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Agreement and Plan of Merger
by and among
Thor Acquisition Corp.,
Thor Industries, Inc.,
Keystone RV Company
and
certain parties listed on the signature pages
attached hereto
November 9, 2001
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Table of Contents
Page
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Article I The Merger...........................................................2
SECTION 1.01 The Merger......................................2
SECTION 1.02 Effective Time..................................2
SECTION 1.03 Effects of the Merger...........................3
SECTION 1.04 Certificate of Incorporation and By-laws........3
SECTION 1.05 Directors.......................................3
SECTION 1.06 Officers........................................3
SECTION 1.07 Tax Consequences................................3
Article II Merger Consideration; Conversion of Securities;
Adjustment; Escrow.....................................................4
SECTION 2.01 Merger Consideration............................4
SECTION 2.02 Cancellation and Conversion of the Capital
Stock and Stock Options of the Company and
Acquisition Subsidiary..........................6
SECTION 2.03 Exchange Procedure; Payment.....................7
SECTION 2.04 Adjustment of Merger Consideration..............8
SECTION 2.05 Escrow.........................................10
Article III Representations And Warranties Of The Company
And The Principal Shareholder.........................................13
SECTION 3.01 Organization; Good Standing....................13
SECTION 3.02 Capitalization; Title to Shares................13
SECTION 3.03 Subsidiaries...................................14
SECTION 3.04 Authority Relative to this Agreement...........14
SECTION 3.05 Consents and Approvals; No Violations..........14
SECTION 3.06 Financial Statements...........................15
SECTION 3.07 Absence of Undisclosed Liabilities.............16
SECTION 3.08 Absence of Certain Changes or Events...........16
SECTION 3.09 Company's Agreements...........................17
SECTION 3.10 Real Property..................................18
SECTION 3.11 Machinery and Equipment........................19
SECTION 3.12 Inventories....................................20
SECTION 3.13 Accounts Receivable............................20
SECTION 3.14 Intellectual Property Rights...................20
SECTION 3.15 Licenses.......................................21
SECTION 3.16 Title to Assets................................21
SECTION 3.17 Corporate Minute Books; Bank Accounts..........21
SECTION 3.19 Employees; Benefit Plans.......................23
SECTION 3.20 Insurance......................................26
SECTION 3.21 Litigation.....................................26
SECTION 3.22 Compliance with Laws...........................27
SECTION 3.23 NHTSA; Other Safety Standards..................27
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SECTION 3.24 Product Liability; Product Recalls.............27
SECTION 3.25 Warranties.....................................28
SECTION 3.26 Dealer Network; Rebates and Refunds............28
SECTION 3.27 Environmental Matters..........................28
SECTION 3.28 Disclosure.....................................30
SECTION 3.29 Tax Matters....................................31
SECTION 3.30 Exclusive Representations and Warranties.......31
Article IV Representations and Warranties of Parent and
Acquisition Subsidiary................................................33
SECTION 4.01 Organization; Good Standing....................33
SECTION 4.02 Authority Relative to this Agreement...........33
SECTION 4.03 Consents and Approvals; No Violations..........33
SECTION 4.04 Validity of Shares Issued......................34
SECTION 4.05 Capitalization of Acquisition Subsidiary.......34
SECTION 4.06 Litigation.....................................34
SECTION 4.07 SEC Reports; Financial Statements..............35
SECTION 4.08 Tax Matters....................................35
SECTION 4.09 Exclusive Representations and Warranties.......35
Article V Conduct and Transactions Prior to Closing...........................36
SECTION 5.01 Conduct of Business............................36
SECTION 5.02 Certain Changes or Events......................36
SECTION 5.03 Access to Information..........................37
SECTION 5.04 Non-Solicitation...............................37
SECTION 5.05 Additional Agreements..........................37
SECTION 5.06 Communications with Agencies...................38
SECTION 5.07 HSR Act Compliance.............................38
SECTION 5.08 Public Disclosure..............................38
SECTION 5.09 Books and Records..............................38
SECTION 5.10 Supplements to and Amendments of the
Disclosure Schedule............................38
SECTION 5.11 Tax Matters....................................39
Article VI Conditions to Closing..............................................39
SECTION 6.01 Conditions to Obligations of Parent and
Acquisition Subsidiary.........................39
SECTION 6.02 Conditions to Obligations of the Company
and the Holders................................42
Article VII Closing...........................................................43
SECTION 7.01 Closing Date...................................43
SECTION 7.02 Deliveries by the Company and the Holders......43
SECTION 7.03 Deliveries by Parent and
Acquisition Subsidiary.........................44
SECTION 7.04 Further Assurances.............................44
Article VIII Private Placement; Restrictions On Transfer;
Registration Statement...........................................45
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SECTION 8.01 Securities Act Compliance......................45
SECTION 8.02 Restrictions on Transfer.......................46
SECTION 8.03 Legends........................................47
SECTION 8.04 Registration of Parent Common Stock............47
Article IX Survival; Indemnification..........................................48
SECTION 9.01 Survival Past Closing..........................48
SECTION 9.02 Indemnification by the Holders.................48
SECTION 9.03 Indemnification by Parent and
Acquisition Subsidiary.........................49
SECTION 9.04 Limitation on Indemnification..................49
SECTION 9.05 Exclusive Remedy...............................50
SECTION 9.06 Indemnification Procedures.....................50
Article X Termination of Agreement............................................52
SECTION 10.01 Events of Termination..........................52
SECTION 10.02 Effect of Termination..........................52
Article XI Finder's Fees......................................................53
Article XII Notices...........................................................53
Article XIII Miscellaneous....................................................56
SECTION 13.01 Expenses.......................................56
SECTION 13.02 Entire Agreement...............................56
SECTION 13.03 Amendments and Waivers.........................56
SECTION 13.04 Successors and Assigns.........................57
SECTION 13.05 Governing Law..................................57
SECTION 13.06 Severability...................................57
SECTION 13.07 No Third-Party Beneficiaries...................57
SECTION 13.08 Attorneys' Fees................................57
SECTION 13.09 Remedies.......................................57
SECTION 13.10 Consent to Jurisdiction and Service of
Process........................................58
SECTION 13.11 Counterparts...................................58
SECTION 13.12 Certain References; Captions...................58
SECTION 13.13 Interpretation.................................58
SECTION 13.14 Guaranty by Parent.............................59
SECTION 13.15 Holder Representatives.........................59
SECTION 13.16 Knowledge......................................60
SECTION 13.17 Material Adverse Effect........................60
SECTION 13.18 Company Director and Officer
Indemnification................................60
SECTION 13.19 Defined Terms..................................60
EXHIBITS
EXHIBIT 1.02 Forms of Certificate of Merger
EXHIBIT 2.01 Form of Certificate of Designation
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EXHIBIT 2.05(a) Form of Escrow Agreement
EXHIBIT 2.05(b)(i) Form of Letter Agreement
EXHIBIT 2.05(b)(ii) Form of Additional Escrow Agreement
EXHIBIT 6.01(e) Form of Opinion of Counsel for the Company
and the Holders
EXHIBIT 6.02(e) Form of Opinion of Counsel for Parent and
Acquisition Subsidiary
EXHIBIT 7.02(d) Form of Non-Competition Agreement
EXHIBIT 7.02(f) Form of Holder Release
EXHIBIT 8.02 Form of Stock Restriction Agreement
EXHIBIT 8.04 Form of Registration Rights Agreement
ANNEXES
ANNEX 2.04(c) Thor Warranty Reserve Formula
ANNEX 6.01(a) Additional Closing Covenants and Conditions
ANNEX 6.01(c) Consents Required to be Obtained
ANNEX 6.01(i) Liens Not Required to be Released or
Terminated by the Company
ANNEX 9.02(iii) Additional Matters
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Agreement and Plan of Merger
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Agreement and plan of merger dated as of November 9, 2001 (this
"Agreement") by and among Thor Acquisition Corp., a Delaware corporation
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("Acquisition Subsidiary"), Thor Industries, Inc., a Delaware corporation
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("Parent"), Keystone RV Company, an Indiana corporation (the "Company"), the
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shareholders of the Company whose names are listed at the foot of this Agreement
(the "Shareholders"), the holders of the Company Stock Options (as defined
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below) whose names are listed at the foot of this Agreement (the "Optionholders"
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and, together with the Shareholders, collectively referred to herein as the
"Holders"), and H. Coleman Davis, III and Joseph F. Trustey, as representatives
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of the Holders (each, a "Holder Representative" and collectively, the "Holder
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Representatives").
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W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business (the "Business")
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of manufacturing and marketing recreational vehicles, consisting of travel
trailers and fifth-wheel vehicles (the "Product");
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WHEREAS, the Company desires to merge with Acquisition
Subsidiary and Acquisition Subsidiary desires to merge with the Company, upon
the terms and subject to the conditions set forth herein, whereby (i) each
issued and outstanding share of voting common stock, par value $.01 per share,
of the Company (the "Company Common Stock") and each issued and outstanding
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share of Series B convertible preferred stock, par value $.01 per share, of the
Company (the "Company Convertible Preferred Stock") will be converted into cash
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and either (x) shares of common stock, par value $.10 per share, of Parent (the
"Parent Common Stock") or (y) shares of Series A convertible preferred stock,
par value $.10 per share, of Parent (the "Parent Preferred Stock"), (ii) each
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issued and outstanding share of Series A redeemable preferred stock, par value
$.01 per share, of the Company (the "Company Redeemable Preferred Stock" and,
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together with the Company Convertible Preferred Stock, collectively referred to
herein as the "Company Preferred Stock") will be converted into cash and (iii)
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each issued and outstanding option to purchase shares of Company Common Stock (a
"Company Stock Option") will be canceled and the holders thereof will receive
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cash and either shares of Parent Common Stock or Parent Preferred Stock, in such
amounts, in such proportion and in such manner as hereinafter described;
WHEREAS, subject to the matter described on Schedule 3.02(a) of
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the Disclosure Schedule, the Shareholders own, and will own immediately prior to
the Closing (as defined in Section 7.01), of record and beneficially, all of the
Company Common Stock and Company Preferred Stock, and the Optionholders own, and
will own immediately prior to the Closing, of record and beneficially, all of
the Company Stock Options, and have agreed to cause the Company to enter into
this Agreement and consummate the transactions contemplated hereby, and, in
their capacity as shareholders and optionholders, to enter into this Agreement
and consummate the transactions contemplated hereby; and
<PAGE>
WHEREAS, in the case that the Merger is a Forward Merger (as
defined in Section 1.01(a)), it is intended for U.S. federal income tax purposes
that the Merger shall constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
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and that this Agreement shall constitute a "plan of reorganization" for purposes
of Section 368 of the Code.
