<PAGE>
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 2000 (unaudited) and
October 30, 1999 3
Consolidated Statements of Operations (unaudited) for
the Three Months and Six Months ended April 30, 2000
and May 1, 1999 4
Consolidated Statements of Cash Flow
(unaudited) for the Six Months ended
April 30, 2000 and May 1, 1999 5
Notes to Consolidated Financial Statements
(unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 9 - 12
Item 3. Quantitive and Qualitative Disclosures about
Market Risk 13
Part II - Other Information 14 - 17
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 18
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, October 30,
2000 1999
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,562,762 $ 367,018
Investments - Money Market Fund
(restricted building funds) 2,941,397 -
Accounts receivable 4,074,523 3,525,238
Notes Receivable - 975,000
Inventory 2,802,611 2,711,709
Current portion of deferred tax asset 601,922 601,922
Other current assets 866,948 781,968
------------- ------------
TOTAL CURRENT ASSETS 12,850,163 8,962,855
------------- ------------
PROPERTY AND EQUIPMENT
net of accumulated depreciation 13,980,077 11,122,258
OTHER ASSETS: ------------- ------------
Intangible assets
net of accumulated amortization 10,957,215 10,443,207
Deferred tax asset 3,182,914 3,182,914
Other assets 138,662 122,996
------------- ------------
TOTAL OTHER ASSETS 14,278,791 13,749,117
------------- ------------
TOTAL ASSETS $ 41,109,031 $33,834,230
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,829,843 $ 3,443,208
Current portion of customer deposits 41,624 45,033
Accrued expenses 1,784,782 851,371
Current portion of long term debt 1,711,999 1,414,930
Current portion of obligations
under capital leases 181,904 180,589
------------- ------------
TOTAL CURRENT LIABILITIES 6,550,152 5,935,131
Long term debt 5,421,757 1,663,893
Long term obligations under capital leases 294,498 379,583
Line of credit 14,750,000 11,689,792
Long term portion of customer deposits 790,861 684,334
------------- ------------
TOTAL LIABILITIES 27,807,268 20,352,733
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value, 500,000
authorized shares, none issued
and outstanding shares at April 30, 2000
Common stock - $.001 par value, 50,000,000 10,340 10,340
authorized shares, 10,339,758 issued
and outstanding shares at April 30, 2000
and 10,339,758 at October 30, 1999
Paid in capital 23,197,724 23,197,724
Accumulated deficit (9,737,551) (9,557,817)
Treasury stock, at cost, 50,000 shares (168,750) (168,750)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 13,301,763 13,481,497
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,109,031 $33,834,230
============= ============
see notes to consolidated financial statements
3
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------------- ----------------------------------
April 30, May 1, April 30, May 1,
2000 1999 2000 1999
-------------- ------------- ------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 8,224,666 $ 7,799,473 $ 14,648,435 $ 13,680,319
COST OF GOODS SOLD 3,255,754 2,952,859 5,544,124 4,983,873
-------------- ------------- ------------- ---------------
GROSS PROFIT 4,968,912 4,846,614 9,104,311 8,696,446
-------------- ------------- ------------- ---------------
OPERATING EXPENSES:
Selling, general and administrative expenses 3,805,661 3,136,067 7,350,293 5,853,057
Advertising expenses 621,567 859,310 1,131,028 1,547,851
Amortization 174,702 151,812 341,336 303,426
-------------- ------------- ------------- ---------------
TOTAL OPERATING EXPENSES 4,601,930 4,147,189 8,822,657 7,704,334
-------------- ------------- ------------- ---------------
INCOME FROM OPERATIONS 366,982 699,425 281,654 992,112
-------------- ------------- ------------- ---------------
OTHER INCOME (EXPENSE):
Interest (455,562) (259,759) (734,274) (481,316)
Miscellaneous - 0 272,886 -
-------------- ------------- ------------- ---------------
TOTAL OTHER INCOME (EXPENSE) (455,562) (259,759) (461,388) (481,316)
-------------- ------------- ------------- ---------------
NET INCOME (LOSS) $ (88,580) $ 439,666 $ (179,734) $ 510,796
-------------- ------------- ------------- ---------------
=============== ============== ============== ================
NET INCOME (LOSS) PER SHARE - BASIC $ (0.01) $ 0.04 $ (0.02) $ 0.05
=============== ============== ============== ================
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.01) $ 0.04 $ (0.02) $ 0.05
=============== ============== ============== ================
Weighted Average Shares Used in Computation - Basic 10,289,758 10,257,091 10,289,758 10,254,996
=============== ============== ============== ================
Weighted Average Shares Used in Computation - Diluted 10,744,750 10,766,484 10,606,218 10,875,518
=============== ============== ============== ================
</TABLE>
see notes to consolidated financial statements
4
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
April 30, May 1,
2000 1999
--------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (179,734) $ 510,796
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 909,700 666,778
Amortization 341,336 303,426
Gain on settlement of note receivable (295,000) -
(Gain) loss on disposal of property and equipment (84,512) 6,883
Changes in assets and liabilities (net of effect of acquisitions):
(Increase) Decrease in accounts receivable (549,285) (723,441)
(Increase) Decrease in inventory (90,902) 60,794
Increase in other current assets (3,026,377) (296,949)
(Increase) Decrease in other assets (871,011) 146,270
Decrease in accounts payable (613,365) (309,215)
Increase in customer deposits 103,119 46,966
(Decrease) Increase in accrued expenses 933,409 (189,590)
--------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (3,422,622) 222,717
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,556,032) (1,117,160)
Proceeds from sale of fixed assets 92,310 -
Collection of note receivable 1,270,000 -
Cash used for acquistions (219,283) (294,665)
--------------- --------------
NET CASH PROVIDED (USED IN) INVESTING ACTIVITIES (2,413,005) (1,411,825)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 3,060,208 2,201,000
Proceeds from debt 4,254,422 -
Principal payment of debt (283,259) (558,939)
Sale of common stock - 12,720
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,031,371 1,654,781
--------------- --------------
NET INCREASE IN CASH 1,195,744 465,673
CASH - Beginning of period 367,018 161,271
--------------- --------------
CASH - End of period $ 1,562,762 $ 626,944
=============== ===============
Cash paid for interest $ 509,274 $ 481,316
=============== ===============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired under capital leases $ 102,202 $ 102,913
=============== ===============
see notes to consolidated financial statements
</TABLE>
5
<PAGE>
18
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion
of management contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented. The
results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with the Form
10-K for the year ended October 30, 1999.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto incorporated by reference
from the Company's Form 10-K and Annual Report for the year ended
October 30, 1999.
2. FISCAL YEAR/QUARTER END
Since 1994, the Company has used "4-4-5" method to determine its fiscal
months, quarters and years. Effective April 30, 2000, it will use the
regular calendar to determine the financial cut-off times for these
periods. The reason for this change is to accommodate a future
significant acquisition and to be more compatible with software used in
the operation of the business.
3. INVESTMENT - MONEY MARKET
This money market account has been set up for undisbursed funds
relating to the Vermont Economic Development Authority Bond issuance
(discussed in note four). The funds have been invested in First Union's
Evergreen Money Market account and administered by First Union, the
Bond trustee. These funds are restricted for the expenditures related
to the purchase of building and equipment.
4. LONG TERM DEBT
The Company amended and restated its five-year revolving credit
agreement with First Union National Bank and KeyBank National
Association on January 28, 2000. The facility was increased to $25
6
<PAGE>
million from $15 million under the terms and conditions of the
agreement. The interest rate on funds borrowed under the agreement is
LIBOR plus 2.5%. As of the end of the quarter, the Company had fixed
the rate of interest on $7,500,000 of its outstanding debt at 8.43%. In
conjunction with the facility, the Company entered into a Letter of
Credit with First Union for $4,300,000 to secure bonds issued for the
same amount by the Vermont Economic Development Authority. It pays a 2%
annual fee of the Letter of Credit amount. As of April 30, 2000,
exclusive of the Letter of Credit, the Company had borrowed $14,500,000
pursuant to this agreement and $1,359,000 had been disbursed from the
bond proceeds. The Bonds were issued as two series designated as
Variable Rate Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs,
Inc. Project) 1999 Series A 20 year bonds and Variable Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project)
1999 Series A-T (Taxable) 10 year bonds. The Series A Bonds were issued
for $3,195,000 and mature on January 1, 2020 and the Series A-T Bonds
were issued for $1,105,000 and mature on January 1, 2011. The "Floating
Rate" is a variable rate of interest equal to the minimum rate of
interest necessary, in the sole judgment of the Remarketing Agent
(First Union Securities, Inc.), to sell the Bonds on any Business Day
at a price equal to the principal amount thereof, exclusive of accrued
interest, if any, thereon. Interest is determined on a weekly basis and
is payable on the first of every month.
5. LEGAL PROCEEDINGS
The Company reached a settlement with its largest spring water source
on December 1, 1999. As part of the settlement, the owner of the spring
and its affiliate paid $1,270,000 to the Company and acknowledged the
Company's rights under the amended water supply contract and right of
first refusal to purchase the spring site. In order to obtain the
rights to the supply contract, the Company had previously issued a
$975,000 non-interest bearing convertible debenture to the original
creditor of the owner of the spring and its affiliate.
6. INTEREST RATE HEDGE
On May 2, 2000, the Company signed a three-year "swap" agreement with
the KeyBank National Association to fix the interest rate on $5,000,000
of the Company's debt. The agreement fixes the variable LIBOR rate
portion of the debt at 7.13%. As of April 30, 2000 the Company's total
interest rate spread was 2.5% over LIBOR. Consequently, the agreement
currently fixes the portion of the debt at 9.63%.
7. COMMITMENTS
In March 1999, Vermont Pure Holdings, Ltd. entered into distribution
agreements with several Snapple distributors in order to replace a
major customer. Effective March 1, 2000, the Company modified its
distribution agreements with three of these distributors. Consequently,
Vermont Pure is the exclusive spring water brand carried by Mr.
Natural, Inc., Millrose Distributors and Snapple of Long Island, Inc.
The distribution area served by these businesses is the greater
metropolitan New York City area.
7
<PAGE>
8. SUBSEQUENT EVENT
On May 8, 2000 Vermont Pure Holdings, Ltd. entered into an Agreement
and Plan of Merger and Contribution with Crystal Rock Spring Water
Company. Crystal Rock is a privately held company. The agreement
provides for the formation of a new publicly held holding company, also
to be known as Vermont Pure Holdings, Ltd., that will own the two
businesses. Existing shareholders of Vermont Pure will receive stock of
the new holding company on a 1-for-1 basis.
The consideration to be paid is approximately $64.9 million, consisting
of not less than $9.5 million in cash, stock of Vermont Pure valued at
$31.1 million for purposes of the transaction, 12% subordinated notes
due 2007 of Vermont Pure in the original principal amount of $22.6
million, and the assumption by Vermont Pure of $1.7 million in debt.
The stock price of Vermont Pure for purposes of the merger will be
determined prior to the closing and has a collar of from $2.80 per
share to $3.15 per share. As a result, the number of shares that will
be issued will be from approximately 11.1 million to approximately 9.9
million shares, depending on the price.
The transaction requires the approval of the stockholders of Vermont
Pure and is subject to bank financing. In conjunction with the merger
agreement, the Company executed a commitment letter with Webster Bank
of Waterbury, CT that provides for up to $36 million in financing for
the cash portion of the purchase price, consolidate the existing debt
of both companies, and post-merger working capital.
8
<PAGE>
PART I - ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in the Company's Form 10-K for
the year ended October 30, 1999.
FORWARD-LOOKING STATEMENTS
When used in the Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which
speaks only as of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Among these
risks are water supply and bottling capacity constraints in the face of
significant growth, dependence on outside distributors, and reliance on
commodity price fluctuations as they influence raw material pricing. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
RESULTS OF OPERATIONS
SALES - Sales for the first six months of fiscal year 2000 were $14,648,000, an
increase of $968,000 or 7% over the sales of $13,680,000 for the corresponding
period last year. Sales for the second quarter of fiscal year 2000 were
$8,225,000, an increase of $426,000 or 5% over sales of $7,799,000 for the
corresponding period last year.
Sales for retail-size products decreased $1,076,000 or 16%, for the six months
of fiscal year 2000 compared to the corresponding period a year ago. Sales
decreased $592,000 or 14%, for the second quarter of fiscal 2000 compared to the
corresponding period a year ago. For the first half of the year, the Vermont
Pure brand sales were down 47% while Hidden Spring and Private Label brands were
up 60% and 16% respectively. The decrease for both the quarter and year to date
are attributable to a reduction in case volume due to a change in a major
distributor relationship in April, 1999 and lower average selling prices related
to competitiveness of the marketplace. Average selling prices for the six and
three months ending April 30, 2000 were down 21%, and 20%, respectively for the
corresponding periods from the previous year. This is indicative of the
competitive marketplace as well as the increase in private and secondary labels.
Decreases in average selling prices were partially offset by lower promotional
spending as described in further detail below.
9
<PAGE>
Sales for the home and office category increased $2,044,000 or 30%, for the
first six months of fiscal year 2000 compared to the corresponding period of the
prior year. Sales increased $1,018,000 or 29%, for the second quarter of fiscal
year 2000 compared to the corresponding period of the prior year. The respective
sales increases in this category for the first half and second quarter of 2000
were attributable to market growth and expansion and acquisitions. The Company
has continued its acquisition strategy during the period. Acquisitions made in
the last twelve months have been relatively small in sales volume but
geographically important.
COST OF GOODS SOLD - For the first six months of fiscal 2000, Cost of Goods Sold
was $5,544,000 compared to $4,984,000 for the same period in fiscal year 1999.
Resulting gross profits were $9,104,000, or 62% of sales, and $8,696,000, or
64%of sales, for the two respective periods. For the second quarter of 2000,
Cost of Goods Sold was $3,256,000 compared to $2,953,000 for the same period in
fiscal 1999 resulting in gross profits of $4,968,000, or 61% of sales, and
$4,846,000 or 62% of sales. The increase in gross profit for the respective six
and three month periods was due to the increase in sales. The increase in sales
can be attributed solely to the delivery of home and office products which, in
general, is Company's highest margin line. The decrease in gross margin as a
percentage of sales is a result of lower average sales prices combined with
higher raw material pricing of the retail-size product. Raw material pricing,
particularly for the Company's retail-size line of products, has fluctuated
since mid-1999 as a result of commodity pricing. Over this period, the Company
has been successful at mitigating these increases by modifying its packaging and
increasing production efficiencies but average cost per case has still increased
about 3%. However, the stability of these costs cannot be guaranteed.
Significant price fluctuations in the future could result in corresponding
positive or negative effects on cost of goods sold and gross profit.
OPERATING EXPENSES - For the first six months of fiscal year 2000 compared to
the corresponding period in fiscal year 1999, total operating expenses were
$8,823,000 and $7,704,000, an increase of $1,119,000 or 15%. For the second
quarter, operating expenses were $4,601,000 in 2000 compared to $4,147,000 in
1999, an increase of $454,000, or 11%. Selling, general and administrative
expenses increased by $1,497,000 or 27%, for the first six months of fiscal 2000
and $670,000 or 22% for the second quarter of fiscal 2000 compared to the
corresponding periods a year ago. The increase in these costs was primarily due
to the addition of the operating costs to grow the home and office delivery
business and build inventory for the retail-size products to supply customer
demand throughout the peak summer sales season. Advertising and promotional
expense decreased $417,000, or 27%, and $237,000, or 28%, during the six month
and second quarter periods of 2000, respectively, compared to the corresponding
periods last year. The Company's advertising and promotion is predominantly
associated with the sales of the retail-size packages. As mentioned above, the
pricing environment for these products has changed such that the Company's
distributors seek price discounts instead of advertising and promotion support.
During the first half and second quarter of 2000 the Company's aggregate per
case expense decreased $.50 and $.32 per case for the comparable periods in the
prior year. Nevertheless, due to the competitive nature of the industry, the
Company anticipates that it will continue to spend significant amounts in the
future for advertising and promotion as it continues to develop brand
recognition and increase market penetration but can give no assurances that
increases in spending will result in higher sales. For the first half and second
quarter of fiscal year 2000, amortization increased $38,000 and $23,000
respectively, from the same periods a year ago as a result of increased goodwill
from new acquisitions.
