<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission File Number 0-18347
SULLIVAN DENTAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 36-3070444
--------- ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10920 WEST LINCOLN AVENUE, WEST ALLIS, WISCONSIN 53227
- ------------------------------------------------ ------
(Address of principal executive offices) (Zip Code)
(414) 321-8881
----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past ninety (90) days.
Yes X No
---- ----
As of August 1, 1997, 10,027,951 shares of common stock, .01 par value,
were outstanding.
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
INDEX
PAGE
PART I Item 1 - Financial Information 1
Balance Sheets as of June 30, 1997
and December 31, 1996 1-2
Statements of Income for the three months and six
months ended June 30, 1997 and 1996 3
Statements of Cash Flows for the three months and six months
ended June 30, 1997 and 1996 4
Notes to Financial Statements 5-7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-10
PART II Item 4 - Submission of Matters to a Vote of
Security Holders 11
Item 5 - Other Information 11-12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I FINANCIAL INFORMATION
SULLIVAN DENTAL PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
ASSETS --------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $187,532 $50,217
Commercial paper -- cash equivalent - 500,000
Accounts receivable:
Trade, less allowance for uncollectible accounts 37,388,425 35,093,051
Other 321,844 180,617
Inventory 41,650,368 40,399,951
Prepaid expenses and income taxes 2,298,415 1,752,373
---------- ----------
Total current assets 81,846,584 77,976,209
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Warehouse and office equipment 8,334,506 7,794,591
Transportation equipment 3,340,961 3,106,327
Leasehold improvements 1,502,175 1,367,264
---------- ----------
13,177,642 12,268,182
Less accumulated depreciation and amortization 6,309,426 5,577,684
---------- ----------
Net equipment and leasehold improvements 6,868,216 6,690,498
OTHER ASSETS:
Goodwill 19,372,847 16,043,511
Other 318,533 340,068
------------ -------------
$108,406,180 $ 101,050,286
============ =============
</TABLE>
See notes to financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 15,195,894 $15,241,950
Accrued expenses:
Salaries, commissions and benefits 2,853,823 3,105,005
Other 4,623,038 4,944,268
Dividends payable 500,585 484,113
----------- -----------
Total current liabilities 23,173,340 23,775,336
DEFERRED INCOME TAXES 816,000 816,000
STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value; 500,000 shares
authorized, none issued - -
Common stock--$.01 par value; 30,000,000 shares
authorized, 10,083,947 and 9,982,747 shares issued
in 1997 and 1996, respectively 100,839 99,827
Paid-in capital 41,167,426 38,702,016
Retained earnings 44,081,416 40,469,320
----------- -----------
Total 85,349,681 79,271,163
Less treasury stock at cost(75,496 and
300,496 shares in 1997 and 1996, respectively) (932,841) (2,812,213)
----------- -----------
Total stockholders' equity 84,416,840 76,458,950
----------- -----------
$108,406,180 $ 101,050,286
============ =============
</TABLE>
See notes to financial statements.
-2-
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $68,210,739 $58,496,802 $ 128,391,745 $112,957,115
Cost of sales 44,687,972 38,603,853 84,149,408 74,438,739
----------- ----------- ------------- ------------
Gross profit 23,522,767 19,892,949 44,242,337 38,518,376
Operating expenses 19,004,349 16,882,011 36,960,621 33,348,795
----------- ----------- ------------- ------------
Operating income 4,518,418 3,010,938 7,281,716 5,169,581
Interest expense (3,549) (60,418) (14,523) (206,138)
Other income, principally interest 92,538 136,479 417,179 418,117
----------- ----------- ------------- ------------
Income before provision for income taxes 4,607,407 3,086,999 7,684,372 5,381,560
Provision for income taxes 1,843,000 1,235,000 3,074,000 2,153,000
----------- ----------- ------------- ------------
Net income $ 2,764,407 $ 1,851,999 $ 4,610,372 $ 3,228,560
=========== =========== ============ ============
Net income per common and common
equivalent share $ 0.26 $ 0.20 $ 0.44 $ 0.35
Weighted average common shares 10,656,000 9,383,000 10,521,000 9,351,000
</TABLE>
See notes to financial statements.
-3-
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $2,764,407 $1,851,999 $ 4,610,372 $ 3,228,560
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 701,109 513,700 1,345,680 1,017,578
Loss (gain) on sale of equipment 12,995 (10,044) 31,955 (19,598)
Provision for losses on accounts receivable 75,000 105,000 150,000 210,000
Changes in assets and liabilities, net of acquired businesses:
(Increase) decrease in accounts receivable--trade (6,030,927) (2,321,601) (2,373,665) 1,315,587
(Increase) decrease in accounts receivable--other (121,607) 361,844 (141,227) 1,014,350
(Increase) decrease in inventory (345,497) 936,384 (1,250,417) 5,150,632
(Increase) in prepaid expenses and income taxes (618,608) (1,385,348) (546,042) (459,357)
(Increase) in other assets (6,523) (71,148) (3,965) (72,148)
(Decrease) increase in accounts payable (103,003) 1,923,169 (164,434) (3,156,287)
(Decrease) increase in accrued expenses-- salaries
commissions and benefits 1,350,664 879,836 (251,182) 27,324
(Decrease) increase in accrued expenses--other 473,007 1,810,528 (321,230) 1,460,704
(Decrease) in income taxes payable (972,877) (367,697) - -
------------ ----------- ----------- ----------
Net cash provided by (used in) operating activities (2,821,860) 4,226,622 1,085,845 9,717,345
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets, net of cash received 167 - 167 -
Purchase of equipment and leasehold improvements (832,752) (552,387) (1,119,920) (1,002,887)
Proceeds from sale of equipment 4,752 54,416 17,227 76,766
------------ ----------- ----------- ----------
Net cash (used in) investing activities (827,833) (497,971) (1,102,526) (926,121)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in notes payable to banks - (3,000,000) - (8,175,000)
Purchase of treasury stock (277,503) (307,503) (552,503) (307,503)
Dividends paid (497,685) (451,812) (981,798) (451,812)
Proceeds from stock options exercised 772,270 - 983,570 -
Tax benefit of stock options exercised 172,783 - 204,727 -
------------ ----------- ----------- ----------
Net cash (used in) provided by financing activities 169,865 (3,759,315) (346,004) (8,934,315)
------------ ----------- ----------- ----------
NET (DECREASE)IN CASH AND CASH EQUIVALENTS (3,479,828) (30,664) (362,685) (143,091)
CASH AND CASH EQUIVALENTS, beginning of period 3,667,360 60,055 550,217 172,482
------------ ----------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 187,532 $29,391 $187,532 $29,391
============ =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $3,549 $54,918 $14,523 $236,770
Income taxes 2,805,510 1,793,320 3,014,837 1,895,302
</TABLE>
See notes to financial statement.
-4-
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The financial statements have been prepared by the Company, without audit by
independent certified public accountants, in accordance with generally
accepted accounting principles for interim financial information and pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations since the Company believes that the disclosures contained herein
are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and notes included in the Company's 1996 Annual Report on Form
10-K. In the opinion of the Company, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company as of June 30, 1997, as well as the results of
operations and the cash flows for the three and six months ended June 30,
1997 and 1996, have been included.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
INVENTORY:
The Company measures inventory and cost of sales for interim financial
statements by use of a historically developed gross profit percentage.
Annually, the Company adjusts the inventory to reflect the results of a
physical count.
NET INCOME PER SHARE:
Net income per share and the dilutive effect on net income per share of
potentially dilutive stock options are computed by the treasury stock method.
Common stock equivalents result from the assumed issuance of shares under stock
option plans.
CASH FLOWS:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. The change in assets and liabilities in the
operating section of the statement of cash flows for the six months ended
June 30, 1997, is reflected net of the effects of the acquisitions
consummated.
-5-
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
NOTE B - ACQUISITIONS
On February 14, 1997, the Company purchased substantially all of the assets
and assumed certain liabilities of Omega Professional Services, Inc. (OMEGA),
a Utah based equipment leasing company, in exchange for 200,000 shares of
common stock of the Company valued at $2,800,000. The excess of cost over
the fair value of assets acquired (goodwill) was approximately $2,814,000 and
is being amortized over twenty years on a straight-line basis.
On February 21, 1997, the Company purchased substantially all of the assets
and assumed certain liabilities of S. B. Service, a Connecticut based
sterilization equipment repair company, in exchange for 65,000 shares of
common stock of the Company valued at $910,000. The excess of cost over the
fair value of assets acquired (goodwill) was approximately $934,000 and is
being amortized over twenty years on a straight-line basis.
These acquisitions were accounted for under the purchase method of
accounting. The accompanying statements of income for 1997 include the
operations of OMEGA and S. B. Service since the date of acquisition. The
effect of these acquisitions on the Company's results of operations on a pro
forma basis was not material. Both of these acquisitions were purchased with
treasury stock.
The effect on common stock, paid-in capital and treasury stock as of June 30,
1997, of these acquisitions, certain stock options exercised and the
repurchase of treasury stock (Note C) is as follows:
<TABLE>
<CAPTION>
Common Paid-In Treasury
Stock Capital Stock
--------- ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ 99,827 $38,702,016 $(2,812,213)
Shares issued in connection
with the OMEGA acquisition - 1,025,000 1,775,000
Shares issued in connection
with the S. B. Service acquisition - 253,126 656,875
Shares issued in connection
with stock options exercised 1,012 982,557 -
Tax benefit of stock options exercised - 204,727 -
Shares repurchased (Note C) - - (552,503)
---------- ----------- ----------
Balance, June 30, 1997 $100,839 $41,167,426 $(932,841)
========== =========== ==========
</TABLE>
-6-
<PAGE>
SULLIVAN DENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
NOTE B - ACQUISITIONS (CONTINUED)
The following acquisitions are expected to close during the third quarter of
1997. These acquisitions will be accounted for under the purchase method of
accounting. The value of the shares exchanged and the value of the goodwill
will be determined on the date of closing:
On June 16, 1997 the Company announced that it had reached an agreement
in principle to purchase substantially all of the assets and assume
certain liabilities of Jennifer de St. Georges & Associates, Inc., a
San Jose, California based practice management company, in exchange for
65,000 shares of common stock of the Company.
On July 2, 1997 the Company announced that it had reached an agreement in
principle to purchase certain assets of Professional Practice Transitions,
L.L.C., a Green Bay, Wisconsin based dental practice brokerage company,
in exchange for $250,000.
On July 8, 1997 the Company announced that it had reached an agreement in
principle to purchase substantially all of the assets and assume certain
liabilities of Twenty-First Century Corporation, a Fort Wayne, Indiana
based dental supply, equipment and service company, in exchange for 79,000
shares of common stock of the Company.
On July 8, 1997 the Company announced that it had reached an agreement in
principle to purchase substantially all of the assets and assume certain
liabilities of G.A.L.T., Incorporated, a Fort Wayne, Indiana based dental
equipment and service company, in exchange for 6,000 shares of common
stock of the Company.
NOTE C - TREASURY STOCK
During February 1997, the Company repurchased 20,000 shares of its own common
stock in the open market for $275,000. During April 1997, the Company also
repurchased 20,000 shares of its own common stock in the open market for
$277,503.
NOTE D - DIVIDENDS
On March 20, 1997, the Company declared a cash dividend of $.05 per share
payable April 21, 1997, to stockholders of record on April 10, 1997. On June
20, 1997, the Company declared a cash dividend of $.05 per share payable July
21, 1997, to stockholders of record on July 10, 1997. Total dividends are
$998,270.
NOTE E - SUBSEQUENT EVENT
On August 4, 1997 the Company announced that it had entered into a merger
agreement with Henry Schein, Inc. (Henry Schein), an international distributor
of dental, medical and veterinary products. Under the terms of the agreement,
Henry Schein will acquire the Company in a stock-for-stock merger. The
outstanding shares of the Company will be exchanged at a fixed rate exchange
ratio of .735 of a share of Henry Schein for each share of the Company. The
merger is expected to close in the fourth quarter of 1997 and is subject to each
company's shareholder approval, various filings with the Securities and Exchange
Commission and other provisions as defined in the contract. The merger will be
accounted for as a pooling of interest and is expected to be tax-free to the
Company's shareholders.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net sales for the three months ended June 30, 1997 ("Current Quarter") were
$68,211,000, an increase of $9,714,000, or 16.6%, over the three months ended
June 30, 1996 ("Prior Quarter"). The $9,714,000 increase in net sales was
substantially due to increased unit sales and, to a lesser extent, price
increases. The growth in unit sales was generated primarily by increased
penetration in existing markets and the acquisitions of Mountain West Dental
Company, Inc. and Capital Dental Supply, Inc., which occurred in September
and November of 1996, respectively.
Sales of dental supplies comprised 64.7% of net sales in the second quarter
versus 67.8% during the same period in 1996. Sales of dental equipment
constituted 29.3% of net sales in the Current Quarter versus 25.7% in the
Prior Quarter. The balance of sales in each period consisted primarily of
repair service and parts. The change in product mix is largely due to the
opening of 7 new equipment sales and service centers in the last 12 month
which, when adjusting for the closing of one center, brings the total number
of equipment sales and service centers to 52 nationwide.
Gross profit rose $3,630,000, or 18.3%, to $23,523,000, in the Current
Quarter compared to the Prior Quarter, primarily as the result of increased
sales. Gross profit as a percentage of net sales increased to 34.5% in the
second quarter of 1997 from 34.0% for the same period in 1996, primarily as a
result of more efficient buying programs and the equipment leasing operation
that was developed in conjunction with the acquisition of Omega Professional
Services, Inc., a Utah based equipment leasing company ("Omega").
Operating expenses rose $2,122,000, or 12.6%, to $19,004,000, in the second
quarter of 1997 compared to $16,882,000 in the second quarter of 1996 but,
more significantly, decreased as a percentage of net sales to 27.9% from
28.9% over the same period last year. Of this increase in operating
expenses, $1,574,000 resulted from increased salaries and commissions due to
higher sales creating higher commissions.
Operating income in the Current Quarter increased from the Prior Quarter by
$1,507,000 to $4,518,000 due to the increase in sales and better control of
operating expenses. Interest expense fell by $57,000 to $3,500 primarily due
to reduced use of the Company's credit line.
Net income increased by $912,000, or 49.3%, in the second quarter of 1997 as
compared to such period in 1996. Net income per share rose to $.26 for the
second quarter of 1997 as compared to $.20 per share for the corresponding
period in 1996. Such increases to net income and income per share are due to
the factors identified above.
-8-
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net sales for the six months ended June 30, 1997 ("Current Period") were
$128,392,000, an increase of $15,435,000, or 13.7%, over the six months ended
June 30, 1996 ("Prior Period"). The $15,435,000 increase in net sales was
substantially due to increased unit sales and, to a lesser extent, price
increases. The growth in unit sales was generated largely by increased
penetration in existing markets.
Sales of dental supplies comprised 67.2% of net sales in the first half of
1997 versus 69.1% during the same period in 1996. Sales of dental equipment
constituted 26.5% of net sales in the Current Period versus 24.1% in the
Prior Period.
Gross profit rose $5,724,000, or 14.9%, in the first half of 1997, compared
to the same period last year, primarily as a result of increased sales.
Gross profit as a percentage of net sales increased in the Current Period to
34.5% from 34.1% for the Prior Period in 1996 primarily as a result of more
efficient buying programs and the equipment leasing operation that was
developed in conjunction with the acquisition of Omega.
Operating expenses for the Current Period rose $3,612,000, or 10.8%, compared
to the Prior Period but, more significantly, decreased as a percentage of net
sales to 28.8% from 29.5% over the same period last year. Of this increase
in operating expenses, $2,498,000 resulted from increased salaries and
commissions due to higher sales creating higher commissions.
Operating income in the Current Period increased from the Prior Period by
$2,112,000 to $7,282,000 due to the factors identified above. Interest
expense decreased by $192,000 to $15,000 due to reduced use of the Company's
credit line.
Net income increased by $1,382,000, or 42.8%, in the first half of 1997 as
compared to the same period last year. Net income per share increased to
$.44 per share from $.35 per share during the Current Period compared to the
Prior Period. Such increases to net income and income per share are due to
the factors identified above.
LIQUIDITY AND CAPITAL RESOURCES
The Company, pursuant to a stock repurchase plan which authorized the
purchase of up to 500,000 shares, has to date repurchased 320,000 shares of
its common stock from the public at various prices with an average price of
approximately $9.66 per share, which repurchases total $3,091,353.
