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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report - November 12, 1996
(Date of Earliest Event Reported) - (October 29, 1996)
Computational Systems, Incorporated
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Tennessee 0-26596 62-1198047
- ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
835 Innovation Drive
Knoxville, Tennessee 37932
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (423) 675-2110
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets
On October 28, 1996, Computational Systems,
Incorporated (the "Company) acquired Maintenance &
Diagnostics, LLC ("M&D"), and the rights to use certain
technology from a third party, for approximately $7.6
million payable in a combination of cash and stock. The
purchase price consisted of $3.88 million in cash to owners
of M&D ( a portion of which will be paid on January 2,
1997). The purchase price also consisted of an aggregate of
51,047 shares of CSI common stock to the owners of M&D and
49,805 shares to the third party ( for the rights to use
certain technology and other rights). The Company also
repaid $1.48 million for amounts owed under M&D's line of
credit agreement with one of its owners. CSI also issued
options to acquire an aggregate of 150,000 shares of CSI
common stock at current fair market value to certain of the
owners of M&D (such options are valued at approximately
$750,000). M&D operates a research, service and training
center for the electric power industry.
Item 7. Financial Statements, Pro Forma Information and
Exhibits.
a. In accordance with instruction (a)(4) to this Item: the
financial statements of M&D are currently being prepared and
will be filed by amendment to this Form 8-K within sixty days
of the date of this Form 8-K.
b. In accordance with instruction (a)(4) to this Item: the
pro forma financial information required to be filed by
Article 11 of Regulation S-X is currently being prepared and
will be filed by amendment to this Form 8-K within sixty days
of the date of this Form 8-K
c. Exhibits:
(2) Agreement and Plan of Merger dated October
28, 1996 among Computational Systems, Incorporated,
Paragon Services, Inc. and Maintenance & Diagnostics, L.L.C.
(99) Press release dated October 29, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
COMPUTATIONAL SYSTEMS, INCORPORATED
Date: November 12, 1996 By: /s/ Ronald G. Canada
-----------------------------------
Ronald G. Canada, Chairman and
Chief Executive Officer
By: /s/ Bryan J. Collier
-----------------------------------
Bryan J. Collier, Vice President of
Finance and Chief Financial Officer
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Exhibit Index
Sequential
Item Description Page No.
---------- ------------------------------------- ----------
(2) Acquisition Agreement
(99) Press release dated October 29, 1996
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
among
COMPUTATIONAL SYSTEMS, INCORPORATED,
PARAGON SERVICES, INC.
and
MAINTENANCE & DIAGNOSTICS, L.L.C.
Dated as of October 28, 1996
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Table of Contents
ARTICLE 1.THE MERGER
1.1 The Merger.
1.2 The Closing.
1.3 Effective Time.
ARTICLE 2.CHARTER AND BYLAWS AND OFFICERS AND DIRECTORS OF THE SURVIVING
CORPORATION
2.1 Charter.
2.2 Bylaws.
2.3 Directors.
2.4 Officers.
ARTICLE 3.CONSIDERATION AND ESCROW
3.1 Merger Consideration.
3.2 Escrow Fund.
ARTICLE 4.ACQUISITION OF M&D MEMBERSHIP INTERESTS
4.1 Acquisition of Membership Interests.
4.2 Stock Splits, Etc. of CSI Common Stock.
4.3 Bogan Payoff.
ARTICLE 5.REPRESENTATIONS AND WARRANTIES OF M&D
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law.
5.2 Authorization, Validity and Effect of Agreements.
5.3 Capitalization.
5.4 Prior Sales of Membership Interests.
5.5 Subsidiaries.
5.6 Other Interests.
5.7 No Violation.
5.8 Financial Statements.
5.9 No Material Adverse Changes.
5.10 Tax Matters.
5.11 Employees and Fringe Benefit Plans.
5.12 Assets; Leaseholds.
5.13 No Subleases or Licenses.
5.14 Intellectual Property
5.15 Compliance with Applicable Law
5.16 Product Warranties
5.17 Contracts and Commitments
5.18 Accounts Receivable
5.19 Orders, Commitments and Returns
5.20 Customers and Suppliers
5.21 Premises.
5.22 No Litigation.
5.23 Company Records.
5.24 No Defaults.
5.25 Hazardous Substances.
5.26 Labor Matters.
5.27 No Brokers.
5.28 Full Disclosure.
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ARTICLE 6.REPRESENTATIONS AND WARRANTIES OF CSI AND MERGER SUB
6.1 Existence; Good Standing; Corporate Authority;
Compliance With Law.
6.2 Authorization, Validity and Effect of Agreements.
6.3 Capitalization.
6.4 Subsidiaries.
6.5 No Violation.
6.6 SEC Documents.
6.7 Litigation.
6.8 Taxes.
6.9 Absence of Certain Changes.
6.10 No Brokers.
6.11 CSI Common Stock.
6.12 Full Disclosure.
ARTICLE 7.COVENANTS
7.1 Covenants of CSI and M&D.
7.2 Covenants of M&D.
7.3 Covenants of CSI.
ARTICLE 8.CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect
the Merger.
8.2 Conditions to Obligation of M&D to Effect the
Merger.
8.3 Conditions to Obligation of CSI and Merger Sub to
Effect the Merger.
ARTICLE 9.SURVIVAL OF REPRESENTATIONS
9.1 Survival of Representations.
9.2 Statements as Representations.
9.3 Remedies Cumulative.
ARTICLE 10.TERMINATION
10.1 Termination by Mutual Consent.
10.2 Termination by Either CSI or M&D.
10.3 Termination by M&D.
10.4 Termination by CSI.
10.5 Effect of Termination and Abandonment.
10.6 Extension; Waiver.
ARTICLE 11.GENERAL PROVISIONS
11.1 Notices.
11.2 Assignment, Binding Effect; Benefit.
11.3 Entire Agreement.
11.4 Amendment.
11.5 Governing Law.
11.6 Counterparts.
11.7 Headings.
11.8 Interpretation.
11.9 Waivers.
11.10 Incorporation of Exhibits.
11.11 Severability.
11.12 Expenses.
11.13 Enforcement of Agreement.
11.14 Press Releases.
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is
executed as of the 28th day of October, 1996, by and among
Computational Systems, Incorporated, a Tennessee corporation
("CSI"), Paragon Services, Inc. a Tennessee corporation and
wholly owned subsidiary of CSI ("Merger Sub"), and Maintenance
& Diagnostics, L.L.C., a Delaware limited liability company
("M&D").
RECITALS
A. The Board of Directors of CSI and Executive
Committee of M&D each have determined that a business combination
between CSI and M&D is in the best interests of their respective
companies and shareholders and members, respectively, and
presents an opportunity for their respective companies to enhance
the service provided to consumers and achieve long-term strategic
and financial benefits, and accordingly have agreed to effect
the merger provided for herein upon the terms and subject to
the conditions set forth herein.
B. CSI, Merger Sub and M&D desire to make certain
representations, warranties and agreements in connection with
the merger.
NOW, THEREFORE, in consideration of the foregoing, and of
the representations, warranties, covenants and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined in Section 1.3),
M&D shall be merged with and into Merger Sub in
accordance with this Agreement and the separate existence of
M&D shall thereupon cease (the "Merger"). Merger Sub shall be
the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall be a
wholly owned subsidiary of CSI. The Merger shall have the
effects specified in Section 6-18-209 of the Delaware Code
Annotated ("DCA") and Section 48-21-108 of the Tennessee Code
Annotated ("TCA").
1.2 The Closing. Subject to the terms and conditions of
this Agreement, the closing of the Merger (the "Closing") shall
take place (a) at the offices of Bass, Berry & Sims PLC, 2700
First American Center, Nashville, Tennessee, at 9:00 a.m.,
local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the
conditions set forth in Article 7 shall be fulfilled or waived
in accordance herewith or (b) at such other time, date or
place as CSI and M&D may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
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1.3 Effective Time. If all the conditions to the Merger
set forth in Article 7 shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been
terminated as provided in Article 8, the parties hereto shall
cause a Certificate of Merger meeting the requirements of
Section 6-18-209 of the DCA to be properly executed and filed
in accordance with such Section on the Closing Date. The
Merger shall become effective at the time of filing of the
Certificate of Merger or at such later time which the parties
hereto shall have agreed upon and designated in such filing as
the effective time of the Merger (the "Effective Time").
ARTICLE 2.
CHARTER AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 Charter. The Charter of Merger Sub in effect immediately
prior to the Effective Time shall be the Charter of
the Surviving Corporation, until duly amended in accordance
with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub in effect
immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation, until duly amended in accordance
with applicable law.
2.3 Directors. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time.
2.4 Officers. The officers of Merger Sub immediately
prior to the Effective Time shall be the officers of the
Surviving Corporation as of the Effective Time.
ARTICLE 3.