10
<PAGE>
PROFIT FROM OPERATIONS - Profit from operations for the first six months of
fiscal 2000 was $282,000 as compared to $992,000 for the corresponding period
last year, a decrease of $710,000. Profit from operations for the second quarter
of fiscal 2000 was $367,000 compared to $699,000 for the corresponding period
last year, a decrease of $332,000. The decrease is attributable to lower sales
in the retail-size category combined with an increase in raw material costs and
logistics costs of storing product. The Company plans to continue to create
brand awareness and to find alternate distribution channels for its retail-size
product and expand its less seasonal home and office distribution business.
OTHER INCOME/EXPENSE - Net interest expense increased $253,000 or 53% and
$195,000 or 75% for the first six months and second quarter of fiscal year 2000,
respectively, compared to the corresponding periods in fiscal year 1999. The
increase in interest expense was a result of increased borrowing to fund
operations as a result of lower operating profits, to build inventory, to add
additional plant and equipment, to finance acquisitions, and higher interest
rates.
NET INCOME/LOSS- The Company's net loss for the first six months of fiscal year
2000 was $180,000 compared to a net profit of $511,000 for the corresponding
period last year. The net loss for the second quarter of fiscal 2000 was $89,000
compared to a net profit of $440,000 for the same quarter in 1999. The net loss
for the quarter and the year to date are attributable to lower operating results
combined with higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
The net increase in cash for the six months ended April 30, 2000 was largely
generated by receipt of payment of a note owed to the company the proceeds of
which are being held on a restricted basis as described below. On an operating
basis, the Company used cash for seasonal needs - to fund operating losses and
build inventory for an anticipated increase in summer sales. A significant
amount of cash has been expended for capital improvements. $3,556,000 has been
used primarily for expansion of the building that houses the Company's main
bottling facility, new production equipment, and hardware and software to
support the home and office delivery system.
As of April 30, 2000, the Company had working capital of $6,300,000 compared to
$3,028,000 on October 30, 1999. The increase in working capital of $3,272,000
reflects, primarily, an increase in cash of $3,916,000 for specified restricted
uses. Of this total, $2,941,000 is being held as proceeds from the bonds issued
for new building and equipment and $975,000 is being held as collateral for a
mandatory convertible debenture scheduled for conversion by September, 2001. As
of April 30, 2000, the Company had disbursed $1,359,000 of the total $4,300,000
in bond proceeds and borrowed $14,500,000 under its credit agreement with First
Union and Key Banks compared to $844,000 of the line at the beginning of the
fiscal year. As of October 30, 1999, $11,690,000 was outstanding under the First
Union agreement. Proceeds from the increased debt were used for new building and
equipment, acquisitions, seasonal inventory build, and working capital. The
11
<PAGE>
maximum amount available to borrow under the First Union facility is $25,000,000
subject to certain conditions and covenants. The facility is secured by all of
the assets of the Company and expires January 2004.
The Company has increased its debt significantly in the current year. The
purpose has largely been to put infrastructure in place to accommodate its
future growth - building, equipment, and computer hardware and software systems.
The Company has also been transforming its distribution channels and, in the
process, required more working capital to fund operations. While past trends and
future expectations warrant these investments and efforts no assurance can be
given that future growth will occur. In this case, the Company may be restricted
to its access to working capital by covenants and conditions in the agreement
with its primary lender and no assurance can be given that other financing will
be available.
On May 8, 2000, Vermont Pure Holdings, Ltd. entered into an Agreement and Plan
of Merger and Contribution with Crystal Rock Spring Water Company of Watertown,
CT. More details are provided in footnote 8 to the financials statements
included herewith. In conjunction with the potential merger the Company signed a
letter of intent with Webster Bank of Waterbury, CT. The letter provides for up
to $36 million of financing for the cash portion of the purchase price, to
consolidate the existing debt of both companies, and post-merger working
capital.
12
<PAGE>
PART I - ITEM 3
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates and commodity prices related to packaging materials.
INTEREST RATE RISKS - On April 30, 2000, the Company had $14,500,000 outstanding
on its credit facility with First Union and Key Banks at LIBOR plus 2.5%. As of
June 7, 2000, LIBOR was 6.63%. The Company pays a stepped fixed interest rate,
subject to changes in the LIBOR spread pursuant to the agreement, on $7,500,000
of the facility. This interest rate was 8.43% on April 30, 2000 and increased to
8.53% on June 1, 2000. On May 2, 2000 the Company entered into an agreement to
fix $5,000,000 of debt at 9.63%, subject to changes in the LIBOR spread, for
three years. In addition, it had committed to repay $4,300,000 of bonds issued
by the Vermont Economic Development Authority at variable rates for taxable and
non-taxable issues. Bond interest rates are variable based on weekly rates
established for the taxable and non-taxable issues which on June 7, 2000 were
6.7% and 4.2%, respectively. The Company pays an annual letter of credit fee of
2% to secure the bonds. The company also has miscellaneous loans totaling at
variable interest rates. Consequently, after considering the Company's fixed
rate instruments, a hypothetical 100 basis point increase in market rates would
result in approximately $70,000of interest expense on an annualized basis.
COMMODITY PRICE RISKS - Although the Company has yearly contracts with its
vendors that set the purchase price of its PET bottles used to bottle its
retail-size product, the vendors are entitled to pass on increases in the market
price of the resin used as the raw material for the bottles. These prices are
related to supply and demand market factors for PET and, to a lesser extent the
price of petroleum, from which PET is derived. A hypothetical resin price
increase of $.05 per pound would result in an approximate price increase per
bottle of $.005. During the 2000 fiscal year pricing has increased. To a lesser
extent the Company is similarly dependant on resin for caps and paper for
corrugated boxes and labels. The potential impact is not material compared to
bottles.
The Company is planning to mitigate the effect of these commodity risks by
working with suppliers to reduce the amount of material that it uses to package
its products while maintaining and improving quality
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
(a) None
(b) None
(c) None
ITEM 3 - Defaults upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger and Contribution dated as of
May 5, 2000 among the Registrant, VP Merger Parent, Inc., VP
Acquisition Corp., Crystal Rock Spring Water Company and its
stockholders.
3.1 Amended and Restated Certificate of Incorporation of
Registrant dated January 12, 1994. (Incorporated by
reference from exhibit 3.3 of Form 10-KSB for fiscal year
ended October 30, 1993- File No. 1-11254.)
3.2 Amendment of Certificate of Incorporation of Registrant
dated June 15, 1999.
3.3 By-Laws of Registrant. (Incorporated by reference from
Exhibit 3.4 of Registration Statement 33-46382)
3.4 Amendment to By-Laws of Registrant Adopted March 26, 1997.
(Incorporated by reference from exhibit 3.3 of Form 10-KSB
for fiscal year ended October 25, 1997-File No. 1-11254)
10.1* Employment Agreement between the Registrant and Timothy G.
Fallon dated as of November 1, 1996. (Incorporated by
reference from exhibit 10.1 of form 10-KSB for fiscal year
ended October 25, 1997-File No. 1-11254.)
10.2* Amendment to the November 1, 1996 Employment Agreement
between the Registrant and Timothy G. Fallon dated November
1, 1999.
10.3* Employment Agreement between the Registrant and Bruce S.
MacDonald dated as of November 1, 1997. (Incorporated from
Exhibit 10.2 of form 10-KSB for fiscal year ended October
25,1999-File No. 1-11254)
10.4* Stock Option Agreement between Registrant and Mr. Fallon.
(Incorporated by reference from Exhibit 10.7 of form 10-K
for fiscal year ended October 28, 1994, File No. 1-11254.)
10.5 1993 Performance Equity Plan. (Incorporated by reference
from Exhibit 10.9 of Registration Statement 33-72940.)
10.6 Stock Purchase Agreement between the Registrant and Carolyn
Howard relating to the acquisition of A.M. Fridays, Inc.
dated July 16, 1997. (Incorporated by reference from Exhibit
10.1 of the report on Form 8-K dated September 11, 1997.)
10.7 Stock Purchase Agreement between the Registrant and David
Eger dated August 27, 1997 relating to Excelsior Spring
Water Co. ("Excelsior"). (Incorporated by reference from
exhibit 10.1 of the report on from 8-K dated September 1,
1997.)
10.8 Promissory Note from the Registrant to Mr. Eger in the
principal amount of $503,000. (Incorporated by reference
form Exhibit 10.2 of the report on Form 8-K dated September
11, 1997.)
10.9 Form of Note Purchase Agreement between the Registrant and
certain note holders of Excelsior dated August 27,1997.
(Incorporated by reference from Exhibit 10.4 of the Report
on form 8-K dated September 11, 1997.)
15
<PAGE>
10.10 Form of Stock Purchase Agreement between Registrant and
certain Stockholders of Excelsior dated August 27, 1997.
(Incorporated by reference from Exhibit 10.4 of the Report
on Form 8-K dated September 11, 1997.)
10.11 Schedule of Stock and Note Purchase Agreement information
dated August 27, 1997 regarding the Excelsior purchase.
(Incorporated by reference from Exhibit 10.7 of the Report
on Form 8-K dated September 1, 1997.)
10.12 Consulting Agreement between the Registrant and Corporate
Investors Network, Inc. dated December 1, 1996.
(Incorporated by reference from Exhibit 10.1 of the report
on Form 10-QSB for the quarter ended January 25, 1997.)
10.13 1998 Incentive and Non-Statutory Stock Option Plan
(Incorporated by reference to Appendix A of the Registrant's
1998 Proxy Statement)
10.14 Asset Purchase Agreement between the Registrant and Vermont
Coffee Time, Inc. relating to the purchase certain assets
and Liabilities dated December 19, 1997. (Incorporated by
reference from Exhibit 10.1 of the report on Form 10-QSB for
the quarter ended January 24, 1998.)
10.15 Promissory Note from the Registrant to Vermont Coffee Time,
Inc. dated January 5, 1998. (Incorporated by reference from
Exhibit 10.3 of the Report of Form 10-QSB for the quarter
ended January 24, 1998.)
10.16 Security Agreement between the Registrant and Vermont Coffee
Time, Inc. dated January 5, 1998. (Incorporated by reference
from Exhibit 10.3 of the report of Form 10-QSB for the
quarter ended January 24, 1998.)
10.17 Consulting Agreement between Amy Berger and the Registrant
dated January 5, 1998. (Incorporated by the reference form
Exhibit 10.4 of the report on form 10-QSB for the quarter
ended January 24, 1998.)
10.18 Non Compete Agreement of Fred Beauchamp and Jim Creed
between the Registrant and Sagamon Springs, Inc. dated
January 6 1998. (Incorporated by the reference form Exhibit
10.5 of the report on form 10-QSB for the quarter ended
April 25, 1998.)
10.19 1999 Employee Stock Purchase Plan (Incorporated by reference
to the Exhibit A of the Registrant's 1999 Proxy Statement)
10.20 Stock Purchase Agreement between Registrant, Paul Hayes and
Michael Hayes date July 27, 1999 relating to Adirondack
Coffee Service, Inc. (Incorporated by reference from Exhibit
10.23 of form 10-K for fiscal year ended October 30, 1999,
File No.1-11254).
10.21 Promissory Note dated July 27,1999 from the registrant to
the Hayes in the Principal amount of $303,734. (Incorporated
by reference from Exhibit 10.24 of form 10-K for fiscal year
ended October 30, 1999, File No.1-11254).
10.22 Loan Purchase Agreement to spring source dated September 30,
999 between the Registrant and Marcon Capital Corporation.
(Incorporated by reference from Exhibit 10.26 of form 10-K
for fiscal year ended October 30, 1999, File No.1-11254).
10.23 Convertible Debenture Agreement dated September 30,1999
between the Registrant and Marcon Capital Corporation in the
amount of $975,000. (Incorporated by reference from Exhibit
10.27 of form 10-K for fiscal year ended October 30, 1999,
File No.1-11254).
10.24 Amended and Restated Security Agreement between Registrant
and First Union Bank dated January 28, 2000. (Incorporated
by reference from Exhibit 10.27 of the report on form 10Q
fourth quarter ended January 29, 2000).
10.25 Loan Agreement between Registrant and Vermont Economic
Development Authority dated December 1, 1999. (Incorporated
by reference from Exhibit 10.28 of the report on form 10Q
fourth quarter ended January 29, 2000).
10.26 Trust Indenture Between Registrant and Vermont Economic
Development authority and First Union National Bank, as
trustee, dated December1, 1999. (Incorporated by reference
from Exhibit 10.29 of the report on form 10Q fourth quarter
ended January 29, 2000).
10.27 Settlement Agreement between Registrant and Pristine
Mountain Springs, Amsource LLC, Barton Lord and Ronald
Colton dated December , 1999. (Incorporated by reference
from Exhibit 10.31 of the report on form 10Q fourth quarter
ended January 29, 2000).
10.28 Amended and Restated Spring Water License and Supply
Agreement between Registrant and Mountain Springs, Amsource
LLC, Barton Lord and Ronald Colton dated December 5, 1999.
(Incorporated by reference from Exhibit 10.31 of the report
on form 10Q fourth quarter ended January 29, 2000).
17
<PAGE>
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended April 30, 2000.
* Relates to Compensation
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 14, 2000
Randolph, Vermont
VERMONT PURE HOLDINGS, LTD.
BY: /S/ BRUCE S. MACDONALD
----------------------
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
18
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN
OF
MERGER AND CONTRIBUTION
AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION, dated as of May 5, 2000 (the
"Agreement"), by and among
o VERMONT PURE HOLDINGS, LTD., a publicly traded Delaware corporation
("Holdings"),
o VP MERGER PARENT, INC., a Delaware corporation with no outstanding
capital stock ("Parent"),
o VP ACQUISITION CORP., a Delaware corporation and wholly-owned subsidiary
of "Parent" ("Merger Sub"),
o CRYSTAL ROCK SPRING WATER COMPANY, a Connecticut corporation (the
"Company"), and
o Henry E. Baker, John B. Baker, Peter K. Baker and the other stockholders
of the Company listed on Exhibit D hereto, being all of the stockholders of the
Company (the "Stockholders").
RECITALS
The respective boards of directors of Holdings, Parent and Merger Sub
have approved this Agreement and have determined that it is advisable that
Merger Sub be merged with and into Holdings (the "Merger") on the terms and
conditions set forth herein and in accordance with the provisions of the
Delaware General Corporation Law (the "DGCL"), and Parent, as the sole
stockholder of Merger Sub, has approved this Agreement.
The board of directors of the Company and the Stockholders have
approved this Agreement and have determined that contemporaneously with the
Merger the Stockholders will contribute all of the issued and outstanding stock
of the Company to Parent (the "Contribution").
Holdings, Parent, Merger Sub, the Company and the Stockholders desire
to make certain representations and warranties and other agreements in
connection with the Merger and Contribution.
1
<PAGE>
The parties intend that the Merger and Contribution, taken together, be
treated as a transaction described in Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code").
To effect these transactions, Holdings, Parent, Merger Sub, the Company and the
Stockholders hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Certain Matters of Construction. A reference to an Article,
Section, Exhibit or Schedule shall mean an Article of, a Section in, or Exhibit
or Schedule to, this Agreement unless otherwise expressly stated. The titles and
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation."
1.2. CROSS REFERENCES. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
<TABLE>
<CAPTION>
<S> <C>
TERM DEFINITION
Affiliate Section 1.3.1.
Affiliated Group Section 3.10.1.
Agreement Preamble
Benefit Plans Section 3.11.1.
Certificate of Merger Section 2.1.
Closing Section 2.6.
Closing Date Section 2.6.
Code Recitals
Company Preamble
Company Common Stock Section 2.5.1.
Contribution Recitals
Certificate of Merger Section 2.1.
DGCL Recitals
Effective Date Section 2.1.
Effective Time Section 2.1.
Employee List Section 3.12.2.
Encumbrances Section 3.15.1.
Environmental Claim Section 1.3.2.
Environmental Laws Section 1.3.3.
ERISA Section 1.3.4.
ERISA Affiliate Section 1.3.5.
Exchange Act Section 1.3.6.
Exchange Ratio Section 2.5.2.
Exclusivity Period Section 7.6.
Financial Advisor Section 3.27.
Financial Statements Section 3.6.
GAAP Section 3.6.
Governmental Entity Section 3.5.2.
Holdings Preamble
Holdings Public Filings Section 3.26.
2
<PAGE>
Holdings Stock Section 2.4.1.
Insurance Contracts Section 3.19.
Interim Balance Sheet Section 3.6.
Interim Balance Sheet Date Section 3.6.