The Company had no short term investments at June 30, 1997, compared to
$500,000 at December 31, 1996.
-9-
<PAGE>
Accounts receivable of $37,388,000 at June 30, 1997, increased $2,295,000, or
6.5%, compared to December 31, 1996.
Inventories increased $1,250,000, or 3.1%, from December 31, 1996.
Working capital at June 30, 1997 was $58,673,000, an increase of $4,472,000
over December 31, 1996 reflecting net income of $4,610,000 increased by stock
options exercised of $1,188,000, reduced by dividends of $998,000 and the
purchase of treasury stock of $553,000.
Cash and cash equivalents as of June 30, 1997 decreased by $363,000 from
December 31, 1996. Cash was used for equipment purchases ($1,120,000),
purchase of treasury stock ($553,000) and to pay dividends ($982,000) and was
primarily provided by operations ($1,086,000) and stock options exercised
($984,000).
Net cash provided by operating activities for the six months ended June 30,
1997, of $1,086,000 was primarily as a result of net income adjusted for
depreciation and bad debts offset by increases in accounts receivable,
inventory and prepaid expenses.
Other assets, net of amortization, as of June 30, 1997 increased $3,307,000
to $19,691,000 compared to $16,384,000 at December 31, 1996. This increase
is due to the goodwill attributable to the acquisition of Omega in the amount
of $2,814,000 and S.B. Service in the amount of $934,000 offset by the
amortization of goodwill and customer lists in the amount of $444,000.
The Company expects that the $23,000,000 of available lines of credit,
against which there were no borrowings as of June 30, 1997, together with
internally generated funds, is sufficient to meet currently foreseeable
short-term and long-term liquidity and capital needs of the Company.
On February 14, 1997, the Company purchased substantially all of the assets
and assumed certain liabilities of Omega in exchange for 200,000 shares of
common stock of the Company as more fully described in the footnotes to the
financial statements.
On February 21, 1997, the Company purchased substantially all of the assets
and assumed certain liabilities of S.B. Service, a Connecticut based
sterilization equipment repair company, in exchange for 65,000 shares of
common stock of the Company as more fully described in the footnotes to the
financial statements.
-10-
<PAGE>
On March 20, 1997, the Company declared a cash dividend of $.05 per share for
stockholders of record on April 10, 1997 which dividend was payable on April
21, 1997.
On June 20, 1997, the Company declared a cash dividend of $.05 per share for
stockholders of record on July 10, 1997 which dividend was payable on July
21, 1997.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 13, 1997 and the
following directors were elected, having received votes as follows:
Authority Authority
Director Granted Withheld
--------- --------- ----------
Robert J. Sullivan 8,003,554 1,136,501
Robert E. Doering 8,004,324 1,135,731
Wayne G. Holt 8,002,854 1,137,201
Kevin J. Ackeret 8,002,724 1,137,331
Timothy J. Sullivan 8,002,869 1,137,186
Howard O. Wolfe 8,000,854 1,139,201
Kerry B. Wolfe 8,001,724 1,138,331
The shareholders also approved the Board of Directors Resolution to increase
the number of shares authorized for issuance pursuant to the Company's 1995
Long-Term Incentive Stock Plan from 750,000 to 1,500,000. The vote was
6,795,555 in favor, 1,592,060 opposed and 18,425 abstentions.
ITEM 5. OTHER INFORMATION
On June 16, 1997, the Company announced that it had reached an agreement in
principle to purchase substantially all of the assets and assume certain
liabilities of Jennifer de St. Georges & Associates, Inc., a San Jose,
California based practice management company, in exchange for 65,000 shares
of common stock of the Company.
On July 2, 1997, the Company announced that it had reached an agreement in
principle to purchase certain assets of Professional Practice Transitions,
L.L.C., a Green Bay, Wisconsin based dental practice brokerage company, in
exchange for $250,000.
-11-
<PAGE>
On July 8, 1997, the Company announced that it had reached an agreement in
principle to purchase substantially all of the assets and assume certain
liabilities of Twenty-First Century Corporation, a Fort Wayne, Indiana based
dental supply, equipment and service company, in exchange for 79,000 shares
of common stock of the Company.
On July 8, 1997, the Company announced that it had reached an agreement in
principle to purchase substantially all of the assets and assume certain
liabilities of G.A.L.T., Incorporated, a Fort Wayne, Indiana based dental
equipment and service company, in exchange for 6,000 shares of common stock
of the Company.
On August 3, 1997, the Company entered into an agreement and plan of merger
with Henry Schein, Inc. ("Schein") and HSI Acquisition Corp., a wholly-owned
subsidiary of Schein ("HSI"). Pursuant to the merger agreement, HSI will be
merged with and into the Company and the Company will become a wholly-owned
subsidiary of Schein. Pursuant to the merger agreement, the common stock of
the Company will be exchanged at a fixed rate exchange ratio of .735 of a
share of common stock of Schein for each outstanding share of common stock of
the Company. The merger will be accounted for as a pooling of interests and
is expected to be tax-free to the stockholders of the Company. The merger is
subject to the approval of the stockholders of the Company and Schein and the
fulfillment of certain other conditions set forth in the merger agreement.
The foregoing summary of the terms of the merger agreements is qualified in
its entirety by reference to the provisions of the merger agreement, a copy
of which is filed as an exhibit to this report and is hereby incorporated
herein by reference.
ITEM 6.
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- ------------
2 Agreement and Plan of Merger by and among Henry
Schein, Inc., HSI Acquisition Corp. and Sullivan
Dental Products, Inc. dated August 3, 1997
b. Reports on Form 8-K
The Company was not required to, and did not, file a Form 8-K during the
period covered by this report.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SULLIVAN DENTAL PRODUCTS, INC.
(Registrant)
By /s/ Timothy J. Sullivan
Dated: August 13, 1997 ------------------------------------
TIMOTHY J. SULLIVAN, President
and Principal Financial Officer
-13-
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
by and among
HENRY SCHEIN, INC.,
HSI ACQUISITION CORP.
and
SULLIVAN DENTAL PRODUCTS, INC.
Dated August 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Effective Time of the Merger.. . . . . . . . . . . . . . . .2
Section 1.3 Closing . . . . . . . . . . .. . . . . . . . . . . . . . . .2
ARTICLE II THE SURVIVING CORPORATION. . .. . . . . . . . . . . . . . . .2
Section 2.1 Articles of Incorporation . .. . . . . . . . . . . . . . . .2
Section 2.2 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.3 Directors and Officers of Surviving Corporation. . . . . . .2
ARTICLE III CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . .3
Section 3.1 Exchange Ratio. . . . . . . . . . . . . . . . . . . . . . .3
Section 3.2 Exchange of Company Common Stock; Procedures.. . . . . . . .3
Section 3.3 Dividends; Transfer Taxes, Escheat. . . . . .. . . . . . . .4
Section 3.4 No Fractional Securities. . . . . . . . . . .. . . . . . . .4
Section 3.5 Closing of Company Transfer Books . . . . . .. . . . . . . .5
Section 3.6 Further Assurances. . . . . . . . . . . . . .. . . . . . . .5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . .5
Section 4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . .5
Section 4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . .6
Section 4.3 Company Subsidiaries. . . . . . . . . . . . . . . . . . . .7
Section 4.4 Authority Relative to this Agreement. . . . . . . . . . . .7
Section 4.5 Consents and Approvals; No Violations . . . . . . . . . . .7
Section 4.6 Reports and Financial Statements. . . . . . . . . . . . . . 8
Section 4.7 Absence of Certain Changes or Events; Material Contracts. . 8
Section 4.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.9 Absence of Undisclosed Liabilities. . . . . . . . . . . . . 9
Section 4.10 No Default. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.12 Title to Properties; Encumbrances . . . . . . . . . . . . .10
Section 4.13 Intellectual Property . . . . . . . . . . . . . . . . . . .11
Section 4.14 Compliance with Applicable Law. . . . . . . . . . . . . . .11
Section 4.15 Information in Disclosure Documents and Registration
Statement. . . . . . . . . . . . . . . . . . . . . . . . .12
Section 4.16 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . .12
Section 4.17 Environmental Laws and Regulations. . . . . . . . . . . . .14
Section 4.18 Vote Required . . . . . . . . . . . . . . . . . . . . . . .15
Section 4.19 Opinion of Financial Advisor. . . . . . . . . . . . . . . .15
Section 4.20 Accounting Matters. . . . . . . . . . . . . . . . . . . . .15
Section 4.21 WBCL Sections 1131, 1134 and 1141 . . . . . . . . . . . . .15
<PAGE>
Section 4.22 Labor Matters . . . . . . . . . . . . . . . . . . . . . . .15
Section 4.23 Affiliate Transactions. . . . . . . . . . . . . . . . . . .15
Section 4.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 4.25 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . .16
Section 4.26 Accounts Receivable . . . . . . . . . . . . . . . . . . . .16
Section 4.27 Inventory . . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . .16
Section 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.3 Authority Relative to this Agreement . . . . . . . . . . . .17
Section 5.4 Consents and Approvals No Violations . . . . . . . . . . . .17
Section 5.5 Reports and Financial Statements . . . . . . . . . . . . . .18
Section 5.6 Absence of Certain Changes or Events; Material Contracts . .18
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 5.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . .19
Section 5.9 No Default . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 5.10 Compliance with Applicable Law . . . . . . . . . . . . . . .19
Section 5.11 Information in Disclosure Documents and Registration
Statement . . . . . . . . . . . . . . . . . . . . . . . .20
Section 5.12 Vote Required. . . . . . . . . . . . . . . . . . . . . . . .20
Section 5.13 Opinion of Financial Advisor . . . . . . . . . . . . . . . .20
Section 5.14 Accounting Matters . . . . . . . . . . . . . . . . . . . . .21
Section 5.15 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 5.16 Acceleration of Parent Stock Options . . . . . . . . . . . .21
Section 5.17 Parent Subsidiaries. . . . . . . . . . . . . . . . . . . . .21
Section 5.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 5.19 Title to Properties; Encumbrances. . . . . . . . . . . . . .22
Section 5.20 Intellectual Property. . . . . . . . . . . . . . . . . . . .23
Section 5.21 Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . .23
Section 5.22 Environmental Laws and Regulations . . . . . . . . . . . . .25
Section 5.23 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . .25
Section 5.24 Affiliate Transactions . . . . . . . . . . . . . . . . . . .25
Section 5.25 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . .26
Section 5.26 Accounts Receivable. . . . . . . . . . . . . . . . . . . . .26
Section 5.27 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . .26
Section 6.1 Conduct of Business by the Company Pending the Merger . . .26
Section 6.2 Conduct of Business by Parent Pending the Merger. . . . . .28
Section 6.3 Conduct of Business of Sub. . . . . . . . . . . . . . . . .28
ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . .28
Section 7.1 Access and Information. . . . . . . . . . . . . . . . . . .28
Section 7.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . .29
<PAGE>
Section 7.3 Registration Statement . . . . . . . . . . . . . . . . . . .30
Section 7.4 Proxy Statements; Stockholder Approvals . . . . . . . . . .31
Section 7.5 Compliance with the Securities Act . . . . . . . . . . . . .31
Section 7.6 Reasonable Best Efforts . . . . . . . . . . . . . . . . . .32
Section 7.7 Irrevocable Proxy and Termination Rights Agreement . . . . .32
Section 7.8 Company Stock Options . . . . . . . . . . . . . . . . . . .32
Section 7.9 Public Announcements . . . . . . . . . . . . . . . . . . . .33
Section 7.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 7.11 Listing Application. . . . . . . . . . . . . . . . . . . . .34
Section 7.12 Supplemental Disclosure. . . . . . . . . . . . . . . . . . .34
Section 7.13 Letters of Accountants . . . . . . . . . . . . . . . . . . .34
Section 7.14 Directors of Parent. . . . . . . . . . . . . . . . . . . . .34
Section 7.15 Indemnification. . . . . . . . . . . . . . . . . . . . . . .34
Section 7.16 Solicitation of Employees and Representatives. . . . . . . .35
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . 35
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.35
Section 8.2 Conditions to Obligations of Parent and Sub to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . . . .37
Section 8.3 Conditions to Obligation of the Company to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . .38
ARTICLE IX TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . .38
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . .38
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . .40
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . .41
Section 10. 1 Amendment and Modification . . . . . . . . . . . . . . . .41
Section 10.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 10.3 Survivability; Investigations. . . . . . . . . . . . . . .42
Section 10.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .42
Section 10.5 Descriptive Headings; Interpretation . . . . . . . . . . .43
Section 10.6 Entire Agreement; Assignment . . . . . . . . . . . . . . .43
Section 10.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . .43
Section 10.8 Severability . . . . . . . . . . . . . . . . . . . . . . .43
Section 10.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . .44
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated August 3, 1997, by and among Henry Schein,
Inc., a Delaware corporation ("Parent"), HSI Acquisition Corp., a Wisconsin
corporation and wholly-owned subsidiary of Parent ("Sub"), and Sullivan
Dental Products, Inc., a Wisconsin corporation (the "Company").
The Boards of Directors of Parent and Sub and the Company deem it advisable
and in the best interests of their respective stockholders that Parent
acquire the Company pursuant to the terms and conditions of this Agreement,
and, in furtherance of such acquisition, such Boards of Directors have
approved the merger of Sub with and into the Company in accordance with the
terms of this Agreement, the General Corporation Law of the State of Delaware
(the "DGCL") and the Wisconsin Business Corporation Law (the "WBCL").
Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to Parent's willingness to enter into this
Agreement, certain holders of shares of the common stock, par value $.01 per
share (the "Company Common Stock"), of the Company are entering into an
agreement with Parent and Sub in the form attached hereto as Exhibit A (the
"Irrevocable Proxy and Termination Rights Agreement") granting Parent the
right to vote such shares of the Company Common Stock and granting Parent the
right to receive a portion of the proceeds from the sale of such shares under
certain circumstances in accordance with the terms set forth in the
Irrevocable Proxy and Termination Rights Agreement.
For federal income tax purposes, it is intended that the Merger (as defined
in Section 1.1) shall qualify as a reorgani zation within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
For accounting purposes, it is intended that the Merger shall be accounted
for as a pooling of interests.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. In accordance with the provisions of this
Agreement, the DGCL and the WBCL, at the Effective Time (as defined in
Section 1.2), Sub shall be merged with and into the Company (the "Merger"),
the separate existence of Sub shall thereupon cease, and the Company shall be
the surviving corporation in the Merger (sometimes hereinafter called the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Wisconsin. The Merger shall have the effects set forth
in Section 1106 of the WBCL.
<PAGE>
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at the time of filing of or at such later time specified in, a
properly executed Certificate of Merger, in the form required by and executed
in accordance with the WBCL, filed with the Secretary of State of the State
of Wisconsin in accordance with the provisions of Chapter 180 of the WBCL.
Such filing shall be made as soon as practicable after the Closing (as
defined in Section 1.3). When used in this Agreement, the term "Effective
Time" shall mean the date and time at which the Merger shall become effective.
Section 1.3 CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of
Proskauer Rose LLP, 1585 Broadway, New York, New York, at 10:00 a.m., on the
day on which all of the conditions set forth in Article VIII are satisfied or
waived or on such other date and at such other time and place as Parent and
the Company shall agree (such date, the "Closing Date").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 ARTICLES OF INCORPORATION. The Articles of
Incorporation of Sub in effect at the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation until amended in accordance
with applicable law, except that the name of the Surviving Corporation shall
be "Sullivan Dental Products, Inc."
Section 2.2 BY-LAWS. The By-Laws of Sub as in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with applicable law.
Section 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation or By-Laws of the Surviving Corporation or as otherwise
provided by law.
(b) The officers of the Company at the Effective Time shall be the
initial officers of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation or By-Laws of the Surviving Corporation, or as otherwise
provided by law.
2
<PAGE>
ARTICLE III
CONVERSION OF SHARES
Section 3.1 EXCHANGE RATIO. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled in
accordance with Section 3.1(b)) shall be converted into the right to receive
0.735 (the "Exchange Ratio") of a share of the common stock, par value $.01
per share, of Parent (the "Parent Common Stock"), payable upon the surrender
of the certificate formerly representing such share of Company Common Stock.
(b) All shares of Company Common Stock that are held by the Company as
treasury shares shall be cancelled and retired and cease to exist, and no
securities of Parent or other consideration shall be delivered in exchange
therefor.