NOW THEREFORE, in consideration of the promises and the mutual
agreements, covenants, representations and warranties herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions set
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forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL") and the Indiana Business Corporation Law (the "IBCL"), at the
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Effective Time (as defined in Section 1.02):
(a) If, (i) on the last trading day preceding the Closing Date, the
closing price of a share of Parent Common Stock on the New York Stock Exchange
(the "Closing Stock Price") is $29.00 or greater per share, or (ii) the Closing
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Stock Price is less than $29.00 per share, but Parent receives the tax opinion
described in Section 6.01(j), and the Company shall so elect, the Company shall
be merged with and into Acquisition Subsidiary (the "Forward Merger"). After
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giving effect to the Forward Merger, the separate corporate existence of the
Company shall cease and Acquisition Subsidiary shall continue as the surviving
corporation (the "Forward Merger Surviving Corporation"), and Acquisition
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Subsidiary shall succeed to and assume all the rights and obligations of the
Company in accordance with the DGCL; or
(b) If the condition to a Forward Merger pursuant to Section 1.01(a)
above is not satisfied, Acquisition Subsidiary shall be merged with and into the
Company (the "Reverse Merger"). After giving effect to the Reverse Merger, the
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separate corporate existence of Acquisition Subsidiary shall cease and the
Company shall continue as the surviving corporation (the "Reverse Merger
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Surviving Corporation"), and the Company shall succeed to and assume all the
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rights and obligations of Acquisition Subsidiary in accordance with the IBCL.
For purposes of this Agreement (i) the term "Merger" shall mean either
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the Forward Merger or the Reverse Merger, whichever is applicable, and (ii) the
term "Surviving Corporation" shall mean either the Forward Merger Surviving
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Corporation or the Reverse Merger Surviving Corporation, whichever is
applicable.
SECTION 1.02 Effective Time. The parties shall prepare, execute and deliver a
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certificate of merger and/or other appropriate documents in substantially the
form(s) annexed hereto as Exhibit 1.02 (in any such case, the "Certificate of
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Merger") in accordance with the relevant provisions of the DGCL and the IBCL and
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file same with the Secretary of State of the State of Delaware and the Secretary
of State of the State of Indiana, respectively. The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware (in the case of the Forward Merger) or the
Secretary of State of the State of Indiana (in the case of the Reverse Merger)
or at such subsequent time or date as Parent and the Company shall agree and
2
<PAGE>
specify in the Certificate of Merger. The time at which the Merger becomes
effective is referred to in this Agreement as the "Effective Time". In addition,
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in the case that the Merger is a Reverse Merger, Parent shall cause the
Certificate of Designation (as defined in Section 2.01(a)(ii)(B)) to be filed
with the Secretary of State of the State of Delaware at the Effective Time.
SECTION 1.03 Effects of the Merger. At and after the Effective Time, the
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Surviving Corporation shall succeed to and possess, without further act or deed,
all of the estate, rights, privileges, powers and franchises, both public and
private, and all of the property, real, personal, and mixed, of the Company and
Acquisition Subsidiary; all debts due to the Company and Acquisition Subsidiary
shall be vested in the Surviving Corporation; all claims, demands, property,
rights, privileges, powers and franchises and every other interest of the
Company and Acquisition Subsidiary shall be as effectively the property of the
Surviving Corporation as they were of the Company and Acquisition Subsidiary,
respectively; the title to any real estate vested by deed or otherwise in the
Company and Acquisition Subsidiary shall not revert or be in any way impaired by
reason of the Merger, but shall be vested in the Surviving Corporation; all
rights of creditors and all liens upon any property of the Company and
Acquisition Subsidiary shall be preserved unimpaired, limited in lien to the
property affected by such lien at the Effective Time of the Merger; and all
debts, liabilities, and duties of the Company and Acquisition Subsidiary shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if such debts, liabilities and duties had been incurred or
contracted by it.
SECTION 1.04 Certificate of Incorporation and By-laws.
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(a) The Certificate of Incorporation of Acquisition
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The By-laws of Acquisition Subsidiary as in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.05 Directors. The directors of Acquisition Subsidiary immediately
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prior to the Effective Time shall be the directors of the Surviving Corporation
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.06 Officers. The officers of the Acquisition Subsidiary immediately
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prior to the Effective Time shall be the officers of the Surviving Corporation
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be; provided, that H.
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Coleman Davis, III shall be appointed as the President of the Surviving
Corporation effective immediately after the Effective Time.
SECTION 1.07 Tax Consequences. In the case that the Merger is a Forward
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Merger, it is intended by the parties hereto that, for U.S. federal income tax
3
<PAGE>
purposes, the Merger shall constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and that each of Parent, Acquisition Subsidiary and
the Company shall be a party, within the meaning of Section 368(b) of the Code,
to the "reorganization." In such case, the parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the U.S. Treasury Regulations. Accordingly, both
prior to and after the Closing Date, the books and records of Parent and the
Surviving Corporation shall be maintained, and all tax returns and schedules
thereto shall be filed, in a manner consistent with the Merger being qualified
as a tax-free merger under Section 368(a) of the Code (unless a court of
competent jurisdiction renders a determination (as defined in Section 1313(a)(1)
of the Code) that the Merger does not qualify as such). Each party hereto shall
provide to each of the other parties hereto such information, reports, returns
and schedules as may reasonably be required to assist in accounting or reporting
the Merger as being so qualified.
ARTICLE II
MERGER CONSIDERATION; CONVERSION OF SECURITIES; ADJUSTMENT; ESCROW
SECTION 2.01 Merger Consideration.
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(a) Merger Consideration; Cash/Stock Ratio. The total amount of
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consideration to be paid by Parent or Acquisition Subsidiary (i) for all of the
shares of Company Common Stock and Company Preferred Stock, (ii) in respect of
all Company Stock Options and (iii) on account of the Company Expense Payments
pursuant to Section 13.01(b), shall be One Hundred Fifty Million Dollars
($150,000,000) (the "Merger Consideration"), which amount shall be subject to
---------------------
adjustment in accordance with Section 2.04. The Merger Consideration shall be
paid as follows:
(i) fifty-five percent (55%) of the Merger Consideration
(the "Cash Portion") shall be paid in cash, without interest;
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and
(ii) forty-five percent (45%) of the Merger Consideration
(the "Stock Portion") shall be paid as follows:
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(A) In the case that the Merger is a Forward Merger,
the Stock Portion shall be that number of shares of
Parent Common Stock determined by dividing (x) the
amount of the Stock Portion by (y) $30.00 (the "Common
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Stock Stated Value"); or
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(B) In the case that the Merger is a Reverse Merger,
the Stock Portion shall be that number of shares of
Parent Preferred Stock, having the rights, powers and
preferences set forth in the Certificate of Designation
substantially in the form annexed hereto as Exhibit 2.01
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(the "Certificate of Designation"), determined by
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dividing (x) the amount of the Stock Portion by (y)
$100.00 (the "Preferred Stock Stated Value").
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4
<PAGE>
The ratio of the Cash Portion to the Stock Portion (i.e., 55% to 45%) is
referred to herein as the "Cash/Stock Ratio".
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(b) Payment of Merger Consideration. Subject to Section 2.05, the
--------------------------------
Merger Consideration shall be paid as follows:
(i) in cash, in payment of the Company Expense Payments
pursuant to Section 13.01(b);
(ii) in cash, to (A) the holders of the Company Redeemable
Preferred Stock, on a per share basis, the original purchase
price of such Company Redeemable Preferred Stock of $100.00 per
share, plus all accrued and unpaid dividends on such Company
Redeemable Preferred Stock through and including the Closing
Date (as defined in Section 7.01), and (B) the holders of the
Company Convertible Preferred Stock, on a per share basis, all
accrued and unpaid dividends on such Company Convertible
Preferred Stock through and including the Closing Date;
(iii) in cash and either Parent Common Stock or Parent
Preferred Stock, as the case may be, (in accordance with the
Adjusted Cash/Stock Ratio, as defined below), to the holders of
the Company Stock Options, an amount in respect thereof equal to
the product of (A) the excess of the Merger Consideration Per
Common Share (as defined below) over the exercise price thereof,
if any, and (B) the number of shares of Common Stock subject
thereto (such payment to be net of taxes required by law to be
withheld with respect thereto). For purposes hereof, the "Merger
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Consideration Per Common Share" shall mean the quotient obtained
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by dividing (A) the sum of (x) the Merger Consideration (as
adjusted pursuant to Section 2.04(a)(i)), less the amounts paid
pursuant to clauses (i) and (ii) above, and (y) the aggregate
exercise price of all Company Stock Options vested and
exercisable immediately prior to the Effective Time, by (B) the
sum of (x) the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time, (y) the
number of shares of Company Convertible Preferred Stock issued
and outstanding immediately prior to the Effective Time
(calculated on an as-converted basis), and (z) the number of
shares of Company Common Stock issuable upon exercise of the
Company Stock Options prior to the Effective Time, assuming the
full vesting and exercise of such Company Stock Options; and
(iv) in cash and either Parent Common Stock or Parent
Preferred Stock, as the case may be, (in accordance with the
Adjusted Cash/Stock Ratio), to the holders of Company Common
Stock and Company Convertible Preferred Stock (calculated on an
as-converted basis, after giving effect to the payment of any
dividends thereon pursuant to clause (ii)(B) above), on a per
share basis, the excess of (A) the Merger Consideration (as
adjusted pursuant to Section 2.04(a)(i)) over (B) the aggregate
5
<PAGE>
of the portion of the Merger Consideration payable pursuant to
clauses (i), (ii) and (iii) of this Section 2.01(b).
For the purposes of this Agreement, the "Adjusted Cash/Stock Ratio"
---------------------------
shall mean the ratio of (A) the Cash Portion, less (x) the Company Expense
Payments made pursuant to Section 2.01(b)(i) and Section 13.01(b) and (y)
payments in respect of the Company Redeemable Preferred Stock and accrued and
unpaid dividends on the Company Redeemable Preferred Stock and Company
Convertible Preferred Stock made pursuant to Section 2.01(b)(ii), to (B) the
Stock Portion.
