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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
OPTICAL SECURITY GROUP, INC.
(Name of Subject Company)
OPTICAL SECURITY GROUP, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.005 PER SHARE
(Title of Class of Securities)
683848 20 4
(CUSIP Number of Class of Securities)
RICHARD H. BARD
CHIEF EXECUTIVE OFFICER
OPTICAL SECURITY GROUP, INC.
535 16TH STREET
SUITE 920
DENVER, CO 80202
(303) 534-4500
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement)
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with copies to:
CHARLES H. JACOBS, ESQ.
JANE M. HARM, ESQ.
LOHF, SHAIMAN & JACOBS, P.C.
950 SOUTH CHERRY STREET, SUITE 900
DENVER, CO 80246-2666
(303) 753-9000
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This Solicitation/Recommendation Statement on Schedule 14D-9 relates to an
offer by Applied Opsec Corporation, a Colorado corporation ("Purchaser"), and a
wholly owned subsidiary of Applied Holographics PLC, a public limited company
incorporated and existing under the laws of England and Wales ("Parent"), to
purchase all of the Shares (as defined below) of Optical Security Group, Inc., a
Colorado corporation.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Optical Security Group, Inc., a Colorado
corporation (the "Company"), and the address of the principal executive offices
of the Company is 535 16(th) Street, Suite 920, Denver, Colorado 80202. The
title of the class of equity securities to which this statement relates is the
common stock, par value $.005 per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Schedule 14D-9 relates to the tender offer, disclosed in a Tender Offer
Statement on Schedule 14D-1, dated December 6, 1999 (as amended or supplemented,
the "Schedule 14D-1"), by the Purchaser to purchase all issued and outstanding
shares (the "Shares") of Common Stock at a price of $7.00 per Share (the "Offer
Price"), net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated December 6, 1999 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together with any
amendments and supplements thereto, collectively constitute the "Offer").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of November 30, 1999 ("the Merger Agreement"), among Parent, the Purchaser
and the Company, pursuant to which, following the consummation of the Offer and
the satisfaction or waiver of certain conditions, the Purchaser will be merged
with and into the Company, with the Company surviving the merger (as such, the
"Surviving Corporation") as a wholly owned subsidiary of Parent (the "Merger").
In the Merger, each Share issued and outstanding immediately prior to the Merger
(other than Shares (1) owned or held in treasury by the Company, (2) owned by
Parent or the Purchaser, (3) remaining outstanding and held by any subsidiary of
the Company or Parent, or (4) owned by stockholders, if any, who are entitled to
and who properly exercise dissenters' rights under Colorado law) will be
converted into the right to receive in cash, without interest, the per share
price paid in the Offer (the "Merger Consideration").
The Merger is subject to a number of conditions, including approval by
stockholders of the Company, if such approval is required by applicable law. If
the Purchaser acquires 90% or more of the outstanding Shares pursuant to the
Offer or otherwise, the Purchaser will effect the Merger pursuant to the
short-form merger provisions of the Colorado Business Corporation Act (the
"CBCA"), without prior notice to, or any action by, any other stockholder of the
Company.
A copy of the Merger Agreement is filed herewith as Exhibit 1 and is
incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Purchaser and Parent are located at 40 Phoenix Road, Crowther District 3,
Washington, Tyne & Wear, England, NE 38 OAD.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or affiliates or
(ii) Parent or the Purchaser or their respective executive officers, directors
or affiliates.
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THE MERGER AGREEMENT.
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit 1
hereto and incorporated by reference herein. The Merger Agreement should be read
in its entirety for a more complete description of the matters summarized below.
THE MERGER AGREEMENT. The Merger Agreement provides that following the
satisfaction or waiver of the conditions described below under "Conditions to
the Merger," the Purchaser will be merged with and into the Company, and each
then outstanding Share (other than Shares (1) owned or held in treasury by the
Company, (2) owned by the Purchaser or Parent, (3) remaining outstanding held by
any subsidiary of the Company or Parent or (4) owned by stockholders, if any,
who are entitled to and who properly exercise dissenters' rights under Colorado
law), will be converted into the right to receive an amount in cash, without
interest, equal to the price per Share paid pursuant to the Offer. Shares
described in (1), (2) and (3) of this paragraph will be cancelled without the
payment of any consideration.
VOTE REQUIRED TO APPROVE THE MERGER. The CBCA requires, among other things,
that the adoption of any plan of Merger or consolidation of the Company must be
approved by the board of directors of the Company and, if the "short form"
Merger procedure described below is not available, by the holders of a majority
of the Company's outstanding Shares. The board of directors of the Company has
approved the Offer, the Merger and the Merger Agreement; consequently, the only
additional corporate action of the Company that may be necessary to effect the
Merger is approval by such stockholders if the "short-form" Merger procedure
described below is not available. Under the CBCA, the affirmative vote of
holders of a majority of the outstanding Shares (including any Shares owned by
the Purchaser), is generally required to approve the Merger. In addition,
holders of Company preferred stock will also have the right to vote on the
Merger, on the same basis as the holders of the Shares. If the Purchaser
acquires, through the Offer or otherwise, voting power with respect to at least
a majority of the outstanding Shares (which would be the case if the Minimum
Condition were satisfied and the Purchaser were to accept for payment Shares
tendered pursuant to the Offer), it would have sufficient voting power to effect
the Merger without the vote of any other stockholder of the Company. The CBCA
also provides, however, that if a parent company owns at least 90% of each class
of stock of a subsidiary, the parent company can effect a "short-form" merger
with that subsidiary without the action of the other stockholders of the
subsidiary. Accordingly, if, as a result of the Offer or otherwise, the
Purchaser acquires or controls the voting power of at least 90% of the
outstanding Shares, the Purchaser could (and, under the Merger Agreement, is
required to) effect the Merger using the "short-form" merger procedures without
prior notice to, or any action by, any other stockholder of the Company.
CONDITIONS TO THE MERGER. The Merger Agreement provides that the respective
obligations of Parent, the Purchaser and the Company to effect the Merger are
subject to the fulfillment at or prior to the effective time of the Merger of
each of the following conditions: (1) other than as described above with respect
to the "short-form merger procedures" the Offer, the Merger Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
stockholders of the Company in accordance with the CBCA, (2) the Merger
Agreement, the Merger and the Placing and Open Offer (the "Placing and Open
Offer") of new ordinary shares of Parent (the "New Ordinary Shares") shall have
been approved and adopted by the requisite vote of the stockholders of Parent in
accordance with the Listing Rules of London Stock Exchange Limited and (3) no
temporary restraining order, preliminary or permanent injunction, judgment or
other order, decree or ruling nor any statute, rule, regulation or order shall
be in effect which prevents the consummation of the Merger.
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The obligations of Parent and Purchaser to consummate the Merger are also
subject to the satisfaction at or prior to the effective time of the Merger of
the following conditions (unless any such condition is waived in writing by
Parent or the Purchaser):
(1) the representations and warranties of the Company set forth in the
Merger Agreement shall be true and correct in all material respects (without
giving duplicative effect to any materiality qualification contained in the
applicable representation or warranty) as of the effective time of the Merger
with the same force and effect as though made again at and as of the effective
time of the Merger, except for any representations and warranties that address
matters only as of a particular date (which shall remain true and correct in all
material respects (without giving duplicative effect to any materiality
qualification contained in the applicable representation or warranty) as of such
date) and Parent shall have received a certificate from the Company's chief
executive officer and chief financial officer to that effect;
(2) the Company shall have performed in all material respects all
obligations required to be performed by the Company under the Merger Agreement
at or prior to the effective time of the Merger and Parent shall have received a
certificate from the Company's chief executive officer and chief financial
officer to that effect;
(3) there shall not have occurred any change in the business, assets,
prospects, financial condition or results of operations of the Company or any of
its subsidiaries which has had, or is reasonably likely to have, individually or
in the aggregate, a change or effect that is, in the reasonable judgement of
Parent, materially adverse to the business, assets, prospects, financial
condition, results of operations or condition of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect");
(4) the Company shall have received all necessary consents or waivers to the
Merger, in form and substance satisfactory to Parent, from the other parties to
each contract, lease or agreement to which the Company is a party, except where
the failure to obtain such consent or waiver would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect;
(5) the consummation of the Bridgestone Transaction on terms substantially
in accordance with the terms of the Bridgestone Agreement;
(6) the receipt by Parent of sufficient funds from the Placing and Open
Offer to fund its obligations under the Merger Agreement; and
(7) the admittance of the New Ordinary Shares to the Official List of the
London Stock Exchange, subject to notice of admittance.
The obligations of the Company to consummate the Merger are also subject to
the satisfaction at or prior to the effective time of the Merger of the
following conditions (unless any such condition is waived in writing by the
Company):
(1) the representations and warranties of Parent set forth in the Merger
Agreement shall be true and correct in all material respects (without giving
duplicative effect to any materiality qualification contained in the applicable
representation or warranty) as of the effective date of the Merger with the same
force and effect as though made again at and as of the effective date of the
Merger, except for any representations and warranties that address matters only
as of a particular date (which shall remain true and correct in all material
respects (without giving duplicative effect to any materiality qualification
contained in the applicable representation or warranty) as of such date) and the
Company shall have received a certificate to that effect from Parent's chief
executive officer and chief financial officer and
(2) Parent shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
effective time of the Merger and the Company shall have received a certificate
to that effect from Parent's chief executive officer and chief financial
officer.
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TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
at any time prior to the effective time of the Merger, whether before or after
approval and adoption of the Merger Agreement by the stockholders of the
Company:
(1) by mutual agreement of the boards of directors of Parent and the
Company;
(2) by Parent or the Company if (a) any court of competent jurisdiction in
the United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree or ruling or other
action has become final and nonappealable, (b) there has been a material breach
by the other party of any representation, warranty, covenant or agreement set
forth in the Merger Agreement or the Option Agreement that is not capable of
being cured, (c) the stockholders of Parent shall fail to approve the Merger and
the Placing and Open Offer, or (d) the stockholders of the Company shall fail to
approve the Merger;
(3) by Parent, if (a) the Company or any of its directors or officers shall
participate in discussions or negotiations in breach of the covenants of the
Company described under "No Solicitation by the Company; Acquisition Proposals"
(b) the board of directors of the Company approves or recommends an acquisition
proposal by a third party (other than Parent) or withdraws or modifies in a
manner adverse to Parent its recommendation that stockholders of the Company
approve the Merger or (c) the Company shall have failed to mail a proxy
statement to the stockholders in connection with the approval of the Merger by
the stockholders of the Company or failed to include in such proxy statement its
recommendation of the Merger Agreement and the transactions contemplated
thereby;
(4) by Parent prior to the purchase of the Shares pursuant to the Offer, in
the event of a breach or failure to perform by the Company of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement which (a) would give rise to the failure of a condition set forth in
the Stockholder Agreements and (b) cannot be cured, or has not been cured within
15 days after the Company receives written notice from Parent of such breach or
failure to perform;
(5) by Parent if the Placing and Open Offer or the Placing Agreement shall
have been terminated without Parent having received the proceeds of the Placing
and Open Offer or any alternative financing;
(6) by Parent if Parent permits the Offer to lapse in accordance with its
terms or Parent or the Purchaser terminates the Offer without the purchase of
the Shares by the Purchaser in accordance with the conditions to the Offer;
(7) by the Company if in response to an acquisition proposal which
constitutes a Superior Proposal (as defined in "No Solicitation by the Company;
Acquisition Proposals" below) which was not solicited by the Company and which
did not otherwise result from a breach of the covenants of the Company described
under "No Solicitation by the Company; Acquisition Proposals" if, in effecting
such termination, the Seller complies with the relevant provisions of the Merger
Agreement; or
(8) by either Parent or the Company, in the event the effective time of the
Merger has not occurred by the latest to occur of (a) March 31, 2000 or
(b) 60 days after the clearance by the Commission of the proxy statement issued
in connection with approval of the Merger by the stockholders of the Company
(with such date, as it may thereafter be extended by mutual written agreement of
Parent and the Company,
NO SOLICITATION BY THE COMPANY; ACQUISITION PROPOSALS. The Merger Agreement
provides that the Company will not, nor will it permit any of it subsidiaries
to, nor will it authorize or permit any of its, directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any inquiries or
the making of any proposal which constitutes an Acquisition Proposal (as defined
below) or (2) participate in any discussions or negotiations regarding any
Acquisition Proposal. Notwithstanding the
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foregoing, if the board of directors of the Company determines in good faith,
after consultation with outside counsel, that it is necessary to do so in order
to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Company, in response to a Superior Proposal (as defined
below) which was not solicited by it or which did not result from a breach by
the Company of its non-solicitation obligations, and subject to compliance with
the Merger Agreement, may furnish information with respect to the Company and
its subsidiaries to any person making a Superior Proposal pursuant to a
confidentiality agreement on terms no less favorable than the confidentiality
agreement between the Company and Parent and participate in discussions or
negotiations regarding such Superior Proposal.
For purposes of the Merger Agreement, an "Acquisition Proposal" means any
inquiry, proposal or offer from any person (1) relating to any direct or
indirect acquisition or purchase of (a) a business that constitutes 15% or more
of the net revenues, net income or the assets of the Company and its
subsidiaries, taken as a whole, (b) 20% or more of any class of equity
securities of the Company or (c) any material equity interest in any subsidiary
of the Company, (2) relating to any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company or any material equity interest in any
of its subsidiaries, or (3) relating to any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement.
For purposes of the Merger Agreement, "Superior Proposal" means any proposal
made by a third party to acquire, directly or indirectly, including pursuant to
a tender offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the Shares then outstanding or all or substantially all
the assets of the Company and otherwise on terms which the board of directors of
the Company determines in its good faith judgment is reasonably likely to be
consummated, taking into account the person making the proposal and all legal,
financial and regulatory aspects of the proposal, and would provide greater
value to the stockholders of the Company than the Merger.
The Merger Agreement provides further that neither the board of directors of
the Company nor any committee thereof may (1) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by such board of directors or such committee of the Offer, the
Merger or the Merger Agreement, (2) approve or recommend, or propose publicly to
approve or recommend, any Acquisition Proposal or (3) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Acquisition Proposal other than any such
agreement entered into concurrently with the termination of the Merger Agreement
by the Company to facilitate such action. See "Termination of the Merger
Agreement" above.
The Merger Agreement provides that the Company must promptly advise Parent
orally and in writing of any Acquisition Proposal or any request for any
non-public information by any person which the Company reasonably believes is in
connection with the preparation of an Acquisition Proposal, the material terms
and conditions of the Acquisition Proposal or the information requested by the
person making the request and the identity of the person making the Acquisition
Proposal or request for information. The Company must promptly inform Parent of
any change in the status and material terms and conditions (including amendments
or proposed amendments) of any such Acquisition Proposal or request for
information.
FEES AND EXPENSES; TERMINATION FEE. The Merger Agreement provides that all
fees and expenses incurred in connection with the Offer, the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement will be paid
by the party incurring such fees or expenses, whether or not the Offer or the
Merger is consummated.
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The Merger Agreement provides that the Company shall pay $300,000 to Parent,
within three business days after termination of the Merger Agreement by Parent
or the Company, as applicable, in the event that:
(1) there has been a material breach by the Company of any representation,
warranty, covenant or agreement set forth in this agreement which was not cured
prior to the effective time of the Merger;
(2) the stockholders of the Company shall fail to approve the Offer and the
Merger at the Company Stockholder Meeting;
(3) the Company or any of its directors or officers shall participate, or
have publicly resolved to participate, in discussions or negotiations in breach
of the Company's covenants described above under "No Solicitation by the
Company; Acquisition Proposals";
(4) the board of directors of the Company shall have approved or
recommended, or have publicly resolved to approve or recommend, an Acquisition
Proposal by a third party or withdrawn or modified its approval or
recommendation of the Merger Agreement or the transactions contemplated thereby
in a manner adverse to Parent or Purchaser;
(5) the Company failed to mail the proxy statement regarding the Merger to
its stockholders or failed to include in such proxy statement the recommendation
that the stockholders of Company vote in favor of the Merger;
(6) the Company, prior to the purchase of Shares pursuant to the Offer, has
failed to perform any representation, warranty, covenant or other agreement
contained in the Merger Agreement which (a) would give rise to the failure of a
condition set forth in any of the stockholder agreements executed by certain
stockholders of the Company in connection with the Offer and the Merger and
(b) cannot be cured, or has not been cured within 15 days after the Company
receives written notice from Parent or Purchaser of such breach or failure to
perform;
(7) the Company terminates the Merger Agreement in response to a Superior
Proposal which was not solicited by the Company and which does not otherwise
result from a breach of the non-solicitation or other covenants of the Company
described above under "No Solicitation by the Company; Acquisition Proposals".
The Merger Agreement also provides that Parent shall pay $300,000 to the
Company, within three business days after termination of the Merger Agreement by
Parent or the Company, as applicable, in the event that:
(1) the stockholders of Parent shall fail to approve the Merger and the
Placing and Open Offer at the extraordinary general meeting of Parent
convened December 23, 1999 or at any adjournment of such extraordinary
general meeting to a date not more than 5 business days after December
23, 1999; or
(2) the Placing and Open Offer or the Placing Agreement shall have been
terminated without Parent having received the proceeds of the Placing and
Open Offer or any alternative financing.
CONDUCT OF THE BUSINESS OF THE COMPANY. The Merger Agreement provides that
unless provided for in the Merger Agreement or approved by Parent in writing,
from the date of the Merger Agreement until the consummation of the Merger, the
Company will not (and will cause each of its Subsidiaries to not):
(1) amend its articles of incorporation or other charter document or
by-laws;
(2) authorize for issuance, issue, sell, deliver, pledge or agree or commit
to issue, sell, deliver or pledge (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any capital stock of any class or any debt or other securities convertible into
capital stock or equivalents (including, without limitation, stock appreciation
rights), or amend any of the
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terms of any of the foregoing, other than the issuance of shares of capital
stock upon the exercise of outstanding options or rights in accordance with the
terms of the Company's Incentive Stock Option Plan, Nonqualified Stock Option
Plan and Stock Bonus Plan (collectively, the "Company Equity Plans") as the case
may be;
(3) (a) split, combine or reclassify any shares of its capital stock, or
authorize or propose the issuance or authorization of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
adopt or approve any stockholder rights plan providing for the issuance to
holders of shares of Common Stock or preferred stock of the Company of rights to
purchase or receive stock, cash or other assets upon the acquisition or proposed
acquisition of Common Stock or preferred stock of the Company, or repurchase,
redeem or otherwise acquire any of its securities or any securities of its
subsidiaries, or (b) make any payment of cash or other property to terminate,
cancel or otherwise settle any outstanding options, other than in the case of
clauses (a) or (b) above for the issuance of shares of Common Stock in
connection with the exercise of options or rights under the Company Equity
Plans;
(4) (a) incur or assume any long-term indebtedness or increase any amounts
outstanding under long-term credit facilities existing as of the date of the
Merger Agreement or grant, extend or increase the amount of a mortgage lien on
any leasehold or fee simple interest of the Company or its subsidiaries; or,
except in the ordinary course of business consistent with past practice in the
case of clauses (a) through (f) below, (b) incur or assume any short-term debt
or increase amounts outstanding under short-term credit facilities existing as
of September 30, 1999, (c) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other entity or individual, except for obligations of the Company or any
subsidiary of the Company, (d) make any loans, advances or capital contributions
to, or investments in, any other entity or individual, (e) pledge or otherwise
encumber shares of capital stock of the Company or any of its subsidiaries, or
(f) mortgage or pledge any of its assets, tangible or intangible, or create or
suffer to exist any lien thereon except as existing on the date of the Merger
Agreement or as may be required under agreements outstanding on the date of the
Merger Agreement to which the Company or any of its subsidiaries are parties;
(5) except as expressly provided in the Merger Agreement, enter into, adopt
or amend in any manner or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance, change-in-control or
other employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee, or increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement as in effect as of
the date of the Merger Agreement or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(6) sell, lease, license, pledge or otherwise dispose of or encumber any
material assets except in the ordinary course of business consistent with past
practice (including without limitation any indebtedness owed to it or any claims
held by it);
(7) except in connection with the Bridgestone Transacation, acquire or agree
to acquire by merging or consolidating with or by purchasing any portion of the
capital stock or assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, association or other
business organization or division thereof, other than in the ordinary course of
business consistent with past practice;
(8) change any of the accounting principles or practices used by it
affecting its assets, liabilities or business, except for such changes required
by a change in generally accepted accounting principles;
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(9) pay, discharge or satisfy any claims, liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise), other than the payment, discharge or satisfaction of liabilities
(a) in the ordinary course of business consistent with past practices, (b) with
notice to Buyer, in an amount which does not exceed $25,000 in the aggregate,
(c) incurred pursuant to the terms of the engagement letter agreement between
the Company and Wasserstein Perella & Co., Inc. ("Wasserstein Perella"), dated
October 1, 1999 in an amount not to exceed $1,250,000, plus expenses, or
(d) incurred in connection with the transactions contemplated by Offer and the
Merger Agreement, not to exceed the amounts described in a schedule attached to
the Merger Agreement;
(10) except as required by their terms, enter into, terminate or breach (or
take or fail to take any action, that, with or without notice or lapse of time
or both, would become a breach) or materially amend any contract which is or
would be a material agreement, as defined in the Merger Agreement;
(11) without prior consultation with Parent or the Purchaser (in addition to
the consent requirement described above) commence any litigation or arbitration
other than in accordance with past practice or settle any litigation or
arbitration for money damages or other relief in excess of $50,000 or if as part
of such settlement the Company or any subsidiary would agree to any restrictions
on its operations;
(12) grant any license with respect to or otherwise convey any intellectual
property of the Company;
(13) elect or appoint any new directors or officers of the Company or any
subsidiary;
(14) waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that the Company entered into in connection
with its consideration of a potential strategic transaction; provided, however,
that the Company may waive, release or amend its rights under any such
confidentiality, "standstill" or similar agreement if the Company's board of
directors determines, based on the advice of independent legal counsel that
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law;
(15) make or change any election, request permission of any tax authority or
to change any accounting method, file any amended federal, state, local, foreign
or other tax return, enter into any closing agreement, settle any federal,
state, local, foreign or other tax claim or assessment relating to the Company
or its subsidiaries, surrender any right to claim a refund of federal, state,
local, foreign, or other taxes, or consent to any extension or waiver of the
limitation period applicable to any federal, state, local, foreign or other tax
claim or assessment relating to the Company or its subsidiaries;
(16) settle or comprise any pending or threatened suit, action or claim
which is material or which relates to any of the transactions contemplated by
the Merger Agreement;
(17) take any action that would reasonably be expected to result in (a) any
of the representations and warranties of the Company set forth in the Merger
Agreement becoming untrue or (b) any of the conditions of the Offer not being
satisfied;
(18) amend, modify or otherwise change of any of the terms and conditions
set forth in the Bridgestone Agreement; or
(19) take, or agree in writing or otherwise to take, any of the actions
described in sub-paragraphs (1) through (18) listed above.
BOARD OF DIRECTORS. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, Shares by the Purchaser pursuant to
the Offer, the Purchaser will be entitled to designate such number of directors
on the board of directors of the Company as will give the Purchaser, subject to
compliance with Section 14(f) of the Exchange Act, representation on the
Company's board of directors equal to the product of (1) the total number of
directors on the Company's board of directors and (2) the percentage that the
number of Shares purchased by the Purchaser in the Offer bears to the number of
Shares outstanding, and the Company will, at such time, cause the Purchaser's
designees to be selected
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by its existing board of directors. Subject to applicable law, the Company has
agreed to take all action requested by Parent necessary to effect any such
election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Merger Agreement further provides that in
the event that the Purchaser's designees are elected to the board of directors
of the Company, until the effective time of the Merger, the board of directors
of the Company will have at least two independent directors who were directors
on the date of the Merger Agreement and who are not officers of the Company or
any of its subsidiaries. The Merger Agreement also provides that the Company
will promptly, at the option of Parent, either increase the size of the
Company's board of directors and/or obtain the resignation of such number of its
current directors as is necessary to enable the Purchaser's designees to be
elected or appointed to, and to constitute a majority of, the Company's board of
directors as provided above.
STOCK OPTIONS. The Merger Agreement provides that prior to the effective
time of the Merger, the Company shall terminate the Company Equity Plans and
shall provide written notice to each holder of a then outstanding option to
purchase shares of Common Stock pursuant to the Company Equity Plans (whether or
not such option is then vested or exercisable), that such option shall be
exercisable in full as of the date of such notice and that such option shall
terminate at the effective time of the Merger and that, if such option is not
exercised or otherwise terminated before the effective time of the Merger, such
holder shall be entitled to receive in cancellation of such option a cash
payment from Parent promptly after the effective time of the Merger, in an
amount equal to the excess, if any, by which the Offer Price exceeds the
exercise price per share with respect to such option multiplied by the number of
shares represented by such option immediately prior to such cancellation,
subject to income tax withholding as required by applicable law.
WARRANTS. The Merger Agreement also provides that, prior to the effective
time of the Merger, the Company shall use its commercially reasonable efforts to
receive from each holder of an outstanding warrant to purchase shares of Common
Stock an agreement that, as of the effective time of the Merger, such warrant
shall be converted into a right of such holder to receive from Parent promptly
after the effective time of the Merger an amount in cash, without interest equal
to the product of (1) the number of shares of Common Stock subject to such
warrant immediately prior to the effective time of the Merger and (2) the
excess, if any, by which the Offer Price exceeds the exercise price per share
that was applicable with respect to such warrant.
DEBENTURES. The Merger Agreement further provides that, prior to the
effective time of the Merger, the Company shall use its commercially reasonable
efforts to receive from each holder of an outstanding debenture issued by the
Company an agreement that, simultaneously with the consummation of the Merger
and at the effective time of the Merger, the debenture then held by it shall,
automatically and without further action by the holder of the debenture, be
cancelled and deemed to be paid-in-full. Promptly after the effective time of
the Merger, Parent shall pay to each holder of a debenture with a strike price
of $6.00 who shall have entered into an agreement with the Company for the
cancellation of such holder's debenture, an amount in cash equal to 116.67% of
such debenture holders' pro-rata share of the outstanding principal amount of
such class of debenture, together with accrued interest thereon as provided in
the applicable debentures. The maximum aggregate consideration payable to the
holders of debentures with a strike price of $6.00 by Parent, assuming that all
such holders enter into agreements with the Company for the cancellation of
their debentures, shall be $583,350. In addition, promptly after the effective
time of the Merger, Parent shall pay to each holder of a debenture with a strike
price of $6.50 who shall have entered into an agreement with the Company for the
cancellation of such holder's debenture, an amount in cash equal to 109% of such
debenture holders' pro-rata share of the outstanding principal amount of such
class of debenture, together with accrued interest thereon as provided in the
applicable debentures. The maximum aggregate consideration payable to the
holders of debentures with a strike price of $6.50 by Parent, assuming that all
such holders enter into agreements with the Company for the cancellation of
their debentures, shall be $3,019,300. From and after the effective time of the
Merger, none
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of Parent, Purchaser or the Company shall have any liability or obligation of
any kind whatsoever under debentures with respect to which the holder shall have
received payment as described herein.
EMPLOYEE MATTERS. The Merger Agreement provides that from and after the
Merger, Parent will cause the Surviving Corporation to provide, employee benefit
plans, programs and arrangements to employees of the Company which are in the
aggregate at least as favorable as those maintained by the Company today.
The Merger Agreement also provides that with respect to each benefit plan,
program practice, policy or arrangement maintained by the Surviving Corporation
in which employees of the Company subsequently participate, for purposes of
determining vesting and entitlement to benefits, including for severance
benefits and vacation entitlement (but not for accrual of pension benefits),
service with the Company (or predecessor employers to the extent the Company
provides past service credit) will be treated as service with the Surviving
Corporation.
As described in the Company's most recent proxy statement dated November 2,
1999, the Company is party to an amended employment agreement with Richard H.
Bard, Chairman and Chief Executive Officer of the Company. Under the terms of
his employment agreement, Mr. Bard is entitled to certain benefits in the event
of an acquisition of the Company. In connection with the execution of the Merger
Agreement, the Company and Mr. Bard entered into an amendment to his employment
agreement. In addition, in the Merger Agreement, Parent has agreed to make
certain payments to Mr. Bard in satisfaction of certain of his rights under the
employment agreement.
Under the amendment executed by the Company and Mr. Bard dated as of
November 29, 1999 (the "Amendment"), Mr. Bard's employment with the Company will
terminate on the later to occur of the effective time of the Merger and January
31, 2000. In addition, the Company has agreed to pay to Mr. Bard bonuses for
past service to the Company for the years 1997, 1998 and 1999 in the amounts of
$160,000, $200,000 and $240,000, respectively. Furthermore, in the Amendment,
Mr. Bard has agreed that the provisions of his employment agreement which
provide for a payment upon termination of 1.5 times the present value of the
salary and other benefits for the remaining term (currently through March 31,
2006) of the agreement are to be deleted.
In addition to the foregoing, in the Merger Agreement, Parent has agreed to
pay to Mr. Bard following the effective time of the Merger an amount in cash
equal to $3,500,000 in full satisfaction of certain rights of Mr. Bard under his
employment agreement to receive 500,000 shares of Common Stock upon a merger or
acquisition of the Company and certain other rights to which he is entitled
under his employment upon a termination of his employment with the Company.
Furthermore, Parent has also agreed in the Merger Agreement to pay to Mr. Bard
$250,000 in full satisfaction of his options to acquire 147,000 shares of Common
Stock.
After the consummation of the Merger, Mark Turnage, the current President
and Chief Operating Officer of the Company, will (1) assume primary
responsibility for the United States operations of the Surviving Corporation and
be entitled to an annual salary of $200,000, (2) join the board of directors of
Parent and the Surviving Corporation, pending the requisite shareholder
approval, (3) be entitled to participate in a bonus plan, receive certain
pension contributions (to be agreed) and to benefit from a company car and
private medical health insurance cover, and (4) become entitled to receive
payments of bonuses from the Company in respect of prior years' service in the
amount of approximately $390,000, and an additional bonus of approximately
$110,000. Mr. Turnage has agreed to invest such payment in New Ordinary Shares
at their issue price and to retain such shares for a minimum period of one year.
INDEMNIFICATION. From and after the consummation of the Merger and for a
period of six years thereafter, Parent will, or will cause the Surviving
Corporation to, fulfill and honor in all respects the obligations of the Company
to indemnify each person who is or was a director or officer (an "Indemnified
Party") of the Company or any of its subsidiaries pursuant to any
indemnification provision of the
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Company's articles of incorporation or by-laws as each is in effect on the date
of the Merger Agreement. In addition, for a period of six years after the
Merger, the Surviving Corporation will not amend or reduce the rights to
indemnification provided in the articles of incorporation of the Company.
Furthermore, the Merger Agreement provides that, for a period of three years
after the consummation of the Merger, Parent shall cause to be maintained in
effect the current officers' and directors' liability insurance maintained by
the Company with respect to the Indemnified Parties to the extent that it
provides coverage for events occurring prior to the consummation of the Merger
for all persons who are directors and officers of Seller on the date of the
Merger Agreement, so long as such insurance is available on commercially
reasonable terms and the annual premium for such liability insurance would not
be in excess of 200% of the last annual premium paid prior to the date of the
Merger Agreement If the existing officers' and directors' liability insurance
expires, is terminated or cancelled during such three-year period, Parent will
use all reasonable efforts to cause to be obtained as much officers' and
directors' liability insurance as can be obtained for the remainder of such
period for an annualized premium as provided in the Merger Agreement and on
terms and conditions no less advantageous than the existing officers' and
directors' liability insurance.
COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in the Merger Agreement, Parent, the Purchaser and the
Company have each agreed to use its commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with each other in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Offer, the Merger and the other transactions contemplated by
the Merger Agreement, including (1) the taking of all reasonable acts necessary
to cause the conditions of the Offer to be satisfied, (2) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
governmental entities and the making of all necessary registrations and filings
and the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any governmental entity, (3) the
obtaining of all necessary consents, approvals or waivers from third parties,
(4) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging the Merger Agreement or the consummation of the
transactions contemplated by the Merger Agreement, including seeking to have any
stay or temporary restraining order entered by any court or other governmental
entity vacated or reversed, and (5) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, the Merger Agreement. In connection with and
without limiting the foregoing, but subject to the terms and conditions of the
Merger Agreement, the Company and its board of directors will (1) take all
action necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Offer, the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger Agreement,
and (2) if any state takeover statute or similar statute or regulation becomes
applicable to the Offer, the Merger, the Merger Agreement or any other
transaction contemplated by the Merger Agreement, take all action necessary to
ensure that the Offer, the Merger, the Merger Agreement and the other
transactions contemplated by the Merger Agreement may be consummated as promptly
as practicable on the terms contemplated by the Offer and the Merger Agreement
and otherwise to minimize the effect of such statute or regulation on the Offer,
the Merger, the Merger Agreement and the other transactions contemplated by the
Merger Agreement.
The Merger Agreement further provides that the Company will give prompt
notice to Parent, and Parent will give prompt notice to the Company, of (1) the
occurrence, or non-occurrence, of any event which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate in any material respect or any covenant, condition or agreement
contained in the Merger Agreement not to be complied with or satisfied or
(2) any failure of the Company, Parent or the Purchaser to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under the Merger Agreement; provided that no such notification will limit or
otherwise affect the remedies available to the party receiving the notice.
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REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties.
APPRAISAL RIGHTS. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated holders of Shares will have certain
rights pursuant to the provisions of Section 7-113-102 of the CBCA to dissent
and demand appraisal of, and to receive payment in cash of the fair value of,
their Shares. If the statutory procedures were complied with, such rights could
lead to a judicial determination of the fair value required to be paid in cash
to such dissenting holders for their Shares. In determining the fair value of
the Shares, the court is required to take into account all relevant factors.
Accordingly, any such judicial determination of the fair value of Shares could
be based upon considerations other than or in addition to the Offer Price or the
market value of the Shares, including the asset value and investment value of
the Shares. The value so determined could be more or less than the Offer Price
or the Merger Consideration.
If any holder of Shares who demands appraisal under Section 7-113-102 of the
CBCA fails to perfect, or effectively withdraws or loses his right to appraisal,
as provided in the CBCA, the Shares of such stockholder will be converted into
the Merger Consideration in accordance with the Merger Agreement.
The foregoing discussion is not a complete statement of law pertaining to
appraisal rights under the CBCA and is qualified in its entirety by the full
text of Section 7-113-102 of the CBCA.
