<PAGE>1 of 8
Exhibit Index on Page 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) July 25, 1996
OSMONICS, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation)
1-12714 41-0955759
(Commission File Number) (IRS Employer Identification No.)
5951 Clearwater Drive, Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 933-2277
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>2 of 8
Exhibit Index on Page 2
Item 2. Acquisition or Disposition of Assets
On July 25, 1996, Osmonics, Inc. ("Osmonics") completed the
previously announced acquisition of Desalination Systems, Inc.
("DSI"). The shareholders of DSI approved an Agreement and
Plan of Merger dated May 17, 1996 (the "Merger Agreement"),
among DSI, Osmonics, and a subsidiary of Osmonics (the
"Subsidiary"), pursuant to which the Subsidiary was merged with
and into DSI. Under the Merger Agreement the outstanding
shares of DSI Common Stock were converted, in a tax-free
reorganization, into shares of Osmonics Common Stock. Each
share of Class A Common Stock of DSI, no par value per share
(the "DSI Class A Common Share"), issued and outstanding
immediately prior to the merger was exchanged for approximately
144.070 shares of Common Stock of Osmonics, par value $0.01 per
share (the "Osmonics Common Shares"), and each share of Class B
Common Stock of DSI, no par value per share (the "DSI Class B
Common Share"), issued and outstanding immediately prior to the
merger was exchanged for approximately 157.107 shares of the
Osmonics Common Shares. Osmonics issued an aggregate of
1,312,827 shares (maximum number of shares issuable as a result
of the acquisition; actual number of shares issued may be less
due to fractional shares) of Osmonics Common Stock to the
former DSI shareholders. As a result of the merger, DSI
shareholders are shareholders of Osmonics and DSI is a wholly-
owned subsidiary of Osmonics.
DSI's primary business is the manufacture of membranes used for
reverse osmosis, nanofiltration, ultrafiltration and
microfiltration. These membranes are made into spiral
elements. Osmonics intends to continue the business of DSI.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of the Businesses Acquired (Previously
reported in the Registrant's Registration Statement on Form S-3
[File No. 333-05029]).
(b) Pro Forma Financial Information (Previously reported in the
Registrant's Registration Statement on Form S-3
[File No. 333-05029]).
(c) Exhibits
Exhibit
No. Description of Exhibit
2 Agreement and Plan of Merger dated May 17, 1996
among Osmonics, DSI, and DSI Acquisition
Corporation. Upon request of the Commission,
Osmonics agrees to furnish supplementally to the
Commission a copy of any schedules to the Agreement
and Plan of Merger, described as follows:
<PAGE>3 of 8
Exhibit Index on Page 2
Schedule 1.1 - Agreement of Merger; Agreement of
Merger; Certificate of Approval of Agreement of
Merger (Desalination Systems, Inc.); Certificate of
Approval of Agreement of Merger (DSI Acquisition
Corp.)
Schedule 1.3.1 - Buyer's Common Shares
Schedule 1.7.2 - Letter of Transmittal; Letter to
Shareholders; Instruction Sheet; Shareholder
Representations & Warranties
Schedule 1.7.3 - Escrow Agreement
Schedule 2.2.3 - Opinion of Seller's Counsel
Schedule 2.2.5 - Merger Expense Adjustments
Schedule 2.2.6 - Investment Representation Letter
Schedule 2.2.7 - Non-Competition Agreement
Schedule 2.2.8 - Consulting Agreement
Schedule 2.2.9A - Shareholders and Key Employees
Schedule 2.2.9B - Nondisclosure Agreements
Schedule 2.2.10 - Assignments and Releases
Schedule 2.2.12 - Amendments to Option Agreements
of Donald T. Bray; Amendment to Stock Option
Agreement dated March 18, 1994, Amendment to Stock
Option Agreement dated December 1, 1990
Schedule 2.2.13 - Amendments to Option Agreements
of Bjarne Nicolaisen; Amendment to Stock Option
Agreement dated September 1, 1993; Amendment to
Stock Option Agreement dated September 1, 1991;
Amendment to Stock Option Agreement dated
September 1, 1990
Schedule 2.2.19 - Bjarne Nicolaisen Employment
Agreement
Schedule 2.3.3 - Opinion of Buyer's Counsel
Schedule 2.3.5 - Registration Rights Agreement
Schedule 4.4.3 - Defaults or Termination of Rights
or Obligations; Wells Fargo Letter of Credit
relating to Bond Agreement; Wells Fargo Line of
Credit Facility (Working Capital Line) and Term
Loan
<PAGE>4 of 8
Exhibit Index on Page 2
Schedule 4.5.1 - Holders of Outstanding Securities
Schedule 4.5.2A - Option Agreement; Non-Qualified
Stock Option Agreement of Donald T. Bray dated
March 18, 1994
Schedule 4.5.2B - Option Agreement; Non-Qualified
Stock Option Agreement of Donald T. Bray dated
December 1, 1990
Schedule 4.5.2C - Option Agreement; Incentive Stock
Option Agreement of Bjarne Nicolaisen dated
September 1, 1993
Schedule 4.5.2D - Option Agreement; Incentive Stock
Option Agreement of Bjarne Nicolaisen dated
September 1, 1991; Incentive Stock Option Agreement
of Bjarne Nicolaisen dated September 1, 1990
Schedule 4.5.2E - Option Holders
Schedule 4.6 - Subsidiaries
Schedule 4.6.2 - Outstanding Capital Stock of Each
Subsidiary
Schedule 4.8 - Financial Statements; Exception to
Schedule 4.8 Financial Statements; 1995 Financial
Statement
Schedule 4.8.2 - Accounts Receivable Allowance for
Doubtful Accounts
Schedule 4.10 - Material Adverse Change
Schedule 4.10.10 - Deferred Compensation
Plans/Salary Increases; Stock Appreciation Rights;
History of Salary Increases, 1996; Employment
Contract of Markus Kyburz dated March 20, 1989;
Employment Contract of Janine Nahari-Zimmerli
effective June 14, 1993; December 6, 1994, letter
to Hans A. Thomassen outlining employment
arrangement; December 20, 1993, letter to
Stephan Schutze outlining employment arrangement;
July 1, 1993 letter to Bjarne Skaarup-Jorgensen
outlining employment arrangement
Schedule 4.11 - Real Property and Leaseholds; 1996
Tax Statement for Shadowridge Drive property; 1996
Tax Statement for Thibodo Road, Parcel C, property;
1996 Tax Statement for Thibodo Road, Parcel D,
property; Listing of Real Property and Leaseholds;
Addendum to Agreement to Extend Lease Term dated
March 23, 1995 with Simpson Way Associates;
Standard Industrial/Commercial Single-Tenant Lease-
Net dated February 13, 1995, with Simpson Way
Associates for 1240 Simpson Way, Escondido, CA;
Second Lease Extension Amendment dated
November 1, 1995, with Escondido Associates;
Standard Industrial/Commercial Single-Tenant Lease-
Net dated March 30, 1995, with Kenneth W. and
Judith A. Elsberry for 1236 Simpson Way, Escondido,
CA; Desal Europe Office Lease; List of Real
Property with marketable and insurable,
indefensible, fee simple title
<PAGE>5 of 8
Exhibit Index on Page 2
Schedule 4.11.2.1 - Mortgages and Other Security
Interests in Real Property
Schedule 4.11.2.5 - Encroachments of Real Property
Schedule 4.12 - Tangible Personal Property; List of
Tangible Personal Property; Lease with Mercedes-
Benz for Markus Kyburz dated September 13, 1993;
Lease with Mercedes-Benz for Hans A. Thomassen
terminated February, 1996 with attached letter
stating leased car was returned without penalty;
Lease for Chevrolet Astro Van 4x4 for Bjarne
Skaarup-Jorgensen; Lease with BMW for Stephan
Schutze; List of personal Property Not Located on
the Business Premises
Schedule 4.13.1 - Intellectual Property; Unexpired
U.S. Patents; January 11, 1996, letter discussing
status of patents and trademarks; January 26, 1996,
letter discussing filing applications for new
trademark and renewing registrations for red and
blue color bands; January 30, 1996, letter
authorizing renewing the red and blue color bands
to facilitate securing single trademark to cover
all colors; February 1, 1996, letter acknowledging
authorization to apply for new trademark and renew
red and blue color bands trademark and discussing
registration of DESAL in U.S.; February 1, 1996,
letter regarding DESAL trademark in Europe;
February 20, 1996, letter enclosing Application for
Registration of the trademark Band Design;
March 7, 1996, enclosing copies of application
papers to register DESAL and DESAL plus in the
U.S.; List of nondisclosure Agreements; List of
Representative Agreements; List of
Confidential/Secrecy Agreements; List of Contract
for Research Agreement; List of Other Agreements
Schedule 4.13.3 - Patent Infringement Claims
Schedule 4.13.5 - Employee Confidentiality
Agreements; Employee List; Employee Invention
Assignment and Confidentiality Agreement; Letters
to European employees enclosing Confidentiality
Agreements; Addendum to Jack Opdycke Employee
Invention Assignment and Confidentiality Agreement;
Addendum to Ron Fox Employee Invention Assignment
and Confidentiality Agreement
<PAGE>6 of 8
Exhibit Index on Page 2
Schedule 4.13.6 - Software License Not
Valid/Transferable
Schedule 4.14 - License, Franchise, Permit
Owned/Used; January 16, 1996 memo with attached
Permits; January 29, 1996 memo setting forth all
licenses, franchises, permits, and governmental
authorizations; March 11, 1996 memo to Osmonics
regarding unresolved issues concerning licenses and
permits; March 12, 1996, letter to Osmonics
following up on March 11, 1996 memo
Schedule 4.16 - Litigation Pending
Schedule 4.17 - Taxes Not Filed
Schedule 4.18 - Employee Welfare Benefits/Pension
Plan
Schedule 4.19.1 - Material Contracts
Schedule 4.19.3 - Persons Authorized to Obligate
Company
Schedule 4.20 - Insurance Claims; Policy Loss
Record Report; Underwriting Review of Reserved
Claims for Policy 0035325291
Schedule 4.23 - Employee Compensation
Schedule 4.23.2 - Severance Pay
Schedule 4.24 - Product Compliance
Schedule 4.26 - Environmental Law Compliance;
January 29, 1996 memo; January 23, 1996 list of
Chemicals Subject to Environmental Regulation;
Environmental Site Assessment of 760 Shadowridge
Drive, Vista, CA
Schedule 4.27.1 - Twenty Largest Customers and
Suppliers
Schedule 4.27.2 - Shortages or Unavailability of
Products or Raw Materials
Schedule 4.28 - Company Indebtedness to Persons
Schedule 4.29 - bank Accounts and Authorizations
Schedule 5.6.2 - Ownership of Buyer's Subsidiaries
Schedule 5.8 - Buyer's Financial Statements
Schedule 5.10 - Absence of Certain Changes
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Exhibit Index on Page 2
Schedule 5.12 - Pending Litigation of Buyer
Schedule 5.13 - Buyer's Compliance with Laws
Schedule 6.1.5 - Severance or Termination Pay
Schedule 6.9 - Company Ownership of Subsidiaries
<PAGE>8 of 8
Exhibit Index on Page 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
OSMONICS, INC.
Date: August 8, 1996 By: /s/ D. Dean Spatz
D. Dean Spatz
President
AGREEMENT AND PLAN OF MERGER
dated as of
May 17, 1996
among
DESALINATION SYSTEMS, INC.,
OSMONICS, INC.,
and
DSI ACQUISITION CORP.
<PAGE>i
TABLE OF CONTENTS
1. THE MERGER AND RELATED MATTERS . . . . . . . . . . . . . . .1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . .1
1.2 Effective Time of the Merger . . . . . . . . . . . . .1
1.3 Conversion of Company Common . . . . . . . . . . . . .2
1.4 Reservation of Shares. . . . . . . . . . . . . . . . .2
1.5 Dissenting Shares. . . . . . . . . . . . . . . . . . .2
1.6 Acquisition Subsidiary Common Stock. . . . . . . . .3
1.7 Exchange of Company Common Shares. . . . . . . . . . .3
1.8 Stock Options. . . . . . . . . . . . . . . . . . . . .5
1.9 Capitalization Changes . . . . . . . . . . . . . . . .5
1.10 Closing. . . . . . . . . . . . . . . . . . . . . . .5
2. CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . .6
2.1 Conditions to the Obligations of Each Party. . . . . .7
2.2 Conditions to the Obligations of Buyer and Merger
Subsidiary . . . . . . . . . . . . . . . . . . . . . .7
2.3 Conditions to Obligations of the Company . . . . . . .9
THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . 10
3.1 Certificate of Incorporation . . . . . . . . . . . . 10
3.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Directors and Officers . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND BRAY . 10