(c) Calculation of Payments; Method of Payment. Not later than two
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(2) business days prior to the Closing, the Holder Representatives shall give
Parent and Acquisition Subsidiary a notice stating the amounts payable pursuant
to each of clauses (i), (ii), (iii) and (iv) of Section 2.01(b), together with
the names and tax identification numbers of the recipients of each of the Cash
Portion and the Stock Portion. Subject to Section 2.05, all payments of the
Stock Portion shall be made by delivery of fully paid and nonassessable shares
of Parent Common Stock (in the case of a Forward Merger) or Parent Preferred
Stock (in the case of a Reverse Merger). Subject to Section 2.05, all payments
of the Cash Portion shall be paid on the Closing Date by wire transfer of
immediately available funds to an account or accounts designated by the Holder
Representatives not later than two (2) business days prior to the Closing.
SECTION 2.02 Cancellation and Conversion of the Capital Stock and Stock
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Options of the Company and Acquisition Subsidiary. At the Effective Time, by
---------------------------------------------------
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of the Company, Parent or Acquisition Subsidiary:
(a) Capital Stock of Acquisition Subsidiary. Each issued and
-------------------------------------------
outstanding share of common stock of Acquisition Subsidiary shall be converted
into and shall become one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of Company Common
--------------------------------
Stock that is owned by the Company as treasury stock immediately prior to the
Effective Time shall automatically be canceled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of the Company Redeemable Preferred Stock. Each share
----------------------------------------------------
of Company Redeemable Preferred Stock issued and outstanding immediately prior
to the Effective Time shall be converted, on a per share basis, into the right
to receive, in cash, the amounts described in Section 2.01(b)(ii)(A).
(d) Cancellation of the Company Stock Options. Immediately prior to
-----------------------------------------
the Effective Time, each issued and outstanding Company Stock Option, whether or
not then exercisable or vested, shall become fully exercisable and vested. At
the Effective Time, each Company Stock Option which is then issued and
outstanding shall be canceled and in consideration of such cancellation, Parent
shall pay to the holders of the Company Stock Options the amounts described in
6
<PAGE>
Section 2.01(b)(iii). No payment shall be made with respect to any Company Stock
Option having an exercise price greater than the Merger Consideration Per Common
Share.
(e) Conversion of the Company Common Stock and Company Convertible
----------------------------------------------------------------
Preferred Stock. All of the shares of the Company Common Stock and Company
----------------
Convertible Preferred Stock (calculated on an as-converted basis) issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.02(b)) shall be converted, on a per share
basis, into the right to receive the amounts described in Section 2.01(b)(iv).
In addition, the holders of Company Convertible Preferred Stock shall receive
the amounts specified in Section 2.01(b)(ii)(B).
SECTION 2.03 Exchange Procedure; Payment.
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(a) Exchange Procedure. At the Effective Time all shares of Company
------------------
Common Stock and Company Preferred Stock shall no longer be outstanding and
shall automatically be canceled and shall cease to exist, and each holder of a
certificate that immediately prior to the Effective Time represented any such
shares (a "Certificate") shall cease to have any rights with respect thereto,
-----------
except the right to receive its allocable share of the Merger Consideration in
accordance with Sections 2.01 and 2.02. Upon surrender of a Certificate for
cancellation, the Shareholder shall be entitled to receive in exchange therefor
the amount of cash and/or either Parent Common Stock or Parent Preferred Stock,
as the case may be, into which the shares formerly represented by such
Certificate shall have been converted pursuant to Sections 2.02(c) and (e) and
the Certificate so surrendered shall forthwith be canceled.
(b) Fractional Shares. In no event shall any fractional share of
------------------
Parent Common Stock or Parent Preferred Stock, as the case may be, be issued
pursuant to this Article II. Instead, each Holder who otherwise would be
entitled to receive a fractional share of Parent Common Stock or Parent
Preferred Stock, as the case may be, shall receive an amount of cash equal to
the product of the same fraction multiplied by the Common Stock Stated Value or
the Preferred Stock Stated Value, as the case may be.
(c) Adjustments. Any shares of Parent Common Stock to be issued
-----------
hereunder shall be of Parent Common Stock as constituted on the date hereof, and
such shares shall be appropriately adjusted for stock splits, stock dividends,
combinations or reclassifications of shares, reorganization, recapitalization or
other similar change in such common stock occurring between the date hereof and
the Closing Date, if any.
(d) No Further Ownership Rights in Company Common Stock or Company
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Preferred Stock. All cash and Parent Common Stock or Parent Preferred Stock, as
----------------
the case may be, paid upon the surrender of a Certificate in accordance with the
terms of this Article II shall be deemed to have been paid in full satisfaction
of all rights pertaining to the shares of Company Common Stock or Company
Preferred Stock formerly represented by such Certificate.
(e) Lost Certificates. If any Certificate shall have been lost,
------------------
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Parent shall pay in
7
<PAGE>
respect of such lost, stolen or destroyed Certificate the applicable Merger
Consideration.
(f) Dividends in Connection with Parent Common Stock and Parent
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Preferred Stock. Dividends or other distributions made in connection with Parent
---------------
Common Stock or Parent Preferred Stock, as the case may be, shall be distributed
only to those of the Holders who have surrendered their Certificates or whose
Company Stock Options have been canceled and who have received Parent Common
Stock or Parent Preferred Stock, as the case may be, therefor in accordance with
this Article II.
(g) Withholding Rights. Parent and Acquisition Subsidiary shall be
------------------
entitled to deduct and withhold from the Cash Portion of the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock or Company Preferred Stock or of Company Stock
Options such amounts as Parent or Acquisition Subsidiary are required to deduct
and withhold with respect to the making of such payment under the Code or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld and paid over to the appropriate taxing authority by Parent or
Acquisition Subsidiary such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock or Company Preferred Stock or any Company Stock Options in respect
of which such deduction and withholding was made by Parent or Acquisition
Subsidiary.
SECTION 2.04 Adjustment of Merger Consideration.
----------------------------------
(a) The Merger Consideration will be adjusted upward or downward, on
a dollar for dollar basis, to the extent that the Company's shareholder equity
as of the Closing Date as finally determined in accordance with generally
accepted accounting principles ("GAAP"), applied on a consistent basis, except
----
as otherwise set forth in Sections 2.04(c) and 13.01(c) ("Shareholder Equity")
-------------------
is greater than or less than Twenty Million Dollars ($20,000,000). The
Shareholder Equity shall be determined as follows:
(i) For purposes of determining the amount of the Merger
Consideration to be paid on the Closing Date, the Shareholder
Equity will be determined in the same manner as it is to be
determined in preparing the Audited Closing Balance Sheet (as
defined below), except that it shall be based upon the unaudited
balance sheet of the Company as of September 30, 2001 (the
"Estimated Closing Balance Sheet"). The Company shall deliver
the Estimated Closing Balance Sheet to Parent and Acquisition
Subsidiary not later than three (3) business days prior to the
Closing.
(ii) In order to conclusively determine the Shareholder
Equity as of the Closing Date, Parent, with the cooperation of
the Holders, will cause a balance sheet of the Company as of the
Closing Date (the "Closing Balance Sheet") to be prepared as
-----------------------
promptly as practicable following the Closing Date and Parent
will engage Deloitte & Touche LLP ("D&T") to audit the Closing
---
Balance Sheet (as audited, the "Audited Closing Balance Sheet").
-----------------------------
8
<PAGE>
The Audited Closing Balance Sheet shall be prepared based upon
the Company's books and records in accordance with GAAP, applied
on a consistent basis, except as otherwise set forth in Sections
2.04(c) and 13.01(c). The parties will use their reasonable best
efforts to cause D&T to complete and deliver the Audited Closing
Balance Sheet to Parent and the Holder Representatives within
sixty (60) days after D&T's receipt of the Closing Balance
Sheet. The parties shall cooperate with D&T in connection with
such audit, and shall provide D&T with all books, records and
other papers necessary for such purpose.
(iii) The Audited Closing Balance Sheet shall be final and
binding on the parties, unless within thirty (30) days after
receipt thereof the Holder Representatives shall give Parent a
notice of objection (an "Objection Notice"). The Objection
-----------------
Notice shall specify each item the Holders object to in the
Audited Closing Balance Sheet, together with a calculation of
each disputed amount, and shall include all supporting
calculations and data used in that determination. Any item in
the Audited Closing Balance Sheet that is not objected to in the
Objection Notice shall be deemed agreed and shall be final and
binding on the parties.
(iv) In the event an Objection Notice is given, Parent and
the Holder Representatives, together with D&T and the Company's
auditors, Ernst & Young LLP ("E&Y"), shall meet in an effort to
---
resolve any objection and arrive at a final determination. If
Parent and the Holder Representatives are unable to arrive at a
final determination within ten (10) days after an Objection
Notice is given, the matter shall be submitted for final
determination to a firm of independent certified public
accountants upon which the Holder Representatives and Parent
mutually agree (the "Independent Firm"). The Independent Firm
-----------------
shall make a final determination in writing as to all matters in
dispute within thirty (30) days after its appointment; and such
determination shall be final and binding on the parties;
provided that notwithstanding the Independent Firm's
--------
determination of the Shareholder Equity, for purposes hereof the
Shareholder Equity shall be neither less than the amount
specified in the Audited Closing Balance Sheet nor greater than
the amount specified in the Objection Notice.
(v) Parent shall pay any fees owing to D&T in connection
with this Section, and the Holders shall pay any fees owing to
E&Y in connection with this Section. Any fees owing to the
Independent Firm in connection with this Section shall be paid
in direct proportion to the amounts of the disputed items that
are lost by the Holders or Parent, as the case may be.
