vote, a majority of the
outstanding shares of Common Stock, and believe the Merger to be
in the best interests of both the Principal Shareholders and
each of the other Shareholders, subject to the terms and
conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing premises and of
the mutual covenants, representations, warranties and agreements herein
contained, the parties, intending to be legally bound hereby, agree as
follows:
(PAGE)
ARTICLE 1
BASIC PLAN OF REORGANIZATION AND RELATED MATTERS
1.1. The Merger.
(a) Subject to the terms and conditions of this Agreement, at
the time of the Closing (as defined in Section 1.12 hereof), (i) a
certificate of merger (the "Delaware Certificate of Merger") shall be
duly prepared, executed and acknowledged by Sub and the Company in
accordance with the Delaware General Corporation Law (the "DGCL") and
(ii) a certificate of merger (the "Michigan Certificate of Merger")
shall be duly prepared, executed and acknowledged by Sub and the Company
in accordance with the Michigan Business Corporation Act (the "MBCA"),
and each shall be filed on the Closing Date (as defined in Section 1.12
hereof). The Merger shall become effective upon the filing of the
Delaware Certificate of Merger with the Secretary of State of the State
of Delaware and the Michigan Certificate of Merger with the Secretary of
State of the State of Michigan in accordance with the provisions and
requirements of the DGCL and the MBCA. The date and time when the
Merger shall become effective is hereinafter referred to as the
"Effective Time."
(b) At the Effective Time, the Company shall be merged with
and into Sub and the separate corporate existence of the Company shall
cease, and Sub shall continue as the surviving corporation under the
laws of the State of Delaware under the name of ADAGE SYSTEMS
INTERNATIONAL, INC. (the "Surviving Corporation"). At any time at or
following the Effective Time, Parent shall have the right to effect a
change in the name of the Surviving Corporation and the right to cause
the Surviving Corporation to operate under a fictitious name.
(c) From and after the Effective Time, the Merger shall have
the effects set forth in Section 259 of the DGCL and Section 450.1724 of
the MBCA. Without limiting the generality of the foregoing, and subject
thereto: (i) the Surviving Corporation shall possess all the rights,
privileges, powers and franchises of a public and private nature, and
shall be subject to all the restrictions, disabilities and duties of
each of the Constituent Corporations (as defined below); (ii) all
property, real, personal and mixed, and all debts due to either
Constituent Corporation on whatever account, including all choses in
action and other things belonging to the Constituent Corporations, shall
be vested in the Surviving Corporation; (iii) all property, rights,
privileges, powers and franchises, and every other interest of each of
the Constituent Corporations shall be, from and after the Effective
Time, the property of the Surviving Corporation and the title to any
real estate vested by deed or otherwise in the Constituent Corporations
shall not revert or be impaired in any way by this Agreement or the
Merger, but all rights of creditors and all liens upon any property of
either Constituent Corporation shall be preserved unimpaired, and all
debts, liabilities and duties of the Constituent Corporations shall,
from and after the Effective Time, attach to and become the debts,
liabilities and duties of the Surviving Corporation, and may be enforced
against the Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by the Surviving
Corporation; and (iv) all transfers vesting in the Surviving Corporation
referred to herein shall be deemed to occur by operation of law and no
consent or approval of any other person shall be required in connection
with any such transfer or vesting unless such consent or approval is
specifically required in the event of merger by law or express provision
of any contract, agreement, decree, order or other instrument to which
either or both of the Constituent Corporations is a party or is bound.
As used herein, the term "Constituent Corporations" means the Company
and Sub.
1.2. Conversion of Stock.
(a) At the Effective Time, each share of Common Stock then
issued and outstanding (other than (i) any shares of Common Stock which
are held by any subsidiary of the Company or in the treasury of the
Company, or which are held, directly or indirectly, by Parent or any
subsidiary of Parent (including Sub), all of which shall be canceled and
none of which shall receive any payment with respect thereto, and (ii)
shares of Common Stock held by Dissenting Shareholders, as defined in
Section 1.3 hereof) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and
represent the right to receive the Per Share Merger Consideration (as
defined in paragraph (b) below); and each issued and outstanding share
of common stock of Sub shall continue to be an issued and outstanding
share of common stock of the Surviving Corporation.
(b) (i) The term "Aggregate Merger Consideration" shall mean
1,000,000 shares of common stock, par value $.01 per share (the
"Parent Stock"), of Parent (subject to proportionate adjustment
in the event of any stock split, stock dividend or reverse stock
split the record date for which precedes the Closing Date).
(ii) The term "Fully Diluted Number" means the sum of (x)
the number of shares of Common Stock issued and outstanding immediately
prior to the Effective Time plus (y) the number of shares of Common
Stock that would be issuable upon the exercise in full of each of the
Options.
(iii) The term "Options" means whichever of the following
options remain outstanding at the Effective Time: the option exercisable
for an aggregate of 60 shares of Common Stock issued to John C. Hanger
and the option exercisable for an aggregate of 50 shares of Common Stock
issued to V. Somasundaram.
(iv) The term "Per Share Merger Consideration" means the
Aggregate Merger Consideration divided by the Fully Diluted Number.
(c) At the Effective Time, each of the Options shall represent
only the right to acquire, upon exercise in accordance with its terms
and in lieu of shares of Common Stock, a number of shares of Parent
Stock equal to the product that results from multiplying (1) the number
of shares of Common Stock subject to the original Option (i.e., 60 or
50, as the case may be) by (2) the Per Share Merger Consideration.
(d) In the event that an Option expires unexercised then
Parent shall issue to the Shareholders an additional number of shares of
Parent Stock (the "Additional Shares") in an aggregate amount equal to
the number of shares of Parent Stock that would have been issued to the
holder of such expired Option in the Merger had the holder of such
expired Option exercised it in full immediately prior to the Effective
Time (subject to proportionate and equitable adjustment in the event of
a stock split, stock dividend or reverse stock split of or on Parent
Stock). The number of such Additional Shares which shall be issued to
each Shareholder, on account of each share of Parent Stock theretofore
issued to him in the Merger or theretofore issued to him upon exercise
of an Option, shall be equal to the quotient that results from dividing
the aggregate number of Additional Shares by the sum of (1) the number
of shares of Common Stock issued and outstanding immediately prior to
the Effective Time plus (2) the number of additional shares of Common
Stock that would have been outstanding immediately prior to the
Effective Time if an Option which has in fact been exercised pursuant to
paragraph (c) above subsequent to the Effective Time had been exercised
for shares of Common Stock immediately prior to the Effective Time,
provided that if such issuance occurs prior to the second anniversary of
the Closing, each Shareholder shall deposit into escrow pursuant to the
Stock Pledge Agreement 20% of the number of Additional Shares issued to
such Shareholder.
(e) Notwithstanding the foregoing, Parent reserves the right
to pay cash in lieu of any fractional shares of Parent Stock which, but
for the exercise of such reserved right, would be issued as part of the
Aggregate Merger Consideration. Any such cash payments shall be made on
the basis of the Market Price (as defined in Section 1.8 hereof) of
Parent Stock on the Closing Date.
1.3. Dissenting Stock. Notwithstanding anything in this Agreement
to the contrary but only to the extent required by Sections 450.1761
through 450.1774 of the MBCA, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and are held by
holders of Common Stock who comply with all the provisions of Michigan
law concerning the right of holders of Common Stock to dissent from the
Merger and require appraisal of their shares of Common Stock
("Dissenting Shareholders") shall not be converted into the right to
receive the Per Share Merger Consideration but shall become the right to
receive such consideration as may be determined to be due such
Dissenting Shareholders pursuant to the law of the State of Michigan;
PROVIDED, HOWEVER, that shares of Common Stock outstanding immediately
prior to the Effective Time and held by a Dissenting Shareholder who
shall, after the Effective Time, withdraw his demand for appraisal or
lose his right of appraisal, in either cased pursuant to the MBCA, shall
thereupon be deemed to have been converted into the right to receive, as
of the Effective Time, the Per Share Merger Consideration, without
interest. The Company shall give Parent and Sub (A) prompt notice of
any written demands for appraisal, withdrawals of demands for appraisal
and any other related instruments received by the Company, and (B) the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Michigan law. The Company will not
voluntarily make any payment with respect to any demands for appraisal
and will not, except with the prior written consent of Parent, settle or
offer to settle any demand. The inclusion of this Section 1.3 in this
Agreement and the contemplation in Section 1.4 of the possibility of
Dissenting Shareholders shall not be construed to limit Parent's right
not to effect the Merger pursuant to Section 4.2(f).
1.4. Surrender of Certificates. At the Effective Time, each of
the Shareholders shall surrender his certificate(s) which immediately
prior to the Effective Time represented outstanding shares of Common
Stock, pursuant to a customary letter of transmittal, in exchange for
that number of shares of Parent Stock which results from multiplying the
Per Share Merger Consideration by the number of shares of Common Stock
represented by such certificate(s). Until so surrendered, each such
certificate shall be deemed, for all corporate purposes, to evidence the
right to receive upon surrender the consideration payable on account
thereof (without interest), as specified in the preceding sentence. At
and after the Effective Time, each holder of a certificate shall cease
to have any rights as a shareholder of the Company, except each holder
of a certificate who is not a Dissenting Shareholder shall have the
right to surrender his certificate in exchange for the applicable Per
Share Merger Consideration multiplied by the number of shares of Common
Stock represented by such certificate and each Dissenting Shareholder
shall have the right to receive payment for his shares pursuant to
Michigan law if such Shareholder has validly perfected his right to
receive payment for his shares pursuant to Section 450.1762 of the MBCA.
As a condition of each of the Shareholders who has not executed this
Agreement receiving certificates evidencing shares of Parent Stock in
accordance with the foregoing, and as a condition of each Shareholder
who holds an Option receiving certificates evidencing shares of Parent
Stock upon the exercise of an Option, each of such Shareholders shall
execute and deliver to Parent and both Principal Shareholders both (i)
the Stock Pledge Agreement (as defined in Section 4.2), and in the form
attached hereto as Exhibit 4.2(i) or a joinder thereto and (ii) the
Registration Agreement (as defined in Section 2.1(b)) and in the form
attached hereto as Exhibit 2.1(b) or a joinder thereto.
1.5. Certificate of Incorporation of the Surviving Corporation.
The Certificate of Incorporation of Sub shall be the Certificate of
Incorporation of the Surviving Corporation and shall be amended so that
Paragraph 1 thereof reads in its entirety as follows: "The name of the
corporation is Adage Systems International, Inc."
1.6. By-Laws of the Surviving Corporation. The By-Laws of Sub,
as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended as
provided by law.
1.7. Directors and Officers of the Surviving Corporation. At the
Effective Time, the five persons identified in Section 3.8(b) as the
initial Parent Designees and the initial Shareholder Designees shall be
the directors of the Surviving Corporation, each of such persons to hold
office, subject to the applicable provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until the next
annual stockholders' meeting of the Surviving Corporation and until
their respective successors shall be duly elected or appointed and
qualified (but subject in any event to the provisions of Section
3.8(b)). At the Effective Time, the persons identified on Schedule 1.7
hereto shall, subject to the applicable provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation, be the officers
of the Surviving Corporation until their respective successors shall be
duly elected or appointed and qualified.
1.8. Additional Payments. This Section sets forth the
circumstances under which Parent may become obligated to make an
additional payment to or for the benefit of the Shareholders:
(a) Certain Definitions.
(i) "Eligible Parent Stock" shall mean each of the
1,000,000 shares of Parent Stock issued by Parent to the Shareholders
pursuant to Section 1.2 hereof (and any additional shares of Parent
Stock issued in connection with a split of such shares or paid as a
dividend on such shares), provided that, except under the circumstances
provided in Section 1.8(b)(iv) below, any such share of Eligible Parent
Stock shall cease to be a share of Eligible Parent Stock upon its
transfer to a person or entity who or which is not an Eligible
Shareholder.
(ii) "Eligible Shareholder" shall mean and be limited to
each of the Shareholders, a shareholder of any Shareholder which is a
corporation, a beneficiary of any Shareholder which is a trust, and any
ancestor, decedent or sibling of any of the foregoing who is a natural
person or any spouse of any such person, and any trust, partnership,
corporation or limited liability company established for the sole
benefit of any such person or his heirs.
(iii) "Floor Price" shall mean the dollar amount
established on the basis of the formula set forth within this paragraph
(iii). In no event, however, shall the Floor Price be less than $15 or
more than $50 (subject to proportionate and equitable adjustment in the
event of a stock split, stock dividend or reverse stock split of or on
Parent Stock).
(A) The Floor Price will be established based on the
amount by which annual Pretax Profits of the Surviving Corporation
during the five-year period commencing on the first day of October 1995
(the "Commencement Date") exceeds $2,000,000 (the "Base Amount").
However, if during any Measurement Year (as defined below) within such
five-year period, the annual Pretax Profits of the Surviving Corporation
exceed $5,000,000, then the Base Amount shall be reduced for such
Measurement Year and each succeeding Measurement Year from $2,000,000 to
$1,500,000.
(B) The amount by which the annual Pretax Profits
of the Surviving Corporation for a given annual period within the
above-referenced five-year period exceeds the Base Amount (i.e.,
$2,000,000 or $1,500,000, as the case may be) shall be multiplied by a
factor. The factor will be two for the first annual period, three for
the second annual period, four for the third annual period and five for
each of the fourth and fifth annual periods. The amount that results
from such multiplication shall be divided by 1,000,000 (subject to
proportionate and equitable adjustment in the event of a stock split,
stock dividend or reverse stock split of or on Parent Stock). The Floor
Price applicable to such Measurement Year shall be the sum of the
resultant amount and $15 (subject to proportionate and equitable
adjustment in the event of a stock split, stock dividend or reverse
stock split of or on Parent Stock). The following example illustrates
the calculation of the Floor Price during each annual period within such
five-year period:
(TABLE)
(CAPTION)
YEAR FACTOR PRETAX PROFITS INCREASE (mm) FACTOR X FLOOR PRICE
INCREASE
(S) (C) (C) (C) (C) (C)
Base N/A $2,000,000* N/A N/A $15.00
1 2.00 $2,500,000 0.50 1.00 $16.00
2 3.00 $3,500,000 1.50 4.50 $19.50
3 4.00 $5,000,001 3.50 14.00 $29.00
4 5.00 $3,500,000 2.00 10.00 $25.00
5 5.00 $8,750,000 7.25 36.25 $50.00
(FN)
* Reduced to $1,500,000 in the first annual period (and for any
subsequent annual periods) in which Pretax Profits exceed $5,000,000.
</FN)
</TABLE)
(iv) "Market Price" shall mean, with respect to Parent
Stock and as of any given date, the average "market price" of a share of
Parent Stock during the 30 consecutive trading day period ending on such
given date. As used herein, the market price of a share of Parent Stock
shall be (A) if the Parent Stock shall at the time be listed or admitted
to unlisted trading privileges on the New York Stock Exchange, on the
basis of the last reported sale price regular way of the Parent Stock on
the Composite Tape (of if the Parent Stock at the time be not so listed
or admitted to unlisted trading privileges on the New York Stock
Exchange but be listed or admitted to unlisted trading privileges on
another national securities exchange, on the basis of the last reported
sale price regular way on a national securities exchange on which the
Parent Stock is at the time listed or admitted to unlisted trading
privileges) on each such trading day upon which such a sale shall have
been effected (or if no sale takes place on any such day on such
exchange, the average of the closing bid and asked prices on such day as
officially quoted on such exchange) or (B) if the Parent Stock is not at
the time so listed or admitted to unlisted trading privileges on a
national securities exchange, on the basis of the closing price if the
Parent Stock is included in the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") - National Market System
(provided that if, on any day within such 30 consecutive trading day
period, there is no trade of a share of Parent Stock, the closing price
for a share on such day shall be deemed to be the Closing Price on the
last preceding day on which there was a trade of Parent Stock) or if the
Parent Stock is not included in the NASDAQ - National Market System, the
average of the highest reported bid and lowest reported asked prices of
the Parent Stock in the over-the-counter market on each such trading
day, as reported by NASDAQ or similar organization if NASDAQ is no
longer reporting such information.
(v) "Measurement Date" shall mean the fifth anniversary
of the Commencement Date (as defined above in the definition of the term
"Floor Price").
(vi) "Measurement Year" shall mean each of the five
annual periods within the five-year period referenced in clause (A) of
the definition of the term "Floor Price" above.