FAILURE TO FOLLOW THE STEPS REQUIRED BY THE CBCA FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
DIVIDENDS AND DISTRIBUTIONS. Pursuant to the terms of the Merger Agreement,
prior to the effective time of the Merger, unless otherwise approved in writing
by the Purchaser, the Company may not (1) declare, set aside, make or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock, or (b) issue or sell any shares of any class of its capital stock, or any
securities convertible into or exchangeable for any such shares, or issue, sell,
grant or enter into any subscriptions, options, warrants, conversion or other
rights, agreements, commitments, arrangements or understandings of any kind,
contingently or otherwise to purchase or otherwise acquire any such shares or
securities convertible into or exchangeable for any such shares.
OTHER CONTRACTS.
The following summary of the Loan Agreement, form of Stockholder Agreement,
and Stock Option Agreement, copies of which are attached as Exhibits 2, 3, and
4, respectively, hereto and incorporated by reference herein. The Loan
Agreement, form of Stockholder Agreement, and Stock Option Agreement should be
read in their entirety for a more complete description of the matters summarized
below.
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LOAN AGREEMENT WITH THE COMPANY. Parent and the Company are parties to a
Loan Agreement dated November 30, 1999 (the "Loan Agreement"). Pursuant to the
terms and conditions set forth in the Loan Agreement, Parent has agreed to lend
to the Company on or before December 10, 1999 an amount not in excess of
$10,000,000 (the "Loan"). The Company shall use the proceeds of the Loan solely
to complete the purchase of 100% of the issued and outstanding capital stock of
Bridgestone Technologies, Inc. and 19.9% of the membership interests of two
associated limited liability companies, Label Systems Acquisition LLC and
Keystone Imaging Technologies, LLC (the "Bridgestone Transaction"), pursuant to
the Stock Purchase Agreement executed between the Company, Keystone Technologies
L.L.C., and Kenneth P. Felis, Michael J. Zubretsky, Richard Zucker and Timothy
Dolan, as sellers (the "Bridgestone Agreement"). Subject to acceleration and in
accordance with the terms of the Loan Agreement, the Loan shall be due and
payable in full in cash on the date (the "Maturity Date") which is the earliest
to occur of (1) December 31, 2000, or (2) any date specified in a demand notice
delivered by Parent to the Company; provided, that such date shall not be
earlier than six months from the date of such demand notice; provided further,
that such demand notice shall not be delivered to the Company prior to the date
of termination of the Merger Agreement, or (3) any date which may be mutually
agreed upon in writing by Parent and the Company. In the event the Merger is not
completed on or before the Maturity Date and the failure to complete the Merger
is not the result of Parent's stockholders failing to approve the Merger or
Parent failing to obtain the financing necessary to complete the Merger, and so
long as Parent has not materially breached any agreement or other document in
connection with the Merger, then a fee of $1,700,000 shall be due from the
Company to Parent on the Maturity Date. The Loan shall be secured by liens
(subject only to existing senior lender liens and other mutually agreed upon
liens) on all assets of the Company and its subsidiaries located in the United
States, whether now owned or hereafter acquired, pursuant to the terms of the
security documents to which the Company or its subsidiaries located in the
United States are a party.
STOCK OPTION AGREEMENT WITH THE COMPANY. Immediately after the execution of
the Merger Agreement, the Company executed and delivered a stock option
agreement, dated November 30, 1999 (the "Option Agreement"), pursuant to which
the Company granted to Parent an option to purchase Common Stock under the
conditions set forth below. The Option Agreement is intended to increase the
likelihood that the Merger will be consummated in accordance with the terms of
the Merger Agreement. Consequently, certain aspects of the Option Agreement may
have the effect of discouraging persons who might now or at any other time prior
to the completion of the Merger may be interested in acquiring all of or a
significant interest in the Company from considering or proposing an
acquisition, even if those persons were prepared to offer to pay consideration
to stockholders of the Company in excess of that proposed to be paid by Parent
pursuant to the Merger Agreement.
The Option Agreement provides for the purchase by Parent of up to 1,234,293
shares (the "Option Shares") of Common Stock, subject to certain anti-dilutive
adjustments, at an exercise price of $7.00 per share, payable in cash. The
Option Shares will in no event exceed 19.9% of the Common Stock issued and
outstanding without giving effect to the issuance of any Common Stock subject to
the Option.
EXERCISE OF THE COMPANY OPTION. The Option will become exercisable, in
whole or in part, but only if both an Initial Triggering Event and a Subsequent
Triggering Event occur prior to an Exercise Termination Event. For purposes of
the Option Agreement:
(1) an "Initial Triggering Event" will occur if one of the following events
occurs:
(a) the Company enters into an agreement to engage in, or the board of
directors of the Company recommends that stockholders of the Company
approve or accept, an Acquisition Transaction,
(b) the Company, without Parent's prior written consent, authorizes,
recommends, proposes or publicly announces its intention to
authorize, recommend or propose to engage in an Acquisition
Transaction, or the board of directors of the Company publicly
withdraws or
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modifies, or publicly announces its intention to withdraw or modify,
in any manner adverse to Parent, its recommendation that its
stockholders approve the Merger Agreement,
(c) the Company terminates the Merger Agreement after receipt of a
superior proposal from a third party,
(d) a third party acquires beneficial ownership, or the right to acquire
beneficial ownership, of 20% or more of the outstanding shares of
Common Stock,
(e) a third party makes a BONA FIDE proposal to the Company or its
shareholders by public announcement, or written communication that
becomes the subject of public disclosure, to engage in an Acquisition
Transaction, or
(f) the Company breaches any covenant or obligation in the Merger
Agreement after an overture is made by a third party to engage in an
Acquisition Transaction, and following the breach, Parent would be
entitled to terminate the Merger Agreement
(2) As used above in (1), the term "Acquisition Transaction" means
(a) a merger or consolidation, or any similar transaction with the
Company or any of its subsidiaries
(b) a purchase, lease or other acquisition or assumption of all or
substantially all of the assets of the Company or any of its
subsidiaries
(c) a purchase or other acquisition of securities representing 20% or
more of the voting power of the Company or any of the Company's
subsidiaries, or
(d) any transaction substantially similar to those described in (a)-(c)
above.
(3) A "Subsequent Triggering Event" will occur if either of the following
occurs:
(a) any person acquires beneficial ownership of 30% or more of the
then-outstanding shares of Common Stock; or
(b) the Initial Triggering Event described in clause (1)(a) occurs,
except that the percentage referred to in clause (2)(c) of the
definition of "Acquisition Transaction" set forth above is 30%.
(4) An "Exercise Termination Event" means the earliest of:
(a) the effective time of the Merger,
(b) termination of the Merger Agreement in accordance with its terms if
the termination occurs prior to the occurrence of an Initial
Triggering Event, except in the case of the termination of the Merger
Agreement by Parent as a result of an uncured material breach by the
Company of any of its representations, warranties, covenants or
agreements, or
(c) the date that is 6 months after the termination of the Merger
Agreement.
REPURCHASE OF THE COMPANY OPTION. The Option Agreement also provides that
after the occurrence of a Repurchase Event (as defined below), upon request, the
Company will repurchase the Option and all or any part of the Option Shares
received upon the full or partial exercise of the Option from the holder of
those shares At the Company's option, however, instead of repurchasing the
Option and any Option Shares, the Company may choose to cause any Option Shares
to be registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. In the event that the Company chooses this
option, the Option and any Option Shares will not be repurchased by the Company.
Any repurchase of the Option will be made at an aggregate price equal to the
amount by which the Market/Offer Price (as defined below) exceeds the option
price multiplied by the number of shares then
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subject to the Option. A repurchase of any shares received upon exercise of the
Option will be made at an aggregate price equal to the Market/Offer Price
multiplied by the number of shares to be repurchased.
The term "Market/Offer Price" means the highest of the following:
(1) the price per share at which a tender or exchange offer has been made
for the Common Stock,
(2) the price per share of the Common Stock that any third party is to pay
pursuant to an agreement with the Company,
(3) the highest closing price per share of the Common Stock within the
six-month period immediately preceding the date that notice to repurchase
is given, or
(4) if there is a sale of all or a substantial portion of the Company's
assets, the sum of the price paid for those assets and the current market
value of the remaining assets (as determined by a nationally recognized
investment banking firm), divided by the number of shares of the Common
Stock outstanding at the time of such sale.
The term "Repurchase Event" is defined in the Option Agreement to mean
(1) the acquisition by any third party of beneficial ownership of 50% or more of
the outstanding shares of Common Stock or (2) the consummation of a merger,
consolidation or similar transaction involving the Company or any purchase,
lease or other acquisition of all or a substantial portion of the assets of the
Company unless the transaction would not constitute an Acquisition Transaction,
in either case provided that a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event.
TOTAL PROFIT. The total profit that Parent may realize with regard to the
exercise of the Option may not exceed $1.5 million. "Total profit" is defined to
mean the aggregate (before taxes) of:
(1) any amount received by Parent pursuant to the Company's repurchase of
the Option,
(2) any amount received by Parent pursuant to the Company's repurchase of
the Option Shares (less the purchase price for those Option Shares),
(3) any net cash received pursuant to the sale of Option Shares to any
unaffiliated party (less Parent's purchase price of those Option Shares),
and
(4) any amounts received by Parent on transfer of the Option or any portion
of the Option to any unaffiliated party.
STOCKHOLDER AGREEMENTS WITH CERTAIN STOCKHOLDERS OF THE
COMPANY. Concurrently with the execution of the Merger Agreement, the
directors, certain executive officers, and certain stockholders of the Company,
Mark Bar, Linda Bar, Richard Bard, Philena Enterprises, Yoram Curiel, Martin T.
Hart, Hunt Capital Group, LLC, Richard Lamm, Dorothy Lamm, Heather Lamm, Scott
Lamm, Bruce Raben, and Mark Turnage each entered into a voting agreement with
the Company under which these individuals and entities agreed to:
(1) vote all of the shares of Common Stock owned, controlled by or
subsequently acquired by that director or executive officer in favor of
the Merger, the Merger Agreement and the transactions contemplated by the
Merger Agreement.
(2) vote all of the shares of Common Stock owned, controlled by or
subsequently acquired by that director or executive officer against any
other Merger Agreement or merger, consolidation, combination, sale of
substantial assets, reorganization, dissolution, liquidation or winding
up of the affairs of the Company or the adoption of amendments to the
Company's charter documents which would frustrate or impede the Merger.
In addition, with respect to all shares owned of record and all shares
acquired by these directors and executive officers at any time prior to the
effective time of the Merger, each signing stockholder has
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appointed Parent as their irrevocable proxy and lawful attorney to vote their
shares in favor of the Merger and the Merger Agreement and against any other
Merger or combination proposal. The stockholder agreements terminate upon the
earlier of the termination of the Merger Agreement or the effective time of the
Merger.
The stockholder agreements also provide that each stockholder will accept
the all cash offer of $7.00 per share made by Parent in accordance with the
Offer and will not withdraw such acceptance, so long as either (1) holders of at
least a majority of the Shares have agreed to accept the cash offer in
accordance with the Offer, or (2) Parent has not terminated the Offer or
permitted the Offer to lapse in accordance with its terms. For purposes of
determining whether the condition in subclause (1) above is satisfied, each
stockholder's shares are to be included in the shares, the holders of which have
accepted the cash offer in accordance with the Offer.
The stockholder agreements also prohibit each signing stockholder from
soliciting additional acquisition proposals from third parties on behalf of the
Company or from engaging in any discussions with third parties regarding any
acquisition proposal.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The board of directors of the Company (the "Board"), by unanimous vote, with
all directors present and voting, has:
- determined that the Merger Agreement and the transactions contemplated
thereby, including each of the Offer and the Merger (collectively, the
"Transactions"), are fair to, and in the best interests of, the Company
and the stockholders of the Company;
- approved the Merger Agreement and the Merger;
- declared the Merger Agreement to be advisable; and
- resolved to recommend that the stockholders of the Company accept the
Offer and tender their Shares pursuant to the Offer.
A letter to the Company's stockholders communicating the Board's
recommendation and a press release announcing the execution of the Merger
Agreement are filed herewith as Exhibits 7 and 8, respectively, and are
incorporated herein by reference.
(b) REASONS FOR RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; FACTORS
CONSIDERED BY THE COMPANY'S BOARD OF DIRECTORS
BACKGROUND.
In February 1997, Parent and the Company commenced initial discussions
regarding a possible merger of their businesses. The parties terminated these
discussions soon thereafter after little progress was made. Parent and the
Company made intermittent contacts with each other between February 1997 and
August 1999, including execution of a confidentiality agreement on February 17,
1998, but did not undertake any further material discussions regarding a
potential merger until August of 1999.
Beginning in March of 1999, the Company was engaged in preliminary
discussions with four other potential suitors for the Company. No agreement was
reached with any of the suitors. The financial aspects of such discussions were
less favorable to the Company and the Company's stockholders than the terms of
the Merger Agreement. Parent required the Company to terminate all such other
discussions as a condition precedent to the execution by Parent of a letter of
intent.
On June 16, 1999, the Company signed a letter of intent with respect to the
Bridgestone Transaction.
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On August 11, 1999, representatives of Parent and the Company met in New
York to discuss a possible merger. At this meeting, the parties also discussed
the Company's planned acquisition of Bridgestone and the Company's source of
financing for the acquisition.
On August 24, 1999, the representatives of Parent and the Company met a
second time in New York to discuss the terms of a possible merger. Over the next
two weeks representatives of Parent and the Company spoke intermittently via the
telephone to further discuss possible terms of a merger.
On September 7, 1999, Parent sent a letter to the Company proposing a
merger, subject to further negotiations, definitive documentation and due
diligence.
On September 13, 1999, the Company signed a letter of intent with a third
party regarding financing the Bridgestone Transaction. Such arrangement was
terminated following the signing of the letter of intent with Parent.
On September 15, 1999, the Company signed a definitive agreement with
respect to the Bridgestone Transaction.
On October 4, 1999, Parent sent a follow up letter with further terms of a
potential transaction.
On October 11, 1999, the Company and Parent entered into an additional
confidentiality agreement.
On October 13, 1999, representatives of Parent and the Company met in
Denver, Colorado to further discuss the terms of a possible transaction.
On October 21, 1999, Parent sent a further letter to the Company with terms
of a proposed transaction.
On October 27, 1999, representatives of Parent and the Company, together
with various financial, legal and accounting advisers, met in London to discuss
the terms of a potential transaction including the form of consideration, the
structure of the transaction and other material items relating to the
transaction.
On November 11, 1999, Parent and the Company executed a non-binding letter
of intent regarding the proposed transaction. The parties negotiated the
definitive documentation for the Merger over the following two weeks.
On November 29, 1999, the board of directors of the Company held a meeting
to consider the Offer and the Merger Agreement. At the meeting, the Board heard
presentations by its legal counsel with respect to the terms of the proposed
Offer and the Merger Agreement, and legal counsel advised the Board that the
negotiations for the Merger Agreement were substantially complete.
At the November 29, 1999 meeting of the Board, representatives of
Wasserstein Perella delivered Wasserstein Perella's oral opinion that, subject
to and based upon the matters described in the opinion, as of such date, the
$7.00 in cash per Share to be paid to the holders of the Company's Common Stock
pursuant to the Offer and the Merger was fair to such stockholders from a
financial point of view. Wasserstein Perella subsequently delivered a written
opinion, dated November 29, 1999, to the same effect.
On November 30, 1999, Parent, the Purchaser and the Company executed and
delivered the Merger Agreement and Loan Agreement.
FACTORS CONSIDERED BY THE BOARD.
In approving the Merger and the Merger Agreement making its determination
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the Company and the stockholders of the Company and recommending
that all holders of Common Stock tender their Shares pursuant to the Offer
18
<PAGE>
and approve and adopt the Merger Agreement and the transactions contemplated by
the Merger Agreement, including the Merger, the Board considered a number of
factors, including:
- the financial and other terms and conditions of the Offer, and the
Merger Agreement and the Loan Agreement, which provides financing terms
for the Bridgestone Transaction that are superior to any other known to
be available to the Company, including specific financing committed to by
a third party;
- the Board's familiarity with and review of the business, financial
conditions, results of operations and prospects of the Company, including
the desirability of continuing to implement the Company's strategy of
expansion in its core security business and the difficulty and cost of
raising substantial additional capital in order to fully implement the
Company's expansion strategies;
- an evaluation of the Company, and using comparable companies, comparable
acquisitions and discounted cash flows, leading to the conclusion that
the Offer and Merger Agreement represent consideration to the Company's
stockholders that falls at the upper end of the resultant valuation
range;
- the historical market prices of the shares, including the fact that the
$7.00 per Share represented a premium of approximately 25.8% over the
$5.63 per Share closing price on November 24, 1999, the last full trading
day prior to the November 29, 1999 Board meeting, and represented a
premium of approximately 68.4% over the average closing price of the
Shares on The Nasdaq SmallCap Stock Market(SM) for the one month period
prior to the November 29, 1999 Board meeting and a premium of 51.7% over
the average trading price per share over the one-year period prior to the
November 29, 1999 Board meeting;
- the fact that the $7.00 per Share to be paid to the stockholders in the
Offer and the Merger exceeded the highest price at which the Shares have
traded on The Nasdaq SmallCap Stock Market(SM) since March, 1998;
- the fact that the $7.00 per Share to be paid to stockholders in the
Offer and the Merger represented a 447% premium over the net book value
per Share of $1.28 as of September 30, 1999;
- the fact that the Offer provides the stockholders with liquidity to
dispose of their Shares which has not been available in the public market
due to the low level of trading volume of the Shares on The Nasdaq
SmallCap Stock Market(SM) during the one month period prior to the
November 29, 1999 Board meeting (an average daily trading volume of 4,781
shares from October 29, 1999 through November 28, 1999).
- the Board's belief, after considering the foregoing factors, that no
other buyer would be likely to provide a comparable value to the
stockholders; and
- the opinion of Wasserstein Perella dated November 29, 1999, to the
effect that, subject to and based upon the matters described in the
opinion, as of such date, the $7.00 per Share cash consideration to be
received pursuant to the Offer and the Merger by holders of Shares was
fair, from a financial point of view, to such holders. The full text of
Wasserstein Perella's opinion, which sets forth the assumptions made,
matters considered, and limitations on the review undertaken by
Wasserstein Perella, is attached hereto as Exhibit 5 and is incorporated
herein by reference. Wasserstein Perella's opinion is directed only to
the fairness, from a financial point of view, of the $7.00 per Share cash
consideration to be received pursuant to the Offer and the Merger by
holders of Shares and is not intended to constitute, and does not
constitute, a recommendation as to whether any holder of Shares should
tender Shares pursuant to the Offer. SHAREHOLDERS ARE ENCOURAGED TO READ
WASSERSTEIN PERELLA'S OPINION CAREFULLY IN ITS ENTIRETY.
19
<PAGE>
Each of the factors set forth above was believed by the Board to support its
decision to recommend acceptance of the Offer and to approve, and to recommend
approval by the Board of, the Merger and the Merger Agreement.
The Board did not find it necessary or practical to assign relative weights
to the factors or determine that any factor was determinative or of more
importance that other factors. Rather, the board of directors viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated October 1, 1999, the Company retained
Wasserstein Perella as its financial advisor in connection with a possible sale
of the Company and, if requested, to provide the Board with an opinion with
respect to the fairness, from a financial point of view, of the consideration to
be received in such a possible sale of the Company. Pursuant to the letter
agreement, the Company agreed to pay Wasserstein Perella (a) a financial
advisory fee of $100,000, which amount will be credited against amounts due as
described under clauses (b) and (c) of this paragraph; (b) a $500,000 fee for
its opinion, which amount will be credited against amounts due as described
under clause (c) of this paragraph; (c) a transaction fee equal to 1.5% of the
Aggregate Consideration received in the transaction, with a minimum transaction
fee due of $1.25 million, which amount is due only upon successful completion of
the transaction; (d) additional fees as the parties shall agree if Wasserstein
Perella agrees to provide additional financial advisory services other than
those specifically described in the letter; and (e) an amount to reimburse
Wasserstein Perella for its reasonable out-of-pocket expenses, including
reasonable fees and expenses for its legal counsel.
The financial advisory fee described in clause (a) in the paragraph above
less any reimbursed expenses is due regardless if a sale transaction is
consummated. The transaction fee described in clause (c) in the paragraph above
is due upon consummation of a sale transaction which includes a transaction
whereby more than 50% of the outstanding voting securities of the Company, on a
fully diluted basis, are acquired and the acquiring party (the "Acquirer")
proposes to acquire any additional voting securities, assets or businesses of
the Company in a subsequent transaction.
"Aggregate Consideration" as defined in the letter agreement, and as it
applies to the transactions contemplated by the Merger Agreement means the total
amount of cash and the fair market value (on the date of payment) of all
securities and other property paid or payable, directly or indirectly, by the
Acquirer to the acquired party or the seller of the acquired business or assets
(in either case, the "Acquired"), or to the Acquired's security holders or its
employees, or by the Acquired to the Acquired's security holders, in connection
with a sale or a transaction related thereto (including, without limitation,
amounts paid by the Acquirer or the Acquired (a) pursuant to covenants not to
compete or other similar arrangements and (b) to holders of any warrants, stock
purchase rights, convertible securities or similar rights of the Acquired and to
holders of any options or stock appreciation rights issued by the Acquired,
whether or not vested). Aggregate Consideration also includes the value of any
liabilities of the Acquired (including obligations relating to any capitalized
leases and the principal amount of any indebtedness for borrowed money) existing
on the Acquired's balance sheet at the time of the sale or repaid or retired in
anticipation of a sale. Aggregate Consideration shall also include the fair
market value of (i) the equity securities of the Company retained by the
Company's security holders following such transaction and (ii) any cash,
securities (including securities of subsidiaries) or other consideration
received by such security holders in exchange for or in respect of securities of
the Company in connection with such transaction.
The Company has also agreed to indemnify Wasserstein Perella and its
affiliates, their respective directors, officers, agents, employees and
controlling persons, and each of their respective successors and assigns against
certain liabilities, including liabilities under the federal securities laws,
which are related to or arise out of Wasserstein Perella's engagement.
20
<PAGE>
Except as disclosed herein, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer or the
Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the 60 days prior to the date of this Schedule 14D-9, to the
knowledge of the Company, no transactions in the Shares have been effected by
the Company, any subsidiary thereof, any director or executive officer thereof.
(b) To the best knowledge of the Company, all of its executive officers and
directors currently intend to tender pursuant to the Offer, all Shares held of
record or beneficially owned by them (other than Shares issuable upon exercise
of stock options and Shares, if any, which if tendered could cause such persons
to incur liability under the provisions of Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a Merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS
Exhibit 1. Agreement and Plan of Merger dated as of November 30, 1999, among
the Purchaser, Parent, and the Company.
Exhibit 2. Loan Agreement, dated as of November 30, 1999, between the
Company and Parent.
Exhibit 3. Form of Stockholder Agreement between Parent and certain
stockholders of the Company.
Exhibit 4. Stock Option Agreement, dated as of November 30, 1999, between
Parent and the Company.
Exhibit 5. Opinion of Wasserstein Perella & Co., Inc., dated November 29,
1999.*
Exhibit 6. Letter to Stockholders of the Company, dated December 6, 1999.*
Exhibit 7. Amendment to Employment Agreement dated as of November 29, 1999,
between Richard H. Bard and the Company.
Exhibit 8. Press release issued by the Company, dated November 30, 1999.
- ------------------------
* Included in copies of Schedule 14D-9 mailed to stockholders.
21
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
OPTICAL SECURITY GROUP, INC.
By: /s/ RICHARD H. BARD
-----------------------------------------
Richard H. Bard,
Chief Executive Officer
</TABLE>
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------------------- -------------------
<C> <S>
1 Agreement and Plan of Merger dated as of November 30,1999,
among the Purchaser, Parent, and the Company
2 Loan Agreement, dated as of November 30, 1999, between the
Company and Parent
3 Form of Stockholder Agreement between Parent and certain
stockholders of the Company
4 Stock Option Agreement, dated as of November 30, 1999,
between Parent and the Company
5 Opinion of Wasserstein Perella & Co., Inc., dated
November 29, 1999*
6 Letter to Stockholders of the Company, dated December 6,
1999*
7 Amendment to Employment Agreement, dated as of November 29,
1999, between Richard H. Bard and the Company
8 Press release issued by the Company, dated November 30, 1999
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
23
<PAGE>
Exhibit 1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of this 30th day of November, 1999, by and among Applied Holographics
plc, a public limited company incorporated and existing under the laws of
England and Wales ("BUYER"), Applied OpSec Corporation, a Colorado corporation,
and a direct wholly-owned subsidiary of Buyer ("NEWCO"), and Optical Security
Group, Inc., a Colorado corporation ("SELLER").
RECITALS
WHEREAS, Buyer and Seller have agreed that Buyer shall acquire Seller
by causing Newco, which has been formed for the express purpose of consummating
the transactions contemplated hereby, to merge with and into Seller (the
"MERGER"), with Seller as the surviving corporation of the Merger, upon the
terms and subject to the conditions set forth herein, all in accordance with the
Colorado Business Corporation Act (the "CBCA").
WHEREAS, substantially concurrently herewith and as a condition and
inducement to Buyer's willingness to enter into this Agreement, Buyer and
certain stockholders of Seller, who include certain of the directors and
officers of Seller and its Subsidiaries (as defined herein) who hold, in the
aggregate, approximately 35.2% of the outstanding shares of common stock, par
value $.005, of Seller (the "SELLER COMMON STOCK"), are entering into
Stockholder Agreements in the form of EXHIBIT A hereto (the "STOCKHOLDER
AGREEMENTS").
WHEREAS, as a condition and inducement to Buyer to enter into, and
after the execution of, this Agreement, Buyer and Seller are entering into the
Seller Option Agreement ("SELLER OPTION AGREEMENT"), attached hereto as EXHIBIT
B, pursuant to which Seller has granted an option to purchase shares of Seller
Common Stock ("SELLER OPTION") to Buyer.
WHEREAS, in furtherance of the acquisition of Seller by Buyer on the
terms and subject to the conditions set forth in this Agreement, Buyer proposes
to cause Newco to make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "OFFER") to purchase all of the outstanding
shares of Seller Common Stock, at a purchase price of $7.00 per share (the
"OFFER PRICE"), without interest thereon, upon the terms and subject to the
conditions set forth in this Agreement.
WHEREAS, the Boards of Directors of Buyer, Newco and Seller have
determined that the Offer, this Agreement and the Merger are advisable and in
the best interests of Buyer, Newco and Seller and their respective stockholders.
The Boards of Directors of each of Buyer, Newco and Seller have approved the
Offer, this Agreement and the Merger. The Board of Directors of Seller has
resolved to recommend to the
<PAGE>
stockholders of Seller to vote in favor of this Agreement and the transactions
contemplated hereby, including the Offer and the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Buyer, Newco and
Seller hereby agree as follows:
ARTICLE I
THE OFFER
1.01. THE OFFER.
(a) Subject to the provisions of this Agreement, as promptly as
practicable, but in no event later than five (5) business days after the date of
the public announcement by Buyer and Seller of this Agreement, Buyer shall cause
Newco to commence the Offer. The initial expiration date for the Offer shall be
the 20th business day following the commencement of the Offer. The obligation of
Newco to accept for payment, and pay for, any shares of Seller Common Stock
tendered pursuant to the Offer shall be subject to the conditions set forth in
EXHIBIT C hereto (the "OFFER CONDITIONS") (any of which may be waived in whole
or in part by Buyer in its sole discretion) and to the terms and conditions of
this Agreement.
(b) Buyer may, without the consent of Seller, cause Newco to (A) extend
the Offer, if at the scheduled or extended expiration date of the Offer any of
the Offer Conditions shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (B) extend the Offer for any period required
by any rule, regulation, interpretation or position of the U.S. Securities and
Exchange Commission (the "SEC") or the staff thereof applicable to the Offer or
any period required by applicable law and (C) extend the Offer on one or more
occasions for an aggregate period of not more than ten (10) business days beyond
the latest expiration date that would otherwise be permitted under clause (A) or
(B) of this sentence, if on such expiration date there shall not have been
tendered at least 90% of the outstanding shares of Seller Common Stock. Subject
to the terms and conditions of the Offer and this Agreement, Buyer shall cause
Newco to accept for payment, and pay for, all shares of Seller Common Stock
validly tendered and not withdrawn pursuant to the Offer that Newco becomes
obligated to accept for payment and pay for, pursuant to the Offer as promptly
as practicable after the expiration of the Offer.
(c) On the date of commencement of the Offer, Buyer shall cause Newco
to file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "SCHEDULE
14D-1") with respect to the Offer, which shall contain an offer to purchase and
a related letter of transmittal and summary advertisement (such Schedule 14D-1
and the documents included therein pursuant to which the Offer shall be made,
together with any supplements or amendments thereto, the "OFFER DOCUMENTS"). The
Offer Documents
2
<PAGE>
shall comply as to form in all material respects with the requirements of the
Exchange Act (as defined herein) and the rules and regulations promulgated
thereunder and the Offer Documents, on the date first published, sent or given
to the holders of shares of Seller Common Stock, shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of Buyer,
Newco and Seller agree promptly to correct any information provided by it for
use in the Offer Documents if and to the extent that such information shall have
become false or misleading in any material respect, and Buyer further agrees to
cause Newco to take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the SEC and the other Offer Documents as so corrected
to be disseminated to holders of Seller Common Stock, in each case as and to the
extent required by applicable federal securities laws. Seller and its counsel
shall be given reasonable opportunity to review and comment upon the Offer
Documents prior to their filing with the SEC or dissemination to the holders of
Seller Common Stock. Buyer agrees to cause Newco to provide Seller and its
counsel any comments Buyer, Newco or their counsel may receive from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments.
1.02. SELLER ACTIONS.
(a) Seller hereby approves of, and consents to, the Offer and
represents that the Board of Directors of Seller, at a meeting duly called and
held, duly and unanimously adopted resolutions approving this Agreement, the
Offer and the Merger, determining, as of the date of such resolutions, that the
terms of the Offer are fair to, and in the best interests of, the holders of
Seller Common Stock, recommending that the holders of Seller Common Stock accept
the Offer, tender their shares of Seller Common Stock pursuant to the Offer and
approve this Agreement (if required) and approving the acquisition of shares of
Seller Common Stock by Newco pursuant to the Offer and the other transactions
contemplated by this Agreement, including the Merger. Seller has been advised by
each of its directors and executive officers who owns shares of Seller Common
Stock (each of whom is listed in Section 1.02(a) of the Seller Disclosure
Schedule) that such person currently intends to tender all shares of Seller
Common Stock.
(b) On the date the Offer Documents are filed with the SEC, Seller
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer (such Schedule 14D-9, as supplemented or amended
from time to time, the "SCHEDULE 14D-9") containing, subject to the terms of
this Agreement, the recommendation described in paragraph (a) and shall mail the
Schedule 14D-9 to the holders of shares of Seller Common Stock. The Schedule
14D-9 shall comply as to form in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder and, on
the date filed with the SEC and on the date first published, sent or given to
the holders of Seller Common Stock, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Buyer, Newco
and
3
<PAGE>
Seller agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any material respect, and Seller further agrees to take
all steps necessary to amend or supplement the Schedule 14D-9 and to cause the
Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
disseminated to the holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. Buyer, Newco and their counsel
shall be given reasonable opportunity to review and comment upon the Schedule
14D-9 prior to its filing with the SEC or dissemination to the holders of Seller
Common Stock. Seller agrees to provide Buyer, Newco and their counsel any
comments Seller or its counsel may receive from the SEC or its staff with
respect to the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer and the Merger, Seller shall cause its
transfer agent to furnish Buyer promptly with mailing labels containing the
names and addresses of the record holders of Seller Common Stock as of a recent
date and of those persons becoming record holders subsequent to such date,
together with copies of all lists of stockholders, security position listings
and computer files and all other information in Seller's possession or control
regarding the beneficial owners of shares of Seller Common Stock, and shall
furnish to Buyer such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Buyer may
reasonably request in communicating the Offer to the holders of shares of Seller
Common Stock. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Merger, Buyer and each of its agents shall
hold in confidence the information contained in any such labels, listings and
files, will use such information only in connection with the Offer and the
Merger and, if this Agreement shall be terminated, will deliver, and will use
their reasonable efforts to cause their agents to deliver, to Seller all copies
and any extracts or summaries from such information then in their possession or
control.
ARTICLE II
THE MERGER
2.01. THE MERGER. At the Effective Time (as defined in Section 2.03
hereof), in accordance with this Agreement and the CBCA, Newco shall be merged
with and into Seller, the separate existence of Newco (except as may be
continued by operation of law) shall cease, and Seller shall continue as the
surviving corporation under the corporate name it possesses immediately prior to
the Effective Time, as a wholly-owned subsidiary of Buyer. Seller after the
Merger hereinafter sometimes is referred to as the "SURVIVING CORPORATION."
2.02. EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of this Agreement and
the CBCA. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the rights and property of Seller and Newco (the
"CONSTITUENT CORPORATIONS") shall vest in the
4
<PAGE>
Surviving Corporation, and all debts and liabilities of Seller and Newco shall
become the debts and liabilities of the Surviving Corporation.
2.03. CONSUMMATION OF THE MERGER. In the event of, and as soon as is
practicable after, the satisfaction or waiver of the conditions set forth in
Article VI hereof, the parties hereto will cause the Merger to be consummated by
filing, with the Secretary of State of Colorado, Articles of Merger (the time of
confirmation of such filing or such later time as is specified in such Articles
of Merger being the "EFFECTIVE TIME"). Contemporaneous with the filing referred
to in this Section 2.03, a closing (the "CLOSING") will be held at the offices
of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110 or at such
other location as the parties may establish for the purpose of confirming all
the foregoing. The date and the time of such Closing are referred to as the
"CLOSING DATE."
2.04. CHARTER; BYLAWS; DIRECTORS AND OFFICERS. Unless otherwise
determined by Buyer prior to the Effective Time, the Articles of Organization
and Bylaws of the Surviving Corporation shall be the Articles of Organization
and Bylaws of Seller, as in effect immediately prior to the Effective Time,
until thereafter amended as provided therein and under the CBCA. The directors
of Newco immediately prior to the Effective Time will be the initial directors
of the Surviving Corporation, and the officers of Newco immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation, in
each case until their successors are elected and qualified.
2.05. EFFECT ON OUTSTANDING SECURITIES.
(a) NEWCO COMMON STOCK. By virtue of the Merger, automatically and
without any action on the part of any Person, including without limitation the
holder thereof, each share of common stock, par value $.01 per share, of Newco
("NEWCO COMMON STOCK") issued and outstanding immediately prior to the Effective
Time shall be converted into and become one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(b) SELLER COMMON STOCK. By virtue of the Merger, automatically and
without any action on the part of any Person, including without limitation the
holder thereof, each of the shares of Seller Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Seller Common
Stock to be cancelled pursuant to Section 2.05(d) hereof and any Dissenting
Shares (as defined in Section 2.08)), shall be cancelled and extinguished and be
automatically converted into and become a right to receive an amount per share
in cash (the "COMMON STOCK MERGER CONSIDERATION") equal to $7.00, upon surrender
in the manner provided in Section 2.09 of the certificate that evidenced the
shares of Seller Common Stock (a "COMMON STOCK CERTIFICATE").