(b) Method of Adjustment. In the event that the Shareholder Equity
--------------------
as finally determined pursuant to this Section is greater than the Shareholder
Equity as determined pursuant to the Estimated Closing Balance Sheet, Parent
will pay such difference to the Holders in additional cash and Parent Common
Stock or Parent Preferred Stock, as the case may be, which shall be paid in
9
<PAGE>
accordance with the Cash/Stock Ratio, with the value of the Parent Common Stock
to be based on the Common Stock Stated Value and the value of the Parent
Preferred Stock to be based on the Preferred Stock Stated Value; provided,
--------
however, if payments made under this Section 2.04(b) in accordance with the
-------
Cash/Stock Ratio would result in the total number of shares of Parent Common
Stock or Parent Preferred Stock (calculated on an as-converted basis) being
delivered pursuant to this Article II to exceed 2,250,000 shares, Parent, at its
option, may elect to pay cash in lieu of Parent Common Stock or Parent Preferred
Stock, as the case may be, for any shares in excess thereof (at a per share
price equal to the Common Stock Stated Value or the Preferred Stock Stated
Value, as the case may be); provided, further, that any such election by Parent
-------- -------
shall be limited to such extent as is necessary so that the Forward Merger (if
applicable) shall have the tax consequences described in Section 1.07. Any such
payment to the Holders shall be paid to the Holders, pro rata, based on the
--- ----
respective portion of the Merger Consideration that each Holder is entitled to
receive pursuant to Sections 2.01(b)(iii) and (iv). In the event that the
Shareholder Equity as finally determined pursuant to this Section is less than
the Shareholder Equity as determined pursuant to the Estimated Closing Balance
Sheet, such difference shall be withdrawn from the Escrowed Funds (as defined
below) in accordance with the Cash/Stock Ratio, with the value of the Parent
Common Stock to be based on the Common Stock Stated Value and the value of the
Parent Preferred Stock to be based on the Preferred Stock Stated Value, and
delivered to Parent in accordance with Section 2.05(a)(i).
(c) Shareholder Equity. For purposes of determining Shareholder
-------------------
Equity, (i) the Shareholder Equity shall be increased by the amount of any Tax
Benefit (as defined below) the Company or the Surviving Corporation arising out
of or attributable to the exercise (or cancellation pursuant to Section 2.02(d))
of the Company Stock Options (whether or not permitted by GAAP), (ii) the
Company Redeemable Preferred Stock, and any accrued and unpaid dividends on the
Company Redeemable Preferred Stock and on the Company Convertible Preferred
Stock (whether or not declared), shall be included in the calculation of
Shareholder Equity, (iii) the Estimated Closing Balance Sheet and the Audited
Closing Balance Sheet shall not reflect any asset for any sums deposited in
court in connection with the matter described on Schedule 3.02(a) of the
Disclosure Schedule (as defined below) or any subscription receivable in
connection with such matter, nor any liability or reserve in connection with
such matter, (iv) the Audited Closing Balance Sheet shall have accrued or
reserved thereon each of the items specified in this Agreement as being required
to be accrued or reserved on the Audited Closing Balance Sheet, in the
respective amounts specified herein and, further, all such accruals and reserves
shall be determined as if the Audited Closing Balance Sheet were a year-end
balance sheet of the Company, and (v) the warranty reserve used in the
preparation of the Estimated Closing Balance Sheet and the Audited Closing
Balance Sheet in each case shall be adjusted to reflect the reserve which would
be required if it were calculated in accordance with the Thor Warranty Reserve
Formula annexed hereto as Annex 2.04(c).
-------------
SECTION 2.05 Escrow.
------
(a) Notwithstanding anything to the contrary contained in this
Article II, on the Closing Date, there shall be deducted from the Merger
Consideration payable pursuant to Sections 2.01(b)(iii) and (iv), on a pro rata
basis, the sum of Twenty Million Dollars ($20,000,000) (the "Escrowed Funds"),
--------------
which sum will be deposited into an interest bearing escrow account, to be held
by The Chase Manhattan Bank (the "Escrow Agent") pursuant to an escrow agreement
------------
10
<PAGE>
to be entered into on the Closing Date among Parent, the Surviving Corporation,
the Holders, the Holder Representatives and the Escrow Agent in substantially
the form annexed hereto as Exhibit 2.05(a) (the "Escrow Agreement"). The
---------------- -----------------
Escrowed Funds will be deposited in accordance with the Cash/Stock Ratio (i.e.,
55% of the Escrowed Funds will be cash and 45% of the Escrowed Funds will be
shares of Parent Common Stock or Parent Preferred Stock, as the case may be,
together with duly endorsed blank stock powers) valued based on the Common Stock
Stated Value or the Preferred Stock Stated Value, respectively, as indicated in
Section 2.01(a)(ii). In addition, any shares of Parent Common Stock or Parent
Preferred Stock, as the case may be, issued from time to time after the Closing
Date in respect of the shares of Parent Common Stock or Parent Preferred Stock
included in the Escrowed Funds by virtue of any stock split, stock combination,
stock dividend or reclassification of shares, reorganization, recapitalization
or similar change shall be immediately deposited into the escrow account,
together with duly endorsed blank stock powers, and shall, upon deposit, be
deemed to be part of the Escrowed Funds for all purposes hereunder. The Escrowed
Funds will secure (x) any adjustments to the Merger Consideration as provided
for in Section 2.04, and (y) the Holders' indemnification obligations under
Articles IX and XI of this Agreement. The Escrowed Funds will be withdrawn or
released as follows:
(i) upon the final determination of the Shareholder Equity
in accordance with Section 2.04, (A) if Parent is entitled to
receive any adjustment of the Merger Consideration, the amount
of such adjustment shall be withdrawn from the Escrowed Funds in
accordance with Section 2.04, and paid to Parent, within five
(5) days after such final determination, and (B) there shall be
withdrawn from the Escrowed Funds the amounts necessary to pay
any fees payable by the Holders to E&Y and the Independent Firm,
as applicable, pursuant to Section 2.04(a)(v), such amounts to
be paid directly to E&Y and the Independent Firm, as applicable;
(ii) following the final determination of the Shareholder
Equity in accordance with Section 2.04 and the withdrawal, if
any, of Escrowed Funds as provided in clause (i) above, a
portion of the Escrowed Funds will be released to the Holders
(in accordance with the Cash/Stock Ratio) such that the sum of
$15,000,000 (with the value of the Parent Common Stock or the
Parent Preferred Stock, as the case may be, to be based on the
Common Stock Stated Value or the Preferred Stock Stated Value,
respectively) will remain as Escrowed Funds; provided, however,
that if less than $15,000,000 (valued in the manner provided
above) shall remain after the withdrawal as provided in clause
(i) above, each Holder, within five (5) days after such
withdrawal, shall deposit such additional cash and, at each
Holder's option, shares of Parent Common Stock or Parent
Preferred Stock, as the case may be (valued in the manner
provided above, but not to exceed forty-five percent (45%) of
the amount required to be deposited) as needed to cause the
Escrowed Funds to be $15,000,000 (such deposit to be made by the
Holders, pro rata, based on the respective portion of the Merger
Consideration that each Holder is entitled to receive under
Sections 2.01(b)(iii) and (iv)); and
11
<PAGE>
(iii) the remaining Escrowed Funds (including any
undistributed interest earned thereon), if any, will be released
to the Holders on the first (1st) anniversary of the Closing
Date; provided, however, that if prior to such first (1st)
-------- -------
anniversary Parent or the Surviving Corporation shall give
notice of a claim or claims for indemnification pursuant to
Articles IX or XI of this Agreement, then: (A) if any such claim
is resolved prior to such first (1st) anniversary, by judicial
determination or otherwise, any sums due Parent or the Surviving
Corporation shall be withdrawn from the Escrowed Funds and paid
to Parent or the Surviving Corporation, within five (5) days
after such resolution; or (B) if any such claim is not resolved
prior to such first (1st) anniversary, the amount of such claim,
plus the reasonably estimated amount of legal fees and
disbursements to be incurred in connection therewith, shall be
retained as Escrowed Funds until such claim is resolved. Any
amounts to be withdrawn or to be retained pursuant to clause (A)
or (B) above shall be withdrawn or retained, respectively, as
follows: (x) if such claim is a Third Party Claim (as defined in
Section 9.06(b)), first from Escrowed Funds consisting of cash,
and thereafter from shares of Parent Common Stock or Parent
Preferred Stock, as the case may be, and (y) if such claim is
not a Third Party Claim, in accordance with the Cash/Stock Ratio
or, at the option of the Holder Representatives, in cash. For
purposes of determining the number of shares of Parent Common
Stock (if applicable) to be withdrawn or to be retained as
Escrowed Funds under this clause (iii), the Parent Common Stock
shall be deemed to have a value equal to the Common Stock Stated
Value. For purposes of determining the number of shares of
Parent Preferred Stock (if applicable) to be withdrawn or to be
retained as Escrowed Funds under this clause (iii), the Parent
Preferred Stock shall be deemed to have a value equal to the
Preferred Stock Stated Value.
Any Escrowed Funds released to the Holders shall be paid to the Holders,
pro rata, based on the respective portion of the Merger Consideration that each
Holder is entitled to receive pursuant to Section 2.01(b)(iii) and (iv), it
being agreed that no Escrowed Funds shall be released to any Holder in respect
of the Company Redeemable Preferred Stock.
(b) In addition, notwithstanding anything to the contrary contained
in this Article II, on the Closing Date, there shall be deducted from the Merger
Consideration payable pursuant to Sections 2.01(b)(iii) and (iv), on a pro rata
--- ----
basis, an additional sum, in cash, in the amount (the "Additional Escrowed
---------- --------
Funds") specified in the letter agreement to be entered into on the Closing Date
-----
among Parent, the Surviving Corporation, the Holders and the Holder
Representatives in substantially the form annexed hereto as Exhibit 2.05(b)(i)
-------------------
(the "Letter Agreement"). The Additional Escrowed Funds will be deposited into
-----------------
an interest bearing escrow account to be held by the Escrow Agent pursuant to an
escrow agreement to be entered into on the Closing Date among Parent, the
Surviving Corporation, the Holders, the Holder Representatives and the Escrow
Agent in substantially the form annexed hereto as Exhibit 2.05(b)(ii) (the
-------------------
"Additional Escrow Agreement", and, together with the Escrow Agreement,
-----------------------------
collectively, the "Escrow Agreements"), and will be withdrawn or released in
------------------
accordance with the terms of the Letter Agreement and the Additional Escrow
Agreement.
12
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDER
Except as set forth on the disclosure schedule, with specific reference
to the Section or subsection of this Agreement to which the information stated
in such disclosure relates (the "Disclosure Schedule"), the Company and H.