(vii) "Pretax Profits" shall mean, with respect to the
Surviving Corporation and in respect of a given period, all gross
revenues and other proper income credits of the Surviving Corporation
for such period, less all proper income charges (excluding taxes on
income) for such period, determined in accordance with generally
accepted accounting principles and Parent's internal accounting policies
applied on a consistent basis throughout the five-year period commencing
on the Commencement Date. For purposes of computing Pretax Profits of
the Surviving Corporation, (A) corporate expenses of Parent for common
functions, such as advertising and recruiting, will be treated as a
proper income charge to the Surviving Corporation allocated in
accordance with Parent's internal accounting policies as in effect from
time to time; (B) no goodwill, other corporate intangibles, general
corporate overhead of Parent or corporate interest expense of Parent
will be treated as a proper income charge to the Surviving Corporation;
(C) all expenses incurred by Parent or the Surviving Corporation in
connection with the Merger, including, without limitation, legal fees
and expenses, relocation expenses of the operations and employees of the
Surviving Corporation, and any severance pay, shall not be charged to
income; (D) the assets of the Surviving Corporation shall be valued at
the historical cost thereof; and (E) neither the value placed on the
Aggregate Merger Consideration by Parent nor the allocation thereof by
Parent shall have any effect whatsoever in the determination of Pretax
Profits. Interest or imputed interest on net advances by Parent to the
Surviving Corporation, at Parent's "actual cost of money", will be
treated as a proper income charge to the Surviving Corporation, but
interest or imputed interest on net advances by the Surviving
Corporation to Parent will not be treated as a proper income credit of
the Surviving Corporation. Parent's "actual cost of money" will be
deemed to be three quarters of one percent per annum above the London
Interbank Offered Rate (the "LIBOR") for three monthly dollar deposits,
as reported on a daily basis in the Money Rates section of The Wall
Street Journal, such rate to change when and as the LIBOR changes.
(b) Payment.
(i) If the Floor Price is greater than the Market Price
of Parent Stock on the Measurement Date, Parent shall (subject to
Section 1.8(f) and Section 1.8(g)) pay to each Eligible Shareholder,
within 60 days following the Measurement Date, an amount in cash or
shares of Parent Stock equal to the product resulting from multiplying
the amount of such excess by the number of shares constituting Eligible
Parent Stock of such Eligible Shareholder on the Measurement Date. For
purposes of the foregoing payment obligation, shares of Parent Stock
shall be deemed to have a value equal to the Market Price thereof on the
Measurement Date. The aggregate amount of such payments by Parent shall
in no event exceed the amount by which the Maximum Amount (as defined
below) exceeds the sum of the following: (i) the gross proceeds received
by the Eligible Shareholders for any shares of Parent Stock issued in
the Merger and sold prior to the Measurement Date, (ii) the product of
(1) the number of shares of Parent Stock, if any, transferred to Parent
on or prior to the payment date pursuant to any of the Note and Pledge
Agreements identified in Section 1.9 or the Stock Pledge Agreement (as
defined in Section 4.2) multiplied by (2) the Valuation Amount (as
defined below) of each such share on the date of its transfer, (iii) the
aggregate amount of the payments, if any, made by Parent with respect to
any or all of up to 100,000 shares of Parent Stock (subject to
proportionate and equitable adjustment in the event of a stock split,
stock dividend or reverse stock split of or on Parent Stock) sold prior
to the Measurement Date which are entitled to the benefit of a $15 per
share Floor Price (as provided in paragraph (iii) below) (subject to
proportionate and equitable adjustment in the event of a stock split,
stock dividend or reverse stock split of or on Parent Stock) and (iv)
the aggregate Market Price of shares constituting Eligible Parent Stock
of the Eligible Shareholders on the Measurement Date. The term
"Valuation Amount" means the amount credited to a Shareholder on account
of the transfer of a share of Parent Stock to Parent under either the
Note and Pledge Agreement executed by such Shareholder or the Stock
Pledge Agreement. The term "Maximum Amount" means the product that
results from multiplying $50 (subject to proportionate and equitable
adjustment in the event of a stock split, stock dividend or reverse
stock split of or on Parent Stock) by the sum of (1) the number of
shares constituting Eligible Parent Stock of the Eligible Shareholders
on the Measurement Date plus (2) the number of shares of Parent Stock
issued in the Merger and either previously sold by Eligible Shareholders
at or in excess of the Given Day Market Price (as defined below) on a
given date or transferred to Parent pursuant to any of the Note and
Pledge Agreements identified in Section 1.9 or the Stock Pledge
Agreement. As used in the preceding sentence, and in paragraphs
(b)(iii) and (b)(v) below, the term "Given Day Market Price" shall mean
the actual sale price of a share of Parent Stock if sold by the
applicable Shareholder through an exchange or NASDAQ - National Market
System or the closing sale price of a share of Parent Stock on such
exchange or NASDAQ - National Market System on the date of sale if not
sold by the applicable Shareholder through an exchange or NASDAQ -
National Market System (or the last previous sale price on an exchange
or NASDAQ - National Market System if no sale occurs on such date).
(ii) Notwithstanding the foregoing paragraph, Parent
shall have no obligation to make any payment otherwise required thereby
or by paragraphs (iii) and (v) below if as of any date after the second
anniversary of the Closing Date: (A) the Market Price of Parent Stock
equals or exceeds $55 (subject to proportionate and equitable adjustment
in the event of a stock split, stock dividend or reverse stock split of
or on Parent Stock), (B) all Shareholders shall have been entitled,
during the entire 30-trading day period in which the Market Price
referenced in clause (A) shall have been determined, to have sold shares
of Parent Stock under Section 4(1) of the Securities Act of 1933 or
pursuant to Rule 144 promulgated thereunder, subject, however, to the
numerical limitations contained in Rule 144 and (C) during no portion of
such 30-trading day period shall any of the Shareholders have been
prevented by any contract or agreement with Parent or the Surviving
Corporation, or any applicable law or regulation, from effecting sales
of Parent Stock. For purposes of the foregoing, the Note and Pledge
Agreements identified in Section 1.9 and the Stock Pledge Agreement
shall not be deemed to constitute contracts or agreements that prevent
the sale of Parent Stock. This paragraph (ii) shall not require any
Shareholder who has received a payment on account of Parent Stock
pursuant to paragraph (iii) or (v) prior to the satisfaction of the
above conditions terminating Parent's obligation to make payments
pursuant thereto to return such payments.
(iii) Notwithstanding the express applicability of
Parent's payment obligation in paragraph (b)(i) above exclusively to
shares of Parent Stock which constitute shares of Eligible Parent Stock
on the Measurement Date, the Shareholders shall be entitled to receive a
payment in cash or shares of Parent Stock with respect to up to, but not
in excess of, 100,000 shares of Parent Stock (subject to proportionate
and equitable adjustment in the event of a stock split, stock dividend
or reverse stock split of or on Parent Stock) in the aggregate sold by
them prior to the Measurement Date on a date when the Given Day Market
Price of Parent Stock is less than $15 (subject to proportionate and
equitable adjustment in the event of a stock split, stock dividend or
reverse stock split of or on Parent Stock). For purposes of the
foregoing payment obligation, shares of Parent Stock shall be deemed to
have a value equal to the Market Price thereof on the payment date. The
amount of such payment shall be equal to the product obtained by
multiplying (x) the excess of (A) $15 (subject to proportionate and
equitable adjustment in the event of a stock split, stock dividend or
reverse stock split of or on Parent Stock) over (B) (1) the Given Day
Market Price of a share of Parent Stock on each such sale date if the
applicable shares of Parent Stock are sold through an exchange or NASDAQ
- - National Market System or (2) the actual sales price of the applicable
shares of Parent Stock if the shares are sold otherwise than through an
exchange or NASDAQ - National Market System at a price per share higher
than the closing sale price on such date of a share of Parent Stock on
the exchange or NASDAQ - National Market System by (y) the number of
shares (not exceeding 100,000 in the aggregate for all Shareholders)
(subject to proportionate and equitable adjustment in the event of a
stock split, stock dividend or reverse stock split of or on Parent
Stock) sold on such sale date, and any such payment shall be made within
10 days after Parent has received notice of the applicable sale. The
foregoing entitlement to sell up to 100,000 shares of Parent Stock
(subject to proportionate and equitable adjustment in the event of a
stock split, stock dividend or reverse stock split of or on Parent
Stock) prior to the Measurement Date on the terms set forth above shall
be allocated among the Shareholders as follows: each Shareholder shall
be entitled to sell up to 10% of the sum of aggregate number of shares
of Parent Stock issued to him in the Merger and any additional shares of
Parent Stock issued to him pursuant to Section 1.2(d) hereof in
connection with the expiration of either or both of the Options (a
"Shareholder's Special Allotment"). The transfer of any shares of
Parent Stock to Parent pursuant to any of the Note and Pledge Agreements
identified in Section 1.9 or the Stock Pledge Agreement shall not be
deemed to be a sale of such shares for purposes of this paragraph
(b)(iii) unless the applicable Shareholder so elects.
(iv) Notwithstanding the foregoing, if the employment of
either Gerald F. O'Connell or David Phelan with Parent is terminated by
Parent for reasons other than "cause" or "total disability" (as defined
in the O'Connell Employment Agreement and the Phelan Employment
Agreement, respectively, referenced in Section 2.3(b) hereof) at any
time when Gerald F. O'Connell has not been elected or appointed to the
Board of Directors of Parent, then (i) all shares of Eligible Parent
Stock held on the date of the first such termination (the "Termination
Date") will remain shares of Eligible Parent Stock on the Measurement
Date or Special Payment Date even if such shares are sold after the
Termination Date, and (ii) the Floor Price applicable for purposes of
this paragraph (b) shall be the greater of (1) the Floor Price
determined in accordance with Section 1.8(a) hereof and (2) the Floor
Price in effect on the Termination Date based on the Measurement Year
preceding the Termination Date increased by 20% per year to the
Measurement Date, but not exceeding (for purposes of this clause (2)) a
maximum Floor Price of $32.50 (subject to proportionate and equitable
adjustment in the event of a stock split, stock dividend or reverse
stock split of or on Parent Stock); provided that if the Floor Price in
effect on the Termination Date based on the Measurement Year preceding
the Termination Date equals or exceeds $32.50 (subject to proportionate
and equitable adjustment in the event of a stock split, stock dividend
or reverse stock split of or on Parent Stock), then the Floor Price
applicable for purposes of this paragraph (b) shall be the greater of
(1) the Floor Price determined in accordance with Section 1.8(a) hereof
and (2) the Floor Price in effect on the Termination Date based on the
Measurement Year preceding the Termination Date (without giving effect
to the 20% per year increase provided for above). Notwithstanding the
foregoing, the employment of David Phelan shall be deemed to have been
terminated for "cause" for purposes of this paragraph (b)(iv),
regardless of whether or not his employment has in fact been terminated
for cause, if he is terminated "at the direction of" Gerald F. O'Connell
or if his employment is terminated by vote of a majority of the members
of the Board (as defined in section 3.8) if Mr. O'Connell votes as part
of such majority. Mr. Phelan shall only be deemed to have been
terminated "at the direction of" Mr. O'Connell if Mr. O'Connell, in
issuing the directive, is not acting under a directive from the Board
from which he dissented or under a directive from the President of
Parent with which he disagrees in writing.
(v) Nothing contained in this Agreement shall restrict
the ability of Parent to sell all or substantially all of the assets of
the Surviving Corporation (whether directly or through a sale of the
capital stock of the Surviving Corporation) or to sell all or
substantially all of its own assets or to effect a business combination
of itself with a third party (each, a "Sale Transaction"). In the event
Parent intends to consummate a Sale Transaction, Parent shall (subject
to Section 1.8(f) and Section 1.8(g)), on or prior to consummation of
the Sale Transaction, make a payment to each Eligible Shareholder in
complete satisfaction of its obligations under this Section 1.8. If
(and only if) the Assumed Floor Price (as defined below) is greater than
the Special Market Price (as defined below) on the Special Payment Date,
the amount of the payment shall be calculated as described below on the
assumption that the Floor Price is, on the date of the payment (the
"Special Payment Date"), $50 (subject to proportionate and equitable
adjustment in the event of a stock split, stock dividend or reverse
stock split of or on Parent Stock) (the "Assumed Floor Price"). Parent
shall pay to each Eligible Shareholder in respect of each share
constituting Eligible Parent Stock on the Special Payment Date, an
amount in cash or shares of Parent Stock equal to the excess of the
Assumed Floor Price over the Special Market Price. For purposes of the
foregoing payment obligation, shares of Parent Stock shall be deemed to
have a value equal to the Special Market Price on the Special Payment
Date. The aggregate amount of such payment by Parent shall in no event
exceed the amount by which the Special Maximum Amount (as defined below)
exceeds the sum of the following: (i) the gross proceeds received by the
Eligible Shareholders for any shares of Parent Stock issued in the
Merger and sold prior to the Special Payment Date, (ii) the product of
(1) the number of shares of Parent Stock, if any, transferred to Parent
on or prior to the payment date pursuant to any of the Note and Pledge
Agreements identified in Section 1.9 or the Stock Pledge Agreement
multiplied by (2) the Valuation Amount of each such share on the date of
its transfer, (iii) the aggregate amount of the payments, if any, made
by Parent with respect to any or all of up to 100,000 shares of Parent
Stock (subject to proportionate and equitable adjustment in the event of
a stock split, stock dividend or reverse stock split of or on Parent
Stock) sold prior to the Special Payment Date which are entitled to the
benefit of a $15 per share Floor Price (subject to proportionate and
equitable adjustment in the event of a stock split, stock dividend or
reverse stock split of or on Parent Stock) (as provided in paragraph
(b)(iii) above) and (iv) the aggregate Special Market Price of shares
constituting Eligible Parent Stock of the Eligible Shareholders on the
Special Payment Date. The term "Special Maximum Amount" means the
product that results from multiplying $50 (subject to proportionate and
equitable adjustment in the event of a stock split, stock dividend or
reverse stock split of or on Parent Stock) by the sum of (1) the number
of shares constituting Eligible Parent Stock of Eligible Shareholders on
the Special Payment Date plus (2) the number of shares of Parent Stock
issued in the Merger and either previously sold by Eligible Shareholders
at or in excess of the Given Day Market Price on a given date or
transferred to Parent pursuant to any of the Note and Pledge Agreements
identified in Section 1.9 or the Stock Pledge Agreement. The term
"Special Market Price" shall mean either (i) the aggregate amount of
cash and the fair market value of any non-cash property (as conclusively
determined by the Board of Directors of Parent in good faith) payable in
respect of each share of Parent Stock on account of a Sale Transaction
or (ii) if the applicable Sale Transaction consists of the sale by
Parent of all or substantially all of the assets of the Surviving
Corporation (whether directly or through a sale of the capital stock of
the Surviving Corporation), the Market Price (as defined above). In the
event that Parent consummates a Sale Transaction and the Assumed Floor
Price is not greater than the Special Market Price on the date of such
consummation, Parent shall have no obligation to make any payment under
this paragraph (b)(v) and Parent's obligations under this Section 1.8
shall terminate. Nothing contained in this paragraph (b)(v) shall be
construed to limit the right of Eligible Shareholders to receive any
payments available to shareholders of Parent generally in the Sale
Transaction on account of their shares of Eligible Parent Stock.
(c) Reduction in Payment Amount. The amount of any payment
required to be made pursuant to this Section 1.8 may be reduced (i) as
and to the extent, and in the manner, provided in Article 5 hereof and
(ii) by an amount (the "Shortfall Amount") equal to the aggregate of all
amounts which have not been paid under the Note and Pledge Agreements
(as defined in Section 1.9 hereof). In the event of a reduction under
clause (ii) of the preceding sentence, the Shortfall Amount shall be
deducted from the payments otherwise required to be made pursuant to
Section 1.8 to the obligors under the Note and Pledge Agreements in
respect of which the Shortfall Amount arose.
(d) Periodic Reporting. Until 30 days following the
Measurement Date, each Shareholder shall advise Parent in writing of any
sales or purchases such Shareholder makes of Parent Stock, the number of
shares sold or purchased and the per share sale or purchase price. The
foregoing written advice shall be provided to Parent within 30 days
following the written request by Parent for such advice. Parent shall
be permitted to request such advice once each fiscal quarter.
(e) Availability of Parent Stock. At the first annual meeting
of shareholders of Parent, held following Parent's fiscal year ending
September 30, 1998, Parent shall take such action, if any, as may be
necessary to have available such number of authorized but unissued and
unreserved shares of Parent Stock as would have been necessary as of
September 30, 1998 to have made the payment required by Section 1.8(b)
above solely in shares of Parent Stock on such date based on the Market
Price as of such date, the Pretax Profits of the Surviving Corporation
for the fiscal year then ended and an assumed factor of five.