(c) Each share of Common Stock, par value $.01 per share, of Sub (the
"Sub Common Stock"), issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
(d) Each outstanding option to purchase Company Common Stock issued by
the Company (each, a "Company Stock Option") shall be assumed by Parent as
more specifically provided in Section 7.8.
Section 3.2 EXCHANGE OF COMPANY COMMON STOCK; PROCEDURES.
(a) Prior to the Closing Date, Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as Exchange Agent
hereunder (the "Exchange Agent"). As soon as practicable after the Effective
Time, Parent shall cause the Transfer Agent to deposit with or for the
account of the Exchange Agent stock certificates representing the number of
shares of Parent Common Stock issuable pursuant to Section 3.1 in exchange
for outstanding shares of Company Common Stock, which shares of Parent Common
Stock shall be deemed to have been issued at the Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time repre sented
outstanding shares of Company Common Stock (the "Certificates") that were
converted pursuant to Section 3.1 into the right to receive shares of Parent
Common Stock (i) a form of letter of transmittal specifying that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and
(ii) instructions for use in surrendering such Certificates in exchange for
certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation (or delivery of such customary affidavit with
respect to a lost Certificate as the
3
<PAGE>
Exchange Agent may reasonably require) to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive pursuant to the provisions of this Article
III and (y) cash in lieu of any fractional shares of Parent Common Stock to
which such holder is entitled pursuant to Section 3.4, after giving effect to
any required tax withholdings, and the Certificate so surrendered (or with
respect to which a lost Certificate affidavit has been delivered as provided
above) shall forthwith be cancelled. In the event of a transfer of ownership
of Company Common Stock which is not registered in the transfer records of
the Company, a certificate representing the proper number of shares of Parent
Common Stock may be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer, and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 3.2(b), each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender a certificate represeting shares of Parent Common Stock and
cash in lieu of any fractional shares of Parent Common Stock as contemplated
by this Article III.
Section 3.3 DIVIDENDS; TRANSFER TAXES, ESCHEAT. No dividends or
distributions that are declared on shares of Parent Common Stock will be paid
to persons entitled to receive certificates representing shares of Parent
Common Stock until such persons surrender their Certificates. Upon such
surrender, there shall be paid to the person in whose name the certificates
representing such shares of Parent Common Stock shall be issued, any
dividends or distributions with respect to such shares of Parent Common Stock
which have a record date after the Effective Time and shall have become
payable between the Effective Time and the time of such surrender. In no
event shall the person entitled to receive such dividends or distributions be
entitled to receive interest thereon. Promptly following the date which is
six months after the Effective Time, the Exchange Agent shall deliver to the
Surviving Corporation all cash, certificates and other documents in its
possession relating to the transactions described in this Agreement, and any
holders of Company Common Stock who have not theretofore complied with this
Article III shall look thereafter only to the Surviving Corporation for the
shares of Parent Common Stock, any dividends or distributions thereon, and
any cash in lieu of fractional shares thereof to which they are entitled
pursuant to this Article III. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of Company
Common Stock for any shares of Parent Common Stock, any dividends or
distributions thereon or any cash in lieu of fractional shares thereof
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
Section 3.4 NO FRACTIONAL SECURITIES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon
the surrender for exchange of Certificates, and such fractional interests
shall not entitle the owner thereof to vote or to any rights of a security
holder. In lieu of any such fractional securities, each holder of Company
Common Stock who would otherwise have been entitled to a fraction of a share
of Parent Common Stock upon surrender of such holder's Certificates will be
entitled to receive, and Parent will timely provide (or cause to be provided)
to the Exchange Agent sufficient funds to make, a cash payment (without
interest) determined by multiplying (i) the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of
Company Common
4
<PAGE>
Stock then held of record by such holder) and (ii) the average of the per
share closing prices for Parent Common Stock on the NASDAQ National Market
("NASDAQ") for the five trading days immediately preceding the Effective
Time. It is understood (i) that the payment of cash in lieu of fractional
shares of Parent Common Stock is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares and does not
represent separately bargained-for consideration and (ii) that no holder of
Company Common Stock will receive cash in lieu of fractional shares of Parent
Common Stock in an amount greater than the value of one full share of Parent
Common Stock.
Section 3.5 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective
Time, the stock transfer books of the Company shall be closed and no transfer
of shares of Company Common Stock shall thereafter be made. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged as provided in this Article III.
Section 3.6 FURTHER ASSURANCES. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of either of Sub or the Company acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of Sub and the Company or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in such
names and on such behalves or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 4.1 ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Wisconsin and has the corporate power to carry on its business as it is
now being conducted or presently proposed to be conducted. The Company is
duly qualified as a foreign corporation to do business, 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, except where the failure to be so qualified will not have a
material adverse effect, individually or in the aggregate, on the financial
condition, results of operations, assets, liabilities or properties of the
Company and its Subsidiaries taken as a whole, or on the ability of the
Company to consummate the Merger and the other transactions contemplated by
this Agreement (a "Company Material Adverse Effect"). As used in this
Agreement, the term "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (x) such
5
<PAGE>
party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of
the voting interest in such partnership) or (y) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such party and/or one or more of its
Subsidiaries.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 30,000,000
shares of Company Common Stock and 500,000 shares of preferred stock, par
value $.01 per share of the Company (the "Company Preferred Stock"). As of
July 31, 1997, (i) approximately 10,027,951 shares of Company Common Stock
were issued and outstanding, (ii) no shares of Company Preferred Stock were
issued and outstanding, (iii) Company Stock Options to acquire approximately
1,766,775 shares of Company Common Stock were outstanding under all stock
option plans of the Company, and (iv) approximately 2,435,550 shares of
Company Common Stock were reserved for issuance pursuant to the Company Stock
Options and all other employee benefit plans of the Company. All of the
issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable.
(b) Except as disclosed in this Section 4.2 or as set forth on
Schedule 4.2(b), (i) there is no outstanding right, subscription, warrant,
call, option or other agreement or arrangement of any kind (collectively,
"Rights") to purchase or otherwise to receive from the Company or any of its
Subsidiaries any of the outstanding, authorized but unissued or treasury
shares of the capital stock or any other security of the Company or any of
its Subsidiaries or to require the Company or any of its Subsidiaries to
purchase any such security, (ii) there is no outstanding security of any kind
convertible into or exchangeable for such capital stock, and (iii) there is
no voting trust or other agreement or understanding to which the Company or
any of its Subsidiaries is a party or is bound with respect to the voting of
the capital stock of the Company or any of its Subsidiaries. The conversion
of the Company Stock Options provided for in Section 7.8 of this Agreement is
in accordance with the respective terms of the Company Stock Options and the
plans under which they were issued.
(c) Since December 31, 1995, except as set forth on Schedule 4.2(c),
the Company has not in any manner accelerated or provided for the
acceleration of the vesting or exercisability of, or otherwise modified the
terms and conditions applicable to, any of the Company Stock Options, whether
set forth in the governing stock option plans of the Company, a stock option
grant, award or other agreement or otherwise. Except as set forth on
Schedule 4.2(c), none of the awards, grants or other agreements pursuant to
which Company Stock Options were issued have provisions which accelerate the
vesting or right to exercise such options upon the execution of this
Agreement (including the documents attached as Exhibits hereto), the
consummation of the transactions contemplated hereby (or thereby) or any
other "change of control" events.
6
<PAGE>
Section 4.3 COMPANY SUBSIDIARIES. Schedule 4.3 contains a complete
and accurate list of all Subsidiaries of the Company. Each Subsidiary of the
Company that is a corporation is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each
Subsidiary of the Company that is a partnership or limited liability company
is duly formed and validly existing under the laws of its jurisdiction of
formation. Each Subsidi ary of the Company has the corporate, partnership or
limited liability company power, as the case may be, to carry on its business
as it is now being conducted or presently proposed to be conducted. Each
Subsidiary of the Company is duly qualified as a foreign corporation, foreign
partnership or a foreign limited liability company, as the case may be,
authorized to do business, 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, except where the
failure to be so qualified will not have a Company Material Adverse Effect.
All of the outstanding shares of capital stock of the Subsidiaries of the
Company that are corporations are validly issued, fully paid and nonassessa
ble. Except as set forth in the Company SEC Reports (as hereinafter
defined), all of the outstanding shares of capital stock of, or other
membership or ownership interests in, each Subsidiary of the Company are
owned by the Company or a Subsidiary of the Company, in each case free and
clear of any liens, pledges, security interests, claims, charges or other
encumbrances of any kind whatsoever ("Liens").
Section 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated on its part hereby have been
duly authorized by the Company's Board of Directors and, except for the
approval of its stockholders to be sought at the stockholders meeting contem
plated by Section 7.4(a) with respect to this Agreement, no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or for the Company to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
Section 4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution, delivery and performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contem plated hereby, will
(i) conflict with or result in any breach of any provisions of the charter,
by-laws or other organizational documents of the Company or any of its
Subsidiaries, (ii) require a filing with, or a permit, authorization, consent
or approval of, any federal, state, local or foreign court, arbitral
tribunal, administra tive agency or commission or other governmental or other
regulatory authority or administrative agency or commission (a "Governmental
Entity"), except in connection with, or in order to comply with, the
applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities or "blue sky" laws, the By-Laws of the
National Association of Securities Dealers, Inc. (the "NASD") and the filing
and recordation of a Certificate of Merger as required by the WBCL, (iii)
except as set forth on Schedule 4.5, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration)
under, or result in the
7
<PAGE>
creation of a Lien on any property or asset of the Company or any of its
Subsidiaries pursuant to, any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation (each, a "Contract") to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iv) violate any material law, order,
writ, injunction, decree, statute, rule or regulation of any Governmental
Entity applicable to the Company, any of its Subsidiaries or any of their
properties or assets.
Section 4.6 REPORTS AND FINANCIAL STATEMENTS. The Company has
timely filed all reports required to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the Exchange Act or the
Securities Act since January 1, 1995 (collectively, the "Company SEC
Reports"), and has previously made available to Parent true and complete
copies of all such Company SEC Reports. Such Company SEC Reports, as of
their respective dates, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and none of such Company SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Company SEC Reports have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied throughout the periods indicated
(except as otherwise noted therein) and fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of operations and cash flows of
the Company and its consolidated Subsidiaries as of the respective dates, and
for the respective periods, presented therein, except that in the case of the
unaudited consolidated financial statements included in any Form 10-Q, the
presentation and disclosures conform with the applicable rules of the
Exchange Act, but include all adjustments necessary to conform to GAAP
requirements with respect to interim financial statements. Except as set
forth on Schedule 4.6, since January 1, 1996, there has been no change in any
of the significant accounting (including tax accounting) policies, practices
or procedures of the Company or any of its consolidated Subsidiaries.
References in this Agreement to the Company's consolidated financial
statements shall be deemed to include the Company's financial statements with
respect to any period or as of any date during which or which the Company did
not have any consolidated Subsidiaries.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL
CONTRACTS. Except as set forth on Schedule 4.7 or the Company's SEC Reports,
since December 31, 1996 (i) neither the Company nor any of its Subsidiaries
has conducted its business and operations other than in the ordinary course
of business and consistent with past practices or taken any actions that, if
it had been in effect, would have violated or been inconsistent with the
provisions of Section 6.1 and (ii) there has not been any fact, event,
circumstance or change affecting or relating to the Company or any of its
Subsidiaries which has had or is reasonably likely to have a Company Material
Adverse Effect. Except as set forth on Schedule 4.7, the transactions contem
plated by this Agreement will not constitute a change of control under or
require the consent from or the giving of notice to a third party pursuant to
the terms, conditions or provisions of any material Contract to which Parent
or any of its Subsidiaries is a party.
8
<PAGE>
Section 4.8 LITIGATION. Except for litigation disclosed on Schedule
4.8, in the notes to the financial statements in cluded in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 or in the
Company SEC Reports filed subsequent thereto, there is no suit, action,
proceeding or investigation pending or, to the Actual Knowledge of the
Company, threatened against the Company or any of its Subsidiaries or any of
their respective properties, the outcome of which is reasonably likely to
have a Company Material Adverse Effect; nor is there any judgment, decree,
injunction, ruling or order of any Governmental Entity outstanding against
the Company or any of its Subsidiaries having, or which is reasonably likely
to have a Company Material Adverse Effect. The term "Actual Knowledge of the
Company" shall mean the actual knowledge of any of Robert J. Sullivan, Robert
E. Doering, Timothy J. Sullivan, Kevin J. Ackeret, Geoffrey A. Reichardt,
David A. Steck and Kenneth A. Schwing.
Section 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for
liabilities or obligations which are accrued or reserved against in the
Company's consolidated financial statements (or disclosed in the notes
thereto) included in the Company SEC Reports or which were incurred after
December 31, 1996 in the ordinary course of business and consistent with past
practice, and except as set forth on Schedule 4.9, none of the Company and
its Subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of a nature required by GAAP to be
reflected in a consolidated balance sheet (or disclosed in the notes thereto)
or which may, to the Actual Knowledge of the Company, have a Company Material
Adverse Effect.
Section 4.10 NO DEFAULT. Except as set forth on Schedule 4.10,
neither the Company nor any Subsidiary of the Company is in default or
violation (and no event has occurred which with notice or the lapse of time
or both would constitute a default or violation) of any term, condition or
provision of (i) its charter, by-laws or comparable organizational documents,
(ii) any material Contract to which the Company or any of its Subsidiaries is
a party or by which they or any of their properties or assets may be bound,
or (iii) any material order, writ, injunction, decree, statute, rule or
regulation of any Governmental Entity applicable to the Company or any of its
Subsidiaries.
Section 4.11 TAXES.
(a) The Company has heretofore delivered or will make available to
Parent true, correct and complete copies of the consolidated federal, state,
local and foreign income, franchise sales and other Tax Returns (as
hereinafter defined) filed by the Company and its Subsidiaries for each of
the Company's years ended December 31, 1995, 1994, 1993 and 1992, inclusive.
Except as set forth on Schedule 4.11, the Company has duly filed, and each
Subsidiary has duly filed, all material federal, state, local and foreign
income, franchise, sales and other Tax Returns required to be filed by the
Company or any of its Subsidiaries. All such Tax Returns are true, correct
and complete, in all material respects, and the Company and its Subsidiaries
have duly paid, all Taxes (as hereinafter defined) shown on such Tax Returns
and has made adequate provision for payment of all accrued but unpaid
material Taxes anticipated in respect of all periods since the periods
covered by such Tax Returns. Except as set forth on Schedule 4.11, all
material deficiencies assessed as a result of any examination of Tax Returns
of the Company or any of its Subsidiaries by federal, state, local or foreign
tax authorities have been paid or reserved on the
9
<PAGE>
financial statements of the Company in accordance with GAAP consistently
applied, and true, correct and complete copies of all revenue agent's
reports, "30-day letters," or "90-day letters" or similar written statements
proposing or asserting any Tax deficiency against the Company or any of its
Subsidiaries for any open year have been heretofore delivered to Parent. The
Company has heretofore delivered or will make available to Parent true,
correct and complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreement or arrangements to which the
Company or any of its Subsidiaries is a party. Except as set forth in
Schedule 4.11, no material issue has been raised during the past five years
by any federal, state, local or foreign taxing authority which, if raised
with regard to any other period not so examined, could reasonably be expected
to result in a proposed material deficiency for any other period not so
examined. Except as disclosed in Schedule 4.11 hereof, neither the Company
nor any of its Subsidiaries has granted any extension or waiver of the
statutory period of limitations applicable to any claim for any material
Taxes. The consolidated federal income tax returns of the Company and its
Subsidiaries have been examined by and settled with the Internal Revenue
Service (the "Service") for all years through 1987. Except as set forth in
Schedule 4.11, (i) neither the Company nor any of the Company Subsidiaries is
a party to any agreement, contract or arrangement that would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 28OG of the Code; (ii) no consent has
been filed under Section 341(f) of the Code with respect to any of the
Company or the Subsidiaries of the Company; (iii) neither the Company nor any
of the Subsidiaries of the Company has participated in, or cooperated with,
an international boycott within the meaning of Section 999 of the Code; and
(iv) neither the Company nor any of the Subsidiaries of the Company has
issued or assumed any corporate acquisition indebtedness, as defined in
Section 279(b) of the Code. The Company and each Subsidiary of the Company
have complied (and until the Effective Time will comply) in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding
of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions
under anyforeign laws) and have, within the time and in the manner prescribed
by law, withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under all
applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies, duties, imposts or other assessments,
including, without limitation, income, gross receipts, excise, property,
sales, use, transfer, gains, license, payroll, withholding, capital stock and
franchise taxes, imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof, including any interest,
penalties or additions thereto. For purposes of this Agreement, the term
"Tax Return" shall mean any report, return or other information or document
required to be supplied to a taxing authority in connection with Taxes.