--------------------
Coleman Davis, III (the "Principal Shareholder") hereby represent, warrant and
--------- -----------
agree, as of the date of this Agreement and as of the Closing Date, as follows,
each of which representations, warranties and agreements shall be deemed to be
independently material and to have been relied upon by Parent and Acquisition
Subsidiary:
SECTION 3.01 Organization; Good Standing. The Company is a corporation duly
----------------------------
organized, validly existing and in good standing under the laws of the State of
Indiana, has full power and authority, corporate and other, to own and operate
its property (including the operation of leased property), and to carry on the
Business as it is now being conducted, and is duly qualified or licensed as a
foreign corporation to do business and is in good standing in each jurisdiction
(all of which other jurisdictions, if any, are listed on Schedule 3.01 hereto)
-------------
in which the character of the property owned or the nature of the business
transacted by it makes such qualification or licensing necessary, except that if
the Company is not so qualified in any such jurisdiction it can become qualified
without any Material Adverse Effect (as defined in Section 13.17) (including
assessment of state taxes for prior years). True and complete copies of the
Company's Articles of Incorporation and By-laws (including all amendments
thereto), as in effect on the date hereof, have been delivered, or made
available, to Parent and Acquisition Subsidiary.
SECTION 3.02 Capitalization; Title to Shares.
-------------------------------
(a) The Company's authorized capital stock consists solely of
10,000,000 shares of Company Common Stock, 1,000,000 shares of non-voting common
stock, par value $.01 per share (the "Company Non-Voting Common Stock"), and
---------------------------------
2,000,000 shares of Company Preferred Stock. As of the date hereof, there are,
and as of the Closing Date there will be, (i) 14,026.45 issued and outstanding
shares of Company Common Stock, (ii) no issued and outstanding shares of Company
Non-Voting Common Stock, (iii) 112,564 issued and outstanding shares of Company
Preferred Stock (consisting of 99,000 shares of Company Redeemable Preferred
Stock and 13,564 shares of Company Convertible Preferred Stock), (iv) no shares
of Company Common Stock or Company Preferred Stock held by the Company as
treasury shares, and (v) 9,394.43 shares of Company Common Stock reserved for
issuance upon conversion of Company Convertible Preferred Stock and 948.25
shares of Company Common Stock reserved for issuance upon the exercise of
outstanding Company Stock Options. All outstanding shares of Company Common
Stock and Company Preferred Stock are and will on the Closing Date be validly
issued, fully paid and nonassessable. Subject to the matter described on
Schedule 3.02(a), the Shareholders own, of record, all of the issued and
----------------
outstanding shares of Company Common Stock and Company Preferred Stock. The
Optionholders own, of record, all of the Company Stock Options.
13
<PAGE>
(b) Schedule 3.02(b) is a true and complete list as of the date
-----------------
hereof, of all issued and outstanding shares of the Company Common Stock and
Company Preferred Stock, and the names and number of shares owned by each of the
holders thereof. Each Shareholder owns, of record, the number of shares of
Company Common Stock and Company Preferred Stock, respectively, set forth next
to such Shareholder's name on Schedule 3.02(b).
(c) Schedule 3.02(c) is a true and complete list, as of the date
-----------------
hereof, of all outstanding Company Stock Options, the number of shares subject
to each such Company Stock Option, the grant dates and exercise prices thereof
and the names of the holders thereof. Each Optionholder owns, of record, the
Company Stock Options set forth next to such Optionholder's name on Schedule
3.02(c).
(d) Except as set forth above, there are no outstanding
subscriptions, options, rights, warrants or other commitments entitling any
person to purchase or otherwise subscribe for or acquire any shares of capital
stock of the Company or any security convertible into or exchangeable for shares
of capital stock of the Company, nor is there presently outstanding any security
convertible into or exchangeable for shares of capital stock of the Company, nor
has the Company entered into any agreement with respect to any of the foregoing.
The Company has no obligation to repurchase, redeem or otherwise acquire any
shares of capital stock of, or other equity or voting interests in, the Company.
There are no irrevocable proxies and no voting agreements to which the Company
is a party with respect to any shares of the capital stock or other voting
securities of the Company.
SECTION 3.03 Subsidiaries. The Company does not have, nor has the Company
------------
ever had, any subsidiaries, and the Company does not own, nor has the Company
ever owned, directly or indirectly, any capital stock of, or other equity or
voting interests in, any corporation, partnership, limited liability company,
joint venture, association or other entity.
SECTION 3.04 Authority Relative to this Agreement. The Company has the full
-------------------------------------
legal right, power and capacity and all authority and approval required by law
to enter into this Agreement and the documents and instruments to be executed
and delivered by it pursuant hereto, and to perform fully its obligations
hereunder and thereunder. The execution, delivery and performance by the Company
of this Agreement and the documents and instruments to be executed and delivered
by it pursuant hereto have been duly authorized by all requisite corporate
action (including all action required of the Company's Board of Directors
(including any committees of the Board of Directors, to the extent applicable)
and the Shareholders), and no other corporate proceedings on the part of the
Company are necessary to approve this Agreement or the documents and instruments
to be executed and delivered by it pursuant hereto, or to consummate the
transactions contemplated hereby or thereby. This Agreement and the documents
and instruments to be executed and delivered pursuant hereto are and will be
duly executed and delivered by the Company and are and will be the legal, valid
and binding obligations of the Company enforceable against it in accordance with
their terms.
SECTION 3.05 Consents and Approvals; No Violations.
-------------------------------------
(a) Except for applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as
-------------
amended (the "Securities Act"), state Blue Sky laws, the Hart-Scott-Rodino
---------------
14
<PAGE>
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the filing of
-------
the Certificate of Merger as required by the DGCL and the IBCL, and, if
applicable, the filing of the Certificate of Designation as required by the
DGCL, no filing or registration with, and no permit, authorization, consent or
approval of, any public body or authority, including courts of competent
jurisdiction, domestic or foreign ("Governmental Entity"), is necessary for the
-------------------
consummation by the Company of the transactions contemplated by this Agreement.
(b) Neither the execution and delivery of this Agreement or the
documents and instruments to be executed and delivered pursuant hereto by the
Company nor the consummation by the Company of the transactions contemplated
hereby or thereby, nor compliance by the Company with any of the provisions
hereof or thereof, will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of the Company, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default or give rise to any right of termination,
cancellation or acceleration of or loss of a material benefit under, or result
in the creation of any Lien (as defined below) (except for Permitted Liens, as
defined below) in or upon any of the properties or assets of the Company under,
or give rise to any increased, additional, accelerated or guaranteed rights or
entitlements under, or require any consent, approval or notice under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement, lease or other instrument or obligation to which the
Company is a party or by which it or any of its properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its properties or assets, except
in the case of (ii) or (iii) for violations, breaches or defaults which would
not, in the aggregate, have a Material Adverse Effect and which would not
prevent or materially delay the consummation of the transactions contemplated
hereby. For purposes of this Agreement, the term "Liens" shall mean all liens,
-----
pledges, mortgages, security interests, claims, charges and other encumbrances
of any kind or nature whatsoever, and the term "Permitted Liens" shall mean
----------------
Liens for taxes, assessments or governmental charges, or landlords', mechanics',
materialmen's, supplier's or similar Liens, in each case that are not
delinquent, which are being contested in good faith, and which are not,
individually or in the aggregate, material.
SECTION 3.06 Financial Statements. Schedule 3.06 hereto contains (a) the
--------------------- --------------
balance sheet of the Company as of December 31, 2000, 1999 and 1998,
respectively, and the related statement of income, retained earnings and cash
flow for the fiscal years then ended, together with the notes thereto, audited
by E&Y, certified public accountants, with respect to the years ended 2000 and
1999, and McGladrey & Pullen LLP ("M&P"), certified public accountants, with
---
respect to the year ended 1998 (collectively, the "Audited Statements"); and (b)
------------------
the unaudited balance sheet of the Company as of September 30, 2001, and the
related unaudited statement of income, retained earnings and cash flow for the
nine-month period then ended, prepared by the Company (the "Unaudited
---------
Statements"). All such statements (collectively, the "Financial Statements")
---------- ---------------------
have been prepared in conformity with GAAP applied on a consistent basis
throughout the periods involved and fairly present in all material respects the
financial position of the Company as of the dates indicated and the results of
the Company's operations and cash flows for the periods then ended (subject, in
the case of the Unaudited Statements, to normal and recurring year-end audit
adjustments, none of which, individually or in the aggregate, are expected to be
material and the absence of footnotes otherwise required under GAAP).
15
<PAGE>
SECTION 3.07 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
reflected or reserved against in the 2000 Audited Statements, the Company had no
liabilities or obligations that are required to be recorded in accordance with
GAAP, as of the date thereof (other than obligations of continued performance
under the Company's Agreements (as defined in Section 3.09(a)) and other than
commitments and arrangements incident to the normal conduct of business that are
not required to be disclosed on Schedule 3.09(a) or (b)), known or unknown,
secured or unsecured (whether accrued, absolute, contingent or otherwise),
including, without limitation, tax liabilities due or to become due. Except as
and to the extent reflected or reserved against in the Unaudited Statements, the
Company has incurred no liabilities or obligations since December 31, 2000,
other than current liabilities incurred in the ordinary course of business
consistent with past practice or in connection with the transactions
contemplated hereby.