(f) In no event shall Parent be required to issue in excess of
an aggregate of 1,545,000 shares of Parent Stock pursuant to this
Section 1.8 (subject to proportionate and equitable adjustment in the
event of a stock split, stock dividend or reverse stock split of or on
Parent Stock) (the "Maximum Number"), in addition to the 1,000,000
shares issued pursuant to Section 1.2 hereof, except as provided in
Section 1.8(g) below. Before Parent shall be permitted to pay cash in
satisfaction of any portion of its payment obligation under this Section
1.8, Parent shall have first issued pursuant to this Section 1.8 a
number of shares of Parent Stock equal to the Maximum Number. In
addition, in no event shall the amount of cash which Parent pays
pursuant to this Section 1.8 exceed the excess of (i) 50% of the
quotient that results from dividing by .40 the product of the Applicable
Value (as defined below) multiplied by the aggregate number of shares of
Parent Stock issued in the Merger and pursuant to this Section 1.8. As
used herein, the term "Applicable Value" shall mean the Market Price on
the Measurement Date (if payment is to be made pursuant to Section
1.8(b)(i)) or on the Special Measurement Date (if payment is to be made
pursuant to Section 1.8(b)(v)) over (ii) any expenses of the
Shareholders paid by the Company or Parent.
(g) If, by reason of Section 1.8(f) above, Parent would not
be required to pay the Eligible Shareholders the full amount they would
otherwise be entitled to receive under this Section 1.8, Parent will,
promptly following the Measurement Date or the Special Measurement Date,
as the case may be, submit a written request to the National Association
of Securities Dealers, Inc. (the "NASD") either to waive any applicable
provision in its Schedules to the By-Laws which would require Parent to
obtain the approval by Parent's shareholders for the issuance by Parent
of more than an aggregate of 2,545,000 shares of Parent Stock (subject
to proportionate and equitable Adjustment in the event a stock split,
stock dividend or reverse stock split of or on parent Stock) pursuant to
this Agreement or to confirm that no such approval is required. If the
NASD waives each such applicable provision or provides such confirmation
without imposing additional conditions on Parent which Parent reasonably
believes to be burdensome, the restriction on Parent's obligation to
issue shares of Parent Stock in excess of the Maximum Number pursuant to
this Section 1.8 shall be eliminated to the extent permitted by the
waiver. It is expressly understood and agreed that Parent shall have no
obligation to seek or obtain approval of its shareholders for the
issuance of shares of Parent Stock pursuant to this Agreement.
(h) The right of an Eligible Shareholder to receive, under
the circumstances specified in this Section 1.8, an additional payment
from Parent shall not be evidenced by any negotiable instrument or
certificate or be in a form designed to render such right readily
tradeable in an established securities market within the meaning of
Treasury Regulation Section 15A.453-1(e)(4).
(i) An Eligible Shareholder may transfer to another Eligible
Shareholder, by written notice to Parent, his right to receive any
shares of Parent Stock that Parent becomes obligated to pay him pursuant
to this Section 1.8 and may separately transfer to another Eligible
Shareholder his right to receive any cash that Parent becomes obligated
to pay him pursuant to this Section 1.8.
1.9. Loans. Subject to the terms and conditions of this
Agreement, and only if the Merger is consummated as contemplated hereby,
Parent will loan each of the Shareholders identified on Schedule 1.9
attached hereto the amount indicated beside his name on said Schedule
(individually, a "Loan" and collectively, the "Loans"), and concurrently
therewith, each such Shareholder shall execute a Note and Pledge
Agreement in the form attached hereto as Exhibit 1.9 (a "Note and Pledge
Agreement") for the benefit of Parent and pledging the number of shares
of Parent Stock required by this Agreement. In no event shall the
aggregate amount of all the Loans exceed $1,500,000. In addition, in no
event shall Parent make a Loan to any Shareholder until such Shareholder
has satisfied the conditions in Section 1.4 hereof to the receipt by
such Shareholder of certificates evidencing shares of Parent Stock
issuable in the Merger. The number of shares of Parent Stock that will
be subject to the pledge under each of the Note and Pledge Agreements in
order to collateralize fully principal and accrued interest on the Loans
will be determined by dividing by $15.00 the sum of the original
principal amount of the Loan evidenced by such Note and Pledge Agreement
plus 120% of the aggregate amount of interest that would accrue thereon
through the stated maturity date thereof assuming the interest rate in
effect on the date such Note and Pledge Agreement is executed were to
remain unchanged throughout the term thereof. Parent will make the
Loans, or the requested portions thereof, on the Closing Date and on one
additional date within six months following the Closing Date, as
designated to Parent by the holders of a majority of the outstanding
shares of
Common Stock at least 10 days prior to such additional date (each such
date being herein referred to as a "Loan Closing Date"). Any
Shareholder identified on Schedule 1.9 may assign to any other
Shareholder identified on Schedule 1.9 his right to borrow all or a
portion of the amount which he is entitled to borrow pursuant to a
notarized written instrument delivered to Parent prior to the applicable
Loan Closing Date. In the event that any of the Shareholders identified
on Schedule 1.9 elects not to borrow all or a portion of the amount
which he is entitled to borrow and does not elect to assign the right to
borrow any such amount, the aggregate amount of the Loans that Parent is
obligated to make shall be reduced by the foregoing declined amount.
Parent's obligation to make the Loans, or any portion thereof, shall be
conditioned on each of the following: (i) Parent's receipt from the
applicable borrowers of certificates evidencing the number of shares of
Parent Stock specified above, together with stock powers executed in
blank; and (ii) Parent's receipt of an opinion of counsel for the
applicable borrowers, in form and substance reasonably satisfactory to
Parent, that the Note and Pledge Agreements have been duly executed and
delivered by the applicable borrowers and create a perfected security
interest in favor of Parent in the shares of Parent Stock pledged under
the Note and Pledge Agreements.
1.10. Restricted Activities. Each of the Principal Shareholders
agrees that between the Closing Date and the Measurement Date, but only
for so long as he remains an employee or member of the Board of
Directors of Parent or the Surviving Corporation, neither he nor any of
his affiliates shall, directly or indirectly: (a) "solicit" or
participate in the "solicitation" of "proxies" (as such terms are
defined or used in Rule 14(a)(1) promulgated under the Securities
Exchange Act of 1934) in opposition to the recommendation of the
majority of the Board of Directors of Parent or become a participant in
an election contest with respect to the election of directors of Parent
or otherwise seek to influence or effect the vote of any shareholder of
Parent (other than another Eligible Shareholder); (b) propose to enter
into, directly or indirectly, any merger, tender, or exchange offer,
restructuring or business combination involving Parent or any of its
subsidiaries or to purchase, directly or indirectly, a material portion
of the assets of Parent or any of its subsidiaries (provided that the
foregoing restriction shall not be construed to restrict the ability of
a Principal Shareholder to tender his shares of Parent Stock in response
to a tender offer made by an unaffiliated third party); or (c) form,
join or participate in a partnership, limited partnership, syndicate or
other group or enter into any contract, arrangement, understanding or
relationship or otherwise act in concert with any other person (other
than another Eligible Shareholder) for the purpose of acquiring,
holding, voting or disposing of shares of Parent Stock without the prior
written consent of a majority of the Board of Directors of Parent.
1.11. Matters Regarding Parent Stock. All shares of Parent Stock
acquired pursuant to the Merger (as well as any shares of Parent Stock
issuable pursuant to Section 1.8) shall be acquired by each Shareholder
solely for his own account, for investment purposes, and pursuant to an
exemption from the registration requirements applicable under federal
and state securities laws. The Company and the Principal Shareholders
will have advised all Shareholders, on or prior to their vote on the
Merger pursuant to Section 3.12, that the shares of Parent Stock
issuable in the Merger or pursuant to Section 1.8 will not have been
registered with federal or state securities regulatory agencies in
reliance upon exemptions from the registration requirements under
applicable federal and state laws. No shares of Parent Stock issued in
the Merger or pursuant to Section 1.8 may be sold, pledged, hypothecated
or otherwise transferred or disposed of without registration under
federal and applicable state securities laws or an exemption therefrom
and all certificates representing shares of Parent Stock issued in the
Merger or pursuant to Section 1.8 may be inscribed with a legend to
reflect the foregoing restrictions on transferability. The Company and
the Principal Shareholders will have advised all Shareholders, on or
prior to their vote on the Merger pursuant to Section 3.12, that they
may be required to bear the economic risk of holding shares of Parent
Stock issued in the Merger or pursuant to Section 1.8 for an indefinite
period of time; will have provided all Shareholders with copies of the
Commission Filings (as defined in Section 2.3(e) hereof); and will have
afforded the Shareholders the opportunity to ask such questions and
obtain such additional information concerning Parent and its business
and affairs as any of them or their advisors may consider necessary to
enable them to understand the nature of their investment in the shares
of Parent Stock issuable pursuant to the Merger or Section 1.8 and to
verify the accuracy of the information obtained by them from Parent.
1.12. Closing. The closing of the Merger (the "Closing") shall
take place at the offices of Pepper, Hamilton & Scheetz, 3000 Two Logan
Square, Philadelphia, Pennsylvania, at 10:00 A.M., local time, on the
day which is the third business day after the day on which the last of
the conditions set forth in Article 4 hereof is fulfilled or waived
(subject to applicable law), or at such other time and place and on such
other date as Parent and the Company shall mutually agree (the "Closing
Date").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Company and the
Principal Shareholders. The Company and the Principal Shareholders
hereby represent and warrant, on a joint and several basis, to and for
the benefit of Parent and Sub as follows (and, whenever a representation
and warranty is made "to the knowledge of the Company and Principal
Shareholders," or a phrase of similar import, such representation and
warranty shall be deemed to have been made based on both the actual
knowledge of the Company and Principal Shareholders and on the knowledge
which the Company and Principal Shareholders would have acquired had
they conducted a reasonable inquiry of the subject matter of the
representation and warranty; provided that, to the extent that the
subject of the representation and warranty made on the basis of the
knowledge of the Company and the Principal Shareholders relates to
transactions or activities occurring in Australia, such representation
and warranty shall be deemed to have been made based solely on the
actual knowledge of the Company and the Principal Shareholders):
(a) Due Organization, Good Standing and Corporate Power. Each
of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation and each such corporation has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the
Company and its subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by its makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or licensed and in
good standing would not have a material adverse effect on the business,
properties, assets, liabilities, operations, results of operation,
business prospects or condition (financial or otherwise) (the
"Condition") of the Company and its subsidiaries taken as a whole. As
used herein, the term "subsidiary" shall mean, with respect to any
entity or person, any corporation, association, joint venture,
partnership or other business entity (whether now existing or hereafter
organized) of which at least a majority of the voting stock or other
ownership interests having ordinary voting power for the election of
directors (or the equivalent) is, at the time as of which any
determination is being made, owned or controlled by such entity or
person or one or more subsidiaries of such entity or person or by such
entity or person and one or more subsidiaries of such entity or person.
(b) Authorization and Validity of Agreement. The Company has
full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it
of the transactions contemplated hereby, have been duly authorized and
approved by its Board of Directors and, except for the approval of the
Merger by the holders of a majority of the outstanding shares of Common
Stock, no other corporate action on the part of the Company is necessary
to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by the
Company and the Principal Shareholders and constitutes the valid and
binding obligation of the Company and the Principal Shareholders,
enforceable against the Company and the Principal Shareholders in
accordance with its terms, except that such enforcement may be limited
by applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights generally, and general equitable principles. The
Registration Rights Agreement in the form attached hereto as Exhibit
2.1(b) (the "Registration Agreement"), when duly executed and delivered
by the Shareholders who are parties thereto, will constitute the valid
and binding obligations of such Shareholders, enforceable against such
Shareholders in accordance with their respective terms, except that such
enforcement may be limited by applicable bankruptcy, insolvency or other
similar laws affecting creditors' rights generally, and general
equitable principles.
(c) Capitalization; Shareholders.
(i) The authorized capital stock of the Company consists
of 60,000 shares of Common Stock. As of the date of this Agreement,
4,220 shares of Common Stock are issued and outstanding. All issued and
outstanding shares of Common Stock have been validly issued and are
fully paid and nonassessable, and are not subject to, nor were they
issued in violation of, any preemptive rights. Except as set forth in
this Section 2.1(c) and except for the Options (as defined in Section
1.2) exercisable for an aggregate of 110 shares of Common Stock at a
price of $500 per share, there are no shares of capital stock of the
Company authorized, issued or outstanding, and there are not as of the
date hereof, and at the Effective Time there will not be, any
outstanding or authorized options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise,
relating to the Common Stock or any other shares of capital stock of the
Company, pursuant to which the Company is or may become obligated to
issue shares of Common Stock, any other shares of its capital stock or
any securities convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of the capital stock of the Company.
All of the shares of Common Stock have the same voting and other rights.
At the Effective Time, the Fully Diluted Number will equal 4,330.
(ii) All of the outstanding shares of capital stock of
each of the Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to, nor were
they issued in violation of, any preemptive rights, and are owned, of
record and beneficially, by the Company (or by a subsidiary), free and
clear of all liens, encumbrances, options or claims whatsoever. No
shares of capital stock of any of the Company's subsidiaries are
reserved for issuance and there are no outstanding or authorized
options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or
other commitments, contingent or otherwise, relating to the capital
stock of any subsidiary of the Company, pursuant to which such
subsidiary is or may become obligated to issue any shares of capital
stock of such subsidiary or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares
of such subsidiary. There are no restrictions of any kind which prevent
the payment of dividends by any of the Company's subsidiaries. Except
for the Company's subsidiaries set forth on Schedule 2.1(c)(ii), the
Company does not own, directly or indirectly, any capital stock or other
equity interest in any person or have any direct or indirect equity or
ownership interest in any person, and neither the Company nor any of its
subsidiaries is subject to any obligation or requirement to provide
funds for or to make any investment (in the form of a loan, capital
contribution or otherwise) to or in any person.
(iii) Each of the Shareholders maintains his (its)
primary residence in the jurisdiction identified below:
(TABLE)
(CAPTION)
NAME JURISDICTION
(S) (C)
Gerald F. O'Connell Connecticut
David Phelan Connecticut
Halcyon Resources Limited Isle of Man
John C. Hanger Georgia
Ira Gerard Connecticut
V. Somasundaram Australia
(/TABLE)
(d) Consents and Approvals; No Violations. Assuming the
filing of the Delaware Certificate of Merger and the Michigan
Certificate of Merger and other appropriate merger documents, if any, as
required by the laws of the States of Delaware and Michigan are made,
the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby
(including, without limitation, the treatment of the Options pursuant to
Section 1.2) will not: (1) violate any provision of the charter
documents or the by-laws of the Company or of any of its subsidiaries;
(2) violate any statute, ordinance, rule, regulation, order or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to the Company or any of its subsidiaries or by which any of
their respective properties or assets may be bound; (3) require any
filing by the Company or any of its subsidiaries with, or permit,
consent or approval of, or the giving of any notice by the Company or
any of its subsidiaries to, any governmental or regulatory body, agency
or authority; or (4) except as disclosed on Schedule 2.1(d) result in a
violation, termination or breach of, conflict with, constitute (with or
without the giving of notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or
acceleration) under, result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
the Company or any of its subsidiaries under, result in the forfeiture
of any rights, entitlements or privileges under, create any right or
entitlement (including, without limitation, to employment or
compensation) not expressly provided for herein, or require the consent
or approval of any party under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party,
or by which it or any of their respective properties or assets may be
bound, including, without limitation, the 1994 Key Employees' Stock
Option Plan and all documents and agreements relating to the Options.
In addition, neither the execution and delivery of this Agreement by the
Principal Shareholders, nor the execution and delivery by either of the
Principal Shareholders of the O'Connell Employment Agreement or the
Phelan Employment Agreement (referenced in Section 2.3(b)), or the
performance by the Principal Shareholders of their respective
obligations hereunder or thereunder, will violate, conflict with or
constitute a default under any agreement or instrument to which either
is a party or by which any of their respective properties or assets are
bound. At and prior to the Effective Time, no adjustments will have
been required to have been made by Article II of the Equalization
Agreement dated June 20, 1994 among the Company, the Principal
Shareholders, Halcyon Resources Limited, Alan C. McMullen and Ian D.
Mouser, and no actions will need to be taken thereafter pursuant to said
Article II.
(e) Company Financial Statements. The Company has delivered
to Parent its unaudited consolidated financial statements for its fiscal
year ended December 31, 1994 (the "1994 Financial Statements"), a copy
of which is attached hereto as Schedule 2.1(e)(i). The 1994 Financial
Statements are in accordance with the books and records of the Company
(which books and records are true and correct in all material respects)
and were prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the
consolidated financial position of the Company as of the dates thereof
and the results of its operations, shareholders' equity and cash flows
for the periods then ended. The pretax profits of the Company for its
fiscal quarter ended December 31, 1994 equalled or exceeded $445,000.