CONSIDERATION AND ESCROW
3.1 Merger Consideration. The consideration for the
merger (collectively, the "Merger Consideration") shall be as follows:
(a) $1,494,750 in cash payable to the persons or
the entities and in the individual amounts as set forth on Schedule 3.1(a)
hereto, to be paid by CSI at Closing;
(b) interest bearing notes to be issued by CSI and
delivered to the payees at Closing in an aggregate principal amount of
$2,385,250 due January 2, 1997, payable in the names and in the individual
principal amounts set forth on Schedule 3.1(b) hereto (collectively the
"Notes") in the form attached hereto as Exhibit A, which Notes shall be
secured by irrevocable bank letters of credit issued by First American
National Bank in the form attached hereto as Exhibit B (the "Letter of
Credit") and delivered by CSI to the designated beneficiaries thereof
at Closing;
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(c) options granted by CSI on the Closing Date (the
"Options") to purchase an aggregate of 3,750 shares of common stock
<PAGE>
no par value (the "Common Stock") to Bogan, Inc., a Pennsylvania
corporation, ("Bogan"), which Options shall be immediately exercisable
in full, shall have a term of ten (10) years from the Closing Date,
and shall be evidenced by an individual option agreement in the form
attached hereto as Exhibit C (the "Option Agreement"); and
(d) an aggregate of 51,047 shares (the "Shares") of
CSI's Common Stock, of which 23,341 whole shares plus cash in lieu of
fractional shares based upon a per share price of $16.0625 (the "Share
Price") will be issued and delivered as set forth in Section 3.2(a) at
Closing, and 27,706 whole shares plus cash in lieu of fractional
shares will be issued and delivered on January 2, 1997, in each case
to the persons and in the individual amounts as set forth on
Schedule 3.1(d) hereto;
3.2 Escrow Fund.
(a) At the Closing, pursuant to an Indemnity and
Escrow Agreement, in the form attached hereto as Exhibit D (the
"Escrow Agreement"), the parties shall establish an escrow fund
(the "Escrow Fund") comprised of $125,000 in cash (the "Escrow
Cash") and 23,341 shares of CSI Common Stock (the "Escrow Shares")
issuable to the members of M&D (each a "Member" and collectively
the "Members") at the Effective Time pursuant to Section 3.1.
The cash and Common Stock shall be contributed to the Escrow Fund
in accordance with Schedule 3.2. The Escrow Fund shall be
maintained for the purposes of satisfying claims by CSI for
indemnification under the Escrow Agreement for the periods
specified therein (the "Escrow Period").
(b) Upon expiration of the Escrow Period, and
subject to the terms of Section 3.2(c) and Article 9 and the
Escrow Agreement, the escrow agent under the Escrow Agreement
(the "Escrow Agent") shall deliver or cause to be delivered to
each Member a share certificate representing the number of
shares of CSI Common Stock contributed to the Escrow Fund by
such Member as set forth on Schedule 3.2 together with cash in
lieu of any fractional shares, and shall deliver to each Member
that contributed cash to the Escrow Fund as set forth on
Schedule 3.2, such cash amounts.
(c) If, upon expiration of the Escrow Period, CSI
shall have asserted a claim for indemnity in accordance with
the Escrow Agreement and such claim is pending or unresolved
at the time of such expiration, the Escrow Agent shall retain
in escrow, and withhold from delivery to each Member, each
Member's pro rata portion (the "Pro Rata Portion") of the
value of the good faith asserted amount of the claim until such
matter is resolved. If it is finally determined that CSI is
entitled to recover on account of such claim, the Escrow Agent
shall deliver or cause to be delivered to CSI that number of
Escrow Shares plus an amount of Escrow Cash, in proportion
to the aggregate value of Escrow Cash and Escrow Shares
initially contributed to the Escrow Fund by each Member,
equal to the amount due and payable with respect to such
claim (applied against each Member's Pro Rata Portion). The
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remainder of each Member's Pro Rata Portion, if any, following
any delivery of Escrow Cash or Escrow Shares from the Escrow
Fund to CSI in accordance with this Section 3.2(c) and the
Escrow Agreement, shall be delivered to each Member pursuant
to this Agreement, without interest. For purposes of this
Section 3.2(c), a final determination with respect to a claim
will occur only as provided in the Escrow Agreement. For
purposes of this Section 3.2 and Article 9, each share of
CSI Common Stock in the Escrow Fund shall be deemed to have a
value equal to the Share Price, and such value shall apply
throughout the duration of the Escrow Period.
(d) The right to receive Escrow Shares or Escrow
Cash upon expiration of the Escrow Period is an integral
part of the Merger Consideration, and shall not be
transferable or assignable by, but shall inure to the
benefit of the heirs, representatives, or estate of, any Member.
(e) Each Member shall have the right under the
Escrow Agreement to exchange up to the number of Escrow Shares
contributed by such Member by contributing to the Escrow Fund
cash equal to the Share Price for each Escrow Share exchanged.
ARTICLE 4.
ACQUISITION OF M&D MEMBERSHIP INTERESTS
4.1 Acquisition of Membership Interests. At the
Effective Time, the entire right, title and interest in M&D
held by each Member, including, but not limited to, a Member's
share in the profits and losses and the rights to receive
distributions of M&D assets and to participate in the
management affairs and governance of M&D and including, but
not limited to, the Limited Liability Interests as defined in
DCA 6-18-1018 (collectively, the "Membership Interests") shall
be converted into the right to receive the Merger
Consideration payable to such Member as set forth herein.
4.2 Stock Splits, Etc. of CSI Common Stock. In the
event CSI changes the number of shares of CSI Common Stock
issued and outstanding prior to the Effective Time as a result
of a stock split, stock dividend, recapitalization,
reorganization or any other transaction in which any security
of CSI or any other entity or cash is issued or paid in
respect of the outstanding shares of CSI Common Stock and the
record date therefor is after the date of this Agreement and
prior to the Effective Time, the number of Shares that each
Member shall receive and each Option any such Member shall
receive shall be proportionately adjusted as to number of
shares of Common Stock (owned or subject to option) in each
case, and as to the exercise price in the case of Options. In
lieu of issuing any fractional shares of CSI Common Stock as a
result of any such transactions, cash will be paid based
upon the Share Price per whole share in the case of Shares and
the number of shares of Common Stock issuable upon the
exercise of Options shall be rounded to the next highest whole
number.
<PAGE>
4.3 Bogan Payoff. At Closing, CSI shall pay Bogan
$1,483,804.87 which is the amount estimated by Bogan to be due
and owing to it, and shall use its reasonable efforts to
release Bogan from M&D obligations it has guaranteed, as set
forth Schedule 4.3. During the 30 days from the date hereof,
CSI and Bogan shall verify the estimated amount paid pursuant
to this provision and shall settle any amounts that may be
owing to the other.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF M&D
Except as set forth in the disclosure letter delivered
prior to the execution hereof to CSI (the "M&D Disclosure
Letter"), M&D represents and warrants to CSI as of the date of
this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law. M&D is a limited liability company
("LLC"), duly organized, validly existing and in good standing
under the laws of the State of Delaware. M&D is duly licensed
or qualified to do business as a foreign LLC and is in good
standing under the laws of any other state of the United
States in which the character of the properties owned or
leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the
failure to be so qualified would not have a material adverse
effect on the business, results of operations or financial
condition of M&D (a "M&D Material Adverse Effect"). M&D has
all requisite corporate power and authority to own, operate
and lease its properties and carry on its business as now
conducted. M&D is not in violation of any order of any court,
governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which
M&D or any of its properties or assets is subject, where such
violation would have a M&D Material Adverse Effect. M&D has
obtained all licenses, permits and other authorizations and
has taken all actions required by applicable law or governmental
regulations in connection with its business as now
conducted, except where such failure to obtain the same would not
have a M&D Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements.
M&D has the full corporate power and authority to execute and
deliver this Agreement and all agreements and documents
contemplated hereby. Subject only to the approval of this
Agreement and the transactions contemplated hereby by the
holders of the outstanding Membership Interests of M&D, the
consummation by M&D of the transactions contemplated hereby
has been duly authorized by all requisite action of the
members or managers, if any. This Agreement constitutes, and
all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto for value received)
will constitute, the valid and legally binding obligations of
M&D, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general
principles of equity.
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5.3 Capitalization. The authorized Membership Interests
of M&D consists of 100 membership units. M&D has no
outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are
convertible into or exercisable for securities having the
right to vote) with the members of M&D on any matter. All
outstanding Membership Interests in M&D are duly authorized
and free of preemptive rights. There are no options,
warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate M&D to
issue, transfer or sell any Membership Interests of M&D that
will not be terminated at or before the Closing. The
Company's Employee Profit Share Rights Plan has been
terminated, and there are no outstanding rights held by any
person or entity pursuant to such plan or any similar plan.
5.4 Prior Sales of Membership Interests. All offers and
sales of Membership Interests in M&D prior to the date hereof
were at all relevant times exempt from the registration
requirements of the Securities Act of 1933, as amended, and
were duly registered or the subject of an available exemption
from the registration requirements of the applicable state
securities or Blue Sky laws, or the relevant statutes of
limitations have expired, or civil liability therefor has
been eliminated by an offer to rescind.