(c) SELLER PREFERRED STOCK. By virtue of the Merger, automatically and
without any action on the part of any Person, including without limitation the
holder thereof, each of the shares of Series B 8% Convertible Preferred Voting
Stock of Seller
5
<PAGE>
("SELLER PREFERRED STOCK") issued and outstanding immediately prior to the
Effective Time (other than any Dissenting Shares (as hereinafter defined)),
shall be cancelled and extinguished and be automatically converted into and
become a right to receive an amount per share in cash (the "PREFERRED STOCK
MERGER CONSIDERATION", and, together with the Common Stock Merger Consideration,
the "MERGER CONSIDERATION") equal to the product of (i) the number of shares of
Seller Common Stock into which such share of Seller Preferred Stock is
convertible MULTIPLIED BY (ii) the Common Stock Merger Consideration, upon
surrender in the manner provided in Section 2.09 of the certificate that
evidenced the shares of Seller Preferred Stock (a "PREFERRED STOCK CERTIFICATE,"
and, together with the Common Stock Certificates, the "CERTIFICATES").
(d) TREASURY STOCK; SHARES OWNED BY BUYER OR SELLER. Each share of
Seller Common Stock which is issued and held in the treasury of Seller
immediately prior to the Effective Time or issued and outstanding and owned by
Buyer or any direct or indirect Subsidiary (as defined in Article VIII) of Buyer
or Seller, shall be cancelled and retired, and no payment shall be made with
respect thereto.
(e) DISSENTING SHARES. The holders of Dissenting Shares, if any, shall
be entitled to payment for such shares only to the extent permitted by and in
accordance with the provisions of the CBCA; provided, however, that if, in
accordance with the applicable provisions of the CBCA, any holder of Dissenting
Shares shall forfeit such right to payment of the fair cash value of such
shares, such shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, the right to receive the
Merger Consideration applicable thereto as provided in Section 2.05(b) or (c),
as the case may be.
2.06. SELLER STOCK OPTIONS, WARRANTS AND RELATED MATTERS.
(a) Prior to the Effective Time, Seller shall terminate Seller's
Incentive Stock Option Plan, Nonqualified Stock Option Plan and Stock Bonus Plan
(collectively, the "SELLER EQUITY PLANS"), and, in connection therewith, shall
provide written notice to each holder of a then outstanding stock option (each,
an "OPTION") to purchase shares of Seller Common Stock pursuant to the Seller
Equity Plans (whether or not such Option is then vested or exercisable), that
such Option shall be, as of the date of such notice, exercisable in full and
that such Option shall terminate at the Effective Time and that, if such Option
is not exercised or otherwise terminated before the Effective Time, such holder
shall be entitled to receive in cancellation of such Option a cash payment from
Buyer promptly after the Effective Time, in an amount equal to the excess of the
Common Stock Merger Consideration over the per share exercise price of such
Option, if any, multiplied by the number of shares covered by such Option (the
"OPTION SETTLEMENT AMOUNT"), subject to income tax withholding as required by
applicable law. The Seller Disclosure Schedule includes a complete listing of
Options held by each optionee (including the date of grant, the number of shares
issuable upon exercise of the Option, and the Option Settlement Amount to which
the Optionee is entitled). Except as otherwise provided in this Section 2.06(a),
Seller shall not grant or amend any Option after the date hereof. Seller hereby
represents and warrants to Buyer that the number of shares of Seller Common
Stock
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subject to issuance pursuant to the exercise of Options issued and outstanding
under the Seller Equity Plans is, and shall be as of the Effective Time, not in
excess of 2,154,712. To the extent that the cancellation of any Option pursuant
to this Section 2.06(a) requires the agreement of the holder of such Option
under a Seller Equity Plan, Seller shall use commercially reasonable efforts,
including taking reasonable instructions from Buyer, to enter into an agreement
with such holder providing for the cancellation of such Option in consideration
for the receipt by such holder of the applicable Option Settlement Amount with
respect to such Option. Buyer acknowledges and agrees that the failure of Seller
to obtain any required agreement of a holder of an Option to the provisions of
this Section 2.06(a) after using its commercially reasonable efforts to do so,
shall not be deemed to be a breach by Seller of this Agreement but shall be
relevant in determining whether or not Seller has satisfied its obligations
under this Agreement for purposes of Section 6.02(b) hereof.
(b) Prior to the Effective Time, Seller shall use its commercially
reasonable efforts, including taking reasonable instructions from Buyer, to
receive from each holder of an outstanding warrant (each, a "WARRANT") to
purchase shares of Seller Common Stock an agreement that, as of the Effective
Time, such Warrant shall be converted into a right of such holder to receive
from Buyer promptly after the Effective Time the consideration set forth in the
next sentence. Each holder of a Warrant shall be entitled to receive from Buyer
in respect of the shares of Seller Common Stock to be issued upon the exercise
of such Warrant, an amount in cash, without interest (the "WARRANT
CONSIDERATION"), equal to the product of (i) the number of shares of Seller
Common Stock subject to such Warrant immediately prior to the Effective Time and
(ii) the excess, if any, by which the Common Stock Merger Consideration exceeds
the exercise price per share that was applicable with respect to such Warrant.
Seller hereby represents and warrants to Buyer that the number of shares of
Seller Common Stock subject to issuance pursuant to the Warrants is, and shall
be as of the Effective Time, not in excess of 1,152,457. Buyer acknowledges and
agrees that the failure of Seller to obtain the agreements with each holder of a
Warrant described in this Section 2.06(b) after using its commercially
reasonable efforts to do so, shall not be deemed to be a breach by Seller of
this Agreement but shall be relevant in determining whether or not Seller has
satisfied its obligations under this Agreement for purposes of Section 6.02(b)
hereof.
(c) Simultaneously with the execution of this Agreement, Seller and
Richard H. Bard are entering an amendment to Mr. Bard's employment agreement
(the "AMENDMENT"), which Amendment shall not be amended or otherwise changed
without the prior written consent of Buyer. In addition, promptly after the
Effective Time, Buyer shall pay to Mr. Bard an amount in cash equal to $250,000
in settlement of certain Options held by Mr. Bard under a Seller Equity Plan.
Also, in satisfaction of certain rights of Mr. Bard to receive shares of Seller
Common Stock upon a merger or acquisition of Seller as described in paragraph
3-5 of Mr. Bard's employment agreement, and as otherwise allocated in a manner
to be agreed upon by the parties, Buyer shall pay to Mr. Bard promptly after the
Effective Time an amount in cash equal to $3,500,000.
2.07. CANCELLATION OF CONVERTIBLE DEBENTURES.
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(a) Prior to the Effective Time, Seller shall use its commercially
reasonable efforts to receive from each holder (each, a "DEBENTURE HOLDER") of
an outstanding debenture (each, a "DEBENTURE") an agreement that, simultaneously
with the consummation of the Merger and at the Effective Time, the Debenture
then held by it shall (automatically and without further action by the Debenture
Holder) be cancelled and deemed to be paid-in-full and each Debenture Holder
shall be entitled to receive as payment therefor the consideration set forth in
Sections 2.07(c) and (d) below. Buyer acknowledges and agrees that the failure
of Seller to obtain the agreements with each Debenture Holder described in this
Section 2.07(a) after using its best efforts and taking all actions necessary to
do so, shall not be deemed to be a failure of Seller to satisfy its covenants
and other agreements contained herein for purposes of Section 6.02(b) hereof.
(b) At the Closing, each Debenture Holder who shall have agreed to the
cancellation of the Debenture held by such holder pursuant to Section 2.07(a)
hereof, shall deliver the original Debenture held by it for cancellation in
accordance with this Section 2.07. At the Effective Time, and subject to and
upon delivery and cancellation of such original Debenture, Buyer shall pay to
such Debenture Holder the consideration to which such Debenture Holder is
entitled, pursuant to Sections 2.07(c) and (d) below, as payment for, and in
full satisfaction of, all amounts owed by Seller thereunder. From and after the
Effective Time, none of Buyer, Newco or Seller shall have any liability or
obligation of any kind whatsoever under the Debentures to the extent that a
Debenture Holder shall have agreed to the cancellation of his, her or its
Debenture pursuant to this Section 2.07.
(c) Subject to the provisions of this Section 2.07, promptly after the
Effective Time, Buyer shall pay to each Debenture Holder of a Debenture with a
strike price of $6.00 who shall have entered into an agreement with Seller for
the cancellation of such holder's Debenture, an amount in cash equal to 116.67%
of such Debenture Holders' pro-rata share of the outstanding principal amount of
such class of Debenture, together with accrued interest thereon as provided in
the applicable Debentures. The maximum aggregate consideration payable to the
Debenture Holders of Debentures with a strike price of $6.00 by Buyer, assuming
that all such Debenture Holders enter into agreements with Seller for the
cancellation of such holders' Debentures, shall be $583,350.
(d) Subject to the provisions of this Section 2.07, promptly after the
Effective Time, Buyer shall pay to each Debenture Holder of a Debenture with a
strike price of $6.50 who shall have entered into an agreement with Seller for
the cancellation of such holder's Debenture, an amount in cash equal to 109% of
such Debenture Holders' pro-rata share of the outstanding principal amount of
such class of Debenture, together with accrued interest thereon as provided in
the applicable Debentures. The maximum aggregate consideration payable to the
Debenture Holders of Debentures with a strike price of $6.50 by Buyer, assuming
that all such Debenture Holders enter into agreements with Seller for the
cancellation of such holders' Debentures, shall be $3,019,300.
2.08. DISSENTING SHARES.
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(a) Notwithstanding any provision of this Agreement to the contrary,
holders of Seller Common Stock and Seller Preferred Stock which are entitled to
dissenter's rights in connection with the Merger under the CBCA (collectively,
the "DISSENTING SHARES") shall not be converted into or represent the right to
receive the Merger Consideration applicable to such shares. Such stockholders
shall be entitled to receive payment of the fair market value of such Dissenting
Shares held by them in accordance with the provisions of the CBCA, except that
all Dissenting Shares held by stockholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to the payment of fair
market value for such shares under the CBCA shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the Merger Consideration applicable to such shares,
without any interest thereon, upon surrender, in the manner provided in Section
2.09, of the certificate or certificates that formerly evidenced such shares.
(b) Seller shall give Buyer (i) prompt notice of any demand for payment
of fair market value received by Seller, the withdrawals of any such demand, and
any other instrument served pursuant to the CBCA and received by Seller and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for payment of fair market value under the CBCA. Seller shall not,
except with the prior written consent of Buyer, make any payment with respect to
any demands for payment of fair market value or offer to settle or settle any
such demands.
2.09. EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, a bank or trust company to be
designated by Buyer (the "EXCHANGE AGENT") shall act as exchange agent in
effecting the exchange of the Merger Consideration for Certificates which, prior
to the Effective Time, represented shares of Seller Common Stock or Seller
Preferred Stock, as the case may be, entitled to payment pursuant to Section
2.05 hereof. At or immediately prior to the Effective Time, Buyer shall deposit
with the Exchange Agent the aggregate Merger Consideration necessary to make the
payments contemplated hereby on a timely basis (the "DEPOSIT AMOUNT") in trust
for the benefit of the holders of Certificates. Upon the surrender of each such
Certificate and the issuance and delivery by the Exchange Agent of the Merger
Consideration applicable thereto in exchange therefor, such Certificate shall
forthwith be cancelled. Until so surrendered and exchanged, each such
Certificate (other than Certificates representing shares held by Buyer or Seller
or any direct or indirect Subsidiary of Buyer or Seller and Dissenting Shares)
shall represent solely the right to receive the Merger Consideration applicable
thereto, without interest, multiplied by the number of shares represented by
such Certificate. Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder of Certificates which immediately prior to the
Effective Time represented shares a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the Merger
Consideration applicable thereto. Upon the surrender to the Exchange Agent of
such an outstanding Certificate together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as
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may be required pursuant to such instructions, the holder shall receive the
Merger Consideration applicable thereto, without any interest thereon and such
Certificate shall be cancelled. If any Merger Consideration is to be paid to a
name other than the name in which the Certificate representing shares
surrendered in exchange therefor is registered, it shall be a condition to such
payment or exchange that the Person requesting such payment or exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of the
payment of such Merger Consideration to a name other than that of the registered
holder of the Certificate surrendered, or such Person shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares for any Merger Consideration
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(b) Buyer shall not be entitled to the return of any of the Deposit
Amount in the possession of the Exchange Agent relating to the transactions
described in this Agreement until the date which is 180 days after the Effective
Time. Thereafter, each holder of a Certificate representing a share may
surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration applicable thereto, without any interest
thereon, but shall have no greater rights against the Surviving Corporation than
may be accorded to general creditors of the Surviving Corporation.
(c) At and after the Effective Time, the holders of Certificates to be
exchanged for the Merger Consideration applicable thereto pursuant to this
Agreement shall cease to have any rights as to stockholders of Seller except for
the right to surrender such holder's Certificates in exchange for payment of the
Merger Consideration applicable thereto, and after the Effective Time there
shall be no transfers on the stock transfer books of the Surviving Corporation
of the shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent, they shall be cancelled and exchanged for the
Merger Consideration applicable thereto, as provided in this Article II, subject
to applicable law in the case of Dissenting Shares.
(d) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and subject to such other conditions as the
Buyer may impose, the Exchange Agent shall pay in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration deliverable in respect of such
Certificate as determined in accordance herewith. When authorizing such payment
of the Merger Consideration in exchange for such Certificate, the Buyer (or any
authorized officer thereof) may, in its reasonable discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver to the Surviving Corporation a bond in such sum
as the Surviving Corporation may reasonably require as indemnity against any
claim that may be made against Buyer, the Surviving Corporation or the Exchange
Agent with respect to the Certificate alleged to have been lost, stolen or
destroyed.
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(e) The provisions of this Section 2.09 shall also apply to Dissenting
Shares that lose their status as such, except that the obligations of Exchange
Agent under this Section 2.09 shall commence on the date of loss of such status.
2.10. SUPPLEMENTARY ACTION. If, at any time after the Effective Time,
any further assignments or assurances in law or any other things are necessary
or desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of either Seller or Newco, or
otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered, in
the name of and on behalf of Seller and Newco, to execute and deliver any and
all things necessary or proper to vest or to perfect or confirm title to such
property or rights in the Surviving Corporation, and otherwise to carry out the
purposes and provisions of this Agreement.
2.11. POSSIBLE ALTERNATIVE STRUCTURE. Notwithstanding any other
provision of this Agreement to the contrary, prior to the Effective Time, Buyer
shall be entitled to revise the structure of the transaction to provide that
Seller shall be merged with and into Newco at the Effective Time, with Newco as
the surviving corporation of the Merger. Notwithstanding the foregoing or any
other provision of this Agreement to the contrary, Buyer and Seller may jointly
elect prior to the Effective Time, to substitute an alternative structure for
the accomplishment of the transactions contemplated by this Agreement; it being
understood by Buyer and Seller that any change to the structure of the Merger
pursuant to this Section 2.11 shall not be adopted if such change would (a)
materially delay consummation of the Merger, (b) change the amount or form of
consideration to be received by the stockholders of Seller or (c) have an
adverse impact on the financial benefits reasonably expected to be derived by,
or affect the obligations of Seller to, the security holders (Seller Common
Stock, Seller Preferred Stock, Options, Debentures and Warrants) of Seller from
the transactions provided for herein. Buyer and Seller agree that this Agreement
shall be appropriately amended in order to reflect any alternative structure.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer and Newco that, except as
described in the applicable section of the Seller Disclosure Schedule furnished
by Seller to Buyer prior to the execution of this Agreement (the "SELLER
DISCLOSURE SCHEDULE") corresponding to the Sections set forth below:
3.01. ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Each Subsidiary of Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Seller and its Subsidiaries have all
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requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted. Each of Seller and
its Subsidiaries is duly qualified as a foreign corporation, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, other than in jurisdictions where the failure to be so qualified,
individually and in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect. Except as set forth in Section 3.01
of the Seller Disclosure Schedule, other than Seller's ownership interest in its
Subsidiaries, Seller has no direct or indirect equity or related interest in any
partnership, corporation, limited liability company, joint venture, business
association or other entity.
3.02. ARTICLES OF ORGANIZATION; BYLAWS; AND STOCK TRANSFER RECORDS.
Seller has made available to Buyer prior to the date of this Agreement complete
and correct copies of (i) the Articles of Organization (or other charter
document) and By-laws of Seller and each of its Subsidiaries, (ii) shareholder
list of each of Seller's Subsidiaries and (iii) all stock certificates
representing any of the issued and outstanding capital stock of each of Seller's
Subsidiaries, and in each case such copies are or will be accurate and complete
as of the date of this Agreement or when furnished.
3.03. CAPITALIZATION OF SELLER.
(a) On the date of this Agreement, the authorized capital stock of
Seller consists of (i) 15,000,000 shares of Seller Common Stock, of which
6,202,425 shares are issued and outstanding and (ii) 2,500,000 shares of
preferred stock, of which 15,000 shares have been designated Seller Preferred
Stock, of which 1,793 shares are issued and outstanding. Except for (i) Options
listed in the Seller Disclosure Schedule which were granted under the Seller
Equity Plans, (ii) the rights created pursuant to this Agreement, (iii) rights
created pursuant to the Warrants, (iv) rights created pursuant to the
Debentures, and (v) as set forth in Section 3.03 of Seller Disclosure Schedule,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Seller is a party or by which it is bound obligating
Seller to issue, sell, deliver, repurchase or redeem or cause to be issued,
sold, delivered, repurchased or redeemed any shares of capital stock of, or
equity interests in, Seller. All outstanding shares are, and all shares subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be, duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights or
rights of first refusal. None of Seller or any of its Subsidiaries is required
to redeem, repurchase or otherwise acquire shares of capital stock of Seller or
any of its Subsidiaries. Seller has no stockholder rights plan or agreement in
force providing for the issuance to holders of shares of Seller Common Stock or
Seller Preferred Stock of rights to purchase or receive stock, cash or other
assets upon the acquisition or proposed acquisition of shares of Seller Common
Stock or Seller Preferred Stock by a Person (a "RIGHTS PLAN"), nor has Seller's
Board of Directors or stockholders ever adopted a Rights Plan.
(b) All of Seller's Subsidiaries are listed in Exhibit 21.1 to Seller's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999 (the "1999
10-KSB").
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Except as set forth in the 1999 10-KSB or in the Seller Disclosure Schedule,
Seller owns all of the outstanding capital stock of its Subsidiaries free and
clear of any liens, security interests, pledges, agreements, claims, charges or
encumbrances of any nature whatsoever. Except as set forth in Section 3.03 of
Seller Disclosure Schedule, there are no voting trusts or other agreements or
understandings to which Seller or any of its Subsidiaries is a party or by which
Seller or any of its Subsidiaries may be bound with respect to the voting of the
capital stock of Seller or any of Seller's Subsidiaries. Except as set forth in
Section 3.03 of Seller Disclosure Schedule, there are no options, warrants,
calls, rights, commitments, or agreements of any character to which any of
Seller's Subsidiaries is a party or by which any of Seller's Subsidiaries is
bound obligating such Subsidiary to issue, sell, deliver, repurchase or redeem,
or caused to be issued, sold, delivered, repurchased or redeemed, any shares of
capital stock of, or equity interests in, such Subsidiary. All of the
outstanding capital stock of each of Seller's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and issued free of preemptive
rights or rights of first refusal.
3.04. CORPORATE POWER, AUTHORIZATION AND ENFORCEABILITY. Seller has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Seller, the
performance by Seller of its obligations hereunder and the consummation by
Seller of the transactions contemplated hereby have been duly and validly
authorized by Seller's Board of Directors and no other corporate action on the
part of Seller is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the Offer and the
Merger, the approval and adoption of this Agreement by holders of a majority of
the Seller Common Stock and, with respect to the Merger, the approval and
adoption of this Agreement by the holders of a majority of the Seller Preferred
Stock). This Agreement has been duly executed and delivered by Seller and is a
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms. The affirmative vote of the holders of a majority of
the outstanding shares of Seller Common Stock and Seller Preferred Stock
entitled to vote thereon is the only vote of any class of capital stock of
Seller required by the CBCA, the Articles of Organization of Seller or the
Bylaws to adopt this Agreement and approve the Offer and the Merger.
3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming satisfaction of any applicable requirements referred to in
Section 3.05(b) below, and except as set forth in Section 3.05 of the Seller
Disclosure Schedule, the execution and delivery by Seller of this Agreement, the
compliance by Seller with the provisions hereof and the consummation by Seller
of the transactions contemplated hereby:
(A) will not conflict with or violate any statute, law,
ordinance, rule, regulation, order, writ, judgment, award, injunction,
decree or ruling applicable to Seller or any of its Subsidiaries or any
of their properties, or conflict with, violate or result in any breach
of or constitute a default (or an event which with notice or
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lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, cancellation or acceleration of,
or the loss of a benefit under, or result in the creation of a lien,
security interest, charge or encumbrance on any of the properties or
assets of Seller or any of its Subsidiaries pursuant to (i) the
Articles of Organization (or other charter document) or Bylaws of
Seller or any of its Subsidiaries, or (ii) any contract, lease,
agreement, note, bond, mortgage, indenture, deed of trust, or other
instrument or obligation, or any license, authorization, permit,
certificate or other franchise, other than such conflicts, violations,
breaches, defaults, losses, rights of termination, amendment,
cancellation or acceleration, liens, security interests, charges or
encumbrances as to which requisite waivers have been obtained; and
(B) do not and will not result in any grant of rights to any
other party under the Articles of Organization (or other charter
document) or Bylaws of Seller or any of its Subsidiaries or restrict or
impair the ability of the Buyer or any of its Subsidiaries to vote, or
otherwise exercise the rights of a stockholder with respect to shares
of Seller or any of its Subsidiaries that may be directly or indirectly
acquired or controlled by them.
(b) Other than in connection with or in compliance with the provisions
of the CBCA and the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), (i) Seller is not required to submit any notice, report, registration,
declaration or other filing with any foreign, federal, state or local
government, court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (collectively, "GOVERNMENTAL
ENTITIES"), in connection with the execution or delivery of this Agreement by
Seller or the performance by Seller of its obligations hereunder or the
consummation by Seller of the transactions contemplated by this Agreement and
(ii) no waiver, consent, approval, order or authorization of any Governmental
Entity is required to be obtained in connection with the execution or delivery
of this Agreement by Seller or the performance by Seller of its obligations
hereunder or the consummation by Seller of the transactions contemplated by this
Agreement, other than such notices, reports, registrations, declarations,
filings, waivers, consents, approvals, orders, or authorizations, the absence of
which would not, individually and in the aggregate, subject Seller or its
Subsidiaries to any criminal penalties or otherwise reasonably be expected to
have a Material Adverse Effect.
3.06. SEC REPORTS; FINANCIAL STATEMENTS. Seller has filed all required
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission (the "SEC") since March 31, 1994 (collectively, the "SEC
REPORTS"). Seller has delivered to Buyer copies of (a) the consolidated balance
sheets of Seller and its Subsidiaries as of March 31 for the fiscal years 1998
and 1999, and the related consolidated statements of operations and cash flows
for the fiscal years 1997 through 1999, inclusive, as reported in the Annual
Report of Seller on Form 10-KSB for the fiscal year ended March 31, 1999 filed
with the SEC under the Exchange Act, accompanied by the audit report of Ernst &
Young LLP, and (b) the unaudited consolidated balance sheet of Seller and its
Subsidiaries as of September 30, 1999, the related unaudited
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consolidated statements of income and changes in stockholders' equity for the
six (6) months ended September 30, 1999 and September 30, 1998 and the related
unaudited consolidated statements of cash flows for the six (6) months ended
September 30, 1999 and September 30, 1998, all as reported in the Seller's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 (the
"SEPTEMBER 1999 10-QSB") filed with the SEC under the Exchange Act. The March
31, 1999 consolidated balance sheet (the "SELLER BALANCE SHEET") of Seller
(including the related notes, where applicable) and the other financial
statements referred to herein were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved ("GAAP") (except as may be indicated in the notes or schedules
thereto and except, in the case of the unaudited interim statements, as may be
permitted under Form 10-QSB of the Exchange Act) and present fairly in all
material respects the consolidated financial position of Seller and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows as of the dates and for the fiscal periods
indicated therein (subject, in the case of unaudited interim financial
statements, to normal year-end adjustments). The books and records of Seller and
its Subsidiaries have been, and are being, maintained in accordance with GAAP
and applicable legal and regulatory requirements. Each SEC Report filed with the
SEC complied in all material respects with the then applicable requirements of
the Exchange Act and the Securities Act of 1933, as amended (the "SECURITIES
ACT"), and the rules and regulations of the SEC promulgated thereunder and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Seller
has filed all documents and agreements which were required to be filed as
exhibits to the SEC Reports. None of Seller's Subsidiaries is required to file
any statements or reports with the SEC.
3.07. NO DEFAULT. Neither Seller nor any of its Subsidiaries is in
default or violation (and no event has occurred which with or without notice,
the lapse of time or the happening or occurrence of any other event would
constitute a default or violation) of any term, condition or provision of (i)
its Articles of Organization (or other charter document) or Bylaws, or (ii) any
contract, lease, agreement, license, note, bond, mortgage, indenture, deed of
trust or other instrument or obligation to which Seller or any of its
Subsidiaries is a party or by which Seller or its Subsidiaries or any of their
properties or assets may be bound (nor to the knowledge of Seller is any other
party thereto in breach thereof or default thereunder), except, in each case,
for such violations, conflicts, breaches or defaults which either individually
or in the aggregate will not have a Material Adverse Effect.
3.08. COMPLIANCE WITH LAW. Except as set forth in Section 3.08 of the
Seller Disclosure Schedule, each of Seller and its Subsidiaries is in
compliance, and has conducted its respective businesses so as to comply with,
all statutes, laws, ordinances, rules, regulations, permits and approvals
applicable to its operations, whether domestic or foreign, other than where such
noncompliance will not result in, or create the possibility of resulting in, a
material limitation on the conduct of the business of Seller, will not cause, or
create the possibility of causing, Seller or any of its Subsidiaries to incur
any
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financial penalty in excess of $20,000, and will not otherwise result, or
create the possibility of resulting in, any Material Adverse Effect. Except as
disclosed in the SEC Reports, as of the date hereof no investigation or review
by any Governmental Entity with respect to Seller, any of its Subsidiaries or
any property owned or leased by Seller or any of its Subsidiaries is pending or,
to the knowledge of Seller, threatened.
3.09. PERMITS. Seller and its Subsidiaries have all permits,
authorizations, licenses and franchises from Governmental Entities required to
conduct their business as now being conducted, except where the failure to have
any such permits, authorizations, licenses and franchises would not have a
Material Adverse Effect. Section 3.09 of the Seller Disclosure Schedule lists as
of the date of this Agreement all of Seller's licenses and permits
(collectively, the "LICENSES"). The Licenses are the only permits and licenses
required by Seller to operate its business as currently conducted. Seller is not
in material default with respect to any of the Licenses. The consummation of the
transactions contemplated by this Agreement will not cause any default,
cancellation or loss of a benefit under, or require any approval of a
Governmental Authority with respect to, any of the Licenses.
3.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the 1999
10-KSB, the September 1999 10-QSB, in Section 3.10 of the Seller Disclosure
Schedule, or incurred hereinafter in the ordinary course of business consistent
with past practice and with Section 5.01 hereof, since March 31, 1999, (i) the
business of each of Seller and its Subsidiaries has been conducted only in the
ordinary course consistent with past practices, (ii) there has not been any
change in the business, assets, financial condition or results of operations of
Seller and its Subsidiaries, (iii) there has not been any change in any policy
or practice followed by Seller nor its Subsidiaries in the ordinary course of
business except for changes which have not had and are not likely to have a
Material Adverse Effect, (iv) there has not been any material agreement,
contract or commitment entered into, or agreed to be entered into, except for
those in the ordinary course of business; (v) there has not been any increase in
or establishment of any bonus, insurance, severance (including severance after a
change in control), deferred compensation, pension, retirement, profit sharing,
life insurance or split dollar life insurance, retiree medical or life
insurance, or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
Seller or its Subsidiaries, except with respect to cash compensation, in the
ordinary course of business consistent with past practice; (vi) there has not
been any change in any of the accounting methods or practices of Seller and its
Subsidiaries other than changes required by applicable law or applicable
accounting policies; and (viii) neither Seller nor its Subsidiaries has
declared, paid or set aside for payment any dividend or other distribution in
respect of its capital stock or redeemed, purchased or otherwise acquired,
directly or indirectly, any shares of capital stock or other securities of
Seller or any Subsidiary.
3.11. NO UNDISCLOSED LIABILITIES. Except for liabilities and
obligations incurred since March 31, 1999 in the ordinary course of business,
incurred in connection with this Agreement or identified in Section 3.11 of the
Seller Disclosure Schedule, neither Seller nor any of its Subsidiaries has any
liabilities or obligations of any nature whatsoever
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(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise), required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of Seller and its
Subsidiaries or in the notes thereto, other than those recognized or disclosed
in the Seller Balance Sheet or disclosed in the 1999 10-KSB or the September
1999 10-QSB.
3.12. LITIGATION. Except as set forth in the 1999 10-KSB or the
September 1999 10-QSB, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of Seller, threatened against or affecting,
Seller or any of its Subsidiaries or any of their respective properties as to
which there is a reasonable possibility of an adverse determination and which if
determined adversely to Seller could be expected to have a Material Adverse
Effect and there is no judgment, decree, writ, injunction, award, ruling or
order of any Governmental Entity or arbitrator outstanding against Seller or any
of its Subsidiaries having, or which, insofar as can reasonably be foreseen, in
the future would have, a Material Adverse Effect. Section 3.12 of the Seller
Disclosure Schedule includes a list of all litigation pending or threatened
against Seller as of the date of this Agreement. Seller has made available to
Buyer correct and complete copies of all correspondence prepared by its counsel
for Seller's auditors in connection with the last completed audit of Seller's
financial statements and any such correspondence since the date of the last such
audit. As of the date of this Agreement, there are no actions, suits or
proceedings pending or, to the knowledge of Seller, threatened against Seller
arising out of or in any way related to this Agreement, the Offer, the Merger or
any of the transactions contemplated hereby or thereby.
3.13. ERISA.
(a) Section 3.13 of the Seller Disclosure Schedule lists each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all other written or oral plans
or agreements involving direct or indirect compensation (including any
employment agreements entered into between Seller or any of its Subsidiaries and
any employee or former employee of Seller or any of its Subsidiaries, but
excluding worker's compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained, contributed to
or entered into by Seller or any of its Subsidiaries or any ERISA Affiliate
thereof for the benefit of any employee or former employee of or current or
former service provider to Seller or any of its Subsidiaries under which Seller
or any of its Subsidiaries or any ERISA Affiliate thereof has or may have any
present or future obligation or liability (collectively, the "SELLER EMPLOYEE
PLANS"). For purposes of this Section 3.13, "ERISA AFFILIATE" shall mean any
entity which is a member of (i) a "controlled group of corporations," as defined
in Section 414(b) of the Internal Revenue Code of 1986, as amended (the "CODE"),
(ii) a group of entities under "common control," as defined in Section 414(c) of
the Code or (iii) an "affiliated service group," as defined in Section 414(m) of
the Code or treasury regulations promulgated under Section 414(o) of the Code,
any of which includes Seller or any of its Subsidiaries. Section 3.13 of Seller
Disclosure Schedule identifies the only Seller Employee Plans which individually
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or collectively would constitute an "employee pension benefit plan," as defined
in Section 3(2) of ERISA (collectively, the "SELLER PENSION PLANS").
(b) No Seller Pension Plan is subject to Title IV of ERISA, Part 3 of
Title I of ERISA or Section 412 of the Code. No Seller Pension Plan constitutes
or has since the enactment of ERISA constituted a "multiemployer plan," as
defined in Section 3(37) of ERISA. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Seller
Employee Plan has or is likely to make Seller or any of its Subsidiaries or any
officer or director thereof subject to any material liability under Title I of
ERISA or liable for any material tax pursuant to Section 4975 of the Code.
(c) Each Seller Pension Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date. Each trust forming a part of a Seller Pension
Plan is exempt from tax pursuant to Section 501(a) of the Code. Each Seller
Employee Plan has been maintained in compliance with its terms and with the
applicable requirements of ERISA and the Code.
(d) Each employment, severance or other similar contract, arrangement
or policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), vacation benefits, severance
or severance-type benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
which (i) is not a Seller Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by Seller or any of its Subsidiaries, and
(iii) covers any employee or former employee of or other current or former
service provider to Seller or any of its Subsidiaries, is herein referred to as
a "SELLER BENEFIT ARRANGEMENT" and collectively as the "SELLER BENEFIT
ARRANGEMENTS." All Seller Benefit Arrangements are listed in Section 3.13 of the
Seller Disclosure Schedule. Each Seller Benefit Arrangement has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes (including but not limited to the Code), orders, rules and regulations
which are applicable to such Seller Benefit Arrangements.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Seller or any of its Subsidiaries
relating to, or change in employee participation or coverage under, any Seller
Employee Plan or Seller Benefit Arrangement which would increase the expense of
maintaining such Seller Employee Plan or Seller Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended March
31, 1999.
(f) The Seller has complied with the requirements of Section 4980B of
the Code with respect to any "qualifying event" (as defined in Section
4980B(f)(3) of the Code) occurring prior to and including the Closing Date,
except where failure to be in
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compliance individually and in the aggregate has not had and would not
reasonably be expected to have a Material Adverse Effect and, to Seller's
knowledge, no tax payable on account of Section 4980B of the Code has been
incurred with respect to any current or former employees of Seller or any of its
Subsidiaries.
(g) There is no term of any Seller Employee Plan or Seller Benefit
Arrangement covering a "disqualified individual" (as defined in Section 280G(c)
of the Code), or of any contract, instrument, agreement or arrangement with any
such disqualified individual, that individually or collectively could result in
a disallowance of the deduction for any "excess parachute payment" (as defined
in Section 280G(b)(i) of the Code) or the imposition of the excise tax provided
in Section 4999 of the Code. The consummation of the transactions contemplated
by this Agreement will not result in any "excess parachute payment" or the
imposition of any such excise tax.
(h) Seller has heretofore delivered or made available to Buyer copies
of all of Seller Employee Plans, Seller Pension Plans and Seller Benefit
Arrangements listed in Section 3.13 of Seller Disclosure Schedule.