4.1 Corporate Existence and Power. . . . . . . . . . . . 10
4.2 Corporate Authorization. . . . . . . . . . . . . . 11
4.3 Governmental Authorization . . . . . . . . . . . . . 11
4.4 Non-Contravention. . . . . . . . . . . . . . . . . 11
4.5 Capitalization . . . . . . . . . . . . . . . . . . . 12
4.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . 13
4.7 Securities Filings . . . . . . . . . . . . . . . . . 14
4.8 Financial Statements . . . . . . . . . . . . . . . . 14
4.9 Disclosure Documents . . . . . . . . . . . . . . . . 14
4.10 Absence of Certain Changes . . . . . . . . . . . . . 15
4.11 Real Property and Leaseholds . . . . . . . . . . . . 16
4.12 Tangible Personal Property . . . . . . . . . . . . . 18
4.13 Intellectual Property. . . . . . . . . . . . . . . . 19
4.14 Permits . . . . . . . . . . . . . . . . . . . . . . 21
4.15 No Undisclosed Material Liability. . . . . . . . . . 21
4.16 Litigation . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>ii
4.17 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 22
4.18 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 23
4.19 Material Contracts . . . . . . . . . . . . . . . . . 25
4.20 Insurance Coverage . . . . . . . . . . . . . . . . . 26
4.21 Compliance with Laws . . . . . . . . . . . . . . . . 26
4.22 Finders' Fees. . . . . . . . . . . . . . . . . . . . 27
4.23 Employees. . . . . . . . . . . . . . . . . . . . . . 27
4.24 Products . . . . . . . . . . . . . . . . . . . . . . 28
4.25 Other Information. . . . . . . . . . . . . . . . . . 28
4.26 Environmental Matters. . . . . . . . . . . . . . . . 28
4.27 Customers and Suppliers. . . . . . . . . . . . . . . 32
4.28 Indebtedness to and from Officers, Directors and
Shareholders . . . . . . . . . . . . . . . . . . . . 32
4.29 Banking Facilities . . . . . . . . . . . . . . . . . 32
4.30 Vote Required. . . . . . . . . . . . . . . . . . . . 33
4.31 Anti-takeover Laws . . . . . . . . . . . . . . . . . 33
5. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . 33
5.1 Corporate Existence and Power. . . . . . . . . . . 33
5.2 Corporate Authorization. . . . . . . . . . . . . . . 33
5.3 Governmental Authorization . . . . . . . . . . . . . 33
5.4 Non-Contravention. . . . . . . . . . . . . . . . . . 34
5.5 Capitalization.. . . . . . . . . . . . . . . . . . . 34
5.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . 35
5.7 SEC Filings. . . . . . . . . . . . . . . . . . . . . 36
5.8 Financial Statements. . . . . . . . . . . . . . . . 36
5.9 Disclosure Documents . . . . . . . . . . . . . . . . 37
5.10 Absence of Certain Changes . . . . . . . . . . . . . 38
5.11 No Undisclosed Material Liabilities. . . . . . . . . 38
5.12 Litigation . . . . . . . . . . . . . . . . . . . . . 38
5.13 Compliance with Laws . . . . . . . . . . . . . . . . 38
5.14 Environmental Matters. . . . . . . . . . . . . . . . 39
5.15 Material Contracts.. . . . . . . . . . . . . . . . . 39
5.16 WARN Act.. . . . . . . . . . . . . . . . . . . . . . 39
5.17 Other Information. . . . . . . . . . . . . . . . . . 39
5.18 No Vote Required . . . . . . . . . . . . . . . . . . 39
5.19 Finders' Fees. . . . . . . . . . . . . . . . . . . . 39
5.20 Dissenting Shares. . . . . . . . . . . . . . . . . . 40
6. COVENANTS OF THE COMPANY AND BRAY . . . . . . . . . . . . 40
6.1 Conduct of the Company . . . . . . . . . . . . . . . 40
6.2 Letter of the Company's Accountants. . . . . . . . . 42
6.3 Access to Information. . . . . . . . . . . . . . . . 42
<PAGE>iii
6.4 Other Offers . . . . . . . . . . . . . . . . . . . . 42
6.5 Notices of Certain Events. . . . . . . . . . . . . . 43
6.6 Affiliates . . . . . . . . . . . . . . . . . . . . . 43
6.7 Environmental Site Assessments . . . . . . . . . . . 44
6.8 Confidentiality Agreements . . . . . . . . . . . . . 44
6.9 Ownership of Subsidiaries. . . . . . . . . . . . . . 44
6.10 Voting Shares. . . . . . . . . . . . . . . . . . . . 44
7. COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . 44
7.1 Board of Directors of Buyer. . . . . . . . . . . . . 44
7.2 Obligations of Merger Subsidiary . . . . . . . . . . 44
7.3 Voting of Shares . . . . . . . . . . . . . . . . . . 45
7.4 Director and Officer Liability . . . . . . . . . . . 45
7.5 Conduct of the Buyer . . . . . . . . . . . . . . . . 45
7.6 Letter of the Buyer's Accountants. . . . . . . . . . 45
7.7 Access to Information. . . . . . . . . . . . . . . . 46
7.8 Notices of Certain Events. . . . . . . . . . . . . . 46
7.9 New York Stock Exchange Approval . . . . . . . . . . 46
8. COVENANTS OF BUYER AND THE COMPANY . . . . . . . . . . . . 46
8.1 Reasonable Commercial Efforts. . . . . . . . . . . . 46
8.2 Certain Filings. . . . . . . . . . . . . . . . . . . 46
8.3 Public Announcements . . . . . . . . . . . . . . . . 47
8.4 Further Assurances . . . . . . . . . . . . . . . . . 47
8.5 Preparation of Registration Statement. . . . . . . . 47
8.6 Shareholder Meetings . . . . . . . . . . . . . . . . 48
8.7 Tax-Free Reorganization and Pooling Treatment. . . . 48
8.8 Confidentiality. . . . . . . . . . . . . . . . . . . 48
8.9 Post Effective Time Covenants. . . . . . . . . . . . 49
9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 50
9.1 Termination. . . . . . . . . . . . . . . . . . . . . 50
9.2 Effect of Termination. . . . . . . . . . . . . . . . 50
9.3 Termination Fee. . . . . . . . . . . . . . . . . . . 50
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 51
10.1 Notices. . . . . . . . . . . . . . . . . . . . . . . 51
10.2 Survival of Representations and Warranties . . . . . 52
10.3 Amendments; No Waivers . . . . . . . . . . . . . . . 53
10.4 Expenses . . . . . . . . . . . . . . . . . . . . . 54
10.5 Successors and Assigns . . . . . . . . . . . . . . . 54
10.6 Governing Law. . . . . . . . . . . . . . . . . . . . 54
10.7 Venue; Submission to Jurisdiction . . . . . . . . . 54
<PAGE>iv
10.8 Counterparts; Effectiveness. . . . . . . . . . . . . 54
10.9 Investigation of the Company . . . . . . . . . . . . 55
10.10 GAAP . . . . . . . . . . . . . . . . . . . . . . . . 55
10.11 Superseding Agreement . . . . . . . . . . . . . . . 55
<PAGE>1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May 17, 1996, among
DESALINATION SYSTEMS, INC., a California corporation (the
"Company"), OSMONICS, INC., a Minnesota corporation ("Buyer"),
DSI ACQUISITION CORP., a California corporation and a
wholly-owned subsidiary of Buyer ("Merger Subsidiary") and DONALD
T. BRAY, the principal shareholder of the Company ("Bray").
A. The Company is in the business of designing,
manufacturing and distributing water purification systems (the
Business ). Buyer, the Company and Merger Subsidiary wish to
provide for the terms and conditions of the following described
business combination in which the Merger Subsidiary will be
merged (the "Merger") with and into the Company.
B. For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), and that this Agreement shall constitute a plan of
reorganization pursuant to Section 368 of the Code.
C. For accounting purposes, it is required that the Merger
shall be accounted for as a "pooling-of-interests."
D. Simultaneously with the execution of this Agreement,
certain shareholders of the Company and Buyer have agreed in
writing to vote their respective shares of the Company and Buyer
in favor of the Merger.
E. The parties hereto desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger.
Accordingly, and in consideration of the representations,
warranties, agreements and conditions herein contained, the
parties hereto agree as follows:
1. THE MERGER AND RELATED MATTERS
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined), the
Merger Subsidiary shall be merged with and into the Company
pursuant to the terms and conditions set forth herein and in a
plan of merger substantially in the form set forth as Schedule
1.1 attached hereto (the "Agreement of Merger"). Upon the
consummation of the Agreement of Merger, the separate existence
of the Merger Subsidiary shall cease and the Company shall
continue as the surviving corporation (the "Surviving
Corporation").
1.2 Effective Time of the Merger. As soon as practicable
after each of the conditions set forth in Section 2 hereof (other
than the condition that articles of merger be filed and become
effective) have been satisfied or waived, the Company and Merger
Subsidiary will file, or cause to be filed, articles of merger
with the Secretary of State of California which articles of
merger shall be in the form required by and executed in
accordance with the applicable provisions of California Law. The
<PAGE>2
Merger shall become effective at the time the articles of merger
for such merger are filed with the Secretary of State of
California (the "Effective Time").
1.3 Conversion of Company Common Shares. At the Effective
Time:
1.3.1 Each share of Class A common stock of the
Company, no par value per share (the "Company Class A Common
Share"), issued and outstanding immediately prior thereto (except
for Dissenting Shares as defined in Section 1.5 hereof) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive the number
of shares of common stock of Buyer, par value $.01 per share (the
"Buyer's Common Shares") set forth in Schedule 1.3.1, and each
share of Class B common stock of the Company, no par value per
share (the "Company Class B Common Share", which shares are
referred to collectively with the Company Class A Common Shares
as the Company Common Shares ), issued and outstanding
immediately prior thereto (except for Dissenting Shares as
defined in Section 1.5 hereof) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be
converted into the right to receive the number of shares of the
"Buyer's Common Shares" set forth in Schedule 1.3.1. Such number
of Buyer's Common Shares is subject to adjustment as provided
below in Section 1.8 hereof.
1.3.2 Each share of common stock of the Merger
Subsidiary (the "Merger Subsidiary Common Share") issued and
outstanding immediately prior thereto shall, by virtue of the
Merger and without any action on the part of the holder thereof,
be converted into one (1) Company Common Share, no par value per
share, of the Company as the surviving corporation (the
"Surviving Corporation Common Share").
1.3.3 The holders of certificates representing
Company Common Shares shall cease to have any rights as
shareholders of the Company, except such rights, if any, as they
may have pursuant to California Law. Except as provided above,
until certificates representing Company Common Shares are
surrendered for exchange, each such certificate shall, after the
Effective Time, represent for all purposes only the right to
receive the number of whole Buyer's Common Shares into which
their Company Common Shares shall have been converted by the
Merger as provided above and the right to receive the cash value
of any fraction of a Buyer's Common Share as provided below.
1.4 Reservation of Shares. Prior to the Effective Time, the
Board of Directors of Buyer shall reserve for issuance a
sufficient number of Buyer's Common Shares for the purpose of
issuing its shares to the Company's shareholders in accordance
herewith.
1.5 Dissenting Shares. Any Company Common Shares held by a
holder who dissents from the Merger and becomes entitled to
obtain payment for the value of such Company Common Shares
pursuant to the applicable provisions of California Law shall be
herein called "Dissenting Shares." Except as provided under
California law, any Dissenting Shares shall not, after the
Effective Time, be entitled to vote for any purpose or receive
any dividends or other distributions and shall not be converted
<PAGE>3
into Buyer's Common Shares; provided, however, that Company
Common Shares held by a dissenting shareholder who subsequently
withdraws a demand for payment, fails to comply with the
requirements of California Law to the extent that such
shareholder fails to establish the rights of a dissenting
shareholder, or otherwise fails to establish the right of such
shareholder to be treated as a dissenting shareholder under
California Law shall be deemed to be converted into Buyer's
Common Shares pursuant to the terms and conditions referred to
above.
1.6 Acquisition Subsidiary Common Stock. From and after the
Effective Time, each outstanding certificate previously
representing Merger Subsidiary Common Shares shall be deemed for
all purposes to evidence ownership of and to represent the number
of Surviving Corporation Common Shares into which such Merger
Subsidiary Common Shares shall have been converted.
1.7 Exchange of Company Common Shares.
1.7.1 Promptly after the Effective Time, but in no
event later than thirty (30) days after the Effective Time, Buyer
shall make available for exchange or conversion, by transferring
to Norwest Bank Minnesota, N.A., or such other person as Buyer
may appoint to act as exchange agent (the "Exchange Agent"), for
the benefit of the holders of Company Common Shares, such number
of Buyer's Common Shares as shall be issuable and such amount of
cash as may be payable in lieu of fractional Buyer's Common
Shares in connection with the Merger.
1.7.2 Promptly after the Effective Time, but in no
event later than thirty (30) days after the Effective Time, the
Exchange Agent (or such other person or entity designated by
Buyer) shall mail to each holder of record (other than Buyer, the
Company or any subsidiary of any of them) of a certificate or
certificates which immediately prior to the Effective Time
represented outstanding Company Common Shares (the
"Certificates") a letter of transmittal (substantially in the
form attached hereto as Schedule 1.7.2) and instructions for its
use in effecting the surrender of the Certificates in exchange
for certificates representing Buyer's Common Shares and for cash
payable in lieu of any fractional share.
1.7.3 Within forty-five (45) days after the
surrender of a Certificate for cancellation to the Exchange
Agent, together with the letter of transmittal, and such other
documents as may be reasonably requested by the Exchange Agent,
duly executed, the Exchange Agent shall deliver to the holder of
such Certificate in exchange for the Certificate a certificate
representing 95% (rounded to the nearest whole share) of that
number of whole Buyer's Common Shares into which the Company
Common Shares previously represented by the Certificate so
surrendered shall have been converted by the Merger, and the
Certificate so surrendered shall be canceled. A certificate
representing the remaining number of whole Buyer's Common Shares
into which the Company Common Shares previously represented by
the Certificate so surrendered which shall have been converted by
the Merger (the "Escrow Shares") shall be delivered to the Escrow
Agent, as security for the Company s representations and
warranties hereunder, in accordance with the terms of the escrow
agreement (the "Escrow Agreement" ) to be executed by the Escrow
<PAGE>4
Agent, the Company, the Buyer and the Shareholders as defined in
Section 4.5.1 prior to the Effective Date, a copy of which is
attached hereto as Schedule 1.7.3. In addition to the
certificate, the Exchange Agent shall deliver to the holder of
the Certificate a cashiers check representing the cash due the
holder for any fractional shares of Buyer s Common Shares which
the holder is entitled to receive all as provided in Section
1.7.8.
1.7.4 In the event of a transfer of ownership of
Company Common Shares which is not registered in the transfer
records of the Company, it shall be a condition to the issuance
of Buyer's Common Shares that the Certificate so surrendered
shall be properly endorsed or be otherwise in proper form for
transfer and that such transferee shall (a) pay to the Exchange
Agent any transfer or other taxes required, or (b) establish to
the satisfaction of the Exchange Agent that such tax has been
paid or is not payable. Any Buyer's Common Shares delivered or
made available to the Exchange Agent and not exchanged for
Certificates within one (1) year after the Effective Time shall
be returned by the Exchange Agent to Buyer, or its nominee, which
shall thereafter act as Exchange Agent subject to the rights of
holders of unsurrendered Certificates.
1.7.5 No dividends or other distributions declared
after the Effective Time with respect to Buyer's Common Shares
and payable to the holders of record thereof after the Effective
Time shall be paid to the holder of any unsurrendered Certificate
with respect to the Buyer's Common Shares represented thereby
until the holder of record shall surrender such Certificate.
Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of a Certificate, the holder
thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which previously
became payable with respect to Buyer's Common Shares represented
by such Certificate. All dividends or other distributions
declared after the Effective Time which are payable to the holder
of Certificates not theretofore surrendered and exchanged for
certificates representing Buyer's Common Shares shall be paid or
delivered by Buyer to the Exchange Agent, in trust, for the
benefit of such holders. All such dividends or other
distributions held by the Exchange Agent for payment or delivery
to the holders of unsurrendered Certificates and unclaimed at the
end of one (1) year from the Effective Time shall be repaid or
redelivered by the Exchange Agent to Buyer, or its nominee, after
which time any holder of Certificates who has not theretofore
surrendered such Certificates to the Exchange Agent, shall,
subject to applicable abandoned property, escheat and similar
laws, look as a general creditor only to Buyer for payment or
delivery of such dividends or distributions.
1.7.6 All Buyer's Common Shares and cash for any
fractional share issued and paid upon the surrender for exchange
of Company Common Shares in accordance with the above terms and
conditions shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Company Common
Shares.
1.7.7 After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of
<PAGE>5
the Company of Company Common Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented to the
Company or the Surviving Corporation, they shall be canceled and
exchanged as provided above.
1.7.8 No certificates or scrip representing
fractional Buyer's Common Shares shall be issued upon the
surrender for exchange of Certificates, no dividend or
distribution of Buyer shall relate to any fractional share, and
such fractional share interests shall not entitle the owner
thereof to vote or to any rights of a shareholder of Buyer. In
lieu of any fractional share, the Exchange Agent shall pay to
each holder of Company Common Shares who otherwise would be
entitled to receive a fractional Buyer's Common Share an amount
of cash (without interest) determined by multiplying (a) the
Market Value (as defined below) by (b) the fractional share
interest to which such holder would otherwise be entitled.
"Market Value" shall mean Eighteen and 45/100 Dollars ($18.45).
1.7.9 In the event any Certificates shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificate, upon the
making of an affidavit of that fact by the holder thereof, such
Buyer's Common Shares and cash for fractional shares, if any, as
may be required pursuant hereto; provided, however that Buyer
may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such reasonable sum as
it may direct as indemnity against any claim that may be made
against Buyer, Merger Subsidiary, the Company, the Exchange Agent
or any other party with respect to the Certificate alleged to
have been lost, stolen or destroyed.
1.8 Stock Options. Any Company Common Shares which are or
would have been issued under any stock option granted by the
Company, not to exceed 400 Company Class A Common Shares, and
2000 Company Class B Common Shares shall be exchanged for options
to purchase such number of Buyer's Common Shares which would have
been issuable pursuant to Section 1.7 of this
Agreement if such option holders had exercised their options
prior to the Effective Time and held such applicable numbers of
Company Class A Shares or Company Class B Shares.
1.9 Capitalization Changes. If, between the date of this
Agreement and the Effective Time, the outstanding Buyer's Common
Shares or Company Common Shares shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination,
exchange of shares or stock dividend and the Conversion Ratio
shall be appropriately adjusted.
1.10 Closing. Subject to the provisions of Section 2 hereof,
the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place as soon as practicable (but in
no event later than three (3) business days) after satisfaction
of all of the conditions to Closing at the offices of Maslon
Edelman Borman & Brand, 3300 Norwest Center, Minneapolis,
<PAGE>6
Minnesota, or such other place and time as the parties may
mutually agree. The date on which the Closing actually occurs is
herein referred to as the "Closing Date."
2. CONDITIONS TO THE MERGER
2.1 Conditions to the Obligations of Each Party. The obligations
of the Company, Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following
conditions:
2.1.1 All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any governmental agency or authority
or any third party necessary for the consummation of the
transactions contemplated hereby or required as a result of the
transactions contemplated hereby and any documentation pertaining
thereto or required in connection therewith shall have been
filed, occurred or been obtained, including but not limited to:
2.1.1.1 The expiration of any applicable waiting
period under the HSR Act relating to the Merger.
2.1.1.2 The consents, approvals, etc. required to
continue in effect, without acceleration, the industrial revenue
bonds currently issued and outstanding which were issued to
finance the Company s facilities in Vista, California.
2.1.2 No provision of any applicable law or
regulation and no judgment, injunction, order or decree shall
prohibit the consummation of the Merger.
2.1.3 The registration statement to be filed with
the United States Securities and Exchange Commission ( SEC ) by
Buyer in connection with the issuance of shares of Buyer's Common
Shares in the Merger (the "Registration Statement") pursuant to
Section 8.5 shall have become effective under the Securities Act
or shall be eligible to become effective upon satisfaction of the
conditions, if any specified by the SEC and shall not be the
subject of any stop order or proceedings seeking a stop order.
2.1.4 This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of
the outstanding shares of the Company's Common Stock entitled to
vote thereon.
2.1.5 No court, arbitrator or governmental body,
agency or official shall have issued any Order (as defined
herein), and there shall not be any Law (as defined herein),
restraining or prohibiting the consummation of the Merger or the
effective operation of the business of the Company and the
Subsidiaries or the Buyer and its subsidiaries after the
Effective Time, and no proceeding challenging this Agreement or
the transactions contemplated hereby or seeking to prohibit,
alter, prevent or materially delay the Merger shall have been
instituted by any person before any court, arbitrator or
governmental body, agency or official and be pending.
2.1.6 The Company and its Shareholders shall have
received from the Company's counsel or accountants such comfort
as they reasonably may require that the Merger constitutes a tax
<PAGE>7
free reorganization of the Company, the Merger Subsidiary and the
Buyer.
2.1.7 The Merger shall qualify for "pooling of
interests" accounting treatment and reporting under GAAP (as
defined herein) and the applicable SEC reporting rules and the
Buyer shall have received a letter to such effect from its
auditors.
2.1.8 The Company shall have received a letter
from an investment banker opining as to the relative value of the
Class A and Class B Common Shares, which letter shall be
acceptable to the Company and to the Buyer.
2.1.9 The Company and its auditors shall have
received written confirmation from Nimbus and its shareholders
that the shareholder equity of Nimbus as of December 31, 1995,
and as of the Closing was not less than $2,000.00.
2.2 Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the
following further conditions:
2.2.1 The Company shall have performed in all
material respects all of its obligations hereunder required to be
performed by it at or prior to the Effec- tive Time, the
representations and warranties of the Company contained in this
Agreement and in any certificate or other writing delivered by
the Company pursuant hereto shall be true in all material
respects at and as of the Effective Time as if made at and as of
such time and Buyer shall have received a certificate signed by
the Chairman of the Board, the Chief Executive Officer, and the
Controller of the Company to the foregoing effect.