Interim Financial Statements Section 3.6.
Liabilities Section 3.7.2.
Material Adverse Effect Section 1.3.7.
Materials of Environmental Concern Section 1.3.8.
Merger Recitals
Merger Sub Preamble
Parent Preamble
Parent Share Amount Section 2.5.2.
Parent Stock Section 2.4.1.
Permits Section 3.8.
Permitted Encumbrances Section 1.3.9.
Person Section 1.3.10.
Proprietary Rights Section 3.17.1.
Real Property Section 3.16.1.
Real Property Leases Section 1.3.11.
Registration Statement Section 7.1.
SEC Section 1.3.12.
Securities Act Section 1.3.13.
Share Price Section 2.5.2.
Share Price Calculation Section 2.5.2.
Stockholder Approval Section 7.1.
Stockholders Preamble
Subordinated Notes Section 2.5.2.
Subsidiary Section 1.3.14.
Surviving Corporation Section 2.1.
Tax Section 3.10.1.
Tax Returns Section 3.10.1.
Treasury Regulation Section 3.10.1.
Year 2000 Compliant Section 3.17.3.
</TABLE>
3
<PAGE>
1.3. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings:
1.3.1. AFFILIATE: with respect to any Person, any Person
which, directly or indirectly, controls, is controlled by,
or is under common control with, such Person where control
(including with correlative meaning, controlled by and under
common control with) as used with respect to any Person,
means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and
policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
1.3.2. ENVIRONMENTAL CLAIM: any notice alleging potential
liability (including potential liability for investigatory
costs, cleanup costs, response or remediation costs, natural
resources damages, property damages, personal injuries,
fines or penalties) arising out of, based on or resulting
from (a) the presence, or release of any Material of
Environmental Concern at any location, whether or not owned
by that party or any of its Affiliates or (b) circumstances
forming the basis of any violation, or alleged violation, by
that party of any Environmental Law.
1.3.3. ENVIRONMENTAL LAWS: any and all statutes,
regulations, ordinances and laws, including common law,
relating to the protection of public health, safety or the
environment
1.3.4. ERISA: the Employee Retirement Income Security Act of
1974, as amended.
1.3.5. ERISA AFFILIATE: with respect to a party, any member
(other than that party) of a controlled group of
corporations, group of trades or businesses under common
control or affiliated service group that includes that party
(as defined for purposes of Code Sections 414(b), (c) and
(m)).
1.3.6. EXCHANGE ACT: the Securities Exchange Act of 1934, as
amended.
1.3.7. MATERIAL ADVERSE EFFECT: any materially adverse
change in or effect on the financial condition, business,
operations, assets, properties, results of operations or
prospects of an entity.
1.3.8. MATERIALS OF ENVIRONMENTAL CONCERN: petroleum and its
by-products and all substances or constituents that are
regulated by, or form the basis of liability under, any
Environmental Law.
4
<PAGE>
1.3.9. PERMITTED ENCUMBRANCES: (a) liens for current taxes
and other statutory liens and trusts not yet due and payable
or that are being contested in good faith, (b) liens that
were incurred in the ordinary course of business, such as
carriers, warehousemens, landlords and mechanics liens
and other similar liens arising in the ordinary course of
business, (c) liens on personal property leased under
operating leases, (d) liens, pledges or deposits incurred or
made in connection with workmens compensation, unemployment
insurance and other social security benefits, or securing
the performance of bids, tenders, leases, contracts (other
than for the repayment of borrowed money), statutory
obligations, progress payments, surety and appeal bonds and
other obligations of like nature, in each case incurred in
the ordinary course of business, (e) pledges of or liens on
manufactured products as security for any drafts or bills of
exchange drawn in connection with the importation of such
manufactured products in the ordinary course of business,
(f) liens under Article 2 of the Uniform Commercial Code
that are special property interests in goods identified as
goods to which a contract refers, and (g) liens under
Article 9 of the Uniform Commercial Code that are purchase
money security interests, none of which, individually or in
the aggregate, exceed $50,000.
1.3.10. PERSON: an individual, a corporation, an
association, a partnership, an estate, a limited liability
company, a trust and any other entity or organization.
1.3.11 REAL PROPERTY LEASES: each lease, sublease, license
or other agreement under which a Person uses, occupies or
has the right to occupy any real property or interest
therein that (a) provides for future minimum payments of
$25,000 or more (ignoring any right of cancellation or
termination) or (b) the cancellation or termination of which
would result in costs to the Person of $25,000 or more.
1.3.12. SEC: the Securities and Exchange Commission, or any
Governmental Entity succeeding to its functions.
1.3.13 SECURITIES ACT: the Securities Act of 1933, as
amended.
1.3.14. SUBSIDIARY: any corporation, association, or other
business entity a majority (by number of votes on the
election of directors or persons holding positions with
similar responsibilities) of the shares of capital stock (or
other voting interests) of which is owned by Parent, the
Company or their respective Subsidiaries, as the case may
be.
5
<PAGE>
ARTICLE 2
THE MERGER AND CONTRIBUTION
2.1. THE MERGER OF MERGER SUB INTO HOLDINGS. Merger Sub shall be
merged, in accordance with the applicable provisions of the DGCL, with and into
Holdings, which shall be and is sometimes referred to herein to as the
"Surviving Corporation." The Merger shall be effected by filing a certificate of
merger, substantially in the form of Exhibit A (the "Certificate of Merger")
hereto, with the Secretary of State of Delaware in accordance with the
applicable provisions of the DGCL. The effective date of the Merger (the
"Effective Date") shall be the date upon which the Certificate of Merger is
filed with the Secretary of State of Delaware and the effective time of the
Merger (the "Effective Time") shall be the time of the filing of the Certificate
of Merger with the Secretary of State of Delaware.
2.2. SURVIVING CORPORATION AND MERGER SUB.
2.2.1. CORPORATE EXISTENCE. The Surviving Corporation shall
continue its corporate existence under the laws of the State of Delaware. At the
Effective Time, the name of the Surviving Corporation shall be and become
"Diamond Acquisition Corp." The separate corporate existence of Merger Sub shall
cease at the Effective Time.
6
<PAGE>
2.2.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Certificate of Incorporation of the Surviving Corporation shall be amended and
shall be and become the Amended and Restated Certificate of Incorporation of
Diamond Acquisition Corp., a copy of which appears as Attachment 1 to the
Certificate of Merger that is Exhibit A to this Agreement, until such
Certificate of Incorporation shall be amended thereafter in accordance with the
DGCL and such Certificate of Incorporation. Without limiting the generality of
the foregoing, at the Effective Time, the purposes of the Surviving Corporation
and the total number of shares and the par value of each class of stock which
the Surviving Corporation shall be authorized to issue shall be as set forth in
such Amended and Restated Certificate of Incorporation of Diamond Acquisition
Corp. The by-laws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be and become the by-laws of the Surviving Corporation (except that
the name of the Surviving Corporation shall be Diamond Acquisition Corp.), until
the same shall be amended thereafter in accordance with the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such by-laws.
2.2.3. DIRECTORS AND OFFICERS. From and after the Effective
Time, the respective officers and members of the board of directors of the
Surviving Corporation will consist of Timothy Fallon, Chairman, Chief Executive
Officer and Director; Peter Baker, President and Director; and Bruce MacDonald,
Vice President of Finance, Treasurer, Secretary and Director, each such officer
to serve at the pleasure of the board of directors and each such director to
hold office, subject to the applicable provisions of the Certificate of
Incorporation and by-laws of the Surviving Corporation, until the next annual
meeting of stockholders of the Surviving Corporation and until his or her
successor shall be duly elected or appointed and shall duly qualify.
2.2.4. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in this Agreement and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, at the
Effective Time, all of the estate, property, rights, privileges, powers and
franchises of Holdings and Merger Sub and all of their property, real, personal
or mixed, and all the debts due on whatever account to any of them, as well as
all stock subscriptions and other choses in action belonging to any of them,
shall be transferred to and vested in the Surviving Corporation.
7
<PAGE>
2.3. PARENT.
2.3.1. CORPORATE EXISTENCE. At and after the Effective Time,
Parent shall continue its corporate existence under the laws of the State of
Delaware. At the Effective Time, the name of Parent shall be and become "Vermont
Pure Holdings, Ltd."
2.3.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Certificate of Incorporation of Parent as in effect immediately prior to the
effective time, which shall be substantially in the form of Exhibit B hereto,
shall be the Certificate of Incorporation of Parent thereafter, until such
Certificate of Incorporation shall be amended thereafter in accordance with the
DGCL and such Certificate of Incorporation. Without limiting the generality of
the foregoing, at and after the Effective Time the purposes of Parent and the
total number of shares and the par value of each class of stock which Parent
shall be authorized to issue shall be as set forth in the Certificate of
Incorporation of Parent as in effect immediately prior to the Effective Time.
The by-laws of Parent as in effect immediately prior to the Effective Time,
which shall be substantially in the form of Exhibit C hereto, shall be the
by-laws of Parent until the same shall be amended thereafter in accordance with
the DGCL, the Certificate of Incorporation of Parent and such by-laws.
2.3.3. DIRECTORS AND OFFICERS. From and after the Effective
Time, the respective officers and members of the board of directors of Parent
will consist of the following: Timothy Fallon, Chairman, Chief Executive Officer
and Director; Henry E. Baker, Chairman Emeritus and Director; Peter K. Baker,
President and Director; John B. Baker, Executive Vice President; Bruce
MacDonald, Vice President of Finance, Chief Financial Officer and Treasurer;
Philip Davidowitz, Director; Robert C. Getchell, Director; David R. Preston,
Director; Ross Rapaport, Director; Norman Rickard, Director; and Beat
Schlagenhauf, Director; each such officer to serve at the pleasure of the board
of directors and each such director to hold office, subject to the applicable
provisions of the Certificate of Incorporation and by-laws of Parent, until the
next annual meeting of stockholders of Parent and until his or her successor
shall be duly elected or appointed and shall duly qualify.
2.4. CONVERSION OF STOCK AND OTHER EQUITY SECURITIES IN THE MERGER.
2.4.1. HOLDINGS STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the respective holders thereof, (a)
each one (1) share of the Common Stock, par value $.001 per share, of Holdings
("Holdings Stock"), issued and outstanding immediately prior to the Effective
Time (other than Holdings Stock held in treasury) will be canceled and
extinguished and will be converted automatically into one (1) validly issued,
fully paid and nonassessable share of the Common Stock, par value $.001 per
share, of Parent ("Parent Stock"); and (b) each share of Holdings Stock held in
treasury will be canceled and extinguished.
8
<PAGE>
2.4.2. OTHER EQUITY SECURITIES OF HOLDINGS. After the
Effective Time, each option to purchase Holdings Stock granted by Holdings
pursuant to any stock option plan of Holdings, and each warrant to purchase
Holdings Stock, that is outstanding immediately prior to the Effective Time,
shall, in the case of options, be deemed to be an option granted pursuant to the
corresponding stock option plan of Parent, and, in the case of warrants, be
deemed to be a warrant issued by Parent, and Parent shall assume all of the
obligations of Holdings under each and every stock option, stock option plan,
employee stock purchase plan and warrant of Holdings. Each holder of such an
option or warrant shall be entitled to purchase from Parent, in accordance with
the respective terms of such options and warrants, and in lieu of shares of
Holdings Stock, the same number of shares of Parent Stock as the number of
shares of Holdings Stock which such holder was entitled to purchase from
Holdings immediately prior to the Effective Time. Except for the foregoing, each
such option and warrant shall remain subject after the Effective Time to the
same terms and conditions, including without limitation those with respect to
the dates on which and the proportionate extent to which such options or
warrants may be exercised from time to time, as were applicable to such options
and warrants immediately prior to the Effective Time. Holdings hereby represents
and warrants that the aggregate number of shares of Holdings Stock subject to
outstanding options and warrants is 1,872,218 as of the date hereof, and agrees
not to grant or issue any additional options and warrants prior to the Effective
Time except with the consent of the Company.
2.4.3. MERGER SUB STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the respective holders thereof,
each one (1) share of the Common Stock, par value $.01, of Merger Sub, issued
and outstanding immediately prior to the Effective Time will be canceled and
extinguished and be converted automatically into one (1) validly issued, fully
paid and nonassessable share of the Common Stock, par value $.01 per share, of
the Surviving Corporation.
2.4.4. CERTIFICATES FOR PARENT STOCK. Each issued and
outstanding stock certificate evidencing shares of Holdings Stock outstanding
immediately prior to the Effective Time, shall, at and after the Effective Time,
by virtue of the Merger and without any action on the part of the respective
holders thereof, be deemed to evidence the same number of shares of Parent Stock
as the number of shares of Holdings Stock evidenced by such certificate
immediately prior to the Effective Time.
9
<PAGE>
2.5. CONTRIBUTION OF COMPANY COMMON STOCK TO PARENT
2.5.1. CONTRIBUTION BY STOCKHOLDERS. At the Closing, effective
at the Effective Time, each Stockholder shall contribute all of his or its
shares of Common Stock, no par value per share, of the Company ("Company Common
Stock"), issued and outstanding immediately prior to the Closing (other than
Company Common Stock, if any, held in treasury), to Parent, in each case by
delivering to Parent stock certificates, duly endorsed for transfer to Parent,
with signature guaranteed, evidencing all of the Company Common Stock held of
record by such Stockholder.
2.5.2. TRANSFER OF CASH, STOCK AND SUBORDINATED NOTES BY
PARENT. At the Closing, effective at the Effective Time,
Parent shall transfer and remit to each Stockholder the
amount of cash, the principal amount of 12% Subordinated
Promissory Note due 2007 of Parent (the "Subordinated
Notes"), and the number of shares of Parent Stock set forth
opposite such Stockholder's name on EXHIBIT D hereto. The
aggregate amount of such cash will be equal to the sum of
(A) $8,000,000.00, plus (B) the greater of $1,500,000 or the
average amount of cash and cash-equivalents of the Company
as of the close of business on the five business days
immediately preceding the Effective Date. The aggregate
principal amount of Subordinated Notes will be
$22,600,000.00. The aggregate number of shares of Parent
Stock to be issued by reason of the Contribution will be
calculated by multiplying the aggregate number of shares of
Company Common Stock, issued and outstanding immediately
prior to the Effective Time, by the "Exchange Ratio." For
purposes of this Agreement, the following definitions apply:
2.5.2.1. EXCHANGE RATIO: a number rounded to five decimal
places equal to a fraction, the numerator of which is the
"Parent Share Amount" and the denominator of which is the
aggregate number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time.
2.5.2.2. PARENT SHARE AMOUNT: $31,100,000.00 divided by the
"Share Price."
2.5.2.3. SHARE PRICE: the average of the closing price per
share of Holdings Stock (as quoted on the American Stock
Exchange) for the ten (10) business days ending on the fifth
business day prior to the Effective Date of the Merger (the
"Share Price Calculation"); provided, however, that if the
Share Price Calculation is less than $2.80, then the Share
Price shall be $2.80, and if the Share Price Calculation is
more than $3.15, then the Share Price shall be $3.15.
10
<PAGE>
2.5.3. ADJUSTMENT OF EXCHANGE RATIO. If, between the date of
this Agreement and the Closing, the outstanding shares of Holdings Stock shall
have been changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, split-up, stock dividend,
stock combination, exchange of shares or readjustment, the Exchange Ratio shall
be appropriately adjusted.
2.6. FRACTIONAL SHARES. Only whole shares of Parent Stock will be
issued by reason of the Contribution. Any Stockholder who would otherwise be
entitled to a fraction of a share of Parent Stock (after aggregating all
fractional shares of Parent Stock to be received by such Stockholder) shall have
such fractional share interest rounded up or down to the nearest whole share of
Parent Stock.
2.7. DELIVERY OF CERTIFICATES; TRANSFERS OF OWNERSHIP. At or promptly
after the Effective Time, Parent shall cause its transfer agent to prepare a
stock certificate for each Stockholder, each such certificate to be registered
in the name of such Stockholder and evidencing the total number of shares of
Parent Stock issuable to such Stockholder by reason of the Contribution. If any
certificate for shares of Parent Stock is to be issued in a name other than that
in which the certificate surrendered in exchange therefor is registered, it will
be a condition of the issuance thereof that the certificate so surrendered will
be properly endorsed, with signature guaranteed, and otherwise in proper form
for transfer, and that the Stockholder requesting such exchange will have paid
to Parent or any agent designated by it any transfer or other taxes required by
reason of issuance of a certificate for shares of Parent Stock in any name other
than that of the registered holder of the certificate surrendered, or will have
established to the reasonable satisfaction of Parent or any agent designated by
it that such tax has been paid or is not payable.