5.5 Subsidiaries. M&D has no subsidiaries of any kind
or nature (for purposes of this agreement, the term
"subsidiaries" shall be deemed to include any corporation,
partnership, joint venture, limited liability company or other
form of entity).
5.6 Other Interests. M&D does not own directly or
indirectly any interest or investment in any corporation,
partnership, joint venture, business, trust or other entity.
5.7 No Violation. After approval by requisite
membership vote, neither the execution and delivery by M&D of
this Agreement nor the consummation by M&D of the transactions
contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of
the Certificate of Formation or Limited Liability Company
Agreement (each as defined in DCA 6-18-101) of M&D; (ii)
conflict with, result in a breach of any provision of or the
modification or termination of, constitute a default under, or
result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the assets of M&D
pursuant to any material commitment, lease, contract, or other
material agreement or instrument to which M&D is a party; or
(iii) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule or regulation applicable to
M&D, the violation of which would have a M&D Material Adverse
Effect.
5.8 Financial Statements. M&D has delivered its audited
financial statements for the year ended December 31, 1995 and
unaudited interim financial statements for each quarter
subsequent thereto (collectively, the "Financial Statements").
Each of the balance sheets provided to CSI (including any
<PAGE>
related notes and schedules) fairly presents the financial
position of M&D as of its date and each of the statements of
income, retained earnings and cash flows provided to CSI
(including any related notes and schedules) fairly presents
the results of operations, retained earnings or cash flows of
M&D for the periods set forth therein (subject, in the case of
unaudited statements, to the omission of footnotes and to
normal year-end audit adjustments which would not be material
in amount or effect) in each case in accordance with generally
accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. Such
financial statements have been prepared from the books and
records of M&D which accurately and fairly reflect the
transactions and dispositions of the assets of M&D. As of
December 31, 1995 or any subsequent date for which a balance
sheet is provided, M&D did not have material liabilities,
contingent or otherwise, whether due or to become due, known
or unknown, other than as indicated on the balance sheet of
such date or the notes thereto. M&D has adequately funded all
accrued employee benefit costs and such funding (to the date
thereof) is reflected in the balance sheet.
5.9 No Material Adverse Changes. Since December 31,
1995, there has not been (i) any material adverse change
in the financial condition, results of operations, business,
prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of M&D,
except for changes in the ordinary course of business
consistent with historical experience resulting from the
seasonal nature of M&D's business; (ii) any extraordinary
dividend declared or paid or distribution made on the
Membership Interests of M&D, or any Membership Interests
thereof redeemed or repurchased; (iii) any incurrence of long
term debt; (iv) any salary, bonus or compensation increases to
any officers, employees or agents of M&D, other than customary
increases; (v) any pending or threatened labor disputes or
other labor problems against or potentially affecting M&D; or
(vi) any other transaction entered into by M&D, except in the
ordinary course of business and consistent with past practice.
5.10 Tax Matters. M&D has duly paid all taxes and other
charges (whether or not shown on any tax return) due or
claimed to be due from it by federal, foreign, state or local
taxing authorities; and true and correct copies of all tax
reports and returns relating to such taxes and other charges
for the fiscal years from 1991 through 1995 have been
heretofore delivered to CSI. The reserves for taxes contained
in the Financial Statements and carried on the books of M&D
(other than any reserve for deferred taxes established to
reflect timing differences between book and tax income) are
adequate to cover all tax liabilities as of the date of this
Agreement. Since December 31, 1995, M&D has not incurred any
tax liabilities other than in the ordinary course of business;
there are no tax liens (other than liens for current taxes not
yet due) upon any properties or assets of M&D (whether real,
personal or mixed, tangible or intangible), and, except as
reflected in the financial statements, there are no pending or
threatened questions or examinations relating to, or claims
asserted for, taxes or assessments against M&D. M&D has not
<PAGE>
granted or been requested to grant any extension of the
limitation period applicable to any claim for taxes or
assessments with respect to taxes. M&D is not a party to any
tax allocation or sharing agreement. If M&D has ever been a
member of an affiliated group within the meaning of Section
1504 of the Code filing a consolidated federal income tax
return (an "Affiliated Group"), each such Affiliated Group has
filed all tax returns that it was required to file for each
taxable period during which M&D was a member of the Affiliated
Group, and has paid all taxes owed by the Affiliated Group
(whether or not shown on the tax return) for each taxable
period during which M&D was a member of the Affiliated Group.
M&D has no liability for the taxes of any Affiliated Group
under Treasury Regulation 1.1502-6 (or any similar provision
of state, local or foreign law). M&D 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 or shareholder. For purposes
of this Agreement, "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 Section 59A of
the Internal Revenue Code of 1986, as amended ("Code")),
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.
5.11 Employees and Fringe Benefit Plans.
(a) The M&D Disclosure Letter sets forth the names,
ages and titles of all members of the Executive Committee,
officers and managers of M&D and all employees of M&D earning
in excess of $50,000 per annum, and the annual rate of
compensation (including bonuses) being paid to each such member
of the Executive Committee, officer, manager and employee as of
the most recent practicable date.
(b) The M&D Disclosure Letter lists each
employment, bonus, deferred compensation, pension, stock
option, stock appreciation right, profit-sharing or retirement
plan, arrangement or practice, each medical, vacation, retiree
medical, severance pay plan, and each other agreement or fringe
benefit plan, arrangement or practice, of M&D, whether legally
binding or not, which affects one or more of its employees,
including all "employee benefit plans" as defined by Section
3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (collectively, the "Plans"). All Plans
which are subject to Title IV of ERISA or the minimum
funding standards of Section 412 of the Code shall be referred
to as the "Pension Plans."
(c) For each Plan which is an "employee benefit plan"
under Section 3(3) of ERISA, M&D has delivered to CSI correct
and complete copies of the plan documents and
summary plan descriptions, the most recent determination
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letter received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts and funding agreements which implement each such Plan.
(d) M&D does not have any commitment, whether
formal or informal and whether legally binding or not,
(i) to create any additional such Plan; (ii) to modify
or change any such Plan; or (iii) to maintain for any
period of time any such Plan. The M&D Disclosure Letter
contains an accurate and complete description of the funding
policies (and commitments, if any) of M&D with respect to each
such existing Plan.
(e) M&D has no unfunded past service liability in
respect of any of its Plans; the actually computed value of
vested benefits under any Pension Plan of M&D (determined in
accordance with methods and assumptions utilized by the
Pension Benefit Guaranty Corporation ("PBGC") applicable to a
plan terminating on the date of determination) does not exceed
the fair market value of the fund assets relating to such
Pension Plan; neither M&D nor any Plan nor any trustee,
administrator, fiduciary or sponsor of any Plan has engaged in
any prohibited transactions as defined in Section 406 of ERISA
or Section 4975 of the Code for which there is no statutory
exemption in Section 408 of ERISA or Section 4975 of the Code;
all filings, reports and descriptions as to such Plans (including
Form 5500 Annual Reports, Summary Plan Descriptions, PBGC-1's
and Summary Annual Reports) required to have been made or
distributed to participants, the Internal Revenue Service, the
United States Department of Labor and other governmental
agencies have been made in a timely manner or will be made on
or prior to the Closing Date; there is no material litigation,
disputed claim, governmental proceeding or investigation
pending or to the knowledge of M&D, threatened with respect
to any of such Plans, the related trusts, or any fiduciary,
trustee, administrator or sponsor of such Plans; such Plans
have been established, maintained and administered in all
material respects in accordance with their governing documents
and applicable provisions of ERISA and the Code and Treasury
Regulations promulgated thereuder; there has been no "Reportable
Event" as defined in Section 4043 of ERISA with respect to any
Pension Plan that has not been waived by the Pension Benefit
Guaranty Corporation; and each Pension Plan and each Plan which
is intended to be a qualified plan under Section 401(a) of the
Code has received, within the last three years, a favorable
determination letter from the Internal Revenue Service.
(f) M&D has complied in all material respects with
all applicable federal, state and local laws, rules and
regulations relating to employees' employment and/or
employment relationships, including, without limitation,
wage related laws, anti-discrimination laws, employee safety
laws and COBRA (defined herein to mean the requirements of
Code Section 4980B, Proposed Treasury Regulation Section
1.162-26 and Part 6 of Subtitle B of Title I of ERISA).
(g) The consummation of the transactions
contemplated by this Agreement will not (i) result in the
payment or series of payments by M&D to any employee or other
<PAGE>
person of an "excess parachute payment" within the meaning of
Section 280G of the Code, (ii) entitle any employee or former
employee of M&D to severance pay, unemployment compensation
or any other payment, and (iii) accelerate the time of payment
or vesting of any stock option, stock appreciation right,
deferred compensation or other employee benefits under any
Plan (including vacation and sick pay).
(h) None of the Plans which are "welfare benefit plans,"
within the meaning of Section 3(1) of ERISA, provide for
continuing benefits or coverage after termination or retirement
from employment, except for COBRA rights under a "group health
plan" as defined in Code Section 4980B(g) and ERISA Section 607.