2.2.2 Buyer shall have received all documents it
may reasonably request relating to the existence of the Company
and the Subsidiaries (as defined herein) and the authority of the
Company for this Agreement, all in form and substance
satisfactory to Buyer.
2.2.3 Buyer shall have been furnished at the
Closing with the opinions of Luce, Forward, Hamilton & Scripps,
counsel to the Company, dated the Closing Date, addressed to
Buyer substantially in the form of Schedule 2.2.3 attached
hereto.
2.2.4 There shall not have occurred between the
date hereof and the Effective Time any material adverse changes
in the consolidated results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued,
contingent or otherwise), business or prospects of the Company
and the Subsidiaries.
2.2.5 The Company will have as of the time of
Closing, excluding from such calculations all costs and expenses
incurred or attributable to this transaction: (i) a ratio of
current assets to current liabilities of at least 1.2:1; (ii)
current liabilities of not more than Five Million Four Hundred
Thousand Dollars ($5,400,000); (iii) annualized revenues of not
less than Nineteen Million Dollars ($19,000,000), (iv) average
<PAGE>8
gross profit margins of not less than thirty-seven percent (37%);
(v) operating profit margins of not less than five percent (5%)
as reflected on DSI s internal operating statements under the
caption Income Before Income Tax Expense ; and (vi) "total
shareholder s equity" of at least Five Million Eight Hundred
Thousand Dollars ($5,800,000). The foregoing ratios and
thresholds shall be determined without regard the to adjustments
set forth in Schedule 2.2.5.
2.2.6 Buyer shall have received the Investment
Representation Letters in the form attached hereto as Schedule
2.2.6.
2.2.7 Donald T. Bray shall have delivered to Buyer
a non- competition agreement substantially in the form attached
hereto as Schedule 2.2.7.
2.2.8 Donald T. Bray shall have delivered to Buyer
a consulting agreement substantially in the form attached hereto
as Schedule 2.2.8 and Buyer shall have received documentation
satisfactory to Buyer terminating that certain consulting
agreement between DTB Consulting Services, Inc. and the Company
dated January 1, 1996, without cost or expense to the Company
other than payments to date as required thereunder.
2.2.9 The Shareholders and key employees of the
Company set forth in Schedule 2.2.9A as requested by Buyer shall
have delivered to Buyer nondisclosure agreements substantially in
the form attached hereto as Schedule 2.2.9B.
2.2.10 The Shareholders shall have delivered to
Buyer Assignments and Releases substantially in the form
attached hereto as Schedule 2.2.10.
2.2.11 The Buyer shall have completed its due
diligence review, including a review of the audited financial
statements for the Company for the fiscal year ending December
31, 1995, which financial statements shall include balance sheets
for such period and statements of income and loss and statements
of cash flows for such period, which financial statements shall
be prepared in accordance with GAAP (as defined herein) and the
Buyer shall be satisfied with the results of such review.
2.2.12 Donald T. Bray shall deliver to the Buyer
amendments to those certain option agreements between him and the
Company, which amendments shall be substantially in the form
attached hereto as Schedule 2.2.12.
2.2.13 Bjarne Nicolaisen shall deliver to the Buyer
amendments to those certain option agreements between him and the
Company, which amendments shall be substantially in the form
attached hereto as Schedule 2.2.13.
2.2.14 The Buyer shall have received the written
election of Donald T. Bray concerning the type of shares of
Company Common Stock he will receive under his options with the
Company to acquire Company Common Stock.
2.2.15 The Buyer shall have received the written
election of Bjarne Nicolaisen concerning the type of shares of
Company Common Stock he will receive under his options with the
Company to acquire Company Common Stock.
2.2.16 The Company and its auditors shall have
received an unconditional commitment from the shareholders of
<PAGE>9
Nimbus to contribute capital or take such other action as will
allow Nimbus to continue to operate as a going concern through
December 31, 1999, which commitment shall be reasonably
acceptable to Buyer. The Company and its auditor shall have also
received written confirmation from Nimbus and its shareholders
that the shareholder equity of Nimbus at Closing is not less than
Two Thousand Dollars ($2,000.00).
2.2.17 The Company shall have been released from
any liability under any guaranty of the Company for advances on
or after the Effective Time.
2. 2.18 The Company shall have terminated its Stock
Appreciation Rights Plan and delivered to the Buyer documentation
reasonably acceptable to Buyer substantiating the termination of
such plan and the release by the plan s participants of the
Company from any liability under such plan.
2.2.19 The Company or Buyer shall have received an
Employment Agreement substantially in the form attached hereto as
Schedule 2.2.19.
2.3 Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger are subject
to the satisfaction of the following further conditions:
2.3.1 Buyer shall have performed in all material
respects all of its obligations hereunder required to be
performed by it at or prior to the Effective Time, the
representations and warranties of Buyer contained in this
Agreement and in any certificate or other writing delivered by
Buyer to the Company pursuant hereto shall be true in all
material respects at and as of the Effective Time as if made at
and as of such time and the Company shall have received one or
more certificates signed by the Chief Executive Officer and Chief
Financial Officer and all other officers of Buyer to the
foregoing effect.
2.3.2 The Company shall have received all
documents it may reasonably request relating to the existence of
Buyer and its subsidiaries and the authority of Buyer for this
Agreement, all in form and substance satisfactory to the Company.
2.3.3 The Company shall have been furnished at the
Closing with an opinion of Maslon Edelman Borman and Brand,
counsel to Buyer dated the Closing Date, addressed to the Company
substantially in the form attached hereto as Schedule 2.3.3.
2.3.4 There shall not have occurred between the
date hereof and the Effective Time any material adverse changes
in the consolidated results of operations, condition (financial
or otherwise), assets, liabilities (whether absolute, accrued,
contingent or otherwise), business or prospects of Buyer and its
Subsidiaries.
2.3.5 Buyer shall have delivered to the
Shareholders the Registration Rights Agreement set forth in
Schedule 2.3.5 and the Registration Statement referred to in
Section 8.5 shall be entitled to become effective under the
applicable security law upon, or immediately after, the Effective
Time.
2.3.6 Each Shareholder holding five percent (5%)
or more of the outstanding Company Common Shares shall have voted
<PAGE>10
all such shares in favor of the approval and ratification of this
Agreement and the transactions contemplated hereby.
2.3.7 Donald T. Bray and Julianne Bray shall have
been released from all personal guarantees which they have given
on or prior to the Effective Time ( other than pursuant to this
Agreement) in connection with the operations of the Company,
including, but not limited to, the personal guaranty given in
connection with the acquisition of the Company s current
facility, or if such guaranty is not obtainable, Donald T. Bray
and Julianne Bray shall have received from Buyer, Buyer s
agreement to indemnify Donald T. Bray and Julianne Bray from any
liability arising under such guaranty after the Effective Time,
which agreement shall be reasonably acceptable to Donald T. Bray
and Julie L. Bray.
2.3.8 The Company s Shareholders shall have
received from their counsel or accountants such comfort as they
may reasonably require that the Merger constitutes a tax free
reorganization of the Company, the Merger Subsidiary and the
Buyer.
3. THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective
Time shall be the certificate of incorporation of the Company as
the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Company as the
Surviving Corporation shall continue to be "DESALINATION SYSTEMS,
INC."
3.2 Bylaws. The bylaws of Merger Subsidiary in effect at
the Effective Time shall be the bylaws of the Company as the
Surviving Corporation until amended in accordance with applicable
law.
3.3 Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (a) the directors of
Merger Subsidiary at the Effective Time shall be the directors of
the Company as the Surviving Corporation, (b) the chief executive
officer of the Merger Subsidiary at the Effective Time shall be
the chief executive officer of the Company as the Surviving
Corporation, and (c) the officers (other than the chief executive
officer) of the Company at the Effective Time shall be the
officers (other than the chief executive officer) of the Company
as the Surviving Corporation.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND BRAY
The Company and Bray represent and warrant to Buyer that:
4.1 Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of California, and has all
corporate powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now
conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the
<PAGE>11
nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so
qualified would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or
otherwise), business, assets, results of operations or prospects
of the Company and the Subsidiaries (as defined in Section 4.6),
taken as a whole (a "Material Adverse Effect"). The Company has
heretofore delivered to Buyer true and complete copies of the
Company's articles of incorporation and bylaws as currently in
effect.
4.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation
by the Company of the transactions contemplated hereby are within
the Company's corporate powers and, except for any required
approval by the Company's Shareholders in connection with the
consummation of the Merger, have been duly authorized by all
necessary corporate action. This Agreement constitutes a valid
and binding agreement of the Company.
4.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation
of the Merger by the Company require no action by or in respect
of, or filing with, any governmental body, agency, official or
authority other than:
4.3.1 the filing of articles of merger in
accordance with California Law;
4.3.2 compliance with any applicable requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act");
4.3.3 compliance with any applicable requirements
of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act") and the
Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder (the "Exchange Act");
4.3.4 compliance with any applicable requirements
of state securities or "blue sky" laws (the "Blue Sky Laws").
4.4 Non-Contravention. The execution, delivery and
performance by the Company of this Agreement and the consummation
by the Company of the transactions contemplated hereby do not and
will not:
4.4.1 contravene or conflict with the articles of
incorporation or bylaws of the Company;
4.4.2 assuming compliance with the matters
referred to in Section 4.3, contravene or conflict with or
constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable
to the Company or any Subsidiary;
4.4.3 except as set forth in Schedule 4.4.3
constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or
obligation of the Company or any Subsidiary or to a loss of any
benefit to which the Company or any Subsidiary is entitled under
<PAGE>12
any provision of any agreement, contract or other instrument
binding upon the Company or any Subsidiary or any license,
franchise, permit or other similar authorization held by the
Company or any Subsidiary; or
4.4.4 result in the creation or imposition of any
Lien on any asset of the Company or any Subsidiary. For purposes
of this Agreement, "Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
4.5 Capitalization.
4.5.1 The authorized capital stock of the Company
consists of 50,000 shares of Company Class A Common Shares and
50,000 shares of Company Class B Common Shares ("Shares"). As of
the date of this Agreement, there were outstanding 4,227 shares
of Company Class A Common Shares, no par value per share and
4,480 shares of Company Class B Common Shares. All outstanding
shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. Set
forth on Schedule 4.5.1 is a complete list of the holders
directly or indirectly of all of the outstanding Securities (as
defined herein) of the Company and its Subsidiaries which list
sets forth the name, address, social security or tax
identification number, and phone number of each such holder as
well as the number and type of each security held or owned
directly or indirectly by such holder. The holders of Common
Shares of the Company are referred to herein as the
"Shareholders".
4.5.2 There were also available for purchase by
individuals not more than 400 shares of Company Class A Common
Shares and 2,000 shares of Company Class B Common Shares to be
purchased at the prices and on the terms set forth in the option
agreements attached hereto as Schedules 4.5.2A, B, C, and D.
Schedule 4.5.2E sets forth a list of all such option holders, the
number and type of security to which the options apply as well as
the exercise price thereof.
4.5.3 Except as set forth in this Section, there
are no:
4.5.3.1 shares of capital stock or other
voting securities of the Company;
4.5.3.2 securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company;
4.5.3.3 options or other rights to acquire
from the Company, and no obligation of the Company to issue, any
capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of the
Company (the items in Sections 4.5.3.1, 4.5.3.2 and 4.5.3.3 being
referred to collectively as the "Company Securities"). There are
no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities.
4.5.3.4 agreements to sell, transfer, or exchange
shares between existing Shareholders, or shareholder rights which
gives one stockholder preferential treatment over another, other
<PAGE>13
than Donald Bray s divorce agreement dated May 16, 1980;
4.5.3.5 business interests owned or controlled by
one or more Shareholders which were a subsidiary or division of
the Company after January 1, 1994; and
4.5.3.6 business interests described in Section
4.5.3.5 that are not autonomous with respect to the Company as
defined by Accounting Interpretation No. 27 (Enterprises Under
Common Control in a Business Combination) or incapable of
operating as viable economic entities in absence of a
relationship with the Company.
4.5.4 The Company s Desalination Systems, Inc.
1985 Incentive Stock Option Plan has terminated by its terms and
has not been amended or had its term extended or been replaced by
any other such stock option plan. Except as set forth in this
Agreement or the Schedules hereto, no options have been granted
pursuant to such stock option plan.
4.6 Subsidiaries.
4.6.1 Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all corporate
powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature
of its activities make such qualification necessary, except for
those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect.
For purposes of this Agreement, "Subsidiary" means any entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or
indirectly owned by the Company. All Subsidiaries and their
respective jurisdictions of incorporation are identified in
Schedule 4.6.
4.6.2 Except as set forth on Schedule 4.6.2, all
of the outstanding capital stock of, or other ownership interests
in, each Subsidiary, is owned by the Company, directly or
indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
4.6.3 There are no outstanding:
4.6.3.1 Securities (as such term is applied
in interpreting the securities laws of the United States) of the
Company, or any Subsidiary, which are convertible into or
exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary; and
4.6.3.2 Options or other rights to acquire
from the Company or any Subsidiary, and no other obligation of
the Company or any Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities
<PAGE>14
convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items
in Sections 4.6.3.1 and 4.6.3.2 being referred to collectively as
the "Subsidiary Securities"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any outstanding Subsidiary
Securities.
4.7 Securities Filings. The Company has delivered to Buyer
all reports, statements, schedules and registration statements or
other documents filed with the Securities and Exchange Commission
(the "SEC") or the State of California pertaining to the issuance
of securities, if any.
4.8 Financial Statements.
4.8.1 Except as set forth on Schedule 4.8, the
reviewed consolidated financial statements for the years ending
December 31, 1992, 1993, and 1994, and the audited consolidated
financial statements (including the notes thereto) of the Company
for the year ended 1995, a copy of which is included in Schedule
4.8 (collectively, the "Financial Statements") were prepared in
accordance with the books and records of the Company and the
Subsidiaries, and fairly present, in conformity with GAAP, the
consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their
consolidated results of operations, Shareholders' equity and cash
flows for the periods then ended. For purposes of this
Agreement, "Balance Sheet" means the audited consolidated balance
sheets of the Company as of December 31, 1995.
4.8.2 All account and note receivables reflected
on the Balance Sheet and additional receivables thereafter
acquired by the Company prior to the Effective Date have, except
as provided in Schedule 4.8.2, arisen in the ordinary course of
business. All such receivables are collectible in due course in
the face amounts thereof (less, except in the case of any
receivable due from Nimbus, any allowance for doubtful accounts
as shown on the Balance Sheet).
4.8.3 The maximum liability of the Company under
the Stock Appreciation Rights Plan approved April 5, 1990, by the
Company s Board of Directors does not exceed Twenty Thousand and
no/100 Dollars ($20,000) in the aggregate.
4.8.4 The outstanding amount due under the
Promissory Note of Nimbus ("Nimbus Note"), dated December 20,
1989, in the original amount of Three Hundred Three Thousand Four
Hundred Four and 75/100 Dollars ($303,404.75), as of March 1,
1996, was Two Hundred Forty Nine Thousand Nine Hundred Sixty One
and 82/100 Dollars ($249,961.82).
4.9 Disclosure Documents.
4.9.1 None of the information supplied or to be
supplied by the Company for inclusion or incorporation by
reference in the Registration Statement will, (i) at the time the
Registration Statement is filed with the SEC, (ii) at the time
<PAGE>15
they become effective under the Securities Act, (iii) at the date
of mailing to Shareholders and (iv) at the times of the meetings
of Shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading.
4.9.2 None of the information supplied or to be
supplied by the Company to Buyer will, (i) at the time the
information is provided to Buyer, or (ii) at any time prior to
the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
4.10 Absence of Certain Changes. Except as set forth in
Schedule 4.10 or otherwise reported in the SEC filings listed in
Section 4.7 or reflected in the financial statements listed in
Section 4.8, since the date of the Balance Sheet, the Company and
Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
4.10.1 any material adverse change in the business,
assets, condition (financial or otherwise), results of operations
or prospects of the Company and the Subsidiaries taken as a whole
(a "Material Adverse Change") or any event, occurrence or
development of a state of circumstances or facts which could
reasonably be expected to result in a Material Adverse Change;
4.10.2 any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of
capital stock of the Company or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of any
outstanding shares of capital stock or other securities of, or
other ownership interests in, the Company or any Subsidiary;
4.10.3 any amendment of any material term of any
outstanding security of the Company or any Subsidiary;
4.10.4 any incurrence, assumption or guarantee by
the Company or any Subsidiary of any indebtedness for borrowed
money other than in the ordinary course of business and in
amounts and on terms consistent with past practices;
4.10.5 any creation or assumption by the Company or
any Subsidiary of any Lien on any material asset other than in
the ordinary course of business consistent with past practices;
4.10.6 any making of any loan, advance or capital
contributions to or investment in any person other than loans,
advances or capital contributions to or investments in
wholly-owned Subsidiaries made in the ordinary course of business
consistent with past practices;
4.10.7 any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting the business
or assets of the Company or any Subsidiary which, individually or
in the aggregate, has had or would reasonably be expected to have
a Material Adverse Effect;
4.10.8 any transaction or commitment made, or any
contract or agreement entered into, by the Company or any
Subsidiary relating to its assets or business (including the
<PAGE>16
acquisition or disposition of any assets) or any relinquishment
by the Company or any Subsidiary of any contract or other right,
in either case, material to the Company and the Subsidiaries
taken as a whole, other than transactions and commitments in the
ordinary course of business consistent with past practice and
those contemplated by this Agreement;
4.10.9 any change in any method of accounting or
accounting practice by the Company or any Subsidiary, except for
any such change required by reason of a concurrent change in
generally accepted accounting principles;
4.10.10 any (i) grant of any severance or
termination pay to any director, officer or employee of the
Company or any Subsidiary, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director,
officer or employee of the Company or any Subsidiary, (iii) any
increase in benefits payable under any existing severance or
termination pay policies or employment agreements, or (iv) any
increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any Subsidiary
after December 31, 1995, except as disclosed on Schedule 4.10.10;
4.10.11 any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor
union or representative thereof to organize any employees of the
Company or any Subsidiary, which employees were not subject to a
collective bargaining agreement at the Balance Sheet Date, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof
by or with respect to such employees; or
4.10.12 any unaccrued pay for any unused vacation
for any employee.