SECTION 3.08 Absence of Certain Changes or Events. Since December 31, 2000,
-------------------------------------
the Company has conducted its business only in the ordinary course consistent
with past practice, and there has not occurred any event or condition which has
or may reasonably be expected to have a Material Adverse Effect, and, without
limiting the generality of the foregoing, the Company has not (a) incurred any
obligation or liability, secured or unsecured (whether accrued, absolute,
contingent or otherwise), whether due or to become due, except current
liabilities in the ordinary course of business consistent with past practice or
those reflected on the Unaudited Statements, (b) discharged or satisfied any
Lien (except for Permitted Liens), or paid any obligation or liability, except
current liabilities becoming due in the ordinary course of business consistent
with past practice, (c) mortgaged, pledged, or subjected to Lien (except for
Permitted Liens) any of the Company's properties or assets, (d) sold,
transferred, licensed or otherwise disposed of any of the Company's properties
or assets other than in the ordinary course of business consistent with past
practice, (e) increased the compensation payable or to become payable by it to
any of its directors, officers, employees or agents whose total compensation for
services rendered after any such increase is more than $100,000, except as
provided by any agreement, either written or oral, the terms of which have been
disclosed on Schedule 3.08, or made any bonus, percentage of compensation or
--------------
other like benefit accruing to or for the credit of any such directors,
officers, employees, consultants or agents of the Company (except in accordance
with any Company Benefit Plan set forth in Schedule 3.19), (f) terminated or
received any notice of termination of any material contract, or any lease,
trademark, patent, patent application, copyright or trade name protection or
other agreement, (g) suffered any damage, destruction or loss (whether or not
covered by insurance) to the Company's properties or assets which has or may
reasonably be expected to have a Material Adverse Effect, (h) suffered any
taking or seizure of all or any part of the Company's properties or assets by
condemnation or eminent domain, (i) experienced any material change in its
relations with its vendors, suppliers, lenders, dealers, distributors,
customers, employees, consultants or agents which has or may reasonably be
expected to have a Material Adverse Effect, (j) acquired any capital stock or
other securities of any corporation or any interest in any business enterprise,
or otherwise made any loan or advance to or investment in any person, firm or
corporation (other than advances to employees in the ordinary course of business
consistent with past practice), (k) made any capital expenditures or capital
additions exceeding $100,000 singly or $200,000 in the aggregate, (l)
instituted, settled or agreed to settle any litigation, action or proceeding
before any court or governmental body affecting its financial condition, its
property or its business operations involving a claim in excess of $5,000, (m)
made any purchase commitment in excess of normal, ordinary and usual
requirements, or made any material change in its selling, pricing, or personnel
16
<PAGE>
practices other than in the ordinary course of business consistent with past
practice, (n) made any change in accounting principles or methods, or in the
manner of keeping books, accounts and records of the Company which is, or may
be, inconsistent with the principles or methodology by which the Financial
Statements have been prepared, (o) entered into any contract, agreement, lease
or other arrangement or transaction, or taken any other action, except in the
ordinary course of business consistent with past practice, (p) changed the
authorized capital stock of the Company, redeemed any capital stock of the
Company, issued, sold or otherwise disposed of any capital stock of the Company
or any option to acquire capital stock of the Company, or any securities
convertible into or exchangeable for capital stock of the Company, increased its
funded indebtedness, or made any declaration, setting aside or payment of any
dividend or any other distribution (whether in cash, stock or property) in
respect of its capital stock (other than dividends payable in respect of Company
Preferred Stock), or (q) entered into any agreement or made any commitment to do
any of the things described in the preceding subsections (a) through (p) of this
Section 3.08.
SECTION 3.09 Company's Agreements.
--------------------
(a) The Company is not a party to, nor are any of the Company's
assets bound by, any executory agreements (including dealer and distributor
agreements), purchase orders (other than purchase commitments for raw materials
and supplies in the ordinary course of business), bailment agreements, equipment
leases, commitments, contracts, employment agreements, repurchase or floorplan
financing agreements, warranties, guarantees, understandings or other agreements
(i) which involve or may involve the payment of more than $25,000, (ii) which
are of a duration in excess of twelve (12) months from the date of execution
thereof, (iii) to which any stockholder, officer, director or employee of the
Company or any member of such person's immediate family, or any business entity
in which such person is a partner, investor, officer or director is a party in
any capacity, (iv) which contain a covenant restricting the ability of the
Company (or which, following the consummation of the Merger, restrict the
ability of Parent or any of its subsidiaries, including the Surviving
Corporation) to compete in any business or in any geographic area or to employ
or solicit the employment of any persons, or requiring the Company to maintain
the confidentiality of any information, (v) which relate to any indebtedness
(which term shall include capital leases and operating leases) of the Company
that is outstanding or may be incurred or any guarantees of or by the Company of
indebtedness of any other person, or (vi) which create or evidence a Lien upon
any of the Company's assets or properties (such agreements, together with any
Real Property Leases set forth in Schedule 3.10(b) hereto, being referred to
herein collectively as the "Company's Agreements"). True and complete copies of
--------------------
each of the Company's Agreements (including all amendments thereto) have been
delivered to Parent and Acquisition Subsidiary. Each of the Company's Agreements
is in full force and effect, is between the Company and the counterparty named
on Schedule 3.09(a) hereto, has an expiration date as set forth on Schedule
-----------------
3.09(a) hereto, has not been amended or modified except as set forth on Schedule
3.09(a) hereto, and constitutes the entire agreement between the parties thereto
with respect to the subject matter thereof. The Company is not and, to the
knowledge of the Company, no other party to any Company Agreement is in default
thereunder, nor does the Company have knowledge of any fact or circumstance with
respect to any Company Agreement which upon notice or lapse of time could give
rise to a default thereunder.
17
<PAGE>
(b) Attached hereto as Schedule 3.09(b) is a true and complete list
----------------
of all purchase orders (other than purchase commitments for raw materials and
supplies in the ordinary course of business) ("Open Purchase Orders") to which
---------------------
the Company is a party or by which the Company is bound which involve or may
involve the payment of more than $10,000 to any single vendor or supplier. True
and complete copies of all such Open Purchase Orders have been delivered to
Parent and Acquisition Subsidiary. The Company has performed all obligations
required to be performed by the Company to date under each Open Purchase Order.
The Company is not and, to the knowledge of the Company, no other party to any
Open Purchase Order is in default thereunder, nor does the Company have
knowledge of any fact or circumstance with respect to any Open Purchase Order
which upon notice or lapse of time could give rise to a default thereunder.
(c) None of the parties to the Damon Purchase Agreement (as defined
below) have made any claims against any other party or parties thereto for any
breach thereunder, nor, to the knowledge of the Company, is there any basis for
any claim under (i) that certain Asset Purchase Agreement dated as of April 28,
2000 (the "Damon Purchase Agreement") by and among the Company, Damon
--------------------------
Corporation, an Indiana corporation ("Damon"), and Lindon Investments, Inc., an
-----
Indiana corporation, (ii) that certain Non-Competition Agreement, dated April
28, 2000, by and between the Company and Damon, restricting certain of the
Company's activities (the "Company Non-Compete"), or (iii) that certain
--------------------
Non-Competition Agreement, dated as of April 28, 2000, by and between Damon and
the Company, restricting certain of Damon's activities (the "Damon
-----
Non-Compete"). The Company had performed, and has no further obligations with
-----------
respect to, the joint marketing efforts described in Sections 7.5(a) and (b) of
the Damon Purchase Agreement. The Company Non-Compete terminated on April 28,
2001 in accordance with its terms, and the Company has no further obligation or
liabilities thereunder. The Damon Purchase Agreement and the Damon Non-Compete
are in full force and effect, have not been amended or modified, and constitute
the entire agreement between the parties thereto with respect to the subject
matter thereof. To the knowledge of the Company, neither party to the Damon
Non-Compete has breached the terms thereof or made any claim of breach with
respect thereto, and, to the knowledge of the Company, there is not any basis
for any claim of breach.
SECTION 3.10 Real Property.
-------------
(a) Schedule 3.10(a) hereto lists all real property interests owned
---------------
by the Company (the "Owned Real Property") and any contract for the purchase or
--------------------
sale of real property. The Company has good and marketable fee simple title to
the Owned Real Property, subject only to those exceptions to title identified on
Schedule 3.10(a) hereto. Each parcel of Owned Real Property and all
improvements, located thereon (i) complies in all material respects with all
covenants, conditions and restrictions affecting such property, either recorded
or of which the Company has knowledge, (ii) is not presently occupied or used by
any party other than its owner, (iii) is not subject to any option to purchase
or lease, right of first refusal to purchase or lease, reversionary interest or
other instrument or Lien, whether recorded or unrecorded, which would prohibit
or require the consent or waiver of another party to the Merger and the
transactions contemplated hereby or any subsequent sale or lease of the
property, and (iv) is not subject to any mortgage, deed of trust or other Lien
securing debt which will not be entirely released and satisfied at the Closing.
There are no taxes currently levied against the Owned Real Property which are
18
<PAGE>
due and payable and have not been paid. No party has provided goods or services
to or in connection with the Owned Real Property which will result in any
mechanic's, materialmens', supplier's, or other Lien as a result of the wrongful
failure to pay for the same prior to Closing. The Company has made available to
Parent and Acquisition Subsidiary accurate and complete copies of all title
insurance policies, surveys and other documents and records relating to the
Owned Real Property that such parties have requested to the extent that such
material was actually in the possession of the Company.
(b) The real property leases listed on Schedule 3.10(b) hereto (the
-----------------
"Real Property Leases") constitute all leases, subleases or licenses of real
---------------------
property (the "Leased Real Property"), whether written or oral, to which the
---------------------
Company is a party or is bound (including any leases with respect to the Leased
Real Property owned by one or more of the Holders or any affiliates of the
Holders). Schedule 3.10(b) identifies each Real Property Lease by the premises
covered thereby, the date of lease and all amendments and supplements thereto,
the name of the landlord thereunder, and the term of the lease, including the
expiration date thereof. True and correct copies of each of the written Real
Property Leases (including all amendments thereto) have been delivered to Parent
and Acquisition Subsidiary. The Company has valid and enforceable leasehold
interests in the Leased Real Property, free and clear of all Liens (other than
Permitted Liens). Each Real Property Lease affords the Company peaceful and
undisturbed possession of the Leased Real Property covered thereby, and there
exists no event of default or event, occurrence, condition or act (including the
transactions contemplated by this Agreement) on the part of the Company, or, to
the knowledge of the Company, on the part of the lessor thereunder, which, with
the giving of notice, the lapse of time or the happening of any further event or
condition, would become a material default under such Real Property Lease, give
rise to a right in the lessor to terminate the Real Property Lease or change any
of the material terms thereof or render the lessee liable to incur any
expenditure under such Real Property Lease. In the event any such Real Property
Lease requires the lessee to exercise, on or before the date hereof, an option
to renew in order to continue the term thereof, the Company has properly
exercised such option to renew.