(i) Neither M&D nor any "affiliate" of M&D (as defined
in ERISA) has ever participated in or withdrawn from a multi-employer
plan as defined in Section 4001(a)(3) of Title IV of ERISA, and
M&D has not incurred and does not owe any liability as a result
of any partial or complete withdrawal by any employer from such
a multi-employer plan as described under Sections 4201, 4203,
or 4205 of ERISA.
(j) No Pension Plan has been completely or partially
terminated, nor has any proceeding been instituted by the PBGC
to terminate any such Pension Plan; M&D has not incurred, and
does not presently owe, any liability to the PBGC or the Internal
Revenue Service with respect to any Pension Plan including, but
not by way of limitation, any liability for PBGC premiums or
excise taxes under Code Section 4971.
5.12 Assets; Leaseholds.
(a) Assets. M&D owns the assets reflected on the
September 30, 1996, M&D balance sheet, with good and
marketable title (except for patents, intangibles and other
items of intellectual property, the representations as to which
are set forth in Section 5.14), free and clear of any and all
claims, liens, mortgages, options, charges, conditional sale or
title retention agreements, security interests, restrictions,
easements, or encumbrances whatsoever and free and clear of any
rights or privileges capable of becoming claims, liens, mortgages,
options, charges, security interests, restrictions, easements or
encumbrances, except for (i) real property taxes not yet due
and payable, (ii) utility easements for utilities serving the
Property, and (iii) minor imperfections of title which do not
materially affect the value and use of such assets.
(b) Leaseholds. Following the Merger, Merger Sub
will continue to have all the rights under such leases for the
premises now leased by M&D, and the Merger will not result in
any increase in rents or charges under any lease.
5.13 No Subleases or Licenses. There are no subleases or
licenses to use all or any portion of the premises leased by
M&D, except as set forth in the leases. The leases are valid,
binding and enforceable in accordance with the terms of each,
and are in good standing. M&D is not in default in payment of
rent, or in the performance of any of its material obligations
under the leases. To M&D's knowledge, the landlords or
<PAGE>
lessors under the leases are not in breach of any of their
obligations under the leases. No state of facts exists which,
after notice or lapse of time or both, would result in a
breach or default under the leases by M&D. The copies of any
leases which M&D has delivered to CSI are true, correct and
complete copies of the leases and M&D has delivered to CSI all
amendments, modifications, letter agreements and instruments
of whatever form which relate to such leases (except
correspondence sent or received in the ordinary course of
business, including percentage rent reports, which do not
alter the terms of the leases).
5.14 Intellectual Property. Section 5.14 of the M&D
Disclosure Letter is an accurate and complete list of all
intellectual property (including inventions, pending patent
applications, patent and copyright licenses or contracts,
patents, trademarks, tradenames, trademark applications and
registrations, service names, service marks, service mark
applications and registration, copyrights, formulas and trade
secrets) owned by M&D or used or required by M&D in the
operation of M&D's business, title to each of which is, except
as set forth in Section 5.14 of the M&D Disclosure Letter
hereto, held by M&D free and clear of all adverse claims,
liens, security agreements, restrictions or other
encumbrances. There is no infringement action, lawsuit, claim
or complaint which asserts that M&D's operations or any
apparatus or method of M&D violate or infringe the trade
names, trademarks, trademark registrations, service names,
service marks or copyright of others, and M&D is not in any
way making use of any confidential information or trade
secrets of any person except with the consent of such person.
Section 5.14 of the M&D Disclosure Letter is an accurate and
complete listing of all agreements relating to the
intellectual property of M&D. There are no outstanding and,
to the best knowledge of M&D, no threatened disputes or
disagreements with respect to any such agreement.
5.15 Compliance with Applicable Law. To the best of its
knowledge, M&D has in the past duly complied and is presently
duly complying, in the conduct of its business, the ownership
of its assets and the use or operation of its leased or owned
premises with all applicable laws, whether statutory or
otherwise, rules, regulations, orders, ordinances, covenants,
restrictions, plans, judgments and decrees of all governmental
authorities (federal, state, local or otherwise)
(collectively, "Laws"). M&D has not received any notice of,
or notice of any investigation of, a possible violation of any
applicable Laws, or any other Law or requirement relating to
or affecting the operations or properties of M&D.
5.16 Product Warranties. M&D has not given or made any
warranties to third parties with respect to any products
supplied which may still be in effect at any time after the
date hereof, except for warranties imposed by law. There have
been no claims or investigations made with respect to any
product warranties which have not been fully settled and
resolved or any unresolved warranty claims which have not been
adequately reserved against on the Financial Statements. M&D
does not know or have any reason to know of any basis for any
<PAGE>
other claim or investigation.
5.17 Contracts and Commitments. Except as set forth in
Section 5.17 of the M&D Disclosure Letter:
(a) The legal enforceability after the Closing of
the rights of M&D under any of its contracts will not be
affected in any manner by the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(b) All of the contracts to which M&D is a party or
by which it is bound are in full force and effect, are valid
and enforceable in accordance with their terms, and no condition
exists or event has occurred which, with notice or lapse of time
or both, would constitute a default or a basis for force majeure
or other claim of excusable delay or non-performance thereunder.
(c) To the knowledge of M&D, there are no
renegotiations of, or attempts to renegotiate, or outstanding
rights to renegotiate, any material amounts paid or payable to
M&D under current or completed contracts, agreements, or commitments
with any person or entity having the contractual or statutory right
to demand or require such renegotiation. To the knowledge of M&D,
no such person or entity has made written demand for such renegotiation.
(d) M&D has no sales or purchase commitments which
are in excess of the normal, ordinary and usual capacity or requirements
of its business or which are not terminable on 30 days' notice.
(e) M&D is not a party to or bound by (i) any
outstanding contracts with officers, employees, agents,
consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by M&D on
notice of not longer than 30 days and without liability,
penalty or premium, (ii) any agreement or arrangement
providing for the payment of any bonus or commission based on
sales or earnings, or (iii) any agreements that contain any
severance or termination pay, liabilities or obligations.
(f) M&D is not a party to any licensing agreement,
either as licensor or licensee.
(g) M&D is not restricted or purported to be
restricted by agreement or, to its knowledge, otherwise, other
than by laws of general applicability, from carrying on its
business anywhere in the world.
5.18 Accounts Receivable. All accounts and notes
receivable of M&D at the Closing, whether reflected in the
Financial Statements or otherwise (herein called the
"Receivables"), represent sales actually made in the ordinary
course of business consistent with past practice; none of the
Receivables is subject to any counterclaim or set-off other
than normal sales adjustments or allowances consistent with
past practice; and all the Receivables are collectible in the
ordinary course of business at the aggregate amounts thereof,
net of any reserve reflected in the Financial Statements.
Following the Closing, CSI shall apply amounts received from
parties who have Receivables against the oldest amounts first
<PAGE>
unless such older amount is disputed by the Customer. If on
the 180th day following the Closing Date an amount of the
Receivables equal to the aggregate amount of the Receivables
at Closing less the sum of (i) the reserve on the most recent
quarter end balance sheet and (ii) a threshold basket of
$25,000 have not been collected, CSI shall certify to the
Escrow Agent the amounts, names and addresses for each such
unpaid Receivable, and Escrow Agent shall disburse to CSI out
of the Escrow Amount an amount equal to the aggregate unpaid
amount so certified, less the reserve on the most recent
quarter end balance sheet prior to Closing. CSI agrees to
assign to the M&D Members all rights to collect Receivables
that have been paid from the Escrow Fund.
5.19 Orders, Commitments and Returns. The aggregate of
all accepted and unfilled orders for the sale of products or
services entered into by M&D does not exceed an amount which
can reasonably be expected to be filled in the ordinary course
of business on a schedule which will maintain satisfactory
customer relationships, and the aggregate of all contracts or
commitments for the purchase of products by M&D does not
exceed an amount which is reasonable for its anticipated
volumes of business (all of which orders, contracts and
commitments were made in the ordinary course of business). As
of the date of this Agreement, there are no asserted, or if
unasserted, sustainable, claims to return products of M&D by
reason of alleged overshipments, defective merchandise, breach
of warranty or otherwise. There are no products in the hands
of customers under any understanding that such products are
returnable other than pursuant to the standard returns policy
set forth in M&D's contracts. M&D does not know or have
reason to believe that either the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby will result in any cancellations or
withdrawals of accepted and unfilled orders for the sale of
M&D's products or services.
5.20 Customers and Suppliers. Section 5.20 of the M&D
Disclosure Letter hereto contains an accurate and complete
list of the names and addresses of the 20 largest customers to
whom M&D has sold or leased products or services during the
past two fiscal years and the 20 largest suppliers from whom
M&D has purchased supplies during the past two fiscal years.
M&D has not received any indication from any customer or
supplier whose name appears on such list (or otherwise has any
reason to believe) that such customer or supplier will not
continue as a customer or supplier of CSI or M&D after the
Closing. Except for Energy Power Research Institute, Inc., no
customer, or group of related customers, accounted for more
than 5% of M&D's revenues for the year ended December 31, 1995,
or the fiscal year to date.