2.8. CLOSING. The closing of the Merger and Contribution (the
"Closing") shall take place at the offices of Foley, Hoag & Eliot LLP in Boston,
Massachusetts on July 28, 2000, or at such other time and place or on such other
date as the parties hereto agree (the "Closing Date").
2.9. TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger and the Contribution shall constitute a transaction described in Code
Section 351.
2.10. ADDITIONAL ACTIONS. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest, perfect or confirm in the Surviving Corporation or Parent
title to or ownership or possession of any property, right, privilege, power,
franchise or other asset of any constituent corporation acquired or to be
acquired by reason of, or as a result of, the Merger or the Contribution, the
officers and directors of the constituent corporations to this Agreement are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is consistent with this Agreement.
11
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Holdings represents to the Company and each of the Stockholders, and
the Company represents to Parent, Holdings and Merger Sub as follows (subject in
each case to such exceptions as are set forth in the representing party's
attached Disclosure Schedule in the labeled section corresponding to the caption
of the representation or warranty to which such exceptions relate):
3.1. CORPORATE STATUS. It is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with the requisite corporate power to own, operate and lease its
properties and to carry on its business as now being conducted. It is duly
qualified or licensed to do business and is in good standing in all
jurisdictions in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect. All jurisdictions in which it is qualified to do business are
set forth in its Disclosure Schedule 3.1.
3.2. CAPITAL STOCK.
3.2.1. AUTHORIZED AND OUTSTANDING STOCK. Its authorized and
outstanding capital stock are as set forth in its Disclosure Schedule 3.2. The
Company represents that all such outstanding shares of its capital stock are, as
of the date of this Agreement, and will be, immediately prior the Effective
Time, owned of record and beneficially by the Stockholders in the amounts set
forth opposite their respective names as set forth in its Disclosure Schedule
3.2. All such outstanding shares of capital stock, and all outstanding shares of
capital stock of each of its Subsidiaries, have been duly authorized and validly
issued, were not issued in violation of any Persons preemptive or similar
rights, and are fully paid and nonassessable. No Person has any valid right to
rescind any purchase from or issuance by it or any of its Subsidiaries of any
shares of capital stock of it or any of its Subsidiaries. It owns, directly or
indirectly through a Subsidiary, all of the issued and outstanding shares of the
capital stock of each of its Subsidiaries, free and clear of all liens, pledges,
charges, security interests, encumbrances, or adverse claims of any kind
whatsoever.
3.2.2. OPTIONS, CONVERTIBLE SECURITIES AND SIMILAR RIGHTS.
Except as set forth in its Disclosure Schedule 3.2, neither it nor any of its
Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, conversion rights or other rights, securities, agreements or
commitments obligating it or any such Subsidiary to issue, sell or otherwise
dispose of shares of its capital stock, or any securities or obligations
convertible into, or exercisable or exchangeable for, any shares of its or such
subsidiary's capital stock. except as set forth in its Disclosure Schedule
3.2, neither it nor any of its Subsidiaries (a) has any outstanding obligation,
contractual or otherwise, to repurchase, redeem, or otherwise acquire any shares
of its or such Subsidiary's capital stock, (b) is a party to or bound by, or has
knowledge of, any agreement or instrument relating to the voting of its or such
Subsidiary's voting securities, or (c) is a party to or bound by any agreement
or instrument under which any Person has the right to require it or any of its
Subsidiaries to effect, or to include any securities held by such Person in, any
registration under the Securities Act.
3.3. SUBSIDIARIES. Its Subsidiaries are as set forth in Disclosure
Schedule 3.3, and, except as set forth therein, it does not own, directly or
indirectly, any shares or other equity interest or securities in any business
organization, entity or enterprise. It has delivered to Holdings, in the case of
the Company, or to the Company, in the case of Holdings, true and correct copies
of the charter documents and by-laws, and all amendments thereto, of each of its
Subsidiaries, as in effect on the date hereof. Disclosure Schedule 3.3 sets
forth a list of each of its Subsidiary's directors and officers.
12
<PAGE>
3.4. CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS. It
has delivered to Holdings, in the case of the Company, or to the Company, in the
case of Holdings, true and correct copies of its Certificate of Incorporation
and by-laws, including all amendments thereto, as in effect on the date hereof.
Its minute books, which have been made available to Holdings, in the case of the
Company, or to the Company, in the case of Holdings, contain accurate records of
all meetings and consents in lieu of meetings of its board of directors (and any
committees thereof that recorded written minutes, whether permanent or
temporary) and of its stockholders since the date of its incorporation, and such
records accurately reflect all transactions referred to in such minutes and
consents. The Company represents that its stock books accurately reflect record
ownership of the Companys capital stock. Disclosure Schedule 3.4 sets forth a
list of its directors and officers.
3.5. AUTHORITY FOR AGREEMENT; NONCONTRAVENTION
3.5.1. AUTHORITY. It has the corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by its
board of directors and stockholders, and no other corporate proceedings on its
part are necessary to authorize the execution and delivery of this Agreement and
except, in the case of Holdings, for the requisite approval of its stockholders,
which has not been obtained as of the date of this Agreement, the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by it and constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, with the qualification that
enforcement of the rights and remedies created hereby are subject to (a)
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other laws of general application affecting the rights and remedies of
creditors, (b) general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law), and (c) in the case of
Holdings, the requisite approval of its stockholders. On or before the Effective
Date, the other agreements contemplated hereby to be executed and delivered by
it on or before the Effective Date will have been executed and delivered by it,
and, upon such execution and delivery, will constitute its valid and binding
obligations, enforceable against it in accordance with their respective terms,
with the qualification that enforcement of the rights and remedies created
thereby are subject to (a) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws of general application affecting the
rights and remedies of creditors, (b) general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
3.5.2. NO CONFLICT. SUBJECT TO OBTAINING THE TERMINATIONS,
CONSENTS AND WAIVERS SET FORTH IN ITS Disclosure Schedule 3.5, neither the
execution and delivery of this Agreement by it, nor the performance by it of its
obligations hereunder, nor the consummation by it of the transactions
contemplated hereby will (a) conflict with or result in a violation of any
provision of its Certificate of Incorporation or by-laws, (b) with or without
the giving of notice or the lapse of time, or both, conflict with, or result in
any violation or breach of, or constitute a default under, or result in any
right to accelerate or result in the creation of any encumbrance pursuant to, or
right of termination under, any provision of any note, mortgage, indenture,
lease, instrument or other agreement, Permit, concession, grant, franchise,
license, judgment, order, decree, statute, ordinance, rule or regulation to
which it is a party or by which it or any of its assets or properties is bound
or which is applicable to it or any of its assets or properties. No
authorization, consent or approval of, or filing with or notice to, any United
States or foreign governmental or public body or authority (each a "Governmental
Entity") is necessary for the execution and delivery of this Agreement by it or
the consummation by it of the transactions contemplated hereby, except for the
filing of the Certificate of Merger with the Secretary of State of Delaware, and
the filing with the SEC by Holdings or Parent of a registration statement on
Form S-4 together with any required filings under Regulation C of the Securities
Act in connection therewith, and related filings, if any, under state securities
laws.
13
<PAGE>
3.6. FINANCIAL STATEMENTS. DISCLOSURE SCHEDULE 3.6 contains accurate
and complete copies of the following financial statements (collectively, the
"Financial Statements"): (a) its audited consolidated balance sheets, statements
of income and statements of cash flow for each of the fiscal years ended in
October 1997, October 1998 and October 1999, and (b) its unaudited consolidated
balance sheet, statement of income and statement of cash flows as of, at and for
the period commencing on the first day of its fiscal year 2000 through the last
day of its first fiscal quarter ending in January 2000 (the "Interim Financial
Statements"). The Financial Statements are based upon the information contained
in its books and records and fairly present its financial condition as at the
dates thereof and results of operations for the periods referred to therein. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods indicated; provided, however, that the Interim Financial Statements are
subject to normal year end adjustments (which will not be material, individually
or in the aggregate, when made on a basis consistent with the audited Financial
Statements) and lack footnotes and other presentation items. For purposes
hereof, the "Interim Balance Sheet Date" shall be January 31, 2000, in the case
of the Company, and January 29, 2000, in the case of Holdings, and the balance
sheet as of that date shall be the "Interim Balance Sheet."
3.7. ABSENCE OF MATERIAL ADVERSE CHANGES AND UNDISCLOSED LIABILITIES.
3.7.1. CHANGES. EXCEPT AS SET FORTH IN ITS DISCLOSURE SCHEDULE
3.7, since the Interim Balance Sheet Date, it has not suffered any Material
Adverse Effect, nor has there occurred or arisen any event, condition or state
of facts of any character that could reasonably be expected to result in a
Material Adverse Effect. Except as described or expressly contemplated in its
Disclosure Schedule 3.7 or by this Agreement, and without limiting the
generality of the foregoing, since the Interim Balance Sheet Date, it has not:
(a) experienced any change in its or any of its Subsidiaries' assets,
liabilities, sales, income or business or in their relationships with suppliers,
customers, or lessors, other than changes in the ordinary course of business
that have not resulted, either individually or in the aggregate, in a Material
Adverse Effect;
(b) either directly or through any Subsidiary entered into any material
transaction, other than in the ordinary course of business;
(c) sold, leased, transferred or assigned any of its assets, tangible or
intangible, other than in the ordinary course of business;
(d) experienced the loss of any director, executive officer or key employee
of it or any of its Subsidiaries;
(e) accelerated, terminated, modified in a manner adverse to it, or
canceled any contract, lease, sublease, license, or sublicense (or series of
related contracts, leases, subleases, licenses, and sublicenses) involving more
than $25,000 to which it is a party;
(f) canceled, compromised, waived, or released any right or claim (or
series of related rights and claims) either involving more than $25,000 or
outside the ordinary course of business;
(g) granted any license or sublicense of any rights under or with respect
to any of its Proprietary Rights other than to its distributors, resellers and
other licensees under agreements as set forth on its Disclosure Schedule 3.17;
(h) experienced material damage, destruction, or loss (whether or not
covered by insurance) to its property, other than ordinary wear and tear not
caused by neglect;
(i) created or suffered to exist any encumbrance not in effect on the
Interim Balance Sheet Date, other than Permitted Encumbrances, upon any of its
assets, tangible or intangible;
14
<PAGE>
(j) issued, sold or otherwise disposed of, or redeemed, purchased, or
otherwise acquired, any of its capital stock; granted or redeemed, purchased,
canceled or otherwise acquired, any options, warrants, or other rights to
purchase or obtain (including upon conversion or exercise) any of its capital
stock, or any securities convertible or exchangeable into any of its capital
stock; or otherwise changed its capital structure or stock ownership in any way;
(k) declared, set aside, or paid any dividend or distribution with respect
to its capital stock (whether in cash or in kind);
(l) entered into financial arrangements for the benefit of any of any of
its directors, executive officers or beneficial owners of more than 5% of its
outstanding capital stock, except in the ordinary course of business consistent
with past practice;
(m) made or committed to make any capital expenditures or entered into any
other material transaction, in either case outside the ordinary course of
business or involving an expenditure in excess of $25,000;
(n) amended or modified in any respect any employment contract or
arrangement or any profit sharing, bonus, incentive compensation, severance,
employee benefit or multiemployer plans;
(o) entered into any employment agreement or collective bargaining
agreement or increased the compensation paid to, in any capacity, (A) any of its
directors and executive officers, or (B) any of its other employees;
(p) incurred any indebtedness for borrowed money;
(q) written off as uncollectible any of its notes or accounts receivable or
written down the value of any of its assets or inventory, other than in
immaterial amounts;
(r) changed any method of accounting or keeping its books of account or
accounting practices; or
(s) committed orally or in writing to any of the foregoing.
3.7.2. LIABILITIES. Except as set forth on its Disclosure
Schedule 3.7, it has no liabilities or obligations, fixed, accrued, contingent
or otherwise (collectively, "Liabilities"), that are not fully reflected or
provided for on, or disclosed in the notes to, the Interim Balance Sheet, except
Liabilities incurred in the ordinary course of business since the Interim
Balance Sheet Date, none of which individually or in the aggregate has resulted
or could reasonably be expected to result in costs to it, individually or in the
aggregate, in excess of $25,000. Since the Interim Balance Sheet Date, there has
not been any discharge or satisfaction by it or any of its Subsidiaries of any
lien or encumbrance, or payment by any of them of any Liability other than (a)
current Liabilities included in its Interim Balance Sheet, (b) current
Liabilities incurred since the Interim Balance Sheet Date in the ordinary course
of business, and (c) current Liabilities incurred in connection with this
transaction and set forth on its Disclosure Schedule 3.7.
15
<PAGE>
3.8. COMPLIANCE WITH APPLICABLE LAW, CERTIFICATES OF INCORPORATION AND
BY-LAWS. It has all requisite licenses, permits and certificates from all
Governmental Entities (collectively, Permits) necessary to conduct its
business as currently conducted, and to own, lease and operate its properties in
the manner currently held and operated, except for any the absence of which,
individually or in the aggregate, would not have a Material Adverse Effect. It
is in compliance in all material respects with all the terms and conditions
related to such Permits. There are no proceedings pending or, to its knowledge,
threatened, which may result in revocation, cancellation, suspension, or any
material adverse modification of any of such Permits. Its business is not being
conducted in violation of any applicable law, statute, ordinance, regulation,
rule, judgment, decree, order, Permit, concession, grant or other authorization
of any Governmental Entity, except for violations that, individually or in the
aggregate, have not resulted in, and could not reasonably be expected to result
in, a Material Adverse Effect. It is not in default or violation of any
provision of its Certificate of Incorporation or its by-laws.
3.9. LITIGATION AND AUDITS. Except as set forth on its Disclosure
Schedule 3.9, (a) there is no claim, action, suit, arbitration or proceeding
pending or, to its knowledge, threatened against or involving it, or any of its
assets or properties, at law or in equity, or before any arbitrator or
Governmental Entity, and there are no judgments, decrees, injunctions or orders
of any Governmental Entity or arbitrator outstanding against it, and (b) there
is no investigation by any Governmental Entity or any other Person with respect
to it that is pending or, to its knowledge, threatened, nor has any Governmental
Entity or other Person indicated to it an intention to conduct the same.
3.10. TAX MATTERS. EXCEPT AS SET FORTH ON ITS DISCLOSURE SCHEDULE 3.10:
3.10.1. DEFINITIONS. As used in this Agreement, "Affiliated
Group" means any affiliated group within the meaning of Code Section 1504(a) or
any similar group defined under a similar provision of state, local or foreign
law; "Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not; "Tax Returns" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof; and "Treasury Regulation" means those regulations
promulgated under the Code.
3.10.2. TAX RETURNS AND PAYMENTS. It and each of its
Subsidiaries has filed all material Tax Returns required to be filed. All such
Tax Returns were correct and complete in all material respects. All Taxes due
and payable by it (whether or not shown on any Tax Return) have been paid (other
than amounts being contested in good faith by appropriate proceedings for which
adequate reserves have been established on its books). Neither it nor any of its
Subsidiaries is currently the beneficiary of any extension of time within which
to file any Tax Return. No claim that has not been finally resolved has ever
been made by an authority in a jurisdiction where it or any of its Subsidiaries
does not file Tax Returns that such entity is or may be subject to taxation by
that jurisdiction. There are no encumbrances on any of its or its Subsidiaries'
assets that arose in connection with any failure (or alleged failure) to pay any
Tax (other than liens for Taxes that are not yet due or that are being contested
in good faith by appropriate proceedings), except for encumbrances that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it.
16
<PAGE>
3.10.3. WITHHOLDING. It and each of its Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party, except for amounts that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it.
3.10.4. AUDITS. There is no pending dispute or claim
concerning any Tax liability of it or any of its Subsidiaries either (a) claimed
or raised by any authority in writing or (b) as to which any of its or its
Subsidiaries' directors and officers (and employees responsible for Tax matters)
has knowledge based upon personal contact with any agent of such authority.
Disclosure Schedule 3.10 lists all federal, state, local, and foreign income
Tax Returns filed with respect to its taxable periods ended on or after October
31, 1994, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. It has delivered or
made available to Holdings, in the case of the Company, or to the Company, in
the case of Holdings, correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by it since October 31, 1994.