(i) There is no pending or, to Seller's knowledge, threatened legal
action, proceeding or investigation, other than routine claims for benefits,
concerning any Seller Employee Plan, Seller Pension Plan or Seller Benefit
Arrangement or, to the knowledge of Seller any fiduciary or service provider
thereof and, to the knowledge of Seller, there is no basis for any such legal
action or proceeding.
(j) No Seller Employee Plan or Seller Benefit Arrangement provides
health, life or other similar welfare coverages after termination of employment
except to the extent required by applicable state insurance laws and Title I,
Part 6 of ERISA.
(k) With respect to each Seller Employee Plan, Seller Pension Plan or
Seller Benefit Arrangement for which a separate fund of assets is or is required
to be maintained, full payment has been made of all amounts required of Seller
and its Subsidiaries and ERISA Affiliates under the terms of each such Plan or
Arrangement or applicable law, through the Closing Date.
3.14. LABOR MATTERS. There is no labor strike, dispute, slowdown,
stoppage or lockout actually pending, or threatened against Seller or any
Subsidiary. Neither Seller nor any Subsidiary is a party to or bound by any
collective bargaining agreement with any labor organization applicable to
employees of Seller or any Subsidiary. Neither Seller nor any Subsidiary has
experienced any material work stoppage or other material labor difficulty during
the two-year period ending on the date hereof.
3.15. TAX RETURNS AND REPORTS.
(a) Seller and its Subsidiaries have timely filed in correct form with
the appropriate taxing authorities all federal, state, county, local and foreign
returns, estimates, information statements, reports and other documents in
respect of Taxes (as
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defined in Article VIII) required to be filed by Seller and its Subsidiaries.
All amounts shown due on such returns have been timely paid as required by law.
(b) No assessment that has not been settled or otherwise resolved has
been made with respect to Taxes not shown on the Tax returns, other than such
additional Taxes as are being contested in good faith or which if determined
adversely to Seller would not have a Material Adverse Effect. There are no
material disputes pending or written claims asserted for Taxes or assessments
upon Seller or any of its Subsidiaries, nor has Seller or any of its
Subsidiaries been requested to give any currently effective waivers extending
the statutory period of limitation applicable to any Federal, state, county,
foreign or local income tax return for any period. No deficiency in Taxes or
other proposed adjustment that has not been settled or otherwise resolved has
been asserted in writing by any taxing authority against any of Seller or its
Subsidiaries. No Tax return of Seller or any of its Subsidiaries is now under
examination by any applicable taxing authority. There are no material liens for
Taxes (other than current Taxes not yet due and payable) on any of the assets of
Seller or any of its Subsidiaries, except for such liens for Taxes that would
not have a Material Adverse Effect. During the past five years, no jurisdiction
has made any written claim or allegation, or made any written inquiry pursuant
to such a written claim or allegation, that Seller or any of its Subsidiaries is
required to file Tax returns in such jurisdiction for any Tax for which Seller
or the applicable Subsidiary does not presently filed Tax returns in such
jurisdiction.
(c) Adequate provision has been made on the Seller Balance Sheet for
all Taxes of Seller and its Subsidiaries in respect of all periods through the
date hereof.
(d) As of the date of this Agreement, Seller has no ruling requests
currently pending with the Internal Revenue Service.
(e) Except as set forth in the SEC Reports, neither Seller nor any of
its Subsidiaries is a party to (or obligated under) any Tax allocation, tax
sharing or tax indemnity agreement which has as a party any Person other than
Seller or its Subsidiaries.
(f) Seller and its Subsidiaries have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, consultant, independent contractor, creditor, stockholder or
other party.
3.16. SELLER DEBT. Section 3.16 of the Seller Disclosure Schedule lists
all outstanding Indebtedness of Seller and each Subsidiary as of the date
hereof, except for individual items of indebtedness the principal amount of
which do not exceed $25,000. Section 3.16 of the Seller Disclosure Schedule sets
forth the amount of principal and unpaid interest outstanding under each
instrument evidencing Indebtedness of Seller or each Subsidiary, if any, that
will accelerate or become due or result in a right on the part of the holder of
such indebtedness (with or without due notice or lapse of time) to require
prepayment, redemption or repurchase as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby.
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3.17. TRADEMARKS, PATENTS AND COPYRIGHTS.
(a) Section 3.17 of the Seller Disclosure Schedule contains a true and
complete list of Seller Intellectual Property and includes details of all due
dates for further filings, maintenance, payments or other actions falling due
within twelve (12) months of the Closing Date. All of Seller's patents, patent
applications, registered trademarks, and trademark applications, and registered
copyrights remain in good standing with all fees and filings due as of the
Closing Date duly made and the due dates specified in the Seller Disclosure
Schedule are accurate and complete.
(b) The Seller Intellectual Property consists solely of items and
rights which are: (i) owned by Seller; or (ii) rightfully used by Seller
pursuant to a valid license ("SELLER LICENSED INTELLECTUAL PROPERTY"), the
parties and date of each such license agreement and each material agreement in
which Seller is the licensor or owner of the subject rights in the agreement
being set forth on Section 3.17(b) of the Seller Disclosure Schedule. Seller has
all rights in Seller Intellectual Property necessary to carry out Seller's
current activities (and had all rights necessary to carry out its former
activities at the time such activities were being conducted), including without
limitation, to the extent required to carry out such activities, rights to make,
use, reproduce, modify, adopt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform publicly,
license, rent and lease and, other than with respect to the Seller Licensed
Intellectual Property, assign and sell, the Seller Intellectual Property.
(c) The reproduction, manufacturing, distribution, licensing,
sublicensing or sale of any Seller Intellectual Property, now used or offered or
proposed for use, licensing or sale by Seller does not infringe on any patent,
copyright, trademark, service mark, trade name, trade dress, firm name, Internet
domain name, logo, trade dress, of any person and does not constitute a
misappropriation of any trade secret. No claims (i) challenging the validity,
effectiveness or ownership by Seller of any of the Seller Intellectual Property,
or (ii) to the effect that the use, distribution, licensing, sublicensing or
sale of the Seller Intellectual Property as now used or offered or proposed for
use, licensing, sublicensing or sale by Seller infringes or will infringe on any
intellectual property or other proprietary right of any person have been
asserted or, to the knowledge of Seller, are threatened by any person or have
been made or threatened by any person against the Seller's distributors. To the
knowledge of Seller, there is no unauthorized use, infringement or
misappropriation of any of the Seller Intellectual Property by any third party,
employee or former employee.
(d) All Seller Intellectual Property has been solely developed by full
time employees within the scope of his or her employment with the Seller or
within the scope of his or her employment with companies acquired by Seller
prior to the date hereof. All employee contribution or participation in the
conception and development of the Seller Intellectual Property on behalf of
Seller constitutes work prepared by an employee within the scope of his or her
employment in accordance with applicable federal and state law that has accorded
Seller ownership of all tangible and intangible property thereby arising.
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(e) Seller is not, nor as a result of the execution or delivery of this
Agreement, or performance of Seller's obligations hereunder, will Seller be, in
violation of any material license, sublicense, agreement or instrument to which
Seller is a party or otherwise bound, nor will execution or delivery of this
Agreement, or performance of Seller's obligations hereunder, cause the
diminution, termination or forfeiture of any material Seller Intellectual
Property.
(f) Section 3.17(f) of the Seller Disclosure Schedule contains a true
and complete list of all of Seller's internally-developed software programs
("SELLER SOFTWARE PROGRAMS"). Seller owns full and unencumbered right and good,
valid and marketable title to such Seller Software Programs and all Seller
Intellectual Property free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements or encumbrances.
(g) The Seller Software Programs (i) have been designed to ensure year
2000 compatibility, which includes, but is not limited to, being able to provide
specific dates and calculate spans of dates within and between twentieth century
and twenty-first century, prior to, including and following January 1, 2000;
(ii) operate and will operate in accordance with their specifications and
correctly process day and date calculations for dates prior and up to December
31, 1999, and on and after January 1, 2000, prior to, during and after the
calendar year 2000; and (iii) shall not end abnormally or provide invalid or
incorrect results as a result of date data, specifically including date data
which represents or references different centuries or more than one century.
3.18. MATERIAL AGREEMENTS. Except as set forth in the 1999 10-KSB and
as listed in Section 3.18 of the Seller Disclosure Schedule, except for this
Agreement and the agreements specifically referred to herein, neither Seller nor
any of its Subsidiaries is a party to or bound by any of the following
agreements (with the following agreements, and the agreements included as
exhibits to the SEC Reports, collectively referred to as the "MATERIAL
AGREEMENTS"):
(a) any contract or agreement or amendment thereto that would be
required to be filed as an exhibit to a registration statement on Form S-1 filed
by Seller as of the date hereof;
(b) any confidentiality agreement, non-competition agreement or other
contract or agreement that contains covenants limiting Seller's or any of its
Subsidiaries' freedom to compete in any line of business or in any location or
with any Person; and
(c) any loan agreement, indenture, note, bond, debenture or any other
document or agreement evidencing a capitalized lease obligation or other
Indebtedness (as defined in Article VIII) to any Person, other than any
Indebtedness in a principal amount less than $25,000 individually or $100,000 in
the aggregate.
Seller has delivered to Buyer a correct and complete copy of each
Material Agreement and a written summary setting forth the terms and conditions
of each oral
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agreement, if any, referred to in the Seller Disclosure Schedule. Each such
Material Agreement constitutes the legal, valid and binding obligation of Seller
or a Subsidiary, as the case may, and to the knowledge of Seller, the other
party thereto, enforceable against such parties in accordance with the terms
thereof (except as enforcement may be limited by general principles of equity
whether applied in a court of law or equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally). None of Seller
or any of its Subsidiaries, as the case may be, is in default under, or with the
giving of notice or the lapse of time, or both, would be in default under, any
of the material terms or conditions of any Material Agreement. To the knowledge
of Seller, there has occurred no material default or event which, with the
giving of notice or the lapse of time, or both, would constitute a material
default by any other party to any Material Agreement.
3.19. INSURANCE. Seller and each Subsidiary is presently insured, and
during each of the past five calendar years has been insured, against such risks
as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. The policies of fire, theft,
liability and other insurance maintained with respect to the assets or
businesses of Seller and its Subsidiaries provide reasonably adequate coverage
against loss. Seller has heretofore furnished to Buyer a complete and correct
list as of the date hereof of all insurance policies maintained by Seller or its
Subsidiaries, and has made available to Buyer complete and correct copies of all
such policies, together with all riders and amendments thereto. All such
policies are in full force and effect and all premiums due thereon have been
paid to the date hereof. Seller and its Subsidiaries have complied in all
material respects with the terms of such policies.
3.20. PROPERTIES. Except as set forth in Section 3.20 of the Seller
Disclosure Schedule, neither Seller nor any or its Subsidiaries owns any real
property. Seller and its Subsidiaries have good and valid title, free and clear
of all Encumbrances to all of their material properties and assets, whether
tangible or intangible, real, personal or mixed, reflected in the 1999 10-KSB as
being owned by Seller and its Subsidiaries as of the date thereof, other than
(i) any properties or assets that have been sold or otherwise disposed of in the
ordinary course of business since the date of the Seller Balance Sheet, (ii)
liens disclosed in the notes to the Seller Balance Sheet and (iii) liens arising
in the ordinary course of business after the date of the Seller Balance Sheet.
All buildings, and all fixtures, equipment and other property and assets that
are material to its business on a consolidated basis, held under leases or
sub-leases by Seller or any Subsidiary are held under valid instruments
enforceable in accordance with their respective terms, subject to applicable
laws of bankruptcy, insolvency or similar laws relating to creditors' rights
generally and to general principles of equity (whether applied in a proceeding
in law or equity). Substantially all of Seller's and its Subsidiaries' equipment
in regular use has been reasonably maintained and is in serviceable condition,
reasonable wear and tear excepted.
3.21. LEASES. Section 3.21 of the Seller Disclosure Schedule lists all
outstanding leases, both capital and operating, or licenses, pursuant to which
Seller or any
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of its Subsidiaries has (i) obtained the right to use or occupy any real or
tangible personal property under arrangements where the remaining obligation is
more than $25,000, inclusive of any renewal rights or (ii) granted to any other
Person the right to use any material item of machinery, equipment, furniture,
vehicle or other personal property of Seller or any of its Subsidiaries having
an original cost of $25,000 or more.
3.22. BUSINESS ACTIVITY RESTRICTION. Except as set forth in Section
3.22 of the Seller Disclosure Schedule, there is no non-competition or other
similar agreement, commitment, judgment, injunction, order or decree to which
Seller or any Subsidiary is a party or subject to that has or could reasonably
be expected to have the effect of prohibiting or impairing the conduct of
business by Seller. Seller has not entered into any agreement under which Seller
is restricted from selling, licensing or otherwise distributing any of its
technology or products to, or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market or line of business.
3.23. ACCOUNTS RECEIVABLE; INVENTORY.
(a) Except as specifically set forth in Section 3.23 of the Seller
Disclosure Schedule, hereto, all accounts and notes receivable reflected in the
Seller Balance Sheet, and all accounts and notes receivable arising subsequent
to the date of the Seller Balance Sheet, have arisen in the ordinary course of
business, represent valid obligations to Seller or a Subsidiary and, subject
only to an amount of bad debts reasonable in the industry and not materially
different than Seller's past experience, have been collected or are collectible
in the aggregate recorded amounts thereof in accordance with their terms.
(b) The inventories (and any reserves established with respect thereto)
of Seller and its Subsidiaries as of March 31, 1999 are described in Section
3.23(b) of the Seller Disclosure Schedule. All such inventories (net of any such
reserves) are properly reflected on the Seller Balance Sheet in accordance with
GAAP and, to the best knowledge of Seller, are of such quality as to be useable
and saleable in the ordinary course of business (subject, in the case of
work-in-process inventory, to completion in the ordinary course of business).
3.24. CUSTOMERS AND SUPPLIERS. Neither Seller's nor any of its
Subsidiaries' customers which individually accounted for more than 5% of
Seller's or such Subsidiary's gross revenues during the 12-month period
preceding the date hereof has terminated or threatened or indicated an intention
to terminate any agreement with Seller or such Subsidiary. Except as set forth
in Section 3.24 of the Seller Disclosure Schedule, as of the date hereof, no
material supplier of Seller or any of its Subsidiaries has notified Seller in
writing that it will stop, or decrease the rate of, supplying materials,
products or services to Seller or such Subsidiary.
3.25. YEAR 2000 COMPLIANCE. The only "mission-critical" computer
systems (as such term is commonly used in regulations and trade organization
guidelines with respect to the Year 2000 Problem (as defined below)) owned or
utilized by Seller and its
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Subsidiaries in their businesses are set forth in Section 3.25 of the Disclosure
Schedule (the "SELLER MISSION CRITICAL SYSTEMS"). Seller and its Subsidiaries
have taken all steps necessary to ensure that all of such Seller Mission
Critical Systems will not, or each of Seller and its Subsidiaries has received
written assurances from the applicable third-party service providers with
respect to each Seller Mission Critical System that each of such Seller Mission
Critical Systems will not, contain any deficiencies relating generally to
formatting for entering dates (commonly referred to and referred herein as the
"YEAR 2000 PROBLEM") and each Seller Mission Critical System is in compliance
with all regulations and trade organization guidelines concerning the Year 2000
Problem. To the knowledge of Seller, all of Seller's and its Subsidiaries' other
computer systems ("NON-MISSION CRITICAL SYSTEMS"), third party service and
equipment providers are in compliance with all regulations and trade
organization guidelines concerning the Year 2000 Problem, except where the
failure to be compliant would not result in any Material Adverse Effect. None of
Seller or any Subsidiary is aware of any inability on the part of any customer
or service provider with which Seller or any Subsidiary transacts business to
timely remedy any deficiencies of its own in respect of the Year 2000 Problem.
3.26. ENVIRONMENTAL MATTERS. Except as would not reasonably be expected
to have a Material Adverse Effect, (a) Seller and each Subsidiary are in
compliance with all applicable Environmental Laws, (b) neither Seller nor any
Subsidiary has received any written notice with respect to the business of, or
any property owned or leased by, Seller or any Subsidiary from any governmental
entity or third party alleging that Seller or any Seller Subsidiary is not in
compliance with any Environmental Law, and (c) there has been no "release" of a
"hazardous substance", as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 ET
seq., in excess of a reportable quantity on any real property owned by Seller or
any Subsidiary that is used for the business of Seller or any Subsidiary.
3.27. PRIOR ACQUISITIONS AND DISPOSITIONS. Except as set forth in the
1999 10-KSB or in Section 3.27 of the Seller Disclosure Schedule, no claims,
amounts owed, liabilities (contingent or otherwise), encumbrances, legal
proceedings or any other obligations of any kind are due or were incurred or
outstanding in connection with any acquisitions or dispositions made by Seller
or any of its Subsidiaries prior to the date of this Agreement.
3.28. ABSENCE OF CERTAIN BUSINESS PRACTICES. No employee, consultant,
agent or other representative of Seller or any of its Subsidiaries has directly
or indirectly within the past five years given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other Person
who is or may be in a position to help or hinder the business of Seller or any
of its Subsidiaries in connection with any actual or proposed transaction which
(a) would reasonably be expected to subject Seller or any of its Subsidiaries to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (b) if not given in the past, would reasonably be expected to have
had a Material Adverse Effect, or (c) if not continued in the future, would
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, Seller has not committed, been charged with or to
the knowledge of Seller
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been under investigation with respect to, nor does there exist, any violation by
Seller of the Foreign Corrupt Practices Act, as amended (the "FCPA").
3.29. TAKEOVER LAWS. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States including, without limitation,
applicable to Seller or any of Seller Subsidiaries is applicable to the
execution, delivery and performance of this Agreement, the Seller Option
Agreement or the Stockholder Agreements or the consummation of the Offer or the
Merger.
3.30. OPINION OF FINANCIAL ADVISOR. Seller has received the opinion of
Seller's Financial Advisor, as of the date of this Agreement, to the effect that
the Merger Consideration is fair, from a financial point of view, to Seller's
stockholders.
3.31. DISCLOSURE. To Seller's knowledge, as of the date of this
Agreement, no representation or warranty by Seller in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not false or
misleading.
3.32. BROKERS AND FINDERS. Seller has furnished to Buyer or its counsel
a true and complete copy of that certain letter agreement (the "WASSERSTEIN
ENGAGEMENT LETTER") between Seller and Wasserstein Perella & Co., Inc. (the
"SELLER'S FINANCIAL ADVISOR"), such letter agreement being the only agreement
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated hereunder. No broker, finder or investment banker
other than Seller's Financial Advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Seller or any of its
Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO
Buyer and Newco, jointly and severally, represent and warrant to Seller
that:
4.01. ORGANIZATION AND QUALIFICATION. Each of Buyer and Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted. Newco is a new corporation that was
formed for the purpose of consummating the transactions contemplated by this
Agreement and has conducted no business and engaged in no activities unrelated
to the transactions contemplated by this Agreement.
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4.02. CORPORATE POWER, AUTHORIZATION AND ENFORCEABILITY. Each of Buyer
and Newco has full corporate power and authority to enter into this Agreement
and to perform its obligations hereunder and to consummate all the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer and
Newco, the performance by each of Buyer and Newco of their respective
obligations hereunder and the consummation by Buyer and Newco of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Newco and the Board of Directors of the Buyer and no other
corporate action on the part of Buyer or Newco is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than the
approval of this Agreement and the Merger by the shareholders of Buyer and
Newco). This Agreement has been duly executed and delivered by each of Buyer and
Newco and is a legal, valid and binding obligation of each of Buyer and Newco,
enforceable against Buyer and Newco in accordance with its terms. The
affirmative vote of the holders of a majority of the outstanding shares of
common stock of Buyer entitled to vote thereon is the only vote of any class of
capital stock of Buyer required to adopt this Agreement and approve the Merger.
4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming satisfaction of all applicable requirements referred to in
Section 4.03(b) below, the execution and delivery of this Agreement by Buyer and
Newco, the compliance by Buyer and Newco with the provisions hereof and the
consummation by Buyer and Newco of the transactions contemplated hereby will not
conflict with or violate any statute, law, ordinance, rule, regulation, order,
writ, judgment, award, injunction, decree or ruling applicable to the Buyer or
any of its Subsidiaries or any of their properties, or conflict with, violate or
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, cancellation or acceleration of, or the loss
of a benefit under, or result in the creation of a lien, security interest,
charge or encumbrance on any of the properties or assets of the Buyer or any of
its Subsidiaries pursuant to (i) the organizational documents of the Buyer or
any of its Subsidiaries or (ii) any contract, lease, agreement, note, bond,
mortgage, indenture, deed of trust, or other instrument or obligation, or any
license, authorization, permit, certificate or other franchise, other than such
conflicts, violations, breaches, defaults, losses, rights of termination,
amendment, cancellation or acceleration, liens, security interests, charges or
encumbrances as to which requisite waivers have been obtained or which
individually or in the aggregate would not have a material adverse effect on the
ability of the Buyer and Newco to perform their obligations under this
Agreement.
(b) Other than in connection with or in compliance with the provisions
of the CBCA, the Companies Act 1985 (as amended) and the Listing Rules of the
London Stock Exchange Limited, (i) neither Buyer nor Newco is required to submit
any notice, report, registration, declaration or other filing with any
Governmental Entity in connection with the execution or delivery of this
Agreement by Buyer and Newco or the performance by Buyer and Newco of their
obligations hereunder or the consummation by Buyer and Newco of the transactions
contemplated by this Agreement and (ii) no waiver, consent,
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approval, order or authorization of any Governmental Entity is required to be
obtained by Buyer or Newco in connection with the execution or delivery of this
Agreement by Buyer and Newco or the performance by Buyer and Newco of their
obligations hereunder or the consummation by Buyer and Newco of the transactions
contemplated by this Agreement.
4.04. BROKERS AND FINDERS. No broker, finder or investment banker other
than Greig Middleton and Co. Limited, the fees and expenses of which will be
paid by Buyer, is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Buyer or any of its Subsidiaries.
4.05. FINANCING. Buyer has provided to Seller a true and correct copy
of the Placing Agreement, between Buyer and Greig Middleton and Co. Limited (the
"PLACING AGREEMENT"), pursuant to which, prior to the Effective Time, Buyer will
complete a placing of ordinary 5p shares in Buyer (the "SHARE ISSUANCE"), which
placing is being underwritten by Greig Middleton and Co. Limited, and which, if
consummated will provide sufficient funds to consummate the transactions
contemplated by this Agreement, including (i) the payment of the aggregate
Merger Consideration to be paid pursuant to Section 2.05, (ii) the payment of
the amounts to be paid with respect to outstanding Options, Warrants and
Debentures pursuant to Sections 2.06 and 2.07, (iii) the payment of any fees and
expenses in connection with the Merger or the financing thereof and (iv) provide
for the working capital needs of the Surviving Corporation following the Merger.
ARTICLE V
COVENANTS
5.01. CONDUCT OF BUSINESS BY SELLER. Except as required or permitted by
this Agreement or as disclosed in Section 5.01 of the Seller Disclosure
Schedule, during the period from the date of this Agreement until the Effective
Time, Seller agrees as to itself and its Subsidiaries that (except to the extent
that Buyer shall otherwise consent in writing) Seller and its Subsidiaries shall
conduct their respective operations in the ordinary course of business
consistent with past practice, and each of Seller and its Subsidiaries will use
its reasonable efforts to preserve intact its present business organization, to
keep available the services of its present officers and employees and to
maintain satisfactory relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, neither Seller nor any of
its Subsidiaries shall, without the prior written consent of Buyer (which
consent will be given or denied within a reasonable time after any request for
such consent):
(a) amend its Articles of Organization or other charter document or
Bylaws;
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(b) authorize for issuance, issue, sell, deliver, pledge or agree or
commit to issue, sell, deliver or pledge (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any capital stock of any class or any debt or other securities
convertible into capital stock or equivalents (including, without limitation,
stock appreciation rights), or amend any of the terms of any of the foregoing,
other than the issuance of shares of capital stock upon the exercise of
outstanding options or rights under the Seller Equity Plans;
(c) (i) split, combine or reclassify any shares of its capital stock,
or authorize or propose the issuance or authorization of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
adopt or approve any Rights Plan, or repurchase, redeem or otherwise acquire any
of its securities or any securities of its Subsidiaries, or (ii) make any
payment of cash or other property to terminate, cancel or otherwise settle any
outstanding Options, other than in the case of clauses (i) or (ii) above for the
issuance of shares of Seller Common Stock in connection with the exercise of
options or rights under the Seller Equity Plans;
(d) (i) incur or assume any long-term Indebtedness or increase any
amounts outstanding under long-term credit facilities existing as of the date of
this Agreement or grant, extend or increase the amount of a mortgage lien on any
leasehold or fee simple interest of Seller or its Subsidiaries; or, except in
the ordinary course of business consistent with past practice in the case of
clauses (ii) through (vi) below, (ii) incur or assume any short-term debt or
increase amounts outstanding under short-term credit facilities existing as of
September 30, 1999; (iii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person, except for obligations of Seller or any Subsidiary of
Seller; (iv) make any loans, advances or capital contributions to, or
investments in, any other Person; (v) pledge or otherwise encumber shares of
capital stock of Seller or any of its Subsidiaries; or (vi) mortgage or pledge
any of its assets, tangible or intangible, or create or suffer to exist any lien
thereon except as existing on the date of this Agreement or as may be required
under agreements outstanding on the date of this Agreement to which Seller or
any of its Subsidiaries are parties;
(e) except as expressly provided in this Agreement, enter into, adopt
or amend in any manner or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance, change-in-control or
other employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee, or increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement as in effect as of
the date of this Agreement or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing;
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(f) sell, lease, license, pledge or otherwise dispose of or encumber
any material assets except in the ordinary course of business consistent with
past practice (including without limitation any indebtedness owed to it or any
claims held by it);
(g) except in connection with the Bridgestone Agreement, acquire or
agree to acquire by merging or consolidating with or by purchasing any portion
of the capital stock or assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, association or other
business organization or division thereof, other than in the ordinary course of
business consistent with past practice;
(h) change any of the accounting principles or practices used by it
affecting its assets, liabilities or business, except for such changes required
by a change in generally accepted accounting principles;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise), other than the payment, discharge or satisfaction of liabilities (i)
in the ordinary course of business consistent with past practices, (ii) with
notice to Buyer, in an amount which does not exceed $25,000 in the aggregate,
(iii) incurred pursuant to the terms of the Wasserstein Engagement Letter in an
amount not to exceed $1,250,000 plus expenses, or (iv) incurred in connection
with the transactions contemplated hereby, not to exceed the amounts described
in Section 5.01(i) of the Seller Disclosure Schedule;
(j) except as required by their terms, enter into, terminate or breach
(or take or fail to take any action, that, with or without notice or lapse of
time or both, would become a breach) or materially amend any contract which is
or would be a Material Agreement;
(k) without prior consultation with Buyer (in addition to the consent
requirement described above) commence any litigation or arbitration other than
in accordance with past practice or settle any litigation or arbitration for
money damages or other relief against Seller or any Subsidiary in excess of
$50,000 or if as part of such settlement Seller or any Subsidiary would agree to
any restrictions on its operations;
(l) grant any license with respect to or otherwise convey any Seller
Intellectual Property or take any action or fail to take any action which would
cause the representations and warranties of Seller set forth in Section 3.17
hereof to become untrue in any respect;
(m) elect or appoint any new directors or officers of Seller or any
Subsidiary;
(n) waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that Seller entered into in connection with
its consideration of a potential strategic transaction; provided, however, that
Seller may waive, release or amend its rights under any such confidentiality,
"standstill" or similar agreement if Seller's Board determines, based on the
advice of independent legal counsel that failure to
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do so would be reasonably likely to constitute a breach of its fiduciary duties
to Seller's stockholders under applicable law;
(o) make or change any election, request permission of any Tax
authority or to change any accounting method, file any amended Tax return, enter
into any closing agreement, settle any Tax claim or assessment relating to
Seller or its Subsidiaries, surrender any right to claim a refund of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to Seller or its Subsidiaries; or
(p) settle or comprise any pending or threatened suit, action or claim
which is material or which relates to any of the transactions contemplated by
this Agreement;
(q) take any action that would reasonably be expected to result in (i)
any of the representations and warranties of Seller set forth in this Agreement
becoming untrue or (ii) any of the Offer Conditions not being satisfied;
(r) amend, modify or otherwise change any of the terms and conditions
set forth in the Bridgestone Agreement; or
(s) take, or agree in writing or otherwise to take, (i) any of the
actions described in Sections 5.01(a) through 5.01(r).
5.02. ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Subject to and in accordance with the terms and conditions of that
certain letter agreement between Buyer and Seller regarding the confidentiality
of information exchanged by the parties prior to the date hereof (the
"CONFIDENTIALITY AGREEMENT"), from the date of this Agreement to the Effective
Time, Seller shall, and shall cause its Subsidiaries, officers, directors,
employees and agents to, afford the officers, employees and agents of Buyer and
its affiliates and the attorneys, accountants, banks, other financial
institutions and investment banks working with Buyer and its officers, employees
and agents, reasonable access, at all reasonable times upon reasonable notice
and in such manner as will not unreasonably interfere with the conduct of
Seller's business, to its officers, employees, agents, properties, books,
records and contracts, and shall furnish Buyer and its affiliates and the
attorneys, banks, other financial institutions and investment banks working with
Buyer, all financial, operating and other data and information as they
reasonably request.
(b) Subject to the requirements of law, Buyer shall, and shall cause
its officers, employees, agents, consultants and affiliates and the attorneys,
banks, other financial institutions and investment banks who obtain such
information to, hold all information obtained pursuant to this Agreement or the
Confidentiality Agreement in confidence in accordance with the terms and
conditions of the Confidentiality Agreement and in the event of termination of
this Agreement for any reason, Buyer shall promptly return or destroy all
nonpublic documents obtained from Seller or any of its Subsidiaries
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and any copies made of such documents for Buyer and all documentation and other
material prepared by Buyer or its advisors based on written nonpublic
information furnished by Seller or its advisors shall be destroyed except for
those which Buyer or its counsel deems advisable to retain in connection with
pending or future litigation.
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5.03. PROXY STATEMENT.
(a) Promptly after execution and delivery of this Agreement, Seller
shall prepare and shall file with the SEC as soon as is reasonably practicable a
preliminary Proxy Statement, together with a form of proxy, with respect to the
Seller Special Meeting and shall use all reasonable efforts to have the Proxy
Statement and form of proxy cleared by the SEC as promptly as practicable, and
promptly after request by Buyer shall mail the definitive Proxy Statement and
form of proxy to stockholders of Seller. Subject to its fiduciary duties under
applicable law, the Proxy Statement shall contain the recommendation of the
Board of Directors that the stockholders of Seller vote to adopt and approve the
Offer, the Merger and this Agreement. The term "Proxy Statement" shall mean such
proxy or information statement at the time it initially is mailed to Seller's
stockholders and all amendments or supplements thereto, if any, similarly filed
and mailed.
(b) Buyer will provide Seller with all information concerning Buyer (or
its Affiliates) required to be included in, or otherwise reasonably requested by
Seller in connection with the preparation of, the Proxy Statement. The
information provided and to be provided by Buyer and Seller, respectively, for
use in the Proxy Statement shall, on the date the Proxy Statement is first
mailed to Seller's stockholders and on the date of the Seller Special Meeting
(as hereinafter defined), not contain an untrue statement of a material fact or
omit to state any material fact necessary in order to make such information, in
light of the circumstances under which it was provided, not misleading, and
Seller and Buyer each agree to correct any information provided by it for use in
the Proxy Statement which shall have become false or misleading in any material
respect. The Proxy Statement shall comply as to form in all material respects
with all applicable requirements of federal securities laws.
5.04. MEETING OF STOCKHOLDERS OF SELLER.
(a) Seller shall take all action necessary, in accordance with the CBCA
and its Articles of Incorporation, to cause only proposals one and two set forth
in Seller's definitive proxy statement (the "ANNUAL MEETING PROXY STATEMENT")
filed with the SEC on November 2, 1999, to be voted on by Seller's stockholders
at the annual meeting of Seller's stockholders currently scheduled for December
2, 1999 (the "ANNUAL MEETING"). Seller shall take all action necessary to cause
proposals three, four and five set forth in the Annual Meeting Proxy Statement
not to be voted on by the stockholders of Seller at the Annual Meeting,
including causing all proxies held by management of Seller to be voted in favor
of adjourning the Annual Meeting so that no such vote is taken on such matters
at such meeting.
(b) If required under the CBCA and Seller's Articles of Incorporation,
Seller shall, as soon as practicable following the expiration of the Offer, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"SELLER SPECIAL MEETING") to consider and vote upon this Agreement, the Offer
and the Merger and shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of the
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Offer, this Agreement, the Merger and the other transactions contemplated
hereby. Without limiting the generality of the foregoing but subject to its
rights to terminate this Agreement pursuant to Section 7.01(d), Seller agrees
that its obligations pursuant to the second sentence of this Section 5.04 shall
not be affected by the commencement, public proposal, public disclosure or
communication to Seller of any Acquisition Proposal. Notwithstanding the
foregoing, if Buyer shall acquire at least 90% of the outstanding shares of
Seller Common Stock in the Offer, the parties shall take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after the expiration of the Offer without a Seller Special Meeting
in accordance with the CBCA. Buyer agrees to cause all shares of Seller Common
Stock purchased pursuant to the Offer to be voted in favor of the Merger, this
Agreement and the transactions contemplated hereby.
5.05. NO SOLICITATION BY SELLER.
(a) Except as provided in Section 5.05(b), Seller agrees that, from the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement pursuant to Section 7.01, Seller shall not, nor
shall it permit any of its Subsidiaries to, nor shall it authorize or permit any
of its directors, officers or employees or any representative retained by it
(including Seller's Financial Advisor) or any of its Subsidiaries to, directly
or indirectly through another Person, (i) solicit, initiate, entertain or
encourage (including by way of furnishing non-public information) any inquiries
or the making of an Acquisition Proposal, or (ii) participate in any discussions
or negotiations regarding any Acquisition Proposal; PROVIDED, HOWEVER, that if,
at any time, the Board of Directors of Seller determines in good faith, after
consultation with and receipt of advice from outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to Seller's stockholders under applicable law, Seller may, in response to
a Superior Proposal (as defined below) and subject to delivering a Seller Notice
(as defined in paragraph (c) below) and compliance with the other provisions of
paragraph (c) below, following delivery of Seller Notice (x) furnish information
with respect to Seller and its Subsidiaries to any Person making such
Acquisition Proposal pursuant to a confidentiality agreement entered into
between such Person and Seller with terms no less favorable to Seller than those
contained in the Confidentiality Agreement and (y) participate in discussions or
negotiations regarding such Acquisition Proposal. For purposes of this
Agreement, an "Acquisition Proposal" means any inquiry, proposal or offer from
any Person (i) relating to any direct or indirect acquisition or purchase of (A)
a business that constitutes 15% or more of the net revenues, net income or the
assets of Seller and its Subsidiaries, taken as a whole, (B) 20% or more of any
class of equity securities of Seller or (C) any material equity interest in any
Subsidiary of Seller (i.e., in excess of 20% of the outstanding capital stock of
such Subsidiary), (ii) relating to any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 20% or more of any
class of equity securities of Seller or any material equity interest in any of
its Subsidiaries, or (iii) relating to any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Seller or any of its Subsidiaries, in each case, other than the
transactions contemplated by this Agreement. Immediately following the execution
and
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delivery of this Agreement by the parties hereto, Seller will cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted with respect to the foregoing. Promptly following the
execution of this Agreement by the parties hereto, Seller will request each
Person that has, prior to the date of this Agreement, executed a confidentiality
agreement in connection with its consideration of an Acquisition Proposal to
return or destroy all confidential information heretofore furnished to such
Person by or on behalf of Seller or any of its Subsidiaries.