4.11 Real Property and Leaseholds.
4.11.1 There is listed on Schedule 4.11:
4.11.1.1 A description of each parcel of real
property owned by, leased to or used in the business of the
Company or any Subsidiary (collectively, the "Real Property") and
the Company has delivered to the Buyer true, correct and complete
legal descriptions and, to the extent available, surveys of each
parcel of Real Property;
4.11.1.2 A description of each lease,
sublease, or other license, use or occupancy agreement pertaining
to any Real Property to which the Company or any Subsidiary is a
party (collectively, the "Leases"); and
4.11.1.3 A description of any option or right
to purchase or lease any parcel of real property. The Company
has delivered to Buyer true, correct and complete copies of the
Leases.
4.11.2 Except as indicated in Schedule 4.11:
4.11.2.1 The Company or the relevant
Subsidiary, as the case may be, has marketable and insurable,
indefeasible, fee simple title to, or in the case of the Leases
<PAGE>17
has valid leasehold interests in, all of the Real Property,
subject to liens of mortgages and other security interests in the
Real Property as listed in Schedule 4.11.2.1 and, in all cases,
subject to standard and customary exceptions which do not
adversely affect the Company's or any Subsidiary's use,
possession or rights to and in the Real Property;
4.11.2.2 All of the Leases are in full force
and effect and are valid, binding and enforceable in accordance
with their respective terms and there does not exist under any of
the Leases any event which with notice or lapse of time or both
would constitute a default;
4.11.2.3 All of the plants, buildings,
structures and other improvements (including, without limitation,
all of the electrical, plumbing, heating, HVAC and other building
systems located therein) that are situated on the Real Property
are in good operating condition and repair and have been
reasonably maintained consistent with standards generally
followed in the industry (ordinary wear and tear excepted), are
suitable for their present uses and, in the case of plants,
buildings and other structures (including without limitation, the
roofs thereof), are structurally sound;
4.11.2.4 There is legal access to the Real
Property via public roads or valid easements over private streets
or private property for such ingress to and egress from the Real
Property as is necessary for the conduct of the business of the
Company and the Subsidiaries;
4.11.2.5 Except as set forth in Schedule
4.11.2.5, which is reflected on surveys delivered to Buyer, none
of the structures on the Real Property encroaches upon real
property of another person, and no structure of any other person
encroaches upon any of the Real Property in any manner which
adversely affects the Company's or any Subsidiary's use,
possession or rights to the Real Property;
4.11.2.6 None of the Real Property is subject to
any liens, claims or encumbrances except: (i) liens, claims or
encumbrances disclosed on the Balance Sheet; (ii) liens for taxes
not yet due or being contested in good faith (and for which
adequate reserves have been established on the Balance Sheet); or
(iii) other recorded use and building restrictions and customary
and normal easements for utilities and zoning restrictions, which
do not adversely affect the Company's or any Subsidiary's use,
possession or rights in the Real Property;
4.11.2.7 All of the Real Property is serviced by
all utilities as are necessary for the conduct of the Business
<PAGE>18
and, to the Company's knowledge, there are no threatened
curtailment or reduction of any such utilities;
4.11.2.8 To the best knowledge of the Company,
there are no developments affecting any of the Real Property
pending or, threatened, which might materially detract from the
value of such property, materially interfere with any present or
intended use of such property or materially adversely affect the
marketability or insurability of title to any Real Property.
4.12 Tangible Personal Property.
4.12.1 There is listed on Schedule 4.12:
4.12.1.1 a description of each item of tangible
personal property owned by the Company or any Subsidiary having
on the date hereof either an original cost or estimated fair
market value per unit in excess of $1,000.00 or not owned by the
Company or any Subsidiary but in the possession of or used in the
business of the Company or any Subsidiary and having rental
payments therefor in excess of $100.00 per month or $1,000.00 per
year;
4.12.1.2 a description of the owner of, and any
agreement relating to the use of, each such item of tangible
personal property not owned by the Company or a Subsidiary and
the circumstances under which such property is used; and
4.12.1.3 a list of all personal property not
located on the business premises of the Company, including the
location of such personal property by street address and phone
number, the value of such personal property, and the name of the
entity which is in possession or control of such personal
property.
4.12.2 Except as indicated in Schedule 4.12:
4.12.2.1 the Company or the relevant Subsidiary,
as the case may be, has good and marketable title to each item of
its tangible personal property listed pursuant to Section 4.12.1
free and clear of all liens, leases, encumbrances, claims under
bailment and storage agreements, equities, conditional sales
contracts, security interests, charges and restrictions, except
for liens, if any, for personal property taxes not due;
4.12.2.2 each item of tangible personal
property listed pursuant to Section 4.12.1 leased by the Company
or a Subsidiary is in such condition as of the date hereof that
upon the return of such property to its owner in its present
condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between the Company or
the relevant Subsidiary, as the case may be, and the owner or
lessor thereof, the obligations of the Company or the relevant
Subsidiary, as the case may be, to such owner or lessor will be
discharged;
<PAGE>19
4.12.2.3 the tangible personal property listed
pursuant to Section 4.12.1.1 in Schedule 4.12 taken as a whole is
in good operating condition and repair and is fit for its
intended purposes; the Company has no knowledge of any defects or
problems concerning such machinery and equipment; all of the
machinery and equipment utilized by the Company in its ordinary
course of business is adequate for existing levels of production
as such production has been represented by the Company to Buyer;
such machinery and equipment has been maintained in accordance
with the original manufacturer's recommended maintenance
schedules; and such machinery and equipment meets manufacturing
performance specifications without major repair or overhaul of
said equipment and
4.12.2.4 the Company and each Subsidiary own or
otherwise have the right to use all of the tangible personal
property now used by them in the operation of their respective
businesses or the use of which is necessary for the performance
of any material contract, letter of intent or proposal to which
any of them is a party.
4.13 Intellectual Property.
4.13.1 Schedule 4.13.1 contains a list of all
inventions which are the subject of issued letters patent or an
application therefor, all trade and service marks, logos, and
slogans indicating which have been registered or for which an
application for registration is pending and all writings or
software for which a claim for copyright may exist whether such
claim has been recorded or is pending, all manufacturing
processes, technology, know-how, artwork, techniques, formulae,
trade secrets, propriety information, ideas, algorithms, data
bases, technical data, operating procedures, designs,
specifications and methods and the like in each case which are
owned, used or held for use by the Company or any Subsidiary
marks, all rights in, to and under the foregoing and all
licenses pertaining to any of the foregoing (collectively, the
"Intellectual Property Rights"), specifying as to each, as
applicable:
4.13.1.1 The nature of such Intellectual
Property Right;
4.13.1.2 The owner of such Intellectual
Property Right;
4.13.1.3 The jurisdictions by or in which
such Intellectual Property Right has been issued or registered or
in which an application for such issuance or registration has
been filed, including the respective registration or application
numbers;
4.13.1.4 The date such Intellectual Property
Right was issued or registered;
4.13.1.5 The date any registration of such
Intellectual Property Right expires; and
<PAGE>20
4.13.1.6 Licenses, sublicenses and other
agreements as to which the Company or any Subsidiary is a party
and pursuant to which any person is authorized to use any
Intellectual Property Right, including the identity of all
parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the terms thereof.
4.13.2 The Company or a Subsidiary, as the case
may be, is the sole and exclusive owner of, with all right, title
and interest in and to (free and clear of any lien, claim,
charge, pledge, security interest or encumbrance of any kind),
the Intellectual Property Rights and has sole and exclusive
rights (without being contractually obligated to pay any
compensation to any third party in respect thereof) for the use
thereof or the material covered thereby in connection with the
services or products in respect of which they are being used.
4.13.3 Except as set forth in Schedule 4.13.3,
neither the Company nor any Subsidiary during the ten (10) years
preceding the date of this Agreement has been sued or charged
with or been a defendant in any claim, suit, action or proceeding
relating to its business which has not been finally terminated
prior to the date hereof and which involves a claim of
infringement of any patents, trademarks, service marks, trade
secrets or copyrights. Except as set forth in Schedule 4.13.3,
there are no claims of infringements of any patents, trademarks,
service marks, copyrights or trade secrets made by the Company or
any Subsidiary. To the best knowledge of the Company, there are
no infringements by any other person of any Intellectual Property
Rights. No Intellectual Property Right is subject to any
outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Company or any Subsidiary or
restricting the licensing thereof by the Company or any
Subsidiary to any person. Except as set forth in Schedule
4.13.3, normal and customary implied warranties under the Uniform
Commercial Code, or normal and customary warranties contained in
purchase orders, neither the Company nor any Subsidiary has
entered into any agreement to indemnify any other person against
any charge of infringement of any patent, trademark, service
mark, trade secret or copyright, which agreement is currently in
effect or has not expired or terminated.
4.13.4 Except as set forth in Schedule 4.13.1,
none of the processes and formulae, research and development
results and other know-how of the Company or any Subsidiary, the
value of which to the Company or such Subsidiary is contingent
upon maintenance of the confidentiality thereof, has been
disclosed by the Company or any Subsidiary to any person other
than employees, representatives and agents of the Company or the
Subsidiaries, the Buyer and its representatives, technical
consultants, and parts and material suppliers in the normal
course of the Company's business, all of whom are subject to
enforceable confidentiality agreements with the Company or the
relevant Subsidiary.
4.13.5 Schedule 4.13.5 is a true and complete list
of all employees of the Company or any Subsidiary indicating
<PAGE>21
which employees have executed confidentiality agreements for the
benefit of the Company and its Subsidiaries, which agreements are
enforceable by the Company and its Subsidiaries, and Schedule
4.13.5 further sets forth a true and complete copy of the form or
forms of such confidentiality agreements.
4.13.6 Except as set forth in Schedule 4.13.6,
computer systems are fully operational and perform according to
their specifications. All computer programs used in the Business
are fully functional on the applicable Company s computers. To
the best knowledge of the Company, the Company's computer systems
include adequate manuals for the operation of all of the
Company's computer equipment and computer programs. Except as
identified in Schedule 4.13.6, the Company either owns all rights
in any software used by it or has a valid and enforceable license
(copies of which have been provided to Buyer) to use such
software and, no such software is being used in violation of any
such license. All such computer software and licenses to use
such software are, except as set forth on Schedule 4.13.6, fully
transferable and assignable without the payment of additional
license or transfer fees.
4.14 Permits. Schedule 4.14 sets forth all licenses,
franchises, permits, governmental authorizations ( Permits )
owned or used by the Company. Except as indicated on Schedule
4.14, the specified Permits held or used by the Company are
valid, and the Company has not received any notice that any
governmental authority or other party intends to cancel,
terminate or not renew any such Permit and the Company has
provided Buyer with a true and complete copy of all documents
relating to the Permits. There have not been any actions or
other judicial or adversary proceedings involving the Company
concerning any such Permits, nor to the best knowledge of the
Company, is any such action or proceeding threatened nor is the
Company aware of any facts or circumstances which may reasonably
be expected to give rise to such an action or proceeding.
4.15 No Undisclosed Material Liability. Except as otherwise
specifically scheduled in this Agreement, there are no
liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be
expected to result in such a liability, other than:
4.15.1 liabilities disclosed or provided for in the
Balance Sheet;
4.15.2 liabilities incurred in the ordinary course
of business consistent with past practice since the Balance Sheet
Date, which in the aggregate are not material to the Company and
the Subsidiaries, taken as a whole; and
4.15.3 liabilities under this Agreement.
4.16 Litigation. Except as set forth in Schedule 4.16, there
is no action, suit, investigation or proceeding (or any basis
therefor) pending against, or to the knowledge of the Company,
threatened against or affecting, the Company or any Subsidiary or
any of their respective properties before any court or arbitrator
or any governmental body, agency or official.
<PAGE>22
4.17 Taxes. Except as set forth in Schedule 4.17:
4.17.1 the Company and the Subsidiaries have
timely filed, been included in or sent, and will, prior to the
Closing, timely file, be included in or send all returns,
declarations and reports and information returns and statements
required to be filed or sent by or relating to any of them prior
to the Closing relating to any Taxes (as defined below) with
respect to any income, properties or operations of the Company or
any Subsidiary prior to the Closing (collectively, the
"Returns");
4.17.2 as of the time of filing, the Returns:
4.17.2.1 correctly reflected (and, as to any
Returns not filed as of the date hereof, will correctly reflect)
the facts regarding the income, business, assets, operations,
activities and status of the Company and the Subsidiaries and any
other information required to be shown therein;
4.17.2.2 constitute (and, as to any Returns
not filed as of the date hereof, will constitute) complete and
accurate representations of the Tax liabilities for the periods
covered; and
4.17.2.3 accurately set forth all items (to
the extent required to be included or reflected in the Returns)
relevant to future Tax liabilities, including the Tax bases of
properties and assets;
4.17.3 the Company and the Subsidiaries have
timely paid or made provision for all Taxes that have been shown
as due and payable on the Returns that have been filed;
4.17.4 the Company and the Subsidiaries have made
or will make provision for all Taxes payable for any periods that
end before the Closing for which no Returns have yet been filed
and for any periods that begin before the Closing and end after
the Closing to the extent such Taxes are attributable to the
portion of any such period ending at the Closing;
4.17.5 the charges, accruals and reserves for
Taxes reflected on the Financial Statements are adequate to cover
the Tax liabilities accruing or payable by the Company and the
Subsidiaries in respect of periods prior to the date hereof;
4.17.6 neither the Company nor any Subsidiary is
delinquent in the payment of any Taxes or has requested any
extension of time within which to file or send any Return, which
Return has not since been filed or sent or will not be filed or
sent;
4.17.7 no deficiency for any Taxes has been
proposed, asserted or assessed against the Company or any
Subsidiary (or any member of any affiliated or combined group of
which the Company or any Subsidiary is or has been a member for
which either the Company or any Subsidiary could be liable);
4.17.8 neither the Company nor any Subsidiary has
granted any extension of the limitation period applicable to any
Tax claims and neither the Company nor any Subsidiary has waived
any such limitation period;
<PAGE>23
4.17.9 neither the Company nor any Subsidiary is
or has been a party to any tax sharing agreement with any
corporation which, as of the Closing, is not a member of the
affiliated group of which the Company is a member;
4.17.10 neither the Company nor any Subsidiary has
made any elec- tion under Section 341(f) of the Code;
4.17.11 no Shareholder is a foreign citizen; and
4.17.12 no Tax is required to be withheld pursuant
to Section 1445 of the Code as a result of the transactions
contemplated in this Agreement.
4.17.13 Federal income tax returns of the Company
and the Subsidiaries have not been examined by the Internal
Revenue Service.
4.17.14 "Tax" (and with the corresponding meaning
"Taxes" and "Taxable") shall include (i) any net income, gross
income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall
profit tax, custom duty or other tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with
any interest and any penalty, addition to tax or additional
amount imposed by any taxing authority (domestic or foreign) and
(ii) any liability for the payment of any amount of the type
described in clause (i) as a result of being a member of an
affiliated or combined group.
4.18 ERISA.
4.18.1 Schedule 4.18 lists all employee welfare
benefit plans and all employee pension benefit plans within the
meaning of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") maintained or contributed to by the Company
or any Subsidiary, and no trust funds are so maintained in
connection with any employee welfare benefit plan. The Company
has delivered or made available to Buyer a true, correct and
complete copy of each employee benefit plan identified on
Schedule 4.18. As to each such employee benefit plan that is
funded, the Company has delivered or made available to Buyer a
true, correct and complete copy of the most recent annual
financial report with respect to such plan, and any subsequent
interim report. Each such financial report and interim report is
an accurate description of the financial status of the subject
employee benefit plan, and there have been no adverse changes in
the financial status of any such employee benefit plan since the
date of the most recent report provided with respect thereto.
4.18.2 Schedule 4.18 specifically identifies each
employee benefit plan which is represented to be a qualified plan
under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). With respect to each employee benefit plan
so identified, the following are true: (i) the plan, in form and
operation, currently satisfies, and for all years subsequent to
the establishment of, such plan has satisfied, the qualification
requirements of Section 401(a) or 403(a) of the Code, as
applicable; and (ii) except as identified on Schedule 4.18, the
Internal Revenue Service (the "IRS") has issued a favorable
letter of determination with respect to the plan as amended to
date, and all amendments required by the Code as a condition of
retention of such qualified status as of the date hereof have
<PAGE>24
been or will be adopted within time limits required to maintain
such status. Each plan is and has been operating in compliance
with all amendments required by the Tax Reform Act of 1986 and
subsequent legislation and regulations. The Company has
delivered or will deliver a true, correct and complete copy of
all letters of determination with respect to all such plans as
amended to date.