Section 4.12 TITLE TO PROPERTIES; ENCUMBRANCES. Except as described
in the following sentence, each of the Company and its Subsidiaries has good,
valid and marketable title to, or a valid leasehold interest in, all of its
material properties and assets (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the balance sheet of the Company as of March 31, 1997 included
in the Company's Quarterly Report on Form 10-Q for the period ended on such
date (except for properties and assets disposed of in the ordinary course of
business and consistent with past practices since
10
<PAGE>
March 31, 1997). None of such properties or assets are subject to any Liens
(whether absolute, accrued, contingent or otherwise), except (i) as
specifically set forth in the Company SEC Reports and (ii) minor
imperfections of title and encumbrances, if any, which are not substantial in
amount, do not materially detract from the value of the property or assets
subject thereto and do not impair the operations of any of the Company and
its Subsidiaries.
Section 4.13 INTELLECTUAL PROPERTY
(a) Except as set forth on Schedule 4.13(a), the Company and its
Subsidiaries are the sole and exclusive owners of all material patents,
patent applications, patent rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, service marks, trade secrets,
registrations for and applications for registration of trademarks, service
marks and copyrights, technology and know-how, rights in computer software
and other proprietary rights and information and all technical and user
manuals and documentation made or used in connection with any of the
foregoing, used or held for use in connection with the businesses of the
Company or any of its Subsidiaries as currently conducted (collectively, the
"Intellectual Property"), free and clear of all Liens except as set forth on
Schedule 4.13(a) and except minor imperfections of title and encumbrances, if
any, which are not substantial in amount, do not materially detract from the
value of the Intellectual Property subject thereto and do not impair the
operations of any of the Company and its Subsidiaries.
(b) All grants, registrations and applications for Intellectual
Property that are used in and are material to the conduct of the Business (as
hereinafter defined) (i) are valid, subsisting, in proper form and
enforceable, and have been duly maintained, including the submission of all
necessary filings and fees in accordance with the legal and administrative
requirements of the appropriate jurisdictions and (ii) have not lapsed,
expired or been abandoned, and no grant, registration or license therefor is
the subject of any legal or governmental proceeding before any registration
authority in any jurisdiction.
(c) Each of the Company and its Subsidiaries owns or has the right to
use all of the material Intellectual Property used by it or held for use by
it in connection with its business. To the Actual Knowledge of the Company,
there are no conflicts with or infringements of any Intellectual Property by
any third party. The conduct of the businesses of the Company and its
Subsidiaries as currently conducted (collectively, the "Business") does not
conflict with or infringe in any way any proprietary right of any third
party, which conflict or infringement would have a Company Material Adverse
Effect, and there is no claim, suit, action or proceeding pending or, to the
Actual Knowledge of the Company, threatened against the Company or any of its
Subsidiaries (i) alleging any such conflict or infringement with any third
party's proprietary rights, or (ii) challenging the ownership, use, validity
or enforceability of the Intellectual Property.
Section 4.14 COMPLIANCE WITH APPLICABLE LAW. Except as set forth on
Schedule 4.14 or as disclosed in the Company SEC Reports, (i) the Company and
its Subsidiaries hold, and are in compliance with the terms of, all material
permits, licenses, exemptions, orders and approvals of all Governmental
Entities necessary for the current and proposed conduct of their respective
businesses ("Company Permits"), except for failures to hold or to comply with
such permits, licenses, exemptions, orders and approvals which would not have
a Company Material
11
<PAGE>
Adverse Effect, (ii) no fact exists or event has occurred, and no action or
proceeding is pending or, to the Actual Knowledge of the Company threatened,
that has a reasonable possibility of resulting in a revocation, non renewal,
termination, suspension or other material impairment of any material Company
Permits, (iii) the businesses of the Company and its Subsidiaries are not
being conducted in material violation of any applicable law, ordinance,
regulation, judgment, decree or order of any Governmental Entity ("Applicable
Law"), and (iv) to the Actual Knowledge of the Company (x) no investiga tion
or review by any Governmental Entity with respect to the Company or its
Subsidiaries is pending or threatened, and (y) no Governmental Entity has
indicated an intention to conduct the same.
Section 4.15 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information to be supplied by or on behalf of the
Company for inclusion in (i) the Registration Statement to be filed with the
SEC by Parent on Form S-4 under the Securities Act for the purpose of
registering the shares of Parent Common Stock to be issued in connection with
the Merger (the "Registration Statement") or (ii) the joint proxy statement
to be distributed in connection with Parent's and the Company's meetings of
stock holders to vote upon this Agreement (the "Proxy Statement") will, in
the case of the Registration Statement, at the time it becomes effective, at
the time of the filing of any post-effective amendment thereto and at the
Effective Time, and, in the case of the Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the respective
times of the meetings of stockholders of the Company and Parent to be held in
connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the applicable provisions of the Exchange
Act, and the rules and regulations promulgated thereunder, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or its representatives for inclusion
in the Proxy Statement or with respect to information concerning Parent or
any of its Subsidiaries incorporated by reference in the Proxy Statement.
Section 4.16 EMPLOYEE BENEFIT PLANS; ERISA
(a) Schedule 4.16 hereto sets forth a true and complete list of each
"employee benefit plan," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any other
material employee benefit plan, arrangement or agreement, that is maintained,
or was maintained at any time during the five (5) calendar years preceding
the date of this Agreement (the "Company Plans"), by the Company or by any
trade or business, whether or not incorporated (a "Company ERISA Affiliate"),
which together with the Company would be deemed a "single employer" within
the meaning of Section 4001 of ERISA or under Section 414(b), (c), (m) or (o)
of the Code. True and complete copies of each of the Company Plans and
related documents have been delivered to the Parent.
(b) Each of the Company Plans is and has been maintained and operated
in compliance with its terms and applicable law, including without
limitation, ERISA and the Code;
12
<PAGE>
each of the Company Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and has been qualified since its
inception.
(c) None of the Company, any Company ERISA Affiliate, or any of their
respective predecessors has ever contributed to, contributes to, has ever
been required to contribute to, or otherwise participated in or participates
in or in any way, directly or indirectly, has any liability with respect to
any plan subject to Section 412 of the Code, Section 302 of ERISA or Title IV
of ERISA, including, without limitation any, "multiemployer plan" (within the
meaning of Sections (3)(37) or 4001(a)(3) of ERISA or Section 414(f) of the
Code), or any single employer pension plan and no Company Plan is a multiple
employer plan described in Section 413 of the Code. All contributions or
other amounts payable by the Company as of the Effective Time with respect to
each Company Plan in respect of current or prior plan years have been either
paid or accrued on the balance sheet of the Company. There are no pending,
threatened or, to the Actual Knowledge of the Company, anticipated claims,
lawsuits, arbitrations or other actions (other than non-material routine
claims for benefits) by, on behalf of or against any of the Company Plans,
any trustee or fiduciaries thereof or any trusts related thereto. No
Company Plan currently is under audit or investigation by the Internal
Revenue Service, U.S. Department of Labor, or any other governmental
authority and no such completed audit, if any, has resulted in the imposition
of any tax or penalty. With respect to each Company Plan that is funded
mostly or partially through an insurance policy, neither the Company nor any
Company ERISA Affiliate has any material liability in the nature of
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent material liability arising wholly or partially out of events
occurring on or before the Effective Time.
(d) Neither the Company nor any Company ERISA Affiliate, nor any
Company Plan, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which
the Company or any Company ERISA Affiliate, any Company Plan, any such trust,
or any trustee or administrator thereof, or any party dealing with any
Company Plan or any such trust that is a "prohibited transaction," within the
meaning of Section 4975 of the Code and Section 406 of ERISA, other than a
prohibited transaction that has been corrected and with respect to which all
taxes and penalties have been paid prior to the date hereof. Except as set
forth on Schedule 4.16, no Company Plan provides benefits (whether or not
insured), with respect to current or former employees of the Company or any
Company ERISA Affiliate beyond their retirement or other termination of
service other than benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, qualified under Section 401(a) of the
Code or under Section 4980B of the Code. Neither the Company, any Company
ERISA Affiliate, nor any officer or employee thereof, has made any promises
or commitments, whether legally binding or not, to create any additional
plan, agreement, or arrangement, or to modify or change any existing Company
Plan. The consummation of the transactions contemplated by this Agreement
will not give rise to any liability, including, without limitation, liability
for severance pay, unemployment compensation, termination pay, or withdrawal
liability, or accelerate the time of payment or vesting or increase the
amount of compensation or benefits due to any employee, director,
shareholder, or beneficiary of the Company (whether current, former, or
retired) or their beneficiaries solely by reason of such transactions.
Neither the Company nor any Company ERISA Affiliate has any material unfunded
13
<PAGE>
liabilities pursuant to any Company Plan that is not intended to be qualified
under Section 401(a) of the Code.
Section 4.17 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) Except as set forth on Schedule 4.17(a): (i) the Company and its
Subsidiaries are and have been, in all material respects, in compliance with,
and there are no outstanding written allegations or, to the Actual Knowledge
of the Company, oral allegations by any person or entity that the Company or
its Subsidiaries has not been in compliance with, all material applicable
laws, rules, regulations, common law, ordinances, decrees, orders or other
binding legal requirements relating to pollution (including the treatment,
storage and disposal of hazardous wastes or materials and the remediation of
releases and threatened releases of hazardous materials or wastes), the
preservation of the environment, and the exposure to hazardous wastes or
materials in the environment or work place ("Environmental Laws") and
(ii) the Company and its Subsidiaries currently hold all material permits,
licenses, registrations and other governmen tal authorizations (including
exemptions, waivers, and the like) and financial assurance required under
Environmental Laws for the Company and its Subsidiaries to operate their
businesses as currently conducted.
(b) Except as set forth on Schedule 4.17(b), (i) there is no friable
asbestos-containing material in or on any real property currently owned,
leased or operated by the Company or its Subsidiaries and (ii) there are and,
to the Actual Knowledge of the Company, have been no underground storage
tanks (whether or not required to be registered under any applicable law),
dumps, landfills, lagoons, surface impoundments, injection wells or other
land disposal units in or on any property currently owned, leased or operated
by the Company or its Subsidiaries.
(c) Except as set forth on Schedule 4.17(c), (i) neither the Company
nor its Subsidiaries has received (x) any written communication from any
person stating or alleging that any of them may be a potentially responsible
party under any Environmental Law (including, without limitation, the Federal
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended) with respect to any actual or alleged environmental
contamination or (y) any request for information under any Environmental Law
from any Governmental Entity with respect to any actual or alleged material
environmental contamination; and (ii) neither the Company, nor its
Subsidiaries nor any Governmental Entity is conducting or has conducted (or,
to the Actual Knowledge of the Company, is threatening to conduct) any
environmental remediation or investigation.
(d) To the Actual Knowledge of the Company, all real properties
formerly owned, used, leased, occupied, managed or operated by the Company or
its Subsidiaries complied, in all material respects, with the Environmental
Laws during the Company's or its Subsidiaries' tenure thereat, and there are
no environmental liabilities associated therewith that are reasonably likely
to result in a Company Material Adverse Effect.
14
<PAGE>
Section 4.18 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of the Company Common Stock are the only
votes of the holders of any class or series of the Company's capital stock
necessary to approve the Merger. The Board of Directors of the Company (at a
meeting duly called and held) has unanimously (i) approved this Agreement and
the Irrevocable Proxy and Termination Rights Agreement, (ii) determined that
the transactions contemplated hereby and thereby are fair to and in the best
interests of the holders of Company Common Stock and (iii) determined to
recommend this Agreement, the Merger and the other transactions contemplated
hereby to such holders for approval and adoption. The resolutions of the
Company's Board of Directors taking the actions described in the preceding
sentence have not been rescinded, withdrawn, amended or otherwise modified,
remain in full force and effect, and constitute the only action of such Board
of Directors with respect to the Merger or the other transactions
contemplated by this Agreement.
Section 4.19 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received the opinion of Cleary Gull Reiland & McDevitt, Inc.
("Cleary Gull"), dated August 1, 1997, substantially to the effect that the
consideration to be received in the Merger by the holders of Company Common
Stock is fair to such holders from a financial point of view, a copy of which
opinion has been delivered to Parent.
Section 4.20 ACCOUNTING MATTERS. None of the Company, any of its
Subsidiaries or, to the Actual Knowledge of the Company, any of their
respective directors, officers or stockholders, has taken any action which
would prevent the accounting for the Merger as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16, the
interpretative releases pursuant thereto and the pronouncements of the SEC.
Section 4.21 WBCL SECTIONS 1131, 1134 AND 1141. Prior to the date
hereof, the Board of Directors of the Company has approved this Agreement and
the Irrevocable Proxy and Termination Rights Agreement, and the Merger and
the other transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to the Merger and any of such other
transactions the provisions of Sections 1131, 1134 and 1141 of the WBCL.
Section 4.22 LABOR MATTERS. Neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other understanding with a labor union or labor organization and,
to the Actual Knowledge of the Company, there is no activity involving any
employees of the Company or its Subsidiaries seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
Section 4.23 AFFILIATE TRANSACTIONS. Except as set forth in Schedule
4.23 or as disclosed in the Company SEC Reports, there are no, and since
January 1, 1996 there have not been any, material Contracts or other
transactions between the Company or any of its Subsidiaries, on the one hand,
and any (i) officer or director of the Company or any of its Subsidiaries,
(ii) record or beneficial owner of five percent or more of the voting
securities of the Company or (iii) affiliate (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand.
15
<PAGE>
Section 4.24 BROKERS. Except for its financial advisor, Cleary Gull,
no broker, finder or financial advisor is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Company and the Company has disclosed to Parent the material terms of
the agreement pursuant to which Cleary Gull is entitled to its fee.
Section 4.25 TAX MATTERS. The Company knows of no fact or
circumstance which is reasonably likely to cause the Merger to be treated
other than as a tax-free reorganization under Section 368(a) of the Code.
Section 4.26 ACCOUNTS RECEIVABLE. All of the accounts and notes
receivable of the Company and its Subsidiaries set forth on the books and
records of the Company (net of the applicable reserves reflected on the books
and records of the Company and in the financial statements included in the
Company SEC Reports) (i) represent sales actually made in the ordinary course
of business for goods or services delivered or rendered to unaffiliated
customers in bona fide arm's length transactions, (ii) constitute valid
claims, and (iii) are good and collectible at the aggregate recorded amounts
thereof (net of such reserves) without right of recourse, defense, deduction,
return of goods, counterclaim, or offset and have been or will be collected
in the ordinary course of business and consistent with past experience.
Section 4.27 INVENTORY. All inventory of the Company and its
Subsidiaries is (net of the applicable reserves reflected on the books and
records of the Company and in the financial statements included in the
Company SEC reports) of merchantable quality, free of defects in workmanship
or design and is usable and saleable at normal profit margins and in
accordance with historical sales practices in the ordinary course of the
business of the Company and its Subsidiaries. The inventory (net of such
reserves) does not include any items which are obsolete, damaged, excessive,
below standard quality or slow moving (i.e., items that are for discontinued
or expected to be discontinued product lines, or items that have not been
used or sold within 12 months prior to the date hereof).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.1 ORGANIZATION. Parent is a corporation duly organized,
validly existing and in good stand ing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Parent is duly
qualified as a foreign corporation to do business, 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 make such qualification
necessary, except where the failure to be so qualified will not have a
material adverse effect individually or in the aggregate, on the financial
condition, results of operations, assets, liabilities or properties of Parent
and its Subsidiaries taken as a whole or on the ability of Parent to
consummate the Merger and the other transactions
16
<PAGE>
contemplated by this Agreement (a "Parent Material Adverse Effect"). Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Wisconsin and Parent has delivered to Company a copy of
(i) the Articles of Incorporation of Sub and (ii) the By-Laws of Sub, each as
in effect as of the date of this Agreement. Sub has not engaged in any
business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorpora tion. Schedule 5.17
contains a complete and accurate list of all Subsidiaries of Parent (other
than inactive subsidiaries the assets of which are de minimis). The Sub has
no subsidiaries.