(b) Except as expressly permitted by this Section 5.05, the Board of
Directors of Seller shall not (i) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Buyer, the approval or recommendation
by such Board of Directors of the Merger, the Offer or this Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal, or (iii) cause Seller to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
a "SELLER ACQUISITION AGREEMENT") related to any Acquisition Proposal, other
than any such agreement entered into concurrently with a termination pursuant to
the next sentence to facilitate such action. Notwithstanding the foregoing, if
at any time the Board of Directors of Seller determines in good faith, after
consultation with and receipt of advice from outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to Seller's stockholders under applicable law, subject to compliance with
paragraph (c) below, the Board of Directors of Seller may, in response to a
Superior Proposal which was not solicited by Seller and which did not otherwise
result from a breach of this Section 5.05 (subject to this and the following
sentences) terminate this Agreement (and concurrently with or after such
termination, if it so chooses, cause Seller to enter into any Acquisition
Agreement with respect to any Superior Proposal) but only at a time that is at
least after the third business day after delivery of a Seller Notice. For
purposes of this Agreement, a "Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of Seller Common Stock then outstanding or
all or substantially all the assets of Seller which (i) the Board of Directors
of Seller determines in good faith is reasonably likely to be consummated,
taking into account the Person making the proposal and all legal, financial and
regulatory aspects of the proposal, including any break-up fees, expense
reimbursement provisions and conditions to consummation, and (ii) the Board of
Directors determines in good faith (after consultation with and based upon the
advice of its outside financial advisors) would, if consummated, provide greater
value to Seller's stockholders than the transactions contemplated by this
Agreement.
(c) In addition to the obligations of Seller as set forth in paragraphs
(a) and (b) of this Section 5.05, Seller shall advise the Buyer orally and in
writing of any request for non-public information, any Acquisition Proposal,
including all of the material proposed terms of such Acquisition Proposal, the
identity of the third party, or any decision by Seller to take any of the
actions permitted in clauses (x) or (y) of paragraph (a) above (with any such
notice referred to as a "SELLER NOTICE"). Any such Seller Notice will be
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delivered promptly after (and in no event later than 24 hours after) receipt of
any request for non-public information or of any Acquisition Proposal and prior
to Seller taking any of the actions permitted in clauses (x) or (y) of paragraph
(a) above. In addition, in the event Seller intends to enter into a Seller
Acquisition Agreement relating to a Superior Proposal, Seller will deliver a
Seller Notice at least 24 hours prior to entering into such Seller Acquisition
Agreement, which Seller Notice will identify the third party and the material
proposed terms of such Superior Proposal. Seller will keep Buyer reasonably
informed of the status of any such request or Acquisition Proposal and will
update the information required to be provided in Seller Notice upon the request
of the Newco.
5.06. PUBLIC ANNOUNCEMENTS. Buyer and Seller will consult with each
other before, but will not be required to obtain the other party's consent with
respect to, issuing any press release, any filing with the SEC on Form 8-K or
otherwise making any public statements with respect to this Agreement or the
Merger or the other transactions contemplated hereby, and shall not issue any
such press release, SEC Form 8-K filing or make any such public statement prior
to such consultation, except to the extent that compliance with legal
requirements requires a party to issue a press release or public announcement or
make an 8-K filing prior to such consultation. This Section 5.06 shall supersede
any conflicting provisions in the Confidentiality Agreement.
5.07. NOTIFICATION OF CERTAIN MATTERS.
(a) Seller shall give prompt notice (which notice shall state that it
is delivered pursuant to Section 5.07 of this Agreement) in writing to Buyer and
Buyer shall give prompt notice in writing to Seller, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
through the Effective Time and (ii) any material failure of Seller or Buyer, as
the case may be, or of any officer, director, employee or agent thereof, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, no such notification
shall affect the representations or warranties of the parties or the conditions
to the obligations of the parties hereunder.
(b) Seller shall give prompt notice in writing (which notice shall
state that it is delivered pursuant to Section 5.07 of this Agreement) to Buyer
of any occurrence that has had or may reasonably be expected to have a Material
Adverse Effect.
5.08. EMPLOYMENT AND BENEFIT MATTERS
(a) From and after the Effective Time, Buyer agrees to cause the
Surviving Corporation to provide the employees of Seller and its Subsidiaries
(the "SELLER EMPLOYEES") who remain employed after the Effective Time with the
types and levels of employee benefits which are in the aggregate at least as
favorable as those maintained by Seller prior to the Effective Time. Buyer will
cause the Surviving Corporation to treat, and cause its applicable benefit plans
to treat, the service of Seller Employees with Seller
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or any Subsidiary as service rendered to the Surviving Corporation for purposes
of eligibility to participate, vesting and for other appropriate benefits but
not for benefit accrual.
(b) Notwithstanding anything to the contrary contained herein, Buyer
shall have sole discretion with respect to the determination as to whether or
when to terminate, merge or continue any employee benefit plans and programs of
Seller after the Effective Time.
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5.09. OFFICERS' AND DIRECTORS' INDEMNIFICATION; INSURANCE.
(a) The Surviving Corporation agrees that for a period ending on the
sixth anniversary of the Effective Time, the Surviving Corporation will maintain
all rights to indemnification (including with respect to the advancement of
expenses incurred in the defense of any action or suit) existing on the date of
this Agreement in favor of the present and former directors, officers, employees
and agents of Seller as provided in Seller's Articles of Incorporation and
By-laws , in each case as in effect on the date of this Agreement, and that
during such period, neither the Articles of Incorporation nor the Bylaws of the
Surviving Corporation shall be amended to reduce or limit the rights of
indemnity afforded to the present and former directors, officers, employees and
agents of Seller, or the ability of the Surviving Corporation to indemnify them,
nor to hinder, delay or make more difficult the exercise of such rights or
indemnity or the ability to indemnify.
(b) The Surviving Corporation agrees to indemnify to the fullest extent
permitted under its Articles of Incorporation, its Bylaws, and applicable law
the present and former directors, officers, employees and agents of Seller
against all losses, damages, liabilities or claims made against them arising
from their service in such capacities prior to and including the Effective Time,
to at least the same extent as such persons are currently permitted to be
indemnified pursuant to Seller's Articles of Incorporation and Bylaws for a
period ending on the sixth anniversary of the Effective Time.
(c) Buyer will cause to be maintained for a period of three years from
the Effective Time Seller's current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring prior to the Effective Time (the "D&O INSURANCE") for all persons who
are directors and officers of Seller on the date of this Agreement, so long as
such insurance is available on commercially reasonable terms and the annual
premium therefor would not be in excess of 200% of the last annual premium paid
prior to the date of this Agreement (the "MAXIMUM PREMIUM"). If the existing D&O
Insurance expires, is terminated or cancelled during such three-year period,
Buyer will use all reasonable efforts to cause to be obtained as much D&O
Insurance as can be obtained for the remainder of such period for an annualized
premium not in excess of the Maximum Premium, on terms and conditions no less
advantageous than the existing D&O Insurance.
5.10. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees 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 and make effective as promptly as practicable
the transactions contemplated by this Agreement (including consummation of the
Merger) and to cooperate with each other in connection with the foregoing.
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(b) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees to use commercially reasonable efforts to: (i) obtain all
necessary waivers, consents and approvals from other parties to loan agreements,
leases, licenses and other contracts, (ii) obtain all necessary consents,
approvals and authorizations as required to be obtained under any federal, state
or foreign law or regulations, (iii) defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby, (iv) lift or rescind any injunction or restraining order or
other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (v) effect all necessary registrations and
filings, including, but not limited to, submissions of information requested by
Governmental Entities, and (vi) fulfill all conditions to this Agreement.
(c) In connection with and without limiting the foregoing, Seller and
its Board of Directors shall (i) take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to the Offer, the Merger, this Agreement or any of the other transactions
contemplated by this Agreement and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to the Offer, the Merger, this
Agreement or any other transaction contemplated by this Agreement, take all
action necessary to ensure that the Offer, the Merger, this Agreement and the
other transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms contemplated by the Offer and this Agreement and
otherwise to minimize the effect of such statute or regulation on the Offer, the
Merger or this Agreement and the other transactions contemplated by this
Agreement.
5.11. SELLER INDEBTEDNESS. Prior to the Effective Time, Seller shall
cooperate with Buyer in taking such actions requested by Buyer as are reasonably
appropriate or necessary in connection with the redemption, prepayment,
modification, satisfaction or elimination of any outstanding Indebtedness of
Seller or any of its Subsidiaries with respect to which a consent is required to
be obtained to effectuate the Merger and the transactions contemplated by this
Agreement and has not been so obtained.
5.12. UPDATE OF DISCLOSURE SCHEDULES. Each party agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Section 6.02(a) and
6.03(a) have been fulfilled, the Schedules hereby shall be deemed to include
only that information contained therein on the date of this Agreement and shall
be deemed to exclude all information contained in any supplement or amendment
thereto.
5.13. FUTURE FILINGS. Seller will deliver to Buyer as soon as they
become available true and complete copies of any report or statement mailed by
it to its stockholders generally or filed by it with the SEC subsequent to the
date of this Agreement and prior to the Effective Time. As of their respective
dates, such reports and
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statements (excluding any information therein provided by Buyer, as to which
Seller makes no representation) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading and will comply as to form in all material
respects with all applicable requirements of law. The consolidated financial
statements of Seller to be included in such reports and statements (excluding
any information therein provided by Buyer, as to which Seller makes no
representation) will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except (i) as otherwise indicated in such financial statements and the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
permitted under Form 10-QSB under the Exchange Act) and will present fairly the
consolidated financial position, results of operations and cash flows of Seller
as of the dates thereof and for the periods indicated therein (subject, in the
case of any unaudited interim financial statements, to normal year-end audit
adjustments). Buyer shall deliver to Seller as soon as they become available,
true and complete copies of any report or statement mailed by it to Seller's
stockholders generally or filed by it with the SEC subsequent to the date of
this Agreement and prior to the Effective Time.
5.14. FINANCING. As soon as practicable after the date hereof, Buyer
shall use its best efforts and take all actions necessary to complete the Share
Issuance pursuant to which the New Buyer Shares will be offered for sale to the
public in accordance with the Placing Agreement. Buyer shall use its best
efforts and take all actions necessary to cause the New Buyer Shares to be
admitted to the London Stock Exchange's Official List. Buyer will notify Seller
promptly in the event that Buyer becomes aware of any facts, circumstances or
developments that would create reasonable doubt regarding the completion prior
to the Closing Date of the Share Issuance. Prior to the Effective Time, Buyer
shall contribute the proceeds of the Share Issuance to Newco and Newco shall use
such proceeds solely to complete the Offer in accordance with its terms and pay
the Merger Consideration and other amounts payable pursuant to Article II
hereof.
5.15. MEETING OF STOCKHOLDERS OF BUYER. Promptly after the execution
and delivery of this Agreement, Buyer shall duly call, give notice of, convene
and hold a meeting of its shareholders (the "BUYER SPECIAL MEETING") to consider
and vote upon this Agreement, the Merger and the Share Issuance, and shall,
through its Board of Directors, recommend to its shareholders the approval and
adoption of the Merger, this Agreement, and the Share Issuance. Buyer shall use
reasonable efforts to solicit from stockholders of Buyer proxies in favor of
such adoption and approval and, subject to the rules of the London Stock
Exchange and the duties of the directors of Buyer under the laws of England, to
take all other action necessary to secure the vote or consent of stockholders
required by the laws of the United Kingdom to effect the Merger and the Share
Issuance. On or prior to the date hereof, each of the directors of Buyer has
delivered a written irrevocable commitment to Seller that they will vote their
shares of Buyer stock at the Buyer Special Meeting in favor of the Merger, the
Merger Agreement and the Share Issuance.
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5.16. COMPLETION OF BRIDGESTONE TRANSACTION. Seller shall use its best
efforts to complete the transactions contemplated by the Bridgestone Agreement
substantially in accordance with its terms.
5.17. DIRECTORS. Promptly upon the acceptance for payment of, and
payment for, Shares by Buyer pursuant to the Offer, Buyer shall be entitled to
designate such number of directors on the Board of Directors of Seller as will
give Buyer, subject to compliance with Section 14(f) of the Exchange Act,
representation on Seller's Board of Directors equal to the product of (i) the
total number of directors on Seller's Board of Directors and (ii) the percentage
that the number of shares of Seller Common Stock purchased by Buyer in the Offer
bears to the number of shares of Seller Common Stock outstanding, and Seller
shall, at such time, cause Buyer's designees to be so elected by its existing
Board of Directors; provided, that in the event that Buyer's designees are
elected to the Board of Directors of Seller, until the Effective Time such Board
of Directors shall have at least two directors who are directors of Seller on
the date of this Agreement and who are not officers of Seller or any of its
Subsidiaries (the "INDEPENDENT DIRECTORS") and; provided further that, in such
event, if the number of Independent Directors shall be reduced below two for any
reason whatsoever, the remaining Independent Director shall designate a person
to fill such vacancy who shall be deemed to be an Independent Director for
purposes of this Agreement or, if no Independent Directors then remain, the
other directors of Seller on the date hereof shall designate two persons to fill
such vacancies who shall not be officers or affiliates of Seller or any of its
Subsidiaries, or officers or affiliates of Buyer or any of its Subsidiaries, and
such persons shall be deemed to be Independent Directors for purposes of this
Agreement. Subject to applicable law, Seller shall take all action requested by
Buyer necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and
Seller agrees to make such mailing with the mailing of the Schedule 14D-9
(provided that Buyer shall have provided to Seller on a timely basis all
information required to be included in the Information Statement with respect to
Buyer's designees). In connection with the foregoing, Seller will promptly, at
the option of Buyer, either increase the size of the Seller's Board of Directors
and/or obtain the resignation of such number of its current directors as is
necessary to enable Buyer's designees to be elected or appointed to, and to
constitute a majority of Seller's Board of Directors as provided above.
ARTICLE VI
CONDITIONS OF MERGER
6.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of each of the following
conditions:
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(a) SELLER STOCKHOLDER APPROVAl. Except as otherwise provided in
Section 5.04(b) hereof, this Agreement, the Offer and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of Seller in
accordance with the CBCA.
(b) BUYER STOCKHOLDER APPROVAL. This Agreement, the Merger and the
Share Issuance shall have been approved and adopted by the requisite vote of the
stockholders of Buyer in accordance with the Listing Rules of London Stock
Exchange Limited.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction, judgment or other order, decree or
ruling nor any statute, rule, regulation or order shall be in effect which
prevents the consummation of the Merger.
6.02. CONDITIONS PRECEDENT TO BUYER'S AND NEWCO'S OBLIGATIONS. Buyer
and Newco shall be obligated to perform the acts contemplated for performance by
them under Article II only if each of the following conditions is satisfied at
or prior to the Closing Date, unless any such condition is waived in writing by
Buyer and Newco:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller set forth in this Agreement shall be true and correct in all material
respects (without giving duplicative effect to any materiality qualification
contained in the applicable representation or warranty) as of the Closing Date
with the same force and effect as though made again at and as of the Closing
Date, except for any representations and warranties that address matters only as
of a particular date (which shall remain true and correct in all material
respects (without giving duplicative effect to any materiality qualification
contained in the applicable representation or warranty) as of such date). Buyer
shall have received a certificate to the foregoing effect signed by the
president and chief executive officer and chief financial officer of Seller.
(b) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date. Buyer shall have received a
certificate to the foregoing effect signed by the president and chief executive
officer and chief financial officer of Seller.
(c) ABSENCE OF MATERIAL ADVERSE CHANGES. There shall not have occurred
any change in the business, assets, prospects, financial condition or results of
operations of Seller or any of its Subsidiaries which has had, or is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect.
(d) CONSENTS. Seller shall have received all necessary consents or
waivers, in form and substance satisfactory to Buyer, from the other parties to
each contract, lease or agreement to which Seller is a party to the Merger,
except where the failure to obtain such consent or waiver would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect.
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(e) BRIDGESTONE TRANSACTION. The Bridgestone Transaction shall have
been consummated substantially in accordance with the terms of the Bridgestone
Agreement.
(f) SHARE ISSUANCE. Buyer shall have received sufficient funds from the
Share Issuance to fund its obligations under this Agreement.
(g) ADMITTANCE OF NEW BUYER SHARES. The New Buyer Shares shall have
been admitted to the London Stock Exchange's Official List, subject to notice of
admittance.
6.03. CONDITIONS TO OBLIGATION OF SELLER. The Seller shall be obligated
to perform the acts contemplated for performance by it under Article II only if
each of the following conditions is satisfied at or prior to the Closing Date,
unless any such condition is waived in writing by Seller:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer set forth in this Agreement shall be true and correct in all material
respects (without giving duplicative effect to any materiality qualification
contained in the applicable representation or warranty) as of the Closing Date
with the same force and effect as though made again at and as of the Closing
Date, except for any representations and warranties that address matters only as
of a particular date (which shall remain true and correct in all material
respects (without giving duplicative effect to any materiality qualification
contained in the applicable representation or warranty) as of such date). Seller
shall have received a certificate to the foregoing effect signed by the
president and chief executive officer and chief financial officer of Buyer.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date. Seller shall have received a
certificate to the foregoing effect signed by the president and chief executive
officer and chief financial officer of Buyer.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01 TERMINATION. This Agreement may be terminated, at any time prior
to the Effective Time, whether before or after approval by the stockholders of
Seller:
(a) by mutual written agreement of the Boards of Directors of Buyer and
Seller;
(b) by either Buyer or Seller:
(i) if any court of competent jurisdiction in the United
States or other United States governmental body shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
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(ii) if there has been a material breach by the other party of
any representation, warranty, covenant or agreement set forth in this Agreement
or the Seller Option Agreement unless such breach is capable of being cured and
is cured prior to the Closing Date;
(iii) if the stockholders of Buyer shall fail to approve the
Merger and the Share Issuance at the Buyer Special Meeting;
(iv) if the stockholders of Seller shall fail to approve the
Offer and the Merger at the Seller Special Meeting;
(c) by Buyer:
(i) if Seller or any of its directors or officers shall
participate in discussions or negotiations in breach of Section 5.05 or if the
Board of Directors of Seller shall have approved or recommended an Acquisition
Proposal by a third party, or withdrawn or modified in a manner adverse to Buyer
its approval or recommendation of this Agreement or the transactions
contemplated hereby, or failed to mail the Proxy Statement to its stockholders
or failed to include in such Proxy Statement such recommendation (including the
recommendation that the stockholders of Seller vote in favor of the Merger); or
publicly resolved to do any of the foregoing;
(ii) prior to the purchase of shares of Seller Common Stock
pursuant to the Offer, in the event of a breach or failure to perform by Seller
of any representation, warranty, covenant or other agreement contained in this
Agreement which (i) would give rise to the failure of a condition set forth in
Exhibit A and (ii) cannot be cured, or has not been cured within 15 days after
Seller receives written notice from Buyer of such breach or failure to perform.
(iii) if the Buyer Share Issuance or the Placing Agreement
shall have been terminated without Buyer having received the proceeds of the
Buyer Share Issuance or any alternative financing;
(iv) if Buyer permits the Offer to lapse in accordance with
its terms or the Offer is terminated by Buyer or Newco without the purchase of
shares of Seller Common Stock by Newco in accordance with the Offer Conditions;
(d) by Seller, pursuant to Section 5.05(b); provided, that, in order
for the termination of this Agreement pursuant to this paragraph (d) to be
deemed effective, Seller shall have complied with all provisions of Section
5.05, including the notice provisions therein, and with applicable requirements,
including the payment of the Seller Break-Up Fee;
(e) by either Seller or Buyer in the event the Effective Time has not
occurred by the latest to occur of (i) March 31, 2000 or (ii) 60 days after the
clearance by the SEC
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of the Proxy Statement (with such date, as it may thereafter be extended by
mutual written agreement of Buyer and Seller, referred to as the "OUTSIDE
DATE").
7.02. PROCEDURE AND EFFECT OF TERMINATION. In the event of the
termination of this Agreement by Seller or Buyer or both of them pursuant to
Section 7.01, the terminating party shall provide written notice of such
termination to the other party and this Agreement shall forthwith become void
and there shall be no liability on the part of Buyer, Newco or Seller, except as
set forth in this Section 7.02 and in Sections 5.02(b) and 7.03 of this
Agreement. The foregoing shall not relieve any party for liability for damages
actually incurred as a result of any breach of this Agreement. The
Confidentiality Agreement and Sections 5.03(b), 7.02 and 7.03 of this Agreement
shall survive the termination of this Agreement.
7.03. FEES AND EXPENSES. (a) Except as otherwise provided in this
Agreement and whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
(b) In the event that Buyer terminates this Agreement pursuant to
Section 7.01 (other than Sections 7.01(a), (b)(i), (b)(iii) or (c)(iii)), or
Seller terminates this Agreement pursuant to Section 7.01(b)(iv) or (d), then
Seller shall pay to Buyer the amount of $300,000 as reimbursement of Buyer's
expenses and as liquidated damages (the "SELLER BREAK-UP FEE"). Any such payment
shall be made within three (3) business days after a termination.
(c) In the event that Buyer terminates this Agreement pursuant to
Section 7.01(b)(iii) or (c)(iii) or Seller terminates this Agreement pursuant to
Section 7.01(b)(iii), then Buyer shall pay to Seller the amount of $300,000 as
reimbursement of Buyer's expenses and as liquidated damages (the "BUYER BREAK-UP
Fee"). Any such payment shall be made within three (3) business days after a
termination.
7.04. AMENDMENT. This Agreement may be amended by each of the parties
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that (i) such amendment
shall be in writing signed by all of the parties, and (ii) after adoption of
this Agreement and the Merger by the stockholders of Seller, no amendment may be
made without the further approval of the stockholders of Seller to the extent
such approval is required by applicable law.
7.05. WAIVER. Subject to the requirements of applicable law, at any
time prior to the Effective Time, whether before or after the Seller Special
Meeting, any party hereto, by action taken by its Board of Directors (or, in the
case of Buyer, any similar body), may (i) extend the time for the performance of
any of the obligations or other acts of any other party hereto or (ii) waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party by a duly authorized officer of such party.
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Notwithstanding the above, any waiver given shall not apply to any subsequent
failure of compliance with agreements of the other party or conditions to its
own obligations.
ARTICLE VIII
DEFINITIONS
As used herein the following terms not otherwise defined have the
following respective meanings:
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person. As used in this definition the term "CONTROL" (including the terms
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means, with respect to the
relationship between or among two or more Persons, the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract or
otherwise, including, without limitation, the ownership, directly or indirectly,
of securities having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person.
"BRIDGESTONE AGREEMENT" shall mean that certain Stock Purchase
Agreement, dated as of September 15, 1999, by and among Seller, Keystone
Technologies, L.L.C., Kenneth P. Felis, Michael J. Zubretsky, Richard
Zucker and Timothy Dolan.
"BRIDGESTONE TRANSACTION" shall mean the transactions contemplated by
the Bridgestone Agreement.
"ENCUMBRANCES" shall mean any and all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions on
title or transfer of any nature whatsoever.
"ENVIRONMENTAL LAW" shall mean all foreign, federal, state or local
laws governing pollution or the protection of the environment.
"INDEBTEDNESS" as applied to any Person, means (i) all indebtedness of
Seller or any of its Subsidiaries for borrowed money, whether current or funded,
or secured or unsecured, (ii) all indebtedness of Seller or any of its
Subsidiaries for the deferred purchase price of property or services represented
by a note or other security, (iii) all indebtedness of Seller created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by Seller or any of its Subsidiaries (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (iv) all
indebtedness of Seller or any of its Subsidiaries secured by a purchase money
mortgage or other lien to secure all or part of the purchase price of property
subject to such mortgage or lien, (v) all
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obligations under leases which shall have been or must be, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which Seller or any of its Subsidiaries is liable as lessee, (vi) any
liability of Seller or any of its Subsidiaries in respect of banker's
acceptances or letters of credit, (vii) all indebtedness referred to in clause
(i), (ii), (iii), (iv), (v) or (vi) above which is directly or indirectly
guaranteed by Seller or any of its Subsidiaries or which Seller or any of its
Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which it has otherwise assured a creditor against loss
and (viii) all Debentures.
"MATERIAL ADVERSE EFFECT" means a change or effect that is, or in the
reasonably judgment of Buyer, would be, materially adverse to the business,
properties, assets, prospects, results of operations or condition (financial or
otherwise) of Seller and its Subsidiaries taken as a whole.
"PERSON" means any corporation, association, partnership, limited
liability company, organization, business, individual, government or political
subdivision thereof or governmental agency.
"SELLER INTELLECTUAL PROPERTY" mean all trademarks, trade names,
service marks, trade dress, and all goodwill associated with any of the
foregoing, patents, Internet domain names, copyrights and any renewal rights
therefor, technology, supplier lists, trade secrets, know-how, computer software
programs or applications in both source and object code form, technical
documentation of such software programs, registrations and applications for any
of the foregoing and all other tangible or intangible proprietary information or
materials that are or have been used (including without limitation in the
development of) Seller's business and/or in any product, technology or process
(i) currently being or formerly manufactured, published or marketed by Seller or
(ii) previously or currently under development for possible future
manufacturing, publication, marketing or other use by Seller.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such Person (either alone or through or together with any other subsidiary
of such person) owns, directly or indirectly, a majority of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity; PROVIDED, FURTHER, that for all purposes under this
Agreement, those Persons, corporations and other legal entities described on
Section 8.01 of the Seller Disclosure Schedule shall be deemed to be
Subsidiaries of Seller as of the date of this Agreement.
"TAX" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, intangibles, social security,
unemployment, disability, payroll, license, employee or other
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tax or levy, of any kind whatsoever, including any interest, penalties or
additions to tax in respect of any of the foregoing.
ARTICLE IX
MISCELLANEOUS
9.01. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by rule of law or public policy,
all other conditions and provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given,
or made as of the date delivered if sent via telecopier or delivered personally
(including, without limitation, delivery by commercial carrier warranting
next-day delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by similar notice, except that notices
of changes of address shall be effective upon receipt):
(a) If to Seller:
Optical Security Group, Inc.
535 16th Street
Suite 920
Denver, CO 80202
Attention: Richard H. Bard, CEO
Telecopier No.: 303-534-1010
with a copy to
Lohf, Shaiman & Jacobs, P.C.
950 South Cherry Street
Suite 900
Denver, CO 80246
Attention: Charles H. Jacobs
Telecopier No.: 303-753-9997
(b) If to Buyer or Newco:
Applied Holographics plc
40 Phoenix Road
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Crowther District 3
Washington
Tyne & Wear
England NE38 OAD
Attention: Michael Angus
Telecopier No.: 011-44-191-416-3053
With copies to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Gerald J. Kehoe
Telecopier No.: (617) 951-8736
9.03. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.04. REPRESENTATIONS AND WARRANTIES, ETC. The respective
representations and warranties of Seller, Buyer and Newco contained herein shall
survive until, and shall expire with, and be terminated and extinguished upon
the earlier to occur of (a) the termination of this Agreement pursuant to
Section 6.1 and (b) the Closing Date. This Section 8.4 shall have no effect upon
any other obligation of the parties hereto, whether to be performed before or
after the consummation of the Merger.
9.05. MISCELLANEOUS. This Agreement, the documents delivered pursuant
hereto or in connection herewith and the Confidentiality Agreement (i)
constitute the entire agreement and supersede all other prior agreements and
undertakings, both written and oral (including, without limitation, any
agreement or proposed agreement relating to the timing of execution of this
Agreement and the payment of any amount in connection therewith), among the
parties, or any of them, with respect to the subject matter hereof, (ii) are not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder, (iii) may not be assigned without the prior written consent
of the other parties hereto, except that Newco may assign its rights hereunder
in whole or in part to one or more direct or indirect Subsidiaries or affiliates
of Buyer which, in written instruments reasonably satisfactory to Seller, shall
agree to make all representations and warranties of Newco set forth herein and
shall agree to assume all of such party's obligations hereunder and be bound by
all of the terms and conditions of this Agreement and Newco and Buyer may assign
this Agreement to their lenders as collateral security; PROVIDED, HOWEVER, that
no such assignment shall relieve the assignor of its obligations hereunder, and
(iv) shall be governed by and construed in accordance with the laws of the State
of Colorado (without reference to choice of law rules). This Agreement may be
executed in one or more counterparts which together shall constitute a single
agreement.
49
<PAGE>
IN WITNESS WHEREOF, Buyer, Newco and Seller have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
APPLIED HOLOGRAPHICS PLC
By: /s/ David J. Tidmarsh
----------------------------------
Name: David J. Tidmarsh
Title: Chief Executive
By: /s/ Michael W. Angus
----------------------------------
Name: Michael W. Angus
----------------------------
Title: Finance Director
----------------------------
APPLIED OPSEC CORPORATION
By: /s/ David J. Tidmarsh
----------------------------------
Name: David J. Tidmarsh
----------------------------
Title: President
----------------------------
By: /s/ Michael W. Angus
----------------------------------
Name: Michael W. Angus
----------------------------
Title: Treasurer
----------------------------
OPTICAL SECURITY GROUP, INC.
By: /s/ Richard H. Bard
----------------------------------
Name: Richard H. Bard
----------------------------
Title: Chief Executive Officer
----------------------------
By: /s/ John A. Labate
----------------------------------
Name: John A. Labate
----------------------------
Title: VP & CFO
----------------------------
50
<PAGE>
Exhibit 2
LOAN AGREEMENT
This LOAN AGREEMENT is made as of November 30, 1999 by and between
OPTICAL SECURITY GROUP, INC. (the "BORROWER"), a Colorado corporation having its
principal place of business at 535 16th Street, Suite 920, Denver, Colorado
80202, USA, and APPLIED HOLOGRAPHICS PLC (Registered No. 1688482), a public
limited company incorporated and existing under the laws of England and Wales
having its registered office at 22 Sedling Road, District 6, Washington, Tyne &
Wear NE38 9BZ (the "LENDER").
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. DEFINITIONS. The following terms shall have the meanings set
forth in this Section 1 or elsewhere in the provisions of this Loan Agreement
referred to below:
AFFILIATE. Any Person that would be considered to be an affiliate of
the Borrower under Rule 144(a) of the Rules and Regulations of the Securities
and Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
APPLICABLE PENSION LEGISLATION. At any time, any pension or retirement
benefits legislation (be it federal, provincial, territorial or otherwise) then
applicable to the Borrower or any of its Subsidiaries.
BALANCE SHEET DATE. March 31, 1999.
BORROWER. As defined in the preamble hereto.
BRIDGESTONE. Bridgestone Technologies, Inc., a Delaware corporation
with its principal place of business at 375 Howard Avenue, Bridgeport,
Connecticut 06605.
BRIDGESTONE ACQUISITION. See Section 5.17.
BRIDGESTONE ACQUISITION DOCUMENTS. All documents, instruments and
agreements which are to be executed in connection with the Bridgestone
Acquisition, all in form and substance satisfactory to the Lender.
BRIDGESTONE GUARANTY. The Guaranty to be made by Bridgestone in favor
of the Lender pursuant to which Bridgestone guaranties to the Lender the payment
and performance of the Obligations and in form and substance satisfactory to the
Lender.
BUSINESS DAY. Any day on which banks are open for ordinary banking
business in New York, New York, Denver, Colorado and London, England.
CAPITALIZED LEASES. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See Section 5.18(a).
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CLOSING DATE. The first date on which the conditions set forth in
Section 8 have been satisfied.
CLOSING FEE. See Section 3.1.
CODE. The Internal Revenue Code of 1986.
COLLATERAL. All of the property, rights and interests of the Borrower
and its Domestic Subsidiaries that are or are intended to be subject to the
security interests created by the Security Documents.
COLLECTED INTEREST. See Section 3.8.
DEFAULT. See Section 10.1.
DISTRIBUTION. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
DOLLARS or $. Dollars in lawful currency of the United States of
America.
DOMESTIC SUBSIDIARY. Any Subsidiary of the Borrower which is not a
Foreign Subsidiary.
DRAWDOWN DATE. The date on which the Loan is made or is to be made.
DRAWDOWN TERMINATION DATE. December 10, 1999.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
Section 3(2) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
ENVIRONMENTAL LAWS. See Section 5.18(a).
EPA. See Section 5.18(b).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single employer with
the Borrower under Section 414 of the Code.
ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder.
EUROPEAN UNION. The European community established by the Treaty of
Rome of 25 March 1957 as amended by the Single European Act 1986 and by the
Treaty on European Union which was signed at Maastricht on 7 February 1992 (and
came into being on 1 November 1993) (the Maastricht Treaty) as further amended
from time to time.
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EVENT OF DEFAULT. See Section 10.1.
FOREIGN SUBSIDIARY. Any Subsidiary which conducts substantially all of
its business in countries other than the United States of America and that is
organized under the laws of a jurisdiction other than the United States of
America and the States (or the District of Columbia) thereof.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time,
and (b) consistently applied with past financial statements of the Borrower
adopting the same principles, PROVIDED that in each case referred to in this
definition of "generally accepted accounting principles" a certified public
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within
the meaning of Section 3(2) of ERISA maintained or contributed to by the
Borrower or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA,
other than a Multiemployer Plan.
GUARANTIES. The several Guaranties, each dated as of the date hereof,
made by each Domestic Subsidiary of the Borrower in favor of the Lender pursuant
to which each Domestic Subsidiary of the Borrower guaranties to the Lender the
payment and performance of the Obligations and in form and substance
satisfactory to the Lender.
HAZARDOUS SUBSTANCES. See Section 5.18(b).
HIGHEST LAWFUL RATE. The maximum non-usurious rate of interest
permitted by applicable law.