4.18.3 The Company and each Subsidiary does not
now maintain or contribute to, nor, except as set forth on
Schedule 4.18 has it at any time maintained or contributed to,
any employee benefit plan which is subject to Title IV of ERISA.
Except as set forth in Schedule 4.18, all contributions payable
to any employee benefit plan for any plan year ending prior to
the date hereof have been paid in full on a timely basis and no
accumulated funding deficiency (as defined in Section 302(a)(2)
of ERISA) has been incurred.
4.18.4 The Company and each Subsidiary has not
engaged in, nor entered into any arrangement pursuant to which
any person or entity is contractually bound to enter into, any
transaction which could result in imposition upon either the
Company or any Subsidiary or Buyer or Merger Subsidiary of any
excise tax under Sections 4971 through 4980B, inclusive, and
Section 5000 of the Code or civil liability under Section 502(i)
or 502(l) of ERISA or otherwise incurred a liability for any
excise tax, other than excise taxes which have heretofore been
paid or have been accrued, and, in either case are fully
reflected in the Company's consolidated financial statements as
at December 31, 1995.
4.18.5 The Company and each Subsidiary has (i)
filed or caused to be filed on a timely basis each and every
return, report, statement, notice, declaration and other document
required to be filed with any governmental agency, federal, state
and local (including, without limitation, the IRS, the Department
of Labor, the Pension Benefit Guaranty Corporation and SEC) with
respect to each employee benefit plan sponsored or maintained by
the Company or any Subsidiary, and the Company delivered or made
available to Buyer all records with respect to such plans as are
required for their proper administration and proper continued
reporting and disclosure; (ii) timely complied with all
applicable participant disclosure requirements of ERISA; and
(iii) has maintained in full force and effect any bond required
under ERISA in connection with such plans.
4.18.6 Except in connection with the Subsidiaries,
the Company and each Subsidiary is not and has never been a
member of a controlled group of corporations, an unincorporated
trade or business under common control, or a member of an
affiliated service group (as such terms are defined in Sections
414(b), 414(c) and 414(m) of the Code), involving any other
entity.
4.18.7 Except as described in Schedule 4.18, there
are no "leased employees" (as defined in Section 414(n) of the
Code) who performed services for the Company or any Subsidiary,
nor are there any persons who are anticipated to become leased
employees with the passage of time.
<PAGE>25
4.18.8 Except as described on Schedule 4.18, the
Company and its Subsidiaries do not maintain any employee benefit
plan providing benefits to former employees other than health
coverage mandated by applicable law.
4.18.9 The Company and its Subsidiaries have
complied in all respects with the "COBRA" requirements of Section
4980B of the Code.
4.18.10 There are no actions, suits or claims
pending or, to the best knowledge of the Company, threatened with
respect to any plan listed on Schedule 4.18 other than routine
claims for benefits.
4.19 Material Contracts.
4.19.1 Except for agreements, contracts, plans,
leases, arrangements or commitments disclosed in Schedule 4.19.1,
which Schedule has been updated to a date which is within five
(5) business days prior to the date of this Agreement, or any
other schedule to this Agreement, neither the Company nor any
Subsidiary is a party to or subject to:
4.19.1.1 any lease providing for annual
rentals of $2,500.00 or more;
4.19.1.2 any contract for the purchase of
materials, supplies, goods, services, equipment or other-assets
providing for (a) annual payments by the Company or any
Subsidiary of $20,000.00 or more, or (b) payments of $100,000.00
or more in the aggregate over the term of any contract; provided,
however, the list of purchase orders entered into in the ordinary
course of business contained in Schedule 4.19.1 may be updated to
a date which is ten (10) days prior to the date of this
Agreement;
4.19.1.3 any agency, representative, dealer,
sales, distribution or other similar agreement or any other
agreement providing for the sale by the Company or any Subsidiary
of materials, supplies, goods, services, equipment or other
assets (said Schedule 4.19.1 shall include the (a) names of the
parties to each such agreement, (b) whether or not it is an
exclusive agreement, and (c) the term of and termination
provisions of each such agreement);
4.19.1.4 any partnership, joint venture, or
other similar contract arrangement or agreement;
4.19.1.5 any contract relating to
indebtedness for borrowed money or the deferred purchase price of
property (whether incurred, assumed, guaranteed or secured by any
asset), except contracts relating to indebtedness incurred in the
ordinary course of business in an amount not exceeding $2,500.00;
4.19.1.6 any license agreements, franchise
agreements or agreements in respect of similar rights granted to
or held by the Company or any Subsidiary;
4.19.1.7 any contract or other document that
substantially limits the freedom of the Company or any Subsidiary
<PAGE>26
to compete in any line of business or with any person or in any
area or which would so limit the freedom of the Company or any
Subsidiary after the Effective Time;
4.19.1.8 foreign exchange, hedging or similar
contracts; or
4.19.1.9 any other contract or commitment not
made in the ordinary course of business which is material to the
Company and the Subsidiaries taken as a whole.
4.19.2 All agreements, contracts, plans, leases,
arrangements and commitments disclosed pursuant to Section 4.19
(the "Material Contracts") are valid and binding agreements of
the Company or a Subsidiary, are in full force and effect, and
neither the Company, any Subsidiary nor, to the knowledge of the
Company, any other party thereto is in default under the terms of
any such Material Contract.
4.19.3 Schedule 4.19.3 lists the names of all persons
authorized to execute or otherwise obligate or commit the Company
or any Subsidiary to material contracts, together with a
description of the authority (and conditions thereof, if any) of
each person with respect thereto.
4.20 Insurance Coverage. The Company has furnished to Buyer
a list of, and true and complete copies of, all insurance
policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and
directors of the Company and the Subsidiaries. Except as set
forth on Schedule 4.20, there is no claim by the Company or any
Subsidiary pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid and the Company
and the Subsidiaries are otherwise in full compliance with the
terms and conditions of all such policies and bonds. Such
policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) have been in
effect since January 1, 1993 and remain in full force and effect.
Such policies of insurance and bonds are of the type and in
amounts customarily carried by persons conducting businesses
similar to those of the Company and the Subsidiaries and; to the
best knowledge of the Company, are adequate in amount, type and
risk covered for the business of the Company and its
Subsidiaries. The Company does not know of any threatened
termination of, or premium increase with respect to, any of such
policies or bonds. Schedule 4.20 also sets forth a list of all
claims or payments in excess of $1,000.00 made under all
insurance policies and bonds of the Company since December 31,
1990.
4.21 Compliance with Laws. Except as specifically described
in Schedules 4.17, 4.18 or 4.26, the conduct of business, and the
ownership of assets, including Real Property, by the Company and
the Subsidiaries has not violated and does not violate any
applicable federal, state, local or foreign laws, statutes,
ordinances, rules, and regulations (hereinafter collectively
referred to as Laws ), nor any decrees (including but not
limited to consent decrees, orders, judicial or administrative
<PAGE>27
decisions, agreements or directives (hereinafter Orders ), nor
any Permits (as defined above) or other similar items, including,
but not limited to, any of the foregoing pertaining to the Real
Property or relating to employment discrimination, occupational
health and safety, zoning, city planning and Environmental Laws
(as defined in Section 4.26). All governmental approvals and
Permits required to conduct the business of the Company and the
Subsidiaries have been obtained and are in full force and effect
and have been, and are being complied with. Except as set forth
in Schedules 4.17, 4.18 or 4.26, the completion of the
transactions contemplated by this Agreement will not adversely
affect the continued effectiveness of any such Permits.
4.22 Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is
authorized to act on behalf, of the Company or any Subsidiary who
might be entitled to any fee or commission from Buyer or any of
its affiliates upon consummation of the transactions contemplated
by this Agreement.
4.23 Employees. Except as set forth in Schedules 4.18, 4.19
or 4.23:
4.23.1 the Company and each Subsidiary have paid
in full, or fully accrued for in the Financial Statements, all
wages, salaries, commissions, bonuses, severance payments,
vacation payments, holiday pay, sick pay, pay in lieu of
compensatory time and other compensation due or to become due to
all current and former employees of the Company and each
Subsidiary for all services performed by any of them;
4.23.2 except as set forth in Schedule 4.23.2,
upon the Effective Time, neither the Company, any Subsidiary,
Buyer nor the Merger Subsidiary will be liable to any of said
employees for "severance pay" or similar payment upon termination
of any of said employees;
4.23.3 the Company and the Subsidiaries are in
compliance with all Laws relating to the employment of labor,
including without limitation, laws, rules and regulations
relating to the payment of wages, employment and employment
practices, terms and conditions of employment, hours,
immigration, discrimination, child labor, occupational health and
safety, collective bargaining and the payment and withholding of
Taxes and other sums required by governmental authorities;
4.23.4 there is no unfair labor practice charge
pending or, to the best knowledge of the Company, threatened
against the Company or any Subsidiary before the National Labor
Relations Board or any other federal, state or local agency or
department;
4.23.5 there have not been and there are no labor
strike, dispute, slowdown, sympathy strike, lockout or other form
of work stoppages pending or, to the best knowledge of the
Company, threatened against or involving the Company or
Subsidiary and there have not been and there are no recognitional
picketing at any of the Company or any Subsidiary's locations;
<PAGE>28
4.23.6 no grievance or any arbitration proceeding
arising out of or under collective bargaining agreements is
pending against the Company or any Subsidiary and no claim
therefor has been asserted;
4.23.7 no collective bargaining agreement is
currently being negotiated by the Company or any Subsidiary;
4.23.8 since January 1, 1995, there has not been
any strike or work stoppage of any kind relating to employees of
the Company or any Subsidiary;
4.23.9 since January 1, 1995, to the knowledge of
the Company and its Subsidiaries, there have been no attempts to
organize any of the Company or the Subsidiaries employees; and
4.23.10 to the knowledge of the Company and its
Subsidiaries, no key employee of the Company or any Subsidiary or
group of such employees is considering terminating his or their
employment, and the Company and its Subsidiaries have no reason
to believe that such action may be considered.
4.24 Products. Except as set forth in Schedule 4.24, each of
the products produced or sold by the Company and the Subsidiaries
(i) is and at all times has been, in compliance in all material
respects with all applicable Laws and (ii) is, and at all
relevant times has been, fit for the ordinary purposes for which
such product is intended to be used and conforms in all material
respects to any promises or affirmations of fact made on the
container or label for such products or in connection with its
sale. There is no design defect with respect to any of the
products of the Company or the Subsidiaries, and each of such
products contains adequate warnings, presented in a reasonably
prominent manner, in accordance with applicable Laws and current
industry practice with respect to the contents and use thereof.
The current inventory of all products conforms with established
performance specifications for such products and is saleable at
historical margins within twelve (12) months of the Effective
Time based upon the Company s sales experience for the calendar
year 1995 and will, if sold within such period, conform with such
established performance specifications. Nothing contained in the
foregoing sentence shall be construed as a representation or
warrant that such inventory will be sold within the twelve (12)
months of the Effective Time.
4.25 Other Information. None of the documents or information
delivered to Buyer by the Company in connection with the
transactions contemplated by this Agreement, contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not
misleading, except as set forth on Schedule 4.7. The financial
projections relating to the Company and the Subsidiaries
delivered to Buyer constitute the Company's best estimate of the
information purported to be shown therein at the time such
documents and information was delivered and the Company is not
aware of any fact or information that would lead it to believe
that such projections were incorrect or misleading in any
material respect, except as provided in subsequent written
information provided to the Buyer.
4.26 Environmental Matters. Except as disclosed on Schedule
4.26:
<PAGE>29
4.26.1 The Company and the Subsidiaries are conducting
and have conducted their respective businesses and operations in
compliance with all applicable Environmental Laws (as herein
defined) and pursuant to all necessary government permits. The
Company and the Subsidiaries are not violating and have not
violated any Environmental Laws. There is no Environmental Claim
(as herein defined) pending, or to the best knowledge of the
Company, threatened, against the Company or any Subsidiary or
with respect to any of their respective properties or assets;
4.26.2 There are no events or incidents,
including, without limitation, the release, emission, discharge,
storage, generation, treatment or disposal of any Hazardous
Substance (as herein defined), that could form the basis of any
valid Environmental Claim against the Company or any Subsidiary,
or with respect to any of their respective properties or assets.
To the best knowledge of the Company, no property or facility now
or previously owned or leased by the Company or any Subsidiary is
listed or proposed for listing, as a site requiring investigation
or clean-up;
4.26.3 Neither the Company nor any Subsidiary has
transported or arranged for the transportation (directly or
indirectly) of any Hazardous Substance to any location which is
listed or proposed for listing under CERCLA or any other similar
Environmental Law, or which is the subject of federal, state,
local or foreign enforcement actions or other investigation which
may lead to claims against the Company or any Subsidiary for
clean-up costs, remedial work, damages to natural resources or
for personal injury claims.
4.26.4 There have been no environmental
investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of the Company or any
Subsidiary, and there have been no Orders, in relation to any
property or facility now or previously owned or leased by the
Company or any Subsidiary which have not been delivered to Buyer
prior to the date hereof.
4.26.5 No Hazardous Substance has been generated,
treated, stored, released, disposed or otherwise placed or
located on or deposited in the Real Property or any real property
previously owned, leased or used by the Company or any Subsidiary
during or prior to the ownership, or during the lease or use, of
such real property by the Company or any Subsidiary in an amount
which would require cleanup or other remedial action under
Environmental Laws.
4.26.6 No above ground or underground tanks are or
have ever been located under, in or about the Real Property or
any real property previously owned, leased or used by the Company
or any Subsidiary, which tanks were located on such real property
during or prior to the ownership, lease or use of such real
property by the Company or any Subsidiary. To the extent that
such tanks are disclosed on Schedule 4.26, such tanks have been
properly removed or are duly registered with all appropriate
governmental and regulatory bodies and comply with all
Environmental Laws.
<PAGE>30
4.26.7 No Real Property or any real property
previously owned, leased or used by the Company or any Subsidiary
is listed or, to the best knowledge of the Company, is proposed
for listing, on the National Priorities List promulgated pursuant
to CERCLA, or any other similar Environmental Laws.
4.26.8 The following terms shall have the meanings
set forth below:
4.26.8.1 "Affiliate", as applied to any other
Person, shall mean any other Person directly or indirectly
controlling, controlled by or under common control with that
Person, except for entities controlled by any directors of the
Company, which entities are otherwise unaffiliated with or
unrelated to the Company.
4.26.8.2 "Environmental Claim" shall mean any
notice alleging liability (including, without limitation,
liability for investigatory costs, clean-up costs, monitoring
costs, governmental response costs, natural resources damages,
property damages, liability for nuisance or damage to property
values, personal injuries or penalties) arising out of, based on
or resulting from: (a) noncompliance with Environmental Laws by
the Company, any Subsidiary, or by any of their respective
Affiliates, employees or agents, (b) the environmental condition
of any real or personal pro- perty owned or leased by the
Company or any Subsidiary, or (c) the release into the
environment of any Hazardous Substance by the Company, any
Subsidiary, any of their respective Affiliates, employees or
agents.
4.26.8.3 "Environmental Laws" shall mean all
applicable Laws, Orders or Permits relating to: (a) pollution or
protection of the environment, including natural resources; (b)
exposure of any individual, including employees of the Company
and the Subsidiaries, to any Hazardous Substance or other
products, materials or chemicals; (c) protection of human health
or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of chemical or other substances
from industrial or commercial activities; (d) regulation of the
manufacture, use or introduction into commerce of substances,
including, without limitation, use of or rights with respect to
their manufacture, formulation, packaging, labeling,
distribution, transportation, handling, storage and disposal; and
(e) regulation generally of the use of the environment,
including, without limitation, ambient air, surface water, ground
water, and surface or subsurface strata. For purposes of this
definition, the term "Environmental Laws" shall include, without
limitation, the following statutes: (a) the Clean Air Act, as
amended, 42 U.S.C. Section 7401 et seq.; (b) the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; (c)
<PAGE>31
the Resource Conservation and Recovery Act of 1976, as amended,
42 U.S.C. Section 6901 et seq. ("RCRA"); (d) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("CERCLA");
(e) the Toxic Substances Control Act, as amended, 15 U.S.C. Section
2601 et seq.; (f) the Occupational Safety and Health Act, as
amended, 29 U.S.C. Section 651; (g) the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Section 801 et seq.
("Right-to-Know-Act"); (h) the Mine Safety and Health Act of
1977, as amended, 30 U.S.C. Section 801 et seq.; (i) the Safe Drinking
Water Act, 42 U.S.C. Section 3008 et seq.; and (j) all applicable
United States, state, local and foreign laws, statutes, rules
regulations, judgments, orders decrees, stipulations or charges.
4.26.8.4 "Hazardous Substance" shall mean:
(a) any "hazardous substance" as defined in CERCLA, 42 U.S.C. Section
9601(14); (b) any "pollutant or contaminant" as defined in
CERCLA, 42 U.S.C. Section 9601(33); (c) any "hazardous waste" as
defined in RCRA, 42 U.S.C. Section 6903(5); (d) any asbestos, dioxins,
polychlorinated biphenyls, uranium, radioactive isotopes and
other nuclear by- products, toxic substances or petroleum
products, by-products or derivatives; (e) any substance, whether
liquid, solid or gas that presents a significant risk or an
adverse or harmful effect upon human health, upon animals or upon
air, water, land, natural resources or any other aspects of the
environment; and (f) any other substance classified as hazardous,
dangerous or otherwise regulated under any Environmental Law.