Section 5.2 CAPITALIZATION
(a) The authorized capital stock of Parent consists of 60,000,000
shares of Parent Common Stock and 1,000,000 shares of Preferred Stock, par
value $0.01 per share ("Parent Preferred Stock"), of Parent. As of July 31,
1997, (i) approximately 24,200,000 shares of Parent Common Stock were issued
and outstanding, (ii) no shares of Parent Preferred Stock were issued and
outstanding, (iii) options to acquire approximately 1,300,000 shares of
Parent Common Stock (the "Parent Stock Options") were outstanding under all
stock option plans of Parent, and (iv) approximately 2,230,000 shares of
Parent Common Stock were reserved for issuance pursuant to the Parent Stock
Options and all other employee benefit plans of Parent. All of the
outstanding shares of capital stock of Parent are, and the shares of Parent
Common Stock issuable in exchange for shares of Company Common Stock at the
Effective Time in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable. The numbers
for outstanding shares, options and shares reserved for issuance in
connection with the exercise of options set forth in this Section 5.2 do not
reflect the shares and options issued or reserved for issuance in connection
with Parent's acquisition of Micro Bio-Medics, Inc., which acquisition was
consummated on August 1, 1997.
(b) The authorized capital stock of Sub consists of 1,000 shares of
Sub Common Stock, all of which shares, as of the date hereof, were issued and
outstanding. All of such outstanding shares are owned by Parent, and are
validly issued, fully paid and nonassessable.
(c) Except as disclosed in this Section 5.2, (i) there are no
outstanding Rights to purchase or otherwise to receive from Parent, Sub or
any of Parent's other Subsidiaries any of the outstanding authorized but
unissued or treasury shares of the capital stock or any other security of
Parent or Sub, (ii) there is no outstanding security of any kind convertible
into or exchangeable for such capital stock, and (iii) there is no voting
trust or other agreement or understanding to which Parent or Sub is a party
or is bound with respect to the voting of the capital stock of Parent or Sub.
(d) Parent and its subsidiaries do not beneficially own any shares of
the Company's Common Stock and, to Parent's knowledge, none of its affiliates
beneficially owns any shares of the Company's Common Stock.
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Sub has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contem plated
hereby. The execution and delivery of this Agreement
17
<PAGE>by each of Parent and Sub and the consumma tion by each of Parent and
Sub of the transactions contemplated on its part hereby have been duly
authorized by their respective Boards of Directors, and by Parent as the sole
stockholder of Sub, and, except for the approval of Parent's stockholders to
be sought at the stockholders' meeting contemplated by Section 7.4(b), no
other corporate proceedings on the part of Parent or Sub are necessary to
authorize this Agreement or for Parent and Sub to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of Parent and Sub and constitutes a valid and binding
agreement of each of Parent and Sub, enforceable against Parent and Sub in
accordance with its terms.
Section 5.4 CONSENTS AND APPROVALS NO VIOLATIONS. Neither the
execution, delivery and performance of this Agreement by Parent or Sub, nor
the consummation by Parent or Sub of the transactions contem plated hereby
will (i) conflict with or result in any breach of any provisions of the
Amended and Restated Certificate of Incorporation or By-Laws of Parent or the
Articles of Incorporation or By Laws of Sub, (ii) require a filing with, or a
permit, authorization, consent or approval of, any Governmental Entity except
in connection with, or in order to comply with, the applicable provisions of
the HSR Act, the Securities Act, the Exchange Act, state securities or "blue
sky" laws, the By-Laws of the NASD, and the filing and recordation of a
Certificate of Merger as required by the WBCL, (iii) except as set forth on
Schedule 5.4 hereto, result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, or result in
the creation of a Lien on any property or asset of Parent or any of its
Subsidiaries pursuant to, any of the terms, conditions or provisions of any
material Contract to which Parent or Sub is a party or by which either of
them or any of their properties or assets may be bound or (iv) violate any
material law, order, writ, injunction, decree, statute, rule or regulation of
any Governmental Entity applicable to Parent, Sub or any of their properties
or assets.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. Parent has timely
filed all reports required to be filed with the SEC pursuant to the Exchange
Act or the Securities Act since January 1, 1995 (collectively, the "Parent
SEC Reports"), and has previously made available to the Company true and
complete copies of all such Parent SEC Reports. Such Parent SEC Reports, as
of their respective dates, complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the
case may be, and none of such SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Reports have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated (except as otherwise noted therein and fairly present the
consolidated financial position of Parent and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of operations and cash
flows of Parent and its consolidated Subsidiaries as of the respective dates,
and for the respective periods, presented therein except that in the case of
the unaudited consolidated financial statements included in any Form 10-Q,
the presentation and disclosures conform with the applicable rules of the
Exchange Act, but include all adjustments necessary to conform to GAAP
requirements with respect to interim financial statements. Except as set
forth in the Parent SEC Reports or on Schedule 5.5,
18
<PAGE>
since January 1, 1996, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
the Parent or, any of its consolidated Subsidiaries.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL
CONTRACTS. Except as set forth in the Parent SEC Reports or on Schedule 5.6,
since December 28, 1996, (i) Parent has not conducted its business and
operations other than in the ordinary course of business and consistent with
past practices or taken any of the actions set forth in Section 6.2(b) and
(ii) there has not been any fact, event, circumstance or change affecting or
relating to Parent and its Subsidiaries which has had or is reasonably likely
to have a Parent Material Adverse Effect.
Section 5.7 LITIGATION. Except for litigation disclosed in the
notes to the financial statements in cluded in Parent's Annual Report to
Stockholders for the year ended December 28, 1996 or in the Parent SEC
Reports filed subsequent thereto, there is no suit, action, proceeding or
investigation pending or, to the Actual Knowledge of Parent, threatened
against Parent or any of its Subsidiaries or any of their respective
properties, the outcome of which is reasonably likely to have a Parent
Material Adverse Effect; nor is there any judgment, decree, injunction,
ruling or order of any Governmental Entity outstanding against Parent or any
of its Subsidiaries having, or which is reasonably likely to have, a Parent
Material Adverse Effect. The term "Actual Knowledge of Parent" shall mean
the actual knowledge of any of Stanley M. Bergman, James P. Breslawski, Mark
E. Mlotek, Steven Paladino and James W. Stahly.
Section 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except for
liabilities or obligations which are accrued or reserved against in Parent's
financial statements (or disclosed in the notes thereto) included in the
Parent SEC Reports or which were incurred after June 30, 1997 in the ordinary
course of business and consistent with past practice, none of Parent and its
Subsidiaries has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet (or disclosed in the notes thereto) or which may,
to the Actual Knowledge of Parent, have a Parent Material Adverse Effect.
Section 5.9 NO DEFAULT. Neither Parent nor any Subsidiary of Parent
is in default or violation (and no event has occurred which with notice or
the lapse of time or both would constitute a default or violation) of any
term, condition or provision of (i) its charter, by-laws or comparable
organizational documents, (ii) any material Contracts to which Parent or any
of its Subsidiaries is a party or by which they or any of their properties or
assets may be bound, or (iii) any material order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to Parent
or any of its Subsidiaries.
Section 5.10 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in
the Parent SEC Reports, (i) Parent and its Subsidiaries hold, and are in
compliance with the terms of, all material permits, licenses, exemp tions,
orders and approvals of all Governmental Entities necessary for the current
or proposed conduct of their respective businesses ("Parent Permits"),
(ii) no fact exists or event has occurred, and no action or proceeding is
pending or, to the Actual Knowledge of Parent threatened, that has a reasonable
possibility of resulting in a revocation, non-renewal, termination, suspen
sion or other material impairment of any material Parent Permits, (iii) the
businesses of Parent and its Subsidiaries are not being conducted in material
violation of
19
<PAGE>
any Applicable Law, and (iv) to the Actual Knowledge of Parent (x) no
investigation or review by any Governmental Entity with respect to Parent or
its Subsidiaries is pending or threatened and (y) no Govern mental Entity has
indicated an intention to conduct the same.
Section 5.11 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the informa tion to be supplied by or on behalf of Parent
or Sub for inclusion in (i) the Registration Statement or (ii) the Proxy
Statement will, in the case of the Registration Statement, at the time it
becomes effective, at the time of the filing of any post-effective amendment
thereto, and at the Effective Time, and, in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
respective times of the meetings of stockholders of Parent to be held in
connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Registration Statement and the
Proxy Statement will comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder, except that no representation
is made by Parent with respect to statements made therein based on
information supplied by the Company or its representatives for inclusion in
the Registration Statement or the Proxy Statement or with respect to
information concerning the Company or any of its Subsidiaries incorporated by
reference in the Registration Statement or the Proxy Statement.
Section 5.12 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the shares of Parent Common Stock present in person or
represented by proxy at the stockholders meeting of Parent described in
Section 7.4(b) (provided that the shares so present or represented constitute
a majority of the outstanding shares of Parent Common Stock) is the only vote
of the holders of any class or series of Parent capital stock necessary to
approve the Merger and the issuance of shares of Parent Common Stock pursuant
thereto. The affirmative vote of Parent, as the sole stockholder of all
outstanding shares of Sub Common Stock, is the only vote of the holders of
any class or series of Sub capital stock necessary to approve the Merger.
The Board of Directors of Parent (at a meeting duly called and held) has by
the unanimous vote of the directors present (i) approved this Agreement and
the Irrevocable Proxy and Termination Rights Agreement, (ii) determined that
the transactions contemplated hereby are fair to and in the best interests of
the holders of Parent Common Stock, (iii) determined to recommend this
Agreement, the Merger and the other transactions contemplated hereby to such
holders for approval and adoption and (iv) caused Parent, as the sole
stockholder of Sub, to approve and adopt this Agreement and the Irrevocable
Proxy and Termination Rights Agreement. The Board of Directors of Sub (by
unanimous written consent) has approved this Agreement and the Irrevocable
Proxy and Termination Rights Agreement.
Section 5.13 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
Parent has received the opinion of Smith Barney Inc., dated August 1, 1997,
substantially to the effect that as of such date, the Exchange Ratio is fair
to Parent from a financial point of view, the material terms of which opinion
have been disclosed to the Company.
20
<PAGE>
Section 5.14 ACCOUNTING MATTERS. None of Parent, any of its
Subsidiaries or, to the Actual Knowledge of Parent, any of their respective
directors, officers or stockholders, has taken any action which would prevent
the accounting for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16, the interpretative releases
pursuant thereto and the pronouncements of the SEC.
Section 5.15 BROKERS. Except for Smith Barney Inc., no broker,
finder or financial advisor is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Parent or Sub, and Parent has disclosed to the Company the material terms
of the agreement pursuant to which Smith Barney Inc. is entitled to its fee.
Section 5.16 ACCELERATION OF PARENT STOCK OPTIONS. Since
December 31, 1995, except as set forth on Schedule 5.16, the Parent has not
in any manner accelerated or provided for the acceleration of the vesting or
exercisability of, or otherwise modified the terms and conditions applicable
to, any outstanding option to purchase Parent Common Stock ("Parent Stock
Options"), whether set forth in the governing stock option plans of the
Parent, a stock option grant, award or other agreement or otherwise. Except
as set forth on Schedule 5.16, none of the awards, grants or other agreements
pursuant to which Parent Stock Options were issued have provisions which
accelerate the vesting or right to exercise such options upon the execution
of this Agreement (including the documents attached as Exhibits hereto), the
consummation of the transactions contemplated hereby (or thereby) or any
other "change of control" events.
Section 5.17 PARENT SUBSIDIARIES. Schedule 5.17 contains a complete
and accurate list of all Subsidiaries of the Parent (other than inactive
subsidiaries the assets of which are de minimis). Each Subsidiary of Parent
listed on Schedule 5.17 that is a corporation is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary of Parent listed on Schedule 5.17 that is a
partnership or limited liability company is duly formed and validly existing
under the laws of its jurisdiction of formation. Each Subsidiary of Parent
listed on Schedule 5.17 has the corporate, partnership or limited liability
company power, as the case may be, to carry on its business as it is now
being conducted or presently proposed to be conducted. Each Subsidiary of
Parent is duly qualified as a foreign corporation, foreign partnership or a
foreign limited liability company, as the case may be, authorized to do
business, 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, except where the failure to be so
qualified will not have a Parent Material Adverse Effect. All of the
outstanding shares of capital stock of the Subsidiaries of Parent listed on
Schedule 5.17 that are corporations are validly issued, fully paid and
nonassessa ble. Except as set forth in the Parent SEC Reports, all of the
outstanding shares of capital stock of, or other membership or ownership
interests in, each Subsidiary of Parent are owned by the Parent or a
Subsidiary of the Parent, in each case free and clear of any Liens.
Section 5.18 TAXES
(a) Parent has heretofore delivered or will make available to the
Company true, correct and complete copies of the consolidated federal, state,
local and foreign income,
21
<PAGE>
franchise, sales and other Tax Returns filed by Parent and its Subsidiaries
for each of Parent's 1995, 1994, 1993 and 1992 fiscal years, inclusive.
Except as set forth on Schedule 5.18, Parent has duly filed, and each
Subsidiary of Parent has duly filed, all material federal, state, local and
foreign income, franchise, sales and other Tax Returns required to be filed
by Parent or any of its Subsidiaries. All such Tax Returns are true, correct
and complete, in all material respects, and Parent and its Subsidiaries have
duly paid, all Taxes shown on such Tax Returns and has made adequate
provision for payment of all accrued but unpaid material Taxes anticipated in
respect of all periods since the periods covered by such Tax Returns. Except
as set forth on Schedule 5.18, all material deficiencies assessed as a result
of any examination of Tax Returns of Parent or any of its Subsidiaries by
federal, state, local or foreign tax authorities have been paid or reserved
on the financial statements of Parent in accordance with GAAP consistently
applied, and true, correct and complete copies of all revenue agent's
reports, "30-day letters," or "90-day letters" or similar written statements
proposing or asserting any Tax deficiency against Parent or any of its
Subsidiaries for any open year have been heretofore delivered to the Company.
Parent has heretofore delivered or will make available to the Company true,
correct and complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreement or arrangements to which Parent
or any of its Subsidiaries is a party. Except as set forth in Schedule 5.18,
no material issue has been raised during the past five years by any federal,
state, local or foreign taxing authority which, if raised with regard to any
other period not so examined, could reasonably be expected to result in a
proposed material deficiency for any other period not so examined. Except as
disclosed in Schedule 5.18 hereof, neither Parent nor any of its Subsidiaries
has granted any extension or waiver of the statutory period of limitations
applicable to any claim for any material Taxes. The consolidated federal
income tax returns of Parent and its Subsidiaries have been examined by and
settled with the Internal Revenue Service (the "Service") for all years
through 1989. Except as set forth in Schedule 5.18, (i) neither Parent nor
any of Parent's Subsidiaries is a party to any agreement, contract or
arrangement that would result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 28OG of the
Code; (ii) no consent has been filed under Section 341(f) of the Code with
respect to any of Parent or the Subsidiaries of Parent; (iii) neither Parent
nor any of the Subsidiaries of Parent has participated in, or cooperated
with, an international boycott within the meaning of Section 999 of the Code;
and (iv) neither Parent nor any of the Subsidiaries of Parent has issued or
assumed any corporate acquisition indebtedness, as defined in Section 279(b)
of the Code. Parent and each Subsidiary of Parent have complied (and until
the Effective Time will comply) in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections
1441 and 1442 of the Code or similar provisions under any foreign laws) and
have, within the time and in the manner presribed by law, withheld from
employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under all applicable laws.
Section 5.19 TITLE TO PROPERTIES; ENCUMBRANCES. Except as described
in the following sentence, each of Parent and its Subsidiaries has good,
valid and marketable title to, or a valid leasehold interest in, all of its
material properties and assets (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the consolidated balance sheet of Parent and its Subsidiaries as
of March 29, 1997 included in Parent's Quarterly Report on Form 10-Q for the
period ended on such date (except for properties and
22
<PAGE>
assets disposed of in the ordinary course of business and consistent with
past practices since March 29, 1997). None of such properties or assets are
subject to any Liens (whether absolute, accrued, contingent or otherwise),
except (i) as specifically set forth in the Parent SEC Reports and (ii) minor
imperfections of title and encumbrances, if any, which are not substantial in
amount, do not materially detract from the value of the property or assets
subject thereto and do not impair the operations of any of Parent and its
Subsidiaries.