As used in the preceding sentence, the term "pretax profits" means all
gross revenues of the Company and other proper income credits of the
Company for such period, less all proper income charges (excluding taxes
on income) for such period, determined in accordance with generally
accepted accounting principles consistently applied. The Company has
delivered to Parent its unaudited consolidated financial statements for
its fiscal quarter ended March 31, 1995 (the "1995 Financial
Statements"), a copy of which is attached hereto as Schedule 2.1(e)(ii).
The balance sheet of the Company as of March 31, 1995 included in the
1995 Financial Statements is hereafter referred to as the "1995 Balance
Sheet." The 1995 Financial Statements are in accordance with the books
and records of the Company (which books and records are true and correct
in all material respects) and were prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present the consolidated financial position of the Company as of the
dates thereof and the results of its operations, shareholders' equity
and cash flows for the periods then ended. The tangible net worth of
the Company as of March 31, 1995 on the basis set forth in the 1995
Balance Sheet (after excluding up to $70,000 fees and expenses properly
accrued in the 1995 Financial Statements by the Company as of such date
in connection with the transactions contemplated hereby) equaled or
exceeded zero.
(f) Absence of Undisclosed Liabilities. Except as set forth
in the 1995 Balance Sheet or expressly disclosed in this Agreement
(including all Schedules and Exhibits hereto), neither the Company nor
any of its subsidiaries has any outstanding claims against it,
liabilities or indebtedness, contingent or otherwise, other than
liabilities incurred subsequent to March 31, 1995 in the ordinary course
of business, consistent with past practices. Neither the Company nor
any of the Principal Shareholders knows or has any reason to know of any
basis for the assertion against the Company or any of its subsidiaries
of any liability of any nature or in any amount not fully reflected or
reserved against in the 1995 Balance Sheet or expressly disclosed by
this Agreement (including all Schedules and Exhibits hereto), other than
liabilities incurred subsequent to March 31, 1995 in the ordinary course
of business, consistent with past practices.
(g) Accounts Receivable. The accounts receivable of the
Company as reflected in the 1995 Balance Sheet are, to the extent
uncollected on the date of this Agreement, valid and existing and fully
collectible through the use of ordinary collection procedures (except
for reserves set forth in such financial statements as at such dates,
which reserves were adequate and in an amount consistent with the
Company's historical accounting policies), represent monies due for
goods sold and delivered or services rendered, and are subject to no
refunds, discounts, rebates or other adjustments (except discounts for
prompt payment given in the ordinary course of business) and to no
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any thereof.
The Company has never factored any of its accounts receivable.
(h) Inventories. The Company and its subsidiaries own no
inventory.
(i) Title to Properties; Encumbrances. The Company and each
of its subsidiaries has good, valid and marketable title to (i) all its
tangible properties and assets (real and personal), including, without
limitation, all the tangible properties and assets reflected in the 1995
Balance Sheet, except as indicated in the notes thereto and except for
tangible properties and assets reflected in such balance sheets which
have been sold or otherwise disposed of in the ordinary course of
business consistent with past practices, and (ii) all the tangible
properties and assets purchased by the Company and any of its
subsidiaries since March 31, 1995, except for such properties and assets
which have been sold or otherwise disposed of in the ordinary course of
business consistent with past practices; in each case subject to no
encumbrance, lien, charge or other restriction of any kind or character,
except for (1) liens reflected in the 1995 Balance Sheet or disclosed on
Schedule 2.1(i) hereto, (2) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations
on the use of real property or irregularities in title thereto which do
not materially detract from the value of, or impair the use of, such
property by the Company or any of its subsidiaries in the operation of
its respective business and (3) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent.
The Company and each of its subsidiaries are in compliance with all
leases of real property leased by any of them, and the Company and the
Principal Shareholders do not know of any default by the landlords under
any such leases. Neither the Company, any subsidiary of the Company nor
the Principal Shareholders have received any notice that the buildings
and improvements leased by the Company and its subsidiaries, and the
operation and maintenance thereof, contravene any zoning or building law
or ordinance or violate any restrictive covenant or any provision of
federal, state, local or foreign law. Neither the Company nor any of
its subsidiaries owns any real estate. Schedule 2.1(i) hereto contains
an accurate list and summary description of all real estate leased by
the Company or any of its subsidiaries. The Company and the Principal
Shareholders have no knowledge of any pending or threatened
condemnation, eminent domain or similar proceeding with respect to any
real property leased by the Company or any of its subsidiaries.
(j) Absence of Certain Changes and Events. Since December
31, 1994, except as disclosed on Schedule 2.1(j): (i) there has not been
any material adverse change in the Condition of the Company and its
subsidiaries taken as a whole; (ii) the businesses of the Company and
each of its subsidiaries have been conducted in the ordinary course
consistent with past practices; (iii) neither the Company nor any of its
subsidiaries has incurred any material liabilities (direct, contingent
or otherwise) or engaged in any material transaction or entered into any
material agreement; (iv) the Company and its subsidiaries have not
increased the compensation of any officer or granted any general salary
or benefits increase to their employees; (v) neither the Company nor any
of its subsidiaries has taken any action referred to in Section 3.3
hereof; (vi) the Company has not issued or sold any capital stock or
other securities of any kind; (vii) the Company has not declared, paid
or set aside for payment any dividend or other distribution (payable in
cash, securities or other property) in respect of its capital stock or
other securities; and (viii) the Company has not split, combined,
reclassified, redeemed, purchased or otherwise acquired any capital
stock or other securities of the Company.
(k) Minute Books. The minute books of the Company and its
subsidiaries, as previously made available to Parent and its
representatives, contain accurate records of all meetings of and
corporate actions or written consents by the shareholders and
Boards of Directors of the Company and its subsidiaries.
(l) Compliance with Laws; Permits. The Company and its
subsidiaries are in compliance with all applicable laws, regulations,
orders, judgments and decrees (whether domestic or foreign), and have
all material franchises, licenses, permits and certificates and other
authorizations from Federal, state, local and foreign governments and
government agencies that are necessary for the conduct of their
business. Without limiting the generality of the foregoing, (a) the
Company and its subsidiaries, and their respective officers, have
complied with each, and are not in violation of any, federal, state,
local or foreign law, statute, regulation, permit provision or ordinance
relating to the offer and sale of securities; (b) the Company and its
subsidiaries have complied with each, and are not in violation of any,
federal, state, local or foreign law, statute, regulation, permit
provision or ordinance relating to the generation, handling, storage,
transportation, treatment or disposal of chemicals, toxic substances,
solid wastes, hazardous wastes and hazardous substances (the
"Environmental Laws"); (c) the Company and its subsidiaries have
obtained and complied with all necessary permits and other approvals,
including interim status under the Reserve Conservation and Recovery
Act, as amended ("RCRA"), necessary to store, treat, dispose of and
otherwise handle hazardous wastes and hazardous substances and have
reported, to the extent required by any Environmental Laws, all past and
present sites owned, leased or operated by the Company or any of its
subsidiaries where hazardous wastes or hazardous substances, if any,
have been treated, stored or disposed; and (d) there are no locations at
any sites currently or previously owned, leased or operated by the
Company or any of its subsidiaries where hazardous wastes or hazardous
substances have entered into the soil, surface water or groundwater.
There are no on-site or off-site locations to which the Company or any
of its subsidiaries have transported chemicals, toxic substances,
hazardous wastes or hazardous substances or arranged for their
transportation, which site is the subject of any federal, state, local
or foreign enforcement action or other investigation under any
Environmental Laws, which may lead to claims against the Company or any
of its subsidiaries for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not
limited to, claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). No
polychlorinated biphenyls or substances containing polychlorinated
biphenyls are present on any sites owned, leased or operated by the
Company or any of its subsidiaries and no asbestos or materials
containing asbestos are present on any sites owned, leased or operated
by the Company or any of its subsidiaries. Schedule 2.1(l) hereto
contains lists or summary descriptions of the following insofar as they
affect or relate to any sites owned, leased or operated by the Company
or any of its subsidiaries:
(i) All federal, state, local and foreign governmental
permits relating to hazardous wastes or hazardous substances held by the
Company or any of its subsidiaries;
(ii) All hazardous wastes or hazardous substances
generated at any sites owned, leased or operated by the Company or any
of its subsidiaries;
(iii) Identification of where and how such wastes or
substances, if any, were generated, handled, stored, treated and
disposed;
(iv) All transporters used to transport hazardous wastes
or hazardous substances from any sites owned, leased or operated by the
Company or any of its subsidiaries to off-plant sites;
(v) All off-site locations where hazardous wastes or
hazardous substances generated at any sites owned, leased or operated by
the Company or any of its subsidiaries were transported for treatment,
storage or disposal;
(vi) All variances, notices of violation, compliance
orders or judgments against the Company involving any environmental
matters;
(vii) Any locations at any sites currently or previously
owned, leased or operated by the Company or any of its subsidiaries
where hazardous wastes or hazardous substances have been generated,
handled, stored, treated or disposed;
(viii) All notices given by the Company or any of its
subsidiaries to any governmental agency or authority about discoveries
of problems associated with hazardous wastes and hazardous substances at
any sites currently or previously owned, leased or operated by the
Company or any of its subsidiaries, including copies of all spill
reports, all reports submitted by the Company or any of its subsidiaries
pursuant to environmental permits, information supplied in response to
inquiries from federal, state, local or foreign agencies, and any
requests submitted to the Company or any of its subsidiaries by the
United States Justice Department, the United States Environmental
Protection Agency or state or foreign governmental agencies pursuant to
CERCLA, RCRA or applicable state or foreign laws regarding the hazardous
wastes or hazardous substances the Company or any of its subsidiaries
has generated in the past and where those wastes and substances are
disposed; and
(ix) All underground storage tanks located on any site
currently owned, leased or operated by the Company or any of its
subsidiaries.
For purposes of Section 2.1(l) hereof, the term "hazardous wastes"
shall have the meaning given to such term in RCRA and the regulations
promulgated thereunder, and the term "hazardous substance" shall have
the meaning given to such term in CERCLA and the Clean Water Act and the
regulations promulgated thereunder.
(m) Material Contracts. Schedule 2.1(m) contains a list of
all Contracts (as defined below) of the following types to which the
Company or any of its subsidiaries is as of the date of this Agreement a
party: (a) each contract of employment of any officer, employee or
consultant or with any labor union or association; (b) each contract or
series of related contracts involving payments either individually or in
the aggregate in excess of $20,000 in or pursuant to which any person
who is or was an officer, director, stockholder or employee of the
Company or any of its subsidiaries has a material interest; (c) each
contract relating to the borrowing or lending of money or the guarantee
of any obligations for borrowed money or otherwise, excluding
endorsements made for purposes of collection in the ordinary course of
business; (d) each contract continuing for a period of more than one
year from its date involving payments in excess of $20,000 in any year
or $50,000 in the aggregate; (e) each contract for charitable
contributions in excess of $1,000; (f) each contract for the sale and/or
installation of any equipment where the purchase price for such
equipment is not less than $10,000, and each contract for equipment
maintenance involving total payments of not less than $10,000, including
each contract for the sale and/or installation of any equipment where
such sale and/or installation has been completed but the Company has a
continuing obligation, contingent or otherwise; (g) each contract for
capital expenditures or for the purchase of materials, supplies,
equipment or services involving payments in excess of $10,000; (h) each
license or royalty agreement granted to or by the Company or any of its
subsidiaries; (i) each distribution, dealer, reseller, manufacturer's
representative, sales agency or franchise agreement; (j) each contract
relating to advertising, promotion or public relations, or with any
contractor or subcontractor, not terminable without penalty by the
Company or such subsidiary on 30 days' or less notice; (k) each contract
with any government or agency or instrumentality thereof; (l) each
option to purchase any of the Companies' assets, properties or rights;
(m) each agreement under which price discounts have been granted to
customers other than in the ordinary course of business; (n) each
contract with respect to the discharge or removal of effluent, hazardous
wastes or pollutants of any nature; (o) any other contract or series of
related contracts involving payments in the aggregate of more than
$10,000; (p) each contract containing covenants not to compete in any
business or geographical area or not to use or disclose any information
in the possession of the Company or any of its subsidiaries; (q) all
contracts for the leasing or rental of real or personal property; and
(r) any other contract not made in the ordinary course of business.
"Contract" shall mean any contract, lease, commitment, sales order,
purchase order, agreement, indenture, mortgage, franchise, note, bond,
lien, instrument, plan, permit or license. The Company has delivered to
Parent true and correct copies of each document listed on Schedule
2.1(m) and a written description of each oral arrangement so listed.
As of the date of this Agreement, all such Contracts are, and as
of the Effective Time will be, valid, enforceable in accordance with
their terms and in full force and effect and neither the Company nor any
of its subsidiaries is, and as of the Effective Time neither the Company
nor any such subsidiary will be, in default thereunder. Neither the
Company nor any subsidiary has, as of the date of this Agreement,
received notice that any party to any such contract intends to cancel or
terminate such contract. To the knowledge of the Company and the
Principal Shareholders, no person (including, without limitation, the
Company) has asserted any claim for indemnification under, or has the
presently exercisable right to assert a claim for indemnification under,
any of the following agreements: (i) Product Purchase Agreement dated
June 20, 1994 among the Company, Alan C. McMullen and Ian D. Mouser;
(ii) Asset Purchase Agreement Dated June 20, 1994 among the Company,
Alan C. McMullen, Ian D. Mouser and Integrated Control Systems Pty,
Ltd.; and (iii) Stock Purchase Agreement dated June 20, 1994 among the
Company, Gerald F. O'Connell, David Phelan and Halcyon Resources
Limited.
(n) Litigation. Except as disclosed in Schedule 2.1(n),
there is no action, suit, proceeding at law or in equity, or any
arbitration or any administrative or other proceeding by or before (or
to the knowledge of the Company and the Principal Shareholders any
investigation by) any governmental or other instrumentality or agency,
pending, or, to the knowledge of the Company and the Principal
Shareholders, threatened, against or affecting the Company or any of its
subsidiaries, or any of their properties or rights. There are no such
suits, actions, claims, proceedings or investigations pending or, to the
knowledge of the Company and the Principal Shareholders, threatened,
seeking to prevent or challenging the transactions contemplated by this
Agreement. Neither the Company nor any of its subsidiaries is subject
to any judgment, order or decree entered in any lawsuit or proceeding.
(o) Employee Benefit Plans.
(i) List of Plans. Set forth in Schedule 2.1(o) is an
accurate and complete list of all Employee Benefit Plans established,
maintained or contributed to or by the Company or any of its
subsidiaries. As used herein, the term "Employee Benefit Plans" means
all employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not any such Employee Benefit Plans are otherwise exempt from
the provisions of ERISA, established, maintained or contributed to by
the Company or any of its subsidiaries (including, for the purpose of
all of the representations in this Section 2.1(o), all employers
(whether or not incorporated) which by reason of common control are
treated together with the Company as a single employer within the
meaning of Section 414 of the Internal Revenue Code of 1986, as amended
(the "Code")).
(ii) Status of Plans. Neither the Company nor any of its
subsidiaries maintains or contributes to any Employee Benefit Plan
subject to ERISA which is not in substantial compliance with ERISA or
which has incurred any accumulated funding deficiency within the meaning
of Section 412 or 418B of the Code, or which has applied for or obtained
a waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code. Neither the Company nor any
of its subsidiaries is or has ever been a party to any Employee Benefit
Plan that is a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA. Neither the Company nor any of its subsidiaries has incurred
any liability to the Pension Benefit Guaranty Corporation ("PBGC") in
connection with any Employee Benefit Plan covering any employees of the
Company or any of its subsidiaries or ceased operations at any facility
or withdrawn from any Employee Benefit Plan in a manner which could
subject it to liability under Section 4062, 4063 or 4064 of ERISA, or
knows of any facts or circumstances which might give rise to any
liability of the Company or any of its subsidiaries to the PBGC under
Title IV of ERISA.
(iii) Contributions. Full payment has been made of all
amounts which the Company or any of its subsidiaries is required, under
applicable law or under any Employee Benefit Plan or any contract or
other agreement relating to any Employee Benefit Plan to which the
Company or any of its subsidiaries is a party, to have paid as
contributions thereto as of the last day of the most recent fiscal year
of such Employee Benefit Plan ended prior to the date hereof. The
Company has made adequate provision for reserves to meet contributions
that have not been made because they are not yet due under the terms of
any Employee Benefit Plan or related contracts or agreements. Benefits
under all Employee Benefit Plans are as represented and the level of
benefit accruals and required annual contributions have not been
increased subsequent to the date as of which documents have been
provided except as may be effected to satisfy any applicable
requirements under the Code or ERISA, as disclosed on Schedule 2.1(o).