4.26.8.5 "Person" shall mean any individual,
corporation, partnership, firm, joint venture, association, joint
stock company, trust, unincorporated organization, governmental
or regulatory body or other entity.
4.26.9 Schedule 4.26 shall include a list of (a)
any Hazardous Substance which the Company or any Subsidiary
produces or uses which is required to be listed and reported or
disclosed by the Company to state or federal regulatory agencies
under any applicable Environmental Law, and (b) any reporting or
disclosure requirements, permits or registrations relating
thereto, including the actual permit or registration number.
4.26.10 The Company has met all the requirements of
the Right-to- Know Act including employee training meetings and
up-to-date employee manual references and evidence thereof has
been made available to the Buyer.
<PAGE>32
4.27 Customers and Suppliers.
4.27.1 Schedule 4.27.1 contains a list of the
greater of (i) the twenty largest customers and suppliers of the
Company and Subsidiaries (when taken as a whole) or (ii) the
largest customers and suppliers comprising twenty percent (20%)
of the Company's and Subsidiaries' (when taken as a whole) sales
or purchases (measured by dollar volume of purchases and sales on
a consolidated basis, as applicable) during each of the last
three (3) fiscal years and the dollar amount and percentage of
the Company's and the Subsidiaries' business, on a consolidated
basis, which each such customer or supplier represented. Neither
the Company nor any Subsidiary is engaged in any material
disputes with their respective customers or suppliers, including
claims for product warranty. No such customer or supplier is
considering termination, non-renewal or any adverse modification
of its arrangements with the Company or the relevant Subsidiary
and the transactions contemplated by this Agreement will not have
a material adverse effect on the Company or the relevant
Subsidiary relationship with any of its customers or suppliers.
4.27.2 Except as set forth in Schedule 4.27.2, at
no time during the two (2) years prior to the date hereof have
the sales, manufacturing or other business operations of the
Company or any Subsidiary been adversely affected by shortages or
unavailability of products or raw materials necessary to sell or
manufacture the products presently sold by the Company and the
Subsidiaries.
4.28 Indebtedness to and from Officers, Directors and
Shareholders. Except as set forth on Schedule 4.28, neither the
Company nor any Subsidiary is indebted, directly or indirectly,
to any person who is an officer, director or shareholder of any
of the foregoing or any affiliate of any such person in any
amount whatsoever, other than for salaries for services rendered
or reimbursable business expenses incurred in the ordinary course
of business, nor is any such officer, director, shareholder or
affiliate indebted to the Company or any Subsidiary except for
advances made to employees of the Company or any Subsidiary in
the ordinary course of business consistent with past practice to
meet reimbursable business expenses anticipated to be incurred by
such obligor.
4.29 Banking Facilities. Schedule 4.29 contains a true and
complete list of:
4.29.1 each bank, savings and loan, trust company
or similar financial institution in which the Company or any
Subsidiary has an account or safety deposit box and the numbers
of the accounts or safety deposit boxes maintained by the Company
or any Subsidiary thereat; and
4.29.2 the names of all persons authorized to draw
on each such account, to sign checks on each account, to have
access to any such safety deposit box facility or to authorize
borrowings by the Company or any Subsidiary from a financial
institution, together with a description of the authority (and
conditions thereof, if any) of each such person with respect
thereto.
<PAGE>33
4.30 Vote Required. The affirmative vote of the majority of
the outstanding Company Common Shares entitled to vote thereon is
the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
4.31 Anti-takeover Laws. There are no state or federal
"anti-take-over" or similar laws that apply to this Agreement,
the Merger or the transactions contemplated hereto and thereby,
other than the Hart Scott Rodino Act.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
5.1 Corporate Existence and Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. The Buyer is
duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect
on the condition (financial or otherwise), business, assets,
results of operations or prospects of the Buyer and its
subsidiaries, taken as a whole (a "Material Adverse Effect on
Buyer"). Since the date of its incorporation, Merger Subsidiary
has not engaged in any activities other than in connection with
or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions
contemplated hereby.
5.2 Corporate Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and
the consummation by Buyer and Merger Subsidiary of the
transactions contemplated hereby are within the corporate powers
of Buyer and Merger Subsidiary and have been duly authorized by
all necessary corporate action. This Agreement constitutes a
valid and binding agreement of Buyer and Merger Subsidiary.
5.3 Governmental Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and
the consummation by Buyer and Merger Subsidiary of the
transactions contemplated by this Agreement require no action by
or in respect of, or filing with, any governmental body, agency,
official or authority other than:
5.3.1 the filing of articles of merger in
accordance with California law;
5.3.2 compliance with any applicable requirements
of the HSR Act;
5.3.3 compliance with any applicable requirements
of the Exchange Act; and
<PAGE>34
5.3.4 compliance with any applicable requirements
of the Blue Sky Laws.
5.4 Non-Contravention. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and
the consummation by Buyer and Merger Subsidiary of the
transactions contemplated hereby do not and will not:
5.4.1 contravene or conflict with the certificate
of incorporation or bylaws of Buyer or Merger Subsidiary;
5.4.2 assuming compliance with the matters
referred to in Section 5.3, contravene or conflict with or
constitute a material violation of any provision of Law or Order
binding upon or applicable to Buyer, Merger Subsidiary or any
other subsidiary of Buyer; or
5.4.3 constitute a default under or give rise to
any right of termination, cancellation or acceleration of any
material right or obligation of Buyer or Merger Subsidiary or to
a loss of any material benefit to which Buyer or Merger
Subsidiary is entitled under any provision of any material
agreement, contract or other instrument binding upon Buyer or
Merger Subsidiary or any material license, franchise, permit or
other similar authorization held by the Buyer or Merger
Subsidiary, which lien would have a material adverse effect.
5.4.4 result in the creation or imposition of any
Lien on any asset of the Buyer or Merger Subsidiary which would
have material adverse effect on the operations or financial
condition of the Buyer.
5.5 Capitalization. The authorized capital stock of the
Buyer consists of 20,000,000 shares of common stock, $0.01 par
value per share ("Buyer Shares"). As of December 31, 1995, there
were outstanding 12,946,552 Buyer Shares which included employee
and director stock options to purchase an aggregate of 173,368
Buyer Shares (of which options to purchase an aggregate of
109,293 Buyer Shares were exercisable). In addition, there are
377,825 Buyer Shares available for purchase and issuance pursuant
to the Buyer's 1995 Employee Stock Purchase Plan. All
outstanding shares of capital stock of the Buyer have been, and
the shares of capital stock issuable in connection with the
Merger when issued will be, duly authorized and validly issued
and are fully paid and nonassessable. When the Buyer's Common
Shares are in the possession of the Company's Shareholders
following the consummation of the transactions contemplated
hereby, they will be freely tradeable, subject only to the
restrictions imposed by the Affiliate Letters, by law or
governmental regulatory agency, and no governmental authority
shall have imposed any restrictions on the offer or sale by the
Company's Shareholders of the Buyer's Common Shares. Except as
set forth in this Section, there are outstanding:
5.5.1 no shares of capital stock or other voting
securities of the Buyer;
5.5.2 no securities of the Buyer convertible into
or exchangeable for shares of capital stock or voting securities
of the Buyer; and
5.5.3 no options or other rights to acquire from
the Buyer, and no obligation of the Buyer to issue, any capital
stock, voting securities or securities convertible into or
<PAGE>35
exchangeable for capital stock or voting securities of the Buyer
(the items in Sections 5.5.1, 5.5.2 and 5.5.3 being referred to
collectively as the "Buyer Securities"). There are no
outstanding obligations of the Buyer or any subsidiary of the
Buyer to repurchase, redeem or otherwise acquire any Buyer
Securities.
5.6 Subsidiaries.
5.6.1 Each subsidiary of the Buyer is a
corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has
all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified to do business as
a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased
by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Buyer. For purposes of this
Agreement, a subsidiary of Buyer means any entity of which
securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are directly or indirectly
owned by the Buyer. All subsidiaries of the Buyer and their
respective jurisdictions of incorporation are identified in the
Buyer's Financial Statements for the fiscal year ended December
31, 1994 (the "Buyer 10-K").
5.6.2 Except as set forth on Schedule 5.6.2, all
of the outstanding capital stock of, or other ownership interests
in, each subsidiary of the Buyer, is owned by the Buyer, directly
or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding:
5.6.2.1 Securities (as defined above) of the
Buyer, or any subsidiary of the Buyer, which are convertible into
or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary; and
5.6.2.2 Options or other rights to acquire
from the Buyer or any subsidiary of the Buyer, and no other
obligation of the Buyer or any subsidiary of the Buyer to issue,
any capital stock, voting securities or other ownership interests
in, or any securities convertible into or exchangeable for any
capital stock, voting securities or ownership interests in, any
subsidiary of Buyer (the items in Sections 5.6.2.1 and 5.6.2.2
being referred to collectively as the "Buyer Subsidiary
Securities"). There are no outstanding obligations of the Buyer
or any subsidiary of the Buyer to repurchase, redeem or otherwise
acquire any outstanding Buyer Subsidiary Securities.
<PAGE>36
5.7 SEC Filings.
5.7.1 The Buyer has delivered or will deliver
prior to the Closing to the Company:
5.7.1.1 the annual reports on Form 10-K for
its fiscal years ended December 31, 1993, 1994 and 1995;
5.7.1.2 its quarterly reports on Form 10-Q
for each of its fiscal quarters ended March 31, 1995, June 30,
1995 and September 30, 1995;
5.7.1.3 its proxy or information statements
relating to meetings of, or actions taken without a meeting by,
the shareholders of the Buyer held since January 1, 1994; and
5.7.1.4 all of its other reports,
statements, schedules and registration statements filed with the
Securities and Exchange Commission (the "SEC") since January 1,
1994.
5.7.2 As of its filing date, each such report or
statement filed pursuant to the Exchange Act did not contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not
misleading.
5.7.3 Each such registration statement, as amended
or supplemented, if applicable, filed pursuant to the Securities
Act as of the date such statement or amendment became effective
did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
5.7.4 No 8-K Event. Since December 31, 1995,
Buyer has not filed nor has been obligated to file a Form 8-K
under the Securities Exchange Act of 1934 (the "1934 Act") which
Form 8-K filing reported or would have reported an event, action
or other circumstance having or likely to have a Material Adverse
Effect on Buyer.
5.7.5 Commission Filings. Buyer has currently
filed all documents and reports required to be filed by it with
the Securities and Exchange Commission under the Exchange Act.
5.8 Financial Statements. The audited consolidated
financial statements, and the unaudited consolidated interim
financial statements of the Buyer included in its annual reports
on Form 10-K and the quarterly reports on Form 10-Q referred to
in Section 5.7.1 and the audited consolidated financial
statements (including the notes thereto) of the Buyer for the
years ended December 31, 1994 and 1995 certified by Deloitte &
Touche, a copy of which is included in Schedule 5.8
(collectively, the "Buyer's Financial Statements") were prepared
in accordance with the books and records of the Buyer and its
subsidiaries, and fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto), the
consolidated financial position of the Buyer and its consolidated
subsidiaries as of the dates thereof and their consolidated
<PAGE>37
results of operations, Shareholders' equity and cash flows for
the periods then ended (subject to normal year-end adjustments in
the case of any unaudited interim financial statements). For
purposes of this Agreement, "Balance Sheet of the Buyer" means
the consolidated balance sheets of the Buyer as of December 31,
1995 set forth in the Buyer's 10-K and "Balance Sheet Date" means
December 31, 1995. The Buyer's audited consolidated financial
statements for the year ended December 31, 1995 shall be
consistent with the unaudited consolidated financial statements
of the Buyer included in its quarterly reports on Form 10-Q
referred to in Section 5.7.1 and, as of the Closing, shall
present fairly, in conformity with generally accepted accounting
principles applied on a consistent basis, the consolidated
financial position of the Buyer and its consolidated subsidiaries
as of the date thereof and the consolidated results of
operations, shareholder's equity and cash flows for the period
then ended.
5.9 Disclosure Documents.
5.9.1 The registration statement to be filed with
the SEC pursuant to Section 8.5 in connection with the Merger,
and any amendments or supplements thereto will, when filed,
comply as to form in all material respects with the applicable
requirements of the Securities Act.
5.9.2 None of the information supplied or to be
supplied by the Buyer for inclusion or incorporation by reference
in the Registration Statement will: (i) at the time the
Registration Statement is filed with the SEC, (ii) at the time
they become effective under the Securities Act, (iii) at the date
of mailing to Shareholders and (iv) at the times of the meetings
of Shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading.
5.9.3 Registration. The Registration Statement,
and the Prospectus which forms a part thereof, filed by Buyer
with the Securities and Exchange Commission, shall be in full
force and effect and shall be current as of the Closing Date.
Any filings or pre-closing notifications required under any
applicable state blue sky laws shall have been completed.
5.9.4 Certain Tax Matters. Prior to the Closing,
Buyer will be in control of Merger Subsidiary within the meaning
of Section 368(c) of the Code. Buyer has no plan or intention to
issue additional shares of Company stock within the meaning of
Section 368(c) of the Code. Buyer has no plan or intention to
re- acquire any of its stock issued in connection with this
transaction. Buyer has no plan or intention to liquidate the
Company; to merge the Company with or into another corporation;
to sell or otherwise dispose of the stock of the Company, except
for transfers of stock to corporations controlled by Buyer; or to
cause the Company to sell or otherwise dispose of any of its
assets, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by
the Company. Merger Subsidiary will have no liabilities assumed
by the Company, and will not transfer to the Company any assets
subject to liabilities, in the transaction. Upon the Closing,
<PAGE>38
the Company will continue its historic Business or use a
significant portion of its historic Business assets in a
business. Buyer will not take any action that would result in
the transaction failing to qualify as a tax-free reorganization
under Section 368 of the Internal Revenue Code.
5.10 Absence of Certain Changes. Except as set forth in
Schedule 5.10 or otherwise reported in the SEC filings listed in
Section 5.7 or reflected in the financial statements listed in
Section 5.8, since the Balance Sheet Date, the Buyer and its
subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been:
5.10.1 any material adverse change in the
business, assets, condition (financial or otherwise), results of
operations or prospects of the Buyer and its subsidiaries taken
as a whole (a "Material Adverse Change on Buyer") or any event,
occurrence or development of a state of circumstances or facts
which could reasonably be expected to result in a Material
Adverse Change on Buyer;
5.10.2 any amendment of any material term of any
outstanding security of the Buyer or its subsidiaries;
5.10.3 any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting the business
or assets of the Buyer or any of its subsidiaries which,
individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect on Buyer;
5.11 No Undisclosed Material Liabilities. Except as
otherwise specifically scheduled in this Agreement or in the
documents filed with the SEC and provided to the Company, there
are no material liabilities of the Buyer or any of its
subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than:
5.11.1 liabilities disclosed or provided for in the
Balance Sheet of Buyer;
5.11.2 liabilities incurred in the ordinary course
of business consistent with past practice since the Balance Sheet
Date, which in the aggregate are not material to the Buyer and
its subsidiaries, taken as a whole; and
5.11.3 liabilities under this Agreement.
5.12 Litigation. Except as set forth in Schedule 5.12 and
the SEC Filings, there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or to the
knowledge of the Buyer, threatened against or affecting, the
Buyer or any of its subsidiaries or any of their respective
properties before any court or arbitrator or any governmental
body, agency or official the results of which would have a
Material Adverse Effect on the operations or financial condition
of the Buyer.
5.13 Compliance with Laws. Except as specifically described
in Schedule 5.13, the conduct of business, and the ownership of
assets, including real estate, by the Buyer and the Subsidiaries
has not violated and does not violate any applicable Laws, Orders
and Permits (including, but not limited to, any of the foregoing
<PAGE>39
pertaining to Real Estate or relating to employment
discrimination, occupational health and safety, zoning, city
planning and Environmental Laws (as defined in Section 4.26) the
violation of which would have a Material Adverse Effect on the
operations or financial conditions of the Buyer. All
governmental approvals and Permits required to conduct the
business of the Buyer and its subsidiaries have been obtained and
are in full force and effect and have been, and are being
complied with, which is not obtained or complied with would have
a Material Adverse Effect on the operations or financial
condition of the Buyer.
5.14 Environmental Matters. The Buyer and its subsidiaries
are conducting and have conducted their respective businesses and
operations in material compliance with all applicable
Environmental Laws (as herein defined) and pursuant to all
necessary government permits the failure to comply with which or
obtain would have a Material Adverse Effect on the operations or
financial condition of the Buyer. There is no Environmental
Claim (as herein defined) pending, or to the best knowledge of
the Buyer, threatened, against the Buyer or any of its
subsidiaries or with respect to any of their respective
properties or assets which would if substantiated have a Material
Adverse Effect on the operations or financial condition of the
Buyer.
5.15 Material Contracts. All agreements, contracts, plans,
leases, arrangements and commitments disclosed in the Buyer's SEC
filings referred to in Section 5.7 are valid and binding
agreements of the Buyer or its subsidiary, are in full force and
effect, and neither the Buyer, any of its subsidiaries nor, to
the knowledge of the Buyer, any other party thereto is in default
under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.