(c) The Owned Real Property and the Leased Real Property
(collectively, the "Real Property") are the only real property necessary or
--------------
required in connection with the operation of the Business as it is now being
conducted. To the knowledge of the Company, the Real Property and improvements
thereon may lawfully be used in connection with the Business. Except to the
extent that such non-compliance would not have a Material Adverse Effect, the
Real Property and improvements are in compliance with all applicable laws,
rules, regulations and ordinances of all Governmental Entities including, but
not limited to, zoning, building, health, safety and environmental laws; and the
Company has not received any notices of violations with respect thereto.
SECTION 3.11 Machinery and Equipment. All machinery, equipment and other
-------------------------
tangible assets of the Company, necessary and utilized in the operation of the
Business, are in good operating condition and in a state of repair sufficient
for the conduct of normal operations without the necessity of any known capital
expenditure in excess of $15,000. The Company's assets and properties (including
leased assets and properties, if any) are adequate to enable the Company to
conduct the Business as now being conducted. The Company does not have any
19
<PAGE>
commitment or plan to make any capital expenditure in excess of $15,000 that has
not been set forth on Schedule 3.11 hereto.
-------------
SECTION 3.12 Inventories. The inventories of the Company consist of raw
-----------
materials, work in process, and finished goods of a quality and quantity usable
or salable in the normal course of the Business of the Company, except for any
slow moving, obsolete inventory or inventory of below-standard quality, all of
which is immaterial or has been written off or written down to realizable value
or for which there has been a reserve established pursuant to the Financial
Statements. The valuation at which the inventories of the Company are carried
reflects the normal inventory valuation policy of the Company (applied in
accordance with GAAP) which states inventory at the lower of cost
(first-in-first-out-method) or market and the Company's regular costing
standards with respect to work in process and finished goods inventory.
SECTION 3.13 Accounts Receivable. The accounts receivable of the Company
--------------------
result from and will result from bona fide sales made by the Company in the
ordinary course of business consistent with past practice and have been
collected in the ordinary course after provision for doubtful accounts and other
reserves required by GAAP. The accounts receivable of the Company that will be
recorded on the Audited Closing Balance Sheet will be collectible in the
ordinary course after provision for doubtful accounts and other reserves
required by GAAP as set forth thereon The amounts due, or to become due, in
respect of such accounts receivable are not, to the Company's knowledge, in
dispute and there are no, and will not be, any setoffs or counterclaims asserted
against any of the accounts receivable of the Company.
SECTION 3.14 Intellectual Property Rights. Attached hereto as Schedule 3.14
----------------------------- -------------
is a true and complete list of all Intellectual Property Rights (as defined
below) used or held for use by the Company in connection with the Business,
other than computer software programs which are generally sold in consumer
retail stores. The Company shall disclose any patent application in which the
Company has any interest to Parent and Acquisition Subsidiary on a separate
confidential list. The Company owns, or is validly licensed or otherwise has the
right to use, all Intellectual Property Rights used or held for use by the
Company and all goodwill associated therewith on or with respect to the
Company's Products in the same manner in which any such Intellectual Property
Right have been or are now being used. The Company has not infringed upon,
misappropriated or otherwise violated any Intellectual Property Right or other
proprietary information of any other person. Except as noted on Schedule 3.14
hereto, there is no claim, demand or proceeding pending or, to the knowledge of
the Company, threatened, that pertains to or challenges the right of the Company
to use any of the Intellectual Property Rights identified on Schedule 3.14
hereto (including any claim that the Company must license or refrain from using
any Intellectual Property Rights or other proprietary information of any other
person). The Company has not granted any license or other right and has no
obligation to grant any license or other right with respect thereto. To the
knowledge of the Company, no other person has infringed upon, misappropriated or
otherwise violated any Intellectual Property Right of the Company. The Company
has delivered to Parent and Acquisition Subsidiary a true, complete and correct
copy of all correspondence involving any claim, demand or proceeding listed or
referred to on Schedule 3.14 hereto. Without limiting the generality of the
foregoing, to the knowledge of the Company, fully paid, enforceable licenses
govern the Company's use of software in which the Microsoft Corporation has
20
<PAGE>
Intellectual Property Rights, each of such licenses remains in full force and
effect, the Company has not breached any such license in any material respect,
and the Company has paid all amounts that have heretofore become due and payable
in respect of such licenses. As used in this Agreement, "Intellectual Property
Rights" means, collectively, with respect to the U.S. and Canada, any and all
now known or hereafter known tangible and intangible: (i) rights associated with
works of authorship including copyrights, moral rights and mask-works; (ii)
trademark and trade name rights and similar rights; (iii) trade secret rights;
(iv) patent rights, designs, algorithms, computer programs, methods of doing
business, other proprietary ideas, designs, concepts, techniques, inventions,
discoveries and improvements, whether or not patentable, and other industrial
property rights; (v) all other intellectual and industrial property rights of
every kind and nature and however designated, whether arising by operation of
law, contract, license or otherwise; (vi) all registrations, initial
applications, renewals, extensions, continuations, continuations-in-part,
divisions or reissues thereof now or hereafter existing, made, or in force
(including any rights in any of the foregoing); (vii) Internet websites, rights
in domain names, computer programs and software; and (viii) any other service
mark, design, logo, trade secret, know-how, customer list or financial,
business, marketing or other information, material or industrial property of a
party or any of its affiliates.
SECTION 3.15 Licenses. The Company possesses all patents, franchises,
--------
permits, licenses, certificates and consents required from any Governmental
Entity or any other person necessary to enable the Company to carry on the
Business as now conducted and to own and operate its properties (including
leased property) as now owned and operated (collectively, "Licenses"), except
--------
for those licenses that are not, individually or in the aggregate, material to
the operation of the Business. Each of the Licenses will remain in full force
and effect following consummation of the transactions contemplated by this
Agreement. Attached hereto as Schedule 3.15 is a true and complete list of all
-------------
such Licenses.
SECTION 3.16 Title to Assets. All of the Company's assets and properties and
---------------
all assets and properties necessary or required in connection with the operation
of the Business as conducted as of the date hereof will, on the Closing Date, be
owned by the Company, free and clear of all Liens whatsoever (except Permitted
Liens), and the consummation of the transactions contemplated by this Agreement
will not give rise to any Lien on such assets or properties. With respect to
leased Real Property, the Company holds, and on the Closing Date will hold, a
valid leasehold interest in and to the Real Property Leases, in each case free
and clear of all Liens whatsoever (except Permitted Liens). There are not, and
on the Closing Date there will not be, any outstanding agreements, options,
commitments or rights with, to or in any third party to acquire or use any of
the Company's assets or properties.
SECTION 3.17 Corporate Minute Books; Bank Accounts.
-------------------------------------
(a) The minute books of the Company contain complete and accurate
records of all meetings which were required to be convened and other corporate
actions of its stockholders and directors and committees of directors (if any)
which were required to be taken, in each case pursuant to the Company's Articles
of Incorporation, the IBCL and/or any material agreements to which the Company
is a party. True and complete copies of the minute books have been delivered, or
made available to, Parent and Acquisition Subsidiary.
21
<PAGE>
(b) Schedule 3.17(b) hereto contains a complete and correct list of
-----------------
all bank accounts and safe deposit boxes of the Company and persons authorized
to sign or otherwise act with respect thereto as of the date hereof and a
complete and correct list of all persons holding a general or special power of
attorney granted by the Company and a complete and correct copy thereof.
SECTION 3.18 Taxes.
-----
(a) The Company has timely filed all tax returns required to be
filed by it and all such returns are true and complete in all material respects.
The Company has timely paid all taxes shown as due on such returns and all taxes
otherwise due and the Unaudited Statements adequately provide in accordance with
GAAP for all taxes payable by the Company (in addition to any reserve for
deferred taxes established to reflect timing differences between book and tax
income) for all taxable periods and portions thereof or, with respect to the
period in which the Closing occurs, such taxes (excluding those taxes resulting
from or attributable to the transactions contemplated by this Agreement) will be
accrued through the Closing Date on the Audited Closing Balance Sheet. The
Company has made all payments required by any governmental program of workers'
social security or unemployment compensation, has withheld and, to the extent
due, paid over to the appropriate Governmental Entity all amounts required by
law to be withheld from the wages or salaries of employees, and is not liable
for any arrears of wage or salary withholdings or any taxes or penalties for
failure to comply with any of the foregoing. The Company has not requested any
extension of time within which to file any tax return in respect of any taxable
year which has not since been filed, and no outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect to
any taxes or tax returns has been given by or on behalf of the Company. True and
complete copies of all Federal income tax returns of the Company have been
delivered to Parent and Acquisition Subsidiary.
(b) No deficiencies for any taxes have been proposed, asserted or
assessed against the Company that are not adequately reflected in the Financial
Statements, or that will not be adequately reflected in the Audited Closing
Balance Sheet (excluding those taxes resulting from or attributable to the
transactions contemplated by this Agreement), and no requests for waivers of the
time to assess any such taxes have been granted or are pending. There is no
audit, examination, deficiency or refund litigation pending with respect to
taxes and during the past three years no taxing authority has given written
notice of the intent to commence any such examination, audit or refund
litigation and which such examination, audit or refund litigation has not yet
ended. None of the assets or properties of the Company is subject to any tax
lien, other than any such liens for taxes which are not due and payable, which
may thereafter be paid without penalty or the validity of which are being
contested in good faith by appropriate proceedings and for which adequate
provisions are being maintained in accordance with GAAP.
(c) No claim has been made in writing by a taxing authority in a
jurisdiction where the Company does not file tax returns to the effect that the
Company is or may be subject to taxation by that jurisdiction.
(d) The Company has not been a member of an affiliated,
consolidated, combined or unitary group for tax purposes, or made any election
22
<PAGE>
or participated in any arrangement whereby any tax liability or any tax asset of
the Company was determined or taken into account for tax purposes with reference
to or in conjunction with any tax liability or any tax asset of any other
person.
(e) The Company is not a party to any tax sharing agreement or to
any other agreement or arrangement, as a result of which liability of the
Company to any taxing authority is determined or taken into account with
reference to the activities of any other person, and the Company is not
currently under any obligation to pay any amounts as a result of having been a
party to such an agreement or arrangement, regardless of whether such tax is
imposed on the Company.