3.10.5. WAIVERS AND EXTENSIONS. Neither it nor any of its
Subsidiaries has granted any currently outstanding waiver of any statute of
limitations in respect of Taxes or agreed to any currently outstanding extension
of time with respect to a Tax assessment or deficiency.
3.10.6. ELECTIONS AND CONSENTS. Neither it nor any of its
Subsidiaries has filed a consent under Code Section 341(f) concerning
collapsible corporations. Neither it nor any of its Subsidiaries has made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under either of Code Section 162(m) or
280G. Neither it nor any of its Subsidiaries is a party to any Tax allocation or
sharing agreement. Neither it nor any of its Subsidiaries (a) has ever been a
member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the Common Parent of which is Parent) or (b) has any
liability for the Taxes of any person (other than it and its Subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
3.10.7. UNPAID TAXES. Its unpaid Taxes (a) did not, as of the
Interim Balance Sheet Date, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the Interim Balance Sheet (rather than in any
notes thereto) and (b) do not exceed that reserve as adjusted for the passage of
time through the date of the Closing in accordance with the its past practice in
filing its Tax Returns.
17
<PAGE>
3.11. EMPLOYEE BENEFIT PLANS.
3.11.1. LIST OF PLANS. Disclosure Schedule 3.11 hereto
contains a correct and complete list of all pension, profit sharing, retirement,
deferred compensation, welfare, legal services, medical, dental or other
employee benefit or health insurance plans, life insurance or other death
benefit plans, disability, stock option, stock purchase, restricted stock, stock
compensation, bonus, vacation pay, severance pay and other similar plans,
programs or agreements, relating to any persons employed by it or in which any
person employed by it is eligible to participate and which it currently
maintains or has maintained at any time in the last five calendar years
(collectively, the "Benefit Plans"). It has provided or made available to
Holdings, in the case of the Company, or to the Company, in the case of
Holdings, complete copies, as of the date hereof, of all of the Benefit Plans
that have been reduced to writing, together with all documents establishing or
constituting any related trust, annuity contract, insurance contract or other
funding instrument, and summaries of those that have not been reduced to
writing. It has provided or made available to Holdings, in the case of the
Company, or to the Company, in the case of Holdings, complete copies of current
plan summaries, employee booklets, personnel manuals and other material
documents or written materials concerning the Benefit Plans that are in its
possession as of the date hereof. It does not have any "defined benefit plans"
as defined in Section 3(35) of ERISA.
3.11.2. ERISA. Neither it nor any of its ERISA Affiliates has
incurred any "withdrawal liability" calculated under Section 4211 of ERISA, and
there has been no event or circumstance which would cause them to incur any such
liability. Neither it nor any of its ERISA Affiliates has ever maintained a
Benefit Plan providing health or life insurance benefits to former employees,
other than as required pursuant to Code Section 4980B or to any state law
conversion rights. No pension plan (as defined by ERISA) previously maintained
by it or its ERISA Affiliates which was subject to ERISA has been terminated; no
proceedings to terminate any such plan have been instituted within the meaning
of Subtitle C of Title IV of ERISA; and no reportable event within the meaning
of Section 4043 of said Subtitle C of Title IV of ERISA with respect to which
the requirement to file a notice with the Pension Benefit Guaranty Corporation
has not been waived has occurred with respect to any such Benefit Plan, and no
liability to the Pension Benefit Guaranty Corporation has been incurred by it or
its ERISA Affiliates. With respect to all the Benefit Plans, it and each of its
ERISA Affiliates are in material compliance with all requirements prescribed by
all statutes, regulations, orders or rules currently in effect, and have in all
material respects performed all obligations required to be performed by them.
Neither it nor any of its ERISA Affiliates, nor any of their directors,
officers, employees or agents, nor any trustee or administrator of any trust
created under the Benefit Plans, has engaged in or been a party to any
"prohibited transaction" as defined in Code Section 4975 and Section 406 of
ERISA which could subject it or its ERISA Affiliates, directors or employees or
the Benefit Plans or the trusts relating thereto or any party dealing with any
of the Benefit Plans or trusts to any tax or penalty on "prohibited
transactions" imposed by Code Section 4975. Neither the Benefit Plans nor the
trusts created thereunder have incurred any "accumulated funding deficiency," as
such term is defined in Code Section 412 and regulations issued thereunder,
whether or not waived.
18
<PAGE>
3.11.3. PLAN DETERMINATIONS. Each Benefit Plan intended to
qualify under Code Section 401(a) has been determined by the Internal Revenue
Service to so qualify, and the trusts created thereunder have been determined to
be exempt from tax under Code Section 501(a); copies of all determination
letters have been delivered to it; and nothing has occurred since the date of
such determination letters which is likely to cause the loss of such
qualification or exemption. With respect to each Benefit Plan which is a
qualified profit sharing plan, all employer contributions accrued for plan years
ending prior to the date hereof under the Benefit Plan terms and applicable law
have been made.
3.11.4. FUNDING.Except as set forth on Disclosure Schedule 3.11:
(a) all contributions, premiums or other payments due or required to be
made to the Benefit Plans prior to the date hereof have been made as of the date
hereof or are properly reflected on the Interim Balance Sheet;
(b) there are no actions, liens, suits or claims pending or, to its
knowledge, threatened (other than routine claims for benefits) with respect to
any Benefit Plan;
(c) each Benefit Plan that is a "group health plan" (as defined in Section
607(1) of ERISA) has been operated at all times in material compliance with the
provisions of COBRA and any applicable, similar state law; and
(d) with respect to any Benefit Plan that is qualified under Code Section
401(k), individually and in the aggregate, no event has occurred, and, to its
knowledge, there exists no condition or set of circumstances, in connection with
which it could be subject to any liability that is reasonably likely to result
in costs to it, individually or in the aggregate, in excess of $25,000 (except
liability for benefits claims and funding obligations payable in the ordinary
course) under ERISA, the Code or any other applicable law.
3.12. EMPLOYMENT-RELATED MATTERS.
3.12.1. LABOR RELATIONS. It is not a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of its employees. There is no labor strike,
dispute, slowdown, work stoppage or lockout that is pending or threatened
against or otherwise affecting it, and it has not experienced the same at any
time during the period of five years preceding the date of this Agreement. It
has not closed any plant or facility, effected any layoffs of employees or
implemented any early retirement or separation program at any time during such
period, nor has it planned or announced any such action or program for the
future with respect to which it has any liability. All salaries, wages, vacation
pay, bonuses, commissions and other compensation payable by it to its employees
before the date hereof have been paid or accrued in all material respects as of
the date hereof.
19
<PAGE>
3.12.2. EMPLOYEE LIST. It has delivered or made available to
Holdings, in the case of the Company, or to the Company, in the case of
Holdings, a list (the "Employee List") containing the name of each of its
employees, and each such employee's position, starting employment date and
annual salary or hourly wage. The Employee List is correct and complete as of
the date of the Employee List, and is correct and complete as of the date
hereof, except for changes since that date that are not material individually or
in the aggregate. No third party has asserted any claim, or, to its knowledge,
has any reasonable basis to assert any valid claim, against it that either the
continued employment by or association with it of any of its present officers,
employees or consultants contravenes any agreement or law applicable to unfair
competition, trade secrets or proprietary information. To its knowledge, each of
the employees listed on its Employee List intends to continue his or her
employment with it after the Closing.
3.13. ENVIRONMENTAL.
3.13.1. ENVIRONMENTAL LAWS. It is in compliance in all
material respects with all applicable Environmental Laws. It has not received
any communication that alleges that it is not in compliance in all respects with
all applicable Environmental Laws in effect on the date hereof. There are no
circumstances that may prevent, and there are no circumstances specific to it
that may interfere with, compliance by it in the future with all applicable
Environmental Laws. All Permits and other governmental authorizations currently
held by it pursuant to the Environmental Laws are in full force and effect, it
is in compliance in all material respects with all of the terms of such Permits
and authorizations, and no other Permits or authorizations are required by it
for the conduct of its business as of the date hereof. The management, handling,
storage, transportation, treatment, and disposal by it of all Materials of
Environmental Concern has been in compliance in all material respects with all
applicable Environmental Laws.
3.13.2. ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending or, to its knowledge, threatened against or involving the it or any of
its Subsidiaries or, to its knowledge, against any Person or entity whose
liability for any Environmental Claim it has knowingly retained or assumed.
3.13.3. NO BASIS FOR CLAIMS. To its knowledge, there are no
past or present actions or activities by it or any of its Subsidiaries, or any
circumstances, conditions, events or incidents, including the storage,
treatment, release, emission, discharge, disposal or arrangement for disposal of
any Material of Environmental Concern, that could reasonably form the basis of
any Environmental Claim against it or against any Person or entity whose
liability for any Environmental Claim it has knowingly retained or assumed.
3.14. NO BROKER'S OR FINDER'S FEES. EXCEPT AS SET FORTH IN ITS
Disclosure Schedule 3.14, it has not paid or become obligated to pay any fee
or commission to any broker, finder, financial advisor or intermediary in
connection with the transactions contemplated by this Agreement.
3.15. ASSETS OTHER THAN REAL PROPERTY
20
<PAGE>
3.15.1. TITLE. It or its Subsidiaries have good and marketable
title to all of the tangible assets shown on the Interim Balance Sheet, in each
case, free and clear of any mortgage, pledge, lien, claim, charge, security
interest, lease or other encumbrance (collectively, "Encumbrances"), except for
(a) assets disposed of since the Interim Balance Sheet Date in the ordinary
course of business, in a manner consistent with past practices and with a value,
individually or in the aggregate, of $25,000 or less, (b) liabilities,
obligations and Encumbrances reflected in the Interim Balance Sheet or otherwise
in the Financial Statements, (C) permitted Encumbrances, and (d) liabilities,
obligations and Encumbrances set forth on Disclosure Schedule 3.15.
3.15.2. CONDITION. Except as set forth on Disclosure Schedule
3.15, all receivables shown on the Interim Balance Sheet and all receivables
accrued by it since the Interim Balance Sheet Date, have been collected or, to
its knowledge, are collectible in the aggregate amount shown, less any
allowances for doubtful accounts reflected therein, and, in the case of
receivables arising since the Interim Balance Sheet Date, any additional
allowance in respect thereof calculated in a manner consistent with the
allowance reflected in the Interim Balance Sheet, it being understood that the
foregoing representation and warranty is not a guaranty of collection. All
material plant, equipment and personal property owned by it and its Subsidiaries
and regularly used in its business is in good operating condition and repair,
ordinary wear and tear excepted.
3.16. REAL PROPERTY.
3.16.1. REAL PROPERTY. Disclosure Schedule 3.16 lists (a)
each parcel of real property in which it or its Subsidiaries have an ownership
interest and describes the plants, buildings, structures, installations,
fixtures, betterments, additions and other improvements located thereon,
together with all easements used or useful in connection therewith (the "Real
Property"), and (b) all Encumbrances upon the Real Property.
3.16.2. REAL PROPERTY LEASES. Disclosure Schedule 3.16 lists
all of its and its Subsidiaries' Real Property Leases. Complete copies of such
Real Property Leases, including all material amendments thereto, have previously
been delivered or made available by Holdings to the Company or by the Company to
Holdings, as the case may be. Such Real Property Leases grant leasehold estates
free and clear of all Encumbrances, except Permitted Encumbrances. Such Real
Property Leases are in full force and effect and, to its knowledge with respect
to any party other than it or any Subsidiary, are binding and enforceable
against each of the parties thereto in accordance with their respective terms.
Neither it nor, to its knowledge with respect to any party other than it or any
Subsidiary, any other party to any of such Real Property Leases, has committed a
21
<PAGE>
material breach or default under any Real Property Lease, nor, to its knowledge
with respect to any party other than it or any Subsidiary, has there occurred
any event that with the passage of time or the giving of notice or both would
constitute such a breach or default, nor are there any facts or circumstances
known to it that would reasonably indicate that it or any of its Subsidiaries is
likely to be in material breach or default thereunder. Disclosure Schedule
3.16 correctly identifies each such Real Property Lease that requires the
consent of any third party in connection with the transactions contemplated
hereby. No material construction, alteration or other leasehold improvement work
with respect to the real property covered by any such Real Property Leases
remains to be paid for or to be performed by it or any Subsidiary.
3.16.3. CONDITION. All buildings, structures and fixtures, or
parts thereof, used by it or any of its Subsidiaries in the conduct of its or
their business are in good operating condition and repair, ordinary wear and
tear excepted, and are insured with coverages that are usual and customary for
similar properties and similar businesses or are required, pursuant to the terms
of its Real Property Leases or the terms of the Encumbrances on its Real
Property, to be insured by third parties. The zoning of its Real Property and
the property subject to its Real Property Leases permits the presently existing
improvements and the continuation of the business presently being conducted on
such Real Property and property subject to Real Property Leases.
3.17. INTELLECTUAL PROPERTY.
3.17.1. LIST OF INTELLECTUAL PROPERTY. Disclosure Schedule
3.17 lists all patents, trademarks, trade names, service marks, logos,
copyrights, and licenses, and any applications therefor, that are used in or
necessary to its or any of its Subsidiaries' businesses as now being conducted
or as currently proposed to be conducted (other than software programs that have
not been customized for its or such subsidiary's use) (collectively, and
together with any technology, know-how, trade secrets, processes, formulas and
techniques used in or necessary to its or any of its Subsidiaries' business,
"Proprietary Rights"). It and its Subsidiaries own, or are licensed or otherwise
have the full and unrestricted right to use, all Proprietary Rights used in or
necessary to its or its Subsidiaries' business, and no other intellectual
property rights, privileges, licenses, contracts or other instruments, or
evidences of interests, are necessary to the conduct of its or its Subsidiaries'
business.
22
<PAGE>
3.17.2. RIGHTS IN INTELLECTUAL PROPERTY; No Infringement In
any instance where its or any of its Subsidiaries' rights to Proprietary
Information arise under a license or similar agreement (other than for software
programs that have not been customized for its or such subsidiary's use), such
licenses and agreements are set forth in disclosure schedule 3.17, and such
rights are licensed exclusively to it or such subsidiary except as indicated in
disclosure schedule 3.17. Except as set forth in Disclosure Schedule 3.17,
neither it nor any of its Subsidiaries has any obligation to compensate any
other Person or the use of any proprietary information. Disclosure Schedule
3.17 lists every instance in which it or any of its Subsidiaries has granted to
any other Person any license or other right to use in any manner any of the
Proprietary Information, whether or not requiring the payment of royalties
(other than licenses of commercially available software entered into in the
ordinary course of business). No other Person has an interest in or right or
license to use any of its or its Subsidiaries' Proprietary Information. To its
knowledge, none of its or any of its Subsidiaries' Proprietary Information is
being infringed by others, or is subject to any outstanding order, decree,
judgment or stipulation. No litigation or other proceeding in or before any
court or other Governmental Entity or adjudicatory, arbitral or administrative
body either (a) relating to it or any of its Subsidiaries' Proprietary
Information or (b) charging it or any of its Subsidiaries with infringement of
any patent, trademark, copyright, license or other proprietary right, is pending
or, or to its knowledge, threatened, nor is there, to its knowledge, any basis
for any such litigation or proceeding. It and its Subsidiaries maintain
reasonable security measures for the preservation of the secrecy and proprietary
nature of such of their Proprietary Information as constitutes trade secrets.
3.17.3. YEAR 2000 READINESS. EXCEPT AS SET FORTH IN DISCLOSURE
SCHEDULE 3.17, neither it nor any of its Subsidiaries has incurred any
business disruption as a result of any instance in which computer hardware or
software was not Year 2000 Compliant. It has received assurances of Year 2000
Compliance from its material vendors and, to the extent material to its business
and operations, its customers, financial institutions, payroll service providers
and retirement plan administrators. "Year 2000 Compliant" means, with respect to
computer hardware and software, that such hardware and software (a) did and will
accurately receive, record, store, provide, recognize and process all date and
time data from, during, into and between the twentieth and twenty-first
centuries; (b) did and will accurately perform all date-dependent calculations
and operations (including mathematical operations, sorting, comparing and
reporting) from, during, into and between the twentieth and twenty-first
centuries; and (c) did and will not malfunction, cease to function or provide
invalid or incorrect results as a result of (i) the change of century, (ii) date
data, including date data which represents or references different centuries or
more than one century or (iii) the occurrence of any particular date; in each
case without human intervention, other than original data entry.