INDEBTEDNESS. As to any Person and whether recourse is secured by
or is otherwise available against all or only a portion of the assets of such
Person and whether or not contingent, but without duplication:
(i) every obligation of such Person for money borrowed,
(ii) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or
businesses,
(iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person,
(iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith),
(v) every obligation of such Person under any Capitalized
Lease,
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(vi) every obligation of such Person under any lease (a
"SYNTHETIC LEASE") treated as an operating lease under generally
accepted accounting principles and as a loan or financing for U.S.
income tax purposes,
(vii) all sales by such Person of (A) accounts or general
intangibles for money due or to become due, (B) chattel paper,
instruments or documents creating or evidencing a right to payment of
money or (C) other receivables (collectively "RECEIVABLES"), whether
pursuant to a purchase facility or otherwise, other than in connection
with the disposition of the business operations of such Person relating
thereto or a disposition of defaulted receivables for collection and
not as a financing arrangement, and together with any obligation of
such Person to pay any discount, interest, fees, indemnities,
penalties, recourse, expenses or other amounts in connection therewith,
(viii) every obligation of such Person (an "EQUITY RELATED
PURCHASE OBLIGATION") to purchase, redeem, retire or otherwise acquire
for value any shares of capital stock of any class issued by such
Person, any warrants, options or other rights to acquire any such
shares, or any rights measured by the value of such shares, warrants,
options or other rights,
(ix) every obligation of such Person under any forward
contract, futures contract, swap, option or other financing agreement
or arrangement (including, without limitation, caps, floors, collars
and similar agreements), the value of which is dependent upon interest
rates, currency exchange rates, commodities or other indices (a
"DERIVATIVE CONTRACT"),
(x) every obligation in respect of Indebtedness of any other
entity (including any partnership in which such Person is a general
partner) to the extent that such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such
entity, except to the extent that the terms of such Indebtedness
provide that such Person is not liable therefor and such terms are
enforceable under applicable law,
(xi) every obligation, contingent or otherwise, of such Person
guaranteeing, or having the economic effect of guarantying or otherwise
acting as surety for, any obligation of a type described in any of
clauses (i) through (x) (the "PRIMARY OBLIGATION") of another Person
(the "PRIMARY OBLIGOR"), in any manner, whether directly or indirectly,
and including, without limitation, any obligation of such Person (A) to
purchase or pay (or advance or supply funds for the purchase of) any
security for the payment of such primary obligation, (B) to purchase
property, securities or services for the purpose of assuring the
payment of such primary obligation, or (C) to maintain working capital,
equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (u) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (v) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (w) any sale of receivables shall be the amount of unrecovered capital
or principal investment of the purchaser (other than the
<PAGE>
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Borrower or any of its wholly-owned Subsidiaries) thereof, excluding amounts
representative of yield or interest earned on such investment, (x) any synthetic
lease shall be the stipulated loss value, termination value or other equivalent
amount, (y) any derivative contract shall be the maximum amount of any
termination or loss payment required to be paid by such Person if such
derivative contract were, at the time of determination, to be terminated by
reason of any event of default or early termination event thereunder, whether or
not such event of default or early termination event has in fact occurred and
(z) any equity related purchase obligation shall be the maximum fixed redemption
or purchase price thereof inclusive of any accrued and unpaid dividends to be
comprised in such redemption or purchase price.
INSOLVENCY EVENT. Any of the following events or circumstances: (i) the
Borrower or any of its Subsidiaries organized in the United Kingdom shall be
deemed unable to pay its debts within the meaning of section 123(1) (a), (b), or
(2) of the Insolvency Act 1986 (United Kingdom) or shall otherwise become
insolvent or stop or suspend making payments (whether of principal or interest)
with respect to all or any class of its Indebtedness or announce an intention to
do so, (ii) a meeting shall be convened by the Borrower or any of its
Subsidiaries for the purpose of passing any resolution to purchase, reduce or
redeem any of its capital stock or to comply with section 142 of the Companies
Act 1985 (England), (iii) any petition shall be presented or other step taken
for the purpose of the appointment of an administrator or the winding up of the
Borrower or any of its Subsidiaries (not being, in the case of a winding up, a
petition which such Person can demonstrate to the reasonable satisfaction of the
Lender, by providing an opinion of leading counsel to that effect, is frivolous,
vexatious or an abuse of the process of the court or relates to a claim to which
such Person has a good defense and which is being vigorously contested by such
Person) or an order shall be made or resolution passed for the winding up of any
the Borrower or any of its Subsidiaries or a notice shall be issued by convening
a meeting for the purpose of passing any such resolution (except for the purpose
of a solvent amalgamation or reconstitution which shall have been approved by
the Lender), or (iv) any steps shall be taken, or negotiations commenced by the
Borrower or any of its Subsidiaries or by any of their respective creditors with
a view to proposing any kind of composition, compromise or arrangement involving
such Person and any of its creditors or for the presentation of a petition for
the appointment of an administrator.
INTEREST. See Section 3.8.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (iv) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (ii) may be
deducted when paid; and (v) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
<PAGE>
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LENDER. As defined in the preamble hereto.
LENDER'S COST OF FUNDS. The rate per annum determined by the Lender in
its sole discretion to be that which fairly expresses as a percentage per annum
the cost to the Lender of funding such principal amount from whatever source it
may select in good faith. For reference purposes only, the Lender's Cost of
Funds as at November 29, 1999 was [LIBOR plus 1.4%].
LENDER'S HEAD OFFICE. 22 Sedling Road, District 6, Washington, Tyne &
Wear NE38 9BZ, England.
LIEN. Any mortgage, security interest, pledge, hypothecation,
assignment, attachment, deposit arrangement, encumbrance, lien (statutory,
judgment or otherwise), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any similar
such interest arising under the laws of any applicable domestic or foreign
jurisdiction and including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any domestic or foreign
jurisdiction).
LOAN. The loan made or to be made by the Lender to the Borrower on the
Drawdown Date in the aggregate principal amount not to exceed $10,000,000
pursuant to Section 2.1.
LOAN AGREEMENT. This Loan Agreement, including the Schedules and
Exhibits hereto.
LOAN DOCUMENTS. This Loan Agreement, the Note and the Security
Documents.
LOAN REQUEST. See Section 2.4.
MATURITY DATE. The date which is the earliest to occur of (a) December
31, 2000; or (b) any date specified in a demand notice delivered by the Lender
to the Borrower; PROVIDED, that such date shall not be earlier than six (6)
months from the date of such demand notice; PROVIDED FURTHER, that such demand
notice shall not be delivered to the Borrower prior to the date of termination
of the Merger Agreement pursuant to the terms thereof; or (c) any date which may
be mutually agreed upon in writing by the Borrower and the Lender; PROVIDED,
that the Maturity Date may be accelerated by the Lender in accordance with the
provisions of Section 10.1.
MERGER. See Section 3.1.
MERGER AGREEMENT. That certain Agreement and Plan of Merger, dated
November 30, 1999, by and among the Lender, Newco and the Borrower.
MERGER DOCUMENTS. All documents, instruments and agreements (including
without limitation the Merger Agreement) which are to be executed in connection
with the Merger, all in form and substance satisfactory to the Lender.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
NEWCO. NEWCO, a Colorado corporation and a direct wholly-owned
subsidiary of the Lender.
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NOTE. See Section 2.3.
NOTE RECORD. A Record with respect to a Note.
OBLIGATIONS. All indebtedness, obligations and liabilities of any of
the Borrower and its Subsidiaries to the Lender existing on the date of this
Loan Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Loan Agreement or any of the other Loan Documents
or in respect of the Loan or the Note or other instruments at any time
evidencing any thereof.
OECD. The Organization for Economic Cooperation and Development.
OUTSTANDING. With respect to the Loan, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.
PERFECTION CERTIFICATES. The Perfection Certificates as defined in the
Security Agreements.
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by Section 7.2.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
RCRA. See Section 5.18(a).
REAL ESTATE. All real property at any time owned or leased (as lessee
or sublessee) by the Borrower or any of its Subsidiaries.
RECORD. The grid attached to the Note, or the continuation of such
grid, or any other similar record, including computer records, maintained by the
Lender with respect to the Loan referred to in the Note.
SARA. See Section 5.18(a).
SECURITY AGREEMENTS. The several Security Agreements dated as of the
date hereof between the Borrower and its Domestic Subsidiaries and the Lender
and each in form and substance satisfactory to the Lender.
SECURITY DOCUMENTS. The Guaranties, the Bridgestone Guaranty, the
Security Agreements, the Stock Pledge Agreement and all other instruments and
documents, including without limitation Uniform Commercial Code financing
statements, required to be executed or delivered pursuant to any Security
Document.
SENIOR LENDER. Mercantile Safe Deposit & Trust Company, a Maryland
banking and trust company.
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STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement dated as of the date
hereof between the Borrower and the Lender and in form and substance
satisfactory to the Lender.
SUBSIDIARY. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
UNITED KINGDOM. The United Kingdom of Great Britain and Northern
Ireland.
UNRESTRICTED INTEREST. See Section 3.8.
VOTING STOCK. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or person
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
YEAR 2000 COMPLIANT. See Section 5.20.
1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Loan
Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the State of New York, have the
meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "Section" refers to that section
of this Loan Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Loan Agreement as a whole and not to
any particular section or subdivision of this Loan Agreement.
<PAGE>
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(j) Unless otherwise expressly indicated, in the computation
of periods of time from a specified date to a later specified date, the
word "from" means "from and including," the words "to" and "until" each
mean "to but excluding," and the word "through" means "to and
including."
(k) This Loan Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the
same or similar matters. All such limitations, tests and measurements
are, however, cumulative and are to be performed in accordance with the
terms thereof.
(l) This Loan Agreement and the other Loan Documents are the
result of negotiation among, and have been reviewed by counsel to,
among others, the Lender and the Borrower and are the product of
discussions and negotiations among all parties. Accordingly, this Loan
Agreement and the other Loan Documents are not intended to be construed
against the Lender merely on account of the Lender's involvement in the
preparation of such documents.
2. THE TERM LOAN.
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set
forth in this Loan Agreement, the Lender agrees to lend on the Drawdown Date
in a single draw such amount as requested by the Borrower up to a maximum
aggregate principal amount of $10,000,000. The Drawdown Date shall occur on
any single date from the Closing Date up to and including the Drawdown
Termination Date upon notice by the Borrower to the Lender given in
accordance with Section 2.4. The Borrower's request for the Loan hereunder
shall constitute a representation and warranty by the Borrower that the
conditions set forth in Section 8 and Section 9 have been satisfied on the
date of such request.
2.2. REPAYMENT OF THE LOAN. The Borrower hereby absolutely and
unconditionally promises to pay the Lender on the Maturity Date the entire
unpaid principal amount of the Loan then outstanding and the entire unpaid
amount of all other Obligations (except as may be expressly waived in writing by
the Lender).
2.3. THE NOTE. The Loan shall be evidenced by a promissory note of the
Borrower in substantially the form of Exhibit A hereto (the "NOTE"), dated the
Closing Date and completed with appropriate insertions. The Note shall be
payable to the order of the Lender in a principal amount equal to the aggregate
principal amount of the Loan and representing the obligation of the Borrower to
pay to the Lender such principal amount or, if less, the outstanding amount of
the Loan, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes the Lender to make or cause to be made a notation on the
Note Record reflecting the original principal amount of the Loan and, at or
about the time of the Lender's receipt of any principal payment on the Note, an
appropriate notation on the Note Record reflecting such payment. The aggregate
unpaid amount set forth on the Note Record shall be PRIMA FACIE evidence of the
principal amount thereof owing and unpaid to the Lender, but the failure to
record, or any error in so recording, any such amount on the Note Record shall
not affect the obligations of the Borrower hereunder or under the Note to make
payments of principal of and interest on the Note when due.
2.4. REQUEST FOR LOAN. The Borrower shall give to the Lender written
notice in the form of EXHIBIT B hereto (or telephonic notice confirmed in a
writing in the form of EXHIBIT B hereto) of the Loan requested hereunder (a
"LOAN REQUEST") no less than two (2) Business Days
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prior to the proposed Drawdown Date. Such notice shall specify (a) the principal
amount of the Loan requested, and (b) the proposed Drawdown Date of Loan. Such
notice shall be irrevocable and binding on the Borrower and shall obligate the
Borrower to accept the Loan requested from the Lender on the proposed Drawdown
Date.
2.5. OPTIONAL PREPAYMENT OF LOAN. The Borrower shall have the right at
any time to prepay the Note on or before the Maturity Date, as a whole, or in
part, upon not less than three (3) Business Days prior written notice to the
Lender, without premium or penalty, PROVIDED that each partial prepayment shall
be in the principal amount of $500,000 or an integral multiple thereof. Any
prepayment of principal of the Loan shall include all fees and interest accrued
to the date of prepayment. No amount repaid with respect to the Loan may be
reborrowed.
2.6. INTEREST ON LOAN. Except as otherwise provided in Section 3.7, the
outstanding amount of the Loan shall bear interest at the rate of two percent
(2%) per annum above the Lender's Cost of Funds as in effect from time to
time[; provided, that in the event the Merger Agreement is terminated solely
because (a) the Lender's shareholders failed to approve the Merger, or (b) the
Lender failed to obtain the financing necessary to complete the Merger, or (c)
a material breach by the Lender of any Merger Document, then commencing as of
the Drawdown Date and continuing thereafter the outstanding amount of the Loan
shall bear interest at the rate of one-half percent (1/2%) per annum above the
Lender's Cost of Funds as in effect from time to time]. Interest shall be
payable monthly in arrears on the first day of each calendar month for the
immediately preceding calendar month, commencing on the first such date
following the Drawdown Date, and on the Maturity Date. Any change in the
interest rate resulting from a change in the Lender's Cost of Funds is to be
effective at the beginning of the day of such change in the Lender's Cost of
Funds. The Lender will give the Borrower prompt notice in writing of any change
in the Lender's Cost of Funds. The Borrower promises to pay interest on the
amount of the Loan outstanding from time to time from the Drawdown Date until
the earlier of the Maturity Date or payment in full of the Obligations in
accordance with the provisions of this Section 2.6.
3. CERTAIN GENERAL PROVISIONS.
3.1. CLOSING FEE. Unless otherwise expressly waived in writing by the
Lender in accordance with the terms hereof, the Borrower agrees to pay to the
Lender on the Maturity Date a closing fee in the amount of $1,700,000 (the
"CLOSING FEE"). For the avoidance of doubt, each of the Borrower and the Lender
agree that the Closing Fee shall be deemed fully earned by the Lender on the
Closing Date; PROVIDED, that prior to the Maturity Date the Closing Fee shall
not bear interest and commencing on the Maturity Date and thereafter the Closing
Fee shall bear interest at the rate of six (6%) per annum above the Lender's
Cost of Funds until the Closing Fee is paid in full in cash or otherwise waived.
The Lender agrees to waive the Closing Fee if, as at the Maturity Date, (a) the
Borrower has completed its merger with a wholly-owned Subsidiary of the Lender
pursuant to the terms and conditions set forth in the Merger Agreement and the
other Merger Documents (the "Merger"), or (b) the Merger Agreement has been
terminated solely because either (i) the Lender's shareholders failed to approve
the Merger, or (ii) the Lender failed to obtain the financing necessary to
complete the Merger, or (c) a material breach by the Lender of any Merger
Document.
3.2. FUNDS FOR PAYMENTS.
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3.2.1. PAYMENTS TO LENDER. All payments of principal,
interest, fees and any other amounts due hereunder or under any of the
other Loan Documents shall be made on the due date thereof to the
Lender in Dollars at the Lender's Head Office or at such other place
that the Lender may from time to time designate, in each case such
payment shall be sent by the Borrower not later than 11:00 a.m.
(Denver, Colorado time) and in immediately available funds; PROVIDED,
that in calculating interest hereunder such payment shall only be
credited to the Borrower's account when it is actually received by the
Lender at the Lender's Head Office or at such other place as the Lender
has designated.
3.2.2. NO OFFSET, ETC. All payments by the Borrower hereunder
and under any of the other Loan Documents shall be made without
recoupment, setoff or counterclaim and free and clear of and without
deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions
of any nature now or hereafter imposed or levied by any jurisdiction or
any political subdivision thereof or taxing or other authority therein
unless the Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrower with
respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Lender on the date on
which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to
enable the Lender to receive the same net amount which the Lender would
have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Lender
certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
3.3. COMPUTATIONS. All computations of interest on the Loan and of
other fees shall be based on a 360-day year and paid for the actual number of
days elapsed. Whenever a payment hereunder or under any of the other Loan
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. In the absence of manifest error, the
outstanding amount of the Loan as reflected on the Note Record from time to time
shall be considered correct and binding on the Borrower unless within five (5)
Business Days after receipt of any notice by the Lender of such outstanding
amount, the Lender shall notify the Borrower to the contrary.
3.4. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Lender by any regulatory authority (whether or not
having the force of law), shall:
(a) subject the Lender to any tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature with respect to this Loan
Agreement, the other Loan Documents, or the Note (other than taxes
based upon or measured by the income or profits of the Lender), or
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(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to the Lender of the
principal of or the interest on the Loan or any other amounts payable
to the Lender under this Loan Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Loan Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or commitments of an office of the Lender, or
(d) impose on the Lender any other conditions or requirements
with respect to this Loan Agreement, the other Loan Documents, or the
Note, and the result of any of the foregoing is
(i) to increase the cost to the Lender of making,
funding, issuing, renewing, extending or maintaining the Loan,
or
(ii) to reduce the amount of principal, interest, or
other amount payable to the Lender hereunder on account of the
Loan, or
(iii) to require the Lender to make any payment or to
forego any interest or other sum payable hereunder, the amount
of which payment or foregone interest or other sum is
calculated by reference to the gross amount of any sum
receivable or deemed received by the Lender from the Borrower
hereunder,
then, and in each such case, the Borrower will, upon demand made by the Lender
at any time and from time to time and as often as the occasion therefor may
arise, pay to the Lender such additional amounts as will be sufficient to
compensate the Lender for such additional cost, reduction, payment or foregone
interest or other sum.
3.5. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to Section 3.4 and a brief explanation of such amounts which
are due, submitted by the Lender to the Borrower, shall be conclusive, absent
manifest error, that such amounts are due and owing.
3.6. INDEMNITY. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from and against any loss, cost or expense that the Lender
may sustain or incur as a consequence of (a) default by the Borrower in payment
of the principal amount of or any interest on the Loan as and when due and
payable, including any such loss or expense arising from interest or fees
payable by the Lender to lenders of funds obtained by it in order to maintain
the Loan, (b) default by the Borrower in making a borrowing after the Borrower
has given (or is deemed to have given) a Loan Request, or (c) the making of any
payment on the Loan on a day that is not the Maturity Date, including interest
or fees payable by the Lender to lenders of funds obtained by it in order to
maintain the Loan.
3.7. INTEREST AFTER DEFAULT.
3.7.1. OVERDUE AMOUNTS. Overdue principal and (to the extent
permitted by applicable law) interest on the Loan and all other overdue
amounts payable hereunder or under any of the other Loan Documents
shall bear interest compounded monthly and
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payable on demand at a rate per annum equal to four percent (4%) above
the otherwise applicable rate until such amount shall be paid in full
(after as well as before judgment).
3.7.2. AMOUNTS NOT OVERDUE. During the continuance of a
Default or an Event of Default the principal of the Loan not overdue
shall, until such Default or Event of Default has been cured or
remedied or such Default or Event of Default has been waived in writing
by the Lender, bear interest at a rate per annum equal to four percent
(4%) above the otherwise applicable rate.
3.8. USURY PROVISION. It is not the intention of any parties to this
Loan Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision of
this Loan Agreement or of any other Loan Document, the Lender shall not be
entitled to receive, collect or apply, as interest, charges, fees, penalties
or additional amounts (collectively, referred to herein as "INTEREST") on any
of the Loans or any other Obligation, any amount in excess of the Highest
Lawful Rate. If under the laws of any applicable jurisdiction there is no
legal limitation on the rate of Interest that may be charged with respect to
an obligation owing to the Lender (including, without limitation, the
outstanding principal amount of the Loan, unpaid interest with respect to the
Loan or any other Obligations due and payable under any Loan Document), there
shall be no maximum amount applicable to such obligation, notwithstanding any
reference thereto herein or in any other Loan Document. If at any time the
rate at which interest is payable to the Lender on the Loan or any other
Obligation exceeds the Highest Lawful Rate, the Loan or other Obligation
shall bear interest at the Highest Lawful Rate only but shall continue to
bear interest at the Highest Lawful Rate until such time as the total amount
of interest accrued on the Loan or other Obligation equals (but does not
exceed) the total amount of interest which would have accrued thereon had
there been no Highest Lawful Rate applicable thereto. If at the maturity or
final payment of the Loan or other Obligation (whether at stated maturity, by
acceleration or prepayment or otherwise) the total amount of interest which
has then accrued or been paid thereon as provided above (the "COLLECTED
INTEREST") is less than the total amount of interest which would have accrued
thereon had there been no Highest Lawful Rate applicable thereto (the
"UNRESTRICTED INTEREST"), then the Borrower shall, in addition to the
Collected Interest, pay to the Lender an amount equal to (a) the lesser of
the Unrestricted Interest owed or accrued for the benefit of the Lender and
the total amount of interest which would have accrued thereon for the benefit
of the Lender had the Loan or other Obligation at all times borne Interest at
the Highest Lawful Rate, MINUS (b) the Collected Interest paid for the
account of the Lender. This Section 3.8 shall control every provision of
every agreement pertaining to the transactions contemplated by or contained
in this Loan Agreement or any of the other Loan Documents and shall equally
apply to any guaranty or other obligation of any Subsidiary of the Borrower
or of any other Person under the Loan Documents as if such obligations were
"Obligations" as defined herein.
4. SECURITY AND GUARANTIES.
4.1. SECURITY OF BORROWER. The Obligations shall be secured by a
perfected security interest (subject only to the Permitted Liens entitled to
priority under applicable law) in all of the assets of the Borrower and its
Domestic Subsidiaries, whether now owned or hereafter acquired, pursuant to the
terms of the Security Documents to which the Borrower or its Domestic
Subsidiaries are a party.
4.2. GUARANTIES OF DOMESTIC SUBSIDIARIES. The Obligations shall also be
guaranteed pursuant to the terms of the Guaranties and the Bridgestone Guaranty.
<PAGE>
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5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as of the date
hereof, as of the date the Loan is made and immediately following the
consummation of the Bridgestone Acquisition as follows:
5.1. CORPORATE AUTHORITY.
5.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and
its Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation or organization, (b) has all requisite corporate power to
own its property and conduct its business as now conducted and as
presently contemplated, and (c) is in good standing as a foreign
corporation (or similar business entity) and is duly authorized to do
business in each jurisdiction where such qualification is necessary
except where a failure to be so qualified would not have a materially
adverse effect on the business, assets or financial condition of the
Borrower or its Subsidiaries.
5.1.2. AUTHORIZATION. The execution, delivery and performance
of this Loan Agreement and the other Loan Documents to which the
Borrower or any of its Subsidiaries is or is to become a party and the
transactions contemplated hereby and thereby (a) are within the
corporate (or similar) authority of such Person, (b) have been duly
authorized by all necessary corporate (or similar organizational)
proceedings, (c) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to
which the Borrower or any of its Subsidiaries is subject or any
judgment, order, writ, injunction, license or permit applicable to such
Person, (d) do not conflict with any provision of the corporate charter
or bylaws or other organizational or constitutive documents of, or any
agreement or other instrument binding upon, the Borrower or any of its
Subsidiaries, and (e) except for the Liens granted in favor of the
Lender under this Loan Agreement and the other Loan Documents, do not
result in the creation or imposition of any Lien on any undertaking,
assets, rights or revenues of the Borrower or its Subsidiaries.
5.1.3. ENFORCEABILITY. The execution and delivery of this Loan
Agreement and the other Loan Documents to which the Borrower or any of
its Subsidiaries is or is to become a party will result in valid and
legally binding obligations of such Person enforceable against it in
accordance with the respective terms and provisions hereof and thereof,
except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent
that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
5.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrower and any of its Subsidiaries of this Loan Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
5.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 5.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of
<PAGE>
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the Borrower and its Subsidiaries as at the Balance Sheet Date or acquired since
that date (except property and assets sold or otherwise disposed of in the
ordinary course of business since that date), subject to no rights of others,
including any mortgages, leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
5.4. FISCAL YEAR; FINANCIAL STATEMENTS.
5.4.1. FISCAL AND FINANCIAL YEAR. The Borrower and each of its
Subsidiaries has a fiscal year (or financial year, as applicable) which
is the twelve months ending on March 31 of each calendar year.
5.4.2. FINANCIAL STATEMENTS. There has been furnished to the
Lender a consolidated balance sheet of the Borrower and its
Subsidiaries as at the Balance Sheet Date, and a consolidated statement
of income for the fiscal year then ended, certified by the Borrower's
independent certified public accountants. Such balance sheet and
statement of income have been prepared in accordance with generally
accepted accounting principles and fairly present the financial
condition of the Borrower as at the close of business on the date
thereof and the results of operations for the fiscal year then ended.
There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of such date involving material amounts, known to the
officers of the Borrower not disclosed in said balance sheet and the
related notes thereto.
5.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
the Borrower and its Subsidiaries as shown on or reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the consolidated statement of income for the fiscal year then ended, other
than changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business or
financial condition of the Borrower or its Subsidiaries. Except as set forth on
SCHEDULE 5.5, since the Balance Sheet Date the Borrower has not made any
Distribution.
5.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
5.7. LITIGATION. There are no actions, suits, proceedings or
investigations of any kind pending or threatened against the Borrower or any of
its Subsidiaries before any court, tribunal or administrative agency or board
that, if adversely determined, might, either in any case or in the aggregate,
materially adversely affect the properties, assets, financial condition or
business of the Borrower and its Subsidiaries or materially impair the right of
the Borrower and its Subsidiaries, considered as a whole, to carry on business
substantially as now conducted by them, or result in any substantial liability
not adequately covered by insurance, or for which adequate reserves are not
maintained on the consolidated balance sheet of the Borrower, or which question
the validity of this Loan Agreement or any of the other Loan Documents, or any
action taken or to be taken pursuant hereto or thereto.
5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries.
<PAGE>
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Neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business of the Borrower or any of
its Subsidiaries.
5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could result in the imposition of substantial penalties or
materially and adversely affect the financial condition, properties or business
of the Borrower or any of its Subsidiaries.
5.10. TAX STATUS. The Borrower and its Subsidiaries (a) have made or
filed all federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which any of them is subject,
(b) have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
5.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
5.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or rights
thereunder.
5.14. PERFECTION OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary or advisable, under applicable law,
to establish and perfect the Lender's security interest in the Collateral. The
Collateral and the Lender's rights with respect to the Collateral are not
subject to any setoff, claims, withholdings or other defenses. The Borrower is
the owner of the Collateral free from any Lien, except for Permitted Liens.
5.15. CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Borrower or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Borrower or
such Subsidiary could obtain from third parties, none of the officers,
directors, or employees of the Borrower or any of its Subsidiaries is presently
a party to any transaction with the Borrower or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other
<PAGE>
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arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Borrower, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
5.16. EMPLOYEE BENEFIT PLANS.
5.16.1. IN GENERAL. Each Employee Benefit Plan and each
Guaranteed Pension Plan has been maintained and operated in
compliance in all material respects with the provisions of ERISA
and/or all Applicable Pension Legislation and, to the extent
applicable, the Code, including but not limited to the provisions
thereunder respecting prohibited transactions and the bonding of
fiduciaries and other persons handling plan funds as required by
Section 412 of ERISA. The Borrower has heretofore delivered to the
Lender the most recently completed annual report, Form 5500, with
all required attachments, and actuarial statement required to be
submitted under Section 103(d) of ERISA, with respect to each
Guaranteed Pension Plan.
5.16.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit
Plan, which is an employee welfare benefit plan within the meaning
of Section 3(1) or Section 3(2)(B) of ERISA, provides benefit
coverage subsequent to termination of employment, except as required
by Title I, Part 6 of ERISA or the applicable state insurance laws.
The Borrower may terminate each such Plan at any time (or at any
time subsequent to the expiration of any applicable bargaining
agreement) in the discretion of the Borrower without liability to
any Person other than for claims arising prior to termination.
5.16.3. GUARANTEED PENSION PLANS. Each contribution
required to be made to a Guaranteed Pension Plan, whether required
to be made to avoid the incurrence of an accumulated funding
deficiency, the notice or lien provisions of Section 302(f) of
ERISA, or otherwise, has been timely made. No waiver of an
accumulated funding deficiency or extension of amortization periods
has been received with respect to any Guaranteed Pension Plan, and
neither the Borrower nor any ERISA Affiliate is obligated to or has
posted security in connection with an amendment to a Guaranteed
Pension Plan pursuant to Section 307 of ERISA or Section 401(a)(29)
of the Code. No liability to the PBGC (other than required insurance
premiums, all of which have been paid) has been incurred by the
Borrower or any ERISA Affiliate with respect to any Guaranteed
Pension Plan and there has not been any ERISA Reportable Event
(other than an ERISA Reportable Event as to which the requirement of
30 days notice has been waived), or any other event or condition
which presents a material risk of termination of any Guaranteed
Pension Plan by the PBGC. Based on the latest valuation of each
Guaranteed Pension Plan (which in each case occurred within twelve
months of the date of this representation), and on the actuarial
methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the
meaning of Section 4001 of ERISA did not exceed the aggregate value
of the assets of all such Guaranteed Pension Plans, disregarding for
this purpose the benefit liabilities and assets of any Guaranteed
Pension Plan with assets in excess of benefit liabilities.
5.16.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any
ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan under
<PAGE>
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Section 4201 of ERISA or as a result of a sale of assets described
in Section 4204 of ERISA. Neither the Borrower nor any ERISA
Affiliate has been notified that any Multiemployer Plan is in
reorganization or insolvent under and within the meaning of Section
4241 or Section 4245 of ERISA or is at risk of entering
reorganization or becoming insolvent, or that any Multiemployer Plan
intends to terminate or has been terminated under Section 4041A of
ERISA.
5.17. USE OF PROCEEDS. The proceeds of the Loan shall be used solely
to finance the acquisition by the Borrower of 100% of the issued and
outstanding common stock of Bridgestone and other transactions in connection
therewith (the "BRIDGESTONE ACQUISITION"), all in accordance with the terms
of and pursuant to the Bridgestone Acquisition Documents.
5.18. ENVIRONMENTAL COMPLIANCE. The Borrower has taken all necessary
steps to investigate the past and present condition and usage of the Real Estate
and the operations conducted thereon and, based upon such diligent
investigation, has determined that:
(a) none of the Borrower, its Subsidiaries or any operator of
the Real Estate or any operations thereon is in violation, or alleged
violation, of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
or any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment in the United Kingdom,
France, Germany, the European Union or other applicable jurisdiction
(hereinafter "ENVIRONMENTAL LAWS"), which violation would have a
material adverse effect on the environment or the business, assets or
financial condition of the Borrower or any of its Subsidiaries;
(b) neither the Borrower nor any of its Subsidiaries has
received notice from any third party including, without limitation,
any federal, state or local governmental authority, (i) that any one
of them has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substances as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant
as defined by 42 U.S.C. Section 9601(33), any waste substance or
other material as defined in the Environmental Protection Act 1990
(United Kingdom), and any toxic substances, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("HAZARDOUS SUBSTANCES") which any one of them
has generated, transported or disposed of has been found at any site
at which a federal, state or local agency or authority in any other
applicable jurisdiction, or other third party has conducted or has
ordered that the Borrower or any of its Subsidiaries conduct a
remedial investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a named party
to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances;
<PAGE>
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(c) except as set forth on SCHEDULE 5.18 attached hereto: (i)
no portion of the Real Estate has been used for the handling,
processing, storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no underground tank
or other underground storage receptacle for Hazardous Substances is
located on any portion of the Real Estate; (ii) in the course of any
activities conducted by the Borrower, its Subsidiaries or operators of
its properties, no Hazardous Substances have been generated or are
being used on the Real Estate except in accordance with applicable
Environmental Laws; (iii) there have been no releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from the
properties of the Borrower or its Subsidiaries, which releases would
have a material adverse effect on the value of any of the Real Estate
or adjacent properties or the environment; (iv) to the best of the
Borrower's knowledge, there have been no releases on, upon, from or
into any real property in the vicinity of any of the Real Estate which,
through soil or groundwater contamination, may have come to be located
on, and which would have a material adverse effect on the value of, the
Real Estate; and (v) in addition, any Hazardous Substances that have
been generated on any of the Real Estate have been transported offsite
only by carriers having an identification number issued by the EPA (or
by a similar agency in other jurisdictions, as applicable), treated or
disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the
Borrower's knowledge, operating in compliance with such permits and
applicable Environmental Laws; and
(d) None of the Borrower and its Subsidiaries or any of the
other Real Estate is subject to any applicable environmental law
requiring the performance of Hazardous Substances site assessments, or
the removal or remediation of Hazardous Substances, or the giving of
notice to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue
of the transactions set forth herein and contemplated hereby, or as a
condition to the recording of any Mortgage or to the effectiveness of
any other transactions contemplated hereby.
5.19. SUBSIDIARIES, ETC. SCHEDULE 5.19 sets forth all the Subsidiaries
of the Borrower, their respective jurisdictions of organization and principal
places of business. Except as set forth on SCHEDULE 5.19, neither the Borrower
nor any Subsidiary of the Borrower is engaged in any joint venture or
partnership with any other Person.
5.20. YEAR 2000 PROBLEM. The Borrower and its Subsidiaries have (a)
reviewed the areas within their businesses and operations which could be
adversely affected by failure to become "YEAR 2000 COMPLIANT" (i.e. that
computer applications, imbedded microchips and other systems used by the
Borrower or any of its Subsidiaries, will be able properly to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999), (b) developed a detailed plan and timetable
to become Year 2000 Compliant in a timely manner, and (c) committed adequate
resources to support the Year 2000 plan of the Borrower and its Subsidiaries.
Based upon such review, the Borrower reasonably believes that the Borrower and
its Subsidiaries will become "Year 2000 Compliant" in a timely manner except to
the extent that failure to do so will not have any materially adverse effect on
the business or financial condition of the Borrower or any of its Subsidiaries.
<PAGE>
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5.21. DISCLOSURE. None of this Loan Agreement or any of the other Loan
Documents contains any untrue statement of a material fact or omits to state a
material fact (known to the Borrower or any of its Subsidiaries in the case of
any document or information not furnished by it or any of its Subsidiaries)
necessary in order to make the statements herein or therein not misleading.
There is no fact known to the Borrower or any of its Subsidiaries which
materially adversely affects, or which is reasonably likely in the future to
materially adversely affect, the business, assets, financial condition or
prospects of the Borrower or any of its Subsidiaries, exclusive of effects
resulting from changes in general economic conditions, legal standards or
regulatory conditions.