(f) As used in this Agreement, "taxes" shall include all (x)
-----
domestic and foreign (whether national, federal, state, provincial, local or
otherwise) income, franchise, property, sales, excise, employment, payroll,
social security, value-added, ad valorem, transfer, withholding and other taxes,
including taxes based on or measured by gross receipts, profits, sales, use or
occupation, tariffs, levies, impositions, assessments or governmental charges of
any nature whatsoever, including any interest, penalties or additions with
respect to any of the foregoing, and (y) liability for the payment of any
amounts as a result of being party to any tax sharing agreement or as a result
of any express or implied obligation to indemnify any other person with respect
to the payment of any amounts of the types described in clause (x) or (y). As
used in this Agreement, "tax return" shall mean any report, return, document,
----------
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction with respect to taxes, including information returns,
any documents with respect to or accompanying payments of estimated taxes, or
with respect to or accompanying requests for the extension of time in which to
file any such report, return, document, declaration or other information.
SECTION 3.19 Employees; Benefit Plans.
------------------------
(a) Employees. Attached hereto as Schedule 3.19(a) is a true and
--------- ----------------
complete list of the names, positions and current salary rates of all present
directors, officers and employees of the Company whose total current annual
compensation is $100,000 or more, together with a summary showing the salaries,
bonuses, additional compensation and other like benefits, if any, paid or
payable to such persons for the fiscal year ended December 31, 2000 and that are
expected to be paid or payable to such persons for the fiscal year ended
December 31, 2001. All salaries, bonuses, additional compensation and other like
benefits, including vacation, of all past and present employees of the Company
shall be properly accrued and reserved on the Audited Closing Balance Sheet in
accordance with GAAP. To the knowledge of the Company, no officer or "Key
---
Employee" (which means, as used herein, any employee whose current annual
--------
compensation is $100,000 or more), of the Company intends to terminate his or
her employment with the Company, nor does the Company have any present intention
to terminate the employment of any officer or such Key Employee, whether as a
result of the consummation of the Merger or otherwise. The Company (i) has
correctly categorized all employees as either employees or independent
contractors for federal tax purposes, and is in compliance with all applicable
federal, state and local laws, rules and regulations (domestic and foreign)
respecting their employment, employment practices, labor, terms and conditions
of employment and wages and hours, in each case, with respect to employees, (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to employees, (iii) is not liable for any
23
<PAGE>
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing, (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for employees, and (v)
has provided employees with the benefits to which they are entitled pursuant to
the terms of all Company Benefit Plans (as defined below).
(b) Employment, Severance and Stay Bonus Agreements. The Company is
------------------------------------------------
not, nor will it be on the Closing Date, a party to or bound by (i) any contract
with any present or former director, officer, employee or consultant of the
Company, (ii) any employment, termination, severance or stay bonus agreement,
(iii) any agreement with any director, officer, employee or consultant of the
Company (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits after the termination of employment of such
officer or employee, or (iv) any agreement or plan, including any stock option
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting or other realization of the benefits of which will be accelerated,
by the occurrence of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement. The Company has not made or become
obligated to make, or will not, as a result of any event connected with the
transactions contemplated herein, make or become obligated to make, any "excess
parachute payment" as defined in Section 280G of the Code (without regard to
subsection (b)(4) thereof). Any amount that could be received (whether in cash,
property, or vesting of property) as a result of the transaction contemplated by
this Agreement (or their termination of service incidental to such transaction)
by any officer, director, employee or independent contractor of the Company who
is a "disqualified individual" (as defined in Company proposed Treasury
Regulation Section 1.280G-1), under any employment arrangement or Company
Benefit Plan (as defined below), will not be characterized as an "excess
parachute payment" as defined in Section 280G of the Code.
(c) Benefit Plans. Schedule 3.19(c) hereto contains a true and
-------------- -----------------
complete list of all bonus, profit-sharing, stock purchase, stock option,
pension, retirement, health, welfare, severance pay or any other current or
deferred remuneration or compensation plan, arrangement or practice and other
fringe benefits, including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), all "employee welfare benefit plans" (as defined in
-----
Section 3(1) of ERISA) and all "employee pension benefit plans" (as defined in
Section 3(2) of ERISA) (collectively, "Company Benefit Plans") maintained or
----------------------
contributed to by the Company or any person or entity that, together with the
Company, is treated as a single employer (a "Commonly Controlled Entity") under
---------------------------
Section 414(b), (c), (m) or (o) of the Code, for the benefit of any current or
former directors, officers, employees or consultants of the Company. Except as
described in the Financial Statements, the Company has no Company Benefit Plan
currently in existence which is subject to the requirements of ERISA. With
respect to each Company Benefit Plan:
(i) The Company has provided or made available to Parent,
true and complete copies of (A) each Company Benefit Plan (or,
in the case of any unwritten Company Benefit Plans, descriptions
thereof), (B) the most recent annual report on Form 5500
24
<PAGE>
required to be filed with the Internal Revenue Service (the
"IRS") with respect to each Company Benefit Plan (if any such
---
report was required), (C) the most recent summary plan
description for each Company Benefit Plan for which such summary
plan description is required, and (D) each trust agreement and
group annuity contract relating to any Company Benefit Plan.
Each Company Benefit Plan has been administered in accordance
with its terms. The Company and all of the Company Benefit Plans
are in compliance in all material respects with all applicable
provisions of ERISA and the Code and all other applicable law.
(ii) Neither the Company nor any Commonly Controlled Entity
has maintained, contributed to or been obligated to contribute
to any Company Benefit Plan that is subject to Title IV of ERISA
or Section 412 of the Code with respect to which the Company or
any Commonly Controlled Entity has liabilities or obligations
(whether accrued, absolute, contingent or otherwise).
(iii) With respect to any Company Benefit Plan that is an
employee welfare benefit plan, there are no understandings,
agreements or undertakings, written or oral, that would prevent
any such plan (including any such plan covering retirees or
other former employees) from being amended or terminated without
material liability to the Company on or at any time after the
Effective Time.
(iv) Each Company Benefit Plan that is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and
that is intended to be qualified under Section 401(a) of the
Code, has received a favorable determination letter from the IRS
with respect to "TRA" (as defined in Section 1 of Rev. Proc.
93-39), and to the knowledge of the Company there are not any
circumstances likely to result in revocation of any such
favorable determination letter. There is no pending or, to the
knowledge of the Company, threatened material litigation
relating to any of the Company Benefit Plans. The Company has
not engaged in a transaction with respect to any Company Benefit
Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Company to a
tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA.
(v) All contributions made or required to be made under the
terms of any Company Benefit Plan for any period since January
1, 2000 are set forth on Schedule 3.19(c) hereto, and all such
contributions have been timely made or have been reflected on
the Financial Statements, or, with respect to the period in
which the Closing occurs, will be accrued through the Closing
Date on the Audited Closing Balance Sheet.
25
<PAGE>
(vi) The Company has no obligations for retiree health and
life benefits under any Company Benefit Plan nor has the Company
ever represented, promised or contracted (whether in oral or
written form) to any employee(s) that such employee(s) would be
provided with retiree health or life benefits.
(d) Collective Bargaining Agreements. None of the Company's
------------------------------------
employees is covered by a collective bargaining agreement and there is no union
or other organization seeking or claiming to represent any such employees. There
is no labor dispute, strike, work stoppage or lockout, or, to the knowledge of
the Company, any threat thereof, by or with respect to any employee of the
Company.
SECTION 3.20 Insurance. Attached hereto as Schedule 3.20 is a true and
--------- --------------
complete list of all insurance policies in force with respect to the Company's
assets and the Business of the Company, identifying the type of coverage, the
coverage limit, the term thereof, and the annual premiums payable thereon. To
the knowledge of the Company all such policies are adequate to insure the risks
covered thereby. The Company is not, nor will it be on the Closing Date, in
default in any respect under any such policy, and the Company shall continue
such policies in force and effect through the Closing Date.
SECTION 3.21 Litigation. Schedule 3.21 hereto sets forth each legal action,
---------- --------------
suit, arbitration, or other legal or administrative proceeding or investigation
before any Governmental Entity pending or, to the knowledge of the Company,
threatened, to which the Company is a party that (a) affects the Company, the
Business or any of the Company's properties or assets, (b) questions the
validity of this Agreement or any other documents or instruments to be executed
and delivered by the Company or any of the Holders pursuant hereto, or the right
of the Company or any of the Holders to enter into this Agreement or any such
other documents or instruments, or to consummate the transactions contemplated
hereby or thereby, or (c) if adversely determined, would be likely to have a
material adverse effect on the ability of the Company or any of the Holders to
perform their respective obligations under this Agreement or any such other
documents or instruments. To the knowledge of the Company, except as set forth
on Schedule 3.21 hereto, there is no fact or facts existing which could be
reasonably expected to result in, nor is there any basis for, any such action,
suit, arbitration, or other proceeding or investigation. Schedule 3.21 hereto
identifies, with respect to each action, suit, arbitration, or other proceeding
or investigation set forth thereon, the parties thereto, the nature of the
claim, the status thereof, the court or other tribunal in which such claim is
being heard, and whether such claim is fully covered by insurance. The Financial
Statements include, and the Audited Closing Balance Sheet will include, an
adequate reserve, determined in accordance with GAAP, for all liability or
potential liability resulting or arising from any action, suit, arbitration, or
other proceeding or investigation listed on Schedule 3.21 hereto. The Company is
not a party to or subject to any order, writ, injunction, decree, judgement or
other restriction of any Governmental Entity which has or could be reasonably
likely to have a Material Adverse Effect or could be reasonably likely to
prevent or materially delay the Company's ability to enter into this Agreement
or any other documents or instruments to be executed and delivered pursuant
hereto or consummate the transactions contemplated hereby or thereby.
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SECTION 3.22 Compliance with Laws. The Company has complied with, is in
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compliance with, and has not received notice of any violation of, any and all
applicable laws, rules, regulations and ordinances regulating or relating to the
Business, including but not limited to those relating to the employment of labor
(including labor who are not U.S. citizens), the establishment and maintenance
of working conditions for labor, employee safety, environmental and conservation
matters, the manufacture, sale and distribution of the Company's Products, the
North American Free Trade Agreement, as amended, and the establishment and
maintenance of the Company's relationships with suppliers and customers, except
to the extent such non-compliance would not have a Material Adverse Effect.
SECTION 3.23 NHTSA; Other Safety Standards. The Company has not received any
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notices or other correspondence from the National Highway Traffic Safety
Administration ("NHTSA") relating to the Company's Products. To the knowl