(iv) Relationship of Accrued Benefits to Pension Plan
Assets. As of December 31, 1994, the current value of all benefits
obligations (based upon actuarial assumptions which have been furnished
to and relied upon by Parent and Sub) under each Employee Benefit Plan
which is subject to Title IV or ERISA and which is a Single Employer
Plan (as defined in Section 4001(a)(15) of ERISA) did not exceed the
fair market value, determined as of December 31, 1994, of all assets of
such Single Employer Plan allocable to such benefits obligations, and
since December 31, 1994, there has been (A) no adverse change in the
financial condition of any Single Employer Plan, (B) no change in the
actuarial assumptions with respect to any Single Employer Plan and (C)
no increase in benefits under any Single Employer Plan as a result of
plan amendments, change in applicable law or otherwise, which
individually or in the aggregate, would create any such excess.
(v) Tax Qualification. Each Employee Benefit Plan
intended to be qualified under Section 401(a) of the Code has been
determined to be so qualified by the Internal Revenue Service and
nothing has occurred since the date of the last such determination which
resulted or is likely to result in the revocation of such determination.
(vi) Transactions. No Reportable Event (as defined in
Section 4043 of ERISA) for which the 30-day notice requirement has not
been waived by the PBGC has occurred with respect to any Employee
Benefit Plan and neither the Company nor any of its subsidiaries nor any
of their respective directors, officers or employees to the extent they
or any of them are fiduciaries under Title I of ERISA has engaged in any
transaction with respect to the Employee Benefit Plans which would
subject it to a tax, penalty or liability for prohibited transactions
under ERISA or the Code or would result in any claim being made under or
by or on behalf of any such Plans by any party with standing to make
such claim.
(vii) Other Plans. Neither the Company nor any of its
subsidiaries currently maintains any employee or non-employee benefit
plans or any other foreign pension, welfare or retirement benefit plans
other than those listed in Schedule 2.1(o).
(viii) Documents. The Company has delivered or caused to
be delivered to Parent true and complete copies of (1) all Employee
Benefit Plans as in effect, together with all amendments thereto which
will become effective at a later date, as well as the latest Internal
Revenue Service determination letter obtained with respect to any such
Employee Benefit Plan qualified under Section 401 or 501 of the Code and
(2) the most recently filed Form 5500 for each Employee Benefit Plan
required to file such form.
(ix) Post-Retirement Benefits. No plan, program or
arrangement maintained by the Company or any of its subsidiaries
provides post-retirement medical, life or other benefits, except as
required pursuant to Sections 601-608 of ERISA.
(p) Employment Relations and Agreements. (i) Each of the
Company and its subsidiaries is in compliance with all federal, state or
other applicable laws (whether domestic or foreign) respecting
employment and employment practices, terms and conditions of employment
and wages and hours, and has not and is not engaged in any unfair labor
practice; (ii) no unfair labor practice complaint against the Company or
any of its subsidiaries is pending before the National Labor Relations
Board; (iii) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving the Company or any
of its subsidiaries; (iv) no representation question exists respecting
the employees of the Company or any of its subsidiaries; (v) no
grievance which might have a material adverse effect on the Condition of
the Company and its subsidiaries taken as a whole or the conduct of
their respective businesses exists, no arbitration proceeding arising
out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted; (vi) no collective bargaining
agreement is currently being negotiated by the Company or any of its
subsidiaries; (vii) neither the Company nor any of its subsidiaries has
experienced any material labor difficulty since January 1, 1994; and
(viii) no "plant closing" or "mass layoff" within the meaning of the
Worker Adjustment and Retraining Notification Act has occurred with
respect to the Company or any of its subsidiaries. There has not been,
and to the knowledge of the Company and the Principal Shareholders,
there will not be, any change in relations with employees of the Company
or any of its subsidiaries as a result of the transactions contemplated
by this Agreement which could have a material adverse effect on the
Condition of the Company and its subsidiaries taken as a whole, except
as may result from the requirements of Section 3.11 hereof. Except as
disclosed in Schedule 2.1(p), there exist no employment, consulting,
severance or indemnification agreements between the Company and any
director, officer, employee or agent of the Company or any agreement
that would give any person or entity the right to receive any payment
from the Company as a result of the Merger. Schedule 2.1(p) accurately
identifies all cash and non-cash compensation paid by the Company to its
officers and employees during the year ended December 31, 1994. The
effectiveness of each of (i) the Employment Agreement dated December 31,
1994 between Alan C. McMullen and Australian Sub, (ii) the Employment
Agreement dated December 31, 1994 between Ian D. Mouser and Australian
Sub and (iii) the Agreement dated December 31, 1994 between Roshan
Massey and Australian Sub will not be adversely affected by virtue of
the Merger. Section 5 of each of the following agreements will remain
in full force and effect without alteration upon consummation of the
Merger: (i) Employee Stock Purchase Agreement and Voting Agreement dated
October 31, 1994 among the Company, Gerald F. O'Connell, David Phelan
and John C. Hanger and (ii) Employee Stock Purchase Agreement and Voting
Agreement dated November 17, 1994 among the Company, Gerald O'Connell,
David Phelan and Ira Gerard.
(q) Relations with Certain Vendors. The Company and its
subsidiaries have maintained and have good working relationships with
each of its vendors and suppliers. Computer Associates International,
Inc. has not brought, taken or threatened to bring or take any action or
proceeding or adverse act or position against the Company or any of its
subsidiaries which could have a material adverse effect on the Condition
of the Company and its subsidiaries taken as a whole.
(r) Taxes.
(i) The Company has duly and timely filed with any
federal, state, local or foreign governmental taxing authority, body or
agency all federal, state, local and foreign tax returns, declarations,
and reports, estimates, information returns and statements
(collectively, "Returns") required to be filed or sent by or on behalf
of the Company and all such Returns are true, correct and complete. The
Company has paid in full all Taxes (as hereinafter defined) and any
penalties, interest, fines or other charges entered with respect thereto
which are due and payable. All Taxes not yet due and payable have been
withheld or reserved for or, to the extent that they relate to periods
ending on or prior to the date of the 1995 Financial Statements, are
reflected as a liability on the 1995 Financial Statements.
(ii) The Company has properly withheld all amounts
required by law to be withheld for income taxes and unemployment taxes
including without limitation, with respect to social security and
unemployment compensation, relating to its employees, and has remitted
all withheld amounts required to be remitted to the appropriate taxing
authority, agency or body.
(iii) The Returns filed by the Company have not been
audited by any federal, state or local taxing authority with respect to
any item of income, loss, deduction or credit attributable to the
operations of the Company.
(iv) No deficiency for any Taxes has been proposed,
asserted or assessed against the Company which is attributable to the
operations of the Company and which has not been resolved and paid in
full or fully reserved for in the 1995 Financial Statements. The
Company has not received any outstanding and unresolved notices from the
Internal Revenue Service or other state, local or foreign taxing
authority, agency or body of any proposed examination or of any proposed
change in reported information relating to the Company. Except as set
forth in Schedule 2.1(r) of this Agreement (which sets forth the nature
of the proceeding, the type of return, the deficiencies proposed or
assessed and the amount thereof, and the taxable year in question), no
federal, state, local or foreign suit, action, claim, investigation,
inquiry, audit or other administrative or court proceeding is pending
with regard to any Taxes or Returns.
(v) No waiver or comparable consent given by or on behalf
of the Company regarding the application of the statute of limitations
with respect to any Taxes or Returns is outstanding, nor, to the
knowledge of the Company or the Principal Shareholders, is any request
for any such waiver or consent pending.
(vi) There are no liens for Taxes upon any assets of the
Company.
(vii) The Company is not a United States real property
holding corporation and has not been a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during
any period specified in Section 897(c)(1)(A)(ii) of the Code.
(viii) The Company is not a party to any agreement
providing for the allocation or sharing of Taxes.
(ix) The Company has not agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Code for
any period ending after the Closing Date by reason of a change in
accounting method or otherwise.
(x) None of the assets of the Company is required to be
treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code.
(xi) The Company is not a party to any venture,
partnership, contract or arrangement under which it could be treated as
a partner for federal income tax purposes.
(xii) The Company has no permanent establishment located
in any tax jurisdiction other than the United States, the Netherlands
and Australia and is not liable for the payment of taxes levied by any
such jurisdiction located outside the United States other than the
Netherlands and Australia.
(xiii) None of the Shareholders has participated in an
international boycott within the meaning of Section 999 of the Code.
(xiv) For purposes of this Agreement, the term "Taxes"
shall mean all taxes, charges, fees, levies or other assessments,
including but not limited to all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits,
withholding, payroll, employment, social security, unemployment, excise,
estimated, stamp, occupancy, occupation, property or other taxes,
customs duties, fees, assessments or charges of any kind whatsoever,
including all interest and penalties thereon, and additions to tax or
additional amounts imposed by any taxing authority, domestic or foreign,
upon the Company or any of its properties.
(s) Intellectual Properties. Schedule 2.1(s) attached hereto
is a true, correct and complete listing, together with the supporting
information referred to in the next sentence, of all Software,
Copyrights, Patents and Trademarks (as defined below). Schedule 2.1(s)
discloses the following information with respect to each individual
component of the foregoing categories of Intellectual Property (as
defined below): (a) the nature of such Intellectual Property; (b) the
user of such Intellectual Property; and (c) the date on which
registration as to any such Intellectual Property, if any, was obtained
by the Company or one of its subsidiaries. With respect to all
Intellectual Property, including, without limitation, the foregoing
categories, Schedule 2.1(s) discloses all licenses, sublicenses and
other contracts to which the Company or any of its subsidiaries is a
party relating to the Intellectual Property and pursuant to which any
person or entity is authorized to use the Intellectual Property. The
Intellectual Property constitutes the Intellectual Property used in or
necessary to conduct the business of the Company and its subsidiaries.
Except as set forth on Schedule 2.1(s), neither the Company nor any of
its subsidiaries is a party to, and neither the Company nor any of its
subsidiaries has any contractual interest in or any obligation in
respect of, any license, sublicense or other contract relating to
Intellectual Property. Except as set forth on Schedule 2.1(s), the
Company owns or otherwise has the right to use, free and clear of all
liens, encumbrances and liabilities (including, without limitation, the
obligation to pay any royalties or other amounts), all of the
Intellectual Property. To the knowledge of the Company and the
Principal Shareholders, no person or entity is infringing all or any
portion of the Intellectual Property. Except as set forth on Schedule
2.1(s) attached hereto, there is no interference action or other
litigation pending or, to the knowledge of the Company and the Principal
Shareholders, threatened before any governmental entity, whether
domestic or foreign (including, without limitation, the United States
Patent and Trademark Office or corresponding governmental entities in
foreign jurisdictions) in regard to any of the Intellectual Property.
The use of the Intellectual Property has not infringed and does not
infringe any Intellectual Property right of any other person or entity.
The inception, development and reduction to practice of the Intellectual
Property have not constituted or involved, and do not constitute or
involve, the misappropriation of trade secrets or other rights of any
other person or entity (including, without limitation, any domestic or
foreign governmental entity). As used herein, the following terms have
the meanings specified:
"Computer Programs" shall mean all computer software programs and
related object and source codes owned, used, marketed, licensed or under
development by the Company or any of its subsidiaries, or for which the
Company or any of its subsidiaries has the right and license to copy,
distribute, prepare derivative works of, display and perform publicly,
modify, use and market.
"Copyrights" shall mean registered copyrights, copyright
applications and unregistered copyrights.
"Intellectual Property" shall mean collectively, all Software,
Copyrights, Patents, Trademarks, tradenames, trade secrets, know-how,
technology, formulae, processes, research, and technical and other data
owned, licensed or otherwise used or held for use or for license by the
Company or any of its subsidiaries.
"Patents" shall mean all letters patent and pending applications
for patents of the United States and foreign countries, including
regional patents, certificates of invention and utility models, rights
of license or otherwise to or under letters patent, certificates of
intention and utility models which have been opened for public
inspection and all reissues, divisions, continuations,
continuations-in-part, extensions (including, without limitation, any
extensions thereof under the Patent Term Restoration Act),
substitutions, renewals, confirmations, supplementary protection
certificates, registrations, revalidations or additions of any of the
foregoing, as applicable.
"Software" shall mean the Computer Programs and all related
documentation.
"Trademarks" shall mean registered trademarks, registered trade
names, registered service marks, trademark, trade name and service mark
applications and unregistered trademarks, trade names and service marks.
(t) Insurance. Schedule 2.1(t) sets forth a list of all
policies or binders of fire, liability, product liability, worker's
compensation, vehicular or other insurance held by or on behalf of the
Company or any of its subsidiaries (specifying for each such insurance
policy the insurer, the policy number or covering note number with
respect to binders, and each pending claim thereunder of more than
$5,000 and setting forth the aggregate amounts paid out under each such
policy through the date hereof). Such policies and binders are valid,
in full force and effect and sufficient to protect the Company and its
subsidiaries against all insured hazards.
(u) Transactions With Management. Except as disclosed on
Schedule 2.1(u), no director, officer, corporate employee or
shareholder: (i) has any contractual relationship with the Company or
any of its subsidiaries; (ii) has any direct or indirect interest in any
right, property or asset which is used by the Company or any of its
subsidiaries in the conduct of its or their business; (iii) owns any
securities of, or has any material direct or indirect interest in, any
entity which does business with the Company or any of its subsidiaries;
or (iv) is a party to any agreement, arrangement or commitment or is a
party to any pending action or proceeding which could interfere with the
performance of such person's duties to the Company.
(v) Broker's or Finder's Fee. No agent, broker, person or
firm acting on behalf of the Company or any of the Shareholders is, or
will be, entitled to any commission or broker's or finder's fees from
any of the parties hereto, or from any person controlling, controlled
by, or under common control with any of the parties hereto, in
connection with this Agreement or any of the transactions contemplated
herein.
(w) Disclosure Memorandum. Any written information supplied
or to be supplied by the Company for inclusion in the Disclosure
Memorandum to be furnished to the Shareholders in connection with their
vote on the Merger and their receipt of Parent Stock pursuant to this
Agreement will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading. The Company acknowledges that it will supply for
inclusion in the Disclosure Memorandum all the information included
therein dealing with the Company, the Company's financial statements,
the tax consequences of the Merger and dissenters' rights under Michigan
law.
(x) Statements and Other Documents Not Misleading. Neither
this Agreement, including all Schedules, nor any other document or
instrument heretofore or hereafter furnished by the Company in
connection with the transactions contemplated hereby and specifically
identified in this Agreement or in any Schedule, contains or will
contain any untrue statement of any material fact or omits or will omit
to state any material fact required to be stated in order to make such
statement, document or other instrument not misleading. Except as
disclosed on Schedule 2.1(x), there is no fact known to the Company or
the Principal Shareholders which could reasonably be expected to
materially adversely affect the Condition which has not been set forth
in this Agreement or the Schedules. Set forth on Schedule 2.1(x) is a
true and correct list of all documents and instruments heretofore
furnished by the Company to Parent and not otherwise specifically
identified in this Agreement or in any Schedule hereto.
2.2. Representations and Warranties of Principal Shareholders.
Each of the Principal Shareholders represents and warrants, on a several
basis, to and for the benefit of Parent and Sub that: (i) he is
acquiring the shares of Parent Stock pursuant to the Merger (as well as
any shares of Parent Stock issuable pursuant to Section 1.8) solely for
his own account, for investment purposes, and pursuant to an exemption
from the registration requirements under applicable federal and state
securities laws; (ii) he is aware that such shares of Parent Stock have
not been (and, in the case of shares issuable pursuant to Section 1.8,
will not have been) registered with federal or state securities
regulatory agencies in reliance upon exemptions from the registration
requirements under applicable federal and state laws; (iii) he
acknowledges and agrees that such shares of Parent Stock may not be
sold, pledged, hypothecated or otherwise transferred or disposed of
without registration under federal and applicable state securities laws
or exemption therefrom; (iv) he agrees that the certificates
representing such shares of Parent Stock may be inscribed with a legend
to reflect the foregoing restrictions on transferability; (v) because of
the restrictions on the transferability of such shares of Parent Stock,
he acknowledges that he may be required to bear the economic risk of
holding such shares for an indefinite period of time; (vi) he has
received and reviewed copies of the Commission Filings (as defined in
Section 2.3(e) hereof); (vii) he and his advisers (if any) have been
afforded the opportunity to ask such questions and obtain such
additional information concerning Parent and its business and affairs as
he and any such advisers have considered necessary to enable them to
understand the nature of his investment in the shares of Parent Stock
issuable pursuant to the Merger and Section 1.8 hereof and to verify the
accuracy of information obtained by them from Parent; and (viii) he is
the owner of the number of shares of Common Stock or Options specified
beside his name on Schedule 2.2 and he owns such shares of Common Stock
or Options free and clear of liens and encumbrances.