3.18. AGREEMENTS, CONTRACTS AND COMMITMENTS.
3.18.1. CONTRACTS. Except as set forth on its Disclosure Schedule 3.18,
neither it nor any of its Subsidiaries is a party to:
(a) any employment agreement with any present employee, officer, director
or consultant (or former employees, officers, directors and consultants to the
extent there remain at the date hereof obligations to be performed by it or any
such Subsidiary);
(b) any agreement for personal services or employment with a term of
service or employment specified in the agreement in which it or any such
Subsidiary has agreed on the termination of such agreement to make any payments
greater than those that would otherwise be imposed by law;
(c) any agreement to guarantee the obligations of others;
(d) any agreement or commitment containing a covenant limiting or
purporting to limit the freedom of it or any such Subsidiary to compete with any
Person in any geographic area or to engage in any line of business;
(e) any joint venture or profit-sharing agreement;
23
<PAGE>
(f) except for trade indebtedness incurred in the ordinary course of
business and, prior to the Interim Balance Sheet Date, reflected on the Interim
Balance Sheet, any loan or credit agreements providing for the extension of
credit to it or any such Subsidiary or any instrument evidencing or related in
any way to indebtedness incurred in the acquisition of companies or other
entities or indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, lease, guarantee, or
otherwise that individually is in the amount of $50,000 or more;
(g) any license or royalty agreement other than those
disclosed on its Disclosure Schedule 3.17;
(h) any distribution, VAR or OEM agreement (identifying any that contain
exclusivity provisions);
(i) any agreement or arrangement with any third party to develop any
intellectual property or other asset expected to be used or currently used or
useful in the its or any such Subsidiary's business;
(j) any agreement or arrangement for it or any such Subsidiary to develop
any intellectual property or other asset for any third party;
(k) any agreement or arrangement providing for the payment of any
commission based on sales;
(l) any agreement for the sale or license by or to it or any such
Subsidiary of materials, products, services or supplies that involves future
payments by or to it or such Subsidiary of more than $50,000;
(m) any agreement for the purchase or capital lease by it or any such
Subsidiary of any materials, equipment (including rolling stock), services, or
supplies, that either (i) involves a binding commitment by it or such Subsidiary
to make future payments in excess of $50,000 and cannot be terminated by it or
such Subsidiary without penalty upon less than three months notice or (ii) was
not entered into in the ordinary course of business;
(n) any agreement or commitment for the acquisition, construction or sale
of fixed assets owned or to be owned by it or any such Subsidiary that involves
future payments by it or such Subsidiary of more than $50,000;
(o) any agreement or commitment to which any of its present or former
directors or officers (or their Affiliates or members of their immediate
families) or Affiliates (or directors or officers of an Affiliate) are also
parties;
(p) any agreement not described above (ignoring, solely for this purpose,
any dollar amount thresholds in those descriptions) involving the payment or
receipt by it or any such Subsidiary of more than $50,000, other than the Real
Property Leases; or
24
<PAGE>
(q) any agreement not described above that was not made in the ordinary
course of business and that is material to the financial condition, business,
operations, assets, results of operations or prospects of it or any such
Subsidiary.
3.18.2. VALIDITY. Except as set forth on its Disclosure
Schedule 3.18, all contracts, leases, instruments, licenses and other
agreements or documents described or referred to thereon are enforceable against
it, and to its knowledge, against the other parties thereto, and neither it nor
any of its Subsidiaries has, nor, to its knowledge, has any other party thereto,
committed any material breach of or default under the terms of any such
contract, lease, instrument, license or other agreement or document. Its
Disclosure Schedule 3.18 identifies each agreement and other document set
forth thereon or disclosed by it on another section of itS Disclosure Schedule
that requires the consent of a third party in connection with the transactions
contemplated hereby.
3.19. INSURANCE. Its Disclosure Schedule 3.19 lists all contracts of
insurance and indemnity (not shown on another section of its Disclosure
Schedule) in force at the date hereof with respect to it or any of its
Subsidiaries (collectively, the "Insurance Contracts"). All of the Insurance
Contracts are in full force and effect, with no default thereunder by it or any
such Subsidiary that could permit the insurer to deny payment of claims
thereunder. The execution and delivery of this Agreement by it or any of its
Affiliates, and the consummation of the transactions contemplated hereby, will
not cause it or any of its Subsidiaries to be in violation or default under any
Insurance Contracts, nor, to its knowledge, entitle any other party thereto to
terminate or modify an Insurance Contract. Neither it nor any of its
Subsidiaries has received notice from any insurance carriers that any insurance
premiums will be materially increased in the future or that any insurance
coverage provided under the Insurance Contracts will not be available in the
future on substantially the same terms as now in effect. Neither it nor any of
its Subsidiaries has received or given a notice of cancellation with respect to
any of the Insurance Contracts.
3.20. BANKING RELATIONSHIPS. Its Disclosure Schedule 3.20 hereto
shows the names and locations of all banks and trust companies in which it or
any of its Subsidiaries has accounts, lines of credit or safety deposit boxes
and, with respect to each account, line of credit or safety deposit box, the
names of all persons authorized to draw thereon or to have access thereto.
3.21. NO APPRAISAL RIGHTS. Its stockholders will not be entitled to
dissenters' rights of appraisal or similar rights in connection with the Merger
or the transactions contemplated in connection therewith.
3.22. SUPPLIERS, DISTRIBUTORS AND CUSTOMERS. To its knowledge, the
relationships of it and its Subsidiaries its and their suppliers, distributors
and customers are satisfactory commercial working relationships. Since the
Interim Balance Sheet Date, no material supplier, distributor or customer of it
or any such Subsidiary has canceled or otherwise modified its relationship with
it or any such Subsidiary in a manner materially adverse to it or any such
Subsidiary and, to its knowledge, no supplier, distributor or customer of it or
any of its Subsidiaries has any intention to do so.
25
<PAGE>
3.23. PRODUCT WARRANTIES. Each product sold, leased, licensed or
delivered by it or any of its Subsidiaries has been in material conformity with
all applicable contractual commitments and all express and implied warranties,
and neither it nor any such Subsidiary has any Liability, individually or in the
aggregate (and none of them has any knowledge of any basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand giving rise to any such Liability, individually or in the
aggregate) that could reasonably be expected to result in costs to it or any
such Subsidiary, individually or in the aggregate, in excess of $25,000 for
replacement or repair thereof or other damages in connection therewith. Its
Disclosure Schedule 3.23 includes copies of the standard terms and conditions
of license and sale for it and its Subsidiaries (containing APPLICABLE WARRANTY
and indemnity provisions). Except as set forth on its Disclosure Schedule
3.23, no product sold, leased, licensed or delivered by the Company is subject
to any guarantee, warranty, or other indemnity beyond the applicable standard
terms and conditions of license and sale and such other indemnities and
warranties disclosed on its Disclosure Schedule 3.23.
3.24. ACQUIRED BUSINESS. The Company represents that upon consummation
of the Contribution to Parent by the Stockholders of all of their capital stock
of the Company, Parent will own, of record and beneficially, free and clear of
all liens, pledges, charges, security interests, encumbrances, or adverse claims
of any kind whatsoever, all of the capital stock of the Company outstanding
immediately prior to the Effective Time.
3.25. ACCOUNTING SYSTEM. It maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (a) transactions are
executed in accordance with managements general or specific authorizations; (b)
transactions are recorded as necessary to permit preparation of financial
statements in a manner consistent with its past accounting practices and to
maintain asset accountability; (c) access to assets is permitted only in
accordance with managements general or specific authorization; and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.26. SEC STATEMENTS, REPORTS AND DOCUMENTS. Holdings represents that
it has delivered or made available to the Company true and complete copies of
(a) all reports on Forms 10-K or 10-KSB, 10-Q or 10-QSB and 8-K filed by it with
the SEC since January 1, 1999, and (b) all amendments to such reports filed by
Holdings with the SEC (the documents referred to in clauses (a) and (b) being
hereinafter referred to as the "Holdings Public Filings"). As of their
respective dates, the Holdings Public Filings complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the Holdings
Public Filings is required to be amended or supplemented.
3.27. FAIRNESS OPINION. Holdings represents that it has received the
oral opinion of Duff & Phelps, LLC, its financial advisor (the "Financial
Advisor"), that the Merger and the Contribution and the other transactions
contemplated thereby are fair, from a financial point of view, to its
stockholders.
26
<PAGE>
3.28. CREDIT COMMITMENT. Each of Holdings and the Company represents
that it has entered into a credit commitment with Webster Bank as set forth in
commitment letter of Webster Bank dated as of April 14, 2000.
3.29. FULL DISCLOSURE. Neither this Agreement nor any written
statement, report or other document furnished or to be furnished by it or any of
its Subsidiaries pursuant to this Agreement or in connection with the
transactions contemplated hereby contains, or will contain, any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not false or misleading. There is no fact
known to it or any of its Subsidiaries which has not been disclosed to Holdings,
in the case of the Company, or to the Company, in the case of Holdings, that
could reasonably be expected to have a Material Adverse Effect on (a) the
ability of it or any of its Subsidiaries to perform this Agreement and carry out
the transactions contemplated hereby, or (b) its consolidated financial
condition, business, operations, assets, properties, results of operations or
prospects.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders, severally and not jointly, represents and
warrants to Parent, Holdings and Merger Sub as follows:
4.1. AUTHORITY. Such Stockholder has the power to enter into this
Agreement and the other agreements contemplated hereby to be signed by such
Stockholder and to consummate the transactions contemplated hereby and thereby.
Such Stockholder has good title to the shares of company common stock
purportedly owned by such stockholder as shown on Disclosure Schedule 3.2,
free and clear of all Encumbrances other than restrictions on transfer imposed
by reason of the issuance of such shares without registration or qualification
under applicable securities laws. This Agreement and the other agreements
contemplated hereby to be signed by such Stockholder have been duly executed and
delivered by such Stockholder, and constitute the valid and binding obligations
of such Stockholder, enforceable against such Stockholder in accordance with
their respective terms, subject to the qualifications that enforcement of the
rights and remedies created hereby and thereby is subject to (a) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other laws of
general application affecting the rights and remedies of creditors and (b)
general principles of equity (regardless of whether the enforcement is
considered in a proceeding in equity or at law). On or before the Effective
Date, the other agreements contemplated hereby to be executed and delivered by
any Stockholder on or before the Effective Date will have been executed and
delivered by such Stockholder, and, upon such execution and delivery, will
constitute valid and binding obligations of such Stockholder, enforceable
against such Stockholder in accordance with their respective terms, subject to
the qualifications that enforcement of the rights and remedies created thereby
are subject to (a) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws of general application affecting the
rights and remedies of creditors and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
27
<PAGE>
4.2. NO CONFLICT. Neither the execution and delivery of this Agreement
by such Stockholder and the other agreements contemplated hereby to be signed by
such Stockholder, nor the performance by such Stockholder of such Stockholder's
obligations hereunder or thereunder, nor the consummation by such Stockholder of
the transactions contemplated hereby or thereby will with or without the giving
of notice or the lapse of time, or both, conflict with, or result in any
violation or breach of, or constitute a default under, or result in any right to
accelerate or result in the creation of any Encumbrance pursuant to, or right of
termination under, any provision of any note, mortgage, indenture, lease,
instrument or other agreement, Permit, concession, grant, franchise, license,
judgment, order, decree, statute, ordinance, rule or regulation to which such
Stockholder is a party or by which such Stockholder or any of such Stockholder's
assets or properties is bound or which is applicable to such Stockholder or any
of such Stockholders assets or properties.
4.3 NO BROKER'S OR FINDER'S FEES. Such Stockholder has not paid or
become obligated to pay any fee or commission to any broker, finder, financial
advisor or intermediary in connection with the transactions contemplated by this
Agreement.
4.4 SOPHISTICATION. Such Stockholder by reason of such Stockholder's
business and financial experience, and the business and financial experience of
those persons retained by such Stockholder to advise such Stockholder with
respect to the cash and shares of Parent Stock to be received by such
Stockholder by reason of the Contribution, has such knowledge, sophistication
and experience in business and financial matters as to be capable of evaluating
the merits and risks of the transactions contemplated by this Agreement. Such
Stockholder acknowledges that he or it has been granted the opportunity to ask
questions of, and receive answers from, representatives of Holdings concerning
Holdings and Parent and the Parent Stock that such Stockholder is receiving by
reason of the Contribution, and to obtain any additional information that such
Stockholder deems necessary to verify the accuracy of the answers such
Stockholder received from such representatives. Such Stockholder represents and
warrants that such Stockholder is an "accredited investor" within the meaning of
Rule 501 promulgated under the Securities Act.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to
the Company and the Stockholders as follows:
5.1. CORPORATE STATUS OF PARENT AND MERGER SUB. Each of Parent and
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the
requisite corporate power to own, operate and lease its properties and to carry
on its business as now being conducted.
5.2. AUTHORITY FOR AGREEMENT; NONCONTRAVENTION
28
<PAGE>
5.2.1. AUTHORITY. Each of Parent and Merger Sub has the
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the boards of directors of Parent and Merger Sub and the
stockholder of Merger Sub and no other corporate proceedings on the part of
Parent or Merger Sub are necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligation of Parent and Merger Sub,
enforceable against each of them in accordance with its terms, subject to the
qualifications that enforcement of the rights and remedies created hereby are
subject to (a) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other laws of general application affecting the rights and
remedies of creditors and (b) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law). On or
before the Effective Date, the other agreements contemplated hereby to be
executed and delivered by Parent and Merger Sub on or before the Effective Date
will have been executed and delivered by Parent and Merger Sub, and, upon such
execution and delivery, will constitute valid and binding obligations of Parent
and Merger Sub, enforceable against Parent and Merger Sub in accordance with
their respective terms, subject to the qualifications that enforcement of the
rights and remedies created thereby are subject to (a) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other laws of general
application affecting the rights and remedies of creditors and (b) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
5.2.2. NO CONFLICT. Neither the execution and delivery of this
Agreement by Parent or Merger Sub, nor the performance by Parent or Merger Sub
of its obligations hereunder, nor the consummation by Parent or Merger Sub of
the transactions contemplated hereby will (a) conflict with or result in a
violation of any provision of the Certificates of Incorporation or by-laws of
Parent or Merger Sub, or (b) with or without the giving of notice or the lapse
of time, or both, conflict with, or result in any violation or breach of, or
constitute a default under, or result in any right to accelerate or result in
the creation of any Encumbrance pursuant to, or right of termination under, any
provision of any note, mortgage, indenture, lease, instrument or other
agreement, Permit, concession, grant, franchise, license, judgment, order,
decree, statute, ordinance, rule or regulation to which Parent or Merger Sub is
a party or by which either of them or any of their respective assets or
properties is bound or which is applicable to either of them or any of their
assets or properties. No authorization, consent or approval of, or filing with
or notice to, any Governmental Entity is necessary for the execution and
delivery of this Agreement by Parent or Merger Sub or the consummation by Parent
or Merger Sub of the transactions contemplated hereby, except for (i) the filing
of the Certificate of Merger with the Secretary of State of Delaware, and (ii)
any filings as may be required under applicable federal or state securities
laws.
5.3 LITIGATION. There is no claim, action, suit arbitration or
proceeding pending or, to the knowledge of Parent, threatened against or
involving Parent which, if determined adversely to Parent, could have a material
adverse effect on the financial condition, business, operations, assets,
properties, results of operations or prospects of Parent.
29
<PAGE>
5.4 INTERIM OPERATIONS OF MERGER SUB. Parent and Merger Sub were formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement and have engaged in no business activities other than as contemplated
by this Agreement.