5.21 Premises. M&D owns no real property. With respect
to each of the premises leased by M&D:
(a) To M&D's knowledge, all necessary water, sewer,
gas, electric, telephone, drainage and other utility
equipment, facilities and services, and all mechanical systems are
installed and connected pursuant to valid permits, and are adequate;
<PAGE>
(b) To M&D's knowledge, the buildings and
improvements do not in any material respect violate any
governmental laws, ordinances, rules and regulations;
(c) M&D has not received any notice from any
insurance carrier of defects or inadequacies which, if not corrected,
could reasonably be expected to result in termination of insurance
coverage or a material increase in the cost thereof, and, to M&D's
best knowledge, there are no such defects or inadequacies;
(d) To M&D's knowledge, the premises are zoned in
a manner which permits their present use, and such use and
occupation are not, in breach of any statute, bylaw,
regulation, ordinance, order, covenant, declaration,
restriction or plan, including, without limitation, those
relating to environmental protection. To M&D's knowledge,
no written charges or violations have been filed, served,
made or threatened against or relating to the premises as a
result of any violation or alleged violation of any of the
aforesaid, nor has M&D received any written notice from any
municipal, state, federal or other governmental authority that
any zoning, building, fire, water, use, health, environmental
or other statute, ordinance, code or regulatory violations
have been issued in respect of the premises, and to the best
knowledge of M&D no such violations exist. To the best knowledge
of M&D, there are not pending or threatened, requests,
applications or proceedings to alter or restrict the
zoning or other use restrictions applicable to the premises,
or changes or events which might curtail or interfere with
the use of the premises; and
(e) There has not been received by M&D, any notice
relating to any threatened or pending condemnation or
expropriation of any of the premises from any governmental
department, branch, agency, office or other authority.
5.22 No Litigation. There are currently no pending,
and the members and executive officers of M&D are not aware of any
threatened, lawsuits or administrative proceedings or
investigations against M&D or to which its assets are subject,
which, if adversely determined, could have a material adverse
effect on the financial condition results of operations,
business, prospects, assets, or liabilities of M&D. M&D is
not subject to any currently existing order, writ, injunction,
or decree relating to its operations.
5.23 Company Records. True and correct copies of the
Certificate of Formation and Limited Liability Company
Agreement of M&D have been delivered to CSI. The minute books
of M&D submitted to CSI for review correctly reflect all
action taken at all the meetings (or by written consent in
lieu thereof) of its Executive Committee, managers and members
and correctly record all resolutions thereof.
5.24 No Defaults. M&D has in all material respects
performed all material obligations to be performed by it under
all contracts, agreements, and commitments to which it is a
party, and there is not under any such contracts, agreements,
<PAGE>
or commitments any existing default by M&D or event of default
or event which with notice or lapse of time or both would
constitute a default by M&D, or to M&D's knowledge in either
case, a default by a third party.
5.25 Hazardous Substances.
For purposes of this Agreement, the following terms shall
have the following meanings:
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
section 9601 et seq.;
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any
Environmental Law (for purposes of (i) and(ii) below, "Claims")
or any permit issued under any such Environmental Law,
including without limitation:
(i) any and all Claims by governmental or
regulatory authorities for investigation, oversight,
enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law; and
(ii) any and all Claims by any third party seeking
damages, response, costs, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment;
"Environmental Law" means any federal, state or local
statute, law, rule, regulation, ordinance, code, policy or
rule of common law now in effect and as amended, and any
judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or
judgment, relating to the environment, health, or safety of
hazardous, toxic or dangerous materials, substances or wastes,
including without limitation CERCLA; the Toxic Substances
Control Act, as amended, 15 U.S.C. section 2601 et seq.; the Clean
Air Act, as amended, 42 U.S.C. section 7401 et seq.; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. section 1251 et
seq.; the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended, 7 U.S.C. section 136, et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. section 1801
et seq.; the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. section 6901 et seq.; the Safe Drinking Water
Act, 42 U.S.C. section 300f et seq.; the Clean Water Act, as
amended, 33 U.S.C. section 1251, et seq.; and any similar state or
local law;
"Hazardous Materials" shall mean those materials listed in
Section 101(14) of CERCLA, as hereinafter defined, and any
other substance defined as toxic or hazardous under any
federal, state or local law, rules, regulation, ordinance code
or policy, including, but not limited to:
<PAGE>
(i) any petroleum or petroleum products, flammable
explosives, radioactive materials, asbestos, asbestos
products, urea formaldehyde foam insulation, polychlorinated
biphenyls, including transformers or other equipment that
contain dielectric fluid containing detectible levels of
polychlorinated biphenyls, and radon gas;
(ii) any hazardous, toxic or dangerous waste,
substance or material defined as such in (or for purposes
of) any current Environmental Law or currently listed as
such pursuant to any Environmental Law; and
(iii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by
any governmental authority;
"Improperly" means done in any manner that poses a threat
to human health, safety or the environment;
"M&D Property" shall mean (i) the portion of any real
property and improvements presently owned, leased, used,
operated or occupied by M&D, and (ii) the portion of any other
real property and improvements at any previous time owned,
leased, used, operated or occupied by M&D;
"Release" means disposing, depositing, discharging,
injecting, spilling, leaking, leaching, dumping, emitting,
escaping, emptying, seeping, placing and the like, into or
upon any land or water or air, or otherwise entering into the
environment.
(a) During the time M&D has been in possession of
the M&D Property, and to its knowledge at any other time,
Hazardous Materials have not been illegally or Improperly
generated, used, treated or stored on, or transported to or
from, any M&D Property;
(b) During the time M&D has been in possession of
the M&D Property, and to its knowledge at any other time,
no asbestos-containing materials or other Hazardous Materials
have been installed in or affixed to structures on any M&D Property;
(c) During the time M&D has been in possession of
the M&D Property, and to its knowledge at any other time,
Hazardous Materials have not been disposed of or otherwise
Released on any M&D Property;
(d) M&D is currently, and has at all times in the
past been, in compliance with all applicable Environmental
Laws and the requirements of any permits issued under such
Environmental Laws with respect to any M&D Property;
(e) There are no past, pending or, to the knowledge
of M&D, threatened Environmental Claims against M&D or any
M&D Property;
(f) There are no facts or circumstances, conditions
or occurrences on any M&D Property or otherwise relating to
activities conducted by M&D that could reasonably be
<PAGE>
anticipated by M&D:
(i) to form the basis of an Environmental
Claim against M&D or any M&D Property; or
(ii) to cause such M&D Property to be subject
to any restrictions on the ownership, occupancy, use or
transferability of such M&D Property under any Environmental Law; and
(g) There are not now, nor have there been at any
time, any aboveground or underground storage tanks located
on any M&D Property.
5.26 Labor Matters. M&D is not a party to any collective
bargaining agreement and has not been the subject of any union
activity or labor dispute, and there have not been any strike
of any kind called or threatened to be called against M&D. To
the best knowledge of M&D, M&D has not violated any applicable
federal or state law or regulation relating to labor or labor
practices. M&D has no liability to any of its employees,
agents, or consultants in connection with grievances by, or
the termination of, such employees, agents, or consultants.
5.27 No Brokers. M&D has not entered into any contract,
arrangement or understanding with any person or firm which may
result in the obligation of M&D or CSI to pay any finder's
fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
M&D is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
5.28 Full Disclosure. All of the information provided by
M&D and its representatives herein or in the M&D Disclosure
Letter are true, correct, and complete in all material
respects and no representation, warranty, or statement made by
M&D in or pursuant to this Agreement contains or will contain
any untrue statement of a material fact or omits or will omit
to state any material fact necessary to make such
representation, warranty, or statement not misleading to CSI.
None of the members, managers or executive officers of M&D has
withheld from CSI or its representatives disclosure of any
event, condition, or fact that such officer knows, could
materially adversely affect the financial condition, results
of operations, business, prospects, assets, or liabilities of
M&D.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF CSI AND MERGER SUB
Except as set forth in the disclosure letter delivered at
or prior to the execution hereof to M&D (the "CSI Disclosure
Letter"), CSI and Merger Sub represent and warrant to M&D as
of the date of this Agreement as follows:
<PAGE>
6.1 Existence; Good Standing; Corporate Authority;
Compliance With Law. Each of CSI and Merger Sub is a
corporation duly incorporated and validly existing under the
laws of the state of its incorporation. Each of CSI and
Merger Sub is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of
any other state of the United States in which the character of
the properties owned or leased by it therein or in which the
transaction of its business makes such qualification
necessary, except where the failure to be so qualified would
not have a material adverse effect on the business, results of
operations or financial condition of CSI and its subsidiaries
taken as a whole (a "CSI Material Adverse Effect"). Each of
CSI and Merger Sub has all requisite corporate power and
authority to own, operate and lease its properties and carry
on its business as now conducted. Neither CSI nor Merger Sub
nor any of their respective properties or assets is in
violation of any order of any court, governmental authority or
arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which CSI or Merger Sub is
subject, where such violation would have a CSI Material
Adverse Effect. Each of CSI and Merger Sub has all licenses,
permits and other authorizations and has taken all actions
required by applicable law or governmental regulations in
connection with its business as now conducted, where the
failure to obtain an such item or to take any such action
would have a CSI Material Adverse Effect.