Section 5.20 INTELLECTUAL PROPERTY
(a) Except as set forth on Schedule 5.20(a), Parent and its
Subsidiaries are the sole and exclusive owners of all material patents,
patent applications, patent rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, service marks, trade secrets,
registrations for and applications for registration of trademarks, service
marks and copyrights, technology and know-how, rights in computer software
and other proprietary rights and information and all technical and user
manuals and documentation made or used in connection with any of the
foregoing used or held for use in connection with the businesses of Parent or
any of its Subsidiaries as currently conducted (collectively, the "Parent
Intellectual Property"), free and clear of all Liens except as set forth on
Schedule 5.20 and except minor imperfections of title and encumbrances, if
any, which are not substantial in amount, do not materially detract from the
value of the Parent Intellectual Property subject thereto and do not impair
the operations of any of Parent and its Subsidiaries.
(b) All grants, registrations and applications for Parent Intellectual
Property that are used in and are material to the conduct of the business of
Parent and its Subsidiaries (i) are valid, subsisting, in proper form and
enforceable, and have been duly maintained, including the submission of all
necessary filings and fees in accordance with the legal and administrative
requirements of the appropriate jurisdictions and (ii) have not lapsed,
expired or been abandoned, and no grant, registration or license therefor is
the subject of any legal or governmental proceeding before any registration
authority in any jurisdiction.
(c) Each of Parent and its Subsidiaries owns or has the right to use all
of the material Parent Intellectual Property used by it or held for use by it
in connection with its business. To the Actual Knowledge of Parent, there
are no conflicts with or infringements of any Parent Intellectual Property by
any third party. The conduct of the business of Parent and its Subsidiaries
does not conflict with or infringe in any way any proprietary right of any
third party, which conflict or infringement would have a Parent Material
Adverse Effect, and there is no claim, suit, action or proceeding pending or,
to the Actual Knowledge of Parent, threatened against Parent or any of its
Subsidiaries (i) alleging any such conflict or infringement with any third
party's proprietary rights, or (ii) challenging the ownership, use, validity
or enforceability of the Parent Intellectual Property.
Section 5.21 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Each "employee benefit plan," within the meaning of Section 3(3) of
ERISA, and any other material employee benefit plan, arrangement or
agreement, that is maintained, or was maintained at any time during the five
(5) calendar years preceding the date of
23
<PAGE>
this Agreement (the "Parent Plans"), by the Parent or by any trade or
business, whether or not incorporated (a "Parent ERISA Affiliate"), which
together with the Parent would be deemed a "single employer" within the
meaning of Section 4001 of ERISA or under Section 414(b), (c), (m) or (o) of
the Code is and has been maintained and operated in compliance with its terms
and applicable law, including without limitation, ERISA and the Code; each of
the Parent Plans intended to be "qualified" within the meaning of Section
401(a) of the Code is so qualified and has been qualified since its inception.
(b) None of the Parent, any Parent ERISA Affiliate, or any of their
respective predecessors has ever contributed to, contributes to, has ever
been required to contribute to, or otherwise participated in or participates
in or in any way, directly or indirectly, has any liability with respect to
any plan subject to Section 412 of the Code, Section 302 of ERISA or Title IV
of ERISA, including, without limitation any, "multiemployer plan" (within the
meaning of Sections (3)(37) or 4001(a)(3) of ERISA or Section 414(f) of the
Code), or any single employer pension plan and no Parent Plan is a multiple
employer plan described in Section 413 of the Code. All contributions or
other amounts payable by the Parent as of the Effective Time with respect to
each Parent Plan in respect of current or prior plan years have been either
paid or accrued on the balance sheet of the Parent. There are no pending,
threatened or, to the Actual Knowledge of the Parent, anticipated claims,
lawsuits, arbitrations or other actions (other than non-material routine
claims for benefits) by, on behalf of or against any of the Parent Plans, any
trustee or fiduciaries thereof or any trusts related thereto. No Parent
Plan currently is under audit or investigation by the Internal Revenue
Service, U.S. Department of Labor, or any other governmental authority and no
such completed audit, if any, has resulted in the imposition of any tax or
penalty. With respect to each Parent Plan that is funded mostly or partially
through an insurance policy, neither the Parent nor any Parent ERISA
Affiliate has any material liability in the nature of retroactive rate
adjustment, loss sharing arrangement or other actual or contingent material
liability arising wholly or partially out of events occurring on or before
the Effective Time.
(c) Neither the Parent nor any Parent ERISA Affiliate, nor any Parent
Plan, nor any trust created thereunder, nor any trustee or administrator
thereof has engaged in a transaction in connection with which the Parent or
any Parent ERISA Affiliate, any Parent Plan, any such trust, or any trustee
or administrator thereof, or any party dealing with any Parent Plan or any
such trust that is a "prohibited transaction," within the meaning of Section
4975 of the Code and Section 406 of ERISA, other than a prohibited
transaction that has been corrected and with respect to which all taxes and
penalties have been paid prior to the date hereof. No Parent Plan provides
benefits (whether or not insured), with respect to current or former
employees of the Parent or any Parent ERISA Affiliate beyond their retirement
or other termination of service other than benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, qualified
under Section 401(a) of the Code or under Section 4980B of the Code. The
consummation of the transactions contemplated by this Agreement will not give
rise to any liability, including, without limitation, liability for severance
pay, unemployment compensation, termination pay, or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of
compensation or benefits due to any employee, director, shareholder, or
beneficiary of the Parent (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions.
24
<PAGE>
Section 5.22 ENVIRONMENTAL LAWS AND REGULATIONS. Except as
would not reasonably be likely to have a Parent Material Adverse Effect, or
except as set forth on Schedule 5.22:
(a) (i) Parent and its Subsidiaries are and have been, in all material
respects, in compliance with, and there are no outstanding written
allegations or, to the Actual Knowledge of Parent, oral allegations, by any
person or entity that Parent or its Subsidiaries has not been in compliance
with, all Environmental Laws and (ii) Parent and its Subsidiaries currently
hold all material permits, licenses, registrations and other governmen tal
authorizations (including exemptions, waivers, and the like) and financial
assurance required under Environmental Laws for Parent and its Subsidiaries
to operate their businesses as currently conducted.
(b) (i) there is no friable asbestos-containing material in or on any
real property currently owned, leased or operated by Parent or its
Subsidiaries and (ii) there are and, to the Actual Knowledge of Parent, have
been no underground storage tanks (whether or not required to be registered
under any applicable law), dumps, landfills, lagoons, surface impoundments,
injection wells or other land disposal units in or on any property currently
owned, leased or operated by Parent or its Subsidiaries.
(c) (i) neither Parent nor its Subsidiaries has received (x) any
written communication from any person stating or alleging that any of them
may be a potentially responsible party under any Environmental Law
(including, without limitation, the Federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended) with respect
to any actual or alleged environmental contamination or (y) any request for
information under any Environmental Law from any Governmental Entity with
respect to any actual or alleged material environmental contamination; and
(ii) neither of Parent, nor its Subsidiaries nor any Governmental Entity is
conducting or has conducted (or, to the Actual Knowledge of the Parent, is
threatening to conduct) any environmental remediation or investigation.
(d) To the Actual Knowledge of Parent, all real properties formerly
owned, used, leased, occupied, managed or operated by Parent or its
Subsidiaries complied, in all material respects, with the Environmental Laws
during Parent's or its Subsidiaries' tenure thereat and, to the Actual
Knowledge of Parent there are no environmental liabilities associated
therewith that are reasonably likely to result in a Parent Material Adverse
Effect.
Section 5.23 LABOR MATTERS. Neither Parent nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other understanding with a labor union or labor organization and,
to the Actual Knowledge of Parent, there is no activity involving any
employees of Parent or its Subsidiaries seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
Section 5.24 AFFILIATE TRANSACTIONS. Except as set forth in Schedule
5.24 or as disclosed in Parent SEC Reports, there are no, and since January
1, 1996 there have not been any, material Contracts or other transactions
between the Parent or any of its Subsidiaries, on the one hand, and any
(i) officer or director of the Parent or any of its Subsidiaries,
(ii) record or
25
<PAGE>
beneficial owner of five percent or more of the voting securities of the
Parent or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or
beneficial owner, on the other hand.
Section 5.25 TAX MATTERS. Parent knows of no fact or circumstance
which is reasonably likely to cause the Merger to be treated other than as a
tax-free reorganization under Section 368(a) of the Code.
Section 5.26 ACCOUNTS RECEIVABLE. All of the accounts and notes
receivable of the Parent and its Subsidiaries set forth on the books and
records of the Parent net of the applicable reserves reflected on the books
and records of the Parent and in the financial statements included in the
Parent SEC Reports): (i) represent sales actually made in the ordinary
course of business for goods or service delivered or rendered to unaffiliated
customers in bona fide arm's length transactions, (ii) constitute valid
claims, and (iii) are good and collectible, at the aggregate recorded amounts
thereof (net of such reserves) without right of recourse, defense, deduction,
return of goods, counterclaim, or offset and have been or will be collected
in the ordinary course of business and consistent with past experience.
Section 5.27 INVENTORY. All inventory of the Parent and its
Subsidiaries is (net of the applicable reserves reflected on the books and
records of the Parent and in the financial statements included in the Parent
SEC Reports) of merchantable quality, free of defects in workmanship or
design and is usable and salable at normal profit margins and in accordance
with historical sales practices in the ordinary course of the business of the
Parent and its Subsidiaries. The inventory (net of such reserves) does not
include any items which are obsolete, damaged, excessive, below standard
quality or slow moving (i.e., items that are for discontinued or expected to
be discontinued product lines, or items that have not been used or sold
within 12 months prior to the date hereof).
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Prior to the Effective Time, unless Parent shall otherwise agree in writing,
or as otherwise expressly contemplated by this Agreement:
(a) the Company shall conduct, and cause each of its Subsidiaries to
conduct, its business only in the ordinary and usual course consistent with
past practice, and the Company shall use, and cause each of its Subsidiaries
to use, its reasonable efforts to preserve intact the present business
organization, keep available the services of its present officers and key
employees, and preserve the goodwill of those having business relationships
with it;
(b) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) amend its charter, by laws or other organizational documents, (ii)
split, combine or reclassify any shares of its outstanding capital stock,
(iii) declare, set aside or pay any dividend or other
26
<PAGE>
distribution payable in cash, stock or property, or (iv) directly or
indirectly redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of its Subsidiaries;
(c) except as provided in Schedule 6.1(c), the Company shall not, nor
shall it permit any of its Subsidiaries to, (i) authorize for issuance, issue
or sell or agree to issue or sell any shares of, or Rights to acquire or
which are convertible into any shares of, its capital stock or shares of the
capital stock of any of its Subsidiaries (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise), except for the issuance of shares of Company Common Stock upon
the exercise of Company Stock Options outstanding on the date of this
Agreement and the issuance of options in connection with the hiring of sales
representatives consistent with past practices; (ii) merge or consolidate
with another entity; (iii) acquire or purchase an equity interest in or a
substantial portion of the assets of another corpora tion, partnership or
other business organization or otherwise acquire any assets outside the
ordinary and usual course of business and consistent with past practice or
otherwise enter into any material contract, commitment or transaction outside
the ordinary and usual course of business consistent with past practice;
(iv) sell, lease, license, waive, release, transfer, encumber or otherwise
dispose of any of its assets outside the ordinary and usual course of business
and consistent with past practice; (v) incur, assume or prepay any material
indebtedness or any other material liabilities other than in the ordinary
course of business and consistent with past practice; (vi) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person other than
a Subsidiary of the Company, in each case in the ordinary course of business
and consistent with past practice; (vii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to
Subsidiaries of the Company; (viii) authorize or make capital expenditures in
excess of the amounts currently budgeted therefor; (ix) permit any insurance
policy naming the Company or any Subsidiary of the Company as a beneficiary
or a loss payee to be cancelled or terminated other than in the ordinary
course of business; or (x) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) the Company shall not, nor shall it permit its Subsidiaries to,
(i) adopt, enter into, terminate or amend (except as may be required by
Applicable Law) any Company Plan or other arrangement for the current or
future benefit or welfare of any director, officer or current or former
employee, (ii) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee (except for normal
increases in salaried compensation in the ordinary course of business
consistent with past practice, or (iii) take any action to fund or in any
other way secure, or to accelerate or otherwise remove restrictions with
respect to, the payment of compensation or benefits under any employee plan,
agreement, contract, arrangement or other Company Plan (including the Company
Stock Options);
(e) the Company shall not, nor shall it permit its Subsidiaries to,
take any action with respect to, or make any material change in, its
accounting or tax policies or procedures, except as required by law or to
comply with GAAP;
27
<PAGE>
(f) the Company shall not (i) take or allow to be taken any action
which would jeopardize the treatment of Parent's acquisition of the Company
as a pooling of interests for accounting purposes; or (ii) take any action
which would jeopardize qualification of the Merger as a reorganization within
the meaning of Section 368(a) of the Code.
Section 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Prior
to the Effective Time, unless the Company shall otherwise agree in writing,
and except as otherwise expressly contemplated by this Agreement:
(a) Parent shall conduct its business and the business of its
Subsidiaries in a manner designed, in the good faith judgment of its Board of
Directors, to enhance the long-term value of the Parent Common Stock and the
business prospects of Parent and Subsidiaries;
(g) Parent shall not (i) split, combine or reclassify any shares of
its outstanding capital stock; or (ii) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property;
(h) Parent shall not authorize for issuance, issue or sell or agree to
issue or sell any shares of, or Rights to acquire or which are convertible
into any shares of, its capital stock, except for (i) the issuance of shares
of Parent Common Stock (x) upon the exercise of stock options or other Rights
outstanding on the date of this Agreement, or (y) upon the exercise of
Rights described in the immediately following clause (ii) or (z) upon the
conversion of the Parent Preferred Stock in accordance with its present
terms, (ii) the issuance of Rights or shares of Parent Common Stock pursuant
to existing employee benefit plans or arrangements in a manner consistent
with past practice, and (iii) the issuance of shares of Parent Common Stock
or Rights in connection with arm's length transactions with non-affiliates;
(i) neither Parent nor Sub shall (i) take or allow to be taken any
action which would jeopardize the treatment of Parent's acquisition of the
Company as a pooling of interests for accounting purposes; or (ii) take any
action which would jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
Section 6.3 CONDUCT OF BUSINESS OF SUB. During the period from the
date of this Agreement to the Effective Time, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement. It is understood that Sub was formed by Parent solely for the
purpose of effecting the Merger, and that Sub will have no material assets
and no material liabilities prior to the Merger.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION. Each of the Company and Parent shall
(and shall cause its Subsidiaries and its and those of their respective
officers, directors and employees whose names appear on Schedule 7.1,
auditors and agents to) afford to the other and
28
<PAGE>
to the other's officers, employees, financial advisors, legal counsel,
accountants, consultants and other representatives reasonable access during
normal business hours throughout the period prior to the Effective Time to
all of its books and records and its properties, plants and personnel and,
during such period, each shall furnish promptly to the other a copy of each
report, schedule and other document filed or received by it pursuant to the
requirements of federal securities laws, provided that no investigation
pursuant to this Section 7.1 shall affect any representations or warranties
made herein or the conditions to the obligations of the respective parties to
consummate the Merger. Unless otherwise required by law, each party agrees
that it (and its Subsidiaries and its and their respective representatives)
shall hold in confidence all non-public information so acquired in accordance
with the terms of the confidential ity agreement, dated July 1, 1997, between
Parent and the Company (the "Confidentiality Agreement").
Section 7.2 NO SOLICITATION
(a) Prior to the Effective Time, the Company agrees that neither it,
any of its Subsidiaries or its affiliates, nor any of the respective
directors, officers, employees, agents or representatives of the foregoing
will, directly or indirectly, solicit, initiate, facilitate or encourage
(including by way of furnishing or disclosing non-public information) any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving the Company or any
material Subsidiary of the Company or the acquisition of any securities of
the Company or all or any material assets (including stock of a subsidiary)
of the Company and the Subsidiaries of the Company taken as a whole (an
"Acquisition Transaction") or negotiate, explore or otherwise engage in
discussions with any person (other than Parent and its representatives) with
respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding with respect to any such Acquisition
Transaction or which would require it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this
Agreement; provided, however, that the Company may, in response to an
unsolicited written proposal from a third party with respect to an
Acquisition Transaction, furnish information to and engage in discussions
with such third party, in each case only if the Board of Directors of the
Company determines in good faith by a majority vote, after consultation with
its financial advisors and based upon the advice of outside counsel to the
Company, that failing to take such action would result in a breach of the
fiduciary duties of the Board of Directors and, prior to taking such action,
the Company (i) provides reasonable notice to Parent to the effect that it is
taking such action and (ii) receives from such corporation, partnership,
person or other entity or group (and delivers to Parent) an executed
confidentiality agreement in reasonably customary form. The Company agrees
that as of the date hereof, it, its Subsidiaries and affiliates, and the
respective directors, officers, employees, agents and representatives of the
foregoing, shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person (other than Parent
and its representatives) conducted heretofore with respect to any Acquisition
Transaction. The Company agrees to immediately advise Parent in writing of
any inquiries or proposals (or desire to make a proposal) received by any
such information requested from, or any such negotiations or discussions
sought to be initiated or continued with, any of it, its Subsidiaries or
affiliates, or any of the respective directors, officers, employees, agents
or representatives of the foregoing, in each case from a person (other than
Parent and its representatives) with respect to an Acquisition Transaction,
and the terms thereof, including the identity of such third party, and to
update n an ongoing basis or upon Parent's request, the status thereof, as
well as any
29
<PAGE>
actions taken or other developments pursuant to this Section 7.2(a).