ARTICLE 6
CONDUCT PRIOR TO THE EFFECTIVE TIME
Each of Holdings and the Company, in each case for itself and each of
its Subsidiaries, covenants and agrees as follows, from and after the date of
this Agreement and until the Effective Time, except as otherwise expressly
contemplated by or set forth in this Agreement or expressly consented to in
writing by the Company, in the case of Holdings, or by Holdings, in the case of
the Company:
6.1. GENERAL CONDUCT OF BUSINESS. Between the date of this Agreement
and the Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to its terms, it shall (a) carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due subject to good faith disputes over such obligations, and use all
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers and others having business relationships with it, to the end that its
goodwill and ongoing business be unimpaired at the Effective Time, and (b)
promptly notify Holdings, in the case of the Company, or the Company, in the
case of Holdings, of any event or occurrence not in the ordinary course of its
business which will result or could reasonably be expected to result in costs to
it, individually or in the aggregate, in excess of $100,000, or that could
prevent or materially delay the consummation of the transactions contemplated
hereby. Without limiting the generality of the foregoing except as indicated in
the specific exceptions set forth below, it shall not:
(a) amend its Certificate of Incorporation or by-laws;
(b) declare or pay any dividends or distributions on
its outstanding shares of capital stock nor purchase, redeem or
otherwise acquire for consideration any shares of its capital stock or
other securities except in accordance with agreements existing as of
the date hereof;
(c) issue or sell any shares of its capital stock
(except pursuant to any options, stock appreciation or purchase rights,
warrants, conversion rights or other rights, securities or commitments
obligating it to issue or sell any shares of its capital stock and
outstanding as of the date hereof), effect any stock split or otherwise
change its capitalization as it exists on the date hereof, or issue,
grant, or sell any options, stock appreciation or purchase rights,
warrants, conversion rights or other rights, securities or commitments
obligating it to issue or sell any shares of its capital stock, or any
securities or obligations convertible into, or exercisable or
exchangeable for, any shares of its capital stock;
30
<PAGE>
(d) borrow or agree to borrow any funds or
voluntarily incur, or assume or become subject to, whether directly or
by way of guaranty or otherwise, any obligation or Liability, except
obligations incurred in the ordinary course of business consistent with
past practices and except for debt incurred pursuant to the commitment
letter referred to in Section 3.28 and the Subordinated Notes;
(e) pay, discharge or satisfy any claim, obligation
or Liability in excess of $50,000 (in any one case) or $100,000 (in the
aggregate), other than the payment, discharge or satisfaction in the
ordinary course of business of obligations reflected on or reserved
against in the Interim Balance Sheet, or incurred since the Interim
Balance Sheet Date in the ordinary course of business consistent with
past;
(f) except as required by applicable law, adopt or
amend in any material respect, any agreement or plan (including
severance arrangements) for the benefit of its employees;
(g) sell, mortgage, pledge or otherwise encumber or
dispose of any of its assets which are material, individually or in the
aggregate, to its business, except in the ordinary course of business
consistent with past;
(h) acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets
of, any business or any corporation, partnership interest, association
or other business organization or division thereof, or otherwise
acquire any assets which are material, individually or in the
aggregate, to the its business, except in the ordinary course of
business consistent with past practices;
(i) grant any bonus; grant any increase in the rate
of pay or otherwise increase the compensation payable or to become
payable to any officer, director, key salaried employee, or agent;
grant any increase in the rates of pay or other compensation payable to
its employees, other than increases in the salaries of non-officer
employees made in the ordinary course of business consistent with past
practices; or institute or increase the benefits under any bonus,
insurance, pension or other benefit plan, payment, contract, commitment
or arrangement;
31
<PAGE>
(j) enter into any transaction with any Affiliate
other than (A) transactions involving only the elimination of rights,
claims or other benefits of such Affiliate, with no adverse
consequences to it (including without limitation the obtaining of the
terminations, consents and waivers set forth in its Disclosure Schedule
3.5); (B) the payment of compensation and reimbursement of expenses
in accordance with existing employment agreements and usual past
practices); (C) subject to this Section, sales of goods and services to
its Subsidiaries in the ordinary course of business consistent with
past practices; and (D) the transfer of funds to its Subsidiaries
solely for the purpose of investment in bank time deposits or money
market investments;
(k) dispose of, permit to lapse, or otherwise fail to
preserve the its right to use its Proprietary Rights or enter into any
settlement regarding the breach or infringement of, any of its
Proprietary Rights, or modify any existing rights with respect thereto,
other than in the ordinary course of business consistent with past
practices, and other than any such disposal, lapse, failure, settlement
or modification that does not have, and could not reasonably be
expected to have, a Material Adverse Effect;
(l) enter into any contract or commitment or take any
other action that is not in the ordinary course of its business or
could reasonably be expected to have an adverse impact on the
transactions contemplated hereunder or that would result or could
reasonably be expected to result in costs to it, individually or in the
aggregate, in excess of $100,000;
(m) amend in any material respect any agreement to
which it is a party or to which any of its property or assets is bound,
the amendment of which will result or could reasonably be expected to
result in costs to it, individually OR IN THE AGGREGATE, IN EXCESS OF
$100,000, except as provided herein with respect to the execution of
new employment agreements as set forth in Section 7.9 or otherwise
executed in connection with the execution of this Agreement;
(n) waive, release, transfer or permit to lapse any
claims or rights (i) that has a value, or involves payment or receipt
by it, of more than $25,000 or (ii) the waiver, release, transfer or
lapse of which would result or could reasonably be expected to result
in costs to it in excess of $25,000;
(o) make any change in any method of accounting or
accounting practice; or
(p) agree, whether in writing or otherwise, to take
any action described in this Section.
6.2. INSURANCE. It shall maintain with financially sound and reputable
insurance companies, funds or underwriters adequate insurance (including without
limitation insurance described in its Disclosure Schedule 3.19) of the kinds,
covering such risks, and in such amounts, and with such deductible and
exclusions, as are consistent with past practices.
32
<PAGE>
6.3. CONSENTS OF THIRD PARTIES. It shall employ its best efforts to
secure, before the Closing Date, the consent, in form and substance satisfactory
to the other party and its counsel, to the consummation of the transactions
contemplated by this Agreement by each party to any of its contracts,
commitments, or obligations under which such transactions would constitute a
default, or would accelerate, modify or vest any rights or obligations of it or
any other party thereto, or would permit cancellation or termination by any
other party of any such contract, commitment or obligation.
6.4. COMPLIANCE WITH LAWS. It shall duly comply in all material
respects with all applicable laws, rules, regulations and orders.
6.5. ACCESS AND INFORMATION. It shall afford to the other and to its
officers, employees, accountants, counsel and other authorized representatives
full and complete access, upon 24 hours advance telephone notice, during regular
business hours, throughout the period prior to the earlier of the Effective Time
or the termination of this Agreement pursuant to its terms, to its offices,
properties, books and records, and shall use reasonable efforts to cause its
representatives and independent public accountants to furnish to the other party
such additional financial and operating data and other information as to its
business, customers, vendors and properties as the other may from time to time
reasonably request. It shall exercise such rights in a manner so as not to
interfere unreasonably with the normal business operations of the other.
6.6. PUBLIC DISCLOSURE. It agrees that its non-disclosure obligations
contained in a Mutual Agreement of Confidentiality dated November 8, 1999 by and
between Holdings and the Company, and any other non-disclosure obligations
agreed to in writing by Holdings and the Company, shall remain in full force and
effect in accordance with the terms of such letter agreement and such other
writings. Unless otherwise required by law, any press release or other public
disclosure of information regarding this Agreement or the transactions
contemplated hereby will be prepared by Holdings, subject to the approval of the
Stockholders, which approval shall not be unreasonably withheld or delayed.
ARTICLE 7
ADDITIONAL AGREEMENTS
33
<PAGE>
7.1. FILING OF PROXY STATEMENT/PROSPECTUS. Parent and Holdings shall
prepare and file with the SEC a registration statement on Form S-4 or other
appropriate form (including all duly filed amendments and supplements thereto,
the "Registration Statement"), relating to the registration under the Securities
Act of the Parent Stock to be issued in the Merger and the Contribution, and
shall file with appropriate state securities administrators such registration
statements or other documents, if any, as may be required under applicable blue
sky laws to register or qualify such shares in such states as are necessary to
consummate the Merger and the Contribution. Parent and Holdings shall use
commercially reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable. The parties to this Agreement
agree to correct promptly any information provided by each of them for use in
the Registration Statement that contains any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
prospectus contained in the Registration Statement will also constitute a proxy
statement of Holdings for the meeting of its stockholders to be held to approve
the Merger (the "Stockholder Approval"). Holdings shall, as promptly as
practicable, take all steps necessary to call, give notice of, convene and a
hold a meeting of its stockholders for the purpose of approving this Agreement,
the Merger, and the other transactions contemplated hereby, and shall recommend
to its stockholders, and solicit proxies for, and in general use its best
commercially reasonable efforts to obtain, the Stockholder Approval and
stockholder approval of all other matters that Holdings shall submit to its
stockholders.
7.2. PROCEDURES IN CONNECTION WITH THE REGISTRATION STATEMENT;
COOPERATION. Parent and Holdings shall promptly notify the Company of the
receipt by Parent or Holdings of any comments of or requests by the SEC with
respect to the Registration Statement and will promptly supply the Company with
copies of correspondence between the Parent, Holdings and its representatives,
on the one hand, and the SEC or members of its staff or any other appropriate
government officials, on the other, with respect to the Registration Statement.
The parties to this Agreement will use all reasonable efforts to obtain and
furnish the information required to be included in the Registration Statement
and shall each use commercially reasonable efforts to respond promptly to any
comments made by the SEC or any other governmental official with respect to the
Registration Statement and any preliminary versions thereof and to cause the
proxy statement contained therein to be mailed to the stockholders of Holdings
as soon as practicable; provided, however, that Parent and Holdings shall direct
and control all communications with the SEC with respect to the Registration
Statement, and the Company and the Stockholders shall cooperate therewith.
Parent or Holdings shall advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
amendment or supplement thereto has been filed, or the issuance of any stop
order in any jurisdiction, of the initiation or threat of any proceeding for
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for any additional information.
7.3. BLUE SKY LAWS. Parent and Holdings shall take such steps, if any,
as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of shares of Parent Stock
pursuant to the Merger and the Contribution except that it will not be required
to execute a general consent to service of process in jurisdictions where it has
not already done so. The Company and the Stockholders shall use commercially
reasonable efforts to assist Parent and Holdings as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Parent Stock pursuant hereto. Each
Stockholder represents that such Stockholder has resided, and continues to
reside, in the State of Connecticut at all times since November 8, 1999.
7.4. AMERICAN STOCK EXCHANGE LISTING. Parent agrees to authorize for
listing on the American Stock Exchange, prior to the Effective Time, the shares
of Parent Stock issuable in connection with the Merger and the Contribution,
upon official notice of issuance.
34
<PAGE>
7.5. EXPENSES. Parent and Holdings shall be responsible for their own
costs and expenses in connection with the Merger, including fees and
disbursements of consultants, investment bankers and other financial advisors,
brokers and finders, counsel and accountants. The Company shall be responsible
for its and the Stockholders' costs and expenses in connection with the Merger
and the Contribution, including fees and disbursements of consultants,
investment bankers and other financial advisors, brokers and finders, counsel
and accountants.
7.6. EXCLUSIVITY. From and after the date of this Agreement until the
earlier of the Effective Time and termination of this Agreement in accordance
with Article 10 hereof (the Exclusivity Period), the Company and the
Stockholders shall not, directly or indirectly, through any officer, director,
employee, Affiliate or agent of the Company or any Stockholder, or otherwise,
take any action to solicit, initiate, seek, entertain, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in
any negotiations with, any third party regarding any acquisition of the Company,
any merger or consolidation with or involving the Company, or any acquisition of
any material portion of the stock or assets or the Company. The Company and the
Stockholders agree that in no event shall the Company or any Stockholder accept
or enter into an agreement concerning any such third party acquisition
transaction during the Exclusivity Period. The Company and the Stockholders
shall notify Parent and Holdings immediately after receipt by the Company or any
Stockholder (or any officer, director, employee, Affiliate or agent of the
Company or any Stockholder) at any time during the Exclusivity Period of any
unsolicited proposal for, or inquiry respecting, any third party acquisition
transaction involving the Company or any request for nonpublic information in
connection with such a proposal or inquiry, or for access to the properties,
books or records of the Company by any person, or entity that informs the
Company or any Stockholder that it is considering making, or has made, such a
proposal or inquiry. Such notice to Parent will indicate in reasonable detail
the identity of the person making the proposal or inquiry and the terms and
conditions of such proposal or inquiry.
7.7. TAX-FREE TREATMENT; TAX MATTERS CERTIFICATES. Parent, Holdings and
the Company shall each use all reasonable efforts to cause the Merger and the
Contribution, taken together, to be treated as a transaction described in
Section 351 of the Code. Parent and Holdings, on the one hand, and the Company,
on the other, shall use all reasonable efforts to obtain, as promptly as
practicable following the date hereof and in any event prior to the Effective
Time, such oral or written assurances as it reasonably deems sufficient to
enable it to execute and deliver to the Company, in the case of Parent and
Holdings, or to Parent and Holdings, in the case of the Company, certificates
substantially in the forms set forth in Exhibit E hereto (the "Tax Matters
Certificates") as an exhibit to the tax matters opinions to be delivered at the
Closing in accordance with Section 8.2.6 of this Agreement.
7.8. TRANSFER OF THE WATERTOWN, CONNECTICUT FACILITY AND THE RELATED
MORTGAGE DEBT; LEASES. At or before the Closing, the Company shall transfer and
sell its Watertown, Connecticut facility to one or more Stockholders, or an
entity controlled by one or more of them, in consideration of the assumption by
such buyer or buyers of the mortgage debt currently secured thereby, and shall
cause the transfer or assumption to or by such buyer or buyers of the mortgage
debt currently secured thereby, with no further liability therefor attaching to
the Company or any other corporate party to this Agreement. The sale and
transfer of the Watertown facility shall be permissible under this Agreement
notwithstanding any other provision to the contrary herein. Contemporaneously
with the execution and delivery of this Agreement, the Company and each other
party thereto has executed and delivered leases in the FORMS OF EXHIBIT F,
EXHIBIT G AND EXHIBIT H with respect to the facilities currently owned or leased
by the Company in Watertown and Stamford, Connecticut, such leases to be
effective at the Closing.
35
<PAGE>
7.9. EMPLOYMENT AGREEMENTS. Contemporaneously with the execution and
delivery of this Agreement, Parent and Holdings' wholly owned subsidiary Vermont
Pure Springs, Inc. and each other party thereto has executed and delivered
employment agreements (which shall have the effect of terminating any existing
employment agreements) in the forms attached hereto as Exhibit I, Exhibit J,
Exhibit K, Exhibit L and Exhibit M with, respectively, Timothy Fallon, Bruce
MacDonald, Peter K. Baker, John B. Baker and Henry E.Baker, such employment
agreements to be effective at the Closing.
7.10. LOCK-UP AGREEMENTS. At the Closing, each of the Stockholders
shall have furnished to Parent and Holdings a Lock-Up Agreement, substantially
in the form of Exhibit N, prohibiting until the first anniversary of the Closing
Date the sale, transfer, pledge or other disposition by him or it of the shares
of Parent Stock received in connection with the Contribution.
7.11. BOARD OF DIRECTORS OF PARENT. Prior to the Closing, effective at
the Effective Time, the board of directors of Parent will establish the size of
the full board at nine directors, six of whom shall be current directors of
Holdings, and will elect to the board Peter Baker, Ross Rapaport and Henry
Baker. Subject only to the fiduciary duties of its directors, with respect to
the first annual meeting of stockholders following the Closing, Parent will use
its best efforts to nominate and cause Peter Baker, Ross Rapaport and Henry
Baker to be elected as a member of the Board of Directors.
7.12. DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, and in any event immediately prior to the effective time, each of Holdings
and the Company shall promptly supplement or amend its Disclosure Schedule with
respect to any matter hereafter arising that, if existing, occurring, or known
at the date of this Agreement, would have been required to be set forth or
described in such Disclosure Schedule or that is necessary to correct any
information in such Disclosure Schedule that is or has become inaccurate.
Notwithstanding the foregoing, if any such supplement or amendment discloses a
Material Adverse Effect, the conditions to the other party's obligations to
consummate the Merger and the Contribution set forth in Article 8 hereof shall
be deemed not to have been satisfied.
36
<PAGE>
7.13. REASONABLE EFFORTS. Subject to terms and conditions herein
provided, each of the parties agrees to use all reasonable 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 Merger and the Contribution and the other
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, the Parent, Holdings and the Company each will use all reasonable
efforts to obtain all approvals, authorizations, consents and waivers from, and
give all notices to, any public or private third parties that are necessary on
its part in order to effect the transactions contemplated hereby.