6.2 Authorization, Validity and Effect of Agreements.
Each of CSI and Merger Sub has the requisite corporate power
and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. The
consummation by CSI and Merger Sub of the transactions
contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all
agreements and documents contemplated hereby (when executed
and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of CSI
and Merger Sub, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights
and general principles of equity.
6.3 Capitalization. The authorized capital stock of CSI
consists of 50,000,000 shares of common stock, no par value
("CSI Common Stock") and 5,000,000 shares of preferred stock,
no par value (the "CSI Preferred Stock"). As of the date of
this Agreement, there were 4,859,277 shares of CSI Common
Stock issued and outstanding, and no shares of CSI Preferred
Stock issued and outstanding. Other than as provided in the
CSI Disclosure Letter, CSI has no outstanding bonds,
debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the
shareholders of CSI on any matter. All issued and outstanding
shares of CSI Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive
rights. Other than as provided for in the CSI Disclosure
Letter, there are no options, warrants, calls, subscriptions,
<PAGE>
convertible securities, or other rights, agreements or
commitments which obligates CSI to issue, transfer or sell any
shares of capital stock of CSI.
6.4 Subsidiaries. Except for CSI International, Inc.,
Computational Systems UK Limited and Merger Sub, CSI has no
significant subsidiaries. The authorized capital stock of
Merger Sub consists of 1,000,000 shares of Common Stock, no
par value. Each of the outstanding shares of capital stock of
Merger Sub is duly authorized, validly issued, fully paid and
nonassessable, and is owned by CSI free and clear of all
liens, pledges, security interests, claims or other
encumbrances.
6.5 No Violation. Neither the execution and delivery by
CSI and Merger Sub of this Agreement, nor the consummation by
CSI and Merger Sub of the transactions contemplated hereby in
accordance with the terms hereof, will: (i) conflict with or
result in a breach of any provisions of the Charter or Bylaws
of CSI or Merger Sub; (ii) conflict with, result in a breach
of any provision of or the modification or termination of,
constitute a default under, or result in the creation or
imposition of any lien, security interest, charge, or
encumbrance upon any of the assets of CSI or Merger Sub
pursuant to any material commitment, lease, contract, or other
material agreement or instrument to which CSI or Merger Sub is
a party; or (iii) violate any order, arbitration award,
judgment, writ, injunction, decree, statute, rule, or
regulation applicable to CSI or Merger Sub.
6.6 SEC Documents. Prior to the date hereof, CSI has
delivered to M&D copies of all of CSI's Annual Reports on
Forms 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as filed with the Securities and Exchange
Commission since December 31, 1995 (the "CSI Reports"). The
CSI Reports (i) were prepared in all material respects in
accordance with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "'34 Act") and the rules
and regulations promulgated thereunder, and (ii) as of their
respective dates, 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 made
therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the CSI
Reports (including the related notes and schedules) fairly
presents the consolidated financial position of CSI as of its
date and each of the consolidated statements of income,
retained earnings and cash flows included in or incorporated
by reference into the CSI Reports (including any related notes
and schedules) fairly presents the results of operations,
retained earnings or cash flows of CSI for the periods set
forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be
material in amount or effect) in each case in accordance with
generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
These representations shall be deemed to be made with respect
to CSI Reports filed subsequent to the date hereof at the time
<PAGE>
of their filing.
6.7 Litigation. There are no actions, suits or
proceedings pending against CSI or, to the actual knowledge of
the executive officers of CSI, overtly threatened in writing
against CSI, at law or in equity, or before or by any federal
or state commission, board, bureau, agency or instrumentality,
that are reasonably likely to have a CSI Material Adverse
Effect.
6.8 Taxes. The provisions for taxes shown on the CSI
financial statements for the nine months ended September 30,
1996 are adequate to cover the liability of CSI for all taxes
(including employer income tax withholding, social security
and unemployment taxes) to the date thereof.
6.9 Absence of Certain Changes. Since December 31,
1995, there has not been any material adverse change in the
financial condition, results of operations, business,
prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of CSI,
except for changes in the ordinary course of business
consistent with historical experience resulting from the
seasonal nature of CSI's business.
6.10 No Brokers. CSI has not entered into any contract,
arrangement or understanding with any person or firm which may
result in the obligation of M&D or CSI to pay any finder's
fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
CSI is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
6.11 CSI Common Stock. The issuance and delivery by CSI
of shares of CSI Common Stock in connection with the Merger
and this Agreement have been duly and validly authorized by
all necessary corporate action on the part of CSI. The shares
of CSI Common Stock to be issued in connection with the Merger
and this Agreement, when issued in accordance with the terms
of this Agreement (and in the case of shares issuable upon the
exercise of Options, in accordance with the terms of the
Option Agreements), will be validly issued, fully paid and
nonassessable.
6.12 Full Disclosure. All of the information provided by
CSI and its representatives herein or in the CSI Disclosure
Letter are true, correct and complete in all material respects
and no representation, warranty, or statement made by CSI in
or pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to
state any material fact necessary to make such representation,
warranty, or statement not misleading to M&D. None of the
executive officers of CSI has withheld from M&D or its
representatives disclosure of any event, condition, or fact
that such officer knows could materially adversely affect the
financial condition, results of operations, business,
<PAGE>
prospects, assets, or liabilities of CSI.
ARTICLE 7.
COVENANTS
7.1 Covenants of CSI and M&D. During the period from
the date hereof and continuing until the Effective Time
(except as expressly contemplated or permitted hereby, or to
the extent that the other parties shall otherwise consent in
writing) each of CSI and M&D covenants with the other that,
insofar as the obligations relate to it:
(a) From the date hereof to the Effective Time,
each of M&D and CSI shall allow all designated officers,
attorneys, accountants and other representatives of the
other access at all reasonable times during regular business
hours to the records and files, correspondence, audits and
properties, as well as to all information relating to
commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs, of M&D and CSI.
(b) Except as and to the extent required by law,
CSI and M&D hereby agree not to disclose or use, and each
shall cause its representatives not to disclose or use,
any confidential information with respect to the other
party hereto furnished, or to be furnished, by such other
party or their representatives in connection herewith at
any time or in any manner other than in connection with its
evaluation of the Merger. Except as required by law, and as
set forth in this subparagraph (e), neither M&D nor its
representatives shall make any public statements regarding
the Merger or this Agreement without the prior approval of CSI.
After reasonable prior notice to M&D, CSI may make such
statements, disclosures and filings as it is advised by its
counsel are necessary or appropriate for a public company.
In the event the Merger is not effective for any reason, the
confidentiality letter agreement between CSI and M&D shall
remain in full force and effect.
7.2 Covenants of M&D. M&D covenants and agrees that
between the date hereof and continuing until the Effective
Time (except as expressly contemplated or permitted hereby, or
to the extent that CSI shall otherwise consent in writing):
(a) M&D shall conduct its business in the ordinary
course consistent with past practices;
(b) M&D's Executive Committee shall submit and
recommend to the Members the approval of this Agreement
at a special meeting of Members duly called for that purpose
as soon as practicable.
(c) Prior to the Effective Time, M&D agrees (a) that
it shall, and shall direct and use its best efforts to cause
its managers, officers, employees, members, advisors,
accountants and attorneys (the "Representatives"), including
such Representatives of any of M&D's affiliated entities or
<PAGE>
persons, not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of
any proposal or offer (including, without limitation, any
proposal or offer to its members) with respect to a merger,
acquisition, consolidation or simil transaction involving,
or any purchase of all or any significant portion of the assets
or any ownership interests of M&D (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal")
or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions
with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing
and will take the necessary steps to inform the individuals
or entities referred to above of the obligations undertaken
in this Section 7.2(c); and (c) that it will notify CSI
immediately if any such inquiries or proposals are
received by, any such information is requested from, or
any such negotiations or discussions are sought to be
initiated or continued with, it. In the event that M&D
or its Representatives breach this covenant and at any time
before May 31, 1997 M&D is acquired by or enters into a
business conjunction with any party with whom it has breached
this covenant, M&D shall promptly pay to CSI the sum of
$250,000 payable in immediately available funds (the
"Reimbursement Fee") as liquidated damages. M&D acknowledges
and agrees that CSI has refrained from pursuing and considering
other acquisition arrangements with the consequence that the
opportunities and benefits of them are foregone or delayed
and that CSI has expended significant time and effort to
evaluate the Merger with M&D and, in conjunction therewith,
M&D acknowledges that CSI has incurred significant expense
and fees through preparation, travel and fees of financial,
legal and accounting advisors. M&D and its Representatives
acknowledge that the payment of the fee described herein is
an integral part of the understandings, agreements and the
Merger contemplated by this Agreement and that, without
these provisions, CSI would not approve, sign and deliver
this Agreement.