Notwithstanding anything in the foregoing provisions of this Section 7.2(a)
to the contrary: (i) the Company shall not disclose any information received
by it or any of its directors, officers, employees, agents or representatives
pursuant to the Confidentiality Agreement or any other confidentiality or
other similar agreement between the Company and Parent to any person in
violation of such agreement and (ii) the Company shall not be obligated to
disclose to Parent any confidential information provided to the Company by
any third party in violation of any law or any confidentiality agreement
between the Company and such third party provided for in this Section 7.2.
(b) Except as set forth in this Section 7.2(b), the Board of Directors
of the Company shall not (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the Parent or the Sub, the approval or
recommendation by the Board of Directors of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any
Acquisition Transaction or (iii) cause the Company to enter into any
agreement with respect to any Acquisition Transaction. Notwithstanding the
foregoing, in the event that prior to the Effective Time the Board of
Directors of the Company determines in its good faith reasonable judgment, by
a majority vote, after consultation with its financial advisors, that the
Acquisition Transaction is more favorable to the stockholders of the Company
than the Merger and, based upon the advice of outside counsel to the Company,
that such action is required by the fiduciary duties of the Board of
Directors, the Board of Directors of the Company may withdraw or modify its
approval or recommendation of this Agreement and the Merger, approve or
recommend such Acquisition Transaction or (subject to Section 9.2(b)) cause
the Company to enter into an agreement with respect to such Acquisition
Transaction, but only if the Company gives Parent at least five business
days' prior written notice thereof, during which time Parent may make, and,
in such event, the Company shall in good faith consider, a counter proposal
to such Acquisition Transaction.
Section 7.3 REGISTRATION STATEMENT. As promptly as practicable,
Parent and the Company shall in consultation with each other prepare and file
with the SEC the Proxy Statement and Parent in consultation with the Company
shall prepare and file with the SEC the Registration Statement. Each of
Parent and the Company shall use its reasonable best efforts to have the
Registration Statement declared effective as soon as practicable. Parent
shall also use its reasonable best efforts to take any action required to be
taken under state securities or "blue sky" laws in connection with the
issuance of the shares of Parent Common Stock pursuant to this Agreement in
the Merger. The Company shall furnish Parent with all information concern
ing the Company and the holders of its capital stock and shall take such
other action as Parent may reasonably request in connection with the
Registration Statement and the issuance of shares of Parent Common Stock. If
at any time prior to the Effective Time any event or circumstance relating to
Parent, any Subsidiary of Parent, the Company, any Subsidiary of the Company,
or their respective officers or directors, should be discovered by such party
which should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, such party shall promptly inform the other
thereof and take appropriate action in respect thereof. Neither Parent nor
Company shall distribute any written material that would constitute a
"prospectus" relating to the Merger other than in compliance with the
Securities Act or any applicable state's securities laws.
30
<PAGE>
Section 7.4 PROXY STATEMENTS; STOCKHOLDER APPROVALS
(a) The Company, acting through its Board of Directors, shall, subject
to and in accordance with applicable law and its Certificate of Incorporation
and By-Laws, promptly and duly call, give notice of, convene and hold as soon
as practicable following the date upon which the Registration Statement
becomes effective a meeting of the holders of Company Common Stock for the
purpose of voting to approve and adopt this Agreement and the transactions
contemplated hereby, and, subject to the fiduciary duties of the Board of
Directors of the Company under applicable law as advised by outside legal
counsel, (i) recommend approval and adoption of this Agreement and the
transactions contem plated hereby by the stockholders of the Company and
include in the Proxy Statement such recommendation and (ii) take all
reasonable and lawful action to solicit and obtain such approval.
(b) Parent, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation
and By-Laws, promptly and duly call, give notice of, convene and hold as soon
as practicable following the date upon which the Registration Statement
becomes effective a meeting of the holders of Parent Common Stock for the
purpose of voting to approve and adopt this Agreement and the transactions
contemplated hereby, and, subject to the fiduciary duties of the Board of
Directors of Parent under applicable law as advised by outside counsel,
(i) recommend approval and adoption of this Agreement and the transactions
contemplated hereby by the stockholders of Parent and include in the Proxy
Statement such recommendation, and (ii) take all reasonable and lawful action
to solicit and obtain such approval.
(c) Parent and the Company, as promptly as practicable (or with such
other timing as they mutually agree), shall cause the definitive Proxy
Statement to be mailed to their stockholders.
(d) At or prior to the Closing, each of Parent and the Company shall
deliver to the other a certificate of its Secretary setting forth the voting
results from its stockholder meeting.
Section 7.5 COMPLIANCE WITH THE SECURITIES ACT
(a) At least 45 days prior to the Effective Time, each of Parent and
the Company shall cause to be delivered to the other a list identifying all
persons who were, in its reasonable judgment, at the record date for its
stockholders' meeting convened in accordance with Section 7.4 hereof,
"affiliates" of such party as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Affiliates").
(b) Each of Parent and the Company shall use its reasonable best efforts
to cause each person who is identified as one of its Affiliates in its list
referred to in, Section 7.5(a) above to deliver to Parent (with a copy to the
Company), at least 30 days prior to the Effective Time, a written agreement,
in the form attached hereto as Exhibit B-1, in the case of Affiliates of
Parent, and in the form attached hereto as Exhibit B-2, in the case of
Affiliates of the Company (the "Affiliate Agreement").
31
<PAGE>
(b) If any Affiliate of the Company refuses to provide an Affiliate
Agreement, Parent may place appropri ate legends on the certificates
evidencing the shares of Parent Common Stock to be received by such Affiliate
pursuant to the terms of this Agreement and to issue appropriate stop
transfer instructions to the transfer agent for shares of Parent Common Stock
to the effect that the shares of Parent Common Stock received by such
Affiliate pursuant to this Agreement may be sold, transferred or otherwise
conveyed only (i) pursuant to an effective registration statement under the
Securities Act, (ii) in compliance with Rule 145 promulgated under the
Securities Act, or (iii) pursuant to another exemption under the Securities
Act.
Section 7.6 REASONABLE BEST EFFORTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
the obtaining of all necessary waivers, consents and approvals and the
effecting of all necessary registrations and filings. Without limiting the
generality of the foregoing, as promptly as practicable, the Company, Parent
and Sub shall make all filings and submissions under the HSR Act as may be
reasonably required to be made in connection with this Agreement and the
transactions contemplated hereby and the Company shall use its reasonable
best efforts to cause any affiliate of the Company who is required to make a
filing or submission under the HSR Act in connection with this Agreement and
the transactions contemplated hereby to do so promptly. Subject to the
Confidentiality Agreement, the Company will furnish to Parent and Sub, and
Parent and Sub will furnish to the Company, such information and assistance
as the other may reasonably request in connection with the preparation of any
such filings or submissions. Subject to the Confidentiality Agreement, the
Company will provide Parent and Sub, and Parent and Sub will provide the
Company, with copies of all material written correspondence, filings and
communications (or memoranda setting forth the substance thereof) between
such party or any of its representatives and any Governmental Entity, with
respect to the obtaining of any waivers, consent or approvals and the making
of any registrations or filings, in each case that is necessary to consummate
the Merger and the other transactions contemplated hereby. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers or directors o
Parent and the Surviving Corporation shall take all such necessary action.
Section 7.7 IRREVOCABLE PROXY AND TERMINATION RIGHTS AGREEMENT.
Concurrently herewith, and as an essential inducement for Parent's entering
into this Agreement, Parent and Sub are entering into the Irrevocable Proxy
and Termination Rights Agreement with certain holders of the Company Common
Stock with respect to all such shares of Company Common Stock held by such
holders.
Section 7.8 COMPANY STOCK OPTIONS. To the extent permitted by the
respective terms of the Company Stock Options and the plans under which they
were issued, at the Effective Time, each of the Company Stock Options (and,
solely with respect to such options, the applicable option plans pursuant to
which such options were issued) which is outstanding immediately prior to the
Effective Time shall be assumed by Parent and converted automatically into an
option to purchase shares of Parent Common Stock (a "New Option") in an
amount and at an exercise price determined as provided below:
32
<PAGE>
(a) The number of shares of Parent Common Stock to be subject to the
New Option shall be equal to the product of the number of shares of Company
Common Stock remaining subject (as of immediately prior to the Effective
Time) to the original option and the Exchange Ratio, provided that any
fractional shares of Parent Common Stock resulting from such multiplication
shall be rounded down to the nearest share; and
(b) The exercise price per share of Parent Common Stock under the New
Option shall be equal to the exercise price per share of Company Common Stock
under the original option divided by the Exchange Ratio, provided that such
exercise price shall be rounded down to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
modified to the extent required to comply with Section 424(a) of the Code and
the applicable Treasury regulations. After the Effective Time, each New
Option shall be exercisable and shall vest upon the same terms and conditions
as were applicable to the related Company Stock Option immediately prior to
the Effective Time, except that all references to the Company shall be deemed
to be references to Parent. Parent shall file with the SEC a registration
statement on Form S-8 (or other appropriate form) or a post-effective
amendment to the Registration Statement and shall take any action required to
be taken under state securities "blue sky" laws for purposes of registering
all shares of Parent Common Stock issuable after the Effective Time upon
exercise of the New Options, and shall use all reasonable efforts to have
such registration statement or post-effective amendment (or a successor or
replacement registration statement) become effective with respect thereto as
promptly as practicable after the Effective Time.
Section 7.9 PUBLIC ANNOUNCEMENTS. Each of Parent, Sub, and the
Company agrees that it will not issue any press release or otherwise make any
public statement with respect to this Agreement (including the Exhibits
hereto) or the transactions contemplated hereby (or thereby) without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed; provided, however, that such disclosure can be made
without obtaining such prior consent if (i) the disclosure is required by law
or by obligations imposed pursuant to any listing agreement with any national
securities exchange and (ii) the party making such disclosure has first used
its reasonable best efforts to consult with (but not obtain the consent of)
the other party about the form and substance of such disclosure.
Section 7.10 EXPENSES. Except as otherwise set forth in Section
9.2(b), whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement (including the Exhibits hereto)
and the transactions contemplated hereby (and thereby) shall be paid by the
party incurring such expenses, except that (i) the expenses incurred in
connection with printing the Registration Statement and the Proxy Statement
and (ii) the filing fee with the SEC relating to the Registration Statement
or the Proxy Statement will be shared equally by Parent and the Company and
the filing fee in connection with filings under the HSR Act by Parent or the
Company (but not any Affiliate of the Company) shall be the expense solely of
Parent.
33
<PAGE>
Section 7.11 LISTING APPLICATION. Parent will use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued pursuant
to this Agreement in the Merger (as well as the shares of Parent Common Stock
issuable after the Effective Time upon exercise of the New Options) to be
listed for quotation and trading on the NASDAQ National Market.
Section 7.12 SUPPLEMENTAL DISCLOSURE. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be
complied with or satisfied and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Sec tion 7.12 shall
not have any effect for the purpose of determining the satisfaction of the
conditions set forth in Article VIII of this Agreement or otherwise limit or
affect the remedies available hereunder to any party.
Section 7.13 LETTERS OF ACCOUNTANTS
(a) Parent shall use all reasonable efforts to cause to be delivered
to the Company (i) a letter of BDO Seidman LLP, Parent's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to the Company,
in form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement, which letter shall be brought down to the Effective Time, and
(ii) the letter referred to in 8.2(d).
(b) The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Deloitte & Touche LLP, the Company's
independent auditors, dated a date within two business days before the date
on which the Registration Statement shall become effective and addressed to
Parent, in form and substance reasonably satisfactory to Parent and customary
in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement, which letter shall be brought down to the Effective
Time.
Section 7.14 DIRECTORS OF PARENT. Parent agrees that, promptly after
the Effective Time, Parent shall take such action as may be necessary to
cause either Robert J. Sullivan or Timothy J. Sullivan (or if both Robert J.
Sullivan and Timothy J. Sullivan are unwilling or unable to serve, then
Timothy J. Sullivan's designee, which designee shall be reasonably acceptable
to Parent), to be nominated for election to Parent's Board of Directors, and
to use its reasonable best efforts to cause such individual to be elected to
Parent's Board of Directors.
Section 7.15 INDEMNIFICATION
(a) Parent agrees that all rights to indemnification existing as of
the date of this Agreement in favor of the employees, agents, directors or
officers ("Indemnified Persons") of the Company, as provided in the Company's
articles of incorporation, as amended, and bylaws, as
34
<PAGE>
amended ("Organic Documents") of the Company or in any written agreement
between the Company and an Indemnified Person ("Indemnification Agreements")
listed on Schedule 7.15 (true and complete copies of which have been
delivered to Parent), shall survive the Effective Date and shall continue in
full force and effect as obligations of the Parent for a period not less than
six years from the Effective Date. Parent shall cause Surviving Corporation
on the Effective Date not to cause or permit the amendment of such provisions
of the Organic Documents for a period of not less than six years from the
Effective Date.
(b) Parent shall use its reasonable best efforts to maintain in effect
(for at least six years from the Effective Time in the case of claims made
policies) directors' and officers' liability insurance policies providing
coverage in an aggregate amount of at least $4,000,000 and with a carrier(s)
having a Best's rating of at least "A" covering directors and officers of the
Company serving as of or after December 1, 1990 with respect to claims
arising from occurrences prior to or at the Effective Time (including the
transactions contemplated by or related to this Agreement).
Section 7.16 SOLICITATION OF EMPLOYEES AND REPRESENTATIVES. Each of
Parent and the Company agrees that, subject to the last sentence of this
Section 7.16, (i) for a period beginning on the Termination Date, if any, and
ending on the 6 month anniversary of such date, it will not hire any
individual who at any time during the three month period preceding the date
of this Agreement was, or who at any time on or after the date of this
Agreement is, an employee or independent sales representative of the other
party and (ii) for a period beginning on the Termination Date, if any, and
ending on the 12-month anniversary of such date, it will not directly or
indirectly solicit any such individual of the other party. Notwithstanding
the foregoing, each party may place advertisements in publications of general
circulation to recruit personnel, provided such publications containing such
advertisements are distributed solely through the customary and public
distribution channels of the publication. The covenants provided for in this
Section 7.16 shall not apply to any party from and after the time that such
party becomes entitled to receive a fee pursuant to Section 9.2(b), (c) or
(d).
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) HSR APPROVAL. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the U.S. Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation
of this transaction, which action shall have not been withdrawn or terminated.
35
<PAGE>
(b) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by (i) the requisite
vote (as described in Section 4.18) of the stockholders of the Company and
(ii) by the requisite vote (as described in Section 5.12) of the stockholders
of Parent, in each case, in accordance with applicable law.
(c) NASDAQ LISTING. The shares of Parent Common Stock issuable to the
holders of Company Common Stock pursuant to this Agreement in the Merger
shall have been authorized for listing on the NASDAQ National Market, upon
official notice of issuance.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceeding by the SEC seeking a stop order.
(e) NO ORDER. No Governmental Entity (including a federal or state
court) of competent juris diction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is in effect and which materially restricts, prevents or prohibits
consummation of the Merger or any transaction contemplated by this Agreement;
provided, however, that the parties shall use their reasonable best efforts
to cause any such decree, judgment, injunction or other order to be vacated
or lifted.