ARTICLE 8
CONDITIONS PRECEDENT
8.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the parties hereto to effect the Merger and the Contribution
shall be subject to the fulfillment at or prior to the Closing of the following
conditions:
8.1.1. NO INJUNCTION. No injunction or restraining or other
order issued by a court of competent jurisdiction that prohibits or materially
restricts the consummation of the Merger, the Contribution or the other
transactions contemplated hereby shall be in effect (each party agreeing to use
all reasonable efforts to have any injunction or other order immediately
lifted), and no action or proceeding shall have been commenced seeking any
injunction or restraining or other order that seeks to prohibit, restrain,
invalidate or set aside consummation of the Merger, the Contribution or any of
the other transactions contemplated hereby.
8.1.2. ILLEGALITY. There shall not have been any action taken,
and no statute, rule or regulation shall have been enacted, by any state or
federal government agency that would prohibit or materially restrict the
consummation of the Merger, the Contribution or the other transactions
contemplated hereby.
8.1.3. PREMERGER NOTIFICATION COMPLIANCE. To the extent
applicable, if any, all requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules promulgated thereunder applicable to the
transactions contemplated hereby shall have been met, including, without
limitation, all necessary filing and waiting requirements, and neither the
United States Department of Justice nor the Federal Trade Commission shall have
raised objection to the transactions contemplated hereby.
8.1.4. STOCKHOLDER APPROVAL. Holdings shall have obtained
the Stockholder Approval specified in Section 7.1.
8.1.5. CREDIT COMMITMENT. The credit commitment of Webster
Bank described in Section 3.28 shall be in full force and effect as of the
Closing Date, and all conditions to the disbursement of funds thereunder in
accordance with the terms and provisions thereof shall have been satisfied.
37
<PAGE>
8.1.6. REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC and at the Closing Date shall
remain effective and shall not be subject to any stop order.
8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT, HOLDINGS,
MERGER SUB, THE COMPANY AND THE STOCKHOLDERS TO EFFECT THE MERGER AND THE
CONTRIBUTION. The obligation of Parent, Holdings and Merger Sub (collectively,
the "VPS Parties") to effect the Merger, and the obligation of the Stockholders
to effect the Contribution, shall be subject to the fulfillment by the Company
and the Stockholders (collectively, the "CRI Parties"), at or prior to the
Closing Date, of each of the indicated conditions below, or the written waiver
of fulfillment of any such indicated condition by the VPS Parties,. The
obligation of the CRI Parties to effect the Contribution shall be subject to the
fulfillment by the VPS Parties, at or prior to the Closing Date, of each of the
indicated conditions below, or the written waiver of fulfillment of any such
indicated condition by the CRI Parties.
8.2.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the VPS Parties or the CRI Parties, as the case may be, set forth
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time, except for changes expressly contemplated by this
Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time; and, without limiting the generality of the foregoing, the VPS Parties and
the CRI Parties, as the case may be, shall have obtained all of the
terminations, consents and waivers set forth in Disclosure Schedule 3.5 to be
obtained by the appropriate party.
8.2.2. AGREEMENTS AND COVENANTS. Each of the VPS Parties, and
each of the CRI Parties, as the case may be, shall have performed in all
material respects all of their agreements and covenants set forth herein that
are required to be performed by it at or prior to the Effective Time.
8.2.3. NO MATERIAL CHANGE. Since the date of this Agreement,
there shall not have been any material damage to or loss or destruction (whether
or not covered by insurance) of any of the properties or assets owned or leased
by the VPS Parties or the Company, as the case may be, nor has there been any
Material Adverse Effect or the imposition of any law, rule, regulation or order
that could reasonably be expected to have a Material Adverse Effect upon the VPS
Parties or the Company, as the case may be.
8.2.4. OFFICERS' CLOSING CERTIFICATE. The VPS Parties shall
have executed and delivered to the CRI Parties, and the CRI Parties shall have
executed and delivered to the VPS Parties, a certificate, duly executed by the
President and the Chief Financial Officer of Parent and Holdings, or duly
executed by the Stockholders and by the President and Chief Financial Officer of
the Company, as the case may be, in form and substance reasonably satisfactory
to the receiving parties and their counsel, that the conditions specified in
Sections 8.2.1, 8.2.2 and 8.2.3 have been satisfied.
8.2.5. LEGAL OPINION. The VPS Parties shall have received
opinions from Ross Rapaport, Esq., and Bingham Dana LLP, respectively, counsel
to the CRI Parties, reasonably satisfactory in form and substance to the VPS
Parties and their counsel; and the CRI Parties shall have received an opinion
from Foley, Hoag & Eliot LLP, counsel to the VPS Parties, reasonably
satisfactory in form and substance to the CRI Parties and their counsel.
38
<PAGE>
8.2.6. TAX MATTERS OPINION. The VPS Parties shall have
received a favorable opinion from Foley, Hoag & Eliot LLP, special tax counsel
to the VPS Parties, and the CRI Parties shall have received a favorable opinion
of Bingham Dana LLP, special tax counsel to the CRI Parties, in each case with
respect to matters under Section 351 of the Code. In rendering such opinions,
counsel shall be entitled to request, receive and rely upon certificates
regarding tax matters containing representations, warranties and covenants that
are customary for transactions of this nature.
8.2.7. DELIVERY OF CERTIFICATE OF MERGER. The obligations of
the CRI Parties shall be subject to the condition that the constituent
corporations to the Merger shall have duly executed and delivered the
Certificate of Merger for filing with the Secretary of State of Delaware.
8.2.8. TENDER OF COMPANY COMMON STOCK. The obligations of the
VPS Parties shall be subject to the condition that each of the Stockholders
shall have tendered his or its certificates evidencing Company Common Stock as
described in Section 2.5.1.
8.2.9. DELIVERY OF EMPLOYMENT AGREEMENTS BY HOLDINGS OFFICERS.
The obligations of the CRI Parties shall be subject to the condition that each
of Timothy Fallon and Bruce MacDonald shall have executed and delivered the
employment agreements described in Section 7.9. The transactions contemplated
hereby shall not have triggered, and shall have no remaining potential to
trigger, any contractual obligation on the part of Parent, the Surviving
Corporation or any Subsidiary of the Surviving Corporation to make any
compensation or other similar payments to the directors, officers or employees
of any of them; and neither Parent nor the Surviving Corporation or any
Subsidiary of the Surviving Corporation shall have any obligation to provide any
severance benefits to any of their employees in connection with any termination
of their employment.
8.2.10. DELIVERY OF EMPLOYMENT AGREEMENTS BY COMPANY OFFICERS
AND LOCK-UP AGREEMENTS BY THE STOCKHOLDERS. The obligations of the VPS Parties
shall be subject to the condition that each of Peter Baker, Jack Baker and Henry
Baker shall have executed and delivered the employment agreements described in
Section 7.9, and to the further condition that each Stockholder shall have
executed and delivered the Lock-Up Agreement described in Section 7.10. Each
officer and each member of the board of directors of the Company shall have
resigned as an officer or director of the Company, as the case may be, effective
as of the Effective Time. The transactions contemplated hereby shall not have
triggered, and shall have no remaining potential to trigger, any contractual
obligation on the part of Parent, the Surviving Corporation or any Subsidiary of
the Surviving Corporation, or the Company to make any compensation or other
similar payments to the directors, officers or employees of any of them; and
neither Parent nor the Surviving Corporation or any Subsidiary of the Surviving
Corporation nor the Company shall have any obligation to provide any severance
benefits to any of their employees in connection with any termination of their
employment.
39
<PAGE>
8.2.11. REAL PROPERTY TRANSFER AND LEASES. The obligations of
the VPS Parties shall be subject to the condition that the Company shall have
transferred its Watertown, Connecticut facility and the related indebtedness as
contemplated by Section 7.8, and the Company shall have entered into the leases
described in Section 7.8 effective as of the Closing.
8.2.12. PROCEEDINGS AND CLOSING DOCUMENTS SATISFACTORY. All
proceedings in connection with the Merger, the Contribution and the other
transactions contemplated by this Agreement, and all certificates and documents
delivered by the VPS Parties or the CRI Parties pursuant to this Agreement shall
be reasonably satisfactory to the CRI Parties or the VPS Parties, as the case
may be, and their counsel.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
9.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants, agreements and promises of the parties
in this Agreement and any schedule, certificate or other writing delivered
pursuant hereto or in connection herewith, other than those that by their terms
are to be performed by Parent, the Surviving Corporation, the Company or the
Stockholders after the Effective Time or after the Contribution, as the case may
be, and other than as set forth in Section 10.2, shall terminate as of, and
shall not survive, the consummation of the Merger and the Contribution or the
termination of this Agreement. Notwithstanding the foregoing, representations,
warranties and covenants in the Tax Matters Certificates shall survive the
consummation of the Merger and the Contribution.
ARTICLE 10
TERMINATION
10.1. TERMINATION EVENTS. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time, notwithstanding
approval of the stockholders of Holdings:
(a) by mutual written consent of Holdings and the Company;
(b) by Holdings if there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Stockholders and such breach has not been cured within ten (10)
business days after written notice to the Company or the stockholders, as the
case may be (provided that neither Parent nor Merger sub is in material breach
of the terms of this agreement, and provided further, that no cure period shall
be allowed for a breach which by its nature cannot be cured) such that the
conditions set forth in Article 8 required to be satisfied on the part of the
Company or the Stockholders, as the case may be, will not be satisfied;
40
<PAGE>
(c) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent, Holdings or Merger Sub and such breach has not been cured
within ten (10) business days after written notice to parent (provided that
neither the Company nor the Stockholders is in material breach of The terms of
this Agreement, and provided further, that no cure period shall be allowed for a
breach which by its nature cannot be cured) such that the conditions set forth
in Article 8 required to be satisfied on the part of Parent, Holdings or Merger
Sub, as the case may be, will not be satisfied;
(d) by any party hereto if: (i) there shall be a final, non-appealable
order of a federal or state court in effect preventing consummation of the
Merger or the Contribution, or (ii) there shall be any final action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger or the Contribution by any Governmental Entity which
would make consummation of the Merger or the Contribution illegal or which would
prohibit Parents ownership or operation of all or a material portion of the
business or assets of the Company, or compel Parent to dispose of or hold
separate all or a material portion of the business or assets of the Company or
Parent as a result of the Merger or the Contribution; or
(e) by any party hereto if the merger shall not have been consummated by
August 31, 2000, provided that the right to terminate this Agreement under this
Section 10.1(e) shall not be available to any party whose failure to fulfill any
material obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date.
Where action is taken to terminate this Agreement pursuant to this
Section 10.1, such action shall be authorized by the board of directors of the
party taking such action.
10.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 10.1 hereof, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of the
Parent, Holdings, Merger Sub, the Company, the Stockholders or their respective
officers, directors, stockholders or Affiliates, except to the extent that a
party hereto is in breach of any of its representations, warranties, covenants
or agreements set forth in this Agreement, and provided that the provisions of
Sections 6.6 and 7.5 hereof and Articles 9 and 11 hereof shall remain in full
force and effect and survive any termination of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended,
modified or supplemented by the parties hereto in any manner, except (i) prior
to the Effective Time, to the fullest extent permissible under Section 251(d) of
the DGCL, by an agreement in writing signed by Parent, Holdings, Merger Sub, the
Company and the Stockholders, and (ii) after the Effective Time, by an agreement
in writing signed by Parent and the Stockholders.
41
<PAGE>
11.2. WAIVER. The terms and conditions of this Agreement may be waived
only by a written instrument signed by the party waiving compliance. The failure
of any party hereto to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or any part hereof or the
right of such party thereafter to enforce each and every such provision. No
waiver of any breach of or non-compliance with this Agreement shall be held to
be a waiver of any other or subsequent breach or non-compliance. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity.
11.3. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of the State of Delaware,
without regard to its principles of conflicts of laws.
11.4. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered by hand, sent by facsimile
transmission with confirmation of receipt, sent via a reputable overnight
courier service with confirmation of receipt requested, or mailed by registered
or certified mail (postage prepaid and return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
TO HOLDINGS, PARENT OR MERGER SUB:
Vermont Pure Holdings, Ltd.
P.O. Box C
Route 66, Catamount Industrial Park
Randolph, Vermont 05060
Facsimile: (802) 728-4614
Attn: Chairman and Chief Executive Officer
42
<PAGE>
With a copy to:
Dean F. Hanley, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
TO THE COMPANY:
Crystal Rock Spring Water Company
1050 Buckingham Street
Watertown, Connecticut 06795
Facsimile: (860) 945-6246
Attn: President
With a copy to:
Brian Keeler, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 951-8736
TO THE STOCKHOLDERS:
Henry E. Baker
c/o Crystal Rock Spring Water Company
1050 Buckingham Street
Watertown, Connecticut 06795
Peter K. Baker
c/o Crystal Rock Spring Water Company
1050 Buckingham Street
Watertown, Connecticut 06795
43
<PAGE>
John B. Baker
c/o Crystal Rock Spring Water Company
1050 Buckingham Street
Watertown, Connecticut 06795
Joan A. Baker
c/o Crystal Rock Spring Water Company
1050 Buckingham Street
Watertown, Connecticut 06795
Peter K. Baker Life Insurance Trust, Ross S. Rapaport, Trustee
750 Summer Street
Stamford, Connecticut 06901
John B. Baker Life Insurance Trust, Ross S. Rapaport, Trustee
750 Summer Street
Stamford, Connecticut 06901
Ross S. Rapaport, Trustee U/T/A dated 12/16/91 F/B/O Joan
Baker et al.
750 Summer Street
Stamford, Connecticut 06901
With a copy to:
Brian Keeler, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 951-8736
11.5. ENTIRE AGREEMENT. This Agreement and the documents and
instruments and other agreements among the parties hereto as contemplated by or
referred to herein constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, excluding the Mutual Agreement of Confidentiality
dated November 8, 1999 by and between Holdings and the Company. Each party
hereto acknowledges that, in entering into this Agreement and completing the
transactions contemplated hereby, such party is not relying on any
representation, warranty, covenant or agreement not expressly stated in this
Agreement or in the agreements, certificates and other documents among or
between the parties contemplated by or referred to herein.
11.6. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement is not intended to confer upon any person
other than the parties hereto (and such parties' respective successors and
assigns) any rights or remedies hereunder, except as otherwise expressly
provided herein. Neither this Agreement nor any of the rights and obligations of
the parties hereunder shall be assigned or delegated, whether by operation of
law or otherwise, without the written consent of all parties hereto, except that
certain rights and obligations of Merger Sub and the Holdings will by operation
of law be assigned and delegated to the Surviving Corporation as a result of the
Merger without any further consent hereunder.
44
<PAGE>
11.7. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
11.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same agreement.
* * * * *
45
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger and Contribution to be executed as an agreement under seal as of the date
first above written.
VERMONT PURE HOLDINGS, LTD.
By: ____________________________
Title:
VP MERGER PARENT, INC.
By: ____________________________
Title:
VP ACQUISITION CORP.
By: ____________________________
Title:
CRYSTAL ROCK SPRING WATER COMPANY
By: ____________________________
Title:
/S/ HENRY E. BAKER
--------------------------------
HENRY E. BAKER
/S/ JOAN A. BAKER
--------------------------------
JOAN A. BAKER
/S/ PETER K. BAKER
--------------------------------
PETER K. BAKER
/s/ JOHN B. BAKER
--------------------------------
JOHN B. BAKER
46
<PAGE>
/S/
--------------------------------
PETER K. BAKER LIFE INSURANCE TRUST,
ROSS RAPAPORT, TRUSTEE (AND NOT INDIVIDUALLY)
/s/
--------------------------------
JOHN B. BAKER LIFE INSURANCE TRUST,
ROSS RAPAPORT, TRUSTEE (AND NOT INDIVIDUALLY)
/s/
--------------------------------
ROSS RAPAPORT, TRUSTEE U/T/A DATED
12/16/91 F/B/O JOAN BAKER ET AL.
(AND NOT INDIVIDUALLY)
47
<PAGE>
LIST OF EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Certificate of Incorporation of Parent
Exhibit C By-laws of Parent
Exhibit D Table of Cash, Parent Stock and Subordinated Notes
Payable to each of the Stockholders
Exhibit E Forms of Tax Matters Certificate
Exhibit F Watertown Lease
Exhibit G Stamford Ground Lease
Exhibit H Stamford Building Lease
Exhibit I Employment Agreement with Tim Fallon
Exhibit J Employment Agreement with Bruce MacDonald
Exhibit K Employment Agreement with Peter Baker
Exhibit L Employment Agreement with Jack Baker
Exhibit M Employment Agreement with Henry Baker
Exhibit N Form of Lock-Up Agreement
48