(d) M&D will make all normal and customary repairs,
replacements, and improvements to its facilities, will
not dispose of any assets other than at fair market value
and with the prior written consent of CSI, and without
limiting the generality of the foregoing or the covenants
set forth in 7.2(a), M&D will not, without the prior written
consent of CSI:
(i) change its Certificate of Formation or
Limited Liability Company Agreement or merge and consolidate
with or into any entity or obligate itself to do so;
(ii) set aside or pay any cash dividend or
other distribution on or in respect of its Membership Interests,
or any redemption, retirement or purchase with respect to its
Membership Interests or issue any additional of its Membership
<PAGE>
Interests. Notwithstanding the foregoing, M&D shall be
permitted to (i) pay reasonable fees and expenses related to the
Merger in accordance with a schedule of estimated fees and
expenses approved by CSI, (ii) make distributions to members for
current salaries and amounts necessary to pay income taxes on
the net income from operations of M&D prior to Closing and (iii)
M&D may pay Bogan amounts due under the Bogan Line and other
sums due Bogan, in accordance with past practices;
(iii) other than normal payments on the Bogan Line,
discharge or satisfy any lien, charge, encumbrance or indebtedness
outside the ordinary course of business, except those required
to be discharged or satisfied;
(iv) authorize, guarantee or incur indebtedness
or liabilities other than in the normal course of its business,
and in no event aggregating in excess of $50,000; provided,
however, that M&D may incur indebtedness to provide for
distributions to its members but only in amounts equal to taxes
due to be paid by its members on income from M&D's operations
prior to Closing;
(v) make any capital expenditures or capital
additions or betterments, or commitments therefor, aggregating
in excess of $25,000.
(vi) loan funds to any person;
(vii) institute, settle or agree to settle
any litigation, action or proceeding before any court or
governmental body;
(viii) mortgage, pledge or subject to any
other encumbrance any of its property or assets, tangible
or intangible;
(ix) authorize any compensation increases of
any kind whatsoever for any employee, provided M&D shall pay
owing or accrued deferred compensation;
(x) engage in any extraordinary transaction;or
(xi) enter into any material contract (other
than client service contracts) including leases and real
estate agreements.
(e) Without the prior written consent of CSI, M&D
shall not take any action which would cause or tend to cause
the conditions upon the obligations of the parties hereto to
effect the transactions contemplated hereby not to be fulfilled;
including without limitation, taking, causing to be taken, or
permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and
warranties made by M&D herein not to be true, correct and
accurate as of the Closing Date.
(f) M&D, prior to the Closing Date, shall have
delivered its audited financial statements for the year ended
December 31, 1995, and unaudited quarterly financial statements of M&D.
<PAGE>
7.3 Covenants of CSI. CSI covenants and agrees that
between the date hereof and continuing until the Effective
Time (except as expressly contemplated or permitted hereby, or
to the extent that M&D shall otherwise consent in writing):
(a) Without the prior written consent of M&D, CSI
shall not take any action which would cause or tend to cause
the conditions upon the obligations of the parties hereto to
effect the transactions contemplated hereby not to be fulfilled;
including without limitation, taking, causing to be taken, or
permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and
warranties made by CSI herein not to be true, correct and
accurate as of the Closing Date.
(b) After the Effective Date, CSI's Product Review
Committee will review the commercial potential of M&D
products, and, depending upon the results of that review in
the sole discretion of such committee, CSI may make available
a budget of up to $1,000,000 during fiscal 1997 for development
of such products.
(c) After the Effective Time, M&D contractors or
employees that become CSI or Merger Sub employees will be
eligible to participate in the same or substantially similar
incentive compensation plans or arrangements as are available
for similarly situated CSI employees.
(d) CSI agrees to grant to former employees of M&D
credit for their time of full-time service to M&D for purposes
of CSI's employee benefit plans, to the extent, if at all, that
CSI determines to continue the employment of former M&D employees.
This provision shall not be construed to create any right of
initial or continuing employment with CSI of any former M&D employee.
ARTICLE 8.
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the
Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved in the manner required by
applicable law and by the holders of a majority of Membership
Interests of M&D entitled to vote thereon.
(b) No action or proceeding before a court or other
governmental body by any governmental agency or public
authority shall have been instituted or threatened to restrain
or prohibit the transactions contemplated by this Agreement or
to obtain an amount of damages or other material relief in
connection with the execution of the Agreement or the related
agreements or the consummation of the Merger; and no governmental
agency shall have given notice to any party hereto to the effect
that consummation of the transactions contemplated by this
<PAGE>
Agreement would constitute a violation of any law or that it
intends to commence proceedings to restrain consummation of the Merger.
(c) All consents, authorizations, orders and
approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body or any
other third party (including lenders and lessors) required in
connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents
required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not
have a material adverse effect on the business of CSI and M&D,
taken as a whole, following the Effective Time.
(d) CSI shall have received from M&D copies of all
resolutions adopted by the Executive Committee, managers and
members of M&D in connection with this Agreement and the
transactions contemplated hereby. M&D shall have received from
CSI and Merger Sub copies of all resolutions adopted by the
Board of Directors of each respective company and the shareholders
of Merger Sub in connection with this Agreement and the transactions
contemplated hereby.
8.2 Conditions to Obligation of M&D to Effect the
Merger. The obligation of M&D to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) CSI and Merger Sub shall have performed their
respective agreements contained in this Agreement required
to be performed on or prior to the Closing Date and the
representations and warranties of CSI and Merger Sub contained
in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing Date, and
M&D shall have received a certificate of the President or the
Chief Financial Officer of each of CSI and Merger Sub, dated
the Closing Date, certifying to such effect.
(b) From December 31, 1995, through the Effective
Time, there shall not have occurred any material change in
the financial condition, business, operations or prospects
of CSI, that would have or would be reasonably likely to have
a CSI Material Adverse Effect other than any such change that
affects both M&D and CSI in a substantially similar manner.
(c) M&D shall have received a written opinion,
dated as of the Closing Date, from Bass, Berry & Sims PLC,
in form and substances satisfactory to it, as to certain
matters agreed upon by legal counsel of CSI and M&D.
(d) Prior to Closing, M&D shall not have notified
CSI in writing that M&D's review of CSI's business,
operations, and the matters disclosed in the CSI Disclosure
Letter has revealed matters (described in reasonable detail)
which in M&D's reasonable business judgment would adversely
affect the business or operations of CSI.
<PAGE>
(e) The Plan of Merger shall have received the
favorable vote of a majority of the Membership Interests of
M&D and the unanimous vote of the executive committee of M&D.
(f) CSI shall have delivered for execution at or
before Closing, employment agreements in substantially the
form attached hereto as Exhibit E, for each of Richard Colsher,
John McElroy, William Woyshner and Robert Hammaker.
(g) M&D shall have received such customary certificates
of officers of CSI and Merger Sub and such other customary closing
documentation as it may reasonably request.
(h) CSI shall have delivered to M&D Registration
Rights Agreements for former M&D members in substantially the
form attached hereto as Exhibit F, which grant such former
members (as a group) (i) two demand registration rights to sell
their shares of Common Stock under a shelf registration statement
which shall remain effective for 120 days following the effective
date thereof under the Securities Act of 1933, as amended (the
"1933 Act"), one of which rights may be exercised during the period
ending 12 months after the Closing Date, with the other demand
right exercisable beginning 12 months after the Closing Date and
ending 24 months after the Closing Date, in each case upon the
request of holders of at least a majority of the shares of
Common Stock issued in connection with the Merger that are
eligible to participate in the Registration Statement, and
(ii) piggyback rights to include shares in certain underwritten
public offerings of Common Stock by the Company for cash (other
than on Form S-8):
(i) CSI shall have delivered to M&D the Letter of Credit
securing the Notes.
(j) CSI shall have delivered the Merger
Consideration.
(k) M&D, CSI and Paragon shall have entered into an
Assignment Agreement (the "Assignment Agreement") with Electric
Power Research Institute, Inc. ("EPRI").
(l) CSI shall have agreed to pay the consideration
set forth in Section 4.01(A) of that certain License Agreement
dated October 25, 1996, by and between EPRI and M&D
(the "License Agreement").
8.3 Conditions to Obligation of CSI and Merger Sub to
Effect the Merger. The obligations of CSI and Merger Sub to
effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) M&D shall have performed its agreements
contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and
warranties of M&D contained in this Agreement and in any
document delivered in connection herewith shall be true
and correct as of the Closing Date, and CSI shall have
received a certificate of the Manager of M&D, dated the
Closing Date, certifying to such effect.
<PAGE>
(b) From December 31, 1995, through the Effective
Time, there shall not have occurred any material change in
the financial condition, business, operations or prospects
of M&D, other than any such change that affects both M&D
and CSI in a substantially similar manner.
(c) CSI shall have received a written opinion,
dated as of the Closing Date, from the legal counsel of
M&D, in form and substance satisfactory to it, as to
certain matters agreed upon by legal counsel of CSI and M&D.
(d) Prior to Closing, CSI shall not have notified
M&D in writing that CSI's review of M&D's business,
operations, and the matters disclosed in the M&D Disclosure
Letter has revealed matters (described in reasonable detail)
which in CSI's reasonable business judgment would adversely
affect the business or operations of M&D.