2.3. Representations and Warranties of Parent and Sub. Each of
Parent and Sub represents and warrants to and for the benefit of the
Company and the Shareholders as follows:
(a) Due Organization; Good Standing and Corporate Power.
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sub is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware.
(b) Authorization and Validity of Agreement. Each of Parent
and Sub has full corporate power and authority to execute and deliver
this Agreement, the Registration Agreement and the Employment Agreements
with each of Gerald F. O'Connell and David Phelan (respectively, the
"O'Connell Employment Agreement" and the "Phelan Employment Agreement"
and, collectively, the "Employment Agreements") and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Copies of the O'Connell Employment
Agreement and the Phelan Employment Agreement are attached hereto as
Exhibit 2.3(i) and 2.3(ii), respectively. The execution, delivery and
performance of this Agreement, the Registration Agreement and the
Employment Agreements by Parent and Sub (as the case may be), and the
consummation by each of them of the transactions contemplated hereby and
(in the case of Parent) thereby, have been duly authorized and approved
by the Boards of Directors of Parent and Sub. No other corporate action
on the part of either of Parent or Sub is necessary to authorize the
execution, delivery and performance by each of Parent and Sub of this
Agreement and by Parent of the Registration Agreement and the Employment
Agreements and the consummation by them of the transactions contemplated
hereby and (in the case of Parent) thereby. This Agreement has been
duly executed and delivered by each of Parent and Sub and is a valid and
binding obligation of each of Parent and Sub, enforceable against each
of Parent and Sub in accordance with its terms, except that such
enforcement may be limited by applicable bankruptcy, insolvency or other
similar laws affecting creditors' rights generally, and general
equitable principles.
(c) Capitalization of Sub. The authorized capital stock of
Sub consists of 1,000 shares of Common Stock, par value $.01 per share,
all of which shares are issued and outstanding and owned by Parent on
the date hereof, and all of which shares have the same voting and other
rights.
(d) Consents and Approvals. Assuming (i) the requirements of
this Agreement are met and (ii) the filing of the Delaware Certificate
of Merger and the Michigan Certificate of Merger and other appropriate
merger documents, if any, as required by the laws of the States of
Delaware and Michigan are made, the execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of
the transactions contemplated hereby will not: (1) violate any provision
of the charter documents or by-laws of Parent or Sub; (2) violate any
statute, ordinance, rule, regulation, order or decree of any court or of
any governmental or regulatory body, agency or authority applicable to
Parent or Sub or by which any of their respective properties or assets
may be bound; (3) require any filing by Parent or any of its
subsidiaries with, or permit, consent or approval of, or the giving of
any notice by Parent or any of its subsidiaries to, any governmental or
regulatory body, agency or authority; or (4) except as disclosed on
Schedule 2.3(d), result in a violation, termination or breach of,
conflict with, constitute (with or without the giving of notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, result in the creation of
any lien, security interest, charge or encumbrance upon any of the
properties or assets of Parent under, result in the forfeiture of any
rights, entitlements or privileges under, create any right or
entitlement (including, without limitation, to employment or
compensation) not expressly provided for herein, or require the consent
or approval of any party under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other instrument or
obligation to which Parent or any of its subsidiaries is a party, or by
which it or any of their respective properties or assets may be bound.
(e) Reports and Financial Statements. Since October 1, 1993,
Parent has filed all forms, reports and documents with the Securities
and Exchange Commission (the "Commission") required to be filed by it
pursuant to the federal securities laws and the Commission rules and
regulations thereunder, and all such forms, reports and documents filed
with the Commission have complied in all material respects with all
applicable requirements of the federal securities laws and the
Commission rules and regulations promulgated thereunder. Parent has
heretofore made available to the Company and the Shareholders true and
complete copies of all forms, reports, documents, amendments thereto and
other filings filed by Parent with the Commission prior to the date
hereof (such forms, reports, documents and other filings, together with
any amendments thereto, are listed on Schedule 2.3(e) and are
collectively referred to herein as the "Commission Filings"). As of
their respective dates, the Commission Filings did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited financial statements of Parent for its fiscal
year ended September 30, 1994 included in the Commission Filings were
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial
position of Parent as of the dates thereof and the results of its
operations and cash flows for the period then ended. The unaudited
financial statements of Parent for the three-month period ended December
31, 1994, included in the Commission Filings, have been prepared in
accordance with generally accepted accounting principles consistently
applied and fairly present the consolidated financial position of Parent
as of December 31, 1994 and the results of its operations and cash flows
for the three-month period then ended in accordance with generally
accepted accounting principles consistently applied.
(f) Absence of Certain Changes and Events. Except as
expressly disclosed in the Commission Filings, since December 31, 1994,
there has not been any material adverse change in the Condition of
Parent.
(g) Broker's or Finder's Fee. Except for Broadview
Associates (whose fees and expenses will be paid by Parent), no agent,
broker, person or firm acting on behalf of Parent is, or will be,
entitled to any commission or broker's or finder's fees from any of the
parties hereto, or from any person controlling, controlled by, or under
common control with any of the parties hereto, in connection with this
Agreement or any of the transactions contemplated herein.
(h) Disclosure Memorandum. Any written information supplied
or to be supplied by Parent for inclusion in the Disclosure Memorandum
to be furnished to the Shareholders in connection with their vote on the
Merger and their receipt of Parent Stock pursuant to this Agreement will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they are made, not misleading.
(i) Statements and Other Documents Not Misleading. Neither
this Agreement, including all Schedules, nor any other document or
instrument heretofore or hereafter furnished by Parent to the Company in
connection with the transactions contemplated hereby and specifically
identified in this Agreement or in any Schedule, contains or will
contain any untrue statement of any material fact or omits or will omit
to state any material fact required to be stated in order to make such
statement, document or other instrument not misleading. There is no
fact known to Parent which could reasonably be expected to materially
adversely affect the Condition of Parent which has not been set forth in
this Agreement or the Schedules.
ARTICLE 3
CERTAIN TRANSACTIONS AND RELATED MATTERS
3.1. Access to Information; Notice of Changes.
(a) During the period commencing on the date hereof and
ending on the Closing Date, the Company shall, and shall cause each of
its subsidiaries to, upon reasonable notice, afford Parent and Sub, and
their respective counsel, accountants and other authorized
representatives, reasonable access during normal business hours to the
properties, books and records of the Company and its subsidiaries in
order that they may have the opportunity to make such investigations as
they shall desire of the affairs of the Company and its subsidiaries;
such investigation shall not, however, affect the representations and
warranties made by the Company and the Shareholders in this Agreement.
The Company agrees to cause its officers and employees, and to use its
best efforts to cause its independent accountants, to furnish such
additional financial and operating data and other information and
respond to such inquiries as Parent and Sub shall from time to time
reasonably request and to consult with Parent and Sub on all matters
respecting its business and operations. During the period commencing on
the date hereof and ending on the Closing Date, the Company shall
deliver to Parent its monthly financial statements as promptly as
practicable after the end of each calendar month (and, in any event,
within thirty days after the end of each month).
(b) During the period commencing on the date hereof and
ending on the Closing Date, the Company shall promptly notify Parent in
writing of any and all occurrences which have caused the representations
and warranties of the Company and the Principal Shareholders contained
in Section 2.1 and the Schedules delivered in conjunction therewith to
be incorrect in any material respect.
3.2. Confidentiality. Information obtained by Parent and Sub
pursuant to Section 3.1 shall be subject to the provisions of
the Nondisclosure Agreement dated December 2, 1994 between the
Company and Parent.
3.3. Conduct of the Business of the Company Pending the Closing
Date. The Company agrees that, except as expressly permitted by this
Agreement or otherwise consented to or approved in writing by Parent,
during the period commencing on the date hereof and ending on the
Closing Date:
(a) The Company and each of its subsidiaries will conduct
their respective operations only in the ordinary course of business
consistent with past practice (subject, in any event, to the provisions
of paragraph (b) below) and will preserve intact their respective
business organizations, keep available the services of their officers
and employees and maintain satisfactory relationships with licensors,
suppliers, distributors, customers, clients and others having business
relationships with them;
(b) Neither the Company nor any of its subsidiaries shall (i)
make any change in or amendment to its charter documents or by-laws;
(ii) grant, issue or sell any shares of its capital stock or any other
securities, or grant, issue or sell any securities convertible into, or
options, warrants or rights to purchase or subscribe to, or enter into
any arrangement or contract with respect to the issuance or sale of, any
shares of its capital stock or any other securities, or make any other
changes in its capital structure; (iii) declare, pay or make any
dividend or other distribution or payment with respect to, or split,
redeem or reclassify, any shares of its capital stock; (iv) enter into
any contract or commitment except contracts in the ordinary course of
business consistent with past practices, including without limitation,
for any acquisition of a material amount of assets or securities or
enter into any contract or commitment (including any licenses) relating
to Intellectual Property other than licenses of existing products to
customers in the ordinary course of business consistent with past
practices; (v) dispose of any assets except for inventory sold or cash
applied in the ordinary course of business consistent with past
practices; (vi) terminate operations at any site where operations are
currently being conducted or commence operations at any site where
operations are not currently being conducted; (vii) enter into,
terminate, assign or sublease any lease of real property; (viii) amend
any employee or non-employee benefit plan or program, employment
agreement, retirement agreement, or pay any bonus or contingent
compensation, or contribute to any pension or profit-sharing plan, or
grant any severance or termination pay except in each case in the
ordinary course of business consistent with past practices; (ix) amend
any license agreement or franchise agreement; (x) incur any indebtedness
for borrowed money, subject or allow their properties or assets to be
subjected to any mortgages, pledges, security interests, encumbrances,
liens and charges of any kind (other than such as are covered by clauses
(1), (2) or (3) of Section 2.1(i) hereof), incur any liability on any
guaranties, or make any investments in or loans, advances or extensions
of credit to any person or entity; (xi) agree to the settlement of any
litigation; or (xii) agree, in writing or otherwise, to take any of the
foregoing actions.
(c) The Company shall not, and shall not permit any of its
subsidiaries to, (i) take any action, engage in any transactions
or enter into any agreement which would cause any of the
representations or warranties set forth in Section 2.1 hereof to
be untrue in any material respect as of the Closing Date, or
(ii) purchase or acquire, or offer to purchase or acquire, any
shares of capital stock of the Company.
3.4. Best Efforts. Subject to the terms and conditions herein
provided, each of the Company, Parent and Sub shall, and the Company
shall cause each of its subsidiaries to, cooperate and use their
respective best efforts to take, or cause to be taken, all appropriate
action, and to make, or cause to be made, all filings necessary, proper
or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement,
including, without limitation, their respective best efforts to obtain,
prior to the Closing Date, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries as are
necessary for consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Merger and to rectify any
event or circumstance which could impede consummation of the
transactions contemplated by this Agreement; provided, however, that no
loan agreement or contract for borrowed money shall be repaid (except
for interest due thereunder), in whole or in part, and no contract shall
be amended to increase the amount payable thereunder or otherwise to be
more burdensome to the Company or any of its subsidiaries in order to
obtain any such consent, approval or authorization without first
obtaining the written approval of Parent.
3.5. No Solicitation of Other Offers. The Company and the
Principal Shareholders agree that neither they nor the Company's
subsidiaries, nor any of their respective officers, directors,
employees, representatives, investment bankers, attorneys, accountants
or other agents or affiliates, shall, directly or indirectly, take any
action to encourage, solicit, initiate or participate in any way in
discussions or negotiations with, or furnish any information to, or
afford any access to the properties, books or records of the Company or
any of its subsidiaries to, or otherwise assist, facilitate or
encourage, any person or entity (other than Parent, Sub or its officers,
directors, representatives, agents, affiliates or associates) in
connection with any possible or proposed merger, consolidation, business
combination, liquidation, reorganization, sale or other disposition of
assets, sale of shares of capital stock or similar transactions
involving the Company or any subsidiary or division of the Company. The
Company and the Principal Shareholders will promptly communicate to
Parent the terms of any proposal or inquiry that they (or any of them)
may receive, and the identity of the person(s) making the proposal or
inquiry, in respect of any such transaction, or of any such information
requested from any of them or of any such negotiations or discussions
being sought to be initiated with any of them. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any other parties conducted heretofore
with respect to any of the foregoing.
3.6. Notice of Default.
(a) The Company promptly will give notice to Parent of the
occurrence of any event or the failure of any event to occur that
results in a breach of any representation or warranty by the Company or
the Shareholders contained herein or a failure by the Company to comply
with any covenant, condition or agreement contained herein.
(b) The Company will (i) use its best efforts to take all
action necessary to render accurate as of the Closing Date the
representations and warranties of the Company and the Shareholders
contained herein, (ii) refrain from taking any action that would render
any such representation or warranty inaccurate as of such time and (iii)
use its best efforts to perform or cause to be satisfied each covenant
or condition to be performed or satisfied by it as contemplated by this
Agreement.
3.7. Agreement to Execute Certain Documents. Each of Gerald F.
O'Connell and David Phelan agrees to execute and deliver, at the
Effective Time, the O'Connell Employment Agreement and the Phelan
Employment Agreement, respectively.
3.8. Post-Closing Operations. Following the Closing and until
satisfaction by Parent of its payment obligations under Section 1.8
hereof, to the fullest extent possible consistent with the fiduciary
duties of Parent's officers and directors, the Surviving Corporation
shall be permitted to operate in a manner which affords it the
reasonable opportunity to maximize annual Pretax Profits. Towards this
end, and subject to such duties:
(a) Parent will maintain the Surviving Corporation as a
separate business unit with books, records and financial statements
sufficient to calculate Pretax Profits (provided that nothing contained
herein shall be construed to require Parent to maintain the separate
corporate existence of the Surviving Corporation);
(b) The Board of Directors of the Surviving Corporation (or
other governing body in the event the separate corporate existence of
the Surviving Corporation is not maintained) (the "Board") shall consist
of five persons, three of whom shall be individuals designated by Parent
(hereafter referred to as "Parent Designees") and two of whom shall be
individuals designated by the Principal Shareholders (the "Shareholder
Designees"). The initial Parent Designees shall consist of Michael J.
Emmi (as Chairman), Michael D. Chamberlain and Eric Haskell; and the
initial Shareholder Designees shall consist of Gerald F. O'Connell and
David Phelan. Upon written notice to the Principal Shareholders, Parent
may change a Parent Designee, but only upon the death or disability of
such Parent Designee, the termination of such Parent Designee's
employment with Parent, the termination of such Parent Designee's
position (in the case of Mr. Emmi and Mr. Chamberlain) on the Board of
Directors of Parent or the reassignment by Parent of a substantial
portion of the responsibilities of such Parent Designee; provided,
however, that in the case of the termination of Mr. Emmi's or Mr.
Chamberlain's position on the Board of Directors of Parent or the
reassignment by Parent of a substantial portion of the responsibilities
of such Parent Designee, the replacement must be reasonably acceptable
to the Shareholder Designees. Except as provided in the next sentence,
the Shareholder Designees may not be changed. In the event that a
Shareholder Designee dies or becomes disabled, then the personal
representative of such deceased or disabled Shareholder Designee shall
have the right, upon written notice to Parent, to designate a
replacement Shareholder Designee, provided that such replacement must be
reasonably acceptable to the Parent Designees and the other Shareholder
Designee. The Board shall be vested with complete authority to set
strategic and operational objectives for the Surviving Corporation, to
adopt and modify annual business plans for the Surviving Corporation and
to manage the business and affairs of the Surviving Corporation. The
Board may take official action through the vote or consent of a majority
of its members. In the event the separate corporate existence of the
Surviving Corporation is not maintained, the governing body of the
separate business unit (whether a form of legal entity other than a
corporation, or merely a division or department of Parent or a
subsidiary of Parent) which continues the business formerly conducted by
the Surviving Corporation shall have all of the authority, rights, and
obligations of a Board of Directors of a Delaware corporation to the
exclusion of the right of any other person to exercise any such
authority or rights.
(c) Parent will not take any action, or omit to take any
action, for the purpose of arbitrarily reducing the ability of the
Surviving Corporation to maximize Pretax Profits;
(d) For so long as Gerald F. O'Connell remains the President
of the Surviving Corporation pursuant to the O'Connell Employment
Agreement, he will have reasonable day-to-day control over and
responsibility for the operations of the Surviving Corporation in a
manner consistent with: (i) the business plans of the Surviving
Corporation adopted by the Board and (ii) specific directives of the
Board.
3.9. Board Attendance Right. Gerald F. O'Connell shall have the
right to attend all meetings of the Board of Directors of Parent and to
participate in discussions thereat for so long as he remains President
of the Surviving Corporation pursuant to the O'Connell Employment
Agreement; provided that Mr. O'Connell shall not have the right to
attend portions of meetings of the Board during which his performance,
compensation or other terms of employment are to be discussed. Mr.