5.16 WARN Act. Upon the Closing and for a period of ninety
(90) days thereafter, Buyer shall not take any action which
would in any way require the Company to comply with the Federal
Worker Adjustment and Retraining Notification Act.
5.17 Other Information. None of the documents or information
delivered to the Company by the Buyer in connection with the
transactions contemplated by this Agreement contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not
misleading. The financial projections relating to the Buyer and
its sub- sidiaries delivered to the Company constitute the
Buyer's best estimate of the information purported to be shown
therein at the time such documents and information was delivered
and the Buyer is not aware of any fact or information that would
lead it to believe that such projections are incorrect or
misleading in any material respect.
5.18 No Vote Required. No vote of the holders of the Buyer
Common Shares are necessary to approve this Agreement and the
transactions contemplated hereby.
5.19 Finders' Fees. There is no investment banker, broker,
finder or other intermediary who might be entitled to any fee or
<PAGE>40
commission from the Buyer or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
5.20 Dissenting Shares. The Merger will not give rise to
rights of appraisal or rights of payment to a holder of Buyer
Common Shares who dissents from the Merger.
6. COVENANTS OF THE COMPANY AND BRAY
6.1 Conduct of the Company. From the date hereof until the
Effective Time, except with the prior written consent of the
Buyer, the Company and the Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and
shall use their best efforts to preserve intact their business
organizations and relationships with third parties and to keep
available the services of their present officers and employees.
Without limiting the generality of the foregoing, from the date
hereof until the Effective Time neither the Company nor any
Subsidiary will:
6.1.1 make or propose any change in its
Certificate or Articles of Incorporation or Bylaws as in force
and effect on the date hereof;
6.1.2 issue any capital stock or options, warrants
or other rights to purchase any capital stock or any securities
convertible or exchangeable for shares of such stock or commit to
do any of the foregoing, except with respect to Company
employees' stock purchase rights under the Company employee stock
purchase plans subject to the limitations set forth in Section
1.8;
6.1.3 make any amendment of any material term of
any outstanding security of the Company or the Subsidiaries;
6.1.4 borrow any money or incur, assume or
guarantee any debt for borrowed money or prepay any indebtedness,
except in the ordinary course of business;
6.1.5 grant any severance or termination pay to
any director, officer or employee of the Company or any
Subsidiary that is inconsistent with written policies of the
Company in effect as of December 31, 1995, which pertain to
severance or termination pay, copies of which are attached hereto
as Schedule 6.1.5;
6.1.6 enter into of any employment, deferred
compensation or other similar agreement (or any amendment to any
such existing agreement) with any existing or prospective
director, officer or employee of the Company or any Subsidiary;
6.1.7 increase benefits payable under any existing
severance or termination pay policies or employment agreements;
6.1.8 increase compensation, bonus or other
benefits payable to directors, officers or key employees of the
Company or any of the Subsidiaries; or
6.1.9 other than as disclosed herein, make any
loan, advance or capital contribution to or investment in any
person or otherwise pledge the credit of the Company or any
Subsidiary, or mortgage, pledge or subject to any of their
respective assets to any Liens, claims or encumbrances, except
<PAGE>41
for employee advances, sales to customers on credit or loans,
advances or investments in wholly- owned Subsidiaries, all in the
ordinary course of business consistent with past practices;
6.1.10 fail to comply with any laws, ordinances,
regulations or other governmental restrictions applicable to the
Company or any Subsidiary, including, but not limited to, any
Environmental Law which has had or would reasonably be expected
to have a Material Adverse Effect;
6.1.11 declare or pay any dividend or distribution
on any share of capital stock or other securities of the Company
or any Subsidiary;
6.1.12 repurchase, redeem or otherwise acquire any
outstanding capital stock or other securities of, or other
ownership interests in the Company or any Subsidiary;
6.1.13 merge or consolidate with, purchase
substantially all or any substantial part of the assets of, or
otherwise acquire any business or any proprietorship, firm,
association, corporation or other business organization or
division thereof;
6.1.14 make any change (except for changes in
authorized signatories arising out of personnel changes) in the
banking or safety deposit box arrangements of the Company or any
Subsidiary;
6.1.15 grant any powers of attorney (other than
special powers of attorney granted in the ordinary course of
business with respect to tax or customs matters);
6.1.16 make, or make any commitments for, capital
expenditures exceeding $25,000.00 for any individual commitment
or $200,000.00 for all such commitments taken in the aggregate,
without the prior written consent of the Buyer which consent
shall not be unreasonably withheld provided, however, said
written consent shall not be necessary in the event of a
bona-fide emergency wherein the Company will suffer irreparable
harm if it does not make the capital expenditure immediately
(provided that the Company shall notify the Buyer of such bona
fide emergency and review the same, and any actions taken as a
result thereof, with the Buyer as soon as practical after such
bona fide emergency);
6.1.17 adopt, amend or terminate or propose to
adopt, amend or terminate any Welfare Plan, Retirement Plan or
Benefit Arrangements;
6.1.18 engage in any transaction, commitment,
contract or agreement relating to their assets or business
(including the acquisition or disposition of any assets) or
relinquishment of any contract or other right, in either case,
material to the Buyer and its subsidiaries taken as a whole,
other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by
this Agreement;
6.1.19 change any method of accounting or
accounting practice by the Company or any of the Subsidiaries,
except for any such change required by reason of conforming to
the generally accepted accounting principles of the Buyer;
<PAGE>42
6.1.20 settle, compromise or otherwise resolve any
litigation pending; or
6.1.21 engage in or enter into any material
transaction of any nature not expressly permitted by this Section
6.1, except transactions in the ordinary course of business of
the Company or any Subsidiary.
6.2 Letter of the Company's Accountants. The Company shall
cause to be delivered to Buyer a letter of the Company's
independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become
effective and addressed to Buyer, in form and substance
reasonably satisfactory to Buyer, and in scope and substance
consistent with applicable professional standards for letters
delivered by independent public accountants in connection with
Registration Statements.
6.3 Access to Information. From the date hereof until the
Effective Time, the Company will give Buyer, its counsel,
financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of the
Company and the Subsidiaries, will furnish to Buyer, its counsel,
financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such
persons may reasonably request and will instruct the Company's
employees, counsel and financial advisors to cooperate with Buyer
in its investigation of the business of the Company and the
Subsidiaries; provided that no investigation pursuant to this
Section shall affect any representation or warranty given by the
Company to Buyer hereunder.
6.4 Other Offers.
6.4.1 From the date hereof until the termination
hereof, the Company and the Subsidiaries and the officers,
directors, employees or other agents of the Company and the
Subsidiaries ("Personnel") including, without limitation, its
respective counsel, accountants, investment advisors or other
advisors or representatives, will not, directly or indirectly,
(a) take any action to solicit, initiate or encourage, or take
any other action to facilitate, any Acquisition Proposal (as
hereinafter defined) or (b) engage in negotiations with, or
disclose any nonpublic information relating to the Company or any
Subsidiary or afford access to the properties, books or records
of the Company or any Subsidiary to, any Person that may be
considering making, or has made, an Acquisition Proposal. The
Company will promptly notify Buyer after receipt of any
Acquisition Proposal or any indication that any person is
considering making an Acquisition Proposal or any request for
nonpublic information relating to the Company or any Subsidiary
or for access to the properties, books or records of the Company
or any Subsidiary by any Person that may be considering making,
or has made, an Acquisition Proposal (including the terms thereof
and the identity of the third party) and will keep Buyer fully
informed of the status and details of any such Acquisition
Proposal, indication or request including furnishing the Buyer a
copy of any such Acquisition Proposal, indication or request.
The term "Acquisition Proposal" as used herein means any offer or
proposal for, or any indication of interest in, a tender offer or
<PAGE>43
a merger or other business combination involving the Company or
any Subsidiary or the acquisition of any equity interest in, or a
substantial portion of the assets of, the Company or any
Subsidiary, other than the transactions contemplated by this
Agreement. Notwithstanding the foregoing, the Company and the
Company's Personnel may, under the circumstances described herein
(i) communicate with (but not solicit or negotiate with, other
than pursuant to clause (ii) of this sentence) any third party
and (ii) if any third party makes a Bona Fide Unsolicited Offer
(as hereinafter defined), furnish information concerning the
Company or its business to, and negotiate with, such third party.
For the purposes hereof, a "Bona Fide Unsolicited Offer" shall
mean any unsolicited written inquiry, proposal or offer
respecting a potential Acquisition Proposal, other than any such
inquiry, proposal or offer that, after due consideration thereof,
is expressly determined by the Company not to be reasonably
likely to result in the receipt by the stockholders of the
Company of an economic consideration superior to the
consideration payable pursuant to Section 1.3 hereof. Nothing in
this Agreement shall be construed or deemed to preclude the
Company or the Company's Personnel at any time from furnishing
any information concerning the Company or its business to a third
party making an unsolicited written inquiry, proposal or offer,
or from taking any other action, if the Company concludes after
due consideration, which shall include consultation with legal
counsel, that fiduciary duty requires the furnishing of such
information or taking of such other action.
6.5 Notices of Certain Events. The Company shall promptly
notify Buyer of:
6.5.1 any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
6.5.2 any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated by this Agreement; and
6.5.3 any actions, suits, claims, investigations
or proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise
affecting the Company or any Subsidiary which, if pending on the
date of this Agreement, would have been required to have been
disclosed pursuant to Section 4.16 or which relate to the
consummation of the transactions con- templated by this
Agreement.
6.6 Affiliates. At least 40 days prior to the Closing Date,
the Company shall deliver to Buyer a letter identifying all
persons who are, at the time this Agreement is submitted for
approval to the Shareholders of the Company "affiliates" of the
Company for purposes of Rule 145 under the Securities Act or
Accounting Standards Releases 130 and 135 (FRR Section 201)
pertaining to pooling of interests accounting. The Company shall
use all reasonable efforts to cause each person named in the
letter delivered by it to deliver to the other party at least 30
days prior to the Closing Date a written "affiliates" agreement,
<PAGE>44
in customary form, restricting the disposition by such person of
the Buyer's Common Shares to be received by such person in the
Merger (the "Affiliate's Letters").
6.7 Environmental Site Assessments. The Company shall make
its Real Property available and otherwise cooperate with the
Buyer in order that Buyer can obtain, at its sole cost and
expense, Phase I Environmental Site Assessments on all Real
Property owned, leased or used by the Company or any Subsidiary
since December 31, 1994. Upon a finding under any Phase I
Environmental Site Assessment of evidence of or the possibility
of any Hazardous Substance or Environmental Claim, the Buyer may
determine to cause such additional investigations or assessments
to be accomplished and the Company will also make the Real
Property available and otherwise cooperate with respect thereto.
The Buyer shall provide to the Company and the Company shall
provide to the Buyer copies of all Phase I and Phase II
Environmental Site Assessments and Schedule 4.26 shall include
the results of such Environmental Site Assessments.
6.8 Confidentiality Agreements. Prior to the Effective
Time, the Company and each Subsidiary shall cause substantially
all of its employees who have not previously executed the form
employment agreement set forth in Schedule 4.13.5 to execute such
employment agreement.
6.9 Ownership of Subsidiaries. Except as set forth in
Schedule 6.9, prior to the Effective Time, all of the outstanding
capital stock of, or other ownership interests in, each
Subsidiary, which is not owned by the Company will have been
acquired by the Company or another person acceptable to the
Buyer, or, in the alternative, each owner, other than the
Company, of capital stock in a Subsidiary, which is required by
applicable law to remain an owner, shall enter into a binding
nominee or similar agreement regarding the transfer of such
capital stock, in form and substance acceptable to the Buyer and
subject to applicable law.
6.10 Voting Shares. Bray will vote all of his shares of
Company Common Stock owned directly or beneficially by him in
favor of the adoption of this Agreement at the meeting of the
Company s Shareholders and will cause all shares of Company
Common Stock owned by his spouse to be cast in favor of the
adoption of this Agreement at the meeting of the Company s
Shareholders.
7. COVENANTS OF BUYER
7.1 Board of Directors of Buyer. Promptly after the
Effective Time, in accordance with the articles and bylaws of
Buyer, the Board of Directors of Buyer shall increase its size by
one (1) and shall elect Donald T. Bray as a director of Buyer.
7.2 Obligations of Merger Subsidiary. Buyer will take all
action necessary to cause Merger Subsidiary to perform its
obligations under this Agreement and to consummate the Merger on
the terms and conditions set forth in this Agreement.
<PAGE>45
7.3 Voting of Shares. Buyer will vote all Merger Subsidiary
Shares beneficially owned by it in favor of adoption of this
Agreement at the shareholder meeting of the Merger Subsidiary.
7.4 Director and Officer Liability. Buyer will cause the
Surviving Corporation to indemnify and hold harmless the present
and former officers and directors of the Company in respect of
acts or omissions occurring prior to the Effective Time to the
extent provided under the Company's certificate of incorporation
and bylaws in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from
time to time under applicable law, including, without limitation,
as circumscribed by the California business corporation law for
(i) willful failure to deal fairly in a case of a material
conflict of interest, (ii) violation of criminal law, (iii) a
transaction wherein improper personal profit was derived, or (iv)
willful misconduct. The Buyer shall cause the Surviving
Corporation to maintain directors and officers liability
insurance covering such indemnification obligation for a period
of three (3) years after the Effective Time.
7.5 Conduct of the Buyer. From the date hereof until the
Effective Time, except with the prior written consent of the
Company, the Buyer and its subsidiaries shall conduct their
business in the ordinary course consistent with past practice.
Without limiting the generality of the foregoing, from the date
hereof until the Effective Time neither the Buyer nor any of its
subsidiaries will:
7.5.1 make or propose any change in its
Certificate or Articles of Incorporation or Bylaws as in force
and effect on the date hereof;
7.5.2 issue any capital stock or options, warrants
or other rights to purchase any capital stock or any securities
convertible or exchangeable for shares of such stock or commit to
do any of the foregoing, except pursuant to currently outstanding
options or plans disclosed in this Agreement;
7.5.3 fail to comply with any laws, ordinances,
regulations or other governmental restrictions applicable to the
Company or any Subsidiary, including, but not limited to, any
Environmental Law which causes, or may cause, a material adverse
effect on the Buyer or any of its subsidiaries, or their
business, financial position or properties taken as a whole; or
7.5.4 declare or pay any dividend or distribution
on any shares of capital stock or other securities of the Buyer
or any of its subsidiaries.
7.6 Letter of the Buyer's Accountants. Buyer shall cause to
be delivered to the Company a letter of Deloitte and Touche, the
Buyer's independent auditors, dated a date within two (2)
business days before the date on which the Registration Statement
shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company, and in scope
and substance consistent with applicable professional standards
for letters delivered by independent public accountants in
connection with Registration Statements.
<PAGE>46
7.7 Access to Information. From the date hereof until the
Effective Time, the Buyer will give the Company, its counsel,
financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of the
Buyer and its subsidiaries, will furnish to the Company, its
counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other
information as such persons may reasonably request and will
instruct Buyer's employees, counsel and financial advisors to
cooperate with the Company in its investigation of the business
of the Buyer and its subsidiaries; provided that no investigation
pursuant to this Section shall affect any representation or
warranty given by Buyer to the Company hereunder.
7.8 Notices of Certain Events. Buyer shall promptly notify
the Company of:
7.8.1 any notice or other communication from any
Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
7.8.2 any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated by this Agreement; and
7.8.3 any actions, suits, claims, investigations
or proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise
affecting Buyer or any of its subsidiaries which, if pending on
the date of this Agreement, would have been required to have been
disclosed pursuant to Section 5.12 or which relate to the
consummation of the transactions con- templated by this
Agreement.
7.9 New York Stock Exchange Approval. Prior to the
Effective Date, Buyer shall provide for the listing of Buyer's
Common Shares issued in connection with the Merger with the New
York Stock Exchange ( NYSE ), including providing applicable
written notice to NYSE.
8. COVENANTS OF BUYER AND THE COMPANY
8.1 Reasonable Commercial Efforts. Subject to the terms and
conditions of this Agreement, each party will use reasonable
commercial efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
8.2 Certain Filings. The Company and Buyer shall cooperate
with one another (a) in determining whether any action by or in
respect of, or filing with, any governmental body, agency or
official, or authority is required (including, without
limitation, any filing requirements under the Hart-Scott-Rodino
Act), or any actions, consents, approvals or waivers are required
to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated
by this Agreement, and (b) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing
<PAGE>47
information required in connection therewith and seeking timely
to obtain any such actions, consents, approvals or waivers.
8.3 Public Announcements. Each of the parties hereto agree
that all press releases and other announcements, whether written
or oral, to be made by any of them with respect to the Merger
shall be subject to mutual agreement and consent prior to the
dissemination thereof; provided, however, either party may make
any announcements required by applicable law or NYSE rules so
long as the party so required notifies the other party promptly
upon learning such requirement and in good faith attempts to
comply with this Section 8.3.