5.22. NO WITHHOLDING. Neither the Borrower nor any of its Subsidiaries
is required by the laws of any jurisdiction to make any deduction or withholding
of any nature whatsoever from any payment to be made by the Borrower or its
Subsidiaries hereunder or under any Loan Document unless disclosed to the Lender
in writing prior to the Closing Date (which may be in the form of legal
opinions) and unless the amount and likelihood such deductions or withholdings
are not, in the Lender's reasonable discretion, material. Neither this Loan
Agreement nor any of the other Loan Documents is subject to any registration or
stamp tax or any other similar or like taxes payable in any jurisdiction.
5.23. CHIEF EXECUTIVE OFFICE. The location of the Borrower's and each
of its Subsidiaries chief executive office or registered office, as applicable,
is set forth in SCHEDULE 5.23.
5.24. INSURANCE. The Borrower and each of its Subsidiaries maintain
with financially sound and reputable insurers insurance with respect to its
properties and businesses against such casualties and contingencies as are in
accordance with sound business practices and with the details of such coverage
being more fully described on SCHEDULE 5.24 hereto.
5.25. DELIVERY OF CERTAIN DOCUMENTS. The Borrower has delivered to the
Lender true and complete copies of all of the Bridgestone Acquisition Documents
(including all amendments thereto). Each of the representations and warranties
made by the Borrower and any of its Subsidiaries in any of the Bridgestone
Acquisition Documents was true and correct in all material respects when made
and continues to be true and correct in all material respects on the Closing
Date, except to the extent that any of such representations and warranties
relate, by the express terms thereof, solely to a date falling prior to the
Closing Date.
6. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as the Loan or Note is
outstanding:
6.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loan and the fees provided
for in this Loan Agreement, all in accordance with the terms of this Loan
Agreement and the Note.
6.2. MAINTENANCE OF OFFICE.
(a) The Borrower and each of its Subsidiaries incorporated or
organized in the United States of America will maintain its chief
executive office at the location set forth in SCHEDULE 5.23, or at such
other place in the United States of America as such Person shall
designate upon written notice to the Lender where notices,
presentations and
<PAGE>
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demands to or upon such Person in respect of the Loan Agreement and the
other Loan Documents to which such Person is a party may be given or
made.
(b) Each Subsidiary of the Borrower incorporated or organized
in a jurisdiction other than the United States of America will maintain
its registered office at the location set forth in SCHEDULE 5.23, or at
such other place in such jurisdiction of incorporation or organization
as such Person shall designate upon written notice to the Lender where
notices, presentations and demands to or upon such Person in respect of
the Loan Agreement and the other Loan Documents to which such Person is
a party may be given or made.
6.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles (or equivalent thereof in any jurisdiction other
than the United States of America), and (b) maintain, and cause each of its
Subsidiaries to maintain, adequate accounts and reserves for all taxes
(including income taxes), depreciation, depletion, obsolescence and amortization
of its properties and the properties of its Subsidiaries, contingencies, and
other reserves.
6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to the Lender contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities and
Exchange Commission (or equivalent thereof in any other jurisdiction) or sent to
the stockholders of the Borrower and from time to time such other financial data
and information as the Lender may reasonably request.
6.5. NOTICES.
6.5.1. DEFAULTS. The Borrower will promptly notify the Lender
in writing of the occurrence of any Default or Event of Default. If any
Person shall give any notice or take any other action in respect of a
claimed default (whether or not constituting an Event of Default) under
this Loan Agreement or any other note, evidence of indebtedness,
indenture or other obligation to which or with respect to which the
Borrower or any of its Subsidiaries is a party or obligor, whether as
principal or surety, the Borrower shall forthwith give written notice
thereof to the Lender, describing the notice or action and the nature
of the claimed default.
6.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice to the Lender (a) of any violation of any Environmental Law that
the Borrower or any of its Subsidiaries reports in writing or is
reportable by such Person in writing (or for which any written report
supplemental to any oral report is made) to any federal, state or local
environmental agency or any similar environmental agency or board in
any other jurisdiction and (b) upon becoming aware thereof, of any
inquiry, proceeding, investigation, or other action, including a notice
from any agency of potential environmental liability, of any federal,
state or local environmental agency or board, that has the potential to
materially affect the assets, liabilities, financial conditions or
operations of the Borrower or any of its Subsidiaries, or the Lender's
security interests pursuant to the Security Documents.
6.5.3. NOTIFICATION OF CLAIMS AGAINST COLLATERAL. The Borrower
will, immediately upon becoming aware thereof, notify the Lender in
writing of any setoff, claims (including, with respect to the Real
Estate, environmental claims), withholdings
<PAGE>
-22-
or other defenses to which any of the Collateral, or the Lender's
rights with respect to the Collateral, are subject.
6.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will,
and will cause each of its Subsidiaries to, give notice to the Lender
in writing within fifteen (15) days of becoming aware of any litigation
or proceedings threatened in writing or any pending litigation and
proceedings affecting the Borrower or any of its Subsidiaries or to
which the Borrower or any of its Subsidiaries is or becomes a party
involving an uninsured claim against the Borrower or any of its
Subsidiaries that could reasonably be expected to have a materially
adverse effect on the Borrower or any of its Subsidiaries and stating
the nature and status of such litigation or proceedings. The Borrower
will, and will cause each of its Subsidiaries to, give notice to the
Lender, in writing, in form and detail satisfactory to the Lender,
within ten (10) days of any judgment not covered by insurance, final or
otherwise, against the Borrower or any of its Subsidiaries in an amount
in excess of $100,000.
6.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and those of
its Subsidiaries and will not, and will not cause or permit any of its
Subsidiaries to, convert to a limited liability company (or the equivalent
thereof in any foreign jurisdiction). It (a) will cause all of its properties
and those of its Subsidiaries used or useful in the conduct of its business
or the business of its Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will, and will cause each of its Subsidiaries to, continue to engage
primarily in the businesses now conducted by them and in related businesses;
PROVIDED that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties or those
of its Subsidiaries if such discontinuance is, in the judgment of the
Borrower, desirable in the conduct of its or their business and that do not
in the aggregate materially adversely affect the business of the Borrower and
its Subsidiaries on a consolidated basis.
6.7. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent and in accordance with the terms of the Security
Agreements.
6.8. TAXES. The Borrower will, and will cause each of its Subsidiaries
to, duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien or
charge upon any of its property; provided that any such tax, assessment, charge,
levy or claim need not be paid if the validity or amount thereof shall currently
be contested in good faith by appropriate proceedings and if the Borrower or
such Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and PROVIDED FURTHER that the Borrower and each Subsidiary of the
Borrower will
<PAGE>
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pay all such taxes, assessments, charges, levies or claims forthwith upon the
commencement of proceedings to foreclose any lien that may have attached as
security therefor.
6.9. INSPECTION OF PROPERTIES AND BOOKS, ETC. The Borrower shall permit
the Lender to visit and inspect any of the properties of the Borrower or any of
its Subsidiaries, to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its and their officers, all at such
reasonable times and intervals as the Lender may reasonably request.
6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and will cause each of its Subsidiaries to, be in material
compliance with (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws, (b) the provisions of its charter
documents and by-laws and all other organizational and constitutive documents,
(c) all agreements and instruments by which it or any of its properties may be
bound and (d) all applicable decrees, orders, and judgments. If at any time
while the Loan or Note is outstanding, any authorization, consent, approval,
permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that the Borrower may fulfill any of
its obligations hereunder, the Borrower will immediately take or cause to be
taken all reasonable steps within the power of the Borrower to obtain such
authorization, consent, approval, permit or license and furnish the Lender with
evidence thereof.
6.11. EMPLOYEE BENEFIT PLANS. The Borrower will (a) promptly upon
filing the same with the Department of Labor or Internal Revenue Service,
furnish to the Lender a copy of the most recent actuarial statement required
to be submitted under Section 103(d) of ERISA and Annual Report, Form 5500,
with all required attachments, in respect of each Guaranteed Pension Plan,
(b) promptly upon receipt or dispatch, furnish to the Lender any notice,
report or demand sent or received in respect of a Guaranteed Pension Plan
under Section 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under Section 4041A, 4202, 4219, 4242, or
4245 of ERISA, and (c) furnish to the Lender (at such time as such reports
are prepared in order to comply with Applicable Pension Legislation) copies
of all actuaries reports in relation to the Employee Benefit Plans operated
by them from time to time.
6.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Loan
solely to finance the Bridgestone Acquisition.
6.13. FURTHER ASSURANCES. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Lender and execute such further instruments
and documents as the Lender shall reasonably request to carry out to its
satisfaction the transactions contemplated by this Loan Agreement, the other
Loan Documents, the Bridgestone Acquisition Documents and the Merger Documents.
6.14. ADDITIONAL GUARANTORS. The Borrower will cause each Domestic
Subsidiary created, acquired or existing on or after the Closing Date (including
Bridgestone) to become a Guarantor immediately and shall cause such Subsidiary
to execute and deliver to the Lender (a) a Guaranty (or in the case of
Bridgestone, the Bridgestone Guaranty) in form and substance satisfactory to the
Lender, and (b) further Security Documents or other instruments and documents as
the Lender may reasonably require in order to grant to the Lender a first
priority perfected security interest in such Subsidiary's assets, together with
legal opinions in form and substance reasonably satisfactory to the Lender to be
delivered to the Lender opining as to the
<PAGE>
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authorization, validity and enforceability of such Guaranty and Security
Documents and (as to the applicable Security Documents) the perfection of such
security interests.
6.15. ADDITIONAL SUBSIDIARIES. If, after the Closing Date, the Borrower
or any of its Subsidiaries creates or acquires, either directly or indirectly,
any Subsidiary, it will immediately notify the Lender of such creation or
acquisition, as the case may be, and provide the Lender with an updated SCHEDULE
5.19 hereof and take all other actions required by Section 6.14 hereof.
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as the Loan or Note is
outstanding:
7.1. RESTRICTIONS ON INDEBTEDNESection The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume, guarantee
or be or remain liable, contingently or otherwise, with respect to any
Indebtedness other than:
(a) Indebtedness to the Lender arising under any of the Loan
Documents;
(b) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(c) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property by the Borrower
or any Subsidiary of the Borrower or under any Capitalized Lease,
PROVIDED that the aggregate principal amount of such Indebtedness of
the Borrower and its Subsidiaries shall not exceed the aggregate amount
of $1,000,000 at any one time;
(d) Indebtedness existing on the date of this Loan Agreement
(including all commitments to make loans or credit extensions available
to the Borrower by any Person but which remain undrawn by the Borrower
on the date hereof) and any refinancings thereof (so long as the
aggregate amount of such Indebtedness is not increased) and listed and
described on SCHEDULE 7.1 hereto;
(e) Existing Indebtedness of Bridgestone assumed by the
Borrower in connection with the Bridgestone Acquisition pursuant to the
Bridgestone Acquisition Documents;
(f) Indebtedness of a Subsidiary of the Borrower to the
Borrower; and
(g) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations.
7.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit
any of its Subsidiaries to, (a) create or incur or suffer to be created or
incurred or to exist any Lien upon any of its property or assets of any
character whether now owned or hereafter acquired, or upon the income or profits
therefrom; (b) transfer any of such property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; (c) acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money security
agreement, device or arrangement; (d) suffer to exist for a
<PAGE>
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period of more than thirty (30) days after the same shall have been incurred any
Indebtedness or claim or demand against it that if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors; or (e) sell, assign, pledge or otherwise transfer any
"receivables" as defined in clause (vii) of the definition of the term
"Indebtedness," with or without recourse; PROVIDED that the Borrower or any of
its Subsidiaries may create or incur or suffer to be created or incurred or to
exist:
(i) Liens in favor of the Borrower on all or part of the
assets of Subsidiaries of the Borrower securing Indebtedness owing by
Subsidiaries of the Borrower to the Borrower;
(ii) Liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or Liens on properties to
secure claims for labor, material or supplies in respect of obligations
not overdue;
(iii) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance, old
age pensions or other social security obligations;
(iv) Liens on properties in respect of judgments or awards
that have been in force for less than the applicable period for taking
an appeal so long as execution is not levied thereunder or in respect
of which the Borrower or such Subsidiary shall at the time in good
faith be prosecuting an appeal or proceedings for review and in respect
of which a stay of execution shall have been obtained pending such
appeal or review;
(v) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens on properties, in existence less than
120 days from the date of creation thereof in respect of obligations
not overdue;
(vi) encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
Liens under leases to which the Borrower or a Subsidiary of the
Borrower is a party, and other minor Liens or encumbrances none of
which in the opinion of the Borrower interferes materially with the use
of the property affected in the ordinary conduct of the business of the
Borrower and its Subsidiaries, which defects do not individually or in
the aggregate have a materially adverse effect on the business of the
Borrower individually or of the Borrower and its Subsidiaries on a
consolidated basis;
(vii) presently outstanding Liens listed on SCHEDULE 7.2
hereto;
(viii) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof
to secure purchase money Indebtedness of the type and amount permitted
by Section 7.1(c), incurred in connection with the acquisition of such
property, which security interests or mortgages cover only the real or
personal property so acquired;
(ix) Liens in favor of the Lender under the Loan Documents;
and
(x) Liens to secure the Indebtedness permitted by Section
7.1(e).
<PAGE>
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7.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) Bridgestone in connection with the Bridgestone
Acquisition;
(b) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase by the Borrower;
(c) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000 or banks of any other jurisdiction
which are members of the OECD;
(d) securities commonly known as "commercial paper" issued by
a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 1" if
rated by Moody's Investors Service, Inc., and not less than "A 1" if
rated by Standard and Poor's Rating Group;
(e) Investments existing on the date hereof and listed on
SCHEDULE 7.3 hereto;
(f) Investments with respect to Indebtedness permitted by
Section 7.1(e);
(g) Investments consisting of the Guaranty or Investments by
the Borrower in Subsidiaries of the Borrower existing on the Closing
Date;
(h) Investments in OpSec France not to exceed $150,000 in the
aggregate;
(i) Investments consisting of promissory notes received as
proceeds of asset dispositions permitted by Section 7.5.2; and
(j) Investments consisting of loans and advances to employees
for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $50,000 in the aggregate at
any time outstanding;
PROVIDED, HOWEVER, that, such Investments will be considered Investments
permitted by this Section 7.3 only if all actions have been taken to the
satisfaction of the Lender a first priority perfected security interest in
all of such Investments free of all encumbrances other than Permitted Liens.
7.4. DISTRIBUTIONS. Except as set forth on SCHEDULE 7.4, the Borrower
will not make any Distributions.
7.5. MERGER, CONSOLIDATION.
7.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, become a party to any
merger or consolidation, or agree to or effect any asset acquisition or
stock acquisition (other than the acquisition of assets in the ordinary
course of business consistent with past practices) except the merger or
consolidation of one or more of its Subsidiaries of the Borrower with
and into the Borrower, or the Bridgestone Acquisition, or the Merger,
or the merger or consolidation
<PAGE>
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of two or more Subsidiaries of the Borrower so long as such merger does
not have an adverse effect on the Liens held by the Lender as security
for the Obligations.
7.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will
not permit any of its Subsidiaries to, become a party to or agree to or
effect any disposition of assets, other than the sale of inventory, the
licensing of intellectual property and the disposition of obsolete
assets, in each case in the ordinary course of business consistent with
past practices.
7.6. SALE AND LEASEBACK. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
7.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use any of the Real Estate or
any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances, (b) cause or permit to be located on any of the Real
Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, (d) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (e) otherwise conduct any activity at any Real Estate or
use any Real Estate in any manner that would violate any Environmental Law or
bring such Real Estate in violation of any Environmental Law.
7.8. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code which could result
in a material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in
Section 302 of ERISA, whether or not such deficiency is or may be
waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a Lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to
Section 302(f) or Section 4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances
requiring the posting of security pursuant to Section 307 of ERISA or
Section 401(a)(29) of the Code;
(e) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of Section 4001 of
ERISA) of all Guaranteed Pension Plans exceeding the value of the
aggregate assets of such Plans, disregarding for this purpose the
benefit liabilities and assets of any such Plan with assets in excess
of benefit liabilities; or
<PAGE>
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(f) take any action referred to in paragraphs (a) through (e)
above that would violate any provisions of Applicable Pension
Legislation.
7.9. CHANGES TO BRIDGESTONE ACQUISITION DOCUMENTS. The Borrower will
not, and will not permit its Subsidiaries to, (a) amend the economic terms of
the Bridgestone Acquisition Documents or (b) amend, supplement or waive any of
the other terms or conditions set forth in the Bridgestone Acquisition
Documents, without the prior written consent of the Lender.
7.10. ASSIGNMENT BY BORROWER. The Borrower shall not, and will not
permit its Subsidiaries to, assign or transfer any of its rights or obligations
under any of the Loan Documents, the Bridgestone Acquisition Documents or the
Merger Documents without the prior written consent of the Lender.
7.11. MODIFICATION OF CHARTER. The Borrower will not, nor permit any of
its Subsidiaries to amend or permit to be amended its certificate of
incorporation or bylaws, memorandum and articles of association, or similar
organizational documents without the prior written consent of the Lender unless
such amendment, supplement or modification would not have any material adverse
effect on the Lender's rights under the Loan Documents or the Borrower's or any
of its Subsidiaries' obligations under the Loan Documents or any of such
Persons' abilities to perform such obligations.
7.12. UPSTREAM LIMITATIONS. The Borrower will not enter into, nor
permit any of its Subsidiaries to enter into, any agreement, contract or
arrangement (other than the Loan Agreement and the other Loan Documents)
restricting the ability of any Subsidiary to pay or make dividends or
distributions in cash or kind, to make loans, advances or other payments of
whatsoever nature or to make transfers or distributions of all or any part of
its assets to the Borrower or any Subsidiary.
7.13. INCONSISTENT AGREEMENTS. The Borrower will not, nor will it
permit its Subsidiaries to, enter into any agreement containing any provision
which would be violated or breached by the performance by the Borrower or such
Subsidiary of its obligations hereunder or under any of the Loan Documents.
7.14. NEGATIVE PLEDGES. Except as set forth on SCHEDULE 7.14, the
Borrower will not, nor will it permit its Subsidiaries to, enter into or permit
to exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits the Borrower or its Subsidiaries from creating
or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or
other security interest in favor of the Lender under the Loan Documents other
than customary anti-assignment provisions in leases and licensing agreements
entered into by such Person in the ordinary course of its business.
8. CLOSING CONDITIONS.
The obligation of the Lender to make the Loan shall be subject to the
satisfaction of the following conditions precedent:
8.1. LOAN DOCUMENTS; MERGER DOCUMENTS; BRIDGESTONE ACQUISITION
DOCUMENTS. Each of the Loan Documents, the Merger Agreement and the Bridgestone
Acquisition Documents shall have been duly executed and delivered by the
respective parties thereto, shall be in full force and effect and shall be in
form and substance satisfactory to the
<PAGE>
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Lender. The Lender shall have received a fully executed copy of each Loan
Document and Bridgestone Acquisition Document.
8.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. The Lender shall have
received from the Borrower and each of its Subsidiaries, a copy, certified by a
duly authorized officer of such Person to be true and complete on the Closing
Date, of each of (a) its charter or other incorporation documents as in effect
on such date of certification, and (b) its by-laws (or other similar document)
as in effect on such date.
8.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Loan Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Lender shall have been provided to the Lender.
8.4. INCUMBENCY CERTIFICATE. The Lender shall have received from the
Borrower and each of the Domestic Subsidiaries an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of the Borrower or
such Domestic Subsidiary, and giving the name and bearing a specimen signature
of each individual who shall be authorized: (a) to sign, in the name and on
behalf of each of the Borrower or such Domestic Subsidiary, each of the Loan
Documents to which the Borrower or such Domestic Subsidiary is or is to become a
party; (b) in the case of the Borrower to make the Loan Request; and (c) to give
notices and to take other action on its behalf under the Loan Documents.
8.5. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Lender a legal, valid and enforceable security interest
in the Collateral (subject only to Permitted Liens entitled to priority under
applicable law). All filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Lender to protect and
preserve such security interests shall have been duly effected. The Lender shall
have received evidence thereof in form and substance satisfactory to the Lender.
8.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Lender shall
have received from each of the Borrower and its Subsidiaries a completed and
fully executed Perfection Certificate and the results of UCC searches and all
other applicable Lien searches, indicating no Liens other than Permitted Liens
and otherwise in form and substance satisfactory to the Lender.
8.7. SENIOR LENDER CONSENTS. The Borrower and its Subsidiaries shall
have delivered to the Lender evidence satisfactory to the Lender that all
necessary or otherwise advisable consents by the Senior Lender permitting the
Borrower and its Subsidiaries to enter into and fully perform their obligations
under this Loan Agreement and the other Loan Documents have been obtained by the
Borrower and its Subsidiaries.
8.8. CERTIFICATES OF INSURANCE. The Lender shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreements and (b) certified copies of all
policies evidencing such insurance (or certificates therefore signed by the
insurer or an agent authorized to bind the insurer).
8.9. OPINION OF COUNSEL. The Lender shall have received a favorable
opinion addressed to the Lender, dated as of the Closing Date, in form and
substance satisfactory to the Lender, from Lohf, Shaiman & Jacobs, P.C., counsel
to the Borrower and its Subsidiaries.
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9. CONDITIONS TO BORROWING.
The obligation of the Lender to make the Loan, whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
9.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Loan Agreement, the other Loan Documents or in any document or
instrument delivered pursuant to or in connection with this Loan Agreement shall
be true as of the date as of which they were made and shall also be true at and
as of the time of the making of the Loan, with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Loan Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
9.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of the Lender would make it illegal for the Lender to make the Loan.
9.3. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Loan Agreement, the other Loan Documents, the
Bridgestone Acquisition Documents and all other documents incident thereto shall
be satisfactory in substance and in form to the Lender and the Lender shall have
received all information and such counterpart originals or certified or other
copies of such documents as the Lender may reasonably request.
9.4. BRIDGESTONE ACQUISITION. The Lender shall have received evidence
satisfactory to the Lender, including a legal opinion from Borrower's counsel,
that all of the closing conditions (other than full payment of the purchase
price for which the funds provided by the Lender to the Borrower under this Loan
Agreement are to be used) to the purchase of 100% of Voting Stock of Bridgestone
pursuant to the Bridgestone Acquisition Documents shall have been satisfied and
none of the conditions shall have been amended, supplemented or waived except in
accordance with Section 7.9 hereof.
10. EVENTS OF DEFAULT; ACCELERATION; ETC.
10.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "DEFAULTS") shall
occur:
(a) the Borrower shall fail to pay any principal of the Loan
when the same shall become due and payable, whether at the stated date
of maturity or any accelerated date of maturity or at any other date
fixed for payment;
(b) the Borrower shall fail to pay any interest on the Loan,
the Closing Fee, or other sums due hereunder or under any of the other
Loan Documents, when the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at
any other date fixed for payment;
(c) the Borrower shall fail to comply with any of its
covenants contained in Sections 6 or 7;
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(d) the Borrower or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained herein or in any of
the other Loan Documents (other than those specified elsewhere in this
Section 10.1) for fifteen (15) days after written notice of such
failure has been given to the Borrower by the Lender;
(e) any representation or warranty of the Borrower or any of
its Subsidiaries in this Loan Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Loan Agreement shall prove to have been
false in any material respect upon the date when made or deemed to have
been made or repeated;
(f) the Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any obligation
for borrowed money or credit received or in respect of any Capitalized
Leases, or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing
or securing borrowed money or credit received or in respect of any
Capitalized Leases for such period of time as would permit (assuming
the giving of appropriate notice if required) the holder or holders
thereof or of any obligations issued thereunder to accelerate the
maturity thereof, or any such holder or holders shall rescind or shall
have a right to rescind the purchase of any such obligations;
(g) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of the Borrower or any of
its Subsidiaries or of any substantial part of the assets of the
Borrower or any of its Subsidiaries or shall commence any case or other
proceeding relating to the Borrower or any of its Subsidiaries under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction,
now or hereafter in effect, or any Insolvency Event shall occur, or
shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any
such case or other proceeding shall be commenced against the Borrower
or any of its Subsidiaries and the Borrower or any of its Subsidiaries
shall indicate its approval thereof, consent thereto or acquiescence
therein or such petition or application shall not have been dismissed
within fourteen (14) days following the filing thereof;
(h) the Borrower or any of its Subsidiaries organized in
Germany shall become obligated to file for bankruptcy proceedings
pursuant to Section 64 of the GmbH Act;
(i) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any
of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is
entered in respect of the Borrower or any Subsidiary of the Borrower in
an involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(j) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than fourteen (14) days, whether or not consecutive,
any final judgment against the Borrower or any of its Subsidiaries
that, with other outstanding final judgments,
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undischarged, against the Borrower or any of its Subsidiaries exceeds
in the aggregate $200,000;
(k) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded or the Lender's security interests or
liens in a substantial portion of the Collateral shall cease to be
perfected, or shall cease to have the priority contemplated by the
Security Documents, in each case otherwise than in accordance with the
terms thereof or with the express prior written agreement, consent or
approval of the Lender, or any action at law, suit or in equity or
other legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of the Borrower or any of
its Subsidiaries party thereto or any of their respective stockholders,
or any court or any other governmental or regulatory authority or
agency of competent jurisdiction shall make a determination that, or
issue a judgment, order, decree or ruling to the effect that, any one
or more of the Loan Documents is illegal, invalid or unenforceable in
accordance with the terms thereof;
(l) the Borrower or any ERISA Affiliate incurs any liability
to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA
in an aggregate amount exceeding $50,000, or the Borrower or any ERISA
Affiliate is assessed withdrawal liability pursuant to Title IV of
ERISA by a Multiemployer Plan requiring aggregate annual payments
exceeding $50,000, or any of the following occurs with respect to a
Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to
make a required installment or other payment (within the meaning of
Section 302(f)(1) of ERISA), PROVIDED that the Lender determines in its
reasonable discretion that such event (A) could be expected to result
in liability of the Borrower or any of its Subsidiaries to the PBGC or
such Guaranteed Pension Plan in an aggregate amount exceeding $50,000
and (B) could constitute grounds for the termination of such Guaranteed
Pension Plan by the PBGC, for the appointment by the appropriate United
States District Court of a trustee to administer such Guaranteed
Pension Plan or for the imposition of a lien in favor of such
Guaranteed Pension Plan; or (ii) the appointment by a United States
District Court of a trustee to administer such Guaranteed Pension Plan;
or (iii) the institution by the PBGC of proceedings to terminate such
Guaranteed Pension Plan;
(m) the Borrower or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part
of its business and such order shall continue in effect for more than
fourteen (14) days;
(n) there shall occur any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case causes the
cessation or substantial curtailment of revenue producing activities at
any facility of the Borrower or any of its Subsidiaries if such event
or circumstance is not covered by business interruption insurance and
would have in the opinion of the Lender a material adverse effect on
the business or financial condition of the Borrower or such Subsidiary;
(o) there shall occur the loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter
acquired by the Borrower or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew would have in the
<PAGE>
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opinion of the Lender a material adverse effect on the business or
financial condition of the Borrower or such Subsidiary; and
(p) the Borrower or any of its Subsidiaries shall fail to
observe or perform, in any material respect, any covenant, agreement or
obligation contained in any of the Merger Documents or the Bridgestone
Acquisition Documents;
then, and in any such event, so long as the same may be continuing, the
Lender may by notice in writing to the Borrower declare all amounts owing
with respect to this Loan Agreement, the Note and the other Loan Documents to
be, and they shall thereupon forthwith become, immediately due and payable
without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Borrower; PROVIDED that in the event
of any Event of Default specified in Section 10.1(g), 10.1(h), 10.1(i), all
such amounts shall become immediately due and payable automatically and
without any requirement of notice from the Lender.
10.2. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Lender shall
have accelerated the maturity of the Loan pursuant to Section 10.1, the
Lender, if owed any amount with respect to the Loan, may proceed to protect
and enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Loan Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to the Lender are evidenced,
and, if such amount shall have become due, by declaration or otherwise,
proceed to enforce the payment thereof or any other legal or equitable right
of the Lender. No remedy herein conferred upon the Lender or the holder of
the Note is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
10.3. DISTRIBUTION OF COLLATERAL PROCEEDS. If following the occurrence
or during the continuance of any Default or Event of Default, the Lender
receives any monies in connection with the enforcement of any the Security
Documents, or otherwise with respect to the realization upon any of the
Collateral, such monies shall be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Lender for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Lender in connection with the collection of such
monies by the Lender, for the exercise, protection or enforcement by
the Lender of all or any of the rights, remedies, powers and privileges
of the Lender under this Loan Agreement or any of the other Loan
Documents or in respect of the Collateral or in support of any
provision of adequate indemnity to the Lender against any taxes or
liens which by law shall have, or may have, priority over the rights of
the Lender to such monies;
(b) Second, to all other Obligations in such order or
preference as the Lender may determine;
(c) Third, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
<PAGE>
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11. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from the
Lender to the Borrower and any securities or other property of the Borrower in
the possession of the Lender may be applied to or set off by the Lender against
the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to the Lender.
12. EXPENSES AND INDEMNIFICATION.
12.1. EXPENSES. The Borrower agrees to pay (a) any taxes (including any
interest and penalties in respect thereto) payable by the Lender (other than
taxes based upon the Lender's net income) on or with respect to the transactions
contemplated by this Loan Agreement (the Borrower hereby agreeing to indemnify
the Lender with respect thereto), (b) the fees, expenses and disbursements of
the Lender or any of its affiliates incurred by the Lender or such affiliate in
connection with the preparation, syndication, administration or interpretation
of the Loan Documents and other instruments mentioned herein, including all
title insurance premiums and surveyor, engineering and appraisal charges, (c)
all reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs, which attorneys may be employees of the Lender, and
reasonable consulting, accounting, appraisal, investment banking and similar
professional fees and charges) incurred by the Lender in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents against
the Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default and (ii) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to the
Lender's relationship with the Borrower or any of its Subsidiaries and (d) all
reasonable fees, expenses and disbursements of he Lender incurred in connection
with UCC searches, UCC filings or mortgage recordings.
12.2. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Lender and its affiliates from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any
and all liabilities, losses, damages and expenses of every nature and
character arising out of this Loan Agreement or any of the other Loan
Documents or the transactions contemplated hereby including, without
limitation, (a) any actual or proposed use by the Borrower or any of its
Subsidiaries of the proceeds of any of the Loan, (b) the Borrower or any of
its Subsidiaries entering into or performing this Loan Agreement or any of
the other Loan Documents or (c) with respect to the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release or threatened release of any Hazardous
Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Substances (including, but not
limited to, claims with respect to wrongful death, personal injury or damage
to property), in each case including, without limitation, the reasonable fees
and disbursements of counsel and allocated costs of internal counsel incurred
in connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Lender and its affiliates shall
be entitled to select their own counsel and, in addition to the foregoing
indemnity, the Borrower agrees to pay promptly the reasonable fees and
expenses of such counsel. If, and to the extent that the obligations of the
Borrower under this Section 12.2 are unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law.
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12.3. SURVIVAL. The covenants contained in this Section 12 shall
survive payment or satisfaction in full of all other Obligations.
12.4. CONSEQUENTIAL DAMAGES. Notwithstanding any provision to the
contrary contained herein, in no event shall the Borrower be liable to the
Lender or any third party for any consequential damages; PROVIDED, that the
foregoing shall not impair the payment and satisfaction in full of the
Obligations hereunder.
13. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
13.1. CONFIDENTIALITY. The Lender agrees, on behalf of itself and
each of its affiliates, directors, officers, employees and representatives,
to use reasonable precautions to keep confidential, in accordance with its
customary procedures for handling confidential information of the same nature
and in accordance with safe and sound banking practices, any non-public
information supplied to it by the Borrower or any of its Subsidiaries
pursuant to this Loan Agreement that is identified by such Person as being
confidential at the time the same is delivered to the Lender, PROVIDED that
nothing herein shall limit the disclosure of any such information (a) after
such information shall have become public other than through a violation of
this Section 13, (b) to the extent required by statute, rule, regulation or
judicial process, (c) to counsel for any of the Lender, (d) to any regulatory
authority having jurisdiction over the Lender, or to auditors or accountants,
(e) in connection with any litigation to which the Lender is a party, or in
connection with the enforcement of rights or remedies hereunder or under any
other Loan Document, or (f) to a Subsidiary or affiliate of the Lender.
13.2. PRIOR NOTIFICATION. Unless specifically prohibited by applicable
law or court order, the Lender shall, prior to disclosure thereof, notify the
Borrower of any request for disclosure of any such non-public information by any
governmental agency or representative thereof or pursuant to legal process.
13.3. OTHER. In no event shall the Lender be obligated or required
to return any materials furnished to it by the Borrower or any of its
Subsidiaries. The obligations of the Lender under this Section 13 shall
supersede and replace the obligations of the Lender under any confidentiality
letter in respect of this financing signed and delivered by the Lender to the
Borrower prior to the date hereof.
14. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Note, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Lender,
notwithstanding any investigation heretofore or hereafter made by any of them,
and shall survive the making by the Lender of the Loan, as herein contemplated,
and shall continue in full force and effect so long as any amount due under this
Loan Agreement or the Note or any of the other Loan Documents remains
outstanding or the Lender has any obligation to make the Loan, and for such
further time as may be otherwise expressly specified in this Loan Agreement. All
statements contained in any certificate or other paper delivered to the Lender
at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant
hereto or in connection with the transactions contemplated hereby shall
constitute representations and warranties by the Borrower or such Subsidiary
hereunder.
<PAGE>
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15. NOTICES, ETC.
Except as otherwise expressly provided in this Loan Agreement, all
notices and other communications made or required to be given pursuant to this
Loan Agreement or the Note shall be in writing and shall be delivered in hand,
mailed by United States registered or certified first class mail, postage
prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or
telex and confirmed by delivery via courier or postal service, addressed as
follows:
(a) if to the Borrower, at 535 16th Street, Suite 920, Denver,
Colorado 80202, USA, Attention: Richard H. Bard and Mark T. Turnage, or
at such other address for notice as the Borrower shall last have
furnished in writing to the Person giving the notice; and
(b) if to the Lender, at the Lender's Head Office Attention:
Michael Angus, Finance Director, or such other address for notice as
the Lender shall last have furnished in writing to the Person giving
the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, at
the time of the receipt thereof.
16. GOVERNING LAW.
THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT
AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF
THE STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF SAID STATE OF NEW YORK (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT
FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY CERTIFIED OR REGULAR MAIL AT THE ADDRESS SPECIFIED IN SECTION 15.
THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN
AN INCONVENIENT COURT.
17. HEADINGS.
The captions in this Loan Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
18. COUNTERPARTS.
This Loan Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In
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proving this Loan Agreement it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom enforcement is
sought.
19. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Loan Agreement nor
any term hereof may be changed, waived, discharged or terminated, except as
provided in Section 21.
20. WAIVER OF JURY TRIAL.
The Borrower hereby waives its right to a jury trial with respect to
any action or claim arising out of any dispute in connection with this Loan
Agreement, the Note or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of such rights and
obligations. Except as prohibited by law, the Borrower hereby waives any right
it may have to claim or recover in any litigation referred to in the preceding
sentence any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. The Borrower (a)
certifies that no representative, agent or attorney of the Lender has
represented, expressly or otherwise, that the Lender would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges that the
Lender has been induced to enter into this Loan Agreement, the other Loan
Documents to which it is a party by, among other things, the waivers and
certifications contained herein.
21. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Except as otherwise expressly provided in this Loan Agreement, any
consent or approval required or permitted by this Loan Agreement to be given by
the Lender may be given, and any term of this Loan Agreement or of any other
instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower of any terms of this Loan Agreement or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Lender. No
waiver shall extend to or affect any obligation not expressly waived or impair
any right consequent thereon. No course of dealing or delay or omission on the
part of the Lender in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall
entitle the Borrower to other or further notice or demand in similar or other
circumstances.
22. SEVERABILITY.
The provisions of this Loan Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Loan Agreement in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have duly executed this Loan
Agreement as a sealed instrument as of the date first set forth above.
APPLIED HOLOGRAPHICS PLC
By: /s/ Michael W. Angus
-------------------------------------
Name: Michael W. Angus
-------------------------------------
Title: Finance Director
-------------------------------------
OPTICAL SECURITY GROUP, INC.
By: /s/ Richard H. Bard
-------------------------------------
Name: Richard H. Bard
-------------------------------------
Title: Chief Executive Officer
-------------------------------------
<PAGE>
Exhibit 3
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "AGREEMENT") is made and entered into
as of ______________, 1999, by and between Applied Holographics plc, a public
company limited company incorporated and existing under the laws of England and
Wales ("BUYER") and ______________________ (the "STOCKHOLDER").
WHEREAS, the Stockholder desires that Buyer, a newly-formed Colorado
corporation and wholly-owned subsidiary of Buyer ("NEWCO"), and Optical Security
Group, Inc., a Colorado corporation ("SELLER"), enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "MERGER AGREEMENT") with respect to the merger of Newco with
Seller (the "MERGER"); and
WHEREAS, the Stockholder is executing this Agreement as an inducement
to Buyer to enter into and execute, and to cause Newco to enter into and
execute, the Merger Agreement;
NOW, THEREFORE, in consideration of the execution and delivery by Buyer
and Newco of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. Stockholder represents and
warrants to Buyer as follows:
(a) The Stockholder is the record and beneficial owner of the
number of shares (the "STOCKHOLDER'S SHARES") of common stock, $0.05
par value of Seller ("SELLER COMMON STOCK") set forth below such
Stockholder's name on the signature page hereof. This Agreement has
been duly authorized, executed and delivered by, and constitutes a
valid and binding agreement of, Stockholder, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general application respecting creditors' rights and by general
equitable principles.
(b) Neither the execution and delivery of this Agreement nor
the consummation by Stockholder of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with,
any contract, trust, commitment, agreement, understanding, arrangement
or restriction of any kind to which Stockholder is a party or bound or
to which the Stockholder's Shares are subject. If Stockholder is
married and the Stockholder's Shares constitute community property,
this Agreement has been duly authorized, executed and delivered by, and
constitutes a valid and binding agreement of, Stockholder's spouse,
enforceable against such person in accordance with its terms.
Consummation by Stockholder of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under,
any provision of any judgment, order, decree, statute, law, rule or
regulation applicable to Stockholder or the Stockholder's Shares.
(c) The Stockholder's Shares and the certificates representing
the Stockholder's Shares are now, and at all times during the term
hereof will be, held by the Stockholder, or by a nominee or custodian
for the benefit of Stockholder, free and clear of all liens, security
interests, proxies, voting trusts or voting agreements or any other
<PAGE>
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encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(d) No broker, investment banker, financial adviser or other
person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of
Stockholder.
(e) Stockholder understands and acknowledges that Buyer is
entering into, and causing Newco to enter into, the Merger Agreement in
reliance upon Stockholder's execution and delivery of this Agreement.
Stockholder acknowledges that the irrevocable proxy set forth in
Section 4 and the agreement to accept the cash offer made by Buyer
pursuant to the Offer, as described in Section 5, are granted in
consideration for the execution and delivery of the Merger Agreement by
Buyer and Newco.
2. VOTING AGREEMENTS. Stockholder agrees with, and covenants to,
Buyer as follows:
(a) At any meeting of stockholders of Seller called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof
or in any other circumstances upon which a vote, consent or other
approval with respect to the Merger and the Merger Agreement is sought
(the "STOCKHOLDERS' MEETING"), Stockholder shall vote (or cause to be
voted) the Stockholder's Shares in favor of the Merger, the execution
and delivery by Seller of the Merger Agreement, and the approval of the
terms thereof and each of the other transactions contemplated by the
Merger Agreement.
(b) While this Agreement shall be in effect, at any meeting of
stockholders of Seller or at any adjournment thereof or in any other
circumstances upon which their vote, consent or other approval is
sought, Stockholder shall vote (or cause to be voted) the Stockholder's
Shares against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by Seller or (ii) any amendment of
Seller's Articles of Organization or Bylaws or other proposal or
transaction involving Seller or any of its subsidiaries which amendment
or other proposal or transaction would in any manner impede, frustrate,
prevent or nullify the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement (each of the
foregoing in clause (i) or (ii) above, a "COMPETING TRANSACTION").
3. COVENANTS. Stockholder agrees with, and covenants to, Buyer that,
while this Agreement shall be in effect, Stockholder shall not (i) transfer
(which term shall include, without limitation, for the purposes of this
Agreement, any sale, gift, pledge or other disposition), or consent to any
transfer of, any or all of the Stockholder's Shares or any interest therein,
except pursuant to the Merger; (ii) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of the
Stockholder's Shares or any interest therein; (iii) grant any proxy, power of
attorney or other authorization in or with respect to such shares, except for
this Agreement; (iv) deposit such shares into a voting trust or enter into a
voting agreement or arrangement with respect to such shares; (v) initiate,
solicit or request, or take any action to facilitate the making of, any offer or
proposal which constitutes or is reasonably likely to lead to an Acquisition
Proposal or Superior Proposal (as such terms are defined in the Merger
Agreement); or (vi) in the event of any unsolicited proposed Acquisition
Proposal or Superior
<PAGE>
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Proposal, engage in negotiations with or discussions with, or provide any
information or data to, any person or entity (other than Buyer, any of its
affiliates or representatives) relating to any Acquisition Proposal or Superior
Proposal; PROVIDED, THAT Stockholder may transfer (as defined above) any of the
Stockholder's Shares to any other person or entity who is on the date hereof, or
to any family member of a person or to any charitable institution which prior to
the Stockholders Meeting and prior to such transfer becomes, a party to this
Agreement bound by all the obligations of "Stockholder" hereunder.
4. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Stockholder hereby irrevocably grants to, and appoints,
Buyer and David Tidmarsh, Chief Executive of Buyer, and Mike Angus, Group
Finance Director of Buyer, in their respective capacities as officers of Buyer,
and any individual who shall hereafter succeed to any such office of Buyer, and
each of them individually, Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of Stockholder, to
vote the Stockholder's Shares, or grant a consent or approval in respect of the
Stockholder's Shares (i) in favor of the Merger, the execution and delivery of
the Merger Agreement and approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement, and (ii) against any
Competing Transaction.
(b) Stockholder represents that any proxies heretofore given
in respect of the Stockholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) Stockholder hereby affirms that the irrevocable proxy set
forth in this Section 4 is given in connection with the execution of the Merger
Agreement, that such irrevocable proxy is given to secure the performance of the
duties of Stockholder under this Agreement and that such irrevocable proxy will
continue in force and effect while this Agreement is in effect. Stockholder
hereby further affirms that the irrevocable proxy is coupled with an interest
sufficient in law to support an irrevocable power and may under no circumstances
be revoked. Stockholder hereby ratifies and confirms all that such irrevocable
proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the Colorado
Business Corporation Act.
5. AGREEMENT TO TENDER STOCKHOLDER'S SHARES. Stockholder
covenants and agrees to promptly accept the all cash offer of $7.00 per share to
purchase each of Stockholder's Shares made by Buyer or Newco in accordance with
the Offer and Stockholder further agrees not to withdraw such acceptance, so
long as either (i) the holders of more than 50% of the outstanding shares of
Seller Common Stock have agreed to accept the cash offer in accordance with the
Offer, or (ii) neither Buyer nor Newco has terminated the Offer without the
purchase by Buyer or Newco of shares of Seller Common Stock or permitted the
Offer to lapse in accordance with its terms. For the avoidance of doubt, for
purposes of determining whether the condition in subclause (i) of this Section
is satisfied, the Stockholder's Shares shall be included in the shares, the
holders of which have accepted the cash offer in accordance with the Offer.
6. CERTAIN EVENTS. Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of any
or all of the Stockholder's Shares shall pass, whether by operation of law or
otherwise, including without limitation Stockholder's successors or assigns. In
the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of Seller affecting
Seller Common Stock, or the acquisition of additional shares of Seller Common
Stock or other voting securities of Seller by
<PAGE>
-4-
Stockholder, the number of the Stockholder's Shares subject to the terms of this
Agreement shall be adjusted appropriately and this Agreement and the obligations
hereunder shall attach to any additional shares of Seller Common Stock or other
voting securities of Seller issued to or acquired by Stockholder.
7. LEGEND Stockholder agrees that at the request of Buyer,
Stockholder will place a legend, referring to this Agreement and in a form
reasonably satisfactory to Buyer, on the certificates representing such
Stockholder's Shares.
8. FURTHER ASSURANCES. Stockholder shall, upon request of Buyer,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by Buyer to be necessary or desirable to carry out the
provisions hereof and to vest the power to vote the Stockholder's Shares as
contemplated by Section 4 in Buyer and the other irrevocable proxies described
therein at the expense of Buyer.
9. TERMINATION. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the earlier of (a) termination of
the Merger Agreement in accordance with its terms or (b) upon consummation of
the Merger (as defined in the Merger Agreement).
10. ENFORCEMENT COSTS. If any party institutes an action for the
enforcement of this Agreement, the prevailing party shall be entitled to
reimbursement on demand of all costs and expenses of such action including
reasonable legal fees.
11. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice): (i) if to Buyer, to the
address provided in the Merger Agreement; and (ii) if to Stockholder, to its
address shown below its signature on the last page hereof.
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(d) This Agreement may be executed in two or more
counterparts, each of which shall be considered an original hereof and one and
the same agreement.
(e) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
<PAGE>
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(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties, except as expressly contemplated by the proviso to
Section 3(b). Any assignment in violation of the foregoing shall be void.
(h) Stockholder agrees that irreparable damage would occur and
that Buyer would not have any adequate remedy at law in the event that any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that Buyer
shall be entitled to an injunction or injunctions to prevent breaches by
Stockholder of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit such party to the personal jurisdiction of
any Federal court located in the State of Colorado or any State of Colorado
state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (iii) agrees that such party will not bring any
action relating to this Agreement or any of the transactions contemplated hereby
in any court other than a Federal court sitting in the State of Colorado or a
Colorado state court. The foregoing remedies are in addition to, and not in lieu
of, any payment required to be made by Seller pursuant to the terms of the
Merger Agreement.
(i) If any term, provision, covenant or restriction herein, or
the application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(j) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in writing and
signed by such party.
<PAGE>
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IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement as of the day and year first above written.
APPLIED HOLOGRAPHICS PLC
By:
------------------------------------
Name:
Title:
STOCKHOLDER:
---------------------------------------
Name:
Address:
Number of Shares
Beneficially Owned:
<PAGE>
Exhibit 4
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of November 30,
1999, by and between Optical Security Group, Inc., a Colorado corporation
("ISSUER") and Applied Holographics plc, a public limited company incorporated
and existing under the laws of England and Wales ("GRANTEE").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "MERGER AGREEMENT"), which agreement has been
executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "OPTION") to purchase, subject to the terms hereof, up to 1,234,283
fully paid and nonassessable shares (the "OPTION SHARES") of Issuer's Common
Stock, par value $0.005 per share ("COMMON STOCK"), at a price of $7.00 per
share (the "OPTION PRICE"); PROVIDED that in no event shall the number of shares
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement), the number of shares of Common Stock
subject to the Option shall be increased so that, after such issuance, it equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject to or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined); PROVIDED THAT the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within ninety (90) days following such Subsequent Triggering Event.
Each of the following shall be an "Exercise Termination Event": (i) the
Effective Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof if
such termination occurs prior to the occurrence of an Initial Triggering Event
except a termination by Grantee pursuant to Section 7.01(b)(ii) of the Merger
Agreement; or (iii) the passage of six months after termination of the Merger
Agreement if such termination follows the
<PAGE>
occurrence of an Initial Triggering Event or is a termination by Grantee
pursuant to Section 7.01(b)(ii) of the Merger Agreement (provided that if an
Initial Triggering Event continues or occurs beyond such termination and prior
to the passage of such six-month period, the Exercise Termination Event shall be
three months from the expiration of the Last Triggering Event but in no event
more than nine months after such termination). The "Last Triggering Event" shall
mean the last Initial Triggering Event to expire. The term "Holder" shall mean
the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"ISSUER SUBSIDIARY"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition Transaction (as
hereinafter defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and the
rules and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "GRANTEE SUBSIDIARY") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any Acquisition
Transaction or shall have failed to publicly oppose an Acquisition Transaction,
in each case with any person other than Grantee or a Grantee Subsidiary. For
purposes of this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease
or other acquisition of all or a substantial portion of the assets of Issuer or
any Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 20% or more of the voting power of Issuer or any
Significant Subsidiary of Issuer, or (z) any substantially similar transaction;
PROVIDED, HOWEVER, that in no event shall any merger, consolidation, purchase,
liquidation, dividend in kind, reorganization or similar transaction involving
only the Issuer and one or more of its Subsidiaries or involving only any two or
more of such Subsidiaries, be deemed to be an Acquisition Transaction, so long
as any such transaction is not entered into in violation of the terms of the
Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or propose
to engage in, an Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement;
(iii) Issuer terminates the Merger Agreement pursuant
to Section 7.01(d) of the Merger Agreement;
(iv) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in the
ordinary course of its business shall have acquired beneficial ownership or
the right to acquire beneficial ownership of 20% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of this
Option Agreement having the meaning assigned thereto in Section 13(d) of the
1934 Act, and the rules and regulations thereunder);
2
<PAGE>
(v) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its stockholders
by public announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition Transaction; or
(vi) After an overture is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction, Issuer shall
have breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below).
(c) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 30% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in clause (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 30%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "TRIGGERING EVENT"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "NOTICE DATE") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "CLOSING DATE"). Any exercise
of the Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, PROVIDED that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
3
<PAGE>
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 ACT"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder necessary before the Option may be exercised, cooperating fully with
the Holder in preparing such applications or notices and providing such
information to the any federal or state regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
4
<PAGE>
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Subject to Section 8 below, upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within ninety (90) days after such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the 1933 Act covering the resale of any
shares issued pursuant to this Option and the issuance of any shares issuable
pursuant to this Option to the extent then permitted under the rules,
regulations or policies of the SEC and, to the extent not so permitted, the
resale of such shares issuable pursuant to this Option. The Issuer shall use its
reasonable best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("OPTION SHARES") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any
5
<PAGE>
registration statement to be filed hereunder. If requested by any such Holder
in connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer. Upon receiving any request under this Section 6 from
any Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 6, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 6 by reason of the fact that
there shall be more than one Grantee as a result of any assignment or division
of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), subject to Section 8 below, (i) following a request of the
Holder, delivered prior to an Exercise Termination Event, Issuer (or any
successor thereto) shall repurchase the Option from the Holder at a price (the
"OPTION REPURCHASE PRICE") equal to the amount by which (A) the market/offer
price (as defined below) exceeds (B) the Option Price, multiplied by the number
of shares for which this Option may then be exercised and (ii) at the request of
the owner of Option Shares from time to time (the "OWNER") delivered within
ninety (90) days after such occurrence (or such later period as provided in
Section 10), Issuer shall repurchase such number of the Option Shares from the
Owner as the Owner shall designate at a price (the "OPTION SHARE REPURCHASE
PRICE") equal to the market/offer price multiplied by the number of Option
Shares so designated. The term "market/offer price" shall mean the highest of
(i) the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Issuer's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the market/offer
price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or Owner,
as the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the later to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction
6
<PAGE>
involving Issuer or any purchase, lease or other acquisition of all or a
substantial portion of the assets of Issuer, other than any such transaction
which would not constitute an Acquisition Transaction pursuant to the proviso to
Section 2 (b) (i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares of Common
Stock. The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Subsequent Triggering
Event shall have occurred prior to the occurrence of an Exercise Termination
Event.
8. (a) Notwithstanding the terms of Sections 6 and 7 to the contrary,
in the event that Grantee notifies Issuer, after Grantee becomes entitled to do
so under Section 6, that Grantee is exercising its right to require Issuer to
cause the Option Shares to be registered under the 1933 Act pursuant to Section
6 above, at Issuer's option, Issuer may elect (i) to cause the Option Shares to
be registered under the 1933 Act pursuant to Section 6 above or (ii) to
repurchase the Option or the Option Shares by paying to the Grantee the Option
Repurchase Price or Option Share Repurchase Price pursuant to Section 7(b)
notwithstanding the fact that a Repurchase Event shall not have occurred as of
the date Grantee requests that Issuer register the Option Shares. To the extent
that, prior to a Repurchase Event, the Grantee has requested, and the Issuer has
agreed, to cause the Option Shares to be registered under the 1933 Act pursuant
to Section 6 above, the Grantee shall not be entitled to exercise its rights to
cause Issuer to repurchase the Option or the Option Shares pursuant to Section 7
hereof.
(b) Notwithstanding the terms of Sections 6 and 7 to the
contrary, in the event that the Holder or the Owner, as the case may be,
notifies Issuer, after the Holder or the Owner, as the case may be, becomes
entitled to do so under Section 7, that such Holder or Owner is exercising its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to Section 7 hereof, at Issuer's option, Issuer may elect (i) to repurchase the
Option or the Option Shares by paying to such Holder or Owner the Option
Repurchase Price or Option Share Repurchase Price pursuant to Section 7(b), or
(ii) to cause the Option Shares to be registered under the 1933 Act pursuant to
Section 6 above. It is further understood and agreed that, to the extent that
the Issuer has elected pursuant to this Section 8 not to repurchase the Option
or the Option Shares, the Holder or the Owner, as the case may be, shall be
entitled to exercise its rights under Section 6 hereof without limitation
(except as otherwise set forth in such Section 6).
(c) It is understood and agreed by the parties hereto that
Grantee shall not be entitled to exercise its rights under both Sections 6 and 7
hereof.
9. (a) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) of more than $1.5
million; PROVIDED THAT nothing in this sentence shall restrict any exercise of
the Option permitted hereby on any subsequent date..
(b) As used herein, the term "Notional Total Profit" with respect to
any number of shares as to which Grantee may propose to exercise this Option
shall be the Total Profit (as defined below) determined as of the date of such
proposed exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other Option
Shares held by Grantee and its affiliates as of such date, were sold for cash at
the closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
7
<PAGE>
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Grantee pursuant to Issuer's
repurchase of Option Shares (or any portion thereof) pursuant to Section 7, less
(y) the Grantee's purchase price for such Option Shares, (iii) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party, less (y) the Grantee's purchase price of such Option Shares,
and (iv) any amounts received by Grantee on the transfer of the Option (or any
portion thereof) to any unaffiliated party.
10. The 90-day period for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions
8
<PAGE>
hereof, may assign in whole or in part its rights and obligations hereunder
within ninety (90) days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Stock Market
upon official notice of issuance.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
9
<PAGE>
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
OPTICAL SECURITY GROUP, INC.
By: /s/ Richard H. Bard
-------------------------------------
Name: Richard H. Bard
-------------------------------------
Title: Chief Executive Officer
-------------------------------------
APPLIED HOLOGRAPHICS PLC
By: /s/ Michael W. Angus
-------------------------------------
Name: Michael W. Angus
-------------------------------------
Title: Finance Director
-------------------------------------
11
<PAGE>
[letterhead of Wasserstein Perella & Co]
Exhibit 5
November 29, 1999
Board of Directors
Optical Security Group, Inc.
535 16th Street, Suite 920
Denver, CO 80202
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the common stock, par value $0.005 per share
(the "Shares"), of Optical Security Group, Inc. (the "Company") of the
consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of November 29, 1999 (the "Merger
Agreement"), among the Company, Applied Holographics PLC ("Parent"), and
Applied Opsec Corporation ("Sub"). The Merger Agreement provides for, among
other things, a cash tender offer by Sub to acquire all of the outstanding
Shares at a price of $7.00 per Share (the "Tender Offer"), and for a
subsequent merger of Sub with and into the Company pursuant to which each
remaining outstanding Share not purchased in the Tender Offer (other than any
Shares held in the treasury of the Company or owned by Parent, Sub or their
respective subsidiaries and other than Dissenting Shares (as defined in the
Merger Agreement)) will be converted into the right to receive $7.00 in cash
(the "Merger" and, together with the Tender Offer, the "Transaction"). The
terms and conditions of the Transaction are set forth in more detail in the
Offer to Purchase relating to the Tender Offer (the "Offer to Purchase") and
the Merger Agreement. In addition, you have advised us that prior to the
consummation of the Tender Offer, the Company will purchase 100% of the
shares of capital stock of Bridgestone Technologies, Inc., a Delaware
corporation, and 19.9% of the membership interests of each of Label Systems
Acquisition LLC, a Connecticut limited liability company, and Keystone
Imaging Technologies, Inc., a Connecticut limited liability company
(collectively, the "Bridgestone Acquisition"). You have advised us that the
financing to complete the Bridgestone Acquisition will be provided to the
Company by Parent pursuant to the Loan Agreement between Parent and the
Company dated November 29, 1999 (the "Bridgestone Financing").
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company for recent years
and interim periods to date, as well as certain internal financial and
operating information relating to the Company, including unaudited pro forma
condensed financial statements for the fiscal year ended March 31, 1999 and
for the three months ended June 30, 1999 which give effect to the Bridgestone
Acquisition and the Bridgestone Financing, and certain financial forecasts,
analyses and projections, in each case prepared by or on behalf of the
Company and provided to us for purposes of our analysis. We have met with
management of the Company to review
<PAGE>
Board of Directors
November 29, 1999
Page 2
and discuss such information and, among other matters, the Company's
business, operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or
one or more of its businesses or assets, and we have reviewed and considered
the financial terms of certain recent acquisitions and business combination
transactions in the holographic / security industry specifically, and in
other industries generally, that we believe to be relevant to the Transaction
or otherwise pertinent to our inquiry. In addition, we have analyzed and
considered the relative cost to the Company of financing the Bridgestone
Acquisition with (i) the Bridgestone Financing and (ii) the financing
reflected in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders scheduled to be held on December 2, 1999 (including
the pro forma financial information included in such Proxy Statement). We
have also performed such other financial studies, analyses, and
investigations and reviewed such other information as we considered
appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have
assumed and relied upon the accuracy and completeness of all of the
historical and pro forma financial and other information provided to or
discussed with us or publicly available, and we have not assumed any
responsibility for independent verification of any of such information. We
have also assumed and relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to us, and we have
assumed that such projections, forecasts and analyses were reasonably
prepared in good faith and on bases reflecting the best currently available
judgments and estimates of the Company's management as to the future
operating and financial performance of the Company. We express no opinion
with respect to such projections, forecasts and analyses or the assumptions
upon which they are based. In addition, we have not reviewed any of the books
and records of the Company, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of the Company, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company, and no such independent valuation or appraisal
was provided to us. We also have assumed that the transactions described in
the Merger Agreement will be consummated without waiver or modification of
any of the material terms or conditions contained therein by any party
thereto. Our opinion is necessarily based on economic and market conditions
and other circumstances as they exist and can be evaluated by us as of the
date hereof.
It should be noted that in the context of our current engagement by the
Company, we were not authorized to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company or the
equity securities thereof, or investigate any alternative transactions that
may be available to the Company. At the request of the Company, we
participated in limited discussions with certain potential acquirors of the
Company identified by the Company, including Parent.
In the ordinary course of our business, we may actively trade the debt
and equity securities of the Company and Parent for our own account and for
the
<PAGE>
Board of Directors
November 29, 1999
Page 3
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Company in connection with the
proposed Transaction and will receive a fee for our services, a significant
portion of which is contingent upon the consummation of the Transaction, as
well as a fee for rendering this opinion.
Our opinion addresses only the fairness from a financial point of view
to the holders of the Shares of the consideration to be received by such
shareholders pursuant to the Transaction, and we do not express any views on
any other terms of the transactions contemplated by the Merger Agreement.
Specifically, we express no opinion with respect to the terms of the
Bridgestone Acquisition, the Bridgestone Financing or the Stock Option
Agreement, dated November 29, 1999 between the Company and Parent, nor does
our opinion address the Company's underlying business decision to effect any
of the transactions contemplated by the Merger Agreement or the Bridgestone
Acquisition.
It is understood that this letter is for the benefit and use of the
Board of Directors of the Company in its consideration of the Transaction,
and except for inclusion in its entirety in any proxy statement required to
be circulated to shareholders of the Company relating to the Merger or tender
offer recommendation statement on Schedule 14D-9 from the Company to holders
of Shares relating to the Transaction, may not be quoted, referred to or
reproduced at any time or in any manner without our prior written consent.
This opinion does not constitute a recommendation to any shareholder with
respect to whether such holder should tender Shares pursuant to the Tender
Offer or as to how such holder should vote with respect to the Merger, and
should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that as of
the date hereof, the $7.00 per Share cash consideration to be received by the
holders of the Shares pursuant to the Tender Offer and the Merger is fair to
such shareholders from a financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co., Inc.
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
Exhibit 6
[LOGO]
December 6, 1999
Dear Shareholders:
On behalf of the board of directors of Optical Security Group, Inc. (the
"Company"), I am pleased to inform you that on November 30, 1999, the Company
entered into an Agreement and Plan of Merger with Applied Holographics, Plc
("Parent"), and Applied OpSec Corporation ("Purchaser"), a wholly owned
subsidiary of Parent (the "Merger"). Pursuant to the Merger Agreement the
Purchaser is commencing a cash tender offer to purchase all of the outstanding
shares of the Company's common stock at a price of $7.00 per share. Following
the completion of the tender offer, and any approvals required by law, the
Purchaser will be merged with and into the Company, with the Company surviving
the Merger, and each share of the Company's common stock not purchased in the
tender offer (other than any shares owned by the Purchaser, Parent, or
dissenting shareholders) will be converted into the right to receive $7.00 per
share in cash, without interest.
The board of directors of the Company has determined that the tender offer
and the Merger are fair to and in the best interests of the Company's
shareholders and has unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the tender offer and the Merger,
and unanimously recommends that the shareholders of the Company accept the
Purchaser's tender offer and tender their shares thereunder.
In arriving at its recommendation, the board of directors gave careful
consideration to a number of factors more fully described in the accompanying
materials. The board of directors has received the written opinion, dated
November 29, 1999, of Wasserstein, Perella & Co., Inc., the Company's financial
advisor to the effect that, as of such date, and based upon and subject to
certain matters stated therein, the $7.00 per share cash consideration to be
received in the tender offer and the Merger by the holders of the common stock
is fair to such shareholders from a financial point of view.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the tender offer, is the Offer to Purchase of the Purchaser making
the tender offer together with related materials, including a Letter of
Transmittal to be used for tendering your shares. These documents set forth the
terms and conditions of the offer and Merger, and include instructions as to how
to tender your shares. I urge you to read the enclosed materials carefully.
Very truly yours,
/s/ Richard H. Bard
Richard H. Bard
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
Exhibit 7
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made and entered effective
November 29, 1999, by and between Richard H. Bard ("Employee") and Optical
Security Group, Inc. ("the Company").
R E C I T A L S
A. Employee and the Company entered into an Employment Agreement
effective April 1, 1996, an Amendment to Employment Agreement effective March
31, 1998, and a further Amendment to Employment Agreement effective May 14, 1999
(together, the "Employment Agreement").
B. Among other things, the Employment Agreement provides for certain
termination payments, and a stock bonus of company shares in the event of
certain acquisition transactions in which the Company is involved.
C. Simultaneously with the execution of this Amendment to Employment
Agreement, the Company is entering into an Agreement and Plan of Merger (the
"Merger Agreement") with Applied Holographics, plc (the "Buyer"), pursuant to
which the Company will be merged (the "Merger") with a wholly-owned subsidiary
of the Buyer.
D. To facilitate the Merger, which constitutes an acquisition
transaction, the parties hereto have agreed to amend the Employment Agreement as
follows under the terms of this Amendment.
THEREFORE, in consideration of the recitals, the consideration referred
to below, the execution of transaction documents between the Buyer and the
Company, and other good and valuable consideration, the receipt and sufficiency
of which hereby is acknowledged, the parties agree as follows:
1. EMPLOYMENT TERMINATION. Employee's employment shall terminate
effective as of the later to occur of (a) the effective time of the Merger, and
(b) January 31, 2000. Upon such termination, the Company shall have no further
obligations to the Employee, other than the obligations (if not then paid in
full by the Company or the Buyer) to make the payments referred to in paragraphs
2, 4 and 5 below, any payment of
<PAGE>
base salary through the date of termination and any rights to continuation of
benefits under the Employment Agreement which, by their terms, survive the
termination of the Employment Agreement. The Employee shall have the obligations
set out in the Employment Agreement which survive termination, including
obligations of confidentiality and non-competition.
2 BONUS. In recognition of Employee's service to the Company for the
years 1997, 1998 and 1999, Company shall pay to the Employee bonus compensation
in the amounts of $160,000, $200,000 and $240,000 respectively. The parties
agree and acknowledge that such bonus payments, including those for past years
(1) are contemplated in section 3-5 or the Employment Agreement, and the payment
of which has been limited by the Company's ability to pay such bonuses, and (2)
are reasonable compensation for Employee's services to the Company during such
periods of time, in view of his past experience and salary history, his pivotal
role in the management of the Company, and in view of his having been
compensated at less than a reasonable amount for that period of time.
3. TERMINATION PAYMENT. The termination payment provisions contained in
Section 12 of the Employment Agreement are deleted in their entirety.
4. OPTIONS. Employee acknowledges and agrees that in the Merger
Agreement, Buyer has agreed to pay to Employee, promptly after the effective
time of the Merger, the sum of $250,000 in full satisfaction of Employee's
options to acquire 147,000 shares of Company common stock. Employee acknowledges
that after receipt of such payment, Employee shall have no other rights against
the Company or Buyer with respect to such options.
5. STOCK BONUS. Employee acknowledges and agrees that in the Merger
Agreement, Buyer has agreed to pay to Employee, promptly after the effective
time of the Merger, the sum of $3,500,000 in full satisfaction of Employee's
right to a stock bonus provided under paragraph 3-5 of the Employment Agreement
and as otherwise allocated in the manner agreed to by Buyer, Seller and
Employee. Employee acknowledges that after receipt of such payment, Employee
shall have no other rights against the Company or Buyer with respect to such
stock bonus.
<PAGE>
6. NO OTHER CHANGE. In all other respects, the Employment Agreement
shall remain unmodified and in full force and effect.
EXECUTED as of the day and year first above written.
EMPLOYEE:
/s/ RICHARD H. BARD
-------------------------------------
Richard H. Bard
OPTICAL SECURITY GROUP, INC.
By: /s/ Mark T. Turnage
-------------------------------------
Title: President
-------------------------------------
<PAGE>
Exhibit 8
FOR IMMEDIATE RELEASE: NOVEMBER 30, 1999
OPTICAL SECURITY GROUP, INC. ("OPSEC")
AGREES TO MERGE WITH APPLIED HOLOGRAPHICS PLC ("APPLIED")
DENVER: Optical Security Group, Inc. (NASDAQ SmallCap Market: OPSC) today
announced that it has signed a Merger Agreement with Applied Holographics Plc
(LSE: APH) a company based in Tyne and Wear in the United Kingdom. In accordance
with the Agreement, Applied will launch a cash tender offer on or before
December 6, 1999, for all of the common shares of OpSec at $7.00 per share. Upon
the successful completion of the tender offer process, the parties intend to
effect a merger.
The Company further announced that, following the merger, Mr. Mark T. Turnage,
President and Chief Operating Officer of OpSec, will also be an Officer and
Director of Applied; and, Mr. Richard H. Bard will resign as OpSec's Chairman
and Chief Executive Officer, and has agreed to act in an advisory capacity to
Applied's Board of Directors.
OpSec was advised in the transaction by Wasserstein Perella & Co., Inc.
Commenting on the merger, Richard H. Bard said, "This transaction combines two
quality security authentication companies to create a more efficient and larger
competitor in this growing global industry. We believe that the technology focus
and manufacturing expertise at Applied will add value to our existing customer
relationships." He added, "The Board of Directors of OpSec unanimously endorse
this transaction in light of the value being created by this strategic
combination. OpSec's shareholders clearly will have liquidity that has not been
available to them."
Dr. David Tidmarsh, Chief Executive Officer of Applied, said, "We are delighted
to have the opportunity to combine with OpSec's management team and growing
industry presence. The merger gives Applied increased capacity, new product
offerings, and a substantial industry presence in North America."
Simultaneously with the execution of the Merger Agreement, OpSec also granted
Applied an option to acquire newly-issued shares of OpSec common stock in amount
equal to 19.9% of the outstanding common stock of OpSec.
OpSec is a leading provider of imaging technology and optical coatings, which
are employed in tamper-evident packaging labels; authenticating labels; threads
and tags for branded product protection and for authentication of critical
machine parts and pharmaceuticals. OpSec's laminates and security foils are used
to protect against counterfeiting of documents of value, checks and cards.
<PAGE>
Optical Security Group, Inc.
November 30, 1999
Page 2
This press release contains forward-looking statements that involve risks and
uncertainties, which could cause the Company's actual results to differ
materially from the results discussed herein. Factors that might cause such a
difference include, but are not limited to, changes in demand for the Company's
products and services, changes in the level of operating expenses, competitive
conditions and product supply. Recipients of this press release are cautioned
not to place undue reliance on the forward-looking statements made herein.
OpSec's corporate offices are located in Denver, Colorado.
FOR FURTHER INFORMATION CONTACT:
Julie A. Holland, Corporate Secretary
Optical Security Group, Inc.
535 Sixteenth Street, Suite 920
Denver, Colorado 80202
Tel: (303) 534-4500
Fax: (303) 534-1010