(f) APPROVALS. Other than the filing of Merger documents in
accordance with the WBCL, all authorizations, consents, waivers, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity the failure of which to obtain,
make or occur would individually or in the aggregate have a material adverse
effect at or after the Effective Time on (i) Parent and its Subsidiaries or
(ii) the Surviving Corporation and its Subsidiaries shall have been obtained,
been filed or have occurred. Parent shall have received all state securities
or "blue sky" permits and other authorizations necessary to issue the shares
of Parent Common Stock pursuant to this Agreement in the Merger.
(g) LITIGATION. No preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory
agency, body or authority which enjoins, restrains or prohibits the
transactions contemplated hereby, including the consummation of the Merger or
has the effect of making the Merger illegal and which is in effect at the
Effective Time (each party agreeing to use its best efforts to have any such
injunction or order lifted).
(h) STATUTES. No statute, rule, regulation, executive order, decree
or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the
consummation of the Merger or has the effect of making the Merger illegal.
(i) MARKET EVENTS. There shall not have occurred and be continuing
any general suspension or limitation of trading in Parent Common Stock
(exclusive, however, of any temporary suspension pending an ensuing public
announcement) or in securities generally on the NASDAQ National Market.
36
<PAGE>
Section 8.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT
THE MERGER. The obligations of Parent and Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the
following additional conditions, unless waived in writing by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date hereof and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Effective Time as though made at and as of the Effective Time, except, in
each case, to the extent that the aggregate effect of all such breaches or
misrepresentations does not and would not reasonably be expected to have a
Company Material Adverse Effect, and Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. Each of the Company
and its Subsidiaries shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Time, and Parent shall have received a certificate signed on
behalf of the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
(c) AFFILIATE AGREEMENTS. Parent shall have received the Affiliate
Agreements from each of the Affiliates of the Company, as contemplated in
Section 7.5.
(d) "POOLING LETTER". Parent shall have received from BDO Seidman LLP
a letter, dated the Closing Date and addressed to Parent, to the effect that,
subject to customary qualifications, the Merger qualifies for pooling of
interests treatment for financial reporting purposes in accordance with GAAP,
and Parent shall have received from the Company, with the consent of Deloitte
& Touche LLP, a copy of a letter, dated the Closing Date, of Deloitte &
Touche LLP addressed to the Company to the effect that, subject to customary
qualifications, the Merger qualifies for pooling of interests for financial
reporting purposes in accordance with GAAP.
(e) TAX OPINION OF COUNSEL. Parent shall have received an opinion of
Proskauer Rose LLP, tax counsel to Parent, in form and substance reasonably
satisfactory to Parent, dated as of the Effective Time, substantially to the
effect that no gain or loss will be recognized by the Company, Parent or Sub
as a result of the Merger.
(f) LETTERS OF RESIGNATION. Parent and Sub shall have received
letters of resignation addressed to the Company from the members of the
Company's board of directors, which resignations shall be effective as of the
Effective Time.
(g) LEGAL OPINION. Parent shall have received an opinion, dated the
Closing Date, of Wolfe, Wolfe & Ryd, counsel to the Company, substantially to
the effect set forth in Exhibit C hereto, subject to assumptions,
qualifications and limitations reasonably satisfactory to Parent. In such
opinion Wolfe, Wolfe & Ryd may rely on an opinion of local counsel as to
37
<PAGE>
matters of Wisconsin law, provided that such local counsel and its opinion
are reasonably satisfactory to Parent and a copy of such counsel's opinion is
attached to Wolfe, Wolfe & Ryd's opinion.
Section 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent set forth in this Agreement shall be true and correct in
all material respects as of the date hereof and, except to the extent such
representations and warranties speak as of an earlier date, as of the
Effective Time as though made on and as of the Effective Time, except, in
each case, to the extent that the aggregate effect of all such breaches or
misrepresentations does not and would not reasonably be expected to have a
Parent Material Adverse Effect, and the Company shall have received a
certificate signed on behalf of Parent by the chief executive officer or the
chief financial officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Each of Parent and
Sub shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Effective Time,
and the Company shall have received a certificate signed on behalf of Parent
by the chief executive officer or the chief financial officer of Parent to
such effect.
(c) LEGAL OPINION. The Company shall have received the opinion, dated
as of the Effective Time, of Proskauer Rose LLP, counsel to Parent,
substantially to the effect set forth in Exhibit D hereto, subject to
assumptions, qualifications and limitations reasonably satisfactory to the
Company. In such opinion Proskauer Rose LLP may rely on an opinion of local
counsel as to matters of Wisconsin law, provided that such local counsel and
its opinion are reasonably satisfactory to the Company and a copy of such
counsel's opinion is attached to Proskauer Rose LLP's opinion.
ARTICLE IX
TERMINATION
Section 9.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
stockholders of Parent or the Company:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if (i) the Merger shall not have
been consummated before January 31, 1998 or (ii) the approval of the
stockholders of each of Parent and the Company required by Sections 5.12 and
4.18, respectively, shall not have been obtained at a meeting duly convened
therefor or any adjournment thereof (unless, in the case of any such
38
<PAGE>
termination pursuant to this Section 9.1(b), the failure to so consummate the
Merger by such date or to obtain such stockholder approval shall have been
caused by the action or failure to act of the party (or its Subsidiaries)
seeking to terminate this Agreement, which action or failure to act
constitutes a breach of this Agreement); provided, however, that this
Agreement may be extended not more than 90 days by Parent or the Company by
written notice to the other party if the Merger shall not have been
consummated solely as a result of the failure of any of the conditions set
forth in Section 8.1(a) or Section 8.1(f) to be satisfied, but only if no
permanent injunction or other order described in Section 9.1(c) shall have
been issued and the failure of such conditions to be satisfied shall not have
been caused by the action or failure to act of the party seeking to extend
this Agreement, which action or failure to act constitutes a breach of this
Agreement;
(c) by either Parent or the Company, if any permanent injunction or
action by any Governmental Entity of competent jurisdiction preventing the
consummation of the Merger shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement
pursuant to this Section 9.1(c) shall have used all reasonable efforts to
remove such injunction or overturn such action;
(d) by Parent, if (i) there has been a breach of any representations
or warranties of the Company set forth herein the effect of which
individually or together with all other such breaches, is a Company Material
Adverse Effect, (ii) there has been a material breach of any covenant or
agreement set forth in this Agreement on the part of the Company, which
breach is not cured within 30 days after written notice of such breach is
given by Parent to the Company, (iii) the Board of Directors of the Company
(x) withdraws or amends or modifies in a manner adverse to Parent or Sub its
recommendation or approval in respect of this Agreement or the Merger, (y)
makes any recommendation with respect to an Acquisition Transaction
(including making no recommendation or stating an inability to make a
recommendation), other than a recommendation to reject such Acquisition
Transaction, or (z) takes any action that would be prohibited by Section 7.2,
(iv) any corporation, partnership, person or other entity or group (as
defined in Section 13(d)(3) of the Exchange Act) ("Acquiring Person") other
than Parent, or any affiliate or Subsidiary of Parent, shall have become the
beneficial owner of more than 20% of the outstanding voting equity of the
Company (either on a primary or a fully diluted basis); provided, however
that "Acquiring Person" shall not include any corporation, partnership,
person, other entity or group which beneficially owns as of the date hereof
(either on a primary or a fully diluted basis) more than 20% of the
outstanding voting equity of the Company (either on a primary or a fully
diluted basis) and which has not after the date hereof increased such
ownership percentage by more than an additional 1% of the outstanding voting
equity of the Company (either on a primary or a fully diluted basis), or (v)
any other Acquisition Transaction shall have occurred with any Acquiring
Person other than Parent, or any affiliate or Subsidiary of Parent;
(e) by the Company, if (i) there has been a breach of any
representations or warranties of Parent set forth herein the effect of which
individually or together with all other such breaches is a Parent Material
Adverse Effect, (ii) there has been a material breach of any covenant or
agreement set forth in this Agreement on the part of Parent, which breach is
not cured within 30 days after written notice of such breach is given by the
Company to Parent or (iii) such termination is necessary to allow the Company
to enter into an Acquisition Transaction in accordance with the last sentence
of Section 7.2(b) (provided that the termination described in
39
<PAGE>
this clause (iii) shall not be effective unless and until the Company shall
have paid to Parent in full the fee described in Section 9.2(b);
(f) by Parent, if the meeting of stockholders of the Company to vote
upon this Agreement is canceled or is otherwise not held prior to January 31,
1998 (or such later date to which the date for termination of this Agreement
pursuant to Section 9.1(b) has been extended in accordance with the terms
thereof) except as a result of a judgment, injunction, order or decree of any
competent authority or events or circumstances beyond the reasonable control
of the Company;
(g) by the Company, if the meeting of stockholders of the Parent to
vote upon this Agreement is canceled or is otherwise not held prior to
January 31, 1998 (or such later date to which the date for termination of
this Agreement pursuant to Section 9.2(b) has been extended in accordance
with the terms thereof) except as a result of a judgment, injunction, order
or decree of any competent authority or events or circumstances beyond the
reasonable control of the Parent; and
(h) by the Company, if the average of the closing sale prices of a
share of Parent Common Stock during the twenty (20) trading days preceding
the third business day prior to the date of the mailing of the Proxy
Statement is less than $25.00 per share.
Section 9.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement pursuant to this
Article IX, the Merger shall be deemed abandoned and this Agreement shall
forthwith become void, without liability on the part of any party hereto,
except as provided in this Section 9.2, Section 7.1 (solely with respect to
confidentiality), Section 7.10 and Section 7.16, and except that nothing
herein shall relieve any party from liability for any breach of this
Agreement.
40
<PAGE>
(b) If (x) Parent shall have terminated this Agreement pursuant to
Sections 9.1(d)(iii), 9.1(d)(iv) or 9.1(d)(v) or (y) either (1) the Company
shall have terminated this Agreement pursuant to Section 9.1(b) or (2) Parent
shall have terminated this Agreement pursuant to Section 9.1(d)(i),
9.1(d)(ii) or 9.1(f) and, prior to or within six (6) months after any
termination described in this clause (y), the Company (or any of its
Subsidiaries) shall have directly or indirectly entered into a definitive
agreement for, or shall have consummated, an Acquisition Transaction, or (z)
the Company shall have terminated this Agreement pursuant to Section
9.1(e)(iii), then, in any of such cases, the Company shall pay Parent a
termination fee of twelve million dollars ($12,000,000); provided, however,
that any liquidated damage amounts previously paid by the Company to Parent
pursuant to Section 9.2(c) shall be credited against the termination fee
payable under this Section 9.2(b). Any fees payable under this Section
9.2(b) shall be paid in same day funds no later than: (i) five business days
after a termination described in clause (x) of this Section 9.2(b); (ii)
concurrently with or prior to the entering into of the definitive agreement
for, or the consummation of, such Acquisition Transaction, in the case of a
termination described in clause (y) of this Section 9.2(b); or (iii)
concurrently with or prior to a termination described in clause (z) of this
Section 9.2(b). For the sake of clarity, the parties hereto expressly
acknowledge that Parent shall not be entitled to a fee pursuant to this
Section 9.2(b) if, prior to the time that Parent would otherwise be entitled
to such fee, the Company shall have properly terminated this agreement
pursuant to Sections 9.1(e)(i), 9.1(e)(ii) or 9.1(g).
(c) If Parent shall have terminated this Agreement pursuant to
Sections 9.1(d)(i), 9.1(d)(ii) or 9.1(f), then, in any of such cases, the
Company shall pay to Parent, as liquidated damages and not as a penalty,
seven million dollars ($7,000,000). Such liquidated damage amount shall be
payable no later than five business days after such termination.
(d) If the Company shall have terminated this Agreement pursuant to
Sections 9.1(e)(i), 9.1(e)(ii) or 9.1(g), then, in either such case, Parent
shall pay to the Company as liquidated damages and not as a penalty, seven
million dollars ($7,000,000). Such liquidated damage amount shall be
payable no later than five business days after such termination.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 AMENDMENT AND MODIFICATION. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only
by written agreement (referring specifically to this Agreement) of Parent,
Sub and the Company with respect to any of the terms contained herein;
provided, however, that after any approval and adoption of this Agreement by
the stockholders of Parent or the Company, no such amendment, modification or
supplementation shall be made which under applicable law requires the
approval of such stockholders, without the further approval of such
stockholders.
Section 10.2 WAIVER. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and the Company, on the other hand, may (i) extend
the time for the performance of any of the obligations or other acts of the
other, (ii) waive any inaccuracies in the
41
<PAGE>
representations and warranties of the other contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance by the other
with any of the agreements or conditions contained herein which may legally
be waived. Any such extension or waiver shall be valid only if set forth in
an instrument in writing specifically referring to this Agreement and signed
on behalf of such party.
Section 10.3 SURVIVABILITY; INVESTIGATIONS. The respective
representations and warranties of Parent and the Company contained herein or
in any certificates or other documents delivered prior to or as of the
Effective Time (i) shall not be deemed waived or otherwise affected by any
investigation made by any party hereto and (ii) shall not survive beyond the
Effective Time. The covenants and agreements of the parties hereto
(including the Surviving Corporation after the Merger) shall survive the
Effective Time without limitation (except for those which, by their terms,
contemplate a shorter survival period).
Section 10.4 NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier
or telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof. Any such notice shall be effective upon
receipt, if personally delivered or telecopied, or one day after delivery to
a courier for next-day delivery.
(a) If to Parent or Sub, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attention: Mark E. Mlotek
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
(b) if to the Company, to:
Sullivan Dental Products, Inc.
10920 West Lincoln Avenue
West Allis, Wisconsin 53227
Attention: Timothy J. Sullivan
42
<PAGE>
with a copy to:
Wolfe, Wolfe & Ryd
20 N. Wacker Drive, Suite 3550
Chicago, IL 60606
Attention: Kerry B. Wolfe, Esq.
If Parent, on the one hand, or the Company, on the other, has or gains
knowledge prior to the Effective Date of any breach of any representation,
warranty or covenant of the other set forth in this Agreement, Parent or the
Company, as the case may be, shall promptly notify the other of such breach,
but any failure to give such notice shall not affect such party's rights or
remedies hereunder in respect thereof.
Section 10.5 DESCRIPTIVE HEADINGS; INTERPRETATION. 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. References
in this Agreement to Sections, Schedules, Exhibits or Articles mean a
Section, Schedule, Exhibit or Article of this Agreement unless otherwise
indicated. References to this Agreement shall be deemed to include the
Exhibits and Schedules hereto, unless the context otherwise requires. The
term "person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a Governmental Entity or an unincorporated
organization.
Section 10.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including
the Schedules and other documents and instruments referred to herein),
together with the Irrevocable Proxy and Termination Rights Agreement and the
Confidentiality Agreement, constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them, with respect to the subject matter hereof. This
Agreement is not intended to confer upon any person not a party hereto any
rights or remedies hereunder. This Agreement shall not be assigned by
operation of law or otherwise; provided that Parent or Sub may assign its
rights and obligations hereunder to a direct or indirect subsidiary of
Parent, but no such assignment shall relieve Parent or Sub, as the case may
be, of its obligations hereunder.
Section 10.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of law, except to the
extent relating to matters governed by the General Corporation Law of the
State of Delaware or the WBCL.
Section 10.8 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in
any respect against a party hereto, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be affected
or impaired thereby and such invalidity, illegality or unenforceability shall
only apply as to such party in the specific jurisdiction where such judgment
shall be made.
43
<PAGE>
Section 10.9 COUNTERPARTS. 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.
IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused
this Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
HENRY SCHEIN, INC.
By:_________________________________
Name:
Title:
HSI ACQUISITION CORP.
By:_________________________________
Name:
Title:
SULLIVAN DENTAL PRODUCTS, INC.
By:_________________________________
44
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 188
<SECURITIES> 0
<RECEIVABLES> 38,379
<ALLOWANCES> 991
<INVENTORY> 41,650
<CURRENT-ASSETS> 81,847
<PP&E> 13,178
<DEPRECIATION> 6,309
<TOTAL-ASSETS> 108,406
<CURRENT-LIABILITIES> 23,173
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 84,316
<TOTAL-LIABILITY-AND-EQUITY> 108,406
<SALES> 128,392
<TOTAL-REVENUES> 128,809
<CGS> 84,149
<TOTAL-COSTS> 84,149
<OTHER-EXPENSES> 36,961
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 7,684
<INCOME-TAX> 3,074
<INCOME-CONTINUING> 4,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,610
<EPS-PRIMARY> .438
<EPS-DILUTED> .430
</TABLE>