8.4 Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of
the Company or Merger Subsidiary, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on
behalf of the Company or Merger Subsidiary, any other actions and
things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
8.5 Preparation of Registration Statement. The Buyer shall
prepare and file with the SEC a Registration Statement on Form
S-3 covering all of the Osmonics Common Shares to be issued
pursuant to this Agreement as soon as practicable after the date
of this Agreement, including if permitted under Form S-3, the
Osmonics Common Shares to be issued upon the exercise of all
stock options of the Company which are vested as of the date of
this Agreement. Each of Buyer and the Company shall use all
reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable
after such filing. Buyer shall also take any action (other than
qualifying to do business in any jurisdiction in which it is now
not so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Buyer's Common
Shares in the Merger of the Company, and shall furnish all
information concerning the Company and the holders of the
Company's Common Stock and as may be reasonably requested in
connection with such action. If the Osmonics Common Shares to be
issued upon the exercise of all stock options of the Company
which are vested as of the date of this Agreement can not be
covered under the Form S-3 to be filed after the execution of
this Agreement, Osmonics will file either a Form S-3 or Form S-8
Registration Statement with respect to such shares upon sixty
(60) days prior written request of the original option holder or
his personal representatives, or any person or persons to whom
the rights of the option holder under the option pass by Will or
by the applicable laws of descent and distribution, provided such
request occurs after the exercise of all such vested options held
by such original optionee. Osmonics will enter into a
Registration Rights Agreement substantially in the form attached
to the Investment Representation Letter attached hereto as
Schedule 2.3.5 with each such original option holder.
<PAGE>48
8.6 Shareholder Meetings. The Company shall, after
receiving the information materials from the Buyer, call a
meeting of its Shareholders to be held as promptly as
practicable for the purpose of voting upon the approval of this
Agreement. The Company will, through its Boards of Directors,
recommend to its Shareholders approval of such matters. The
Buyer will provide such information materials to the Shareholders
as soon as practicable after the date hereof, but in no event
later than the date that is fifteen (15) business days from the
date hereof.
8.7 Tax-Free Reorganization and Pooling Treatment. Neither
the Company, the Subsidiaries, the Buyer nor the Buyer's
subsidiaries shall take or cause to be taken any action, whether
before or after the Effective Time, that would disqualify the
Merger as a "reorganization" within the meaning of Section 368(a)
of the Code or disqualify the Merger from being accounted for as
a "pooling of interests". None of the Shareholders shall
transfer any of the Buyer s Common Shares issued in connection
with this transaction prior to the date after the Effective Date
on which the first consolidated financials statements are made
public which financial statements contain the results of the
combined operations of the Company and Buyer after the Effective
Date; such date shall be no later than November 15, 1996,
provided the Effective Time is on or before August 31, 1996.
8.8 Confidentiality.
8.8.1 Each party will treat all information
whether written, visual, orally or electronically furnished or
provided by the other party (the "Evaluation Material") as
confidential information, and to observe the rules of disclosure
and communications set forth herein. Prior to any of party s
affiliates or its affiliates' agents, advisors, attorneys,
consultants or representatives (hereinafter collectively
"Representatives" and individually "Representative") being given
access to the Evaluation Material, each such affiliate and
Representative shall be advised of the confidential nature of the
Evaluation Material and shall agree to be bound by the terms of
this Section 8.8.
8.8.2 For purposes of this Agreement, Evaluation
Material shall include, without limitation, all data, reports,
analyses, compilations, studies, forecasts, earnings,
projections, records and other materials. Each party's
obligations of confidentiality and the agreements herein
contained shall not apply as to particularly portions of the
Evaluation Material if such information:
8.8.2.1 is or becomes generally available to the
public other than as a result of a disclosure by such party, its
affiliates or its Representatives;
8.8.2.2 was available to such party on a
non-confidential basis prior to its disclosure;
8.8.2.3 becomes available to such party on a
non-confidential basis from a source other than the other party
or its agents, advisors or representatives; or
8.8.2.4 is developed by such party independently
of any disclosure by the other party.
<PAGE>49
8.8.3 Neither party will use the Evaluation
Material for any purpose other than in connection with the
Merger. Neither party will disclose or allow disclosure to
others of any Evaluation Material, except to such party's
affiliates or Representatives, in each case, to the extent
necessary to permit such affiliate or Representative to assist
such party in connection with the Merger. Each party will,
within ten (10) days of the other party's request, re-deliver to
the other party all copies of the Evaluation Material in its
possession or that of its affiliates or Representatives if this
Agreement is terminated.
8.8.4 In the event that any party or anyone to
whom any Evaluation Material is transmitted in accordance with
this Agreement are requested in connection with any proceeding to
disclose any Evaluation Material, such party will give the other
party prompt notice of such request so that the other party may
seek an appropriate protective order or other remedy or waive
compliance with the provisions of this Agreement, and such party
will cooperate with the other party to obtain such protective
order. In the event that such protective order or other remedy
is not obtained, or the other party waives compliance with the
relevant provisions of this Agreement, such party (or such person
to whom such request is directed) will furnish only that portion
of the Evaluation Material which is required to be disclosed.
8.8.5 Each party acknowledges that money damages
would not be sufficient remedy for any breach of this Section 8.8
and that, in addition to all other remedies, each party shall be
entitled to specific performance and injunctive or other
equitable relief as a remedy for any such breach.
8.8.6 Because each party has received or will
receive information that has not been disclosed to the public
(commonly known as "insider information"), each party hereby
acknowledges that buying or selling the Buyer s stock may violate
the Exchange Act and neither party will trade such stock until it
is appropriate to do so.
8.9 Post Effective Time Covenants.
8.9.1 The Donald T. Bray, Buyer and Company will
use commercially reasonable efforts to collect all account and
note receivables (the Receivables ) of the Company as of the
Effective Time. All Receivables (other than the $750,000 note
payable by Donald T. Bray (the Bray Note ) and other than any
note, trade or other receivable due from Nimbus, including but
not limited to the Nimbus Note (the Nimbus Receivables )) that
are not paid or collected as of December 31, 1996, shall be
transferred to the Shareholders. The Buyer shall have a claim to
receive, and shall receive out of the Escrow Shares, Escrow
Shares from the Escrow Agent representing the value of the
Receivables (other than the Nimbus Receivables) that are not paid
or collected as of the Release Date (as defined under the Escrow
Agreement). Such claim shall not be subject to the
Indemnification Threshold (defined below). The Buyer shall not
have a claim against the Escrow Shares for the Bray Note or any
Nimbus Receivable that is not paid or collected as of the Release
Date (as defined under the Escrow Agreement). The principal
<PAGE>50
amount of the promissory note due from Nimbus as of March 1,
1996, will not be increased after March 1, 1996.
8.9.2 Bray, Nimbus and the Company shall use
reasonable commercial efforts to obtain the release of the
Company from any liability arising out of any guaranty of any
debt of Nimbus. In any event, any such guaranty may be
terminated by the Company with respect to any advances on and
after the Effective Time.
9. TERMINATION
9.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the
Shareholders of the Company and Buyer):
9.1.1 by mutual written consent of the Company and
Buyer; or
9.1.2 by either the Company or Buyer, if the
Merger has not been consummated by June 30, 1996; or
9.1.3 at the election of the Company if any one or
more of the Conditions to the Obligation of the Company to close
as set forth in Section 2.1 or 2.3 has not been fulfilled as of
June 30, 1996; or
9.1.4 at the election of Buyer if any one or more
of the Conditions to the Obligation of Buyer to close as set
forth in Section 2.1 or 2.2 has not been fulfilled as of June 30,
1996; or
9.1.5 at the election of the Company if Buyer has
breached in any material respect any representation, warranty,
covenant or agreement contained in this Agreement, which breach
cannot be or is not cured by June 30, 1996; or
9.1.6 at the election of Buyer if the Company has
breached in any material respect any representation, warranty,
covenant or agreement contained in this Agreement, which breach
cannot be or is not cured by June 30, 1996; or
9.1.7 by either the Company or Buyer, if there
shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment,
injunction, order or decree enjoining Buyer or the Company from
consummating the Merger is entered and such judgment, injunction,
order or decree shall become final and nonappealable.
9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of
no effect with no liability on the part of any party hereto,
except that (a) the agreements contained in Sections 8.8, 9.3 and
10.4 shall survive the termination hereof and (b) nothing in this
Section 9.2 shall relieve any party from liability in respect of
a termination due to willful breach of this Agreement by it or
willful failure by it to perform its obligations hereunder.
9.3 Termination Fee.
9.3.1 Except as provided below, in the event the
Merger is not consummated and (a) if there is a Third Party
Transaction (as hereinafter defined) entered into within nine (9)
months from the date of this Agreement, or (b) if an Acquisition
Proposal or Delaying Offer (as hereinafter defined) is received
<PAGE>51
by the Company during the term of this Agreement and in each case
within nine (9) months thereafter a Third Party Transaction
(whether or not involving such Acquisition Proposal or Delaying
Offer) is consummated; then, in that event, the Company shall
promptly pay to Buyer in immediately available funds within five
(5) business days after consummation of a Third Party Transaction
an amount equal to Three Million Dollars ($3,000,000). As used
herein "Third Party Transaction" shall mean (a) an acquisition of
the Company or equity securities or assets of the Company by any
person or group other than Buyer, whether by merger, statutory
share exchange or similar transaction (and whether or not the
Company is the surviving party), or by purchase of all or a
substantial part of the Company's assets or the acquisition of
more than fifty percent (50%) of the Company's equity securities,
(b) the adoption by the Company of a plan of liquidation or
dissolution, or (c) the repurchase of, or recapitalization
involving, more than fifty percent (50%) of the Company's
outstanding equity securities. As used herein, "Delaying Offer"
shall mean either (a) any person or group shall have informed the
Company (or the Board of Directors or any independent committee
or any executive officer of the Company) that such person or
group is making, intends to make, is considering making, or will
or may, if the Merger is delayed, abandoned or not approved by
the Company's Shareholders, make, an Acquisition Proposal, or (b)
any such person or group or the Company publicly announces
(including, without limitation, any filing with any federal or
state office or agency) that such person or group has made,
intends to make, is considering, or will or may, if the Merger is
delayed, abandoned or not approved by the Company's Shareholders,
make, an Acquisition Proposal.
9.3.2 Notwithstanding the terms of the foregoing
Section 9.3.1, no amount shall be due from the Company to the
Buyer pursuant to this Section, if the merger is not consummated
because of the termination of this Agreement pursuant to Sections
9.1.1, 9.1.2, 9.1.3, 9.1.5 or 9.1.7 provided that such
termination pursuant to such Sections is not the result of any
fault of the Company, Bray, or the Company s Shareholders or a
failure by the Company, Bray, or the Company s Shareholders to
take any action or perform any covenant required to be taken by
the Company or its Shareholders pursuant to this Agreement.
10. MISCELLANEOUS
10.1 Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be
delivered personally, telegraphed or sent by facsimile
transmission with telephone confirmation, or sent by certified,
registered or express mail, postage prepaid, and shall be deemed
given when so delivered personally, telegraphed or sent by
facsimile transmission, or if mailed, three days after the date
of mailing, as follows:
<PAGE>52
If to Buyer or
Merger Subsidiary: Osmonics, Inc.
5951 Clearwater Drive
Minnetonka, Minnesota 55343
Attn: Mr. D. Dean Spatz,
President and Chief Executive
Officer
Telephone No.: (612) 933-2277
Facsimile No.: (612) 933-0141
With a copy to: Maslon Edelman Borman & Brand
3300 Norwest Center
Minneapolis, Minnesota 55402
Attn: Michael L. Snow, Esq.
Larry A. Koch, Esq.
Telephone No.: (612) 672-8200
Facsimile No.: (612) 672-8397
If to Company: DESALINATION SYSTEMS, INC.
760 Shadowridge Drive
Vista, California 92083-7986
Attn: Mr. Donald T. Bray,
Chairman
Telephone No.: (619) 598-3334
Facsimile No.: (619) 599-2949
With copy to: Luce, Forward, Hamilton & Scripps
600 W. Broadway, Suite 2600
San Diego, California 92101
Attn: G. Edward Arledge, Esq.
Telephone No.: (619) 236-1414
Facsimile No.: (619) 232-8311
10.2 Survival of Representations and Warranties.
10.2.1 The representations and warranties contained
herein and in any certificate or other writing delivered pursuant
hereto shall survive until the Release Date as defined in the
Escrow Agreement.
10.2.2 The aggregate amount of any liability of
Bray, the Company and its Shareholders for any breach of any
warranty, covenant, representations, contingency or liability
under the Merger Agreement shall not exceed One Million Five
Hundred Thousand Dollars ($1,500,000.00).
<PAGE>53
10.2.3 Notwithstanding the foregoing and except as
provided below, neither the Company nor Bray nor the Company s
Shareholders, pursuant to the Escrow Agreement executed in
connection herewith, shall have any liability for (i) the first
$75,000 of the aggregate amount of all claims for breach of such
warranty, covenant, representations, contingency or liability
under this Agreement for which the Company, Bray, or the Company
s Shareholders would otherwise be liable to Buyer under this
Agreement (the "Indemnification Threshold") or the Escrow
Agreement, nor (ii) for the Bray Note or any Nimbus Receivable
that is not paid or collected as of the Release Date (as defined
under the Escrow Agreement). The above Indemnification
Threshold shall not apply to any receivable of the Company as of
the Closing which is not collected prior to the termination of
the Escrow established pursuant to the Escrow Agreement; provided
however, that the amount of receivables which are not collected
shall constitute a claim against the Escrow Shares hereunder only
to the extent that such receivables which are not collected
exceed the reserves, if any, for bad debt or doubtful accounts
set forth on the Balance Sheet.
10.2.4 Except for claims resulting from fraud by
the Company, Bray, or the Shareholders, the Buyer s sole remedy
for any liability of the Company, Bray, or the Shareholders
hereunder shall be its rights to a return of shares of Osmonics
Common Shares held by the Escrow Agent pursuant to the terms of
the Escrow Agreement.
10.3 Amendments; No Waivers.
10.3.1 Any provision of this Agreement may be
amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of
an amendment, by the Company, Buyer and Merger Subsidiary or in
the case of a waiver, by the party against whom the waiver is to
be effective; provided that after the adoption of this Agreement
by the Shareholders of the Company, no such amendment or waiver
shall, without the further approval of such Shareholders, alter
or change:
10.3.1.1 The amount or kind of consideration to
be received in exchange for any shares of capital stock of the
Company;
10.3.1.2 Any term of the certificate of
incorporation of the Surviving Corporation; or
10.3.1.3 Any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the
holders of any shares of capital stock of the Company.
10.3.2 No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
<PAGE>54
10.4 Expenses All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such
cost or expense, except that Buyer shall pay the filing fees
associated with any required HSR filing and Buyer shall pay
one-half of the cost of obtaining the Investment Banking Letter
(not to exceed $25,000.00) if this Agreement is terminated prior
to its closing. If the Merger is consummated, the Company
represents and warrants to Buyer that the Company's total fees
and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including, without limitation,
accounting, legal, broker, investment banking, appraisal or other
expert fees, shall not exceed $175,000.00. Expenses in excess of
$175,000.00 ( Excess Expenses ) shall be paid by the Shareholders
by reducing the number of Osmonics Common Shares to be delivered
by the Excess Expenses divided by Eighteen and 45/100 Dollars
($18.45). Any Excess Expenses shall be recovered by Buyer
through a claim against the Escrow Shares and Buyer shall be
entitled to make such a claim and to have Escrow Shares delivered
to Buyer in satisfaction of such claim as provided in the Escrow
Agreement. For purposes of this Section, the audit fees incurred
by the Company in the preparation of the audit required because
of the loan covenants of the Company shall not be considered as
fees or expenses incurred in connection with this Agreement.
10.5 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that
no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of
the other parties hereto.
10.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of
California without regard to the conflict of laws principles
thereof, as the same apply to agreements executed solely by
residents of California and wholly to be performed within
California.
10.7 Venue; Submission to Jurisdiction. Each of the parties
submits to the jurisdiction of any state or federal court sitting
in San Diego County, California, in any action or proceeding
arising out of or relating to this Agreement. All claims in
respect of the action or proceeding may be heard and determined
in any such court, and no party will bring any action or
proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense or
inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that
might be required of any other party with respect thereto.
10.8 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become
effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
<PAGE>55
10.9 Investigation of the Company. All representations and
warranties contained herein which are made to the knowledge of
the Company shall require that the Company make reasonable
investigation and inquiry of its officers, directors and
employees with respect thereto to ascertain the correctness and
validity thereof.
10.10 GAAP. The audited financial statements and
financial calculations provided or required pursuant to this
Agreement shall be prepared or made in accordance with GAAP. The
defined term "GAAP" shall mean generally accepted accounting
principles applied consistently including the accounting
reporting requirements, in all material respects, of the
Securities and Exchange Commission for public companies, except
for disclosure of earnings per share and weighted average common
and common equivalent share amounts in the statement of income.
10.11 Superseding Agreement. This Agreement supersedes
all prior agreements pertaining to the subject matter hereof.
[THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of
the day and year first above written.
DESALINATION SYSTEMS, INC.
By /S/ Donald T. Bray
Donald T. Bray, Chairman
By /S/ Charles C. Price
Charles C. Price, Chief Executive Officer
"Bray" /S/ Donald T. Bray
Donald T. Bray
OSMONICS, INC.
By /S/ D. Dean Spatz
D. Dean Spatz, Chief Executive Officer
By /S/ L. Lee Runzheimer
L. Lee Runzheimer, Chief Financial Officer
DSI ACQUISITION CORP.
By /S/ D. Dean Spatz
D. Dean Spatz, Chief Executive Officer
By /S/ L. Lee Runzheimer
L. Lee Runzheimer, Chief Financial Officer