(e) In order to ensure that following the
consummation of the Merger certain principals of M&D shall
not engage in certain activities as specified in
noncompetition agreements, CSI shall have received a
noncompetition agreement from each of Bogan, Richard Colsher,
John McElroy, William Woyshner and Robert Hammaker in form
and substance satisfactory to CSI.
(f) CSI shall have received such customary closing
documentation as it may reasonably request.
(g) In order to ensure adequate continuity of
management and expertise, CSI shall have received executed
Employment Agreements in substantially the form attached
hereto as Exhibit D from each of Richard Colsher, John
McElroy, William Woyshner and Robert Hammaker.
(h) All outstanding options or other rights to
acquire Membership Interests in M&D shall have been
exercised, expired or shall have been lawfully terminated
prior to the Closing Date.
(i) On the Closing Date, each of the members of M&D
shall have executed and delivered the Escrow Agreement.
(j) M&D shall have entered into the Assignment
Agreement.
(k) M&D shall have entered into the License
Agreement.
ARTICLE 9.
SURVIVAL OF REPRESENTATIONS
9.1 Survival of Representations. All representations,
warranties, covenants and agreements by the parties contained
in this Agreement shall survive the Closing and any
investigation at any time made by or on behalf of any party
<PAGE>
hereto.
9.2 Statements as Representations. All statements
contained in this Agreement, any Certificate or Schedule
delivered pursuant hereto shall be deemed representations and
warranties for all purposes of this Agreement.
9.3 Remedies Cumulative. The remedies provided herein
shall be cumulative and shall not preclude the assertion by
any party hereto of any other rights or the seeking of any
other remedies against the other party hereto.
ARTICLE 10.
TERMINATION
10.1 Termination by Mutual Consent. This Agreement may
be terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the approval of
this Agreement by the members of M&D, by the mutual consent of
CSI and M&D.
10.2 Termination by Either CSI or M&D. This Agreement
may be terminated and the Merger may be abandoned by action of
the Board of Directors of CSI or the Executive Committee of
M&D if (a) the Merger shall not have been consummated by
December 31, 1996, or (b) the approval of M&D's Members
required by Section 8.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment thereof,
or (c) a United States federal or state court of competent
jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final
and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause (c) shall
have used all reasonable efforts to remove such injunction,
order or decree.
10.3 Termination by M&D. This Agreement may be
terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the adoption and
approval by the members of M&D (the "M&D Members"), by action
of the Executive Committee of M&D, if there has been a breach
by CSI or Merger Sub of any representation or warranty
contained in this Agreement which would have or would be
reasonably likely to have a CSI Material Adverse Effect, or
(b) there has been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of CSI,
which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by
M&D to CSI, or (c) M&D has paid CSI the Reimbursement Fee.
10.4 Termination by CSI. This Agreement may be
terminated and the Merger may be abandoned at any time prior
to the Effective Time, by action of the Board of Directors of
CSI, if (a) there has been a breach by M&D of any
<PAGE>
representation or warranty contained in this Agreement which
would have or would be reasonably likely to have an M&D
Material Adverse Effect, (b) there has been a material breach
of any of the covenants or agreements set forth in this
Agreement on the part of M&D, which breach is not curable or,
if curable, is not cured within 30 days after written notice
of such breach is given by CSI to M&D.
10.5 Effect of Termination and Abandonment. Upon
termination of this Agreement pursuant to this Section, this
Agreement shall be void and of no other effect, and there
shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto (other
than for breach of a covenant contained herein), or on the
part of the respective directors, officers, employees, agents
or shareholders of any of them.
10.6 Extension; Waiver. At any time prior to the
Effective Time, any party hereto, by action taken by its Board
of Directors or Executive Committee, as the case may be, may,
to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 11.
GENERAL PROVISIONS
11.1 Notices. Any notice required to be given hereunder
shall be sufficient if in writing, by courier service (with
proof of service), hand delivery or certified or registered
mail (return receipt requested and first-class postage
prepaid), addressed as follows:
If to CSI or Merger Sub: If to M&D:
Carlo Gorla John McElroy
President Manager
Computational Systems, Incorporated Maintenance & Diagnostics, LLC
835 Innovation Drive 440 Baldwin Tower
Knoxville, Tennessee 37932 Eddystone, Pennsylvania 19022
with a copy to: with a copy to:
F. Mitchell Walker, Jr. Henry M. Kuller
Bass, Berry & Sims PLC Blank, Rome, Comisky & McCauley
2700 First American Center Four Penn Center Plaza
Nashville, Tennessee 37238 Philadelphia, Pennsylvania 19103
or to such other address as any party shall specify by written
notice so given, and such notice shall be deemed to have been
<PAGE>
delivered as of the date so telecommunicated, personally
delivered or mailed.
11.2 Assignment, Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the
preceding sentence this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and assigns.
11.3 Entire Agreement. This Agreement, the Exhibits and
Schedules, the M&D Disclosure Letter, the CSI Disclosure
Letter, and any documents delivered by the parties in
connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification
of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties
hereto.
11.4 Amendment. This Agreement may be amended by the
parties hereto, by action taken by the Board of Directors of
CSI or Merger Sub or the Executive Committee of M&D, at any
time before or after approval of matters presented in
connection with the Merger by the members of M&D, but after
any such member approval, no amendment shall be made which by
law requires the further approval of members without obtaining
such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties hereto.
11.5 Governing Law. The validity of this Agreement, the
construction of its terms and the determination of the rights
and duties of the parties hereto shall be governed by and
construed in accordance with the laws of the United States and
those of the State of Tennessee applicable to contracts made
and to be performed wholly within such state.
11.6 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together
signed by all of the parties hereto.
11.7 Headings. Headings of the Articles and Sections of
this Agreement are for the convenience of the parties only,
and shall be given no substantive or interpretive effect
whatsoever.
11.8 Interpretation. In this Agreement, unless the
context otherwise requires, words describing the singular
number shall include the plural and vice versa, and words
denoting any gender shall include all genders and words
denoting natural persons shall include corporations and
<PAGE>
partnerships and vice versa.
11.9 Waivers. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement.
The waiver by any party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any
prior or subsequent breach of the same or any other provision hereunder.
11.10 Incorporation of Exhibits. The M&D Disclosure
Letter, the CSI Disclosure Letter and the Exhibits and
Schedules attached hereto and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
11.11 Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
11.12 Expenses. Each party to this Agreement shall
bear its own expenses in connection with the Merger and the
transactions contemplated hereby. CSI acknowledges that M&D
shall pays its legal and accounting fees related to this
transaction prior to or at Closing.
11.13 Enforcement of Agreement. The parties hereto
agree that irreparable damage would occur in the event that
any of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
hereof in any court of competent jurisdiction, this being in
addition to any other remedy to which they are entitled at law
or in equity.
11.14 Press Releases. All press releases issued by
CSI or M&D with respect to these transactions shall be in form
reasonably approved by CSI and M&D.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement and caused the same to be duly delivered on their
behalf as of the day and year first written above.
COMPUTATIONAL SYSTEMS,
INCORPORATED
By: /s/ Carlo Gorla
------------------------------
Carlo Gorla
President and
Chief Operating Officer
PARAGON SERVICES, INC.
By: /s/ David G. Peterson
------------------------------
David G. Petersen
President
MAINTENANCE & DIAGNOSTICS, LLC
By: /s/ John McElroy
------------------------------
John McElroy
Manager
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE Contact: Bryan Collier
Vice President-Finance
(423) 675-2110
CSI Finalizes Acquisition of Maintenance & Diagnostics, LLC
KNOXVILLE, Tenn. (October 29, 1996)--In a move which
strengthens its position in the electrical power industry,
Computational Systems, Inc. (Nasdaq/NM:CSIN) today consummated
the previously announced acquisition of Philadelphia-based
Maintenance & Diagnostics, LLC. Maintenance & Diagnostics
(M&D) is a research, service, and training center for the
electric power industry which was founded in 1994.
Today, consideration for the transaction, including
certain license fees, is approximately $5.5 million, paid in
cash and CSI stock. It is currently expected that M&D's
revenues for 1996 will total approximately $10 million. The
acquisition will be accounted for as a purchase.
"The acquisition perfectly positions CSI and M&D to
better-serve the global electric power industry," commented
CSI Chief Executive Officer Ronald G. Canada.
M&D has ongoing condition monitoring projects in over 40
utilities, representing 15 percent of the industry, such as
PECo Energy, Duke Power, Southern California Edison, and
Commonwealth Edison. Internationally, M&D is engaged in
projects in France, Hong Kong, Italy, and Korea.
John W. McElroy, CEO of M&D said, "Both M&D and CSI have
established outstanding reputations in the electric power
market. This merger will prove to strengthen both companies
and will reconfirm the commitment we all have to the electric
power market." Recognizing the current light of deregulation
in the power industry, the need for advanced maintenance
strategies is increasing as the utilities realize the
potential savings and increased reliability they can achieve
with integrated maintenance technologies.
M&D is now a division of CSI Services, Inc. a wholly-owned
subsidiary of CSI which also holds Paragon Services.
With the addition of M&D, CSI employs more than 400 people
worldwide.