O'Connell's right to attend meetings of the Board of Directors shall be
conditioned on his agreement to hold in confidence any confidential
information communicated at any such meetings. The foregoing attendance
right shall not be construed as conferring upon Mr. O'Connell the right
to vote at any meetings of the Board of Directors or the right to
receive any payment for, or reimbursement on account of, his attendance
at any such meeting. Parent acknowledges that its Chairman and Chief
Executive Officer has advised Mr. O'Connell that upon the occurrence of
a vacancy on the Board of Directors of Parent, whether created by the
resignation of an existing member of the Board, expansion of the size of
the Board or otherwise, the Chairman and Chief Executive Officer will
submit Mr. O'Connell, either individually or together with other
candidates, to the other members of the Board as possible candidate(s)
for election or appointment to the Board. Such submission will not
obligate the Board of Directors of Parent or the Chairman and Chief
Executive Officer, in his capacity as a member of the Board of Directors
of Parent, to take any action in furtherance of the candidacy of Mr.
O'Connell for the vacancy.
3.10. Cooperation Regarding Financial Statements. Following the
Closing, each of the Shareholders agrees to cooperate fully with Parent
in obtaining an audit of the financial statements of the Company and its
subsidiaries in order to enable Parent to satisfy its financial
statement and other reporting obligations in a timely and complete
manner under rules and regulations of the Commission.
3.11. Relocation of Surviving Corporation. As soon as possible
following the Closing Date (but in any event within 180 days following
the Closing Date and provided Parent has available necessary office
space), the headquarters and substantially all of the operations of the
Surviving Corporation shall be relocated to Malvern, Pennsylvania;
provided that Parent acknowledges that certain employees of the
Surviving Corporation may remain in Australia.
3.12. Shareholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law and its articles of
incorporation and by-laws, to convene a meeting of its Shareholders as
promptly as practicable (but in any event within 30 days following the
date hereof) for the purpose of considering and taking all action
required by this Agreement, including voting on the Merger. The Board
of Directors of the Company shall recommend that holders of the Common
Stock vote in favor of the Merger and adopt this Agreement at the
meeting.
3.13. First Fidelity Bank Indebtedness. Within thirty (30) days
following the Closing Date, Parent shall cause Surviving Corporation to
pay off the line of credit (the "Credit Line") of the Company to First
Fidelity Bank, Stamford, Connecticut outstanding on the Closing Date,
provided that, on the Closing Date, the Principal Shareholders certify
to Parent that the aggregate amount required to pay off such line of
credit will not exceed $250,000.
ARTICLE 4
CONDITIONS PRECEDENT TO MERGER
4.1. Conditions Precedent to Obligations of Parent, Sub and the
Company. The respective obligations of Parent and Sub, on the one hand,
and the Company, on the other hand, to effect the Merger, and the
obligation of Parent to make the Loans, are subject to the satisfaction
or waiver (subject to applicable law) at or prior to the Effective Time
of each of the following conditions:
(a) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental
or regulatory agency, body or authority which prohibits the consummation
of the Merger or the making of the Loans and the transactions
contemplated by this Agreement and which is in effect at the Effective
Time; and
(b) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which
prohibits the consummation of the Merger or the making of the Loans.
(c) Execution of Employment Agreements. Parent and Gerald F.
O'Connell shall have executed and delivered the O'Connell
Employment Agreement and Parent and David Phelan shall have
executed and delivered the Phelan Employment Agreement.
4.2. Conditions Precedent to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger and make the Loans
are also subject to the satisfaction or waiver, at or prior to the
Effective Time, of each of the following conditions unless waived by
Parent and Sub:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Company and the Principal
Shareholders contained herein shall be true and correct in all material
respects as of the date hereof and at and as of the Closing, with the
same force and effect as though made on and as of the Closing Date.
(b) The Company's Performance. The Company and the Principal
Shareholders shall have performed in all material respects all
obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by them prior to the
Closing Date.
(c) Legal Actions. There shall not have been any action
taken, or any statute, rule, regulation, judgment, order or injunction
promulgated, enacted, entered or enforced by any state, federal or
foreign government or governmental authority or by any court, domestic
or foreign, that would (i) require the divestiture by Parent, Sub or the
Company or any of their respective subsidiaries or affiliates of all or
any material portion of the business, assets or property of any of them
or impose any material limitation on the ability of any of them to
conduct their business and own such assets and properties or (ii) impose
any limitations on the ability of Parent or Sub or any of their
respective subsidiaries effectively to control in any material respect
the business or operations of the Company or any of the Company's
subsidiaries.
(d) No Material Changes. No change shall have occurred or
been threatened (and no condition, event or development shall have
occurred or been threatened involving a prospective change) in the
Condition of the Company and its subsidiaries taken as a whole which is
or may be materially adverse to such Condition.
(e) Regulatory Approvals. All necessary state securities and
Blue Sky permits and approvals, and other Federal, state, local and
foreign governmental permits and approvals, required to carry out the
transactions contemplated by this Agreement shall have been obtained.
(f) Shareholder Approval; Third Party Consents. The
Shareholders shall have approved the Merger in accordance with
applicable law; no Shareholder shall have given notice of its intention
to exercise dissenters' rights under the MBCA; and each of the persons
and entities listed on Schedule 2.3(d) shall have consented to the
consummation of the Merger if, and to the extent, required by the
provisions of the existing documents between such persons and entities
and Parent.
(g) Opinion of Counsel. Parent shall have received an
opinion, dated the Closing Date, of Kantner & Associates, counsel for
the Company, in form and substance satisfactory to Parent, Sub and their
counsel, covering the matters set forth in Exhibit 4.2(g).
(h) Employment; Agreement to Relocate. The employees of the
Company identified on Exhibit 4.2(h) shall have agreed to remain
employed by Parent or the Surviving Corporation on terms and conditions
comparable to the terms and conditions currently applicable to them. In
addition, each of Alan C. McMullen and V. Somasundaram shall have agreed
to perform his day-to-day employment responsibilities on behalf of
Parent and the Surviving Corporation from the headquarters of the
Company in Malvern, Pennsylvania and shall have agreed to relocate his
primary residence to Malvern, Pennsylvania promptly following the
Closing Date, but in no event later than 180 days following the Closing
Date, subject to receipt of benefits under Parent's relocation policy
currently in effect.
(i) Pledge and Escrow Agreement. Each of the Principal
Shareholders shall have executed and delivered the Pledge and Escrow
Agreement attached hereto as Exhibit 4.2(i) (the "Stock Pledge
Agreement"), pursuant to which each of the Principal Shareholders
pledges an aggregate number of shares of Parent Stock issued to him in
the Merger equal to the Required Number (as defined in the Stock Pledge
Agreement) applicable to him to secure the obligations of the Principal
Shareholders arising under Article 5 hereof during the two-year period
following the Closing Date.
(j) Termination of Certain Agreements. The Company shall
have terminated each of the following agreements, without continuing
liability and without having made any termination payment not expressly
required by such agreements as in effect on the date hereof:
(i) Agreement dated August 18, 1993 among the Company
(then known as Image Systems International, Inc.), David Phelan and
Gerald F. O'Connell.
(ii) Promissory Note dated December 31, 1994 in the
original principal amount of $1,000,000 Australian issued to Alan C.
McMullen.
(iii) Promissory Note dated December 31, 1994 in the
original amount of $1,000,000 Australian issued to Ian D. Mouser.
(iv) Security Agreement dated December 31, 1994 executed
by the Company for the benefit of Alan C. McMullen and Ian D. Mouser.
In addition, the Company shall have made no payments under either of
the Promissory Notes referenced in clause (ii) and (iii) above.
(k) Certification as to Indebtedness. Parent shall have
received the certification from the Principal Shareholders required by
Section 3.13 hereof, together with a payoff letter from First Fidelity
Bank, addressed to Parent, indicating that the Credit Line may be paid
off in full for an aggregate amount equal to or less than $250,000.
(l) Parent Tax Opinion. Parent shall have received the
opinion of Ernst & Young LLP substantially to the effect that, based on
reasonable representations and/or assumptions as to relevant facts and
subject to reasonable qualifications, (A) the Merger should constitute a
reorganization within the meaning of Section 368(a) of the Code; (B) no
gain or loss should be recognized by the Company pursuant to Section
361(a) of the Code; and (C) pursuant to Section 1032 of the Code and
the proposed Treasury Regulations issued thereunder, no gain or
loss should be recognized by either Parent or Sub in connection
with the issuance of Parent Stock pursuant to the Merger.
4.3. Conditions Precedent to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject
to the satisfaction or waiver, at or prior to the Effective
Time, of each of the following conditions unless waived by the
Company:
(a) Accuracy of Representations and Warranties. All
representations and warranties of Parent and Sub contained herein shall
be true and correct in all material respects as of the date hereof and
at and as of the Closing, with the same force and effect as though made
on and as of the Closing Date.
(b) Parent's and Sub's Performance. Each of Parent and Sub
shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants and
conditions, contained in this Agreement to be performed or complied with
by it prior to the Closing Date.
(c) No Material Changes. No change shall have occurred or
been threatened (and no condition, event or development shall have
occurred or been threatened involving a prospective change) in the
Condition of Parent and its subsidiaries taken as a whole which is or
may be materially adverse to such Condition.
(d) Third Party Consents. Each of the persons and entities
listed on Schedule 2.1(d) shall have consented to the consummation of
the Merger if, and to the extent, required by the provisions of the
existing documents between such persons and entities and the Company.
(e) Execution of Certain Agreement. Parent shall have
executed and delivered the Registration Agreement (as defined in Section
2.1(b)).
(f) Stock Listing. The Parent Stock to be issued in the
Merger shall have been approved for listing on NASDAQ, subject to
official notice of issuance.
(g) Opinion of Counsel. The Company shall have received an
opinion, dated the Closing Date, of Pepper, Hamilton & Scheetz, counsel
for Parent and Sub, in form and substance satisfactory to the Company
and its counsel, covering the matters set forth in Exhibit 4.3(g).
(h) Tax Opinion. (i) The Company shall have received the
opinion of Ernst & Young LLP substantially to the effect that, based on
reasonable representations and/or assumptions as to relevant facts and
subject to reasonable qualifications, (A) the Merger should constitute a
reorganization within the meaning of Section 368(a) of the Code and (B)
no gain or loss should be recognized by the Company pursuant to Section
361(a) of the Code and (ii) Shareholders and the Company shall have
received the opinion of Honigman Miller Schwartz & Cohn substantially to
the effect that, based on reasonable representations and/or assumptions
as to relevant facts and subject to reasonable qualifications, (A) the
Merger will constitute a reorganization within the meaning of Section
368(a) of the Code; (B) pursuant to Sections 354 and 356 of the Code,
gain or loss will be recognized by a Shareholder on the exchange of
Common Stock pursuant to the Merger only to the extent of the amount of
any cash (including any liability or expense of such Shareholder that is
paid by Parent, Sub or the Company) and fair market value of any
non-cash property (other than (1) Parent Stock not including Parent
Stock issued following the Closing to the extent treated as imputed
interest and (2) the contingent right to receive Parent Stock pursuant
to Section 1.8 hereof), received by such Shareholder in exchange for
such Common Stock, and (C) the holding period of Parent Stock received
by a Shareholder in exchange for Common Stock (not including Parent
Stock issued following Closing to the extent treated as imputed
interest) will include the holding period of such Common Stock, provided
such Common Stock was held as a capital asset as of the Closing of the
Merger.
ARTICLE 5
SURVIVAL; INDEMNIFICATION; EXPENSES
5.1. General Indemnification.
(a) Each of the Principal Shareholders hereby agrees, on a
joint and several basis (except to the extent expressly indicated in
Section 5.1(g) below), to (i) indemnify, defend and hold harmless
Parent, Sub and, after the Effective Time, the Surviving Corporation and
each of their respective directors, officers, employees, affiliates,
agents and shareholders from and against any and all losses, damages,
liabilities, costs and claims arising out of, based upon or resulting
from (w) any inaccuracy of any representation or warranty of Company and
the Principal Shareholders which is contained in or made pursuant to
this Agreement, (x) any breach by the Company of any of its agreements
or obligations contained in or made pursuant to this Agreement, (y) the
requirement in Section 1.4 hereof that any Shareholder who has not
executed this Agreement execute and deliver to Parent both the Stock
Pledge Agreement or a joinder thereto and the Registration Agreement or
a joinder thereto as a condition to receiving certificates evidencing
shares of Parent Stock issuable in the Merger and (z) the matters
covered by SCHEDULE 5.1, and (ii) reimburse Parent, Sub and, after the
Effective Time, the Surviving Corporation and each of their respective
directors, officers, employees, affiliates, agents and shareholders for
any and all fees, costs and expenses of any kind related thereto
(including, without limitation, any and all Legal Expenses (as defined
below)). As used in this Section 5.1, "Legal Expenses" of a person
shall mean any and all reasonable out-of-pocket fees, costs and expenses
of any kind incurred by such person and its counsel in investigating,
preparing for, defending against or providing evidence, producing
documents or taking other action with respect to any threatened or
asserted claim. Except for the indemnification obligation arising under
Section 5.1(a)(i)(y), the joint and several obligations applicable to
the Principal Shareholders under this Article 5 shall also be
applicable, on a joint and several basis, to each of the other
Shareholders who executes the Stock Pledge Agreement or an instrument of
joinder thereto.
(b) Parent hereby agrees to (i) indemnify, defend and hold
harmless the Shareholders from and against any and all losses, damages,
liabilities, costs and claims arising out of, based upon or resulting
from (x) any inaccuracy of any representation or warranty of Parent
which is contained in or made pursuant to this Agreement and (y) any
breach by Parent of any of its agreements or obligations contained in or
made pursuant to this Agreement; and (ii) reimburse the Shareholders for
any and all fees, costs and expenses of any kind related thereto
(including, without limitation, any and all Legal Expenses).
(c) Any person seeking indemnification from the Principal
Shareholders or Parent (as the case may be) shall notify the
person from whom or from which such indemnification is sought of
the basis on which it believes the Principal Shareholders or
Parent (as the case may be) have liability and, if possible at
the time of the notice, the estimated amount of loss alleged to
have been suffered, but the failure so to notify the
indemnifying party shall not relieve the indemnifying party from
any liability that it may have to the indemnified party under
this Section 5.1 except to the extent that the indemnifying
party is materially prejudiced by the failure to receive such
notice.
(d) Promptly after receipt by any person entitled to
indemnification under this Section 5.1 (an "indemnified party") of
notice of the commencement of any action in respect of which the
indemnified party will seek indemnification hereunder, the indemnified
party shall so notify in writing the person(s) from whom indemnification
hereunder is sought (collectively, the "indemnifying party"), but any
failure so to notify the indemnifying party shall not relieve it from
any liability that it may have to the indemnified party under this
Section 5.1 except to the extent that the indemnifying party's ability
to defend such claim is materially prejudiced by the failure to give
such notice. The indemnifying party shall be entitled to participate in
the defense of such action and to assume control of such defense;
PROVIDED, HOWEVER, that:
(i) the indemnified party shall be entitled to
participate in the defense of such claim and to employ counsel at its
own expense to assist in the handling of such claim;
(ii) the indemnifying party shall obtain the prior
written approval of the indemnified party before entering into any
settlement of such claim or ceasing to defend against such claim, if,
pursuant to or as a result of such settlement or cessation, injunctive
or other equitable relief would be imposed against the indemnified
party;
(iii) the indemnifying party shall not consent to the
entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff
to each indemnified party of a release from liability in respect of such
claim; and
(iv) the indemnifying party shall not be entitled to
control but shall be entitled to participate at its own expense in the
defense of, and the indemnified party shall be entitled to have sole
control at its own expense over, the defense or settlement of any claim
to the extent the claim seeks an order, award, judgment, injunction or
other legal or equitable relief against the indemnified party which, if
successful, could materially interfere with the business, operations,
assets, condition or prospects of the indemnified party.
(e) After written notice by the indemnifying party to the
indemnified party of its election to assume control of the defense of
any such action, the indemnifying party shall not be liable to such
indemnified party hereunder for any Legal Expenses subsequently incurred
by such indemnified party in connection with the defense thereof. If
the indemnifying party does not assume control of the defense of such
claims as provided in this Section 5.1, the indemnified party shall have
the right to defend such claim in such manner as it may deem appropriate
at the cost and expense of the indemnifying party, and the indemnifying
party will promptly reimburse the indemnified party therefor in
accordance with this Section 5.1. The reimbursement of fees, costs and
expenses required by this Section 5.1 shall be made by periodic payments
during the course of the investigation or defense, as and when bills are
received or expenses incurred.
(f) Except as provided in Section 5.1(g) below, but any other
provision hereof to the contrary notwithstanding, the parties agree that
the representations and warranties of the parties contained in this
Agreement and in any certificates delivered pursuant to this Agreement
shall survive for a period of two (2) years after the Closing Date,
regardless of any investigation made by any of the parties prior to the
date hereof or prior to the Closing Date. A party shall only be
entitled to indemnification under Section 5.1(a)(i)(w) or 5.1(b)(i)(x)
if a written notice describing the claim for which indemnification is
sought (and, if possible at the time of the notice, the estimated amount
of the loss alleged to have been suffered) is submitted to Parent or a
Principal Shareholder, as the case may be, not later than two (2) years
following the Closing Date. Any claim for indemnification pursuant to
Section 5.1(a)(i)(w) or Section 5.1(b)(i)(x) not made prior to the
expiration of such two (2) year period shall be extinguished.
(g) The parties agree that the representation and warranty of
the Principal Shareholders made on a several basis and contained in
clause (viii) of Section 2.2 hereof (which representation and warranty
will also be made on a several basis by each of the other Shareholders
who executes the Stock Pledge Agreement, or a joinder thereto, in
respect of the information relating to him (it) in Schedule 2.2 hereto)
(the "Share Ownership Representation") shall survive for a period of
four (4) years after the Closing Date, regardless of any investigation
made by any of the parties prior to the date hereof or prior to the
Closing Date. No Shareholder shall have any obligation to provide
indemnity hereunder on account of the inaccuracy of the Share Ownership
Representation that relates to another Shareholder. In addition, the
parties agree that the representations and warranties contained in the
sixth sentence of Section 2.1(s) hereof shall survive for a period of
three (3) years after the Closing Date, regardless of any investigation
made by any of the parties prior to the date hereof or prior to the
Closing Date. A party shall only be entitled to indemnification in
respect of any claim for indemnification on account of the inaccuracy of
a Share Ownership Representation if a written notice describing the
claim for which indemnification is sought (and, if possible at the time
of the notice, the estimated amount of the loss alleged to have been
suffered) is submitted not later than four (4) years following the
Closing Date. Any claims for indemnification on account of the
inaccuracy of a Share Ownership Representation not made prior to the
expiration of such four (4) year period shall be extinguished at the end
of such four (4) year period. A party shall only be entitled to
indemnification in respect of any claim for indemnification on account
of the inaccuracy of a representation and warranty in the sixth sentence
of Section 2.1(s) if a written notice describing the claim for which
indemnification is sought (and, if possible at the time of the notice,
the amount of the loss alleged to have been suffered) is submitted to a
Principal Shareholder not later than three (3) years following the
Closing Date. Any claims for indemnification on account of the
inaccuracy of a representation and warranty contained in the sixth
sentence of Section 2.1(s) not made prior to the expiration of such
three (3) year period shall be extinguished at the end of such three (3)
year period.
(h) A Shareholder may only take action under this Article 5
to pursue an indemnification claim if such action has first been
approved by a majority in interest of the Principal Shareholders (such
interest to be computed on the basis of the respective ownership
interests of the Principal Shareholders in the Common Stock immediately
prior to the Effective Time).
(i) Neither Parent nor the Principal Shareholders shall have
any obligation to provide indemnification under this Article 5 with
respect to any individual matter below $50,000 (a "Small Matter") until
the aggregate amount of losses, damages, liabilities, costs and claims,
including Legal Expenses, attributable to all Small Matters exceeds Two
Hundred Fifty Thousand Dollars ($250,000), in the aggregate, and
thereafter shall have an obligation to provide indemnification only for
the excess; provided that the foregoing limitation shall be inapplicable
to any losses, damages, liabilities, costs and claims, including Legal
Expenses, attributable to (1) a claim for indemnification under Section
5.1(a)(i)(y) or Section 5.1(a)(i)(z); (2) the obligation of the
Principal Shareholders under Section 7.1(b); and (3) matters which are
not Small Matters.
(j) Notwithstanding the provisions of Section 1.8, the amount
of any payment required to be made pursuant thereto (but for the
provisions of this Section) may be reduced by Parent by the amount (the
"Reduction Amount") of any unpaid amounts then owing to it by any of the
Principal Shareholders pursuant to this Article 5. In the event of any
such reduction, the Reduction Amount shall be allocated and deducted pro
rata among the shares of Parent Stock on account of which full payment
would otherwise be made pursuant to Section 1.8. In the event that on
the date by which payment would otherwise be required to be made
pursuant to Section 1.8 claims remain outstanding which have previously
been submitted by Parent in a timely fashion, then Parent shall have the
right to withhold an amount equal to the aggregate amount of such claims
(net of the value of any shares of Parent Stock then held under the
Stock Pledge Agreement, with such value for a share of Parent Stock
equal to the Valuation Amount as defined in the Stock Pledge Agreement)
until the actual amount owing to it is finally determined, and Parent
shall not, by virtue of exercising such withholding right, be deemed to
have breached its obligations under Section 1.8 hereof.
(k) The obligation of the Principal Shareholders (and any
other Shareholders that executed the Stock Pledge Agreement or a joinder
thereto) to indemnify, defend and hold harmless arising hereunder shall
not be limited to the collateral provided under the Stock Pledge
Agreement but shall not exceed, in the aggregate, an amount equal to the
sum of (i) the product of the total number of shares of Parent Stock
issued by Parent pursuant to this Agreement multiplied by the Market
Price on the Measurement Date plus (ii) the amount of cash paid by
Parent pursuant to this Agreement (the "Ceiling"); provided that until
the arrival of the Measurement Date, the amount payable, in respect of a
given claim, shall not exceed the product of the total number of shares
of Parent Stock issued by Parent pursuant to this Agreement multiplied
by the Market Price as of the date such claim is resolved less all
amounts previously paid pursuant to this Article 5 in satisfaction of
indemnification claims of Parent, but following the Measurement Date,
any amount which has not been paid by virtue of this proviso shall
become payable to the extent such amount, when added to all other
amounts previously paid by the Shareholders pursuant to this Article 5,
does not exceed the Ceiling.
(l) In the event that any claim for indemnification asserted
by Parent, Sub or the Surviving Corporation may also constitute a breach
of any representation or warranty or may otherwise give rise to any
indemnification obligation by any person (including, without limitation,
Shareholders other than the Principal Shareholders) pursuant to any
agreements existing between the Company and any other person as of the
Closing Date, Parent and the Surviving Corporation shall assign to
Principal Shareholders, upon demand by the Principal Shareholders, but
only after the indemnification obligations to Parent under this Article
5 in respect of the applicable claim shall have been fully satisfied,
all rights of Parent and Surviving Corporation against the applicable
third party (parties) under (i) such agreements (other than this
Agreement) with respect to which such claim for indemnification may
constitute a breach of a representation or warranty or give rise to an
indemnification obligation, and (ii) the Stock Pledge Agreement, in each
case to the extent, but only to the extent, of the amount of such claim
for indemnification as shall have been paid by the Principal
Shareholders to or for the benefit of Parent, or as shall have been
satisfied out of shares of Parent Stock held for the account of the
Principal Shareholders under the terms of the Stock Pledge Agreement.
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time prior to the Effective Time, by mutual
consent of the Company, on the one hand, and of Parent and Sub, on the
other hand;
(b) by either Parent or the Company if the Effective Time
shall not have occurred by June 30, 1995, unless extended by mutual
agreement of Parent, Sub and the Company;
(c) by Parent, if there has been a breach of a representation
or warranty in this Agreement (including the Schedules and Exhibits) or
any certificate, instrument or other document delivered pursuant hereto
by the Company or the Principal Shareholders in any material respect, or
a breach by the Company or the Principal Shareholders of any covenant of
the Company set forth herein in any material respect, or a failure of
any condition to which the obligations of Parent or Sub hereunder are
subject in any material respect;
(d) by the Company, if there has been a breach of a
representation or warranty in this Agreement (including the Schedules
and Exhibits) or any certificate, instrument or other document delivered
pursuant hereto by Parent or Sub in any material respect, or a breach by
Parent or Sub of any covenant of Parent or Sub, as the case may be, set
forth herein in any material respect, or a failure of any condition to
which the obligations of the Company hereunder are subject in any
material respect;
(e) by Parent, on the one hand, or the Company, on the other
hand, if any court of competent jurisdiction in the United States, or
other United States governmental body shall have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and unappealable.
6.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 6.1 hereof by Parent or Sub, on the
one hand, or the Company, on the other hand, written notice thereof
shall forthwith be given to the other party or parties specifying the
provision hereof pursuant to which such termination is made, and this
Agreement shall become void and have no effect (other than Section 3.2
hereof, which shall survive termination), and there shall be no
liability hereunder on the part of Parent, Sub, the Company or the
Shareholders, provided that if Parent terminates this Agreement pursuant
to Section 6.1(c) or if the Company terminates this Agreement pursuant
to Section 6.1(d), then the terminating party shall have the right to
pursue all of its legal remedies for breach of contract; provided
further that if this Agreement is validly terminated pursuant to Section
6.1, the provisions of Section 6.3 relating to responsibility for
expenses shall survive.
6.3. Expenses If No Closing. If the Closing does not occur and
the transactions contemplated hereby are not consummated, then, subject
to the right of a non-defaulting party to recover damages, costs and
expenses from a defaulting party, pursuant to Section 6.2, all costs and
expenses incurred in connection with this Agreement shall be paid by the
person incurring such expenses.
6.4. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the respective
Boards of Directors of the Company, Parent or Sub, may (i) extend the
time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or (iii) waive compliance with any of
the agreements or conditions contained herein. Any such action taken by
the Company prior to the Effective Time shall be binding on all of the
Shareholders. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party for whose benefit such
representation and warranty, agreement or condition was made or
established.
ARTICLE 7
MISCELLANEOUS
7.1. Fees and Expenses.
(a) Except as provided in Section 6.3 and in paragraph (b)
below, all costs and expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby shall, if
incurred by Parent or Sub, be an obligation of Parent or Sub and shall,
if incurred by the Company or the Shareholders, be an obligation of the
Company.
(b) In the event that the Merger is completed and the total
legal fees and expenses incurred by the Company and the Shareholders in
connection with the transactions contemplated hereby exceed $150,000,
then the Principal Shareholders will be obligated to pay such excess
amounts and, in the event that Parent has paid such excess amounts, to
immediately reimburse Parent for any such excess amounts and to hold
Parent (and the Surviving Corporation) harmless from and against any
claims by third parties for payment of such excess amounts, without
regard to the limitation contained in Section 5.1(i).
7.2. Tax Consequences. Each of the parties hereto acknowledges
and agrees that the other parties hereto have made and are making no
representation or warranties as to the tax consequences of any of the
transactions contemplated hereby and each has obtained such advice from
its professional advisors regarding the tax consequences of the
transactions contemplated hereby as such party considers appropriate.
7.3. Public Announcements. Unless required by applicable law, the
Company, on the one hand, and Parent and Sub, on the other hand, will
not issue any press release or otherwise make any public statement with
respect to the transactions contemplated hereby without the prior
written consent of the other party.
7.4. Notices. Any notice, request, instruction, waiver or other
communication to be given hereunder by any party hereto to any other
party hereto shall be in writing and deemed to be duly given for all
purposes when (i) delivered personally, (ii) sent by certified or
registered mail (postage prepaid and return receipt requested), (iii)
sent by recognized overnight courier (such as Federal Express), or (iv)
sent by telegram or telecopier as follows:
(a) if to the Company, to it at:
Adage Systems International, Inc.
25 Ford Road
Westport, CT
Attention: Gerald F. O'Connell
with a copy to:
Kantner & Associates
Tower Plaza
555 East William Street
Ann Arbor, MI 48104
Attention: Perry M. Kantner, Esquire
Telecopier Number: (313) 663-8514
(b) if to either Parent or Sub, to it at:
Systems & Computer Technology Corporation
4 Country View Road
Malvern, PA 19355
Attention: Senior Vice President - Finance and
Administration and Chief Financial Officer
Telecopier Number: (610) 648-7457
with a copy to:
Systems & Computer Technology Corporation
4 Country View Road
Malvern, PA 19355
Attention: Senior Vice President and General
Counsel
Telecopier Number: (610) 648-7457
with an additional copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Attention: Barry M. Abelson, Esquire
Telecopier Number: (215) 981-4750
(c) if to the Principal Shareholders, to them at:
Gerald F. O'Connell
557 Oenoke Ridge
New Canaan, CT 06840
and
David Phelan
126 Holmes Road
Ridgefield, CT 06877
with a copy to:
Kantner & Associates
Tower Plaza
555 East William Street
Ann Arbor, MI 48104
Attention: Perry M. Kantner, Esquire
Telecopier Number: (313) 663-8514
or to such other address for a party as shall be specified by like
notice. A notice shall be deemed to have been duly given to the party
to whom it is directed (i) when received personally, (ii) on the third
business day after the day it is placed in the mail, if sent by
certified or registered mail, (iii) on the business day following the
mailing thereof if sent by recognized overnight courier or (iv) when
sent by telegram or telecopier, upon receipt by the sender of a
confirmed answer-back. Whenever the giving of notice is required, the
giving of such notice may be waived in writing by the party entitled to
receive such notice.
7.5. Tax-Free Reorganization. For all purposes, Parent and the
Shareholders will treat the Merger as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. Parent
and the Principal Shareholders shall use their reasonable efforts to
take all appropriate actions to sustain such position, and shall take no
action with the intent or for the purpose of making such position
unavailable, including without limitation that no portion of the cost of
the acquisition shall be allocated, for financial or tax accounting
purposes, to any item not an asset of the Company such as the
covenant-not-to-compete contained in the O'Connell Employment Agreement
and the Phelan Employment Agreement, provided that this Section 7.5
shall not limit Parent's ability to value the shares of Parent Stock
issued or issuable pursuant to this Agreement in its sole discretion.
7.6. Entire Agreement. This Agreement and the Schedules, Exhibits
and other documents referred to herein or delivered pursuant hereto
collectively contain the entire understanding of the parties hereto with
respect to the subject matter contained herein and supersede all prior
and contemporaneous agreements and understandings, oral and written,
with respect thereto.
7.7. Binding Effect; Benefit; Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors, heirs and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written
consent of the other parties, except that Sub may assign all of its
rights, interest and obligations hereunder to Parent or another
wholly-owned subsidiary of Parent without the consent of the Company,
PROVIDED, HOWEVER, that such subsidiary agrees in writing to be bound
by all the terms, conditions and provisions contained herein applicable
to Sub. Nothing in this Agreement, expressed or implied, is intended to
confer on any person, other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.8. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the
parties hereto in any and all respects before the Effective Time by
action taken by the respective Boards of Directors of Parent, Sub and
the Company or by the respective officers authorized by such Boards of
Directors, and any such action taken by the Company before the Effective
Time shall be binding on all of the Shareholders. Subject to applicable
law, this Agreement may be amended, modified and supplemented in writing
by the parties hereto in any and all respects after the Effective Time
by the Board of Directors of Parent or officers of Parent authorized by
Parent's Board of Directors, on the one hand, and by a majority in
interest of the Principal Shareholders (such interest to be computed on
the basis of the respective ownership interests of the Principal
Shareholders in the Common Stock immediately prior to the Effective
Time), on the other hand, and any such action taken after the Effective
Time will be binding on all of the Shareholders.
7.9. Further Actions. Each of the parties hereto agrees that,
subject to its legal obligations, it will use its best efforts to
fulfill all conditions precedent specified herein, to the extent that
such conditions are within its control, and to do all things reasonably
necessary to consummate the transactions contemplated hereby.
7.10. Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.
7.11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument.
7.12. Applicable Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without
regard to the conflict of laws rules thereof, provided that the Merger
shall be effected under and in accordance with, and shall have the
effects provided for by, the laws of the States of Michigan and
Delaware.
7.13. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions contained in this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
IN WITNESS WHEREOF, each of Parent, Sub, the Company and the
Principal Shareholders have executed this Agreement as of the date first
above written.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
By:__/S/_____________________
Name: Eric Haskell
Title: Senior Vice President - Finance and
Administration and Chief Financial Officer
SCT ACQUISITION CORPORATION
By:__/s/_____________________
Name: Eric Haskell
Title: Senior Vice President
(PAGE)
[EXECUTIONS CONTINUED]
ADAGE SYSTEMS INTERNATIONAL, INC.
By:__/s/_____________________
Name: Gerald F. O'Connell
Title: President
SHAREHOLDERS
__/s/________________________
Name: Gerald F. O'Connell
__/s/________________________
Name: David Phelan
Attest:
Approved unanimously by the Board of Directors of Adage Systems,
International, Inc. on May 11, 1995.
__/s/________________________
Alan C. McMullen
